3â Sale of Goods Act 1979, section 12: the right to sell

82

The implied conditions in sale of goods contracts

plaintiff. In both cases the defendant seller had the power to sell the goods but

not the right, with both plaintiff buyers being able to recover their money.

A similar situation arises under the nemo dat exceptions13 in which the seller

of the goods again has the power to sell the goods but not the right. The major

distinction, however, between the nemo dat exceptions and decisions such as

Rowland v. Divall and Butterworth v. Kingsway Motors is that in nemo dat situ-

ations the innocent buyer who buys in good faith will acquire good title to the

goods even against the true owner. As such, the nemo dat buyer will not have

suffered any loss and, while there may have been a breach of section 12(1) by

the seller, the buyer will not need a remedy. However, the true owner of the

goods may seek to sue the seller for conversion of the goods.14

The remedy for a breach of section 12(1) comprises a full refund of the

purchase price paid by the buyer, as evidenced in both the Rowland and

Butterworth cases. This is based on the premise that, as the seller did not at

any stage have the right to sell the goods, there had hence been a total failure

of consideration entitling the buyer to a full refund of the contractual price.

What this does not allow for is any benefit that the buyer may have enjoyed

during his possession of the goods, and the possibility therefore exists for the

buyer effectively to gain a windfall, a situation rarely recognised or tolerated

in English law, which traditionally focuses on compensation rather than per-

mitting unjust enrichment. This anomaly was most evident in the Butterworth

decision. The facts were that the hirer under a hire-purchase agreement

wrongly sold the goods, a car, to a second person who sold it to a third per-

son who sold it to the defendants, Kingsway Motors, who in turn sold it to

the plaintiff, Butterworth. The car was, of course, owned by the hire-purchase

company, as the original hirer only had the possession and not the property of

the goods under the terms of the hire-purchase agreement.15 While wrongly

selling the car, the original hirer did continue to make the payments under

the agreement, a fact that was to be crucial in the decision. The plaintiff had

had use of the car for some eleven and a half months when a letter from the

hire-purchase company put him on notice that the defendants had not had the

right to sell it to him at the time that they had purported to do so. The plaintiff

quickly rescinded the contract and claimed a full refund of the purchase price.

One week later, the original hirer completed payments to the hire-purchaseÂ

company and acquired the title to the car, which fed down the line to the

defendants and, but for the speed with which the plaintiff had rescinded the

contract, would have fed to the plaintiff. Had this happened, the plaintiff could

still have claimed for a breach of section 12(1) in that the title to the goods was

delivered late but he would only have received nominal damages as opposed to

13

See Part 2 Chapter 3.

14

For a discussion of the nemo dat rule and the exceptions thereto see Part 2 Chapter 3.

15

The hirer under a hire-purchase agreement does not acquire title to the goods until he exercises

the option to purchase at the end of the hire period. Until that point, the goods belong to the

hire-purchase company.

83

3â Sale of Goods Act 1979, section 12: the right to sell

the full refund which he actually received. As he had originally paid £1,275 for

the car, while it was only worth £800 when he rejected it, the plaintiff effect-

ively avoided a loss of £475 and had the free use of a car for nearly a year. It is

hardly surprising that the court questioned the merits of his case.

A more extreme anomaly as regards remedies is demonstrated by Professor

Atiyah’s famous example of the crate of whisky.16 In that example, the seller buys

a crate of whisky from a thief and sells it to an innocent buyer who consumes it.

On discovering the theft, the buyer might seek to recover the purchase price

from the seller for a breach of section 12(1) but, unlike in the Rowland case,

the buyer cannot return the goods as they no longer exist. But, as Professor

Atiyah argued, it is not unreasonable for the buyer to seek compensation for the

breach as, in the future, he might be held liable in conversion to the true owner.

However, if the true owner cannot be identified or for some other reason does

not sue the buyer, the latter will have both the money and the goods. Equally,

the seller might lose out if the true owner decided to sue him in conversion, in

which case the seller might have to compensate both the buyer and the owner.

Given the potential for the enrichment of a buyer, it would be reasonable

to consider how the remedy for a breach of section 12(1) could be amended

to take account of any use of the goods by the buyer prior to him rescinding

the contract. The Law Commission had considered the matter on a previous

occasion,17 but in their most recent report on the point in 198718 decided against

any amendment, arguing that, although it is anomalous that a buyer should

have the use of goods for a prolonged period without payment, it is no solution

to make the buyer pay the seller for the use of property belonging to somebody

else. They felt that the introduction of complex provisions governing payment

by the buyer in this situation would not benefit either the buyer or the seller.19

(b)â Section 12(2) implied warranties

Section 12(2) of the 1979 Act adds further warranties regarding the right of the

buyer to expect that the goods sold by the seller are free, and will remain free,

from any charge or encumbrance not known to the buyer at the time of the con-

tract, and further, that the buyer will enjoy quiet possession of the goods except

for any disturbance by a person entitled to a charge or encumbrance already

disclosed to the buyer. At first sight, these warranties appear to add little to the

remedies already available for a breach of section 12(1) and yet there are situ-

ations where this alternative or additional remedy may be relevant. Section

12(2)(a) seems particularly limited in effect as it only impacts in respect of

charges or encumbrances that existed at the time that the contract was made,

16

See Atiyah, Adams, and MacQueen, above n.9.

17

Law Commission Working Paper No. 65 (1979).

18

Law Commission Sale and Supply of Goods (Report No. 160, 1987) paras. 6.1–6.5.

19

Ibid. para. 6.5.