Interests in Goods
It is possible for there to be multiple equitable co-owners of goods. Persons may be legal joint owners, but equitable co-owners. The principles in relation to joint ownership and tenancy in common in respect of goods are broadly similar to those for land.
The legal and equitable rules differ slightly.The equitable co-ownership prevails as between the co-owners.
Legal estates for life, future interests in goods and other such interest and rights are not permitted in relation to goods. It is generally not possible to create conditional ownership or place covenants and restrictions on goods which bind third parties and the successors of the original owners. It is possible to make provision in a contract between the parties, but this will not usually bind the goods or a third party.
It is possible to lease goods. It is possible to create various interest in goods under a trust. Contracts may provide for the transfer of goods subject to conditions. This is different to the property rights themselves, being contractual in nature.
Rights and Contracts affecting Goods
There is significantly less scope for creating estates and interests in personal property than is the case in relation to real property. Legal estates for life, future interests in goods and other such interests and rights are not permitted in relation to goods. Legal ownership of goods is generally absolute. It is not possible to create complex multiple legal rights in goods.
It is possible to make provision in a contract between the parties in relation to the terms on which goods are held. Contracts may provide for the transfer of goods subject to conditions. This is different to the property rights themselves, being contractual in nature. The provisions will not usually bind the goods or a third party. It is generally not possible to create conditional ownership or place covenants and restrictions on goods which bind third parties and the successors of the original owners.
Although estates may not be created in personal property, it appears that determinable interests in goods may exist. Where there is determinable interest, it vests in the first owner and thereafter, vests in the second or original owner on termination.
It is possible to lease and hire goods. It is possible to create various interest in goods under a trust. It is possible to lease and hire goods. It may be possible to create multiple beneficial or equitable rights in goods under trusts. However, the legal owner may generally sell the goods to a third party who takes free of the trust. The legal owner may be in breach of the terms of the trust.
Interests in Goods
It is not generally possible to create multiple legal interests or estates in the same goods. The common law recognises absolute property and some categories of special property in goods. Apart from these cases, the law does not wish to complicate the title to movable property by the creation of tiers and layers of rights in goods. This would complicate commerce.
The person in possession of the goods has presumptive title to them. With equitable / beneficial ownership, the goods may be held under a trust on behalf of beneficiaries with different rights for different beneficiaries. In the case, the legal title is vested in the trustee(s) on behalf of the beneficiaries.
The trustee or other fiduciary in possession of the goods may generally deal with them as they see fit. The beneficiaries’ primary remedy is against the trustees / fiduciary. There is limited scope for a direct assertion of the beneficial rights under the trust against innocent third parties. Where the third party is not a purchaser for value without notice of the beneficial interest, the beneficiaries may be able to assert the equitable remedy of tracing.
Goods Sold and Title Acquired
Where a person has entered a contract for the purchase of goods, questions may arise as to whether and to what extent the purchaser’s rights may be asserted against the seller or a third party. This depends on whether the property in the goods has passed to the first purchaser and to what extent the third party is a purchaser for value and is aware of the first purchaser’s contractual or property rights.
If ownership has passed, as is presumed to be the case when a contract for the sale of goods is made, the purchaser may be able to assert the right to the property against a third party to whom the seller may transfer it. This is subject to compliance by the purchaser with the terms of the purchase contract.
The first purchaser’s rights are subject to the limitations provided by the Sale of Goods Act. Where the seller remains in possession of the goods with the purchaser’s consent, a third party who buys them in good faith without notice of the sale takes title to them. The seller is liable for breach of contract to the first purchaser.
Goods Sold Title Not Yet Acquired
Where the property rights in the goods have not passed to the purchaser, the question arises as to what extent if any, the contract with the seller may bind or affect the goods, when they are sold or otherwise acquired by a third party. The third party may be another purchaser, or he may receive the goods as a gift. He may or may not have notice of the first sale.
The purchaser who has a contract to buy will, of course, have a right against the seller personally, for breach of contract. This may be of limited value if the seller has disappeared or is insolvent.
Apart from the below circumstances, a purchaser who has a contractual right to purchase goods, but to whom the property in the goods has not passed, has no means of recourse to the goods or to a third party who has acquired them. The below exceptions are uncertain in scope. The cases do not precisely define the limits of the below principles. Their application depends on the circumstances in which the third party acquires the goods.
Third Party Covenants not usually Operative
Real property may be transferred subject to covenants and conditions. In particular, restrictive covenants may be enforceable by and against successors as owners of the land. Restrictions may not be placed on the terms of ownership of movables/personal property in the same way as with land.
Contracts may apply as between the buyer and seller of movable property. The terms of the contracts and any restrictions will take effect under contract law, subject only to principles of non-enforcement for illegality or on public grounds.
Most restrictions on the use of goods are unenforceable at common law and under competition law. A seller cannot usually place future restrictions on the future use of goods at common law. Attempts have been made to fix minimum resale prices for goods. Generally, such provisions have been held not to bind successors as owners in any event. Latterly, these provisions have been held to be incompatible with the restraint of trade doctrine at common law and competition law.
Restrictive (and other) conditions which purport to affect successors as owners do not run with the title to the property. A chain of contracts may circumvent this position to some extent. Each owner covenants with his predecessor to enforce the original contract terms. Some such restrictions are invalidated by competition law/.
There are some isolated mechanisms and limited circumstances at common law and in equity by which covenants, terms and conditions may apply to movable property, such as to bind the subsequent owner, who has not contracted to abide by them.
It is established that a person who purchases a ship with the knowledge that it is bound by a charterparty with a third party is bound by the charterparty. Most cases restrict the principles to ships on the basis that they are of their peculiar value to the charterer and their quasi-proprietary nature.
Negative Conditions Binding in Equity I
In some limited circumstances, restrictive covenants may bind third parties in equity. Where a person takes a transfer of property and agrees to abide by the terms of a pre-existing contract, he may be held to act as trustee in relation to those obligations.
It has been said in some cases that the principle applicable to charterparties is wider and is potentially applicable to any case where a person buys real or personal property, knowing that it is affected by a contract with another, so that he may be precluded from causing material damage to that third party, by acting in breach of that contract.
Most cases do not accept the principle in the broad terms set out above. It does appear that that there is scope for the application of a more limited principle to apply in equity in some cases. Where the obligation is negative in nature, e.g. a restriction on the use of the goods, then it appears it may be more readily held to be enforceable than a positive obligation which requires action or expenditure.
Negative Conditions Binding in Equity II
The courts of equity hold in some cases, that where the transferee is specifically aware of and purchases property with either notice of that contract obligation, and agrees expressly or by implication to respect those rights, he must do so. Some assumption of liability is required such that it would be inequitable to disregard it.
The mere imposition of a restrictions on the goods (such as in relation to their use) is insufficient. The purchaser must at least have notice of the third party’s rights, and the circumstances must be such that it would be inequitable to disregard them.
There must be some specific circumstances which make it inequitable to disregard the restriction or contract in favour of the third party. The requirement in equity is based on the unconscionability of the purchaser’s actions, if he knows of, assumes and then disregards the third party’s rights.
Third Party Rights to Challenge Sale
Where the legal owner consents to or misleads a third party into believing that the person who transfers the goods has authority to sell them on his behalf, then he is likely to be bound under the agency principle of “holding out”. The seller is his agent, and he is bound by his actions. The seller must account to the legal owner who is his principal and to whom he owes fiduciary duties by reason of the agency.
Where a person sells (or buys) goods by reason of and in reliance on a fraudulent representation, the contract may be void on common law principles. Equitable principles are broader and apply in a wider set circumstances, embracing negligent and innocent misrepresentation by the other party. The innocent seller (or purchaser) may be entitled to have the sale contract set aside. In the former case, the contract is void and the purchaser takes no title. In the latter case, the title is voidable and it requires action by the purchaser to set aside the sale.
A further purchaser from the initial purchaser, who acts in good faith without notice of the issue with the earlier contract formation may purchase the goods, free from the seller’s equitable right or equity to set aside the earlier sale contract on the basis of misrepresentation (or another equitable basis for set aside.). As regards that further purchaser from the initial purchaser, the seller loses his right to reclaim title if he has not taken steps to rescind (set aside) the contract before the sale to the further purchaser.
Avoiding the Contract
If the seller exercises his right to rescind (cancel) the contract (usually by notice, court action or complaint to the police), before the sale to the further purchaser, the initial purchaser no longer has title and cannot give title to the further purchaser.
The principle is reflected in the Sale of Goods Act which provides that where a seller of goods has a voidable title which has not been avoided, the purchaser acquires good title, provided that he takes them in good faith without notice of the defect in the seller’s title.
The contract may be avoided without a court order, provided that their notice is given to the purchaser that he is rescinding. If he cannot trace the person, it is enough to take steps to try to reclaim the goods.
Where the original contract is void on common law principles and not merely voidable, title does not pass at all. No court order is necessary to avoid the contract as such. However, it may be necessary in order to determine the position definitively.
Inducing a Breach of Contract
It is a civil wrong to induce another to breach a contract. This civil wrong may apply in circumstances where a person has made a contract in relation to goods, and a third party takes steps to induce him to breach that contract. This tort is relatively narrow in scope. It does not compel a third party to abide by another’s contract.
It must be shown that the third party, for example, the second purchaser, persuaded and induced the seller to sell the goods to him in breach of the earlier contract. At a minimum, knowledge of the first party’s contractual rights is required. Knowledge of the existence of the contract alone is not enough. To be liable, the third party must have knowledge of the contract’s terms.
Alternatively, there must be evidence of a conscious decision not to inquire into the existence of a fact. He cannot necessarily escape liability by deliberately disregarding the issue). The civil wrong requires a deliberate inducement of the breach. Someone who unknowingly and unintentionally procures a breach of contract by offering a proposal to a contracting party which persuades the latter to default on his contractual obligations will not be liable.
It appears that the third party will not be liable, even if he acts carelessly or negligently. An honest, albeit mistaken, belief that the action will not involve another’s breach of contract provides a sufficient defence. If there is no intention to interfere in contractual relations, there is no liability for inducing a breach of contract.
Injunction where Ownership has Passed
Generally, the remedy for breach of contract is compensation, and not necessarily or even usually, the transfer of the actual goods purchased. However, in the same way, as with land, a contract for the transfer of an interest in goods may be the subject of an order for specific performance / delivery.
Equitable principles allow for the specific enforcement of some contracts, where the title to the goods have passed and where compensation is not an adequate remedy. This may be the case in respect of unique or scarce goods, for which a substitute cannot be readily acquired. Where there is a proprietary right, and it would be unconscionable not to do so, an order for specific delivery or injunction may be made.
If a person purchases or acquires property from another with knowledge of an existing contract, the purchaser may be obliged to comply with that contract. The courts may grant an injunction to restrain the purchaser from frustrating the third party’s rights. The principle applies where the third party has a property interest in either the goods or land which is to be benefitted by those rights.
Gifts Conditional on Death
The gift must be made in contemplation of death. Death must be imminent or anticipated in the near future. This may result from ill health or from an intent to undertake a risk or hazardous activity or operation. The gift is given is made on the basis that it conditional on death.
A transfer of control is necessary. If legal ownership is transferred, full possession and delivery are given, the doctrine does not (need to) apply.
If it is not fully protected, he may have equitable title and is entitled to require the personal representatives to transfer.
The degree of control need not be the same as required for a legal transfer of ownership. Joint control such as of a key has been held to be a sufficient transfer even if it is not exclusive.
A gift of this nature may take place in relation to intangible property such as share certificates or a bank account. Some indication of transfer of control will suffice. For example, share certificates, post office books, deposit books et cetera.may be placed in the other’s possession and control.
References and Sources
- Interests in Goods
- Rights and Contracts affecting Goods
- Interests in Goods
- Goods Sold and Title Acquired
- Goods Sold Title Not Yet Acquired
- Third Party Covenants not usually Operative
- Limited Exceptions
- Negative Conditions Binding in Equity I
- Negative Conditions Binding in Equity II
- Third Party Rights to Challenge Sale
- Avoiding the Contract
- Inducing a Breach of Contract
- Injunction where Ownership has Passed
- Gifts Conditional on Death
- References and Sources