The claimant entered into a finance agreement with its customer (D), to enable D to acquire industrial machinery from its supplier, which it then sold on to its own customer (X), who financed that purchase through the defendant. D went into voluntary liquidation before the claimant was paid. The claimant contacted the defendant asserting title to the machinery on the basis that the finance agreement gave no authority to D to pass title in the machinery to a third party until the claimant had been paid. The defendant argued that the retention of title clause had no effect in the sub-sale and that there was an implied term that D had authority to sell the machine. It further contended that D was the claimant’s mercantile agent or a buyer in possession of the machine with the claimant’s consent and passed good title to it. The claimant sought damages for conversion.

The court held that the finance agreement had expressly not permitted D to sell the machine in the ordinary course of business. As no term could be implied to contradict an express term, no term giving D authority to sell could be implied. The defendant had been put on enquiry about D’s authority to sell and should have investigated before proceeding. The defendant could not show it had purchased in good faith and without notice of the claimant’s rights and so its defences under s2 Factors Act 1889 and under s25 Sale of Goods Act 1979 failed. The claimant was entitled to the market value of the goods at the date of conversion i.e. the cost of buying a replacement rather than the sale value.

Fairfax Gerrard Holdings Ltd and others v Capital Bank Plc