Michael Gerson (Leasing) Ltd v Wilkinson

In a sale and leaseback, constructive delivery may occur although the finance company never obtains physical custody and no separate moment of delivery can be identified. The transaction is sufficient where the seller’s possession changes in character so that it holds as lessee or bailee for the buyer, and the agreement constitutes a voluntary transfer. Receipt under section 24 of the Sale of Goods Act 1979 is not confined to possession under section 1(2) of the Factors Act 1889. Under sections 17 and 18, objective intention governs when property passes; retention until payment prevents title passing. Section 25 requires possession by the buyer with the seller’s consent before an onward sale. Fresh evidence will not be admitted or remitted for speculative investigation.

Emshelf sold equipment to Gerson under a sale and leaseback arrangement, retaining physical possession. It later sold part of the same equipment to State, which also entered a sale and leaseback arrangement with Emshelf. After Emshelf defaulted, Gerson terminated its lease and purported to sell the equipment to Sagebush. Sagebush then sold the equipment to Wilkinson.

The trial judge dismissed Gerson’s conversion claim against both defendants. The appeal concerned State’s title under section 24 of the Sale of Goods Act 1979, whether the dealings with Sagebush created a contract and transferred title, whether section 25 protected Wilkinson, and whether Gerson should adduce further evidence concerning State’s knowledge.

1. Disposition. The appeal was dismissed as against State. State acquired good title to the schedule 3 goods, and that title passed to Wilkinson. The appeal was allowed as against Wilkinson concerning the remaining goods. Wilkinson had converted those goods, although he was an innocent purchaser. The application to adduce further evidence or remit the issue of State’s knowledge was refused.
2. Section 24. Clarke LJ, whose reasoning on this issue was agreed in substance by Bennett J and Pill LJ, held that the sale and leaseback constituted constructive delivery and redelivery. Emshelf’s possession changed in character because it thereafter held the goods as State’s lessee. The agreement itself was a sufficient voluntary act for section 61(1) of the Sale of Goods Act 1979. No identifiable intervening moment, or separate opportunity for State to assume physical control, was required. Possession within section 1(2) of the Factors Act 1889 was sufficient to amount to receipt, but was not an exhaustive requirement. Clarke LJ regarded the result as commercially coherent for modern finance transactions; Pill LJ expressed no view on that broader policy question.
3. Contract and passing of property. Clarke LJ considered that the faxes did not create a contract. Bennett J and Pill LJ considered that a contract was formed. The common basis of decision was that property was not intended to pass until payment. Applying sections 17 and 18 of the Sale of Goods Act 1979, the objective circumstances, including the retention-of-title wording and the parties’ conduct, displaced the default rule that property passes when an unconditional contract is made. No payment occurred, so Sagebush and Wilkinson acquired no title through that contract.
4. Section 25(1). Wilkinson could not rely on the buyer-in-possession exception. Even assuming that Sagebush had bought or agreed to buy the goods, there was no sufficient evidence that it obtained possession before the onward sales, or that it did so with Gerson’s consent.
5. Fresh evidence. The conditions in Ladd v Marshall [1954] 1 WLR 1489 were not satisfied, particularly the requirement that the evidence would probably have an important influence on the result. The court would not remit the matter merely to permit speculative further investigation. Finality, proportionality, fairness and justice required refusal of the application.

1. Court of Appeal (Civil Division) [2000] EWCA Civ 250: dismissed the appeal against State, allowed it in part against Wilkinson, and refused the applications concerning further evidence and remittal.
2. Queen’s Bench Division, Liverpool District Registry: His Honour Judge Kershaw QC dismissed Gerson’s conversion claim against both defendants on 17 December 1998.