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Destruction Of Property Rights Notes

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Destruction of Property Rights in
Respect of Goods
Introduction
Many academics do not speak of 'destruction' of property rights at all but merely subsume these cases under the heading of transfer. We must ask whether what is happening in these cases can in fact be described purely as transfer of rights or whether something in the nature of destruction is occurring.
Remember that destruction need not be complete destruction. Sometimes title is destroyed as against only certain people but not others.

1.Destruction of Things
If a thing is destroyed, the right in relation to that thing must also by definition be destroyed. The destruction of the goods will sometimes create new rights (e.g. mixture) or no new rights may be created (e.g. accession).

A. Mixtures
When two separate goods are mixed (e.g. wine), the 2 existing goods will be destroyed and a new good will be created.

Consensual Mixing
The basic rule is that Ownership of the mixture will be held by both A and B. When mixing is done on a consensual basis, the intention of the parties will govern the proprietary consequences. However,
that intention may be difficult to ascertain and the default inference will be that A and B will be 'coowners' of the mixture (Buckley v Gross). Each will have a share to the extent of the proportion each contributed to the mixture. They will have a tenancy in common in proportion to their contributions
(Spence).
Buckley v Gross (1863)- Court of Queen's Bench
Facts: Tallow, that was the property of different persons, were deposited in warehouses on a bank of the Thames. A fire took place and the tallow melted and flowed down into the river, from which several portions of it were unwarrantably taken by different persons. A, one of those persons, sold some of it to B. It was taken by the police and A was charged with the possession of tallow supposed to have been stolen or unlawfully obtained. The magistrate dismissed the charge but ordered it to be detained. It was sold by the direction of the Commissioner of Police, before the 12 months limitation had expired. C, having purchased the tallow from the police. A
maintained an action against C for conversion.
Held: When property of different persons is mixed together, they continue to have property in the mixture. Therefore, when a 3rd party finds it, he is committing a crime.
 "The tallow of the different owners was indeed mixed up into a molten mass, so that it might be difficult to apportion it among them; but I dissent from the doctrine that,
because the property of different persons is confused together, that entitles a third person to steal it with impunity. Probably the legal effect of such a mixture would be to make the owners tenants in common in equal portions of the mass, but at all events they do not lose their property in it." (Blackburn J)
Spence v Union Marine Insurance Co (1868)- Court of Common Pleas
Facts: Cotton belonging to different owners were shipping in bales specifically marked. 43 bales belonged to C, and were insured by D against the usual perils. In the course of her voyage the ship was wrecked near Key West; all the cotton was damaged; some of was lost. Some was sold near the wreckage and the rest was conveyed in another vessel to Liverpool. The marks on a large number of the bales were obliterated by sea-water so that all of the bales sold at Key West were non-identifiable; and only 2 of C's bales were identified out of the ones in Liverpool and were delivered to them. C claimed to recover against D for the loss of the other 41 bales.
Held (Bovill CJ):
 "When goods of different owners become by accident so mixed together as to be undistinguishable, the owners of the goods so mixed become tenants in common of the whole, in the proportions which they have severally contributed to it."

Non-consensual mixing: what happens if A commits a wrong in mixing the oils?
Roman Law
Where the mixing was non-consensual, Roman law distinguished between situations in which there was merely a loss of identifiability (commixtio), as with a mixing of sheep, and that where there was not only a loss of identifiability but a loss of physical integrity (confusio), such as a mixing of wines.

In cases of commixtio, so long as the constituent units retained their physical integrity,
ownership remained unaltered. There was, in other words, a situation of 'continuing separate ownership'.

In cases of confusio, it was no longer possible to talk of ownership of anything other than the mass itself. Thus, the parties were treated as co-owners of the mass.

English Law
In English law, we do not distinguish between fluid and granular mixtures. The law is that A will still acquire a property right in the new mixture. However, following general evidentiary principles, if A is a deliberate or careless wrongdoer, any evidential doubt as to the proportion of each party's contribution to the mixture will be decided in favour of B.

Blackstone recommended a penal rule in such a case that would allocate Ownership of the mixture solely to B. This approach can be seen in FS Sandeman (Earl Loreburn)
This harsh approach was rejected in Indian Oil in cases where it could be ascertained how much was contributed by the innocent party. Thus, Indian Oil confined Blackstone's rule to one of resolving evidential difficulty.

McFarlane analysis: It is important to note the contrast between the rules applying to manufacturing and those applying to mixing.
 The manufacturing rules are consistent with the general principle that B1 acquires a property right through taking physical control of a thing.
 In contrast, in a mixing case, B2 acquires a property right in the new thing even though he does not have physical control of that new thing.
o This rule could lead to a nasty shock to C, a bona fide purchaser, who is buying the mixture from B1 and may reasonably believe that B1 has Ownership of the mixture.
FS Sandeman & Sons v Tyzack and Branfoot Shipping Co (1913)- HoL (Scotland)
Facts: Bales of jute specifically marked to various consignees were shipped under bills of lading stating that the ship was not to be liable for obliteration or absence of marks. On the discharge of the ship 14 bales were missing and 11 were not marked as labelled in the bills of lading and could not be identified. 4 consignees refused to accept any of the 11 bales. The shipowner was willing to account to the consignees for the value of the 14 bales missing, but claimed that the 11 bales ought to be allocated among them in the like proportion. C were missing 6 bales that did not correspond to the 11 unmarked bales.
Held: Shipowner liable for the full value of the 6 bales
 "It may be that the six which the appellants complain have not been delivered to them were among these fourteen. So the shipowners cannot prove, at least they have not proved, that the failure to deliver these six was due to any absence or obliteration of marking of such six bales." (Earl Loreburn)
 "The pursuers are, therefore, in the position of being unable to assert that they have delivered to the defenders the goods which they received on their account for carriage.
Prima facie this is a condition of their right to demand the payment of freight." (Lord
Moulton)
Indian Oil Corporation v Greenstone Shipping (1987)- QBD
Facts: Owners of vessel chartered to transport a quantity of Russian crude oil, the property of the receivers, from a Russian port to India, mixed the Russian oil with their own crude oil already on board the vessel. The mixture of oils could not be separated for practical purposes and the receivers obtained a quantity of oil less than the figure endorsed on the bill of lading. Receivers claimed that they were entitled to all the oil on board and an appropriate sum to that effect.
Held (Staughton J): Where a party wrongfully mixed the goods of another with his own goods which were substantially of the same nature and quality, the mixture was held on common and the innocent party was entitled to receive from it a quantity equal to that of his goods which had gone into the mixture.
 "Where it is totally unknown how much of the innocent party's goods went into the mixture, the whole should belong to him. But I do not see that they require or justify the same result where it is known how much was contributed by the innocent party, or even what the maximum quantity is that he can have contributed, being something less than the whole."
 "Where B wrongfully mixes the goods of A with goods of his own, which are substantially of the same nature and quality, and they cannot in practice be separated, the mixture is held in common and A is entitled to receive out of it a quantity equal to that of his goods which went into the mixture, any doubt as to that quantity being resolved in favour of A.
He is also entitled to claim damages from B in respect of any loss he may have suffered, in respect of quality or otherwise, by reason of the admixture."

Processing involving loss of physical identity
The cases of Farnsworth (Australian case) and Coleman v Harvey (New Zealand) suggest that the coownership rules also apply in cases where the mixing causes a loss of physical identity.

Coleman: consensual mixing cases where silver coins belonging to H were mixed with silver belonging to C. The mass was mixed so as to produce ingots. H sought to sustain an action in conversion against C.
o

Held that the parties became tenants in common of the ingots and that a conversion action was maintainable

Farnsworth v Federal Commissioner for Taxation (1949)- High Court of Australia
Facts: Mrs F was a member of the Australian Dried Fruits Assn and delivered fruit to be processed together with other fruit by a packing company and to be sole by one of the selling agents appointed by the association. She received £340 but each grower had a right to receive further payments. The Commission argued that the appellant had trading hand on stick at the end of the year of income of the value of £648, that she had no trading stock on hand at the beginning of that year, and that therefore the sum of £648 should be taken into account as part of her assessable income.
Held (Rich J): £648 is not correct taxable amount
 After a fruit grower has delivered his fruit to the packing company and it has been processed he has lost all control and power of disposition of it and his fruit has become so inextricably mixed with the fruit of other growers as to be incapable of identification.
o The property in the fruit passed to the packing company and became converted into a claim for an account.
o The grower's interest is not an equitable interest but an equity to an account enforceable by action.
Coleman v Harvey (1989)- NZ CoA
Facts: D (Coleman), on behalf of his company, entered into a contract with C (Harvey) concerning the refining of silver coins to be supplied by Harvey and calculated to produce 166kg of fine silver ingots refined by C. The coins were refined together with other materials and ingots were produced. None were set aside for C as agreed and D, in the ordinary course of its business had disposed of the ingots. D were placed in receivership when they had an outstanding balance of 117kg to C. C brings claim against D on conversion.
Issue: Did H have a proprietary interest in the silver capable of being converted by D?
Held (Cooke P):
 "Until the company performed its contract to appropriate to Mr Harvey specific ingots, he should be treated as having a proprietary interest in any silver to which his coins contributed. Until then he had a share as a co-owner of each ingot in the proportion of his total contribution to the refined silver.
 "In my opinion the same [principle as Indian Oil Corp] should apply to a consensual refining such as occurred in this case, at least where the evidence does not point to an intention to part altogether with ownership from the start."

B. Manufacture
This was known in Roman Law as specificatio. Under the Roman law rule, ownership was accorded to the maker unless the new thing could be reduced to its original materials.
There is little authority on specification (manufacture) in English law. The basic rule is that where the owner of materials consents to their being worked on so as create a new thing, the new thing will belong to the manufacturer (Borden).

The effect of this is that retention of title clauses cannot extend to products of manufacture.
Instead, they will often be interpreted as charges over the products created that are subject to formalities (Re Peachdart)
However, part of Robert Goff LJ's judgement in Clough Mill suggests that the owner may be able to retain title over manufactured goods if they agree this.

Borden (UK) Ltd v Scottish Timber Products Ltd (1981)- CoA
Facts: C supplied resin to D for use by them in the manufacture of chipboard, the contract stipulating that property in the resin was to pass when all goods supplied to D had been paid for in full, even if the resin was used in the manufacturing process before it had been paid for. C
brought an action for the sum outstanding in respect of unpaid-for resin contending that any chipboard manufactured with such resin or money/property representing the sale of such chipboard was charged.
Held: The resin ceased to exist in the manufacturing process and could not be traced into the chipboard. C acquired no interest in the chipboard.
Bridge LJ
 "In am quite content to assume that… up to the moment when the resin was used in manufacture it was held by the defendants in trust for the plaintiffs. If that was the position, then there is no doubt that as soon as the resin was used in the manufacturing process it ceased to exist as resin, and accordingly the title to the resin simply disappeared."
Buckley LJ
 "In my judgment it is a fundamental feature of the doctrine of tracing that the property to be traced can be identified at every stage of its journey through life, and that it can be identified as property to which a fiduciary obligation still attaches in favour of the person who traces it.
 In the present case, in the circumstances that I have described of the resin losing its identity in the chipboard, I find it impossible to hold that the resin can be traced into the chipboard, or to any other form of property into which the chipboard might at any time be converted. Accordingly, it seems to me that the doctrine of tracing is inapplicable to a case such as this."
Re Peachdart (1984)- Ch Div
Facts: Seller supplied leather to the buyer, a company which manufactured handbags. Conditions of sale contained title retention clauses which provided that, until payment was received in full the seller retained ownership of the leather including the right of resale if payment was overdue,
and had the right to trace any proceeds of sake by the buyer including any goods made with the leather, by the creation of a fiduciary relationship between buyer and seller. Company's banker appointed a receiver under which all the company's book debts were made subject to a fixed charge. Issue was whether the title retention clauses gave a priority interest or charge to the seller in respect of the proceeds of sale of the handbags sold.
Held (Vinelott J): No retention of title. The charge was void for non-registration.
 "It seems to me that the parties must have intended that at least after a piece of leather had been appropriated to be manufactured into a handbag and work had started on it
(when the leather would cease to have any significant value as raw material) the leather would cease to be the exclusive property of Freudenbergs (whether as bailor or as unpaid vendor) and that Freudenbergs would thereafter have a charge on handbags in the course of manufacture and on the distinctive products which would come into existence at the end of the process of manufacture (the value of which would be derived for the most part from Mr. Launer's reputation and skill in design and the skill in his workforce). The charge would in due course shift to the proceeds of sale"
Cough Mill Ltd v Martin (1985)- CoA
Facts: C, a company carrying on business as a spinner and yarn, entered into 4 contracts for the sale of yarn with the buyer, a fabric manufacturing company. Each contract was subject to a retention of title clause which stated that the ownership of the yarn should remain with C until it had received payment in full or until the buyer had sold the yarn to a customer by way of bona fide sale at full market value; which reserved the right to dispose of the material until such time. D
was appointed receiver of the buyer. C wrote to D stating that it wished to repossess the unused yarn still on the buyer's premises. D replied that the retention of title clause amounted to a charge by the buyer in favour of the plaintiff to secure payment of the unpaid purchase price and as such was void against him for non-registration under section 95 of the Companies Act 1948. D
allowed the buyer to use the yarn in its manufacturing process but did not pay C the balance of the purchase price owed. C brought action for conversion.
Held (Robert Goff LJ): since the first part of the retention of title clause provided that the plaintiff retained legal title to any unused yarn pending either payment in full or resale by the buyer,
property in the yarn did not pass to the buyer; that, therefore the buyer could not create a charge on the yarn in the plaintiff's favour; and that accordingly, the plaintiff was entitled to recover the unused yarn on the buyer's insolvency
 "In every case, we have to look at the relevant documents and other communications which have passed between the parties, and to consider them in the light of the relevant surrounding circumstances, in order to ascertain the rights and duties of the parties"
 "I for my part can see nothing objectionable in an agreement between parties under which A, the owner of goods, gives possession of those goods to B, at the same time conferring on B a power of sale and a power to consume the goods in manufacture,
though A will remain the owner of the goods until they are either sold or consumed. I do not see why the relationship between A and B, pending sale or consumption, should not be the relationship of bailor and bailee, even though A has no right to trace the property in his goods into the proceeds of sale. If that is what the parties have agreed should happen, I can see no reason why the law should not give effect to that intention."
 "But the difficulty of construing the fourth sentence as simply giving rise to a retention by the plaintiff of title to the new goods is that it would lead to the result that, upon the determination of the contract under which the original material was sold to the buyer, the ownership of the plaintiff in the new goods would be retained by the plaintiff, uninhibited by any terms of the contract which had then ceased to apply; and I find it impossible to believe that it was the intention of the parties that the plaintiff would thereby gain the windfall of the full value of the new product, deriving as it may well do not merely from the labour of the buyer but also from materials that were the buyer's without any duty to account to the buyer for any surplus of the proceeds of sale above the outstanding balance of the price due by the buyer to the plaintiff."
o It follows that the last sentence must be read as creating either a trust or a charge.
o I have come to the conclusion that, although it does indeed to violence to the language of the fourth sentence of the condition, that sentence must be read as giving rise to a charge on the new goods in favour of the seller.

Less clear is the case where the manufacturer unlawfully uses the materials of someone else…

On one view, the manufacturer will still become owner of the product, although the owner of the materials will have a claim in tort.
The alternative view is that the owner of the materials is the owner of the new thing, where their materials have predominantly created the new item

This was the view taken in Jones v De Marchant (18 out of 22 beaver skins used to make a coat belonged to his wife so wife was owner of coat)
o Although note that Jones was treated as a case of accession by the court

Jones & De Marchant (1916)- Manitoba CoA
Facts: Beaver skins were wrongfully taken from wife by her husband who had them made into a fur coat. He then gifted the fur coat to a 3 rd party.
Held (Richards JA): The property in the coat is in the wife under the principles of "accession"
 It would be most unjust if the plaintiff had no remedy for the loss of her furs, or could only bring an action for damages for the conversion, in which, even if she recovered judgment,
she could probably realize nothing.
 I think that the title to her furs is still in the plaintiff, and that she is, under the law of accession, justified in claiming with them, against the defendant, the materials added to them by the wrongdoer, and the increased value given to them by the labour expended.

Contrast between the rules applying to manufacture and mixture
The manufacturing rules are consistent with the general principles that A acquires a property right through taking physical control of a thing. In contrast, in a mixing case, B will acquire a property right in the new thing even if he does not physical control of that new mixture.

The rule in relation to mixtures could lead to a nasty shock to C (a bone fide purchaser)
buying the mixture from A who may reasonably believe that A has Ownership of the mixture.

C. Accession
Example: B has Ownership of a bike; A has ownership of a pot of paint. B uses A's paint to paint his own bike.
Accession concerns a minor and a major thing. The rule is that the minor thing accedes to the major thing. In doing so, the minor thing becomes 'part of' the major and ceases to exist as a distinct thing.
There is no longer a separate chattel to which A's right can exist. Therefore, it seems that the rights to the minor thing can be said to be extinguished in cases of accession. No new rights are acquired in such a case.
 To hold otherwise, that the rights to the chattel are now vested in the new object, would be counter-intuitive: If A's paint was used to paint B's bike, we would not expect the title to the paint on a bike to be separable from the title to the bike itself.
 There are factual difficulties posed by this rule in some cases: at what point does a thing lose its identity?

Chattel to Land
The simple case of accession is that of attachment of chattels to land. The rule is that if a chattel is annexed to the realty then any title to the chattel itself is extinguished: the chattel simply becomes part of the realty (e.g. Hobson v Gorringe).
 The point at which a chattel will be considered annexed to land is a question of fact which depends on the circumstances of each case, and mainly on two circumstances, as indicating the intention of the annexor: the degree of annexation and the object of annexation
(Blackburn J in Holland v Hodgson)
 Blackburn J suggested that the degree of attachment sets up a presumption which could be rebutted by evidence of contrary intend.
o The sort of evidence that would show such an intention was further discussed obiter in Hobson v Gorringe: it must be circumstances which showed the degree and object of annexation that were patent for all to see (so not the content of a hirepurchase agreement between the parties).
 This reasoning can be seen in Elitestone: clear that in determining the purpose and object of annexation the court will consider the objective substance rather than the subject intention or labelling of the parties (compared it to land law leases vs licences)
Holland v Hodgson (1872)
Facts: Looms in mill were attached to the floors of the mill by means of nails driven through holes in the feet of the mills, in some cases into beams which had been built into the stone, and in other

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