Sale and Lease‐Back Agreements in a World of Title Relativity: Michael Gerson (Leasing) Ltd v Wilkinson and State Securities Ltd

Published date01 May 2001
Date01 May 2001
AuthorJanet Ulph
Sale and Lease-Back Agreements in a World of
Title Relativity:
Michael Gerson (Leasing) Ltd vWilkinson and
State Securities Ltd
Janet Ulph*
Where there is misconduct, the courts are often faced with a choice between
conflicting proprietary claims made by those who have innocently become caught
up in the rogue’s activities. Very rarely, there is a windfall profit and the court may
have the relatively pleasant task of choosing who has the better claim to it;1
however, usually the rogue is insolvent and one party may suffer as a result.2
In an insolvency, the first hurdle for a claimant will be to establish proprietary
rights in relation to identifiable property in order to elevate himself above the
position of an unsecured creditor. Yet there is always a danger that a claimant can
be divested of these proprietary rights if another party can also establish proprietary
rights over the same property and can successfully rely upon one of the exceptions
to the nemo dat principle, that no-one can transfer a better title than they have
themselves. The recent Court of Appeal decision in Michael Gerson (Leasing) Ltd.
vWilkinson and State Securities Ltd.3is a significant case, which extends the
protection offered to a second purchaser by the ‘seller-in-possession’ exception
and exposes finance companies to unanticipated risks in relation to goods which
they own but which are currently subject to sale and leaseback agreements.
The essential facts were that the seller, Emshelf IX Ltd. (‘Emshelf’), sold certain
plant and machinery to Michael Gerson (Leasing) Ltd. (‘Gerson’), a finance
company, under a sale and leaseback agreement under which Emshelf remained in
physical possession of this equipment. A year later, Emshelf sold the very same
equipment to State Securities Ltd. (‘State’), which was another finance company,
under a second sale and leaseback agreement. When Emshelf became insolvent,
Gerson sued State in conversion and State successfully pleaded in defence that the
‘seller-in-possession’ exception, contained in section 8 of the Factors Act 1889 and
section 24 of the Sale of Goods Act 1979, applied.
Section 24 of the Sale of Goods Act provides:
Where a person having sold goods continues or is in possession of the goods, or of the
documents of title to the goods, the delivery or transfer by that person . .. of the goods or
documents under any sale, pledge, or other disposition thereof, to any person receiving the
same in good faith and without notice of the previous sale, has the same effect as if the
ßThe Modern Law Review Limited 2001 (MLR 64:3, May). Published by Blackwell Publishers,
108 Cowley Road, Oxford OX4 1JF and 350 Main Street, Malden, MA 02148, USA. 481
* Department of Law, University of Durham.
1Foskett vMcKeown [2001] 1 AC 102, 106 per Lord Browne-Wilkinson.
2Central Newbury Car Auctions Ltd vUnity Finance Ltd [1957] 1 QB 371, 379 per Denning LJ.

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