#5292 - Derivative Transfers - Personal Property Law

Derivative Transfers

Transfers of title pursuant to a transaction with another person. The title of the transferee is created by the passing of ownership rights in the transaction and so, as it is not created by law, it is usually subject to the principle nemo dat quod non habet.

The nemo dat principle is, simply, that a person is not able to pass better title than he had himself. The title transferred will generally have all the same weaknesses and defects as the title did when held by the transferor.

Importance of intention

It is generally the intention of the transferor which causes the title to transfer effectively to the transferee.

Intention is very formalised in its requirements in respect of a transfer of legal title. The intention must be fully formed in relation to the fundamental elements of the transaction transfer.

The fundamental elements are: identity of the transferee; the subject matter being transferred; that the intention is to transfer ownership; where an asset is fungible then there must be an intention to transfer the particular quantity of fungible units

The sale of goods exception

Where there is a contract for the sale of goods then the terms of the contract will be deemed to represent the intention (Sale of Goods Act 1979 s.17)

Where there is an unconditional contract for the sale of specific goods then title passes when the contract is made. It does not matter whether delivery or payment is postponed, title passes at the time the contract is made. (Sale of Goods Act 1979 s.18 Rule 1)

Three important points in relation to sale of goods:

1. Title can pass without any delivery of goods. Outside the sale of goods context some effective delivery is necessary to pass title.

2. If the contract has failed, and is not void, then title will not have passed

3. Sale of Goods Act 1979 s.18 Rule 1 only applies to the transfer of goods. It does not apply to a transfer of money, the contract alone cannot pass title to money. There must be delivery for title to money to pass.

Transfers through a payment system

A dematerialised transfer of money is different to a transfer of money in chattel form. It is more complicated, necessarily involving 3 or more parties instead of just 2.

The transferor instructs his bank to credit the transferees bank account. But what actually happens is the transferor gives a mandate to his bank to pay money to the recipient and reduce the balance of the transferor’s account accordingly. The transferor’s bank pays money to the recipient’s bank from its reserve and debits the balance of the transferor’s account. The recipient bank then credits the account of the recipient.

The two sums are analytically distinct. The increase in the recipient’s account is a chose in action enforceable by the recipient against his bank. It is completely independent of the transferor and the transferor’s bank.

Although the recipient may be enriched as a result of his deception, he does not receive property belonging to another, the chose in action has only ever belonged to him (R v. Preddy)

It is the mandate given by the transferor to his bank which authorises the debit of the transferor’s account. Consequently a mistake or fraud between the transferor and recipient will not necessarily invalidate the mandate and the transferor’s bank may still debit his account (Barclays Bank v. Simms)

If the transferor has given the mandate then it will be valid. The mandate will only be invalid if it was not given by the transferor. So if the recipient gave a false madate to the transferor’s bank then the transferor could oblige his bank to repay the money (Barclays Bank v. Simms)

If the money credited to the recipient’s account is complete and irrevocable under the rules of the payment system then the recipient has primary legal title to the chose in action against the recipient bank.

The rules are different from a corporeal perspective

A thief with money credited to their account has the best legal title to that, even though it is derived from theft, provided the payment is complete and irrevocable.

But if a thief steals corporeal money then there has been no consent to the transfer by the victim...