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At the risk of being even less helpful than Charles, I'd add that in the law of sale of goods it would be rare to drag questions of fraud into the matter unless unavoidable. A purported sale of property to which the seller can't pass title would be a breach of s 12 SGA, which would give rise to a rise to terminate the contract, fraud or no fraud. There is clearly then a personal action to recover money paid, but as Charles says there is little authority suggesting that there is anything more to it.

Steve Hedley
Faculty of Law, University College, Cork

-----Original Message-----
From: Penner,JE
Sent: 01 April 2004 12:54
Subject: [RDG:] FW: constructive trust in proceeds of theft

Assume Lord Browne-Wilkinson in Westdeutsche is properly interpreted to say that a thief holds any proceeds from the sale of stolen goods on trust for the true owner. My question what is the relationship of this trust with the rights of the buyer from the thief of the stolen goods? This no doubt reveals my shocking ignorance of contract law. It seems to me that there are a couple of possible ways in which the buyer can assert a right to the proceeds the thief receives from the sale, i.e. the money the buyer paid the thief for the owner's goods:

(1) Assuming that the sale is clearly fraudulent, such that the thief would be liable for the tort of deceit, is it possible that the buyer could claim that the contract was void ab initio? If so, then in the case contemplated by LBW, then the constructive trust of proceeds would be a trust over the buyer's property, which seems clearly wrong.

(2) If this is not the right analysis, then it would seem at the very minimum that the buyer has the right to rescind the transaction for fraudulent misrepresentation (the misrepresentation by the thief being that he had good title); now we have two possible scenarios; if we assume that the buyer rescinds before the true owner makes a claim against him for conversion or claims a right in the proceeds of the sale, is the resulting legal or equitable title he gets still subject to owner's LBW trust? If he does not rescind before either the owner makes a claim against him for conversion or asserts title in the proceeds, then does the buyer necessarily lose out to the LBW trust because a right to rescind is a 'mere equity', which does not bind someone with an equitable ownership interest?

This strikes me as all very complicated because it depends upon the time at which the owner's LBW trust arises. If it arises by operation of law upon the sale, then it effectively extinguishes any right to rescind or any other appropriate legal or equitable interest that the buyer might have in the money he paid, which was, after all, his property to begin with, and I don't see how that is necessarily just. Indeed, it seems to me that as a matter of justice, equity's first concern should be to ensure that the innocent buyer is able to recover the proceeds and any traceable product, not the true owner, who has a strict liability claim against the buyer in any case - his mere taking possession of the car will render him liable whether the contract under whose auspices he did so is void ab initio or avoided later.

One might say of course, that none of this matters practically, for if the true owner asserts title in the substitute, the proceeds, then he in essence 'adopts' or ratifies the sale by the thief of his original goods, so that the buyer is no longer liable for conversion. And if the buyer retains a legal or equitable interest in the proceeds that prevails over the owner, then he will merely have to transfer an equivalent amount to the owner anyway, because of his strict liability for conversion. But what if the proceeds increase in value? Say the thief sells the owner's car to the buyer for its true value of £10,000 (its true value, which he then invests in shares now worth £15,000. Both the owner and the buyer will wish to have an interest in these proceeds. If the owner gets them, he will have an asset worth £5,000 more than what he would get from the conversion claim. Equally, if the buyer gets the proceeds, he will be able to meet his conversion liability of £10,000 and keep the extra £5000 of value. So this does seem to me to raise a real issue.