A sales transaction involves the passage of property in goods from the seller to the buyer. Whether or not this has occurred at the date of bankruptcy is of fundamental importance in bankruptcy law. If the buyer is bankrupt and title in the goods has not yet passed to the buyer, the seller remains the owner and can assert its proprietary right to the goods against the trustee. The bankruptcy does not terminate the contract of sale, and the trustee can therefore affirm the contact and obtain the goods by tendering the price to the seller.123If title has passed to the buyer, the buyer becomes the owner and the property in the goods vests in the trustee on bankruptcy. The seller no longer has an interest in the goods and can prove a claim for the unpaid price only as an un-secured creditor. The situation is otherwise if the seller is entitled to an
unpaid seller’s lien,124is able to assert the right to repossess thirty-day goods,125or has reserved a security interest in the goods.
If it is the seller who goes bankrupt, the tables are turned. A buyer will be able to assert a proprietary right against the trustee only if title to the goods has passed to the buyer under the contract of sale. If it has not, the buyer can prove a claim in the bankruptcy only for damages or for recovery of the price paid. A buyer is not given a lien to secure a prepayment of the price under sales law, although in British Columbia a prepaying consumer buyer is given a lien on the seller’s inventory and on any account in a savings institution in which the seller usually deposits the proceeds of sales.126This consumer lien is effective in bankruptcy and gives the consumer the status of a secured creditor in relation to his or her claim.
Although the crucial question in these cases is whether title has passed to the buyer, it is often difficult to determine if this has occurred. Sale of goods legislation provides rules for determining when property passes. The primary rule is that property in the goods is transferred at the time the parties to the contract intend it to be transferred.127
The contrary intention does not need to be expressly manifested in words but can be implied from the circumstances. In many instances, the parties do not specify when this is to occur. If the intention of the parties cannot be determined, the issue will be resolved through the application of a set of default rules provided in sale of goods legislation.128These...