Retention Of Title Notes

Purpose / objective:

• To give the seller priority over secured and unsecured creditors of the buyer if the buyer fails to pay the goods because he is insolvent.

• S.19 SGA: seller is able to reserve title by listing conditions to be met before title passes.

• RT is not intended to be a charge. If it does constitute a charge it will be VOID if unregistered [S.870 CA 2006].

The different forms of retention of title clauses:

1. Basic form;

2. All monies clause

3. Proceeds of sale clause

4. Mixed goods clause

The Basic form:

• Title of goods will be retained by the seller until it has received full payment for the goods.

• Legal AND beneficial title will be retained [if drafted correctly]

• Supplementary rights which are necessary to draft in:

1. right for seller to enter premises and possess goods

2. Buyer’s obligation to store goods separately

3. Buyer’s obligation to mark the goods at seller’s property

4. Buyer’s obligation to allow seller onto premises in the event of repossession

5. A list of insolvency related TRIGGER events that will allow seller to demand payment and to repossess if payment is not received.

6. If goods become attached to buyer’s premises [e.g. heavy plant and machinery] prohibit buyer from annexing them to the premises without seller’s consent. [If this is not done – consent of owner [i.e. the buyer / landlord] will be needed to repossess which is bad for seller]

All monies clause

• Seller reserves ownership until the buyer has paid for ALL goods supplies by the seller to the buyer. Title passes when buyer had paid ALL money owning to the seller.

• Clough Mill v Martin 1984: all monies clause was accepted [obiter ONLY – so not strong authority]

• Armour v Thyssen 1990: Scottish jurisdiction said all monies clause was not a charge and was legally effective. [Persuasive only]

• It potentially creates a charge by the buyer in favor of the seller void against a liquidator / administrator / creditor unless registered at Companies House.

• Not a realistic option

• Create as a SEPARATE CLAUSE [so basic clause is not void also] with a severance provision in contract.

Proceeds of sale clause

• Goods are not paid for but are sold to a third party. The seller can assert rights in the proceeds of that sale in order to get money from the buyer.

• Reliance on tracing principle: Possible valid because there is a fiduciary duty between buyer and seller – buyer has duty to account for sale proceeds to the seller who is the beneficiary. [Romalpa case 1976]. But this is unlikely to stand today [Compaq v Abercorn 1991 – even a complex contract which attempted to create a fiduciary duty did not convince the court. Clause was void for want of registration]

• Separation of proceeds [separate bank account; held on trust for seller]: tracing is not possible if buyer uses funds to pay off overdraft of that account.

• S.25 SGA 1979: if goods are sold to innocent third party the sub-buyer [the innocent party] will get the title of the goods. The proceeds of the sale will belong to the original buyer, not the seller. Any claim to these sale proceeds by the seller would amount to a charge. Charge is void if not registered

• Keep as a separate clause with a severance provision in contract.

Mixed...