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Retention Of Title Rot Clause - International Commercial Law

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Overview

  • No harmonising international code; determined by local legislation;

  • Closest we get is EU directive on Combating Late Payment in Commercial Transactions;

  • Generally vague; freedom for states as to how they deal with them;

  • Remember Practicalities;

    • Value of goods – distance – perishable (may be unusable when recovered) – made to specification.
Main Variations in Jurisdictions

  • All Monies Clauses;

    • Enforceable in most jurisdictions;

    • Qualifications;

      • Germany: restrictions in standard form contracts – cannot secure > 120% of the debt

  • Mixed Goods Clauses;

    • Do not work in some jurisdictions;

    • Some proportionate; e.g. Germany, Spain, Italy, Holland, France.

  • Processed Goods

    • UK & France – cannot claim ownership of goods subject to manufacturing process and therefore identity lost.

    • Germany – seller can become co-owner of end product.

    • Spain – seller can become sole owner if bad faith involved.

  • Proceeds of Sale

    • UK: fails.

    • Germany: possible but not if sub-buyer acts in ignorance of the arrangement.
USA

  • Universal Commercial Code;

    • Enacted by 50 US states;

    • Uses the term ‘security interests’;

    • S.2-401; any retention is… limited in effect to a reservation of a security interest’.

  • Enforceability

    • Enforceable against buyer; seller has a preferential right to the goods compared to buyer.

    • To be enforceable against third parites (e.g. liquidators) it must be perfected;

      • Notifying third parties – file financial statement at various local & state recording offices.

  • Mixed Goods

    • The rights attached to security interest can remain in place;

    • If competing suppliers claim interest they are entitled to the proportion of the goods relating to the value of the material that they supplied.

  • Separate Contract

    • Standard procedure for these clauses to be contained in a separate contract called a Security Agreement.
Japan

  • Decided by contracting parties;

  • In absence of ROT clause title passes;

    • Ascertain Goods: when contract formed

    • Unascertained Goods: when goods become ascertained.

  • Hire Purchase Legislation;

    • Title remains with seller until purchase price remained in full;

    • Does not apply to straigthtforward sale of goods.
France

  • Chapter III, Section IV, Code of Commercial Law

    • Clauses must be in writing but need not be signed –may be included in T&Cs;

    • Clause must be clear and written in larger text than the rest of the contract.

  • Enforceability

    • Only enforceable if goods still identifiable;

    • If manufactured – may well be lost.

  • Limitation

    • Must claim goods within 3 months otherwise rights lost;

    • This cannot be extended.
Germany

  • Section 449 German Civil Code;

    • ‘If seller of moveable property has retained title until payment… it is to be presumed that transfer of title takes place subject to condition precedent of payment in full.’

    • Three main types of ROT Clause;

      • Simple Clause:

        • Property does not pass until payment received in full.

      • Prolonged/Continued Clause;

        • Advance assignment of rights clause (provision for re-sale of rights by buyer )

        • Processing Clause (Seller may extend right to process)

        • Transmitted ROT (buyer agrees to pass on ROT by retaining original seller’s title against sub-buyer.

      • Extended Clause;

        • Title does not pass to buyer until purchase price paid and buyer has met all other responsibilities;

        • E.g. all monies clause – all other obligations met.
Indonesia

  • ROT is an available remedy even if not included in contract;

  • Article 1145 Civil Code;

    • Recovery of goods within 30 days if non-payment;

    • Parties may extend provision if they wish.
New Zealand

  • Personal Property Securities Act;

    • ROT clauses must be recorded in an electronic centralised register;

    • Protects goods yet to be supplied;

    • Must be agreed in writing to be effective.
Brazil

  • To be valid vs. 3rd partis must be registered in Public Register of Title & Documents;

  • If done, seller may recover goods from sub-buyers;

  • But registration is very inconvenient;

  • Sub-buyers tend to demand evidence of registration before releasing goods.

  • Seller with ROT has two options;

    • Fulfilment: demand payment and if not met, they will be seized and publicly sold.

    • Declare Contract Resolved: demand return of goods – if buyer has paid 40% of price they get a 30 day extension period.

Retention of Title ROT

SALE OF GOODS: OWNERSHIP & RETENTION OF TITLE

Introduction:

Why it matters?

  • Insolvency;

  • Risk;

  • Seller’s Action for Price only possible where ownership has passed.

 TB 58
Define: Lien

A right which entitles a party to hold on to assets in his possession pending payment of a debt owed. It can arise in the following ways:

  • Equity

  • From the operation of law (a legal or common law lien).

  • Bargained for, or extended, as a matter of contract (a contractual lien).

  • Created by statute (a statutory lien).

It does not confer on the lien holder an automatic right to sell the assets.

 PLC
Transfer of Ownership s.18

  • Specific/Ascertained Goods: identifiable at time of contract

    • S.17 – passes when parties intend it to pass.

  • Unascertained Goods

    • s.16 – property cannot pass until goods ascertained

Default Provisions s.18

  • Ascertained/Specific Goods;

    • Rule 1: unconditional contracts for sale of specific goods in deliverable state: property passes when contract made.

    • Rule 2: conditional contract where goods exist but buyer bound to do something to put goods into deliverable state: property passes when done and notice given to buyer.

    • Rule 3: conditional contracts where goods in deliverable state but seller must weigh/test/measure to ascertain price: as Rule 2.

    • Rule 4: goods delivered on approval or sale and return. Property passes when buyer approves or retains beyond fixed time.

  • Unascertained/Future Goods

    • Rule 5: unascertained goods;

      • i. goods unconditionally appropriated to the contract and the other assents;

      • seller delivers goods and buyer assents.

Retention of Title s.19

  • Seller may reserve right of...
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