#10193 - Retention Of Title Rot Clause - International Commercial Law

• 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.

• 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.

• 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.

• 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.

Introduction:

Why it matters?

• Insolvency;

• Risk;

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

• 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 disposal of goods until certain conditions fulfilled.

• Simple ROT clauses do not generally create registrable charges over the buyer’s assets. The seller would be charging their own assets.

• Highly problematic.

• Where buyer sells goods on it will pay proceeds into separate bank account which it will hold on trust for the seller;

• Problem; rarely complied with and of little use in insolvency.

• Goods attached to other goods;

• If readily detachable it is appropriate to have a clause reserving right of seller to detach and remove;

• E.g. diesel engines bolted to generators

• May be possible to retain title to a share of the bulk;

• Goods must be all of same type and specification;

• E.g. oil – owners own in proportion.

Drafting:

Desirable Terms

• All monies clause

  • Ownership does not pass until buyer pays all amounts owing to the seller in respect of all goods;

  • All outstanding debts must be paid – avoids seller having to identify particular goods from particular consignments.

• Re-Selling Goods: Sales to sub-buyers

  • Title will pass when buyer sells goods on – acknowledges s.25

• Separate Storage

  • ROT only effective if seller can identify goods;

  • May also mark goods;

  • Clause to allow inspection to check compliance.

• Right of Entry, Recovery & Re-Sale

• Passing of Risk

  • Provide for passing of risk/accidental loss/damage;

  • S.20 – remain at seller’s risk until property passes;

  • Replace with clause passing risk on delivery and requiring buyer to insure and hold proceeds of policy on trust for seller.

• Insurance

  • If goods destroyed before they can be reclaimed seller will want recompense;

  • Require buyer to insure and hold proceeds on trust.

• Detachable goods

  • Where the goods are attached to other goods ownership of the goods shall not pass to the buyer by virtue of attachment if the goods remain identifiable and can be detached or removed from them.

TB 64

TB 65: Template Table