Retention of Title Clauses in Sale of Goods Contracts in Europe

Iwan Davies

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351903738
• Edition: 1
• Topic: Law
• Subtopic: Contract Law
• Index: Law

The book sets out the characteristics and nature of Retention of Title Clauses in the UK and 14 other European countries. ROTs stand at the junction of so many aspects of substantive law, including contract, sale of goods, trusts, personal property security and company charges. This work identifies these concepts as they apply in each Jurisdiction considered. At present there is no work which sets out ROTs as a phenomenon in the Commercial Law of Europe and there is no point of easy reference for anyone working in the field in this regard. An obvious virtue of this work is that it makes the law accessible. Each essay is written by experts in the field within their own Jurisdiction.

1 Austria

FRIEDRICH SCHWANK

Introduction

The sale of goods on credit allows the buyer to obtain actual possession and use of the goods prior to the payment of the purchase price. In order to reduce the buyer’s insolvency risk to the seller the latter may seek to retain title to the goods until the purchase price has been paid notwithstanding that delivery has taken place. Though not specifically regulated in the Austrian General Civil Code or in the Commercial Code, a retention of title clause is a popular and frequently used device by sellers when delivering goods on credit. To be effective the retention of title clause requires an agreement between both the seller and the buyer and a unilateral retention of title clause is legally ineffective.¹ Consent may be given expressly or may be implied by the actions of the buyer such as the unconditional acceptance of the possession of the goods sold subject to the clause.

The legal position of the buyer in respect to goods sold subject to a retention of title clause is characterised by his right to possess and use the goods including the right of usufruct. Even though the buyer does not enjoy full ownership rights, nonetheless, he has an action in Austrian law to defend his possession of the goods against third parties on the basis of the purchase price. Furthermore where the goods are damaged the buyer has an action for damages against the tortfeasor notwithstanding the action of the seller as owner of the goods.²

Retention of Title Clause: The Legal Background

With the exception of consumer contracts and contracts involving plant and equipment there are no particular formal requirements for retention of title clauses under Austrian law. In the case of hire purchase contracts involving consumers, the terms of such an agreement have to be recorded in writing including any reservation of title clause.³ Where this does not occur, the seller is exposed to the potential sanction of a fine and also a desist action for unfair competition but the agreement is not treated as a nullity. In the case of plant and equipment sales, if the reservation of title clause has not been recorded in the land registry the plant or equipment will be considered as part and parcel of the land and the owner of the land recorded in the land registry will be deemed to have a good title in the plant and equipment.⁴ In all other sales of goods contracts whilst there is no requirement that a retention of title clause must be in writing this will obviously be relevant for the purpose of evidentiary considerations and, in practice, most such clauses are in writing.

The form of retention of title

For the purposes of Austrian law a simple reservation of title clause will read as follows: “The seller retains title to the goods sold until the purchase price has been paid in full and on time”. Often there will be other provisions, for example, an undertaking by the buyer to look after the goods carefully, to store them and insure them against all possible risks. Insofar as the more extended clauses are concerned where sub-sale is anticipated, there are two ways to deal with this phenomenon under Austrian law: first, substitution of the goods sold to the proceeds of sale; second, extending retention of title to the second buyer. Each of these will now be considered in turn.

The substitution of the goods sold by the proceeds of sale requires careful drafting. In addition to the simple reservation of title clause the following should be included: “[T]he buyer is entitled to resell the goods subject to the condition that the proceeds of such sale are being paid directly by the second buyer into an escrow account in favour of the original seller retaining title to the goods”. The payment of the proceeds into a separate escrow account is required in order to be able to identify the separate ownership of the original seller in respect of the proceeds. If this is not done then the original seller will not be able to claim title to the proceeds as the funds will have been mixed and neither will the original seller be able to recover the goods where the sub-buyer has acted in good faith. The other method of passing down the reservation of title clause requires an agreement between the first buyer agreeing with the second buyer in tum that the reservation of title clause in favour of the original seller is being passed down to the second buyer. The first buyer assigns to the second buyer his right to obtain valid title to the goods upon full and timely payment of the purchase price. The second buyer will have to pay the original seller directly in order to obtain a good title.

In the case of more extended clauses to goods manufactured from material supplied by the seller to the buyer subject to a retention of title clause, the general position under Austrian law is that the seller will lose the retained title to the goods if they have lost their identity and cannot be severed from the finished product. In some circumstances it might be possible to agree that the seller becomes a co-owner of any goods manufactured by the buyer. However, this will not only require an appropriate agreement between the parties but also some form of transfer of the title of the newly manufactured goods of the buyer back to the original seller. In contrast where bulk commodities are sold subject to a reservation of title clause, the seller may agree with the buyer that he becomes a co-owner of such bulk commodities provided the goods are stored in such a manner that the ownership quota of the original seller can easily be identified.

Effects of retention of title outside insolvency

In the absence of voluntary co-operation by the buyer, the seller is not allowed to enforce the retention of title clause against the buyer without recourse to law and the assistance of the court. In order to protect his position against unauthorised sub-sale it is prudent for the original seller to label by way of a notice the goods delivered to the effect that they are subject to a retention of title clause and in this way it may be possible to argue that the sub-buyer is not in good faith where the original buyer wrongfully sells the goods on to him. In any event, in the case of plant or equipment it is necessary to register the retention of title clause in the appropriate land registry because otherwise the plant or equipment will be treated as being part and parcel of the property where the facility is situated.

In cases of immovable property, rights on such immovable property, ships, patents, trademarks and designs, the registration in a land registry or another public register is full evidence of the title. The passing of the title of ownership from seller to buyer takes place by amending the register. Ownership to all other movable property is not capable of being recorded in a public register under Austrian law. The actual possession of such movable property is in the ordinary course of events a sign of ownership in respect of which bona fide third parties can rely upon and acquire a good title in the goods.

Where the buyer is in default, the seller can request the return of the goods. Such a request is categorised, in the absence of a contrary agreement,⁵ as a rescission of the purchase contract. In the alternative the seller may seek to recover from the buyer by way of an action for payment of the purchase price. If the seller subsequently uses the judgment against the buyer for purposes of enforcing his claim by way of attaching the goods sold, it is assumed that by so doing the seller has waived his reservation of title clause.⁶

Retention of title clauses within the local insolvency regime

A valid retention of title clause remains effective in the insolvency of the buyer as such goods will be excluded from the insolvent’s estate. The court appointed administrator or trustee is under a duty to return the goods subject to such a clause unless the goods have been sub-sold or they have been mixed with other goods. Of course the seller’s claim to title will be subject to scrutiny on the basis of fraudulent preference. In this respect reservation of title clauses are liable to be challenged if they have been created retrospectively, that is, in circumstances where title has been retransferred to the seller when the buyer was unable to pay the purchase price timeously as provided for by the contract.

Private international law considerations

Austrian conflict of law rules are codified in the Act on International Private law (IPRG). The legal position under this legislation is that the loss of rights to tangible assets is always governed by the lex rei sitae. Thus, the validity and enforceability of a retention of title clause will be governed by the law where the assets are situated.⁷ A reservation of title clause validly agreed abroad under foreign law will be accepted as valid under Austrian law so long as the goods are abroad and are subject to the foreign law. However, as soon as the goods are brought into Austria a foreign retention of title clause may not be enforceable to the extent that third party rights are affected. Further, it should be noted that Austrian conflict of law rules contain additional special provisions in respect of certain transport vehicles. Thus, the title to water or sea-borne vehicles is subject to the law of the state of registration. In respect of railway rolling- stock, the law of the state to be applied is that of where the operating railway company has its administrative headquarters.⁸ All other vehicles including cars are subject to the general Austrian conflict of law rules.

_______________

Notes

1Austrian Supreme Court decisions published in ÖBA, 1987, 51 and RdW 1987, 157.

2Austrian Supreme Court decisions published in SZ 51/164, JBL 1980, 262.

3Article 21(1) Consumer Protection Act.

4Article 297a General Civil Code.

5Supreme Court decisions published in SZ 55/152, JBL 1986, 307.

6Supreme Court decisions published in SZ 24/91, SZ 40/50, SZ 57/192.

7Article 31 (1) IPRG.

8Article 33 (l)IPRG.

2 Belgium

NICOLE VAN CROMBRUGGHE

Introduction

Under Belgian law, the sale of goods contract is considered to be perfected as soon as the parties have reached an agreement as to price and the subject-matter of the contract.¹ It follows from this that title of the asset sold passes with immediate effect at the conclusion of the contract without delivery having taken place. Even so, the unpaid seller is offered a number of remedies under Belgian law: first, the seller can refuse to deliver the goods (excepito non adimpleti contractus);² second, the seller can rescind the contract in the absence of a judicial settlement;³ third, where delivery has taken place pursuant to a non-credit sale and payment is not forthcoming, the seller is entitled to repossession provided this takes place within eight days following delivery and the item is still in its original state;⁴ fourth, notwithstanding the term of the contract in respect of payment the seller will enjoy a lien over the goods so long as they are in their original state and have not become fixtures.⁵

The parties to a sale of goods contract can agree to delay the transfer of title notwithstanding that delivery has taken place. The nature of the clause recognised under Belgian law is a simple one, that is, the seller continues to enjoy ownership of the goods until payment for those goods has been made in full. In the ...