Retention of Title of Goods

Mairead McErlean of Geoffrey Leaver Solicitors LLP looks at retention of title clauses and how they can be used by suppliers of goods to give them some protection until payment for the goods is received.

In difficult economic times suppliers of goods face a difficult commercial decision: do they require payment for goods upfront but risk losing customers to competitors who are willing to offer credit terms or do they supply goods on credit and take the risk that they might not get paid.

Where goods are supplied on credit a supplier can go some way to protecting its position by incorporating a “retention of title clause” into the sale contract.

The basic position in English law is that ownership of goods passes from the seller to the buyer when the seller and the buyer intend for it to pass. Where a contract is silent on the issue of when ownership in goods passes then it will usually pass from the seller to the buyer when the goods are delivered, even though the seller has not at that time been paid!

A retention of title clause is a clause which allows the seller to retain ownership of the goods until they are paid for in full. Such a clause often allows a seller to recover goods which have not been paid for from the buyer.

A good retention of title clause will:

• allow the seller to enter the buyer’s premises without trespassing; 
• transfer liability for loss or damage of the goods to the buyer upon delivery; 
• allow the seller to recover goods which are stored at the buyer’s premises which can be identified as the seller’s; and 
• allow the seller to pursue an action against a Receiver or Liquidator who sells goods which were capable of being identified as the seller’s.

To ensure that your business has the benefit and protection of a valid and enforceable retention of title clause you must ensure that: 

1. it has been properly drafted; 
2. the terms have been incorporated in the contract between the parties; and 
3. the goods are capable of being identified.

Where a seller is concerned about a buyer’s financial position the seller should also consider the reducing the credit period, obtaining alternative security and obtaining credit insurance.

For more information on the drafting or enforcment of retention of title clauses contact Mairead McErlean by email or call 01908 692769.