Retention of Title – Goods on Credit

02 Jul Retention of Title – Goods on Credit

A Retention of Title Clause is a prudent precaution, particularly when operating a business which routinely supplies goods on credit. The most common type of retention of title clause is the “all monies” or “current account” retention clause. This is used where the business is in an ongoing commercial relationship with the buyer of the goods such as the shop to which it is delivering raw material. Ideally, a suitable Retention of Title Clause should be included in all of the businesses paperwork to include order forms, invoices, receipts, etc.

It is obviously preferable that the business is able to identify the goods to which is it asserting that title. This can be a quite simple matter in some cases, e.g. where the business is involved in selling items which will carry serial numbers or other identifying marks. However if one is in a business which is selling, for instance, cheese or other raw foodstuffs, this can make the task much more difficult. Generally, however, mixed storage should not mean that the Retention of title Clause fails. In this type of situation, one can claim that one has a proportionate interest in the mixed goods in their entirety.

If the buyer goes into liquidation or receivership, this will invariably trigger a seller’s Retention of Title Clause. If that happens, the business which sold the goods should immediately notify the liquidator/receiver that it has a legal interest in some of the goods which have now come into the hands of the liquidator/receiver. The business should also seek an undertaking from the liquidator/receiver confirming that he (the liquidator/receiver) will not deal with the goods owned by the business and would require that they are preserved and returned to the business. If such an undertaking isn’t forthcoming from the liquidator/receiver the business must then consider whether or not it is financially worthwhile pursuing the matter through the Courts. This will obviously depend on the value of the goods in question. The liquidator/receiver may well contest the business Retention Clause and frequently the business and the liquidator/receiver come to a compromise as to what exactly is owed and this sum is then paid over by the liquidator/receiver.

Retention of Title Clauses is an important protection for business, particularly those who are vulnerable to the possibility of the buyers becoming insolvent. No business should be without one.