retention of title clause

A retention of title clause in a contract displaces the usual rule of law that title (i.e. ownership) to goods passes to the purchaser at the time of delivery. For specific goods, ownership passes when the contract is made however this may be rebutted. 

Due to the nature of sale of goods contracts, in the event of non-payment, the vendor must sue for payment. If the purchaser is insolvent, the seller of the goods is left without the remedy of damages (which would be equal to the value of the goods plus interest).

It is this situation that retention of title clauses in contracts address - title to goods is stated to transfer to the purchaser only upon payment in full for the goods. In this way, the interest of a liquidator or administrative receiver does not defeat the title has been retained by the seller of the goods - the consequence is that the seller of the goods can get the goods back from the purchaser prior to payment.

Such retention of title clauses may extend to products manufactured with the goods supplied and onward sales by the initial purchaser.  For instance, in an IT contract for the supply of computer hardware, a retention of title clause would entitle the supplier to collect the goods that have not been paid for in the event of insolvency on the part of a purchaser who has been supplied the goods on credit, and the goods have not been paid for.

Retention of title clauses create an in rem security interest in the goods supplied.  The law applying to retention of title is well developed and complex, and tailored provisions should be created, rather than rely on clauses intended for universal application.  For instance, reservation of a mere equitable title will not be enforceable against a liquidator unless it is registered.

Sometimes these clauses are referred to as "Romalpa" clauses, as the first decision dealing with them is named Aluminium Industrie Vaasen B.V. v Romalpa Aluminium Limited [1976] 1 WLR 676.

Usage: The vendor of the goods, rather than taking security deposits from the purchaser insisted that a retention of title clause be inserted into the contract.

Related Words: sale of goods; contract; ownership; asset; property; locus standi; entire agreement clause; jurisdiction clause; choice of law clause; litigation.