You will often find a clause in standard terms and conditions of sale which stipulates that the title to the goods sold remains with the seller until the purchase price is paid in full by the buyer. Clauses such as these are known as retention of title (ROT) clauses.
Whilst a basic ROT clause will state that the title to the goods will not pass until the purchase price has been paid in full, in order to provide the seller with greater protection, other obligations can be added, which will assist the seller in recovering the goods if payment is not made. Such obligations include:-
- storing the goods separately from goods belonging to third parties;
- labelling the goods as the seller’s property;
- a right for the seller to enter the buyer’s premises and recover the goods in certain circumstances, so as to avoid the risk of the seller committing a trespass.
While the premise of ROT clauses is simple, if they are drafted too widely they may have the effect of creating a charge over the goods which would be unenforceable by reason of it not being registered at Companies House.
Consider the following:-
- An all monies clause, which reserves title in all goods supplied to the buyer until all payments due from the buyer have been satisfied in full. It removes the need to relate specific goods to specific unpaid invoices.
- A mixed goods sale clause, which attempts to reserve title in raw materials used in a manufacturing process to create new goods.
- A proceeds of sale clause, which purports to allow the seller to claim the proceeds of sale of any re-sold goods which have not been paid for by the buyer.
The mixed goods and proceeds of sale clause have both been held by the Court to amount to a charge and to be unenforceable.
Ultimately, ROT clauses are important for sellers who wish to protect themselves from the risk of not being paid for goods that they have supplied. ROT clauses need to be drawn with care. We will be pleased to assist.
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