Retention of Title Clauses

Sections 17 and 19 of the Sale of Goods Act 1979 allow sellers to retain title in a contract for sale. Such a clause is known as a retention of title clause, you may also hear it called a Romalpa clause this name comes from the important case of Aluminium Industrie Vaasseb BV v Romalpa Aluminium [1976] 1 WLR 676.

The idea of retaining title to goods is simply that until they are paid for (or sold or used up) the seller can recover their goods thus preventing a liquidator or trustee in bankruptcy disposing of the goods. In order to be valid the goods must be identifiable (Clough Mill Ltd v Martin [1985] 1 WLR 111. THis brings about a number of issues depending upoin the exact nature of the goods themselves for example the goods may have been incorporated into another product and have therefore lost their identity (Borden (UK) Ltd v Scottish Timber Products Ltd [1981] Ch 25), the goods may have been mixed with other goods and identifying them is not possible (Re Andrabell Ltd (In Liquidation) Airborne Accessories Ltd v Goodmann [1984] 3 All ER 407), the goods may have been attached to other goods (Hendy Lennox (Industrial Engines) Ltd v Graham Puttich Ltd [1984] 1 WLR 485) or the goods may have been sold on to a third party.

Where the goods have been incorporated into another product they will be deemed to have lost their identity and no right will transfer to the new product. Problems also arise where for example goods from various suppliers are stored together (petrol in tankers for example) here one supplier would not be able to identify their particular goods and so may not be able retain title to them however note Glencore International AG v Metro Trading International Inc (No 2) [2001] 1 Lloyd’s Rep 284 where in a ‘commingled’ mess owners may be deemed to own the goods in proportion to their contributions. Where goods are easily detachable then a clause will need to be included whereby the seller will reserve the right to detach his goods and remove them see Hendy Lennox (Industrial Engines) Ltd v Graham Puttick Ltd. As for innoccent thrid parties they will get good title to the goods by virtue of section 25 of the SGA 1979.

In order to ensure that the retention of title clause that you draft is effective you need to consider:

  • Reserving Title – the seller should make it clear that he remains the owner of the goods and the legal ownership (importantly not the equitable ownership) is retained until the buyer pays the full amount due or the buyer sells the goods.
  • Rights of entry, seizure and sale.
  • How the buyer is to store the sellers goods whilst in the buyer’s possession.

All of the above factors are important and should be considered thoroughly when drafting a retention of title clause.

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