Retention of Title Clauses In Commercial Contracts

Under ss 17 and 19 of the Sale of Goods Act 1979, a seller can retain his rights to the goods he is selling in a sale of goods contract.

The idea is that the seller can recover his own goods until they are paid for. It is an essential requirement that the goods remain identifiable in order to prevent dispute. There are a number of clauses which are relevant to retain the title to goods:

A ‘tracing clause’ allows the seller to trace into the proceeds of sale received by the seller. The buyer must have paid the money into a separate bank account in order for the money to remain identifiable and this prevents any mixing of money the buyer has, which has no relevance to the seller.

An ‘insurance clause’ obliges the buyer to insure the goods and will help the seller if the goods are damaged or destroyed. It is useful to provide that the buyer would hold the proceeds of any insurance claim on trust for the seller, as this will help the seller if the buyer becomes insolvent.

A clause allowing the seller to enter, seize and resell the goods – a retention of title clause would be of little value or no value if the seller could not enter the buyers premises and actually retain the goods physically. Therefore, it is essential to make sure that the clause specifically provides for the right to go on to the buyer’s premises.

A clause reserving the legal title in the goods – it is essential that the retention of title clause should reserve legal title.

A seller should be prudent not to deal with buyers who may not pay or have a history of non-payment and take practical steps to ensure the buyer has the ability and resources to pay for the goods e.g. credit checks / debt factoring / credit risk insurance / providing for interest. In taking such steps, the prospect of non-payment will be notably reduced.

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