Retaining your title?
When a customer becomes insolvent and you have not been paid for the goods you have supplied a ‘Romalpa’, or ‘retention of title’, clause will put you in a much stronger position. A retention of title clause in a sales contract allows a supplier to transfer goods to a customer, yet retain the legal and beneficial title for those goods until they are paid for.
If the customer defaults on payment, the supplier can enter the customer’s premises to inspect or remove its goods. The customer will also accept an obligation to insure the goods and store them separately so that they can be identified.
Contract clauses need to be modified for different types of goods and according to what the supplier wants. It depends on what the customer intends to do with the goods after taking delivery.
For example, the most basic retention of title clause will not be effective if the goods are immediately re-sold, or are incorporated into a building or manufacturing process, because they can no longer be separately identified. Where a supplier is selling a high volume of goods on credit to the same customer, it may not be practical to separately identify each item and match it to a particular payment made.
Contract clauses can be modified to include:
A retention of title clause, allowing the supplier to remove its own goods. It will generally contain a clause to claim the proceeds if its own goods have instead been sold on.
An aggregated title clause, allowing the supplier to retain title of the output, or a portion of it, that has been produced after its goods have been incorporated into a building or manufacturing process.
An all sums clause, or ‘all monies’ clause, which is suitable where there is a high volume of goods and matching each item to an amount paid is complicated. Title to the goods will not pass until all sums for all debts owed by the customer are paid.
A proceeds of sale clause, which is useful where the goods are to be modified for use in a manufacturing process or building. This will allow the supplier to sell off or acquire the title in the goods or building that is created.
While these clauses all provide some protection for the supplier if a customer defaults on payment or goes bankrupt, it is difficult to ensure that goods are not damaged. Conflicts may also arise with other suppliers if they too have included aggregated title and proceeds of sale clauses into their contracts. Of course, a contract will combine several clauses so legal advice is required.