Effective retention of title clauses
Retention of Title (RoT) clauses can be extremely useful to anyone who sells goods. The clause is a contractual provision by which, in its simplest form, the ownership of goods supplied under a contract is made conditional on payment of the full purchase price by the buyer. A RoT clause can either cover goods that have been supplied under a specific invoice, or cover all goods supplied until all the money that is owed for them has been paid (this is called an “all monies clause”).
If you have not incorporated a RoT clause into the contract between you and your customer, you will not have retained ownership to the goods you supplied: in other words, you will not own them any more even if they have not been paid for. To avoid this scenario, you should ensure that a RoT clause is included in your terms and conditions, which should be printed on all the standard documentation your business uses (such as quotations, confirmations, supply notes, etc) and not just on invoices.
You should also ensure that your customers sign a copy of the terms and conditions to confirm that they accept them, before you agree to supply them with any goods. In this way, you are more likely to win the ‘Battle of the Forms’, which, in essence, means that even if your customer has attempted to incorporate their own terms and conditions into the contract, yours should prevail. With this in mind, you should not sign the customer’s terms and conditions, and you should make sure that your terms and conditions are the last ones to be sent to your customer prior to the contract being concluded (as opposed to theirs being the last to be sent to you prior to conclusion).
Behave like an owner
The need to rely on a RoT clause to have your goods returned or your invoice paid usually only comes about if your customer runs into financial difficulty. Therefore your customer – or, more likely, the insolvency office holder appointed because your customer has gone into administration or liquidation – will not be keen to simply hand your goods back, as they will be seen as assets which can be sold and therefore limit the extent of financial losses.
It is important that you identify your goods before you supply them by, for instance, putting a stamp or bar code on them. If the RoT clause is specific to a certain invoice, then the goods should be readily identifiable to that invoice, so you might want to stamp the invoice number on them. Doing this will enable you to go to your customers’ premises and identify the goods you want returned. When there, it is also a good idea to take photographs or video footage of your goods, so that you have evidence to support your assertion that they are yours in any subsequent negotiations or proceedings. In addition, you should ask the customer or insolvency officeholder to keep the goods you identified as yours separate from any other goods.
You should also make sure that you have told – and continue to tell – as many people as possible that the goods are yours and will continue to be yours until paid for by virtue of the RoT clause.
It is also important to complete any documentation (for example, a RoT questionnaire) that you receive from an insolvency officeholder promptly Do not be afraid to chase the return of your goods on a regular basis.
You should stand a reasonable chance of either obtaining payment for the goods over which you have retained title, or insisting that the goods are returned in lieu of non-payment.
However, one exception would be if the goods you supplied are in the possession of a third party buyer, who bought them in good faith without knowing about your RoT clause. They are then likely to have equivalent rights to those they would have had if you had delivered the goods to them yourself. In these circumstances, your RoT clause is ineffective. However, it is best to cross that particular bridge when you come to it…
Posted on Oct 4th, 2011 by Lyons Davidson