Originally published on 25th November 2009.
In these uncertain economic times, sellers often find themselves
concerned about receiving payment for goods sold. More and more
businesses are suffering cash flow problems often as a result of
their own customers becoming insolvent. Demanding payment up front
is simply not a commercial reality for most businesses. Businesses
can find themselves living in fear of one of their larger
purchasers reneging on payment due to a lack of cash flow or
insolvency. The knock-on effects of such an occurrence may be
devastating to the seller.
One option a seller should consider to is the incorporation of a
retention of title clause in the contract for sale. By including a
retention of title clause, the seller would be proposing to retain
ownership of the goods until it has received full payment. In this
way the seller would obtain priority over secured and unsecured
creditors of the buyer if the buyer fails to pay for the goods
because it is insolvent or for some other reason.
Drafting contractual retention of title clauses is a particularly
technical area. There are a number of variations of the clause,
each with its own advantages for different contractual relations.
An "all monies clause", for example, allows the seller to
reserve ownership of all goods supplied until the buyer has repaid
the seller all monies owed, however incurred.
The retention of title clause must also be drafted to fit the
commercial context. In particular, attention must be paid to the
intentions of the buyer. It is also essential to consider whether
the clause amounts to a registrable charge. If so, and no
registration has taken place, the clause will be unenforceable
against creditors of an insolvent company. It is therefore
essential that any retention of title clause be drafted with full
knowledge of the party's circumstances and market
operations.
DMH Stallard LLP is a law firm that provides a commercial solution
for its clients.
