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Saturday, 29 November 2014
 
   
   
   
 
 Retention of Title to Goods-Romalpa Clauses
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Retention of Title to Goods-Romalpa Clauses

The general rule is that property in goods does not pass to a buyer until the seller receives payment of the full price, in other words the seller retains ownership until full payment.

Non-payment & Insolvency

Correct implementation of retention of title clauses (Romalpa Clauses) can protect an unpaid seller from the consequences of losing those unpaid goods and payment in the event of a buyer’s insolvency. These clauses will prevent those goods falling into the hands of liquidators who will sell the goods to pay secured and other creditors.

Rescuing the Goods

Romalpa clauses can rescue the property in the goods sold by the seller until payment of the purchase price either for those goods or for money (including the purchase price) owed by the buyer notwithstanding delivery of the goods. However, risk of loss passes to buyer on delivery. The seller can retain title, but also until the buyer pays all debts to the seller. Effectiveness depends on the wording of the Romalpa Clause.

Claims against the Goods

If the goods are still in the possession of the buyer and have not been resold or incorporated in other products but remain identifiable, the Romalpa Clause takes effect. However, there are circumstances that dilute the seller’s ability to rely on the Romalpa Clause, such as:

1          The Romalpa Clause is subject to the usual exceptions to nemo dat rule so that a third party purchaser will obtain good title since the purchase is from the buyer in possession.

2          The goods have been used with the express or implied consent of the seller in manufacturing a new product. Then if they have been consumed so that they no longer exist, or if they have been so incorporated in the new product as to form an integral part even though still identifiable the clause cannot be invoked to recover goods.

3          They cease to be the exclusive property of the seller who then has only a charge on the new product and any provision purporting to confer ownership of the new goods on the seller will be ineffective

Some transactions are subject to legislation requiring bills of sale and charges over company assets. If the buyer obtains legal title and reconveys it to the seller, a mortgage has been created and the transaction will require registration. Consequence of failing to register depends on legislation, but at least will be void against a liquidator or the trustee in bankruptcy. A simple clause does not create a charge or confer a security interest requiring registration. (Clough Mill Ltd v Martin [1985] 1 WLR 111)

Such a clause is not effective unless it reserves the legal title as opposed to the equitable or beneficial title. Legal title creates a registrable charge over the assets. (Bond Worth Ltd, Re [1980] CLR 228)

Claims against the Proceeds

Right to trace into the proceeds of disposal of goods is a common law and an equitable right. At common law, it depends on the goods being identifiable and the proceeds being identifiable and separate from the other assets of the buyer.

In equity, where proceeds are mixed with others they can be traced but it depends on the fiduciary relationship between the parties. A fiduciary relationship was found in the Romalpa case on the ground that the buyer was reselling the goods on behalf of the seller and was therefore under a duty to account for the proceeds of resale.

In Len Vidgen Ski & Leisure Ltd v Timaru Marine Supplies (1982) Ltd[1986] 1 NZLR 349-there was an express provision that the proceeds of any resale were to be the property of the seller and the court relied on this to find the fiduciary relationship to account despite an arrangement for credit of the buyer.

Not every agent or bailee has a fiduciary relationship. There is judicial reluctance to find such a relationship because of aversion towards secret arrangements between sellers and corporate buyers where the seller obtains an interest in the buyer’s assets to the detriment of the buyer’s creditors. The view is, on creating rights over assets into which goods may be transferred, or mixed, a charge is normally constituted which requires registration in the case of a corporate buyer.

Proposition

1          A provision in the contract of sale allowing the buyer credit for the purchase price for a period is consistent with the intention that the seller retains ownership, although it may affect the seller’s right to recover possession until the period of credit has elapsed, and the danger is the seller may sell the goods in the meantime.

2          The owner of goods can give possession of them to another, and at the same time conferring on that other a power of sale and a power to consume those goods in manufacture, although the owner remains the owner of the goods until sold or consumed. Difficulties arise if the clause applies until payment in full if all the goods are delivered under the contract. If part of the goods has been paid for when the seller exercises the right to resell, problems arise as to accounting for the part-payment or for any profit on the resale. The matter depends on whether the contract of sale still subsists or whether it is at an end because of the buyer’s breach, which has been accepted by the seller.

Need More Information

Behan Legal assists and advises on these important issues. For an appointment, call 9646 0344.

 


  
 

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