Commercial Law- Retention of Title Clause in Sales Contract

Commercial Law- Retention of Title Clause in Sales Contract

Introduction

A “retention of title” clause in the commercial law can be explained as a clause that permits the supplier of a good to maintain his ownership over the goods that have been supplied to a producer. That ownership is maintained until the time that certain conditions set forth in the contract have been met, thus giving the supplier of the goods some form of security against the producer's or buyer's insolvency or default. Few other names that the retention of title clause is known from are Reservation of Title Clause or as Rompala Clause.

The retention of title clause comes from the “Sale of Goods Act of 1979”, where a definite deal for the trade of certain goods is formed; the supplier is authorized under the law to maintain his ownership of goods irrespective of the fact that they have been delivered to the buyer. For this clause to be effective all the parties to the contract have to agree to this provision. For example it may be stated in the retention of title clause that the supplier has every autorization and right to keep the ownership of the goods until he receives the payment in full form the buyer. When this clause is valid the supplier if claims ownership over any unused good will be binding against any liquidator or trustee that is consequently appointed.

The most important condition that has to be met for this clause to be valid is the fact that at the time the time of the supply the retention of title clause is present in the contract and has been agreed upon by the parties. So retention of title clause is that vital and significant instrument that is there to safeguard a supplier against total bad debt write off and this protects the investment in receivables.

Discussion

This case relates to a business owned by Stephen who supplies woodchip pulp to other businesses and buyers who then use it for production of chipboard furniture. In recent months he has been incurring a number of bad debts because his buyers have defaulted on their payments. In this scenario he was advised to insert retention of title clause in to the sales contract to save himself from the future bad debts. He has also drafted retention of title clause that was mentioned in the case.

The next question that may arise is how is this retention of title clause effective in safeguarding the supplier, how does it work? So for the retention of the title clause to be effective and work it is necessary to make sure that the contract of sale good contains one such appropriate clause. This can be achieved when the supplier or the seller review thoroughly the contracting procedure between the parties to the contact. A separate agreement that covers all sales with all the major buyers can be made. A supplier may insert different retention ...