If necessary and possible, agree to a retention of title clause - World Credit Organization

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    • 7.8 If necessary and possible, agree on a retention of title clause

    1. The origin of the ownership clause

    As a condition of sale, the supplier may require an agreement to retain legal title to the goods, which shall not pass to the buyer until full payment has been made by the buyer. In the United Kingdom, the retention of title clause in sales contracts is known as the Romalpa clause, which originated from an important court decision in 1976, which is widely used around the world.

    Our country's contract law also clearly confirms the retention of ownership clause. The relevant provisions of the contract law are as follows:

    Article 133 of the Contract Law stipulates: The ownership of the subject matter shall be transferred upon delivery of the subject matter, unless otherwise stipulated by law or otherwise agreed by the parties.

    Article 134 of the Contract Law stipulates: The parties may stipulate in the sales contract that if the buyer fails to perform the payment of the price or other obligations, the ownership of the subject matter belongs to the seller.

    Second, the role of the ownership clause

    1. The retention of ownership clause can prevent the other party's bankruptcy liquidation risk to a limited extent. With the development and regulation of my country's market economy, bankruptcy liquidation will gradually increase. When the debtor goes bankrupt and liquidates, the creditor can claim the ownership of the relevant items by virtue of the ownership retention clause, thereby reducing losses.

    2. For immovable property or goods that are difficult to move, the retention of title clause can limit the risk of the debtor's disappearance. For example: An elevator company sold the elevator to Company A and installed it in a shopping mall owned by Company A. Later, Company A disappeared due to excessive debts, and the relevant local authorities sold the shopping mall of Company A to Company B. The elevator company later successfully claimed the ownership of the elevator against Company B by utilizing the retention of title clause.

    Third, the limitations of the ownership clause

    The reservation of title clause has the following limitations:

    1. It cannot be applied to the transaction of providing services, unless the goods are provided as part of the service;

    3. The creditor cannot claim ownership of the goods that have been sold by the other party, for example: the supermarket has sold the goods;

    4. The creditor must be able to identify the goods and prove that they are the original goods;

    5. If the debtor maliciously mortgages or pledges or retains the goods to a bona fide third party, the creditor's ownership clauses cannot oppose the bona fide third party's mortgage, pledge, and lien. In order to reduce such risks, the creditor can indicate the owner of the goods on the goods invoice and other materials.

    The above content is excerpted from "Building an Integrity Unit - ICE8000 Integrity Management" (written by Fang Bangjian, free to use, but please indicate the source)