Title retention clause
A retention of title clause (also called a reservation of title clause or a Romalpa clause in some jurisdictions) is a provision in a contract for the sale of goods that the title to the goods remains vested in the seller until the buyer fulfils certain obligations (usually payment of the purchase price). Purpose The main purpose of retention of title ("ROT" or "RoT") clauses is to ensure that where goods are supplied on credit, if the buyer subsequently goes into bankruptcy, the seller can repossess the goods. They are often seen as a natural extension of the credit economy; where suppliers are expected to sell goods on credit, there is a reasonable expectation that if they are not paid they should be able to repossess the goods. Nonetheless, in a number of jurisdictions, insolvency regimes or credit arrangement regimes prevent title retention clauses from being enforced where doing so would upset administration of the regime. Retention of title clauses are mandated in the European Union by Article 9 of the Late Payments Directive, and sellers' ROT rights are recognized by Article 7 of the Insolvency Regulation. Especially prevalent in Germany, these clauses are permitted in the United Kingdom by s.19 of the Sale of Goods Act 1979, which expanded upon the 1976 judgment of the Court of Appeal of England and Wales in Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd. In contrast to English law, the common-law jurisdictions in Australia, Canada, New Zealand and the United States have instituted the concept of "security interest", under which ROT clauses may need to be registered in order to have effect: in the United States, states have adopted Article 9 of the Uniform Commercial Code, which limits the clause's effectiveness common-law provinces in Canada have adopted their Personal Property Security Acts which operate similarly in Quebec, there is no "presumption of hypothec", and therefore an ROT clause is not considered to be a security interest; art. 1497 of the Civil Code of Quebec provides that "An obligation is conditional where it is made to depend upon a future and uncertain event," which gives legal authority to such clauses Australia and New Zealand have also adopted their own versions of the Personal Property Security Act. Simple ROT clauses are generally effective in protecting sellers' interests in Hong Kong, but in some cases a clause would not be enforceable. Legal analysis Although title retention clauses are conceptually very simple, they have become increasingly widely drafted, which has resulted in the courts in a number of countries striking down the clauses, or recharacterising them as the grant of a security interest. It has consequentially been noted that "the practical outcome of a series of later cases has put it beyond doubt that 'extended' title reservation clauses will not work." Several particular problems have been identified: If for example, the clause reserves only part of the title to the seller (instead of reserving title to the whole thing) then in many jurisdictions this is recharacterised