RETENTION ON TITLE CLAUSE
The Retention of Title clause (RoT) is a conmon clause in International Sales Contracts. It provides that the seller retains ownership of the goods until the full purchase price is paid, and also that the seller may reclaim the goods if the price is nort paid. This clause becomes crucial when buyers become insolvent and other creditors are competing for the buyer´s remaining assets. With a valid RoT Clause, the seller can reclaim the goods even if the buyer is bankrupt.
The transfer of legal title to goods in international sales contracts is covered neither by Incoterms 2010 nor the CISG (United Nations Convention on Contracts for the International Sale of Goods), but by national law. Consequently, the parties are free to sepcify how thet title passes subject to the retention of title clause, but they should be careful to verify thet the method they have chosen is permitted by applicable national law.
There are several variations of the RoT clause, but two major types can be distinguished: 1) the simple RoT clause, under which the seller retains title until the price es paid, and 2) the extended clause, sometimes called an "all monies", under which the seller seeks to extend its title to include:
- the proceeds from any sale of goods;
- any goods commingled with, or manufactured from, the contract goods,
- any other indebtedness owed to the seller by buyer or
- any combination of the foregoing.
The availability of recourse to extended -type clauses will depend on the applicable national law. Contract drafters, therefore, should prepare thr Rot clause in light of the national law as regards the transfer of title, as previously indicated.
In International Contracts Models, Retention of Title clause is often required as a condition for issuing export credit insurance by insurence providers such as France´s Coface or US Eximbank. Since credit insurers step into the seller´shoes when they take on the risk that a seller will not be paid, they seek to mitigate the risks by obliging sellers to enter into export contracts which stipulate for RoT. It is not as good as good as full payment for the goods, but it cab be better than nothing.
A typical Retention of Title clause in the International Sale Contract is as follows:
"If the Parties have validly agreed on retention of title, the goods shall remain the property of the Seller until the complete payment of the price, or as otherwise agreed."