Retention of Title Clause in Agreement

A retention of title clause is a legal provision in an agreement that allows the seller of goods to retain ownership of the goods until the buyer fulfills their payment obligations. It is a common practice that is utilized in various industries, including manufacturing, retail, and distribution.

The retention of title clause is also known as Romalpa Clause, which was first established by the English court in the case of Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd in 1976. The clause is used to protect the interests of the seller in case the buyer fails to pay the agreed amount for the goods delivered.

For instance, let`s say that a manufacturer sells goods to a retailer on credit. The retailer has a payment term of 30 days to pay for the goods. However, if the retailer fails to pay within the agreed period, the manufacturer can reclaim the goods, despite them already being in possession of the retailer.

The retention of title clause provides the seller with a legal right to repossess their goods in case of non-payment, even if the buyer has already sold the goods to a third party. The clause also allows the seller to pursue legal action against the buyer for non-payment.

The retention of title clause is a useful provision for sellers, as it provides them with the necessary protection against non-payment, which can lead to significant financial losses. However, it is essential to ensure that the clause is drafted correctly to avoid any legal challenges.

The clause must be explicit and unambiguous, stating the seller`s right to reclaim the goods in case of non-payment. The provision should also specify the payment terms and the consequences of non-payment, including the seller`s right to legal action.

It is also essential to ensure that the retention of title clause is included in the agreement before any goods are delivered to the buyer. Including the clause in the agreement after the delivery of goods may not be legally enforceable.

In conclusion, a retention of title clause is an essential provision in any agreement between a seller and a buyer. It ensures that the seller`s interests are protected in case of non-payment, providing them with legal recourse to reclaim their goods and pursue legal action against the buyer. It is crucial to ensure that the clause is drafted correctly and included in the agreement before any goods are delivered.