The Future of Reservation of Title Clauses in the European Community

Abstract

In an economic climate plagued by the risk of insolvency, sellers will not wish to sell unless they can be sure of getting paid. At the same time most sellers would go out of business if they asked for cash on delivery and did not sell on credit. In Europe one way to combine these conflicting business realities is by selling goods subject to areservation of title clauseor aclause de réserve de propriétéor anEigentumsvorbehalt(hereafter RTC). An RTC may be defined as “merely an agreement between the parties as to the time when ownership is to pass”. By reserving title in the goods sold until they are paid for, it ensures that goods revert to the seller in case of the buyer's insolvency, and hence escape from the hands of the liquidator. The sale fails but the seller's losses are minimised. This is particularly important in the current context of insolvency practice where the legal order for the distribution of assets is very unfavourable to the supplier of goods who does not use an RTC. As an unsecured creditor he will receive any money owed only after the costs of the insolvency procedure and the shares of preferential and secured creditors are subtracted from the assets. He will, in the blunt words of Templemann LJ, ‘receive a raw deal’.