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Article 3:92 of the Dutch Civil Code states that if a retention of title is agreed upon, the seller retains legal ownership of the goods until the buyer has paid the full agreed price. This ensures the seller’s ownership until complete payment. When it comes to commercial transactions, understanding the concept of retention of title (ROT) is crucial. This legal provision, also known as a title retention clause, grants sellers specific rights over goods until certain conditions are met by the buyer. Let’s delve into the intricacies of ROT and its implications in contract law.
What is Retention of Title?
Retention of title, as defined in Wikipedia, is a contractual clause ensuring that the seller retains ownership of goods until the buyer fulfills their obligations. This clause safeguards the seller’s interests, especially in scenarios where payment is pending.
What are the conditions for the right of retention of title under Dutch law
The conditions for the right of retention of title in the Netherlands are as follows:
- First, there must be an agreement under Dutch law in which the seller undertakes to transfer the property under the condition precedent of satisfaction of the consideration, usually the payment of the purchase price. This means that the seller remains the owner until the purchase price is paid in full, while the buyer becomes the owner under the condition precedent of payment.
- Second, both the seller and the buyer can dispose of their contingent property rights, for example, by establishing limited rights thereon.
- Third, the terms of the retention of title may be modified by either party as long as the condition has not yet been fulfilled, within the limits set by law.
- Fourth, in case of bankruptcy of the buyer, the delivery of the property can no longer be validly made if not all the acts required for delivery have taken place on the day of the declaration of bankruptcy. Finally, the condition attached to the transfer affects the right acquired pursuant to that transfer, making the condition “ingrained” in conditional property rights.
Retention of title: an interplay between Art. 3:92 BW and 3:84 DCC
The retention of title is an interplay between Art. 3:92 BW, 3:84 paragraph 4 BW and Art. 3:91 BW . Art. 3:92 paragraph 1 BW contains the legal presumption that the seller under retention of title undertakes to transfer the property under the condition precedent of payment of consideration. Art. 3:91 BW stipulates that in the case of an obligation to transfer under a condition precedent, there is delivery by grant of power.
Article 3:92 Retention of title
– 1. Where an agreement has the intention, in regard of a non-registered movable thing which the alienator has brought in the actual power of another person, that the alienator witholds the right of ownership in that thing until a performance, indebted by that other person, is performed, this agreement is considered to be entered into under a condition precedent of full satisfaction of that indebted performance.
– 2. The alienator can only validly stipulate such a retention of title for things he has to deliver if this is done in relation to the payment of debt-claims on a counter performance due by the acquiring party for things that have been delivered or will be delivered to him by the alienator pursuant to the same or another agreement or for services performed or to be performed for his benefit by the alienator pursuant to such an agreement as well as with respect to compensatory debt-claims indebted by him to the alienator for failing to perform such agreements. As far as a condition in an agreement is null and void because it is not in conformity with the previous sentence, it has never been stipulated according to law.
– 3. A condition precedent, as mentioned in paragraph 1, is regarded to be fulfilled also when the debt-claim of the alienator to obtain the agreed counterperformance is settled in another way than through an actual acquisition of this specific counterperformance or when the acquiring party is released from his obligation to this end on account of Article 6:60 or when the right of action of the alienator to claim the counterperformance has become prescribed on account of the expiry of a time-limitation. Unless parties have agreed otherwise, the same applies when the alienator has waived his right to claim the agreed counter performance.
Example of a Retention of Title Clause under Dutch law
1. Conditional Delivery
Delivery shall be made subject to the condition precedent that all existing and future claims of the seller against the purchaser, arising from this agreement and any further agreements concluded based on this contract, have been fully paid. However, the retention of title does not apply to claims other than:
a. Claims regarding counter-performance for goods delivered or to be delivered by the seller to the purchaser under this agreement or any other agreement of any kind, or services performed or to be performed by the seller for the purchaser pursuant to such an agreement;
b. Claims due to the purchaser’s failure to fulfill the agreements mentioned in sub a, including compensation for damages, reimbursement of extrajudicial and judicial costs, contractual and statutory interest, penalties, and fines.
2. Rights of the Purchaser
As long as the condition precedent mentioned in Article … has not been fulfilled, the purchaser is authorized to alienate, encumber, transfer physical control of the goods sold under retention of title in whole or in part to one or more third parties, or to enter into a legal act that obliges it to transfer physical control of the purchased goods in whole or in part to one or more third parties, provided that:
a. These powers are only available to the purchaser if and to the extent necessary or at least desirable in the normal course of its business;
b. These powers are only available to the purchaser if and to the extent that the purchaser demands and obtains cash payment from its counterparty (or: demands a retention of title from its counterparty that is as extensive as the present one, though without alienation authority for that counterparty);
c. The purchaser never has any authority to encumber the goods sold to it under retention of title.
The purchaser undertakes, at the first request of the seller, to assign or – at the seller’s discretion – pledge any claims arising or to arise from the alienation of goods sold under retention of title by the seller to the purchaser, to third parties.
3. Transfer of Rights by Seller
The seller has the right to transfer the reserved ownership and the associated rights to one or more third parties, for whom the same rights and obligations will then apply. Whether the condition precedent as referred to in Article … has been fulfilled, remains dependent on whether the existing and future obligations towards the seller, as described in Article …, have been fully met, at least those of its legal successor under general or – in case of assignment – special title.
4. Termination Rights
Notwithstanding their rights to dissolution and compensation according to the law, both parties have the right to terminate this framework agreement. Termination can occur with immediate effect in the event of a request or declaration or a judgment leading to bankruptcy, suspension of payments, or the application of the debt rescheduling scheme in accordance with the Bankruptcy Act on the counterparty, seizure under the counterparty, breach of contract by the counterparty concerning this or a later agreement concluded between the parties, cessation of business activities, or death of the counterparty, or any other compelling reason for immediate termination of this agreement. The foregoing also applies if and when a situation comparable to bankruptcy, suspension of payments, or debt restructuring is initiated outside the Netherlands.
In the absence of such a compelling reason, termination must occur with a notice period of at least … weeks.
Upon termination of this agreement, the existing retention of title at that time remains unaffected, provided that it expires as soon as the seller has no more claims against the purchaser.
5. Deviations by Subsequent Agreement
The provisions of this agreement do not apply insofar as they are deviated from in a later, whether or not further, agreement between the parties.
6. Applicable Law
This agreement is governed by Dutch law.
Types of Retention of Title under Dutch law
Limited Retention of Title under Dutch law
This type of retention of title under Dutch law is limited to the purchase price and does not cover additional costs such as damages or extra work. It only applies to the specific agreement and not to previous or future agreements. This limitation can unnecessarily restrict the seller’s recourse options.
Extended Retention of Title in the Netherlands
Also known as extended retention of title, this type is broadly formulated to cover all claims arising from all sales agreements between the parties. Ownership of the goods only transfers once all claims are settled, providing better protection for the seller.
Prolonged Retention of Title under Dutch law
This type is not permitted under Dutch law. It would allow the retention of title to extend to goods that have been processed or mixed with other goods. In the Netherlands, once goods are transformed into a new product, the original retention of title is lost.
Legal Requirements and Practical Considerations
Pre-Agreement Requirement: The retention of title must be agreed upon before or at the time of the sale. If it is only mentioned after delivery, it is ineffective because ownership has already transferred to the buyer.
Written Agreement: The retention of title should be documented in writing, either in the sales contract or in the general terms and conditions, which must be properly communicated to the buyer.
Identification of Goods: To enforce retention of title, goods must remain identifiable and unprocessed. Sellers are advised to mark their goods with identification numbers or stickers to maintain their claim.
Enforcement and Limitations in the Netherlands
In Case of Default: If the buyer defaults on payment, the seller can reclaim the goods, provided the retention of title was properly established. This includes situations where the buyer goes bankrupt.
Limitations in Bankruptcy: During a buyer’s bankruptcy, a statutory cooling-off period may be imposed, during which the seller cannot reclaim the goods. Additionally, if the goods have been mixed or transformed, the retention of title may no longer be enforceable.
Insolvency Protection and Creditor Claims
One of the significant benefits of ROT clauses is insolvency protection for sellers. Articles like Is Harmonization of Retention of Title Necessary and Feasible? delve into this aspect, elucidating how ROT safeguards sellers against non-payment and insolvency.
Frequently Asked Questions
What is a Retention of Title Clause?
A retention of title clause allows the seller to retain ownership of goods until the buyer fulfills certain obligations.
How Does Retention of Title Work in Practice?
Retention of title works by ensuring that the seller retains legal ownership of goods until the buyer completes payment.
What Are the Seller’s Remedies Under Retention of Title?
Sellers under retention of title clauses have various remedies, including reclaiming goods and seeking legal recourse for non-payment.
Understanding retention of title is essential for businesses to protect their interests in commercial transactions. From safeguarding assets to navigating contractual disputes, familiarity with ROT clauses is indispensable.
International Considerations
Differences in Law: The rules regarding retention of title can vary significantly between countries. For example, German law allows for prolonged retention of title, unlike Dutch law.
In summary, retention of title is a crucial tool for sellers to secure their interests in commercial transactions. However, its effectiveness depends on proper legal documentation and adherence to specific requirements.
Dutch contract law firm
For any legal inquiries or support in the Netherlands, please feel free to contact our adept team at MAAK Advocaten. Committed to excellence, our Dutch lawyers provide superior legal services tailored to your distinct needs. You can reach our law firm in the Netherlands through our website, by email, or phone.
Our approachable and skilled staff at MAAK Attorneys will be delighted to assist you, arranging a meeting with one of our specialized attorneys in the Netherlands. Whether you need a Dutch litigation attorney or a Dutch contract lawyer in Amsterdam, we are eager to guide you through the legal intricacies and secure the most favorable results for your situation.
Contact details
Remko Roosjen | attorney-at-law (‘advocaat’)
+31 (0)20 – 210 31 38
remko.roosjen@maakadvocaten.nl
The information on this legal blog serves purely for educational purposes and should not be taken as specific legal guidance. While we endeavor to maintain accurate and current information, we do not assert its absolute completeness or relevance to your particular situation. For advice tailored to your legal concerns, we urge you to engage with a licensed attorney. Please note that the blog’s content may change without notice, and we are not liable for any inaccuracies or missing information.
