Factoring Companies Guidebook
Retention of Title
Definition
A clause contained in the terms and conditions of sale (or contract) which reserves the supplier title to the goods until payment is received. This may include the right to the proceeds of sale or sub sale of goods.
Alternative Terms:-
- Reservation of Title (ROT)
Retention (Reservation) of Title through to Sale Proceeds (ROTP)
Romalpa - Often referred to as a Romalpa clause after the Aluminium Industrie Vassen BV v Romalpa Aluminium case in 1976
See also: - Direct Deliveries, Double ROT
Concerns
Where the Client has not paid for goods and has not, therefore, obtained title to them, there may be no ability to assign the debt (proceeds of sale) to a Discounter. Additionally where a Client also has Retention of Title, the supplier will have ROT right through to the Client's customer. Where the supplier is aware of the Client's customer, to whom the goods have been delivered, the supplier could endeavour to collect the proceeds directly from the end customer.
Identification
Review the supplier's terms and conditions of sale and look out for such terms as "proceeds of sale", "benefit", or "in trust". If in any doubt, obtain a copy of the terms and conditions for referral to Risk.
Retention of Title is prevalent in the following industries:-
- Paper
- Steel
- D.I.Y
- Electronics
- Computer Industries
It is also frequently used in other industries also.
Treatment
Legal opinion varies on the effectiveness of ROT clauses and it appears that the courts are disinclined to enforce them as far as the debts. However, ROT clauses are more likely to succeed where the Client sells the goods concerned, in its original form and where they are readily identifiable through markings and serial numbers i.e. no material conversion process has taken place. This is apparent in the computer industry where all the components tend to have unique serial numbers and instances have been seen where a supplier's terms and conditions in this industry 'allow' it to enter the customers premises and dismantle a finished article to extract particular components. Certain industries, such as the aircraft industry, where safety and the integrity of components are a pre-requisite, require all components to be traceable and therefore easily identifiable, back to source for the life of the product.
