Retention of Title Clauses

Question 1

When does risk pass?

Answer 1

Under s 20, prima facie risk passes with ownership, so where the parties have not made specific provision for
the passing of risk, and the goods are damaged or destroyed, it is important to know who has ownership of
the goods to establish liability.
- If the goods are damaged or destroyed by a third party, e.g. a carrier, it will be necessary to establish who
has the right to bring a claim against the carrier.

Question 2

What happens in the event of insolvency?

Answer 2

In the event of the insolvency of either of the parties, the goods come under the control of the liquidator,
administrator or trustee in bankruptcy, and there is a risk that they may be sold.
- However, if the seller has a valid retention of title over the goods (ie ownership has not passed) then it may
be able to reclaim them before they are sold and thus recover the full value of the goods.

Question 3

Define specific goods.

Answer 3

are goods that can be identified at the time of the contract.

Question 4

Define ascertained goods.

Answer 4

are goods which have been agreed on at the time of the contract.

Question 5

When does property in ascertain goods pass?

Answer 5

Section 17 of the SGA 1979 provides that the property in ascertained goods passes when the parties intend it
to pass.

Question 6

What are the default provisions within the sale of goods act 1979?

Answer 6

1) Rule 1 deals with unconditional contracts for the sale of specific goods in a deliverable state. Property passes
when the contract is made. A simple example is when a customer buys a chocolate bar in a shop. Ownership
passes when the money is handed over and the customer receives the chocolate bar.
2) Rule 2 deals with conditional contracts where the goods exist but the seller is bound to do something to put
the goods into a deliverable state, eg the buyer agrees to buy 100 kilos of potatoes (specific goods), but the
seller has to package them into 1 kilo bags before delivery. Property passes once the seller has done this and
given notice to the buyer.
3) Rule 3 deals with conditional contracts where the goods exist in a deliverable state but the seller has to
weigh, measure, test the goods or ‘do some other act’ to ascertain the price. Property passes when the seller
has done this and given notice to the buyer.
4) Rule 4 deals with goods delivered on approval or sale and return. Property passes when the buyer approves,
accepts the goods, ‘otherwise adopts the transaction’ or retains them beyond any fixed time for their return
(or if none, beyond a reasonable time).
5) Rule 5 provides that property in unascertained goods passes in two situations, either when:(a) unascertained goods are unconditionally appropriated to the contract by one party and the other
party assents to this, either expressly or impliedly, for example 100 kilos of potatoes are weighed
and put into a container for transportation; or
(b) The seller delivers the goods (either to the buyer or a carrier) and the buyer assents to this, either
expressly or impliedly.(page 69 – 70).

Question 7

Define unascertained goods.

Answer 7

• Unascertained goods are goods which have not yet been identified. Unascertained goods may be generic
  goods, for example 100 kilos of potatoes or goods forming part of a bulk, or 100 kilos of potatoes out of 500
  kilos.
• s 16 makes it clear that property cannot pass until the goods are ascertained.

Question 8

What is the basis for a (retention of title) rot clause?

Answer 8

Section 19 provides the basis for retention of title. It provides that a seller may ‘reserve the right of disposal of
goods until certain conditions are fulfilled’. Therefore a seller who is allowing its buyer a credit period can
stipulate that ownership will not pass to the buyer until the buyer pays for the goods. The seller retains ownership
until that condition is fulfilled.

Question 9

What is the checklist when drafting a ROT clause?

Answer 9

a. provisions which are essential to ensure that the clause is legally effective;
b. provisions which are not legally essential, but which are desirable to make the clause work practically for the
seller;
c. clauses which may not be legally effective, but which may be included for ‘bluff ’ value.