Summary

This dissertation contains an analysis of the retention of title clause, by an exploration of the position of the clause in the system of Dutch property law. Particular attention was paid to the relationship between the retention of title clause and the prohibition of a transfer for security purposes (fiduciaverbod), as laid down in Section 3:84(3) of the Dutch Civil Code (DCC). With the prohibition of such transfers, the legislator sought to eliminate the concept of security ownership. Furthermore, the consequences of the retention of title clause have been reviewed against the background of the Dutch transfer system, in particular where it comes to the legal position of the buyer pending the fulfilment of the suspensive condition.

The Dutch legislator justified the rationale of the retention of title clause with two arguments: an argument as to why it is justified that the seller remains the owner and an argument as to why it is justified that the other creditors of the buyer cannot yet effect recovery from the sold item in question. Attention is paid to these two arguments respectively in Chapters 2 and 3.

Chapter 2 reviews the function of the retention of title clause and pays attention to the question why it is justified that the seller remains the owner, instead of limiting his position to the position of a holder of a security right. According to the prevailing doctrine, a retention of title clause shows tension with the prohibition of a transfer for security purposes, because a retention of title clause in effect leads to a form of security ownership and the function of the retention of title clause is in fact that of a security right. Following the justification of the Dutch legislator, it was concluded however that the position of the seller with a retention of title clause is not comparable with the position of the holder of a security right, so that the retention of title clause is not at odds with the prohibition of transfers for security purposes. By means of the retention of title clause, the basic principle of equal exchange of the obligations of the seller and buyer is maintained. Thus, the retention of title clause emphasizes the reciprocal character of the contract of sale, by maintaining the ‘quid pro quo’ principle. The retention of title clause therefore functions more like a right of suspension, with which the seller guarantees his rights in the event of termination of the contract. The retention of title clause thus provides not so much security for the payment of the purchase price, but rather security for the reversal after termination of the contract. In addition, the retention of title clause merely maintains the status quo, so that the clause does not provide the seller a special position which he did not already have prior to concluding the contract of sale.

Chapter 3 discusses the question why it is justified towards the buyer’s creditors that the seller with a retention of title clause acquires a preferential position compared to the creditors of the buyer who cannot effect recovery from the sold thing in question. This preferential position of the seller is justified by the neutral effect of the clause. Because the seller obtains a preferential position only in the sold thing, the other buyer’s creditors are no worse off. Because the sold thing would not belong to the buyer in the absence of the credit supplied by the seller, the other creditors of the buyer could not effect recovery from the sold thing had there been no retention of title clause at all. In other words, the retention of title clause does not harm the other creditors, because it only concerns goods that, but for the performance of the seller, would be available for the other creditors of the buyer. As is shown in Chapter 3, this justification for the preferential treatment of the unpaid seller is present in all legal systems involved in this study. There are good arguments for maintaining this preferential position of the seller with regards to proceeds of the thing that was originally sold, insofar as this preferential position is limited to the value that the seller actually contributed. This relates in particular to receivables, in the case that the buyer resells the sold thing and to any goods products that results from the thing which was originally sold. Special attention is paid to the all debts retention of title clause (expanded retention of title clause), on the basis of which the seller remains owner until other debts than the purchase price are settled (also known as cross-collateralisation clause). Such a retention of title clause can prejudice the buyer’s other creditors, because the seller also preserves its preferential position, if the purchase price already has been paid. In a limited number of cases there is, however, also a justification for such a retention of title clause, i.e. if the seller supplies (similar) goods to the buyer on an ongoing basis, as otherwise it would be impossible to determine whether a specific good was already paid or not. These individualisation problems could hinder the seller in the event that he would want to exercise his rights based on the retention of title clause.

Chapter 4 deals with the structure of the retention of title clause in the Dutch transfer system. The retention of title clause has a twofold structure. Not only does the clause intend to effect that the seller remains the owner for the time being, the clause also seeks to effect that the buyer immediately, without further action, becomes the owner of the sold thing at the time that he effects the relevant counter-performance. This is realised by the parties immediately effecting a transfer subject to a suspensive condition. There is a lot of discussion in the Dutch literature regarding the construction of the retention of title as a transfer subject to a suspensive condition, in particular when it comes to explaining the source of the conditionality. The conditionality of the transfer can be explained by the suspensive condition which is attached to the obligation to transfer. On the basis of the causal system of transfer, the suspensive condition attached to the title affects the transfer itself, in such a way that the transfer is subject to the same condition. Thus, a conditional transfer is realized. In a consistent legal system such a legal consequence can, moreover, also be achieved on the basis of a suspensive condition which is attached to the real agreement (the agreement by which the transfer is immediately performed).

Chapter 5 focuses on the seller exercising his rights on the basis of the retention of title clause. Special attention is paid to the consequences of exercising the rights based on the retention of title clause for the (continued) existence of the contract of sale. As the buyer is entitled on the basis of the contract of sale to use the sold thing, it is in principle necessary that the exercise of the sellers rights on the basis of the retention of title clause coincides with termination of the contract of sale, since only the termination of the contract ends the buyers right to use. However, it is conceivable that the parties have deviated from this basic rule, so that the seller can exercise his rights without simultaneous termination of the contract of sale.

In any event a definite exercising of the rights on the basis of the retention of title clause entails that the contract of sale is terminated. In this manner the seller releases himself from his own obligation to provide title and he brings the buyers right of conditional ownership down, so that he becomes the unconditional owner again and can freely dispose of the sold thing in question. For that reason, the possibility of exercising the rights based on the retention of title clause by means of execution while maintaining the contract of sale, as tends to occur in Germany and Austria, is considered impossible. Lastly, attention is paid to the legal consequences of prescription of the claim for the purchase price. In that respect it has been concluded that the rule of Dutch law that the buyer becomes owner of the sold thing due to the prescription of the claim cannot be truly justified against the background of the function of the retention of title clause as maintaining the ‘quid pro quo’ principle.

Chapter 6 discusses the expanded retention of title clause. Such a retention of title clause states that the seller remains owner until other debts than the purchase price are settled. This type of a retention of title clause thus leads to an artificial reciprocity link, because parties have the possibility to create a relation of reciprocity between performances which are normally not reciprocal. This appears, inter alia, from the circumstance that under an expanded retention of title clause the seller can also terminate the contract of sale and thus can exercise his rights on the basis of the retention of title clause, if the buyer fails to satisfy other claims than the purchase price. It is also conceivable that the parties agree a retention of title clause in respect of future claims (all debts retention of title clause), so that the seller will also remain owner if at a certain time there exist no claims in the relationship between seller and buyer, but it is possible that such claims may arise again in the future.

Chapter 7 pays attention to a number of commonly occurring situations on the basis of which the seller can lose his property right pending the fulfilment of the suspensive condition. In particular, this can occur if the buyer produces a new product from the sold thing (specification), resells the sold thing, attaches the sold thing to another movable thing or to land (accession). It has been concluded that the seller’s loss of property right can be justified in such cases by the rationale of these concepts, but there is no justification for the related reallocation of the value embodied in the sold thing. In particular, there are good grounds for strengthening the seller’s legal position in the event of specification or resale, by giving the seller a security right with a super priority in respect of the proceeds of the sold thing, i.e. the new created product or the receivable that arises from the resale (extended retention of title clause). The loss of the seller’s rights in the case that the sold thing is attached to land is in general less easy to justify, because the loss of right here often is the result of a very broad interpretation of Section 5:20 DCC by the Dutch Supreme Court. It has been proposed to prevent this result by means of statutory intervention, on the basis of which the seller can maintain his rights despite the accession, if he registers the retention of title clause. Although the seller does not lose his rights on the basis of the retention of title clause in the event of commingling, it can be hard for the seller to exercise his rights, because he is not able to prove which of the commingled goods belong to him (individualisation requirement). By means of the law of evidence, however, a solution can in many cases be achieved, in particular if a less stringent interpretation of the individualisation requirement is accepted.

Chapter 8 further examines the buyer’s position pending the fulfilment of the suspensive condition, against the background of the explanation of the proprietary effect of the fulfilment of the condition. This effect, as a result of which the buyer immediately, without further action, becomes the owner of the sold thing at the time that the condition is fulfilled, is guaranteed because the buyer, despite the suspended effect of the transfer, immediately acquires a conditional right of ownership, that is subject to the same suspensive condition as the transfer. As this right is split from the right of ownership belonging to the seller, the seller’s right is limited accordingly. As the buyer’s right is conditional and thus does not have effect pending the fulfilment of the suspensive condition, the seller can in principle exercise the powers belonging to the owner. On the basis of the preliminary effects of the conditional transfer, the buyer, however, has a number of powers which purport to guarantee the unconditional acquisition of ownership upon satisfaction of the conditions. The buyer can transfer his conditional ownership right already pending the fulfilment of the condition. The rules which apply to the transfer of a ‘normal’ (i.e. unconditional) right of ownership also apply to the transfer of this conditional right. Special attention is paid to the causal character of this conditional right, which affects this right in many ways. An important consequence of this causal character is that a buyer’s successor who acquires or has acquired this conditional right can be confronted with the agreements made between the seller and the buyer.

Chapter 9 deals with the retention of title clause in the event of third party financing. It frequently occurs that the seller is unable or unwilling to finance the acquisition of the sold thing, so that the acquisition is financed by a third party. In this respect, it is especially conceivable that the claim for the purchase price is assigned to the third party, along with transfer of the seller’s rights on the basis of the retention of title clause. Such a transfer is necessary because the sellers right of ownership is not an accessory right, and does not conflict with the prohibition of transfers for security purposes of Section 3:84(3) DCC. Attention is then paid to a number of difficulties which are related to the circumstance that the third party to whom the right of ownership is transferred is not a party to the contract of sale between the seller and the buyer. Despite the fact that the third party is not a party to the contract of sale, the buyer can also enforce his right to use the sold thing against such a third party, because this right is not only based on the contract of sale, but also is embodied in the buyer’s conditional right of ownership. As a result, the third party can only exercise the transferred right of ownership if the third party brings the buyer’s right of conditional ownership down by termination of the contract of sale. This requires the seller’s cooperation, as only the seller can terminate the contract of sale in his capacity of party to the contract of sale, unless the seller has also transferred the right to terminate the contract to the third party.