(Simple retention of title)

A sells a machine to B. The contract contains the following clause: ‘Title to the machine is reserved until the seller has received full payment.’ Before the price has been paid, C, who is an unsecured creditor of B, executes against the machine. In the alternative, B goes bankrupt. In either case, the machine is on B's premises.

Questions

1. (a) What is A's legal position?

2. (b) Is the clause stated above sufficient to be effective? Is there a more suitable or common wording?

3. (c) Do the parties have to agree on the insertion of a retention of title clause? Or could the seller stipulate one unilaterally?

4. (d) Is the point in time at which the parties agree that title should be reserved relevant?

5. (e) Do A's rights in respect of the machine depend on anything other than the inclusion of a reservation of title clause in the agreement: for example, compliance with certain formalities (e.g. agreement in writing, agreement having a ‘certain date’) or registration? Are such clauses efficacious if they are simply contained in the seller's general conditions of sale?

(Security right in revolving stock-in-trade – security ownership – enterprise charge – actio Pauliana)

A, a financial institution, intends to make a loan to B, who is starting a business as a wholesaler of motorcar accessories. To avoid personal liability, B sets up a private limited company (C). A wishes to take a security right over the stock that will be present on C's premises. The nature of the business is such that the stock will continuously be sold and replaced. A does not, therefore, wish its security right to be confined to present stock; rather it wishes it to include the stock that will be purchased by C in the future.

Questions

1. (a) Is such an arrangement possible? Describe its main features and prerequisites, including any requirements that may exist as to form, registration, separate storage, etc.

2. (b) What rights would such an arrangement confer on the secured party (A) in the event of C's insolvency? Or if another (unsecured) creditor tried to execute against the stock?

3. (c) How common are arrangements of this kind in business practice?

4. (d) Are there any limits in respect of the value the collateral may have in relation to the amount of the secured loan?

(Finance leasing – lessor's and lessee's rights in insolvency of the other partner – effects of purchase option)

S is a supplier of computers. B wants a computer. At the request of B, A (a financial institution) buys the computer from S. A then leases the computer to B. The length of the lease corresponds to the expected useful life of the computer. An unsecured creditor of B executes against the computer. Alternatively, B becomes bankrupt. A asserts ownership of, or a security right in, the computer, or at least to preferential payment out of the proceeds of the sale of the computer.

Questions

1. (a) Does A have any real rights in the computer? Do such rights depend on any further prerequisites?

2. (b) Is it relevant whether B has an option to buy the computer at the end of the contractual term?

3. (c) Is this or some other kind of leasing agreement used instead of other types of security, such as retention of title or security transfer of ownership? Is legislative policy or the approach of the courts more favourable to leasing (in respect of the interests of the supplier/the bank) than to security rights?

4. (d) What would B's legal position be in respect of the computer if not he but A became bankrupt?

(Simple retention of title – entitlement to resell)

A produces men's clothing and sells it to retailers. B, who runs a chain of fashion shops, buys 1,000 winter jackets for the coming season. The contract grants to B a period of sixty days before payment has to be made. It also contains a clause whereby A reserves title to the jackets until payment in full, but also permits B to resell the jackets in the ordinary course of business.

Before B has paid for the jackets in full, he goes bankrupt. As the winter season has not yet started, no jacket has yet been sold.

Question

What are A's rights in respect of the jackets?

Discussions

GERMANY

The solution to case 4 is the same as the solution to case 3. A can vindicate the jackets as his property (§ 47 InsO). They do not form part of the insolvency estate. The entitlement to resell the jackets does not in any way affect the validity of the retention of title clause. On the contrary, such a right is usually provided for because it enables B to transfer ownership to his customers without having to rely upon the rules of bona fide acquisition.

This is the fourth book in the series The Common Core of European Private Law. The Common Core of European Private Law Project was launched in 1993 at the University of Trento under the auspices of the late Professor Rudolf B. Schlesinger. The methodology used in the Trento project is novel. By making use of case studies it goes beyond mere description to detailed inquiry into how most European Union legal systems resolve specific legal questions in practice, and to thorough comparison between those systems. It is our hope that these volumes will provide scholars with a valuable tool for research in comparative law and in their own national legal systems. The collection of materials that the Common Core Project is offering to the scholarly community is already quite extensive and will become even more so when more volumes are published. The availability of materials attempting a genuine analysis of how things are is, in our opinion, a prerequisite for an intelligent and critical discussion on how they should be. Perhaps in the future European private law will be authoritatively restated or even codified. The analytical work carried on today by the almost 200 scholars involved in the Common Core Project is a precious asset of knowledge and legitimization for any such normative enterprise.

We must thank the editors and contributors to these first published results. With a sense of deep gratitude we also wish to recall our late Honorary Editor, Professor Rudolf B. Schlesinger.

(Protection of bona fide purchaser – retention of title and resale – consignment – special legislation)

A is a producer (or importer) of cars. He sells five cars to B, a licensed distributor. The contract allows B a period of forty-five days before payment has to be made. It also contains the following clause: ‘The seller hereby retains title to the cars delivered under this contract. The buyer, however, is entitled to resell the cars in the ordinary course of business.’ Two weeks after delivery of the cars, B has managed to sell all of them to various customers (C1–C5) who have paid for them and taken them away immediately. Before paying A, B goes bankrupt.

Questions

1. (a) Can A still claim ownership of, or any other real right in, the cars? To what extent, if at all, does the answer depend on B's entitlement to resell the cars?

2. (b) Who is entitled to the monies that have been paid by the customers (C1–C5) to B? Is it A? Or is it B's insolvency administrator/insolvency creditors?

3. (c) Could A improve his position in some way? If so, on what further circumstances would such an improved position depend? Are such arrangements commonly used? Is there a typical arrangement (perhaps for specific goods, whether cars or otherwise), the use of which would grant to A a security that would survive resale?

(Security ownership – sale and lease-back – other non-possessory security rights in individualised movables)

B owns a car fleet, which he wants to use as collateral for a bank loan without the need to transfer direct possession of the cars to the bank. B does not deal in cars and will not sell the cars in the fleet in the ordinary course of trade. He approaches A, a financial institution. A would like to have a real right in the cars in the event of B's insolvency. Moreover, A does not wish an unsecured creditor to be able to obtain priority over its own rights in situations other than insolvency.

Questions

1. (a) How could this be done? How is it usually done? Please state the precise prerequisites.

2. (b) Can such a security be achieved through a sale and lease-back arrangement? Is that common?

3. (c) Is your answer confined to cars, or does it apply to different kinds of collateral?

4. (d) The parties have adopted your proposals, either to create a security right in the cars, or to provide for sale and lease-back. A becomes bankrupt (though that may be unusual in practice). What would B's position be?

(All-monies/sums clause – effects of commingling on retention of title)

B is a wholesaler, dealing in electrical household items. He regularly buys large numbers of toasters and coffee machines from A, a manufacturer, and sells them to retailers. A and B have concluded a contract which serves as a framework agreement for all orders from B. This contract contains the following provision: ‘Each delivery has to be paid for within thirty days. In any event, the seller (A) retains title to the goods until the customer (B) has paid all sums that are due to the seller (A) under this contract.’ On 1 June, A delivers 500 toasters to B. They are stored on B's premises, together with 1,000 identical toasters previously delivered by A, of which only 500 have been paid for. B manages to sell 500 of the 1,500 toasters before he becomes bankrupt on 1 August. He has made no payments to A since 1 June. There are still 1,000 toasters on B's premises. It is impossible to discover to which delivery the toasters sold and the remaining toasters relate.

(Transfer of ownership – general effects of insolvency on property – statutory rights of unpaid seller – resolutive clause – goods in transit)

A is a producer of office furniture. B buys from A desks and chairs for his newly opened call centre. Since B cannot pay immediately, they agree that payment will be made in three monthly instalments. The contract does not contain any additional clauses of relevance. Without having paid a single Euro, B goes bankrupt two months after delivery of the furniture.

Questions

1. (a) Does A have any rights in respect of the furniture? In this context, describe also the general effects of insolvency on the property law aspects of the case.

2. (b) Would the answer change if the parties had agreed that the seller would be entitled to terminate the contract in the event of the buyer's failure to pay? What action would A have to take in that event?

3. (c) What would the position be if the furniture was not delivered to B, but was in transit, in the hands of a carrier, when B went bankrupt?

(Retention of title and resale – claim arising out of sub-sale still existing)

A is a producer (or importer) of cars. As in case 5, he sells five cars to B, a licensed distributor. The contract allows B a period of forty-five days before payment has to be made. It also contains the following clause: ‘The seller hereby retains title to the cars delivered under this contract. The buyer, however, is entitled to resell the cars in the ordinary course of business.’ Two weeks after delivery of the cars, B has already managed to sell them to various customers (C1–C5), who have taken them away immediately. Before anyone has paid anything, B goes bankrupt.

Questions

1. (a) Who can claim payment from C1–C5? Is it A or is it B's insolvency administrator?

2. (b) Could A get a better right in respect of the claims arising out of the sub-sales (for example, by adopting a differently worded clause, or by using a different type of retention of title clause)? What would be the precise prerequisites? Are such clauses commonly used?

Discussions

GERMANY

(a) Since the contract does not contain an anticipatory assignment of the claims arising out of the sub-sales (see infra, part (b)), it is the administrator who is entitled to claim payment from the customers.