Retention of Title

Something that i am currently researching for work.  Retention of title means, holding on to title of goods until certain conditions are met.  In most cases, this clause is included in agreements whereby title is transferred to the buyer upon full payment of the said goods.  This is to protect the seller’s interest in the event of default by the buyer.  In a simple transfer of title upon delivery, if the buyer defaults the seller’s only recourse is to pursue the debt.  However, if the seller retains title in this situation, it has recourse to re-posses the goods.  A better option for an unsecured creditor faced with a debtor that has gone into liquidation. 

Enforcement of this clause is dependent on whether the goods are identifiable.  It is necessary that goods subject to this clause, is identifiable in order that title is not disputable.  This clause may be difficult to enforce in cases where goods are used to create another, thereby transforming its original condition. 

One tricky element relating to this clause is the responsibility for insurance.  It may seem reasonable that the owner, i.e. the seller, is responsible for insuring goods for which it still holds title.  However, considering that the goods are no longer within its care and custody, having passed the same to the buyer, the seller has no control over the physical good.  If viewed from the seller’s point of view, it is being exposed to risk over which it has no control.  One thing that remains un-confirmed is whether a debt is still owed if the goods are damaged while insured.   Here’s an interesting link, which explains the pitfalls to look out for when including this clause in agreements.  It suggests that the responsibility for insurance should be clearly mentioned, that the buyer is responsible for insurance to protect its interest.


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