What protection the law provides for a seller where a buyer becomes insolvent.

Usually the common condition that must be fulfilled it that of full payment and it is only then that property will pass. In this case scenario it seems fairly ambiguous as to what conditions must be fulfilled. It seems the storing of the widgets S Co supplies separately from other sources B Co owns, acts as the only condition, as no mention of full payment has been made, but there is however an assumption on the basis that B co is purchasing the widgets on credit and they may not make full payment due to their weak financial position.

The starting point with regard to ‘retention of title’ clauses is the case of Romalpa.

It is a case that plays a protagonist role in the understanding of retention of title clauses and seems to have appropriately renamed them, Romalpa clauses. The case itself seems to portray a very liberal approach to the respect given to clauses, however following case law provides for a more stringent approach to the viability of clauses. From the outset it does seem that this area of law is a little confused and has been described as ‘a maze if not a minefield’ as each clause is taken in a very subjective manner, and as we will see in later case law the outcome to whether it works is often uncertain.

The facts of Romalpa show that a Dutch company supplied foil to a UK company, on terms that the foil remained S’s property until B had paid all debts due to S. Until then B was required to store the foil separately from its own property. The case went further where although B was allowed to manufacture products using the unpaid foil the products were to be transferred to S ‘as surety’. Further if any of these products were resold to a third party S would have the right to receive payment. Three types of subject matter were established here in relation to the clause, these are;

1. right to the original, unused, goods themselves
2. right to manufactured goods from the original items
3. and right to the proceeds of any resold manufactured or original goods to third parties.

In this essay scenario we are concerned with both the right that S Co has to the unused original goods and as B Co manufactures widgets also the items that they produce in their process. Although there is no mention that B Co will resell the original goods without paying it will always be a possibility, so worth mentioning.

So firstly let us look at the right that S co has to the original, unused goods. It is in the case of Clough Mill Ltd v Geoffrey Martin where the rule was clearly established, that a simple rentention of title clause, reserving the right to the original and unused goods until they are paid for will be effective. In the case the sellers supplied yarn to the buyers who intended to use it for the manufacture of cloth. The sellers tried to incorporate into the contract a retention of title clause that included a multitude of conditions. It was held that the case covered two separate matters the first was that a simple retention of title clause would be effective over the unused an original goods, and secondly that the clause would not be effective when trying to retain newly created goods from the original goods.

This however was only at first instance, it was said that the effect of the clause was to create a charge in favour of the sellers, with the buyers having legal title. It is important to note here that if in the instance of charge being created where it is a corporate buyer such as S co, the charge must be registered otherwise it will be void against a liquidator or creditor of the company.This argument of creating a charge was rejected when sent to the Court of Appeal, and the seller succeeded in retaining property in the goods.

The case itself seemed to unsettle the steady law of Romalpa, and although the basic rule that a simple retention of title clause works where the goods are original and unused until full payment is made, the position of items that are manufactured out of the goods still remained uncertain. It is important also to note that although a simple retention of title over unused goods may work, this is subject to the identification of the goods.