Posted by Andrew Ash, Partner
Customer become insolvent? Here’s how you can get your goods back
In a competitive market, offering your goods on credit is often a commercial necessity. But what if your customer becomes insolvent before they have paid for the goods? In this scenario, you will want your goods back – and to have a realistic chance of getting them back, you need to consider your contract before supply takes place.
When you sell something, the Sale of Goods Act 1979 allows you to retain title (i.e. legal ownership) of the goods you’ve supplied, provided there are express terms in your contract stipulating that ownership of the goods remains vested in the seller (i.e. you) until certain obligations are fulfilled by the buyer (usually payment of the purchase price). This is called a Retention of Title (ROT) clause.
Why create a ROT clause?
Drafted correctly, a ROT clause can greatly increase the prospects of goods being returned to you.
A basic ROT clause provides that the legal title to goods is retained by you until you have received full payment for them.
However, even where a clause provides for the ROT, you may not be able to enforce this provision unless it has been carefully drafted. The ROT provision on its own is likely to be of little use to you unless the contract also provides for additional rights, such as the right to enter premises to recover your goods and a clear explanation of conditions under which you would have the right to recover goods.
Identify and recover your goods
When you need to take your goods back, it is essential that your goods can be identified with sufficient certainty. Again, that means that before you supply the goods, you need to decide how they would be marked or packaged to make sure they can be identified at a later date.
It is also possible that getting your goods back will be problematic if the goods supplied have substantially changed form or have been mixed with other goods into an irreversible state. This depends very much on the specific circumstances of the case.
ROT and dealing with your customers
Your ROT clause must cover the essentials, that’s clear. But it’s not enough on its own. To have the best chance of being enforceable, it is also vital that your ROT clause is incorporated into your contractual relationship with any customers. There is no substitute to sending terms and conditions to all new customers before completing any contract for supply of goods.
It is also critical to make sure that any contract is based on your terms and conditions rather than the customer’s terms. This is known as ‘battle of the forms’ as, in a dispute scenario, it is commonly acknowledged that a contract is formed on the terms of the last party to submit their terms and conditions
Retention of title of the goods you’ve supplied is a complex area of law. At Royds Withy King, we regularly advise businesses in relation to both drafting ROT clauses and assisting in the enforcement of ROT provisions when your customer becomes insolvent. For expert help and advice contact our Dispute Resolution team on
0800 182 2460 Email us
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