418 s e c u r i t y r i g h t s i n m o va b l e p r o p e r t y

Discussions

g e r m a n y

(a)Under German law, an all-monies clause, such as the one used in the present case, is valid. This is another reflection of the liberal attitude of German law towards non-possessory security interests in general. After the buyer has paid for the goods to which the specific contract relates, retention of title is simply transformed into security ownership. A has, therefore, security ownership of the 1,000 toasters that remain on B’s premises. The toasters form part of the insolvency estate, in the sense that the administrator is entitled to realise their value. A is, however, entitled to preferential payment out of the proceeds of such realisation.1

If contained in general conditions, all-monies clauses may be invalid pursuant to § 307 BGB.2 Yet, there is a general presumption of invalidity only in contracts between consumers and businesses; in contracts between non-consumers, all-monies clauses of the type used in case 9 are generally considered valid.3 The problem of the collateral’s value exceeding that of the secured claim, which used to be given as a reason for invalidating all-monies clauses, is now avoided through the use of an implied waiver of the creditor’s rights.4

(b)As stated under part (a), the wording of the clause used in this case will secure the seller to a sufficient extent.

(c)All-monies clauses are extremely common. Usually, the parties use a so-called Kontokorrentvorbehalt, by which the goods delivered under retention of title (often with a combined products and proceeds clause) secure all claims of the seller resulting from the business relationship with the buyer. Another kind of all-monies clause is the so-called Konzernvorbehalt. The term Konzern signifies a group of companies. Through this type of retention of title clause, the seller seeks not only to secure the claims against his immediate contract partner (company X), but also claims against other contract partners who are members of the same group

1 As to the procedural rules, see supra, German report, case 7(d).

2§ 307 BGB (prior to 1 Jan. 2002: § 9 AGBG) transposes article 3 n. 1 of the Directive 93/13/EEC of 5 Apr. 1993 on unfair contract terms in consumer contracts (O.J. No L 95/29 of 21 Apr. 1993) into German law.

3Cf. Wolf/Horn/Lindacher/Wolf § 9 AGBG nn. E 33 and E 36. Note that, in contrast to the above-mentioned directive, the German rules on unfair contract terms in general also apply to non-consumer contracts (§ 310 n. 1 BGB).

4 See infra, German report, case 11(d).

of companies as X. This type of clause is now void, according to the new section 2 of § 455 BGB, introduced in 1999 together with the new Insolvency Code (InsO).5

a u s t r i a

(a)According to Austrian law, goods sold under a retention of title clause secure only the seller’s claim arising from the contract of sale of those goods. Only to this extent does Austrian law accept a non-possessory security right. An agreement according to which ownership of the goods should pass to the buyer only if the other claims of the seller are discharged (erweiterter Eigentumsvorbehalt, an all-sums clause) is therefore ineffective under Austrian law. In so far as it purports to extend retention of title to other claims, the clause in the contract of A and B is therefore invalid.

It is not clear, however, how these rules apply to case 9. The author would analyse the situation in the following way. Of the 1,000 ‘old’ toasters, 50 per cent did belong to A due to retention of title. As they are a homogeneous set of items, it does not matter whether or not it can be ascertained which particular toasters were paid for by B. The 500 toasters delivered on 1 June must be added to this, meaning that A owned 1,000, or two-thirds, of the total amount of toasters delivered to B (1,500). Of this set, 500 were sold by B. Of the toasters sold, some, all or none could have belonged to A. A could thus own any amount between 500 and 1,000 of the remaining toasters. The question is thus who should bear the risk arising from the fact that the ownership of the remaining toasters is indeterminate? Here the writer would argue that A must bear the risk. The extent of real rights must be definite (Bestimmtheitsgrundsatz, the principle of specificity). A’s security rights can only exist, therefore, to the extent that they are clearly identifiable. A can therefore vindicate 500 toasters.

(b)A’s problems arise as a result of a poorly drafted retention of title clause. They lie in the fact that it is not clear which toasters were sold, those which B had acquired ownership of through payment or those which remained the property of A. To remedy this problem, it would be necessary to find a mechanism that would have ensured that B would first sell the toasters for which he had paid, e.g. separate storage.

5 See further Bülow, DB 1999, 2196.

422 s e c u r i t y r i g h t s i n m o va b l e p r o p e r t y

b e l g i u m

(a)First of all, the effectiveness of a framework agreement covering all future purchases is questionable. Article 101 Bankruptcy Act is interpreted to mean that reservation of title must be established in a document relating to each sale. A framework agreement may however be useful in proving that the clause was accepted in the documents relating to the subsequent sales. Furthermore, reservation of title is only effective to secure the unpaid balance of a particular sale. It cannot be extended in order to provide a security interest for unpaid balances relating to other sales, or for other sums owed by the buyer to the seller. Finally, the rights of the unpaid seller will be lost when the goods have been mixed with goods of the same species. Most authors accept, however, that, when all the goods have been sold by the same person, the seller can vindicate those goods sold under reservation of title notwithstanding the mixing.13

(b)Article 101 Bankruptcy Act marks the boundaries of the security interests available to the seller. Any extension beyond those limits will be regarded as a fiduciary transfer for security reasons, which does not bind third parties.

(c)Clauses of this type are not commonly used.

p o r t u g a l

(a) Under Portuguese law, it is possible to provide that reservation of title will subsist not only until the payment of the purchase price, but also until the occurrence of any other event (article 409◦ C.C.). It would, therefore, be possible to provide for reservation of title until the payment of all sums owed by the buyer to the seller. In this case, as B has not yet paid all the sums he owes to the seller, he would not acquire ownership of the toasters delivered to him. So A would be considered the owner of the 1,000 toasters in question. As the clause was stipulated in an act under private signature before the delivery of the goods, it is effective as against the insolvency administrator (article 155◦, n◦ 4 CPEREF). Therefore, the toasters do not form part of the insolvency estate.

13 Dirix, RW 1997--98, 481 (499--500) n. 31.

(b)No.

(c)In Portugal, reservation of title clauses such as the one described are not common.

s p a i n

(a)A may claim reservation of title in respect of 1,000 toasters. A can vindicate the 1,000 toasters on the basis of the all-sums clause. Such an all-sums clause might be set out as follows: ‘The current framework contract binds both parties to the reservation of ownership clause in favour of the seller with regard to the goods sold, as well as to those which may be sold in the future and which are of the same make and model.’ A may vindicate the toasters if B becomes bankrupt, preventing them from forming part of the insolvency estate. Thus, since the toasters would not form part of the insolvency estate, A does not have a preferential right of payment from the proceeds of sale.

(b)A cannot obtain a better right. Given these circumstances, it is in A’s best interests to maintain a rei vindicatio against the toasters.

(c)Such clauses are frequently used in commercial practice.

i t a l y

(a)A will have no real rights in the remaining toasters, nor will he obtain a preferential entitlement to the proceeds of their sale. The toasters will form part of the insolvency estate.

(b)and (c) The retention of title clause in question is seldom seen in Italy. In any case, on the facts of case 9, it will be ineffective, since it is contained in a framework agreement, rather than in each contract of sale concluded between A and B. Under the current interpretation of articles 1523 ff. c.c., concerning reservation of title in instalment sales, such clauses are effective only if they form part of each contract of sale between the same parties.14 The framework agreement between A and B does not purport to be a sale. In Italy, A’s acceptance of B’s order will

14 See Italian report, case 5.

to all goods until B pays to A the outstanding sums owed, it demonstrates the hostility of most Italian judicial decisions, and of many scholars, towards the idea of using a reservation of title clause as a means of obtaining security over a changing mass of goods. This hostility is traditionally grounded in the following dogma, i.e. an argument that real rights have a determinate object, or that a vindicatio of movables requires their precise identification. However, it is fair to say that none of the objections to such wider use of the concept of retention of title rest purely on logical premises.18 In the field of financial instruments law, for example, these dogmatic statements have been challenged successfully, to enhance the level of protection for investors.19 There is little sign, however, that similar developments will take place in the commercial context, where reservation of title clauses such as that mentioned in the present case are still unknown in Italy.

t h e n e t h e r l a n d s

(a) In all probability, A would still be the owner of all the remaining toasters. None of the toasters would form part of B’s insolvency estate.20 As to the validity of the ‘all-sums’ clause, retention of title may not be extended so as to serve as a security for all debts owed to the supplier. A retention of title for ‘all sums owed for whatever reason to the seller’ would be invalid.21 It must serve in principle as a security for credit given for the purchase. However, the Code does not restrict retention of title to claims arising from simultaneous contracts of sale. Suppliers may agree on a retention of title clause not only for claims arising from the delivery of the goods sold at that time, but also for those arising

from deliveries already made and from deliveries yet to be made.22

18Hence, in related subjects, such as revolving pledges, there are significant concessions to the idea that a real right can be created over changing assets by party autonomy: Gabrielli, Rotatività della garanzia, Digesto sez. civ., XVIII, 102; Cass. 27 Sep. 1999,

n. 10685, Foro it., 2000, I, 528; Giust. civ., 2000, I, 1459, obs. Carozzi; Corr. giur., 2000, 1226, obs. Dabormida; Fallimento, 2000, 775, Finardi.

19Cass. 14 Oct. 1997, n. 10031, Foro it., 1998, I, 851, obs. Crisostomo and Macario; Giur. comm., 1998, II, 299, obs. Di Maio; Fallimento, 1998, 391; Dir. fall., 1998, II, 459. See now: Regolamento recante norme di attuazione del decreto legislativo 24 febbraio 1998, n. 58 e del decreto legislativo 24 giugno 1998, n. 213, in materia di mercati, arts. 46, 54 (adopted by the Commissione nazionale per le società e la borsa).

20It may be noted that the risk that the Dutch revenue services may attach third-party property found on the premises of the debtor, as discussed in case 3, does not exist with respect to stock-in-trade.

426 s e c u r i t y r i g h t s i n m o va b l e p r o p e r t y

Where, as in this case, a framework agreement exists between parties, on the basis of which several separate sales and deliveries are to be made, a retention of title clause can validly be extended to cover them all.

Stipulating an ‘all-sums’ clause of this kind provides the supplier with important advantages. First, retention of title normally ends when the goods are either processed (specificatio) or resold. An ‘all-sums’ clause, however, enables the supplier to invoke his or her retention of title clause to goods delivered and paid for, if the buyer uses goods for resale or manufacturing that have not been paid for. Secondly, as a procedural matter, the supplier is protected against the commingling (confusio) of paid-for and unpaid-for goods. If the retention of title clause only related to the purchase price owed from separate deliveries, he or she would often be hard pressed to show which of the goods delivered were not yet paid for and thus still his or her property, and which were paid for. Under Dutch law, the inability to do so would necessarily result in the buyer (detentor) becoming the owner of the goods by reason of confusio.23

(b)In so far as A seeks to secure claims arising from past and future deliveries under the framework agreement, a retention of title clause would provide effective security for the seller.

(c)The use of retention of title clauses extending to multiple deliveries is very common in practice. In fact, the draft provision of the Civil Code governing retention of title did not allow for this type of clause at all. The omission was heavily criticised by practising lawyers, who argued that, because of the difficulties that would be encountered by traders in showing exactly which delivery had not been paid for, traders would become very reluctant to continue extending credit on the same conditions or at the same price.24 It was in the interest of the business community that the relevant clause was included in the final draft.

e n g l a n d

(a) ‘All-monies’ clauses are effective in English law. Where the seller’s goods are mingled with other fungible stock supplied by the seller and in the buyer’s possession, it is as a practical matter very difficult for the seller to enforce his claim against an insolvency administrator or against a receiver acting for a secured creditor of the buyer. (‘Show me the

428 s e c u r i t y r i g h t s i n m o va b l e p r o p e r t y

words, so as to overcome identification difficulties. With an ‘all-monies’ clause a supplier retains title not only until the goods which form the subject matter of the particular contract of sale have been paid for but until all indebtedness arising between seller and buyer has been discharged. All-monies clauses have been upheld both in Ireland and in the United Kingdom.

Nevertheless, there is a degree of ambiguity in the case law. In many cases the expression ‘all sums due’ is used and it is not clear whether this refers only to indebtedness arising under the contract of sale or, alternatively, encompasses extraneous indebtedness. An example of such ambiguity occurred in Frigoscandia (Contracting) Ltd v Continental Irish Meat Ltd,29 where the relevant clause provided: ‘Until all sums due to the seller have been fully paid to it, the plant, machinery and materials supplied by the seller herein shall remain the seller’s personal property . . .’ The provision was held to be effective, with the judge saying:30

A difficulty which arises with regard to clauses of this nature is that they are included in the contracts to secure the payment to the vendor of the price of the goods and therefore it may be said . . . that the goods once delivered, are intended to be held by the purchaser as security for such payment and that the transaction is in the category of a mortgage in that the vendor, although retaining ownership or an interest in the goods, cannot take possession of them provided that the specified instalments are paid, and that this leads to the conclusion that such a clause must be treated as creating a mortgage or a charge over the goods. In my opinion such a conclusion can have no general application to these clauses and each case must depend on its own facts. The parties to a contract can agree to any terms they wish and, amongst others, they can agree that the property in the goods shall not pass to the purchaser until all the instalments of the purchase price have been paid.

In other Irish cases what is unmistakably an ‘all-monies’ retention of title clause has been judicially validated. A leading case is Re Interview Ltd,31 where an Irish firm agreed to import electrical goods from a German company subject to a clause which stated: ‘The product supplied shall . . .

remain the property of the supplier until all debts owing to the supplier or to be created in the future and arising from the business connection with the purchaser have been paid in full.’ The clause was upheld. It should be noted that while the contract was explicitly stated to be governed by German law there was no suggestion that Irish law on the point was any different. While the issues have not been dealt with at

any length in the Irish case law, there is statutory support for ‘all-monies’ clauses in the Sale of Goods Act. Section 19(1) of the Act provides that a seller may reserve ownership in the goods supplied until the conditions specified in the contract of sale as to the time of passing of ownership are fulfilled. Section 17 states that parties to a contract are free to agree when ownership of the goods supplied is to pass and consequently can agree that it will not pass until the buyer pays the seller all sums due. It should perhaps be noted that similar arguments based on equivalent UK wording found favour with the House of Lords in Armour v Thyssen Edelstahlwerke AG.32

In this particular example, if the ‘all-monies’ clause is effective, A will acquire real rights in the remaining toasters and the toasters will not form part of the insolvency estate. There is however some ambiguity about the facts of the example. The ‘all-monies’ clause forms part of a general framework agreement but it is not expressly stated whether each delivery is the subject of a separate contract of sale and whether the retention of title clause has been incorporated into these individual contracts. If it has not been incorporated and there are separate contracts of sale, then title to the goods supplied thereunder will, prima facie, pass on delivery.

(b)Further to the answer to the previous question, A could get a ‘better right’ by endeavouring to ensure that the ‘all-monies’ clause is incorporated in each separate contract of sale.

(c)‘All-monies’ clauses are used in Ireland quite commonly to get around identification difficulties that spring from the use of ‘simple’ clauses. Take the situation where generic goods are supplied subject to a simple retention of title clause and there have been many different deliveries -- all subject to a separate contract containing the same simple clause. Some consignments have been paid for but others have not. If the buyer becomes bankrupt with some of the goods supplied still in its possession it may be difficult, if not impossible, for the seller to link these goods with a particular unpaid invoice. If, however, ‘all-monies’ clauses have been used the seller can say to the buyer: ‘The goods remaining are mine and I will take them back. You have acquired title to none of the goods because all of the claims have not been paid.’

32 [1991] 2 AC 339.

(b)A could try to obtain a stronger legal position by including a clause in the framework agreement excluding the consequences of commingling. This has, however, not been tested by the courts.

(c)Not in the context of toasters and such like items.

d e n m a r k

(a)When the buyer has a right to resell the goods a retention of title clause is not valid unless the buyer has to settle with the seller when the goods have been resold. The clause in this case does not fulfil this condition. (For a fuller discussion, see case 4.) Therefore, A has no right to the remaining toasters.

Even if a valid retention of title clause was stipulated in a credit consignment contract, A could claim no right to the toasters. In Danish law it is a general rule that a person who claims a right to an asset must be able to identify the specific asset on the basis of the contract. Because the toasters which have not been paid for are stored together with toasters which have been paid for it is impossible to point out the precise toasters to which A would assert a right. The toasters will form part of the insolvency estate and A cannot claim any right to the toasters nor claim preferential payment from the proceeds of their sale.

(b)If the contract contained a valid retention of title clause, the contract should also state that B had to keep those toasters in which A could claim a right separated from those toasters already paid for. If A checked that B acted according to that contract, A could claim a right to the toasters remaining on B’s premises which had not been paid for. It is important that the process of separation is conducted in such a way that no doubt arises as to which toasters A can claim a right to.

(c)It is probable that almost all credit consignment agreements contain a clause which states that the goods delivered under the contract shall be stored separately from other assets of the same or similar sort.

s w e d e n

(a) The retention of title clause is void, because the buyer has been entitled to dispose of the goods prior to full payment (see case 4). Below, this