Reservation of ownership of the sold item

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Reservation of ownership of the sold item is a contractual provision agreed by the parties governing the transfer of ownership of the goods to the buyer. It is a special type of sales contract regulated in the Civil Code. The seller may, by such a decision, secure the payment of the price for the goods, stipulating that the ownership of the goods will be transferred to the buyer only after the full price has been paid. However, entrepreneurs should pay special attention to this institution, because apart from its advantages, it also has its drawbacks. In what situations is it worth using retention of title to the sold item, and what should you bear in mind?

Reservation of ownership of the sold item and the transfer of ownership

For the issue of the transfer of ownership, it is important to determine the legal nature of the goods sold - whether it is a thing marked as to species or as to identity. The type of thing determines the moment when the ownership right passes to the buyer.

Items marked as to identity:

Example 1.

The entrepreneur who owns the printing house decides to replace the machinery and sell all the machines he owns. He found a buyer for the machine with serial number 999. He concluded a sales contract with him in writing on September 26, 2017. The buyer paid the first installment and took the machine on October 1, 2017, but no longer pays the remaining installment.

In the above example, we are dealing with an item marked as to its identity, i.e. marked according to its individual characteristics (in the example, it is the serial number of the machine). Unless otherwise stipulated in the contract of sale, the moment of transfer of ownership is the conclusion of the contract in writing. In the example above, it is September 26, which is the day on which the buyer has not paid any payment for the goods. Thus, from that day on, the machine with the serial number 999 is no longer owned by the entrepreneur.

Attention!

Failure to reserve the ownership of the goods sold in the contract means that the transfer of ownership of the goods sold marked as to its identity takes place upon the conclusion of the contract in writing. It does not matter if the payment has been settled.

Due to the consequences of not reserving the ownership of the thing sold in the contract, it is worth considering the worst possible scenario, which does not occur so rarely in economic transactions.

Example 2.

The buyer of the 999 machine, who already owns it, but has still not paid the remaining amount, has financial problems. In the course of the enforcement proceedings against him, the bailiff seized the machine 999. Ownership of the machine has already passed to the buyer by law, so the bailiff's powers to seize the machine are beyond doubt.

In the above situation, the regulation is of particular importance, according to which any changes to the ownership of the property seized by the bailiff in the course of enforcement proceedings are not effective. Thus, although in theory the entrepreneur who sold the machine could withdraw from the contract and demand the return of the machine due to the failure of the buyer to comply with the provisions of the contract (payment of the price), in practice it could turn out to be ineffective due to bailiff activities. Moreover, if withdrawal from the contract was possible, the intention of the entrepreneur was to sell the used machine and raise funds for further investments, hence the situation in which the used goods returns to the company is not favorable.

Items labeled by genre:

In the event that the subject of the contract are items marked as to their species, failure to reserve the ownership of the item sold has consequences for the entrepreneur who is the buyer of the goods.

Example 3.

The entrepreneur has concluded a contract for the delivery of 15 pallets of disinfectant. The contract stipulates that the goods remain the property of the seller until the price has been paid in full.

Attention!

Pursuant to the provisions of the Civil Code, when the subject of the contract are items marked as to their species, the moment of transfer of ownership to the buyer is the moment of handing over the goods to the buyer (transfer of possession of the goods), regardless of the payment date and the actual payment for the goods.

In this case, the reservation of the ownership of the sold item may act to the disadvantage of the entrepreneur purchasing the goods. The purpose of purchasing goods marked as to their type is often its further resale, and the entrepreneur (buyer) takes out a trade credit with the intention of selling the goods before the full payment of their price. However, if the entrepreneur does not thoroughly examine the contract in terms of the reservation of ownership of the sold item, he may deprive himself of the possibility of such action. For if the contract contained a reservation of ownership of the sold item, as in example 3, the entrepreneur would sell someone else's goods.

Reservation of ownership of the sold item as part of the contract

The reservation of ownership of the sold item is part of the contract. This is one of the reasons why there is no need to duplicate the reservation on the invoice, which is an oral confirmation of the contract.

Attention!

The reservation of ownership of the sold item is effective against the buyer's creditors only if the contract has a certain date!

Certain date is an official certificate of the day on which the activity was performed. On each document, a certain date can be certified by a notary or by obtaining an official mention on the document (the presence of the other party to the contract is not necessary).

It is therefore in the interest of the seller to ensure that the contract is dated with reservation of ownership of the sold item. In the event of enforcement by the buyer's creditors or the announcement of bankruptcy in liquidation, the seller will only be protected if the contract is dated. Otherwise, we will deal with a situation in which the goods are in the possession of the buyer who has not yet paid the full price for the goods and in accordance with the contract, and the reservation of ownership of the goods sold, the goods remain the property of the seller, but the lack of a certain date allows the bailiff to seizure of things in the control of the buyer-debtor.

On the other hand, if the contract had a certain date, then if the buyer would be subject to enforcement against the items in his property (and thus also from items in his possession but not his property), the seller could effectively demand exemption from enforcement belonging to him items.

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Can the sold goods be reserved only on the invoice?

As a rule, such an annotation on the invoice will be effective - if the invoice is signed by both parties.

Important!

An invoice with a note of ownership will not be binding on the parties if it is signed by a person who is not authorized to represent the buyer's company.

Therefore, if the invoice is signed by a person working in the warehouse or receiving correspondence, and is not a person authorized to represent the company, the signature will only confirm that the person has accepted the invoice. However, it will not be an effective agreement between the parties as to the transfer of ownership to the buyer.

The reservation of title to the sold item undoubtedly provides the creditor with protection against dishonest contractors. On the other hand, ignorance of the details and legal consequences of its application does not allow for its effective application.