Contract of Sale: Preserving 'Retention of Title' Rights Over Products Sold On Credit
Written on the 8th of February 2012
Many businesses supply goods on credit subject to 'retention of title' provisions in their sales agreements. This article discusses the effect of the Personal Property Securities Act 2009 registration system (effective 30 January 2012) on the enforceability of such provisions and the contract of sale.
What is a 'retention of title' provision?
In normal circumstances, title (more commonly referred to as ownership) in relation to the sale of goods passes to the buyer immediately. A typical transaction might take place in a shop, involving the exchange of money for a product, with the buyer becoming the owner of that product when the money has been given to the shop assistant.
Are 'retention of title' provisions still effective?
Prior to 30 January 2012, such provisions were generally effective against other creditors of the buyer, subject to the agreement being proved... ie, subject to the seller having evidence of the arrangement. It is important to note that such provisions were not generally effective against a subsequent purchaser in good faith, such as where the initial buyer fraudulently on-sold the product to an innocent third party.
What is a financing statement?
This is a standard form document described in section 153(1) of the Personal Property Securities Act 2009, that includes the following information:
What about products that were sold subject to 'retention of title' before 30 January 2012?
Section 322 of the Act provides that a security interest arising from a 'transitional security agreement' - eg, an agreement which was in force before 30 January 2012 in relation to collateral - is perfected without registration for up to 24 months.
If you have any questions regarding this topic, please don't hesitate to call John Woodward (Partner) or Stephen Bourne on (02) 4904 8000 or email us. A member of our team will endeavour to respond to your enquiry within 24 hours.
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