Retention of title: a seller’s shield, but only if the rules are played right

I. Principle 

According to Article 1583 of the old Belgian Civil Code, a sale is finalized and ownership is transferred to the buyer as soon as there is agreement on the item and the price. However, since this article is not mandatory, the parties may agree to a retention of title clause, which delays the transfer of ownership until full payment of the price.

Thus, in the event of non-payment by the debtor, the seller-owner may exercise a claim action and recover the goods delivered under retention of title. This clause is a strong guarantee against debtor default. However, to be valid, the clause must comply with the general rules of validity under the law of obligations.

In practice, the claim action may encounter obstacles that can limit or hinder its implementation. Below, we examine some situations the seller-owner may face.

II. Practical applications  

First, implementing the claim action can be complex if the goods are with a bona fide third party or if they are not identifiable. A written clause can be important, although a verbal clause is generally valid between businesses (B2B) as long as it was agreed upon at the latest at the conclusion of the sale. If the buyer is a consumer, their agreement must be in writing. In case of dispute, the burden of proof lies with the seller.

Next, it is important to remember that the seller cannot act disproportionately (e.g., exercising a claim action for a single missed payment when most payments have been made).

Regarding immovable property by incorporation (e.g., installed kitchen), the retention of title clause is only enforceable if it has been registered in the pledge register.

In the event of the debtor’s bankruptcy, the retention of title clause remains enforceable and the seller retains their right of claim, provided—under penalty of forfeiture—that it is exercised before the filing of the first verification report of claims.

Finally, if the debtor is subject to judicial reorganization or transfer under judicial authority, the seller-owner can no longer claim their property from the opening of the procedure. The clause remains effective, but its exercise is suspended during the stay. Seizure-claim initiated before the opening judgment retains a conservatory effect, subject to the court granting its release.

It should be noted, however, that a debtor in judicial reorganization, remaining in control of their affairs, may sell goods. If the goods are subject to a retention of title clause, such a sale is, in principle, an alienation of another’s property until the price is fully paid. Similarly, in the case of a transfer under judicial authority, the administrator may sell the debtor’s movable assets. However, only assets owned by the debtor are concerned. For the sale of goods subject to a retention of title clause, the administrator will generally need the seller’s agreement.

The fate of the retention of title clause after the stay period will depend on the type of procedure chosen by the debtor for restructuring (judicial reorganization with collective agreement or transfer under judicial authority) or negotiations conducted with creditors, including the seller (judicial or non-judicial amicable settlement).

Finally, the seller-owner may oppose to the defaulting buyer the general mechanisms and exceptions of the law of obligations, i.e., the exception of non-performance or their right of retention if they have, in any way, regained possession of the goods sold with retention of title. Other avenues such as voluntary payment, set-off, etc., also deserve attention.