How do you ensure that you recover the goods you have delivered if your customer does not pay?

One possibility is a retention of title. This topic has been a hot topic since 2011 due to the many bankruptcies of retail chains and stores. The current corona crisis is reason to bring this topic up again, especially now that stores have been closed by order of the government. Most recently, Perry Sport's bankruptcy petition was rejected and fashion chain Takko applied for state aid. In addition, I also touch on a recent ruling on third-party protection for retention of title.

If you as a supplier deliver goods to your customer, the customer in principle becomes the owner as soon as the goods are delivered to him. This is the case even if the purchase price has not yet been paid by the customer. There are two possibilities that allow you to claim your goods if the purchase price has not been paid. First, the (contractual) retention of title and second, the (legal) right of claim.

Retention of title

You can stipulate contractually that you remain the owner of the items you have delivered until the purchase price is paid. If this does not happen, you can reclaim and collect the goods, even if the buyer goes bankrupt. Also read this article.

However, this requires that the retention of title has been agreed with the customer before or at the conclusion of the purchase contract. A retention of title may also be included in your general terms and conditions. The provisions in the terms and conditions only take effect if they are sent to the customer before or at the time of the conclusion of the purchase agreement.

Furthermore, it is advisable to agree on a so-called "extended retention of title. If you don't, you can only recover the items that relate to the unpaid invoices. With an extended retention of title, you remain the owner of all items delivered until all invoices are paid.

It is also wise to label your items so that it is traceable that you have delivered the items. In particular, this is essential if multiple suppliers supply the same product to the customer.

Third party protection for retention of title

If you have agreed a retention of title with your customer, this retention of title in principle loses its force if the buyer sells the goods to a third party who is bona fide. This is the case if this third party is not aware of the retention of title and should not have been. If there is good reason for doubt, the third party must investigate. In a recent judgment the Court in preliminary relief proceedings referred with respect to this obligation to investigate to the Hoogovens/Matex judgment (HR 29 June 1979, NJ 2980/133). In this judgment the Supreme Court ruled that the mere fact that the possibility that a supplier has delivered to the seller under retention of title must be taken into account does not already mean that an investigation must be conducted into the seller's authority to sell the goods. There must be circumstances in which the acquirer should have doubted the seller's authority. The interim relief judge ruled in the aforementioned case that there was no evidence of such concrete circumstances. Thus, the third party was acting in good faith and the supplier was left empty-handed.

This risk arises particularly with items that are not used by the customer himself but are resold fairly quickly. When (re)selling to consumers, there will almost always be good faith. However, there are other ways to ensure that your invoices are paid, also read this article.

Right of advertising

The second possibility to ensure that you can claim your goods if the purchase price is not paid is the legal right of claim. This right is contained in Article 7:39 et seq. of the Civil Code and exists by operation of law and therefore does not have to be agreed upon with the customer. As a supplier, you can take back the delivered goods six weeks after the claim for payment of the purchase price has become due and sixty days after the goods have been stored by the buyer. Once either of these periods has passed, the goods can no longer be claimed. The right of claim also has a provision protecting third parties in good faith.

This right is thus more limited than the retention of title. So it is wise to always agree on a (comprehensive) retention of title.

Strengthen your position as a supplier

As a supplier, know that, in principle, ownership of your items passes as soon as they are delivered to the buyer, even if the purchase price has not yet been paid. Retention of title and/or the right of claim can improve your position even in case of bankruptcy of the buyer. Goods can be claimed and resold. This limits the damage. However, it is important to properly agree on retention of title with or notify your customer.

Please feel free to contact me or any of the attorneys from my team with any questions on this topic.