Romalpa - If He Won't Pay, Take Your Goods Back
I have long criticised the accountant’s approach to Romalpa Clauses – the term in the contract which allows the unpaid seller to re-possess his goods (because title has not passed). Contracts may be for lawyers, but it is Accountants who verify stock and the schedule of bad and doubtful debts. A doubtful debt where the client can recover the goods must be worth more than one where he can’t.
Identifying the Goods
The basic requirement of a claim to repossess goods is that the seller must be able to identify the actual goods on the unpaid invoice. We all know that if the last delivery gets mixed with an earlier one the lot is lost. In one case I remember, the unfortunate manufacturer had delivered twelve pallets of bricks. His own driver then put them in the storage bin together with one left unsold from a previous delivery. It is the liquidator’s job to maximise the assets for the creditors. In this case he had no difficulty resisting a claim for re-possession. He knew that the seller could not point to the actual twelve.
A properly drafted Clause
It has always seemed to me that Accountants let clients down when they fail to look at the clause in the sales invoice which is supposed to protect the seller against non-payment. I say “is supposed to” because in so many cases the clause is shamelessly useless.
(i) Events terminating the period of credit
A recent brief dealt with goods delivered through the factory gates at noon and the factory going into receivership the next day. On the facts of this unfortunate case the supplier had to wait sixty days of credit before his right to re-possess even crystallised! An instance of unthinking drafting, but not too high a price to pay. A properly drafted Romalpa Clause will cater for what happens if the buyer goes into Receivership etc before the due time to pay.
(ii) Facilities to Collect
The next requirement is less obvious. The object is, or ought to be, to be able easily to get the goods back without having to resort to the courts. A good commercial solicitor will have coupled with the money claim a claim for an order that title in the goods does not pass until the judgment debt is settled in full. A well-drafted clause will include the right to reasonable admittance and in appropriate cases, assistance and use of facilities to re-load the goods. Years ago I learned of an unpaid seller thwarted because the goods he came to repossess were in a shop in a shopping precinct and the precinct manager was sharp enough to advise the shop keeper that the seller was a trespasser!
Is the clause part of the contract?
However water-tight the clause, is it incorporated in the contract? In a sad case only this year, the client had delivered a most expensive laser treatment machine to a clinic. The liquidator just asked to see the paperwork. The negotiations showed that neither party had given a thought to the terms of trade and unfortunately for the creditor, as the clinic’s director confirmed , the first the buyer would have known of any reservation of title clause was as the machine came through the door. Too late!
However well-drafted the Romalpa Clause, it still requires to be incorporated in the contract. The terms on the back of the delivery note or on the back or of the invoice are often not part of the contract at all. Particularly if the deal is the first with a new customer. It is obvious really. To be part of the contract, terms have to have been drawn to the buyer’s attention before the contract is entered into.
Re-possess or Sue?
There is another trap for the unwary and many a solicitor fails here too. The unpaid seller always has the option of suing for the sale price. What he often does not appreciate is that, if his claim is only a money claim, when he gets his judgment – usually unopposed – all he actually has is a bit of paper. If the buyer then goes into insolvent liquidation or bankruptcy
- a) that paper is usually worthless (about 2p in the £ is the average distribution by the Official Receiver); and worse
- b) even if he had had an effective Romalpa Clause, in most cases, when he got his judgment he lost his right to re-possess.
The object is, or ought to be, to be able easily to get the goods back and that without having to resort to the courts. A good commercial solicitor will have drafted with the money claim a request for an order that title in the goods does not pass until the judgment debt is settled in full. Few solicitors are that astute.
Reservation of title clauses have been around since 1976. They are good law, but their extent has still not been fully explored. When the subject is better understood, perhaps clauses will be better drafted. Then solicitors and accountants with a client in difficulties will be on surer ground encouraging them to fight their corner and hopefully helping them to salvage something from the wreckage.
L M Wise FCA
Barrister-at-Law
Leslie Wise has regularly written articles for the Solicitors' Journal, Solicitors' Gazette and Accountancy. His wide practical experience informs Debt Collecting London’s total approach to your debts and helps ensure a quick result.