Can I take back goods that I have sold if the buyer doesn't pay me?
Answer: It is possible, but only if you planned ahead when you agreed to a contract. In this short article I explain how you can protect your business from your B2B customers who don't pay for the goods they ordered.
The single biggest risk to a small business is the risk of not being paid. Under the Sale of Goods Act 1979 you are entitled to sue for the price of goods if you deliver them and the buyer doesn’t pay.
But if you’re successful in obtaining a judgment against the buyer – and ignoring the fact that this might take a year or more – then you still have the obstacle of enforcing that judgment. When it comes to trying to recover the money that you’re owed then you might end up finding out that the reason that you weren’t paid in the first place is because the cupboard was bare and still is. You can’t get blood out of a stone.
Retention of title
I’m pleased to say that there is a ray of light, but it needed you to have protected yourself with properly drafted terms and conditions in the first place.
If you included a “retention of title” clause in the contract, and provided it was written correctly, you will be entitled to recover the goods without obtaining a judgment in the first place.
How does it work?
Under English law commercial parties can agree anything they like in a contract, subject to a few exceptions. The idea is that everybody has the opportunity to negotiate a deal, with the ultimate protection of walking away if the deal is bad for one side. This is important, because there are certain standard terms that the law implies into contracts unless they are varied by agreement.
There are rules under Section 18 of the Sale of Goods Act 1979 which provide that if the parties to a contract did not agree differently then ownership of the goods will pass in certain scenarios. Some are simple and some are more complicated, and so I’ll deal only with Rule 1 as an example, which in simple terms provides that if goods are in a deliverable state and the contract is unconditional then ownership passes to the buyer when the contract is made.
Rule 1 does not require that payment is immediate; it only requires that the agreement had been reached for the seller to deliver the goods and the buyer to pay the price. Once the agreement is reached the goods belong to the buyer. If the seller were to go out of business and call in the liquidators then the goods would still belong to the buyer.
But under Section 19 of the 1979 Act the parties may agree that ownership of the goods does not pass from the seller to the buyer until certain conditions are fulfilled, even if the goods have been delivered. This is what is meant by “retention of title”: the retention of ownership until conditions are fulfilled.
The most common retention of title clause will provide that ownership of the goods will not pass until the price has been paid for in full, or until all consignments bought and sold are paid for in full. The best way to show the intention of the parties that they agreed to this is to have agreed in writing with both parties signing to show agreement.
Of course, it is of little use if you have the right to ownership of goods if you can’t access them. The parties can – and should - agree that the seller can enter the premises of the buyer to recover the goods if they have not been paid for. In the absence of such agreement the seller would be trespassing if he enters the buyer’s land without permission.
Getting it right
It is essential that you make sure that your business has bespoke standard terms and conditions that will protect it, and a retention of title clause is a big part of that protection if your business is the sale of goods of any description.
A valid retention of title clause will permit you to take back goods as long as they are identifiable. So if you sold 100 espresso machines to a buyer and find them in the warehouse bundled up with your delivery note attached then you could identify them as the goods under the contract and take them back.
Likewise, if goods are detachable – such as a diesel engine for a car – and it is feasible to detach them without causing damage to the things to which they are attached, then you can take back those goods as long as they identifiable.
You can’t take back goods if they’ve been mixed in with something different and a new product has been made. So you could potentially recover boxes of eggs that you sold, but you can’t use a retention of title clause to take away the cakes that were made using the eggs.
You also can’t take back goods if they have been sold on to a sub-buyer before you’ve been paid; nor do you have an automatic right to the proceeds of sale.
The reason why it is so important to get your retention of title clause right is that a badly written clause can make it ineffective and may instead only give you a right to a charge over goods. This is very important, because if you are the owner of goods then you are entitled to the goods if the buyer becomes insolvent, and the liquidator can’t dispose of them and distribute the proceeds of sale. If your retention of title clause is ineffective then you’ll instead have to queue up with the rest of the unpaid creditors and get a fraction of the value in the liquidation.
As with many areas of law for businesses, this is an area which sounds straightforward on the face of it but is laced with traps. It is always better to get proper legal advice on these matters rather than trying to do it yourself.
I am able to write standard terms, including retention of title clauses, at a fixed fee and probably at lower cost than you might think. I am also able to advise you if you get into a situation where you want to exercise your rights under a retention of title clause.
A properly written contract might save your business thousands of pounds, and a badly written one might cost you everything. Please feel free to contact me if you would like me to take a look at your standard terms. Initial advice is always free.