1. What rules, if any, govern retention of title (RT) in your country? In the absence of rules, what are the principal mechanisms, if any, on which RT is based in your country?

Sale with RT is governed, under Albanian law, by Chapter 1, Title II, Book V of the Albanian Civil Code (Civil Code).

Under Article 746 of the Civil Code, titled “Sale of property with reservation”, the following is specified: “Where the sale price is paid in instalments, the buyer shall acquire the ownership over the property upon payment of the last instalment of the price, assuming the risks from the moment of delivery. The transfer of ownership with the reservation of the above condition must be reflected in the contract.”

In addition to the above provision, Article 747 of the Civil Code provides for the buyer`s relation with its creditors in an RT contract. In such context, Article 747 of the Civil Code specifies that “RT is enforceable against the creditors of the buyer, as long as it is stipulated in a written act containing a specific date prior to the measure of security interest.”

Additionally, the second paragraph of the same provision states that: “Where the sale scope is composed of immovable or registered movable property items, the provisions on registration shall apply.”

Article 748 refers to the case of failure by the buyer to pay one instalment only, which does not surpass 1/8th of the price. Such failure “shall not bring about the termination of the contract and the purchaser shall maintain his right to the deadline regarding the subsequent instalments, regardless of any other different agreement.”

Finally, Article 749 deals with termination of the contract due to the buyer`s failure to fulfil its obligations. In the event that contract termination occurs due to the buyer’s failure to fulfil its obligations, the seller must return the payments already made, notwithstanding its right to fair compensation for the use of the property, or any indemnity. The second paragraph gives the court the discretion to specify the amount of indemnity in case of the buyer’s failure to comply with the payment of the full price. The second paragraph of Article 749, states that “Where contractually foreseen that the payments having been made shall remain with the seller upon an indemnity title, the court may, depending on the circumstances of the case, reduce such indemnity.”

Article 749/a of the Civil Code constitutes an exemption from the provisions of the above Articles 746, 747, 748 and 749 to the sale of property with reservation in cases of financial transactions secured by lien. Under this Article, the rules contained in Articles 746, 747, 748 and 749 shall not apply to the sales of property with reservation, regarding financial transactions secured by lien, whereof the rules contained in specific laws shall apply.

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Such specific law is the Law no. 8537 dated 18.10.1999 “On Securing Charges”, as amended, which provides for the secured creditor’s (chargee’s1) rights upon the debtor’s (chargor’s2) intangible property or tangible movable property, through a securing charge agreement. A securing charge agreement is a contractual agreement stipulating a securing charge in favour of a chargee on the property of the chargor. The only way a securing charge can be created is through, or as a result of, a securing charge agreement. The rules applicable to securing charge agreements apply in the same way as to the RT contracts, which for the purpose and subject matter of the said law are considered securing agreements. The rules applicable to a chargee or to the rights and obligations of a chargee apply in the same way also to the seller under an RT contract. The rules applicable to a chargor or to the rights and obligations of a chargor apply in the same way also to the buyer under an RT contract.

For the purposes of such law, under its Article 5, paragraph 2, when the chargor is the buyer in an RT contract, a securing charge attaches to the collateral and becomes enforceable against the chargor. Also, a securing agreement may provide for a securing charge on collateral to be acquired by the chargor after the agreement is executed. However, as soon as the chargor comes into possession of the goods described in the securing agreement, the securing charge arises without the need for further acts by the chargee or the chargor.

An RT contract, which is a securing charge, must be registered in one of the manners provided in the Law no. 8537 dated 18.10.1999 “For Securing Charges” in order to have effect.

  1. Please describe the characteristics and scope of your country’s RT rules

The RT rules are part of the Civil Code and the law “On Securing Charges”. The RT provisions apply in the case of sale of property, where the transfer of the ownership is connected with the full payment of the price and inclusion into the sales contracts of the RT clause.

RT is a clause which is usually included in contracts of sale of immovable or movable properties, specifying that the right of property shall stay with the seller until the full payment of the price by the buyer. Insertion of an RT clause into a contract assumes that the property is initially under the possession of the buyer, who acquires the right to use the property until the moment of full payment of price in one or several instalments, which is the moment of full transfer of the ownership title.

From the provision established under Article 749 of the Civil Code (as stated in point 1 above), different RT rules shall apply for immovable properties and movable properties. As a matter of fact, the rules contained in Articles 746, 747, 748 and 749 of the Civil Code “shall not apply to the sales of property with reservation, regarding financial transactions secured by lien, whereof the rules
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contained in specific laws shall apply”, meaning that the RT rules of the Civil Code shall apply only on immovable properties. While for intangible property or tangible movable property related to financial transactions the law “On Securing Charges” shall apply, since the sale of such properties with RT is considered ipso jure a securing charge. In such case, the registered goods, subject matter of an RT contract, constitute a securing charge, i.e. a real right of the seller over these goods.

Finally, an RT clause shall be effective as long as it complies with a number of formal requirements such as the form of the contract, the moment of transfer of ownership or the physical transfer of goods, payments of instalments, etc.

  1. If RT is not regulated in your country, are there similar or commercially equivalent forms of security preserving seller’s rights to the goods?

RT is regulated in Albania by the provisions of the Albanian Civil Code and the Law “On Securing Charges”, mentioned under point 1 above.

  1. What is the relation of RT and passage of risk in your system? How may a seller protect its interest after the passage of risk?

Pursuant to Article 746 of the Civil Code, where the sale price is paid in instalments the buyer shall acquire the ownership over the property upon payment of the last instalment of the price, assuming the risks upon delivery.

A seller may protect its interest after the passage of risk referring to paragraph 2 of Article 749 of the Civil Code: “Where contractually foreseen that the payments having been made shall remain with the seller upon an indemnity title, the court may, depending on the circumstances of the case, reduce such indemnity.” The seller is entitled to include in the contract an indemnity clause which foresees that in the event of termination of agreement, the payments already made shall remain with the seller as long as the buyer is in breach of its payment obligations. However, the court may, depending on the circumstances of the case, reduce the indemnity foreseen in the indemnity clause.

A seller may also protect its interest after the passage of risk by providing a loss payee clause incorporated in the contract of insurance, whereby the seller is entitled to receive the indemnity as long as an outstanding balance of the price exists. The wording of such clauses may differ, but they generally provide for a payment being made under the insurance policy in relation to the insured risk to the seller rather than to the insured beneficiary, or to the latter, as long as the seller has given its prior consent.

As to immovable properties, ownership of the same is acquired by means of a sale contract, without having to hand over the property. Such properties shall be notarized and registered otherwise the transfer of ownership will not be valid. A lien shall be placed over the same property, in the Registry of Immovable Properties, noting that the buyer shall acquire the ownership over the property upon payment of the last instalment of the price. Therefore, even though the property is formally transferred to the buyer the full ownership title is retained by the
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seller, up until payment of the last instalment is performed by the buyer.

  1. What are formal requirements, if any, including timing, to perfect the seller’s right?

Formal requirements

As mentioned above, the transfer of ownership with RT shall be reflected in a written contract. The inclusion of the RT clause in the contract is a formal requirement which is directly related to the validity and effectiveness of the relation between the seller and the buyer. Additionally Article 164 of the Civil Code foresees that when the object of the contract is an immovable property, ownership of property is acquired by means of a contract, without having to hand over the object. For objects defined in numbers, weight of measure, the handover is required. On the other hand Article 83 of the Civil Code stipulates that a legal transaction made for the transfer of ownership of immovable assets and of the real rights over them must be notarized and registered, otherwise it is not valid.

Timing

Under Article 747 of the Civil Code, an RT clause is enforceable against third-party creditors of the buyer only if it is documented in writing with a date prior to the issuance of the credit.

An RT clause may attain such certain date by different means: by being incorporated in a contract signed before a public notary, or by recording the document which hosts the RT clause into special registries. Such special registers are the register of securing charges (as established by law 8537/1999) for movable properties and the Immovable Properties Registry for immovable properties.

Bankruptcy

In case of bankruptcy (see below § 6. d.) any process concerning the seller`s right shall be handled by the bankruptcy administrator, who is the authority in charge that replaces the debtor under all circumstances.

  1. Effectiveness
    1. Does sale to a third party break RT? What if goods have been transformed or sold?

Evidently the sale to a third party breaks RT; it is in its nature.

In case of merged or transformed goods the more valued part of the new good will decide the ownership, and in case of equal value the ownership will be shared quota part and in solidum.
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If yes, is there a possibility to transform the RT in case of a sale to a third party?

Any right that is not specifically able to be claimed is in any case transformed in a claim for damages.

  1. Enforcement of RT if delinquent buyer is not insolvent — What is the judicial procedure and what is its likely timeline?

Article 748 of the ACC stipulates that “Regardless of any contrary agreement, default in payment of only one instalment, which does not exceed the eighth part of the full price, does not entail the contract’s immediate termination, and the buyer shall retain the right of paying the subsequent instalments on the due date.” Therefore, the seller may terminate the contract only if the unpaid instalment exceeds 1/8th of the full price. This is a mandatory provision.

Except for the case mentioned above, if the buyer is in breach of its contractual obligation to pay, then the seller may claim for either (i) termination of the contract and recovery of the goods, or, alternatively, (ii) the payment of the goods under RT.

In the first case, even where the contract is terminated due to the buyer’s default, under Article 749 (1) of the ACC “the seller must return the instalments which have been already collected, subject to the right to fair compensation for the use of the good and damages.” Article 749 (2) of the ACC provides that “where it has been agreed that the collected instalments remain with the seller by way of indemnity, the judge, according to the circumstances, may decrease the agreed indemnity.”

With respect to the judicial procedure, if the seller aims to recover the goods that are with the buyer then the seller must address the respective first instance court by filing a lawsuit claiming the performance of the obligation or termination of the contract in addition to the indemnification.

The Civil Procedure Code does not define a specific timeline for the court proceedings, but instead emphasizes that the court must rule on all claims that are contemplated in the lawsuit within a reasonable timeframe. An ordinary civil case lasts from six months to two years.

Simultaneously, a criminal action against the delinquent for misappropriation in case of unduly and criminal action by the buyer can be followed. In such criminal procedure one may jointly ask for remedies and damages. The criminal timeline is, depending on the case, mostly four years.

  1. What happens in case of conflict between RT and a buyer’s creditors’ rights, including carrier’s liens?

An RT clause is enforceable against third-party creditors of the buyer insofar as such clause: (i) has been agreed in writing between the seller and the buyer; (ii) bears a certain date prior to the date of attachment; and (iii) is duly registered in a public registry when applicable by law.
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The third creditor’s rights wholly depend on the title of the same. If there is no preference right based on its nature (i.e. salaries, food, services etc), privilege to execute them comes with the time of filing.

The carrier’s rights are privileged and as such must be challenged or compared with any other rights of a same or different nature.

  1. Bankruptcy — interaction of RT (which is not contract law) and bankruptcy law

  1. Goods still with buyer

The declaration of bankruptcy does not entail the RT contract’s immediate termination. The bankruptcy administrator remains free to decide whether to adopt or terminate the contract between the seller and the bankrupt buyer (Article 89 of the Bankruptcy Law).

If the administrator does not adopt the contract, the seller must return the instalments which have already been paid, save the right to fair compensation for the use of the goods.

  1. Goods already sold by buyer

If the buyer sells the goods under RT to a bona fide sub-buyer, then the seller will lose the right of property in the goods, except for registered goods which remain registered under the seller’s name. If it is not a case of registered goods, the seller must claim the price of the goods under RT to the bankruptcy’s creditors, in accordance with the general procedural rules applicable.

  1. Time limits to declare title to receiver

To be included in any distribution of the proceeds of the sale of assets, creditors must file their claims with the bankruptcy administrator in not less than two weeks and not more than three months from the opening of the bankruptcy proceedings by the court. However, there is a procedure for dealing with late claims. This may involve a special verification meeting or verification through written proceedings. All creditors, the administrator and the debtor may attend the meeting.

  1. Who pays storage, insurance and transport during discussions with receiver?

The bankrupt party is obliged to pay.

  1. Model clause(s) — Drafting tips

NOTE: The following language is based on contractual provisions commonly seen in this
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country, but readers should always consult legal counsel before including an RT clause in a contract.

Unless otherwise specified in writing, all goods sold by the Seller to the Buyer remain the Seller’s property until the purchase price has been paid in full. The Buyer is held responsible for the goods upon their delivery.

1
In the context of the Albanian Civil Code, the “chargee” is a person in whose favour a securing charge is created under Article 2 including a seller, lessor and a consignor.

2
In the context of the Albanian Civil Code, the “charger” is a person who owes the obligation and owns the collateral. When these are different persons, the term chargor means the owner of the collateral in any provision of this Law dealing with the collateral and the debtor in any provision dealing with the obligation. A chargor is a buyer, lessee or consignee under transactions referred to in Article 2.