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?

In Austria, for RT various legal provisions are to be considered, and there is a large number of decisions by the Austrian Supreme Court (Oberster Gerichtshof, OGH) concerning RT.

According to § 1063 of the Austrian General Civil Code (ABGB), generally if goods are transferred to the buyer without payment of the purchase price the buyer immediately acquires the right of property. However, this provision is optional, hence an RT clause is possible if it is mutually agreed on in a contract of sale, and therefore in practice parties often agree otherwise.

A few additional rules outside the ABGB also mention RT. § 224 of the Austrian Insolvency Code (IO) stipulates that RT is not affected by insolvency proceedings if at the time the insolvency proceedings are initiated the goods under RT are located in another country. Similarly, § 81d of the Austrian Banking Law (BWG) stipulates that RT is not affected by reorganization measures against a credit institution according to Art 2 of Directive 2001/24/EG if the goods are located in another country.

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

According to Austrian law, RT is considered a suspensive condition according to which the right of property is only transferred once the purchase price has been paid completely. While the price has not been paid, the buyer only has a right of usage. If the RT clause has not been agreed on, the seller is obliged to immediately transfer the right of property to the buyer.

In Austria, RT is less formal than other forms of security. Unlike liens or assignments as security, there is no requirement to publicly disclose RT. Additionally, there are no form requirements for RT clauses.

However, it does not constitute a valid RT to make the transfer of the property dependent on other claims by seller or by or to related companies, which are not considered purchase price for the sold items.

  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 Austria, though mainly by court rulings.

  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?

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Generally according to §§ 1046-1051 ABGB the risk of loss lies with the party that has ownership. However, in case of RT the risk passes immediately to the buyer when the goods are transferred to him or her.

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

The RT clause has to be mutually agreed on in the contract of sale, although it can be amended at the latest when the goods are delivered. A unilateral declaration by the seller to withhold the right of property when delivering the goods has no effect, as does mentioning an RT clause for the first time after delivery (e.g. in an invoice).

In this context, it should also be mentioned that in the case of conflicting Terms & Conditions (e.g. the seller’s T&C stipulating RT while the buyer’s T&C do not) no valid RT clause is formed (5 Ob 286/08g).

There are no formal requirements for RT clauses. Therefore RT clauses can also be agreed on orally, and generally no further requirements exist for them to be enforceable against third parties.

However, § 297a ABGB stipulates a special rule for machines. If machines located on a plot are not property of the plot owner (e.g. because they have been bought by the plot owner under RT), this has to be made visible in the Austrian land register (Grundbuch). Otherwise, the RT is effective only against the buyer, but not against a third party that acquires mortgages or other rights to the plot in good faith.

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

According to § 367 ABGB, if movables have been sold and delivered to a buyer in good faith, said buyer acquires the right of property if one of three additional conditions is met: the buyer has to either buy (i) from an entrepreneur within said entrepreneurs scope of business, (ii) in a public auction, or (iii) from a person of confidence to the owner.

A buyer under RT is always considered such a person of confidence. As a result, sale to a third party will break RT if the sub-buyer is in good faith, which makes RT less effective.

A sub-buyer (especially an entrepreneurial sub-buyer) is not in good faith if the specific items it buys are usually sold under RT and/or the sub-buyer purchases on credit.

If the goods under RT are transformed/ processed, the seller may become a co-proprietor of the newly created object. The seller’s share is determined by the value of the goods he or she sold under RT compared to the value of the work done on them.
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The same rules apply in case of conjunction or commixture. Differing effects of transformation can be agreed on mutually. However, if goods under RT become an inseparable part of another object (e.g. bricks sold under RT are used to build a house) the RT ceases to exist, regardless of an agreement.

If yes, is there a possibility to transform the RT in case of a sale to a third party?

It is possible to agree on a prolonged RT. In this case, the buyer assigns all claims from a future sub-sale of the goods under RT in advance to the seller. This assignment is possible, although for it to be effective the formal requirements for assignments as securities (mode) have to be met. Therefore, the assignment has to either be made visible in the buyer’s accounting books (3 Ob 116/08t), or the sub-buyer has to be informed of the assignment, which can be achieved by mentioning the assignment on the bill of sale (5 Ob 566/88).

If the goods are to be sold against cash, it is also possible to oblige the buyer to separate the cash received from the rest of its money, thereby immediately giving the seller right of property to the money. (This form of security is not very practical, however.)

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

The RT secures the payment of the buyer’s debts. If the buyer is in default with the payment of its debts, the seller may demand payment of the remaining purchase price before the respective court. The seller can then demand seizure and auction of the buyer’s property to enforce seller’s claim. The seller may even demand seizure and auction of the goods sold under RT, although this is considered a waiver of the RT as these goods are technically the seller’s property.

Also, seller may instead terminate the contract of sales and demand that the buyer returns the goods received under RT, while paying back any amounts of payment already received.

The right to terminate the contract of sale in case of a buyer’s default to pay does not have to be explicitly stated in the contract of sale, and merely demanding that the buyer returns the goods received under RT is a sufficient notice of termination.

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

As a general rule, the buyer of goods under RT cannot transfer rights to them such as liens to third parties. However, liens or other creditor’ rights can be acquired in good faith following the rules explained under 6a.

In this context, it has to be mentioned that a lien of movables under Austrian law follows rather strict publicity requirements. Any goods that are not too sizeable to be moved (e.g. cars) have to
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be handed over to the creditor. Larger objects such as machines have to be marked as pledged. As long as those requirements are not met, the creditor has no enforceable right to the object.

Special rules apply to machines sold under RT on a plot belonging to the buyer. According to § 297a ABGB those machines become part of a creditor’s mortgage unless it is stated in the land register that they are not property of the plot owner.

In all cases, a creditor cannot acquire any rights to an object sold under RT if he or she knows or should have known that these objects are not the buyer’s property.

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

  1. Goods still with buyer

In case of bankruptcy, the seller can lodge its claims in the insolvency proceedings and/or terminate the contract of sales by exercising its right for exclusion under § 44 IO. Although these two options contradict each other, it is considered possible to use both at the same time (8 Ob 184/00t).

Lodging a claim in bankruptcy proceedings is generally not considered a waiver of the RT, neither is accepting the quota from a remediation process.

The receiver can however prevent exclusion of goods sold under RT by paying the full purchase price. Furthermore, the right to demand exclusion can be delayed significantly as according to § 11 para 2 exclusion cannot be demanded for a period of six months if the object that should be excluded is crucial for the debtor’s business, unless that object is equally important for the owner.

  1. Goods already sold by buyer

If the sub-buyer has received the goods in good faith (following the rules described under 6a), the seller loses the right of ownership and can only demand payment of the purchase price from the buyer.

However, according to § 44 para 2 IO if the goods under RT are sold during the insolvency proceedings, the seller can demand exclusion of the price received for the goods.

  1. Time limits to declare title to receiver

Any claims in a bankruptcy should be lodged at least 14 days before the general date of hearing, which should take place about 60 to 90 days after insolvency proceedings are opened (§ 74 IO). However, according to § 107 IO, claims can be lodged afterwards as long as 14 days before the insolvency proceedings’ last hearing, but are then discussed in a separate hearing.
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A claim for exclusion (§ 44 IO) is not formally filed to the court. Instead it is brought before the receiver; should the liquidator decide not to acknowledge the rights of the party seeking exclusion, it is possible to file a complaint to the court. There are no time limits to the right for exclusion.

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

The expenses for storage, insurance of the debtor’s goods are paid by the bankrupt party. Costs for storage or insurance during the insolvency proceedings are prioritised according to § 46 IO.

  1. Model clause(s) — Drafting tips

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

All goods provided to the Buyer by the Seller shall remain the Seller’s Property until the purchase price has been paid in full.