Incoterms_® and Commercial Contracts

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 Denmark the rules on RT are governed by the Credit Agreement Act (Bekendtgørelse af lov om kreditaftaler). A substantial part of the provisions deal with credit extended to consumers and RT clauses stipulated in connection with such credits. However, some provisions also apply to RT clauses attached to credit given to business enterprises, which are buying equipment.

The main Articles are in §§ 34 ff.

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

The provisions of the Act are mandatory, and § 34 describes under which conditions the seller can sell the products with an RT clause.

RT is only valid if

1. the RT clause is agreed upon at the time of delivery at the latest;
2. the total amount to be paid exceeds 2.000 DKK (approx. 268€);
3. credit purchase is not made in pursuance of an agreement on credit with variable loan amount; and
4. the RT clause must be expressly agreed upon and must be clear.

A written document is required in order for the seller to reclaim possession of the goods with help from the court (Fogedretten). The seller is not allowed to seize the product itself when the customer has not paid the invoice unless the customer agrees.

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

See question 2.

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

There is no link between the two under Danish Law. According to the Danish Sales Act §17
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(Købeloven) the risk for accidental loss passes on to the buyer at the time of the delivery. Despite this, the seller normally will make sure, that the goods are insured by the buyer as long as the invoice is not paid, and the RT could still play a role between the contracting parties.

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

As already mentioned, the RT clause has to be in writing and clear. In most cases it is not enough that the clause is placed only on the order confirmation or the invoice. If the RT is placed in the seller’s terms of sales and delivery, and those terms have been presented before the buyer confirms the order, the RT clause would be valid. The RT clause could be valid if the clause has been discussed a little later, as long as the clause is agreed upon at the time of delivery at the latest.

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

Yes, a sale to a third party generally breaks the RT in Denmark if the goods have come into possession of the third party.

Transformation or annexation of the goods into another property generally also breaks the RT.

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

The effects of a resale on the RT can be regulated in the first sale contract, or by its modification. In order to preserve the RT in the case of the first buyer´s bankruptcy, the parties need to agree that the first buyer may not sell the goods further with an effect on the first seller´s right. The resale buyer´s position then depends on its knowledge of the term in the first sale contract or, obviously, on a term in the resale contract. It is submitted that this applies also in other than bankruptcy situations.

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

If the buyer does not pay, the seller has to invoke the clause, terminate the contract and address the normal Danish court of first instance — the office of enforcement (Fogedretten). The court will then help the seller to get into the possession of the goods again.

If the buyer has no legal grounds for not paying, the procedure is quite effective, and can take place within 3 months.
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3. What happens in case of conflict between RT and a buyer’s creditors’ rights, including carrier’s liens?

The conflict with other creditors usually arises in bankruptcy. An unpaid vendor has a separatist´s right in bankruptcy and can take back its property. If there is execution outside bankruptcy, the unpaid vendor can file an execution complaint to protect its interests.

A carrier with a lien can retain the goods under RT and, depending on the nature of the lien, sell the goods to satisfy its claims, irrespective of the RT. A contractual lien may even extend to claims based on other grounds than the carriage in question (as in the Nordic NSAB 2015 freight forwarding conditions). A claim to the carrier to release the goods may be made by the consignee or the holder in due course of the bill of lading, where applicable. Reference is, however, made to the stoppage in transit under Article 71(2) CISG.

4. Bankruptcy — interaction of RT (which is not contract law) and bankruptcy law
1. Goods still with buyer

If the RT is valid, the seller can claim the goods from the estate, provided that the goods have not been transformed, and that the seller can individualize the goods.

2. Goods already sold by buyer

If the RT is valid and says that the buyer is not allowed to resale the goods until the purchase price has been paid in total, it is possible for the seller to claim back the goods from third parties. If the third party is in good faith about the RT clause — which he or she normally is — the clause has no effect.

3. Time limits to declare title to receiver

There are no time limits.

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

Since the exercise of the RT clause is connected to the buyer’s breach of contract, the buyer is obliged to hold the seller harmless unless otherwise expressly agreed.

7. 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
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contract.

Normally the RT clause is part of the seller’s general sales and delivery conditions and can be written very simply, as, for example,

If the seller wants to keep the possibility of claiming back the goods from a third party, it is necessary to add the following sentence:

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