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?

RT is regulated in Chapter IV of the Civil Code, particularly Articles 1834, 1835, 1836, 1838, 1840, and 1841.

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

Pursuant to the Articles listed above, parties are free to determine the inclusion of RT in a contract; hence it is to be considered as a contractual instrument that applies to civil and commercial contracts, covering every kind of good (movable, immovable, material and immaterial).

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?

It is regulated in Guatemala.

4. 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?

Article 1813 of the Civil Code establishes that the risk rests on the party that has the physical possession and use of the good, unless the parties agree otherwise. This is a general sales contract provision that also applies where the contract contains an RT clause.

Sellers may protect their interest by not contracting out of the main rule of Article 1813 mentioned above, or by including suitable clauses that would help them protect their interests; for example, insurance clauses.

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

It is a contractual clause, so the RT per se does not entail any formal requirement. The only formal requirement arises where the sale including the RT concerns immovable goods (i.e. real estate) or a movable good subject to registration, in which case the document supporting the sale must be properly registered in the analogous Public Registry.

6. Effectiveness

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

[Page101:]
The RT breaks only if the goods under RT were sold to a third party that acted in good faith, meaning that the third party was not aware that title to the goods remained with the seller. Such principle of protection of third-party buyers in good faith is regulated in Articles 1292 and 1297 of the Civil Code.

The RT clause applies even if the goods under RT have been incorporated or transformed/ processed with other materials. The goods will be materially returned to the seller if the following conditions are fulfilled:

1. the goods sold under RT can be identified, i.e. if they are materially a separated part of the material with which they were mixed, transformed or processed; and
2. no damage will be caused by separating/dismantling the goods from the material, with which it was incorporated.

If the separation of goods is not possible, compensation and damages shall be paid to the seller.

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

Yes, Article 1834 of the Civil Code states that a buyer who has not paid the full price of the goods cannot sell the right of use of the goods under RT to a third party without the consent of the seller. In this regard, the seller has the possibility to consent to the sale to the third party, if the RT is transferred from the first buyer to the latter.

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

It will depend on the interest of the owner:

1. If it claims damages or claim the property of the goods when the buyer has delinquently sold the RT goods to a third party, the judicial procedure consists in an ordinary process lasting 2-6 years;
2. If it claims the property of the goods or the resolution of the contract to the buyer, it should be through a summary judicial procedure that lasts 2-6 years; Even though in law this procedure should be shorter, in practice it takes approximately the same time as the ordinary procedure mentioned above.
3. If the interest is to claim the total amount owed: the agreement may be used as an executive title that grants the opportunity to engage in execution proceedings that are faster, lasting 2-3 years.
   [Page102:]

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

The buyer cannot use the goods under RT as guarantee without the seller’s consent. In any case, and if the creditors were aware of the RT, the RT will prevail.

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

Before or within a bankruptcy procedure, the buyer may voluntarily or judiciarily grant a payment agreement to its creditors. In this stage, the seller would have to procure proof that its interests are reflected in the agreement, either by securing the payment of the remaining debt or the devolution of the goods under the RT, if possible.

1. Goods still with buyer

If there is no opposition by the seller, the goods will form part of the inventory with which the buyer will honour its debts. They will be sold through public auction and with the money received the remaining debt will be paid to the seller.

2. Goods already sold by buyer

If goods were already sold by the buyer, it means that the seller had provided its consent and the buyer’s accounting would reflect a debt in favour of the seller without the possession of such goods. As mentioned above, the debtors will be paid with the results of the public auction.

3. Time limits to declare title to receiver

The bankruptcy procedure in Guatemala does not regulate a process to claim a title to the receiver per se, but only provides the opportunity to the creditors to oppose the inventory made before the public auction. This is the procedural stage where the seller may present any kind of opposition defending its interests.

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

The debtor, or from the RT perspective, the buyer.

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 contract.

[Page103:]

Such RT may be agreed with or without the possession of the goods by the buyer.

---