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 of movable goods is governed, under Italian law, by Chapter 3, Title III, Book IV of the Italian Civil Code (Civil Code).

Under Article 1523 Civil Code, entitled “Transfer of title and of risk”: “In a sale on instalment with retention of title, the buyer acquires the right of property in the good upon payment of the final instalment of the price, but takes the risks upon delivery”.

Though the provision refers to instalment sales only, the Italian Court of Cassation (6322/2006) held that RT may be agreed within a contract of sale where the price is partially or entirely deferred, and thus not necessarily divided into instalments.

Article 1524(1) Civil Code provides that RT is enforceable against the creditors of the buyer as long as it is provided in a written document bearing a certain date (see below § 5) prior to any attachment procedure.

Paragraph 3 refers to sales of movable goods which must be recorded in a public registry.

Article 1525 Civil Code considers the case of non-performance of the buyer, stipulating that: “Regardless of any contrary agreement, default in the payment of only one instalment which does not exceed one-eighth part of the full price, does not entail the contract’s immediate termination, and the buyer retains the right of paying the subsequent instalments on the due date”.

Finally, pursuant to Article 1526 Civil Code, “If contract termination occurs because of the buyer’s breach, the seller must return the instalments received, subject to the right to fair compensation for the use of the goods and damages.

Whenever it is agreed that the collected instalments remain with the seller by way of indemnity, the judge, according of the circumstances, may decrease the agreed indemnity. The same provision applies in case the contract is construed as a lease, and if it is agreed that, upon its termination, property in the good shall be assigned to the lessee by way of payment of the agreed rents.”

A few additional rules outside the Civil Code also govern RT.

Pursuant to Law 28th November 1965, No. 1329 (the so-called “legge Sabatini”), if RT is agreed in a transaction concerning production machines and machine tools whose price is higher than 500,000 Liras (EUR 258,23), the seller may enforce the RT agreement against third-party creditors of the buyer and sub-buyers, provided that the machine or tool has been marked with a label
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which bears the seller’s name, the type of machine, the machine’s serial number, its production date and the court in whose jurisdiction the agreement was entered into.

Finally, Article 11(3) of the Legislative Decree of 9th October 2002, No. 231 , which implemented Directive 2000/35 on combating late payment in commercial transactions states: “The retention of title referred to in Article 1523 Civil Code, provided for in a prior written agreement between the buyer and the seller, is enforceable against the creditors of the buyer if it is confirmed in the individual invoices, issued for subsequent supplies, bearing a certain date that is prior to any attachment procedure and duly entered into the accounting records.”

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

The system, as governed by the rules of the Civil Code and the other provisions mentioned above, is likely to be perceived as being rather formalistic, since an RT clause shall be effective as long as it complies with a number of formal requirements.

In this respect, Article 11(3) of Legislative Decree of 9th October 2002, No. 231 has been scrutinized by the European Court of Justice (ECJ), which was asked to assess whether Article 4 of Directive 2000/35/CE had correctly been enacted into Italian law by the Legislative Decree, which apparently had placed heavy burdens upon sellers. By its judgment of 26th October 2006, in Case C-309/05, the ECJ held that requiring an RT clause to be confirmed in the individual invoices issued for subsequent supplies, bearing a certain date prior to any attachment procedure and duly entered into the accounting records, in order for the clause to be enforceable against buyer’s third-party creditors, was consistent with Directive 2000/35/CE.

  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 Italy by the provisions mentioned 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 1523 Civil Code, “in a sale on instalment with retention of title, the buyer acquires the right of property in the goods upon payment of the final instalment, but takes the risks upon delivery.”

A seller may 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 clause is called “clausola di vincolo” in the Italian insurance practice.

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
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beneficiary, or to the latter, as long as the seller has given its prior consent.

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

As far as its validity and effectiveness between the seller and the buyer are concerned, an RT clause need not meet any formal requirement and thus it may also be entered into orally (see Court of Cassation 5324/1991). By way of contrast, only an RT clause which fulfils certain formal requirements is enforceable against third parties.

Certain date — Under Article 1524(1) Civil Code, an RT clause is enforceable against third-party creditors of the buyer provided that, it is included in a written document bearing a certain date (the so called “data certa”) prior to the date of attachment. In case of bankruptcy of the buyer, the same rule applies with reference to the date of the judicial declaration of the buyer’s bankruptcy.

An RT clause may attain such certain date by different means: by being incorporated in a deed or a contract signed before a public notary, or by recording the document which hosts the RT clause into special registries, or by any other means which serve to prove the time when the RT agreement was entered into (see Article 2704 Civil Code).

Further formal requirements — Finally, according to Article 11(3) of Legislative Decree, No. 231 of 9/10/2002, an RT clause is enforceable against third parties (i.e. creditors of the buyer and receiver) where (i) it has been previously agreed upon in writing between the seller and the buyer; (ii) it has been confirmed on the individual sales invoices relating to subsequent supplies; and such invoices (iii) bear a certain date prior to any attachment procedure, and (iv) have been duly entered into the seller’s accounting records.

In this respect, it is important to stress that — according to most Italian courts (with the exception only of two decisions of lower courts) — a mere confirmation of the RT clause on the individual sales invoices would not suffice to be enforced against the creditors of the buyer and the receiver. In fact, an RT clause must be the subject of consensus, which would be lacking if the provision were included in an invoice, which is understood as a simple accounting document, issued by one party only (see Court of Cassation 2099/1987, 14891/2002).

Moreover, the RT clause must be contained in the sale contract itself. For instance, an RT clause in a distribution contract — which, according to Italian case-law, is a ‘framework contract’ (a so-called contratto quadro) under which sale contracts are subsequently entered into — would not be enforceable against the creditors of the buyer, or the receiver. In such case, the RT clause should also be contained in the single sale contracts which are subsequently entered into (Court of Cassation 7275/2005, 14891/2002, 4976/1994, 11960/1990). Analogously, it is not sufficient to include an RT clause in a supply contract (contratto di somministrazione), if the goods to which the clause refers to are not specifically identified (Court of Cassation 13568/2009, 9035/1995).

Timing — An RT clause must be agreed at the same time the sale contract is entered into. However, if the RT clause is first agreed upon orally and subsequently drafted into a document
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provided with certain date, such an agreement may be enforced against subsequent attachment procedures. In any case, the RT clause must be agreed upon (and incorporated in a document having a certain date) prior to the date of the attachment, or to the date of the judicial declaration of bankruptcy (Court of Cassation 5324/1991).

Machines — Under Article 1524(2), where a sale contract including an RT clause concerns machines whose price is higher than EUR 15,49, such clause may also be enforced against sub-buyers (even good faith ones), as long as the contract has been recorded in a special registry kept at the office of the Clerk of the Court within whose jurisdiction the machine sits, and provided that the machine has not been moved outside the court’s territorial jurisdiction and then sold to a sub-buyer.

Furthermore, if an RT clause concerns production machines and machine tools whose price is higher than 500,000 Liras (EUR 258,23), under the Law of 28th November 1965, No. 1329 (the so-called “legge Sabatini”), the seller may enforce a similar clause against bona fide sub-buyers, where the production machine or machine tool has been marked with a label, placed on an essential and visible part thereof, which specifies the seller’s name, the type of machine, the machine’s serial number, its production date, and the court in whose jurisdiction the agreement has been entered into (see Article 1), provided that the RT clause has been duly recorded in the registry kept at the office of the Clerk of the latter court (see Article 3). Unlike Article 1524(2), an RT clause fulfilling the requirements of the legge Sabatini is also enforceable if the goods under RT are moved outside the jurisdiction of the court where the agreement has been recorded and then sold to a sub-buyer.

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

Article 1153 Civil Code provides the general rule that good faith possession of a sold movable is conclusive of property ownership, and thus where a movable has been sold and delivered to a sub-buyer, the latter is considered as the sold movable’s first owner ever, as long as the sub-buyer is in good faith.

Therefore, even if the RT clause has a certain date and meets the requirements provided in Article 11 of Legislative Decree 231/2002, it will not be enforceable against a bona fide third party who has purchased the goods under RT from the buyer.

As an exception to the above-mentioned principle, an RT clause is enforceable against sub-buyers (even good faith ones), provided that it concerns a machine and that the requirements provided for either in Article 1524(2) Civil Code, or in the legge Sabatini (explained above), are fulfilled.

Instead, if the goods are transformed, the general principle provided in Article 1153 Civil Code applies, and thus the RT clause will not be enforceable against the bona fide sub-buyer.

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If yes, is there a possibility to transform the RT in case of sale to a 3rd party?

No.

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

Article 1525 Civil Code provides: “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, pursuant to Article 1525 Civil Code, which is a mandatory provision, the seller may terminate the contract only if the unpaid instalment exceeds 1/8th of the full price.

Except for the case mentioned above, if the buyer is in breach of its contractual obligation to pay — but not yet bankrupt — then the seller may claim for either (i) termination of the contract and the 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 1526(1) Civil Code “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”. Furthermore, the following paragraph of Article 1526 Civil Code 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.”

Once the contract is terminated, if the seller aims to recover the goods that are with the buyer, then, the developed position in the decisions of Italian courts (see, amongst all, Court of Cassation 6322/2006, 12654/1991, and further decisions therein cited), is that the seller should not bring a rei vindicatio action, but rather a personal action against the buyer. In particular, the seller must apply for a court order (the so-called “ricorso per decreto ingiuntivo”), seeking the restitution of the goods under RT which are with the buyer (see Articles 633 et seq. of the Civil Procedure Code).

The abovementioned proceedings may last one or two months. However, if the buyer challenges the abovementioned order, an ordinary court proceeding, which could last for three to five years, will start.

Conversely, whenever the seller claims only the payment of the price of the goods under RT, then he or she will not be allowed also to apply for termination-recovery, inasmuch as such claim (and the resulting enforcement procedure) is understood as a waiver of the property rights in the goods under RT.

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

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As mentioned above, 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; (iii) has been confirmed on the individual sales invoices relating to subsequent supplies; and such invoices (iv) bear a certain date prior to any attachment procedure; and (v) are duly entered into the seller’s accounting records (see Article 1524 Civil Code and Article 11 of Legislative Decree 231/2002).

If the goods under RT are the subject of an attachment procedure commenced by the third-party creditors of the buyer, the seller must commence a third-party proceeding (the so-called “opposizione di terzo”) to claim its property right in the goods under RT (see Article 619 Civil Procedure Code).

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

Under Article 73 of the Bankruptcy Act (Royal Decree of 16th March 1942, No. 267, as amended), the judicial declaration of the buyer’s bankruptcy does not entail the contract’s immediate termination. Accordingly, the receiver remains free to elect whether to adopt or terminate the contract between the seller and the bankrupt buyer.

If the receiver 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 good” (see Court of Cassation 626/1965, 2142/1974, 4998/1979, 4217/1992; Court of Rome, 29/11/2013). In such case, the seller may file a claim against the receiver in order either to recover the price of the goods under RT, or the goods themselves. In the latter case, he or she must bring a rei vindicatio action, as governed under Article 948 Civil Code.

To that aim, the seller must prove that the RT clause bears a certain date prior to the judicial declaration of bankruptcy of the buyer, and that it complies with the further conditions provided in Article 11 of Legislative Decree 231/2002 (as mentioned above).

  1. Goods already sold by buyer

As said, 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 in case of machines registered in compliance either with Article 1524(2) Civil Code or with the legge Sabatini.

If the latter is not the case, then, under the Bankruptcy Act, the seller must claim the price of the goods under RT in accordance with the general procedural rules applicable to the bankruptcy’s creditors.

  1. Time limits to declare title to receiver

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Claims against the receivership must be filed within 30 days before the hearing for the assessment of the creditor’s liabilities. In any case, if claims are filed later than 30 days before the hearing, they will not be dismissed as inadmissible, rather they will be treated as “late claims” (the so-called “domande tardive”). Though admissible, parties who bring late claims are subject to a number of limitations in their rights compared to the rights which are enforced by means of timely claims. Pursuant to Article 101 of the Bankruptcy Act, no claim may be filed later than 12 months from the date when the court order by which the liabilities are assessed has become enforceable (the so-called “decreto di esecutività dello stato passivo”), unless all of the bankrupt’s assets have not been assigned yet and the delay does not depend on the claimant.

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

The bankrupt party.

  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.

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.