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?

The rules in Nigeria governing RT can be found in statutes and case law as evolved by the courts. Nigeria is a Federation and as such the rules governing RT are embedded in an Act applicable across the country and State laws in respect of sale of goods generally. For example section 19 of the Sale of Goods Act 1893 (SOGA) sets out the provisions on RT in the Federal Act while section 18 of the Sale of Goods Law Ch. S1 Laws of the Lagos State of Nigeria 2015 (SOGL) sets out similar provisions on RT applicable in one of the constituent states in Nigeria.

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

Section 19 SOGA sets out the essential elements and scope of RT which applies when:

1. there is a contract of sale of specific goods or where goods are subsequently appropriated to the contract; and
2. the seller, by the terms of the contract or appropriation, reserves the right of disposal of the goods until certain conditions are fulfilled; and
3. the goods are delivered to the buyer or to a carrier or bailee for the purpose of onward transmission to the buyer.”

If these essential elements are present, the property or ownership in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled. The typical condition is payment of the sale price. Where the goods have been delivered to a carrier or bailee and the bill of lading or other document of title is issued to the order of the seller, there is a presumption that the seller intends to reserve the right of disposal.

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?

RT is regulated in Nigeria.

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?

The general rule is that risk prima facie passes with property as set out in section 20 SOGA (section 19 SOGL). The section provides, inter alia, that unless otherwise agreed, the goods remain at the seller’s risk until the property therein is transferred to the buyer, but when property therein is
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transferred to the buyer, the goods are at the buyer’s risk whether the goods have been delivered or not. This general rule is only presumptive and can be displaced by the agreement of the parties. Depending on the agreement of the parties, property and risk can be separated.

Where risk has passed but property still remains with the unpaid seller, there are some measures that such seller can take to protect its interest:

1. If property in the goods remains with the seller, the seller still possesses an insurable interest in the goods. The seller may insure the goods in its name. Alternatively, the RT clause in the contract should impose an obligation on the buyer upon delivery to insure the goods with a reputable insurance company and note the interest of the seller as the loss payee in the policy.
2. The seller can also exercise some remedies against the goods such as the right of stoppage in transitu. This limited right empowers the seller to prevent physical delivery to the buyer if the goods had been delivered to a carrier or bailee and the buyer becomes insolvent or is declared bankrupt before delivery.

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

RT is essentially contractual as stipulated in the statute. Accordingly, an RT clause does not protect the seller against an innocent third-party purchaser for value without notice. There are no formal requirements to perfect the seller’s contractual right by RT since the contract of sale of goods is not a registrable document by law in Nigeria.

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 breaks RT where the sale is made to an innocent third-party purchaser for value without notice of the RT. Section 25(2) SOGA (section 26(2) SOGL) provides that where a person having bought or agreed to buy goods obtains, with the consent of the seller, possession of the goods or document of title to the goods, the delivery or transfer by that person to any person receiving same in good faith and without notice of any right of the original seller in respect of the goods shall have the same effect as if the person making the delivery or transfer did so with the consent of the owner. However, where there is notice of the RT, the sale does not break or affect the consequences of the RT since the principle of nemo dat quod non habet (you cannot pass title in what you don’t own) would apply. The buyer would have no title to pass to the third party.

The RT clause will generally apply even if the goods have been transformed or sold. The relevant principles of law on this point are as evolved by the courts. Nigerian courts will follow English case law authorities which are regarded as persuasive but not binding. The following principles govern
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the sale or admixture of the goods:

1. where the property in possession of the purchaser remains unaltered pending resale or processing of some kind, there is no difficulty in providing that title should remain with seller;
2. where the property is incorporated into some other Article or entity provided that it retains its own separable identity, title remains with the seller;
3. where property is “consumed” or substantially altered in order to produce some different substance of chattel, title is lost.

However, where the provisions of the RT clause are extensive in scope such that it gives the seller ownership rights even where the goods have been transformed, the seller of the goods has a right to trace the price to the proceeds of sale of the finished goods with priority over the buyer’s secured and unsecured creditors.

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

No, the RT cannot be transformed in case of a sale to a third party because it is primarily a contractual right rather than a security over goods. The principle of privity of contract will prevent the transformation of the RT to another contractual arrangement to which the seller is not a party.

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

In the event that the delinquent buyer is not insolvent, the remedies and attendant enforcement against the goods rather than the buyer are limited. If the seller is still in possession of the goods, a right of lien may be asserted, followed by a resale of the goods to a third party. Where possession has been lost, the only enforcement option available to the seller is an in personam action against the buyer for the price of the goods. Section 50 SOGA allows the seller to maintain an action for the price although property has not passed to the buyer.

Actions for breach of contract are typically commenced by writ of summons, which presupposes a full trial on the facts. The timeline for trials in Nigeria depends on the State where the enforcement action is taken out as the sizes of the dockets of the courts differ from state to state. However, on average the timeline for enforcement action that goes to full trial would be between 12-24 months. Where it is evident that the buyer does not have a defence to the claim, the timeline may be significantly reduced if the seller makes an application for summary judgment. This procedure which dispenses with a full trial may reduce the timeline to about 6-9 months. If the goods in respect of which an RT exists are sold to a third party, the enforcement proceedings must involve the third party as well and this may prolong the timeline of the proceedings.
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3. What happens in case of conflict between RT and a buyer’s creditors’ rights, including carrier’s liens?

The same principle of nemo dat quod non habet applies. If the goods subject to RT are used to create a security interest in favour of the buyer’s creditors, the creditors’ rights would prevail if they are unaware of the seller’s RT right in the goods. If the creditors were aware, their rights cannot prevail over that of the seller who has retained title.

Where a carrier exercises a possessory lien over the goods for unpaid freight, such possessory lien would have priority over the RT in favour of the seller.

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

1. Goods still with buyer

There is no direct statutory provision on this. The goods which are subject to an RT that rarely in practice but could in theory create a security interest shall make the seller a secured creditor of the buyer, whose interest shall only be subject to other preferential creditors as mandated by law. The seller as a secured creditor, if the RT is registered, has a right to exclude the goods from the general pool of assets of the buyer.

2. Goods already sold by buyer

If the RT does not create a security interest as is generally the case, the general principles articulated above apply and the rights of an innocent third-party purchaser for value without notice would prevail over the rights of the seller. However, in the rare event where the RT creates a security interest in the nature of a registrable floating charge, the interest of the seller shall have preference over that of a third-party buyer who is fixed with constructive notice of the seller’s security interest which would have crystallised with the buyer’s default in payment of the purchase price.

3. Time limits to declare title to receiver

There is no time limit stipulated by law to declare title to a receiver appointed by another secured creditor or by the court. However, in practice notice of appointment of a receiver is made to the general public by advertisement in a national newspaper(s). Creditors (secured and unsecured) will then typically prove their claims.

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

Once the receiver is in control of the assets of the buyer, storage insurance and transport costs of receivership are costs which ultimately will be borne by the buyer as part of the receiver’s costs.
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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.

The following paragraph might be added to the clause:

Note: The additional paragraph may result in the conclusion that a registrable charge is thereby created.

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