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 mainly governed by Article 409 of the Portuguese Civil Code (PCC), which is complemented by other provisions in the PCC and also by Article 104 of the Portuguese Insolvency Code.

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

RT is a contractual arrangement whereby the seller retains title over the goods sold until the counterparty fully or partially complies with the obligations under the contract or until some other agreed event occurs.

If the good sold is an immovable asset or a movable asset subject to registration, the RT arrangement must be registered in order to be enforceable against third parties.

When the price is paid in instalments and the good was already delivered to the purchaser, a sale with RT may only be terminated if an instalment representing more than 1/8 of the total price is not paid (though the parties may agree otherwise).

It has been thoroughly discussed in Portugal whether RT can be granted to the entity financing the acquisition of the goods. Although dissenting opinions exist, the majority of case law and doctrine is currently of the view that, under Portuguese law, that is not admissible.

  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 Portugal, as described 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?

As a general rule under Portuguese law, the risk of loss passes to the purchaser upon signature of the sale and purchase agreement, except if the good remains in the seller’s custody.

Special rules apply in relation to the sale of generic goods, i.e. goods that are identified exclusively by the product type in the sale and purchase agreement without any further specification (for instance, the sale of one thousand bolts). In such case, the risk of loss does not automatically transfer by signature of the contract.

Although not expressly governed by Portuguese law, it has been understood by Portuguese
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courts that the risk of loss of goods sold with RT passes to the purchaser upon receipt of the goods.

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

No formal requirements apply as a general rule, except if the good sold is an immovable asset or a movable asset subject to registration (e.g. a vehicle, a boat or an aircraft), in which case the RT arrangement must be registered in order to be enforceable against third parties.

Although no formal requirements apply as a general rule, it is however recommended that the RT arrangement is set out in writing.

Also, for an RT clause to be enforceable in the context of an insolvency proceeding, it must be agreed in writing before delivery of the goods.

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

As a general rule, a sale to a third party does not break the RT clause, except if the good sold is an immovable asset or a movable asset subject to registration and the RT arrangement was not registered.

Transformation of the good should also not impact the RT, except if the good is merged or blended with another good and separation is not possible or is harmful to any of the parties. In the latter case, the RT may be affected but the holder of the RT will be entitled to compensation.

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

As mentioned in 6.a. above, the sale to third parties or transformation of the good will, in principle, not affect the RT. Where it does affect the RT, the RT holder will still be entitled to full payment of the price and may also be entitled to compensation of damages incurred.

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

There are several types of judicial proceedings that may be followed, depending on the particularities of the case.

If the buyer is in breach of its payment obligations, the seller may terminate the agreement (by
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means of unilateral, out-of-court communication to the buyer) and recover the goods or claim for payment of the goods in ordinary proceedings.

In case of buyer’s breach of payment obligation, the seller may also resort to enforcement proceedings, if it has an enforceable title.

If the goods have been unlawfully resold, an action for the restitution of the goods may be initiated. In this type of procedure, the claimant asks the court to declare that (1) the claimant has title to the goods and that (2) the goods shall be returned to the claimant.

In this case, it is also possible to ask the court to declare that a particular sale is ineffective vis-à-vis the seller.

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

The rights of buyer’s creditors do not affect RT, as title to the goods is only transferred when payment of the price is made in full or the event agreed by the parties occurs.

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

  1. Goods still with buyer

As described in 5 above, an RT clause must have been agreed to in writing, before delivery of the goods to the buyer, in order to be enforceable in insolvency proceedings.

If the buyer becomes insolvent, the insolvency administrator must decide, within a certain deadline, if the insolvency estate shall perform the contractual obligations under the relevant contract. If the insolvency estate complies with these obligations, it shall acquire title to the goods.

If the insolvency administrator chooses not to perform the contract, the seller may (1) retake the goods (since the goods are not part of the insolvency estate until completion of the agreed payment or the other agreed condition) or (2) claim the outstanding amount of the price in the insolvency proceedings.

If the seller becomes insolvent, and assuming that the goods are with the buyer, the buyer has the right to perform its obligations under the agreement, and acquire title to the goods.

  1. Goods already sold by buyer

If the relevant goods were sold with RT, and the buyer resells the goods, it may have sold the
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goods (1) maintaining the RT that was still in place, or (2) disregarding the RT.

In the first event the sale would be lawful. However, in the second scenario, this sale would be, as described in 6.a. above, unlawful, and the procedures set forth in 6.b. above should be followed.

  1. Time limits to declare title to receiver

The creditor has to claim its credits within the period determined by the judgment declaring the insolvency of the debtor, which cannot exceed 30 days.

However, if the creditor fails to claim its credits within the prescribed period, it is possible to claim said credits within six months from the date that the judgment declaring the insolvency of the debtor became res judicata, by initiating an action specifically for said purpose.

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

As described in 4. above, the risk of loss of the goods sold with RT is transferred to the buyer as soon as the goods are delivered.

As such, storage, insurance and transport costs relating to the goods shall be paid by the buyer or, in case it becomes insolvent, by the insolvency estate.

  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.

This sale is made with retention of title in favour of the seller until the buyer has fulfilled all of its obligations under this agreement.

Note : RT may be included in general sales conditions or invoices, provided that the purchaser is aware and accepts the RT.

As already noted, to evidence the existence of the RT and in order to be enforceable in insolvency proceedings, RT must have been agreed in writing, before delivery of the goods to the purchaser.