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?

As the commercial agreement to retain the title of ownership on goods between traders, RT is not specifically regulated, except for sales in payments and bankruptcy.

The main mechanisms to deal with RT are:

1. Principle of freedom of contract, limited only by public order or interest, and damages to third parties (Art. 6 Civil Code). The parties may agree on RT and it will be mandatory for the buyer, but third parties would not be bound by the agreement unless they were already aware of the RT.
2. Sales of goods are executed upon agreement, without any condition of handing over, if there is certainty regarding the goods and the price (Art. 1450 Civil Code).
3. Only where the goods remain with the seller after the execution of the sale agreement does the seller have a preferential right over the goods (before any other third party) until payment (Art. 340 Commercial Code). The possession of the goods remains with the seller until delivered to the purchaser in the manner agreed (FOB, EXW, etc.)
4. Accordingly, the delivery of the goods is fulfilled when the goods are in the domain and possession of the purchaser (Art. 1462 Civil Code).
5. In case of non-payment and simultaneous breach of liability of RT by the buyer, the seller can file its claim and ask for remedies only if the goods are in free possession of the purchaser. In the meantime, if any third party has any right to the goods, the third party’s right may be challenged unless the third party obtained possession of the goods in good faith.

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

RT is not specifically regulated in Spain, except for sales in payments or deferred payment, or in lease and option agreements. In all cases it must be registered in a special register freely accessible by the public.

It has long been established that a mortgage on goods, whether fungible or not — therefore potentially including commercial goods — is not considered a commercial transaction regarding goods.
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Sales between merchants of goods for resale or transformation and resale are governed by the Code of Commerce, but rules of the Civil Code relating to private sales are also applied under the subsidiarity principle.

Law 28/1998 13th July provides for a kind of RT right regarding certain sales of goods required to be filed in the Mercantile Register. The law provides primarily a right to oppose any transmission of the goods, giving the seller a preferred right to the goods, even in case of bankruptcy.

The RT right governed by the 1998 law is not perfectly consistent with the concept of RT as commonly known in the international free trade of goods, because it not only gives seller a right to recover the goods for its own public execution against all, but it also provides the assignees of such right and/or financial institutions a privileged right where either the seller or buyer has taken a loan.

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?

Other than the rules described under Question 2, an RT clause may be executed in Spain provided that it does not go against the rights of any third party in good faith. If the goods are still in possession of the debtor, the right to file an injunction to recover goods based on an RT clause in the selling documents is not new.

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?

Risk in delivery of goods is linked not to RT, but rather to the transfer of the possession or the handover of the goods, both physically or under the purchaser’s control, as the case may be.

Art. 339 of the Commercial Code takes account of the agreed allocation of risk between the parties regarding the effective transfer of the goods.

The passage of risk is ruled in Articles 333 to 335 of the Commercial Code. After the handing over of the goods as set out in the terms of the purchase agreement, the risks are for the purchaser, except in the case of an unfaithful, malicious or negligent act of the seller. It is also provided that when the goods perish before delivery, the seller must reimburse any payment received.

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

RT must be in writing, accepted by the counterparty(ies) and with an exact description of the goods.

There is no time limit to execute an RT agreement and it can be done until the moment the goods are freely transferred. Any other later agreement will not be considered an RT agreement.
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In case of bankruptcy, any RT must be previously fully registered.

6. Effectiveness

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

Sale to a third party does break RT.

In the case of merged or transformed goods, the more highly valued part of the new good will determine the ownership, and in case of equal value, the ownership will be shared.

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

Any right that is not specifically able to be claimed is in any case transformed in a claim for damages.

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

Criminal proceedings against the delinquent buyer for misappropriation may be possible. In such criminal procedure, remedies and damages may be sought. The criminal timeline is, depending on the case, usually four years.

It is also possible (and generally wiser) to file a civil action, whose timeline is typically five years.

In both cases, it is recommended to ask for an injunction to promptly recover or seize the goods.

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

A third creditor’s rights wholly depend on his or her title to the goods. If there is no preference right based on the nature of the good (i.e. salaries, food, etc.), privilege to execute them comes in order of filing.

A carrier’s right is privileged and may be challenged by those holding comparable rights.

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

1. Goods still with buyer

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If the RT is already registered at the time of the declaration of bankruptcy, the goods can be claimed. If it is not the case, the seller’s claim becomes ordinario or not privileged.

2. Goods already sold by buyer

See subsection i. just above.

3. Time limits to declare title to receiver

All credits and claims must be declared to the receiver within one month (or 15 days, depending on the procedure) of the date of publication of the award of declaration of bankruptcy (Art. 21 L.22/2003 9th July).

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

This depends on the case. A creditor asking for the seizure of the goods must pay all derived concurrent costs, but the creditor may ask for compensation afterwards. If goods are in debtor/ purchaser’s deposit, costs are for the debtor/purchaser, but service providers have the right to be reimbursed if such services affect the goods. Salaries are subject to a complicated privilege regime that is not uniformly interpreted.

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.

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