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?

Swedish law does not possess a coherent body of legal rules concerning RT. Apart from a few scattered sections — for example 54 § p. 4 of the 1990 Sales of Goods Act (SFS 1990:931) or 7 § of the 1978 Instalments Act (SFS 1978:599), the main rules concerning the validity of the RT are found in case law.

RT is a contractual instrument, which is used to secure payment of goods in a sale or credit sale transaction. If a contract of sale contains a valid RT clause, the seller can reclaim the goods, even if the buyer is insolvent. In a normal sale transaction without RT, the title will pass from the seller to the buyer when the goods have come into the buyer´s possession independently of whether the purchase price has been paid. A creditor that has delivered goods to the debtor and secured this demand with RT are entitled to have the goods redelivered to it or can reclaim possession of the goods according to the rules on simple procedure (see of example 11-18 §§ of the 1978 Instalment Act and 43-45 §§ of the 2010 Consumer Credit Act, SFS 2010:1846). RT clauses can also be named cancellation clauses or repossession clauses — depending on the wording of the clause and which legislation that is applicable — but they all have the same effect if the buyer becomes insolvent (see Supreme Court case, NJA1 I 1975 p. 222).

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

There are no formal requirements for an RT clause. While the clause does not have to be in writing, in general the clause is memorialized in writing since otherwise it is not possible for a creditor to reclaim the goods according to the rules of simple procedure. (see 11-18 §§ of the 1978 Instalment Act and 43-45 §§ of the 2010 Consumer Credit Act). It is of the utmost importance that the seller makes sure that the RT clause has been incorporated into the contract. Since an RT clause in a sale contract is most frequently part of the general conditions of sale, the seller must make sure that these conditions have been included as terms of the contract. Whether or not an RT clause has been incorporated in this sense has given rise to a considerable amount of legal disputes and commentary. In Swedish law, these questions are regulated by the Contracts Act (SFS 1915:218) and the rules on interpretation of contracts. To summarize, it is not clear what requirements must be fulfilled for the RT clause to gain validity. The degree of demands that have to be satisfied depends on the parties’ legal status, et al.

A second condition that has to be fulfilled for the RT clause to be valid is that the parties should have agreed on the clause before the conclusion of the contract, or at the latest, before the goods have come into the buyer’s possession. If this important requirement is not fulfilled, it results in
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the seller’s incapacity to take priority before the buyer’s creditors.

A third condition that has to be fulfilled is the requirement that an RT clause is only valid if the goods have been specified, and that it should be possible to distinguish them from among the other goods in the buyer’s possession as collateral. If the secured object cannot be identified, the seller risks losing the effect of the RT clause against the buyer´s creditors.

A fourth condition that must be fulfilled is that the RT clause should be related to the purchase price. In consequence of this rule, it is impossible to use goods as collateral for unrelated or future debts.

An RT clause has no effect on the buyer´s insolvency if the secured object has been incorporated into other goods or real estate. The same holds true if the secured object loses its identity because of processing. The rule is very strict. The RT clause loses its effect for example if the contracting parties have the intention of incorporating the object into other goods even though no incorporation has taken place before the debtor’s default or insolvency. The same holds true for an RT clause where the seller has permitted the buyer to resell the goods before the purchase price has been paid. In such a case the RT clause will have no effect on the buyer´s insolvency.

  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?

As already mentioned, RT is mainly regulated through case law. Other security interests in Swedish law include pledges on land and goods and chattels, floating charges, liens and chattel mortgage. According to the Trade in Movables Remaining with the Vendor Act (1845:50 p. 1), a purchaser can acquire protection against the seller´s creditors despite the fact that the property remains in the possession of the vendor. In order to gain protection the purchaser must observe the formalities provided by the Act, which means that the purchase itself and the physical movables must be documented in writing, the purchase is published in the daily press and the contract to purchase and evidence of publication is registered with the Crown Bailiffs. Once the purchaser has fulfilled these requirements, there is an annulment period of thirty days before the creditor acquires creditor’s protection. A correctly executed security transfer gives the creditor a right of repossession of the property in the event of the seller´s insolvency.

  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?

According to 3 § of the Sale of Goods Act, the risk passes to the buyer when the goods are delivered in accordance with the contract or pursuant to the non-mandatory rules in the Sale of Goods Act — 6 § (when the goods are to be collected by the buyer) or 7 § (where goods are to be transported to the buyer). If the goods are not delivered in due time and this is attributable to the buyer or to circumstances attributable to the buyer, the risk passes to the buyer when the seller has done all that is necessary on its part in order to enable delivery to be effected. If the buyer is to collect the goods from a place other than the seller’s premises, the risk passes to the buyer at the point in time when delivery is due and the buyer has received notice that the goods are available
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for collection. The parties frequently make reference to the Incoterms® rules in order to explicitly agree as to when the risk passes, who is obliged to insure the goods, arrange transportation and customs, etc.

An RT clause has no effect on the passing of the risk. The buyer will bear the risk from delivery until the goods are returned to or repossessed by the seller (compare NJA 2010 p. 227).

In this context, it could be mentioned that there is no specific statutory provision on when title passes from seller to buyer. The doctrine states that the transfer of ownership is not dependent on a certain point in time but rather “different elements of ownership” are gradually transferred from the seller to the buyer. In an instalment transaction the seller’s right reduces as the buyer makes instalment payments to the seller, which reduces the seller’s claim. At a certain time specific legal consequences occur, which in turn are linked to certain legal facts. Upon purchase of movable property, there are certain legal consequences attached to the agreement. It applies in particular to the consequences that affect the legal relationship between the parties. Other legal consequences such as insolvency issues are linked to the fact that the property comes into the possession of the buyer (compare consumer sales, where the agreement itself is enough to protect the buyer against the seller´s creditors, 49 § Consumer Sales Law, SFS 1990:932).

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

As mentioned above, in order to be valid the parties should have agreed on the RT clause before the conclusion of the contract, or at the latest, before the goods have come into the buyer’s possession. If this important requirement is not fulfilled, it results in the seller’s incapacity to take priority before the buyer’s creditors.

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

If the seller has permitted the buyer to resell the goods before the purchase price has been paid, the RT clause will have no effect on the buyer´s insolvency. In such a case a sale to a third party will break the RT.

An RT clause has no effect in the buyer´s insolvency if the secured object has been incorporated into other goods or real estate (See NJA 1960 p. 9 and 2 Chapter 2, 1-2 §§ and 4-5 §§ of the Land Code (1970:994). The same holds true if the secured object loses its identity (NJA 1976 p. 251). (However, compare Chapter 9, 1 § of Insurance Contract Act (2005:104) and Act on security interests in insurance compensation (2005:105).

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

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The third party´s position depends on its knowledge of the RT. If the third party is acting in good faith according to the Good Faith and Acquisition and Personal Property Act (SFS 1986:796), the seller will be able to reclaim the goods, only if compensation to the third party is paid. If the third party is not acting in good faith, the seller will be able to reclaim the goods without paying compensation. In order to be in good faith, the third-party acquirer has a far-reaching duty to investigate whether or not the transferor has the right to dispose of the property. The third-party acquirer must make sure the property is not subject to a valid RT.

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

The seller can — if the buyer voluntarily agrees to it — reclaim the goods without help from any authority, court etc. If the buyer does not voluntarily return the property, the seller can either request assistance from the Crown Bailiff according to the rules on simple procedure (see for example 11-18 §§ of the Instalment Act and Articles 43-45 §§ of the 2010 Consumer Credit Act) or obtain and enforce a judgment from a court that obligates the buyer to return the goods. If the repossession is made through the simple rules of procedure, the case can be settled within 5-6 weeks. Ordinary court procedures normally take at least a year.

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

A seller who has sold goods with RT is not affected in bankruptcy. If the debtor is declared bankrupt, the seller can assert its right of repossession and recover his property. The seller can repossess its property from the bankruptcy estate because the property does not belong to the debtor (compare Chapter 3, 3 § of the Bankruptcy Act, SFS 1987:672). Usually the seller can recover payment out of the proceeds of the sale of the secured asset. However, if the secured claim exceeds the value of the secured asset, the seller is considered to have an unsecured claim for the excess amount and will therefore take part in the debtor’s bankruptcy.

If the creditor with a lien is in good faith regarding the RT and has the property in its possession, the lien takes precedence over the RT. If the creditor with a lien is not in good faith regarding the RT, the repair must have been necessary in order for the creditor with a lien to take precedence over the creditor with RT.

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

If the RT is valid according to the above-mentioned rules, the seller can claim the right of separation and thus recover its property since it does not belong to the debtor. If the RT is not valid, the seller will have an unsecured/non-preferential claim. If the debtor becomes subject of company reorganization, the creditor may not take any collection measures against the debtor
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according to Chapter 2, 17 § of the Company Reorganization Act (SFS 1996:764). This means that the creditor may not recover his property as long as the reorganization is ongoing. However, the creditor is protected to a certain extent through the rules in Chapter 2, 18 § and 20 §. Chapter 2, 18 § provides that a court may upon the request of a creditor decide on suitable measures to ensure the rights of the creditor if there is reason to fear that the debtor by taking measures or failing to take certain measures jeopardizes the rights of the creditor.

  1. Goods already sold by buyer

If the seller has permitted the buyer to resell the goods before the purchase price has been paid, the RT clause will have no effect on the buyer´s insolvency. If the property has been bought by a third party acting in good faith according to the Good Faith and Acquisition and Personal Property Act (SFS 1986:796), the seller will be able to reclaim the goods, only if compensation to the third party is paid.

  1. Time limits to declare title to receiver

There is no time limit to declare title to a receiver. However, the creditor is urged to submit his or her claim and naturally also state the grounds for the claim. The claim can be submitted by mail, e-mail, etc. The debtor has a duty of disclosure. The debtor is obliged to provide the receiver with the information he or she requests which is important for the bankruptcy investigation. The receiver draws up an estate inventory based on the information provided by the debtor.

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

Unless otherwise agreed in the contract, it is the duty of the receiver to safeguard the creditor’s common rights and best interests and to take all measures conducive to an advantageous winding-up of the debtor´s estate. Once appointed, the receiver in bankruptcy must immediately take charge of the debtor´s estate. The Bankruptcy Act requires the receiver to dispose of the assets of the estate as soon as possible. When the seller with an RT clause wishes to exercise its right to repossess the goods, a settlement shall be made between the creditor and the buyer, now the bankruptcy estate. Upon settlement, the buyer/bankruptcy estate shall be credited the value of the goods upon repossession. The value is calculated on the basis of what the creditor may be presumed to realize upon an appropriate sale of the goods. The creditor may also charge compensation for collection fees, reasonable costs for transport of the goods and expenses for appearances in conjunction with execution of repossession where it is necessary for the creditor to appear to protect its right. When compensation for expenses for appearance is determined, the provisions concerning calculation of compensation of general funds to witnesses shall apply. In cases regarding measures for repossession, the creditor shall also be entitled to charge reasonable compensation for its own labour resulting from the case, as well as fees paid to counsel or assistants (see 9 § of the 1978 Instalments Act and 40 § of the Consumer Credit Act). Thus, it is the seller that initially has to pay for storage, etc. On the other hand, the buyer is in breach of the contract and the seller is entitled to damages beyond other costs connected with the repossession. Thus, the buyer will in the end pay for storage, transportation and insurance.
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However, if the secured claim exceeds the value of the secured asset, the seller is considered to have an unsecured/non-preferential claim for the excess amount.

  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.

  • The RT clause may stipulate that the seller reserves the ownership of the goods sold until the buyer has fulfilled all of his payment obligations (säljaren förbehåller sig äganderätten till den sålda varan till dess köparen fullgjort samtliga sina betalningsförpliktelser). The RT clause may also stipulate that the seller reserves the right to repossess the goods until the buyer has fulfilled all of its payment obligations under this agreement (säljaren förbehåller sig rätten att återta godset intill dess köparen fullgjort samtliga betalningsförpliktelser enligt detta avtal).
  • It is important that the seller makes sure that the RT clause has been incorporated in the contract.
  • The parties should have agreed on the clause before the conclusion of the contract, or at the latest, before the goods have come into the buyer’s possession.
  • The RT clause must be related only to the purchase price.
  • The RT clause should also stipulate that it is not permitted for the buyer to sell,
  • pledge, transform, connect to other property or otherwise dispose of the goods or part thereof before the buyer has paid the purchase price for the goods in full.

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Reports of cases from the Supreme Court are published in the journal Nytt Juridiskt Arkiv (NJA).