Advokat Hans Chr. Steenstrup

RETENTION OF TITLE

ENFORCEABILITY OF RETENTION OF TITLE (R.O.T.) - CLAUSES

UNDER NORWEGIAN LAW

Prepared by:

HANS CHR. STEENSTRUP

Hartsang Advokatfirma DA

A.       TERMS AND DEFINITIONS

1.       A SHORT DESCRIPTION OF R.O.T.

a)       LOCAL TERM

In Norwegian Law the term R.O.T. has been replaced by Sales Pledge, and the main rules are incorporated in the Act of 8 February 1980 no. 2, dealing with different kinds of pledges and mortgages (the Pledge Act).  The Pledge Act in this respect is mainly only a qualifi­cation of earlier court practice and theory, where the term R.O.T. (eiendomsforbehold) was used.

The term R.O.T. is used hereafter as a term covering the Norwegian term Sales Pledge.

b)      DEFINITION

In connection with sale of movable goods, R.O.T. in the sold goods may be agreed upon as a security for

-        the seller's claim for the sales amount plus interest and connected costs, or

-        a buying loan that a third party has granted to the buyer to cover full or part payment of the seller’s claims as mentioned above, which is paid directly from the third party to the seller.

2.       WHAT KIND OF CLAIMS CAN BE COVERED?

R.O.T. is limited to securing a buying loan referred to in 1.b) above, connected to a specific delivery of movable goods.  No other claims can be secured through R.O.T. clauses.

However, such other claims may be secured through pledging the goods in stock or through pledging the premises/lease of premises together with the moveable assets.

3.       IN WHICH OBJECTS CAN R.O.T. BE ES­TABLISHED?

R.O.T. may be established in all kinds of goods, except movable goods that might be registered in a property register, ship regi­ster, aircraft register or similar registers.

R.O.T. may not be established in goods which the buyer has the explicit or supposed right to resale before the seller has been paid, or goods meant for further processing or intended to be incorporated in or become a part of a larger object.

Further, the Government holds the authority to exempt certain goods from the R.O.T. field through regula­tions, and further regulate the area of R.O.T.

B.        ESTABLISHING R.O.T. CLAUSES

1.       FORMAL REQUIREMENTS

In consumer cases R.O.T. agreements must be made in writing at the very latest upon delivery of the actual goods to the buyer.  In other trans­actions, R.O.T. must be agreed upon by the time of delivery at the latest, and if the agreement is not made in writing, be confirmed in writing by one of the parties without unjust delay after the delivery.

R.O.T. in motor vehicles being registered in Norway in accordance with our Road Traffic Act, must further be registered in the name of the buyer in the Register of Mortgage of Movable Property (Løsøreregisteret).

The agreement must specify the movables affected by the R.O.T. and the sales amount or buying loan the R.O.T. shall secure.

2.       LEGAL PROTECTION AGAINST 3RD PARTIES

If the formal requirements in accordance with 1. above are fulfilled, legal protection against third parties, in this respect most likely against other creditors, is established.  If a number of movables have been bought with an R.O.T. clause, the R.O.T. covers the total claim in every and all the movables affected by the R.O.T.

3.       MODEL CLAUSE

Even though the term R.O.T. has been substituted by sales pledge, the Pledge Act equates the term R.O.T. with sales pledge.  Therefore, and to avoid any misunderstandings, we recommend use of the terms that are most familiar to foreigners.  A model clause may therefore be worded:

"The goods shall remain the property of the seller until fully paid for.  Until that time, the buyer is not entitled to sell or otherwise dispose of the goods.  He also undertakes to give the seller all assistance in any measure to protect these rights."

C.       THE SECURITY PERIOD

1.       ACTUAL DISPOSAL OF THE OBJECT

a)       ACTUAL USE

As a general rule, an R.O.T. clause does not limit the buyer's right of actual use of the goods in question, unless otherwise agreed upon.

However, negligence resulting in damage to the object, may represent a breach of contract and form a legal basis for demanding immediate payment.

b)      PROCESSING OR REFINING THE OBJECT

Unless this is specifically prohibited according to the sales agreement, processing or refining the object does not represent an infringement of the implied conditions attached to the R.O.T. agreement.

c)       INCORPORATION WITH OTHER OBJECTS

Unless this is specifically prohibited according to the sales agreement, incorpora­tion with other objects does not represent an infringement of the implied conditions attached to the R.O.T. agreement.

2.       LEGAL DISPOSAL OF THE OBJECT

a)       PLEDGING THE OBJECT

Unless consent is given by the seller, pledging the object is prohibited.

b)      RESALE OF THE OBJECT

Unless consent is given by the seller, transfer of ownership is prohibited.

However, consent to resale is regarded as granted, if the object in question is acquired for this purpose.  In such cases, a clear clause prohibiting resale must be included in the sales agreement.

3.       INSURANCE OF THE OBJECT

Unless otherwise agreed upon, the buyer is not under an obligation to keep the goods in question insured.

4.       CONSEQUENCES OF THE OBJECT BEING DESTROYED THROUGH AN EVENT BEYOND THE CONTROL OF THE BUYER

Such destruction brings the R.O.T. clause to an end, and the R.O.T. is not substi­tuted into other objects.  This situation is not regarded as a breach of contract and does not form a basis for a compensation claim from the seller.

D.       TERMINATION OF R.O.T.

1.       RESALE OF THE OBJECT

The effect of an R.O.T. clause is terminated upon resale of the object, if the object is meant for resale, with the exception of R.O.T. noted in a registry (i.e. motor vehicles), see B.1. above.

2.       GOOD FAITH PURCHASE FOR VALUE

Even if the object is not meant for resale, the R.O.T. is terminated if the purchaser is in good faith, as to the existence of any R.O.T when buying the object.  By good faith is meant not knowing or not having any reason to know, the R.O.T. pertaining in the object.

This set of rules does not apply to registered movables, see B. 1. above.

3.       PAYMENT OR OTHER FULFILLMENT OF THE AGREEMENT

Upon payment or other fulfillment of the sales agreement, the R.O.T. in the actual object is terminated.

4.       PRESCRIPTION

In all cases R.O.T. prescribes one year after the seller's claim for payment has fallen due according to the underlying agreement, and in any event, five years after the object was delivered to the buyer, at the very latest.

The prescription period can be stopped running by taking various legal steps.

E.        ENFORCEMENT OF R.O.T.

1.       PROCEDURE

Enforcement of R.O.T. clauses can only take place upon a breach of contract by the buyer, most commonly non-payment of the sales amount.

If that situation arises, a formal notice that such a clause exists and that both actual and legal disposal of the object is prohibited, should be given immediately to the buyer, or as the case may be, to the estate of the buyer or other creditors with pledges that cover said objects.

Unless the objects are given up voluntarily, there exist procedures to secure the objects and even resell the objects, through the legal authori­ties.

2.       PRIORITY CONFLICTS - OTHER PLEDGES

R.O.T. clauses that fulfil the formal requirements take priority before other pledges (most commonly pledges in goods in stock, and in movable assets pledged together with fixed assets), even if such general pledges have earlier priority.

F.        BILATERAL AND MULTILATERAL ASPECTS

1.       CHOICE OF LAW      -        INTER PARTES

Agreements defining choice of law and legal venues between the parties will, as a general rule, be binding inter partes.

However, such clauses may be of minor interest, see 2, hereunder.

2.       CHOICE OF LAW      -        AGAINST THIRD PARTIES

It is established through court practice that R.O.T. clauses in international relationships are governed by Norwegian law, when it comes to enforcement against third parties.

In practice this means that even if the parties have agreed to another law to govern the matter, Norwegian enforcement law will rule.

This has given foreign sellers some unforeseen surprises, as Norwegian law generally respects R.O.T. clauses to a lesser extent than what is common in several other European coun­tries.  This is especially the case in cases where goods are meant for resale to retailers or consumers in Norway, and also with machine parts etc. being incorporated into more complex machinery or other products.

G.       R.O.T. CLAUSES' POSITIONS UNDER INSOLVENCY PROCEDURES

In addition to what is generally mentioned earlier, we would point out that an insolvent estate will normally just abandon products subject to valid R.O.T. clauses.  Such estates have in principle no obligation to maintain such products, and at the very least will incur no such expense unless otherwise agreed upon.