Romalpa Clause

Posted on 18 January 2015

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Romalpa clause, also known as ‘Retention of Title’ (ROT) clause. It is always adopted into contracts of good on credit terms.

The clause is applicable on both domestic trade and international trade, and acceptable in most of the jurisdictions.

What is Romalpa clause?

It is a contractual provision which allows the title (or ownership) to the goods remains vested with the seller, until (and unless) the buyer fulfill corresponding contractual obligations, i.e. full payment, partial payment or payment through bank financing.

If the buyer defaulted its contractual obligations corresponding to retention of title clause, then the seller may repossess the goods. Thus, this clause serves as ‘security’ to the seller.

The legal principle on this is founded from the English case Aluminium Industrie Vaassen BV vs Romalpa Aluminium Ltd. This has been legislated in various jurisdictions, include Britain’s Sale of Goods Act 1979 and Malaysian Sale of Goods Act 1957.

Latest developments

Though most of the jurisdictions recognize retention of title clause, however subsequent legislation requires the seller to register their interest with authority before enforcing the clause.

For example, both Australia and New Zealand, have passed a similar legislation, i.e. ‘Personal Property Security Act’, and required the seller or owner to register their security interest with Registrar Office.

And, this could be a challenge to international trade contract. The seller’s corporate counsel not only need to ensure the retention of title clause is recognized in the buyer’s jurisdiction (where the sale contract could be subjected to a third country), and the seller’s interest is registerable and registered.

Else, this clause is as good as void.

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Posted in: Contract Law