Legal effectiveness of retention of title carried out in Germany

Although in accordance with the general conditions of German companies a retention of title has been agreed, this agreement loses its effectiveness and validity when the goods are moved to Spain, since in Spain there are completely different formal requirements in order for the retention of title on merchandise to be valid.

In response to the recurring problems related to the retention of title clauses in Spanish law, this article gives an overview of and intends to clarify the legal situation in Spain regarding retention of title, which is foreseen in the general terms and conditions of business (Allgemeine Geschäftsbedingungen, AGB) of German companies.

I. General information about the general terms and conditions of business

The Spanish law 7/1998 of April 13^th on general terms in contracts is aimed at transposing the Council Directive 93/13/EEC of April 5^th, 1993 on unfair terms in consumer contracts as well as the regulation of the general terms in contracts.

In accordance with Spanish regulations, the general terms and conditions of business will only become part of the contract (and therefore will be valid and full effects will arise) when the consumer accepts its incorporation and they are signed by all the contracting parties. All contracts must refer to the implemented general conditions.

It is not to be understood that the incorporation of the general terms in the contract was accepted when the supplier has not expressly informed the consumer about their existence and has not provided him/her with a copy of the terms.

When the contract is not drawn up in writing and the supplier provides a supporting receipt of the compensation received, it shall be sufficient for the supplier to communicate the general terms in a visible place within the location where the transaction is performed, to incorporate the terms in the contractual documentation or it shall be sufficient to ensure the consumer in any other way the actual possibility to become aware of the existence and the content in the moment of the conclusion of the contract.

It is to be highlighted that according to Spanish legislation, if the general terms and conditions of business are not signed, but it is only referred to them, they cannot be considered as having been incorporated into the contract, since the consumer did not have the possibility to know the general terms and conditions of business in its entirety upon conclusion of the contract.

II. General information about retention of title

The reservation of ownership is regulated by Directive 2000/35/EC, transposed to the Spanish legal system by Law 3/2004 to combat late payment in commercial transactions. In art.10 of this law the retention of title is defined for the first time: In the internal relations between seller and buyer, the seller will retain ownership of the sold goods until full payment of the price, provided that the clause of retention of title was agreed upon between buyer and seller before the delivery of the goods.

Precisely, the aim of the Directive was to ensure its use in a non-discriminatory way within the European Union. The Installment sales act (Ley de Venta a Plazos de Bienes Muebles) regulates the retention of title as an optional clause, i.e., it can be incorporated or not in the contract, but in case it is included, it must be expressly stipulated.

In Spain, the effectiveness of a retention of title is regulated by the “Installment sales act” (Law no. 28/1998 from July 13^th, 1998 in the version of the amendment no. 1/2000 from January 7^th, 2000). However, if the goods are –with or without further treatment– intended for resale, the sales contract is not subject to the regulations of the “Installment sales act” (Art. 5 (1) “Law on Payments in Instalments”).

This agreement lacks specific regulation in the Spanish Civil Code (Código Civil), although its legality has been reiterated by abundant doctrine and case-law under Article 1255 of the Spanish Civil Code (principle of contractual freedom).

In Spain, it is necessary to set up contracts that agree on retention of title over certain assets in writing, with as many copies as parties involved. In view of the fact that the private written contract only produces legal effects between the signatory parties, the most secure way with respect to a contract with retention of title is the recording of the contract before a notary.

III. Requirements and validity of the retention of title

In order for the retention of title to become effective in Spain against third parties (insolvency, dissolution and resale of goods), in general, it has to be registered as a public deed.

In case the retention of title has only been agreed in a private contract and in writing, as for example in the delivery conditions or the order confirmation, third parties in good faith acquire the movable property in case of resale.

In addition, in order for the retention of title to be enforceable against third parties, their registration in the Register of Installment Sales of Movable Property (Registro de Venta a Plazos de Bienes Muebles) will be necessary. In this regard, the Ordinance for the Registration of Installment Sales of Movable Property establishes that registrable acts and contracts that are not registered do not harm a third party.

In order for the good to be registered in the aforementioned Registry and the corresponding retention of title to be carried out, it must comply with the following characteristics: be a movable property, non-consumable and it has to be identified individually.

Consequently, in practice, the retention of title under German law (regulated in article 449 Bürgerliches Gesetzbuch, BGB, German Civil Code) has no validity, since the retention of title can be made in private documents, with no need to be registered as a public deed before a notary and the registration of the retention of title in the Register of Personal Property is not required in order for it to be effective. The non-registered retention of title has third-party effects, provided that these are not purchasers in good faith, for whom it is considered unenforceable.

In view of the above and the fact that in Spain it is necessary to register the retention of title as a public deed and to proceed with the subsequent registration in the Register of Movable Property in order to take full effect, the retention of title carried out in accordance with the German legislation is not valid or enforceable in Spain.

Should you need any further assistance on the matter, please do not hesitate in contact our law offices in Madrid, Barcelona, Marbella, Gran Canaria or Mallorca.

Leticia Lozano Uclés – Dr. Frühbeck Abogados Barcelona