1. “Boom Time for Insolvency Firms”, Independent, 5 June 1995. At that time figures from Touche Ross showed a 42% rise in administrative receiverships and administration orders. Many of the receiverships had affected retailing, whereas the proportion in manufacturers' receiverships had diminished by 15% in May 1995. The number of insolvencies may even rise during the recovery as firms will tend to overtrade and run short of working capital. Previous economic crises have shown that there is a corresponding increase in the use of retention of title clauses: Krings, , “Synthèse des travaux du colloque consacré aux sûretés, et organisé par le Jeune Barreau de Bruxelles”, 27–28 Mar. 1992 (1992) 9 Cahiers de droit judiciaire 66.Google Scholar

2. Pike, R. and Neale, B., Corporate Finance and Investment (1996), p.369.Google Scholar

3. Goode, R. M., “The Modernisation of Personal Property Security Law” (1984) 100 L.Q.R. 234, 238.Google Scholar

4. Ghestin, “Réflexions d'un civiliste sur la clause de réserve de propriété” D-S (1981) I Chronique, 1. Indeed, the property in the goods has never entered the patrimony of the insolvent company and accordingly they are excluded from the insolvent's estate.

5. Borden (UK) Ltd v. Scottish Timber Products Ltd [1981] Ch.25, 42.Google Scholar

6. Wheeler, S., Reservation of Title Clauses: Impact and Implications (1991), p.5.Google Scholar

7. Lipe Ltd v. Leyland Daf Ltd [1993] B.C.C. 385.Google Scholar

8. This causes obvious detriment to the creditors, especially the small to medium-sized ones which cannot digest huge losses easily.It can also lead to chains of bankruptcies.

9. This fact was bemoaned in the proceedings of Parliament for creating a new (uniform) Insolvency Act in Germany: Bundestag-Drucksache 12/2443, pp.72–73Google Scholar. The new Act seeks to resolve this problem and to maintain the enforceability of RTCs (the provisions are discussed in more detail in infra Part IV).

10. Doehring, C., “Statistische Ergebnisse von Insolvenzen in der Hochkonjunktur” [1991] K.T.S. 55, 57.Google Scholar

11. Krings, op. cit. supra n.1. See also Keininger, “Securities in Movable Property within the Common Market” (1996) 4 European Rev.Private Law 41.Google Scholar

12. Scarre, G., Utilitarianism (1996), pp.11–12.Google Scholar

13. Spector, H., “An Outline of a Theory Justifying Intellectual and Industrial Property Rights” [1989] E.I.P.R. 270Google Scholar. For an example of consequentialist reasoning in law, see MacCormick, N., Legal Reasoning and Legal Theory (1995), pp.108–119Google Scholar. Consequential and deontological reasoning tend to be viewed as polar opposites and incompatible (see e.g. Raz, J., The Morality of Freedom (1986), chap.11Google Scholar; Finnis, J., Natural Law and Natural Rights (1980), pp.111–118)Google Scholar. The gist of this critique of the utilitarian variant of consequentialism is, following Raz (idem, p.268), that “some valid reasons for action are not susceptible to a consequentialist interpretation, and therefore cannot be accommodated within a consequentialist theory of practical reason”.While this is not the place to confront this difficulty in depth, we submit that it is possible that an activity is justifiable from both deontological and consequentialist standpoints: that it is possible for the two standpoints to coincide when the action (viz.creating the RTC) is justifiable deontologically and its result (keeping property with the buyer) is justifiable consequentially.In doing so we follow Scarre, idem., p. 13, when he suggests “consequentialist and deontological approaches lead, in practice, to similar moral conclusions”, except when the wrong action leads to valuable results of when the right action causes valueless results.But if the right action causes valuable results, then both consequentialists and deontologists would be happy (one with the action, the other with the result).RTCs, it is submitted, always lead to the latter result.An alternative approach would be to suggest that consequentialist considerations justify the enforceability of the clause and deontological considerations justify the creation of RTCs.The two theories would not there fore be used at the same level.This is the view taken by Spector (idem) and elaborated in his Autonomy and Rights (1992), pp.67–82.

14. See Hübner, U., “Zur dogmatischen Einordnung der Rechtsposition des Vorbehaltskäufers” [1980] N. J.W. 729, 730et seq.Google Scholar

15. Germany, for most of the 19th century, did not have a uniform legal system: each State operated on analogous but not identical legal systems.

16. Bürgerliches Gesetzbuch, 18 Aug.1896.

17. Pennington, R. R., “Retention of Title to the Sale of Goods Under European Law” (1978) 27 I.C.L.Q. 277, 279 suggests that RTCs were widely used in Germany in the 19th century because bank loans were less readily available than in the UK.Google Scholar

18. §455 BGB: “In case the vendor has retained the property until full payment of the purchase price, it shall, if doubtful, be assumed that the transfer of the property is made subject to the condition of full payment, and that the vendor shall be entitled to cancel the contract, if default of payment occurs.” This statement is far from self-evident, given the division between obligation and transfer of property in German civil law.

19. For historical criticisms of the widespread use of RTCs see Hübner, op. cit. supra n. 14.

20. §433 BGB, s.l, first sentence: “By the contract of sale the vendor of an object is obliged to hand the object over to the buyer and make him the proprietor of it.”

21. §929 BGB.first sentence: “For the transfer of property, it is necessary that the proprietor hands the object over to the person who shall acquire it, and that both do agree that the property shall pass.”

22. This extremely formalistic characterisation, summed up as Abstraktionsprinzip or separation of obligation and proprietary principles, is subject to criticism which cannot be treated here.One major argument in favour of it is that it allows an easier construction of securities such as retention of title, bills of exchange, etc. SeeBaur, F. and Stürner, R.Sachenrecht (16th edn, 1992), pp.43–48.Google Scholar

23. Failure to pay terminates the contract.

24. (1958) 10 B.G.H.Z. 69, 72Google Scholar. See also (1933) 140 R.G.Z. 223, 225Google Scholar; (1956) 20 B.G.H.Z. 88, 99Google Scholar. Westermann, H. P., in Rebmann, and Saecker, (Eds), Münchener Kommentar zum BGB (3rd edn, 1995), §455, paras.44–88.Google Scholar

25. (1914) 85 R.G.Z. 320Google Scholar; (1910) 74 R.G.Z. 126Google Scholar; (1942) 170 R.G.Z. 1.Google Scholar

26. In the Supreme Court two decisions of 7 Feb.1933, Pas, 1933, 124 and 125. See T'kint, F., Süretés et principes généraux du droit de poursuite des créanciers (1991), p.253.Google Scholar

27. Ripert, G. and Roblot, R., Traité élémentaire de droit commercial (10th edn), Vol.II, p.923; Ghestin, op. cit. supra n.4.Google Scholar

28. T'kint, F. and Coppens, P., “La clause résolutoire et la clause de réserve de propriété dans le contrat de vente” [1979] Rev.régionale de droit 887.Google Scholar

29. It is of course possible to argue that other financing methods would lead to comparable economic gains (or even to superior ones).We consider this issue in infra Part IV.

30. [1895] A.C. 457.Although this is probably better characterised as a hire-purchase agreement, the comments made remain valid.

31. idem, p.463 (emphasis added).

32. idem, p.465 (emphasis added): this is clearly a deontological justification for the rule.

33. idem, pp.468–469.

34. Aluminium Industrie Vaassen BV v. Romalpa Aluminium Ltd [1976] 1 W.L.R. 676.Google Scholar

35. idem, p.689.

36. Van Horne, J. C., Financial Management and Policy (5th edn, 1980), pp.487–492.Google Scholar

37. This is a summary of the analysis by Schwartz, A. and Scott, R. E., Commercial Transactions: Principles and Policies (2nd edn, 1991), pp.678–679Google Scholar. See also Scott, R. E., “A Relational Theory of Secured Financing” (1986) 86 Col.L.Rev. 901Google Scholar. Some doubt on this theory is cast by the facts in Ian Chislom Textiles v. Griffuhs [1994] 2 B.C.L.C. 291: the bank and supplier of cloth subject to an RTC had come to an agreement as regards the cut and uncut cloth sold by the supplier, but dispute arose over the manufactured dresses because there the supplier did not have a comparative advantage in selling the clothes.Google Scholar

38. In the US, UCC §9–316 allows the first financier to subordinate his interest to second financiers.See Schwartz and Scott, ibid.

39. An RTC clause can be a combination of one or more of these (e.g.combining a manufacturing clause with a proceeds clause). See McCormack, , “Reservation of Title Clauses and the Company Charge Registration System”, in Palmer, N. and McKendrick, E. (Eds), Interest in Goods (1993), p.487 at p.488.Google Scholar

40. Palandt, O., Bürgerliches Gesetzbuch (56th edn, 1997), para.12.Google Scholar

41. Indeed, it has been suggested that this type of clause does not fall within the scope of what are commonly known as Romalpa clauses. See De Lacy, J., “Romalpa Theory and Practice Under Retention of Title in the Sale of Goods” (1995) 24 Anglo American L.Rev. 327.Google Scholar

42. Clough Mill Ltd v. Martin [1985] 1 W.L.R. 111, 116.Google Scholar

43. ibid.

44. Honoré, T., Making Law Bind, Essay 8 “Ownership” (1987), pp.177–178Google Scholar

45. Jones, S. A., “A Maze if not a Minefield: Further Considerations of Retention of Title Clauses” (1985) 135 N.L.J. 224 and 271 thought that the question the court asked is “How many of the trappings of ownership can [the seller] part with before one ceases to regard him as the owner?” This is inaccurate as none of the speeches endeavours to identify the trappings which the seller still holds.Google Scholar

46. Clough Mill, supra n.42, at p.116Google Scholar.This is consistent with the Sale of Goods Act 1979, where the transfer of property is a matter of intention, not of conveyance.I.Davies, Text book on Commercial Law (1992), p.264.Google Scholar

47. [1980] Ch.288.Google Scholar

48. This argument had also been advanced by counsel for the appellants in McEntire v. Crossley, supra n.30, in relation to charges under the Bills of Sale Act.Lord Herschell had responded in this manner (at p.466)Google Scholar: “No doubt to some extent that may have the effect of giving sellers a security interest such as they would have as mortgagees.It may to some extent, as I say, give them that security; but I know nothing to prevent such a contract as that being made or having full effect given to it.If a contract of that description is within the mischief of the Bills of Sale Act, then the Bills of Sale Act needs amendment.” More recently, Bradgate, J. R., “Reservation of Title Ten Years On” [1987] Conveyancer and Property Lawyer 434, suggested that the property should be seen as passing to the buyer, because accountants would treat the transaction as a sale ab initio, showing the buyer as owner.This is untenable as we believe that the law should not bend to accounting practice, but vice versa.Google Scholar

49. [1992] F.S.R. 80.Google Scholar

50. idem, p.87.

51. Decisions of 7 02 1933, supra n. 26, at pp.124 and 126.Google Scholar

52. See Supreme Court Decision of 22 09 1994 R.D.C. 1995 p.601. This is an action which he will take if he suspects that the buyer will be adjudged bankrupt.Google Scholar

53. Dirix, , “Nieuwe overeenkomsten tot zekerheid” (1988) T.P.R. 323, 336.On the concept of legitimate expectations, see more specifically X. Dieux, Le respect dû aux anticipations légitimes d'autrui (1995).Google Scholar

54. Boxtael, Van, “La sûreté fiduciaire” [1992] R.G.D.C. 217, 22Google Scholar; Van Ommeslaghe, “Les sûretÉs nouvelles issues de la practique, développements récents”, in Le droit des sûretés, Bruxelles, (1992) J.B.at 328.We have not yet denied the need for providing expectations to buyer's creditors, especially banks.A system of publicity is discussed in infra Part IV.Google Scholar

55. Private Member's Bills of 16 and 19 12 1980, Doc.Parl.Chambre 730 and 720 (1980–1981) No.lGoogle Scholar; and Proposal Doc.Parl.Chambre 930 (1983–1984) No.l.Google Scholar

56. Private Member's Bill on Insolvency, Doc.Parl.Chambre (1995–1996) No.330/1Google Scholar. The proposed amendment is at 330/2, p.5.It is expected that the new Law will be in force in Jan.1998.Google Scholar

57. I.e.the clause is valid but unenforceable after the concursus: Decision of 28 Mar. 1934 D 1934 I 151; 22 Oct. 1934 D 1934 1153.

58. IRCEM (formerly Jupiter Institute), Report on the Retention of Title and Its Economic Consequences and report The Economic Consequences of Retention of title and the Credit Between Firms.

59. See also Garcin, , “La loi du 12 mai 1980 (Loi Dubanchet)” [1980] Droit et affaires, special issue on RTCs.Google Scholar

60. BGB §§947, 948 and 951. See also Pennington, op. cit. supra n.17, at pp.296–297.Google Scholar

61. §950, first para.: “He who creates a new moveable by processing or transforming one or more raw materials, acquires property of the new moveable, if the value of the processing or transforming is not substantially below that of the raw material.”

62. This is provided by §951 BGB, although this right is not very valuable in the context of the buyer's insolvency.

63. See overview in Baur, and Stürner, , op. cit. supra n.22, at pp.546–547Google Scholar. Medicus, D., Bürgerliches Recht (16th edn, 1993), paras.516–520.These two scholars oppose the manufacturing clause.Such compulsory inclusion of §950 could, however, be overcome by anticipating a transfer of property in the final product to the seller, by an anticipated Einigung; in which case, for a “logical second” the buyer/manufacturer becomes owner.This would not, however, eliminate the possibility of a secured third party taking the property.Google Scholar

64. Judgments in (1954) 14 B.G.H.Z. 114, 117Google Scholar; and (1956) 20 B.G.H.Z. 159, 163Google Scholaret seq. Note that there is no need for a resulting benefit to the buyer as a result of his agreement to manufacture for the seller.No exchange of consideration is required.

65. See Medicus, op. cit supra n.63 and Serick, R., Eigentumusvorbehalt und Sicherungsübertragung (2nd edn, 1993), pp.106–114Google Scholar. The only limitation which the courts have imposed is that if the amount owed is disproportionately small in comparison with the value of the goods created by the buyer, the courts will hold the reservation of property to the seller as void: (1952) 7 B.G.H.Z. 365.Google Scholar

66. The exact point according to Michael Hart QC in Modelboard Ltd v. Outer Box Ltd [1993] B.C.L.C. 623, 633 is when the items supplied cease to be the “goods” even if they have not yet become the new “product”.Google Scholar

67. Clough Mill, supra n.42.Companies Act 1985, s. 396(l)(e).

68. Clough Mill, idem, p.125 (per Sir John Donaldson MR); see also Goode, R. M., Proprietary Rights in Insolvency Transactions (2nd edn, 1989), pp.98–99.Google Scholar

69. Clough Mill, supra n.42, at p.120Google Scholar (per Goff LJ). See also Adams, J., P.S.Atiyah's The Sale of Goods (9th edn, 1995), p.425Google Scholar. Possible solutions are sketched by Worthington, S., Proprietary Interests in Commercial Transactions (1996), pp.32–33.Google Scholar

70. “Personal property is a formless subject”: Crossley Vaines, J., Personal Property (3rd edn, 1962).Fortunately, contracting parties are more astute: in Modelboard, supra n.66, the seller had contracted that if his goods were admixed with goods of a third person the resulting product would be owned in common.Google Scholar

71. Viz.accessio, specificatio, confusio/commixio. See Bridge, M., Personal Property Law (1993), pp.82–85; Vaines, idem, chap.18.Google Scholar

72. Re Oatway [1903] 2 Ch.356, 359 (per Joyce J).Google Scholar

73. The facts of Bond Worth, supra n.47, Borden, supra n 5, Re Peachdart [1984] 1 Ch.131 and Modelboard, supra n.66, respectively.Google Scholar

74. Vaines, , op. cit. supra n.70, at p.339.The remedy is useless in insolvency cases.Google Scholar

75. Hendy Lennox v. Grahame Puttick Ltd [1984] 1 W.L.R. 485Google Scholar and Armour v. Thyssen [1991] 2 A.C. 339.Google Scholar

76. Anon (1560) Moore (KB) 19. Interestingly, the New Zealand Court of Appeal in Pongakawa Sawmill Ltd v. New Zealand Forest Products Ltd [1992] 3 N.Z.L.R. 304 reached the same conclusion, though without referring to the earlier case.Google Scholar

77. Hicks, A., “Retention of Title: Latest Developments” [1992] J.B.L. 398, 400.Google Scholar

78. This view can be traced to John Locke: “The labour of his body and the work of his hands, we may say, are properly his … It being by him removed from the common state Nature placed it in, it hath by this labour something annexed to it, that excludes the common right of other men”: Second Treatise of Government (1991), §27. This perspective is also taken by Goff LJ in Clough Mill, supra n.42, at pp.989–990, where he indicates that the buyer/manufacturer has an entitlement to be recompensed.This suggests maybe that a restitutionary remedy on the basis of the seller's unjust enrichment could be available for the buyer or the trustee in bankruptcy.Google Scholar

79. See [1980] Droit et affaires, special issue on RTCs, p.54Google Scholar and Ghestin, , op. cit. supra n.4, at pp.7–8.Google Scholar

80. See Ghestin, idem, p.7; Sénat Débats, 11 Dec. 1979 J.O.p. 5326. For criticism see Droit et affaires, idem, pp.54–55.Google Scholar

81. Doc.Parl.Chambre (1995–1996) No.330/2, pp.5 and 8.Google Scholar

82. Justinian's Institutes II.I.25: “if the product can again be reduced to its original material, he who was the owner of the materials owns the thing; but if it cannot be so reduced, then he rather is owner who makes the thing”.The concept of nova species became current in the Middle Ages, and was interpreted as also requiring some skill and effort on the part of the maker. See Borkowski, A., Textbook on Roman Law (1994), p.182Google Scholar and Thomas, J. A. C., The Institutes of Justinian (1975), p.78Google Scholar. It has been said that “If there is one branch … of Roman Law which, more than others, excites the contempt of modern anti-Romanists, it is that dealing with questions of specification”: Thomas, J. A. C., “Form and Substance in Roman Law” (1966) 19 C.L.P. 145, 146 (who then embarks on an excellent explanation of the way the doctrine applies to the examples offered by Justinian).Google Scholar

83. 1986 S.L.T. 452, 458 (emph.added).The detailed scrutiny of Lord Mayfield suggests that the House of Lords' contrary conclusion (supra n.75) that the cut steel was the seller's is, with respect, difficult to justify.

84. “Corn threshed from someone's ears of corn remains the property of the owner of the ears; for since the corn already has its perfect form while in the ears, the thresher does not make something new, but merely uncovers what already exists”: Justinian's Digest 41.1.7.7, whereas “wine, oil or flour cannot be turned back again into grapes, olives or corn”: Justinian's Institutes 11.1.25.

85. Supra n.73, at pp.142–143.Google Scholar

86. This view is followed by John Locke, op. cit. supra n.78, at §28.5 (emph.added): “Whatsoever [man] removes out of the state that Nature hath provided, and left it in, he hath mixed his Labour with it, and joyned to it something that is his own, and thereby makes it his Property.”

87. The Act, inter alia, added S.20A to the Sale of Goods Act 1979, which treats the problem of ownership of goods sold in bulk: a buyer who has paid for property forming part of an identified bulk of fungible goods becomes an owner in common of the bulk.The whole gist of the Act seems to be concerned with the common interest which competing buyers have in the cargo and allocates the goods to create a fair satisfaction of those interests.

88. This would be another way of resolving the dispute which Justinian had noted.

89. Supra n34.

90. Wheeler, , op. cit. supra n.6, at p.32Google Scholar. See also McCormack, , op. cit. supra n.39, at pp.500–508.Google Scholar

91. [1991] B.C.C. 484, 491 (emph.added).Google Scholar

92. idem, p.495, following a dictum from Slade J in Re Peachdan, supra n.73.There is a general reluctance by courts to uncover fiduciary duties: Westdeutsche Landesbank Girozentrale v. Islington London Borough [1996] A.C. 669.Google Scholar

93. In a similar vein, see de Lacy, “When is a Romalpa Clause not a Romalpa Clause? When it is a Charge on Book Debts” (1992) 13 Co.Lawyer 164.Google Scholar

94. Romalpa, supra n.34, at p.690 (emph.added).Google Scholar

95. De, Lacy, op. cit. supra n.93.Worthington, op. cit. supra n.69, at p.41, has argued, sensibly, that the windfall could be seen as intended in the light of the commercial background or could be dealt with by contractual allocation.Google Scholar

96. op. cit. supra n.69.

97. Hansenne, J., Les biens (Collection scientifique de la Faculté de droit de Liège, 1996), pp.47–75.Google Scholar

98. See idem, pp.55–57; Dirix, , “Zakelijke subrogatie” (1993–1994) R.W. 277–280.Google Scholar

99. Doc. Parl. Chambre (1995–1996) No.330/2, p.8.Google Scholar

100. Palandt, op.cit supra n.40, at §398, paras. 14–17. This result is criticised for reversing the principle of publicity which was intended by the draftsmen of the BGB. Horn, N. and Kötz, , German Private and Commercial Law (1982, trans. Weir, T.), p.238.Google Scholar

101. Spencer, J., “The Commercial Realities of Reservation of Title Clauses” [1990] J.B.L. 220. Her survey estimates that 50% of contracts in the UK include this clause.Google Scholar

102. See the Lord Justice Clerk in Armour v. Thyssen 1989 S.L.T. 182 (2nd Div.), 186–187. In the context of English law s.62(4) of the Sale of Goods Act 1979 was applied: “The provisions of this Act about contracts of sale do not apply to a transaction in the form of a contract or sale which is intended to operate by way of a mortgage, pledge, charge, or other security.” Although in the context of GIF sales, retention of title by the seller is used to gain financial advantages unrelated to the sale (Ross T.Smyth & Co. Ltd v. Bailey & Son Co. [1940] 3 All E.R. 60, 68) this is a different matter.Google Scholar

103. Armour v. Thyssen, supra n.83, at p.457.Google Scholar

104. Supra n.75, at p.349.Prior to this case, an all-debts RTC was considered in John Snow & Co. Ltd v. DBG Woodcraft & Co. Ltd “1985” B.C.L.C. 54 where Boreham J used purely deontological reasoning to enforce the clause, focusing on the plain meaning of the words in the contract.Google Scholar

105. Armour, idem, p.353 (per Lord Keith).

106. Cowan, S., Clark, A. and Goldberg, G., “Will English Romalpa Clauses Become Regis-trable Securities?” (1995) 54 C.LJ. 43.Google Scholar

107. See e.g.(1975) 26 B.G.H.Z. 178, 183 where the seller had assigned to him claims worth fourteen times the value of the goods he had supplied.Google Scholar

108. §138(2) BGB: “A legal transaction is also void whereby a person exploiting the need, carelessness or inexperience of another, causes to be promised or granted to himself or a third party in exchange for a performance, pecuniary advantages which exceed the value of the performance to such an extent that, under the circumstances, the pecuniary advantages are in obvious disproportion to the performance.” Almost the same provision is contained in §9 AGBG, which is applicable to contracts based on standard forms.

109. Bundesgerichtsh of (1985) 94 B.G.H.Z. 105, 113Google Scholar; also in [1990] 11 Z.I.P. 1006, 1009.Google Scholar

110. In an earlier case, the Bundesgerichtshof had permitted 25% (1957) 26 B.G.H.Z. 185, 190–191 (a §138 BGB case)Google Scholar. The 20% limit has been supported as a “normal rule” in [1993] N. J.W. 533 (a §9 AGBG case).Scholars refer to the 20% limitGoogle Scholar. See Graf Lambsdorff, H., “Die Übersicherung des Eigentumsvorbehaltsverkäufers und die Funktion der Freigabeklausel” (1986) 23 Z.I.P. 1524, 1527Google Scholar; Palandt, , op. cit. supra n.40, at §138, para.97b and §9 AGBG, para.79.Google Scholar

111. For elaboration on this point see (1957) 26 B.G.H.Z. 185, 192.There, the contract stipulated that, in case of oversecuring, goods of value equivalent to the payment made would be freed, but only for goods fully paid for.As a result of that clause, the court observed that it may be possible for a buyer to have settled most of his debts but not have paid for any goods in full.Google Scholar

112. BGH [1987] N.J.W. 487Google Scholar; [1990] N.J.W. 716Google Scholar; BGH [1992] N.J.W. 1626Google Scholar; BGH [1994] N.J.W. 1154, 1155. The buyer's strangled economic freedom seems to be the major consideration.Google Scholar

113. See Dirix, and Storme, , “Eigendomsvoorbehoud in het Ontwerp van Faillissementswet: hopeloos onsamenhangend” (1995–1996) R.W. 1422.Google Scholar

114. On clarity see MacCormick, op. cit. supra n.13, at chap.8.

115. The connection with the goods is present in all five rules in s.18 of the Sale of Goods Act.Furthermore, this view was also taken by US courts: infra n.155.

116. Indeed, it may be possible for property to pass even if the contract is tainted by illegality. See Treitel, G. H., The Law of Contract (9th edn, 1995), pp.452et seq.Google Scholar

117. See Audit, B., Droit international privé (1991), p.598Google Scholar, Rigaux, F. and Fallen, M., Droit international privé, Vol. II (1991), p.495.Google Scholar

118. Re Anziani [1930] 1 Ch. 407, 470Google Scholar. Also Devlin J in Scheepvort NV v. Slatford [1953] 1 Q.B. 248, 257.Google Scholar

119. “La loi franchise est seule applicable aux drolls réels dont sont l'objet les biens mobiles situés en France”: decision of 24 May 1933 [1935] Journal de droit international (Clunet) 380, 382.

120. According to Professor North (“Reform but not Revolution: General Course on Private International Law” (1990) I Hag.Rec. 264)Google Scholar, the application of lex situs meets the expectations of the parties. It has also been suggested (Cheshire, and Fawcett, , Cheshire and North's Private International Law (12th edn, 1992), pp.795–797) that should the buyer sell the goods to a third party, that third party should be entitled to assume that it is the law of his country which applies; otherwise in taking the goods he would be committing a civil wrong.Google Scholar

121. “Domestication” is used by Dröbing, U., “Report of the Secretary General: Study on Security Interests” (1977) VIII UNCITRAL Yearbook.Google Scholar

122. As described by Schilling, T. J. R., “Some European Decisions on Non-Possessory Security Rights in Private International Law” (1985) 34 I.C.L.Q. 87, 95–96.Google Scholar

123. Case of 20 Mar. 1963 (1963) 29 B.G.H.Z. 173. This rule was simply deduced from German private international law rules.Google Scholar

124. Federal Supreme Court 2 02(1966) 45 B.G.H.Z. 95, IPRspr 1966/67 No.54.Since RTCs are developed outside the BGB and they do not circumvent any mandatory rule of German law, it followed that the RTC in question fulfilled the first requirementGoogle Scholar

125. By the BGH in [1991] N.J.W. 1415. One qualification made in this case is that the goods in question must be in Germany when the seller seeks to enforce the transposed German RTC.If the goods are not in Germany the seller will have to see if his security can be transposed into the law of the new country where the goods are situated.Google Scholar

126. General Electric sold TV sets to a Venezuelan firm under a type of RTC.The parties agreed that the contract of sale was to be governed by New York law, but the RTC by Venezuelan law. The Venezuelan court accepted the validity of this arrangement and, as the RTC had been drafted in order to comply with Venezuelan, not New York, law, the contract was valid (unrep.but cited in Dröbing, op. cit. supra n.121).

127. [1991] B.C.C. 16.Google Scholar

128. Trib. civ. Strasbourg 19 06 1957 Rev crit.d.i.p. 1959, 95.Google Scholar

129. See Goode, R. M., 's Faulty Approach” (1980) 1 Co.Lawyer 185, 186.Google Scholar

130. Latham, P., “Retention of Title: Recent Developments in Europe” [1982] J.B.L. 81. Thus, for example, under Art.2 of the EC Draft Directive, all RTCs would have to be in writing, whereas under German law this is not a requirement. The Council of Europe's convention also required writing but only for international sales.Google Scholar

131. Council of Europe Directorate of Legal Affairs, Information Bulletin on Legal Activities (04 1982), pp.13–14 (no copy of the Council's draft was available).Google Scholar

132. Art 5.3. At the time this was a dramatic change for France and Belgium.

133. Latham, , op. cit. supra n.130.Google Scholar

134. The draft under analysis can be found, in French, in Droits et affaires, No.374, 01 1980.Google Scholar

135. (1993) OJ.L95/29.Google Scholar

136. Art.4 of the UN Convention on Contracts for the International Sale of Goods (the Vienna Convention) (1980) 19 I.L.M. 671.Google Scholar

137. (1996) 35 I.L.M. 1223Google Scholar. For comments see Turing, D., “The European Convention on Insolvency Proceedings” (1996) 2 J.I.B.F.L. 56.Google Scholar

138. The latter is sometimes referred to as Sicherungsglobalzession or Globalzession.

139. See BGH [1980] J.Z. 572, 573.Google Scholar

140. Konkursordnung of 10 Feb.1877.However, the supremacy of RTCs is limited in the context of manufacturing clauses, if the courts find that the seller is oversecured pursuant to §138 BGB or §9 AGBG. In this case the creditor has priority over the manufactured assets.

141. Palandt, op. cit supra n.40, at §398, para.24.

142. This was first established in BGH (1959) 30 B.G.H.Z. 149, 152–153. This breach of contract could even constitute a criminal offence under §263 of the Penal Code (Strafgesetzbuch). This approach has been criticised by most writers.It has been rightly asked why creditors should have a duty to avoid their debtors' breach of contract with a third party.Entering into an agreement that leads to such a breach is the act of the customer.See Medicus, op. cit. supra n.63, at para.527.Google Scholar

143. Diamond, A. L., A Review of Security Interests in Property (DTI, 1989), p.114.Google Scholar

144. Zeigel, J. S., “Canadian Perspectives on Chattel Security Law Reform in the United Kingdom” (1995) 54 C.L.J. 430, 431.Google Scholar

145. See Diamond, op. cit. supra n.143; Gooode, , op. cit. supra n.68Google Scholar; Zeigel, ibid. And most recently L.S.Sealy (1997) 56 C.LJ. 28.

146. “Taking a personal property security interest should be made as simple and easy as rolling off a log”: Gilmore, G., “Security Law, Formalism and Article 9” (1968) 47 Nebraska L.Rev. 659, 668.Google Scholar

147. See LoPucki, L. M., “The Unsecured Creditor's Bargain” (1994) 80 Va.L.Rev. 1887.Google Scholar

148. Jackson, T. H. and Kronman, A. T., “Secured Financing and Priorities Among Creditors” (1979) 88 Yale LJ. 1143.Google Scholar

149. See LoPucki, , op. cit. supra n.147, at p.1917.Google Scholar

150. Schwartz, A., “A Theory of Loan Priorities” (1989) J.Leg.Stud. 209.Google Scholar

151. See Berger, P. and Luckmann, T., The Social Construction of Reality (1967)Google Scholar and Mansell, W., Meteyard, B. and Thomson, A., A Critical Introduction to Law (1995), chap.2.Google Scholar

152. Scott, R. E. “The Politics of Article 9” (1994) 80 Va.L.Rev. 1783, 1850.Google Scholar

153. See LoPucki, op. cit. supra n.147; Bebchuck, L. A. and Fried, J. M., “The Uneasy Case for the Priority of Secured Claims in Bankruptcy” (1996) 105 Yale L.J. 857Google Scholar. Some justifications have been suggested by H.Kripke, “Law and Economics: Measuring the Economic Efficiency of Commercial Law in a Vacuum of Fact” (1985) 133 U.Pa.L.Rev. 929; Scott, op. cit. supra n.37.Google Scholar

154. Gilmore, G., Security Interests in Personal Property (1965), pp.67–68Google Scholar. Some efforts were devoted just before the drafting of Art.9 to establish equipment leases for commercial transactions instead of equipment sales (idem, pp.80–81).

155. Bucyrus-Eire Co. v. Casey 61 F. 2d 473 (3d Cir.1932).Google Scholar

156. In spite of the fact that Art.9 claims to be so simple and that RTCs are now described as “primitive” and “laughable”, a brief search has uncovered a number of cases where sellers seemed unaware of the need to file. See Uni-products Inc. v. Bearse 20 UCC Rep.Serv.2d 1233 (1993); Hong Kong & Shanghai Banking Corp.Ltd v. HFH USA Corp. 19 UCC Rep.Serv.2d 885 (1992).Interestingly, this second case concerned a German seller who sought to enforce a German RTC.Google Scholar

157. There are four other exceptions: a financing statement lapses after five years (§9–403(2)); a termination statement may be filed by a secured party in certain circumstances (§9–404(1)); a secured party may release its interest in certain collateral (§9–406); a secured party may subordinate his interest to that of another lender (§9–316).

158. Emphases added.A distinction is drawn between a PMSI in inventory (normally raw materials or materials consumed in business, or goods for immediate sale) and non-inven tory (which for our purposes means “equipment”, i.e.fixed assets like machinery used in manufacturing equipment).See §9–109 and Comment 3 thereof for details on the definitions provided.

159. King's Appliance & Electronics Inc. v. Citizens & Southern Bank of Dublin (1981) Ga.App.278 S.E.2d 733.Google Scholar

160. §9–312 Official Comment No.3.It is submitted that the view taken by the UCC is not consistent with commercial realities: as we have seen in supra Pan II banks may be unwilling to extend the short-term credit necessary to purchase inventory and that is what leads the seller to insert an RTC in the first place; so banks will not be making any advances for those purchases.

161. Coogan, , “New UCC Article 9” (1973) 86 Harv.L.Rev. 477, 517.Google Scholar

162. §9–312 Official Comment No.8.This assumption is clearly not true in the EC: the facts of many cases reveal that buyers don't pay sellers as soon as they receive the purchase money from the sub-sale.

163. Kripke, , op. cit supra n.153, at p.960.Google Scholar

164. §9–312 Official Reasons for 1972 change, No.3.

165. See In Re Smith 29 B.R.690 (1983).Google Scholar

166. Kronman, and Jackson, , op. cit. supra n.148, at p.1177.Google Scholar

167. Scott, , op.cit supra n.152, at p.1833.Google Scholar

168. The value of filing as a notice to the world was emphasised in John Deere Co. v. Production Credit Assn.of Murfreesboro 686 S.W.2d 904 (1984).Google Scholar

169. I.e.the action becomes one en restitution and not en revendication. On these reforms see Perochon, “La réforme 1994 de la réserve de propriété” (1995) Cahiers de Droit de I'entreprise La semaine juridique, Supp.5, pp.25–28.Google Scholar

170. The bank's concern is perhaps overstated.As we saw supra (n.139) the German courts have held that the bank ought to know that assets held by the debtor may be subject to RTCs.

171. §9–402(1).

172. This was also mentioned by Professor Diamond: op. cit. supra n.143, at p.113.Google Scholar

173. Mann, , “Explaining the Pattern of Secured Credit” (1997) 110 Harv.L.Rev. 625, 677–682.Google Scholar

174. White, J. J., “Revising Article 9 to Reduce Wasteful Litigation” (1992) 26 Loy.L.A.L.Rev. 823, suggesting costs of $30 million a year.Google Scholar

175. Wheeler, S., “The Insolvency Act 1986 and Retention of Title” [1987] J.B.L. 180; op. cit. supra n.6, at pp.38–40.Google Scholar

176. Schwartz, op. cit. supra n.150.This argument loses some of its force if we note that in negotiating Art.9 the suggestion was made that businessmen intending to invest in a company would check its financial statements rather than a public register.Following this argument, a proposal was made to impose a duty on borrowers to make accurate disclosures. This was disliked by representatives of secured and unsecured lenders who preferred the big filing system which they were accustomed to under the old regime: Gilmore, op. cit. supra n.154, at pp.463–465. This suggests that habit is as important (if not more) in shaping the law as economic efficiency considerations.Google Scholar

177. Cited in Jordan, R. L. and Warren, W. D., Commercial Law (2nd edn, 1987), p.126Google Scholar. These seem to be used principally with big companies (LoPucki, op. cit. supra n.147, at pp.1926–1927)Google Scholar.For discussion of these clauses see Mitchell, T. C., “The Negative Pledge Clause and The Classification of Financing Devices: A Question of Perspective” (1986) 60 Am.Bankr.L.J. 153.Google Scholar

178. Legrand, P., “European Legal Systems Are Not Converging” (1996) 45 I.C.L.Q. 52, 76.Google Scholar

179. Although such an assumption may have been too simplistic, see Collins, H., “Good Faith in European Contract Law” (1994) 14 OxJ.Leg.Stud. 229.Google Scholar

180. And it is very dangerous and disrespectful to say that the values embraced by others are incorrect.

181. Legrand, , op. cit. supra n.178, at p.62 (emph.added).Google Scholar

182. Zweigert, H. and Kötz, H., An Introduction to Comparative Law (2nd edn, trans. Weir, T.), pp.17–19Google Scholar. Domestic courts seldom use this approach.English courts make reference mostly to other Commonwealth jurisdictions, but Lord Goff has recently made extensive references to German law (White v. Jones [1995] 2 A.C. 207).Google Scholar

183. Indeed, Legrand, op. cit. supra n.178, at p.78Google Scholar, is right in saying that a judge looking at foreign rules cannot “transcend his acculturation”.I.e.an English judge looking at a rule of Italian law can never understand the rule like an Italian judge. But this should not indicate that such efforts are futile, because if one follows this position to its logical limit, nobody can understand anybody else, since we all possess different backgrounds; yet we manage to talk to one another.

184. This proposition is illustrated by the approach taken by the Privy Council in the UK when it considers an appeal from another Commonwealth jurisdiction.In Invercargill CC v. Hamlin [1996] A.C. 624, for example, Lord Lloyd refused to apply an English rule to an appeal from New Zealand because policy differences between the UK and New Zealand made the English rule unsuitable: it would have “‘significant community implications’ and would require a ‘major attitudinal shift’” by people in New Zealand (at 642).Here we have an express realisation and recognition that different community standards require different laws.Google Scholar