Supply contract with retention of title
You deliver your spring collection to twelve boutiques, with sixty days to pay. A month later one of those shops is bankrupt and your clothes are still hanging unpaid on its rails. Whether you get those pieces back was usually decided on the day you confirmed the order.
With a retention of title clause, a supplier remains the owner of the goods delivered until the buyer has paid the purchase price (Article 3:92 of the Dutch Civil Code), so that if the buyer goes bankrupt the supplier can claim back unpaid goods that are still there from the trustee in bankruptcy. If you did not agree one, all that is left is the right of reclamation, with deadlines that run out quickly. And if you supply on consignment, the shop never becomes the owner of whatever stays unsold on the rail. This applies to any brand, label or manufacturer that supplies shops on credit.
Is your customer bankrupt, or do you want your retention of title properly recorded? Call 020 675 88 21 or get in touch. You will have a reply within one working day.
How retention of title works in a supply contract
You do deliver the clothes, but subject to a condition precedent. The buyer only becomes the owner once the purchase price has been paid (Article 3:92(1) of the Dutch Civil Code, in Dutch). The clause usually allows the shop to resell your pieces in the ordinary course of business, because a collection sitting in a stockroom earns nobody anything. A customer who buys a coat in the shop therefore simply becomes its owner.
The clause can reach further than the invoice for that one delivery. With an extended retention of title, everything you have supplied to that customer stays yours for as long as any invoice for goods delivered is still unpaid (Article 3:92(2)). It may also cover damages for the customer’s failure to perform such a supply agreement, but not other debts. If you make the clause cover a loan you gave the shop as well, that part is treated as if it had not been written.
Where the retention of title clause has to be to take effect
Retention of title only works if it was agreed before you deliver. Most suppliers put it in their general terms of delivery. Those terms then have to apply, which is regularly where things go wrong with shops.
If a boutique sends an order referring to its own purchasing terms and you confirm it referring to yours, the terms referred to first apply in principle (Article 6:225(3) of the Dutch Civil Code). That is only different if the second reference expressly rejects the first set of terms. So put the clause in the order confirmation or the contract itself as well, so that it does not depend on whose terms win.
More about terms and conditions of purchase and sale →
What a trustee in bankruptcy can and cannot do with your collection
Once the shop is declared bankrupt, its right to resell your clothes comes to an end. That follows from a judgment of the Amsterdam Court of Appeal about a clothing chain that went bankrupt in July 2014 (ECLI:NL:GHAMS:2020:747, in Dutch). The trustee, the curator, kept the shops open for a closing-down sale and also sold clothes that were still subject to retention of title. The trustee had no authority to do so. The court held this to be unlawful and ordered the estate to pay the loss: just over €67,000 in unpaid purchase prices, plus valuation and collection costs. Because it was an estate debt, a boedelschuld, the claim did not end up at the back of the queue with the ordinary creditors.
Something else was at play in that case that is common in the fashion trade. A central payment organisation paid the suppliers and then collected the money from the shops. The district court had found that the retention of title of three suppliers lapsed as soon as the payment organisation had paid them. The court of appeal read the arrangements as a whole and held that the retention of title continued until the shop itself had paid. If you work with a buying group or a central payer, record that expressly.
Act quickly, even though the law may then make you wait. The supervisory judge (rechter-commissaris) can declare a cooling-off period of up to two months, which can be extended once by a further two months (Article 63a of the Dutch Bankruptcy Act, in Dutch). While it runs, you can only collect goods from the bankrupt shop with the supervisory judge’s permission. So notify the trustee of your retention of title in writing straight away, with a list of the pieces and the unpaid invoices, so that the trustee can keep them apart instead of selling them along with the rest. What you can still do while your customer is not yet bankrupt is explained in your customer may be heading for bankruptcy.
The right of reclamation when no retention of title was agreed
Without a retention of title clause, the clothes belong to your customer once delivered. Even so, the law leaves a seller of movable goods one way out. If the price has not been paid and you are entitled to rescind the sale because of it, you can reclaim the goods by written notice to the buyer (Article 7:39(1) of the Dutch Civil Code, in Dutch). That notice rescinds the sale.
The right of reclamation only lapses once both six weeks have passed since the invoice became payable and sixty days have passed since the clothes were stored with the buyer (Article 7:44, in Dutch). Both periods have to have expired, not just one of them. If you deliver on 1 March with thirty days to pay, you can still reclaim until around 12 May.
You can only reclaim what is still in the same state as when it was delivered (Article 7:41). Clothes that have been shortened or printed on no longer qualify. Nor do you get anything back of what the shop has already sold to customers (Article 7:42(1)). If the buyer is bankrupt, the trustee can stop the reclamation by paying, or providing security, within a reasonable period that you set in your notice (Article 7:40(1)).
Consignment as an alternative to retention of title
If you supply on consignment, you do not sell to the shop and it never becomes the owner of your unsold pieces. You then do not need a retention of title clause. If the shop goes bankrupt, you do have to be able to show which pieces are yours. The cooling-off period can apply to your pieces too.
More about the consignment agreement →
More about the shop-in-shop agreement →
Fabric and materials at a workshop or in external storage
A manufacturer often stands on both sides of the chain. If you supply fabric, buttons or leather to a workshop that sews jackets from them on your instructions, those jackets are yours, because the owner of the materials becomes the owner of what is made from them (Article 5:16(1) of the Dutch Civil Code). If a customer processes your fabric into a new product for itself, that customer becomes the owner and you lose your retention of title, unless the cost of making it is too small to justify that (Article 5:16(2)). For a fabric supplier the clause therefore mainly covers the rolls still lying unprocessed in the warehouse.
If your stock is at a storage company or a workshop that is itself still owed money by your customer, expect that party to be able to hold on to the goods until its own bill is paid (Article 3:290). It can invoke that right of retention against you as owner too, if its claim arises from a storage or work agreement your customer was entitled to enter into (Article 3:291(2)).
A lawyer for your supply contract
We at Liaise find that suppliers in fashion and design rarely open their terms of delivery until a customer goes under. We draft your terms and order confirmations with a retention of title clause that fits the way you supply, on consignment or on credit. We also look at the position if you have customers abroad. If a customer goes bankrupt, we send the trustee your retention of title claim or your notice of reclamation straight away and tell you honestly what can still be recovered. If you supply a distributor who resells your products in its own name, see also the distribution agreement.
Is a customer going bankrupt, or do you want your terms of delivery reviewed? Get in touch or call 020 675 88 21.
