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When selling a production line, machinery, or any other goods, it’s important to ensure that the transaction is properly secured for the security of both parties involved. There are various ways to secure the transaction, such as a letter of credit, bank guarantee, surety, joint borrower,  security transfer of ownership, bill of exchange, return assignment, deposit, voluntary submission to execution,  pledge on specific movable items and pledge on collection of movable items (pignus irregulare). However, not all types of security are equal. Some methods may be procedurally complicated, such as a registered pledge. Others may be expensive, such as bank security, or inappropriate for the situation, such as a mortgage. Additionally, some methods may not be available, such as a guarantee from a former friend, or may be too risky, such as a bill of exchange. So what’s easier than to sell, not to lose your property and still receive money? Have your cake and eat it too!

In uncertain times, such as those caused by recent events like the Covid pandemic and the Russian-Ukrainian war, reservation of title of the sold items becomes particularly important. This serves as a security measure in case the buyer experiences difficulties with payment, if the sold property is foreclosed by another contractor (either the buyer or the seller), in case of insolvency of the buyer, or if the goods are resold to another buyer without the original price being paid, among other potential issues.

So, what exactly is reservation of title? This measure is often the only way to protect oneself from loss and to ensure that claims are satisfied in case of wrongdoing. It ensures that the sold item cannot be excluded from enforcement proceedings or insolvency estates. 

 A sale with reservation of title is therefore possible in both domestic and cross-border transactions and, contrary to the above comment, is not hindered by the provisions of the Vienna Convention (CISG).

The key question then becomes when does the transfer of ownership from the seller / manufacturer / supplier to the buyer occur and how does one 'manage’ one’s own or someone else’s property?

In Poland, the transfer of ownership for items such as production lines, machinery or equipment, which are things indicated as to their identity, occurs at the moment of execution of the contract. This principle of „consensuality” does not apply to things indicated as to their kind like fruits or vegetables or things that will be produced in the future. For such items, the ownership right is transferred to the buyer at the moment of  possession being handed over, which is known as the principle of reality. This means that ownership is transferred when the items are physically issued or documented for the buyer’s use.

In Austria, ownership of movable property is transferable to the buyer upon its transfer, regardless of whether the goods have been paid for. The acquisition takes place only by handing over the subject of purchase. Until the transfer occurs, the seller retains the right of ownership. This is provided by § 1053 ABGB. In addition to Austria, also the legal systems of Estonia, Greece, the Netherlands, Russia, Spain, Turkey and – after 1929 – Switzerland are based on the principle of issuance of possession (Übergabe der Sache, HWB-EuP 2009 Suche HWB-EuP 2009 Eigentumsübertragung [beweglicher Sachen] von Fran -what Ferrari).

In Germany, to transfer ownership of a movable property, the owner must transfer the property to the buyer, and both parties must express consent to transfer of ownership. If the buyer is in possession of the goods, consent to the transfer of ownership is sufficient (§ 929 BGB).

In Germany, as well as in Poland, it is possible to reserve the title (Eigentumsvorbehalt). However, this is only applicable to movable property. Just like in Poland, real estate cannot be sold under certain conditions, such as the transfer of ownership right after full payment. 

Under Polish law (Civil Code), as well as German law (German Civil Code BGB) and Austrian law (Austrian Civil Code ABGB), the ownership right to a machine, device, or entire production line (movable property) can be transferred to the buyer only after the payment of the full or partial sales price, which is agreed upon by the seller and the buyer. Until then, ownership remains with the seller: the seller or the manufacturer.

If the buyer doesn’t pay in full, becomes insolvent, and hands over the device to another contractor, what will happen? Well, it mostly depends on the seller’s accuracy. However, the seller should be able to recover the sold item even if the tax office seizes it from the buyer or their partner as part of enforcement proceedings, such as overdue taxes or social insurance contributions. This also applies to cross-border sales.

To protect their ownership rights, the seller needs to establish the conditions under which ownership will pass from them to the buyer. This can be achieved by implementing a commodity loan from the seller. It’s not expensive and has significant benefits.

For over 30 years, we have been providing protection and legal assistance to sellers and buyers, from the stage preceding the conclusion of the contract, through transport, to the stage of its execution, complaints, withdrawal from the contract, or the stage of pursuing compensation claims in domestic and cross-border cases, also outside the European Union.