Romalpa Clauses and Section 2 of the Chattels Transfer Act
Since the decision of the Court of Appeal in the Romalpa case in the mid 1970's there has been an ever growing use of reservation of property (Romalpa) clauses in commercial contracts for the sale of goods. The concept of a reservation of property clause is grounded in sections 19 and 21 of the Sale of Goods Act 1908 but its widespread use is a recent phenomenon. The problem to be addressed here concerns the relationship of such clauses to the Chattels Transfer Act 1924. The question is whether such clauses fall within the ambit of the definition in section 2 of the Chattels Transfer Act of "instrument" or the exclusions from the term "instrument". If they fall within the latter then they are exempt from the registration provisions of the Chattels Transfer Act. If this is so, it enables those purchasing on such terms to give a misleading impression of their substance to other creditors who may extend credit facilities in reliance on what appears to be ownership by the purchaser of substantial stock in trade. In the event of the purchaser's bankruptcy, the supplier under a contract containing a reservation of property clause can recover his goods possibly leaving very little property to be realised for the benefit of the unsecured creditors.