The principle of consensuality, as a principle of law, means that the right in rem is constituted or transferred when the contract is signed, instantaneously and automatically, without the need to deliver the thing to be delivered or or registration in the case of things subject to registration, and without the fulfillment of the obligation established in the contract of sale.
However, the retention of title clause is a legal mechanism that makes it possible to the aforementioned principle to the extent that, by means of an agreement between the parties, the transfer of property of a specific thing may be made conditional on dependent on the acquiring party fulfilling an obligation. Despite its apparent simplicity, the retention of title clause has several legal and practical particularities that deserve attention. Issues such as its applicability in different types of contracts, the effects of this clause on the relationship between the relationship between the parties and the rights of the creditor and the debtor are some of the relevant topics that can be analyzed.
The reservation of ownership, based on article 409º of the Civil Code (hereinafter referred to as the “CC”), consists of the permanence of certain thing in the property of the seller until the occurrence of a certain event or until the total or partial fulfillment of the obligations incumbent on the acquirer.
In the case of real estate or movable property that can be registered, only the clause entered in the register is enforceable against third parties, i.e. if the contract is registered with the respective registry office, it will make it impossible for a third party to acquire the property in question, and the beneficiary of the clause can therefore claim ownership. It is common to use the retention of title clause in purchase and sale contracts in which the payment system agreed between the parties is in installments, as it is a deal that involves high risks for the seller, since the conclusion of the contract entails a change from being the owner of an asset to being a mere unsecured creditor, without any guarantee over the asset sold. Thus, the seller, in order to ensure that payment is made in full, reserves property of the asset for himself and transfers it only after payment has been made in full. In the event of the buyer defaulting on his obligation, the seller may terminate the contract and reclaim his property under article 886º of the CC, as the words “unless otherwise agreed” also refer to the retention of title clause.
On the other hand, it is possible to terminate the purchase and sale contract with payment by under the terms of article 934º of the CC, however, this article provides for a special regime which applies in situations where the property over which the reservation of property rests has been delivered to the buyer; failure to pay a single installment not exceeding the eighth part of the price, determines the article 934º of the CC, does not give rise to termination of the contract. This means that the seller can only terminate the contract if the buyer fails to pay a single installment equal to or than 1/8 of the agreed price. However, if the buyer fails to pay two installments, even if together they do not exceed the eighth part of the price, the seller may also terminate the contract, as the article only applies in cases where cases of non-payment of a single installment.
An interesting question that we should analyze here, still in the context of article 934 is:
Whether, as soon as the seller is faced with non-payment of a single payment of more than 1/8 of the price, can he immediately terminate the contract, or must the buyer be given an additional period to make payment? We believe that the buyer should not immediately terminate the contract, as we believe that the interpretation of article 934º, in conjunction with articles 801º and 808º of the CC, should be that in the event of non-payment, the buyer will be considered in delay. Consequently, the delay will become a definitive default as soon as the seller demonstrates that he has lost interest in the performance or that it has not been carried out within the admonitory period set for the buyer. Therefore, the seller can terminate the contract by declaring it to the buyer, under the terms of article 436º (1) of the C.C. In the same vein, the Portuguese Supreme Court of Justice ruled in judgment 02B3961 of 09-01-2003.
In short, the reservation of property will prevent all the buyer's other creditors from enforcing the property on which the reservation rests, and if it has been seized, the beneficiary of the reservation will be able to oppose the enforcement by means of a third-party motion. It is also important to note that if the seller's creditors execute the property on which the reservation of title has been made, the buyer, being the owner of the property, will also be able to oppose the seller's creditors through third-party the seller's creditors by means of a third-party claim, considering his real expectation of acquiring the object of the reservation of title.
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