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Passing of Title

One of the key legal concepts that is involved in an agreement for the sale of hardware is passing of title and risk. Title is the formal legal ownership to the hardware.

The time that title passes from the ICT supplier to the customer is critical because it is only at this point in time that the customer is free to use the hardware as its own.

The passing of risk is a different legal concept. The passing of risk means that the risk of loss or damage to the hardware is transferred from the ICT supplier to the customer. This is important because if the hardware is lost, stolen or accidentally damaged, then the person who is “at risk” will be responsible for repairing or replacing the hardware at its cost. Obviously, if the hardware was stolen whilst the hardware is in transit to the customer, it is critical to know whether the ICT supplier has the hardware at its risk, or whether risk has been transferred to the customer. In this situation, if the risk of the hardware resides with the ICT supplier, and the hardware was stolen during transit to the customer’s site, the supplier would be required to re-supply new hardware and provide that replacement hardware to the customer. If the hardware had been at the customer’s risk, then the customer would have no claim against the ICT supplier for failing to provide the hardware. Whilst the concepts of passing of title and risk are related, they are completely separate. It is possible for one party to have “risk” in the hardware but not have title in the hardware.

Typically, an agreement for the sale of hardware will provide for risk in the hardware to pass upon delivery (although on some occasions it might pass when the ICT supplier hands control of the goods to a shipper to ship the goods to the customer).

Typically, title to the goods passes to the customer upon payment. Where the goods are of high value and are unlikely to be integrated with the customer’s other goods, it is possible for an ICT supplier to effectively retain title of the hardware until the ICT supplier has received payment in full. It is also possible for an ICT supplier to obtain a right to enter into the customer’s premises to reclaim the goods if payment has not been made and the customer has become insolvent.

These provisions require specific legal advice and careful drafting.

One of the key issues surrounding transfer of title is the rule that you cannot transfer better title to a good than the title which you have in the first place. This is particularly important where the ICT supplier has acquired the hardware from an original equipment manufacturer (OEM) under a distribution agreement. The distribution agreement will often state that title in the hardware will only pass to the ICT supplier when the ICT supplier has paid the OEM in full for that hardware. However, it is also likely that that distribution agreement will include payment terms of 60 or 90 days from the date of delivery of the hardware, either to the ICT supplier or to the ICT supplier’s customer. Whilst the extended payment terms are advantageous to the ICT supplier in respect of its relationship with the OEM, this can cause difficulties when the ICT supplier enters into a contract with its customer for the sale of the hardware.

Typically, customers demand that title in the hardware passes to the customer either upon delivery of the hardware to the customer or at least when the customer has paid the ICT supplier for the hardware. To ensure there is a proper chain of title, the ICT supplier will have to pay the OEM for the hardware prior to the ICT supplier making delivery of the hardware to the customer (or receiving payment from the customer).

Next, learn about Warranty Obligations.

Why you need Hardware Sale & Maintenance Agreements Passing of Title Warranty Obligations for Hardware Sellers Hardware Reseller Agents & Distributors Warranty and Maintenance for Hardware Key Commercial Issues for Hardware Sales Tips to Make Money

Master Hardware Sale Agreement Master Hardware Sale & Maintenance Agreement Master Hardware Maintenance Services Agreement

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