Excerpt from John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, 3rd ed. (1999), pages 287-291. Reproduced with permission of the publisher, Kluwer Law International, The Hague.
§ 262 A. Scope of the Article: Buyer’s Rights Against Seller
One of the limits on the scope of the Convention is set by Article 4: "...this Convention...is not concerned with...(b) the effect which the contract may have on the property in the goods sold." Suppose that a third person claims to own goods that B purchased from S: The question whether the buyer is protected, as a bona fide purchaser, against that third-party claim is not governed by the Convention but is left to applicable domestic law.
The Convention addresses this question: When the seller supplies goods that are subject to a third-party claim, what are the rights of the buyer against the seller? This question is treated in Article 41; related questions that arise when a third-party claim is "based on industrial property or other intellectual property" (e.g., a patent or copyright) are dealt with in Article 42, infra at §267.
"The seller must deliver goods which are free from any right or claim of a third party, unless the buyer agreed to take the goods subject to that right or claim. However, if such right or claim is based on [page 287] industrial property or other intellectual property, the seller’s obligation is governed by Article 42."
Under this article (as under Art. 35, §223 supra ) the seller "must deliver" goods that meet the prescribed standard; the seller’s knowledge of the defect is irrelevant. (Contrast Art. 42, §269 infra.) The buyer’s obligation to notify the seller of a third-party right or claim under Articles 41 and 42 is dealt with in Articles 43 and 44, infra.
Decision on Third-party Claim: AUSTRIA, OGH (Sup. Ct.) 10 Ob 518/95, 6 February 1996. B (Germany) claimed damages for failure of S (Austria) to deliver propane gas. One of S’s defenses was that S’s supplier had prohibited deportation to Benelux countries. The court rejected this argument, noting that under CISG 41 the "seller must deliver goods that are free from any right or claim of a third party", unless "the buyer agreed". B had not agreed to this restriction; B’s damage claim was sustained. UNILEX D. 1996-3.1. See: Schlechtriem, Com. (1998) 326–333.
§ 264 C. The Contested Third-Party Claim
Example 41A. After Buyer received goods from Seller, Claimant brought an action to recover the goods from Buyer and asserted that Claimant, rather than Seller, was the owner. Buyer immediately informed Seller of the claim; Seller replied that Claimant’s assertions were false. Claimant, however, brought legal proceedings to recover the goods. Buyer successfully defended the action but suffered losses of $5,000 because the litigation prevented the prompt use of the goods. In addition, Buyer had to pay $1,000 in legal fees which were not recoverable from Claimant. Has Buyer any redress against Seller?
The Convention provides that the seller has an obligation to deliver goods that are free from "any right or claim of a third party"—language that should protect the normal expectation of a buyer that he is not purchasing a lawsuit. In international sales, the third-party claim is likely to [page 288] involve the domestic rule of the State where the seller has its place of business; it would often be difficult and costly for the buyer to evaluate and contest such a claim.
A third-party claim contested by the seller can present awkward problems but they can be minimized by careful handling. Article 43(1), infra at §271, requires the buyer to notify the seller of a third-party claim "within a reasonable time." When the claim is petty, such as an encumbrance to secure a small debt owed by the seller, one could expect the seller quickly to remove the encumbrance. When the claim is frivolous, such as one based on an encumbrance for a debt that has been paid but not discharged in the public records, the seller could often immediately secure clarification of the record. When the defense of the claim calls for substantial litigation and the buyer desires to keep the goods, effective protection for the buyer would require the seller to take over the defense of the action.
The seller would be obliged to reimburse the buyer for any expense or loss caused by the claim. But if the seller quickly and effectively resolves the problem, the seller’s breach may not be "fundamental" (Art. 25, supra at §181) and the buyer could not avoid the contract (Art. 49(1)(a), infra at §301). But a third-party claim might well involve such detriment to the buyer that would authorize avoidance, and the threat of this drastic remedy should stimulate the seller to take effective action.[page 289] The seller’s obligation to take over defense of the claim will be explored further in connection with Article 42, §270.1 infra.
§ 266 D. "Nullity" of the Contract under Domestic Law
Suppose that domestic law states that the sale of goods the seller does not own is "void" and gives the buyer remedies that are different from those provided by the Convention. The Convention (Art. 4, §64 supra ) states that it "is not concerned with (a) the validity of the contract...". Does it follow that, in an international sale otherwise subject to the Convention, a rule of domestic law that the sale is "void" will displace the rights given the buyer by Article 41 and the rules of the Convention that implement this provision?
Examples of the Convention’s rules in the area include: the buyer’s obligation to notify the seller, Arts. 43 and 44 (§§261, 271); the buyer’s right under Article 46 (§§279–285) "to require performance by the seller of his obligations..." including its obligation under Article 41 to "deliver goods which are free from any right or claim of a third party (e.g. by removing the defect in title or delivering substitute goods); the buyer’s right under Article 45(1)(b), when the seller breaches any of his obligations, to "claim damages as provided in articles 74 to 77"—including the right under Article 74 to recover "the loss, including loss of profit, suffered as a consequence of the breach".
The suggestion for displacing the provisions of the Convention should be rejected. As we have seen in connection with Articles 4 and 5 (§§66, 72–73), supra), giving effect to the labels that are attached to domestic rules could undermine the rules of the Convention which Contracting States have engaged to apply in lieu of the diverse rules of domestic law. The purport of Article 4(a) is to prevent the Convention from authorizing transactions and contract provisions that domestic law prohibits. Here the Convention and domestic law have the same objective: to provide a remedy when the seller fails to transfer ownership to the buyer; however, the Convention provides a battery of remedies that are appropriate for international commercial transactions and, more particularly, are designed to achieve uniformity in international trade.[page 290]
The legal issue, of course, is the proper interpretation of the Convention. When Article 4(a) is read in the content of the Convention as a whole the statement in Article 4(a) that the Convention "is not concerned with (a) the validity of the contract" can not be read to mean that the Convention is not concerned with problems (like the seller’s lack of title) that the Convention does directly address in Article 41.[page 291]
FOOTNOTES: Chapter on Article 41
1. For work toward unification on the effect of the purchase on third-party claims see Explanatory Report on Draft Uniform Law on the Protection of the Bona Fide Purchaser of Corporeal Moveables (UNIDROIT, 1968) and for more recent developments see UNIDROIT, Uniform Law Review 1982, Vol. 1, p. 7 (reinstating program) and the more recent work towards international protection of cultural property. For unification of conflicts rules see Convention on the Law Applicable to the Transfer of Title in International Sale of Goods, the Hague, 15 April 1958. I Register, 13. The Convention has not gone into effect. On reexamination in the U.K., see Law Reform Committee, Twelfth Report, Transfer of Title to Chattels (1966 Cmd. 2958).
2. This article is substantially the same as Art. 39(1) of the 1978 Draft. Cf. ULIS 52, which was sharply criticized by the WG, III YB 90, Docy. Hist. 107, and by the S-G, IV YB 50–51, Docy. Hist. 127–128. Language like the first sentence of Art. 41 was approved at VI YB 72–73, Docy. Hist. 150–151. UNCITRAL: VIII YB 4-–41, Docy. Hist. 333–334. DIPL. CONF.: O.R. 35–36, 324–328, 109–110, 159, 208, Docy. Hist. 425–426, 545–549, 681–683, 718, 743.
[Editor's note: Footnote 3 not present in the text]
4. Similar problems would arise if Claimant asserted that it held a property interest in the goods to secure a $10,000 debt that Seller owed to Claimant.
[Editor's note: Footnote 5 not present in the text]
6. See Secretariat Commentary Art. 39, para. 3, O.R. 36, Docy. Hist. 426, but cf. III YB 90, Docy. Hist 107, para. 135 (claim meant valid claim); contra VI YB 73, Docy. Hist. 151. The reference in Article 41 to "right or claim" is rendered, in the French version, as " droit ou prétention " and, in the Spanish, as " derechos o pretensiones. " The requirement that the seller " deliver goods which are free..." could be read to exclude claims that are asserted subsequent to delivery; on the other hand, this language could be understood to refer to claims that relate to ownership as of the time of delivery.
7. The notice requirement of Art. 39(1), supra at §254, is confined to "lack of conformity of the goods."
8. Under Art. 45(1), infra at §275, the buyer may "claim damages as provided in Articles 74–77" when "the seller fails to perform any of his obligations under the contract or this Convention." Art. 74, infra at §403, drafted in general terms, would include "loss" resulting from a breach under Art. 41. See Dölle, Kommentar, Art. 52 at 17–18, p. 334.
9. Art. 37, supra at §244, empowers the seller, up to the date for delivery, to cure specified problems; the problems so specified, if read narrowly, might not extend to the removal of third-party claims. However, §245.1 supra, suggests that cure under Art. 37 should be extended by analogy to third-party claims. In any event, Art. 48(1) states that the seller may "even after the date for delivery, remedy at his own expense any failure to perform his obligations ..."—subject to restrictions that need not apply to third-party claims. In any event, as was suggested under Art. 25, supra at §184, whether a breach is fundamental must be considered in the light of all the relevant facts, including the seller’s offer promptly and effectively to solve the problem. (Under ULIS 52(1) a buyer could not avoid the contract pending the seller’s response to a request to free the goods from the claim or to supply substitute goods.)
10. Cf. Civil Code of France Art. 1599: "The sale of the thing of another is void; it may give rise to damages when the buyer did not know that the thing belonged to another".
11. This question, of course, could arise only if, in the absence of the Convention, the above rule of domestic law would be applicable pursuant to rules of private international law.
12. Supporting this conclusion see Schlechtriem, 1986 Commentary 73 at n. 280.
13. The above principles apply to sales of goods that the seller owns but which are subject to an outstanding pledge or other security interest (a problem also governed by Article 41) and to sales subject to Article 42, §§267–270 infra, in which the seller transfers title to goods that are subject to an outstanding patent, trademark or copyright.