[For more current case annotated texts by this author, see Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed. (2003) and Lookofsky, Understanding the CISG in the USA, 2d ed. (2004).]
1. Introduction; Article 41
197. According to Article 30, the CISG seller must 'transfer the property in the goods.' Elaborating this theme, the first sentence of Article 41 provides: '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.'
198. A seller who sells goods which she does not own (and is not authorized to sell) commits a clear breach of the obligation laid down in Article 41; the same is true where the goods delivered are encumbered by a non-disclosed security interest held by a third party. In either case, the seller's knowledge regarding the third party claim at the time of contracting is irrelevant. Beyond this, the Convention protects the buyer even against third party claims, in that the mere assertion by a third party of such a claim constitutes a breach by the seller and entitles the buyer to exercise the remedies which the Convention provides. If the claim is frivolous, and/or if the seller quickly and effectively disposes of an asserted claim, the buyer who suffers no substantial detriment will be unable to avoid the contract by virtue of a fundamental breach. On the other hand, depending on the forum jurisdiction concerned, the buyer may be able to require that the seller actually perform her Convention obligation to supply unencumbered goods by taking appropriate legal action (instituting or defending a lawsuit). Damages for breach will be available in either event.
In one application of the Article 41 rule, an Austrian court held that a seller does not comply with the obligation to deliver goods which are free from any right or claim by third parties if, after the formation of the contract, the delivery of the goods is made subject to a restriction of export limitations; under these circumstances, the buyer was held entitled to damages.
2. Third Party Rights Distinguished
199. The Convention governs only the rights and obligations of the seller and buyer; it is 'not concerned with the effect which the contract may have on the property in the goods sold.' In accordance with this principle, Article 41 makes the seller liable for claims which third parties may assert against the buyer, but the [page 110] question of whether a third party's rights are cut off by virtue of a buyer's good-faith purchase from a seller under a contract otherwise regulated by the CISG lies outside the Convention scope.