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Published by Manz, Vienna: 1986. Reproduced with their permission.

excerpt from

Uniform Sales Law - The UN-Convention on Contracts for the International Sale of Goods

Univ. Prof. Dr. Peter Schlechtriem [*]

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c) Third-Party Claims to the Goods and Intellectual Property Rights of Third Persons (Articles 41-43)

(1) Third-Party Claims

The delivery of goods that are subject to any right or claim by a third party is a breach of the seller's obligation, unless the buyer agreed to take such goods (Article 41). In contrast to the laws governing lack of conformity, the buyer's mere knowledge of the third-party claim does not relieve the seller of his obligation. Consent is needed, be it express or implied.[276]

As under ULIS Article 52, the seller breaches his duty whenever a third person makes a claim.[277] The defense against such claims and the necessary expenses of litigation are the seller's responsibility. The legal nature of the claim is irrelevant; not only claims based on better title to the goods, but also contractual claims can fall under Article 41. Following the basic idea behind the seller's [page 72] obligation, the decisive factor is whether the buyer's use of the goods is infringed or disrupted by the third-party claims.[278] The applicable domestic law determines whether claims by third persons exist. On the other hand, public law restrictions on the use of the goods, such as domestic laws protecting workers, consumers, or the environment, are governed not by Article 41 but by Article 35.[279] Seizure by act of state before delivery is to be regarded as a breach of the obligation to deliver under Article 30.

The sale of goods belonging to another is also governed by Article 41. The contract is valid. Although, unlike ULIS Article 53, the Convention does not explicitly so provide, the claims and remedies available in domestic legal systems are not applicable under the Convention in such a case.[280] In particular, domestic rules on nullity, such as Article 1599 of the French Civil Code, cannot be applied by virtue of Article 4(a). As for non-conformity of the goods, the buyer must notify the seller of any right or claim of a third party within a reasonable period after these defects are discovered or ought to have been discovered and specify the nature of those rights or claims (Article 43(1)). There is no time-limit for notifying the seller of any defects in title, as there is for lack of physical conformity of the goods prescribed in Article 39(2), so that the seller must take into account that claims based on defective legal title may be asserted for the duration of the applicable statute of limitations.[280a] In addition, when the buyer has a "reasonable excuse" for not notifying the seller, the exception in Article 44 applies here as it would for notice of non-conformity, though in this case, it only assures compensation for damages.[281] Finally, if the seller had knowledge of the right or claim of the third party and the nature of it (Article 43(2)), he cannot defend himself on the basis of the buyer's failure to notify.[282]

(2) Industrial and Other Intellectual Property Rights of Third Persons

Article 42 specially regulates industrial and other intellectual property rights of third persons, a subject which is treated by the German Civil Code and ULIS simply as defects in title infringing upon the use of purchased goods. With regard to notice requirements and the buyer's loss of rights for failure to notify, this provision is similar to the one on liability for defects in title (Article 43(1)). The exceptions - the seller's knowledge (Article 43(2)) and the "reasonable excuse" for the lack of notice (Article 44) - are also similar. Nevertheless, it is apparent that this case is [page 73] regarded as a special category of breach of contract, closer to a lack of conformity than to a defect in title.[283]

Similar to the seller's obligation with regard to the quality of the goods sold, the seller's obligation in this case depends on where and how the goods are to be used according to the contract. The seller is not obligated to assure freedom from claims of industrial or other intellectual property rights everywhere in the world, but rather only in those countries where, according to the contract, the goods are to be used. In the absence of a special intended use, this would mean the country in which the buyer has his place of business (Article 42(1)(b)), because there patent claims, for example, can just as effectively hinder the use of a machine as can a functional defect. However, in the event the goods are to be resold and used in a state other than the one where the buyer has his place of business - provided this use in one or more other states was contemplated by the parties at the time the contract was concluded - the seller breaches his obligation where claims are raised based on the laws of these states (Article 42(l)(a)). Therefore, the seller's liability extends only to industrial or other intellectual property rights existing in those countries where the goods are to be employed according to the terms of the contract, (i.e., resold or used), and which were contemplated by the parties in concluding the contract. If such use in a third country was not considered, the seller must, in the alternative, consider the country where the buyer has his place of business.

Furthermore, the seller is only liable if he knew or could not have been unaware of these rights at the time the contract was concluded. In other words, he must inform himself about the possible industrial or other intellectual property rights of third persons with regard to the goods sold,[284] but only for particular countries.

The seller is not subject to the obligation described above if the buyer knew or ought to have known of the right or the claim in question (Article 42(2)(a)), or if the seller followed technical drawings, designs, formulae, or other specifications supplied by the buyer himself (Article 42(2)(b)).

Finally, the buyer loses his right to assert a claim based on such infringements if he does not notify the seller within a reasonable time after he learns or should have learned of the third-party rights or claims,[285] Again, as in the case of [page 74] defective title, there is no time-limit for asserting a claim. The seller is not entitled to rely on the lack of notice from the buyer if he knew of the property right in question and its nature (Article 43(2)).[286] Lastly, the buyer retains his right to assert a damage claim (except for lost profits) if he has a "reasonable excuse" for his failure to give the required notice (Article 44). [page 75]

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FOOTNOTES

* The author of this book participated at the Conference as a member of the delegation from the Federal Republic of Germany. The views expressed here are personal to the author and do not necessarily represent the position of the F.R.G. or its delegation.

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276. See Secretariat's Commentary 104 § 2; ULIS Article 52(1) is similar in that it views as consent the taking over of the goods with positive knowledge of the third party's rights. cf. Dölle (Neumayer) Article 52 § 12. CISG presumably requires consent at the time the contract is concluded. However, one may permit an implied agreement, even afterwards, and thereby a modification of the contract, such as by an acceptance with knowledge of the defects in title, as long as there are no form requirements.

277. See Secretariat's Commentary at 105 §§ 3-4; Honnold, Commentary § 266; 1 UNCITRAL Y.B. 173 (1970) (the UNCITRAL deliberations on this point); 3 UNCITRAL Y.B. 90 (1972). Not every "frivolous" or (even) vexatious claim would be sufficient, but rather only substantiated claims. Cf. Dölle (Neumayer) Articles 52 § 17 (regarding ULIS).

278. Although the Secretariat's Commentary only mentions claims "relating to property," the term should not be translated and characterized in terms of the "dingliche Ansprüche" of German law. See Secretariat's Commentary at 105 § 5. See also Huber at 501.

279. See Secretariat's Commentary at 105 § 5; 3 UNCITRAL Y.B. 68, 90 (1972) (discussions at UNCITRAL).

280. This is clear from the Secretariat's Commentary at 105 § 5. See also 4 UNCITRAL Y.B. 44, 73 (1973) (the reasons behind the omission of ULIS Article 53).

280a. See Schlechtriem, Seller's Obligations at 6-32 (regarding the dangerous consequences for a seller).

281. Article 50 does not include reduction of the price as a remedy for defects in title. The question, however, was not expressly decided at the Vienna Conference. See A/Conf. 97/C.1/SR.23 at 9-10 (= O.R. 349). But see Welser at 122, 123.

282. The provision introduced at Vienna is based on a motion made by the F.R.G. (A/Conf. 97/C.1/L.129= O.R. 110), which was proposed on the basis of Huber's concerns. See Huber at 502.

283. At the Vienna Conference, motions to consolidate the provisions on defects in title and claimed rights to industrial or other intellectual property were therefore unsuccessful. See A/Conf. 97/c.1/SR.17 at 3 et seq. (= O.R. 243); Schlechtriem, Seller's Obligations at 6-33.

284. For a stricter interpretation, see Huber at 503. In the end, according to Huber, the seller is liable only for fraudulently maintaining silence about industrial and other intellectual property rights. This would be too narrow. The Secretariat's Commentary would hold the seller liable - because he could not have been "unaware" - whenever the property rights in question were made public. See Secretariat's Commentary at 109 § 6; see also id. § 4.

285. Unfortunately, a motion by the G.D.R. (A/Conf. 97/C.1/L.134 = O.R. 110) also to introduce here a two-year limitation period was not passed. On the basis of the subjective requirements for liability - awareness or the clear possibility of awareness - and the dispensability of the notice requirement when the seller is aware (Article 43(2)), notice will only be necessary when the seller could not have been unaware of the property rights in question. An additional limitation period for failure to give notice seemed dispensable in these cases.

286. See Articles 40 (defects in quality), 43(2) (defects in title).

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Pace Law School Institute of International Commercial Law - Last updated June 7, 2000
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