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Part X Transfer of Title, 39 Transfer of Title

From: Global Sales and Contract Law

Ingeborg Schwenzer, Pascal Hachem, Christopher Kee

Content type:
Book content
Product:
International Commercial Law [ICML]
Published in print:
26 January 2012
ISBN:
9780199572984

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2023. All Rights Reserved. Subscriber: null; date: 06 June 2023

Subject(s):
Applicable law and transfer of title — Documents of title — Delivery and transfer of title — Interests and terminology and transfer of title — Contract and transfer of title

39  Transfer of Title

  1. A.  General 39.01

    1. I.  Interests and Terminology 39.02

    2. II.  Contract and Transfer of Title 39.06

      1. 1.  Systematic Approaches 39.06

      2. 2.  Causal or Abstract Approach 39.11

        1. (a)  General 39.11

        2. (b)  Different Systems 39.15

        3. (c)  Consequences 39.19

    3. III.  Registration Requirements 39.21

      1. 1.  Interests Involved 39.23

      2. 2.  Typical Cases 39.25

  2. B.  Applicable Law 39.26

    1. I.  General 39.26

    2. II.  Choice of Law 39.28

    3. III.  Default Provisions 39.29

      1. 1.  Lex Rei Sitae39.30

      2. 2.  Law of the Sales Contract 39.34

      3. 3.  Goods in Transit 39.35

      4. 4.  Lex Fori39.36

  3. C.  Different Approaches 39.37

    1. I.  General 39.37

      1. 1.  Party Autonomy 39.38

      2. 2.  Ascertained Goods—Unascertained Goods 39.39

        1. (a)  General 39.39

        2. (b)  Prerequisites for Appropriation 39.43

        3. (c)  Knowledge of Buyer 39.47

    2. II.  Consensual Approach 39.48

      1. 1.  General Principle 39.48

      2. 2.  Exceptions 39.52

    3. III.  Delivery 39.57

      1. 1.  General 39.57

      2. 2.  To the Buyer Itself 39.60

        1. (a)  Brevi Manu Traditio39.61

        2. (b)  Longa Manu Traditio39.62

        3. (c)  Indirect Possession 39.64

  4. D.  Documents of Title 39.65

A.  General

39.01  Under Roman law the transfer of title was not an obligation of the seller.1 As discussed earlier in this work, today it is universally recognized that in addition to the delivery of the goods the seller must transfer title, or cause title to pass, to the buyer.2 The transfer of title is now considered a main and characteristic obligation in a sales contract.3 At the international level both the CISG and the DCFR require the seller to transfer title under a sales contract.4 Although a detailed consideration of the transfer of title is beyond the scope of this work, it is appropriate to examine its most relevant aspects as they relate to a sales contract.

I.  Interests and Terminology

39.02  This chapter focuses on the transfer of title from a seller who owns the goods to a buyer who will own those goods upon performance of the contract. The chapter is not concerned with the acquisition of title from a non-owner; this is the subject of the following chapter. Furthermore, the chapter does not deal with other methods of acquiring title in detail.

39.03  Different legal systems and commentators refer to the transfer of title in a variety of ways. The most popular ones are ‘transfer of property’, ‘passing of property’, or ‘transfer of ownership’.(p. 498) For the sake of clarity this work adopts the expression ‘transfer of title’. It is intended to be neutral language and is not associated with any particular meaning a legal system or commentator may attribute to this term.

39.04  The transfer of title in the goods sold under a sales contract is central to the interests of the parties and their creditors. Particularly in instances of insolvency of either the buyer or the seller, the party who has title is almost always in a better position. Although a variety of situations are conceivable, there are two archetypal scenarios. First, where a fully paid seller becomes insolvent prior to the transfer of title to the buyer, this effectively leaves the buyer an unsecured creditor as it is unlikely to regain the purchase price and is usually only left with an effectively unenforceable contract claim for title. Secondly, where the buyer becomes insolvent subsequent to the transfer of title, the unpaid seller is in this scenario the unsecured creditor and without a claim based in property to recover the goods. Property claims are beneficial to a seller in this situation as they receive preferred treatment in many domestic insolvency laws.

39.05  A distinction must be drawn between legal systems that follow a unitary approach to transfer of title and those that follow a functional approach. The first group of legal systems consists of the vast majority of legal systems. In these systems, all aspects of and related to ownership as well as its effects pass to the recipient at one single point in time. The second group of legal systems consist in particular of the Nordic legal systems where the question as to when title passes is not considered to be of any importance.5 Rather, these systems establish rules as to the point in time at which the recipient is protected against other creditors of the original owner and conversely for how long the unpaid seller is protected against the buyer’s creditors.6 This approach is interesting from two perspectives. On the one hand it decreases the importance of the actual transfer of title and thus avoids debates which are impeded by legal tradition and therefore have prevented any progress at the international level. On the other hand, and closely related to the first perspective is the notion that the approach taken by the Nordic systems moves the questions relevant for the different interests in commerce to the centre of attention without giving up the concept of the transfer of title being an obligation of the seller.

II.  Contract and Transfer of Title

1.  Systematic Approaches

39.06  Issues involving the transfer of title in sale of goods transactions have been described as a hybrid of contract and property law.7 Different legal systems have adopted different structural approaches to the ordering of transfer of title issues in a sales contract. In civil law legal systems, codifications typically separate the provisions governing the sales contract and those governing property issues. Although appearing in one code, the former are set out in the obligations part, while the latter appear under a separate part, dealing with all property issues.8 In a considerable number of civil law legal systems, the law of obligations, including sales law, is presented in an entirely different code to the one in which property law is found.9 An unavoidable consequence (p. 499) of this structure is that it is necessary to be aware of and understand the cross-referencing relationship of the codes and the parties within these systems. This can be difficult as frequently the codes themselves do not provide the cross-referencing.

39.07  The situation is different in common law jurisdictions. While general rules of property law remain relevant, the sale of goods legislation in those jurisdictions addresses a variety of property-related issues. Most significantly in relation to the transfer of title, these acts establish certain statutory presumptions as regards the parties’ intentions as to the time at which title is transferred.10

39.08  Save for the USA, it appears that in common law jurisdictions matters may be more complicated in barter transactions. Legislation exists in a number of common law jurisdictions effectively equating sales contracts with barter contracts.11 However, a significant difference between both types of contract is that the legislation relating to barter transactions does not include provisions governing the transfer of title. In addition, the mutatis mutandis application of sale of goods legislation is excluded.12 As a result, the transfer of title in barter transactions is governed by different rules on property be they based in traditional common law or property law statutes.

39.09  At the international level the development of broadly uniform rules on the transfer of title has until most recently been impeded by the huge differences amongst domestic legal systems regarding this issue. Property law, more than contract law, is heavily influenced by cultural notions and legal tradition. For the drafters of the CISG it was not possible to find an agreement and consequently the Convention excludes all questions relating to property from its sphere of application.13 Such agreement was, however, reached by the drafters of the OHADA AUDCG, which contains provisions on the transfer of title.14 The DCFR also contains detailed rules on the transfer of title.15 In the same vein as civil law legal systems, the DCFR separates sales law and property law. The transfer of title in sales transactions therefore is governed by the specific property law rules.

39.10  Also at the international level it can be noted that some instruments impact the transfer of title in specific circumstances albeit in limited ways. For example, the 2001 UNIDROIT Convention on International Interests in Mobile Equipment (Capetown Convention)16 specifically grants the possibility of a retention of title clause and deals with its legal consequences.17

2.  Causal or Abstract Approach

(a)  General

39.11  Legal systems can be grouped into those that follow a delivery approach or a consensual approach to transfer of title. Under the first approach a further distinction must be made. Many legal systems in this group still maintain a Roman law tradition of the distinction of contract and conveyance.18 Under Roman law, a sales contract did not effect transfer of title.19 Transfer of title occurred only as a result of a separate agreement that title was to be (p. 500) transferred. This second contract is commonly referred to as a ‘conveyance’, ‘real contract’, or ‘real agreement’.

39.12  The relationship between those two agreements is debated in many legal systems, in particular whether they are causally linked or abstract. Under the causal approach, the transfer of title is only valid if there is a valid underlying contract.20 Thus, where the contract turns out to be invalid, the transfer of title is at the same time invalidated. Under the abstract approach, the transfer of title is independent from the existence of the underlying contract and thus survives the invalidation of that contract.21

39.13  When the dispute arises, it is not always clear exactly why it has arisen. There are some commentators who suggest that the abstract nature of the conveyance is a consequence of the dogmatic notion that the conveyance actually exists as a separate agreement.22 Whereas other commentators suggest that the notion of a conveyance is a necessary consequence of an existing abstract principle.23 It thus seems to be a ‘chicken or egg’ debate.

39.14  As just noted,24 there are two basic approaches to the transfer of title. Under the second of these approaches, either the conclusion of the contract itself effects the transfer of title,25 or determines when it will happen.26 This approach does not require a separate agreement on the transfer of title and, therefore, the dispute as to its causality or abstract nature does not arise. Notable examples of this approach are those legal systems following French or Italian law but also—in respect of the sale of goods—common law jurisdictions.27 At the international level the drafters of the DCFR have opted for this approach.28

(b)  Different Systems

39.15  The division between those systems following either the causal or abstract approach does not strictly run along traditional legal lines. For example, in civil law, while Germany29 is a pronounced adherent to the abstract principle, Austria30 and Switzerland are not. However, specifically adopting the German model, the abstract approach is followed by Estonia, Greece, and some Asian systems including Japan31 and Taiwan.32 Amongst the mixed systems, South Africa—which still employs much of traditional Roman law—takes the abstract approach as well.33 In Scotland the situation is somewhat different. Although traditional Scottish common law utilized an abstract approach,34 the introduction of the Sale of Goods Act (UK) 1893 may be understood to have significantly changed that position.35 As, however, the current sale of goods legislation does not apply in its entirety mutatis mutandis (p. 501) to barter transactions,36 the argument can be made that these transactions are still subject to the abstract approach.37

39.16  The abstract approach is based on the argument that it achieves a high degree of legal certainty in commerce. Specifically, doubts as to the validity of the sales contract do not impact on the transferee as the owner of the goods.38 This is of particular interest for sub-buyers. In order for them to acquire title from the first buyer, it is not necessary for them to meet the stricter requirements for a good-faith acquisition of title. Thus, in essence, the abstract approach seeks to encourage trust in the performance of a contract and to thereby stimulate economic activity.39

39.17  However, there are exceptions acknowledged to the abstract principle even in those systems that employ this approach. The most important exception appears in situations where the flaw affecting the underlying sales contract at the same time affects the conveyance.40 This will typically but not necessarily be the case where the buyer has acted fraudulently.41

39.18  The majority of legal systems which assume the existence of a separate agreement on the transfer of title apply a causal approach—that is, where two agreements are required and the validity of the underlying sales contract determines the effectiveness of the conveyance.42 The argument can be made that the causal approach prevents inappropriate protection of third parties. Under the abstract approach a third party could acquire title from the buyer, even if it positively knows of the invalidity of the sales contract between the owner and the buyer.43 To this end the proponents of the causal approach feel that it is consistent with the level of third party protection provided in other ways by legal systems when it comes to the acquisition of title from a non-owner.44

(c)  Consequences

39.19  The abstract approach, naturally, weakens the position of the original owner who, after invalidation of the contract, cannot claim possession of the goods based on its earlier title but must claim re-transfer of title based on unjustified enrichment. The practical relevance becomes visible where the buyer becomes insolvent prior to payment. Unlike property rights, claims based on unjustified enrichment do not receive preferred treatment.

39.20  The situation is different under the causal approach. In legal systems following this principle, the invalidation of the contract automatically causes title to fall back to the seller. Consequently, the seller has a claim for possession based on its ownership. This provides greater protection in case of the buyer becoming insolvent.

III.  Registration Requirements

39.21  It would seem that in all legal systems at least some registration requirements exist in relation to certain goods. These requirements and the goods involved vary. For the purposes of the present discussion it should be noted that these registration requirements are not the sort that affect the validity of the sales contract itself; rather, they concern only actual ownership. Therefore, they must not be confused with formal requirements for the contract.

(p. 502) 39.22  Registration requirements typically operate in two ways. In the first instance they may have constitutive effect, where the registration is necessary to convey ownership. In the second instance registration is simply declaratory—that is, a publicly available statement of the ownership of the property. However, registration is not required to obtain ownership in the first place.

1.  Interests Involved

39.23  Registration requirements protect a variety of interests. First and foremost, they are a public announcement of ownership. Publicity of this kind serves the interest of the owner by firstly giving credibility to its legal position but also by protecting it against third party claims. Where a system of public registration operates, third party purchasers will rarely, if ever, be in a position to claim that they were without notice.45 Similarly, creditors may be also able to register security rights,46 thus also protecting their interests against third party purchasers.47

39.24  Another stakeholder is the state. Registration requirements are a means by which the state can influence a market. Whether the purpose of such influence is to further political goals or to ensure the transparent operation of the market has differed both over time and among jurisdictions.

2.  Typical Cases

39.25  The most common examples for registration are land, aircraft, ships and other vessels, as well as motor vehicles. The reasons for requiring registration of these particular assets are not uniform and in some instances are antiquated. For example, the famous obligation to register motor vehicles may be for reasons of liability. It may, however, also be for the purposes of taxation where a state requires payment of taxes on a per-vehicle basis. On the other hand, it is presumably only for reasons of tradition that in some systems the transfer of title in a ship is still conditional on registration. Nevertheless, domestic registration requirements for ships, inter alia, have created difficulties at the international level dealing with the sale of ships and similar objects under a uniform sales law.48

B.  Applicable Law

I.  General

39.26  In international sales transactions it is not a rare occurrence that two or more laws must be considered in the lifespan of the contract. The transfer of title is a vivid example. While the lex contractus imposes the obligation to transfer title on the seller, the question of whether the transfer has actually taken place is determined by a different law altogether. This is also true for contracts governed by the CISG, as the Convention excludes all questions of property from its sphere of application.49 Matters are different for sales contracts governed by the OHADA AUDCG, which contains provisions on the transfer of title.50

39.27  It follows that in international settings it is typically necessary to determine the law applicable to the transfer of title. This issue is governed by the applicable conflict-of-laws rules. It should be noted that while in many civil law legal systems conflict-of-laws rules are established in (p. 503) separate legislation, there are several civil law systems that have incorporated such rules into their civil codes—and furthermore, not even in a separate chapter.51

II.  Choice of Law

39.28  While it seems almost universally accepted that it is left for the parties to choose the law governing their contractual relationship,52 whether such choice extends to questions of property law or whether the parties may at all choose the applicable property law is a different question, and one that is not uniformly answered. Some systems explicitly establish the possibility for the parties to choose the applicable property law. However, such freedom is sometimes restricted to the choice between the law of the state from where the goods are transferred, the law of the destination state, and the law governing the contract.53 Other legal systems strictly exclude such a choice.54

III.  Default Provisions

39.29  As far as a choice of the applicable property law has not been made by the parties or where such a choice is not possible, the default rules on the determination of the applicable property law apply.

1.  Lex Rei Sitae

39.30  The dominant principle in conflict-of-laws rules around the world and across all legal families is the principle of lex rei sitae.55 This means that it is the law of the state where the goods are located which governs questions relating to the transfer of title.

39.31  In China a discussion has recently emerged on this point, as the issue is currently unsettled. The Model Law on Private International Law drafted by Chinese experts suggests the following: first, the principle of lex situs is applicable to sales of both movable and immovable properties; secondly, the loss or acquisition of the ownership is governed by the law of the place where the property is located when the whole process is complete; lastly, with regard to sales of goods, the applicable law is first of all to be determined by the agreement between the parties. If no such agreement is available, the applicable law is the law of the place where the goods are located when the goods have been placed at the buyer’s disposal. Before this moment, the law of the place where the goods are located at the relevant time will apply. However, the recent Supreme Court Regulations on Several Issues Relating to the Applicable Law to the Civil and Commercial Matters involving Foreign Elements (2007) refused to rule on the issues relating to the property right. Nevertheless, the Model Law approach could conceivably influence the Chinese practice.

39.32  The way in which the goods have entered a jurisdiction is typically not relevant for the principle of lex rei sitae.56 For example, artworks were stolen in England and sold by the thief to an Italian (p. 504) buyer who was unaware that the artworks had been stolen. The transaction took place in Italy. When the Italian buyer later auctioned the artworks in London, the original owner brought proceedings against the buyer inter alia for the recovery of the artworks. The court held that although the transfer of title would not have been effective under English law, Italian law was to be applied as the goods were in Italy at the time of the transaction and under Italian law title had successfully been transferred.57

39.33  While the principle of lex rei sitae is the primary default approach in most legal systems, a number of them envisage that this principle—under the specific circumstances of a particular case—can produce unreasonable results. These systems therefore ‘merely’ classify the lex rei sitae principle as a presumption that can be rebutted if the individual circumstances of a case show that another law has a closer connection to the transaction. It is then the law which is more closely connected that applies to the transfer of title.58

2.  Law of the Sales Contract

39.34  A small group of legal systems appear to seek a certain alignment of contract and property issues in that they designate the law of the state that applies to the relevant transaction also to apply to property issues.59 In some systems, this approach is advocated by a number of commentators.60 The advantage of this approach is that it frequently prevents situations in which different laws apply to the same transaction.

3.  Goods in Transit

39.35  Some systems have established specific rules for goods that are in transit at the time property issues arise. In these situations the strict application of the principle of lex rei sitae might seem inappropriate, as the law applicable to property questions is in fact determined by coincidence and may be entirely unforeseeable for the parties. One group of these systems provides that, where the goods are in transit, it is the law of the destination state that applies.61 Other systems take the opposite approach and apply the law of the state where transit started.62

4.  Lex Fori

39.36  A peculiar scenario may arise in jurisdictions of all persuasions, but particularly most63 common law jurisdictions, effectively leading to the application of the lex fori as a default rule. These jurisdictions recognize what has been called the ‘presumption of identity’. This is a principle which is invoked when a court finds that a foreign law does apply to a case—for example, where there is a choice-of-law clause—but the content of that foreign law has not been proved. In such a case, pursuant the ‘presumption of identity’ the court will apply its own laws on the presumption that they are the same as the foreign law.64 The circumstance arises because in the (p. 505) relevant jurisdictions issues of foreign law are treated as questions of fact rather than questions of law.65 The principle of ‘presumption of identity’ has been widely criticized both in case law and commentary.66

C.  Different Approaches

I.  General

39.37  From the discussion thus far in this chapter it is already evident that matters relating to the transfer of title vary significantly amongst jurisdictions and must be considered on a jurisdiction-by-jurisdiction basis.67 This also pertains to the mode in which title is transferred.

1.  Party Autonomy

39.38  While the principle of party autonomy is widely recognized in private law, freedom is not quite as free in matters of property law when compared to contract law. Nevertheless, parties enjoy at least some autonomy with regard to the transfer of title. This primarily relates to the point in time at which title is to pass. Although—as is discussed below—approaches to the mode of transfer of title vary considerably, it appears to be common ground that an unpaid seller can, at least contractually, retain title.68 Therefore, the parties may at least influence the point in time at which title is transferred.

2.  Ascertained Goods—Unascertained Goods

(a)  General

39.39  The principle that title passes upon contract conclusion or at a time stipulated by the contract requires that the goods be identified at this point in time.69 Again, this can be traced back to Roman law where the sale of unascertained goods as such was unknown even though stockpiling purchase was accepted.70 In a sales contract for specific goods in a deliverable state, as a matter of logic, these are identified by the contract (ascertained) and consequently title can pass at the time of the conclusion of the contract or when agreed by the parties. For the Nordic systems the same consideration applies for the question at which point in time the protection of the buyer against the seller’s creditors applies. In these systems buyers are protected against the creditors of the seller from the time of the conclusion of the contract if the sale is one for specific goods.71

39.40  In contrast to specific goods, generic goods are typically not identified at the time of the conclusion of the contract and consequently the principle that title transfers at this point in time does not apply. Rather, it is delayed until identification is made and the goods are thus appropriated to the sale. This may coincide with delivery or the time at which the goods are actually handed over to the buyer. A buyer is naturally interested in securing a property right as soon as possible particularly after it has paid the purchase price. Thus a rule which prevents the transfer of title (p. 506) until goods are ascertained may involve considerable insolvency risk for the buyer. Without a property right the buyer would be left as a mere unsecured creditor.

39.41  A small number of common law jurisdictions have relatively recently amended their sale of goods Acts to protect a buyer in this situation—in contrast, the USA has provided similar protection since 1906.72 The United Kingdom and Singapore now specifically allow the transfer of title in an undivided bulk where the buyer is purchasing a specified quantity of an identified bulk.73 In addition to the introduction of new sections, this change also necessitated a change to the definition of goods.74

39.42  However, it should be noted that not all transactions involving the sale of a bulk will be sales of unascertained goods. When it is the bulk itself that is being sold, it is a specific and thus ascertained good, and the rules for ascertained goods will naturally apply.75 Jurisdictions vary, however, on whether this is the case even where something, not associated with identifying the goods, must still be done—for example weighing the bulk to determine the price payable. In some Ibero-American codes property passes at the time of contract conclusion irrespective of the need to weigh the goods,76 whereas in common law jurisdictions77 and a small number of Eastern European jurisdictions,78 the passing of property is suspended until the act has been performed, unless the parties have agreed otherwise.

(b)  Prerequisites for Appropriation

39.43  Goods are appropriated to a contract for sale when they are unconditionally identified as the actual goods which will be bought and sold. In some jurisdictions this process is referred to as ‘identification’. However, it should not be confused with the mere physical acts associated with separating the goods, such as weighing, measuring, or counting. Such acts may be necessary but they will not always mean that the goods have been appropriated. It is only when the goods become unconditionally associated with the contract that appropriation occurs.79 For appropriation, agreement on the actual goods is required, although the level of knowledge and means of agreement may vary.80

39.44  In many cases the actions of the parties will clearly indicate the appropriation of the goods—for example, the seller’s delivery of goods is normally a clear indication of at least the seller’s intention to appropriate the actual goods delivered to the contract.81 However, even delivery may not be sufficient to appropriate the goods where the buyer’s actual goods are to be drawn from a bulk. (p. 507) The common law case of Healy v Howlett and Sons 82 provides a useful example. In that case the buyer and seller contracted for 20 boxes of mackerel. The seller delivered 190 boxes to a railway carrier leaving the railway carrier to choose which 20 boxes were ultimately to be given to the buyer. There was a delay and the mackerel were spoiled. The court found that the boxes of mackerel were not appropriated to the contract by virtue of delivery.83

39.45  Similarly difficult situations may arise where the buyer has previously given the seller the power to select and appropriate the goods to the contract.84 In these situations it will be necessary to determine whether the seller through its actions has decided which actual goods are to be sold, or whether the seller has simply selected the goods it expects to transfer85 but could still replace them before delivery. In the former situation appropriation will have taken place, in the latter it will not.

39.46  Goods may also be appropriated to a contract as a result of actions taken by others. For example where the goods are in possession of a third party, delivery and appropriation to the contract may not occur until the third party acknowledges that it now holds the goods on the buyer’s behalf.86 Similarly goods may be appropriated by a process of elimination or exhaustion. Where the buyer purchases a quantity from a bulk, if all other buyers remove their purchased quantities, leaving only the quantity purchased by the buyer then the remaining quantity becomes appropriated to the contract.87

(c)  Knowledge of Buyer

39.47  A corollary of the requirement that the exact goods to be bought and sold must at some time be identified, and that the parties must have consented to them, is that both parties must have knowledge of those goods. The level of knowledge required however varies and may, in point of time, be linked to knowledge of the delivery.88 In sales involving specific goods there is usually little difficulty as frequently both parties will have actively participated in the selection of the goods. Similarly few difficulties arise where it is the buyer who undertakes the action of separating the exact goods from a bulk.89 However, more contentious situations can arise where the contract is for the sale of unascertained or future goods and the primary responsibility of separating the exact goods rests with the seller. In these situations it is typically the knowledge of the buyer which may give rise to difficulties.

II.  Consensual Approach

1.  General Principle

39.48  The idea that title passes upon the conclusion of the contract is deeply rooted in the Roman reality of sales contracts, as at this time contracts were concluded and performed at the same time and place, namely immediately at the market square. The transfer of title naturally coincided with the conclusion of the contract, although the contract did not have the effect of (p. 508) transferring title. As Roman law did not know the sale of generic goods,90 the Roman law concept only pertains to the sale of specific goods.

39.49  Today there are still a great number of legal systems in which the conclusion of the contract is the crucial factor for the transfer of title. While this approach clearly follows the Roman tradition, it departs from Roman law in that the simultaneous conclusion of the contract and transfer of title is no longer a factual coincidence. Rather, in those legal systems where title passes upon the conclusion of the contract, the sales contract actually has the effect of transferring title.

39.50  This model is primarily found in French91 and Italian92 law as well as those legal systems following their tradition, especially amongst the Ibero-American,93 the Middle Eastern and Arabic,94 and some Eastern European95 and Asian96 legal systems. Even the Nordic systems may be mentioned in this context as the conclusion of the contract is the point in time at which the buyer is protected against the seller’s creditors. However, they differ somewhat on the extent of that effect. In Denmark and Finland the conclusion of the contract brings about protection of the buyer only with regard to specific or identified goods, not with regard to generic goods. In Norway the protection of the buyer is only effected if, after the conclusion of the contract, the seller holds the goods in the interest of the buyer. Finally, in Sweden the conclusion of the contract is of significance mostly in consumer transactions as the consumer will be protected after that point in time with regard to individualized goods.97

39.51  A slightly different but still consensual approach is adopted by common law jurisdictions. Although historically title was transferred at the conclusion of the contract,98 these legal systems now establish that title passes at the time intended by the parties. This is of course not necessarily the time of the conclusion of the contract but could, and in practice usually will, be at a later point in time. The sale of goods legislation contains a number of rules for ascertaining the intention of the parties as to the time at which title is to transfer, if such cannot be derived directly from the contract. The first of these rules reflects the original Roman notion that title transfers upon conclusion of the contract.99

2.  Exceptions

39.52  The default rule that title passes upon conclusion of the contract is naturally subject to a number of exceptions. These are in essence ‘default’ exceptions although in some jurisdictions, such as those belonging to the common law, the exceptions may be couched in the language of contract interpretation and party agreement. In the context of the common law jurisdictions it (p. 509) has been said that very little is needed to displace the presumption that title passes on contract conclusion.100

39.53  The principle exception, already noted above, is that in seemingly all jurisdictions property cannot pass in unascertained/unidentified goods.101 Closely linked and commonly found is suspension of the transfer of title where the seller is required to do something to the goods before the transaction may be completed.102 This may be weighing the goods in order to determine the price,103 or it may encompass putting the goods into a deliverable state.104 Where such an action is required, the transfer of title may be further suspended until the buyer has notice that the seller has done whatever action was required.105

39.54  An interesting and specific exception to the rule of title transferring at the conclusion of the contract is found in a small number of Ibero-American jurisdictions. In Venezuela and Guatemala the transfer of title in goods sold while in transit is suspended until the designated carrier reaches the place of delivery.106

39.55  Although often considered in the context of exceptions to the general consensual approach, ‘sale or return’ contracts and conditional contracts are not genuine exceptions. Indeed a ‘sale or return’ contract exemplifies the default rule. In contracts of this kind the contract is concluded when the buyer decides to retain the goods, and it is also at that moment that title is transferred.107 It may be necessary to examine the buyer’s actions to determine its intention. Frequently, statutes will prescribe that if the buyer keeps the goods but remains silent, title will transfer after a reasonable period of time.108

39.56  Similarly if the contract is a conditional one, it will be first necessary to interpret the contract to determine whether the contract itself is conditional on the occurrence of some event, or whether simply the transfer of title is conditional on the event. In the first instance, the contract may well be one where the default rule applies. Where the parties have only made the transfer of title conditional, it is still a consensual determination of the transfer of title. Retention of title clauses and their effects are discussed in Chapter 39.109

(p. 510) III.  Delivery

1.  General

39.57  Those legal systems that do not follow the consensual approach as described previously follow the delivery approach.

39.58  In the context of this chapter it is necessary to distinguish the obligation of the seller to deliver the goods as discussed in Chapter 29 and the delivery approach to the transfer of title. In the first instance, delivery is a legal concept.110 In the present context it relates to a factual scenario in which—typically—the buyer acquires actual possession of the goods. In other words, the goods are indeed handed over to the buyer.

39.59  The legal systems which follow the delivery approach are typically those with a Germanic legal heritage;111 however, the USA is particularly notable as an exception to the general common law position. Pursuant to the USA UCC subject to a contrary party agreement, the title passes when the seller completes its performance with regard to physical delivery, even if there is a reservation of a security interest in the goods, or if the document of title is delivered at a different time and place.112

2.  To the Buyer Itself

39.60  At its simplest, and as envisaged by legal systems as the standard scenario, the seller hands over the goods to the buyer. This simple scenario rarely necessitates further discussion.

(a)  Brevi Manu Traditio

39.61  Where the buyer is already in possession of the goods the standard scenario described above does not fit the factual circumstances. It would indeed seem strange to have the buyer return possession to the seller only to have the goods immediately handed back. Consequently, legal systems following the delivery approach recognize that transfer of title may be effected by agreement and no specific handing over is required. This is commonly referred to as brevi manu traditio (short-hand transfer).113 For example, a construction company rents a skid-steer loader and uses it at a construction site. Without returning possession, it enters into a sales contract for the said loader with the owner. Transfer of title would be effected by an agreement between the parties that from now on the loader is owned by the buyer.

(b)  Longa Manu Traditio

39.62  In other situations the goods may not be in the physical possession of any of the parties. Quite to the contrary, they may be easily accessible. In such circumstances it may be commercially expedient for the seller to simply declare that the buyer may take possession. This is commonly referred to as longa manu traditio (long-hand transfer). The classic textbook example is that of wood already felled in a forest. Handing over of the goods occurs once the seller instructs the buyer where to find it.

(p. 511) 39.63  Another scenario falling within the scope of this principle is that where a third party is in possession of the goods. Also in these situations, it may be impractical for the seller to first regain possession of the goods before handing them over to the buyer.114 It is therefore typically acknowledged by legal systems following the delivery principle that the handing over may be replaced by assignment of the claim for possession from the seller to the buyer.115 A prime example is the situation where the goods are stored in a warehouse owned by a third party.

(c)  Indirect Possession

39.64  In other scenarios, the seller may have an interest in selling (and transferring title in) the goods while nevertheless retaining possession. In these instances the seller would be forced to hand over the goods to the buyer and to subsequently rent them, thus forcing the buyer, as the new owner, to hand the goods back to the seller as the former owner. To simplify matters for the parties, legal systems acknowledge that it is sufficient for the parties to reach an agreement to the effect that from now on, the buyer shall be the owner of the goods, while the seller possesses the goods in the interest of the buyer.116 The buyer itself acquires indirect possession.

D.  Documents of Title

39.65  Documents of title are addressed in Chapter 30, and thus only a very brief overview is provided here.

39.66  In commerce it will often be impractical or not even be possible to actually hand over the goods to the buyer. A document of title is one which when transferred concurrently transfers constructive possession of the goods, and possibly—if intended—property in those goods.117 Although it appears logical that a document of title must itself be capable of being transferred, this is not necessarily the case. For example, a non-negotiable bill of lading, while not transferrable, is nevertheless recognized as a document of title by it would seem all legal systems.118

39.67  The relevance of documents of title to the transfer of title is very similar to that which it had in the context of delivery.119 Documents of title may be symbolic of the goods and have the effect of displacing those default rules which require the physical delivery of the goods. In these systems, the handing over of such documents replaces or fulfils the requirement of physical possession.120

(p. 512) 39.68  Many legal systems statutorily define what are considered documents of title.121 In a number of civil law systems the list of documents enumerated in the statutory definition is exhaustive.122 In common law jurisdictions while there are statutory lists,123 these may not be exhaustive given the existence of a common law definition.124 In some common law jurisdictions particular documents were specifically included in statutory definitions as they would otherwise not have been encompassed by the simple definition described above. This applies, for example, to a warehouse warrant or mate’s receipt.125

39.69  At the international level the question of the categorization of documents can have particular importance with respect to the CISG. Pursuant to Article 58 CISG, the buyer’s obligation to pay the price is triggered, inter alia, if the seller places documents controlling the disposition of the goods at the buyer’s disposal. The Convention however does not define ‘documents controlling disposition’. It is generally accepted that only documents of title amount to ‘documents controlling disposition’,126 and thus other documents, such as a seaway bill, are not to be regarded as meeting the requirements of Article 58.

Footnotes:

2  See paras 28.14 et seq.

3  It should be noted that from a common law perspective this relates to a ‘sale’ rather than an ‘agreement to sell’.

4  See Art 30 CISG; Art IV.A.-2:101(a) DCFR.

5  Art VIII.-2:102 DCFR, nn 48 et seq.

6  Ibid.

7  For Common Law see Fawcett/Harris/Bridge, para 18.02.

8  A common exception are provisions on the retention of title which in many legal systems are to be found in the context of the sales contract in the law of obligations: Afg Art 1074(1) CC; Arm Art 507 CC; Aze Art 603 CC; Blr Art 461 CC; Bol Art 585 CC; Bra Art 521 CC; Col Art 952 Com C; Chl Art 1874 CC; Cze Art 601 CC; Deu § 449 CC; Ecu Art 1841 CC; Est § 233 CO; Gtm Art 1834 CC; Hun Art 368 CC; Kaz Art 444 CC; Kgz Art 454 CC; Kor Arts 186 et seq CC; Ltu Art 6.349 CC; Ltv Art 2005 CC; Mex Art 2312 CC; Mng Arts 109 et seq CC; Per Art 1583 CC; Pol Art 489 CC; Prt Art 934 CC; Pry Art 780 CC; Rus Art 491 CC; Slv Art 1676 CC; Art 1038 Com C; Tjk Art 527 CC; Ukr Art 697 CC; Uzb Art 424 CC; Vnm Art 168 CC.

9  See on different techniques of codifications paras 6.06 et seq.

10  Aus (Vic) s 23 SGA; Can (BC) s 23 SGA; Eng s 18 SGA; Hkg s 20 SGO; Ind ss 20−4 SGA; Irl s 18 SGA; Ken s 20 SGA; Mwi s 18 SGA; Mys ss 19−24 SGA; Nga s 18 SGA; Nzl s 20 SGA; Sgp s 18 SGA; Tza s 16 SGA; Uga s 19 SGA; USA § 2-401 UCC; Zmb s 18 SGA; Zwe s 18 SGA.

11  USA § 2-304 UCC.

12  See for Eng s 11A(2)(a) Supply of Goods and Services Act 1982; Sco s 11A(2)(a) Supply of Goods and Services Act 1982.

13  See Art 4, sentence 2(b) CISG.

14  See OHADA Arts 275, 276 AUDCG.

15  See Arts VIII.-2:101–VIII.-5:204 DCFR.

16  This Convention currently has 39 Contracting States.

17  See Art 2 Capetown Convention.

18  Aut, Che, Deu.

20  These legal systems are Aut, Che, Fra, Nld, and Tur.

21  These legal systems are Deu, Est, Grc, and Twn.

23  This seems to be the position of the Official Comment on Art VIII.-2:101 DCFR p 4426.

24  See para 39.11.

25  See paras 39.48 et seq.

26  This is discussed in greater detail at paras 39.68 et seq.

27  See para 39.50.

28  See DCFR Official Comment D(c) on Art VIII.-2:101, pp 4423ff. However, the manner in which the expression ‘causal’ is used in the DCFR—both in the Official Commentary and the Notes—differs to the way it is used in this text. The DCFR appears to categorize any circumstance in which the underlying contract can directly or indirectly determine the effectiveness of the transfer as ‘causa’. This explains why the DCFR although not assuming a separate conveyance states that the causal transfer rule is adopted, Comment E(a), p 4425.

30  Aut § 380 CC.

31  Jpn Ono, Hitotsubashi J L & Pol (1996), 14.

35  Ibid, p 350.

36  See paras 8.16 et seq.

38  See for Deu Staudinger/Wiegand, Vorbem zu §§ 929–31, para 17; Baur/Stürner, § 5, para 41.

40  See for Deu Staudinger/Wiegand, § 929, para 18; Baur/Stürner, § 5, para 41. The German technical term is ‘Fehleridentität’.

42  Aut, Che, Nld.

43  Official Comment on Art VIII.-2:101 DCFR, E(b), p 4425.

44  See on this issue Ch 40.

45  See on the issue of protecting the bona fide purchaser, paras 40.68 et seq.

46  In a number of systems, this is, however, only possible with regard to immovable property. See for Deu §§ 873, 1115 CC.

47  Aus Personal Property Securities Act (2009); Can (BC) Personal Property Securities Act (1996); Nzl Personal Property Securities Act (1999); USA Art 9 UCC.

48  See Schlechtriem/Schwenzer/Schwenzer/Hachem, Art 2, para 27.

49  See Art 4 sentence 2(b) CISG.

50  See OHADA Arts 275–6 AUDCG.

51  See eg Arm Arts 1276 et seq CC; Blr Art 1119 CC; Kaz Art 1108 CC; Kgz Art 1194 CC; Ltu Art 1.48 CC; Mda Art 1603 CC; Rus Art 1205; Uzb Art 1185 CC.

52  See paras 4.06 et seq.

53  See for Arm Art 1277(2) CC; Che Art 104(1) PILA.

55  Civil law: Arm Art 1276 CC; Aut § 31 PILA; Blr Art 1119 CC; Che Art 100 PILS; Deu Art 43 Introductory Act to the Civil Code; Jpn Art 13 Act on the General Rules of Application of Law (amended in 2006); Kaz Art 1108 CC; Kgz Art 1194 CC; Ltu Art 1.48 CC; Mda Art 1603 CC; Rus Art 1205 CC; Tha Art 16 Act on Private International Law; Tur Art 21(1) Private International and Procedural Law; Twn Art 10 Regulation on Laws Applicable to Foreign Matters; Uzb Art 1185 CC; Common Law Dicey/Morris, vol II, Ch 24; North/Fawcett, Ch 30; Aus Nygh/Davies, para 32.11; Eng Fawcett/Harris/Bridge, para 18.29; Sgp Diamond Centre Pte Ltd and anor v R Esmerian, Inc and anor and Another Appeal [1996] 3 SLR 377; The ‘ASL Power’ [2003] 1 SLR 545.

57  See for Eng Winkworth v Christie, Manson and Woods Ltd [1980] Ch 496. Similar positions would be adopted in Aus Mortensen, para 18.11; Che ZürcherKommIPRG/Heini, Art 100, para 20; Tur Nomer/Şanlı, p 296.

58  See for Aut § 1 PILA; Deu Art 46 Introductory Act to the Civil Code.

59  See eg Arm Art 1277(2) CC.

60  Discussing this point Common Law see Fawcett/Harris/Bridge, para 18.24.

61  See eg Aut Koziol et al/Neumayr, § 33 IPRG, para 1; Che Art 101 PILS; DEU MünchKommBGB/Wendehorst, Art 46 EGBGB, para 32; Jpn SJ Yang, p 271; Tur Art 21(2) Private International and Procedural Law; Nomer/Şanlı, p 303.

62  See eg Arm Art 1279 CC. A different approach may be found in Tha: according to Art 17 of Thailand’s Conflict of Laws BE 2481, if the goods have various locations during a law suit, the law governing the ownership of the goods is the law of the place where the goods are located when the law suit is commenced.

63  See USA § 136 Restatement (2d) of Conflict of Laws which appears to be slightly different.

64  Aus Neilson v Overseas Projects Corporation of Victoria Ltd (2005) 223 CLR 331; Eng The Parchim [1918] AC 157; Tamil Nadu Electricity Board v ST-CMS Electric Co Private Ltd [2007] 2 All ER (Comm) 701; Hkg Li Yuen Ling and anor v Tang Kwong Wai Thomas and anor [2010] 1 HKLRD 522; USA Leary v Gledhill, 26 November 1951 8 NJ 260, 269, 84 A 2d 725, 729 (NJ 1952).

65  At a federal level the USA has treated foreign law issues as questions of law since 1966, see Rule 44.1, Federal Rules of Civil Procedure.

66  For criticism see McComish, 31 Melb Uni L Rev (2007), 17 citing cases. See also Mills, 67 Cambridge LJ (2008), 25 citing cases from various jurisdictions.

67  Such an examination is beyond the scope of this work.

68  See paras 36.50 et seq.

69  See for Aut Rummel/Aicher, §§ 1048–51, para 4; Deu § 243(1) CC; Dnk Art VIII-2:102 DCFR, note 49 citing references; Fin Art VIII-2:102 DCFR, note 48 citing references; Gh s 25 SGA; Grc Art 289(1) CC; Hkg s 18 SGO; Ind s 18 SGA; Ita Greco, National Report Italy, p 435; Jpn Ono, Hitotsubashi J L & Pol (1996), 24; Ken s 18 SGA; Mac Art 402(2) CC; Mwi s 16 SGA; Mys s 18 SGA; Ndl Art 3.84(2) CC; Nga s 16 SGA; Sgp s 16 SGA; Swe Art VIII.-2:102 DCFR, note 47 citing references; Tha Art 460 CCC; Tza s 16 SGA; Uga s 17 SGA; Zmb s 16 SGA; Zwe s 16 SGA.

71  Art VIII.-2:102 DCFR, nn 48 et seq.

72  USA Uniform Sales Act 1906, UCC §2-105(3).

73  Eng s 20A SGA; Sgp s 20A SGA; Wal s 20A SGA; see also for commentary Bridge, The International Sale of Goods, paras 8.23 et seq; Benjamin’s Sale of Goods, paras 5-061 et seq.

74  For a discussion of the definition of Goods see Ch 7.

75  Arabic/Middle East (Shari’a, Egy, Irq, Lbn, Syr) Basha, p 197; Shari’a (Are) Al Shamsy, pp 373ff; Are Art 512 Federal CC; Bhr Art 390 CC; Dza Art 362 CC; Egy Art 429 CC; Irq Art 531 CC; Jor Art 486 CC; Lbn Art 374 CO; Lby Art 418 CC; Qat Art 429 CC; Syr Art 397 CC.

76  Bol Art 586 (2) CC; Pry Art 746 CC (although not expressly stated therein); Ven Art 1.476 CC.

77  Aus (Vic) s 23 (Rule 3) SGA; Can (BC) s 23(4) SGA; Eng s 18 (Rule 3) SGA; Hkg s 20 (Rule 3) SGO; Ind s 22 SGA; Irl s 18 (Rule 3) SGA; Mys s 22 SGA; Nzl s 20 (Rule 3) SGA; Sco s 18 (Rule 3) SGA; Sgp s 18 (Rule 3) SGA; Wal s 18 (Rule 3) SGA.

78  Alb Art 164 CC; Rom Art 1299 CC, both of which follow the consensual approach, see paras 39.48 et seq.

79  Shari’a (Are) Al Shamsy, pp 374ff; Bhr Art 389 CC; Bol Art 586 (1) CC; Egy Art 933 CC; Eng s 18 rule 5 SGA; Gtm Art 1538 CC; Hkg s 20 rule 5 SGO; Kwt Art 889 CC; Lbn 397 CO; Lby Art 937 CC; Mar Art 494 CO,