Transfer of Title (Movable Goods)
1. Tradition and abstraction principle of transfer in the title
It is common knowledge that the transfer of title in movable goods (property) through contract can be based upon several principles. These principles will be examined here but only to the extent that they relate to the effects of contracts for the sale of goods on the title; other types of contracts, such as contracts for the donation of goods will not be considered here. The starting point for the following remarks concerns the different solutions of various legal systems to the question of when transfer of title occurs. In some cases, the contract of sale itself transfers the title in the goods sold, without any further requirement; while in others, the transfer of goods is also necessary. In this respect, one can distinguish between two main systems, namely the consensual system and the tradition system.
Concerning the latter, it is worth mentioning that both Roman law and the ius commune required, for the purposes of the transfer of title, the handing over of the (movable) object of the sale, at least as far as the traditio was concerned, the mancipatio and the in iure cessio both being abstract. The handing over (modus) of the goods was linked to the underlying transaction (titulus). Thus, the principle upon which the transfer of title was based was that summarized in what is probably the most famous Roman law text, namely traditionibus et usucapionibus dominia rerum, non nudis pactis transferuntur (C. 2, 3, 20). Pursuant to this principle, contracts had merely obligatory effects. It is this principle that inspired, for instance, the Codex Theresianus as well as what can be labelled as a civil code of first generation, namely the Austrian Allgemeines Bürgerliches Gesetzbuch (ABGB); this can be derived, for instance, from § 1053 ABGB, by virtue of which ‘the acquisition … occurs only with the handing over of the object of the sale’ and, thus, ‘until the handing over of the goods … the seller retains the property rights’.
Like the Austrian legal system, the legal systems of Estonia, Greece, the Netherlands, Russia, Spain, Turkey and—at least after 1929—Switzerland are based on the causal tradition principle. Though in Germany, too, contracts for the sale of goods have merely obligatory effects, the German approach to the tradition principle differs from that found in the aforementioned legal systems. This is not so much due to the fact that in Germany a distinction is made between the underlying contract (which has merely obligatory effects) and the legal act of transfer (which is the legal act requiring the handing over of the goods that leads to the transfer of the title), since this distinction is also present in some of the aforementioned legal systems, although there, the legal act of transfer is not independent from the underlying contract. Rather, it is due to the principle, theorized by Friedrich Carl von Savigny in his book System des heutigen römischen Rechts, pursuant to which the transfer of property constitutes a legal act whose legal effect is independent from that of the underlying contract. The legal act of transfer in the German system therefore amounts to an abstract legal act. Thus, to transfer title in movable goods, the German legal system does not require the underlying contract to be valid, while the legal systems based upon the causal version of the tradition principle require not only a legal act of transfer but also a valid underlying contract.
The German solution has been theorized for a legal system based upon the principle nemo plus iuris transferre potest quam ipse habet. In legal systems based upon this principle, the causal link existing between the underlying contract and the legal transfer means that where iusta causa traditionis is lacking, the property is not transferred to the buyer and the seller is entitled to claim back the property vis-à-vis all other parties. Among other reasons, the abstraction principle was introduced to protect the buyer’s reliance upon the transfer of property in such situations. The introduction of the abstraction principle is also the result of a more economic goal: the promotion of the exchange of goods, which the abstraction principle undoubtedly leads to because it promotes certainty given that transfer of property can occur despite the aforementioned principle nemo plus iuris transferre potest quam ipse habet even where the underlying contract is invalid, as long as the legal act of transfer is valid. The buyer does not need to worry about the seller being legally entitled to sell the goods and is therefore encouraged to buy goods more freely, thereby helping the overall economy.
Nevertheless, the abstraction principle has often been criticized. The most frequent criticism can be summarized as follows: the abstraction principle has doubled the legal transactions (juridical act) necessary for the transfer of property by requiring, apart from the underlying contract and its execution, another legal transaction constituted by the legal act of transfer. This appears to be unrealistic, insofar as it does not correspond to the idea the parties had in mind when concluding a contract of sale. They consider the transaction as being one unitary transaction, at least as far as cash purchases are concerned.
This criticism, which is directed more towards those systems that distinguish between the underlying contract and the legal act of transfer rather than the German system alone, is not the only one that the abstraction principle encounters. It is often said that the independence of the legal act of transfer from the underlying contract leads to unrealistic results because ‘nobody transfers property for the sake of it, but only for a given reason, to sell, to barter, to donate’ (Robert Haab and August Simonius). Moreover, if one considers that the seller is only entitled to claim the goods handed over sine causa—on the grounds of the rules on unjust enrichment—where the buyer is solvent and provided that the goods are still in the buyer’s possession (in other words, that the seller cannot claim the goods from a third party as the seller would be entitled to do if the seller had remained the owner) then it becomes evident that the abstraction principle is disadvantageous for the seller, even more so in those cases where the seller is interested in the specific goods.
2. Consent principle
The consent principle, pursuant to which delivery of the goods is not required for the transfer of title to occur, should be distinguished from the two versions of the tradition principle described above, which require delivery for the transfer of title to the goods to occur. Pursuant to the consent principle, what is required is the formation of a valid contract. In the legal systems which are based upon the consent principle, there is no clear distinction between the law relating to in rem rights and the law of obligations. Rather, the governing principle considers the consent to transfer the title to be contained in the contract of sale itself. This unity is very evident in Italy, given that the provision setting forth the consent principle is not to be found in Book IV of the Italian Civil Code, dedicated to in rem rights, but rather in Book III on the law of obligations and, more specifically, in its Art 1376.
The French version of the consent principle was introduced by the Code civil despite some reservations on the part of some of the drafters. Today, its introduction is generally acknowledged; immediately after the Code’s entry into force, however, this was disputed since the provisions dedicated to the contract of sale did not clearly state that the contract of sale itself led to the transfer of the title to the goods sold. In effect, in Art 1582 of the French Code civil, the contract of sale is defined as ‘an agreement by which one person binds himself to deliver a thing, and another to pay for it’. This provision raised doubts as to the proprietary effects of the contract of sale. Nowadays, these doubts are unjustified; in France, the traditio does not constitute a modus adquirendi. This does not signify, however, that the need for a traditio has been completely eliminated; rather, it became a traditio ficta: ‘au lieu de la [tradition] déclarée désormais inutile, [le Code Napoléon] la proclame opérer de plein droit, et il ne fait au reste que consacrer et convertir en règle un usage’ (Antoine-Marie Demante, Edmond-Louis-Armand Colmet de Santerre).
Today, the consent principle is applied in Belgium, Luxembourg, Poland and Portugal among others.
In the Italian legal system, a distinction must be made between the principles found in the old and the new civil code. Due to the influence of the French Code civil, the Italian Civil Code of 1865 contained a provision that was very similar to the aforementioned Art 1582 of the French Code civil, which led to the consent principle and that of unity between the underlying contract and the traditio being applicable, even though the need for a—fictitious—traditio was retained. The Italian Civil Code of 1942, on the other hand, distanced itself from the French model and went further. By introducing a new definition of contract of sale without any reference to the seller’s obligation to hand over the goods, it overcame the need for a traditio, even a fictitious one. Thus, it is no surprise that it is often suggested that the contract of sale itself leads to the transfer of title; the fiction that the contract of sale creates an obligation to transfer the property (the French obligation de donner) that is automatically performed is no longer necessary.
Not unlike the abstraction principle, the consent principle has been criticized. One criticism relates to the fact that pursuant to French law the transfer of the risk of loss of the goods does not occur upon the delivery of the goods, but at the moment of the formation of the contract (see Art 1138(2) Code civil). Since pursuant to the consent principle the buyer becomes the owner of the goods upon the formation of the contract, it is the buyer who bears the risk of loss as per the principle res perit domino. This means that the buyer has to pay the purchase price irrespective of whether the goods were transferred to the buyer.
The consent principle has also been criticized for appearing to promote—in connection with the principle possession vaut titre—good faith acquisition a non domino (acquisition of ownership from a non-owner): in effect, where B buys from A specific goods that are not handed over, C can—where C acts in good faith—become the rightful owner by virtue of the contract of sale concluded with A, even if A is not the rightful owner anymore, because C can rely on the principle of possession vaut titre. This risk does not exist where the handing over of the goods is required for the transfer of title to occur since the need to hand over the goods does not allow C to rely in good faith on A being the owner.
The consent principle is not only characterized by the aforementioned disadvantages but it is also, by its nature, inconsistently applied. The principle at hand can only apply to contracts of sale of a certain kind.
Thus, the consent principle cannot be applied in cases of purchase of fungible goods. In such cases, the transfer of title does not occur at the moment of the formation of the contract, but only when the specific goods to be handed to the buyer are identified; thus, in this case the contract of sale has merely obligatory effects. While in Italy the consent principle does not apply to the purchase of fungible goods, in France the consent principle does not appear to suffer any exception since it is held that the contract of sale—the object of which are goods sold by measure or weight—is not considered as ever having been concluded. Some commentators question, however, whether this really is true.
Other instances exist in which the consent principle cannot be applied. One such instance is the purchase of future goods. Generally, in the purchase of future goods, the transfer of property occurs only at the point in time at which the goods come into existence or, if the goods sold are natural products, when they are separated. Furthermore, where the contract of sale concerns several goods and the specific choice concerning the goods to be delivered can occur at a later stage, the consent principle cannot be applied. Rather, the transfer of title occurs at the time the choice is made.
Additionally, where the buyer purchases goods that do not belong to the seller, the transfer of property does not occur at the time of the formation of the contract either, but rather, as is the case in Italy, at the time when the seller himself becomes the owner of the goods sold. This rule is apparently inapplicable in France where the purchase from a non-owner is void. Since, however, it is only the buyer who is allowed to assert that the contract is void, the differences between the Italian and the French systems are more limited than they appear to be at first glance.
3. Unification of law
It has often been stated that the various principles that govern the relationship between the contract of sale and the transfer of property are incompatible with each other, which is why it is unsurprising that unification in this area has not occurred, at least not on a substantive level. Regarding the conflict of laws level, uniform law has been created, namely by the Hague Conference on Private International Law, which on 15 April 1958 approved the Convention on the law governing the transfer of title in international sales of goods. This Convention, however, has not yet entered into force.
Still, one must wonder whether the principles to be found in the various legal systems really differ so much as to be incompatible with each other and, therefore, make any unification impossible. A closer look at how the principles function in reality seems to suggest a negative answer. This is due to the fact that both the abstraction principle and the consent principle are not absolute and may be broken, which allows for a convergence of the principles even though at first glance they may appear incompatible with each other.
Concerning the abstraction principle, reference is often made to the so-called Fehleridentität, which exists when both the underlying contract and the legal act of transfer are vitiated for the same reason. In that case, there is no exception to the abstraction principle because no causal connection is created between the underlying contract and the legal act of transfer, but rather a purely factual connection which becomes closer the less time lapses between the conclusion of the underlying contract and the legal act of transfer.
The abstraction principle suffers a true exception where the parties to the contract of sale condition the validity of the legal act of transfer upon the existence of the underlying contract of sale. The starting point is the applicability—to the legal act of transfer—of the provision in the ‘general part’ of the Bürgerliches Gesetzbuch (BGB) which allows the parties to put a condition on a legal act, unless the legal act itself by its very nature does not allow such condition. The possibility for the parties to condition the legal act of transfer on the validity of the underlying contract is to be admitted. This is justified on the grounds that the Bürgerliches Gesetzbuch itself deals with a case where the legal act of transfer is conditioned, namely in cases of retention of title (§ 449 BGB). Thus, it is clear that the parties may let the validity of the legal act of transfer depend upon the validity of the underlying contract. The parties can do so not only explicitly, by expressly referring to this condition in their contract, but they can also do so implicitly as long as there is a real intent to condition the validity of the legal act of transfer upon that of the underlying contract.
The abstraction principle may suffer another exception due to the application of § 139 BGB. Pursuant to this provision, the abstraction principle does not apply where the underlying contract and the legal act of transfer may be considered to form one unitary legal transaction (juridical act), which could occur if the applicability requirements of that provision were met. The most important requirement is the clear intent of the parties to consider the two legal acts as forming one unitary transaction, in the sense that the parties want the two legal acts to share the same fate. Some commentators have doubted, however, whether § 139 BGB can ever apply to the relationship between the underlying contract and the legal act of transfer.
The consent principle, too, is not absolute. The parties are allowed to stray from it. Generally, in those legal systems where the consent principle governs, it is possible to avoid its effects on the title of goods sold under contracts of sale. This means, however, that the immediate effects on the title of the goods sold does not characterize the contract of sale in countries applying the consent principle. This allows the parties to agree that the transfer of title could occur after formation of the contract. It does not only mean that the consent principle is not absolute; the possibility to derogate from the immediate effects on the title to the goods sold also signifies that there is room for a convergence between the consent principle and the abstraction principle, as long as the parties agree that the transfer of title occurs at the time of the handing over of the goods. Where the parties have agreed upon the transfer of title occurring at that moment, a principle very similar to the tradition principle, in its causal version, applies. The abstraction principle can also converge towards the tradition principle in its causal version, namely in those cases where the underlying contract and the legal act of transfer are linked in such a way that they share the same destiny, as is the case where the parties agree that the validity of the legal act of transfer depends on the validity of the underlying contract or where § 139 BGB applies. Ultimately, this means that the principles referred to are not wholly incompatible and may therefore be subject to unification efforts.
Franco Ferrari, ‘Vom Abstraktionsprinzip und Konsensualprinzip zum Traditionsprinzip’ (1993) ZEuP 52; Eugen Bucher, ‘Die Eigentums-Translativwirkung von Schuldverträgen: Das “Woher” und “Wohin” dieses Modells des Code Civil’ (1998) ZEuP 615; Andreas Wacke, ‘Eigentumserwerb des Käufers durch schlichten Konsens oder erst mit Übergabe? Unterschiede im Rezeptionsprozeß und ihre mögliche Überwindung’ (2000) ZEuP 254; Ralf Michaels, Sachzuordnung durch Kaufvertrag: Traditionsprinzip, Konsensprinzip, ius ad rem in Geschichte, Theorie und geltendem Recht (2002); Michael Kaspar, Abschied vom Abstraktions- und Traditionsprinzip? (2003); Michael Rainer and Johanna Filip-Fröschl (eds), Transfer of Title Concerning Movables Part I (2006); Mary-Rose McGuire, Transfer of Title Concerning Movables Part II (2006); Claes Martinson, Transfer of Title Concerning Movables Part III (2006); Arthur Salomons, Transfer of Title Concerning Movables Part IV (2006); Wolfgang Faber and Brigitta Lurger (eds), Rules for the Transfer of Movables (2008); Ulrich Drobnig, ‘Transfer of Property’ in Arthur S Hartkamp and others (eds), Towards a European Civil Code (4th edn, 2011) 1003.