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Reproduced with permission of On İki Levha Publishing, Istanbul, 2012, pp. 189 et seq.

Lack of Uniform Application Regarding Transfer of Property in International Sales Contracts with Particular Regard to Retention of Title Clauses

Asst. Prof. Dr. Ahmet Cemil YILDIRIM

Istanbul Kemerburgaz University School of Law [*]

Introduction

The Vienna Convention on International Sale of Goods [1] [hereafter CISG] was adopted in Turkey in 2010 [2] and entered into effect as of the 1st of August 2011. Since that date, Turkish judges consider ex-officio [3] the application of the CISG into disputes that arise from international sales [page 189] contracts. Therefore, since seven months, Turkish lawyers and judges discover the scope of application of the CISG, the issues that are covered by and excluded from this Convention. In this paper I will examine an issue that is not covered by the CISG despite its importance; I will attempt to illustrate the interaction between the CISG and domestic laws and I will evaluate a current practice on the basis of the main objectives of the uniform law.

By definition a sales contract is "a contract in which ownership of property is transferred, or will be transferred, from a seller to a buyer for a fixed sum".[4] Consider a Turkish judge who is in charge of a case involving a dispute regarding the transfer of the property of the goods sold under a contract to which the CISG applies. Since a sales contract is defined by the transfer of the property, the judge would probably and rightfully expect the CISG to deal with this issue; and he will definitely be disappointed seeing that this issue is clearly excluded from the scope of this Convention. According to article 4(b) of the CISG

"… except as otherwise expressly provided in this Convention, it is not concerned with; …

(b) the effect which the contract may have on the property in the goods sold."

That is, there is a gap intra legem in the CISG regarding the passing of the property.[5] [page 190]

In this paper, first, I will question whether there is any substantive rule of international character to fill this gap. Second, I will study the views on the reasons for which the CISG did not regulate the transfer of the property. Then, I will briefly study the case law already established in other CISG countries on this issue. In the light of my findings, I will attempt to provide for prospective application in Turkey in this regard. I will conclude by evaluating how the rules of domestic law can be applied in order to comply with the uniform law’s primary objectives.

I. The Transfer of the Property as a Banned Subject of International Trade Law

The CISG is not the only text of international trade law that does not cover the issue of the passing of the property. In The Hague Convention of 1964 relating to a Uniform Law on the International Sale of Goods [hereafter ULIS], the situation is quite the same. Turkey is not a party to the ULIS, however, we should mention that this Convention can be considered as the ancestor of the CISG. Article 8 of the ULIS that corresponds to Article 4 of the CISG also excludes the passing of the property. This article states that "The present Law shall govern only the obligations of the seller and the buyer arising from a contract of sale. In particular, the present Law shall not, except as otherwise expressly provided therein, be concerned with the formation of the contract, nor with the effect which the contract may have on the property in the goods sold, nor with the validity of the contract or of any of its provisions or of any usage."

Soft law rules may, in some cases, complement the CISG. If the parties agreed upon an Incoterm in their contract, this might be a hope; [page 191] however, in Incoterms 2010, as is the case in its precedents, the passing of the property is not dealt with.[6] As for the UNIDROIT Principles,[7] they govern not only sales contracts, but all types of international commercial contracts. Not surprisingly, they do not contain a provision on such a specific issue. If we look at the Principles of European Contract Law [PECL] [8] we will see that their scope is even broader. These principles govern not only commercial, but also civil contracts. Therefore, they do not contain a provision on the passing of the property either. The situation is no different with the recently published proposal for a "Common European Sales Law".[9] even though this proposal aims at covering crossborder sales transactions within the European Union.

In lack of a substantive rule governing the passing of the property in international sales contracts, a judge may want to check whether there is any private international law rule of international character that governs the passing of the property. He would look at the Convention of 15 June 1955 on The Law Applicable to International Sales of Goods of The Hague Conference on Private International Law. This would not help, not only because Turkey is not a signatory to this Convention (to date there are only eight signatories to it), but also because in Article 5(3) of this Convention it is expressly stated that "this Convention … does not apply to the issue of the transfer of ownership".[10] [page 192]

Another Convention by the Hague Conference on Private International Law, Convention of 22 December 1986 on the Law Applicable to Contracts for The International Sale of Goods would not help very much either. Because, although this Convention went one step further from the Convention of 15 June 1955, it does not bring a direct rule for determining the law applicable to the transfer of ownership, just puts in article 5(c) that "the transfer of ownership … [is] governed by the law applicable to the Contract under the Convention". That is, the judge has to determine anyway the applicable law for property effects of the contract of sale.[11]

Conventions and soft law rules that might be expected to regulate the passing of the property, or the law applicable to this issue, are not just silent. Some of them expressly state that they do not deal with property issues, as does the CISG. A Turkish judge might think that the issue of the transfer of property is a banned subject and no one wants to bring a substantial or even a procedural rule that might help him to resolve a property issue.

II. Why Does the CISG Not Govern the Passing of the Property?

There are two views about the reason why the CISG does not govern the passing of the property. The first view is the one adopted by the UNCITRAL Secretariat in their Commentary on the 1978 Draft of the CISG. According to this view there are two main reasons for ULIS [12] and [page 193] CISG to not to regulate the passing of the property: first, it is difficult to provide a uniform rule on this point because of the divergence among various national legal systems; and second, it is not necessary to do so as both ULIS and CISG already regulate the consequences linked to the passing of the property.[13] According to the Secretariat Commentary on Article 4 of the CISG:

"It was not regarded possible to unify the rule on this point nor was it regarded necessary to do so since rules are provided by this Convention for several questions linked, at least in certain legal systems, to the passing of property; the obligation of the seller to transfer the goods free from any right or claim of a third person; the obligation of the buyer to pay the price; the passing of the risk of loss or damage to the goods; the obligation to preserve the goods"[14] [page 194]

On the other hand, according to Professor Alan Farnsworth, the reason for which Article 4(b) leaves the issue of the passing of the property to national laws is that this was the "price paid by the Convention’s sponsors for its acceptance by the adopting nations."[15] This latter view is based on a political observation and it seems to be quite realistic. It should also be mentioned that according to some authors, a uniform rule is possible, although difficult, in the field of the passing of the property by the adoption of the delivery principle.[16]

Both views agree on the difficulty in providing a uniform rule governing the passing of the property. The former view addresses to technical aspects of this difficulty, whereas the second view refers to political difficulties in making such a uniform rule. It may not be very easy to [page 195] provide a uniform rule on the passing of the property and to convince states to adopt such a rule. However, we should doubt the validity of the second argument of the former view according to which a uniform rule is "not needed."

The case-law so far demonstrated that there is a strong need for such a uniform rule. The lack of uniformity in the practice of retention of title clauses [hereafter ROT clauses] best illustrates the crying need for a uniform rule on this subject. These clauses are often used in international trade and have a very significant function. They serve as a security for sellers on their own goods and protect sellers that sell goods on credit and by installments. Under a ROT clause the parties agree that the property of the goods sold remains with the seller until the payment has been made in full. In particular, when the buyer becomes insolvent before paying the last installment, these goods are exempt from the insolvency proceedings and the seller can get the goods back.

Despite the fact that the use of ROT clauses in international sales contracts is a well established practice,[17] the case law on Article 4(b) of the CISG demonstrated that the validity of these clauses is left to the rules of domestic laws that vary significantly from country to country.

III. Current Practice of the Courts

Let us assume that in the case brought before the Turkish judge there is an international sales contract that contains a ROT clause and to which the CISG applies. By this contract a seller from a CISG country sells and delivers some goods to a buyer in Turkey. The Turkish buyer goes into insolvency before paying the purchase price in full. The buyer has also other creditors in Turkey, a bank for instance, that expect that the goods sold under the contract become subject to liquidation procedure. The seller, however, requests the return of these goods to it from the judge on the grounds of the ROT clause. In such a case the Turkish judge will have [page 196] to determine whether the ROT clause is valid and whether the property in the goods passed to the Turkish buyer.

Article 4 of the CISG simply says that the CISG "is not concerned with the validity of the contract or of any of its provisions" such as the ROT clause in our illustration; and with "the effect which the contract may have on the property in the goods sold". This being the case, how is the Turkish judge expected to resolve a dispute regarding the passing of the property in an international sales transaction? More broadly, how is a judge expected to fill a gap intra legem in the CISG?

Although in Article 7(2) of the CISG the way in which gaps praeter legem will be filled is defined, it is evident that this article cannot apply to gaps intra legem.[18] The Turkish judge has no other choice than to resolve property issues according to the relevant applicable law to be determined.[19] This is also confirmed by the case-law already established in other CISG countries and by the UNCITRAL’s Digest on the Case Law on the CISG.[20]

On the other hand, according to Article 7(1) of the CISG [page 197]

"In the interpretation of this Convention, regard is to be had in its international character and to the need to promote uniformity in its application and the observance of good faith in international trade".

To ensure the uniformity in application, courts in CISG countries are expected to take into consideration decisions previously made in other CISG countries.[21] Therefore, the case law already established in other 77 CISG countries became of crucial importance for Turkish judges. If in other CISG countries a uniform application has already been established regarding the passing of the property, this may be a hope for the Turkish judge in charge of this case. So, it may be appropriate to take a closer look at the case law.

One of the earliest decisions [22] regarding the validity of a ROT clause in an international sales contract is the Australian decision in the Roder case.[23] In this case Roder, a German manufacturer of tents for public [page 198] functions, agreed to supply Rosedown in Australia with some tent equipment. According to their contract the price was to be paid in instalments. The contract contained a ROT clause according to which the property in the equipment would remain on Roder until the payment has been made in full.

Rosedown fell in serious financial difficulties before making the full payment to Roder, became insolvent and appointed a new administrator for restructuring its debts. Subsequently, other creditors of Rosedown approved a Deed of Arrangement for this purpose. Roder avoided the sales contract, brought an action in Australia and claimed the return of the tent equipment on the grounds of the ROT clause.

The Australian Court first examined which law should apply, and found that the sales contract was governed by the CISG as both parties had their places of business in signatory countries. However, as regards the validity of the ROT clause and therefore the passing of the property, the CISG is silent. In this case, the Court applied Australian law as it was the law of the country where the goods were located (that is lex rei sitae). Relying on the case law established in Australia [24] the Court held the ROT clause valid. Roder could get back the tent equipment.

In a subsequent decision in the United States, the approach adopted in the Roder case was confirmed. The Federal District Court of Illinois also applied domestic law in the Usinor case [25] that also related to the validity of a ROT clause in an international sales contract governed by the CISG. However, this time the domestic law did not give effect to the ROT clause. [page 199]

In this case, a French supplier of steel (Usinor) sold steel plate to an American buyer whose place of business is in Chicago (Leeco). The contract contained a ROT clause and the French law was chosen as the applicable law. According to the contract, the disputes relating to the contract would be resolved by a French Court.

The American buyer, Leeco, granted a security interest in the steel in favour of a third party bank that granted a credit for the purchase of the steel. The buyer then failed to make the full payment and became insolvent. The French seller, Usinor, started court proceedings in Illinois, as the steel plate sold was in that State, and requested the return of the possession of the steel relying on the ROT clause.

The Court found that the contract was governed by the CISG as both the United States and France are signatory countries. However, as in the Roder case, a domestic law had to apply to evaluate the validity of the ROT clause.

If French law applied, the clause would be valid and the seller would be entitled to get back the property. The Court, instead, held that the law of the state where the goods sold are located at the time of insolvency (lex rei sitae) is the most appropriate law to apply to this issue.[26] It is important to note that the U.S. Court based its decision on the Australian Court’s decision in the Roder case.[27] Therefore, the Court applied the Uniform Commercial Code [U.C.C.]. [page 200]

According to § 9-103 of the U.C.C. a ROT clause in an international sales contract has to be registered to be effective.[28] As Usinor did not know of this requirement, it had not registered its ROT clause. The creditor bank’s security interest, on the other hand, was perfected. Therefore, the Court held that the creditor bank’s security interest has priority over the seller’s right and the French seller could not have back the steel plate.[29]

Since this decision, exporters that sell goods on credit to the United States care more about registering their ROT clauses. This is because it is now apparent that in the United States and in some other CISG countries, such as Canada [30] or Switzerland,[31] the creditors of insolvent buyers are protected more efficiently than foreign sellers who supply them under ROT clauses.

In most, if not all, other jurisdictions courts and arbitral tribunals went on to apply their own domestic laws as lex rei sitae to determine the validity of ROT clauses in international sales contracts governed by the CISG.[32] It is interesting to observe that courts and arbitral tribunals [page 201] base their decisions on previous court decisions in other CISG countries on the same subject relying on the interpretation rule of the CISG set forth in Article 7(1).[33] Therefore, it is possible to foresee that courts will continue to apply their own domestic laws in such cases.

IV. Prospective Application in Turkey

A. Substantive rules of Turkish law as lex rei sitae

Going back to our hypothetical case, under the light of the above, will the Turkish judge apply Turkish law to determine the validity of the ROT clause? As the goods sold by the foreign seller to the Turkish buyer are in Turkey, lex rei sitae is Turkish law. Considering the case law established on this issue in other CISG countries, applying the substantive rules of Turkish law as lex rei sitae seems to be the first option. In this case, who will be protected; the Turkish creditor bank that granted a credit to the insolvent Turkish buyer or the foreign seller?

In this regard, Turkish law, as Swiss law does, brings the duty to register ROT clauses in notary public office of the place of business of the buyer.[34] This duty is set forth in Article 764 of the Turkish Civil Code of 2001.[35] It is worthy to mention that the duty of registration was not reminded in the New Turkish Code of Obligations. A foreign seller that studies only the Turkish Code of Obligations risks omitting this duty [page 202] of registration because of the misleading language in the new code. In Article 253 of the New Turkish Code of Obligations, it is stated that in installment sales of commercial goods, the contract has to be made in writing and if there is a ROT clause, it must be laid down in the contract.[36] This wording gives the impression that to be made in writing is enough to give effect to a ROT clause. A reference in this article to the provisions of the Turkish Civil Code that relate to ROT clauses might be quite useful. The New Turkish Code of Obligations was an opportunity to remind this duty to sellers, but unfortunately, this was not done and this opportunity is missed.

Let us assume that in our example, the foreign seller omitted to register its ROT clause in the notary public office. In this case, its interest may not be protected and the buyer’s other creditors, such as its bank in Turkey, will be happy for that. Therefore, foreign sellers that supply Turkish buyers under ROT clauses have to be very careful and not omit the duty of registration. Otherwise, we may witness other Usinor cases in Turkey.

B. Can the application of lex rei sitae be considered as "uniform application" in the sense of Article 7(1) of the CISG?

We have seen that the courts and arbitral tribunals in other CISG countries apply their own national laws as lex rei sitae to evaluate the validity of ROT clauses. While doing so, some courts and arbitral tribunals even expressly refer to Article 7(1) of the CISG. This practice and the [page 203] references by the courts to previous judgments in other CISG countries give the impression of a uniform application of Private International Law.

However, should this practice necessarily be considered as a "uniform application"? As appears from the title of this paper, my opinion is that the answer is no. This is because of three reasons:

First, considering the legal consequences, applications of different national laws bring to very different solutions that are not predictable. If a seller supplies different buyers in different countries, it will have to examine whether its ROT clause has to be registered in every single country. This is not practical, neither cost-efficient.[37] If it does not register its ROT clause, an unregistered clause will have different effects in different jurisdictions. It will probably be held valid in Australia, France, Serbia and Greece, whereas it will be invalid in the United States, Québec, Switzerland and Turkey. It is difficult to call this situation a "uniform application" and this situation is obviously not what was aimed by the uniform law.

Second, to reach the solution of lex rei sitae, some courts correctly apply their rules of private international law. This being the case, for countries whose rules of private international law lead to lex rei sitae there would remain no practical difference in this regard between referring and not referring to Article 7(1) of the CISG.

Third, although the practice of the courts has been different so far, from a procedural point of view, it is possible to argue that Article 7(1) of the CISG cannot apply to issues expressly excluded from the scope of the CISG. More precisely, in the text of the CISG there is nothing to justify these references to Article 7(1) in cases that relate to the passing of the property. This being the case, this practice may even be considered as "running wild with the CISG".[38] [page 204]

Considering all these, it may be more appropriate to evaluate the references by the courts and arbitral tribunals to Article 7(1) of the CISG and to previous decisions made in other CISG countries as a part of the "homeward trend" in favor of the lex fori, instead of a uniform application.[39]

Besides, it should be emphasized that the attempt by national courts to fill the gap intra legem in Article 4 of the CISG by means of a uniform application is highly encouraging. I find this particularly important because this practice of the courts may be a gateway to unify also the field expressly excluded from the scope of the CISG.

C. Turkish rules of Private International Law to determine the validity of ROT clauses

If we do not consider lex rei sitae as a uniform application, this leads us to a second option: The Turkish judge may have to determine the applicable law through Turkish conflict of laws rules. In this case, the result will be quite different from the practice in other CISG countries.

Let us assume that in our hypothetical example, the parties did not make a choice of law in their contract. In this case, the Turkish judge may apply Article 24(4) of the Turkish Code of Private International Law of 2007, according to which in the absence of a choice of law by the parties, the law most closely connected to the contract will apply.[40] Moreover, in the Turkish Code of Private International Law there is a more specific provision that relates to real rights and to the property right in particular.

According to Article 21(1) of the Turkish Code of Private International Law "Right to property and other real rights in movable and immovable [page 205] properties are subject to the law of the country where goods are situated at the time of the transaction".[41] In a sales contract, this law is very likely to be the one of the country of the seller.

If, in our hypothetical example, the judge opts for this second option and the law of the country of the seller gives effect to an unregistered ROT clause, the foreign seller may have the right to get its goods back.

However, if the law of the country of the seller requires ROT clauses to be registered, it is difficult to foresee the effect of such requirement on the goods sold and exported to the buyer’s country.

In the New Turkish Code of Obligations there is another new article that is worthy of mention: according to Article 262 of the New Turkish Code of Obligations "Buyer whose place of domicile is in Turkey can neither derogate from the jurisdiction of the court of its place of domicile, nor make an arbitration agreement with regard to disputes arising out of installment sales contracts to which it is a party."[42]

This provision should aim at protecting weaker parties, consumers in particular, from disadvantages of installment sales. However, this is not the meaning that we get from the wording of this article. This article is drafted in such a broad manner that its application to even international sales contracts seems possible. Especially, the expression of "buyer whose place of domicile is in Turkey" seems to imply that this article applies to international sales contracts too. In our hypothetical example, if the seller supplies industrial machinery equipment, for instance, to a buyer in Turkey, will they not have the right to settle their disputes in arbitration? My opinion is that this article should be interpreted narrowly to apply to domestic sales contracts only. [page 206]

V. Is This Result in Conformity With the Purposes of the Uniform Law?

We have seen that these two options may lead us to opposite results. None of these two options dominates in absolute terms and they bring two major problems. The first problem is unpredictability of any result and lack of uniformity in application: as the property issues are left to domestic laws, it is difficult to foresee which rule will govern the validity of a ROT clause and the only thing that is certain is uncertainty. Maintaining legal certainty and creating uniformity were among the main objectives of the CISG.[43] However, as regards the passing of the property, these objectives have obviously not been achieved.[44]

The second problem is that both options may lead to an unjust result: If the Turkish judge adopts the first option, and applies substantive rules of Turkish law as lex rei sitae, there is the risk that a ROT clause in an international sales contract may not be effective, being contrary to the will of the parties. If the judge adopts the second option and applies different domestic laws to different sales contracts, there is the risk that some of the creditors of the same buyer are protected while others are not.

These problems basically stem from the inconsistency of the rules of domestic laws to govern international transactions. What the courts apply in the absence of a uniform rule is the rules of domestic laws, which are drafted for the purposes of domestic trade. The requirement of [page 207] registration of ROT clauses may be meaningful for protecting third parties in domestic transactions. However, expecting foreign sellers that sell on credit to buyers in Turkey or in the United States to comply with this requirement is not realistic. This rule is of domestic character and does not answer to the need of protecting foreign parties to international sales contracts. If Turkish judges apply this requirement to foreign sellers, this will definitely not help to protect international trade.

On the grounds of the above, it is possible to say that the gap intra legem in Article 4(a) and 4(b) of the CISG has not yet been filled by a uniform application despite the efforts of the courts. Instead, the more the case law on this issue develops, the more the need for a fair and predictable uniform application is felt. For these reasons, the validity of ROT clauses in international sales contracts should be subject to another regime than the rules of particular domestic laws.

Conclusion

The reason for which the gap intra legem in Article 4 cannot be filled in an efficient manner is the absence of a substantive rule of international character on the passing of the property in international sales contracts.

We are still quite far from having such a rule in the context of a convention or a model law. We have seen that application of domestic laws does not always lead to satisfactory solutions. Thus, it would be more appropriate not to insist on filling this gap by the rules of domestic laws where the result is likely to be unsatisfactory.

As a result the question still remains: what rule shall the Turkish judge apply in evaluating the validity of a ROT clause in an international sales contract?

Although Article 21(1) of the Turkish Code of Private International Law deals with property issues, it does not bring a direct answer to how the validity of ROT clauses in international sales contracts should be evaluated. Article 764 of the Turkish Civil Code deals only with ROT clauses in domestic sales contracts. Therefore, at least as regards the validity of ROT clauses in international sales contracts, Turkish judges may [page 208] consider that there is no rule in the domestic law to fill the gap of Article 4 of the CISG. According to Article 1(2) of the Turkish Civil Code, in case of a gap intra legem the judge shall decide according to the customs and usages.[45] In our case, the judge may examine whether there is an international trade usage to fill the gap in question.[46]

The most commonly used model sales contracts may be an indication for judges about the existence of an international trade usage on the use of the ROT clauses. In the ICC’s Model International Sale Contract, for instance, Article 6 is a ROT clause.[47] In this Model Contract, if you thick the box next to YES in this article, the seller keeps the ownership of the goods until the full price is paid. This Article reflects a practice established in international commercial contracts and is aimed at becoming a transnational rule.[48] Therefore, it seems appropriate that judges evaluate the validity of ROT clauses in international sales contracts in the light of this practice and in a way to give effect to what was intended by the parties.

While deciding on the validity of a ROT clause in an international sale contract, it may also be useful to refer to general principles of law, such as good faith and fair dealing. This solution would be also in line with Article 7(1) of the CISG. In the lack of a relevant uniform rule, a reference to a generally recognized principle of law or to international trade usages may create a chance for a prospective uniform application on this subject. As regards all other issues that relate to the passing of the property, it appears that judges have no other option than applying a [page 209] domestic law to be determined according to the relevant rules of Private International Law. [page 210]


FOOTNOTES

* The author wants to express his sincere gratitude to Prof. Dr. Franco Ferrari for his valuable suggestions and generous support in the elaboration of this article.

1. United Nations Convention on Contracts for the International Sale of Goods adopted on 11 April 1980 <http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1980CISG.html>

2. Official Gazette No. 27545 dated 07.04.2010

3. On the ex-officio application of the CISG see Société Muller Ecole et Bureau v. Société Federal Trait decision of the French Cour de Cassation of 26 June 2001, available at <http://cisgw3.law.pace.edu/cases/010626f2.html> and <http://www.unilex.info/case.cfm?pid=1&do=case&id=717&step=FullText>

4. Black’s Law Dictionary, Bryan A Garner, 6th Ed., 2006. It is worthy to mention that the CISG does not bring a definition of sales contract.

5. The fact that this issue is not covered by the CISG has been criticized by many authors. See, among others, FERRARI, Franco, Abstraktionsprinzip, Traditionsprinzip e consensualismo nel trasferimento di beni mobili. Una superabile divaricazione?, RIVISTA DI DIRITTO CIVILE 729, 756-757 (1993), BENEDETTI, Giuseppe, Commento all’Art 4 della Convenzione di Vienna sui contratti di vendita internazionale di beni mobile, Nuove leggi civili commentate, 1989, p. 10, VISSER, Evelien, Favor Emptoris: Does The CISG Favor the Buyer? University of Missouri, Kansas City Law Review (1998) 77-92 <http://www.cisg.law.pace.edu/cisg/biblio/Visser1.html#b31> pp 79-81, BOGHOSSIAN, Nayiri, A Comparative Study of Specific Performance Provisions in the United Nations on Contracts for the International Sale of Goods, Pace Review of the Convention on Contracts for the International Sale of Goods, Kluwer (1999-2000) 3-78, pp. 73-76 <http://www.cisg.law.pace.edu/cisg/biblio/boghossian.html>; THANG, Tran Quoc, Passing of Property Under Contracts for the International Sale of Goods: Should the CISG Regulate the Transfer of Property?, Thesis, University of Durham, 2004 <http://www.cisg.law.pace.edu/cisg/biblio/thang.html>, WESIACK, Max, Is the CISG too much influenced by civil law principles of contract law rather than common law principles of contract law? Should the CISG contain a rule on the passing of property?, Thesis, University of Sydney, 2004 <http://www.cisg.law.pace.edu/cisg/biblio/wesiack.html>, WIRES, John, Retention of Title Clauses in International Trade Law, September 11, 2009, p. 6 <http://dx.doi.org/10.2139/ssrn.1471990>

6. This was also made clear in St. Paul Guardian Insurance Co., et al. v. Neuromed Medical Systems & Support, et al. U.S. District Court, S.D., New York, 26.03.2002: "INCOTERMS, however, only address passage of risk, not transfer of title." <http://www.unilex.info/case.cfm?pid=1&do=case&id=730&step=FullText> In this decision the Court referred to DEBATTISTA, Charles, Incoterms and Documentary Practices, in Incoterms 2000: A Forum of Experts 63, 2000, p. 86.

7. UNIDROIT Principles of International Commercial Contracts 2010 <http://www.unidroit.org/english/principles/contracts/principles2010/blackletter2010-english.pdf>

8. Principles of European Contract Law <http://frontpage.cbs.dk/law/commission_on_european_contract_law/Skabelon/pecl_engelsk.htm>

9. Proposal for a Regulation of the European Parliament and of the Council on a Common European Sales Law, COM (2011) 635 (final), 2011/0284 (COD) <http://ec.europa.eu/justice/contract/files/common_sales_law/regulation_sales_law_en.pdf>

10. The original text of Article 5 of the Convention of 15 June 1955 on the law applicable to international sales of goods of the Hague Conference on Private International Law reads as follows:

"La présente Convention ne s’applique pas:
  1. ŕ la capacité des parties;
  2. ŕ la forme du contrat;
  3. au transfert de propriété, étant entendu toutefois que les diverses obligations des parties, et notamment celles qui sont relatives aux risques, sont soumises ŕ la loi applicable ŕ la vente en vertu de la présente Convention;
  4. aux effets de la vente ŕ l’égard de toutes personnes autres que les parties."

11. We should also add that Turkey is not a signatory neither to this Convention and there are only two signatories to it.

12. TUNC, André, Commentary on the Hague Conventions of the 1st of July 1964 on International Sale of Goods and the Formation of the Contract of Sale, <http://www.cisg.law.pace.edu/cisg/text/tunc.html>

13. Professor André TUNC’s view that he explained in his commentary to the ULIS is in the same direction. As there is no significant change between the provisions of the ULIS and those of the CISG on this issue, his commentary to Article 8 of the ULIS is still valid for Article 4 of the CISG. In his words: "Now it was clear from the beginning of the discussions relating to the Uniform Law that whilst it was vain to hope for a uniform rule on this question which was deeply involved both in historic traditions and in the regulation of credit and bankruptcy, on the other hand unification was not necessary if, taking a more direct and practical view, rules were merely provided for three types of questions linked, at least in certain legal systems, to the passing of property: the obligation of the seller to transfer the property in goods free from any right or claim not accepted by the buyer (Articles 18, 52 and 53), the passing of risk, regarded in a number of legal systems as the essential consequence of the passing of property (Articles 96 to 101), the obligation to preserve the goods and to bear the cost of preservation, which are subsidiary aspects (Articles 91 to 95)." For other opinions in the same direction see HONNOLD, John,"Documentary History of the Uniform Law for International Sales, the studies, deliberations and decisions that led to the 1980 UN Convention with introductions and explanations" (1989) Kluwer Law and Tax Publishers, Deventer, p. 407; KHOO, Warren, Article 4, in BIANCA, Cesare Massimo / BONELL, Michael Joachim (eds.), "Commentary on the International Sales Law: The 1980 Vienna Sales Convention", 1987, p. 46.

14. The UNCITRAL Secretariat Commentary (closest to counterpart to an Official Commentary) <http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-04.html#1> The Secretariat quotes also the views of Professor Roy GOODE in this commentary: "The Vienna Sales Convention has been criticised for not dealing with the passing of property or with priority conflicts between the seller/buyer and a third party. Why were these important topics omitted? First, it would have made the project too large (as it is, the Convention runs to 101 articles). Secondly, it was felt that on issues of property law differences in legal policy and approach created a chasm too large to bridge. A particular stumbling block is the significance of possession as a deteminant of property rights. In a number of legal systems there is a presumption that the property in identified goods is intended to pass on the making of the contract, in others, only on delivery. The effect of an unauthorized disposition by a party in possession who has not yet acquired ownership also raises acute differences in approach. In particular, common law systems start from the position nemo dat quod non habet, civil law systems from the principle en fait de meubles la possession vaut titre. Both sets of systems have moved towards each other but a gulf remains. There is the additional problem that conflicting claims to tangible movables raises issues going well beyond sales law and that conflicts arising from sales transactions cannot sensibly be dealt with in isolation." GOODE, Royston Miles, Reflections on the Harmonisation of Commercial Law, 1 Unif. L. R. (1991) pp. 61-62.

15. "Articles 4 and 6 create a tripartite hierarchy, with domestic mandatory law on top, the agreement of the parties in the middle, and the CISG at the bottom. This was the price paid by the Convention’s sponsors for its acceptance by the adopting nations." FARNSWORTH, Alan, Review of Standard Forms or Terms Under the Vienna Convention, 21 CORNELL INT’L L.J. 440, 1988, p. 441.

16. DROBNIG, Urlich, Transfer of Property, in HARTKAMP, Arthur et al. (eds.), "Towards a European Civil Code", 1994, p. 360; VISSER, supra 5, p. 91; FERRARI, Vom Abstraktionsprinzip und Konsensualprinzip zum Traditionsprinzip, in Zeitschrift für Europäisches Privatrecht 52, 53-59 (1993); D’AMICO, Giovanni, Contratto di Compravendita, Effetto Traslativo e Problemi di Armonizzazione in NAVARRETTA, Emanuela (ed.), "Il Diritto Europeo dei Contratti fra parte generale e norme di settore", 2007, p. 517; WITZ, Claude, Analyse critique des rčgles régissant le transfert de propriété en droit français ŕ la lumičre du droit allemand, in MARTINEK, Michael et al. (eds.) "Festschrift für Günther Jahr 549", 1994, p. 549.

17. For instance, Article 7 of "General Conditions" of the ICC Model International Sale Contract is a ROT clause. To give effect to this clause, parties have to thick "yes" in Article 6 of the "Specific Conditions".

18. "Of course, matters the CISG does not govern at all are to be solved directly by having recourse to the applicable national law, i.e. without first having to look into whether general principles exist." FERRARI, Gap-Filling and Interpretation of the CISG: Overview of International Case Law, 7 Vindobona Journal of International Commercial Law & Arbitration (2003), pp. 90-91 <http://www.cisg.law.pace.edu/cisg/biblio/ferrari11.html>; FERRARI, CISG’da Yorum ve Boşluk Doldurmaya ilişkin Meseleler in ATAMER, Yeşim (ed.), "Milletlerarası Satım Hukuku", Istanbul, 2008, p. 69; BONELL, Article 7, in BIANCA/BONELL (eds.), supra 13, pp. 74-75. <http://www.cisg.law.pace.edu/cisg/biblio/bonell-bb7.html>

19. LOOKOFSKY, Article 4 Issves Excluded from Convention Scope: Validity, Property and Delict in " International Encyclopedia of Laws- Contract" Suppl. 29 (December 2000) 1-192, p. 43, <http://cisg3.law.pace.edu/cisg/biblio/l004.html> FERRARI PIL and CISG: Friends or Foes? in ŞIPKA/YILDIRIM (eds.) "Yeni Türk Borçlar Kanunu ve CISG’e Göre Satış Sözleşmeleri - Sales Contracts under the New Turkish Code of Obligations and the CISG" p. 99.

20. "[T]he effect of a sales contract on the property in the goods is left to the applicable national law, to be determined by the rules of private international law of the forum. The Convention does not govern the validity of a retention of title clause" UNCITRAL’s Digest on the Case Law on the United Nations Convention on the International Sale of Goods, p. 18. <http://www.uncitral.org/pdf/english/clout/digest2008/article004.pdf>

21. Courts are also expected to interpret the CISG "autonomously", that is, refraining from relying on their own national laws where possible, but by referring to the practice already established in other CISG countries. See FERRARI, Applying the CISG in a Truly Uniform Manner: Tribunale di Vigevano (Italy), Uniform Law Review (2001-1) pp. 203-215; FERRARI, CISG Case Law: A New Challenge for Interpreters?, 17 Journal of Law and Commerce (1999) pp. 245-261; DIEDRICH, Frank, Maintaining Uniformity in International Uniform Law via Autonomous Interpretation: Software Contracts and the CISG, 8 PACE INT’L L. REV., 1996, p. 303.

22. See, for instance, Case No 5 U 534/91 by the Oberlandesgericht Koblenz of 16.01.1992 <http://www.unilex.info/case.cfm?pid=1&do=case&id=30&step=FullText>. In this case a Dutch manufacturer sold and delivered a cruise to a German company and negotiated retention of title of the cruise until the payment is made in full. However, the German buyer went bankrupt before paying the whole price. The seller brought an action before the German Court and asked for the return of the cruise to it as the proper owner. The German Court, without examining whether this contract is within the scope of application of the CISG, ruled that the CISG does not apply to the validity of the retention of title clause and German law applies as lex rei sitae. The Court concluded that the seller was not entitled to have back the cruise as the retention of title clause was not validly incorporated.

23. Roder Zelt- und Hallenkonstruktionen GmbH v. Rosedown Park Party Ltd. (1995) 57 Fed. Ct. Rep. (Austl.) 216-240, CLOUT No. 308 (Fed. Ct., S. Austl. District, Adelaide Apr. 28, 1995). <http://www.cisg.law.pace.edu/cisg/wais/db/cases2/950428a2.html>. For the comment of Jacob. S. Ziegel on this decision see <http://www.cisg.law.pace.edu/cisg/biblio/4ziegel.html>

24. The Court referred to decisions in cases Aluminium Industrie Vaassen BV v Romalpa Aluminium Limited (1976) and 1 WLR 676, Armour and Another v Thyssen Edelstahlwerke AG (1991) 2 AC 339

25. Usinor Industeel v. Leeco Steel Products, Inc. 209 F.Supp.2d 880 N.D.Ill.,2002. March 28, 2002. <http://www.cisg.law.pace.edu/cisg/wais/db/cases2/020328u1.html>. For Natasha Turner’s notes on this case see TURNER, Natasha, 17 New York International Law Review (Winter 2004) 103-109 <http://www.cisg.law.pace.edu/cisg/biblio/turner.html>

26. The relevant part of the Usinor decision reads as follows: "Under the "most significant contacts rule" of the Restatement (Second) which [seller] asks the Court to apply, and the UCC choice of law provision which [buyer] argues should be the governing test, the Court finds the same result: Illinois law applies.… Here, the goods are located in Illinois. Therefore, the most significant contacts are in Illinois."

27. The relevant part of the Usinor decision reads as follows: "Looking to domestic law to determine the effect of [seller]’s retention of title clause in light of a third party claim is also consistent with the Australian court case, Roder Zelt-un Hollenkonstruktionen GmbH v. Rosedown Park Party Ltd., (No. S6 3076 of 1993; FED No. 1049/95; BC 9501975) (Federal Court, South Australian District, April 28, 1995) in which the court held that it needed to look to domestic law to determine the validity of the retention of title provision. While this case is far in distance from the present jurisdiction, commentators on the CISG have noted that courts should consider the decisions issued by foreign courts on the CISG." It is possible to observe that the Court applied the interpretation rule of the CISG set forth in Article 7(1) to an issue expressly excluded from the scope of the CISG.

28. § 9-103 U.C.C. <http://www.law.cornell.edu/ucc/9/9-103.html>

29. The Court referred to, among others, HONNOLD by reaching this decision: "John Honnold writes in Uniform Law for International Sales § 444 (3d ed. 1999) that ‘[t]he seller’s right under the Convention to recover the goods is subject to practical limitations. This remedy is of special importance when the buyer is insolvent; in this setting the rights of creditors are likely to intervene by levy of execution or by the designation of a receiver or trustee in bankruptcy. The Convention will not override the rights of creditors, purchasers and other third persons granted by domestic law; under Article 4, the Convention ‘governs only ... the rights ... of the seller and the buyer ...’."

30. Article 9 in the new Québec Civil Code of 1994 See also CULLEN, Canada in VON ZIEGLER, Alexander et al. (eds.), "Transfer of Ownership in International Trade" 2nd Edition, 2011, pp. 63 et seq.; WIRES, supra 5, pp. 11-13.

31. Articles 715 and 716 of the Swiss Civil Code of 1907 <http://www.admin.ch/ch/f/rs/210/a715.html>

32. See Decision 4861/2006 of the Court of Appeals of Athens (Automobile catalyst case) <http://www.cisg.law.pace.edu/cisg/wais/db/cases2/060000gr.html> Serbia 15 July 2008 Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce (Milk packaging equipment case) <http://www.cisg.law.pace.edu/cisg/wais/db/cases2/080715sb.html>

33. Besides Usinor studied above, also in the award in Milk packaging equipment case the Sole Arbitrator referred to the Roder decision for the sake of uniform application according to Article 7(1) of the CISG: "This position is in accord with foreign judicial practice, which should be taken into consideration for the purpose of achieving uniform application of the Convention, pursuant to Article 7(1) of the Convention. For example, the Australian Federal Court for South Western Australia decided to apply the Vienna Convention to a contract for sale of goods which contained a provision on retention of property over the delivered goods until the complete payment of the contractual price in the case, Roder Zelt- und Hallenkonstruktionen GmbH v Rosedown Park Pty and Reginald Eustace ((1995) 57 FCR 216, 240 (FCA))."

34. For detailed information on the issue see ERDEM, Ercüment, Les nouvelles fonctions de la propriété in ERDEM, Ercüment, "Milletlerarası Ticaret Hukuku ile İlgili Makaleler", Istanbul, 2008, p. 303.

35. Article 764 of the Turkish Civil Code of 2001

36. Article 253 of the New Turkish Code of Obligations titled "Installment Sales" reads as follows: "In case if the good is sold within the commercial activity of the seller, the following shall be laid down in the contract:


9 If provided, contract clauses regarding retention of title or transfer of claim for the purchase price.
[Taksitle satış…Malın satıcının ticari faaliyeti kapsamında satılması hâlinde, sözleşmede aşağıdaki hususlar belirtilir:
9. Öngörülmüşse, mülkiyetin saklı tutulmasına veya satış bedeli alacağının devrine ilişkin anlaşma kayıtları.]"

37. This was one of the arguments of Usinor in the Usinor case. See <http://www.cisg.law.pace.edu/cisg/wais/db/cases2/020328u1.html>

38. LOOKOFSKY, Joseph, Not running wild with the CISG, 29 Journal of Law and Commerce (2011), pp. 141 et seq.

39. On this point see FERRARI, Homeward Trend and Lex Forism Despite Uniform Sales Law, Vindobona Journal of International Commercial Law & Arbitration (1/2009) pp. 15-42, available at <http://www.cisg.law.pace.edu/cisg/biblio/ferrari17.html>; DIEDRICH, supra 21, p. 304

40. Article 24 (4) of the Turkish Code of Private International Law reads as follows: "In case if the parties did not make a choice of law, the law most closely connected to the contract shall apply to the relationship arising from that contract. [Tarafların hukuk seçimi yapmamış olmaları hâlinde sözleşmeden doğan ilişkiye, o sözleşmeyle en sıkı ilişkili olan hukuk uygulanır.]"

41. This article reads as follows: "Taşınırlar ve taşınmazlar üzerindeki mülkiyet hakkı ve diğer aynî haklar, işlem anında malların bulunduğu ülke hukukuna tâbidir."

42. The original text of Article 262 of the New Turkish Code of Obligations reads as follows:

"Yerleşim yeri Türkiye’de olan alıcı, tarafı olduğu taksitle satış sözleşmesinden doğacak uyuşmazlıklar konusunda, yerleşim yerindeki mahkemenin yetkisinden önceden feragat edemeyeceği gibi, tahkim sözleşmesi de yapamaz."

43. On this point see, among others, ZELLER, Bruno, "CISG and the Unification of International Trade Law", 2007, pp. 19 et seq.; CUNIBERTI, Gilles, Is the CISG benefiting anybody? Vanderbilt Journal of Transnational Law, 2006. Available at SSRN: <http://ssrn.com/abstract=1045121>; TAKAWIRA, Admire, Departing from mere compromise:Reformulating the remedy of specific performance under the Convention on the International Sale of Goods (CISG) in line with the Convention’s underlying goals, November 2007, Available at <http://www.cisg.law.pace.edu/cisg/biblio/takawira.html>

44. VISSER criticizes that the property issues are left to national laws and argues that this is not in conformity with Article 7(1) of the CISG: "In the case of Article 4(b) CISG, for instance, the Italian system of the transferring ownership must be used, when the rules of private international law of the forum lead to the applicability of Italian law. Of course, this is not in conformity with the basic idea behind the drafting of CISG, which is creating uniformity. This can be derived from Article 7(1) CISG." VISSER, supra 5, p. 81

45. The original text of his article reads as follows: "In the absence of an applicable provision in law, the sudge shall decide according to customs and usages; in the absence thereof, according to the rule he would establish if he were the legislator. [Kanunda uygulanabilir bir hüküm yoksa, hâkim, örf ve âdet hukukuna göre, bu da yoksa kendisi kanun koyucu olsaydı nasıl bir kural koyacak idiyse ona göre karar verir.]"

46. BİRSEL, Mahmut, Ticari Örf ve Adet, 2 Ankara Barosu Dergisi 205, 1968, p. 208.

47. Article 7 of "General Conditions" of the ICC Model International Sale Contract reads as follows: "If the parties have validly agreed on retention of title, the goods shall remain the property of the Seller until the complete payment of the price, or as otherwise agreed". To give effect to this clause, parties shall thick "yes" in Article 6 of the "Specific Conditions".

48. On contribution of ICC Model Contracts to lex mereatoria, see ERDEM, Ercüment, ICC Model Contracts in ERDEM, supra 34, p. 517.


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