This applies irrespective of whether the third party bought the goods directly from the transferee, from his insolvency administrator or at an execution auction (section 2 of Good Faith Purchase Act 1986 and chapter 14 section 1 of the Code of Execution).60

There may exist cases of invalidity, however, where the invalidity has effect only against a transferee and not against the latter’s creditors or third parties (in some cases, provided that the third party did not have actual knowledge of the invalidity61). These cases are grounded in arguments of legal policy, without using the concept of the real agreement, but with the same effect.

f i n l a n d

The seller, A, can claim the painting, if the contract of sale is avoidable, for instance, on grounds of fraud. Neither execution nor insolvency affect the transferor’s right to avoid the contract.

Comparative observations

Abstract and causal systems

Case 2 illustrates the difference between abstract and causal systems of the transfer of ownership. German, Greek, Scots and South African law not only require a separate real agreement for the transfer of ownership, but they also regard the real agreement as valid independent of the validity of the underlying obligation (principle of abstraction). All other jurisdictions62 consider the passing of ownership as necessarily bound up with the validity of the obligation. This is so irrespective of whether delivery, or the conclusion of a real agreement, is required in addition to the conclusion of the contract.63

In an abstract system, avoidance of the underlying contract of sale, even if it has retroactive effect, does not suffice to revest ownership in the seller. This is so only in limited circumstances, in Germany, Greece and South Africa, viz. where the real agreement suffers from the same

60In the near future, most probably, bona fide acquisition by a transferee will be excluded if the transferor obtained the goods by coercion (or theft): SOU 2000:56.

61NJA 1997, 418 concerning impermissible dividends from a share company.

62Swedish law, again, does not fit into such general categories. It is possible that invalidity will have effect only between the parties, although such cases are rare, without using the concept of a real agreement.

63As to that question, see supra, case 1(a).

244 s e c u r i t y r i g h t s i n m o va b l e p r o p e r t y

fault as the contract and where it also is avoided. Fraud constitutes one such exception. In Scotland, the principle of abstraction seems to be followed even more strictly than in the other three abstract systems. As the Scottish report identifies, even in the case of fraud, ownership is not regarded as being revested in the seller. Instead, the same solution is reached by the rule that an asset acquired by fraud is not available to the fraudulent party, nor to his creditors.

In the causal systems (Austria, France, Belgium, Portugal, Spain, the Netherlands, England,64 Ireland, Denmark, Sweden, Finland) avoidance of the contract is sufficient to revest ownership in the seller.65 This result does not depend on whether the transfer of ownership also requires a separate real agreement. Austrian law, for example, requires a real agreement, at least according to its predominant legal literature, but nevertheless avoidance of the contract automatically reverts ownership to the seller.

If the facts did not involve fraudulent misrepresentation but, for instance, a mere error, the causal systems would still conclude that ownership is revested in the seller upon avoidance of the contract whereas in the abstract systems the seller would only have a claim in unjust enrichment.

It is interesting to note the difference between avoidance and termination (which was discussed supra, case 1(b)). Termination on the ground of a breach of contract, although it is also held to put an end to the contract ex tunc, does not revest ownership in the seller according to English law and the tradition systems (Austria, Spain and the Netherlands).

Protection of third parties

All jurisdictions except Ireland draw a distinction between a bona fide purchaser and third-party creditors. Had the painting been sold to a third party before the avoidance of the sale, the second buyer would have been protected under the rules on bona fide acquisition, provided that their requirements were met. Third-party creditors, however, do not enjoy the same protection. As some reporters point out, execution is not seen as an acquisition of a real right to which the rules on bona fide acquisition could be applied.

64See Van Vliet, Transfer of Movables 111 ff.

65For Spain see von Gerlach, Der Einf luß des deutschen und französischen Rechts auf den Eigentumserwerbsschutz beweglicher Sachen im spanischen Recht 122 f.

In this respect Irish law seems to form an exception. However, it does not apply the rules on bona fide purchase but states that avoidance cannot have the effect of revesting ownership to A once a third party, including an executing creditor, has acquired a right in the goods. It is surprising to see that the solution which favours the buyer’s creditors, which one might have expected from an abstract system, is, on the facts of the case, adopted only in a jurisdiction which is both consensual and causal, thus requiring nothing more than a valid contract to effectuate the passing of ownership.

The solution would again be different in the abstract systems if the case had not involved fraud but, for example, a mere error on the part of A. In that case A would merely have a personal claim against B for the retransfer of ownership. Such a claim would not enable A to resist the execution. On slightly different facts the principle of abstraction would therefore come to the aid of B’s creditors.