On Title Retention Effect To The Third Person Problem

The retention of title system has been widely used in legislation and practice of thecontinental law system and Anglo American law system, since it started in the ancient Rome"Law of the Twelve Tables". From the beginning, the retention of title system has neverchanged its nature of giving and receiving credit in the market economy. Based on the valueof the subject matter, the foundation of the retention of title system builds on seller’s trust inbuyer’s sufficient capacity to fulfill the obligations. The buyer could enjoy the right ofoccupying and possessing independently, without paying the full price of the subject matter.However, before the buyer fully pays his debt or completes the agreed obligations, theseller/creditor shall hold the full ownership of the subject matter as a collateral. Despite thedifferences in presentation, the concept of the retention of title system can be described as:under the circumstance of commodity trading, in order to transfer property ownership, theoriginal owner could still remain his title to the property after releasing his right of occupyingand possessing the subject matter to the buyer by legal provisions or mutual agreementbetween the parties. Only when the full price of the subject matter is paid or the specificmatter is completed, can the buyer own the property. The retention of title system is not only away of giving and receiving consumer credit, but also a special form of vouch, it has theadvantage of being cheaper, simpler, convenient and easily financed. The system separates theright of own and possession of the property, the ownership is assigned to the vendor as avouch of his creditor’s right，and the right of occupying is conferred to the purchaser in orderto achieve the purpose of making full use of the subject matter. The two parties both benefitfrom the retention of title system, as in which the seller earns the secured creditor statuswithout the help from others, the buyer obtains a debt relief from the time difference betweenthe right of occupying and possessing the subject matter.The seller owns no possession of the subject matter in the system of retention of title,,the buyer possesses the right of occupying the subject matter but is not recognized as the realowner by law. Plus, the retention of title agreement is private and is poorly promulgated, so itis easy for the third party to behave in recklessness based on semblance trust. As a result, thethird party may suffer economic damage, which may cause detriment to transaction security. When buyers rely on their retained possession and resell the subject matter or the expectantright, even create security rights on the property, then the third party has to choose betweentransacting directly without doubting the buyer’s right and taking big amount of time toinvestigate the real owner. Whether the third party should be obligated harshly on the duty ofcaution, and if there is applicable margin for the system of bona fide acquisition, as suchissues are worth considering. When the seller retakes the subject matter from the buyer underspecified conditions, he might take the chance to resell the property or establish guarantee tothe chattel during the redemption period, those third parties who are not aware of the truthmay have a conflict with the buyer. In the non redemption period, when the vendor transfersthe ownership of the subject matter to the third party under delivery instruction, it is importantto balance between the third party’s interest and the original purchaser’s interest. Undernon-disposition circumstance, the third party may have to face the problem as whether he canclaim corresponding rights on the subject matter or not when the seller or the buyer is inbankruptcy, for example. The above discussed problems concerns the stability of the realestate market and transaction security, retention of title on the third party, which have greatresearch value.Apart from the introduction and the conclusion, the text is divided into three parts.The first part is an thorough inquiry into the source of risk of retention of title system.Beginning with the concept, based on the analysis of internal and external validity system ofownership reservation, it is important to take the publicity mechanism into consideration too,then, the risk problem is revealed. The choice of publicity is important to the retention of titlesystem security, combined with the analysis of extraterritorial legislation, a conclusion can bereached: our country may choose the distinguish doctrine mode. Due to the separation ofownership and right of possession, the retention of title system is very confusing to the thirdpeople, those who are financially interested need to find corresponding ways to mitigate therisks, the above problem is going to be discussed in the second and third part.The second part and the third part is corresponded. Based on the classification, the thirdparty is divided into the third party to the seller and the third party to the buyer. In this part, asthe third party to the seller is about to be discussed, in such context, I make a distinctionbetween act of disposition and non-disposition to investigate the effect to the third party.When the seller resell or revouch the subject matter, some scholars think it belongs tounauthorized disposition, some think that the seller has the right to dispose. I take the theory of legal disposition, we need to divide different situations to judge the validity of the act ofdisposition, the third party should obtain the corresponding right due to the acquisition ingood faith system. When the third party applies for enforcement of the seller, the subjectmatter of the retention of title system is not the implementation subject. Under thiscircumstance, the third party shall apply for an enforcement on the seller’s creditor’s right,which deducts the already paid portion. When the buyer goes bankrupt, the subject matterwhose ownership is reserved cannot be taken as the bankruptcy property. If the subjectproperty is violated, as the legal owner, the seller sure has the right to claim damages. As alien is put on the subject matter, the retention of title clause has no effectiveness priority tolien clause.In the third part, I also make a distinguish between the third party under thecircumstance of disposition from non-disposition. The buyer holds the direct possession of theproperty, he has an advantage of making an act like reselling or revouching on the subjectmatter, or even reselling the expectant right. Under the property distinguishing principle, if thebuyer disposes the subject matter which he has no right of ownership, the validity of thepurchase contract between the third party and the original buyer who is the later seller shouldbe judged according to the law of contract, whether the property right change does not affectthe validity of the contract. The third party who is also an expectant right assign does not takein the original buyer’s legal position in the former purchase contract, the original seller stillcan ask his opposite party as the original buyer to fulfill the repayment obligation. The thirdparty can not take in the original buyer’s legal position to directly possess the property, if thebuyer transfers his possession to the third party, the original seller shall take the subject matterback from the third party, although the validity of the transaction of expectant right can not beaffected by this. The third party should not apply for an enforcement on the subject matter ofretention of title or make it as the buyer’s bankrupt property. When the property is violated,the original seller has the right to claim damages. As the third party is the lien holder, his lienclause has a priority over the clause of retention of title.