1. Arts 570 and 571 apply
- Where a third party's property is sold but
- the seller fails to perform (because the seller is unable to acquire the property from the third party); or
- after the thing sold is delivered (after the seller's performance), the buyer is subsequently evicted (because the thing sold belongs to a third party)
- Applicable when the sale was done without the owner's authorisation.
- 72Da982 (If the sale was done with the owner's authorisation, and seller fails to perform, then it is merely a breach of contract. Purchaser may claim damage even if he knew that the thing sold did not belong to seller. Proviso of Art 570 does not apply. But seller may avoid damage payment if seller proves that he was not at fault, which is difficult in practice.): Seller bought the land from the owner. Without completing the title transfer, the seller sold the land to the purchaser. Before the purchaser completes the title transfer, the original seller (who is still the owner) set up a hypothec on the land to secure a debt. When the debt was not repaid, the lender foreclosed. The buyer sued the seller.
2. Buyer's remedies
- Buyer may terminate the contract. Seller's material breach of contract. Upon termination,
- Restitutio in integrum: Buyer must return the thing sold to seller (if buyer is already evicted, buyer obviously cannot and need not return the thing to seller). Art 747(1) v. 2016Da240
- Buyer must disgorge the benefit of using the property in the interim to the seller (the buyer will not be required to disgorge the benefit to the owner because, vis-à-vis the owner, the buyer will be a possessor in good faith. Art. 201(1)).
- Seller must return the price together with interest (Art. 548(2)) and pay damage, if any.
- Is it a good idea for buyer to terminate? (Only if the market value has gone down in the meantime? If the increase of the market value of the thing sold is less than the purchaser price plus interest in the interim period, it would be advantageous for the buyer to terminate the contract.)
- In principle, buyer may claim performance measure damage as well. Buyer would rarely want to 'terminate' the contract (because of the generalised inflation trend). Buyer would normally seek damage in lieu of performance (without terminating the contract).
- Buyer's remedies not subject to 1 year limitation period.
Damage must be calculated at the time it became impossible for the seller to perform (headnote). But the judgment (erroneously) states that the calculation must be as of the time of buyer's termination due to seller's repudiation to perform.
"Reference date" for calculating the buyer's damage: the date of seller’s breach (seller’s impossibility of performance or seller’s repudiation) – regardless of when the buyer chose to terminate. This is to prevent the buyer’s opportunistic behaviour of biding his time to choose a favourable moment for termination.
- 94Da61359, 61366 (seller's impossibility)
- 2005Da63337 (seller's repudiation). "이행지체에 의한 전보배상에 있어서의 손해액 산정은 본래의 의무이행을 최고한 후 상당한 기간이 경과한 당시의 시가를 표준으로 하고, 이행불능으로 인한 전보배상액은 이행불능 당시의 시가 상당액을 표준으로 할 것인바, 채무자의 이행거절로 인한 채무불이행에서의 손해액 산정은, 채무자가 이행거절의 의사를 명백히 표시하여 최고 없이 계약의 해제나 손해배상을 청구할 수 있는 경우에는 이행거절 당시의 급부목적물의 시가를 표준으로 해야 한다." Also see Chang Soo Yang, “Anticipatory Breach as an independent type of non-performance of obligation”, Beob Jo, vol. 700 (2015), pp. 37-38
Seller must compensate so that buyer can enjoy the benefit of the contract as if the contract is fully performed(매도인은 계약이 완전히 이행된 것과 동일한 경제적 이익을 배상함이 상당).
3. The 'uncertainty' of the deal already on the table?
- If, however, buyer knew at the time of sale that the thing sold belonged to a third party, buyer is deemed to have known about and taken the risk of seller's inability to perform (seller unable to acquire the property from the third party). Hence, buyer may not claim damage. (Art. 570, proviso)
- But, if the seller had already concluded a contract with the original seller, the buyer is not deemed to have taken the risk (of the seller breaching the contract with the original seller). Buyer can claim damage. But what about original seller breaching the contract with the seller? (The risk is assumed by the seller.)
- If, however, the seller's inability to perform is due to seller's own fault, buyer may claim damage regardless of whether buyer knew that the thing sold belonged to a third party (Art. 390. 93Da37328).
A and B entered into a contract where A sold a plot of land to B. While the sale was not complete, B concluded a sub-sale of the land with C. B and C agreed that as soon as A conveys the land to B, B will convey it to C. B and C further agreed that the completion date for their sub-sale coincides with the completion date of the original sale between A and B.
When the completion date came, C refused to pay the balance of the contract price arguing that there is a risk that B may not acquire the land from A. B in turn failed to pay the balance to A arguing that the sub-buyer C failed to pay and B himself cannot finance the purchase price. A terminated the sale contract with B. A subsequently sold the land to X, who has no intention to sell it to anyone.
C sues B and seek damage. Discuss whether B has to pay damage to C.
Q 1. Did the buyer C know, at the time of the sale contract, that the thing sold belonged to a third party?
Q 2. When B and C concluded the sale contract, B had already concluded a contract to acquire the property from the third party (A). Did the buyer C took the risk of B not acquiring the property from A?
Q 3. Can B avoid liability by arguing and proving that he was not at fault? Breach of contract issue (fault based liability), rather than warranty liability issue (strict liability)
Buyer sold the property in a sub-sale. Title transfer was done directly from the original seller to sub-buyer. True owner subsequently claimed the property from the sub-buyer. As the seller had already the power (contractually acquired power) to sell the original seller's property, Art 569 or Art 570 does not apply. The sub-buyer may claim damage under Art. 390. See 95Da55245 (ruling that Art 569, 570 inapplicable).
In practice, there is little difference between buyer relying on Art 570 and Art 390 (because the defence of 'no fault' is rarely allowed. 2001Da1386 (only force majeure will be admitted as a gound for accepting 'no fault')
But 81Da528 shows that if buyer (unwisely) relies on Art 570, buyer's damages claim will fail due to the proviso of Art 570. (This case does not seem to rule whether damage under Art 390 is available.) Buyer should, in such a case, have relied on Art 390.
- If it is due entirely to the buyer that the title to the thing sold could not be transferred to the buyer, then buyer may not claim damage. (79Da564. Seller handed over to the buyer all necessary documents for conveyancing. Buyer delayed and the property was acquired by a third party. Buyer may not claim damage.)
- If buyer should have known that the property belonged to a third party, then the buyer's comparative negligence must be taken into account in assessing the amount of damage. 71Da218. A local government (경기도) bought a plot of land from the central government. The land had previously been deemed to have been acquired by the central government by virtue of the Agricultural Land Reform Act whereby land which is not owned by cultivator is deemed to have been acquired by the state. But, in fact, the land in question was not 'agricultural land'. The original owner successfully claimed the land back from the purchaser (local government). Purchaser terminated the contract and sued for damage. Purchaser's negligence to be taken into account in assessing damage. The land was located in 경기도 and the local gov should have known that the land did not belong to the State.
- Comparative negligence rule could be 'applied' even for the warranty liability (which does not require the seller's negligence) 94Da23920 (담보책임이 민법의 지도이념인 공평의 원칙에 입각한 것인 이상 하자 발생 및 그 확대에 가공한 매수인의 잘못을 참작하여 손해배상의 범위를 정함이 상당하다.)
- 80Da2750: Having been sued by the true owner, buyer concluded a settlement with the owner and bought the land from the owner. Buyer is not at fault. Seller must pay damage. (Can seller terminate the contract and demand restitution in integrum?)
4. 'Innocent' Seller's right to terminate.
- If seller did not know that the thing sold belonged to a third party, seller may also terminate the contract but seller has to pay damage to buyer. (Art 571(1))
- Why allow the 'innocent' seller to terminate? (why deprive equally innocent buyer the choice to affirm the contract and claim damage in lieu of performance?)
- State --> A --> Defendant --> B --> Plaintiff
- A fraudulently completed title registration of the property on 24 Dec 1957 (the property belongs to the State).
- A conveyed the title to Defendant on 7 Jan 1958.
- Defendant conveyed the title to B on 1 Nov 1960.
- B conveyed the title to Plaintiff on 5 June 1967.
- The State sued Defendant, B and Plaintiff seeking cancellation of their title registration in 1975.
- Defedant and B lost and the judgment became final on 6 Jan 1981. Plaintiff finally lost on second appeal on 11 April 1989.
Plaintiff exercises via action oblique B's claim against Defendant and sues Defendant for damage. Defendant put forward the following defences:
- No loss, because Plaintiff could have claimed adverse possession against the State. Res judicata only applies to the State's claim to have Plaintiff's registration cancelled.
- Will not pay until Plaintiff returns the possession of the property to the Defendant.
- 鄭吉龍, "他人의 權利의 賣買契約이 解除된 경우의 法律關係 - 대법원 1993.4.9. 선고 92다25946 판결과 관련하여", (土地法學, Vol.23NaN2, )
2016Da240: If the purchaser already returned the property to the true owner (i.e., evicted), the purchaser need not 'return' it to the seller.
But the disgorgement of unjust benefit could easily amount to more than the purchase price plus interest. See 2006다26328
Breach of warranty v. Breach of contract
- Strict liability v fault based liability
- Art 390 (not liable to pay damage if the breach of contract was without fault)
- But, in reality, the Court almost always recognises fault except in force majeure situation) : IMF crisis is not a force majeure... The contractor liable for delay of performance. 2001Da1386