In disputes between parties, the law often has to make difficult choices about whose interests should be preferred. This is particularly relevant in situations where two innocent parties have competing claims to ownership of goods. Let’s take the example of stolen goods, where a thief steals the goods from the owner and then sells them to a third party. who purchases the goods without any knowledge of the circumstances in which the thief obtained possession of the goods.
In circumstances where the owner is able to trace the goods, this gives rise to competing claims between two innocent parties; namely, the owner of the stolen goods, and the purchaser of stolen goods who had no knowledge of the theft. Whose interests should the law prefer? This article examines and compares the treatment of this question in common law jurisdictions and in mainland China.
For the purpose of the analysis, we will confine our attention to the legal position between the owner and the purchaser, as a matter of property law. We will not consider the legal position of the thief, except to note that the owner would have a civil action against the thief for stealing the goods. In addition, the thief has criminal liability. Criminal liability in most jurisdictions also extends to those people who accept possession of stolen goods and handle them in circumstances where they knew that the goods were stolen.
Common law jurisdictions
In commercial transactions, the common law has traditionally adopted a pragmatic approach that attempts to balance transactional efficiency with the need to achieve fairness between the parties, including third parties. However, various rules or objectives can come into conflict. For example, it could be said that one objective of the law is to ensure that commercial transactions enjoy certainty and stability.
This objective would favour the interests of the innocent purchaser over the interests of the owner. To require everyone who purchases goods, particularly in shops and licensed markets, to investigate and verify the ownership of the goods would be impracticable. In addition, such an approach would seriously delay and obstruct commerce. As the 18th-century English Jurist, Sir William Blackstone, said in his famous Commentaries on the Laws of England:
“But property may also in some cases be transferred by sale, though the vendor [has no title] at all in the goods; for it is expedient that the buyer, by taking proper precautions, may at all event be secure of his purchase; otherwise all commerce between man and man must soon be at an end. And therefore the general rule of law is that all sales and contracts of any thing vendible, in fairs or markets overt, (that is, open) shall not only be good between the parties, but also be binding on all those that have any right or property therein.”
A former partner of Linklaters Shanghai, Andrew Godwin teaches law at Melbourne Law School in Australia, where he is an associate director of its Asian Law Centre. Andrew’s new book is a compilation of China Business Law Journal’s popular Lexicon series, entitled China Lexicon: Defining and translating legal terms. The book is published by Vantage Asia and available at www.vantageasia