In a recent case the Austrian Supreme Court clarified the full remedial effect of good faith acquisition of a defective title.
A company sold and leased back a yacht. The lessor agreed that the lessee could remain in possession of the yacht. Contrary to the terms of the lease contract, the lessee 'sold' the yacht to a third party. The latter acquired full title to the yacht in good faith. Three years later, the lessee repurchased the yacht from this third party.
In subseqent bankruptcy proceedings involving the lessee, the receiver sold the yacht. The lessor rescinded from the lease contract and demanded the proceeds of the sale of the yacht. It claimed that ownership of the yacht had reverted to the lessor as original owner under the sale and lease-back upon the yacht being retransferred to the lessee.
The Supreme Court held that once full ownership rights have been acquired in good faith, the innocent purchaser may transfer these ownership rights to any other person. The latter will acquire full unencumbered title even if it knows that the original title was defective. Thus the lessor had lost ownership upon the bona fide acquisition by the third party and - since the lessee had acquired the yacht in his own name - had not regained same.
While sale-and-lease-back transactions remain a popular means of financing, lessors should always be aware of the risk involved, as the lessee regularly holds possession and therefore the appearance of ownership.
Source: Austrian Supreme Court, April 22,1999, 6 Ob 108/98w
For further information on this topic please contact Louis Foramitti at Ortner Pöch Foramitti Rechtsanwälte OEG by telephone (+431 535 37 21) or by fax (+43 1 533 15 55) or by e-mail ([email protected]).
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