22 March 2021
The Supreme Court rendered the 109-Tai-Shang-2099 Decision of October 14, 2020 (hereinafter, the “Decision”), holding that the requirement is that a bona fide third party in a conditional sale trades with the possessor of an object due to misidentification of the possessor as the owner without knowing that the seller of the object still holds the ownership.
According to the facts underlying this Decision, Company A leased the machine at issue from the Appellee via finance lease. Company A subsequently sold the machine at issue to the Appellant without authorization before buying it back by installment payment from the Appellant and agreeing that the machine at issue belonged to the Appellant but would still be continuously possessed by Company A before Company A paid up the buyback price, and that the machine at issue would be delivered via constitutum possessorium. Company A subsequently was unable to pay up the price, and the Appellant applied to the enforcement court for compulsory enforcement to recover the machine at issue. The Appellee submitted the finance lease contract at issue on the spot at the time of enforcement, asserting that it was the owner of the machine at issue, but the enforcement court still handed over the machine at issue to the Appellant. The Appellant subsequently sold the machine at issue for over NT$4.14 million to Company B, a bona fide third party, and completed the delivery. As a result, Company B obtained the ownership of the machine at issue in good faith, and the Appellee was injured for losing the ownership of machine at issue. The original trial court held that since the Appellant was clearly aware that the Appellee had been present to assert its rights by producing evidence upon actual delivery of the machine at issue, the Appellant was not protected under the requirements for bona fide assignment and did not obtained the ownership of the machine at issue. Since the Appellant’s sale of the machine at issue to Company B is a disposal act that the Appellant had no authority to engage in and illegally and negligently violated the Appellee’s ownership of the machine at issue, the Appellant should compensate the Appellee for the damage so incurred.
According to the Decision, Article 5, Paragraph 1 of the Personal Property Secured Transactions Law provides that a written contract shall be formulated for a personal property secured transaction. The transaction shall not be asserted against a bona fide third party without registration. The requirement for such bona fide third party is that a bona fide third party in a conditional sale trades with the possessor of an object due to misidentification of the possessor as the owner without knowing that the seller of the object still holds the ownership.
It was further pointed out in this Decision that the machine at issue had previously belonged to the Appellee, but Company A leased the machine at issue via finance lease from the Appellee before selling to and buying back the machine at issue from the Appellant, who then completed the registration of the personal property secured transaction of the machine at issue. Therefore, the Appellee was obviously not a party to the transaction of the machine at issue with Company A after the Appellant’s registration of the conditional sale. Based on the above explanation, the Appellant cannot assert that it may assert any defense against the Appellee by citing Article 5, Paragraph 1 of the Personal Property Secured Transaction Law. In addition, what the Appellant violated is the Appellee’s ownership of the machine at issue, which cannot be restored any more. Therefore, the Appellee can certainly seek a monetary compensation for the machine at issue, whose objective trading value is over NT$4.14 million, from the Appellant in accordance with Article 215 of the Civil Code. Therefore, the original trial court concluded that a monetary compensation in an amount in excess of NT$4.14 million shall be paid by the Appellant for its negligent and illegal violation of the Appellee’s right (ownership of the machine at issue) and rendered a decision against the Appellant. The original decision is not legally erroneous. Therefore, the appeal arguments criticizing the original decision for violation of laws and regulations are not valid.
For further information, please contact:
Jenny Chen, Lee Tsai & Partners
lawtec@leetsai.com
