The Potential Extension of the Three-Party Perspective - Legal Brain Gymnastics
Abstract
This paper takes as its starting point a seemingly technical question of property law – when and how a buyer obtains protection against the seller's creditors – but uses it as a prism to illuminate something more fundamental: how legal rules allocate power, risk and control in situations of economic scarcity. Starting from the modern three-party model, which shows that the traditio principle and the contract principle can be economically equivalent when only the buyer, the seller and the lender are taken into account, the work tests the robustness of the model when reality becomes more complex.
The focus is on a fourth actor – a competing acquirer in bankruptcy – whose strategic room for manoeuvre may break the alleged equivalence between the priority principles. Through model-based reasoning concerning custom-made goods and situations close to insolvency, it shows how the traditio principle may in some cases enable shifts in value that are not internalised by the actors the three-party model takes into account. The question then becomes not only how risk is allocated, but who is given control over assets whose value arises only in relation to the market.
The work does not argue for an unequivocal solution, but uses this "fourth-party problem" as an analytical tool to show that the choice between the traditio principle and the contract principle cannot always be reduced to economic equivalence. Against this background, default (non-mandatory) rules are discussed as a possible corrective: a mechanism that in certain situations may allow the market itself to counteract strategic behaviour, but which at the same time entails costs in the form of reduced predictability for the body of creditors.
The result is an intellectual exercise – legal brain gymnastics – that aims to open new questions rather than to close them. The paper shows how priority rules in property law are not merely technical tools, but structures that shape incentives, competition and power in economic crises.
Excerpt
Swedish law applies the traditio principle, which means that there is a requirement that goods be handed over on transfer in order for the buyer to obtain protection under property law against the seller's creditors. The parties cannot agree that protection under property law is to arise in any other way.[1] Globally, the traditio principle is also the most commonly occurring norm.[2] The alternative to the traditio principle is the contract principle. In legal systems that apply this principle, protection under property law (most commonly referred to as a transfer of ownership in the respective national legal systems) arises upon conclusion of the contract, i.e. when the parties agree on a transfer. In legal systems that apply the traditio principle, it is usually combined with the contract principle into what may be called a default traditio principle. That is, traditio as the "default" unless otherwise agreed between the parties. This principle has been criticised by many Swedish lawyers, since Sweden is one of two countries that do not offer the possibility of contracting out of the traditio requirement; among other things, the principle has been described as "detached from reality".[3] The criticism rests to a large extent on the assumption that a default traditio principle would routinely be contracted out of. This assumption has often been put forward without closer analysis of how actors actually adapt to risk and financing conditions.[4]
Against this background, Swedish legal development, shaped by the strong views of parts of the legal literature, has ended up – together with Norway – as the only legal systems applying a mandatory traditio principle; alternatives to the mandatory traditio principle have largely been overlooked because of these preconceptions.[5]
[1] Apart from the statutory exceptions, e.g. the registration requirement under the Sale of Chattels Act (Lösöresköplagen) and in consumer situations.
[2] Jens Andreasson et al., Efficient priority rules under default – the case of traditio versus contract principle, E.J.L.E. 51(1)(2021) pp. 108–110.
[3] SOU 1995:11 p. 152 and SOU 2015:18 pp. 73–74. Norway is the other country that does not offer the possibility of contracting out of the principle.
[4] Claes Martinson, Den dispositiva traditionsprincipen, SvJT 2025, pp. 495–550
[5] Martinson, Den dispositiva traditionsprincipen, p. 498