National Reports on the Transfer of Movables in Europe: Germany, Greece, Lithuania, Hungary

National Reports on the Transfer of Movables in Europe

National Reports on the Transfer of Movables in Europe Volume 3: Germany, Greece, Lithuania, Hungary

edited by

Wolfgang Faber / Brigitta Lurger Schriften zur Europäischen Rechtswissenschaft / European Legal Studies / Etudes juridiques européennes Band 12 / Volume 12 / Volume 12 European Legal Studies Institute, Osnabrück Molengraaff Institute for Private Law, Utrecht Amsterdam Institute for Private Law Institute of European and Comparative Law, Oxford Institut für Zivilrecht, Ausländisches und Internationales Privatrecht, Graz

Schriften zur Europäischen Rechtswissenschaft / European Legal Studies / Etudes juridiques européennes herausgegeben im European Legal Studies Institute, Osnabrück von Christian von Bar im Molengraaff Institute for Private Law, Utrecht von Ewoud Hondius im Amsterdam Institute for Private Law von Martijn W. Hesselink im Institute of European and Comparative Law, Oxford von Stefan Vogenauer im Institut für Zivilrecht, Ausländisches und Internationales Privatrecht, Graz von Brigitta Lurger Linguistic revision and editorial support for all reports in this volume: Malcolm M. Combe. The reports published in this volume and a linguistic revision of the whole book are financed by the Fonds zur Förderung der wissenschaftlichen Forschung (FWF), Vienna. This book has been published with the financial support of: Bundesministerium für Wissenschaft und Forschung (Vienna). Publication of the whole series of national reports is supported by: Bundesministerium für Justiz (Vienna); Swiss Institute of Comparative Law (Lausanne); Land Salzburg; Evers-Marcic-Stiftung an der Rechtswissenschaftlichen Fakultät der Universität Salzburg.

ISBN (print) 978-3-86653-101-7 ISBN (eBook) 978-3-86653-900-6 The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie; detailed bibliographic data are available in the Internet at http://dnb.d-nb.de. © 2011 by sellier. european law publishers GmbH, Munich. All rights reserved. No part of this publication may be reproduced, translated, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior permission of the publisher. Production: Karina Hack, Munich. Typesetting: fidus Publikations-Service GmbH, Nördlingen. Printing and binding: AZ Druck und Datentechnik GmbH, Kempten. Printed on acid-free, non-ageing paper. Printed in Germany.

Preface This is the third volume of a series of national reports on basic issues concerning the acquisition and loss of ownership of movable assets. The full series covers 28 European legal systems and appears as a by-product of the research activities of the Graz & Salzburg working group on ‘Transfer of Movables’ within the ‘Study Group on a European Civil Code’,1 which was in charge of preparing Book VIII of the Draft Common Frame of Reference (DCFR).2 Starting with general property law issues, like the concepts of ownership and possession employed in the respective legal systems and the related means of protection, the reports primarily deal with the ‘derivative’ transfer of ownership, but extend to good faith acquisition from a non-owner, acquisitive prescription, processing and commingling, and to further related issues. Corresponding to the working group’s task within the Study Group, the reports are largely restricted to movable assets and leave aside fiduciary transfers, such as transfers for security purposes. They are, however, not restricted to property law issues, but also cover much of the related areas of the law of obligations, enforcement and insolvency, in a generally accessible language, i.e. English.3 Mary-Rose McGuire’s report on German law is an updated and extended version of a national report already published at an earlier stage of this project;4 we are grateful to Peter Lang Publishers for making this updated publication possible. Another side-note relates to Ferenc Szilágyi’s extensive report on Hungarian law, which not only provides information regarding the rules of the Hungarian Civil Code as in force today, but also 1

2

3

4

For further information on this project, see Lurger, Introduction to the Project ‘Transfer of Movables’: Organisational Framework, Basic Issues and Goals, in: Faber / Lurger (eds.), Rules for the Transfer of Movables – A Candidate for European Harmonisation or National Reforms? (2008), 1. von Bar / Clive (eds.), Principles, Definitions and Model Rules of European Private Law – Draft Common Frame of Reference (DCFR) Full Edition (2009), Volume V. Book VIII is entitled ‘Acquisition and loss of ownership of goods’. The concept of these reports is further described in the preface to the first volume of that series: Faber / Lurger (eds.), National Reports on the Transfer of Movables in Europe – Volume I: Austria, Estonia, Italy, Slovenia (2008). McGuire, Transfer of Title Concerning Movables Part II, National Report: Germany (2006).

Preface

VI

reflects different stages of the current law reform project heading towards a new Hungarian Civil Code. According to current information, received after the finalisation of the manuscript, the Hungarian Constitutional Court declared certain provisions of the Incorporation Act to a New Hungarian Civil Code to be incompatible with the Constitution in late April 2010.5 The report will, therefore, be ‘up-to-date’ for an – unknown – further period of time. Publishing this series of national reports would not be possible without generous support by a number of institutions. This third volume received specific funding from the Austrian Ministry of Science and Research (Bundesministerium für Wissenschaft und Forschung). Financial support for the whole series of reports is granted by the Austrian Ministry of Justice (Bundesministerium für Justiz), the Swiss Institute of Comparative Law (Lausanne), the Land Salzburg and the Evers-Marcic-Stiftung an der Rechtswissenschaftlichen Fakultät der Universität Salzburg. The reports as such, as well as a linguistic revision of the whole book, are financed by the Austrian Funds for Scientific Research (Fonds zur Förderung der wissenschaftlichen Forschung, FWF). The editors wish to express their gratitude to all these institutions. We also wish to thank Mrs Monika Lammer for formatting the manuscripts. Particular thanks go to Malcolm Combe, the co-author of the national report on Scots law in volume II of this series, for the great care he displayed in linguistically improving all reports in this volume and harmonising the terminology used. May 2010 Salzburg and Graz

5

Wolfgang Faber Brigitta Lurger

Decision of the Constitutional Court 51 / 2010 (IV. 28), OJ 63 / 2010 (28 April 2010).

List of Contributors Christina Klaoudatou Member of the Athens bar, formerly project assistant at the University of Salzburg

Mary-Rose McGuire Lecturer in Law, University of Osnabrück

Valentinas Mikelenas Professor at the Faculty of Law, Vilnius University, and Partner with Professional Law Partnership Baltic Legal Solutions

Ferenc Szilágyi Project Assistant, European Legal Studies Institute, University of Osnabrück

Contents Preface List of Contributors

v vii

National Report on the Transfer of Movables in Germany Mary-Rose McGuire

1

National Report on the Transfer of Movables in Greece Christina Klaoudatou

193

National Report on the Transfer of Movables in Lithuania Valentinas Mikelenas

333

National Report on the Transfer of Movables in Hungary Ferenc Szilágyi

409

National Report on the Transfer of Movables in Germany Mary-Rose McGuire

Table of Contents Part I: Basic information on German property law 1. Notion of ownership and other property rights 1.1. General 1.1.1. Sources of property law 1.1.2. Concept of a separate law of property 1.1.3. General principles of German property law 1.2. Notion and concept of ownership 1.3. Other property rights in movables 1.3.1. Notion of restricted rights in rem 1.3.2. Rights to acquire property 1.3.3. Rights of use and enjoyment of another’s property 1.3.4. Security rights and power of sale 1.4. Protection of ownership 1.4.1. Claims arising from property law (a) Vindication (b) Actio negatoria (c) Claims arising from the owner-possessorrelationship 1.4.2. Further general means of protection (a) Damages (b) Unjustified enrichment (c) Protection against possessor’s default 1.4.3. Interaction of different remedies 1.4.4. Protection of other property rights in movables 1.5. Transferability of Movables 1.5.1. General rule 1.5.2. Statutory limitations of transferability (a) Inability to control and items that are not self-standing as a legal entity (b) Restrictions of transferability concerning movables (c) Non-transferability of rights (d) Other statutory restrictions of transferability 1.5.3. Limitations of transferability by contract or will

9 9 11 14 21 24 24 25 26 27 29 29 30 31 33 34 34 34 35 36 37 37 37 38 38 39 40 40 41

4

2. Possession 2.1. Notion and categories of possession 2.1.1. Notion of possession 2.1.2. Types of possession (a) Overview on the categories of possession (b) Direct and indirect possession (c) Intermediary in possession and possessory servant (d) Proprietary possession and possession in another’s interest (e) Exclusive possession and joint possession 2.2. Functions of possession 2.2.1. Protection of possession 2.2.2. Transfer and publicity 2.2.3. Preservation of possession 2.3. Acquisition of possession 2.3.1. Title for acquisition of possession 2.3.2. Acquisition of physical control 2.3.3. Loss of possession 2.4. Protection of possession 2.4.1. Object of and entitlement to protection 2.4.2. Emergency rights 2.4.3. Remedies 2.4.4. Other means of relief 3. Transfer of movables: field of application and definitions 3.1. Scope of application 3.2. The concept of a ‘thing’ 3.3. Concept of movables

Germany

42 42 47 47 47 49 50 51 52 52 52 53 54 54 55 61 62 62 63 64 66

67 67 69

Part II: Derivative acquisition 4. System of transfer of ownership under German law 4.1. Unitary concept of transfer 4.2. Overview on the concept of transfer of ownership 4.3. The concept of the abstract nature of rights in rem 4.3.1. Abstract tradition 4.3.2. Valid obligation

71 72 73 73 74

Table of Contents

4.4.

4.5. 4.6.

(a) Obligations on which the transfer of ownership can be based on (b) Consequences of a defective obligation (c) Disruptions of the abstract transfer system (i) Exceptions (ii) Identical defects (iii) Contracts contrary to law (iv) Stipulation of conditions and uniform nullity 4.3.3. Real agreement Concept of transfer of possession 4.4.1. General rule 4.4.2. Exceptions 4.4.3. Additional requirements for bona fide acquisition 4.4.4. Restrictions of party autonomy Registration Problems, inconsistencies and critique

5. Transfer of movable property 5.1. Overview on transfer requirements 5.2. Authority to dispose 5.3. Real agreement 5.3.1. Agreement in rem 5.3.2. Clarity and identification 5.4. Tradition 5.4.1. General rule 5.4.2. Parallelism between possession and ownership 5.4.3. Modes of tradition (a) Traditio and substitute traditio (b) Transfer modes (i) Transfer by agreement and delivery (ii) Transfer by mere agreement (iii) Transfer by constitutum possessorium (iv) Transfer by means of assignment of the claim for delivery (v) Transfer by instruction (vi) Symbolic delivery (vii) Title-conferring instruments 6. Double sale 6.1. Double obligations 6.2. Double real agreements

5

74 76 77 77 78 79 80 82 83 83 84 85 85 86 87

89 90 91 91 94 96 96 97 97 97 98 98 100 101 104 106 106 107

108 110

6

Germany

7. Chain of delivery 7.1. General rule 7.2. Effect of invalid contract

111 113

8. Consequences of insolvency of one of the parties involved 8.1. General rule 8.2. Effect of insolvency on contractual agreements 8.2.1. Overview 8.2.2. Claim in insolvency 8.2.3. Claim for release from estate 8.2.4. Claims for segregation from estate 8.2.5. Non-discharged contractual obligations 8.3. Insolvency of the representative

113 114 114 115 115 116 117 118

9. Passing of ownership and passing of risk

119

Part III: Original acquisition 10. Original acquisition by accession, confusion and processing 10.1. Introduction and concept of original acquisition 10.2. Different types of original acquisition 10.2.1. Attachment of a tangible thing to an immovable 10.2.2. Attachment of several movables 10.2.3. Intermixture of movables 10.2.4. Processing 10.3. Acquisition versus claim for compensation

122 122 123 123 124 126 127 130

11. Bona fide acquisition 11.1. General concept 11.2. Scope of application 11.2.1. Transfer by virtue of legal transaction 11.2.2. Material scope of application 11.2.3. Gratuitous acquisition 11.2.4. Exclusion of stolen things 11.3. Requirements of bona fide acquisition 11.3.1. Trade transactions 11.3.2. Legitimation by virtue of possession

132 132 134 134 136 136 137 140 140 142

Table of Contents

11.3.3. Transfer of physical control (a) Transfer of possession (b) Modification of substitute transfer modes (i) Brevi manu traditio (ii) Constitutum possessorium (iii) Assignment of claim for delivery 11.3.4. Good faith 11.4. Right to re-acquire property 11.5. Bona fide acquisition free of encumbrances 12. Prescription and limitation of action 12.1. Acquisition by long adverse possession 12.2. Prescription of ownership

7 143 143 144 144 145 147 149 151 152 153 153 156

Part IV: Additional issues 13. Reservation of title 13.1. Simple reservation of title 13.1.1. Concept of reservation of title 13.1.2. Contractual agreement 13.1.3. Conditional real agreement 13.1.4. Legal consequences 13.1.5. Relinquishment of reservation of title 13.1.6. Execution and insolvency 13.2. Defective reservation of title 13.3. Extended reservation of title 13.4. Expanded reservation of title

157 157 157 159 160 161 162 162 163 164

14. Abandonment

165

15. Co-ownership 15.1. Concept of co-ownership 15.2. Simple joint ownership by shares 15.3. Joint ownership

166 167 167

8

Germany

16. Retransfer of ownership to the original owner 16.1. Overview on the different system of retransfer 16.2. Retransfer of ownership and possession 16.2.1. Retransfer in consequence of a failed transaction 16.2.2. Invalidity or termination of a contract for use 16.2.3. Theft and other involuntary loss 16.2.4. Transfer or grant of a right to use by an unauthorised person 16.3. Entitlement to fruits and other benefits 16.3.1. Overview 16.3.2. Entitlement to fruits and other benefits (a) Concept of fruits (b) Status of rights in rem (c) Division of fruits (d) Preclusion of the obligation to deliver in the case of good faith (e) Duty to deliver up if unworthy of protection 16.4. Duty of compensation in case of deterioration, destruction or loss 16.5. Reimbursement for improvements and expenses 16.6. Possessor’s right to retain the movable 16.7. Burden of expenses for the restitution of the movable

168 171 171 172 173 173 174 174 175 175 175 177 177 177 178 179 181 183

Table of Literature

184

Table of Abbreviations

191

Part I: Basic information on German property law 1.

Notion of ownership and other property rights

1.1.

General

1.1.1. Sources of property law The main source of German private law is the ‘Bürgerliches Gesetzbuch’ (BGB1), the German Civil Code. Enacted in 1896, it became effective on January 1, 1900. Adopting the pandectist system (Pandektensystem)2 the Civil Code is divided into five books (Bücher): General Part (Allgemeiner Teil), Law of Obligations (Schuldrecht), Property Law (Sachenrecht), Family Law (Familienrecht) and the Law of Succession (Erbrecht). Property law is thus the subject of the third book called Sachenrecht (literally: law of things). It contains the rules on types, formation, transfer and protection of property rights (§§ 856-1296). However, the provisions of the third book are not standalone and conclusive. The original concept, to preface the property law rules with a general part comparable to the General Part on the Law of Obligations, was rejected due to the considerable differences between the law governing movable property and the law governing immovable property. Accordingly, the respective definitions were introduced into the general part in the First Book. A separate section on ‘things and animals’ contains a number of important definitions, such as the concept of ‘things,’ ‘animals’ or ‘component parts’ (§§ 90-103).3 On the other hand, the third book does not only provide for rules on rights in rem, but also for further claims, which although of importance in the context of property law are of a personal nature. The most important example are the rules on the relationship between the owner and an unlawful possessor.4

1

2 3 4

Unless stated otherwise paragraphs hereinafter mentioned refer to the German Civil Code (BGB). An English translation provided by the German Ministry of Justice is accessible online at: http: // www.gesetze-im-internet.de / englisch_bgb . Rinne in: MünchKomm BGB VI (2004)4, Introduction, no. 1. Wieling, Sachenrecht (2007)5, 3. Wieling, Sachenrecht (2007)5, 3.

10

Germany

At first glance the structure of the third book of the Civil Code appears to be impenetrable,5 as it, despite the substantial differences between movables and immovables, sets out the rules for both subjects together within one book. First it addresses rules equally applicable to movables and immovables, including the law of possession, the concept of ownership and the protection of ownership. Other rules are addressed in separate sections (or subsections) for movables and immovables respectively. They set out the formation, transfer, and extinction of property rights as well as the catalogue of types of restricted property rights.6 Although the Civil Code has undergone considerable change since its enactment, there have been very few amendments to the Civil Code affecting property law. One of the very few relevant amendments was the introduction of a new section clarifying that animals are not things (§ 90a).7 Leaving this minor alteration aside, the main developments in the area of property law, in fact, are the result of judge-made law, rather than legislative amendments of the Civil Code. The most important development is the recognition of two new concepts of property interests, namely the equitable interest (Anwartschaftsrecht) and the fiduciary transfer (Sicherungseigentum).8 Neither of these two concepts has yet found expression in the Civil Code. Further rules of property law are laid down outside of the Civil Code in statutes addressing specific issues of the law on real estate and other immovable property, such as provisions on ownership interests in apartments (Wohnungseigentum)9, the right to erect a building on another’s property (Erbbaurecht)10 as well as on the law of registered ships and ship-yards.11

5 6

7

8 9 10 11

Rinne in: MünchKomm BGB VI (2004)4, Introduction, no. 2. For example, division 3 title 2 is entitled ‘Acquisition and Loss of Ownership in Immovable Property,’ while division 3 title 3 is entitled ‘Acquisition and Repeal of Ownership in Movable Property.’ This Act of August 20, 1990, BGBl 1990 I 1762 is rather of a symbolic nature, as despite the clarification that animals are not ‘things’ it has also stated, that they are to be treated as things, unless otherwise provided for. Cf. 3.2. Cf. infra 1.3.4. Cf. Wohnungseigentumsgesetz 15.3.1951. Cf. Erbbaurechtsverordnung 15.1.1919. Cf. Gesetz über die Rechte an eingetragenen Schiffen und Schiffsbauwerken 15.11.1940.

1. Notion of ownership and other property rights

11

1.1.2. Concept of a separate law of property The structure of the German Civil Code is based on the idea of a clearcut distinction between the law of obligations (Schuldrecht) and the law of property (Sachenrecht).12 Evidence of this conceptual separation can be found in the treatment of contracts obliging a person to transfer property. While older continental codifications classified a contract obliging a person to transfer property as a mere prerequisite to the actual transfer and, accordingly, address these contracts in the context of property law,13 the Civil Code treats such contracts as distinct and separate from the actual transfer and, accordingly, addresses such contracts in the context of contract law. Thus formation and transformation of property rights in the Civil Code are completely separated from the contract as their underlying economic justification.14 This general principle does not only guide the structure of the code, but also reappears in the so-called ‘Abstraktionsprinzip’,15 which is one of the most important concepts of German property law.16 The strict distinction between the law of property and the law of obligations at the same time corresponds to the distinction between absolute rights and relative rights. While both are subjective rights, i.e. a legal power conferred to an individual person,17 they differ in their nature. An absolute right is effective against every other person and, as such, is protected against all unlawful interference from every other person. A relative right, on the other hand, only grants a restricted right against a certain other person.18

12

13

14 15 16

17 18

Wiegand, AcP 190 (1990), 113 ff.; Wiegand, in: Staudinger (2004), Introduction to § 929 no. 15; Brehm / Berger, Sachenrecht (2006)2, no. 1.4. The opposite proposition has been argued for in detail by Füller, Eigenständiges Sachenrecht (2006). However, his main thesis has been heavily criticised by legal scholars, for details cf. Brehm, AcP 207 (2007), 268 ff. Cf. the third part of the Austrian Civil Code (ABGB), which contains both provisions of inheritance law and the law of obligations under the heading ‘Sachenrecht’; also compare the heading of § 711 French Code Civil ‘des differentes manières dont on acquiert la propriété’. Motive III 1. Cf. infra 1.1.3. Wiegand, AcP 190 (1990), 113, 120; see also Stadler, Gestaltungsfreiheit und Verkehrsschutz durch Abstraktion (1996), 98 ff. Baur / Stürner, Sachenrecht (1999)17, § 2 no. 2. Yet, absolute rights are not restricted to property law, but may also be found in the context of intellectual property law as in family and inheritance law.

12

Germany

The law of property and the law of obligations further serve different purposes: the main purpose of property law is to enable the circulation of goods. Unlike the legal tie between a debtor and a creditor, the legal bond between a person and a thing, i.e. a property right, is designed to be transferred. This distinct function of property law in turn generates a particular demand for marketability. These necessities are reflected by many characteristics of property law, such as the restriction to certain statutorily defined types of property rights and the concept of absolute rights, which both facilitate marketability. Property rights, the so-called rights in rem, are absolute rights. Their substance is an absolute and direct power of a person over a thing.19 The most important consequence of this characterisation of rights in rem as a direct power is that no other person is party to this legal relationship.20 Rights in rem as a model confer three characteristic types of power on their holder: he may possess and use the thing, he may dispose of it and he may defend his position against any possible infringement.21 Personal rights by contrast are often characterised as a ‘legal tie’ (rechtliches Band) between two persons and may be defined as relative rights (cf. § 241), according to which a debtor is obliged to make performance to the creditor in such legal tie. The content of a personal right is determined by the parties. Personal rights primarily affect the parties involved. Even though a change of one or both of the parties to the obligation is possible – and provided for by the rules on assignment and assumption of indebtedness respectively – a change of parties is the exception rather than the rule. Accordingly, a party who takes over the duties conferred by a personal right is expected to inform itself of the existence and the content of such personal right (cf. § 404). The difference between rights in rem and personal rights can be easily demonstrated by the example of rights of use in another’s property: should 19

20

21

Rinne in: MünchKomm BGB VI (2004)4, Introduction, no. 4. This generally accepted concept, however, is criticised by Hadding, JZ 1986, 926, 927, because the legal order always concerns the rules on interaction between human beings. Accordingly property rights can also be conceived as rules on the delimitation of power between fellow citizens. This even holds true for restricted rights in rem: where there is conflict between the owner and the holder of the restricted property right, the owner cannot unilaterally terminate the restricted property right. Similarly co-ownership cannot be terminated unilaterally, but has to be be dissolved according to the statutory rules, cf. Brehm / Berger, Sachenrecht (2006)2, no. 1.10. If, and if so to which extent, a specific restricted right in rem features all three characteristic entitlements depends on the scope of the restricted right, which is set out by mandatory – and in general statutory – law.

1. Notion of ownership and other property rights

13

the owner of a thing want to entitle another to use his property statutory law provides for two different concepts, either a persoanl right of use or a right in rem. Thus the parties may either conclude a contract of hire or they can agree that the owner grants a right of usufruct. Whereas the contract of hire confers a mere personal right against the owner to use the property, the holder of a right of usufruct has an immediate right in the property. The different legal construction of these rights to use lead to important consequences with regard to the question, whether the right of use is protected vis-à-vis third parties. Whereas the personal right is only effective against the contracting party and thus can be undermined by a subsequent transfer of ownership, a right in rem is independent of the respective holder and thus as a general rule remains unaffected by subsequent changes in ownership. Example: Where the owner, despite an agreement to the contrary, transfers his ownership in the property to a third party, the personal right of use of a lessee is protected by the statutory rules on assumption of contract, but will not prevent the acquirer from terminating the contract. Where the owner has granted a usufruct this constitutes an encumbrance of property and is independent of the respective holder. Thus a transfer cannot impair the right of the usufructuary.

The conceptual difference of personal rights and rights in rem is also of major importance in the context of insolvency law. A personal right of use based on a contract will only survive should the appointed insolvency administrator choose to continue the contractual relationship. By contrast, the right of usufruct is insolvency-proof. As far as the respective property is affected by the insolvency of the owner the obligee will be merely entitled to damages for infringement of the contract, whereas the holder of a right in rem can claim release from the estate.22 The classical dichotomy between personal rights and rights in rem thus can be summarised by reference to the two most important differences, namely the questions against whom the right can be enforced (against the contracting party or against everybody) and whether the granted legal position is unaffected by subsequent dispositions of the owner as in case of insolvency. Despite this strict distinction the legal consequences in the case of violation are quite similar, for both the violation of an absolute right and the violation of a personal right creates a relative right against the respective violator. The only peculiarity of claims arising from the violation of a right in rem is that they cannot be separated from the right in rem and therefore cannot be disposed of separately. Rather, they form an integral part of the 22

Cf. infra 1.3.4.

Germany

14

absolute right.23 In respect of their content, however, there is no difference whether a claim for damages is founded on a personal right or on a right in rem. This displays that the strict separation of relative and absolute rights in theory is not always mirrored by practical differences.24 The strict delimitation has been further weakened by a phenomenon called ‘Verdinglichung’, which relates to the fact that a number of important relative rights have been granted distinct attributes of rights in rem25 and thereby are afforded a degree of protection that is similar, or at least comparable, to rights in rem. Strengthened to such an extent these relative rights are referred to as rights quasi-in rem (quasi-dingliche Rechte). The most important example is the law of landlord and tenant: although a right of use conferred on the leaseholder by a contract of lease is not permanently protected inter omnes, the lessor yet cannot unilaterally terminate the right of use by a mere transfer of the respective property, as the mandatory rule of § 566 provides for a transfer of contract. As a consequence the acquirer is bound by the lease (at least until the lease expires or some earlier cancellation or break point is reached).

1.1.3. General principles of German property law The characteristic features of German property law can be summarised by five basic principles, which are regarded as its cornerstones. These are the principle of numerus clausus, absolute effect, publicity, specification and the so-called Abstraktionsprinzip. These five principles are closely connected to each other, and even partly overlap, therefore a clear-cut distinction is not always possible.26 The first basic concept is that there is a numerus clausus of rights in rem. It restricts the available types of rights in rem to those types, six in all, set out by the Civil Code. The parties may choose between these types of property rights explicitly set out. But they may neither agree on new types nor mix those provided for, as this would contradict the so-called ‘definition of types’ (Typenfixierung).27 Mandatory provisions set out the rights and duties following from a chosen type as well as the content. The freedom of determination (Inhaltsfreiheit) and the freedom to create legal relationships 23

24 25 26 27

Mager, AcP 193 (1993), 69, 72 ff. The question whether the claim for delivery arising from ownership may be assigned separately is a matter of dispute, cf. Baur / Stürner, Sachenrecht (1999)17, § 11 no. 44 and infra 1.4.1. Cf. Baur / Stürner, Sachenrecht (1999)17, § 2 no. 3 f. Canaris, FS Flume (1978), 371, 372. Rinne in: MünchKomm BGB VI (2004)4, Introduction, no. 9. Baur / Stürner, Sachenrecht (1999)17, § 1 no. 7.

1. Notion of ownership and other property rights

15

(inhaltliche Gestaltungsfreiheit), which is a characteristic feature of the law of obligations, therefore is to a great extent28 restricted in property law.29 This is even more clearly described by the alternative term restriction of types (Typenzwang).30 As mentioned above this restriction is intended to foster the marketability of property rights. But it also serves the protection of ownership as the most valuable (property) right, against excessive encumbrances.31 If encumbrance was possible without limitation, then the overarching right of ownership would perhaps deteriorate to a nudum ius. This protection against excessive burdens is of importance, first and foremost, in the context of immovable property, sometimes more colloquially referred to as real estate law. However, this restriction can also serve a purpose with regard to movables; for example, the legal framework of securities by means of fiduciary transfer of ownership serve to balance the interest of the creditor in the security (i.e. the possibility of realisation of such security) against the protection of the debtor (i.e. the means of realisation and enforcement).32 A further justification for the restriction to a limited number of property rights may be found in the characterisation of rights in rem as absolute rights, that is their impact on third parties. If everybody is bound to respect absolute rights, it is a prerequisite that everybody is in the position to ascertain the content of such rights. Of course, such absolute protection should only be granted as far as the need for such far-reaching protection is acknowledged by the legal order. Accordingly, it cannot be left to individual parties to create rights in rem of various scopes and content.33 The clarity of form reached by the numerus clausus prevents the emergence of an impenetrable variety of rights in rem and thereby serves the public interest of legal clarity.34 It dispenses with the need for the transferee of property rights to scrutinise the authority of the transferor and the content of the property right in question with regard to every single legal transaction: scrutiny which, in any event, is almost impossible, as the transferee ordinarily does not have access to information about the transferor’s state of affairs.35 The fluency and safety of legal transactions is 28

29 30 31 32 33 34 35

The parties, however, have the possibility to modify property rights by insertion of conditions or a time-limit, cf. Rinne in: MünchKomm BGB VI (2004)4, Introduction, no. 11. Baur / Stürner, Sachenrecht (1999)17, § 1 no. 7. Baur / Stürner, Sachenrecht (1999)17, § 1 no. 7. Cf. Brehm / Berger, Sachenrecht (2006)2, no. 1.38. Baur / Stürner, Sachenrecht (1999)17, § 56 no. 1. Baur / Stürner, Sachenrecht (1999)17, § 1 no. 11; cf. Motive III 3. Brehm / Berger, Sachenrecht (2006)2, no. 5.2. Cf. Baur / Stürner, Sachenrecht (1999)17, § 1 no. 12.

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further promoted by straightforwardness: the parties don’t have to negotiate in detail which rights and duties are transferred in every single legal transaction, but instead can rely on the enumerated types of property rights set out by law.36 This function of the numerus clausus is predominant in the context of movables.37 Despite the general acceptance of the principle of numerus clausus38 two new types of rights in rem, or quasi rights in rem39 respectively, have been acknowledged both by legal doctrine and by the judicature: first, the credit security by transfer of ownership; and second, equitable interests.40 These new types correspond to the demand of modern economy for flexible lending arrangements and corresponding flexible security arrangements. In addition to this pragmatic reason this development is also justified by the argument that the numerus clausus merely restricts the individual parties, but does not hinder legal developments as such.41 A second characteristic feature of property rights is their absolute effect. They are effective inter omnes, i.e. they can be invoked against whoever interferes with the exclusive enjoyment of property rights. This categorisation as absolute is the main criterion to distinguish them from mere personal rights, namely their effect against third parties. This absolute effect is mirrored by the comprehensive protection of rights in rem. First and foremost the owner is protected against dispossession by the rei vindicatio. Any other interference with his ownership may be remedied by an action for abatement of nuisance or a petition for a restraining order (actio negatoria). As these remedies emanate from the right of ownership, both actions will be granted regardless of whether or not the violator’s act is blameworthy. Where the property is culpably damaged, the owner, in addition, may claim damages under the law of tort (§ 823 I). This absolute protection also includes holders of restricted property rights, according to the scope of such property right.42 A further aspect of the nature of rights in rem as absolute is that the right of ownership is not considered to be a bundle of various separate 36 37 38

39 40 41 42

Baur / Stürner, Sachenrecht (1999)17, § 1 no. 9. Baur / Stürner, Sachenrecht (1999)17, § 49 no. 4. But cf. Schubert, Die Entstehung der Vorschriften des BGB über Besitz und Eigentumsübertragung (1966), 163, who demonstrates that both the first and the second commission have rejected a prohibition of security by transfer of title. Also compare Wieling, Sachenrecht (2007)5, 9, who points out that the Roman law principle has similarly been modified by § 1007. Baur / Stürner, Sachenrecht (1999)17, § 3 no. 47. Cf. infra 1.3.4. Canaris, FS Flume (1978), 371, 376; Prütting, Sachenrecht (2008)33, no. 20. Baur / Stürner, Sachenrecht (1999)17, § 4 no. 6.

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17

rights, but is an indivisible right.43 A fragmentation of ownership cannot even be reached by express agreement. It is therefore impossible to provide that one person is to be regarded as owner in respect to one category of persons, while a second person exercises the rights against another category of people. This indivisibility is further secured by the restraint on disposition under § 137. It prevents the restriction of the right to dispose of a right in rem by contractual agreement. However, this rule is not without exceptions. The Civil Code expressly provides for a priority note in the land register and for the concept of a relative pactum de non alienando.44 In addition, the division of fiduciary property into legal property of the security holder on the one hand, and economic property of the party giving security on the other, is acknowledged.45 The third basic principle is the principle of publicity. The legislator of the Civil Code intended that, as a general rule, the (perceptible) possession of things and the underlying legal authority should correspond. It should be possible to easily and unambiguously ascertain ownership in property, because rights in rem are supposed to be apparent to third parties.46 This aim is secured by the general rule that any transaction affecting property rights requires a contractual agreement on the transfer and – as a second element – the publicity of such transfer. The means to achieve this publicity in respect of rights in rem in movables is possession, while with regard to immovables this function is fulfilled by entry into the land register. This principle that possession and ownership shall correspond serves as a basis for the presumption of ownership in § 1006.47 In practice however, the principle of publicity is only strictly adhered to in respect of immovables: so many exceptions may be found in the law on movables that the principle can only claim limited authority.48 In fact, transfer of ownership is widely accepted without (public) transfer of possession. Exceptions to the principle of publicity may in particular be found in §§ 930 ff. on the so-called substitute transfer modes (Übergabesurrogate) as 43

44 45

46 47

48

Baur / Stürner, Sachenrecht (1999)17, § 4 no. 7; Wiegand, AcP 190 (1990), 113, 117. Cf. infra 1.5. Baur / Stürner, Sachenrecht (1999)17, § 4 no. 7. This inconsistency is criticised by Olzen, JuS 1984, 328, 330 and 335. Quack in: MünchKomm BGB VI (2004)4, § 929 no. 1 In fact the presumption of ownership according to § 1006 only comprises the presumption that transfer of possession and acquisition of title coincide, but not that the possessor, who does not claim to have acquired title at the time of transfer of possession, is the owner, cf. Rebe, AcP 173 (1973), 186, 194 and infra 2.2.2. Rinne in: MünchKomm BGB VI (2004)4, Introduction, no. 21; Brehm / Berger, Sachenrecht (2006)2, no. 1.44.

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well as in the rules on ex lege acquisition of rights in rem. This latter exception for instance applies in the case of acquisition of property by the heir, where delivery is reduced to a traditio ficta (cf. § 857). In addition, the two concepts of credit securities by fiduciary transfer of ownership developed praeter legem and of equitable interest lack adherence to the principle of publicity.49 Another reason for this development is the growing importance of contractual relationships that grant a non-owner a right of possession. Thus from the mere fact that a person lawfully possesses a thing, it is no longer correct to have a corollary that dictates that this possessor is entitled to hold such possession by a right in rem.50 The assumption that the possessor of property at the same time is the owner is only justified insofar as the possessor acts in a manner that befits an owner (i.e. disposes of the property as the owner would).51 Despite these numerous exceptions and their practical importance the principle of publicity is still regarded as a basic principle of German property law. The means to implement the principle of publicity with regard to movables52 is the concept of the principle of traditio (Traditionsprinzip). It requires that the acquisition of a right in rem must become apparent by an actual change of physical control. Accordingly, the rules on transfer of title in movables in general require publicity of the transfer, i.e. the actual transfer of physical control over the asset involved. Both the transfer of ownership in movables (§ 929) and the acquisition of pledge (§ 1205) may serve as an example. The principle of traditio according to prevailing opinion serves two purposes:53 first, it makes the change of rights in rem apparent for the public; and second, it secures the authenticity of the transfer of property. This additional aspect is also referred to as function of reliability (Seriositätsfunktion). The fourth basic principle is the principle of specification (Bestimmtheitsgrundsatz) and may similarly be understood as a consequence of the principle of publicity. The principle of specification provides that every property right has to relate to a specific thing. While it is possible to promise to transfer a thing of a certain category, it is impossible to become the owner of unspecified property. According to this principle of specificity rights in rem can only be established with regard to certain isolated things. This requirement is only fulfilled if it is apparent for both the parties to the contract 49 50 51 52

53

Baur / Stürner, Sachenrecht (1999)17, § 4 no. 10. Cf. infra 4.6. Wieling, Sachenrecht (2007)5, 8. As far as rights in immovables are concerned traditio is replaced by an entry into the land register (cf. § 873 and § 925). Cf. Brehm / Berger, Sachenrecht (2006)2, no. 26.11 f.

1. Notion of ownership and other property rights

19

as well as for third parties which movables have been the subject of a new allocation of rights in rem.54 Examples: The transfer of a business entity cannot be effected uno actu, but instead has to follow the rules for the respective separate components. In the case of generic goods it must be precisely determined which individual assets are covered. The same applies in the case of an aggregate of things, such as a stock of merchandise, which has to be determinable in its contents.55 It would violate the principle of specificity to create a general mortgage or grant a fiduciary transfer of ownership with respect to an ‘entire property’.

However, the strict principle of specificity has also been alleviated, in particular as far as the developments of securities by fiduciary transfer of ownership and the (extended) reservation of title are concerned.56 A further aspect of the principle of specification is the principle of determination. As the former also the latter only relates to the transfer – as opposed to the underlying contractual agreement – and serves the purpose of legal clarity and certainty.57 It is a necessary consequence of the concept that changes concerning rights in rem are not effected by contractual agreement, but as a result of the real agreement. Every transfer requires a corresponding real agreement, which necessarily relates to a specific object.58 The principle of determination can be justified by the fact that it is a necessary prerequisite to the duty of everybody to respect the absolute rights of others (absolute effect). In order to adhere to this duty, it must be apparent which things are the subject of a change of property rights (publicity).59 The exact determination of the subject of property rights is a precondition for the exercise of the absolute power over a thing, as it is impossible to exercise direct power over things only specified by quantity or kind. In order to comply with the principle of determination every real agreement must determine which goods precisely are covered by a certain legal transaction. As far as the transfer of title requires actual traditio, that is transfer of physical control, the requirement of determination will in general not require any particular conditions. It is impossible to transfer

54

55 56 57 58 59

Westermann, in: Westermann, Sachenrecht I (1998)7, § 3 II 1; also compare Feuerborn, ZIP 2001, 600, 602. Cf. BGH JZ 1988, 471. Cf. Baur / Stürner, Sachenrecht (1999)17, § 4 no. 19. Baur / Stürner, Sachenrecht (1999)17, § 4 no. 17. Prütting, Sachenrecht (2008)33, no. 419. Westermann, in: Westermann, Sachenrecht I (1998)7.

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physical control over unspecified things.60 However, where the transfer of title is not accompanied by a factual transfer of direct possession, then the real agreement effecting the transfer requires that the thing covered by this agreement is specified. This also applies to aggregate things such as a stock of merchandise. Accordingly, the stock must be determined or at least determinable.61 In consequence, it is impossible to encumber the patrimony as such with a mortgage or make it the object of a fiduciary transfer. However, it is precisely this aspect of the application of the principle that has undergone considerable change, as the judicature has accepted the concepts both of an extended reservation of title and of a fiduciary transfer of ownership.62 The last, and probably best-known, principle of German property law is the principle of the abstract nature of rights in rem, the so-called Abstraktionsprinzip. Although not expressly provided for by the Civil Code, by means of an argumentum e contrario it can be inferred from property law rules, because they consistently construe the transfer of ownership as the legal consequence of a real agreement and an act of publicity,63 but at no point refer to a respective contractual agreement or other obligation as a basis for such transaction.64 The principle of the abstract nature of rights in rem goes back to Friedrich von Savigny and his theory of the real agreement.65 It is based on the division of the act of acquisition of ownership into two separate legal acts: first, the underlying legal act that obliges the transferor to transfer ownership; and second, the subsequent legal act that effects the transfer. The former is referred to as the act creating an obligation (Verpflichtungsgeschäft), the latter as the real agreement (Verfügungsgeschäft). This distinction itself is referred to as the principle of division (Trennungsgrundsatz). Based on this principle of division, the Abstraktionsprinzip declares that the validity of the real agreement as a rule66 is independent of the validity of the underlying act. Transfer of ownership under German law accordingly does not require any iusta causa traditionis.67

60 61 62 63 64 65 66 67

Wiegand, in: Staudinger (2004) § 929 no. 12. Cf. BGH JZ 1988, 471. Cf. Baur / Stürner, Sachenrecht (1999)17, § 4 no. 19 and infra 5.3.2. Cf. §§ 873, 929, 1032, 1205. Cf. Wieling, Sachenrecht (2007)5, 12. Seiler, in: Staudinger (2007), Introduction to Property Law, no. 49. But see for exceptions infra 4.3.2. This requirement is for example contained in § 424 Austrian ABGB. For a similar requirement compare the cause licite under art. 1108 French Code Civile; for further details see Brehm / Berger, Sachenrecht (2006)2, no. 1.21.

1. Notion of ownership and other property rights

21

An important difference between this abstract system and other systems on the transfer of ownership becomes evident where the contractual agreement is void. If the invalidity of the contractual agreement would influence the validity of the real agreement, then the transferor would remain owner after the transfer of possession and accordingly could regain the thing by means of a rei vindicatio. By contrast, under the system of the German Civil Code the transfer remains valid, even if the real agreement lacks an economic justification. The transferee has acquired ownership. Of course the transfer, due to the lack of an economic justification, has to be reversed. To contrast with a causal system once more, the transferor is not entitled to vindicate, but instead is entitled to the reversal of an unjustified enrichment (§§ 812 ff.).68 This claim for re-transfer is of a merely personal nature and thus may fail where the transferee has in the meantime disposed of the good or has become insolvent. The claim for re-transfer will then be substituted by a mere claim for damages. This formal independence (äußere Abstraktion), that is the independence of underlying agreement and real agreement, is further completed by the so-called material independence (innere Abstraktion).69 Its substance is that the sole subject of the real agreement is the transfer of ownership and apart from this the real agreement is not considered to serve any further purpose.70 This material independence is simultaneously a major justification for formal independence: because the real agreement does not serve any outside purpose, it will not be affected by any defects of the parties’ intentions in relation to the underlying agreement.71

1.2.

Notion and concept of ownership

One central concept of the BGB is that ownership is the most comprehensive and all-embracing property right. A legal definition of the notion of ownership is contained in § 903. §  903 BGB [Powers of the Owner] The owner of a thing may, to the extent that it is not contrary to the law or the rights of third parties, deal with the thing as he pleases and prevent others from interfering with that thing in any way […].

68

Cf. infra 1.4.2.(b). This distinction was first elaborated on by Jahr, AcP 168 (1968), 9, 16 ff. 70 This material independence is comparable to an abstract promise creating an independant obligation (abstraktes Schuldversprechen). 71 But see for exceptions infra 4.3.2.(c). 69

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The concept of a comprehensive right rejects the idea of property as a bundle of separate rights.72 It is therefore impossible to enumerate the different powers comprised in the right of ownership. Yet, from a practical perspective, the two most important legal powers of the owner of a thing are: first, the right to make (economic) use and to realise the value by legal transaction; and second, to either exclude any third party from its use or to share its use. This aspect of property is commonly referred to as the function of allocation and defence (Zuordnungs- und Abwehrfunktion). Once again, the influence of Friedrich von Savigny weighs heavily on the concept of ownership.73 Ownership is not merely a concept to allocate property to different members of society, but rather conceived as a civil liberty.74 Therefore the structure of the right of ownership is a rejection of prior concepts of divided ownership. This function of a guarantee of ownership as a fundamental right explains the traditionally close connection between the notion of ownership in § 903 and art. 14 of the German Constitutional Act (Grundgesetz).75 As enunciated by the judicature of the Federal Constitutional Court, the fundamental right of ownership has the function to guarantee to each individual an area of freedom of economic disposition and thereby allow him to independently take responsibility for how he lead his life.76 Article 14 GG [Property, Inheritance, Expropriation] (1) Property and the right of inheritance shall be guaranteed. Their content and limits shall be defined by the laws. (2) Property entails obligations. Its use shall also serve the public good. (3) Expropriation shall only be permissible for the public good. It may only be ordered by or pursuant to a law that determines the nature and extent of compensation. Such compensation shall be determined by establishing an equitable balance between the public interest and the interests of those affected. Where there is a dispute concerning the amount of compensation, recourse may be had to the ordinary courts.

Although the public law notion of ownership of the Grundgesetz is different from the underlying concept of ownership of the Civil Code – and in particular has been extended far beyond the scope of property in the meaning of § 903 by the judicature of the Federal Constitutional Court – it shows 72 73 74 75

76

For details see Sontis, in FS Larenz (1973), 981, 993. Brehm / Berger, Sachenrecht (2006)2, no. 1.2. Cf. Brehm / Berger, Sachenrecht (2006)2, no. 5.4. Cf. Georgiades, FS Sontis (1977), 149, 156 ff.; Sontis, in FS Larenz (1973), 981, 999 f.; Olzen, JuS 1984, 328 ff. BVerfGE 68, 193, 222.

1. Notion of ownership and other property rights

23

that the conflict between private autonomy or freedom of ownership and the necessary and permissible restrictions of the power of ownership cannot be resolved by private law alone. It must instead be decided by reference to the constitution. Provisions on the scope and substance of the right of ownership as compared to other property rights and their restrictions may accordingly not only be found within private law but also in the area of public law, an area of steadily growing importance.77 Rules of public law pertaining to property law primarily regulate matters such as expropriation or planning permission and building control, and thus they primarily concern the law of immovable property. The conflicting interests of owners and third parties where movable property is concerned are, comparatively, of less importance.78 Notwithstanding these practical differences, both the guarantee of the institution of ownership provided for by art. 14 GG as well as the individual guarantee of ownership as a fundamental freedom do also relate to movable property. Movables are, in particular, often referred to in scenarios involving bona fide acquisition and acquisitive prescription.79 Similarly, the restrictions of ownership developed in the context of immovable property80 and the protection provided by art. 14 III GG against expropriation also cover movables.81 A further important restriction of the all-embracing power of ownership under § 903 BGB results from the function of the concept of ownership (as of other property rights) to promote peace. Every holder of a property right is obliged to respect the rights of others and may not exercise his power in an unlawful fashion. This is of particular importance in the area of neighbour law, but also has some relevancy with respect to movable goods.

77 78 79

80 81

Baur / Stürner, Sachenrecht (1999)17, § 1 no. 1. Baur / Stürner, Sachenrecht (1999)17, § 50 no. 2. Cf. Baldus in: MünchKomm BGB VI (2004)4, § 937 no. 43 and Quack, in: MünchKomm BGB VI (2004)4, § 932 no. 2. BVerfGE 30, 351; BGH NJW 1965, 1080, 1082. The possibility of expropriation of movables is provided for in § 2 Bundesleistungsgesetz. The requirements are that the movable is necessary in the public interest and the need cannot otherwise be met (or not timely or only with disproportionate costs).

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1.3.

Other property rights in movables

1.3.1. Notion of restricted rights in rem From this all-embracing power to dispose of one’s goods particular powers can be ‘split apart’ and granted to other parties as so-called restricted property rights (beschränkte dingliche Rechte). These restricted rights in rem constitute encumbrances of the property. However, this possibility does not affect the nature of ownership as an all-embracing property right, as such restricted property rights can neither be established permanently nor irrevocably. They are in fact inseparably connected with the right of ownership. Where a restricted property right ceases, ownership as a general rule82 will be consolidated (the so-called principle of consolidation).83 The Civil Code in §§ 1018 ff. acknowledges a limited number of different restricted property rights. In contrast to ownership as the all-embracing property right, they are restricted powers next to ownership with respect to the same thing. Therefore multiple rights in rem in a property can coexist. With regard to the content of restricted property rights the Civil Code distinguishes between two distinct groups: first, rights of enjoyment and second, rights of security and realisation. In addition there is a third group of restricted property rights, the so-called rights to acquire property. As the Civil Code has not provided for them as a distinct group they are to be found at various different positions in the Code. Next to these nominate property rights, further specific rights exist, which are not rights in rem in the strict sense and are therefore not included in the phrase ‘other property rights’, but are to some extent similar to rights in rem. They include the right of pre-emption in immovable property (§ 1094), notation in the land register (§ 883), exclusive right to appropriation of land (§ 928) and finally the equitable interest, which is not provided for by the Civil Code.84 Of course, such restricted property rights are of most importance in the context of the law of immovables, whereas the law of movables only knows a very limited number of restricted rights in rem. There is a single right of enjoyment of another’s property (usufruct) and a single security right (pledge). By contrast security by transfer of title (fiduciary transfer) and equitable interest arising from a sale with a stipulated reservation of title 82

83 84

But see for exceptions § 1063 subsection 2 and § 1256. It should be mentioned that this principle only fully applies with regard to movable property, whereas the owner of immovable property can, according to § 889, at the same time be holder of restricted rights in rem in his own property. Brehm / Berger, Sachenrecht (2006)2, no. 5.8. Cf. infra 1.3.4.

1. Notion of ownership and other property rights

25

play an important part in the law of movables. Both have not been provided for by the Civil Code, but their existence has been widely acknowledged by both the judicature and legal doctrine. Although it is the subject of a long-standing dispute whether or not they fall within the category of rights in rem, notwithstanding such dispute it is still useful to set out their main features in the context of (other) restricted property rights. At this juncture, it should be mentioned that possession is not considered to be a right in rem. The same holds true for other absolute rights, which grant a position similar to ownership of property, but are not rights in rem, because they concern intangible goods. Examples are the right to hold a name or intellectual property rights.85 Similarly outside the scope of the exhaustive list of rights in rem there are a number of so-called rights quasi in rem (quasi-dingliche Rechte). This term describes personal rights which inter alia grant a right to possession and thereby further strengthen the legal position of the holder, i.e. grant him a right that has to be respected by everybody and is protected by law. However, these rights quasi-in rem are similar to property rights only in some respects and not in others; despite their similarities they are therefore not recognised as rights in rem.86

1.3.2. Rights to acquire property The common feature of rights to acquire property is that the holder is granted a right to acquire either ownership or a restricted property right in the future. Examples are the right of appropriation, the right of pre-emption and the notation in rem. The right of appropriation is defined as the right to unilaterally acquire ownership of things that are ownerless; for example, proprietary hunting rights with respect to ownerless animals. The right of pre-emption is provided for in §§ 1094 ff. and only applies to immovable property. It allows the holder of the right of pre-emption to subrogate into the place of another party where that other party has contracted to purchase the immovable property in question. The holder of the right of pre-emption may accordingly acquire ownership in place of the owner’s contracting partner (§ 1094 in conjunction with § 504). The notation in rem provided for in §§ 883 ff. serves to absolutely protect a personal right to transfer or extinguish a property right in immova85 86

Cf. Ohly, JZ 2003, 545, 546. But cf. BVerfG, NJW 1993, 2035 holding that the entitlement of the lessee to possession is within the scope of art. 14 GG, with note by Depenheuer, NJW 1993, 2561 ff.

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bles. By means of a notation in the land register it gains absolute effect. The notation is for the benefit of a purchaser who has already concluded a contract for sale but – due to the abstract theory of transfer – cannot yet be certain that acquisition of ownership will follow this contract. The mere conclusion of a contract does not prevent the seller from transferring ownership to a third party, even though this would be contrary to his contractual obligation. By means of registration of a notation in favour of the purchaser any disposal of ownership running contrary to such notation will be ineffective with respect to the purchaser (§ 883 II 1st s.).

1.3.3. Rights of use and enjoyment of another’s property The group of restricted property rights of use and enjoyment comprises usufruct, real servitudes in land and restricted personal servitudes. Usufruct is the most far reaching right to enjoy another’s property. It grants the person in whose benefit the usufruct is established an exclusive right to draw the fruits or profits of the thing (§ 1030) and precludes the owner from this opportunity. As the right of usufruct incorporates a major restriction of the owner’s exclusive power over his property, the right of usufruct can neither be transferred nor inherited.87 Usufruct in movable things, though possible, rarely occurs in practice. But a usufruct may be granted with respect to a person’s patrimony, which may inter alia consist of corporeal movable assets.88 As far as a right of usufruct is granted with respect to consumable things, the restricted property right is re-interpreted as the transfer of ownership in such consumable things. The usufructuary therefore may dispose of the goods, but at the termination of the usufruct the former usufructary is under a duty to compensate the owner of the things for the value which the things had at the time the usufruct was granted (§ 1067). A further example of a right to use and enjoy another’s property is the real servitude. It grants a restricted right to use another’s land. The owner merely devolves certain particular rights of use, such as a right to pass over another’s land. Similarly a restricted personal servitude only restricts particular actions of the owner and grants those actions to a particular person. The right of residence or habitation, i.e. the right to exclusively use a building or a part of a building (§ 1093), may serve as an example.

87 88

Baur / Stürner, Sachenrecht (1999)17, § 3 no. 37. Baur / Stürner, Sachenrecht (1999)17, § 49 no. 4.

1. Notion of ownership and other property rights

27

1.3.4. Security rights and power of sale The third group of ‘other property rights’ consists of security rights. Where a secured debt becomes due and yet remains unsettled then the security holder has a right to realise the value of the security, usually by means of a power of sale. The Civil Code provides for the security rights of pledge and land charge. In addition to these two security rights expressly provided for by the Civil Code, two further security rights in movables have – despite the numerus clausus – been developed praeter legem: first, the security interest of the creditor arising from a fiduciary transfer of title; and second, the equitable interest. Both concepts have in common that they divide the right of ownership into a power to use and enjoy property, on the one hand, and a right of security in the property, on the other.89 The Civil Code draws a strict distinction between pledge in movable property and pledge in immovable property. Pledge in immovable property can either be a mortgage, a land charge or an annuity charge (cf. §§ 1113 ff.). All three concepts share the purpose of granting security: the owner grants a pledge in order to secure a debt. Where he is unable or unwilling to discharge the debt if and when it falls due, the person holding the real security has the right to realise the value of the property to satisfy the debt. A pledge in movables is the encumbrance of a movable thing that serves the security of an obligation by means of a right to realisation. It grants the creditor the right to ‘seek satisfaction from the thing’ (§ 1204). The realisation may be sought by means of an auction sale of the tangible thing or – where the thing has a market price – by means of private sale. However, the right of pledge in movables requires delivery of the thing to the pledgee and accordingly does not allow the above-mentioned division between a right to use the property and a security right in the property. As the owner who wants to obtain credit often cannot spare the possibility to use the property, the right of pledge has been increasingly replaced by fiduciary transfer of ownership.90 The concept of fiduciary transfer of title is another way to secure an obligation. The party furnishing security transfers ownership to the secured party, subject to the agreement that the secured party will only dispose of the ownership where the party furnishing security (i.e. the debtor) is in default and the obligation thus remains undischarged. The transfer of possession necessary for the transfer of ownership takes place by means of a constitutum possessorium. Therefore the debtor remains direct possessor and 89 90

Baur / Stürner, Sachenrecht (1999)17, § 49 no. 6. Baur / Stürner, Sachenrecht (1999)17, § 49 no. 4.

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accordingly retains the right to use and enjoy the property. Although the secured party formally acquires ownership in the meaning of § 903 this position of conditional ownership must be distinguished from the all-embracing position of power usually derived from ownership. The underlying concept of conditional ownership is a division between economic ownership, on the one hand, and the merely formal (security) ownership, on the other.91 The ownership of the creditor as the secured party will therefore not fully materialise unless the debtor is either in default of performance or other creditors of the debtor seize the property in the course of enforcement proceedings. The difference between full ownership and mere security ownership is clearly revealed in a situation of insolvency.92 At this point a further concept not provided for in the Civil Code, but developed by means of judge-made law,93 has to be introduced: the so-called Anwartschaftsrecht (equitable interest). The main characteristic of an Anwartschaftsrecht in ownership is that some, but not all, requirements of a transfer of a right in rem have been met.94 It requires that some of the necessary requirements of the transfer have already been performed to the effect that the transferee has obtained a secured position, which cannot unilaterally be destroyed by the transferor.95 Therefore the equitable interest is more than a mere expectation, but, in legal terms, still falls short of the aspirational legal position (of ownership or of a restricted property right).96 The minimum requirement of any equitable interest is therefore that both the structure of the right aspired to and the identity of the parties involved in the transaction are specified.97 The most important application of equitable interest in the context of movables is the purchase under reservation of title.98 Example: The seller and the purchaser of a car agree, that ownership in the car shall be transferred subject to the condition that the purchaser settles the pur91 92 93

94 95 96 97 98

This was already established by the Reichsgericht, see RGZ 45, 80 ff. Cf. infra 8. The Civil Code does contain a provision on reservation of title, which is the most frequent means by which an equitable interest arises. However, the provision of § 449 is contained in the law of obligations and does not provide for consequences with respect to property law. Baur / Stürner, Sachenrecht (1999)17, § 3 no. 44. BGHZ 45, 186, 188 f.; BGHZ 114, 161, 164. Baur / Stürner, Sachenrecht (1999)17, § 3 no. 46. Baur / Stürner, Sachenrecht (1999)17, § 3 no. 46. Equitable interest in immovable property may arise on conclusion of contract for sale prior to the entry of such transaction into the land register or where a mortgage is agreed upon before the secured debt has arisen.

1. Notion of ownership and other property rights

29

chase price. By this agreement the purchaser obtains an equitable interest, because the transfer of ownership solely depends on the payment of the purchase price and the seller accordingly cannot unilaterally prevent the full transfer. With payment of the purchase price the equitable interest will be consolidated to full ownership in the car.

A reservation of title is characterised by the fact that ownership is not transferred until the satisfaction of a condition precedent, namely the full discharge of the purchase price. Until this condition is met the seller remains the formal owner of the goods. In fact, the purchaser receives possession and thereby acquires the unrestricted right to use and enjoy the property, whereas the seller retains ownership as a security interest. The transferee is granted a legal position similar to the position of ownership, which comprises inter alia the right to transfer property, to grant pledge with respect to the equitable interest obtained, or in case of damage to the good claim compensation under tort law. The aggregate of these particular rights arising from a sale subject to a reservation-of-title clause are summarised under the term ‘Anwartschaftsrecht’ and is hereinafter referred to as ‘equitable interest’. The equitable interest, according to prevailing opinion, is a right in rem. The Federal Court of Justice has categorised it as a ‘wesensgleiches Minus’ (literally a ‘similar shortfall of ownership’)99 or an initial stage of ownership100 respectively. Hence the equitable interest as a general rule is subordinated to the rules for the appropriate full legal position. With a reservation of title clause, the corresponding full legal position of course is ownership. In summary, the Anwartschaftsrecht is a division between the two main rights provided by ownership, namely the right to use and enjoy property, on the one hand, and the security interest, on the other.101

1.4.

Protection of ownership

1.4.1. Claims arising from property law The privileges of the owner, namely to enjoy quiet possession of the property, to use it without interference and to gain the profits or fruits, are mirrored by the different measures of protection arising from property law, which are granted to the owner: the claim to recover property, the right to petition for a restraining order and the right to claim abatement of a 99 100 101

BGHZ 28, 16, 21; BGHZ 35, 85, 89. BGHZ 30, 374, 377. Baur / Stürner, Sachenrecht (1999)17, § 59 no. 33.

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nuisance. These claims in rem serve the comprehensive protection of absolute property rights and are inseparable parts of these property rights.102 The distinctive feature of these claims in rem is not that they are the legal consequence of a violation of a right in rem, but that they are inseparable. Thus the entitlement always lies with the holder of the respective right in rem.103 The right to enjoy the profits or fruits of ownership are further protected by a claim for compensation arising on the basis of the so called ownerpossessor-relationship (Eigentümer-Besitzer-Verhältnis), where a third party makes use of the property without authorisation. Although provided for in the third book of the Civil Code, it is of a personal nature. These means of protection particularly designed for property rights, rei vindicatio, actio negatoria and the claim for compensation arising from the owner-possessor-relationship are further complemented by other remedies, which are not confined to property law, yet, without them, comprehensive protection of property rights could not be guaranteed. They comprise claims for damages, claims under the law of unjustified enrichment and the protection of the owner in the case of default or insolvency of the possessor.

(a)

Vindication

The right to (re-)claim property is provided for by § 985, which states: § 985 BGB [Claim for Delivery] The owner can demand from the possessor the delivery of the thing.

The aim of the claim is to recover property in the current condition. Thus the possessor has to (re-)transfer possession to the owner. As a claim in rem, which depends on the existence of the right in rem, the claim for vindication in general cannot be assigned: the right in rem and claim in rem cannot be separated. Where the party being claimed against is merely an indirect possessor it is a matter of dispute whether the owner may claim actual delivery or merely transfer of indirect possession. According to prevailing opinion the owner may choose between these two alternatives,104 but a minority opinion holds the view that the owner’s claim is restricted to the transfer of indirect possession.105 102 103 104 105

Brehm / Berger, Sachenrecht (2006)2, no. 1.13. Wieling, Sachenrecht (2007)5, 6. BGHZ 2, 164, 166; BGHZ 12, 380, 397; BGHZ 53, 29. Baur / Stürner, Sachenrecht17, § 11 no. 41 ff.

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The subsequent provisions set out that recovery may only be claimed from an unlawful possessor.106 Therefore the possessor may oppose the claim for recovery if he is entitled to possession. Such a right to retain possession may arise from either a restricted property right or be of a personal nature. Any claim will also be rejected if the direct possessor can derive his right from another person, who has a right of possession against the owner and is authorised to entrust possession to a third party (for example, where a lessee sub-lets the hired goods). A claim of vindication can only be instituted against the current possessor. Where the possessor loses possession the claim of the owner to vindicate the thing from that (former) possessor ceases, whether or not that party is to blame for the loss of possession, as that party can no longer provide for recovery. As regards the further requirements of § 989, § 990 or § 992, the claim for redelivery is substituted by a claim for damages. Of course, the owner can also turn to the new possessor. The claim for recovery under § 985 is neither a right to self-help nor a right to resort to force (cf. § 859). If the possessor is unwilling to deliver the item to the owner the owner must call for the assistance of the court. The judgment granted then gives the right to have the claim for recovery enforced according to § 894 Civil Procedure Code. Where the disposal of the cause of action would be too slow to prevent a possessor from divesting himself of possession, the owner can also apply for an interim injunction.107 On the basis of such interim injunction the court’s officer may then take possession of the goods and hand them over to the owner (§ 883 Civil Procedure Code). The claim for recovery in rem is not exclusive to the owner. By means of reference, it is also available to other holders of property rights, who by virtue of their property right have a right to possession, such as the pledgee of a movable (§ 1227).

(b)

Actio negatoria

The actio negatoria is a restraining order. It provides the owner with a remedy against all unlawful interferences with his property other than deprivation or retention of possession (with both these situations being covered by the rei vindicatio).108 The scope of the protection in § 1004 is derived from the powers of the owner under § 903. Together with the rei vindicatio, the actio negatoria thus serves the comprehensive protection of ownership. 106 107 108

Baur / Stürner, Sachenrecht (1999)17, § 11 no. 24. For details see Podehl, BB 2006, 2484. Baur / Stürner, Sachenrecht (1999)17, § 12 no. 1.

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Both orders require that the interference is unlawful. Where the owner is under a duty to tolerate the interference the actio negatoria is precluded (§ 1004 II). Such duty to tolerate can be based on the prior permission of the owner, such as a contract or a restricted property right, or may also find its basis directly in law (e.g. assistance in state of emergency). As far as § 985 is not applicable, the owner can restrain any other interference with his authority to deal with his property according to his own choosing by a petition for an abatement order either against existing interference or against future interference. The interference may consist of an act or the continuance of nuisance. Accordingly, the actio negatoria is only applicable as far as the interference is a human act or is at least the consequence of a human act.109 The claim is directed against the so-called violator (Störer), being the person responsible for the interference. A person, who suffers interference with ownership, can demand the abatement of the nuisance if the nuisance subsists or the extension of the nuisance is impending. The protection afforded is restricted to the right to claim a contrarius actus, that is to abate the source of the nuisance, but does not grant the right to claim damages for harm that has already occurred.110 The claim for abatement of a nuisance is litigated by an action for affirmative relief, and has to set out what measures for abatement are necessary. Where a judgment for affirmative relief provides for an act that can be performed by another person, this can be enforced under § 887 Civil Procedure Code; where it cannot be so enforced it will be enforced by coercive measures against the violator (§ 888 Civil Procedure Code). If a further occurrence of nuisance is imminent, the owner may petition for a restraining order. He will have to prove both his ownership and the danger of repetition. Any prohibitory judgment granted will be enforced according to § 890 Civil Procedure Code: further interference with the court order will be punished with coercive measures. As mentioned above, one of the prerequisites of a restraining order is the danger of repetition of the nuisance. The very concept of repetition indicates that a first interference must have taken place. That said, the owner who fears instantaneously impending danger should not be forced to wait for the occurrence of that danger. Although not covered by a literal interpretation, a precautionary restraining order is granted where a danger has not yet occurred but is impending.111 Instead of asserting the danger of 109 110

111

Baur / Stürner, Sachenrecht (1999)17, § 12 no. 18. Baur / Stürner, Sachenrecht (1999)17, § 12 no. 20; with regard to damages compare infra 1.4.2.(a). BGHZ 2, 394; BGH LM § 1004, no. 27; Baur / Stürner, Sachenrecht (1999)17, § 12 no. 25.

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repetition, the owner will have to assert and prove that a first interference is forthcoming. Restraining orders provided for by § 1004 are of great practical importance and, in practice, are applied more often than other remedies such as, for example, the rei vindicatio.112 Their main application, however, is to be found in the law of immovable property, in particular in the area of neighbour law, and in intellectual property law. As far as movable property is concerned the most important interference is private nuisance. Wellknown cases include the application for a restraining order by a producer of beverages against a competitor, who refilled and resold the claimant’s bottles,113 or the action of a business against some employees who had attached advertisements of their trade union to the helmets provided by their employers, which were the property of the business.114

(c)

Claims arising from the owner-possessor-relationship

The right to claim delivery of the goods and abatement or restraint of nuisance respectively are not sufficient protection if the deprivation or retention of possession has caused damage to the owner that would not be compensated by the mere return of the goods. This in particular applies where the dispossessed owner was deprived of the fruits or profits of his property or where the asset has been damaged or has sustained a loss of value while it has been in the custody of the person now under an obligation to return it. In such a situation the owner, in addition to the claim for recovery of the asset, is granted a claim for compensation arising from the so-called owner-possessor-relationship (Eigentümer-Besitzer-Verhältnisses). Such compensation covers both damages and delivery of profits. If the possessor has incurred maintenance expenditure in the meantime, he may, as a general rule, in turn claim compensation from the owner. Of course, the claim for compensation has to fail if the possessor has a right to retain possession: in this case the further requirement of §§ 987 ff., namely the existence of a Vindikationslage is lacking.115 A Vindikationslage only exists where all the requirements for a rei vindicatio are met. 112 113 114 115

Baur / Stürner, Sachenrecht (1999)17, § 12 no. 4. BGH LM § 1004 BGB no. 27. BAG AP 1980 art. 9 GG no. 30. Established practice of the courts since BGHZ 27, 317; cf. BGHZ 34, 122, 128; BGHZ 100, 95. Then again, the judicature also tends to apply §§ 987 ff. to the lawful possessor. This is criticised by Baur / Stürner, Sachenrecht17, § 11 no. 24 fn. 2 (with further references).

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The extent of the compensation the owner may claim from the possessor and the recompense the possessor may claim from the owner in respect of maintenance costs incurred will depend on whether the possessor had a just reason to believe he was entitled to the use of the asset.116

1.4.2. Further general means of protection (a)

Damages

According to § 823 I a person who, either wilfully or negligently, unlawfully damages the property or other right of another is bound to compensate him for any damage arising therefrom. This general rule of tort law protects interference with property rights. It is further established that this protection also applies to equitable interests, the equitable interest being acknowledged as ‘another right’ in the meaning of § 823 I. However, the general rules of tort law may to some extent conflict with the provisions particularly tailored to property law. This conflict is resolved by the rule that both the rei vindicatio and the claim for compensation arising from the owner-possessor-relationship prevail over the application of tort law rules, unless property law rules explicitly refer to the latter, as is the case in § 992. By contrast, the actio negatoria does not preclude a claim for damages arising from tortious interference with property, because the actio negatoria only grants a right to claim abatement and restraint of further nuisance. It does not compensate for any damage that has already arisen. The compensation of such damage is therefore governed by the general rules of tort law. The main difference of course is that the obligation to compensate under tort law depends on the fault of the tortfeasor, whereas property law claims do not require culpability.117

(b)

Unjustified enrichment

Unjustified enrichment law, in § 816, also provides for a rule that is specifically designed with property law in mind. It governs the consequences of transfer of title by an unauthorised person. Another particular claim under the law of unjustified enrichment is contained in § 951, providing compensation for loss of ownership by accessio, confusio and specificatio.118 116 117 118

Cf. infra 16. For details see Armbrüster, NJW 2003, 3087 f. Cf. infra 10.3.

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As far as a compensation for interference is neither provided for by tort law, nor from (impure) benevolent intervention in another’s affairs, a claim under the law of unjustified enrichment may be granted according to the general rules.119 Such general rules may be found in §§ 812 ff. The basic principle is set out in § 812. § 812 BGB [General Rule] (1) A person who obtains something by performance by another person or in another way at the expense of this person without legal cause is bound to give it up to him. The same obligation exists if the legal cause later lapses or if the result does not occur which the performance had been aimed at to produce according to the content of the legal transaction.

This rule is of particular importance where a transaction lacks underlying justification (because the underlying act creating an obligation is void or has been annulled). As a consequence of the abstract theory of transfer of rights in rem, the transfer as a rule will not be affected by the invalidity of the contractual agreement. However, the valid transfer is without legal cause and thus § 812 obliges the transferee to transfer ownership back to the transferor.

(c)

Protection against possessor’s default

One of the most important characteristics of rights in rem is that they are secure against default and insolvency. Thus there are specific remedies to cater for the situation where the possessor of the owner’s property is unable to satisfy his debts and his creditors – in the process of enforcing their claims against the insolvent possessor – attempt to seize the owner’s property. Where the creditors pursue execution against the possessor, the owner is granted the remedy of a third-party action against execution; where the possessor is declared insolvent, the owner can, as a general rule, claim release from the estate. Different rules may apply to specific forms of ownership, such as fiduciary ownership, where the right of the owner is restricted to a claim for segregation from estate.120 As noted, as far as execution affects the property of the owner in the course of enforcement process against the possessor, the owner can institute a third-party action against execution to protect his property rights. By virtue of this claim, the owner can rebut the general presumption that the 119 120

Cf. LG Aachen NJW 1984, 2421 and KG Berlin NJW 1985, 1714. Cf. infra 8.

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possessor actually owns all property in his possession. Where the owner succeeds with his action, the measures of execution relating to his property are declared invalid and he may recover his property. The owner is further granted a specific remedy for the situation that the possessor of his property is declared insolvent and his property is held to be part of the insolvency estate. He can prevent this consequence by a claim for release from the estate according to § 47 Insolvency Act and demand both that the relevant property is neither treated as part of the insolvency estate, nor realised within the insolvency proceedings against the possessor. However, different rules apply where an owner can only claim the formal position of ownership, which merely serves security interests, while the exclusive authority to use the property rests with the possessor. The fact that, from an economic perspective, the possessor would be taken to be the owner will be taken into account in the insolvency proceedings. Consequently, the owner cannot claim release from estate and recovery of the asset, but is merely entitled to segregation from the estate. The owner as a result is granted preferential payment. If the value of the asset, however, exceeds the amount of the unsettled debts, then any excess will flow to the insolvent party’s estate.121

1.4.3. Interaction of different remedies The three specific remedies granted by property law, namely rei vindicatio, actio negatoria and compensation arising from the owner-possessor-relationship, are independent of each other and therefore may be cumulative. On the other hand, the relationship between the latter and tort law and, in particular, the law of unjustified enrichment is problematic, because the system of claims arising from the owner-possessor-relationship does share characteristics with both. Prevailing opinion in legal doctrine and in case law holds that §§ 987 ff. in general are of exclusive character, but allow exceptions in order to prevent a conflict of values.122 The application of tort law is precluded as far as this would interfere with the allocation of ownership derived from property law rules. Bona fide acquisition may serve as an example: the possibility to acquire ownership from an unauthorised person will not be rendered ineffective by granting the former owner a claim for restitution in kind against the acquirer.123

121 122 123

Cf. infra 8. Baur / Stürner, Sachenrecht (1999)17, § 11 no. 34 with reference to BGHZ 14, 7, 8. Baur / Stürner, Sachenrecht (1999)17, § 12 no. 6.

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A further exception from the general rule that property law prevails over tort law and the law of unjustified enrichment is necessary in the specific situation where the possessor has received possession without justification, i.e. because the real agreement is void. Here the possessor is treated as if merely the contractual agreement were void, not the real agreement: consequently the rules in §§ 987 ff. are replaced by the application of §§ 812 ff.124 A similar situation may arise if the bona fide possessor holds possession without a legal cause as a result of an invalid transfer. A literal interpretation would lead to the application of the rules of the owner-possessor-relationship, with the operation of §§ 812 ff. precluded because the possessor did not validly obtain ownership, but again § 812 is applicable.125

1.4.4. Protection of other property rights in movables With regard to the protection of restricted property rights the Civil Code again follows the same technique as regards the rights themselves: as all ‘other property rights’ represent a particular aspect of the comprehensive right (ownership), they are accordingly protected by the appropriate measures to protect the related aspect of ownership. The provisions on restricted property rights therefore refer to the protection of ownership as far as is necessary. As mentioned above, the law sets out in detail the means of protection of ownership (§ 985 and § 1004). The provisions on the restricted property rights then refer to the relevant provisions: examples are to be found in § 1065 on usufruct, in § 1227 concerning pledge of movables, in § 1027 and § 1090 II for servitudes. The additional protection of property rights provided by the law of unjustified enrichment and tort law, and indeed by public law, does not draw any distinction between ownership as the allembracing right and restricted property rights.

1.5.

Transferability of Movables

1.5.1. General rule The German Civil Code does not contain any general rules on transferability,126 but instead the general principle of free transferability may be derived from the interaction of the definition of things and the 124 125 126

Baur / Stürner, Sachenrecht (1999)17, § 11 no. 38. Baur / Stürner, Sachenrecht (1999)17, § 11 no. 38. Holch, in: MünchKomm-BGB (2006) I5, § 90 no. 37.

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definition of ownership. Ownership in a thing provides the holder with the power to treat the thing according to his own choosing (§ 903). This also encompasses the competence to dispose of the property, i.e. to encumber the property right or to transfer it to a third party. Thus all things in the meaning of § 90 that can be the object of a property right are consequently transferable.127 Transfer may either be inter vivos or mortis causa and may be the consequence of a legal transaction or directly commanded by law. Transferability will only be excluded where this is expressly provided for, which may either be by statutory restriction and in general will apply to a category of things declared unalienable or by virtue of a specific restraint of alienation by contract or testamentary writing (will).

1.5.2. Statutory limitations of transferability (a)

Inability to control and items that are not self-standing as a legal entity

A restriction on the transferability can either arise from factual or legal characteristics of the good in question, such as an inability to control or due to a statutory restriction. An inherent lack of transferability applies to air, snow, the open sea or ground water.128 These goods are not controllable and therefore do not qualify as a thing within the meaning of § 90. This restricts the concept of tangible things to controllable divisions of physical nature, which can be determined and delineated by perception.129 As these goods do not fall within the scope of the rules on transfer of movables, they will not be considered in the following narrative. In some situations, a lack of transferability may not be the result of factual reasons, but rather due to legal restrictions. A good lacks transferability if it is inseparably conjoined to other things and thus is not a self-standing object in law. The conjunction may again be the result of either a factual necessity or a legal rule. Such so-called essential parts are conjoined with another thing in a manner that a separation would lead to either destruction of the good, or would result in a change of nature. Accordingly they cannot be the subject of separate rights (§ 93 BGB). The rationale of this rule is to ensure that goods that (from an economic perspective) serve a common purpose, will not be devalued by a separation caused by different property

127 128 129

Holch, in: MünchKomm-BGB (2006) I5, § 90 no. 37. Holch, in: MünchKomm-BGB (2006) I5, § 90 no. 9. Brehm / Berger, Sachenrecht (2006)2, no. 1.50.

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rights in the respective component parts.130 Whether a certain good will qualify as an essential part or as a self-standing object of legal transactions is to be decided according to the common opinion (Verkehrsauffassung).131

(b)

Restrictions of transferability concerning movables

Apart from the situation already mentioned, where a good is considered an essential part of another and thus cannot as such be the object of a separate transfer, German private law does not provide for any general restriction of transferability. As far as transferability is restricted at all, the rules will only apply if specific requirements are met or only with regard to specific persons as transferee. Goods dedicated for common use or part of administrative property which are used in fulfilment of a public service may serve as an example.132 From the perspective of legal doctrine, the restriction is construed as a public law servitude in the respective goods, which leads to a corresponding constriction in rem of the property rights under private law.133 Naturally, the most important field of application is the law of immovables (e.g. public roads, watercourses etc.), but movables (e.g. public files, furniture, computers etc.) may also be affected. Such things are only transferable as far as transfer is not in conflict with the relevant public law dedication.134 A comparable restriction will apply to res sacrae, i.e. things which serve religious purposes of an accredited church or other religious community. This will not only apply to the buildings used by the respective religious communities but may for example also exclude transferability of church bells or things that have a ceremonial use, such as a chalice.135 A restriction of transferability may also apply where: a thing is classified as dangerous (pharmaceutical products, addictive drugs, weapons); is in need of particular protection (embryonic stem cells, human vitals, corpse);136 or due to a specific public interest requires a stricter protection (cultural assets).137 Legal transactions are not generally precluded from affecting these things, but instead they are subjected to specific requirements, such as a public law licence or clearance. A transfer falling short of such 130 131 132 133 134 135 136 137

Brehm / Berger, Sachenrecht (2006)2, no. 1.56. Cf infra 3.3. Holch, in: MünchKomm-BGB (2006) I5, § 90 no. 39. Wieling, Sachenrecht (2007)5, 26. Holch, in: MünchKomm-BGB (2006) I5, § 90 no. 39. Holch, in: MünchKomm-BGB (2006) I5, § 90 no. 41. Holch, in: MünchKomm-BGB (2006) I5, § 90 no. 32 f. Act on the protection of German cultural heritage against permanent export, 8. July 1999 (BGBl. I 1754), in the current version of 2007 (BGBl. I 757).

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specific requirements is contrary to law and will, as a general rule, be null and void (according to § 134).

(c)

Non-transferability of rights

In contrast to the rules regarding movables set out above, German private law does provide for a general restriction of transferability with regard to (strictly) personal rights. For instance, the restricted rights in rem both of the usufructuary (§ 1059) and of the holder of a personal servitude are not transferable (§ 1092). The underlying rationale of this restriction is the intention to prevent excessive burdens of ownership. An example of a general prohibition of transfer is found in copyright law. According to § 29 German Copyright Act copyrights may not be transferred inter vivos, as copyrights are considered to be the inherent expression of the author’s personality and thus require specific protection.

(d)

Other statutory restrictions of transferability

German private law does not only exclude specific categories of goods from legal transactions, but also provides for restrictions of transferability that apply to individual goods. Such restrictions of transferability can either be provided for by statutory law or may be the content of an order of a court or administrative authority, and are not to be confused with restrictions of transferability constituted by a voluntary private agreement. Within the group of statutory restrictions of transferability we must distinguish between restrictions that intend to protect the community in the public interest (absolute restrictions of transferability) and those that seek the protection of individual persons (relative restrictions of transferability). Statutory restrictions of transferability with absolute effect may be found in § 1365 I 2nd s., § 1369, § 1643 and § 1812. These sections are statutory prohibitions in the meaning of § 134, which leads to the result that contrary legal transactions will be null and void. Where a legal transaction is hindered by an absolute restriction, the rules on good faith acquisition are excluded as the transferor is indeed the owner of the property he intended to transfer and the good faith with regard to the ability to dispose, as a general rule, is not protected.138 By contrast, restrictions of transferability with relative effect do not serve the protection of the greater public interest, but rather the interest of specific persons, such as the party to a contract of pre-emption (§ 473), the 138

On the objective of good faith see infra 11.3.5.

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spouse (§§ 1423 ff.) or the subsequent heir (§ 2113). Accordingly, the legal consequence of an infringement of the restriction is not a void transaction, which would be the case with a restriction of transferability with absolute effect, but instead will only lead to a partial nullity. The transaction will be invalid at the instance of the person protected by the restriction (§ 135 BGB). Thus, where there is a transfer of ownership that runs contrary to a relative restriction of transferability, the transferee will acquire ownership as against the transferor, whereas with regard to the person protected by the respective restriction the transferor will remain the lawful owner. As a result the transferor is still in the position to transfer ownership to the protected person. As far as a transfer of possession is necessary, this requirement may be replaced by the assignment of the claim for recovery of possession (where the initial transaction was accompanied by physical delivery). In this case the person protected will obtain full ownership, both the transferor and the prior transferee will lose their relative ‘ownership’. Apart from the rationale and the regular legal consequence of an infringement of a relative restriction of transferability the difference in comparison to absolute restrictions of transferability is further demonstrated by the fact that the rules on bona fide acquisition do apply (§ 135 II). As § 136 makes reference to § 135, the rules applicable to relative restrictions of transferability are similarly applicable to restrictions that are founded on the act of an administrative authority and to court orders containing such restrictions, in particular to provisional measures139 and in the context of seizure proceedings.140

1.5.3. Limitations of transferability by contract or will Restrictions on transferability, which are not publicised to the public, in effect tend to deprive the market of important economic values and to burden legal security and the free flow of goods. Accordingly, it is of utmost importance to prevent the imposition of restrictions on the transferability of goods by individual parties. Thus § 137 provides that the authority to dispose of a transferable good can neither be reduced nor excluded by a legal transaction. In case the parties agree on a voluntary restriction of transferability it will be void as far as third party relations are concerned. Such an agreement will only have personal effect. Thus the proprietor can oblige himself not to dispose of a good and by this commitment bind himself vis-à-vis the other party, who as a consequence is entitled to claim forbearance where the owner 139 140

Cf. §§ 935, 938 Civil Procedure Code. Cf. §§ 803, 829, 857 Civil Procedure Code.

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acts – or intends to act – contrary to this obligation. Where the owner disposes of his property in violation of this obligation he can be held liable for this infringement of his contractual obligations, but the legal transactions as such remains valid. The party in whose favour the owner has transferred his property validly acquires ownership. Even where the acquirer has positive knowledge of the agreement restricting transferability, this will not have any detrimental effect in relation to the transfer of ownership, because the agreement only binds the transferor, but not the acquirer. Accordingly, the acquirer is not under a similar duty of forbearance.141 Only under exceptional circumstances will the acquirer be held liable for the infringement, provided that all the requirements of § 826 are met, i.e. where the disregard of the restriction of transferability constitutes a damage contra bonos mores. By contrast restrictions of transferability are enforced where § 399 BGB applies, which concerns the prohibition of assignment of rights, as well as in the context of inheritance law, where it is possible to make binding arrangements by means of appointment of an administrator of the will (§ 2211) or by an arrangement of initial and subsequent inheritance (§ 2213 ff.).

2.

Possession

2.1.

Notion and categories of possession

2.1.1. Notion of possession Whereas the concept of ownership concerns the allocation of legal status, possession is characterised by a factual allocation of physical control over a movable to a person.142 The concept of ownership as a definitive order accordingly is preceded by the law of possession, which may be conceptualised as a temporary order. Possession thus can be defined as the intentional and factual physical control over a thing, independent of any legal entitlement. The legal standing of possession has been a matter of long-standing dispute, in particular during the nineteenth century. Whereas a part of legal doctrine viewed possession as a mere fact,143 other authors argued in favour of possession being a right.144 That the Civil Code has adopted the second concept and thus conceives possession as a legal relationship, can be derived both from the rule that possession can be transferred and, more 141 142 143

144

Palm, in: Erman BGB I (2008)12, § 136, no. 3. Brehm / Berger, Sachenrecht (2006)2, no. 2.1. A view that is still held by some in modern times: see Wieling, Sachenrecht (2007)5, 45 f. For details see Brehm / Berger, Sachenrecht (2006)2, no. 2.8 ff.

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categorically, from the provision on inheritance of possession (§ 857), because a mere factual position could not be transferred by inheritance.145 A further argument in favour of understanding possession as a specific legal relationship is that possession is not necessarily dependent on actual physical control. The concept of intermediate possession may serve as an example.146 On the other hand, it must be remembered that possession is neither a right in rem nor a personal right.147 The consequence of this intermediate status leads to a matter of controversy, whether or not possession can be classified as another right in the meaning of § 823. The predominant view is that it will only qualify as another right under § 823 if the position of the possessor is somehow fortified, i.e. where the possessor at the same time is actually entitled to possession.148 As set out above, the Civil Code acknowledges that possession is a right, but does not consider it as a right in rem (dingliches Recht). Yet, due to its importance for the acquisition and loss of both ownership and restricted property rights, it is also regulated in the context of the Third Book, i.e. in the context of property law.149 The main provisions may be found in §§ 854 ff. According to § 854 possession of a thing is acquired by obtaining actual power, i.e. physical control, over the thing. § 854 BGB [Acquisition of Possession] (1) Possession of a thing is acquired by obtaining actual control over the thing. (2) Agreement between the most recent possessor and acquirer is sufficient for the acquisition, if the acquirer is capable of exercising control over the thing.

This provision introduces two of the requirements of possession, namely the requirement of factual control150 and the general151 restriction to corporeal 145

146 147 148

149

150

151

Cf. Wieling, Sachenrecht (2007)5, 55, who views the transfer of possession as a purely factual change. Prütting, Sachenrecht (2008)33, no. 49. Prütting, Sachenrecht (2008)33, no. 49. BGHZ 32, 194, 204 f.; BGHZ 62, 243; BGHZ 73, 355, Baur / Stürner, Sachenrecht (1999)17, § 9 no. 31 with further references. The heading of the Third Book ‘Property Law’ also bears inconsistencies in another respect, because a number of subjects have been provided for, which do not constitute property rights in the meaning of the BGB; for example usufruct (§§ 1068-1084) or pledge (§§ 1273-1296), cf. Brehm / Berger, Sachenrecht (2006)2, no. 1.5. An exception from the requirement of physical control is contained in § 857: the heir automatically acquires possession in the event of succession. A further exception from the general rule may be found in § 1029 and § 1090, which recognise the right to possession of servitudes. Although this runs contrary to the

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things in the meaning of § 90. A third – unwritten – requirement of possession is the intention to possess. Due to the narrow definition of thing in the context of § 90 and the reference to this concept in § 854, rights cannot be the object of possession.152 Rights – such as intellectual property rights – do not fall within the scope of Sachenrecht and accordingly are not subject to the rules on property law contained in the third book.153 Despite the misleading terminology,154 the requirement that the object of possession is a corporeal thing is not contradicted by the rules on ‘possession of rights’ under § 1029 and § 1090 II respectively. Neither provision addresses the possession of a right, referring instead to possession of a thing, which is founded on a restricted right in rem.155 Factual control means that the possessor has direct access to, or rather can directly take hold of, the thing. This requires that the person and the thing are in a relationship of proximity of some duration.156 However, this factual control of the thing need not be exercised directly by the possessor ad personam, but instead can also be by an intermediary, i.e. a direct possessor with the intention to hold possession for the indirect possessor or a possessory servant. Another important issue with possession is that it is irrelevant whether or not the possessor is entitled to possession, as the concept of possession entails a right but not a property right in rem. The concept of possession is neutral in relation to the legal situation. Therefore, a thief is possessor of goods he has stolen. On determining whether a person has physical control over a thing it has to be taken into account that the act of acquisition of possession (Besitzerwerb) requires a more intensive control than the mere continuation of possession (Besitzerhaltung).157 Once direct possession is acquired by a person, that person retains this legal position until a cause for termination

152

153 154 155

156

157

concept that there is no possession in rights, this exception is narrow and therefore not generalised, cf. Baur / Stürner, Sachenrecht (1999)17, § 7 no. 9. The substitute concept for possession with respect to rights is the related concept of detention. Cf. Ohly, JZ 2003, 545, 546. Cf. Brehm / Berger, Sachenrecht (2006)2, no. 5.6. An exception is contained in § 2018 in relation to the heir possessing a deceased person’s estate, which estate may also include rights. Baur / Stürner, Sachenrecht (1999)17, § 7 no. 7; Prütting, Sachenrecht (2008)33, no. 53; but cf. Joost, MünchKomm BGB VI (2004)4, § 854 no. 11; Wieling, Sachenrecht (2007)5, 50. Baur / Stürner, Sachenrecht17, § 7 no. 16. The concept of preservation of possession is criticised by Brehm / Berger, Sachenrecht (2006)2, no. 3.2 (with fn. 1).

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of possession occurs.158 The intensity of the relationship of proximity may vary. Whether or not it is held to be sufficient will be determined according to the so-called common opinion (Verkehrsauffassung).159 As long as an impediment to the exercise of physical control is of a merely temporary nature, possession is not terminated (§ 856 II). Example: A car parked at the parking lot of an airport remains in the possession of the possessor during his absence on holiday. Similarly, the farmer remains possessor of the plough left on his field overnight.

The third requirement, the intention to possess, is not expressly mentioned in § 854, but may be derived from a comparison of § 872 with § 854. § 872 provides that a person is called a proprietary possessor (Eigenbesitzer) if he possesses the thing as belonging to him, therefore with an animus rem sibi habendi. From this provision it can be inferred that the intention with which a person holds physical control is of significance. It should be noted that the intention is directed to possession alone, not to ownership. It is therefore referred to as intention of possessing or animus possedenti. This further requirement has become necessary because German law has not adopted the Roman law distinction between possessio and detentio, but instead makes use of a wide concept of possession. It covers both the situation that a possessor possesses the thing for himself (Eigenbesitz) and the situation that a person holds possession for another (Fremdbesitz). Therefore the requirement of manifestation of intention to possess is inter alia necessary to distinguish between the different types of possession and, in particular, to draw a dividing line between the possessor and the possessory servant according to § 855. Intention in this context is to be understood as a natural intention and not in the meaning of a legally relevant declaration of will.160 Therefore a child can also form an intention to possess and acquire possession. As obtaining possession is not a legal act, the rules on representation do not apply. On a related point, it is not possible to contest the validity of this intention under § 119. The exact requirements of the manifestation of will necessary to acquire possession are a matter of dispute. Case law contends for a very general animus possidendi, which as a rule need not be further specified and will be presumed to exist.161 Prevailing opinion in legal doctrine demands an indication of the intention to acquire possession (Besitzbegründungswillen),162 158 159 160 161 162

Brehm / Berger, Sachenrecht (2006)2, no. 3.5. BGHZ 101, 186, 187 f. Bund, in: Staudinger (2007), § 854 no. 17; cf. Baldus, JR 2002, 441, 442 ff. RGZ 70, 314, 318. Gerhardt, Mobiliarsachenrecht (2000)5, § 3.2.

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though does not pose any strict requirements:163 the general intention to acquire possession will suffice, even if it is not directed to any particular goods. As the element of intention is only specified in a very vague way, the requirements of possession draw near to those of ‘physical control.’ Example: The owner of a house, who puts up a letterbox at his front door, wants to possess letters he receives. As soon as a letter is inserted, he obtains possession of it, even if the possessor has no actual knowledge if any (and if so what kind of) letter may arrive.

A minority opinion argues that such intention cannot be decisive, but instead holds it to be sufficient if the thing is integrated into the acquirer’s area of organisation (Organistaionsbereich).164 A famous and controversial decision of the Federal Court of Justice165 may serve as an example: A customer lost a banknote in the sum of 1000 German marks in the midst of the shelves of a supermarket. Another customer found the banknote, picked it up, and handed is over to the employee behind the cashier desk.

The Federal Court of Justice ruled that the owner of the supermarket obtained direct possession, rather than the (finder) customer or the cashier, on the basis of the owner of the supermarket’s general intention to acquire possession with regard to all things found within the supermarket. This general intention was assumed on the basis that the owner had given directions to his employees to register any goods found in a special notebook and to take them into custody.166 Similarly, it was decided that an usher who found a diamond ring in the movie theatre did not obtain possession, whereas the owner of the cinema did.167

163

164 165 166

167

BGHZ 101, 186; vgl. Baur / Stürner, Sachenrecht (1999)17, § 7 no. 15; Bund, in: Staudinger (2007), § 854 no. 18; critical: Gursky, JZ 1991, 496, 497. Gursky, in: Westermann (1998)7, § 13 I 2. BGHZ 101, 186, 187 f. The decision has been criticised by Bund, in: Staudinger (2007), § 854 no. 18; Ernst, JZ 1988, 359 ff., Gerhardt, Mobiliarsachenrecht (2000)5 § 4.7. (with fn. 5), Gursky, in: Westermann (1998)7, § 13 I 2 and Gursky, JZ 1991, 496, 497, but approved by Brehm / Berger, Sachenrecht (2006)2, no. 3. 10. For further examples see OLG Celle NJW 1992, 2576 and OLG Koblenz NJW-RR 1994, 1351. According to BGHZ 8, 130 she obtained physical control in the meaning of §§ 854 and § 965 for her employer and accordingly was merely a possessory servant. Also compare OLG München NJW 1987, 1830.

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2.1.2. Types of possession (a)

Overview on the categories of possession

German law draws a distinction between several different types of possession. It must be emphasised that these different categories are not exclusive, but instead may overlap or be combined. The different types of possession provided for by law may be distinguished according to: – the intensity of the relationship between the possessor and the asset. This leads to the distinction between indirect possessor (mittelbarer Besitzer) and direct possessor (Besitzmittler); – the relationship of the person physically holding the asset from the possessor to that possessor; a dividing line is drawn between direct possessor (Besitzmittler) and possessory servant (Besitzdiener). – the intention of the person holding the asset. A person with animus rem sibi habendi is a proprietary possessor (Eigenbesitzer) in contrast to a person possessing the asset with the intention to hold it for another (Fremdbesitzer). – the possibility of the possessor to exercise his possession on his own, or his dependence on other persons. The former is referred to as the sole (or exclusive) possessor, the latter as a joint possessor.

(b)

Direct and indirect possession

Direct possession is the paradigm of possession and is defined by § 854: A direct possessor is a person who actually has physical control over the thing. The opposite of a direct possessor is an indirect possessor as expressly set out by § 868. § 868 BGB [Indirect Possession]: If a person possesses a thing as usufructuary, pledgee, usufructuary lessee, lessee, depositary or in a similar relationship, by virtue of which he is as against another, entitled or obliged for a time to have possession, the other person is also a possessor (indirect possession).

The term ‘indirect possession’ indicates that the possession is not based on physical control, but instead on a legal relationship to the direct possessor, i.e. the intermediary exercising actual control over the goods.168 This relationship between indirect and direct possessor is called constructive possession (Besitzmittlungsverhältnis). The direct possessor who accounts 168

Brehm / Berger, Sachenrecht (2006)2, no. 3.12.

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to an indirect possessor and therefore does not possess the thing with the intention to hold it for himself, but instead respects the indirect possession of another, is referred to as an intermediary in possession (Besitzmittler). Indirect or constructive possession, however, is not established by a legal relationship between the direct and the indirect possessor, but requires that the direct possessor acknowledge the possession of the indirect possessor. The acceptance of the direct possessor is the decisive fact, which puts the indirect possessor in a position similar – and from a legal perspective comparable – to that of factual physical control.169 Example: The hirer of a car has physical control over the car and is direct possessor. The owner of the car himself does not have any actual physical control, but the hirer conveys indirect possession on the owner by means of constructive possession. Accordingly, the owner is indirect possessor of the car in the meaning of § 862 BGB.

A direct possessor consequently is a person who himself exercises physical control over a thing. An indirect possessor is a person who exercises control by means of legal relationship to the direct possessor.170 Constructive possession may consist of more than one level. In this case the indirect possessor of the second level can possess by means of a legal relationship to the indirect possessor of the first level who again has a legal relationship with the direct possessor exercising direct control.171 As far as nothing else is expressly provided for or may be derived from the respective context,172 direct and indirect possession are both treated similarly as adequate types of possession.173 The practical relevance of the distinction between direct and indirect possession is that the concept of indirect possession allows for substitution of actual transfer of possession, a requirement for the transfer of movables under § 930.174

169 170 171 172

173 174

Prütting, Sachenrecht (2008)33, no. 83. Baur / Stürner, Sachenrecht (1999)17, § 7 no. 4. For examples see BGH JZ 1964, 130, 132; BGH NJW 1997, 2110, 2111. Cf. § 935: a thing can only become missing from the direct possessor. Thus § 935 only refers to direct possession. Baur / Stürner, Sachenrecht (1999)17, § 7 no. 50. Baur / Stürner, Sachenrecht (1999)17, § 7 no. 31.

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Intermediary in possession and possessory servant

While the intermediary possessor mentioned above himself is possessor, the possessory servant is not, being instead treated as but an instrument of the possessor. This concept is set out in § 855. § 855 BGB [Possessory Servant] If a person exercises actual control over a thing for another in the other’s household or business, or in a similar relationship, by virtue of which he has to comply with the instructions of the other concerning the thing, only such other person is the possessor.

The decisive criterion used to determine a possessory servant’s status is his subordination to the instructions of the possessor,175 i.e. the principal. The underlying legal foundation of the duty to comply with the instructions is irrelevant for the qualification as possessory servant.176 Apart form the household assistant expressly mentioned, all persons who are integrated into another’s household, business or other similar form of organisation are possessory servants.177 This in particular holds true for employees. Whether or not the subordination has to be transparent for third parties is a matter of controversy.178 The Federal Court of Justice holds that it is necessary that third parties can perceive the relationship.179 The difference between an intermediary possessor and a possessory servant is that only the former is considered the holder of a self-standing legal position next to the indirect possessor.180 By contrast, the possessory servant merely has a factual relationship to the thing. The right of possession is reserved for the principal. Accordingly, a possessory servant does not have any claim arising from possession, and thus cannot defend himself against interference of the principal (Besitzwehr) or use self-help against his principal (Besitzkehr).181 As the possessory servant is not a possessor himself he is not authorised to transfer possession. A further difference in comparison to the intermediary possessor is that the possessory servant cannot by a mere change of his intention bring the possession of his principal to an end. 175 176 177 178

179 180 181

BGHZ 16, 259; BGHZ 27, 363; Baur / Stürner, Sachenrecht (1999)17, § 7 no. 64. Baur / Stürner, Sachenrecht (1999)17, § 7 no. 67. Brehm / Berger, Sachenrecht (2006)2, no. 3.32. The concept of recognisability is rejected by Joost in: MünchKomm BGB VI (2004)4, § 855 no. 11 f. and Baur / Stürner, Sachenrecht (1999)17, § 7 no. 67; but approved of by Rebe, AcP 136, 129, 149 ff. and Prütting, Sachenrecht (2008)33, no. 66. BGHZ 27, 363. Baur / Stürner, Sachenrecht (1999)17, § 7 no. 35. But this does not preclude the exercise of his rights against third parties, § 860.

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Where the possessory servant disobeys the orders of the principal and, for example, takes possession of the thing without the consent of the principal he commits unlawful interference. Where a possessory servant hands over the thing to a third party without being authorised to do so by the principal, the thing, according to prevailing doctrine,182 is considered to have become missing in the meaning of § 935.183 The concept of the possessory servant replaces the concept of detentio and is of particular importance for the acquisition of possession (and in consequence ownership) by transfer from or to a Geheißperson. Further, the assessment of good faith in the context of bona fide acquisition depends on the knowledge of the possessory servant, not on that of the principal.184

(d)

Proprietary possession and possession in another’s interest

According to § 872 a person who possesses a thing as belonging to him is a proprietary possessor (Eigenbesitzer). The opposite concept of possession in another’s interest (Fremdbesitzer) is not explicitly defined, but may be derived by an argumentum e contrario: a possessor for another person is a person who has physical control over a thing and the intention to hold it for another on the basis of a restricted right in rem, a personal right or other legal basis and therefore respects the proprietary possessor’s possession.185 This applies to all persons entitled to use another’s goods, such as the hirer, the pledgee and the usufructuary. The distinction between the proprietary possessor and a possessor for another person is based solely on the intention of the respective holder, not on the underlying legal entitlement. Even actual knowledge that another is the authorised owner of a thing is no obstacle for the intention to hold possession as belonging to oneself. Thus a person may transfer possession for another into proprietary possession by changing his mind, i.e. decide that from now on the possessor intends to hold the property as his own. However, the change of mind by some means or other has to become apparent for third parties.186 The distinction between proprietary possession and possession for another is of some relevance as a number of other provisions specify the re182

183

184 185 186

Gursky, in: Westermann (1998)7, § 49 I 6; Witt, AcP 201, 165, 169 ff.; of other opinion Joost in: MünchKomm BGB VI (2004)4, § 855 no 23 with further references. But see the exception in § 56 Commercial Code on employees working in shops or warehouses; on the requirements of things becoming missing see infra 11.2.4. Cf. infra 11.3.5. Baur / Stürner, Sachenrecht (1999)17, § 7 no. 89. Brehm / Berger, Sachenrecht (2006)2, no. 3.26.

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quirement of possession by the term of proprietary possession and thereby tacitly refer to § 872. Examples may be found in § 937 on acquisitive prescription, the acquisition of fruits and profits of the bona fide possessor (§ 988) and in particular in the provision on presumption of ownership in favour of the possessor (§ 1006). Needless to say, the transfer of possession under §§ 929 ff., as a general rule, also requires transfer of proprietary possession.

(e)

Exclusive possession and joint possession

The main characteristic of this further distinction is the possibility to exercise physical control. A sole possessor exercises exclusive physical control, i.e. without any restrictions of his position as possessor by others. A particular type of sole possession is partial possession in the meaning of § 865. Here the partial possessor has exclusive control over a part of a thing. For instance a lessee in a block of flats has exclusive control of his part of the let premises, i.e. the apartment. Partial possession is as good as “full” possession and has all functions of possession.187 The opposite of sole possession is joint possession, which is further divided into simple joint possession (schlichter Mitbesitz) and bound joint possession (gesamthänderischen Mitbesitz). With simple joint possession each of the joint possessors can exercise physical control over the goods but must be considerate of the other joint possessors. The situation where several persons each have a key to a treasure chest and therefore can independently gain access to it serves as an example for simple joint possession.188 By contrast the co-possessors of a relationship of bound joint possession can only exercise their possession by acting together. This can be demonstrated by a variation on the above-mentioned example of the treasure chest. Where there are two different locks and each of the co-possessors has the key to one of the locks, then both have to join together in order to gain access to the contents of the chest. For factual reasons the physical control can therefore only be exercised in co-operation.189 With regard to third parties both simple joint possession and joint possession are adequate possession. Restrictions however exist with respect to the internal relationship between the joint or co-possessors, as no protection of possession is afforded inter se (Cf. § 866).

187 188 189

Baur / Stürner, Sachenrecht (1999)17, § 7 no. 76. Cf. BGH NJW 1979, 714, 715; BGH NJW 1993, 935, 936. Brehm / Berger, Sachenrecht (2006)2, no. 3.28.

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2.2.

Functions of possession

The term functions of possession (Funktionen des Besitzes) is frequently used as an umbrella term for the protective function of possession, the function of possession as a means to transfer ownership and make such transfer public, and the function to maintain possession. These concepts all indicate that the concept of possession – although in itself not recognised as a right in rem – is a legal position protected by law, which is of importance in other contexts, in particular with respect to acquisition and loss of property rights in movables. The protection afforded to possession at the same time affords protection to all other legal concepts that inter alia contain a right to possession, even though they may be of a merely personal nature. The concept of possession therefore is a legal technique of simplification, as all other concepts merely have to include the term ‘possession’ and thereby refer to §§ 854 ff. However, it appears to be helpful to distinguish between the different functions of possession as the requirements of a situation may differ depending on the function possession serves in that context. As an example, the requirements with regard to possession as the basis of the rules on protection of possession may differ from the requirements possession must fulfil as a reliable means of publicity in the context of transfer of ownership.190

2.2.1. Protection of possession As possession is a requirement for different legal consequences, it is afforded particular protection in three respects (Schutzfunktion). § 859 grants the possessor a right of self-help against unlawful interference, § 861 a claim against unlawful deprivation of possession and § 862 a claim for abatement of nuisance and cessation of interference. By means of these protective measures the possessor is granted similar strength of protection against any third party as against the owner.191

2.2.2. Transfer and publicity Transfer of ownership of a movable requires a real agreement and delivery (cf. § 929). Delivery of course is no more than transfer of possession. This requirement may be justified by the fact that both in the common interest of all persons participating in legal transactions and as a prerequisite for 190 191

For details see Wieling, Sachenrecht (2007)5, 43 f. As to the specific protective measures cf. infra 5.

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the respect of absolute rights by all other members of society, the existence, transfer and loss of absolute rights in property have to be made public. As far as movable property is concerned this rationale of publicity is realised by the concept of possession. The transfer of possession in movables therefore – according to the concept of the legislature – is a means of making the change of allocation of rights in rem apparent for third parties and thus is the mechanism to adhere to the principle of publicity (Publizitätsfunktion). The concept that ownership and possession are supposed to correspond leads to two important consequences. First, § 1006 contains the presumption that the possessor of a movable thing is the owner of that thing.192 Although this presumption of ownership may be rebutted, it leads to a shift of the burden of proof and therefore is of great importance in the context of litigation. The presumption of ownership further provides the basis for the legitimate expectation of an acquirer, that the possessor is authorised to dispose of the property. Second, the possession of a thing regularly is a prerequisite of a valid transfer of title in movables, both by an authorised and an unauthorised person. Possession accordingly has a transfer function (Übertragungsfunktion). In order to facilitate and make legal transactions secure and to relieve the individual from the burden of scrutinising the authority of the transferor in each legal transaction, the law provides for the possibility to acquire property from an unauthorised person. The minimum requirement for this, however, is that the acquirer is in good faith in respect of the authority of the transferor. This good faith is based on the legitimising appearance of possession. This legitimising appearance includes the power to transfer possession or to instruct another to transfer possession respectively.193

2.2.3. Preservation of possession A person who possesses property may have a legitimate interest in retaining property, whether or not he is entitled to possession by a right in rem or merely by a personal right. The law recognises this interest in various contexts and protects the possessor (who has a right to possession) against the consequences of contrary dispositions of the owner (Erhaltungsfunktion). Evidence of this preservative function can be found in the following situations:

192

193

BGH FamRZ 1970, 586 with note Hadding, JuS 1972, 183 f.; OLG Hamburg MDR 1974, 754; BGH NJW-RR 1989, 651. Zeranski, JuS 2004, 340, 342. On Geheißerwerb cf. 5.4.3.(b) and 7.

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Example: Where the owner sells a movable asset hired by the possessor, the possessor is protected against the loss of possession. As the possessor derives his entitlement to posses from a lease contract concluded between him and the owner, the owner may transfer ownership, but thereby cannot deprive him of his right to possession. Where the new owner claims delivery the lessee can invoke the defence of § 986 II and retain possession. Example: Where the creditors of the owner seek enforcement against the owner and threaten to seize the asset from the possessor, the possessor has a right to redeem the debt. He can discharge the debt, rendering an opposing will of both creditor and debtor irrelevant and can as a consequence retain possession (§ 268 I 2nd s.). The creditor in turn is obliged to assign the right to him.

A further emanation of the function of preservation is the concept of acquisitive prescription. By virtue of a long-lasting subsistence, possession can evolve into the right of ownership. As far as movable property is concerned the requirements for prescriptive acquisition according to § 937 is ten years of uninterrupted bona fide possession as a proprietary possessor.194

2.3.

Acquisition of possession

2.3.1. Title for acquisition of possession The right to hold or acquire possession from the owner may either arise from a right in rem or be of a personal nature. As mentioned above the Civil Code contains a numerus clausus of rights in rem. As far as movable property is concerned there are only three property rights that give the title-holder a right to possession: the all-embracing right of ownership and the two acknowledged restricted rights in rem, namely usufruct and pledge. However, a right to acquire property may similarly arise from personal rights, which comprise a right to possession. Attention should be drawn to one important difference. A person who holds a right in rem entitling him to possession may claim transfer of possession from any other person. By contrast, the protection against a contractual partner in a relationship of personal rights and corresponding obligations follows the rules of the law of obligations. Accordingly, a lessee can only claim transfer of possession from the lessor, but not from another person, who has obtained the asset by a deliberate act of the owner. Once the person entitled by a personal right has obtained possession of the asset, the personal right gains strength. The rules on protection of 194

Cf. infra 12.

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possession according to §§ 859 ff. are applicable.195 Similarly, the right of defence against a claim for surrender by the owner is granted to the possessor, regardless of whether the basis of this entitlement to possess arises from a right in rem or is of a personal nature. A personal right strengthened by possession accordingly is often referred to as a right quasi-in rem. The specific protection therefore is independent both of the underlying title and the duration of the entitlement. Whether or not the underlying obligation is valid or void, gratuitous or for consideration, is equally irrelevant for the protection afforded. From the fact that the protection afforded is linked to possession, it follows that a personal claim for delivery or subsequent transfer of possession does not fall within the scope of the rules on protection of possession. Therefore a principal, who has instructed his agent to acquire possession, but who now refuses to transfer possession to the principal, will have to rely on the personal remedies afforded by the underlying mandate relationship. He has no right in rem against the agent. Of course the principal could prevent this result by prior agreement or an anticipated constitutum possessorium.196

2.3.2. Acquisition of physical control The basic norm for the acquisition of possession is § 854: ‘Possession is acquired by obtaining actual power of control over the thing’. This provision covers both derivative and original acquisition of possession. Acquisition of possession is derivative if the possessor by transfer derives his position from the former possessor. Original acquisition means that the possessor has gained actual power over the thing without regard to the intention of the former possessor, because the latter either does not consent or because the thing had been abandoned. Both ways of acquisition, as a rule, lead to adequate positions, namely possession in the meaning of § 854. But the distinction between derivative and original acquisition is of relevance as far as acquisition of possession is a requirement for the transfer of ownership of movables according to §§ 929 ff. These rules naturally demand transfer and thus derivative acquisition of possession. The same holds true for bona fide acquisition: § 935 excludes bona fide acquisition with respect to such things, which ‘have become missing’ and consequently the manner in which the owner has lost possession is crucial. If he has handed over the thing to another deliberately – who has in consequence obtained derivative possession – bona fide acquisition 195 196

Cf. infra 2.4. Cf. infra 5.4.3.(b).

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is approved; if otherwise, the thing is considered to have become missing and bona fide acquisition is excluded.197 Leaving aside certain specific rules for specific situations,198 transfer of derivative possession requires a real agreement and transfer of physical control. The real agreement consists of two elements: first, the former possessor’s declaration of intention to give up and hand over possession; and second, the acquirer’s declaration of intention to obtain possession. Whether this real agreement on transfer of possession is a legal act and therefore – as all real agreements concerning property rights – subject to the rules of the General Part of the Civil Code (First Book), is disputed.199 The judicature answers the question in the affirmative200 and consequently holds that the real agreement may be challenged where there is a defective declaration of will, e.g. if it was made by reason of mistake, deceit or duress.201 Even as far as this proposition is acknowledged it remains important to clearly distinguish this real agreement on the transfer of possession from the real agreement on the transfer of ownership, even though more often than not both will coincide.202 By contrast the manifestation of intention to obtain property by original acquisition is considered a merely factual act and therefore is not subject to the rules on legal transactions. Thus, a child lacking legal capacity can obtain possession by original acquisition.203 As mentioned above, the general rule for obtaining physical control over a thing is the actual transfer of possession. Despite this general starting point, § 854 II contains a far-reaching exception. In addition, a further means to substitute actual transfer of possession is acknowledged. According to § 854 II actual transfer of physical control can be replaced by an agreement between the most recent possessor and the acquirer, if the ac197

198 199

200 201

202 203

If for example the agreement on transfer of possession was void due to a lack of capacity of the former possessor, then the thing is held to have become missing in the meaning of § 935: the transfereee may obtain possession but not (bona fide) ownership. On bona fide acquisition see infra 11. Such as the law of succession or a situation of corporate merger. Baur / Stürner, Sachenrecht (1999)17, § 7 no. 22; Brehm / Berger, Sachenrecht (2006)2, no. 3.8. and no. 27.13. However, exceptions may be considered as far as this is necessary with respect to the abstract nature, Rinne in: MünchKomm BGB VI (2004)4, Introduction, no. 8. Of other opinion, see Wieling, Sachenrecht (2007)5, 53 with further references. BGHZ 16, 263. This though does not result in the thing becoming missing in the meaning of § 935, Baur / Stürner, Sachenrecht (1999)17, § 7 no. 23. BGH, NJW 1979, 714. Cf. Brehm / Berger, Sachenrecht (2006)2, no. 3.10.

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quirer subsequently is capable of exercising power of control over the thing. Transfer of possession requires an agreement of the parties. This agreement is a legal transaction and thus requires legal capacity on the side of the transferor. The admissibility of derivative acquisition of possession again follows from the purely factual concept of possession.204 Actual transfer of possession (traditio vera) therefore can be substituted by an agreement on the transfer of possession (traditio ficta). The comparison with the general rule clearly shows that this alternative contains an alleviation with respect to the strict application of the requirement of proximity between person and thing. A common textbook example is a stack of wood in a forest. The acquisition of property does not demand that the former possessor and the acquirer actually go to the wood and the acquirer takes over physical control. Instead the transfer may also take place in – for instance – an office, if: first, the transferor is possessor of the stack of wood; and second, the acquirer obtains the possibility to exercise exclusive physical control over the stack of wood.

A further requirement for the acquisition of possession without actual transfer under § 854 II is that the transferor loses any kind of factual control over the thing. Example: Things that are contained in a locked treasure chest are in the possession of the person who has the key (and knows where the treasure chest is). The transfer of a key is sufficient to transfer actual physical control with regard to the things, which are secured by the corresponding lock.205 The person who has possession of the key to a locked house is similarly in possession of the things that are in the house.206 By contrast, despite a similar agreement to that in the immediately preceding example, it would be insufficient to transfer possession of the movables in the house if the transferor hands over a key to the transferee whilst retaining a spare key.207

This example of transfer of possession by handing over a key should not be mistaken for the acceptance of a merely symbolic transfer, which does not afford the acquirer physical control. The only case in which symbolic

204 205 206

207

Prütting, Sachenrecht (2008)33, no. 57. BGH MDR 1973, 572. BGH DB 1973, 913; BGH NJW 1979, 713; OLG Düsseldorf NJW-RR 1996, 839, 841. Cf. BGH NJW 1979, 714.

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transfer will suffice is the handing over of documents of title, as this is positively provided for by commercial law.208 Examples: The attachment of a sign;209 or a short test drive by the employee of the acquirer. Both are insufficient for the acquisition of possession, if the thing subsequently remains in the organisational area of the (former) possessor.210

Apart from the replacement of a traditio vera by a traditio ficta, the handing over of physical control may in addition be substituted by the transfer modes noted below. § 868 provides that possession can be transferred by agreement where there is a relationship of constructive possession (constitutum possessorium). This is an agreement between the transferor as the (in-)direct proprietary possessor and the transferee, that the transferor will from now on exercise possession for the transferee. The transferor becomes a possessor for another, the transferee obtains indirect proprietary possession. A valid constitutum possessorium must meet three criteria: first, the transferor must hold possession in the interest of another; second, the relationship of constructive possession must be limited in time; and third, the constructive possession must be based on an underlying legal justification. The first precondition of a constitutum possessorium is that the direct possessor obtains possession and has the intention to possess for the indirect possessor (for instance as the lessee or usufructuary) and not as owner (Fremdbesitzwillen).211 The direct possessor must therefore derive his right of possession from the legal position of the indirect possessor.212 The second condition is that the relationship of constructive possession must be restricted to a limited period of time, which condition can be derived from a literal interpretation of § 868.213 It is also a consequence of the concept of indirect possession, which necessarily contains a claim for delivery. The indirect possessor therefore must have a claim for recovery

208 209 210 211 212

213

For instance transfer of possession (and title) by transfer of bearer’s instruments. OLG Frankfurt BB 1976, 573. OLG München NJW 1970, 667. Cf. RGZ 135, 75, 78. Thus the seller who has already sold the good but not yet handed it over to the purchaser is not an intermediary possessor for the purchaser; cf. Baur / Stürner, Sachenrecht (1999)17, § 7 no. 37. BGHZ 85, 263, 265; the judicature in BGHZ 73, 253, 257 has also recognised marriage to be a valid relationship of indirect possession, although marriage, of course, is not traditionally concluded for a limited period of time, cf. Brehm / Berger, Sachenrecht (2006)2, no. 3.14.

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against the direct possessor,214 which of course may be subject to conditions precedent or subsequent, such as lapse of time.215 The list of relationships on which a constitutum possessorium may be based found in § 868 has lead to the development of a further requirement, namely that the underlying relationship must be specified, i.e. set out the rights and duties of the parties to the agreement (konkretes Besitzmittlungsverhältnis).216 In addition to the legal relationships listed in § 868, all similar relationships provide a sufficient basis, provided they rely on a contract (e.g. sale under reservation of title), statute (e.g. parental care and custody) or an act of state (administration of an insolvent party’s estate).217 By contrast, it would not suffice to agree on a formal relationship of constructive possession, i.e. the mere agreement that the transferor from now on intends to possess for the transferee without specification of a legal basis from which this duty may arise.218 The rationale of this restriction, however, is not to be found in the law on possession itself, but actually is a consequence of the role of possession for the transfer of title. The rules on transfer of ownership hold a relationship of constructive possession to be a sufficient substitute for actual transfer (§ 930). Therefore the acceptance of a formal relationship of constructive possession would lead to the result that the parties could dispose of the transfer requirement.219 Example: A and B could agree that A will henceforth hold the property for B, even though an underlying legal justification for this transfer (such as lease, fiduciary transfer of title) is lacking.

In order to prevent this result, a specified underlying relationship of constructive possession is demanded. Despite this intention the validity of this underlying agreement according to prevailing opinion is not a condition for the constructive possession to meet the requirements. The minimum requirement is that the intermediary on the basis of the (invalid) agreement respects the proprietary possession of the direct possessor and exercises control with the intention to hold it for his contracting partner.220 Prevailing opinion seems to be rather generous with regard to this requirement of a 214 215 216 217 218 219 220

Brehm / Berger, Sachenrecht (2006)2, no. 3.14. BGHZ 85, 263, 265. Cf. BGHZ 73, 253, 257. Cf. Baur / Stürner, Sachenrecht (1999)17, § 7 no. 48. Of other opinion, see Wacke, ZEuP 2000, 254, 260. Brehm / Berger, Sachenrecht (2006)2, no. 3.15. BGH NJW 1955, 499; BGH WM 1985, 1433; BGHZ 85, 263, 265 against previous case law: RGZ 86, 265 and RGZ 98, 133. Cf. Wieling, AcP 184 (1984), 439, 440 ff.

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specific relationship of constructive possession. In fact, in one case it was held that the parties’ conclusion of an agreement that contained professional obligations regarding the treatment of the respective movables, such as a duty to maintain it or to return it at a specific point in time, was sufficient.221 Further it is assumed that such an agreement can even be tacitly concluded.222 The underlying relationship can even be agreed upon before the transferor (and future direct possessor for another) has obtained possession. This construction is called an anticipated constitutum possessorium (antezipiertes Besitzkonstitut). The moment the transferor obtains possession and has formed the intention to hold it for the transferee, the latter acquires indirect possession. The same result can be achieved, if the transferee grants the transferor authority to enter into a legal transaction in the name of the transferee as the principal and himself in his own name as the transferor (§ 181), thereby establishing a relationship of constructive possession.223 A further substitute for actual transfer is the assignment of the claim for recovery of possession to the acquirer. The assignment of the claim follows the rules of § 398 and accordingly does not require any notification of the direct possessor. However, the application of § 398 also leads to the result that the assignment of the claim may be barred by an agreement between direct and indirect possessor. In this case the assignment is invalid (§ 399 2nd case) and the transfer of indirect possession according to § 870 fails.224 This transfer mode is of particular importance where a thing is disposed of while it is in the hands of a third party (§ 931).225 A further exception from the rule that transfer of possession requires at least (substitute) transfer of physical control, may be found in § 857 on the possession of the heir. In the event of succession the possession of the deceased is automatically transferred to the heir(s). This rule is necessary because German law has not adopted the concept of a hereditas iacens. If the heir would not automatically acquire possession by a traditio ficta, then the estate would be in no-one’s possession. As this would lead to the consequence that nobody would be entitled to invoke the protective measures possession affords, it is deemed that the heirs immediately acquire posses221 222

223 224

225

Cf. BGH ZIP 1998, 2160. This is criticised by Wieling, Sachenrecht (2007)5, 99, who concludes that the requirement of a specific relationship of constructive possession thereby has been disestablished. Cf. BGH NJW 1964, 398. Accordingly this means there is not a substitute transfer mode for the transfer of ownership under § 931. Further, the requirements of a transfer of ownership under § 934 are also not met, because possession is not subject to bona fide acquisition. Cf. infra 5.4.3.(b).

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sion, whether or not they know that the deceased has died, what things they have inherited, or where these assets are. Things taken from the estate without the consent of the heirs are therefore held to be missing in the meaning of § 935.226 The rule of § 857 is extended beyond its scope of literal interpretation and also applied to other cases of universal succession, such as the merger of two companies.227

2.3.3. Loss of possession Loss of possession occurs if the holder (non-temporarily) loses actual physical control. By contrast, a merely temporary impediment to the exercise of control does not terminate possession (§ 856 II). Loss of possession is a fact and thus independent of any right to possession. Accordingly, actual possession may be terminated despite a valid title to possess held by the (former) possessor. Example: The hirer loses possession by means of unlawful interference.

On the other hand possession does not necessarily always end at the time the title to possess expires. Example: The lessee keeps the car he has hired even after the contractual time period of his lease has expired.

The loss of possession can be the consequence of a deliberate act (such as transfer of possession or abandonment), or occur involuntarily (such as theft or loss). Voluntary loss of possession always requires an external act, which expresses the specific intention to give up possession, such as handing over the movable or discarding it.228 Involuntary loss of possession of the direct possessor may be the result of loss or theft. The indirect possessor will likewise lose possession where the intermediary gives up or loses possession. Loss of possession may further occur if a possessor for another changes his mind and decides to henceforth possess as a proprietary possessor, as in the case where the possessory servant deprives the possessor of his possession by unlawful interference. The distinction between voluntary and involuntary loss of (in-)direct possession is of particular importance in the context of competitive protec226 227

228

Baur / Stürner, Sachenrecht (1999)17, § 8 no. 2; Wieling, Sachenrecht (2007)5, 60. Baur / Stürner, Sachenrecht (1999)17, § 8 no. 4; Brehm / Berger, Sachenrecht (2006)2, no. 3.31. Cf. Baldus, JR 2002, 441.

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tion of possession (§ 1007)229 as well as with regard to bona fide acquisition: a thing that has been stolen or has become missing cannot be acquired in good faith.230

2.4.

Protection of possession

2.4.1. Object of and entitlement to protection Rules on protection of possession, found in §§ 858 ff., are directed against unlawful interference, that is any act of interference with quiet enjoyment of possession or deprivation of possession.231 The protected object is direct possession and will be granted without reference to any corresponding right to possess. Examples: A lessee can invoke protective measures against the lessor, and even a thief can rely on protective measures vis-à-vis the owner.232

Therefore the direct possessor can invoke protective measures against the indirect possessor, but the indirect possessor is not so protected and cannot rely on protective measures to deprive the direct possessor of his position. He will have to (apply to the court and) rely on the claim arising from the relationship of constructive possession.233 The general rule is that every deprivation of possession or interference with quiet possession, which takes place without the consent of the possessor, is unlawful and constitutes unlawful interference under § 858, unless permitted by statute. Deprivation of possession occurs where the (former) possessor is entirely unable to exercise possession. All other cases of disturbance come under the heading of unlawful interference. The dividing line between deprivation of possession and interference with quiet possession is not always clear. Both forms of unlawful interference share the fact that the possession of the direct possessor is by some means disturbed by a third party. As the legal consequences of both forms of interference are similar, the distinction is of no great relevance, apart from the different time limits for protective measures (cf. § 859 II and § 861 II). The act will not be unlawful if it is permitted by statute. Such rights to interfere with another’s possession may inter alia be based on performance of 229 230 231 232 233

See infra at 2.4.3. Cf. infra 11.2.3. Wieling, Sachenrecht (2007)5, 64. Wieling, Sachenrecht (2007)5, 63. Baur / Stürner, Sachenrecht (1999)17, § 9 no. 24.

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an official duty, such as the court officer who seizes property in the course of enforcement action (§ 808 I Civil Procedure Code). Further examples may be found in the provisions on emergency rights and self-help.234 A person who obtains possession by unlawful interference is possessor, but a mala fide possessor in the meaning of § 858 II. This defect continues if possession is transferred either by inheritance, or to another who has knowledge of the defect: the new possessor in this case again only obtains defective possession (§ 858 II 2nd s.) The defect, however, is relative, i.e. it is restricted to the relationship between the former possessor unlawfully dispossessed and the new possessor, whereas in respect of third parties the new possessor is vested with all rights arising from possession. Example: A thief is an unlawful possessor as against the former possessor, but is protected in his (defective) possession against any third party.

With respect to third parties, both a proprietary possessor or a possessor for another can invoke the protective measures. Where the direct possessor’s possession is interfered with, the indirect possessor can also take such protective measures. By virtue of § 860 a similar right is granted to the possessory servant, who may invoke the rights in the place of the possessor. As far as the protective measures in the case of unlawful interference are concerned, it is necessary to distinguish between emergency rights and a possible application to the court.

2.4.2. Emergency rights Emergency rights are provided for in § 859 and § 860. In a situation of impending interference with possession § 859 I grants the possessor the right to use force and defend himself against this interference. This right is called defence of possession (Besitzwehr) and is a specific emanation of self-defence (§ 227).235 The permission lasts as long as interference is impending or continuing. The insight that defence of possession is a specific form of self-defence leads to the conclusion that § 227 II is similarly applicable.236 Thus the defender may only apply such measures which are necessary for that defence, and no more.237 Where there are several different measures that promise to be effective he is obliged to choose the one that has the least damaging 234 235 236 237

Cf. §§ 227, 229, 859 and § 904. Baur / Stürner, Sachenrecht (1999)17, § 9 no. 11. Wieling, Sachenrecht (2007)5, 65. On this see BayObLG NJW 1965, 163; OLG Koblenz MDR 1978, 141.

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effect on the offender. Necessary measures are lawful acts and accordingly will neither be punishable under criminal law nor will they give rise to liability under private law. However, measures of self-help will be unlawful acts as far as they exceed what is necessary.238 It should be stressed that this requirement may not lead to the conclusion that the right of defence is curtailed by a general requirement of proportionality. As a general rule acts of self-defence are permissible even in cases of rather insignificant interference. There is no rule that the defender has to find a balance between the disturbed right and the rights and goods of the offender, which may be affected by the possessor’s measures of protection.239 If the offender has succeeded and has taken possession by unlawful interference (i.e. there has been a deprivation) then the offending act is terminated. Accordingly the remedy of protection of possession under § 859 I is no longer applicable as the requirement of a current offence cannot be met. In this case the appropriate remedy is provided by § 859 II instead. Where there has been a dispossession of movable property, the possessor has the right to retake it by force from a violator caught red-handed (§ 859 II and, in the case of immovables, § 859 III). This so-called right of return of possession (Besitzkehr) is also a specific manifestation of self-help.240 It is permissible even if the act of dispossession has already taken place and the violator has successfully obtained possession. The (former) possessor may take necessary measures to recover possession.241 But it has to take place promptly, i.e. as soon as possible. As mentioned above, both rights are similarly granted to the possessory servant (§ 860) and to the indirect possessor (§ 869).

2.4.3. Remedies Another category of remedies available to the (former) possessor is the claim for protection or restoration of possession. As they do not vest the possessor with the right to restore his possession (unilaterally) but instead allow him to obtain a valid claim against the infringer, they have to be clearly distinguished from the measures of self-help set out above. Where the emergency rights have expired or the (former) possessor does not want to make use of these rights, he can apply to the courts and claim abatement of nuisance, cessation of interference and restoration of 238 239 240 241

Baur / Stürner, Sachenrecht (1999)17, § 9 no. 11. Wieling, Sachenrecht (2007)5, 63. Baur / Stürner, Sachenrecht (1999)17, § 9 no. 11. See BayObLG NJW 1965, 163; OLG Koblenz MDR 1978, 141.

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possession against the violator. As this formulation shows the protection of possession is in its structure closely modelled on the rules on protection of ownership (§ 985, § 1004).242 Depending on whether the applicant relies on the fact of his former possession or invokes a superior right to possession, it is distinguished between possessory protection (possessorischer Rechtsschutz) and competitive protection of possession (petitorischer Rechtsschutz). Possessory protection is established by a claim for recovery of possession (§ 861) and cessation of disturbance (§ 862). Both remedies can be enforced by legal action and in case of urgency be secured by an injunction. The claims are extinguished upon the lapse of one year following the unlawful interference. Both the claim on account of deprivation of possession (§ 861) and the claim on account of interference with possession (§ 862) are granted irrespective of the legal entitlement to possess, that is whether or not the applicant has a better title to possess than the violator. The mere fact of former quiet possession will suffice. The proper defendant always is the defective possessor, no matter whether he himself has committed the offence or is merely a successor in possession. The court will oblige him to restore the former position and bear any costs necessary for such reinstatement. These protective measures have to be enforced by legal process. Their aim is the restoration of the former status quo. The main feature of these proceedings therefore is that the violator cannot bring forward any objections. He cannot justify his act by asserting that he is entitled to possession. Even where he was, he was not allowed to enforce his right by means of unlawful interference. Thus even the owner of the property would be defeated, his claim of superior entitlement rendered irrelevant by the exclusion of objections (§ 863).243 The so-called competitive protection (petitorischer Rechtsschutz) is provided for by § 1007. The former possessor of movable goods is granted the right to demand the return of the thing from the current possessor, if the current possessor was not in good faith at the time he obtained possession, or if the thing has become missing from the former possessor. § 1007 thus serves as an extension of the presumption of ownership in § 1006 and protects the person who has the superior entitlement to possession. By contrast to the possessory protection mentioned above, the aim of this measure is not merely to return to the status quo, but instead to conclusively resolve the conflict between the former and the recent possessor: the 242 243

Röthel / Sparmann, JURA 2005, 456, 457. OLG Düsseldorf MDR 1971, 1011; OLG Köln MDR 1995, 1215. However, the defendant can introduce his defence by way of counterclaim and if both claims are due for decision the defendant may succeed with his reliance on a better entitlement to possession, cf. BGH NJW 1979, 1358; Lehmann-Richter, NJW 2003, 1717, 1718.

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defendant may bring forward all objections based on a purported right to possess against the claim for resumption of possession. This competitive protection is of relevance in cases where the former possessor has a superior entitlement to possession, but can neither rely on any other substantive right, such as ownership, other property rights or a claim arising from unlawful interference.244 This in particular concerns the lessee or leaseholder, who wants to reclaim possession from a third party or defend himself against unlawful interference by such third party.245

2.4.4. Other means of relief In addition to these specific remedies granted by the law of possession, the possessor can invoke other private law remedies. As an example, he may, in the case of negligent or wilful interference, claim damages arising from tort law provisions under § 823 I.246 As far as his (personal) right to possession is (or has been) strengthened by actual possession, this possession constitutes ‘another right’ in the meaning of § 823.247 Accordingly, the interference or deprivation of possession gives rise to a claim for damages. The damage in this case consists of the loss of profits or the loss of value the property has suffered as a result of the dispossession or other interference with the property.248 Similarly, an interference with possession that lacks a legal justification may give rise to a claim under the law of unjustified enrichment. The possessor may be entitled either to a condictio indebiti249 or to a condictio possessionis250 under § 812. The specific rules on protection of possession thus may not be conceived as a conclusive system of remedies but rather as an addition to the general rules.

244 245 246

247 248 249 250

Baur / Stürner, Sachenrecht (1999)17, § 9 no. 27. Cf. Baur / Stürner, Sachenrecht (1999)17, § 9 no. 16. Baur / Stürner, Sachenrecht (1999)17, § 9 no. 31 ff.; Röthel / Sparmann, JURA 2005, 456, 457. BGHZ 73, 355, 362; BGHZ 79, 232, 237; BGHZ 114, 305, 312. BGH NJW 1979, 2034, 2035. RGZ 129, 307, 311. BGH NJW 1979, 2034.

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3.

Transfer of movables: field of application and definitions

3.1.

Scope of application

On first sight the German Civil Code does provide for a general concept of ‘objects’ and thus for an abstract unitary concept of goods, animals and rights, which may form the objects of legal transactions. However, with regard to transfer of title it then draws a strict distinction between the rules on the acquisition of rights and the acquisition of property in corporeal goods or land. The acquisition of rights is solely provided for by the law of obligations and therefore is excluded from the scope of application of property law, which only deals with corporeal goods. Within property law there is a further fundamental distinction, namely between movable property and immovables. In order to discuss the transfer of title in movables it is therefore necessary to specify the scope of application of the rules on acquisition of movable property. To this end we therefore have to first discuss the concept of a ‘thing’ in the meaning of § 90 and subsequently differentiate between movable and immovable property.

3.2.

The concept of a ‘thing’

Inspired by the Roman law tradition the Civil Code has adopted a very narrow concept of ‘thing’ (Sachen).251 According to § 90 a thing in the meaning of this provision is a corporeal object, which is perceptible and susceptible of human control. By virtue of this definition a wide range of assets is excluded, in particular rights such as intellectual property rights and receivables.252 But similarly electricity253 and computer programmes254 are excluded, as they do not qualify as tangible assets. Only the battery or the data carrier on which these “items” are respectively stored, will qualify as a thing in the meaning of § 90.255 This strict distinction and the consequential constraint of the concept of a thing to corporeal goods is justified by the fact that the corporeality of movable goods naturally leads to other necessities for regulation. For 251

252 253 254 255

Wieling, Sachenrecht (2007)5, 4 f.; Rinne in: MünchKomm BGB VI (2004)4, Introduction, no. 3. Baur / Stürner, Sachenrecht (1999)17, § 3 no. 2. Jickeli / Stieper, in: Staudinger (2004), § 90 no. 10. Jickeli / Stieper, in: Staudinger (2004), § 90 no. 13. BGHZ 102, 135, 144; Baur / Stürner, Sachenrecht (1999)17, § 3 no. 2, 11; Brehm / Berger, Sachenrecht (2006)2, no. 1.50.

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instance, only corporeal movables can become missing or be the object of an actual transfer of possession, or by the fact of possession justify the belief in the possessor’s ownership. By contrast, rights and in particular receivables can neither be lost nor stolen, and they cannot be transferred by change of actual physical control.256 With this natural difference, it has repeatedly and justifiably been stated that the obvious lack of rules on rights and receivables cannot be cured by a simple extension of the application of the rules on corporeal goods to such other objects of legal transactions.257 Despite their corporeal nature there are further exclusions from the definition of a corporeal object. The most important concerns human beings both in life and in death (i.e. the corpse). Human beings are the holders of rights; they are not the objects of rights. This exclusion of human beings and the body of a deceased person is a consequence of the right to protection of one’s personality and of the individual sphere of privacy. However, it is a matter of dispute as to how far this exclusion also applies to separated parts of the human body, such as vital body parts for an organ transplantation258 or reproductive tissues (i.e. semen or eggs),259 and whether these can be the object of real agreements. According to the judicature of the Federal Court of Justice separated body parts only share the legal status of human beings as far and as long as they are intended to later be reintegrated into (another) human body.260 By contrast, a permanent separation leads to their classification as a corporeal thing within the meaning of § 90. Another exclusion from the concept of things concerns animals. In 1990 a new § 90a was introduced into the Civil Code by statutory act, stating explicitly that animals are not things.261 However, § 90 2nd s. provides, that the provisions on corporeal things shall be applied to animals as far as nothing else is explicitly provided for. Such particular provisions have been adopted for certain areas of law, e.g. in § 251 II with respect to damages and in particular for expenses incurred for the treatment of an injured animal, but as far as transfer of title is concerned, there are no particular rules for animals. 256 257 258

259 260

261

Wieling, Sachenrecht (2007)5, 5. Wieling, Sachenrecht (2007)5, 5. Transplantation of human organs is now provided for by a separate statute: Transplantation Act of November 5th, 1997, BGBl I, 2631. BGHZ 124, 52, 54, with critical note Taupitz, NJW 1995, 745 ff. See the criticism of Taupitz, NJW 1995, 745; see further Jickeli / Stieper, in: Staudinger (2004), § 90 no. 22. The provision has been the subject of harsh criticism and is said to be meaningless, see for instance Baur / Stürner, Sachenrecht (1999)17, § 3 no. 4 and Brehm / Berger, Sachenrecht (2006)2, no. 1.55.

3. Transfer of movables: field of application and definitions

3.3.

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Concept of movables

The Civil Code repeatedly refers to movable property (e.g. in § 929, § 937, § 946) as the opposite of real property, i.e. immovables, but does not define the term of movable property. The definition therefore has to be inferred from the definition of immovable property. A piece of real estate is a defined part of the earth’s surface as registered in the land register.262 In addition, essential component parts in the meaning of §§ 93-94 have lost their ability to be the object of separate property rights and share the legal status of the corresponding piece of land. By contrast, all distinct tangible things that are susceptible of human control and neither qualify as real estate, nor – by exception – as an essential constituent part of real estate, are corporeal objects. Essential component parts (wesentliche Bestandteile) of a thing are, according to § 93, defined as such parts that cannot be separated without either of the parts thereby being destroyed or substantially altered in its character. Examples: Buildings or particular fixtures (e.g. heating,263 bathtubs,264 gas or electric kitchen stoves,265 an emergency back-up generator266) are essential component parts of real estate. Likewise, natural products that have not yet been harvested will qualify as essential component parts (e.g. fruit hanging on the tree, a tree not yet cut down for timber, the crop on the field) and therefore share the legal status of the principal thing (the fruit tree, the tree, the soil of the field).

The main consequence of the classification as an essential component part is that such thing shares the legal status of the main thing. Whether a thing is considered to be an independent part or a component part of another thing – whether movable or immovable – is decided according to common opinion (Verkehrsauffassung).267 On deciding, whether a thing is an essential component part and therefore unable to retain a separate legal status or by contrast an independent (component) part, the judicature also takes economic reasoning into consideration.

262 263 264 265 266 267

Baur / Stürner, Sachenrecht (1999)17, § 3 no. 5. BGH NJW-RR 1990, 158. OLG Braunschweig, Ns. RPflg 1955, 193. BGH NJW 1953, 1180. BGH NJW 1987, 3187. Brehm / Berger, Sachenrecht (2006)2, no. 1.53.

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Germany Example: The standard engine of a car already built into a passenger car, was not considered an essential component part, but an independent accessory.268 Likewise, the tyres of a passenger car were held to be independent parts.269

These rulings have been criticised by legal doctrine as they do not actually rely on the definition contained in §§ 90 ff., but instead focus on the economic results. The opposite of an essential component part may be found in the concept of an independent part or accessory, i.e. a movable, which – without being an essential component part of the principal thing – is attached to another thing. Although they have the capacity to qualify as self-standing objects of legal transactions accessories as a general rule share the legal status of the principal thing. Where the principal thing is transferred, it is presumed that the transfer also includes the accessories and renders a separate transfer of the accessories superfluous. Therefore the requirements of transfer of title under §§ 929 ff. need not be met with respect to the accessories. As the intention of the legislature is that accessories shall share the legal status of the principal thing, they may not be seized separately in the course of enforcement (cf. § 865 II Civil Procedure Code). That said, the owner can transfer accessories separately according to the general rules on transfer of movables.270 An exception from the general rule that accessories follow the legal status of the principal thing is contained in § 95: things do not become constituent parts of a piece of land if they are ‘attached to the soil for a merely temporary purpose’. These objects are called ‘Scheinbestandteile’ and can be subject to separate legal transactions. The rules on transfer of title in movables apply accordingly.271 Example: A garage put up by the tenant only for the duration of his lease.272

As far as the Civil Code regulates whether a thing is movable or immovable and whether it is an independent part or an essential component part of another thing, these rules are of mandatory nature and therefore cannot be altered by agreement of the parties. If such an agreement were to have any legal consequence it would, at most, have a personal effect as between the parties. 268

269 270 271 272

BGHZ 61, 80, 81; in agreement Baur / Stürner, Sachenrecht (1999)17, § 3 no. 8; but criticised by Brehm / Berger, Sachenrecht (2006)2, no 1.56. BayObLG, NVwZ 86, 511. For example BGH ZIP 1994, 305. BGHZ 23, 57, 59; BGH NJW 1987, 774. BGHZ 8, 1, 6; BGH NJW 1985, 789.

Part II: Derivative acquisition 4.

System of transfer of ownership under German law

4.1.

Unitary concept of transfer

German law follows the concept of a unitary right of ownership in a thing. The rights bestowed on the owner by virtue of § 903, i.e. the right to use the thing, the right to exclude others from such use and the right to defend it against interference by third parties, constitute a unitary right of ownership. Accordingly, the transfer of ownership has the effect that all rights and duties flowing from ownership are necessarily transferred to the acquirer at the same time. If such complete and uniform change of entitlement does not suit the intention of the parties, because the owner does not want to dispose of all of his rights, but rather just grant another person a specific competence, then the adequate legal means to do so is neither a partial nor a staged transfer of ownership, but the grant of a restricted right in rem. By virtue of a restricted right in another’s property it, for example, is possible to allot the interest in the right to use on the one hand, and the interest to hold the property as a security, on the other, to different persons. However, these positions of the respective parties are not on an equal level, instead the right of ownership is merely burdened by the restricted right in rem, but retains its superior position. Accordingly, vis-à-vis third parties the owner retains his full position and similarly retains the power to defend his ownership against any interference. As evidenced by the fact that both original acquisition of ownership by processing and bona fide acquisition will lead to the extinction of restricted rights in rem, the status of a restricted right is dependent on the right of ownership. Further the extinction of the restricted right will lead to a consolidation of the prior right of ownership: ownership in this case regains its original strength as a power unburdened by any encumbrances. From this principle of unitary ownership, exceptions are only accepted as far as they are explicitly provided for by statute. The most important example is the restriction of transferability with relative effect.273 If the

273

Cf. supra 1.5.3.

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owner is bound by such a relative restriction, then any transfer in violation of it will lead to a fragmentation of ownership insofar as he will be held to be the owner in relation to the beneficiary of the restriction, whereas in relation to any other party the acquirer will be held as sole and full owner.

4.2.

Overview on the concept of transfer of ownership

With the introduction of the Civil Code German law has parted from the old transfer system of titulus and modus provided for by the German ‘Gemeines Recht’ (literally: common law). Strongly influenced by the theory on legal acts by Friedrich von Savigny,274 the system of titulus and modus was replaced by the current abstract transfer system. The starting point of the German transfer system is, from a simplified perspective, that a legal consequence can either follow directly from a statutory provision or from a party’s legal act. In contrast to the French Code Civil, the law does not grant the contractual agreement translatory effect; the legal consequence, i.e. the transfer of title, must find its basis in an agreement distinct from the obligation created by the parties. The basis of the transfer therefore is held to be the agreement on the transfer of title, this real agreement being an agreement in rem.275 Furthermore, this agreement must be made public by traditio, that is the transfer of possession. As far as these requirements are fulfilled, all powers embraced in the right of ownership pass to the transferee uno actu. This effect of transfer is mandatory and consequently cannot be altered by agreement.276 The transfer of title is a consequence of the real agreement, not of the underlying agreement creating an obligation to transfer. Therefore the latter act as the underlying justification for the legal transaction has lost its importance for the transfer of title: the cause in law as the economic justification for the transfer is reduced to an underlying rationale of the transfer, but is no longer a requirement for its validity. Consequently, a potential invalidity of the contractual agreement does not have any detrimental effect on the validity of the real agreement. It does not render the transfer of title invalid. 274 275

276

Cf. Brehm / Berger, Sachenrecht (2000), no. 26.8. By contrast Savigny regarded the agreement in rem as a real contract and similarly the first draft of the German Civil Code has followed this approach, Brehm / Berger, Sachenrecht (2006)2, no. 26.8 ff. An exception is made with respect to security interest by transfer of title. In the event of the insolvency of the secured creditor it is taken into account that the legal position exceeds the allocation of property from an economical point of view (cf. infra 8.2.3.).

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For the same reason, the type of the underlying obligation is without relevance for the transfer: contractual and extra-contractual obligations merely give rise to a claim for transfer of title, but cannot substitute the real agreement or the transfer. Even a claim recognised by declaratory judgment, stating that the claimant is entitled to acquire ownership, only constitutes a valid cause and therefore creates an obligation of the owner to transfer ownership.277 The consequence of this abstract transfer system is that the determination of ownership is exclusively answered according to the provisions of property law and without regard to the underlying cause, i.e. the underlying obligation.

4.3.

The concept of the abstract nature of rights in rem

4.3.1. Abstract tradition The principle that rights in rem are of an abstract nature and independent of a legal cause has two aspects. The first is the issue of whether the real agreement requires a cause as a justifying purpose, and is referred to as ‘material independence’ (inhaltliche Abstraktion). The second is whether the validity of the real agreement is dependent on the validity of the underlying agreement (or any other obligation), and is referred to as ‘formal independence’ (äußerliche Abstraktion). The answer to both of these questions under German property law is clear-cut: The real agreement is free of any determination of purpose and therefore completely independent of the underlying cause.278 This independence is supposed to promote legal certainty and clarity, as any doubts on the underlying cause and its validity do not affect the determination of property rights.279 With this distinction German law has adopted the legal concept of Savigny. The implementation of this system requires (as a first step) the strict distinction between the underlying agreement and the real agreement, a characteristic commonly referred to as the principle of separation (Trennungsprinzip). This indicates that the transfer is not a result of the contractual agreement, but requires a distinct real agreement.280 The validity of 277

278 279

280

Though the transferor’s declaration of transfer of title can be replaced by a judgment (§ 894 Civil Procedure Code). Baur / Stürner, Sachenrecht (1999)17, § 5 no. 42. Baur / Stürner, Sachenrecht (1999)17, § 5 no. 4; but cf. Brehm / Berger, Sachenrecht (2006)2, no. 1.22, who emphasise that the idea to further legal certainty has been a later justification but not the original intention. Baur / Stürner, Sachenrecht (1999)17, § 51 no. 1.

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the underlying agreement and the real agreement have to be determined separately.281 This abstract transfer system may be characterised by its two most important consequences. First, the conclusion of a contractual agreement, which obliges a party to transfer title to another, does not in itself affect the property right of the obligor. The creditor, that is the transferee, only acquires a personal claim for the conclusion of a respective real agreement. Thus, for instance, in the case of a double sale both contractual agreements are perfectly valid, but the seller is unable to fulfil both obligations.282 Second, the real agreement is considered to be ‘neutral’ and therefore is held to be valid even where the underlying contract is void. However, this consequence has often been criticised and some exceptions have been accepted with the result that the principle of abstract tradition in some respects has been eroded.283

4.3.2. Valid obligation (a)

Obligations on which the transfer of ownership can be based on

The question of what kind of obligations transfer of title may be based on is difficult to answer from the perspective of German law. The correct answer seems to be any kind of obligation or, perhaps confusingly, even none at all. Due to the abstract transfer system the transfer will be valid even where there is no underlying obligation. The question therefore has to be modified: what kind of obligation can a transfer of title be based on to achieve the result that the legal order lastingly accepts the new allocation of goods? As a general rule transfer of title can be based on any kind of obligation, which obliges one party to transfer a property right to the other party. These can be a contract imposing mutual obligations (e.g. sale or barter), gratuitous contracts (e.g. a gift), a unilateral promise (e.g. a promise of a reward) or may arise from an extra-contractual obligation (e.g. tort, unjustified enrichment, benevolent intervention in another’s affairs). The type of obligation does not have any immediate effect on the transfer. In fact, the transfer will be valid even where there is no underlying obligation at all.284 Consequently German law does not provide for any additional re281 282

283 284

Larenz / Wolf, Schuldrecht AT (2004)9, § 23 no. 78 ff. The mere fact that the transferee knows of the sale to another person does not in itself constitute a defect of the real agreement, unless is constitutes a wilful damage contrary to public policy (§ 826), infra 6. As to these modifications of the abstract transfer system cf. infra 4 3.2.(c). Cf. Jauernig, JuS 1994, 721.

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quirements – such as the payment of the purchase price – on which a valid transfer is conditional. On the other hand, the legal order has to take into account that the different types of obligations are of varying strength with regard to their ability to justify the result of the transfer, i.e. the right of the transferee to keep the property transferred. As a consequence of the abstract transfer system a direct influence with respect to transfer of title is not acknowledged. But a differentiation is drawn with regard to the question whether or not the transferee is obliged to retransfer the property acquired. In this context it is self-evident that a person who has received a thing as a gift is not worthy of the same protection that is afforded to a person who acquired ownership by means of counter-performance for that property right. Although this distinction is not drawn within the rules on property law, the legal technique should be illustrated by an example. A sells an asset to B and transfers it to him. B subsequently makes the asset a gift to C. Afterwards, A discovers that the sales contract with B due to a formal defect was void. As the contractual agreement between A and B is void, the valid transfer of title lacks a valid cause as its justification. B is unjustly enriched and therefore obliged to retransfer the asset according to § 812 I. However, B is unable to retransfer the asset as he has in the meantime transferred ownership to C. The obligation to retransfer property therefore is replaced by a duty to transfer whatever he has obtained in place of the asset originally transferred. As B has not received anything in return for his gift, A could neither claim retransfer nor any (notional) consideration for the item. C, who has obtained the asset without consideration, is (like B before him) not worthy of protection. § 822 therefore provides that C has to transfer the asset to A.

A similar distinction between acquisition for consideration and gratuitous acquisition is provided for in the context of bona fide acquisition. Where the third party has bona fide acquired ownership, provisions that grant a claim for retransfer to the former owner (arising from tort law or unjustified enrichment) are as a general rule excluded. Again, an exception is made where the acquirer has obtained property without consideration (§ 816 I 2nd s.). § 816 [Disposition by Unauthorised Person] (1) If an unauthorised person disposes of an object and this disposition is effective towards the authorised person, the unauthorised person is obliged to give up what he obtained by the disposition to the authorised person. If the disposition was gratuitous, the same obligation lies on the person who obtained a legal advantage directly by the disposition.

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As mentioned above the transfer would still be valid where there is no underlying cause at all.285 However, the acquirer will generally be unjustly enriched and therefore obliged to retransfer ownership according to §§ 812 ff.

(b)

Consequences of a defective obligation

The reasons why a contractual agreement may be void or voidable are laid down in the General Part of the Civil Code (First Book). A first source of defects is lack of legal capacity to enter into legal transactions according to §§ 104 ff. For example, a declaration of will made by a person underage is void, so such contractual agreement is therefore ineffective. The same consequence is also provided for where a declaration is subject to a mental reservation made by a person where that declaration is made to a person who is aware of that reservation (§ 116), where the declaration of intention is made only in pretence (§ 117) or the declaration is lacking serious intent and is made in the expectation that the lack of seriousness is discovered (§ 118). A contract may also be void where it suffers a defect of form required by statute (§ 125), where it is contrary to law (§ 134) or where it is contrary to fundamental principles of morality (§ 138). Other defects of the declaration of intention as a general rule are not an impediment for its validity but merely make the contract voidable. Thus the contract is valid unless and until it is avoided by the party entitled to claim avoidance.286 The most important applications are the error as to the content of the declaration made or the lack of intention to make a declaration (§ 119), the incorrect transmission of a declaration of intention (§ 120) and finally the declaration of intention under the influence of fraud or duress (§ 123). By contrast, an error about the solvency of the contracting partner is not accepted as a reason to claim avoidance, unless the creditor has been fraudulently misled on this point in the meaning of § 123. Where the contracting partner is unable to meet his obligation the only remedy granted to the creditor is to revoke the contract by reason of lack of performance (§ 323). The same holds true if he has performed in advance without reservation of title, as the defective performance does not have any effect on the validity of transfer (cf. § 326 IV, §§ 346 ff.). In fact, the lack of validity of the contractual agreement is precisely the situation in which the principle of abstract transfer yields its effects. Where there is a lack of legal capacity or the contract is void or voidable for reason of error, fraud or duress, this only leads to a defect of the underlying agree285 286

Cf. Jauernig, JuS 1994, 721. Dörner, in: Handkommentar BGB (2007)5, § 142 no. 3.

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ment and does not impair the real agreement (unless the real agreement itself is defective for the same reason). Even the fact that the contractual agreement is subject to a condition does not affect the real agreement, unless it is similarly subject to a condition. The acquirer therefore may acquire ownership despite an invalid or conditional contract. Exceptions from this rule are only acknowledged to a very narrow extent.287 Of course, the validity of the real agreement cannot change the fact that the transfer of property does lack an economic justification. The (reciprocal) considerations thereunder therefore have to be reversed according to the rules of unjustified enrichment (§§ 812 ff.). The retransfer follows the general rules, i.e. it consists of a real agreement and traditio. The underlying cause for retransfer is the claim under the law of unjustified enrichment. The necessity of a formal retransfer under the law of unjustified enrichment leads to the consequence that until such retransfer takes place, the acquirer is the legal owner and is authorised to dispose of the property. He can accordingly transfer it to any third party, who in turn acquires from an authorised transferor. Where the transferee, due to such subsequent transfer, is unable to retransfer the asset, he has to compensate the value. Where the transferee in the meantime has been declared insolvent, the transferor (i.e. the former owner) is even worse off: whereas a causal system would grant him vindication, the abstract system substitutes this by a claim for a percentage in the insolvent party’s estate.288

(c)

Disruptions of the abstract transfer system

(i)

Exceptions

The general rule set out above is that the real agreement is not affected by a defective contractual agreement and that in consequence considerations already executed are reclaimed under the law of unjustified enrichment and the remedy is not vindicatory. However, this rule has not remained without exceptions. Such exceptions from, or ‘disruptions’ of, the principle of abstract tradition289 have been acknowledged in three different categories of cases. First, as contractual agreement and real agreement are both subject to the same rules of the General Part (First Book), defects, such as a lack of legal capacity, may similarly affect the real agreement in its own right and lead to a so-called identy of defects (Fehleridentität). Second, the assessment of the 287 288 289

On this cf. infra 4.3.2.(c). Cf. infra 8. This is criticised by Jauernig, JuS 1994, 721, 723 ff.

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contractual agreement as contrary to statute law or bonos mores may lead to the consequence that the economic result of the real agreement, if it were to stand, would be unbearable (so-called Gesetz- or Sittenwidrigkeit). Third, the defect of the contractual agreement may affect the real agreement if this is in line with the (presumed) intention of the parties (Geschäftseinheit).

(ii)

Identical defects

The real agreement is subject to the same provisions of the General Part as the contractual agreement. Thus, a defect such as lack of legal capacity may affect the contractual agreement alone, but may also affect the real agreement. Where both agreements are impaired by the same defect, this is commonly called identity of defects (Fehleridentität). Although this category of cases is commonly referred to as an exception from the principle of abstract tradition, it is not in the strict sense an alteration of the principle of independence of the agreement in rem from the underlying cause, because the reason for the defect of the real agreement is not the defect of the underlying cause. Instead, the link between these two agreements consists merely in the coincidence that the same fact, which has rendered the underlying cause ineffective, leads to a similar defect of the real agreement.290 That there is no dependence of the defect of one agreement on the defect of the other is apparent where the defect is cured between the conclusion of the contract and conclusion of the real agreement: if, for instance, one contracting party in the meantime reaches the age of 18 and thereby full legal capacity, then the real agreement is valid, because it meets the requirements of an agreement under the rules of the General Part. The mere fact that the underlying contractual agreement remains invalid does not affect the transfer of title. In this context it should be mentioned that although contractual agreement and real agreement are both subject to the same rules of the General Part, this does not automatically lead to the result that the examination of the validity of each of the agreements always has to correspond. A simple contract for sale provides a good example. The contractual agreement obliging a minor to transfer title – the purchase price – to another is disadvantageous and therefore void. By contrast the transfer of ownership of the good to the minor is usually a declaration, whereby he does merely acquire a legal benefit. By virtue of § 107 it is valid without consent

290

Rinne in: MünchKomm BGB VI (2004)4, Introduction, no. 19; Jauernig, JuS 1994, 721, 724.

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of the representative. Thus the contractual agreement is void, whereas the real agreement on the transfer of the ‘purchased’ goods is valid.

A further exception to the Abstraktionsprinzip is contained in the §§ 1365 ff. and § 1369 on matrimonial property rights: unless a person’s spouse consents to a contractual agreement affecting such property, any subsequent real agreement is rendered void.291

(iii)

Contracts contrary to law

The independence of the real agreement from the underlying obligation may in some cases lead to the situation that the legal order would sanction a transfer of property, although it holds the obligation to be void due to its lack of conformity with fundamental principles of the legal order. If this is the case it is acknowledged that notwithstanding the conception of real agreements as ‘neutral’, the legal order has to protect its values and in consequence let the defect of the contractual agreement extend to the real agreement.292 Whether or not a statutory prohibition affects only the contractual agreement or extends to the real agreement is left to be determined according to the spirit and purpose of the statute.293 This is in particular acknowledged in cases where the parties, in consort with each other and to the detriment of third parties or the legal community, pursue a purpose contrary to bonos mores or where one party pursues such purpose vis-à-vis the other.294 The exact details of this requirement are – unsurprisingly – a matter of dispute. Examples in which the defect of the contractual agreement has also rendered the ‘neutral’ real agreement void are the violation of a statutory prohibition in the meaning of § 134, which extends to the fulfilment of the real agreement,295 and the avoidance of the contract under § 123 (fraud and duress).296 As far as usury under § 138 II is concerned, the real agreement transferring property to the usurer is void for the benefit of the exploited person.297

291 292

293

294 295 296

For details see Wolf, JZ 1997, 1087 ff. Wacke, in: MünchKomm BGB VI (2004)4 § 873 no. 22; Wieling, Sachenrecht (2007)5, 14. BGHZ 115, 123, 130; BGH NJW 1992, 2349, 2350; Wiegand, in: Staudinger (2004) § 929 no 21. Wieling, Sachenrecht (2007)5, 14. BGHZ 1, 128, 131; BGHZ 115, 123, 130; BGHZ 122, 115, 122. Baur / Stürner, Sachenrecht (1999)17, § 5 no. 51.

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Only in exceptional cases the lack of conformity with bonos mores may arise from the purpose and result of the real agreement itself.298 Here the ‘neutral’ real agreement is scrutinised on its substance, a test which of course has to revert to the corresponding contractual agreement.299 297

An example for a real agreement that fails to meet this standard may be a fiduciary transfer if the economic activity of the party furnishing security thereby is unduly restricted or other creditors are discriminated against.300 This would apply in a case of delay in declaring bankruptcy,301 excessive securities for a debt302 or misguidance leading to breach of contract by means of a general assignment of all rights and claims.303

If, by contrast, the contractual agreement is contrary to fundamental principles of morality under § 138 I, the general rule is that the real agreement is ‘morally neutral’.304 Thus it does not come within the scope of identical defect of contractual and real agreement305 mentioned above. The retransfer of executed performance applies instead, again following the rules of §§ 812 ff.306

(iv)

Stipulation of conditions and uniform nullity

The parties can conclude the real agreement subject to a condition linking the underlying agreement and the real agreement. Such conditions may be conditions precedent or subsequent. By means of such a condition 297

298

299 300 301 302

303 304 305

306

BGH NJW 1982, 2767; cf. Wiegand, in: Staudinger (2004), § 929 no. 21 with further references. Baur / Stürner, Sachenrecht (1999)17, § 5 no. 51. This proposition is, however, rejected by the judicature in the majority of cases, cf. BGH NJW 1985, 3007; BGH NJW 1988, 2364; BGH NJW-RR 1989, 519; BGH NJW 1992, 593, 594. Wiegand, AcP 190 (1990), 113, 124. Baur / Stürner, Sachenrecht (1999)17, § 5 no. 51. BGH NJW 1995, 1668. BGHZ 7, 111; BGHZ 10, 228; BGHZ 19, 13, 18; BGH NJW 1998, 671. The judicature, however, has subsequently departed from the original line of holding excessive securities to be contrary to boni mores, cf. BGH NJW 1991, 354; NJW 1991, 2147; NJW 1996, 2786. BGH NJW 1991, 2147; BGH NJW 1995, 1668, 1669. BGH NJW 1973, 613, 615; BGH NJW 1990, 385; Jauernig, JuS 1994, 721, 725. Wiegand, in: Staudinger (2004), § 929 no. 21; Dörner, in: Handkommentar BGB (2007)5, § 138 no. 16. Dörner, in: Handkommentar BGB (2007)5, § 138 no. 16.

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the parties can agree that the validity of the real agreement will depend on the validity of the contractual agreement.307 A further requirement of such conditions, which may be also agreed upon tacitly, is that at the time of conclusion the parties are not sure whether or not the requirement will be fulfilled. Otherwise the acceptance of a (perhaps tacit) condition precedent may lead to the circumvention of the principle of abstract tradition.308 The possibility to make the validity of the transfer of ownership dependent on a stipulated condition is used in the construction of a reservation of title. However, in this case the validity of the real agreement is not subject to the condition that the contractual agreement is valid, but instead to the complete payment of the purchase price. Therefore the concept of reservation makes no alteration to the principle of formal independence, but it clearly demonstrates that a real agreement may be conditional. A similar alteration, or rather exception, from the abstract transfer system may be effected by virtue of the rule on unity of agreements comprised in § 139, also referred to as rule of uniform nullity. This provision contains a legal presumption that where one part of a legal transaction is void the whole legal transaction is void, unless it may be assumed that it would have been entered into even if the void part had been omitted. According to prevailing opinion, § 139 is not only applicable to several parts of one legal transaction but also to a unity of separate transactions. Whether or not this also may be extended to a unity of contractual and real agreement is a matter of controversy. Some authors have argued in favour of the application of the rule on uniform nullity as a link between contractual agreement and real agreement on the basis that the abstract transfer system is, in their opinion, of a nonmandatory nature and accordingly subject to the disposition of the parties.309 In fact, prevailing opinion disagrees and holds fast to the mandatory nature.310 As an argument against the application of § 139 to underlying and real agreement it is observed that the abstract transfer system has given the interest of legal certainty of third parties preference over the interest of 307

308

309

310

This only applies to movables: the transfer of immovables has to be unconditional, § 925 subsection 2. Baur / Stürner, Sachenrecht (1999)17, § 5 no. 53; Brehm / Berger, Sachenrecht (2006)2, no. 1.27; Jauernig, JuS 1994, 721, 723. Heck, Grundriß des Sachenrechts (1930), 121 ff.; Seiler, in: Staudinger (2007), Introduction to Property Law, no. 50; Wiegand, in: Staudinger (2004), Introduction to § 929 no. 18, § 929 no. 27; Eisenhardt, JZ 1991, 271, 277; Wiegand, AcP 190 (1990), 135; for criticism see Busche, in: MünchKomm BGB I (2006)5, § 139 no. 20. Busche, in: MünchKomm BGB I (2006)5, § 139 no. 20; Palm, in: Erman BGB I (2008)12, § 139 no. 23; Roth, in: Staudinger (2003), § 139 BGB no. 134, Rinne in: MünchKomm BGB VI (2004)4, Introduction no. 18.

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the parties to secure the result sought.311 According to this opinion, the application of the rule on uniform nullity in this case would operate contrary to the core of the abstract transfer system and hence may not be applied312 or at least only subject to very narrow exceptions.313 Despite this prevailing opinion in legal doctrine, the judicature has in various cases applied § 139 to cases where the contractual agreement was void and has consequently held the real agreement to be similarly void.314

4.3.3. Real agreement The strict distinction between the law of obligations and property law has lead to an independence of the transfer of title: it is no longer understood to be the fulfilment of the contractual agreement, but instead a self-standing legal transaction (or an act of disposal). The Civil Code uses the term ‘act of disposal’ (Verfügung) for all legal acts which aim at the constitution, transfer, encumbrance or extinction of a right. The main characteristic of these acts of disposal is that they in general take the shape of a bilateral agreement, but contain only an act of disposal of the right holder, whereas the other party merely declares his consent.315 The real agreement is a contract in rem and – except as otherwise provided by property law – as such subject to the rule of the General Part on legal transactions.316 A person performing a transfer accordingly must have legal capacity. Likewise the interpretation of any declarations will follow the general rules set out in § 133 and § 157. In the two central provisions on derivative acquisition of ownership (§ 873 and § 929), the Civil Code introduces the requirement of a real agreement, that is an agreement between transferor and transferee on the sole subject of transfer of title. The requirement of a real agreement (Einigung) on the transfer of ownership in movables is expressly set out in § 929 1st s., but reaches beyond this provision. It is also applicable to the subsequent 311

312

313

314

315 316

Baur / Stürner, Sachenrecht (1999)17, § 5 no. 56 with reference to BayObLG Rpfleger 1969, 48; this line of argument may also be traced in the decisions BGH NJW 1979, 1496, BGH NJW 1985, 3007; BGH NJW 1988, 2364; BGH NJW-RR 1992, 593, 954. Quack, in: MünchKomm BGB VI (2004)4, § 929 no. 71; Wieling, Sachenrecht (2007)5, 15. Rinne, in: MünchKomm BGB VI (2004)4, Introduction no.18; Brehm / Berger, Sachenrecht (2006)2, Rn 1.26.; Jauernig, JuS 1994, 721, 724. Cf. RGZ 57, 96; RGZ 153, 352; BGH NJW 1967, 1128, 1130; BGH NJW 1986, 2642; BGHZ 31, 321, 323; see also BGHZ 38, 187, 193 (obiter). For details see Haedicke, JuS 2001, 966, 967. Wieling, Sachenrecht (2007)5, 10.

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transfer modes of § 929 2nd s., § 929a, § 930 and § 931, and to bona fide acquisition under §§ 932 ff., all of which only modify the requirement of traditio.

4.4.

Concept of transfer of possession

4.4.1. General rule The principle of separation between underlying cause and real agreement (Trennungsprinzip) is a prerequisite for the existence of a separate real agreement, but it in itself does not yet answer the question whether the transfer of title is effected by consensus alone or is transfer of possession (traditio) also needed. In fact, it could even be possible that the conclusion of the real agreement by itself effects the transfer of ownership. Such a system – it has been argued – would better match the idea of abstract transfer, as the transfer of possession originally was considered to constitute the fulfilment of the contractual agreement.317 However, the Civil Code has held on to the requirement of traditio, but the transfer of possession does not constitute fulfilment of the contractual agreement, and is instead a means of publicity. It is the movable equivalent of the entry of a transfer of immovable property into the land register. The principle of traditio is expressed by the requirement of transfer of possession in § 929 1st s.: the real agreement must be completed by a factual element, which as a general rule will be the transfer of physical control over the asset disposed of from the transferor to the transferee. Turning to the underlying rationale of the principle of traditio we have to take into account that the transfer requirement fulfils a different purpose in the context of transfer from an authorised person as compared to bona fide acquisition from an unauthorised person.318 With transfer from an authorised person the transfer requirement serves legal certainty as a change of property rights only takes place where an actual act of transfer is conducted.319 Without this requirement there would be a danger that the distribution of liability is circumvented by means of a sham transfer of title. The owner of assets about to be seized could easily assert that he has long since transferred ownership to a third party. This concept is often referred to as the function of reliability (Seriositätsfunktion).320 317 318 319 320

Cf. Brehm / Berger, Sachenrecht (2006)2, no. 26.12. Brehm / Berger, Sachenrecht (2006)2, no. 26.11. Brehm / Berger, Sachenrecht (2000), no. 26.12. Brehm / Berger, Sachenrecht (2006)2, no. 26.12. This concern about the conclusion of sham real agreements is one of the reasons why the transfer mode of constructive

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4.4.2. Exceptions If this requirement of transfer of physical control were strict, then the transaction by an owner who does not have direct possession of the asset he intends to dispose of, would always require the owner to first obtain direct possession.321 The consequence of this would be that an asset that is, for instance, subject to a lease contract, could not be sold. The lessee by virtue of the contract is entitled to direct possession and holds a valid defence against the owner’s claim for recovery (cf. § 986). The strict adherence to the principle of traditio could even, in some cases, lead to an unnecessary double transfer. The law reacts to these difficulties by dispensing from the traditio requirement where the transferee already has possession (§ 929 2nd s.) or allows the traditio to be substituted by other transfer modes (§ 930 and § 931). All modes require the transferee to obtain some form of physical control, i.e. at least indirect possession.322 The modes of actual transfer or of the substitute modes set out in §§ 929 ff. are exclusive, i.e. there is a numerus clausus: actual transfer (§ 929 1st s.), brevi manu traditio (§ 929 2nd s.), constitutum possessorium (§ 930) and assignment of the claim for recovery (§ 931). However, even with regard to the substitute modes provided for, the strict adherence to the traditio principle would lead to consequences that are contrary to the needs of modern business transactions.323 As an example, a chain of delivery would be impossible, because the delivery from the manufacturer directly to the end-consumer would not meet the prescribed transfer requirements. Delivery would instead have to take place from the manufacturer to the wholesaler, and from the wholesaler to the retail seller (and so on), until the final delivery to the end-consumer. The judicature and legal doctrine have reacted to this problem and have accepted the so-called acquisition at behest (Geheißerwerb) as an additional substitute transfer mode. By virtue of the Geheißerwerb the fictional transfer within each single limb of the delivery chain is constructed, notwithstanding that the individual limbs of the delivery chain acquire neither direct possession

321 322 323

possession in § 930 requires a specified relationship of indirect possession (cf. Motive III, 98 ff. and supra 2.2.2). This has even been interpreted as a restriction of the abstract transfer system: because the fulfilment of the real agreement will in most cases at the same time be the fulfilment of the contractual obligation, despite the fact that an underlying cause is no longer required (loc. cit.). Cf. Brehm / Berger, Sachenrecht (2006)2, no. 26.12. See on the concept of Geheißerwerb, infra 5.4.3. and 7. Brehm / Berger, Sachenrecht (2006)2, no. 26.12.

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nor indirect possession, because the Geheißperson is not an intermediary possessor, but rather a person who has accepted the direction of another, and accordingly acts at another’s behest. The possession of the transferee at every point in the chain, with the legitimising appearance following thereon, is replaced by the submission of the Geheißperson to the directions of the corresponding transferor.

4.4.3. Additional requirements for bona fide acquisition We have seen that the principle of traditio has found a considerable number of exceptions in the context of transfer of movables according to §§ 929 ff.324 As far as acquisition from an unauthorised transferor is concerned, the transfer requirement by contrast is more strictly adhered to, because in the context of bona fide acquisition it serves other – or rather additional – purposes.325 This can be clearly seen with regard to the transfer mode of § 932 I 2nd s., which corresponds to § 929 2nd s., but adds a further requirement, namely that the transferee must obtain possession from the transferor. Similarly § 933, which is the equivalent to § 930, requires transfer by the transferor. Where the transferor was neither owner nor direct possessor, the transfer mode of assignment of claim for recovery requires that the transferee actually obtains direct possession from the third party. Thus, in the context of bona fide acquisition all transfer modes require actual physical transfer of possession. This additional requirement serves the protection of the owner as it cannot be met, i.e. no deprivation of ownership can occur, unless he has in some way contributed to the discrepancy between ownership and possession.326 The minimum requirement is that the owner has handed over his asset to a third party, as a bona fide acquisition will otherwise be excluded by § 935.327

4.4.4. Restrictions of party autonomy The fact that the transfer principle has ‘never been adhered to with consequence’328 or that the judicature and legal doctrine in any case do allow exceptions, should not be interpreted as opening the door for party autonomy. 324 325 326 327 328

Baur / Stürner, Sachenrecht (1999)17, § 51 no. 3. Brehm / Berger, Sachenrecht (2006)2, no. 26.11. Brehm / Berger, Sachenrecht (2006)2, no. 26.16. Cf. infra 11.1. Brehm / Berger, Sachenrecht (2006)2, no. 26.11 f.

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The parties are not free to contract out of the transfer requirement. Here, as in the context of property law in general, party autonomy with respect to form and content of transactions is severely restricted and in fact reduced to a choice between different transfer modes provided for by law. Other modes of transfer not set out in §§ 929 ff. are permissible only as far as acknowledged by the judicature and legal doctrine. Modifications by agreement of the parties, however, are permissible with regard to the real agreement. As an example, the time of transfer can be agreed upon or can be made subject to a condition subsequent or precedent. Likewise they may provide that the agreement and the transfer of possession do not take place at the same time. For instance the agreement on transfer of title can (by means of an anticipated constitutum possessorium) already be concluded before the transferor himself has even acquired possession of the goods in question.

4.5.

Registration

As noted, German property law only provides for two means of publicity, namely, with regard to movables, the transfer of possession and, with regard to immovables, the entry into the land register. There is a single exception from this system concerning ships. Although ships are movable property, the principle of publicity is adhered to by means of registration in a specific ship register. The rules of the ship register – which are of particular importance to the grant of a pledge over a ship – were originally contained in §§ 12591272 Civil Code, but were later replaced by the statute on registered ships and ship-yards.329 The main intention of the statute was to replace the former rule that pledge over a ship requires actual delivery to the pledgee. Instead, it provides for pledge by registration in a separate ship register, which – comparable to the land register – is vested with public authority. This allows for the ‘split’ of ownership into security rights and rights to use and enjoy property. Only ships greater than a stated size may be registered. As far as such a ship is registered, transfer of ownership follows rules comparable to those applicable to the transfer of immovables. Where a ship is not registered, either because it is too small or a registration has been omitted, the rules on transfer of title in movables apply (§ 929a and § 932a). Leaving these specific rules aside, German law does not provide for registration of movable property. The introduction of such a register of 329

Gesetz über Rechte an eingetragenen Schiffen und Schiffsbauwerken of November 15, 1940.

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movables has frequently been called for,330 in order to replace the accepted credit securities, which are seen to contradict the overall system by their lack of publicity, but no such system has been implemented to date.

4.6.

Problems, inconsistencies and critique

Turning away from a description of the current system and looking instead to the question of acceptance of the current system by legal doctrine, we have to draw a distinction between the acceptance of the general principles, i.e. the principle of separation and the principle of the abstract nature of transfer, on the one hand, and the actual rules that implement these basic principles, in particular the principle of publicity. Even though leading scholars have repeatedly criticised the sophisticated distinction between contractual agreement on the underlying cause and the real agreement restricted to the transfer,331 it is only fair to state that the predominant legal doctrine and the judicature as a general rule remain faithful to the basic concepts. The same holds true for the principle of the abstract nature of transfer, as the request to abolish the Abstraktionsprinzip has rarely been made.332 The main argument against the current system is based on a comparative law analysis showing that German law as it stands takes a quite unique position. Further, it has been emphasised that the rationale of legal security and certainty of third parties can already be achieved by application of the rules on bona fide acquisition as set out in § 932 ff. The statements of Wacke and – very recently – Füller may serve as an example. Both authors have advocated upholding the principle of separation, but abolishing the principle of the abstract nature of transfer.333 Again, the body of legal doctrine and the unanimous view of the judicature is to hold on to the abstract transfer system.334 Foreign legal systems which provide for a different system – such as the property law of the former German Democratic Republic or the

330 331

332 333 334

Cf. Baur / Stürner, Sachenrecht (1999)17, § 52 no. 44. Cf. Heck, Das abstrakte dingliche Rechtsgeschäft (1937); Larenz / Canaris, Schuldrecht BT II (1986), § 39 II d; H. Westermann, Lehrbuch des Sachenrechts (1990) 6 § 4 III. Wacke, ZEuP 2000, 254 ff.; Schindler, FS Kroeschell (1997), 1033, 1041. Wacke, ZEuP 2000, 254, 257; Füller, Eigenständiges Sachenrechts? (2006), 261. Cf. Wiegand, AcP 190 (1990), 113, 125; Stadler, Gestaltungsfreiheit und Verkehrschutz durch Abstraktion (1996), 728 ff., 739; Stürner, JZ 1996, 741, 747; Grigoleit, AcP 199 (1999), 379 ff.

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system of titulus and modus – are explicitly dismissed as disadvantageous or even as antiquated.335 By contrast the rules implementing the principle of traditio and of publicity have been heavily criticised. This criticism first and foremost concerns the increasing tendency to accept exceptions from the traditio rule and the resulting discrepancy between the call for application of the transfer principle (as fulfilment of the principle of publicity) and the acceptance of substitute transfer modes developed by legal practice. Thus due to the acceptance of credit securities without actual transfer of possession means the presumption of ownership in favour of the possessor contained in § 1006 increasingly lacks a factual basis in practice. The critique emphasises the problem that the current concept of possession as a means of publicity falls short of its equivalent in immovables, being the land register. In fact the principle of traditio as a means to secure publicity of transactions is in particular affected by the acceptance of the transfer mode of Geheißerwerb in addition to those set out by the Civil Code.336 The concept of acquisition at behest may perhaps meet the reliability criterion inherent in the principle of traditio, but it does not take heed of the principle of publicity.337 However, while scholars are unanimous with regard to diagnosing the existence of a problem and the description of that problem, the conclusions drawn and the opinions on the proper solution are wide-ranging. The various exceptions have led Heck to the statement that the transfer principle represents the general rule, but does not constitute a mandatory rule. Therefore the parties were free to transfer ownership by mere agreement.338 By contrast Quack argues that the provisions of the Civil Code have to adapt, and can be adapted, to the necessities of modern business transactions and communication. Thus, he argues strict adherence to the transfer requirement is not advisable. Instead the transfer requirement should in general be construed as a requirement of a two-stage transfer. The second stage, i.e. transfer, could easily be replaced by a legal transaction.339 Similarly Wiegand points out the superiority of the reliability criterion over publicity, a preference which, he argues, has already been the main focus of the legislature. Therefore, the transfer requirement could be widely interpreted: according to Wiegand the sole requirement is that the change of ownership leads to some change of possession, with335

336 337 338 339

Prütting, Sachenrecht (2008)33, no. 16, 30 f.; insisting Wieling, ZEuP 2001, 301 ff. and Wieling, Sachenrecht (2007)5, 12 f. Cf. Quack, in: MünchKomm BGB VI (2004)4, § 929 no. 146. Brehm / Berger, Sachenrecht (2006)2, no. 27.32. Heck, Grundriss des Sachenrechts (1930), § 56. Quack, in: MünchKomm BGB VI (2004)4, § 929 no. 146.

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out further distinction whether this change of possession is brought about by the owner, a direct or indirect possessor or merely on the transferee’s behest.340 Stürner in turn has emphasised the importance of the principle of publicity, but proposes to adapt it to the necessities of business transactions by creating a register for movables as an alternative to transfer of possession.341 Other authors, however, argue in favour of a return to a strict principle of publicity. For instance Larenz has proposed to the resurrection of the old system of an underlying contract and traditio, as it was foreseen by the Allgemeines Landrecht (ALR). The traditio requirement would remain in place, whereas the distinction between underlying cause and real agreement would be abolished.342 A counter proposal has been made by Wacke, who has argued not just in favour of this distinction, but for the abandonment of the abstract transfer system.343 All in all, there seems to be a preponderance of votes in favour of the principle of traditio,344 so much so that in many works of authority the principle is not even a matter of discussion. Though this adherence to the principle of traditio according to Berger / Brehm is merely a consequence of the fact ‘that no clear rules can be derived from the principle and therefore it does not force anyone to draw any conclusions.’345 Similarly Musielak states that the principle of traditio in §§ 929 ff. has found such meagre expression that it may well be disputed whether it should be counted at all among the general principles of property law.346

5.

Transfer of movable property

5.1.

Overview on transfer requirements

The general rule for the transfer of title in movables is set out in § 929 1st s. All subsequent transfer provisions are based on this provision.

340 341

342 343

344

345 346

Wiegand, in: Staudinger (2004), § 929 no. 55 ff. Baur / Stürner, Sachenrecht (1999)17, § 51 no. 44; Stürner, JZ 1996, 741, 745 f.; see also Grunsky, JuS 1984, 497. Larenz, Schuldrecht BT II / 1 (1986), § 39 II d. Wacke, ZEuP 2000, 254, 257, yet he holds the abstract transfer system to be superfluous, loc. cit, 257. Baur / Stürner, Sachenrecht (1999)17, § 51 no. 4; Larenz / Canaris, Schuldrecht BT II (1986), § 39 II d; see also the criticism by Canaris, FS Flume 1978, 372, 412. Brehm / Berger, Sachenrecht (2006)2 no. 26.10. Musielak, JuS 1992, 713, 716.

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§ 929 BGB [Agreement and Delivery]: For the transfer of ownership of a movable thing, it is necessary that the owner of the thing delivers it to the acquirer and that both agree that the ownership be transferred. […]

This transfer mode is not only designed as the general rule, but also is the most important mode in practice. It requires a real agreement and the transfer of possession. The disposition in rem therefore consists of two stages, namely the real agreement as a contract on the change of rights in rem and a means of publicity. The sole content of the real agreement is the transfer of ownership; it is therefore ‘neutral’ or ‘abstract’ in the sense that it does not bear any reference to the underlying justification for the allocation of assets. The real agreement has to be completed by a transfer of possession to the transferee, the order of agreement and transfer however is interchangeable.347 Whereas the requirement of a real agreement in the meaning of § 929 1st s. remains the same for all transfer modes, § 929 2nd s., § 930 and § 931 each modify the requirements of transfer or replace actual transfer by a substitute transfer mode. The same holds true for the provisions on bona fide acquisition. Each of them is based on the general rule requiring real agreement and transfer. §§ 932-934 each mirror one of the transfer modes of §§ 929 ff., but contain modifications, which pose stricter requirements with respect to transfer of possession:348 bona fide acquisition is only possible if an actual transfer of (indirect) possession takes place. A further requirement of § 929 is not expressly set out, but tacitly applies, namely the authority of the transferor to dispose.

5.2.

Authority to dispose

According to § 929 the ownership of the transferor is a further requirement of a valid act of disposal. Even though the ownership of the transferor may be the general rule, the wording of § 929 on the one hand is too narrow, as the authority to dispose may have been conferred on another person, but on the other is too wide, as even the owner may be restricted in his authority to dispose. By deviating slightly from the wording of § 929, it can be seen that the actual requirement for a valid act of disposal – be it

347

348

Baur / Stürner, Sachenrecht (1999)17, § 5 no. 30; Wieling, Sachenrecht (2007)5, 10; H. Westermann, Lehrbuch des Sachenrechts (1998)7, § 38 4. Brehm / Berger, Sachenrecht (2006)2, no. 26.15.

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transfer, encumbrance with restricted rights in rem or abandonment – is the authority to dispose of a thing. This requirement of the authority to dispose can be derived from a comparison of §§ 929 ff. with §§ 932 ff., as the first set of rules require the authority of the transferor to dispose of the asset, whereas the second provide that this requirement may be substituted by good faith of the transferee. The authority to dispose in general coincides with ownership, but the owner may lack authority to dispose if he is under a restriction not to transfer, or if the authority to dispose in the course of insolvency has shifted to the administrator of the estate. Likewise it is possible that by exception a non-owner has valid authority to dispose of another’s property, because he is granted authority either by statutory law (e.g. parents with regard to the property of their child) or by a respective power of authority granted by the owner (e.g. procura). Further § 185 provides that the act of disposal of a non-owner will be valid if he has acted with prior or retrospective consent of the authorised person, if the person disposing subsequently acquirers ownership or becomes the heir of the owner. Thus it can be stated that in general the owner is vested with the authority to dispose, but by exception may lack authority on the basis of a contractual or statutory restriction. A non-owner may validly dispose of another’s goods if he is granted authority by the owner or by statute. Whether the basis of this authority is ownership, an authority granted by contractual agreement or based in law, however, is not relevant to the question of whether any disposal is valid. Dispositions by any persons not in the above-mentioned categories lack validity under §§ 929 ff., but may qualify as valid transfer under the rules of bona fide acquisition. Yet, it must be stressed that the rules on bona fide acquisition rely on the good faith relative to the transferor’s ownership, whereas good faith relative to the transferor’s authority to dispose in general is not protected.

5.3.

Real agreement

5.3.1. Agreement in rem The minimum content of the agreement in rem is the determination of the parties and the specification of the assets to be transferred.349 As a consequence of this requirement to specify the goods to be transferred, a real agreement, in contrast to the mere (precursor) obligation, can only refer

349

Quack, in: MünchKomm BGB VI (2004)4, § 929 no. 71.

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to specific goods; it cannot be concluded with regard to a category of goods or goods only specified by kind. The agreement does not require any specific form and can be constituted expressly or by implication. Frequently the agreement in rem will coincide with the conclusion of the underlying contractual agreement, but nevertheless has to be distinguished from a legal point of view. Where the agreement in rem takes place a considerable time after the contractual agreement and thus has not yet been tacitly included in the contractual agreement, the agreement can be tacitly implied in the later transfer. In fact, it must be assumed that a transfer will imply a tacit real agreement, as a layperson’s knowledge of the distinction between underlying and real agreement can hardly be presupposed.350 In legal practice the real agreement only occurs as a distinct legal transaction in the context of sale under reservation of title. As the real agreement is a contract it is necessarily bilateral. As a contract in rem the real agreement is subject to the provisions of the General Part of the Civil Code (First Book), unless these general rules are trumped by specific property law rules.351 The application of the General Part inter alia relates to legal capacity,352 defects of declaration of intention, form of legal transactions, conclusion of contracts, construction of contracts353 and the effect of a violation of statute.354 As a disposition in rem the contract in rem further is subject to relative restrictions of transferability (§§ 135, 136). The rules on obligations contained in the Second Book, by contrast, are not applicable.355 The provisions on agency and grant of authority are equally applicable to real agreements:356 the owner may authorise a third party to dispose of his property (§ 185 I) or can subsequently ratify a disposition performed by such person without prior consent (§ 185 II). This possibility is of major importance with regard to both the extended reservation of title and for the fiduciary transfer of title, because both forms of credit securities are based on the possibility of the debtor using and perhaps reselling the assets in order to earn the capital necessary to repay the secured loan. The real agreement can be made subject to a condition, which could be a time limit. The main example in practice is that the real agreement 350 351 352 353 354 355 356

Cf. BGH NJW 2007, 2844. Baur / Stürner, Sachenrecht (1999)17, § 5 no. 5; Wieling, Sachenrecht (2007)5, 4. Cf. BGH NJW 1988, 3260; BGHZ 78, 28, 35. BGH WM 1978, 194. BGHZ 11, 59, 61; BGHZ 115, 123, 130; BGH NJW 1992, 2349, 2350. Baur / Stürner, Sachenrecht (1999)17, § 5 no. 25; BGHZ 49, 263, 264 ff. Agency is only available with respect to the real agreement, not for the transfer of possession, but may be replaced by the concept of transfer by intermediaries.

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is subject to a reservation of title that requires complete payment of the purchase price as a condition precedent (§ 449).357 Peculiarities of the real agreement in comparison to contractual agreements only exist up to a point, as a line of opinion stemming from the exception in § 873 II (which actually relates to immovable property) deduces the general rule that the real agreement does not have a binding effect until transfer is effected,358 meaning a party may freely withdraw from the real agreement as required.359 On this view, the lack of binding force leads to the further requirement that both the authority and the intention to dispose must be satisfied at the time the two-stage transfer is completed.360 Until that moment the transferor may at any time unilaterally withdraw his act of disposal even if he thereby acts contrary to a valid contractual obligation.361 Other authors argue that § 873 II does not justify such a argumentum e contrario, as the ratio behind this rule is to protect a transferor against hasty decisions and thus may justify the exception from binding force. As such protection is only necessary in the context of the transfer of immovable property, no inference can be drawn with regard to the rules on movable property. Accordingly, the general rule – i.e. the binding force of declarations of intent – remain in place. In practice, this controversy is of rather little significance, as the continuance of the intention is presumed, unless there are clear indications to the contrary. Further, it should be stressed, that it is the universal opinion that a declaration will have full binding force where the transferee acquires an equitable interest. In this case the transferee will even acquire ownership where the transferor has changed his mind by the time the condition is met.362

357 358 359

360 361 362

Cf. infra 13.1. For contracts the binding effect is expressly provided for in § 145 ff. BGHZ 14, 114, 122; BGH NJW 1978, 696; BGH NJW 1979, 213; of other opinion, see H. Westermann, Lehrbuch des Sachenrechts I (1998)7, § 38 4. Though the continuation of the real agreement is presumed, unless there are indications to the contrary: of other opinion, see Brehm / Berger, Sachenrecht (2006)2, no. 27.11. Where the transferor is obliged by contract to agree to the transfer of title, he may be ordered by judgment to agree to such transfer (§ 894 ZPO). Baur / Stürner, Sachenrecht (1999)17, § 51 no. 11. Weber, JuS 1998, 577, 578. Prütting, Sachenrecht (2008)33, no. 373.

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5.3.2. Clarity and identification As set out above, a transfer has to comply with the principle of specificity. The principle of specificity requires a separate real agreement for each thing transferred, even where the agreements on a variety of assets transferred are combined in a single declaration. The difference between the combination of various specific declarations and a composite declaration is evident where a variety of things are transferred, but an error giving a right to avoidance occurs only with respect to a single thing. Unless the rule on uniform nullity under § 139 applies, the result is that the avoidance of the respective real agreement only leads to the invalidity of transfer of title concerning such single thing, while the transfer remains valid with respect to the other assets. A prerequisite of any transfer of ownership is therefore that the parties agree on the object of the contract. To satisfy this requirement the assets, to be transferred have to be conclusively specified. In determining whether this requirement is met, the timing of the act of disposal is decisive. According to case law of the Federal Court of Justice, it is sufficient if an independent onlooker, who has knowledge of the agreement, can determine which assets are covered by the agreement.363 Where a multitude of goods are transferred, the goods still have to be determined in a manner that allows their specification.364 This condition, for example, is met if an entire category of goods stored in a warehouse or an entire stock is transferred, but will also be satisfied if the goods are marked or listed in a register or ledger. According to the judicature, for the purposes of the real agreement it may be sufficient that the goods are determinable, but they must be determined at the time of execution of the transfer.365 Problems of evidencing whether or not a particular asset was covered by the transfer, which may arise at a later stage, are of no relevance in the context of specificity.366 Example: A and B agree that A will sell and transfer all the goods stored in a certain stockroom of a warehouse to B. After this agreement is made, an employee of A places further goods in the appointed stockroom. As a result of this act, from this point forward it may be difficult to verify which goods are covered 363

364 365 366

This so-called ‘onlooker-rule’ (‘Beobachterformel’) has been applied by the courts since BGHZ 73, 253, 254 f. See also BGH NJW 1984, 803; BGH NJW 1986, 1985; BGH NJW 1992, 1161; BGH NJW 1994, 133. For criticism see Quack, in: MünchKomm BGB VI (2004)4, § 929 no. 78. Wieling, Sachenrecht (2007)5, 100 f. Quack, in: MünchKomm BGB VI (2004)4, § 929 no. 87. BGHZ 73, 255; Brehm / Berger, Sachenrecht (2006)2, no. 27.3; Quack, in: MünchKomm BGB VI (2004)4, § 929 no. 87.

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by the transfer and which remain the property of A. But this does not impair the validity of the transfer, as at the decisive point in time the requirement of specificity was met.

The judicature on this point, in some respects, is quite causistic, though a tendency to reduce the standard can occasionally be identified.367 The judicature has held the following specification to be sufficient: – A stock in trade, with the additional declaration that the transferor only had conditional and not full ownership in respect of some of the assets contained, but without further specification.368 – All assets stored in a particular room at the time of transfer.369 – All aggregate things stored in specific stockrooms of a warehouse, even though other assets, which did not belong to the aggregate assets, were stored in the same room.370 The following specifications by contrast were held to be insufficient: – The determination of the asset as comprising part of a class of assets.371 – The specification of 75 fattened pigs, which were in fact held separately, because the separate storage was not elaborated on in the parties’ agreement.372 – The determination of goods of a value or price up to the amount of a specified sum.373 – The agreement that all assets are subject to the transfer, which are the property of the transferor.374 – The agreement that half of the assets stored as stock-in-trade shall be transferred, because such agreement does not allow you to determine whether every individual asset belongs to the relevant half. Reference to a future specification has also been held as insufficient.375 However, this defect can be cured by means of an anticipated real agreement: where the agreement takes place prior to the transfer it may refer to 367

368 369 370 371 372 373 374

375

For criticism see Baur / Stürner, Sachenrecht (1999)17, § 4 no. 19 and Feuerborn, ZIP 2001, 600, 602 ff. BGHZ 28, 16 (with explicit deviation from BGHZ 21, 52). Quack, in: MünchKomm BGB VI (2004)4, § 929 no. 83. BGH ZIP 2000, 1895. BGHZ 21, 52. BGH NJW 1984, 803, 804; for criticism see Gursky, JZ 1991, 496, 498. BGHZ 21, 52, 55 (obiter). BGHZ 21, 52; confirmed in part by BGHZ 28, 16, 20; BGH WM 1986, 594; see also Quack, in: MünchKomm BGB VI (2004)4 VI, § 929 no. 83. BGH NJW 1991, 2144.

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a thing that does not yet exist or is not yet specified, and will take effect as soon as the thing comes into existence or is specified by segregation from the stock-in-trade. This possibility is of great practical importance in the context of credit securities by fiduciary transfer, as it permits a transfer of a changing stock-in-trade. As soon as the assets are brought into the specified storage areas, they are instantaneously specified and the real agreement takes effect (a so-called storage security contract).376

5.4.

Tradition

5.4.1. General rule As already noted, a key concept for transfer of title in movables is that every transfer based on a voluntary legal transaction needs a form of publicity.377 The basic transfer mode contained in § 929 1st s. requires delivery. The term ‘delivery’ here stands for actual transfer of physical control from the transferor to the transferee. This requirement of delivery, however, is modified in the subsequent paragraphs. § 929 2nd s. even dispenses with transfer, because the transferee already has possession of the asset involved (traditio brevi manu). § 930 permits the substitution of actual transfer by an agreement on constructive possession. The former owner remains in possession and agrees to hold it for the new owner as the indirect possessor (constitutum possessorium). Finally, § 931 2nd s. replaces actual physical control by the assignment of the claim to recover possession, with the transferee obtaining indirect possession in the meaning of § 870 (traditio longa manu). All of these modifications of the basic concept lead to the transferee obtaining possession, but they do not require that an actual transfer takes place or that – where possession is transferred – such transfer is performed by transferor and transferee. Despite the fact that the catalogue of transfer modes has been considerably enlarged by legal doctrine, there has been no such enlargement with regard to the principle of traditio to allow the requirements of transfer to be subject to party disposition. This said, the parties may freely choose between the different transfer modes; a specific justification why the parties chose one transfer mode over another is not required. All transfer modes and substitute transfer modes are adequate.

376 377

Cf. BGHZ 117, 200. Cf. supra 4.2. and supra 4.4.1. on the different considerations for movable and immovable property.

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5.4.2. Parallelism between possession and ownership The main purpose of the principle of publicity is to secure the conformity of possession and ownership and thereby restrict the possibility of dispositions by unauthorised persons. The underlying rationale is that unauthorised persons cannot transfer possession (which will be lacking) and accordingly cannot transfer, or even attempt to transfer, ownership.378 This principle, however, has not been implemented by the Civil Code in a rigorous enough fashion to strictly adhere to this rationale. In fact, there are cases in which the owner can transfer ownership by mere agreement. Other transfer modes allow transfer of ownership without requiring that the transferee obtains possession. For example, the so-called acquisition at behest accepts as a valid transfer mode that the asset – under the direction of the transferee – is handed over to a third party.379 In order to satisfy the growing demand for flexibility of modern business transactions the policy of securing the conformity of possession and ownership has been relegated over time and accordingly the principle of publicity has been increasingly neglected.380 This is particular;y striking in the case of a chain of delivery: the transfer of possession from one limb of the delivery chain to the next is a traditio ficta. The manufacturer can in fact deliver the goods straight to the end-consumer without the intermediary party ever setting hand on it.381 Further, the substitute transfer modes provided for in § 930 and § 931 are legal transactions and not factual acts, and are therefore not perceptible for third parties. They only conform to the principle of traditio insofar as they transfer indirect possession to the transferee and therefore satisfy the reliability criterion, but do not confer any publicity.

5.4.3. Modes of tradition (a)

Traditio and substitute traditio

The transfer of ownership in movables follows the principle of traditio and the principle of publicity. The first provides that the transfer of ownership, as a rule, is not executed before the real agreement is accompanied by an actual transfer of possession. Transfer of possession in the present context here is to be understood as mutual transfer of direct possession. 378 379 380 381

Brehm / Berger, Sachenrecht (2006)2, no. 26.12. On the concept of acquisition on behest and the chain of delivery see infra 7. Brehm / Berger, Sachenrecht (2006)2, no. 26.12. Brehm / Berger, Sachenrecht (2006)2, no. 26.13.

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What the legislature prescribed in the Civil Code has an apparent change, i.e. an actual shift of physical control, in mind. Despite this concept, the law does not strictly adhere to the principle of publicity, as the law already provides for transfer modes that allow the substitution of physical transfer by agreement. As a consequence the change of possession remains undisclosed. Although the rules on transfer of movables, in addition to the general rule contained in § 929 1st s., only provide for three transfer modes, the modalities of valid transfer are manifold and confusing.382 This may be best demonstrated by an example. Example:383 A has lent a book to B. When A asks B to return the book, B is unable to find it. He does not know whether he has mislaid it at home or lent it to a third party or indeed whether it has been stolen. A and B therefore agree that B compensates A for the value of the book and if he finds it may keep the book in return. Working through all possible scenarios of rediscovery in turn, if B has merely mislaid the book in his apartment, he has acquired ownership according to § 929 2nd s. Where he has lost it, but later regains it, this constitutes an anticipated real agreement under § 929 2nd s. and ownership will be acquired by B. If A’s daughter had the book at the time of the agreement, but later hands it over to B, B obtains ownership by virtue of 929 1st s. Finally, if the book was stolen from B, B acquires ownership by assignment of the claim for recovery under § 931.

The different transfer modes therefore shall be set out separately according to the statutory order.

(b)

Transfer modes

(i)

Transfer by agreement and delivery

A literal interpretation of § 929 1st s. would require the transfer of direct possession immediately from the transferor to the transferee. Legal doctrine however has accepted that this transfer mode is not practical for modern business transactions and has solved the problem by raising the requirements to a more abstract level. According to prevailing opinion this al-

382 383

Baur / Stürner, Sachenrecht (1999)17, § 57 no. 19. This example is taken from Baur / Stürner, Sachenrecht (1999)17, § 51 no. 20.

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lows the formation of a more general rule. Despite some simplification this general rule may be summarised as follows.384 A valid transfer under § 929 I is subject to three conditions:385 (i) Loss of possession: the transferor and all persons who may act in his place (direct possessor, possessory servant, Geheißperson) have to give up any form of possession.386 (ii) Acquisition of possession: the transferee, or any person who may act on his behalf (direct possessor, possessory servant, Geheißperson), has to obtain actual possession, i.e. physical control. (iii) Intention to transfer possession: the acquisition of possession by the transferee must be connected to the intention of the transferor to transfer possession, as otherwise the transferee’s act would constitute unlawful interference. The first requirement, i.e. loss of possession of the transferor, will be met if the transferor himself hands over possession to the transferee as if a direct possessor or possessory servant transfers possession according to his directions. This of course may be effected by an intermediary handing over possession. The requirement will similarly be met where the former owner instructs the direct possessor or possessory servant to conclude a new agreement on constructive possession with the transferee. If the intermediary acts accordingly, the requirement of loss of possession of the transferor will be met.387 The main difference between this transfer mode and a transfer under § 931 is that instead of a mere assignment of the claim for recovery by the transferor a new relationship of constructive possession is agreed upon between the possessor and the transferee. Legal practice has acknowledged the so-called acquisition at behest as a further transfer mode (Geheißerwerb). Here a third party, who is not an intermediary, but acts according to the instruction of the transferor, conducts the transfer. This third party, at the behest of the transferor, hands over the goods to the transferee or agrees to hold possession for the transferee.388 Example: The finder of a thing does not hand over the lost property to the original owner but directly transfers possession to a person who has purchased the thing in the meantime. 384

385 386 387 388

Cf. Baur / Stürner, Sachenrecht (1999)17, § 51 no. 19 with reference to RGZ 137, 23, 25. Cf. Baur / Stürner, Sachenrecht (1999)17, § 51 no. 12. For criticism on this dogma see Brehm / Berger, Sachenrecht (2006)2, no. 27.60. RGZ 103.151; BGH NJW 1959, 1536, 1539. BGHZ 36, 56, 60.

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The second requirement of a valid transfer, i.e. acquisition of possession by the transferee, is met where either the transferee obtains possession, or an intermediary acting on his behalf obtains possession and holds it for the transferee. Where the acquirer has physical control, a mere agreement on the transfer of possession is similarly sufficient (§ 854 II). Whether or not the same construction of an acquisition at behest may be used on the side of the transferee is a matter of dispute. In this case possession of the good at behest of the transferor is transferred to a person who is not an intermediary of the transferor, but is willing to observe his instructions.389 This formation is of particular importance with regard to the chain-of-delivery.390 The third requirement is that the transfer of possession is covered by the transferor’s intention to transfer possession. The transferee must obtain possession as a consequence of the intention of the former owner. This intention to transfer possession is a factual rather than a legal act. The only exception concerns transfer of possession by agreement under § 854 II. Here transfer of ownership consists of two agreements, one on the transfer of ownership and one, as a substitute for the actual transfer, on the transfer of possession. Both may coincide in a single act and by nature are legal acts.

(ii)

Transfer by mere agreement

§ 929 2nd s. provides for an alternative transfer mode commonly called brevi manu traditio. Where the transferee already has possession of the thing to be transferred, § 929 2nd s. dispenses with the requirement of actual physical transfer. The ratio behind this ‘transfer mode’ is that the strict application of the general rule would require the possessor to return the good to the transferor before a subsequent retransfer.391 The principle of traditio in this case is replaced by the solo consensus rule.392 The brevi manu traditio merely requires agreement and is available with regard to any derivative transfer of ownership, regardless of the legal basis for the transfer. Despite this alleviation, the general requirement that the transferor must lose any form of possession applies without modification. It should be noted that it is not significant from whom the transferee has obtained possession, whether he has obtained direct or indirect possession, and, with indirect possession, who holds possession for him. Further, the agreement under § 929 2nd s. may be anticipated. Where the transferee was 389 390 391 392

Baur / Stürner, Sachenrecht (1999)17, § 51 no. 17. Cf. infra 7.1. Baur / Stürner, Sachenrecht (1999)17, § 51 no. 20. Brehm / Berger, Sachenrecht (2006)2, no. 27.38.

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the former direct possessor for the transferor this relationship of constructive possession has to be terminated.

(iii)

Transfer by constitutum possessorium

The transfer mode of constitutum possessorium is designed for the situation where the transferor intends to transfer ownership and at the same time retain direct possession of the asset involved. This may be of interest where the transferor requires the ability to use the asset in question. Application of the general rule of § 929 would require the transferor to transfer possession to the transferee and subsequently conclude a (personal) agreement on a relationship of indirect possession, which obliges the transferee to return possession to the transferor. In order to avoid this unnecessary back and forth arrangement, § 930 provides for the constitutum possessorium. As with any other transfer rule a real agreement in the meaning of § 929 is required. The characteristic of this transfer mode is that the actual transfer is replaced by constructive possession (Besitzmittlungsverhältnis): the transferor transforms his intention to hold possession as proprietary possessor into the intention to henceforth hold possession in another’s interest, namely the transferee. The transferee accordingly attains the position of an indirect proprietary possessor and thus acquires ownership of the asset. The underlying relationship of constructive possession under § 868 may arise either from contract or statute.393 The common feature of all relationships of constructive possession is that the possessor for another is granted a right to possession that is derived from the proprietary possessor and restricted to a limited time period. The proprietary possessor therefore must have a claim for recovery of possession against the direct possessor. Typical examples of constructive possession are usufruct, pledge, lease, and deposit. Examples of further relationships in the meaning of § 868 arising from statute are the parental care for their children’s property,394 the relationship between the executor of an estate and the beneficiaries of that estate, or the relation between the insolvency administrator and the insolvent party.395 The relationship of indirect possession must be defined,396 i.e. it has to spell out the rights and obligations of the parties. The mere agreement 393

394 395 396

As far as a relationship of indirect possession exists ex lege the mere agreement on the transfer of ownership is sufficient for a transfer under § 930, cf. Baur / Stürner, Sachenrecht (1999)17, § 51 no. 24. BGH NJW 1989, 2542. Baur / Stürner, Sachenrecht (1999)17, § 51 no. 24. Baur / Stürner, Sachenrecht (1999)17, § 51 no. 22.

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to establish constructive possession is insufficient.397 With regard to the typical examples of constructive possession this is unproblematic, because statutory law already adequately spells out any rights and duties in the relationship, but the requirement of clear ascertainment of the relationship is of some importance in the context of credit securities. Here the minimum requirement for a relationship of constructive possession between the secured creditor and the party furnishing security is that the rights and duties are specified. The judicature and legal doctrine have widely acknowledged the concept of securities by fiduciary transfer, therefore the agreement that the asset is transferred as a security would probably suffice. The rights and obligations of the parties will then have to be determined according to case law and general practice.398 Even if the agreement on a relationship of constructive possession is void this will not affect the transfer of ownership, as long as the owner has a right to claim recovery of possession from the direct possessor and the latter respects the proprietary possession of the owner. Example: Under to § 930, an entrepreneur can transfer ownership in his vehicle fleet to a financial institution as a security. As long as the agreement on the conditional ownership specifies the mutual rights and obligations, this agreement is recognised as a relationship of constructive possession. It is not necessary to transfer possession in the vehicle fleet to the bank. This serves the interest of both parties: the business owner needs the vehicle fleet to run his business and the bank will ordinarily have no desire to take the vehicles in custody. The drawback of this concept is that transfer of ownership takes place without any form of publicity.

The agreement on a relationship of constructive possession can even be concluded by means of self-contracting under § 181, i.e. where the agent is authorised to dispose or by making an agreement merely fulfils a preexisting obligation vis-à-vis the principal. Constructive possession by self-contracting is of particular interest where ownership is supposed to be transferred to a person behind the transferee, such as a commission agent, who conducts a purchase for the principal in his own name. The main application of this concept therefore is an order to buy on commission.399 Naturally, it is a major, if not the major, interest of the principal – who will often have paid in advance – to acquire ownership as soon as possible and thus secure his property against the agent’s creditors. However, the prin397

398 399

BGH NJW 1953, 217; BGH NJW 1979, 2308; for criticism see Wiegand, in: Staudinger (2004), § 930 no. 14 ff. Baur / Stürner, Sachenrecht (1999)17, § 51 no. 22. Baur / Stürner, Sachenrecht (1999)17, § 51 no. 30.

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ciple of publicity requires that the agent’s intention to transfer ownership is made public by some means. This can for instance be implemented by marking the respective goods with the name of the principal, or by means of storage in a separate room or warehouse. Negotiable instruments will have to be registered by an itemised list. A prompt transfer to the principal can be reached by means of an anticipated constitutum possessorium. Here, both the agreement on the transfer of ownership and the agreement on a relationship of constructive possession are concluded before the agent, as the future direct possessor, has himself obtained possession. The minimum requirement again is that the goods to be transferred and thus subject to the constructive possession are clearly determined. As soon as the agent obtains possession the principal acquires ownership after a further ‘logical second’ (so-called Durchgangserwerb). Thus the principal does not directly acquire from the contracting partner of the agent, but from the agent. During this logical second the assets are part of the agent’s patrimony, and as such may be encumbered by other restricted property rights, in particular security interests.400 The main field of application of the transfer mode of an anticipated constitutum possessorium is a fiduciary transfer of title with respect to a changing stock-in-trade.401 In order to gain the capital necessary to repay the security holder, the party furnishing security will often depend on the possibility to trade with the assets contained in the stock. To this end the security holder and debtor agree that all goods that are held in a particular room or warehouse belong to the security holder and the security holder in addition authorises the debtor to dispose of the goods. When the debtor acquires ownership with delivery of the goods from a third party, he will then, on the basis of the anticipated real agreement, transfer ownership in the goods by bringing them into the appropriate room or warehouse. A further example of an application of transfer by means of constructive possession is the sale and leaseback contract: A is the owner of a valuable machine. In order to raise capital for further investments he agrees with B that B shall purchase the machine and acquire ownership and subsequently lease it to A, who needs the machine for his manufacturing process. The lease is a relationship of constructive possession in the meaning of both § 868 and § 930. The actual transfer of possession therefore is dispensed with, as to insist on this would force B to immediately retransfer possession to A, because A as the lessee is entitled to possession.

400 401

Baur / Stürner, Sachenrecht (1999)17, § 51 no. 31. Baur / Stürner, Sachenrecht (1999)17, § 51 no. 31.

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The obvious advantage of the admissibility of such arrangements is that the security holder acquires ownership of the goods and thus may satisfy his security interest, while the credit user may use such goods in order to finance the back-payment. On the other hand, it is quite obvious that these constructions tend to fall short of the principle of publicity.402 From the point of view of publicity the transfer mode set out in § 930 is particularly problematic in the case of transfer of ownership between spouses. For example, the husband by mere agreement can transfer ownership in a valuable asset to his wife, which was previously in the simple joint possession of the spouses.403

(iv)

Transfer by means of assignment of the claim for delivery

Where the owner is not the direct possessor of an asset he naturally cannot transfer actual physical possession as required by § 929. In this situation he is assisted by § 931, which provides that actual transfer may be substituted by assignment of his claim for delivery against the direct possessor to the transferee. Here the transfer of ownership is effected solely by a legal transaction.404 § 931 contains two different transfer modes, which have to be distinguished: first, the case of a transferor as indirect possessor; second, the case of the transferor who does not have any possession, instead holding a claim for recovery of possession. The first mode allows the sale of an asset which at the time of sale is held by an intermediary entitled to possession. Otherwise, the owner, due to the direct possessor’s right to possession, would not only be unable to claim retransfer of possession immediately, but would even be prohibited from disposing of his asset altogether. Another advantage of this transfer mode is that it dispenses with an unnecessary transfer of possession where the transferee would have to hand the asset over to the same direct possessor after such transfer. Example: A lessor wants to sell the asset he let to the lessee without (prematurely) terminating the lease contract.

The second category of cases within the scope of § 931 relates to the situation where the owner has no possession at all and allows transfer of own402

403 404

By contrast RGZ 73, 415, 418 and RGZ 140, 223, 231 had held it to be essential that the transfer of ownership has to be perceptible for third parties. Baur / Stürner, Sachenrecht (199)17, § 51 no. 25. See supra 2.1.2.(e) on co-possession. Weber, JuS 1998, 577, 581.

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ership by assignment of a future or conditional claim for delivery. This alternative is of particular interest to an owner who has lost possession. Examples: The former possessory servant has decided to hold possession in his own interest, or something is stolen and in the possession of the thief. In both cases the owner has lost (indirect) possession of his property.

The assignment of the claim for delivery follows the general rules on assignment of rights contained in §§ 398 ff. An assignment can be tacitly agreed and will as a rule coincide with the agreement on the transfer of ownership. A notice to the debtor, i.e. the direct possessor, is not required, as a transfer of ownership under § 931 does not prejudice his legal position. An owner who has indirect possession may assign his claim for delivery arising from the relationship of constructive possession.405 Such assignment is a valid transfer of indirect possession according to § 870. Provided that an agreement on transfer of ownership has been concluded the transferee acquires ownership. However, this transfer mode is excluded as far as the parties to the relationship of constructive possession have agreed that the claim may not be assigned (§ 399 2nd case).406 If the owner lacks any kind of indirect possession and thus cannot assign the respective claim, he can substitute this by a claim arising from either unjustified enrichment (§§ 812 ff.), tort law (§§ 823 ff.) or unlawful interference (§ 861). Which of these claims is applicable will depend on how his loss of possession has occurred. Example: A has borrowed an expensive book from B. The book is stolen from A during his vacation. As A claims damages for the book from B, B in return asks A to transfer ownership in the book to B just in case the book may later on be recovered. Here the transfer of ownership may be conducted by means of a transfer of the claim against the finder under the law of unjustified enrichment (§ 812) as well as by means of assignment of the claim against the thief for retransfer founded in tort law (§ 823).

Whether it is also possible to assign the claim for recovery arising from the right of ownership (§ 985) is a matter of dispute. It is argued that § 985 cannot step in as a subsidiary transfer mode, because the claims in rem are a constituent part of ownership.407 The right in rem and the claim in rem thus cannot be separated.408 Further, it is argued that the assignment of 405 406 407 408

BGH NJW 1959, 1538. Cf. BGH NJW 1979, 2037. Wieling, Sachenrecht (2007)5, 103. Wieling, Sachenrecht (2007)5, 4.

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the claim for vindication is problematic, because it is not (yet) directed against a certain person as a thing that has been lost is in no-one’s possession. In addition, the construction is inherently flawed as the agreement on transfer of ownership would already include the assignment of the right to vindication and can accordingly not constitute a separate transfer mode. In fact, the claim for vindication is the last remaining power of an owner who has lost possession. To recognise assignment of the rei vindicatio as a substitute transfer mode is therefore tantamount to acceptance of transfer of ownership by mere agreement and would be a further exemption from the principle of traditio.409 According to prevailing opinion an assignment is admissible only in exceptional circumstances, i.e. where the owner has no other personal claim for recovery. This so-called assignment of vindication (Vindikationszession) would be a valid transfer mode with regard to things that are in no-one’s possession. Common textbook examples for this situation are a ship that has sunk or a vehicle on the moon.410 This restrictive approach to the assignment of the claim for vindication is a direct result of the concept of vindication as an inseparable part of ownership.

(v)

Transfer by instruction

A further mode of transfer under § 931 is the possibility to instruct the direct possessor to henceforth (or from a certain point in time forward) hold possession in the interest of the transferee. Where the transferor is indirect possessor he can, instead of assigning the claim against the direct possessor, instruct the latter to exercise possession for the transferee. Provided the direct possessor gives heed to this instruction, the transferee will obtain (indirect) possession with the consequence that the transfer requirements are met.

(vi)

Symbolic delivery

The transfer of possession under §§ 929 ff. requires that the transferee obtains possession. Whether the relationship of the transferee to the asset is strong enough to constitute possession will be determined according to §§ 854 ff.411 If the transferee by means of symbolic delivery, such as the delivery of a key, obtains physical control this will of course constitute possession 409 410 411

Baur / Stürner, Sachenrecht (1999)17, § 51 no. 38. Avenarius, JZ 1994, 511, 512. Cf. supra 2.3.

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in the meaning of § 854, and in consequence meet the requirement of transfer of possession in the meaning of § 929. By contrast, a mere symbolic delivery that does not lead to comparable physical control is not recognised.412

(vii)

Title-conferring instruments

Title-conferring instruments are negotiable instruments that certify the claim for restitution against the issuer of the instrument. By this means the right of ownership in the specified goods are certified in such a way413 that the transfer of possession of the goods may be substituted by the transfer of the instrument. The transmission of the instrument has the same effect as the actual physical transfer of the goods (§ 448 Commercial Code). A valid transfer of the instrument must be effected according to the applicable rules of commercial law. If these requirements are satisfied, the transfer of the instrument will also conform to the transfer mode of § 929 1st s. The legal relationship between the issuer of the negotiable instrument and the possessor is determined exclusively by the content of the instrument. Defences arising from the relationship with former owners or transferors of the instrument are precluded.414 Where the transferor is not the owner of the goods transferred §§ 932 ff. on bona fide acquisition remain applicable. Negotiable instruments recognised as title-conferring instruments include: a negotiable warehouse receipt (§ 475g HGB); a shipping note (§ 448 in conjunction with §§ 444 ff. HGB); and a bill of lading (§ 647 in conjunction with §§ 642 ff. HGB). This list is exclusive: further negotiable instruments cannot attain title-conferring status by party agreement.415 In particular, it should be noted that other instruments that certify debts or a motor vehicle registration certificate do not qualify as title-conferring instruments. Accordingly, a car cannot be transferred by handing over the registration certificate. The fact that a title-conferring instrument has been issued does not preclude a regular transfer of title under § 929 1st s. by actual transfer of the goods. This may be of particular use where the transfer by virtue of the documents is hindered, because the endorsement is missing. Similarly, the existence of a title-conferring instrument does not hinder the transfer by 412

413 414 415

Joost, in: MünchKomm BGB VI (2004)4, § 854 Rn 29; Wiegand, in: Staudinger (2004) § 929 no. 65. Cf. §§ 424, 450, 650 HGB. Cf. BGHZ 36, 329. Quack, in: MünchKomm BGB VI (2004)4, § 931 no. 21.

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assignment of the claim for delivery, but in this case the transfer mode of § 931 requires that the title-conferring instrument is also handed over to the transferee.416

6.

Double sale

6.1.

Double obligations

As mentioned above, the sole requirement for the valid acquisition of ownership is that one of the transaction modes provided for in §§ 929 ff. is complied with. In general this comprises a real agreement and subsequent transfer of possession. Application of this general rule to a situation of double sale of the same asset (i.e. Party A ‘sells’ the same item to Party B and thereafter to Party C) leads to the result that the purchaser who obtains possession will also acquire ownership. Double sale therefore does not fall within the scope of the rules on bona fide acquisition. This result is independent of priority, i.e. of whether the transferee is also the contracting partner who first concluded the purchase contract. It should be noted that even where the transferee obtaining possession is the partner to the second contract the validity of the transfer will not depend on his good faith,417 because the prior agreement by the transferor to sell the goods to another person as such has no translative effect. The ownership of the transferor is not committed by the mere obligation to sell to the other (first) purchaser. Thus the transferor – even though he may be in breach of the prior contract – has remained owner and accordingly has valid authority to dispose of the goods. The transferee in consequence does not acquire from an unauthorised person – which would in fact require good faith – but from the authorised transferor. Ownership is transferred to the second purchaser; the prior purchaser will be left with his contractual claim for damages against the transferor. As a general rule even positive knowledge by the transferee of the transferor’s contractual duty to transfer ownership to another will not impair the validity of the transfer. There is, however, one exception to this rule. If the second purchaser does not simply have knowledge of the prior obligation the transferor has committed himself to, but actually acquires ownership for the (sole) purpose to prevent the first purchaser from acquisition, this will be regarded as a case of mala fide damage (§ 826).418 However, this can416

417 418

BGHZ 49, 163; Quack, in: MünchKomm BGB VI (2004)4, § 931 no. 21; for details see Schnauder, NJW 1991, 1642 ff. Baur / Stürner, Sachenrecht (1999)17, § 5 no. 46. BGH NJW 1974, 36; BGH NJW 1981, 2184; BGH NJW 1988, 1716, 1717.

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not be established by merely showing that the transferee had knowledge of the prior obligation, but only by proving the intention to cause damage.419 Of course, such extraordinary circumstances will hardly ever be proven.420 But if the first purchaser can prove a case of intentional damage, then the contractual agreement between the transferor and the second purchaser is void under § 138 I. The first purchaser can claim transfer of ownership from the second purchaser, who in the meantime had acquired ownership (§ 249 in conjunction with § 826). Where a party who has concluded a purchase contract but has not yet acquired ownership because of a (considerable) time gap between conclusion of the real agreement and the projected transfer of possession the transferee may be keen to defend himself against contrary dispositions of the transferor. In this situation the Civil Procedure Code provides for the possibility to obtain an interim measure prohibiting disposal of the goods against the transferor (§ 938 II Civil Procedure Code). The interim measure will have the same effect as a contractual restriction of transferability under § 135. Its effectiveness against any third party therefore depends on whether the third party has knowledge of the prohibition. If the transferor transfers ownership to a second transferee despite this restraining order, the transfer will not take effect vis-à-vis the beneficiary of the restraining order, provided that the transferee either has knowledge of the interim measure or his lack of knowledge may be attributed to gross negligence. If this requirement is fulfilled, the result is a ‘division’ of ownership. A disposition contrary to the restraining order transfers ownership to the third party with the exception that such disposition is without effect as regards the protected party. Up to a point, the transferor remains the authorised owner, but the protected party may, on the basis of the contractual obligation, claim transfer of title from the transferor. The court order will replace the real agreement necessary for the transfer and the claimant may demand transfer of possession from the second transferee. Example: An art lover visits an art exhibition and buys a painting. As the seller wants to keep the painting on display, they agree that the painting will be handed over to the purchaser at the end of the exhibition. The purchaser, who is afraid that subsequent visitors may offer a higher purchase price and thus entice the seller to sell the painting to another, can apply for an interim measure and thus secure the performance of the contract by a judicial restriction of transferability.

419 420

Staudinger, in: Handkommentar BGB (2007)5, § 826 no. 14. Baur / Stürner, Sachenrecht (1999)17, § 5 no. 46.

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Where the second purchaser is bona fide, i.e. he has no knowledge of the restraining order, the rules on bona fide acquisition apply (§ 135 II): the restraining order is ineffective against the third party. Of course, the party applying for the restraining order may destroy the good faith of another purchaser by bringing the order to his attention. Apart from this exceptional case, a purchaser who does not acquire ownership because the transferor has acted contrary to his obligation can claim damages from the transferor. But he is not entitled to claim recovery from the other (subsequent) purchaser.

6.2.

Double real agreements

As mentioned above, German law solves the problem of double sale by taking recourse to the prior real agreement and subsequent delivery. In accordance with the concept that an underlying agreement (creating an obligation to transfer) itself has no impact on the ownership the decisive act to refer to in terms of priority is the real agreement. If a transferor sells a thing to two different people, the issue of who obtains ownership will solely depend on which party the transferor transfers ownership to. As soon as the transfer is concluded, the transferor turns into an unauthorised person, with the result that, regardless of what dispositions he makes, he – as a general rule – can no longer prejudice the ownership of the transferee. However, a different result may occur by virtue of the rules on bona fide acquisition: where the transferor has indeed transferred ownership to the first purchaser, but despite the valid transfer has remained in possession of the goods, a further purchaser may acquire ownership under the rules of bona fide acquisition. If he subsequently also obtains possession of the goods he will acquire full ownership with the result that the prior transferee loses his property. Example: An art lover A visits an art exhibition and buys a painting from a painter B. As the painter wants to keep the painting on display, they agree that the painter immediately transfers ownership to the purchaser, but as a direct possessor will store the painting in the interest of the purchaser. Two days later another visitor C sees the picture and offers the painter the double price. The painter, contrary to his promise, sells the painting to the visitor subject to the agreement that he may collect the painting at the end of the exhibition. C collects the painting before A comes to fetch it. The transfer of ownership between A and B is a valid transfer under § 930: A is the owner, B on the basis of a agreement of custody holds the possession for A. However, A subsequently loses his ownership due to the disposition of B in favour of C. The good faith of C allows him to acquire ownership according to § 932 due to the actual transfer of possession.

7. Chain of delivery

7.

Chain of delivery

7.1.

General rule

111

The concept of a chain of delivery is not the subject of separate rules in the Civil Code. The transfer of ownership therefore follows the general rules set out above (§§ 929 ff.). Further sales of the same goods and direct delivery from the first seller to the last buyer will – from a legal perspective – constitute separate transactions. The real agreement always has to correspond to the appropriate contractual agreement, e.g. the goods are first transferred from the original owner to the first purchaser and then from the first purchaser to the second, and so on. It is not possible to directly transfer ownership from the first seller to the last purchaser.421 Despite the direct delivery the transfer is construed as separate transactions between the various partners of the contractual agreements. Example: A sells a car to B. Although B has not obtained actual possession, he sells the car to C. A directly transfers possession to C. The transfer of ownership, however, takes place in a staged manner: from A to B; and then from B to C.

The fact that the individual contracts between the respective parties are the foundation of the chain of delivery provides legal certainty for each of the contracting parties. First, it ensures that the defect of a later agreement within other limbs of the delivery chain cannot affect the validity of the former agreements. Second, the construction as individual contracts is a necessary requirement where the parties want to include a reservation of title in the real agreement that affects such parties.422 In order not to restrict agreements, which from an economic perspective avoid unnecessary transaction costs and administration, the concept of acquisition at behest (Geheißerwerb) is acknowledged as a substitute of the traditio requirement. The concept of Geheißerwerb allows the construction of a transfer of possession from each member of the chain to the next even though the transfer of possession – as is common practice – in fact takes place directly between the first seller and the last purchaser. The underlying contracts however are concluded between the first seller and the first buyer, then the first buyer and the second buyer, and so on (as long as is necessary). Using the simplest chain, involving a single sub-sale, as an example, by the actual transfer of possession from the seller (A) to the second buyer (C) the parties seek to fulfil all their contractual obligations: this transfer discharges both the seller and the first buyer (A and B). 421 422

BGH NJW 1986, 1166; Baur / Stürner, Sachenrecht (1999)17, § 51 no. 17. Hager, ZIP 1993. 1446, 1447.

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Although this result is generally acknowledged the underlying legal construction and its reconcilability with property law rules is a matter of dispute. By the transfer of possession from A to C the seller A in general intends to discharge his contractual duty vis-à-vis B and thus transfer ownership to B. In addition, A will often have no knowledge of the contractual agreement between B and C. Accordingly, he does not know whether – and if so on what terms (e.g. under a reservation of title) – B is willing to transfer ownership to C. Applying the general rules the acts of A would not qualify as a valid transfer to B, because B does not obtain possession. Should there be a transfer of possession by a person acting at the behest of the transferor (Geheißperson), prevailing opinion holds that this constitutes traditio in the meaning of §§ 929 ff. This is so even though the possessor does not hold possession in the name of the next transferee in the chain (who in consequence at no point in time acquires possession), he merely follows the next transferee’s directions.423 The further transfer of possession from the first transferee and second transferor to the purchaser (that is B to C) is executed by the direct possessor, who agrees to either hand over possession according to the direction of the second purchaser to the next limb of the delivery chain or follow the latter’s instructions. As long as each contractual agreement is covered by a corresponding real agreement and there is an instruction to directly transfer possession to the next limb, the number of limbs of the chain of delivery is unrestricted.424 This construction means that the delivery from the first transferor to the last transferee leads to a sequential acquisition of ownership of each member of the chain.425 A minority opinion solves the problem of lack of actual transfer of possession by assuming that the transferor, who agrees to deliver the goods according to the directions of the transferee thereby simultaneously agrees to a relationship of constructive possession.426 Of course, this construction will hardly ever correspond to the actual intention of the parties concerned. For the ‘Geheißperson’ will often be a depositary or freighter and will most likely not even precisely know, who at a particular moment is the owner of the assets involved.

423 424 425

426

BGH 36, 60; BGH JZ 1975, 29; BGH NJW 1999, 425. Quack, in: MünchKomm BGB VI (2004)4, § 929 no. 146. Quack, in: MünchKomm BGB VI (2004)4, § 929 no. 146; Martinek, AcP 188 (1988), 573, 615. Baur / Stürner, Sachenrecht (1999)17, § 51 no. 17.

8. Consequences of insolvency of one of the parties involved

7.2.

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Effect of invalid contract

Turning to the effect of an invalid contract in a limb of the delivery chain, the Abstraktionsprinzip again has to be kept in mind. Where the contractual agreement between A and B is void, this does not affect the transfer of ownership from A to B or from B to C. A has lost ownership and can claim compensation under the law of unjustified enrichment from B. As the transfer of ownership to C remains unaffected, and B therefore will ordinarily be unable to retransfer the goods to A, A will only receive compensation. If the real agreement between A and B was defective, meaning that B has not acquired ownership, but the goods are later transferred to C, C may acquire ownership according to the rules on bona fide acquisition. The same applies in the case of a void contract between B and C. The reversal of the transaction, which would normally be a claim under the law of unjustified enrichment, is conducted between the parties of the contractual agreement in question. C will therefore have to retransfer the goods to B even though he received them directly from A. Where all contracts between the respective limbs of the chain of delivery are void, the compensation (under the law of unjustified enrichment) will follow the chain of contractual agreements. Therefore, where B cannot achieve retransfer from C, because C has, for instance, declared insolvency in the meantime, this does not free B of his obligation to compensate A. Each limb of the chain of delivery will have to bear the risk of non-performance or insolvency of the contracting partner in such limb.

8.

Consequences of insolvency of one of the parties involved

8.1.

General rule

The rules on the consequences of insolvency of one of the parties may be found in §§ 38 ff. InsO (Insolvency Act). The general rule is that all creditors of the debtor in insolvency are divided into two groups: creditors secured by means of a right in rem and unsecured creditors. The first group of creditors can – depending on the underlying right in rem – either claim release of their property or segregation of the property from the insolvent party’s estate, i.e. either claim recovery of their property or at least preferential payment. By contrast the second group consists of unsecured creditors, who can only rely on a personal right. The remaining assets of the debtor will be shared between all of these unsecured creditors. They will only receive a (usually small) percentage of recovery.

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It should be mentioned that the Abstraktionsprinzip leads to the result that the contracting partner of the insolvent debtor will be left with a mere claim in insolvency, even if the underlying contract is either void or has been avoided. As the defect of the obligation has no effect on the validity of the real agreement, the transfer of ownership will remain valid and accordingly the transferred goods form part of the debtor’s property and therefore of the insolvent party’s estate. Of course, the fact that the contract is void establishes a claim under the law of unjustified enrichment. However, this claim is of a personal nature and lacks special protection against insolvency. The creditor may be in a more favourable situation where the real agreement is void, as ownership in this case reverts to the seller with retroactive effect. The owner accordingly can claim recovery of his assets. However, this only applies as far as the creditor’s contractual duty was to transfer property and not to pay money. Although coins and banknotes are tangible things in the meaning of § 90 and therefore are governed by the general rules on transfer of movables, it would be a rare case indeed where the monies received by the debtor in insolvency were not yet mixed with such debtor’s monies, whereby he would acquire original ownership. Where the purchase price is settled by a bank transfer or similar means these do not even constitute tangible things. It may therefore be stated that the buyer as a general rule cannot vindicate the price even if the real agreement were void and will always be left with a percentage of recovery. Accordingly, only the situation where the transferee is the debtor, and what remedies are granted to the transferor, needs to be discussed. The general rule may be summarised as follows: if the transferee becomes insolvent before ownership is transferred to him (without reservation), the transferor has a right in rem and may claim recovery, but if the transferee declares insolvency after the unreserved transfer of ownership, the transferor will merely have a personal right. No protection is provided to him by law by means of an implied reservation of title, and his situation will not improve where the underlying contractual agreement is void or voidable.

8.2.

Effect of insolvency on contractual agreements

8.2.1. Overview Where one of the contracting parties becomes insolvent the following transfer situations have to be distinguished: – The transferor has performed all his contractual duties and the title has passed to the debtor, while the counter-performance is still unsettled (claim in insolvency).

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– The transferor has performed, but the real agreement is void (or has been avoided) and ownership accordingly has not passed or has reverted with retroactive effect (release from estate). – The contracting parties have agreed to a fiduciary transfer, and the creditor therefore is the legal owner. However, due to the type of security the underlying economic situation is taken into account and the debtor is accordingly held to be the equitable owner (segregation of estate). – The contractual agreement is concluded, but neither party has completely performed its obligation under the contract (allowing the insolvency administrator to choose what he thinks is the best course of action in all the creditors’ interests).

8.2.2. Claim in insolvency If the transferor has performed without any security and title has been transferred to the debtor without reservation, the transferor can neither claim recovery nor can he avoid the contract on the basis of the insolvency of the debtor. This is in fact the typical situation of insolvency and covers all personal claims that were established by contractual agreement with the debtor before adjudication of insolvency.427 As a consequence of the abstract transfer system, this is also the case with all claims for reversed transactions due to a defect of the contractual agreement, as do other personal claims such as claims under the law of unjustified enrichment. On insolvency, the personal claim for counter-performance is transformed into a claim in insolvency and will be settled according to the principle of par conditio creditorum, i.e. by a percentage in the insolvent party’s estate. Where the performance the debtor was obliged to render was not payment of a sum of money, the value of the obligation will be calculated as a specific sum (§ 45 Insolvency Act) and similarly settled by a percentage in the insolvent party’s estate.428

8.2.3. Claim for release from estate The second possible situation applies whenever the debtor has obtained possession but has not validly obtained ownership. This may occur in the exceptional situation that the real agreement effecting the transfer of title is either void ab initio or can be avoided due to a defect, for instance duress. As a result, the insolvent debtor will not have acquired (or will have 427 428

Ehricke, in: MünchKomm InsO I (2007)2, § 38 no. 59. Ehricke, in: MünchKomm InsO I (2007)2, § 38 no. 59.

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lost) ownership. Thus, the goods in his possession do not belong to the estate in insolvency (§ 47 Insolvency Act). The transferor may vindicate his property. The right to claim release from the estate in insolvency by exception is also granted to a creditor who is not (yet) owner of the thing, because he has agreed on a fiduciary transfer of ownership to the insolvent debtor: where the secured party is declared insolvent the party furnishing security may claim release of the item serving as security if he settles the instalments, even though that party is not the owner and accordingly not entitled to vindication.429 Here again, the underlying economic situation prevails over the general rules of property law. Example: A has transferred a car worth 6000 € to B as security for a credit of 6000 €, which A is supposed to repay by 6 instalments of 1050 €. After A has repaid five instalments B is declared bankrupt. If A settles the last outstanding instalment, he may claim retransfer of ownership in the car.

When a thing that would have been the object of a claim of release from estate has unlawfully been disposed of by the insolvent debtor before adjudication of insolvency, or by the insolvency administrator after that point of time, the person entitled may instead recover the consideration for such goods sold by the insolvent party or insolvency administrator.430

8.2.4. Claims for segregation from estate The most important situation where a right to segregation from estate arises in the context of movable property is that the person holding ownership, from an economic perspective, is not entitled to the full value of the property. Where the creditor merely has a formal position of ownership, for instance as a result of a fiduciary transfer of ownership, again the economic interest of the debtor is protected and the creditor is merely granted a right to claim segregation of the item serving as security instead of release (§ 51 InsO).431

429 430 431

Bork, Insolvenzrecht (2005)4, no. 240. Bork, Insolvenzrecht (2005)4, no. 244. This result, however, is criticised by Grunsky, JuS 1984, 497, 499, who holds that the concept of reservation of title includes that the transferor retains full ownership. Accordingly, he should be treated as owner. The approach of the leading opinion instead leads to a pledge in movables without possession and therefore is a circumvention of the legislature’s intention.

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Example: A has transferred a car worth 6000 € to B as security for a credit of 6000 €, which A is supposed to repay by 6 instalments of 1050 €. After A has repaid five instalments he is declared bankrupt. Although B is the formal owner of the car he may not claim release from estate, but merely preferential payment of the outstanding credit of 1050 €.

The claim for segregation grants the creditor a right of preferential satisfaction.432 Where the value of the item serving as security exceeds the unsettled debt, the remaining amount flows to the the insolvent party’s estate.433 A similar situation may arise in the case of processing (specificatio): if a movable thing is converted into a new article by a manufacturing process according to § 950, as a general rule, the manufacturer acquires original ownership. The reserved ownership of the supplier vanishes and, without special protection, the supplier would be left with a personal claim against the debtor and would merely receive a percentage in the insolvent party’s estate. This detrimental result can be prevented if supplier and manufacturer agree on a so-called ‘Verarbeitungsklausel’,434 that is an agreement according to which the supplier is the manufacturer in the meaning of § 950 and thereby acquires ownership of the products. However, in the case of insolvency of the manufacturer this ‘ownership’ is not fully recognised, because from an economic perspective the manufacturer has invested his resources into the products and has to be considered as the proprietor of the products, but from the matter-of-fact perspective of the Verarbeitungsklausel the supplier has a position similar to a security holder. Accordingly, he is again merely granted a right to claim segregation from estate under § 51 I Insolvency Act.435 The same applies in the case of an extended or expanded reservation of title.436

8.2.5. Non-discharged contractual obligations Where both parties to a contract have not yet completely performed at the time one of the parties is declared insolvent, the insolvency administrator according to § 103 I Insolvency Act may choose whether or not he wants 432 433 434 435 436

Pape / Uhlenbruck, Insolvenzrecht (2002), no. 519. Bork, Insolvenzrecht (2005)4, no. 246. Cf. infra 10.2.4. Füller, in: MünchKomm BGB VI (2004)4, § 950 no. 30. BGH JZ 1971, 505 (extended reservation of title); BGH JZ 1971, 506 (expanded reservation of title); Bork, Insolvenzrecht (2005)4, no. 249. See infra at 13.3. and 13.4.

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to retain the contract.437 If he chooses to so retain, he can claim performance from the other party, but in turn will also have to discharge the duties of the debtor as if the debtor had not been declared insolvent. Where the insolvency administrator refuses to fulfil the contract and the goods are in the possession of the debtor the rules set out above apply. However, there is an exception provided for in § 107 Insolvency Act for sale under a reservation of title, which is of major importance in practice. Where the transferor under a contract containing a reservation of title is declared insolvent, the right of the insolvency administrator to choose whether or not to hold on to the contract is restricted. As long as the transferee observes his duties under the contract, the insolvency administrator may not decline performance. The moment the transferee settles the last instalment ownership passes despite the insolvency of the transferor. § 107 I Insolvency Act thus protects the equitable interest against insolvency.438 Where the transferee is declared insolvent before he has settled the purchase price and the insolvency administrator either refuses to hold on to the contract or declares to do so but does not in fact settle the debt, the general rules apply. The transferor may rescind the contract and claim recovery of the thing from the debtor or the insolvency administrator according to § 985 (release from estate).439

8.3.

Insolvency of the representative

A person who intends to acquire ownership through an indirect agent does not automatically acquire ownership the moment ownership is transferred to the agent. Instead the agent himself acquires ownership and will have to transfer it to the principal by a separate legal act. However, this second transfer cannot take place before a ‘logical second’ has passed. Where the agent is insolvent he can no longer transfer ownership to the principal, because according to § 80 Insolvency Act his authority to dispose has ceased. Both the transferor and the principal will have to enforce their rights against the agent by means of insolvency proceedings. An exception to this rule is acknowledged in the specific situation of a contract ‘for whom it may concern’ (für den, den es angeht). That is the case where the agent wants to acquire ownership for his principal and the transferor does not care to whom he transfers property. This may in particular apply to everyday contracts where the purchase price is paid in cash. 437 438 439

For details see Huber, NZI 2004, 57 ff. Pape / Uhlenbruck, Insolvenzrecht, no. 648. Pape / Uhlenbruck, Insolvenzrecht, no. 531; Bork, Insolvenzrecht, no. 237.

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Example: Purchase of a painting at a flea market.

This concept of a transaction for whom it may concern can be traced back to the Roman law traditio ad incertam personam and is in fact a specific form of concealed direct representation.440 Despite the rule provided for in § 164 II prevailing opinion holds this mode of acquisition to be admissible, as the transferor does not merit any protection. Accordingly the principal directly acquires ownership from the transferor.441 The transferor’s intention to transfer is directed towards transferring to any person. Whether the agent or the principal acquires property thus will depend on the respective intention of the agent. Although the intention to acquire ownership for the principal is not disclosed, the agent is capable of directly transferring it to him. As the agent himself at no point in time acquires ownership, the principal is not at risk that the creditors of the agent take hold of the property, i.e. attach the assets or claim it to be part of the insolvency estate.

9.

Passing of ownership and passing of risk

The German Civil Code has adopted the Roman law maxim that the burden of deterioration or loss must be born by the owner (casum sentit dominus) as its starting point. This – unwritten – general rule is supplemented by more specific rules which contain alterations in the context of the different types of contracts. The most important for the present report are the rules on sale set out in §§ 446 ff. § 446 provides that the risk of accidental loss or deterioration of the object of sale passes to the buyer as soon as possession is transferred. From this point in time the purchaser may claim any fruits and is burdened by an expenses. The passing of risk accordingly is not linked to the transfer of ownership but to the transfer of possession. In general this will prepone the decisive point in time.442 § 446 BGB [Passing of Risk and Liability for Expenses] The risk of accidental loss and accidental deterioration passes to the buyer when the thing sold is handed over. From that moment onwards the benefits related to the thing accrue to the buyer and expenses on it are for his account. The same consequences arise if the buyer is in default in accepting delivery. 440 441

442

Wieling, Sachenrecht (2007)5, 108. Baur / Stürner, Sachenrecht (1999)17, § 51 no. 43. RGZ 100, 190, 192; Prütting, Sachenrecht (2008)33, 149 f.; Wieling, Sachenrecht (2007)5, 108. Weidenkaff, in: Palandt BGB (2008)67, § 446 no. 1.

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Passing of risk and transfer of ownership may and often will occur at the same moment, but there is no general rule to this end. The fact that ownership and possession do not necessarily pass to the transferee at the same time is a consequence of the divergent requirements for the acquisition of possession and acquisition of ownership. The transfer of possession referred to in § 446 will, in general, only be fulfilled by a transfer of direct possession in the meaning of § 854, whereas the acquisition of indirect possession will only meet the requirements if this is explicitly agreed between seller and purchaser. This may for instance be the case in the context of a transfer under § 930 or § 931.443 However, it should be noted that as far as the contract for sale provides for the sale of a category of goods under § 243 I the transfer of possession will not lead to the passing of risk where the goods delivered are defective, because defective goods will not result in specification, which is a prerequisite for the passing of risk. The requirement of ‘handing over’ in the meaning of § 446 I refers to transfer of physical control,444 while the transfer of ownership may take place as soon as the buyer obtains indirect possession. In contrast to the rules on the discharge of the contractual obligations of the purchaser, the requirements for acquisition of ownership will be met as soon as the transferee obtains some form of possession, i.e. direct possession or possession by means of an intermediary.445 Consequently, the passing of risk is independent of the transfer of ownership. The most important application of this rule of course is the transfer subject to a reservation of title:446 as soon as the purchaser obtains possession of the purchased goods he will – although not yet owner – have to bear the risk of loss and deterioration. However, it should be noted that this will only apply if the purchase contract is validly concluded.447 The divergence between the general principle and the rule on the passing of risk with respect to sales contracts is justified by the argument that the possessor has the actual possibility to protect the goods.448 Accordingly the person holding actual physical possession should also bear the risk. In fact this exception is in line with the principle of traditio.449

443

444

445 446 447 448 449

Weidenkaff, in: Palandt BGB (2008)67, § 446 no. 13; Westermann, in: MünchKomm BGB III (2008)5, § 446 no. 7. This requirement according to § 447 will only be modified with the express agreement of the parties. Brehm / Berger, Sachenrecht (2006)2, no. 27.21. Westermann, in: MünchKomm BGB III (2008)5, § 446 no. 1. BGH NJW 1998, 2360. Weidenkaff, in: Palandt BGB (2008)67, § 446 no. 1. Westermann, in: MünchKomm BGB III (2008)5, § 446 no. 1.

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According to § 446 3rd s. the same risk also passes without actual transfer of possession where the transferor has offered delivery, but the transferee is in default of acceptance. The rationale of this provision is that it would be inequitable to burden the transferor with any disadvantages which arise from a delay of the purchaser. On the other hand, the seller will be held liable where he is in default and accordingly delivers the thing too late. If the goods are lost or deteriorate during the seller’s default he will be liable for any degree of negligence (§ 287), but will be exempted where the same damage had occurred in case of timely delivery (§ 287 2nd s.). The rule provided for in § 446 is non-mandatory. Thus, the passing of risk can be either pre- or postponed by contractual agreement or may be subject to a condition.450 A further exception from the casum sentit dominus rule may be found in § 447 on sale by dispatch. § 447 BGB [Passing of Risk Under a Sale by Dispatch] (1) If, at the buyer’s request, the seller dispatches the thing sold to a place other than the place of performance, the risk passes to the buyer when the seller has handed the thing over to the forwarder, carrier or other person or body designated to dispatch the thing. (2) If the buyer has given specific instructions as to the method of dispatching the thing and, without good reason, the seller fails to comply with this instruction, the seller is liable to the buyer for damage arising from that failure.

A sales contract will qualify as sale by dispatch if the seller is obliged to send the goods to a place other than the place of performance.451 The idea is that the purchaser who asks the seller to dispatch the goods to another place should also bear the risk that may result from the dispatch. The application of this rule depends on the validity of the underlying contract, a request by the purchaser and the actual dispatch of the goods. Where all three requirements are met, of passing at the time the goods are delivered to the buyer, the risk will instead pass as soon as the seller hands them over to the person who undertakes the dispatch. It should be noted that § 447 is explicitly declared inapplicable by § 474 II if the purchaser is a consumer. Due to these alterations brought about by specialised contractual rules applicable to certain situations, and indeed party autonomy in some circumstances to make an express choice about the passing of risk, it can be stated, that the passing of ownership and the passing of risk may in practice often coincide, but there is no rule that this has to be so.

450 451

Weidenkaff, in: Palandt BGB (2008)67, § 446 no. 4. Weidenkaff, in: Palandt BGB (2008)67, § 447 no. 6.

Part III: Original acquisition 10.

Original acquisition by accession, confusion and processing

10.1.

Introduction and concept of original acquisition

In the §§ 946 ff. the Civil Code provides for a number of different modes of original acquisition of ownership, namely attachment of a movable to an immovable or union of two movables, confusion, commixtio and specificatio. Their common feature is that goods of different owners have in some way become united or their character has changed such that ownership of the things combined merges into uniform ownership in the aggregate thing or shifts to the person who conducted the work that effected such character change. The underlying rationale is that the individual things either cannot be separated or reinstated, or to do so would take unreasonable effort. In the interest of clarity and legal certainty, the legal order therefore has to decide who is to be regarded as the owner of the result of such physical act. §§ 946 ff. deal with the consequences of one thing becoming an inseparable part of another.452 The loss of property rights resulting from this merger will – unless otherwise provided by the parties453 – either be compensated on the level of property law itself (through allocation of a right in rem) or by virtue of the law of unjustified enrichment. While the first solution will often lead to co-ownership, the second solution will result in a personal claim for compensation.454 In all forms of original acquisition the act of acquisition is considered to be a physical act rather than a legal act.455 Two principles can be derived from this: first, the acquisition does not depend on the position of the preceding owner; and second, the intention of the parties is of no relevance.

452 453

454 455

Baur / Stürner, Sachenrecht (1999)17, § 53 no. 1. Where the underlying reason for accession, confusion or processing is a contractual agreement between the parties, the property law issues will similarly be decided according to the agreement with the consequence that the §§ 946 ff. will be superseded by the rules on acquisition of ownership under §§ 929 ff. Cf. Wieling, JZ 1985, 511 f. Füller, in: MünchKomm BGB VI (2004)4, § 946 no. 2.

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Accordingly, the rules on legal acts contained in the General Part (First Book) are not applicable. Acquisition thus is not dependent on the legal capacity of the person(s) performing the act. As the change in ownership is not a consequence of the intention of the parties, subjective elements are likewise irrelevant.456 Accordingly, the person acting can neither prevent the change in ownership by his intention nor will the fact that he has acted with ill intent prevent him from acquiring ownership.457 This is best demonstrated by the example that even a thief who has stolen leather will acquire ownership in the shoes he has made using the stolen leather.458 Whereas the irrelevancy of the intention for the acquisition of ownership is a necessary consequence of the concept of original acquisition by a factual act, it should be noted that the (ill) intention also has no impact on the calculation of the compensation. However, the rules on original acquisition explicitly declare that other legal remedies remain unaffected by §§ 946 ff. Accordingly a person who intentionally performs an act leading to original acquisition in his own favour and by this act deprives the preceding owner of his property rights may be liable under tort law rules, i.e. according to §§ 823 ff. §§ 946 ff. deal with the conflicting interests of the different owners of goods, while § 950 balances the interests of the supplier of goods and the manufacturer who has invested time and energy into the product. The aim of all the rules described in detail below is to resolve the conflict of interest between the parties without destroying the economic value of the new thing. Accordingly, the former owner cannot, as a matter of principle, claim reinstatement of the previous situation. The legal consequences with regard to property rights are final and definitive. Consequently the parties can neither alter them by agreement nor will they revert on subsequent separation of the original elements.

10.2.

Different types of original acquisition

10.2.1. Attachment of a tangible thing to an immovable The consequences of the connection of a movable with immovable property follow the rule superficies solo cedit. The owner of the real estate acquires ownership in the movable (§ 946), because a thing that is attached to immovable property loses its capacity to be the object of separate property 456 457 458

Prütting, Sachenrecht (2008)33, no. 452. Cf. OLG Köln, NJW 1991, 2570. This example is taken from Prütting, Sachenrecht (2008)33, no. 462, who disapproves of the result.

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rights. The original owner of the movable loses ownership in that movable. In fact, the rule even applies where the movable and the immovable property belong to the same person,459 and also applies as far as other property rights in the movable – such as a pledge – are concerned (§ 949).460 Whether or not a movable has through a physical act become an essential component part of the immovable in the meaning of § 946 is to be decided in line with the legal definitions contained in §§ 93 ff. It has to be stressed that the question whether or not a thing is irrevocably attached to the immovable property (with resulting acquisition of ownership) is not a question of fact, but a question of law. This legal consequence is independent of who has performed the physical act and it is mandatory,461 because the intention of the legislature was to safeguard that all things which form part of the immovable property from an economic perspective, are not separated by the application of different legal rules.462 The rule is of major importance in the context of reservation of title, because the supplier will lose his reserved ownership by operation of original acquisition of the purchaser, if the purchaser attaches the goods to his immovable property. Example: The purchaser affixes a washbasin to the wall in his bathroom.

As the example demonstrates, the rule will even apply where the thing could easily be separated.463 Accordingly, the scope of § 946 is not limited to more obvious examples such as buildings, walls and light-fittings, heating installations and sanitary installations are also covered.464 There are some exceptions to this rule. For instance § 95 I provides that the owner of immovable property does not acquire ownership in a building erected by a usufructuary or a leaseholder if it is erected for a temporary purpose, i.e. for the duration of the usufruct or lease.

10.2.2. Attachment of several movables Attachment of movables (accessio) arises where different tangible things are combined in a manner that they form essential component parts of a 459 460

461 462 463 464

Füller, in: MünchKomm BGB VI (2004)4, § 946 no. 2. This prevailing opinion is criticised by Wieling, JZ 1985, 511, 515, who instead reintroduces the Roman law concept of dominium dormiens (or sleeping ownership). Füller, in: MünchKomm BGB VI (2004)4, § 946 no. 9, 12. Füller, in: MünchKomm BGB VI (2004)4, § 946 no. 1. Baur / Stürner, Sachenrecht (1999)17, § 53 no. 6. Füller, in: MünchKomm BGB VI (2004)4, § 946 no. 5.

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new thing. § 947 provides that – depending on the value ratio of the tangibles – either the original owners of the component parts become co-owners of the new movable (subsection I) or the owner of the principal part will become the sole proprietor (subsection II). According to the judicature it is a further requirement of § 947 – in contrast to § 946 – that the movables belong to different owners.465 By contrast, academic opinion argues that the rule should similarly apply even where the things combined are the property of the same person, but with the reservation that other restricted property rights according to subsection II continue with respect to the new thing.466 Where one of the components is to be regarded as the principal part, the original owner of that principal part will acquire exclusive ownership (subsection II). Other existing rights in rem in the principal part remain valid as rights in rem in the new thing, while both ownership and other rights in rem in the subordinate component(s) are terminated. If none of the component parts qualify as principal part co-ownership is established. The ratio of co-ownership corresponds to the proportion of the respective value of the components at the time accessio took place. If it is impossible to determine the ratio of value, the co-owners shall receive the same shares (cf. § 742). As far as other rights in rem existed in respect of the components, these rights are not terminated, but instead will continue in the corresponding share of co-ownership. Once co-ownership is established, the relationship between the coowners is governed by the rules of §§ 1008 ff. as well as §§ 741 ff. According to § 749 each of the co-owners can claim termination of co-ownership (actio communio dividundo): the common property will then be sold and the purchase price divided between the co-owners according to their shares.467 The issue of which of the two alternative rules apply, i.e. subsection I (co-ownership) or subsection II (exclusive ownership), depends on the classification of the components either as an ‘essential component part’ or as ‘principal part’. The question of whether a component is to be regarded as the principal part is decided according to common opinion, i.e. generally accepted standards (Verkehrsauffassung). It will be decisive whether the character of the thing would be considerably altered if the other component parts were missing.468 This, however, is independent of the value of the principal thing and the subordinate component parts.469

465 466 467 468 469

BGH NJW 1987, 774. Füller, in: MünchKomm BGB VI (2004)4, § 946 no. 2 with further references. Füller, in: MünchKomm BGB VI (2004)4, § 947 no. 8. BGHZ 20, 159, 163; Füller, in: MünchKomm BGB VI (2004)4, § 947 no. 5. Füller, in: MünchKomm BGB VI (2004)4, § 947 no. 6.

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Examples: The judicature has applied § 947 II with respect to a machine as the principal part in the meaning of § 947 in comparison to screws, which were classified as subordinate parts.470 Another example is a billboard, which was held to be the principal part, in comparison to a poster (subordinate part) fastened on the board.471

The necessary distinction between principal part and subordinate parts or equal component parts poses difficulties. However, there seems to be a tendency of the judicature to either not recognise the existence of a new thing and thus preserve security rights of a supplier472 or in the alternative at least not to classify components as principal and subordinate components, but rather establish co-ownership of the supplier.473 As a result the categorisation as principal or subordinate parts is only contemplated in extraordinary cases.474 Example: the engine of a motor vehicle is not considered as a constituent part of that vehicle.475

This restrictive approach is further encouraged by the literal wording of § 93, according to which a thing should be categorised as an essential component part if, and only if, separation is impossible or would lead to a considerable loss in value. In addition attention may be drawn to the fact that the practical relevance of this provision is rather narrow as accessio of tangible things will often result in a new thing. This situation is not governed by § 947, instead falling within the scope of § 950.476

10.2.3. Intermixture of movables According to § 948 the rules provided for in § 947 apply mutatis mutandis where different corporeal things are mixed (commixtio) or confused (confusio) and the components of the different owners can either not be sepa-

470 471 472 473

474 475 476

BGHZ 20, 154. OLG Oldenburg NJW 1982, 1166. Cf. OLG Köln NJW 1991, 2570. Baur / Stürner, Sachenrecht (1999)17, § 53 no. 9; see also Füller, in: MünchKomm BGB4 VI, § 947 no. 6. Baur / Stürner, Sachenrecht (1999)17, § 53 no. 9. BGHZ 18, 226, 229; BGHZ 61, 80, 81. Prütting, Sachenrecht (2008)33, no. 456.

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rated (subsection I) or only be separated with unreasonable costs (subsection II). The underlying rationale of the rule is to render an uneconomic procedure of separation unnecessary.477 Unless one of the component parts falls within the category of principal component, the former owners acquire co-ownership. The mere fact that the component of one owner is larger in quantity than another’s does not qualify that component as a principal component in the meaning of § 947 II.478

10.2.4. Processing § 950 on specificatio provides that the manufacturer of a new movable acquires ownership in that new thing, unless the value added by the production process is considerably lower than the value of the components used. Accordingly, neither repair nor maintenance will qualify as processing in the meaning of § 950. The concept of processing is further expanded by the § 950 I 2nd s., which provides that processing also includes writing, drawing, painting, engraving or a similar processing of the surface. Where a specificatio under § 950 will similarly qualify as attachment of movables according to § 947, § 947 will prevail: the manufacturer therefore acquires original ownership of the products.479 Whether the manufacturing process leads to the creation of a new tangible thing or is a mere alteration must be decided according to the common opinion (Verkehrsauffassung), which may be supplemented by an economic assessment.480 The decisive factor is whether or not the nature of the goods has been altered.481 The fact that the end product is known under another name as the supplies normally indicates that such a sufficient alteration has taken place.482 Examples: The processing of barley to malt483 or of clay into bricks.484

As the intention of the legislature was to provide for the protection of the economic value that is achieved by processing, it is argued that it would 477 478 479 480 481 482

483 484

Füller, in: MünchKomm BGB VI (2004)4, § 948 no. 1. Baur / Stürner, Sachenrecht (1999)17, § 53 no. 11. Füller, in: MünchKomm BGB VI (2004)4, § 947 no. 11. Füller, in: MünchKomm BGB VI (2004)4, § 950 no. 7. Füller, in: MünchKomm BGB VI (2004)4, § 950 no. 7. Cf. BGHZ 56, 88; BGH NJW 1978, 697; BGH NJW 1995, 2633 with note K. Schmidt, JuS 1995, 1133; Bassenge, in: Palandt (2008)67, § 950 no. 3. BGHZ 14, 114. RGZ 72, 281.

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be consistent to replace the identity test by a solely economic standard.485 However, prevailing opinion holds that increase in value, although an important factor, cannot on its own be decisive.486 According to § 950 the manufacturer acquires ownership of the new thing except where the value of the processing is substantially less than the value of the substance. The value relationship between the commodities used and the production is calculated by deduction of the value of the supplies from the value of the end product price. A considerably lower value of the production process is assumed where the ratio between supplies and product is less than, or equal to, six to ten (i.e. ≤ 60:100).487 Acquisition of ownership by the manufacturer terminates all former property rights in the supplies (e.g. reserved ownership of the supplier of the goods). § 950 thus resolves the conflict of interest between the supplier and the manufacturer to the benefit of the manufacturer, and thereby runs contrary to the general rule that the mere alteration of a substance is unable to bring about changes in property rights concerning that substance.488 As specificatio has far reaching consequences, the question of who is to be considered as the manufacturer is crucial. Both the person actually performing the physical act and the owner of the business in which the manufacturing process takes place may qualify as the manufacturer in the meaning of § 950.489 According to the judicature, the manufacturer is the person in whose name and interest the goods are produced.490 It is a matter of a long-standing dispute whether or not the rule of specificatio in § 950 is of a mandatory nature or leaves room for the parties to agree otherwise. Arguments brought forward in favour of the mandatory nature are the systematic context of the rule as well as the intention of the legislature.491 The contrary opinion relies on the travaux preparatoire, which state that the possibility to agree by contract on who is supposed to be held as manufacturer in the meaning of § 950 has remained unmentioned for the mere reason that this is self-evident.492 485 486 487

488 489 490 491

492

Wieling, Sachenrecht (2007)5, 142. Bassenge, in: Palandt (2008)67, § 950 no. 3. BGH JZ 1972, 166; BGH NJW 1995, 2633; cf. Füller, in: MünchKomm BGB VI (2004)4, § 950 no. 11. Baur / Stürner, Sachenrecht (1999)17, § 53 no. 14. Füller, in: MünchKomm BGB VI (2004)4, § 950 no. 16. BGHZ 112, 243, 249 ff.; BGHZ 20, 159, 163; BGHZ 14, 114, 117. Füller, in: MünchKomm BGB VI (2004)4, § 950 no. 14 ff.; Medicus, Bürgerliches Recht (2002)8, no. 519.; Wadle, JuS 1982, 477, 479; Wieling, Sachenrecht (2007)5, 142; See also Bassenge, in: Palandt (2008)67, § 950 no. 1. Baur / Stürner, Sachenrecht (1999)17, § 53 no. 15; of contrary opinion Wadle, JuS 1982, 477; both with reference to Protokolle III 239, 242 ff.

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Further arguments for the non-mandatory nature have repeatedly been drawn from the provisions on service contracts. Prior to the reform of the law of obligations, § 651 provided that the contractor rendering performance was not under a duty to transfer ownership of a product (produced from supplies provided by the principal) to the principal, so it was assumed that § 950 would not apply to service contracts. From this inapplicability it was inferred that contractual agreements (such as a service contract) prevail over the general rules on original acquisition of ownership and thus show that § 950 is of a non-mandatory nature. However, the rules on service contracts were substantially changed in 2002 and now make reference to the law applicable to sale of goods. Accordingly, the contractor is obliged to transfer ownership in the thing manufactured to the principal (§§ 651, 433 I). This of course presupposes that the contractor has acquired ownership by manufacturing the goods and thus corresponds to the rule provided in § 950,493 so the rules on service contracts can no longer serve as an argument in favour of the non-mandatory nature of § 950.494 Prevailing opinion remains of the view that § 950 is mandatory in nature,495 but has developed other solutions in a bid to grant more flexibility. First, an agreement by which the parties do not alter the legal consequences of § 950, but instead agree who is supposed to be deemed the manufacturer in the meaning of § 950 is accepted. Second, it is possible for the supplier and manufacturer to conclude an anticipated constitutum possessorium and thereby (re-)transfer ownership to the supplier.496 The judicature also views § 950 as mandatory in nature, but likewise permits the contractual modification of the rule as to who is deemed manufacturer of the products.497 In legal practice, the agreement of a so-called processing clause (Verarbeitungsklausel) between the conditional vendor and the conditional purchaser is acknowledged, according to which the conditional vendor, who has reserved (or will reserve) ownership, is deemed to be the manu-

493

494

495

496 497

Of contrary opinion Klinck, JR 2006, 1 ff., who points to the fact that the manufacturer will only acquire ownership where the value of processing exceeds that of substance, but still agrees with the result as he disapproves of the notion that § 651 should have any influence on the construction of § 950. Prütting, Sachenrecht (2008)33, Rn. 465; for details see Röthel / Sparmann, NJW 2005, 625 ff. Füller, in: MünchKomm BGB VI (2004)4, § 950 no. 15; Bassenge, in: Palandt BGB (2008)67, § 950 no. 1 with further references. Füller, in: MünchKomm BGB VI (2004)4, § 950 no. 18 f. Cf. BGHZ 14, 114, 117; BGHZ 20, 159.

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facturer in the meaning of § 950.498 By means of this processing clause the manufacturer assumes the duty to produce for the supplier of the goods.499 However, the legal construction of this type of clause is also a matter of dispute. The judicature relies upon a wide concept of manufacturer, whereas some academic opinion attaches importance to the contractual agreement. Both views lead to original acquisition of ownership by the supplier. An alternative opinion argues that the question of who is held to be the supplier under § 950 has to be decided on the basis of objective criteria.500 On this view, the processing clause is no more than an anticipated constitutum possessorium.501 These different opinions lead to a considerable difference in result, as the constitutum possessorium construction implies, that the manufacturer acquires ownership and then, after the famous ‘logical second’, transfers ownership to the supplier (‘Durchgangserwerb’).502 This construction is criticised because it gives preference to other creditors of the manufacturer over the interests of the supplier, which is a major argument in favour of the admissibility of processing clauses and the construction thereof as leading to direct original acquisition of the supplier.503

10.3.

Acquisition versus claim for compensation

Accession, confusion and processing have a direct impact on existing property rights. Whether this consequence is restricted to the question of ownership or also affects restricted rights in rem depends on the situation at hand. Where an owner of a component part or of supplies loses his ownership this terminates all other existing property rights in the movable (§ 949 and § 950 II respectively).504 The new owner acquires unburdened property. Where the previous owners become co-owners of the common property, the law provides for a substitution by operation of law: other restricted property rights continue in the respective shares. 498

499 500

501

502

503 504

BGHZ 20, 159, 162; BGHZ 46, 1189; BGH NJW 1991, 1480, 1481; Bassenge, in: Palandt BGB (2008)67, § 950 no. 6. Füller, in: MünchKomm BGB VI (2004)4, § 950 no. 24. Gursky, in: Westermann (1998)7, § 53 III 2 d; Eckert, in: Handkommentar BGB (2007)5, § 950 no. 8; Wadle, JuS 1982, 477, 481. Bassenge, in: Palandt (2008)67, § 950 Rn. 11; Ganter in: MünchKomm InsO I (2007)2, § 47 no. 108; Wiegand, in: Staudinger (2004) § 950 no. 41. Gursky, in: Westermann (1998)7, § 53 III 2 d; Medicus, Bürgerliches Recht (2002)8, no. 515 ff., 519. Füller, in: MünchKomm BGB4 VI, § 950 no. 25; Hk-BGB / Eckert § 950 no. 8. Füller, in: MünchKomm BGB VI (2004)4, § 949 no. 1 ff.

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The status of ownership effected by §§ 946 ff. is final. Therefore even in the case of later separation of the components ownership rests with the person who has acquired it under §§ 946 ff., and does not revert to the previous owners of the respective component parts or goods.505 The previous owner who lost his property as a consequence of §§ 946 ff. or § 950 is granted a claim for compensation against the new owner (§ 951).506 However, § 951 only operates with respect to the previous owner and the person who has acquired ownership. There is no compensation for any other terminated property rights. § 951 refers to the rules of unjustified enrichment.507 The general rule is that the previous owner is compensated by an amount of money, but may not reclaim his property; restitution in kind is therefore precluded.508 The amount of compensation will be estimated according to the current market price (§ 818 II).509 Of course, such a claim for compensation under the law of unjustified enrichment is not always a full replacement for the ownership lost. This is especially so if the new owner is declared insolvent. In such a case, the claim for release from estate is substituted by a mere percentage in the insolvent party’s estate. This is one of the most persuasive reasons why the judicature tries to construe the provisions on original acquisition narrowly and thereby prevent the termination of ownership in the first place, or at least prefers a finding of co-ownership to a finding of exclusive ownership of one party.510 It is important to keep in mind the relationship between the remedies provided for in § 951 and other categories of claims, because § 952 II explicitly states that further claims under other headings remain unaltered. Thus a person who has processed another’s supplies on purpose and thus has gained ownership by an unlawful act, will be liable under the provisions of tort law (§§ 823 ff.). The case of processing in bad faith may also give rise to an exception from the rule that the change of ownership is final, for tort law in general gives the person suffering a damage a claim for restitution of the prior state. 505 506

507 508

509

510

Füller, in: MünchKomm BGB VI (2004)4, § 946 no. 10, § 947 no. 9. These of course are excluded as far as accession, confusion or processing is conducted on the basis of a contractual agreement that the affected parties may agree to. Brehm / Berger, Sachenrecht (2006)2, no. 28.32. § 951 subsection 2 provides for an exception. In case the former owner is unable to obtain compensation he may under particular circumstances take recourse to means of self-help and withdraw the goods. BGHZ 5, 197, 201 f; BGHZ 17, 236, 239; Füller, in: MünchKomm BGB VI (2004)4, § 951 no. 24. Baur / Stürner, Sachenrecht (1999)17, § 53 no. 23.

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11.

Bona fide acquisition

11.1.

General concept

The rules on good faith acquisition in movables may be found directly after the rules on transfer of title in movable property (§§ 932-936). Their structure also relies on the rules on transfer of title in §§ 929-931: each separate rule on good faith acquisition mirrors one of the rules on transfer of title from an authorised person. Additional specific rules on bona fide acquisition concern registered ships (§ 932a) as well as acquisition of property in the course of a commercial transaction.511 The rules provided for by law form a closed list.512 A comparative assessment of different legal traditions shows that there is no entirely satisfactory concept as to how these conflicting interests may be balanced. German law has chosen a compromise,513 as it allows bona fide acquisition, but has not adopted the concept of a right of the previous owner to reacquire property. According to general rules, a disposition of movables will only be valid where it is performed by an authorised person514 or if that person has later ratified the disposition (§ 185). As the acquirer of goods usually has no possibility to enquire into the authority of the transferor, the imposition on the transferee of a requirement to check this authority in line with these general rules, with the accompanying practical burden of doing so, would severely impede the fluency and ease of legal transactions.515 On this view, a purchaser, who has not conducted enquiries on the authority of the owner would have to be prepared for the possibility that a third party proves his ownership of the movable sold and claims recovery. Accordingly, the law under certain circumstances provides for good faith acquisition and protects the bona fide partner and his faith in the validity of the agreement.516 On the other hand, the legitimate interest to validly acquire ownership is in direct conflict with the legitimate interest of the previous owner to preserve his property rights. Further, it must be considered that the concept of bona fide acquisition has a considerable impact on the security interests of creditors and thus at the same time has to take heed of policy considerations, such as the adequate allocation of the insolvency risk.517 Apart from 511 512 513 514 515 516 517

Cf. § 366 Commercial Code. But see infra 1. on the extension to good faith acquisition of equitable interests. Wieling, Sachenrecht (2007)5, 117. This is at the same time an unmentioned requirement of § 929 ff. Baur / Stürner, Sachenrecht (1999)17, § 1 no. 12. Quack, in: MünchKomm BGB VI (2004)4, § 932 no. 1. Neuner, JuS 2007, 401.

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this individual perspective, the interests of the common public – first and foremost to the fluency and security of legal transactions – have to be taken into account. This general interest in the ease of legal transactions is granted preference over the interests of the owner (or the person providing credit, as the case may be) to retain his legal position. Where the prescribed requirements are satisfied, the transferor will acquire property free of any encumbrances. The owner will lose his property and will have to turn to the transferor for compensation and damages. The interests of the owner, however, are secured by requirements that narrow the scope of bona fide acquisition. In order to protect ownership, bona fide acquisition is excluded with regard to things that have been stolen or otherwise have become missing. The rules on good faith acquisition from an unauthorised person are founded on two general principles. The first is that the owner has – in a wide sense – contributed to the appearance of a right or legal position of the unauthorised transferor. This aspect is usually referred to as Veranlassungsprinzip. The second principle is the notion of protection of legal transactions, which involves a balance of interests between the person who may lose his legal position (ownership or other property rights), and the bona fide transferee (Verkehrsschutz).518 As a consequence of the Veranlassungsprinzip, bona fide acquisition from an unauthorised person is only possible as far as the owner or person holding property rights is responsible for the disparity between ownership and possession, thus contributing to the prima facie appearance of the authority of the transferor. More precisely, the owner must himself be responsible for the transfer of possession. The ratio behind this rule is that the owner can and should examine the trustworthiness and reliability of any person he entrusts his possessions to.519 He also has the possibility to reduce the risk that an intermediary later on disposes of his belonging without authority (thereby enabling a bona fide acquisition) by taking precautions to destroy the good faith of any prospective transferee. The result is further justified by the fact that the owner by the transfer of possession has given rise to the legitimising appearance of the transferor’s legal position and accordingly will have to bear the associated risk.520 Bona fide acquisition therefore requires that the owner has deliberately521 disposed of the possession of the thing.522

518 519 520 521

Cf. Quack, in: MünchKomm BGB(2004)4, § 932 no. 3 ff. Quack, in: MünchKomm BGB VI (2004)4, § 932 no. 2. Neuner, JuS 2007, 401, 404. On the exception concerning money and bearer securities (§ 935 subsection 2) cf. infra 8.

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It should be mentioned that there is a tendency of the judicature to impose more strict requirements with regard to the transferee’s good faith and to establish duties of enquiry into and examination of the authority of the transferor. This of course leads to a reduction of the scope of application of bona fide acquisition, to the benefit of the interest of the owner to protect his legal position.523 522

Example: The creditor, who accepts a fiduciary transfer in a car as security, can ask the debtor furnishing security to hand over the registration certificate. This is a very effective protective measure, as a person who buys a car but does not receive the registration certificate from the transferor will ordinarily not be held to be bona fide.524 Similarly, a library can stamp its books and accordingly prevent the good faith of any transferee purporting to acquire such books.

Such means of protection already point towards the second crucial requirement of bona fide acquisition: the transferee has to bona fide believe in the ownership of the transferor and this good faith has to be founded on the legitimising appearance of the transferor’s legal position. Such legitimising appearance can be justified by either the transferor’s direct possession or his power to transfer possession to the transferee (Vertrauensprinzip).525 The first requirement will in general only be met where the transferee has regarded the transferor to be the owner. By contrast, good faith in the authority to dispose – as opposed to good faith in the ownership – will suffice only in the context of commercial transactions. Specific rules further provide for the situation that the transferor is in fact the owner but for other reasons – e.g. a restriction of transferability – may not dispose of his goods.526

11.2.

Scope of application

11.2.1. Transfer by virtue of legal transaction The general rules on good faith acquisition apply if the transfer of title would be valid according to the rules of §§ 929 ff. but for the lack of the transferor’s authority.527 The reason why the transferor does not have au522

523 524 525 526 527

This rule is criticised by Thorn, ZEuP 1997, 442, 473 ff., because it is not apparent for third parties whether or not this requirement is met. This is criticised by Quack, in: MünchKomm BGB VI (2004)4, § 932 no. 1. Cf. BGH NJW 1991, 1416. BGHZ 10, 81. Cf. infra 11.3.5. Quack, in: MünchKomm BGB VI (2004)4, § 932 no. 6.

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thority to transfer ownership is without significance. Accordingly, the rules apply to all cases in which the transferor at the time the transfer was agreed upon was the owner of the thing transferred, but in the meantime has disposed of his ownership in another way (e.g. double sale) or has lost his legal position as owner for other reasons (e.g. original acquisition of a third party). It also covers the situation where the transferor was never the proprietor of the thing he transfers (e.g. the transferor was merely an intermediary of the former owner). The only prerequisite is that the transferor lacks authority the moment the transfer takes place. Specific rules provide for the situation where the transferor at the decisive point in time is the owner but, either due to a restriction of transferability or due to a subsequent loss of ownership, is unable to transfer ownership. Whether the rules of bona fide acquisition apply where transferability is restricted will depend on whether the restriction has absolute or merely relative effect. Whereas restrictions of transferability with absolute effect prevent any kind of transfer of ownership, a relative restriction will not hinder the bona fide acquisition by a third party. However, with regard to things encumbered by a relative restriction the general rules on bona fide acquisition are suitably modified, as the good faith required does not pertain to the ownership of the transferor, but instead requires that the transferee is in good faith with regard to the non-existence of the restriction in question.528 There also is a separate specific rule for the situation where the transferor did have authority at the time the transfer took place, but lost this legal position because the legal transaction that led to his authority was voidable. Where such avoidance is successful the transferor loses his ownership with retroactive effect. The acquisition of ownership of a third party transferee will accordingly be defective because of the lack of authority of the transferor. The rules on bona fide acquisition in general apply, but do not so apply where the transferee knows, or owing to gross negligence does not know, that the prior transaction to the transferor is voidable (§ 142 II).529 The rules on bona fide acquisition do not apply on insolvency of the owner. According to § 81 I 2nd s. Insolvency Act after declaration of insolvency the owner lacks authority to transfer ownership. Similarly, the absolute lack of authority to dispose according to § 1365 and § 1369 (disposal of the entire property of one spouse or disposition of household items) prevails over the rules on bona fide acquisition.530

528 529 530

On restrictions of transferability see surpra 1.5.3. BGH NJW-RR 1987, 1456, 1457. Cf. Wolf, JZ 1997, 1087 ff.

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11.2.2. Material scope of application The categorisation of goods which can be acquired by bona fide acquisition resembles the scope of application of goods that fall under the transfer of movables according to §§ 929 ff., i.e. movable property in the meaning of § 90. The rules therefore also apply with respect to negotiable instruments, money, bearer securities and to works of art.531 In parallel to the extension of the rules on transfer of movables from an authorised person, the rules on transfer from an unauthorised person are extended to acquisition of equitable interests. Thus an equitable interest arising from a sale subject to a reservation-of-title clause may be acquired under the rules on bona fide acquisition of movables, but subject to the further requirement that the position of the bona fide transferee will depend on the existence of the sales contract. The concept of bona fide acquisition can only go so far. Consequently, good faith cannot replace the lack of existence of the equitable interest itself. A bona fide acquisition of a non-existent equitable interest is therefore impossible.532 The scope of application is further extended by § 932a, to non-registered ships, and by § 366 Commercial Code, to transfers relating to trading transactions.

11.2.3. Gratuitous acquisition As a general rule, bona fide acquisition is possible with respect to all forms of transaction. No distinction is drawn between gratuitous acquisition and acquisition for consideration.533 Again the validity of the transfer is completely independent of the underlying contractual or other obligation to transfer. Accordingly, a person who receives property as a gift from an unauthorised person may acquire bona fide ownership. However, the fact that he has gratuitously received the property of another does lead to consequences with respect to the rules on unjustified enrichment. The rules discriminating against gratuitous bona fide acquisition from an unauthorised person therefore are not provided for in the context of transfer of title, but are found in the rules on compensation for unjustified enrichment.534

531

532 533

But see the Directive 93 / 7 / EEC on the retransfer of pieces of national art which have been transferred to foreign countries, OJ March 27th, 1993, no. L 74, 74 and the legislation transposing the directive into German law: Kulturgutsicherungsgesetz and Kulturgüterrückgabegesetz, October 15th 1998, BGBl I 3162. Baur / Stürner, Sachenrecht (1999)17, § 59 no. 40. Quack, in: MünchKomm VI (2004)4, § 932 no. 7.

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Generally a bona fide acquisition includes a valid legal basis for the right to retain ownership of the thing. Accordingly, the rules on unjustified enrichment are excluded insofar as the relationship between the former owner and the bona fide transferee is concerned. Of course the transferor, who has performed the transfer without authority, will be held responsible and is under a duty to restore the benefits received from the third party in return for the unauthorised transfer (§ 816 1st s.). This rule is modified where the third party has acquired ownership without consideration: the duty to return the benefits received extends to the transferee. He has to return what he has received by means of the unauthorised transaction, i.e. he will ordinarily be under a duty to retransfer ownership to the former owner. Where he is no longer able to retransfer ownership he is under a duty to compensate for its value (§ 818 II). 534

11.2.4. Exclusion of stolen things The balance of interests that has led to the acceptance of bona fide acquisition relies on the possibility of the owner deciding who he wants to entrust his belongings to and his ideal position to judge the trustworthiness of his contracting partner or intermediary in comparison to a purchaser, who will have no such information.535 One result of this principle is that bona fide acquisition is excluded if the thing was stolen or ‘has become missing or otherwise lost’. The exclusion can be found in § 935 I, with the underlying justification being that the discrepancy between ownership and possession is not founded on a deliberate act of the owner where a thing has been stolen or otherwise has become missing. It should be mentioned that the requirement of deliberate transfer of possession applies to both sale in the ordinary course of business and to bona fide acquisition under § 366 Commercial Code.536 A thing becomes missing if the owner loses direct possession without a deliberate act.537 The loss of possession therefore need not necessarily be contrary to his free will, but must have occurred without his (or his intermediary possessor’s) consent.538 Loss of possession without consent may occur 534

535 536 537 538

Karner, ZfRV 2004, 83, 86, even asserts that the result of property law is corrected by means of unjustified enrichment law. Baur / Stürner, Sachenrecht (1999)17, § 52 no. 10. Handelsgesetzbuch (Commercial Code). Baur / Stürner, Sachenrecht (1999)17, § 52 no. 37. Quack, in: MünchKomm BGB VI (2004)4, § 935 no. 5; cf. Baldus, JR 2002, 441, 442 ff.

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where a person loses a thing or someone withholds possession from him. If the possessor is forced to give up possession by means of duress, this will also constitute loss of possession under § 935. By contrast, the requirement that the owner has deliberately entrusted another with possession is already met if the owner has handed over the thing to any other person. He need not have handed it over to the unauthorised transferor personally. Whether or not there is a further requirement that all other transfers of possession have also been deliberate is a matter of dispute.539 The consent to give up (direct) possession is not a legal act of the owner, but rather a natural act. Notwithstanding this categorisation it is difficult to assess the intention of persons who either totally lack legal capacity or only possess restricted legal capacity. Even though the loss of possession does not qualify as a legal transaction and §§ 104 ff., and § 116 thus are not applicable, legal doctrine still falls back on the underlying policy considerations. Therefore a thing that has been given away by a person underage (and therefore lacking in legal capacity) is held to have become missing in the meaning of § 935 I. In the case of a person with restricted capacity, the assessment will depend on whether or not that person was able to understand the significance of the act.540 The requirement of involuntary loss of possession may be met by the involuntary loss of possession by an intermediary possessor. However, if the direct possessor, who holds possession in the name of the owner, gives up possession deliberately but without the knowledge of the owner, the thing is not held to have become missing under § 935 II. Where a possessory servant deliberately transfers possession this will not constitute deliberate transfer by the possessor, because the possessory servant himself is not possessor.541 Accordingly, the thing will be classified as missing. Prevailing opinion confirms this rule and holds it to be applicable even where the possessory servant had a position that – from a third party perspective – appeared to be the position of an intermediary possessor. It is argued that the law does rely on the true factual state of possession and not on whether third parties can perceive that factual situation.542 539 540

541 542

Cf. infra 11.3.5. Baur / Stürner, Sachenrecht (1999)17, § 52 no. 42; Quack, in: MünchKomm BGB VI (2004)4, § 935 no. 9. Witt, AcP 201 (2001), 165, 180 ff. Baur / Stürner, Sachenrecht (1999)17, § 52 no. 39; Zeranski, JuS 2004, 340, 344; Eckert, in: Handkommentar BGB (2007)5, § 935 no. 4; Gursky, in: Westermann (1998)7, § 49 I 6. (but cf the previous edition, where it is argued in favour of the possibility of third parties to distinguish between possessory servant and direct possessor, with the result that a thing would not be missing: H. Westermann, Sachenrecht (1990)6, § 49 I 6).

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A more difficult situation to solve is the situation where the direct possessor who does not hold possession with the intention to hold it for the owner, manages to lose possession involuntarily. Whether the thing should be held to have become missing is a matter of dispute.543 According to a literal interpretation the possession of the owner was not involuntarily terminated, as he has deliberately transferred possession to another. In fact, prevailing opinion approves of the possibility of bona fide acquisition.544 Example: Owner A gives his watch to B, who is supposed to repair it. However, B misappropriates the watch and hands it over to C, who cannot acquire ownership, because he is mala fide. Later on a thief D steals the watch from C and transfers it to E, who is in good faith. As the watch has not become missing from the owner A, because he has voluntarily transferred possession to B and E is bona fide, there is nothing to prevent a bona fide acquisition under § 932 s. 1.545

Things are also held to have become missing if the heirs are deemed to acquire possession under § 857 and a thing is taken from the estate. Where a prospective heir sells a thing from the estate the purchaser cannot acquire ownership, unless the seller is authorised by a certificate of inheritance (cf. § 2366). In fact, the practical relevance of § 857 is to protect the heir against acquisition of the estate by third parties.546 Where a thing has become missing, this permanently precludes bona fide acquisition of ownership. Ownership and possession remain permanently separated until either the original owner regains possession or the possessor acquires ownership by another mode of acquisition, for instance by specification or acquisitive prescription.547 Two exceptions from this general rule are provided for: according to § 935 II bona fide acquisition concerning money and bearer securities is not ruled out by the fact that they have been stolen or otherwise have become missing. With respect to these instruments the interest of society in the ease and fluency of legal transactions prevails.548 Money in the meaning of § 935 II includes all valid means of payment. The term bearer instruments covers 543 544

545 546 547

548

Cf. Braun, JZ 1993, 391 ff. Quack, in: MünchKomm BGB VI (2004)4, § 935 no. 7; Gursky, in: Westermann (1998)7, § 49 I 5; Bassenge, in: Palandt (2008)67, § 935 no. 2; of other opinion Baur / Stürner, Sachenrecht (1999)17, § 52 no. 38; Musielak, JuS 1992, 713, 723; Braun, JZ 1993, 391, 395 f. OLG Düsseldorf JZ 1951, 269. Wieling, Sachenrecht (2007)5, 129. Baur / Stürner, Sachenrecht (1999)17, § 52 Rn 46; Quack, in: MünchKomm BGB VI (2004)4, § 935 no. 18. Quack, in: MünchKomm BGB VI (2004)4, § 932 no. 5.

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all negotiable instruments that grant the bearer the right to exercise the right recorded, such as bearer securities, debt certificates, theatre tickets, tickets for public transportation and stamps. The second exception, also provided for in § 935 II, covers the acquisition of goods stolen or otherwise missing in the course of a public auction. This provision is of particular importance in the context of stolen or confiscated works of art.549 A public auction in the meaning of § 935 II is a public auction as defined in § 383 III and therefore regularly a means of self-help sale.550 Assets subject to a pledge are often sold at a public auction in order to discharge the debt (§ 1244 and § 1235 I). By contrast, it should be noted that an auction in the course of execution proceedings is not covered, as such an auction is provided for by the Civil Procedure Rules (§§ 814 ff. Civil Procedure Code). The rules on bona fide acquisition do not actually apply to such an auction, as acquisition of ownership here is a consequence of an act of the state, a special basis of original acquisition.551

11.3.

Requirements of bona fide acquisition

11.3.1. Trade transactions The interplay of the rules of the abstract transfer system and those on bona fide acquisition may lead to a loss of ownership in cases where this consequence cannot be justified by the policy considerations mentioned above. This necessitates a further restriction of the application of the rules on bona fide acquisition: bona fide acquisition is only acceptable insofar as there is an actual change of legal position, not merely a formal change. The underlying notion is that bona fide acquisition is intended to serve the efficiency of legal transactions and therefore must be excluded where there is no real legal transaction to protect. This requirement is commonly referred to as the requirement that the legal transaction constitutes a ‘trade transaction’ (Verkehrsgeschäft), but this term is misleading, as far as it may be misunderstood as requiring a commercial context. A trade transaction describes the situation of a transfer based on an initial legal transaction, where ‘transferor’ and ‘transferee’ are not identical 549

550 551

Works of art that were confiscated by the Nazi-Regime are held to ‘have become missing otherwise’ in the meaning or § 935 subsection 1 and thus in general bona fide acquisition is ruled out. However, in the case of a public auction bona fide acquisition is possible. For details see Heuer, NJW 1999, 2558, 2563 and Müller-Katzenburg, NJW 1999, 2551, 2555. Cf. OLG München, NJW 1987, 1830. RGZ 156, 395, 398; BGHZ 119, 75, 76 f.

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to the roles held in the legal transaction it is based on, neither from a legal nor a factual perspective.552 This requirement not only excludes bona fide acquisition of title ex lege and original acquisition, but also such transactions where there is no real change of the person entitled,553 i.e. the transfer only has technical character.554 Example: A, the managing director of company B, sells ‘his car’ – which in fact is still the conditional property of the seller – to B in order to use it as his company car.

There is a further particularly difficult situation that is a matter of dispute. Should the retransfer from the transferee to the unauthorised transferor transfer ownership to the unauthorised transferor, with the result that the unauthorised person acquires full ownership and in relation to the former owner is merely under a personal duty to retransfer ownership,555 or should ownership automatically revert to the former owner? In order to give a comprehensive answer, a number of cases have to be distinguished. The first category covers the so-called ‘initially intended retransfer’ (anfänglich beabsichtigter Rückerwerb).556 Here the unauthorised transferor at the time of the transfer to the bona fide transferee plans to later acquire ownership from the bona fide transferee. According to prevailing – but contested557 – opinion he cannot acquire ownership by means of such retransfer. Instead ownership reverts to the former owner. The same applies where the transfer from the unauthorised person to the transferee lacks a legal basis, for instance because the underlying contractual agreement is invalid. The retransfer of ownership is based on an obligation under the law of unjustified enrichment, which does not qualify as a trade transaction.558 The unauthorised transferor does not acquire ownership, but again the ownership will revert to the former owner.559

552 553 554 555 556

557 558 559

BGHZ 30, 255; Quack, in: MünchKomm BGB VI (2004)4, § 932 no. 18. Baur / Stürner, Sachenrecht (1999)17, § 52 no. 5. Brehm / Berger, Sachenrecht (2006)2, no. 27.86. Eckert, in: Handkommentar BGB (2007)5, § 932 no. 2. Baur / Stürner, Sachenrecht (1999)17, § 52 no. 34; Prütting, Sachenrecht (2008)33, no. 438; Wieling, Sachenrecht (2007)5, 132. Eckert, in: Handkommentar BGB (2007)5, § 932 no. 2. Zeranski, JuS 2002, 340, 341. See on the prevailing opinion Baur / Stürner, Sachenrecht (1999)17, § 52 n o.2; Prütting, Sachenrecht (2008)33, no. 438; Wieling, Sachenrecht (2007)5, 132; of other opinion Quack, in: MünchKomm BGB VI (2004)4, § 932 no. 61; Bassenge, in: Palandt (2008)67, § 950 no. 17.

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Example: B holds a book of A as an intermediary and without authority sells it to C. C subsequently claims avoidance of the contract, because he was deceived by the false information on age and value of the book by B. Successful avoidance will render the contract void with retroactive effect and the parties are obliged to restore any benefits obtained. C will thus retransfer ownership in the book and claim back the purchase price. As soon as C’s act of disposal takes effect ownership is retransferred. However, instead of B, A will reacquire ownership in ‘his’ book.

This principle, that the unauthorised transferor should not be able to acquire ownership by means of a merely transitional acquisition by a bona fide third party, will also be applied where the transaction is not intended to actually confer ownership to the third party unconditionally. The transfer of a security interest by means of fiduciary transfer may serve as example. As soon as the transferor repays the loan he has secured by the transfer, the ownership of the third party is terminated by the fulfilment of the condition precedent and ownership would usually fall back to the transferor. If the transferor lacked authority it will instead revert to the original owner.560 If none of these three categories mentioned applies, the transferor may acquire full ownership by means of retransfer from a bona fide-transferee.

11.3.2. Legitimation by virtue of possession The rules on bona fide acquisition first and foremost rely on the legitimising appearance of possession. Accordingly, the good faith of the transferee must be based on the legitimate expectation that the transferor’s possession of the respective asset is an indication of his ownership. If the transferee relies on this legitimising appearance (Rechtsscheintatbestand) he is worthy of protection. Therefore, the nature of the transferor’s possession must be of a kind that the transferee’s reliance on the possession of the transferor appears to be reasonable and the transferee in his reliance is worthy of such protection.561 This requirement varies according to the different modes of bona fide acquisition. It is met if one of the following situations applies: the transferor hands over the thing to the transferee (§ 932 I 1st s.); the transferee had already at some earlier point in time received the thing from the transferor (§ 932 I 2nd s.); or the transferor transfers indirect possession to the transferee (§ 934 1st case). Further, under § 933 the transferee may obtain

560 561

Baur / Stürner, Sachenrecht (1999)17, § 52 no. 34. Baur / Stürner, Sachenrecht (1999)17, § 52 no. 3.

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ownership if, and only if, he (later) obtains possession of the thing from the transferor and at that moment is still in good faith. The above-mentioned rules on bona fide acquisition seem to indicate a further requirement, namely that the transferor originally had possession and later transferred it to the transferee. Despite this common notion, there is no general principle that bona fide acquisition always requires prior possession of the transferor.562 Under § 934 2nd case (concerning the assignment of a claim) the essential requirement is not that the transferor had prior possession, but merely that the transferee at some point obtains possession. Accordingly, a legitimate expectation of the transferee that the transferor is the owner of the thing may not only rely on the transferor’s actual possession, but also on the ability of the transferor to arrange for the transfer of possession to the transferee (so-called Besitzverschaffungsmacht). Possession has been the subject of regular critique in legal doctrine, as it can no longer be said to confer the legitimate expectation that the possessor will also be the owner, because possession as a means of publicity has lost its significance.563 However, prevailing opinion points out that no alternative basis for legitimate reliance is available, and that, while there may be some truth in the criticism, this criticism does not stand in respect of the ability to direct a third person to transfer possession.564

11.3.3. Transfer of physical control (a)

Transfer of possession

The typical case of bona fide acquisition is that the reliance on the transferor’s ownership is based on the transferor’s possession. The transferor gives up possession, then the acquirer obtains possession. As far as possession is required, both direct and indirect possession will meet the requirement. Accordingly, an intermediary may act on behalf of the transferor. As mentioned above the possibility of a bona fide acquisition is not per se restricted where the transferor does not hold possession of the thing. The basis for the legitimate expectation of the transferee therefore is not only possession itself, but also the ability to direct another to transfer possession. The Besitzverschaffungsmacht will regularly arise from the fact that the transferor has (indirect) possession, but may also lie in the ‘assignment’ of 562 563

564

Quack, in: MünchKomm BGB VI (2004)4, § 932 no. 16. Rebe, AcP 173 (1973), 186, 193 ff. with further references; cf. Kindl, AcP 201 (2001), 391, 393; Neuner, JuS 2007, 401, 404; cf. supra 4.6. Quack, in: MünchKomm BGB VI (2004)4, § 932 no. 16; see on the requirement of complete loss of possession under § 929 supra 5.4.3.(b).

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a non-existent claim for recovery or the ability to instruct a Geheißperson to transfer possession. From these rules another requirement can be derived: the sole fact that the transferor’s possession generates a legitimate expectation of the transferee on its own can never be sufficient, unless the transferee in consequence does actually obtain possession. The only general rule that can be derived from all modes is that the transferee will only acquire ownership where the transferor does not retain any kind of possession after the transfer, not even indirect possession.565 By contrast the question of what requirements the transferor’s possession must meet prior to the transfer, cannot be answered uniformly for all the provisions on bona fide acquisition; it has to be discussed separately for each of the different modes of acquisition.

(b)

Modification of substitute transfer modes

(i)

Brevi manu traditio

If the transferee has already obtained possession prior to the transfer and wants to acquire ownership by means of a brevi manu traditio, he may rely on the transferor’s ownership if, and only if, he has obtained possession from the transferor. The transferee not only has to obtain possession, but most importantly the transferor must lose any form of possession.566 The traditio requirement for a bona fide acquisition under § 932 I 2nd s. accordingly is that the transferee obtains possession of the thing either directly from the transferor or from another person who acts on behalf of the transferor.567 This requirement, for instance, is met where the former direct possessor and assumed owner of the thing has transferred possession to another person who – authorised by the former possessor (and assumed owner) – now transfers possession to the transferee.568 In comparison to the mode of acquisition from an authorised person under § 929 2nd s. the additional requirement of § 932 I 2nd s. is that the transferee obtains possession from the transferor, while under § 929 the transferee may obtain possession from any other person. This further requirement is essential to establish a basis for the legitimate expectation that the transferee believes the transferor to be the owner.569

565 566 567 568 569

BGHZ 56, 123, 129 f. Cf. BGHZ 56, 123, 129 f. Quack, in: MünchKomm BGB4 VI, § 932 no. 56. Cf. Baur / Stürner, Sachenrecht (1999)17, § 52 no. 16. Zeranski, JuS 2004, 340, 346.

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Whether this rule may be extended to also cover a person who acts for the unauthorised transferor, but does not exercise possession for that transferor (a ‘Geheißperson’) is a matter of dispute. Even where the Geheißperson does transfer possession to the transferee on the instruction of the transferor, the requirement that the possession has to be transferred from the transferor to the transferee is still lacking. However, where the Geheißperson does act in such a manner and hands the thing to the transferee, who trusted that the transferor was the legitimate owner, then this form of tradition is also held to be sufficient.570 The underlying reason why the Geheißperson transfers possession to the transferee is held to be irrelevant. The Federal Court of Justice has approved of a bona fide acquisition under § 932 I in a case where the unauthorised transferor has sold a thing belonging to a third party and that third party (i.e. the owner) subsequently transferred possession directly to the purchaser, believing that the transferor had concluded the contract in her name.571 According to the reasoning of the court, the owner was a supposed Geheißperson of the unauthorised transferor and effected the transfer of possession in the transferor’s name. Thus the transfer requirement under § 932 I 1st s. was met, because the question whether or not the owner is held to be a Geheißperson has to be judged from the point of view of the transferee.572

(ii)

Constitutum possessorium

The mere transfer of ownership by an unauthorised person by means of a real agreement and a constitutum possessorium is no sufficient basis for bona fide acquisition.573 The transferee will only acquire ownership where the thing is actually handed over to him at a later time and at that time he is still in good faith. Transfer of possession in this case means that the

570

571

572

573

BGHZ 36, 56, 60 with note von Caemmerer, JZ 1963, 586 ff.; BGH NJW 1979, 203; BGH NJW 1973, 141; Baur / Stürner, Sachenrecht (1999)17, § 52 Rn 13; Brehm / Berger, Sachenrecht (2006)2, no. 27.55; Quack, in: MünchKomm BGB VI (2004)4, § 932 no. 17. BGHZ 36, 56, 60 with critical note by von Caemmerer, JZ 1963, 586 ff.; BGH NJW 1974, 1132, 1134; criticised by Zeranski, JuS 2004, 340, 345. BGH NJW 1974, 1132, 1133. This decision, however, has been frequently criticised, see Baur / Stürner, Sachenrecht (1999)17, § 52 Rn 13; Brehm / Berger, Sachenrecht (2006)2, no. 27.56; Picker, NJW 1974, 1790; Martinek, AcP 188 (1988), 573, 627, but has also met with approval: Wiegand, in: Staudinger (2004) § 932 Rn 24; Gursky, in: Westermann (!998)7, I § 47 I 1 a. Also compare BGH ZIP 1993, 98. Quack, in: MünchKomm BGB VI (2004)4, § 933 no. 1.

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transferee obtains exclusive possession.574 This, however, does not rule out the possibility of that intermediaries acting in place of the transferee.575 This mode of bona fide acquisition is a good example of the rule set out above in action, i.e. that the mere prior possession of the transferor is not regarded as a sufficient basis for the legitimate expectation of the transferee that the transferor is also the owner. Instead the legal prerequisite also includes the clear manifestation of possession of the transferee, being exclusive possession of the acquirer or his intermediaries and complete dispossession of the transferor.576 Although § 933 is modelled on the rule in § 930 it is in fact not a modification of that rule, but rather an exclusion of bona fide acquisition by means of a constitutum possessorium, because on close examination § 933 requires an anticipated real agreement and a subsequent actual transfer of possession. Leaving aside the fact that agreement and transfer do not take place simultaneously, these requirement mirror exactly those of § 929 1st s. instead of § 930.577 As far as indirect possession is transferred, it will fall within the scope of § 934 I.578 The additional requirement of actual (subsequent) transfer of possession is of some importance in practice, as this effectively rules out the bona fide acquisition of a credit security by means of fiduciary transfer: in general the transfer of security interest will fail due to lack of actual transfer of possession. Due to this exclusion of bona fide acquisition by constitutum possessorium, there is a substantial risk for a creditor who demands a fiduciary transfer as security, that he will not acquire any security interest where the debtor is not owner of the goods transferred. Thus there has been the attempt to design the grant of a security in a mode falling within the scope of § 934 1st alternative, thereby circumventing the stricter rule of § 933. Example:579 If the debtor transfers title in his stock of goods to his bank as a security and agrees on a constitutum possessorium and the debtor therefore keeps direct possession of the stock, then the creditor will only acquire the security interest where the debtor is the owner of the goods (§ 930) or the creditor later on actually takes possession of the goods (§ 933) (the second option, of course, 574

575

576 577

578 579

Cf. BGHZ 67, 207, according to which unilateral removal is insufficient, even where the transferee was authorised to take the goods away. See on this subject Musielak, JuS 1992, 713, 718. A mere symbolic transfer is not sufficient: OLG München NJW 1970, 667 (short test-drive); OLG Frankfurt BB 1976, 573 (attachment of a sign). Baur / Stürner, Sachenrecht (1999)17, § 52 no. 17. Wiegand, in: Staudinger (2004) § 933 no. 6; Baur / Stürner, Sachenrecht (1999)17, § 52 no. 17. Wieling, Sachenrecht (2007)5, 123. The example is taken from Brehm / Berger, Sachenrecht (2006)2, no. 27.65.

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will hardly ever be the case). If the debtor, by contrast, transfers possession to a warehouse and accordingly has a claim for surrender from this legal relationship (usually a contract of bailment), then the debtor and creditor can provide for a security by real agreement and the assignment of the claim for delivery against the bailor. Where the debtor lacks title, the creditor may bona fide acquire ownership under § 934 1st alternative.

However, whether this attempt to circumvent the rules of § 933 by a capricious manipulation will be crowned by success is rather doubtful, in particular if this construction is already predetermined by the standard terms of contract. Here the bona fide acquisition will most likely fail for lack of good faith. The creditor will be confronted with the assertion that he was not quite convinced that the debtor actually was the legitimate owner of the stocks transferred, and even though he may not be mala fide, he was at least grossly negligent.580

(iii)

Assignment of claim for delivery

§ 934 actually provides for two different alternatives of bona fide acquisition, meaning that the requirements of transfer of possession therefore have to be examined separately. While transfer of ownership according to the first alternative immediately takes effect, the translatory effect of the second alternative will only occur as soon as the transferee has obtained possession. The first alternative applies where the transferor is in fact the indirect possessor of the thing he intends to transfer and assigns the existent claim for recovery581 of possession arising from the relationship of constructive possession to the transferee. The transferee can thereby acquire ownership even though he does not obtain direct possession of the thing transferred. This exception from the general rule that the transferee has to obtain direct possession is often criticised as an inconsistency between the rules of § 933 and § 934.582 However, the Federal Court of Justice has ruled that this inconsistency has to be accepted as the will of the legislature.583 Another part of legal doctrine disagrees: according to this opinion § 933 and § 934 1st alternative are not inconsistent, because the main prerequisite of bona fide acquisition is not that the transferee obtains possession, but rather that the unauthorised transferor gives up any kind of physical control of 580 581 582

583

Quack, in: MünchKomm BGB VI (2004)4, § 933 no. 19, § 934 no. 19. Baur / Stürner, Sachenrecht (1999)17, § 52 no. 21. Kindl, AcP 201 (2001), 391, 397 ff. with further references; Picker, AcP 188 (1988), 511, 515 ff. BGHZ 50, 45, 51 f.

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the thing transferred. The justified distinction between § 933 and § 934 1st alternative accordingly is to be seen in the fact that in the case of § 933 the transferor is the intermediary and therefore does not give up physical control, while in the case of § 934 the intermediary is a third party. Accordingly only § 934 satisfies the requirement that the transferor loses any kind of physical control.584 Another dispute concerns the question whether or not bona fide acquisition by assignment of the claim for recovery of possession is valid where the intermediary does indirectly possess for the transferee, but simultaneously possesses with the intention to possess in the name of the former owner. Accordingly, the transferee only acquires secondary possession instead of exclusive indirect possession (so-called Nebenbesitz). However, the judicature of the Reichsgericht did not accept the concept of secondary possession and ruled that the fact that the intermediary agrees to hold possession for the transferee automatically terminates the indirect possession of the former owner.585 The prevailing legal doctrine disagrees, because the transferee only obtains secondary possession and this position is not held to be sufficient physical control to satisfy the requirements of bona fide acquisition under § 934 1st alternative.586 § 934 2nd alternative applies in the situation that the transferor does not even have indirect possession and accordingly also lacks a claim for recovery of possession. As the transferor lacks any kind of legitimising appearance neither transfer by means of assignment of the (non-existent) claim for recovery nor by mere agreement will suffice to protect the transferee. Instead the transferee has to obtain possession. The requirement that the transferee actually obtains possession is indispensable, as otherwise the transfer of ownership could take place without the participation of a person who has been entrusted possession by the owner (or any of his intermediaries).587 This of course would violate the Veranlassungsprinzip. Accordingly, bona fide acquisition will therefore only take place where the

584

585

586

587

BGH NJW 1959, 1536; BGHZ 50, 45, 52; Baur / Stürner, Sachenrecht (1999)17, § 52 no. 20 with fn. 4; For criticism cf. Kindl, AcP 201 (2001), 391, who draws attention to the fact that the requirement of complete loss of possession is only relevant insofar as the transferor has formerly had possession at all; see also Picker, AcP 188 (1988), 511, 518. RGZ 135, 75; RGZ 138, 265. Similarly BGH NJW 1979, 2037. See, in approval, Zeranski, JuS 2004, 340, 343. Baur / Stürner, Sachenrecht (1999)17, § 52 no. 24; similarly in result Kindl, AcP 201 (2001), 391, 408 ff.; see on this point further Tiedtke, WM 1979, 1142, 1143 f.; Tiedtke, WM 1981, 1097; but cf Zeranski, JuS 2004, 340, 343. Brehm / Berger, Sachenrecht (2006)2, no. 27.63.

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transferee as a result of the real agreement588 actually receives possession of the thing from a third party (with indirect possession being classed as sufficient.589

11.3.4. Good faith A further requirement of paramount importance to bona fide acquisition from an unauthorised person under §§ 932 ff. is good faith in respect of the ownership of the transferor. The transferee must be in good faith at the time the transfer is completed,590 i.e. the moment both real agreement and traditio are complete. Where the transfer is subject to a condition precedent, for instance the payment of the purchase price, the relevant point of time will still be the conclusion of the real agreement and traditio, not the later moment the condition is met.591 Once ownership has been acquired in good faith, subsequent knowledge will not prejudice the acquirer’s position. The required standard of good faith is defined by § 932 II: the acquirer is not in good faith if he knows, or owing to gross negligence does not know, that the thing does not belong to the transferor. By contrast slight negligence will not impair good faith. The delineation between gross and slight negligence naturally causes problems. Gross negligence, according to case law of the Federal Court of Justice, means that a transferor ‘according to the circumstances has failed to observe the standard of care, has breached his duties in such a gross manner, and has ignored what every person in such circumstances would have found quite obvious’.592 Where suspicious circumstances indicate that the transaction may not be authorised, a duty to self-inform and examine the prevailing circumstances (the duty of information and examination) will arise. The lack of observance of this duty will be held to involve gross negligence. Accordingly, no general duty to investigate is established. A duty will only arise if there is a cause for distrust. The scope of the duty of information and examination will inter alia depend on the circumstances and experience of the transferee. An experienced commercial businessman will have to measure up to a stricter standard than a private individual who rarely conducts such transactions. The standard of care required will also depend 588 589 590 591 592

Baur / Stürner, Sachenrecht (1999)17, § 52 no. 22. BGH DB 1969, 436; BGH NJW 1978, 696. Baur / Stürner, Sachenrecht (1999)17, § 52 no. 28. BGHZ 10, 69, 72 f.; BGHZ 30, 374, 377. BGHZ 10, 14, 16: […] Die erforderliche Sorgfalt nach den gesamten Umständen in ungewöhnlich grobem Maße verletzt und dasjenige unbeachtet gelassen hat, was im gegebenen Fall jedem hätte einleuchten müssen.

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on the type of transaction. Extraordinary contracts such as credit operations or a purchase in the open street will, of course, give rise to a more strict duty of examination than regular everyday purchases.593 Example: If high priced goods are bought at a price considerably below the market value, then the purchaser may not simply rely on the information of the transferor that the goods have already been paid for. He must undertake further enquiries into the authority of the seller.594

The judicature has developed detailed and strict rules for the purchase of cars, in particular second hand cars. A purchaser who buys a car without asking the transferor to hand over the registration certificate will, as a general rule, be held to have acted in a grossly negligent manner.595 The same holds true for a person who buys a second-hand car and does not undertake any enquiries when the registration certificate received shows a third party as the registered user.596 Where an agent acts in the place of the transferee, whether or not the bona fide requirement is fulfilled will depend, in turn, on whether or not the agent is in good faith (cf. § 166 I).597 This rule is modified where the agent acts according to specific directions of the principal: thus both, principal and agent have to be in good faith (cf. § 166 II).598 If the transferee is a juristic person, the bad faith or negligence of one of the members (or their appointed representative(s)) will be reflected on such juristic person.599 The existence of a relative prohibition to dispose does not hinder a bona fide acquisition, because the good faith of the transferee in the nonexistence of such prohibitions to dispose is similarly protected (§ 135 II, § 136, § 2113 III).600 If the transferee, however, knows that the acquisition of the transferor is the result of a voidable agreement, the bad faith with respect to this knowledge will preclude good faith (cf. § 142 II).601

593 594 595

596

597 598 599 600 601

Quack, in: MünchKomm BGB VI (2004)4, § 932 no. 33 ff. BGH LM § 455 BGB Nr 23; cf. Musielak, JuS 1992, 713, 715. BGHZ 10, 69, 74; BGHZ 30, 374, 380; BGH JZ 1965, 219; BGH NJW 1970, 653; BGH NJW 1981, 227 and OLG Düsseldorf NJW 1985, 2484, note by Mittenzwei, NJW 1986, 2472. BGH NJW 1994, 2022; and the similar case of BGH, NJW 1993, 1649 with note by K Schmidt, JuS 1993, 868. Quack, in: MünchKomm BGB VI (2004)4, § 932 no. 49. Baur / Stürner, Sachenrecht (1999)17, § 52 no. 32. BGHZ 20, 149, 153; BGHZ 41, 282, 287. Baur / Stürner, Sachenrecht (1999)17, § 52 no. 30. BGH NJW 1988, 482.

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The good faith in the authority to dispose will not suffice, unless the exception contained in the Commercial Code applies. According to § 366 Commercial Code, a provision with a great spectrum of practical relevance,602 the good faith in the transferor’s authority to dispose will be met if the transferor is a commercial agent and disposes of the goods in the regular course of his business.603 The burden of proof in a situation of dispute lies on the party who denies the bona fide acquisition, normally the former owner. He will have to prove that the transferee was either mala fide or grossly negligent. If the factual situation cannot be properly reconstructed or evidenced, the court will have to presume the good faith of the transferee in a case of doubt.

11.4.

Right to re-acquire property

The result of bona fide acquisition is that the transferee acquires full and unburdened ownership. He therefore has all the rights provided for in § 903 and in particular can freely dispose of his property. A person who acquires property from a bona fide acquirer therefore acquires from the authorised transferor, whether or not he has knowledge that the transferor acquired by bona fide acquisition.604 As the former owner has lost all his rights in the property, he cannot exercise any right to re-acquire his former property.605 If a good faith party cannot acquire ownership, because the thing has either been stolen or has otherwise become missing, the transfer of possession will merely confer the state of an unauthorised bona fide possessor, who is on request obliged to return the goods to the owner. The owner in turn is not obliged to compensate the transferee, who will have to seek compensation from the unauthorised transferor. Yet, some protection is afforded to the unauthorised possessor insofar as he is neither obliged to compensate the owner for fruits, which he – as a bona fide possessor – had drawn in the meantime, nor is he obliged to pay damages.606

602 603

604 605

606

Quack, in: MünchKomm BGB VI (2004)4, § 932 no. 80. This concession to commerce at the expense of the general rules of private law therefore is only modest in comparison to other jurisdictions, cf. Karner, ZfRV 2004, 83, 85 (with further references). Baur / Stürner, Sachenrecht (1999)17, § 52 no. 34. By contrast, the draft version of § 939 provided that the bona fide acquirer could claim from the owner the amount he had paid to the unauthorised seller, cf. Olzen, Jura 1990, 505. Cf. infra 16.2.4.

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11.5.

Bona fide acquisition free of encumbrances

If a thing disposed of is encumbered with rights of third parties, § 936 provides that these rights will be extinguished upon acquisition of ownership. As in the context of §§ 932 ff., the transferee must be in good faith and the good faith must include the belief that the thing is unburdened by encumbrances. However, it must be noted that the requirements with regard to good faith in the fact that ownership is unencumbered are rather strict. Example: The mere fact that a person obtained ownership of the premises subject to a lease was held to constitute bad faith.607 Also, § 367 Commercial Code as a matter of principle, precludes good faith of a banker.

If the acquirer is not in good faith with regard to the non-existence of encumbrances, this will have the consequence that all restricted rights in rem remain in place, regardless of whether ownership was acquired from the authorised or from an unauthorised person. Accordingly § 936 applies both where the authorised owner of an encumbered property disposes of a thing as if it were unencumbered, and where the unauthorised person disposes of a good encumbered by restricted rights. Whether the transferor is unauthorised or the authorised owner is therefore without consequence.608 Encumbrances in the meaning of § 936 are all property rights other than ownership. As far as movable property is concerned, § 936 therefore refers to pledge and usufruct. Equitable interest also falls within this category.609 The requirements for bona fide acquisition of ownership free of encumbrances are: first, that the transferee has acquired ownership; and second, that the requirements of one of the rules on bona fide acquisition according to §§ 932 ff. is met, including the condition that the transferee obtains possession as required for the appropriate mode of bona fide acquisition.610 A further requirement is that the thing has not become missing from the holder of the restricted property right, in which case § 935 is applied mutatis mutandis:611 If the owner takes a thing from his intermediary without authorisation and sells it to a third party, the thing has not become missing from the owner and bona fide acquisition is, as a rule, not precluded. However, the thing has become missing from the possessor, therefore the 607

608 609 610 611

BGH NJW 1972, 43. This is criticised by Baur / Stürner, Sachenrecht (1999)17, § 52 no. 52. Baur / Stürner, Sachenrecht (1999)17, § 52 no. 52. Zeranski, AcP 203 (2003), 693, 698. Baur / Stürner, Sachenrecht (1999)17, § 52 no. 52. Baur / Stürner, Sachenrecht (1999)17, § 52 no. 52.

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requirement that the thing has been deliberately disposed of by the person whose right was extinguished by the bona fide acquisition is not fulfilled. § 935 precludes the acquisition free of encumbrances under § 936: the purchaser acquires ownership, but ownership burdened by the rights of the former possessor, who retains his property rights. Example: A, the owner of a watch, secretly takes back his watch that he had given in pledge from the pledgee B and sells it to C. Although C has acquired ownership from the authorised owner, he cannot obtain ownership free of encumbrances, because the pledgee as the lawful possessor has not voluntarily given up his possession. Thus, from the pledgee’s perspective, the watch is regarded as having otherwise become missing. As a result B’s restricted property right will remain effective.

A further deviation from the general rule is found in § 936 III, which also excludes the extinction of other property rights by bona fide acquisition if the transferee acquires ownership under the transfer mode of § 931, that is by means of assignment of the claim for recovery. The fact that the transferor is merely indirect possessor and a third party has direct possession already indicates that ownership is not unburdened, so the acquisition of unburdened ownership is therefore precluded (§ 936 III). The scope of this rule is extended to equitable interests, which would, on fulfilment of a condition precedent or condition subsequent, become full ownership.612 A similar exception from the rules on acquisition of ownership free of encumbrances exists with respect to co-ownership. Agreements on administration and use of common property will bind every subsequent acquirer of the share in co-ownership, whether or not such subsequent acquirer knew or should have known of their existence (§ 746).

12.

Prescription and limitation of action

12.1.

Acquisition by long adverse possession

A further mode of original acquisition is acquisition by long adverse possession. It applies to all movable things including those that have been stolen or have otherwise become missing, as well as to public property. The justification of the concept of acquisition by long adverse possession (acquisitive prescription) is to be found in the appreciation of the possessor’s interest to be secure in his long lasting position and the interest of society to hinder the permanent inconsistency between possession and 612

For details see Zeranski, AcP 203 (2003), 693, 700 ff.

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ownership.613 In contrast to Roman law, the German Civil Code does not distinguish between regular and irregular prescription, but instead provides for a uniform concept of acquisitive prescription.614 In practice, the scope of application of these rules is quite restricted, due to the acceptance of bona fide acquisition from an unauthorised person.615 The main relevance of acquisitive prescription today is seen in cases where the possessor believes he has acquired derivative ownership but in fact has not, because the good has either been stolen (or otherwise parted from the owner without his consent) in the meaning of § 935. Another reason may lie in a lack of legal capacity of the transferor / transferee.616 Further, the lack of ownership of the recent possessor may stem from a defective original acquisition. The small number of reported cases on this subject reflects the restricted importance of the concept of acquisitive prescription.617 From an economic perspective, acquisitive prescription is of some relevance in the context of works of art.618 Acquisitive prescription is provided for in § 937. § 937 BGB [Requirements of Acquisitive Prescription] (1) A person who has a movable thing in his proprietary possession for ten years acquires ownership (acquisitive prescription). (2) Acquisitive prescription is excluded if the acquirer is not in good faith in obtaining possession or if he subsequently learns that he is not entitled to ownership.

Accordingly, a person claiming original acquisition of ownership by acquisitive prescription has to comply with three requirements: (i) proprietary possession (possessio); (ii) good faith (fides); and (iii) lapse of time (tempus). The first requirement of proprietary possession refers to § 872. Both direct and indirect possession will suffice.619 As original acquisition does not constitute a legal act, legal capacity is not required. The second requirement of good faith is fulfilled if the possessor bona fide believes that he is the owner of the goods in question, but does not require good faith in respect of the previous transferor.620 Neither is a valid 613 614 615

616 617 618 619 620

Baur / Stürner, Sachenrecht (1999)17, § 53 no. 85. Wiegand, in: Staudinger (2004), § 937 no. 1. Baur / Stürner, Sachenrecht (1999)17, § 53 no. 85; Baldus, in: MünchKomm BGB VI (2004)4, § 937 no. 1. Baldus, in: MünchKomm BGB VI (2004)4, § 937 no. 5. Baur / Stürner, Sachenrecht (1999)17, § 53 no. 86. Baldus, in: MünchKomm BGB VI (2004)4, § 937 no. 5. Baldus, in: MünchKomm BGB VI (2004)4, § 937 no. 23. Baldus, in: MünchKomm BGB VI (2004)4, § 937 no. 24.

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cause (titulus iustus) required. The possessor lacks bona fide, if he has either been grossly negligent or mala fide at the time of acquisition of possession or afterwards has gained actual knowledge that he has not acquired ownership. In case of looted art the acquirer will be held to be grossly negligent if he has not enquired about the origin of such artwork.621 Apart from possession and good faith, the third requirement is that the time period has lapsed. According to § 937 the prescriptive period is 10 years and begins to run when the possessor bona fide acquires proprietary possession. During the prescriptive period possession, as a general rule, has to be uninterrupted. Such uninterrupted possession of the proprietary possessor will be presumed according to § 938 where the proprietary possessor has the item both at the beginning and at the end of the ten year period. In addition, not every interruption of possession will actually interrupt the lapse of the time period. An interruption that occurs against the will of the possessor and is either amended within a year’s time or leads to an action for recovery within the same period, will not be taken into account (§ 940). Where the prescriptive period is interrupted, the effect is that the time expired before interruption is not included in any calculation at all, and the period of 10 years will start afresh after the interruption has ended. A successor in title can rely on the period of proprietary possession of his legal predecessor (§ 943) if the successor fulfils the other requirements for prescription, in particular bona fide proprietary possession.622 The prescriptive period is stayed (paused) if vindication is claimed against the proprietary possessor (or his intermediary). The stay of the period for acquisitive prescription is computed according to the rules in §§ 203 ff. and is effective only in relation to the person who claimed recovery. The prescriptive period is also stayed where the prescription of the claim for vindication is similarly stayed, either according to the general rules of prescription (§§ 205-207), or at least the expiry of the prescription period is hindered according to §§ 210 ff. This in particular may occur where the owner is by reason of law or of fact impeded from claiming ownership. If the possessor has complied with all three requirements, the legal consequence is that he acquires ownership free of any encumbrances (§ 937 in conjunction with § 945), provided that his good faith includes the believe that the property is unencumbered. In addition, it is also possible that the actual owner merely acquires freedom of encumbrance.

621 622

Cf. Heuer, NJW 1999, 2558, 2563 and Müller-Katzenburg, NJW 1999, 2551, 2556. Whether the bona fide heir of a mala fide testator can obtain ownership by acquisitive prescription, however, is a matter of dispute, see Krämer, NJW 1997, 2580 and the contrary opinion of Finkenauer, NJW 1998, 960.

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It is a matter of dispute whether or not acquisitive prescription is a legal basis that protects the original acquisition of ownership against claims under the law of unjustified enrichment.623 According to prevailing opinion the answer depends on whether the claim is a condictio sine causa or a condictio indebiti: while a condictio sine causa is held to be barred by acquisitive prescription a condictio indebiti is granted even after lapse of the prescription period.624 The same applies to contractual claims. They will not be barred by acquisitive prescription.625 These problems have occurred due to the inconsistency of the long limitation period of thirty years, on the one hand, and the period for acquisitive prescription of ten years provided for in § 937, on the other. As the general long limitation period has been reduced to ten years by the law reform of 2002 (Schuldrechtsmodernisierungsgesetz) the problem has lost a lot of its former relevancy.626 As far as the burden of proof is concerned the possessor will have to assert and prove proprietary possession, as well as lapse of time (but may rely on the presumption of ownership in § 1006 and the presumption of uninterrupted possession in § 938 respectively), while the person claiming vindication will have to prove that the possessor lacks good faith.

12.2.

Prescription of ownership

Although the right of ownership itself is not terminated by limitation,627 the claim to vindicate is subject to the general rules of limitation of action. According to § 197 I no. 1 the limitation period for claims arising from ownership is 30 years. If this period has lapsed and the possessor invokes limitation, the owner does not actually lose his right to ownership, but he is unable to claim possession. Where the possessor cannot acquire ownership by acquisitive prescription – perhaps because he lacks good faith – the right of ownership and right of possession will permanently fall apart (unless prescriptive possession, by a (separate) party in good faith, or original acquisition of the thing re-establishes the union).628

623 624

625 626

627 628

Baldus, in: MünchKomm BGB VI (2004)4, § 937 no. 34. Which was held in RGZ 130, 69, 72 ff.; Wiegand, in: Staudinger (2004) § 937 no. 22; this is criticised by Baldus, in: MünchKomm BGB VI (2004)4, § 937 no. 36. Baldus, in: MünchKomm BGB VI (2004)4, § 937 no. 39. Baldus in: MünchKomm BGB VI (2004)4, § 937 no. 41; Wiegand, in: Staudinger (2004), § 937 no. 18. Dörner, in: Handkommentar BGB (2007)5, § 194, § 195 no. 3. This is criticised by Baldus, in: MünchKomm BGB VI (2004)4, § 937 no. 43.

Part IV: Additional issues 13.

Reservation of title

13.1.

Simple reservation of title

13.1.1. Concept of reservation of title The concept of reservation of title consists of: a contractual agreement containing a condition precedent that the transferor will not transfer ownership to the transferee before the transferee has paid the full purchase price; and a corresponding real agreement containing a reservation of title. However, as with property law in general, contractual agreement and real agreement have to be examined separately.

13.1.2. Contractual agreement The concept of reservation of title has found express provision in § 449. § 449 BGB [Retention of Title] (1) If the seller has reserved title to a movable thing until payment of the purchase price, it is to be assumed, in case of doubt, that title will be transferred only upon payment of the purchase price in full, which constitutes a condition precedent (reservation of title). (2) Reservation of title entitles the seller to demand the surrender of the thing only if he has terminated the contract. (3) An agreement on reservation of title is void to the extent that the transfer of ownership is made conditional on the satisfaction by the buyer of third party claims, in particular those of a business associated with the seller.

A purchase contract containing a reservation of title is an unconditional agreement. It obliges the transferor to transfer possession to the transferee and subsequently to also transfer ownership as soon as the buyer has settled the full purchase price. The sole modification of a sale under reservation of title in comparison to the general rule on sales contracts is that the transferor is not obliged to transfer ownership unconditionally.629

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A contractual agreement containing a reservation of title, in general, neither requires any specific formalities nor must the reservation be expressly agreed upon.630 It can also form part of the general terms and conditions of trade, but will have to be in writing if the contracting party is a consumer (§ 502 I no. 6). If the contractual agreement does not contain a condition precedent, but the supplier of goods unilaterally declares a reservation of title after conclusion of contract (e.g. by means of sending his general terms and conditions of trade to the buyer), the condition is not validly agreed upon and will be held to be irrelevant and not incorporated.631 It is a matter of long-lasting debate whether the fact that the seller performs his duty in advance and (at least) transfers possession to the buyer automatically implies a reservation of title, i.e. a conditional transfer of ownership. In legal doctrine, it has been argued that the advance performance of the seller implies a reservation of title. This opinion mainly relies on § 320 I which provides ‘unless the contract requires him to perform first, a person bound by a reciprocal contract may refuse to perform his part until the other party effects counter-performance […]’. In the case of deviation from the general rule of simultaneous performance, it is argued, a reservation of title is tacitly implied.632 Although the judicature has long-since accepted the concept of a tacit reservation of title, it will not hold the mere advance performance sufficient to presume an implicit reservation, but will require further indications that point towards such a tacit agreement. A tacit reservation has been assumed in the case of ongoing business relations, such as the case where the transferor has retained the motor vehicle registration certificate.633 If there are no such further indications, or if there is any doubt, the transfer of ownership will be held to be unconditional, even though the seller has performed in advance.634 Whether or not it is possible to agree upon a reservation of title ex post facto is again a matter of dispute.635 Such a reservation of title subsequent to an unconditional transfer, according to the judicature, actually consists 629

629 630 631

632

633

634

Westermann, in: MünchKomm BGB III (2008)5, § 449 no. 7. Saenger, in: Handkommentar BGB (2007)5, § 449 no. 3. Baur / Stürner, Sachenrecht (1999)17, § 59 Rn 11; for the possible effects on the real agreement cf. infra 2. Westermann, in: MünchKomm BGB (2008)5, § 449 no 15; Grunewald, in: Erman, BGB I (2008)12, § 449 no. 4. BGHZ 18, 212; BGH DB 1969, 1053; BGH DB 1977, 248; cf. Westermann, in: MünchKomm BGB III (2008)5, § 449 no. 16 with further references. Grunewald, in: Erman, BGB I (2008)12, § 449 no. 5; of other opinion Westermann, in: MünchKomm BGB III (2008)5 III, § 449 no. 15.

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of two elements: first, an unconditional retransfer to the seller according to § 930; and second, a subsequent further – and on this occasion unconditional – transfer to the buyer according to § 929 2nd s.636 Of course, regard has to be had to the requirement of a (re)transfer under § 930, namely the agreement of a valid relationship of constructive possession in the meaning of § 868. The mere agreement that the seller (in the first stage of an ex post facto reservation) in future intends to possess the goods as a conditional purchaser will – according to the judicature – not suffice.637 Legal doctrine, by contrast, rejects this complicated construction and approves of an agreement of a reservation of title ex post facto,638 though with the reservation that rights of third parties, which have arisen in the meantime, may not be affected. 635

13.1.3. Conditional real agreement On the level of property law, a reservation of title is realised by a transfer of possession and a conditional real agreement containing the proviso that the transfer of ownership depends on the fulfilment of the condition precedent.639 Where the transferor does not declare the reservation until the conclusion of the real agreement or by means of a mere reference in his standard terms, the reservation will validly become part of the real agreement if this is pointed out to the purchaser and the purchaser does not express his disagreement.640 According to § 449 I the fact that such a condition precedent has been validly agreed upon (and therefore forms an integral part of the contractual agreement) leads to a legal presumption that the real agreement also contains a similar condition precedent. This will even apply where the transfer of possession does not take place simultaneously with the conclusion of

635

636

637

638

639 640

Contrary BGH NJW 1953, 217; but agreed to by Baur / Stürner, Sachenrecht (1999)17, § 59 no. 11. BGH NJW 1953, 217; Baur / Stürner, Sachenrecht17, § 51 no. 34; Westermann, in: MünchKomm BGB III (2008)5, § 449 no. 19 ff. RGZ 54, 396; RGZ 49, 170; BGH NJW 1953, 217; this point was deliberately left undecided in BGHZ 42, 53, 58; for criticism see Westermann, in: MünchKomm BGB III (2008)5, § 449 no. 19. Baur / Stürner, Sachenrecht (1999)17, § 51 no. 34; Beckmann, in: Staudinger (2004), § 449 no. 26. Westermann, in: MünchKomm BGB III (2008)5, § 449 no. 13. BGH NJW 1979, 213, BGH NJW 1979, 2199; BGH NJW 1982, 1749 and 1751. Westermann, in: MünchKomm BGB III (2008)5, § 449 no. 18.

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the contract, but some time later: the reservation of title contained in the contractual agreement is implicitly extended to the real agreement.641 If a seller asserts that a reservation of title has been agreed upon is faced with a purchaser who claims that the transfer has been performed without reservation, he will be burdened with the onus of proof by reason of the legal presumption of § 1006.642

13.1.4. Legal consequences Until the condition of full payment of the purchase price is met, the seller will remain owner of the goods, but by reason of the conditional transfer is restricted in his power to dispose (§ 161).643 Notwithstanding the ownership of the seller, the conditional purchaser has already acquired a secure legal position: § 160 I and § 161 I 1st s. protect him against disposition or other detrimental acts of the conditional seller. In addition, the conditional purchaser is the lawful possessor of the goods and therefore can invoke all the protective measures provided for in §§ 858 ff. A claim for delivery by the conditional seller or a third party can be rejected by recourse to his right to possession (§ 986 II). Also, as holder of an equitable interest, he is similarly protected against third party interference by (analogous) application of §§ 823, 985 and § 1004. As long as the purchaser fulfils all his contractual duties, in particular the regular payment of the instalments of the purchase price, the seller – although the legal owner – only has a right to ask for payment. He may not claim recovery of the goods.644 Even in the case of non-payment, default of payment or insolvency this malperformance on its own does not constitute a right of the seller to vindicate. According to § 449 II, before this can take place a further requirement is that the seller has validly terminated the contract. The underlying objective of this rule is to protect the purchaser from the situation where the seller simultaneously claims the return of the goods as well as payment and thereby deprives the purchaser of his right to use the goods, which will often reduce his chance to acquire the funds he needs to satisfy the seller.645 But of course, the purchaser’s default grants the seller a right to terminate the contract according to the general rules (cf. § 323).

641 642 643 644 645

Baur / Stürner, Sachenrecht (1999)17, § 59 no. 12. BGH NJW 1975, 1269; BGHZ 64, 395, 396 f. Westermann, in: MünchKomm BGB III (2008)5, § 449, no. 7. Westermann, in: MünchKomm BGB III (2008)5, § 449 no. 33. BGHZ 54, 214, 220 f.; BGH JZ 1989, 199; Westermann, in: MünchKomm BGB III (2008)5, § 449 no. 33. See also Habersack / Schürnbrand, JuS 2002, 833, 836.

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The purchaser will often be interested to dispose of the value acquired by his instalments. German law acknowledges this interest and accordingly grants the conditional purchaser a conditional future interest, i.e. an equitable interest (Anwartschaftsrecht).646 According to prevailing doctrine it is a right in rem647 and can be independently transferred to third parties. Consequently the rules of transfer of this ‘Anwartschaftsrecht’ do not follow the rules on assignment, but rather the rules on transfer of ownership.648 An important distinction between the equitable interest and ownership has to be kept in mind. The existence of the equitable interest depends on the possibility that the condition precedent may still be complied with. If, for instance, the seller terminates the contract for default of payment, the contract is void and the condition can no longer be satisfied. The equitable interest ceases to exist,649 whether or not it has been transferred to a third party.650

13.1.5. Relinquishment of reservation of title The reservation of title is relinquished ex nunc if the condition precedent is fulfilled.651 Simultaneously the equitable interest is converted into full ownership. If the equitable interest has been transferred to a third party, there is no acquisition of ownership by the conditional purchaser for a logical second; the third party directly acquires ownership (Direkterwerb).652 Other reasons for the relinquishment of the reservation of title may be that the conditional purchaser resells the goods to a third party with the prior approval of the conditional seller (§ 185): in this case the third party acquires full ownership without reservation. Such prior approval is presumed if the conditional seller is a resale business.653 The reserved ownership of the seller will also cease in the case of original acquisition by a third party, for instance in case of specification (§ 950)

646 647

648 649 650 651 652

653

Baur / Stürner, Sachenrecht (1999)17, § 59 no. 3. Baur / Stürner, Sachenrecht (1999)17, § 59 no. 4; Westermann, in: MünchKomm BGB III (2008)5, § 449 no. 42 (with further references). Baur / Stürner, Sachenrecht (1999)17, § 59 no. 34; cf. BGH, NJW 2008, 1422, 1423. Westermann, in: MünchKomm BGB III (2008)5, § 449 no. 7 BGHZ 75, 221, 225 f.; Baur / Stürner, Sachenrecht17, § 59 no. 19. Westermann, in: MünchKomm BGB III (2008)5, § 449 no. 23. BGHZ 20, 88; BGHZ 28, 16, 22; Westermann, in: MünchKomm BGB III (2008)5, § 449 no. 53. BGH NJW 1991, 228.

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or good faith acquisition (§§ 932 ff.).654 By contrast, limitation of action in respect of the claim for the purchase price will not affect the seller’s right of ownership.

13.1.6. Execution and insolvency Where the conditional purchaser is unable to settle his debts and the conditional seller is afraid that other creditors may try to realise the value of the goods purchased under reservation of title, the remedies differ between enforcement proceedings and insolvency. Levy of execution by other creditors with respect to the goods purchased under reservation of title can be resisted by means of a third-party intervention against execution (§ 771 Civil Procedure Code).655 The purchaser’s creditors can therefore only realise the value of the goods if they settle the remaining instalments. In the event of insolvency of the conditional purchaser, according to § 103 I Insolvency Act the insolvency administrator may choose whether to settle the remaining purchase price or refuse fulfilment of the contract and grant release of the goods from the estate (§ 47 Insolvency Act). If the conditional seller claims release from estate, he has to return the instalments already paid to the insolvent party’s estate, but may deduct from that sum a compensation for use. Where the insolvent party is the conditional seller, the insolvency administrator’s choice is reduced (§ 107 I Insolvency Act): the purchaser may still acquire ownership, if he settles the instalments left.

13.2.

Defective reservation of title

In order to be fully effective a reservation of title will have to be part of both the contractual and the real agreement. The consequences of a lack of reservation in one of the agreements depend on which agreement is affected. Where the sales contract does not contain a (valid) reservation of title, the consequence will be that the seller is under a contractual duty to transfer unreserved ownership. If, contrary to this duty, he only transfers 654

655

In order to prevent this result, the owner who transfers a car under reservation of title in practice retains the registration certificate and thereby prevents the good faith of a subsequent purchaser, cf. Westermann, in: MünchKomm BGB III (2008)5, § 449 no. 10 and supra 11.3.5. Westermann, in: MünchKomm BGB III (2008)5, § 449 no. 75.

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possession and reserves the title of ownership in the real agreement, he has not fulfilled the standard obligations of the seller (§ 433): the purchaser may claim unreserved transfer of ownership. Whether the purchaser in this case does not acquire ownership at all or does at least acquire an equitable interest, will depend on whether or not he does agree with the seller’s declaration of reservation of ownership (at least insofar as necessary to constitute a valid real agreement).656 If he does not consent to the reservation, there is no valid real agreement. The purchaser neither acquires ownership nor an Anwartschaftsrecht.657 If, according to the underlying contractual agreement, the seller was only under a duty to transfer conditional ownership, but actually has transferred unreserved ownership, the purchaser acquires the right of ownership. The seller though may claim retransfer under the law of unjustified enrichment, because the transfer is sine causa (§ 812 I 1st s.). However, this will rarely occur, because the rule in § 449 I provides that a reserved transfer will be presumed where the contractual agreement contains a reservation of title.

13.3.

Extended reservation of title

As mentioned above, a mere reservation of title as a rule only prevents a derivative transfer of ownership prior to full payment of the purchase price, but cannot hinder original acquisition by commixtio or specificatio. Legal practice therefore has developed the concept of an extended reservation of title. It is of particular importance in the context of supplier’s credit,658 even though German law does not expressly provide for such an extended reservation of ownership. An extended reservation of title is composed of a valid agreement of a reservation of title as set out above and an additional prior approval of the seller, which permits the purchaser to resell the goods in the usual course of business. The purchaser in turn assigns the claims for the purchase price he receives to the seller in advance as substitute security (Vorausabtretungsklausel). Where the purchaser is a manufacturer rather than a resale business, and accordingly produces rather than resells goods, a similar result may be achieved by agreement on a processing clause (Verarbeitungsklausel) in addition to an anticipated further conditional transfer of ownership

656 657 658

Saenger, in: Handkommentar BGB (2007)5, § 449 no. 3. BGH NJW 1953, 217; BGHZ 64, 395, 397. Westermann, in: MünchKomm BGB III (2008)5, § 449 no. 1.

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to the manufacturer.659 By means of the processing clause the supplier is held to be the producer in the meaning of § 950 and accordingly acquires original ownership of the products manufactured. In order to create the same property rights in the products as have existed prior to specification, the supplier will then transfer conditional ownership of the products to the manufacturer. According to the judicature the extended reservation of title requires an express agreement to that end.660 Judged from an economic perspective, it is quite obvious that the extended reservation of title is not actually a ‘true’ reservation of ownership, as the main interest of the seller is not vindicatory, but instead to acquire security for the unsettled instalments of the purchase price. This aspect is taken into account in the case of insolvency. The extended reservation of ownership will be treated in the same way as a fiduciary transfer of ownership: the seller will not be granted a right to claim release from estate, but will have a claim for segregation from estate.661

13.4.

Expanded reservation of title

An expanded reservation of title means that the seller reserves ownership, but alters the condition precedent. The purchaser will not acquire ownership unless he settles not only the purchase price but also other debts. Such other debts covered by the agreement may for instance be future debts arising from the same business relationship. The expanded reservation of title is in general held to be valid, however, the judicature construes it narrowly.662 Legal doctrine has repeatedly expressed its criticism with regard to the agreement of an expanded reservation of title by reference to standard terms and conditions.663 By contrast an agreement on reservation of title made conditional on the satisfaction of third-party claims, in particular those of a business associated with the seller, is void according to the express provision of § 449 III.664

659 660

661

662 663 664

Cf. Nierwetberg, NJW 1983, 2235. BGHZ 47, 75, 78; BGHZ 32, 60, 63; Cf. Putzo, in: Palandt (2008)68 § 449 no. 19; of other opinion Nierwetberg, NJW 1983, 2235, 2236, who argues in favour of acceptance of tacit agreements if such is covered by the intention of the parties. BGH JZ 1971, 505 (extended reservation of title); BGH JZ 1971, 506 (expanded reservation of title). Cf. Westermann, in: MünchKomm BGB III (2008)5, § 449 no. 82 ff. Westermann, in: MünchKomm BGB III (2008)5, § 449 no. 82, 84. Cf. Habersack / Schürnbrand, JuS 2002, 833, 837 f.

14. Abandonment

14.

165

Abandonment

Next to transfer of ownership and loss of ownership by original acquisition there is a third possible cause for termination of the right of ownership. In general, any movable thing can be abandoned by the owner.665 § 959: [Abandonment of ownership] A movable thing becomes ownerless if the owner, in the intention of waiving ownership, gives up the possession of the thing.

According to prevailing opinion, abandonment of ownership is classed as a unilateral legal transaction by which the owner disposes of his ownership.666 As with the majority of acts of disposal, abandonment consists of two elements, namely a declaration of intention and a factual element. Accordingly, § 959 provides that abandonment of ownership requires the intention to abandon ownership and actual dispossession. The validity of the declaration of intention does not depend on an explicit announcement or on receipt by a third party. In fact, a tacit declaration of the intention to abandon a thing is more common, as it may be implied in a corresponding factual act, e.g. by discarding the thing. Example: The owner deliberately leaves his book on a bench in the park; parents deliberately leave old toys at the playground.

The situation where a person on purpose abandons his property has to be distinguished from merely factual acts without a suitable intention. In case of a lack of intention to abandon ownership a respective act will not have any impact on the legal situation.667 Example: Parents are in a hurry and forget to take the toys their child has left in the sandpit with them.

As mentioned above, abandonment is a legal transaction and accordingly is subject to the rules of the General Part. Consequently, a person lacking legal capacity may give up possession, as this is a merely factual act, but is unable to give up ownership. A person with restricted legal capacity – such as a minor – can only form a valid intention to abandon ownership within the scope of his restricted legal capacity. As far as the declaration of 665 666

667

With regard to immovable property § 928 section 1 will apply. Quack, in: MünchKomm BGB VI (2004)4, § 959 No. 1; Ebbing, in: Erman BGB I (2008)12, § 959 no. 1. Ebbing, in: Erman BGB I (2008)12, § 959 no. 3.

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intention exceeds this scope, this is considered as a disadvantageous act of disposal and thus will be provisionally invalid. Thus the status of property remains unaltered. Example: A minor intends to abandon his bicycle and leaves it in the park. As the child may not dispose of his bicycle, he loses possession but remains the owner.

Similarly, abandonment will not occur if an intention to abandon is validly formed, but is not implemented by a factual act. Example: The owner of a broken bike, which is stored in the garage, decides to abandon the bike. Although the declaration of intention is valid, the bike remains the property of the owner as long as he does not remove it from the garage.

The scope of application of the rule on abandonment as provided for in the Civil Code is limited by provision of public law. Rules that prohibit abandonment may in particular be found in regulations concerning waste and other environmental issues. A similar restriction is provided for in the context of animal protection.668 As far as abandonment is prohibited, a declaration of abandonment is rendered void by virtue of § 134 with the effect that ownership will remain unaltered even if the owner has carried out the corresponding factual act.669 A valid abandonment terminates ownership and leads to the situation that the thing is not owned by anybody. Therefore it may be appropriated by anybody who takes proprietary possession of the thing (§ 958). As the abandonment, however, can only refer to ownership any other restricted rights in rem remain in place.670

15.

Co-ownership

15.1.

Concept of co-ownership

The Civil Code provides for two different concepts of co-ownership: simple joint ownership by shares, on the one hand, and joint ownership, on the other. They differ with regard to the question of whether a single co-owner 668 669 670

Quack, in: MünchKomm BGB VI (2004)4, § 959 no. 14. Quack, in: MünchKomm BGB VI (2004)4, § 959 no. 2. Quack, in: MünchKomm BGB VI (2004)4, § 959 no. 18; Ebbing, in: Erman BGB I (2008)12, § 959 no. 6.

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can exercise all powers conferred by ownership independently, or whether it is necessary that all the co-owners co-operate. Notwithstanding this question, in general the rules on transfer of title in movables apply equally both to the transfer of a share in simple joint ownership and to the transfer of the entire object of joint ownership.

15.2.

Simple joint ownership by shares

If ownership in a thing is established as simple joint ownership, each coowner is entitled to a fraction of undivided shares. The substance of this fraction of undivided shares, however, is in fact a share in the value or a right to use the common property. Simple joint ownership may arise in the situation of commixtio or confusio of distinct tangible things according to the rules of §§ 947, 948. Each fraction is treated as a separate object of property law and can be transferred independently of the other fractions. Thus the individual co-owner is holder of a separate property right of which he can dispose independently, i.e. without the consent of the other co-owners. The separate shares can be transferred according to the general rules on transfer of title in movables. The acquirer becomes the successor to the specific shares, as the transferor held them. However, § 751 1st s. applies and contains an important alteration. Where the participants have excluded the right to demand dissolution of co-ownership permanently or for a specific time or have fixed a period for notice for such a demand, this agreement is valid both in favour and against a successor in title. The same holds true for agreements on use and administration of the common property, which remain valid. In this situation, the rules on bona fide acquisition of unencumbered property rights are precluded. Where the common property as such is supposed to be transferred, the authority for this transaction lies with the co-owners. If they transfer all their shares to a single third party, the separate shares dissolve and the third party acquires sole ownership.

15.3.

Joint ownership

Joint ownership, or so-called partnership property, is a separate asset and is held by the joint co-owners together. Therefore, they can only dispose of the partnership property with unanimous consent. One individual cannot dispose of his undivided interest (§ 719 I).

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Examples of such partnership property would be the descendant’s estate in the case of a plurality of heirs (§§ 2032 ff.), community property of spouses (§§ 1415 ff.) or the company assets of a partnership (§ 718).

16.

Retransfer of ownership to the original owner

16.1.

Overview on the different system of retransfer

With regard to retransfer of ownership to the original owner we have to draw a distinction between three different constellations: first, the case where the original owner has personally transferred possession or ownership to the person now under an obligation to retransfer; second, the case where the owner has transferred possession to a person entitled to use in fulfilment of a contractual duty; and third, the situation that the person holding possession at present has obtained possession by some other means. A typical example for the first constellation is the transfer of possession in reliance on an invalid contract; for the second, the termination of a lease contract; while the third situation may occur as a consequence of an invalid transfer by an unauthorised person or by theft. Within the first group of cases, i.e. restitution in consequence of a void or avoided contract, a further distinction between restitution on a contractual basis and restitution on a statutory basis is necessary: where the owner has voluntarily disposed of his ownership, but now is entitled to retransfer on a contractual basis, the overall aim of the unwinding of the contract is to re-establish the legal situation the parties were in before the contract had been concluded (the so called status quo ante contractum). Despite this common aim, German law does not, even for this category of situations, provide for a uniform system, but instead relies on different sets of rules depending on the reason why the contract is unwound. – Where a contract is void, has been avoided or was subject to a resolutive condition that has been met, the contract will be unwound according to the rules on unjustified enrichment (§§ 812 ff.). – If nullity or avoidance does not merely impair the validity of the contractual obligation, but also render the real agreement void, ownership is deemed to have never passed. The owner accordingly can – in addition to his claim under the law of unjustified enrichment – base his claim in ownership and vindicate his property (§ 985). – As far as the contract has originally been validly concluded, but one of the parties subsequently exercises a – contractual or statutory – right to rescind the contract, then the unwinding of the contract will be governed by the rules provided for by §§ 346 ff.

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– The legal consequences in case of rescission of a contract (§§ 346 ff.) are modified if the contract is classified as a consumer contract (§ 357). If a contract either proves to be null and void ab initio or is subsequently avoided by one of the parties with retroactive effect then the basis for restitution is a statutory obligation. By contrast, the rescission of a contract will not undo the contract as such but rather reshape it. Thus the obligation to retransfer the goods obtained flows from the contract itself. Apart from this distinction with regard to the legal basis, the different cases of restitution also have to be distinguished, because there is no uniform position as to which party has to bear the risk of impossibility of retransfer. As long as the parties are able to retransfer the goods obtained by the transaction, all the systems of retransfer will lead to the same result. Leaving aside the case of vindication, all rules provide for a personal basis which will serve as a valid justification for the retransfer of ownership that will be conducted. However, the disparities become apparent where one or both parties are not able to comply with their duty to retransfer the goods obtained, or at least are unable to return them in the original state. In this situation it is necessary to carefully examine which system of retransfer will apply. The differences in particular concern the questions of whether, and if so to which extent, a party is liable for loss or deterioration of the goods and whether the holder of the property is obliged to compensate the original owner for fruits and other benefits he has obtained in the meantime. It may not come as a surprise that this rather complicated system has been repeatedly criticised. In fact the commission on the reform of the law of obligations proposed the alignment of the different systems and, on this basis, the reform of the law of obligations in 2002 tackled this problem and modified the rules on rescission of contract with the aim to amend it into line with the basic principles of the law of unjustified enrichment. However, the new structure was implemented by a separate set of rules contained in the Second Book of the Civil Code, i.e. the General Law of Obligations. This means that the rules on rescission no longer refer to the property law rules provided for in §§ 989 ff. and thus has created new differences in comparison to the restitution based on the law of unjustified enrichment (i.e. §§ 818 IV, 819). Thus it must be stated that the reform has not succeeded in abolishing all the inconsistencies.671 This in particular can cause problems if a party can choose between different remedies, which in consequence will lead to the application of different systems of restitution. The most important situation in practice is that the seller of a good has fraudulently deceived the purchaser as to the quality of that good. The purchaser may either avoid the contract on basis 671

Cf. Hellwege, JZ 2007, 337, 338 f.; Kohler, AcP 206 (2006), 683, 685 f.

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that he has been deceived, or rescind the contract arguing that the goods do not resemble the promised quality. As the first remedy will give rise to a claim for retransfer under the law of unjustified enrichment, whereas the second will give rise to a claim for retransfer on contractual basis, two different systems of retransfer are simultaneously available672 and make the inconsistency even more apparent. In fact, the difference between the two systems is quite considerable with regard to the calculation of the value of the goods if the party obliged is unable to retransfer the goods obtained. In the case of retransfer on a contractual basis the value is calculated according to the agreed price, i.e. on a subjective basis, but the calculation under unjustified enrichment law relies on the market value, i.e. on an objective basis. This difference is commonly justified by the concept that the reciprocity of obligations shall be upheld as far as the contract has been implemented and accordingly the parties shall remain bound by their appraisal of the equivalence of the goods and the corresponding consideration.673 With regard to the second group of situations that may give rise to an obligation to retransfer possession, namely the termination of a contract of use, the legal consequences are less complicated. As a general rule, retransfer of possession will be performed on a contractual basis and is explicitly provided for in the context of the rules on specific contracts. This said, we have to turn to a third complex of rules, which provide for retransfer of possession, and are the result of a rather unique – perhaps even headstrong – German concept, namely the so-called ownerpossessor-relationship already mentioned above. The rules provided for in §§ 989 ff. are genuine property law rules and will, according to their wording, apply whenever the owner lacking possession claims (re-)transfer of possession from the non-owner in possession. This situation, which is commonly referred to as Vindikationslage (literally meaning ‘situation giving rise to vindication’), requires no more than the fact that the owner may vindicate his property according to § 985. The aim of the rules provided for in §§ 989 ff. is to balance the interests of the owner and the proprietary possessor. The owner will wish to be compensated for the disadvantages he may suffer, because he could not use and dispose of his property as a result of the unlawful possession of a third party. From the perspective of the proprietary possessor, he may have been in good faith throughout and thus should not be punished for using the property. This is implemented by a sophisticated system of claims for damages and compensation for use. Their common notion is that – although provided for in the Third Book on Property Law – they are personal claims, 672 673

Bockholdt, AcP 206 (2006), 769, 775; Kohler, AcP 206 (2006), 683, 685 f. Wieling, Sachenrecht (2007)5, 169.

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the legal relationship between the owner lacking possession and the unlawful proprietary possessor, accordingly, is classed as a statutory relationship. With regard to the present context, it is most important sphere of application is the situation where an acquisition of ownership has failed. As this remark may already indicate, the difficulties with regard to this complex of rules results from countless disputes on the appropriate determination of their scope of application. In principle it is acknowledged that §§ 987 ff. will prevail over both the rules on contractual liability under §§ 280 ff. and the rules on tortious liability under §§ 823 ff., unless § 993 expressly provides otherwise. Whether this rule is exclusive or leaves room for analogous interpretation, however, is in itself a highly controversial issue. Whereas both contractual and tort law claims as a general rule are barred, claims under the law of unjustified enrichment remain unaffected.674

16.2.

Retransfer of ownership and possession

16.2.1. Retransfer in consequence of a failed transaction As noted, the German Civil Code does not provide for a uniform system of retransfer for all cases of failed transactions. Instead, it is necessary to distinguish, whether the transaction is void ab initio, or whether it was valid in the first place, but due to subsequent developments can no longer justify the transfer, a situation which may occur if the contract has been rendered invalid by one of the parties. Where the contract was void ab initio but the transferor has – in ignorance of the defect of the contract – relied on the contract and on this basis has transferred ownership to his contracting partner, the transfer of ownership in principle is valid, but unjustified. Accordingly, the transferor may reclaim ownership on the basis of § 812, i.e. under the law of unjustified enrichment. The legal basis for retransfer will be entirely different where the parties have validly concluded a contract at the outset, but subsequently have exercised a right of withdrawal, which could be contractual or statutory. Although the contract will in fact be invalid as a result, such invalidity does not have retroactive effect, but is construed as a reformation of the contract into a mere obligation of retransfer (Rückgewährschuldverhältnis) ex nunc. This ‘obligation to retransfer’ will be the appropriate legal basis for the retransfer of ownership (cf. § 346 I).

674

Wieling, Sachenrecht (2007)5, 177.

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In both situations the invalidity or rescission of the contract does not impair the validity of the transfer of ownership, as by virtue of the abstract transfer system defects of the underlying agreement do not have any effect on the validity of the real agreement. Accordingly, the claim for retransfer will – regardless of whether the legal basis is unjustified enrichment or the contractual obligation to retransfer – be merely personal. The transferee will remain the lawful owner until retransfer is effected. Accordingly, between acquisition of ownership by the transferee and the subsequent retransfer the goods are part of the transferee’s property. Thus the transferee may validly dispose of them, and they may be affected by the transferee’s insolvency. If the transferee for either reason is unable to retransfer ownership the transferor will have to settle for a claim for compensation (cf. § 346 II or § 812 II).

16.2.2. Invalidity or termination of a contract for use Every owner in principle is entitled to claim vindication from any possessor. However, the possessor may object to this claim on the basis of a right to possession. The possessor may refuse to return the thing if he, or the indirect possessor from whom he derives his right of possession, is entitled to possession as against the owner (§ 986 I). A right of possession may either arise from a restricted right in rem (such as pledge or usufruct) or by virtue of a relationship of personal rights and corresponding obligations (such as hire). Although both are an impediment to vindication, they demand separate consideration as in the case of an obligation the termination of the contract will simultaneously terminate the right to possess, whereas in the case of a restricted right in rem, the termination of the underlying contract may give rise to a claim for retransfer of the restricted right in rem, but does not necessarily terminate the restricted right as such. Termination of the right to possess will terminate the right to object to vindication provided by § 986. Where the contract by which a personal right of use was established is void, the possessor is not entitled to take possession. Accordingly he is obliged to return possession to the owner. This duty to retransfer possession is based on § 985, because the invalid contract will not provide a right to possession in the meaning of § 986. If, by contrast, the contract was initially valid, but has been terminated subsequently, the right of possession ends with the contractual obligation of the owner to grant use of his property. Whether the underlying obligation is brought to an end by lapse of time, as a consequence of a right to claim return (e.g. loan or storage) or in consequence of termination, is without relevance: the possessor has to return possession to the owner. According to

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the prevailing opinion, the claim for restitution is based on the contractual relationship, which prevails over §§ 985 ff. as the more specific rule. With regard to the most common right of use, i.e. lease, the obligation to return the property arises from § 546.675 The contractual rules will also prevail with regard to all other questions of compensation, i.e. where the property after termination of the right of use is either damaged (or destroyed) or the possessor has drawn fruits or other benefits from the possession. Again the obligation to either compensate the owner or to return all benefits acquired will be determined according to the provisions of specialised rules of contract law applicable to such situation (cf. § 539).676

16.2.3. Theft and other involuntary loss If property is stolen or otherwise has become missing this fact will as a general rule prevent original acquisition. Accordingly, a subsequent transfer of possession will – whether conducted in good or in bad faith – not impair ownership. The same holds true where an original acquisition has failed for other reasons, for instance due to a lack of good faith of the transferee. In all cases in which the owner has involuntarily lost possession but the possessor has not acquired ownership, the owner may rely on the remedy provided by § 985 and vindicate his property from the unlawful possessor.

16.2.4. Transfer or grant of a right to use by an unauthorised person A transfer of ownership by an unauthorised person will, as with any other disposal of another’s right, in general be invalid. Unless by exception the rules on bona fide acquisition lead to the contrary result (cf. §§ 932 ff.), the transfer by the non-owner will accordingly not have any impact on the status of ownership. The owner can claim return of the property from the purported transferee under § 985. The owner’s right to claim return of his property is independent of whether the transferee and present possessor has acquired possession for consideration or gratuitously. The same rules apply mutatis mutandis where the unauthorised person does not intend to transfer ownership and merely grants a third party a right of use. Such a grant cannot prejudice the owner’s right to claim restitution, for the contractual agreement to grant a right of use may constitute a valid 675

676

Baur / Stürner, Sachenrecht (1999)17, § 11 No. 30; Prütting, Sachenrecht (2008)33, no. 563; Wieling, Sachenrecht (2007)5, 168; cf. Gursky, in: Staudinger (2005), introduction to §§ 987, no. 17 ff. Wieling, Sachenrecht (2007)5, 168.

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obligation, but according to the general principle of separability as such will not have any impact on the status of rights in rem, while the grant of a restricted right in rem will be invalid due to the lack of authority. Thus an unauthorised person may validly assume the obligation to grant a right of use, but cannot fulfil this obligation with regard to another’s property.

16.3.

Entitlement to fruits and other benefits

16.3.1. Overview Returning the property to the owner will not, in its own right, necessarily satisfy the owner, as the fact that he has for a certain period of time been deprived of the enjoyment and use of his property may have lead to other disadvantages. This is particularly so where the property yields fruits or other benefits, or where the property is returned in a deteriorated state. A claim for compensation arises in such a situation, in addition to the claim for return of property. On the other hand, the adverse interests of the possessor must also be taken into account insofar as the possessor, even though his possession may be unlawful, may have been in good faith and with good reason may have believed that he was entitled to possession and use of the property. Where he justifiably believed he was either the owner or otherwise entitled to use, he should not be punished for exploiting the property, and should not be held liable for every utilisation or omission or for every piece of damage sustained. Further, the obligation to deliver fruits and compensate damage must not be inconsistent with other areas of law and in particular with the rules on bona fide acquisition. Accordingly, the general principle that all benefits drawn from the property are allocated to the owner must be balanced with the principle of reliance and the general concept of protection of legal transactions (Vertrauens- und Verkehrsschutzinteressen). In order to solve this conflict of interest, the rules on delivery of profits and compensation for deterioration and destruction differ according to whether the possessor is worthy of protection or not. This concept is implemented by the distinction between three different categories of possession: the bona fide possessor; the bona fide possessor that has been served with notice of a claim with notice of claim; and the possessor in bad faith.

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16.3.2. Entitlement to fruits and other benefits (a)

Concept of fruits

With regard to benefits that may be drawn from property the German Civil Code distinguishes between fruits and other benefits (§ 100). The notion of fruits is defined in § 99. It states that the fruits of a thing are the products of the thing and the other yields obtained from the thing in accordance with its intended use. The proviso that the fruits must be obtained in the course of intended use aims to protect the thing’s character. Examples: Milk, eggs or wool will qualify as natural fruits, whereas meat or leather will not.

Within the category of fruits, a further distinction is established between natural fruits and civil fruits. Whereas natural fruits are fruits that are gained directly from the thing, such as grain, fruits (in the edible sense of the word) or charcoal, civil fruits are gained by exploitation of a legal relationship, such as profits, rent or interest. There is a third distinct category, which is commonly referred to as other benefits (Gebrauchsvorteile). These other benefits comprise all advantages that arise as a consequence of the factual possibility to use the property, such as the possibility of the possessor of a car to drive that car.

(b)

Status of rights in rem

The right to gain fruits is generally reserved to the owner of the property, but may be vested in a third party on the basis of a legal relationship. Example: According to § 581 the lessee is entitled to the fruits of the leased property to the extent that they are deemed to have stemmed from the rules of proper business. A similar right is conferred on the usufructuary under § 1031.

As long as the fruits have not been separated, they are considered as essential component parts and thus cannot be the self-standing object of a property right. The basic rule on acquisition of ownership in separated fruits may be found in § 953. Ownership in fruits and other components of a thing that have been separated from the fruit-bearing thing, will share the status of ownership in such thing. However, it must be emphasised that § 953

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only provides for the status in rem; whether the person acquiring ownership in the fruits is also entitled to retain ownership is another matter.677 The basic principle that fruits shall belong to the owner is subject to numerous exceptions. These can either be based on a relationship of personal rights and corresponding obligations, be the consequence of a restricted right in rem or may arise where the possessor bona fide believes he is entitled to yield the fruits of a thing. § 954 provides that a person who, by reason of a right in a thing belonging to another, is entitled to use that thing will appropriate products or other components of the thing upon separation. A right of usufruct (§ 1030) may serve as typical example, but the rule will also apply where a third party is only entitled to claim the fruits (cf. §§ 954-957), or if fruits fall from a tree or bush onto a neighbouring piece of land (§ 911). According to § 955 a person who in good faith holds himself to be entitled to a right of use in rem when he is not so entitled, will acquire ownership in the fruits. Acquisition of ownership in the fruits will depend on: first a right to possess the thing; and second, the good faith of the possessor at the time of separation of the fruits from the thing. A possessor who bona fide holds possession of the thing and believes he is entitled to use the thing, however, will only acquire ownership insofar as he would be entitled if the right to use actually existed, as he should be treated as a person who in fact is entitled, but no better. Examples: The possessor of a thing believes he is its owner; the owner of a thing relies on his right to harvest the fruits, even though this right is vested in another; the possessor bona fide believes he has been granted a restricted right in rem; the possessor has been granted a restricted right in rem and actually is entitled, but exceeds his right of use.

Further exceptions from the general rule are provided by § 956 and § 957. Both provisions refer to a person who, although not granted a restricted right in rem, is personally entitled to appropriate fruits. If the person entitled is possessor of the thing acquisition of ownership in the fruits will take effect at the time of separation. In respect of a non-possessor, acquisition occurs at the time he takes possession of the fruits. The provisions only differ by virtue of the source of the right to appropriate fruits. § 956 is applicable where an authorised person has granted the right, while § 957 provides for the similar rule where a mala fide678 unauthorised person has granted the right. 677 678

Wieling, Sachenrecht (2007)5, 147. As far as the unauthorised person himself is bona fide possessor, § 956 will apply, as a bona fide possessor may grant a valid right of appropriation.

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Division of fruits

The termination of a right to use may lead to difficulties as to who is entitled to the fruits yielded after termination. This situation is expressly provided for by § 101: if a person is entitled to receive the fruits of a thing or of a right until a particular time or from a particular point onwards, he is, unless otherwise provided, entitled to the fruits to the extent that they are separated from the thing during the period of entitlement, as well as to other fruits to the extent that they are due during the period of entitlement. However, it should be noted that this rule only regulates the personal entitlement, not the status of ownership, and thus will not prevail over the rules on allocation of ownership contained in § 953 set out above. As far as the right to acquire ownership under § 101 differs from the rules on acquisition of ownership, § 101 grants a personal claim for delivery of the fruits.

(d)

Preclusion of the obligation to deliver in the case of good faith

If no contractual relationship is established between the owner and the possessor, the application of the general rules of unjustified enrichment would lead to the result that the unlawful possessor would not only have to return possession of the thing, but also have to deliver up all fruits and benefits obtained during his possession or – if he is unable to deliver them – compensate the owner for their loss. However, these rules are deemed to be inadequate where the possessor is in good faith. Accordingly, the rules on the owner-possessor-relationship provided for in §§ 954 ff. will prevail over the rules of unjustified enrichment. As a result the bona fide possessor will acquire ownership according to §§ 954 and at the same time is protected by virtue of a preclusion of the duty to deliver up or compensate the owner according to the rules of unjustified enrichment.

(e)

Duty to deliver up if unworthy of protection

The privilege resulting from the preclusion of the rules on unjustified enrichment cannot be justified where the possessor is not worthy of protection, or at least is less worthy than the owner. This will be the case if: he has already been served with notice of a claim (§ 987); he was mala fide at the outset or has become so (§ 990); or has obtained possession of another’s property without consideration (§ 988). Both the possessor who has already received notice of litigation (and thus knows that another claims to be the owner) and the mala fide possessor knows (or cannot deny that he should know) that he may not be entitled to the fruits, and accordingly will not

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be protected if – despite this knowledge – disposal occurs. By contrast, the fact that the possessor, who has obtained the thing gratuitously, is not protected is not a punishment for having disposed of or consuming the fruits, but rather the result of a balance of interests between the owner and the unlawful possessor. Here the legitimate interest of the owner will prevail, yet the interests of the unlawful but bona fide possessor will be protected in that he will only be under a duty to deliver up whatever he actually has in his possession. He will not be obliged to compensate for other fruits and benefits that have already been consumed.

16.4.

Duty of compensation in case of deterioration, destruction or loss

Where the possessor is unable to fully comply with his duty to deliver up the thing to the owner, because it has been damaged, destroyed or lost, the duty to retransfer possession in the thing may be replaced by a duty to compensate such damage, destruction or loss. Again, in order to clarify the scope of the duty to compensate a loss or pay damages we have to distinguish between three different situations. – Where the possessor has obtained possession from the owner on the basis of a void or avoided contract, his duty to compensate the owner for deterioration, destruction or loss will be guided by the rules on unjustified enrichment. – Where the duty to retransfer possession occurs in consequence of rescission of a contract all questions of liability for deterioration, destruction or loss will be determined according to the applicable contract law rules. – If there is no contractual relationship between the owner and the possessor then the rules of the owner-possessor-relationship are applicable and will also solve all questions regarding liability for deterioration, destruction or loss of property. Thus it must be emphasised that the rules provided for in §§ 989 ff. will only apply as far as they are not superseded by contract law or by the rules of unjustified enrichment. A claim for compensation on the basis of the owner-possessor-relationship will only have a basis in law if the unlawful possessor is either mala fide (§ 990) or has been served with a claim for restitution (§ 989). In all other cases, i.e. where the bona fide possessor unlawfully holds possession and no lawsuit is pending, he will not be held liable for the deterioration, destruction or loss of the goods. The rule on the owner-possessor-relationship excluding liability of the bona fide possessor will prevail over any tort law rules.

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§ 989 provides that from the date litigation is pending the possessor will be liable to the owner for damage, including impossibility to return the goods. Where the property is damaged, consumed or destroyed as a result of the possessor’s fault, he will have to compensate the owner for the loss. This rule is justified by the concept that a possessor of a thing, who by service of a claim was informed that another claims to be the owner of that thing, has to appreciate that he may have to deliver up such thing. By virtue of service of a claim an ex lege obligation arises, which obliges the possessor to safely store the goods and utilise them in the interest of the owner.679 The liability for damages, however, will not cover the so-called Vorenthaltungsschaden, i.e. damage resulting from the fact that possession was withheld from the owner. To oblige the possessor to pay damages for the mere fact that he has retained possession would hinder his ability to defend his purported right before the court.680 § 990 supplements the rule on the liability of the possessor after litigation is pending with the rule that the mala fide possessor will likewise be held liable. His liability, however, is of a greater magnitude, as it is determined according to the general rules on default (§§ 280, 286) and thus will also oblige him to compensate the owner for accidental loss or damage. In addition, the mala fide possessor is also held responsible for the Vorenthaltungsschaden. Where the mala fide possessor has obtained possession by unlawful interference tort law rules will apply (as explicitly set out in § 992) in addition to the rules on liability provided for by §§ 987 ff.

16.5.

Reimbursement for improvements and expenses

A possessor who has held possession for a considerable time may have incurred expenses which would – from his point of view – appear to be entirely unnecessary if he has to return the property to the owner. This raises the issue of whether the owner will have to compensate the possessor for such expenses. As with the issue of how the owner may claim return of his property, the issue is resolved by reference to how, and indeed why, the possessor obtained possession in the first place. – If the possessor obtained possession on the basis of a void or voidable contract, the owner’s obligation to compensate the possessor for expenses incurred will be determined in accordance with the general rules on unjustified enrichment. – If the transfer of possession (and ownership) has been conducted on the basis of an initially valid contract that has been subsequently rescinded, 679 680

Wieling, Sachenrecht (2007)5, 171. Wieling, Sachenrecht (2007)5, 173.

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the rules on rescission of contracts will apply. As a general rule, § 347 II grants the possessor a claim for compensation of necessary expenses regardless of whether they have actually led to a gain on the side of the owner. In contrast, other expenses will only be compensated as far as they confer a benefit on the owner. – Whether a possessor who has obtained possession on the basis of a valid contract granting him the right to use another’s property, but such contract has come to an end either by lapse of time or termination, is entitled to compensation for expenses will depend on the rules of contract law specific to that situation. For instance, if a lease contract was terminated the lessee’s claim for compensation of expenses is governed by § 536a, § 539 I. – If none of the three alternatives set out above apply, because the possessor has obtained possession by other means, the rules on the ownerpossessor-relationship apply and again render a distinction between the three categories of possessors necessary, i.e. between the bona fide possessor, the possessor served with a claim and the mala fide possessor. Thus property law rules (i.e. the provisions on the owner-possessor-relationship) will, once again, only apply as far as they are not superseded by contract law or by the rules on unjustified enrichment. As far §§ 989 ff. apply, the question of entitlement to compensation will be decided according to two criteria: first, whether the expenses were necessary from an objective point of view; and second, whether the possessor, who has incurred the expenses is worthy of protection. The result of this assessment is then balanced against the legitimate interest of the owner not to be burdened by excessive claims for compensation. Accordingly the owner is – as a last resort – granted the right to refuse to compensate the possessor for his expenses and instead transfer ownership of the thing to the possessor. The rules on compensation of expenses differentiate between three different categories of expenses, namely necessary expenses, useful expenses and other expenses. Expenses will qualify as necessary if, from an objective point of view, they were essential in order to maintain the property. This includes regular maintenance costs as well as the cost of measures that, if not undertaken, would have led to the deterioration, destruction or loss of the goods. Useful expenses are those which – although not necessary for the maintenance of the property – have led to an appreciation of value. Other expenses, by contrast, are neither necessary nor have they led to an increase in value. As mentioned before, the extent of compensation the owner is obliged to pay upon return of his property depends on whether the possessor is

16. Retransfer of ownership to the original owner

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worthy of protection. This concept is implemented by an obligation to compensate expenses that operates on a sliding scale. The owner will have to compensate necessary expenses incurred by a bona fide possessor who at the time of expenditure had not (yet) been served with a claim (§ 994 I). This obligation is independent of whether the expenses actually lead to any advantage for the owner. The obligation of the owner, however, is reduced in correspondence to the rule that the bona fide possessor may retain the fruits and benefits: to the extent to which the possessor may keep the yields of the property, he will also have to bear the ordinary maintenance expenses. Accordingly, the owner will merely be obliged to compensate the owner for extraordinary necessary expenses (§ 994 I 2nd s., § 995). Useful expenses are compensated as far as they have lead to an increase in value that is still reflected at the time the property is returned. Expenses that are neither necessary nor useful need not be compensated by the owner (§ 996). By contrast, the right to claim compensation is reduced with regard to the possessor who has been mala fide from the outset or has been served with a claim and thus knows (or ought to know) that the goods may belong to another. In this case the owner’s obligation to compensate the possessor will be determined according to the rules on benevolent intervention in another’s affairs (§§ 683 ff.). As far as the owner is not entitled to compensation of expenses according to these rules, for example by operation of the rules of original acquisition leading to the creation of a new thing, he may be granted a right of removal (§ 997). The possessor who is entitled to compensation of expenses may secure the fulfilment of his claim by a right of retention, which is described below.

16.6.

Possessor’s right to retain the movable

The general rule on the possessor’s right of retention (lien) is contained in § 273 II. It provides that anyone obliged to return an object has a right of retention if he is entitled to a claim that is due on account of expenses incurred to the object or on account of any damage caused to him by the object. Accordingly, the right of retention is subject to two requirements. First, there must be a connection between the claim of the owner and the counterclaim of the possessor on which the right of retention is based. Second, the parties of both claims must be identical. Even if these two conditions are satisfied, the right of retention is (understandably) barred where the possessor has obtained the object by means of an intentionally committed tort. It should be noted that the right of retention vests the possessor with a right to retain possession, but no right of use is implied. Accordingly, the

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right of retention is only a defence. If the owner vindicates his property and the possessor raises the defence both parties will be ordered to comply with their obligations simultaneously, i.e. transfer of possession to the owner versus the payment of compensation to the possessor. In addition to this general rule on the right of retention more specific rules may be found both in the context of specialised rules of contract law and in § 1000 with regard to the owner-possessor-relationship. § 1000: [Right of retention of the possessor] The possessor may refuse the return of the thing until he is reimbursed the expenses due to him. He is not entitled to the right of retention if he obtained the thing by an intentionally committed tort.

Despite this clear-cut rule, in practice problems may arise where a bona fide possessor has obtained possession from a non-owner and thus the claim he intends to secure by exercising the right of retention is directed against a third party rather than the owner, usually the person who transferred possession to the present possessor. Example: A sells a car that is subject to a retention of title to B. After using the car for a while, B takes the car to the garage of C and instructs him to repair the car. While the car is stored at C’s garage, B stops paying the instalments of the purchase price, which in turn allows A to rescind the contract for sale. Termination of the contract will terminate B’s right to possess the car. Simultaneously, C’s right to possess the car will likewise be terminated as C has derived his right to possess from B.

Although there is a consensus on the necessity to protect the contractor in these so-called ‘garage cases’ it is a highly controversial issue how such security is to be established. The starting point is that C has a contractual claim for his fee against B, which according to the general rules is secured by a contractor’s lien under § 647. However, a lien cannot be established with regard to a non-existent right in rem. As the rescission of the contract for sale has brought B’s equitable interest in the car to an end, there is no property right of B which could be the object of the lien. A right of retention against the owner, however, would only exist to cover the amount of necessary expenses, which would not necessarily amount to the fee owed under the contract. Yet, prevailing opinion and the judicature grant the contractor a right of retention against the owner under § 1000. A minority opinion similarly wants to protect the claim for the fee but construe the contractor’s claim as a bona fide acquisition of a pledge in the equitable interest no longer in existence (§ 1207). Despite this controversy, it may be stated that according to both opinions the contractor will be protected

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by a right of retention and thus will only be ordered to deliver the car to the owner on discharge of his claim for the fee.

16.7.

Burden of expenses for the restitution of the movable

The possessor under the obligation to deliver up the property to the owner will have to retransfer direct possession to the owner. This duty to transfer is therefore not a mere duty to tolerate the recovery of possession by the owner, but is a positive duty to deliver it to him. It is not specifically provided where the possessor has to deliver the thing, but it is widely acknowledged that the general rule on the place of delivery contained in § 269 is not applicable as it would be inappropriate that the possessor may perform at his own residence (or, in the case of a company, at its seat). Instead, the rules of the owner-possessor-relationship are applied by analogy: as long as the possessor is bona fide and has not (yet) been served with a claim, he may dispose of the good as if he were the owner and will not be held liable for conduct that befits an owner, such as moving the property (§§ 989 ff.). Accordingly, the obligation to deliver up the property to the owner may be performed at the place the thing is located at the time retransfer is claimed. If the possessor is mala fide or has already been served with a claim, he is not (or no longer) allowed to dispose of the thing and therefore may not (culpably) alter its location. If he does change the location of the thing, on request of the owner he will be obliged to return the thing to its original location, i.e. to where it was at the time the possessor’s knowledge can be said to have started, and will have to bear any costs which may arise for the retransfer.681

681

Wieling, Sachenrecht (2007)5, 164.

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Table of Abbreviations ABGB AcP ALR AP AT

Allgemeines Bürgerliches Gesetzbuch (Civil Code, Austria) Archiv für Civilistische Praxis Preußisches Allgemeines Landrecht Nachschlagewerk des Bundesarbeitsgerichts Allgemeiner Teil

BAG BayObLG BB BGB BGBl

Bundesarbeitsgericht Bayrisches Oberstes Landgericht Betriebsberater Bürgerliches Gesetzbuch (Civil Code, Germany) Bundesgesetzblatt (Official Journal of the Federal Republic of Germany) Bundesgerichtshof (Federal Court of Justice) Entscheidungen des Bundesgerichtshofs in Zivilrechtssachen (Case Reports of the Federal Court of Justice in Civil Matters) Bundesverfassungsgericht (Federal Constitutional Court) Entscheidungen des Bundesverfassungsgerichts (Case Reports of the Federal Constitutional Court)

BGH BGHZ BVerfG BVerfGE

FamRZ FS

Zeitschrift für das gesamte Familienrecht Festschrift (liber amoricum)

GG

Grundgesetz (Basic Law, German Constitutional Act)

HGB

Handelsgesetzbuch (Commercial Code)

InsO

Insolvenzordnung (Insolvency Act)

JR JuS JZ

Juristische Rundschau Juristische Schulung Juristenzeitung

KTS

Zeitschrift für Konkurs, Treuhand und Insolvenz

LG LM

Landgericht (Regional Court) Lindenmaier / Möhring, Nachschlagewerk des Bundesgerichtshofs

Germany

192 MDR

Monatsschrift für deutsches Recht

NJW NVwZ

Neue Juristische Wochenschrift Neue Zeitschrift für Verwaltungsrecht

OLG

Oberlandesgericht (Higher Regional Court)

RabelsZ RG RGZ

Rabels Zeitschrift für Rechtsvergleichung Reichsgericht (pre-1945 German Federal Court of Justice) Case Reports of the Reichsgericht in Civil Matters

s.

sentence

ZEuP ZfRV ZIP ZPO

Zeitschrift für Europäisches Privatrecht Zeitschrift für Rechtsvergleichung Zeitschrift für Wirtschaftsrecht und Insolvenzpraxis Zivilprozessordnung (Civil Procedure Code)

National Report on the Transfer of Movables in Greece Christina Klaoudatou

Table of Contents Part I: Basic Information on Greek Property Law 1. Ownership and other property rights 1.1. General basics 1.2. Notion of Ownership 1.2.1. Restrictions 1.2.2. Interests linked to the right of ownership 1.2.3. Interests of third parties 1.3. Other property rights 1.4. Protection of property rights 1.5. Transferability of movable assets 1.6. Accessories 2. Possession 2.1. Notion of possession 2.1.1. Requirements 2.1.2. Forms of possession (a) Quasi-possession, possession of a right (b) Possession of part of a thing (c) Joint possession (d) Fictitious possession (e) Personal exercise of possession (f) Possession-agent (g) Possession through others (i) Intensity of the relationship between possessor and object (ii) Taking possession of an asset for the first time (iii) Transfer of possession from one person to the other (iv) Possession of mere rights 2.2. Functions of possession 2.3. Acquisition of possession 2.3.1. Original acquisition 2.3.2. Derivative acquisition (a) Longa manu traditio (b) Brevi manu traditio

201 203 203 204 206 207 208 210 210

213 213 214 214 214 215 215 215 216 216 218 219 219 220 220 220 221 221 222 222

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2.4.

(c) Constitutum possessorium (d) Transfer by giving order to the third party holding the movable (e) Transfer of the warehouse warrant or bill of lading (f) Acquisition through an intermediary (i) Representation of the transferee (ii) Representation of the transferor (iii) Exercise of possession through a representative Protection of possession 2.4.1. Protection by the privilege of self-help 2.4.2. The legal protection (a) Action for eviction (b) Action for the return of the good by virtue of a personal right (c) Security measures

3. The border between rights in rem and obligations 4. Field of application and definitions 4.1. Field of application 4.1.1. Immovables 4.1.2. Money 4.1.3. Bearer securities 4.1.4. Registered shares 4.1.5. Intellectual property rights 4.1.6. Cars and motorcycles 4.1.7. Vessels 4.1.8. Aeroplanes 4.2. Definitions 4.2.1. Object and thing 4.2.2. Movables and immovables; component parts and accessories 4.2.3. Fungibles 4.2.4. Determination of identity (fungible goods) 4.2.5. Consumables 4.2.6. Things “out of commerce” 4.2.7. Fruits and profits

223 224 224 225 225 226 226 226 227 228 229 230 231 232

233 233 234 234 234 236 236 237 237 238 238 239 241 242 244 244 245

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Part II: Derivative acquisition 5. Which system of transfer is used 5.1. Basic overview 5.2. General issues 5.2.1. Specific goods – generic goods 5.2.2. Party autonomy 5.3. Valid obligation is not required 5.3.1. Obligations on which the transfer of ownership can be based 5.3.2. Defects regarding the obligation and their effects on the transfer (a) Void contracts (b) Voidable contracts (c) Termination of contract providing for continuous performance (d) Rescission (termination) of a contract (e) The revocation of a donation (art. 505 Gr.C.C.) (f) Impossibility of performance (g) Contract subject to a condition 5.3.3. Cases where the abstract system might be said to be undermined 5.4. Traditio 5.4.1. Purposes of the delivery requirement, policy behind the rules 5.4.2. Forms of delivery and delivery equivalents (a) Physical delivery (b) Fictitious possession (c) Handing over certain means or an “instrument” (d) Transfer by transferring certain documents of title (e) Constitutum possessorium (f) Transfer of goods in possession of third party 5.5. Registration 5.6. Consensual system 5.7. Real agreement 5.8. Payment 5.9. Right to dispose 6. The rules on double selling

246 248 248 248 249 249 250 250 250 252 252 253 254 254 254 257 257 258 258 260 260 261 262 262 263 263 263 264 264 265

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7. Rules on selling in a chain

265

8. Transfer or acquisition by means of indirect representation

265

9. Consequences of the insolvency of transferor or transferee 9.1. General issues 9.1.1. Insolvency and contracts 9.1.2. Sale under the condition of retention of title 9.1.3. Avoidance and actio Pauliana 9.2. Insolvency of the transferor 9.2.1. Right of separation by the owner of a thing 9.2.2. Restitution of a movable asset 9.3. Insolvency of the transferee

267 267 270 272 274 275 277 278

10. Passing of risk and passing of ownership 10.1. The passing of risk 10.1.1. Regarding generic goods 10.1.2. Regarding specific goods 10.1.3. In the case of a sale under retention of title 10.1.4. Goods damaged or destroyed after the passing of risk 10.1.5. Where goods are defective or the guaranteed qualities are lacking 10.1.6. Consequences of the passing of risk 10.2. Attribution of benefits and expenses 10.2.1. Benefits 10.2.2. Reimbursement of expenses 10.3. Non-sale situations

280 280 280 281 281 282 282 282 282 283 283

Part III: Original acquisition 11. Acquisition by accession, commixture, specification 11.1. Accession of movables 11.2. Commixture, confusion 11.3. Specification 11.4. Further general aspects

284 286 288 290

Table of Contents

12. Good faith acquisition 12.1. Field of application 12.2. Good faith acquisition must be for value 12.3. Physical control of the non-owning “transferor” 12.4. Physical control of the acquirer 12.5. Specific requirements with respect to the circumstances of transfer 12.6. Specific requirements with respect to the circumstances in which the original owner “lost” the movable 12.7. Good faith 12.7.1. Object of good faith 12.7.2. Standard of good faith 12.7.3. Time of good faith 12.8. Lost goods and stolen goods 12.9. Re-transfer of the movable asset to the original owner 12.10. Rules on good faith acquisition free of encumbrances 12.11. Retransfer of ownership to the transferor

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292 294 294 295 295 296 297 297 297 297 298 300 301 301

13. “Acquisitive” prescription of movables 13.1. Functions of acquisitive prescription 13.2. Requirements for acquisitive prescription 13.2.1. Assets excluded 13.2.2. Possession 13.2.3. Accessio temporis (a) Suspension of the prescription period (b) Interruption of the prescription period (c) Results of the interruption 13.2.4. Title (a) Valid title (b) Putative title 13.2.5. Good faith 13.3. Prescription of ownership

302 303 303 304 304 306 307 308 309 309 309 310 312

14. Other forms of original acquisition 14.1. Finding of lost things 14.2. Occupation of goods not owned by anyone 14.3. Separation

312 313 314

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Part IV: Additional questions 15. Reservation of title 15.1. Reservation of title as a condition of the agreement 15.2. Accessio, confusio, commixtio, specification and reservation of title 15.3. Extended reservation of title

315 317 317

16. Abandonment and acquisition of a hoard 16.1. Abandonment 16.2. Acquisition of a hoard

317 318

17. Transfer rules for co-ownership

318

18. Transfer of ownership of unspecified goods 18.1. Transfer of shares in an identified bulk 18.2. Pledge without delivery 18.2.1. Over-collateralisation 18.2.2. Union, accession etc. 18.2.3. Good faith 18.2.4. Legal situation 18.2.5. Special forms of the pledge without delivery

319 320 321 321 321 321 322

19. Consequences of restitution of the movable to the owner 19.1. Entitlement to benefits resulting from the movable 19.1.1. Benefits 19.1.2. Necessary expenses 19.2. Loss and deterioration of the movable. 19.3. Reimbursement for improvements made and expenses incurred during the possession of the movable 19.3.1. Jus tollendi 19.3.2. Reimbursement of expenses 19.4. Possessor’s right to retain the movable 19.5. The expenses of the restitution of the movable to the owner

323 323 326 326 328 328 329 330 330

Table of Literature

331

Table of Abbreviations

332

Part I: Basic Information on Greek Property Law 1.

Ownership and other property rights

1.1.

General basics

Greek property law has its origin in the Byzantine-Roman tradition of the Pandektensystem. The Greek Civil Code has been particularly influenced by the German Civil Code and it is divided into five books. Property law is provided for in the third book (art. 947 through 1345 – all statutory references are to the Greek Civil Code unless otherwise stated). In many cases, the Civil Code does not directly provide the answer to a legal dispute; therefore, we have to resort to the basic principles of property law. The importance of the basic principles for the right application and interpretation of property law is significant. Although those principles are not general rules that are binding, they have to be followed in order to achieve legal security and material justice (ουσιαστική δικαιοσύνη). The principles that rule property law are the following:1 – Numerus clausus of property rights. The principle of numerus clausus has been provided for by art. 973 Greek Civil Code. Property rights are rights that provide direct power and are effective against everybody. Property rights on movable goods are owner­ ship, personal and real servitudes, pledges and mortgages. The numerus clausus, in a strict way, comprise the real rights, which are strictly limited to the ones that are enumerated by the law. Parties cannot create, by way of contractual agreement, any other kind of real right, nor can they be created by judicial act. Similarly, the features of these rights cannot be altered. Real rights can only be established in things, that is individual corporeal objects that are susceptible to appropriation. By way of exception, incorporeal (movable) rights are susceptible to usufruct and pledge, and the usufruct of an immovable may be subject to a mortgage. – Formality. The principle of formality means that the content of the real rights is set by the law, and cannot be altered by agreement in order to protect the security of transactions. Possession and detention are sui generis rights, neither real nor personal. 1

Georgiadis, Property Law I, p. 16 et seqq.

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– Specificity. Real rights can only be attached to a particular, individually specified good. – Publicity. Third parties must be provided with the chance of determining the legal situation of a good in relation to its real situation. Regarding movables, such chance is provided by the concept of possession. – Temporal priority. The creation of a real right is a real transaction and, as such, subject to the rule of temporal priority (prior tempore potior jure), meaning that the prior right takes precedence over the subsequent one. Real rights may be of limited duration, either by law or by agreement, and may be subject to a term or a condition. This rule applies to “beschränkte dingliche Rechte”-restricted real rights. This means that, where several restricted real rights are created in a thing or a right, then the one that is created beforehand is the one that has priority over the later.2 When a real right is extinguished with retroactive effect, all real rights granted by the holder of that right are also extinguished in the absence of contrary provision of law. The principle of temporal priority may be broken in the case of the good faith acquisition of a real right according to art. 1040 Gr.C.C.3 (Where a movable is burdened with a usufruct and a third party acquires a pledge without being aware of the existence of the usufruct, then the pledge, even though it was created later than the usufruct, has priority.)4. – Protection of contractual good faith. Good faith can be a reason for obtaining or abrogating a real right. The most important expressions of good faith in property law include the ordinary acquisition by possession (art. 1041 Gr.C.C.), acquisition of a movable from a person who is not the owner (art. 1036 Gr.C.C.), acquisition of ownership of fruits (art. 1066 Gr.C.C.), a building erected partially on neighbouring land (art. 1010 Gr.C.C.), the rights of third parties in the transferred movable (art. 1040 Gr.C.C.), and the actio publiciana (art. 1112 Gr.C.C.).

2 3

4

Spyridakis, Property Law 3, para. 22. Art. 1040 Rights of third parties in the good transferred: By the transfer of the movable good, any real rights existing therein in favour of third parties may be extinguished. This does not apply where the acquirer acted in bad faith with regard to the right of the third party, at the time of delivery of possession. Spyridakis, Property Law 3, para. 22δ.

1. Ownership and other property rights

1.2.

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Notion of Ownership

Art. 1000 Greek Civil Code defines the right of ownership as follows: “The owner of a thing may, to the extent that he does not infringe the law or the rights of third parties, dispose at will of the thing and exclude any action thereon by another.” There are two aspects of the right of ownership: the positive side and the negative side. The positive side expresses the relationship of the owner to the thing. It is the power of having an effect on or exerting influence over the thing. The owner can execute every possible action relating to the thing and raise legal actions for the assertion of his right. There is the power of disposal of the thing and the power of disposing of rights in the thing. The negative side is the owner’s power to exclude every other party who tries to interfere with the thing. The owner can, therefore, under the reservations provided by law, prohibit every action of a third party on the thing.5

1.2.1. Restrictions Restrictions on ownership are provided either by law or by the rights of third parties. Within this framework of law and third parties’ rights the powers that derive from ownership can be exercised. The provisions restricting ownership can either be general, i.e. they refer to every property right, or they can be individual and refer exclusively to ownership. Therefore, ownership is restricted6 by the general rules regarding the abusive exercise of a right (art. 281 Gr.C.C.),7 private justice (art. 282-283

5 6 7

Athens Supreme Court 283 / 1940 in Themis NA, p. 623. Athens Supreme Court 646 / 1969 in Nomiko Vima 18, pp. 531, 535; Athens Supreme Court 680 / 1976 in Nomiko Vima 25, p. 38. Art. 281 Abuse of right: The exercise of a right shall be prohibited if such exercise obviously exceeds the limits imposed by good faith or morality or by the social or economic purpose of the right.

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Gr.C.C.),8 defence (art. 284 Gr.C.C.)9 and the state of necessity (art. 285 Gr.C.C.).10 In respect of immovables, most restrictions arise from the provisions of private law regarding neighbourhood relations. Restrictions may also arise from public law. There are also restrictions as to the power of disposing of the right. An owner of a good can demonstrate his power by disposing of or selling the ownership of a good. Therefore, ownership is also restricted by provisions that prohibit, or restrain the power of, disposal. Those provisions can be provisions of civil law, for example: one cannot dispose of a thing forming part of the estate of a deceased individual without complying with the law of succession (art. 1937 para. 2 Gr.C.C.); seized things can not be sold by the debtor (art. 997 Greek Civil Procedures Law); things which belong to the insolvent debtor’s estate cannot be disposed of by the debtor (art. 537 Greek Commercial Law).11

1.2.2. Interests linked to the right of ownership The owner has the power to factually and legally influence his property. From the right of ownership, the owner derives the power to use the thing. He is entitled to administrate / manage the property and, therefore, may allow the use of it by others (παραχώρηση χρήσης). This can either be based on a right (lease, also known as hire in the context of movables) or it can constitute a factual permission of use. 8

9

10

11

Art. 282 Private justice: The satisfaction of a claim by the use of a rightful owner’s own force and without the assistance of the police or other state authorities (private justice) shall only be permitted when the assistance of the police or other state authorities cannot arrive in time and the realisation of the claim runs the risk, by reason of the delay, of being frustrated or of being substantially prejudiced. Art. 283: If recourse to private justice takes place without the preconditions arising from the law being fulfilled, or if such recourse exceeds the measure required to avert the risk, the person who acted shall be liable for damages. The same obligation shall burden a person who acted in the erroneous belief that the legal preconditions were fulfilled. Art. 284 Defence: A measure of defence, which is taken with the view of averting a concomitant and unjust attack on the holder of a right or a third party, shall not constitute an unlawful act. Art. 285 State of necessity: The destruction of a thing belonging to another shall not constitute an unlawful act to the extent that such destruction became necessary in order to avert an imminent danger threatening, in a manner disproportionate to the necessary act, the person who caused the destruction or another. Georgiadis, Property Law I, p. 276.

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The owner has the right to the profits of his property, covering all economic benefits from the substance (e.g. a rental income) and all kinds of fruits of the property (apples from his tree). The owner has the right to dispose of his property, by will (mortis causa) and inter vivos. He can transfer his right of ownership to another person, he may encumber his property with limited real rights in favour of another person, or simply abandon his right by dereliction and lose ownership entirely. One reason the owner may grant the limited real rights referred to above is to secure his commercial transactions. He can offer his property as a pledge or he can transfer the ownership of a good (perhaps subject to a “lease-back” arrangement), as security. If he is the vendor, he could sell a thing and retain ownership as a security for his claims arising out of the contract for sale. The owner has the right to recover his property from anyone who is withholding it from him without a valid legal title. Additionally, the owner can protect his right where his property has been subject to an execution proceeding (art. 936 Gr. Civil Procedures Law), or to an insolvency proceeding against another person (art. 38-40 Greek Insolvency Code). (a) According to art. 936 Gr. Civil Procedures Law, the owner of a real right has the right to bring an action (Τριτανακοπή, Widerspruch Dritter) against the execution of a judgment. With this instrument the owner, on the one hand, claims the acknowledgement of his real right, and on the other, claims the cancellation of the execution procedure.12 This action is brought against the creditor and the debtor, who are forced into a compulsory joinder of parties (notwendige Streitgenossenschaft). The law does not provide a time limitation for the filing of this action; therefore, it can be filed until the execution procedure is completed. This action does not stay the execution procedure (art. 938 Gr. Civil Procedures Law). A precondition to this action is that the person entitled has a real right, which excludes or restricts the right of the opponent. It can also be filed where there is a restraint of alienation regarding the thing in favour of the complainant. (b) In the case of an insolvency procedure the owner can protect his right by claiming the acknowledgement of his ownership according to the general provisions regarding ownership (art. 1094 Gr.C.C.), so that the goods can be separated from the debtor’s estate (Absonderungsrecht). The Greek Insolvency Code does provide, in art. 38 through 40, a 12

Athens Supreme Court 434 / 1995, in Elliniki Dikeosini 1996, p. 331; Athens Supreme Court 1101 / 1996 in Elliniki Dikeosini 1997, p. 1089; Athens Supreme Court 1190 / 1997 in Efimeris Ellinon Nomikon 1999, p. 177, Larissa Court of Appeal 724 / 2003 published in the Legal Database of the Athens Bar Association.

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right of separation (πτωχευτική διεκδίκηση, Aussonderungsrecht), which is a specific legal remedy providing the seller and the mandator with the right to request from the administrator in insolvency proceedings the exclusion of some goods from the insolvency estate.13 The right of separation does not require that the claimant has ownership.14 The administrator of the insolvency procedure needs the prior consent of the judge in order to accept the petition for separation (art. 37 Greek Insolvency Code).15 This is also applicable for the Absonderungsrecht. (c) Where the property has been affected by a wrongful act, the owner is entitled to claim damages from the offender. The owner has the right to reverse the unjustified enrichment where another person has been using his property. The owner has to bear any fees which attach to the right of ownership by law (tax law) or contractual agreement. The owner can hold, use, earn the benefits (fruits), physically alter, use up or destroy his property.

1.2.3. Interests of third parties The creditors of the owner can have security interests, which can be interests in rem (pledge) granting absolute security with effect against the owner and other creditors. The owner is personally liable for his obligations with his entire assets, including the particular property. The creditor can seek satisfaction by an execution against the owner’s property. Other interests may be specific interests in the use of the property, which may also cover a right to the profits derived from the property. Such an interest may also be a right in rem in the form of a servitude (usus fructus) or simply a personal interest, e.g. the right resulting from a contact for hire / lease. For instance, the interest of the buyer or the pledgee to legally acquire a right in rem might be considered as an interest of a third party in this context, as the existence of the predecessor’s right in rem is required for a derivative acquisition of the real right. The relevance of this interest is dependent on the issue of whether, and if so to what extent, third parties

13 14 15

N. Rokas, Insolvency Law 2, para. 9, Kotsiris, Insolvency Law, p. 354 et seqq. N. Rokas, Insolvency Law 2, para. 9, Kotsiris, Insolvency Law, p. 361 et seqq. Athens Court of Appeal 1535 / 1985 in Commercial Law Review 1986, p. 523; Athens Court of Appeal 1702 / 1994 in Nomiko Vima 1995, p. 61.

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are protected in the case of a lack of the predecessor’s title, especially by the rules of good faith acquisition. While the content of the other real rights is specific (for example, the creditor has the right to sell the thing pledged by public auction in order to satisfy his claims according to art. 1237 Greek Civil Code and the usufruct comprises the real right of the usufructuary to make use and collect the fruits derived from a thing belonging to another according to art. 1142 Greek Civil Code), ownership (dominium) is in comparison the most comprehensive real right (Αρχή της καθολικότητας). A result of the maximum comprehensiveness of ownership is that nulli enim res sua servit. This means that the owner can never simultaneously hold a restricted right in his thing, because ownership includes any restricted right. The owner can not have, at the same time, ownership and usufruct of a good. The power of use and the enjoyment of fruits and benefits which, according to art. 1142 Greek Civil Code, arise from the right of usufruct, are already included in the right of ownership.16 The restrictions on ownership do not alter the character and nature of the right. They just restrict the exercise of the right. Therefore, if a restriction ceases to exist, the right of ownership reverts to its original extent. This is called the “elasticity of ownership”.17

1.3.

Other property rights

While ownership is the general and indefeasible power for taking every possible action in respect of a thing, the content of the other real rights is specifically defined by law. Art. 973 Greek Civil Code defines the real rights as rights granting “direct power that can be invoked against all persons”. Art. 973 also provides a strict enumeration (i.e. a closed list) of real rights. Those are, besides ownership: easements (servitudes); pledges; and mortgages. As a result of the combination of art. 973 with the individual provisions for the various real rights, a real right is the power over a thing that has as its content the earning of a part, or the total, of fruits of a thing, depending on the nature of the real right in question. Ownership (art. 1000 Gr.C.C.), for example, grants the owner the right to do whatever he wants to with the thing under the precondition that he does not infringe legal provisions. The usufructuary (art. 1042), in contrast, only has the right to use and collect the profits derived from a thing. The key characteristic of a real right is that one lawfully has power over a thing, this power being direct and absolute. 16 17

Georgiadis, Property Law I, p. 258 et seqq. Georgiadis, Property Law I, p. 260.

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1.4.

Protection of property rights

Where a real right is violated, the civil law provides protection by its provisions for other rights. For example: where the owner deposits his good with somebody else for keeping it in custody and this second person, while claiming to be the lawful owner, sells and delivers it to a third person who is in good faith, then the purchaser obtains ownership and the real owner loses his right of ownership in the good (art. 1036, 1040). In this case, the former owner may claim from the depositary under: (a) the contract of deposit (art. 822 and 335 Gr.C.C.);18 (b) the provisions relating to non-contractual liability arising out of damage caused to another (often referred to as tort or delict) (art. 914, 919 Gr.C.C.); (c) the provisions for unjustified enrichment (art. 904, 908 Gr.C.C.); and (d) the regulations about the benevolent intervener (negotiorum gestor) (art. 739, 734 and 719 Gr.C.C.). (According to art. 719 Gr.C.C., a mandatary has the obligation to restore to the mandator everything he has received for, or has acquired from, the performance of the mandate.) Besides the above-mentioned claims, there are also specific claims for the protection of real rights. The main characteristic of the real rights is the exercise of power over the movable, so that, therefore, the claims deriving from obligations do not provide sufficient protection. The law provides, in order to restore the ability to exercise control over the movable, real claims. Depending on whether the violation is total or partial, the law provides appropriate protection. Where the infringement is constituted by the removal of the thing or the continuing withholding of the thing, the entitled person can claim, according to art. 1094 Gr.C.C., the acknowledgement of his right and restitution of the asset (vindicatory action – διεκδικητική αγωγή) from the infringer. Where the right of the owner is disturbed in a way other than by deprivation or retention of the good, the legitimate person can claim, according to art. 1108 Gr.C.C., the cessation of the disturbance of his right and for non-recurrence of such disturbance in the 18

Art. 822: By a contract of deposit, the depositary takes delivery from another person of a movable good with a view of keeping it subject to the undertaking of restitution upon demand. Remuneration can only be claimed if this has been agreed or results from the circumstances. Art. 335 Impossibility of performance: If, at the time of rendering the performance, such performance is totally or partly impossible for reasons, either of general nature or relating to the debtor, the debtor shall be bound to compensate the creditor for the prejudice resulting therefrom.

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future (prohibitive action – αρνητική αγωγή). The prohibitive action is also a preventative action for a permanent injunction against an imminent infringement of ownership (Vorbeugende Unterlassungsklage gegen drohende Eigentumsverletzung). The vindicatory action and the prohibitive action are general actions, meaning that they protect ownership in general. They are both applicable to movable and immovable goods. The civil law also provides special property law claims, which protect either movables (art. 1109 Gr.C.C., παραστατική αγωγή – parastatiki agogi) or immovables (art. 1112 Gr.C.C., πουβλικιανή αγωγή – actio publiciana).19 According to art. 1109 Gr.C.C., the action can be filed only by the owner of a movable good, which is located within an immovable possessed by another person. With this action, the owner of the movable can demand that the possessor of the immovable allow him to search for and to recover such movable. The owner is obliged to compensate the possessor of the immovable for any damages he suffers due to the search for the good. There is also an action that exclusively protects immovable goods, the πουβλικιανή αγωγή (actio publiciana) as provided in art. 1112 Gr.C.C. This action protects the possessor and the person who acquired possession of the immovable and is seeking to fortify his position by way of prescription. This action can be filed instead of a vindicatory or prohibitive action and its advantage is that the claimant does not have to bring evidence that he has the ownership of the immovable good. He only has to prove that he took possession and was on course to acquire ownership by way of prescription and that he was deprived of his possession before the expiration of the prescription period, or that he is disturbed in his possession. The Greek Civil Code provides detailed regulations regarding the protection of ownership but, in order to avoid repetitions, for the other real rights it refers to the regulations for ownership. The real claims are not sufficient to protect the real right. Therefore, the real claims are completed by other claims deriving from the civil law. A further protection for the person entitled consists in claims of unjustified enrichment and the rules relating to non-contractual liability arising out of damage caused to another (often referred to as tort or delict) (art. 904, 914, 919, 1063 Gr.C.C.), and also in claims for the restitution of benefits and compensation for the deterioration or destruction of the good (art. 10961100, 1108 para. 1, 1132 para. 1, 1173, 1191, and 1236 Gr.C.C.). Although the regulations of the Greek Civil Code regarding ownership have priority as being more specific regulations (theory of exclusivity), the 19

Art. 1109: Where a movable is brought within the boundaries of the immovable of another, the owner of the movable has the right to demand that the possessor of the immovable allow him to search for and recover the movable provided there is payment of compensation for any prejudice caused by the search.

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regulations of unjustified enrichment are also applicable where the preconditions for art. 1096-1100 and for unjustified enrichment are fulfilled (theory of parallel application).20

1.5.

Transferability of movable assets

According to art. 966 Gr.C.C., movable assets, which are common by reason of common use and by reason of being destined to serve public, municipal, communal or religious purposes, are not transferable. Non-transferable assets are also assets which are excluded from transaction by law. These are, for example, weapons, narcotics, explosives, drugs (Medikamente) without the permission of the competent authority. The law prohibits or restricts transactions involving these assets.21 The above mentioned provisions have the policy of protecting the public interest. There are also other provisions of law, which prohibit or restrict the actual and legal power to dispose of ownership: art. 1937 para. 2 Gr.C.C. prohibits the disposal of things belonging to the estate of a deceased person, any disposal becoming invalid upon inheritance by the beneficiary; art. 997 Gr. Civil Procedures Law prohibits the alienation of seized assets by the debtor; art. 537 Gr. Commercial Law prohibits the alienation of assets belonging to the estate in insolvency by an insolvent party. Those provisions are provisions of private law and have the policy of protecting private interests.22 Where the contracting parties have contractually agreed that a certain asset may not be transferred, should one party, in spite of the contractual agreement, proceed to alienate the asset, then the other party can claim damages based on the contract and on the provisions regarding the law of obligations.

1.6.

Accessories

According to art. 956 Gr.C.C. an accessory is a movable thing, which, though not being a constituent part of the main thing, is destined to serve the economic purpose of the main thing permanently, and has already been placed in a spatial relationship corresponding to such purpose in regard to the main thing. Art. 956-960 have the purpose of serving the preservation of the financial unity between the main thing and the accessory. Therefore,

20 21 22

Georgiadis in Georgiadis – Stathopoulos, Civil Code V, articles 1094-1112, p. 564. Spyridakis, Property Law 3, para. 54. Georgiadis, Property Law I, p. 276.

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the accessory is defined by objective criteria and not according to the will of the parties. The requirements of an accessory are the following: (a) The main thing can be a movable or an immovable, (b) only a movable asset can be an accessory, (c) the movable asset must be self-existent; this means that it can not be part of another asset, (d) the movable asset must have the purpose of permanently serving the economic purpose of the main thing: it is not enough that the asset serves the economic purpose of the main thing temporarily. It depends on the duration of the economic purpose of the main thing. If the duration is limited then the service of the accessory will also be limited. Things that are used on a trial basis or for as long as the accessory is being repaired are not considered to be accessories.23 The function accorded to the accessory of providing a permanent service to the main asset is either provided by law (articles 959, 960 Gr.C.C.) or by the will of the entitled person. Those entitled to make such an election of will are those who have permanent rights in the main asset, like the owner and the possessor in good faith.24 In the case of a lessee or a usufructuary, due to the impermanent nature of their rights it has to be made clear that they intend to give to the movable asset such permanent purpose. It is not necessary that the function of the accessory of providing a permanent service to the main asset is accorded to the accessory by the owner of the main asset and the accessory does not have to be owned by him,25 (e) finally, the movable must have a spatial relationship to the main thing. According to art. 957 para. 2 Gr.C.C., the accessory does not lose its status when it is temporarily removed from the main asset.26 The asset’s characteristic as an accessory is terminated, when it is removed from the main asset in order to be used independently. When a movable asset fulfils the above preconditions in order to be classified as an accessory, the generally accepted standards (Verkehrsanschauung) are also relevant.27 Art. 959-960 Gr.C.C. define accessories by an act of law. The machines (utensils, tools and cattle) serving the financial purpose of the industrial enterprise or exploitation of the agricultural property, are deemed accessories. 23 24 25 26 27

Georgiadis, Property Law I, p. 109 et seq. Georgiadis, Property Law I, p. 109 et seq. Dimakou in Georgiadis – Stathopoulos, Civil Code V, articles 956-957, p. 71. Supreme Court 764 / 1985 in Nomiko Vima 1986, p. 666. Georgiadis, Property Law I, p. 110.

212

Greece

Accessories can be the object of separate real rights.28 Therefore, ownership of the accessory can be transferred separately from the main asset. The accessory is pledgeable. It can be claimed (art. 1094 Gr.C.C.), it can be abandoned (art. 1076 Gr.C.C.), occupied (art. 1075 Gr.C.C.) and seized (art. 992 para. 2 Gr. Civil Procedures Law). The real agreement regarding the main asset also includes the accessory, unless a contrary agreement has been concluded (art. 958 Gr.C.C.). According to this rule, with the transfer of ownership of the main asset, the ownership of the accessory is transferred. A problem occurs when the owner of the main asset is not the owner of the accessory. According to one opinion,29 in order for the acquirer to obtain ownership of the accessory, it has to be delivered to him as provided in art. 1036 Gr.C.C., because bona fide acquisition requires delivery of possession. According to another opinion, for the transfer of ownership of the accessory it is sufficient that the transfer formalities regarding the main asset are fulfilled.30 Where a restricted real right is constituted (usufruct, real servitude), then it also includes the accessory, unless the contracting parties agreed otherwise.31 According to art. 370 Gr.C.C.: “a contractual obligation to alienate or encumber a thing shall, in case of doubt, also extend to the accessories to the thing as existing at the time of the conclusion of the contract.”32 The seizure of an immovable involves the accessories only where they have been included (art. 992 para. 2, section 1 Gr. Civil Procedures Law). In the event that they have not been included, they can be seized according to the provisions regarding the seizure of movable things (art. 992 para. 2, section 2 Gr. Civil Procedures Law).33 The burden of proof regarding the quality of an asset as being an accessory is borne by the one who pleads that it is an accessory. The individual who denies the quality of the asset as being an accessory based on the argument that, according to the generally accepted standards, it cannot be considered as an accessory has the chance to lead evidence to prove this view.34

28 29 30 31 32

33 34

Georgiadis, Property Law I, p. 111. Dimakou in Georgiadis – Stathopoulos, Civil Code V, art. 958 p. 75. Georgiadis, Property Law I, p. 113. Georgiadis, Property Law I, p. 113. But cf. Athens Court of First Instance 3499 / 1972 in Efimeris Ellinon Nomikon 40, p. 335. Thessaloniki Court of Appeal 365 / 1979 in Nomiko Vima 29, p. 571. Georgiadis, Property Law I, p. 114.

2. Possession

2.

Possession

2.1.

Notion of possession

213

Possession and possessory actions are dealt with in articles 974 through 998 of the Greek Civil Code. These articles reflect solutions developed by Greek doctrine and jurisprudence in the course of the nineteenth and twentieth century. A distinction is made between possession and detention (katochi).35 Possession is the exercise of physical control over a thing with the intention to own it; in the absence of such intent, there is only detention. The rules governing possession apply by analogy to quasi-possession, that is, the exercise of a real right with the intent to have it as one’s own. Detailed provisions deal with the acquisition, exercise, loss and protection of possession.

2.1.1. Requirements The Greek Civil Code defines possession as the exercise of physical power over a movable with “animus rem sibi habendi”. A distinction is made with detention, which is the physical power over a movable, although this does not mean that the detentor exercises his right without having any intention at all. The detentor must have the intention of exercising physical power over the movable (animus detentionis).36 In terms of this definition, a person is not a detentor merely because, while another person was sleeping, he put that person’s movable in his own pocket. According to the regulations of art. 974 and 997 Gr.C.C., a precondition for the protection of detention is that the detentor obtained physical power over the good with the possessor’s consent given for any reason. Such reason can either arise out of a contract or by operation of law (see art. 997 Gr.C.C.).

35

36

Art. 974: A person who has acquired physical power over a thing (detention) shall be the possessor thereof, if he exercises such power with the intention of acting as an owner. Georgiadis, Property Law I, p. 137.

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2.1.2. Forms of possession (a)

Quasi-possession, possession of a right

According to art. 975 Gr.C.C.,37 quasi-possession is the exercise of a real right with the intention of having it as one’s own.38 In the case of pledge or easement, possession is restricted to the content of the right that is being exercised. Quasi-possession is either an expression of the right of pledge or easement, or it exists independently from the existence of such a right.39 As with possession two aspects are required: the corpus and the animus. The content of the corpus is the partial exercise of power over a good in a specific manner. The animus is the exercise of the right by a person entitled to a restricted real right.40 The difference between possession and quasi-possession is that while it is not possible for two persons to be in possession of the same thing at the same time, it is possible for two or more persons to have quasi-possession of one thing at the same time.

(b)

Possession of part of a thing

One can only have possession of part of a thing under the precondition that it can be divided and that on such division it is possible to separate that part from the rest of the object.41 Such a part of the good can also be a constituent part of the good. Although, according to art. 953 Gr.C.C., it is not possible to have separate ownership or any other real right in the constituent part of the good, it can be the object of possession.42 The law refers to it only in the context of the protection of possession of part of a good. This means that it can never lead to an acquisition of ownership or an easement by way of acquisitive prescription, regardless of the duration of possession. 37

38 39 40 41 42

Art. 975: In regard to the right of pledge and to the right of easements possession consists in the exercise of such rights with the intention of acting as a rightful beneficiary. Supreme Court 1484 / 1988 in Elliniki Dikeosini, 1990, p. 106. Georgiadis in Georgiadis – Stathopoulos Civil Code V, art. 975, p. 226. Georgiadis in Georgiadis – Stathopoulos Civil Code V, art. 975, p. 226. Athens Supreme Court 109 / 1971 in Nomiko Vima 19, p. 602. Art. 993 Possessor of part of a thing: The right arising from a challenge to possession is also available to a person who only enjoys possession of part of a thing, particularly separate dwelling apartments or other dwellings.

2. Possession

(c)

215

Joint possession

According to art. 994 Gr.C.C.,43 several persons can enjoy possession of undivided shares in the same thing. Each of the co-possessors has, against third parties, the rights that arise from the violation of possession. The relationship between co-possessors is regulated by the provisions for undivided rights in common (art. 785 through 805 Gr.C.C.). Joint possession gives each of the co-possessors the right to an undivided share in the common thing. In the event of doubt, it is considered that the shares are equal. Each of them has a proportional share in the benefits of the common thing and can use it to the extent that such use does not prevent concomitant use by the others. Between the co-possessors the rules deriving from the protection of possession do not apply to the extent that each of them is using the movable within the appropriate limits.44

(d)

Fictitious possession

On death, according to art. 983 Gr.C.C. possession is transferred from the deceased to his heirs.45 For the transfer of possession, it is not required for the heirs to acquire physical power over the good, or that they have notice of their succession. The heirs acquire possession by operation of law. Art. 983 Gr.C.C. has the meaning that the right to possess is being transferred to the heir, so that he can constitute his physical power over the thing.46

(e)

Personal exercise of possession

Possession of movables is exercised by using, consuming, selling, wearing, keeping and so on. Therefore, it is easy to identify possession, which is the exercise of physical power over a thing with the relevant intention of the 43

44

45 46

Art. 994 Possession by several persons in undivided shares: In the case of several persons enjoying possession in undivided shares of the same thing, each has, against third parties, the rights arising from a challenge to possession. Protection from the possession (by another) will not be granted with respect to their relationship between them to the extent that each of them has made use of the thing within the limits that are appropriate. Supreme Court 237 / 1994, Supreme Court 1351 / 1994 (the same provisions apply also to immovable goods). Both published in the Legal Database of the Athens Bar Association. Art. 983: Possession is transferred to the heirs of the possessor. Georgiadis in Georgiadis – Stathopoulos Civil Code V, art. 983, p. 255 et seqq.

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possessor to keep the thing as his own. In contrast, the person who only holds the thing but does not have such intention is a detentor. According to art. 980 para. 1 Gr.C.C., possession can be exercised personally or through another. Personal use occurs when the possessor is also the detentor.

(f)

Possession-agent

Possession is also exercised personally where the possessor uses an intermediary. This intermediary acquires neither possession nor detention. According to art. 986 Gr.C.C., the person exercising power over a thing on the possessor’s behalf shares the powers provided by law for the protection of possession instead, and is in the position of the possessor to the extent that such person is placed in a situation of domestic or service dependency vis-à-vis the possessor. This person is also bound to follow the possessor’s instructions in relation to the thing. The chauffeur to the car, the employee to the goods, the housekeeper to the furniture – all have the function of an agent in possession.47 The persons living in the same household as the possessor (such as his wife, children, relatives and even guests) are considered to be servants in possession.48 Art. 986 Gr.C.C. provides that the following are the preconditions for someone to be considered an agent in possession: a) a domestic or service dependency; and b) a course of conduct of following the possessor’s instructions.49 The practical consequence of being an agent in possession is that he is also entitled to the arbitrary protection of possession.50 In the event the agent in possession does not exercise the possession in accordance with the possessor’s instructions, then the possessor can protect his right with the actions for possession.51

(g)

Possession through others

Greek civil law also recognises forms of possession through somebody else (art. 980 Gr.C.C.). Where the possessor has assigned detention of the good to another person, then he exercises possession through the detentor (lessee, depositary, borrower etc.). 47

48 49 50 51

Magistrates’ Court of Athens 5 / 1981, Elliniki Dikeosini 22, 272; Athens Court of Appeal 4495 / 1979, Nomiko Vima 27, 998. Georgiadis, Property Law I, p. 156. Magistrates’ Court of Limni 1986 / 22 in Elliniki Dikeosini 1987, p. 720. Georgiadis, Property Law I, p. 156. Magistrates’ Court of Limni 1986 / 22 in Elliniki Dikeosini 1987, p. 720.

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217

Possession is also exercised through others when the detentor’s right derives from a contract with another detentor (and not with the possessor). This happens, for example, in the case of a contract of sublease.52 Greek civil law distinguishes, in art. 974 Gr.C.C., between detention and possession. Detention is the mere physical power over the asset, when it is exercised with the intention of detention, while possession is defined as the physical power over a thing when it is exercised with the intention of acting as the owner of the asset in question. The lessee, the borrower and the depositary are detentors.53 They exercise the physical power over the asset and, at the same moment, they acknowledge that the ownership of the asset belongs to the lessor, the lender54 and the depositor. The lessee (art. 574 Gr.C.C.),55 the depositary (art. 822 Gr.C.C.), the borrower (art. 810 Gr.C.C.) and the purchaser of an asset with a retention of ownership clause (art. 532 Gr.C.C.) are detentors by act of law. The benevolent intervener (negotiorum gestor), the parents of a minor, the guardian of a minor, the executor of a will, the administrator in insolvency proceedings, the sequestrator56 and the person who has been granted, according to art. 970 Gr.C.C., a private right in an asset of public use57 are detentors by act of law or by virtue of their office.58 The position of employees, family members and household members is detailed above with regard to the agent / servant in possession. We have to distinguish protected detention from simple detention (diakratisi): for example, the passenger of the train who takes the book of his sleeping co-traveller in order to spend some time reading; or the hiker who was surprised by the bad weather and had to seek shelter in a cabin that belongs to somebody else. Both have a territorial proximity or a corporeal proximity (objective criterion) to the asset, and they also have the will (subjective criterion) to have at least temporary power over the asset. 52 53 54

55

56

57 58

Georgiadis in Georgiadis – Stathopoulos Civil Code V, art. 980, p. 247 et seq. Georgiadis, Property Law I, p. 136. Multi Member Court of First Instance of Agrinion, 172 / 2000 in Nomiko Vima 2001, p. 273. Magistrates’ Court of Marathon 166 / 1997 in Archio Nomologias 1999, p. 719; Multi Member Court of First Instance of Rodos, 78 / 2004 first publication in NOMOS Legal Database. Piraeus Court of Appeal 204 / 1985 in Nomiko Vima 33, p. 847. The sequestrator is an administrator who is appointed by the court, following the debtor’s petition, where the debtor owes an immovable good and the creditor is not able to perform. The debtor’s obligation is extinguished as from the time the sequestrator has taken over the immovable. Magistrates’ Court of Sparta 69 / 1984 in Nomiko Vima 33, 1237. Georgiadis, Property Law I, p. 138.

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Therefore, they are detentors, but do not have the protected detention as provided in art. 997 Gr.C.C.59 As with the servant in possession, the servant in detention is the person who, on the application of art. 986 Gr.C.C. by analogy, stands in a relationship of domestic or service dependency to the detentor in order to help him exercise the detention. He exercises physical power over the thing in accordance with the detentor’s instructions. The servant in detention is only entitled to arbitrary protection of detention (according to the application of art. 986 Gr.C.C. by analogy). A servant in detention is considered to be the administrator of a third party’s property.60

(i)

Intensity of the relationship between possessor and object

When possession or detention is obtained, it is kept when both the objective and the subjective criteria continue to exist (art. 981 Gr.C.C. on loss of possession). Possession is lost as soon as the physical power over the thing has ceased or a contrary intention of the possessor has been expressed. An impediment to the exercise of the power that is temporary in nature shall not entail loss of possession. To keep possession it is not necessary that both criteria remain continuously active. This means that the possessor does not need to have continuous physical control over the asset, nor does he have to constantly advertise his will to possess the asset as an owner.61 A person is in possession of the things that he knowingly keeps in his pockets, in his house and in his car. He is also in possession of his coat which he placed in the cloakroom of a restaurant or a museum. In those cases, possession is not extinguished due to the possessor going on a trip of indefinite length, forgetting the existence of one of his assets, falling asleep or temporary loss of sanity. Possession continues to exist when the possessor is in such a material-territorial proximity to the asset, that he can, whenever he wishes, exercise the physical control over such asset.62 59

60

61

Art. 997 Gr.C.C.: Protection of possession. In the case of an illegal disturbance of or eviction from the possession of a thing or of a right, the person who acquired such possession from the (original) possessor in the capacity of a lessee, depositary or by reason of some other similar relationship, shall also have the rights of action protecting possession as against third parties. Decision of the Public Prosecutor at the Court of First Instance Corfu 6 / 1993 in Diki 1993, p. 974 (the administrator of the former King of Greece is considered to be a servant in detention who is not entitled to represent such individual before court). Supreme Court 1602 / 1981 in Nomiko Vima 1982, p. 927; Thessaloniki Court of Appeal 1242 / 1988 in Armenopoulos 1988, p. 1205; Magistrates’ Court of Naxos 7 / 2002 in Archio Nomologias 2003, p. 871.

2. Possession

(ii)62

219

Taking possession of an asset for the first time

The requirements for obtaining possession are stricter than for keeping it. In order to obtain possession of an asset, the person who is holding it must have physical power over the asset and, at the same moment, the intention to act as the owner. In every situation, what it means to have physical power over an asset depends on the specific circumstances and on the application of generally accepted standards (Verkehrsanschauung).63 For the establishment of possession of an asset, subduing the asset momentarily or temporarily is not enough.64 The attempt to subdue the asset is also not enough to establish physical control. For example, the farmer who leaves his herd of sheep outside all night remains in possession of his herd. In the event that a sheep that does not belong to him joins his herd, he obtains possession at the moment in which he begins to take care of it with the intention to have it as his own. The physical power over the thing must be obtained with the intention to have the thing as one’s own. This intention does not have to be directed at a specific asset. This means that the person who puts up a letter box becomes possessor at the moment the letters fall into the box (the same applies for the night counter of a bank etc.). The fish come into the fisherman’s possession when they get caught in the nets he has cast. The hunter becomes possessor as soon as an animal gets caught in his trap.65

(iii)

Transfer of possession from one person to the other

For the transfer of possession from one person to another the following requirements must be fulfilled: a) the former possessor must be completely alienated from every form of physical power over the asset; b) the acquirer must obtain physical power over the thing; and c) the transfer of the physical power over the asset must be completed with the will of both parties. Whether those requirements are fulfilled has to be proved separately for each case.66

62 63

64 65 66

Georgiadis, Property Law I, p. 155. Athens Court of Appeal 3776 / 1991 in Archio Nomologias 1992, p. 606; Magistrates’ Court of Paros 1 / 1990 in Archio Nomologias 1992, p. 251. Georgiadis, Property Law I, p. 160. Georgiadis in Georgiadis – Stathopoulos Civil Code V, art. 974, p. 223. Georgiadis, Property Law I, p. 164.

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(iv)

Possession of mere rights

Quasi-possession (which is considered above at 2.1.2.(a)), like possession, is directed towards an asset. The quasi-possessor can act as a beneficiary without actually having the appropriate right of pledge or servitude. The rules for possession also apply to quasi-possession.67

2.2.

Functions of possession

The functions of possession are the following:68 (a) Possession is a system for the temporary regulation of the relationships between real rights (εμπράγματες σχέσεις). Possession is also protected from infringements, even where the violation is caused by the person entitled to the real right. Such person will, eventually, be entitled to obtain the physical power over the thing but, until then, he has to accept the real situation of possession. Possession, therefore, is a way of maintaining the status quo in relation to a good. (b) Possession has, like registration in the land register for immovables, the function of publicity and transfer (through delivery). (c) Possession has the function of giving effect to what the situation seems to be to the outside world. There is a presumption that the possessor is the owner of the good. (d) Possession has the function of creating a legal position. It forms the essential requirement for the acquisition of ownership by acquisitive prescription. (e) Possession is also the precondition for good faith acquisition. By possessing a thing the possessor appears to have a right or a legal position, which is necessary in order to transfer ownership.

2.3.

Acquisition of possession

The Greek Civil Law recognises original and derivative acquisition of possession. There are various modes of both.

67 68

Georgiadis, Property Law I, p. 145. Spyridakis, Property Law 3, para. 62.

2. Possession

221

2.3.1. Original acquisition Original acquisition is the acquisition of possession that is realised without the will of the prior possessor or without the existence of a prior possessor. Therefore, the acquisition of the possession of things that are not possessed by anyone or possessed by someone yet possession is acquired without this person’s consent or co-operation (such as by theft or embezzlement by the detentor etc.) is original.

2.3.2. Derivative acquisition Acquisition that is based on the existing possession and that is completed with the prior possessor’s explicit or implied approval is derivative. The transfer of possession is realised with the physical delivery of the good from the former possessor to the new one. There are some cases in which the delivery of the good is not required and agreement is sufficient. Art. 976 Gr.C.C. provides that where a thing is in the possession of another person, possession is derivatively acquired through delivery, which is effected voluntarily by such other person. Delivery of the good can be replaced with the agreement of the parties that possession will be transferred from one to the other.69 Those cases are the “brevi manu traditio”, the “longa manu traditio”, the “constitutum possessorium” and the transfer by giving order to the third party holding the movable (Besitzanweisung). In the above-mentioned cases, we speak of fictitious or symbolic delivery. However, in some cases the law insists on the physical delivery of the good. For the donation of a good, according to art. 498 Gr.C.C., a public notarial act is required. Art. 498 (2) Gr. Civil Code provides that the donation of a movable thing where no public notarial act has been drawn up only becomes valid as from the time of the delivery of the thing by the donor to the donee.70

69

70

Art. 976 (para. 2): However, an agreement between the erstwhile possessor and the new possessor is sufficient for the acquisition of possession where the new possessor is in the position to exercise power over the thing. Athens Court of Appeal 5509 / 1985 in Elliniki Dikeosini 26, p. 742.

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(a)

Longa manu traditio

Where the new possessor is already in the position to exercise power over the thing, insisting on the physical delivery of the good would make no sense. Therefore, art. 976 para. 2 provides that in such cases an agreement can substitute the act of delivery. The preconditions for the longa manu traditio are: (a) The transferor must be the possessor. Where the agent in possession is not authorised by the possessor to transfer possession, he is not entitled to transfer possession according to art. 976. (b) The transferee must have the capacity to exercise physical power over the thing. Temporary hindrances do not impede the delivery. (c) An explicit or an implicit agreement between the transferor and the transferee for abandonment of possession and acquisition of possession respectively is also necessary. The agreement does not have to be made at the location where the thing is situated. For example, the transfer of possession of products which are stored in a warehouse is completed with such an agreement and instead of the physical delivery of each item separately, delivery is completed with the delivery of the only existing key to the warehouse from the possessor to the acquirer. This way the acquirer exercises physical power over the products. Another situation where this form of transferring possession may be applied is where the parties proceed to a sales contract regarding timber which lies unprotected at the side of a forest track. For the transfer of possession the agreement of the parties is sufficient, while for the transfer of detention it is sufficient that the acquirer is able to exercise physical power over the timber (see also below 5.4.2.(c)).

(b)

Brevi manu traditio

Art. 976 para. 2 Gr.C.C. also applies where the transferee is in detention of the good based on an existing legal relationship such as a lease agreement (art. 574 Gr.C.C.), contract of loan for use (art. 810 Gr.C.C.) or a contract for deposit (art. 822 Gr.C.C.) (for example: A has leased his apartment to B and is now selling it to him). The preconditions for brevi manu traditio are: (a) The transferor has to be in possession of the good. An individual who no longer has the capacity to exercise physical power over a good, for example due to the fact that the good was stolen, is also considered to be a possessor.

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223

(b) The transferee is the detentor of the good. It is irrelevant how he became detentor. (c) An agreement between the transferor and the transferee that the transferee is no longer the detentor and is henceforth the possessor of the good. As previously noted, it is a given in the case of brevi manu traditio that the acquirer of possession already has physical power over the thing based on a pre-existing legal relationship. He is therefore not simply in a position to exercise physical power over the asset, he actually, as a matter of fact, exercises physical power over it. The acquirer is thus already detentor of the asset and the transferor makes clear that from now on the asset will be in the possession of the acquirer.

(c)

Constitutum possessorium

Constitutum possessorium applies where the possessor agrees with the transferee that he (the possessor) will retain detention of the good, by virtue of a legal relationship71 (lease agreement, loan agreement etc.). Although, according to art. 977 Gr.C.C., a precondition for the constitutum possessorium is that the transferor is in possession of the good, the agreement can be also made in advance i.e. before the transferor becomes possessor. In this case, the scope of the agreement is that the transferor will transfer the good to the transferee as soon as he acquires possession, then the transferee will retain the detention of the good based on a (pre-agreed) legal relationship (constitutum possessorium anticipatum).72 This legal instrument enables the transferor to sell goods that he does not yet have in his possession. As soon as he acquires the goods, he will transfer possession (probably ownership as well) to the transferee, while he will be possessor only for a logical second. From that point onwards, he will detain the good for the acquirer. The second precondition provided by art. 977 Gr.C.C. for the constitutum possessorium is that a legal relationship has been concluded between the acquirer and the possessor by virtue of which the (transferring) possessor will be the detentor of the movable good. This means that the mere agreement that the possessor will remain detentor is not sufficient, but a concrete legal relationship has to be agreed (but this can be done indirectly).73 This legal relationship can be a real agreement, an obligation, a contractual agreement or a legal relationship arising from the law. 71 72 73

Art. 977 Gr. C.C. Supreme Court 1845 / 1983 in Efimeris Ellinon Nomikon 1984, p. 782 et seqq. Georgiadis, Property Law I, p. 166 et seqq.

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Constitutum possessorium is not applicable to donation.74 For the donation of a movable good, the physical delivery of the good is necessary, as provided in art. 498 para. 1 Gr.C.C. The issue of individualisation will be dealt with below (at 4.2.4).

(d)

Transfer by giving order to the third party holding the movable

Where the possessor is not the detentor and the good is in the detention of a third party, the transfer of possession is completed by an agreement between the erstwhile possessor and the transferee to effect such transfer while also agreeing that the good will remain in the third party’s detention.75 A precondition is that the agreement is disclosed to the detentor. The notification is not a precondition for the transfer of possession, but a precondition for the validity of such transfer in respect to third parties. The transferee becomes possessor before the detentor is notified and, where ownership is also being transferred, he can claim the movable good which has been stolen from the third party-detentor. As regards the third party, the transfer of possession is only valid from the moment he receives notification of it. Until then, the third party holds the good for the erstwhile possessor and, by delivering the good to him, he is freed from his obligations. After he receives notification, he retains detention for the new possessor and he has the obligation to deliver the good to him as soon as the legal relationship is terminated. The Greek Civil Code provides that the notification has to be effected by the transferring possessor by way of a unilateral declaration. The transferee can also proceed to the notification of the third party where he is acting as an authorised representative of the transferor.76 The transfer of ownership to the assignee by assignment of the owner’s claim for return of his property will be dealt with in the chapter regarding the transfer of ownership. This construction (Vindikationszession) is applicable to the transfer of ownership and not to the transfer of possession.

(e)

Transfer of the warehouse warrant or bill of lading

According to art. 978 Gr.C.C., regarding movable things deposited in a warehouse or in transit, if a warehouse warrant or bill of lading has been issued in respect of such things, the transfer of possession is effected by the transmission of the warehouse warrant or the bill of lading. Art. 978 74 75 76

Athens Court of Appeal 5509 / 1985 in Elliniki Dikeosini 1985, p. 742 et seqq. Art. 977 para. 1, second case Gr.C.C. Georgiadis, Property Law I, p. 170.

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Gr.C.C. amends art. 977 Gr.C.C. because of documents of title. With the delivery of the goods to the transporter for transportation the transporter becomes detentor, while the consignor remains possessor. For the delivery of possession, the delivery of the documents of title is necessary and also sufficient. Those documents incorporate the right of possession over the goods to be transported, for as long as they remain in the detention of the transporter. Where the goods get lost or stolen, then the real power of the documents of title ceases and the delivery of them does not constitute the transfer of the possession of the goods.77 Art. 978 Gr.C.C. provides that the transmission of the warehouse warrant or the bill of lading is necessary, which also includes the delivery of the document. This can not be done by the simple possessor (for example, a thief) or the detentor, but only by the one who is entitled by the document to do so (i.e. the holder of the rights that are incorporated in the document). The transmission of the document, i.e. the rights incorporated in the document, has to be completed according to the legal rules governing the transmission of documents of title.

(f)

Acquisition through an intermediary

According to art. 979 Gr.C.C.,78 possession can be acquired through a representative. Although representation (art. 211-235 Gr.C.C.) only applies to legal transactions, as a consequence, it can only apply to the delivery of possession by an agreement. The law, in order to establish this method of acquisition for real actions as well, reacted with art. 979 Gr.C.C. Therefore, representation is possible for both original and derivative acquisition.79

(i)

Representation of the transferee

The representative has to obtain physical power over the thing with the intention to obtain it, in order to render the person he represents the possessor of it. It is not required that the represented person has notice of the moment the representative acquires physical power over a thing. Art 979 Gr.C.C. only applies to the cases of derivative and original acquisition of

77 78

79

Georgiadis, Property Law I, p. 171. Art. 979 Acquisition through the agency of another: Possession is acquired through a representative at the moment the representative acquires physical power over the thing with the intended purpose to render the person represented the possessor of it. Supreme Court 590 / 1989 in Nomiko Vima 28, p. 1966.

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possession with physical delivery of the good. For the other cases of acquisition, the general rules for representation apply.

(ii)

Representation of the transferor

Possession can also be transferred by a representative. Art. 979 Gr.C.C. is analogously applicable. With physical transfer of possession, the representative will act, from the viewpoint of the law of obligations, as a vicarious agent (Erfuellungsgehilfe) according to art. 334 par.1 Gr.C.C. and, from the viewpoint of property law, as an agent in possession (Besitzdiener) according to art. 986 Gr.C.C.80 As in the case of the representation of the transferee (mutatis mutandis), it is not required that the represented person has notice of it at the moment the representative loses physical power.

(iii)

Exercise of possession through a representative

The representative can proceed to legal transactions in the name of the represented person, but he cannot perform real acts. According to art. 979 Gr.C.C., it is possible to acquire possession through a representative, but it is not possible to exercise possession, due to the fact that the exercise of possession requires a continuous physical relationship with the good, which can not be effected with the function of representation. Therefore, where the representative obtains physical power over the thing and he continues to have it, he is no longer a representative but is in fact an agent in possession81 or detentor.82

2.4.

Protection of possession

Possession is protected by the privilege (or remedy) of self-help and several actions. Any possessor, even if his possession is wrongful, is entitled to protect his possession with the exercise of reasonable force.

80

81 82

Georgiadis in Georgiadis – Stathopoulos Civil Code V, art. 979, p. 244 and also Georgiadis in Georgiadis – Stathopoulos, Civil Code V, art. 986, p. 267. See 2.1.2.(f) above. Georgiadis, Property Law I, p. 181.

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2.4.1. Protection by the privilege of self-help This protection83 includes the right to resist by force any disturbance of possession, or the threatened eviction from possession, and the possessor’s right to retrieve by force the movable thing that was taken away from him in an illegal manner. Therefore, the possessor is protected to allow him to maintain the possession he had at the moment of the violation, and also where the movable thing was illegally taken away from him, so as to be able to retrieve the possession of it. The protection by the privilege of self-help means that the use of violence by the possessor, within the limits of criminal law, does not constitute an illegal act. This act is not criminally prosecuted and it does not create the obligation to pay damages under the rules relating to non-contractual liability arising out of damage caused to another (art 914 Gr.C.C.). According to art. 985 para. 4 Gr.C.C., the possessor also has the same rights against the successors of the violator where the defect in possession can be held against them.84 This means that the successor was, at the time of acquisition, aware of the flawed nature of his possession.85 As the aim of the privilege of self-help is to maintain the external situation of the possession, it is, therefore, accorded to every possessor, even one whose possession is defective (for example, the thief A against thief B, who is trying to take the stolen good away from him).86 The same privilege is accorded to persons possessing on behalf of an employer or principal.87 83

84

85 86 87

Art. 985: A possessor shall have the right to resist by force any disturbance of or threatened eviction from possession. The possessor of a movable, of which he was dispossessed illegally, shall have the right to retrieve it forcibly from the guilty party caught in the very act (flagrante delicto) or during a hot pursuit of such party. The same rights shall belong to a possessor who has been prejudiced by the successors in title who rely on such defective possession. Art. 984: Possession may be prejudiced either by the disturbance or by the eviction of the possessor intervening illegally and without his will. Possession acquired by such eviction shall be defective. Such defect in possession may also be held against the successors of the possessor, it may only be set up as against his particular successor in title of who had known, at the time of acquisition, the defect in the possession of his predecessor. Georgiadis, Property Law I, p 202. Georgiadis, Property Law I, p. 202. Art. 986: The person exercising power over a thing on the possessor’s behalf shall have, in the place and instead of the possessor, the rights flowing from the preceding section to the extent that such a person is placed in a situation of domestic or service

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A problem occurs regarding the application of the above-mentioned privilege to the detentor. A body of literature interprets the term “possessor” in a strict way and comes to the result that the privilege of self-help cannot be applied to the detentor.88 The more accepted view is that the scope of law demands an extensive interpretation of the term in order to provide this protection to every person who exercises physical control over a movable good, and therefore also to the detentor.89 This is a way to protect the possession itself. Art. 986 provides this protection to the person who exercises possession of a thing on the possessor’s behalf, who does not have arbitrary power over the good. The privilege of self-help is accorded to the legal representative of the possessor and to the person who has the good according to his function (administrator in insolvency, executor of an estate).

2.4.2. The legal protection Legal protection is of a greater practical relevance than the privilege of self-help. Legal protection is provided by the action for the recovery of possession,90 the action for abatement of the nuisance.91

88

89 90

91

dependency vis-à-vis the possessor, and is bound to follow the possessor’s instructions regarding the thing. Spyridakis – Perrakis Civil Code, III Property Law, art. 986 Nr. 6; Balis, Property Law, para. 15. Georgiadis, Property Law I, p. 203. Art. 987: A person who has been illegally dispossessed shall have the right to demand reinstatement / restoration from the person who enjoys possession wrongfully as relative to the dispossessed person. A claim for damages in accordance with the provisions relating to non-contractual liability arising out of damage caused to another shall not be excluded. Art. 988: The action for an eviction shall not be admissible if the person who was dispossessed had acquired possession in the year preceding his eviction in a wrongful manner vis-à-vis the present possessor or those from whom the present possessor derives his right. Art. 989: A possessor who has been disturbed illegally shall have the right to demand the cessation of the disturbance, as well as an order for the future avoidance of such disturbance. A claim for damages in accordance with the provisions relating to non-contractual liability arising out of damage caused to another shall not be excluded. Art. 990: The action on a disturbance shall not be admissible if the person who was disturbed had acquired possession in the year preceding the disturbance in a wrongful manner vis-à-vis the disturber or those from whom the disturber derives his right.

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The main characteristic of the actions for possession are that they require the disruption of possession in the terms of art. 984 para. 1 Gr.C.C., meaning unlawful dispossession or disturbance against the will of the possessor, and they have the scope of protecting the possession itself regardless of whether it is based on a right or not.92 Art. 991 Gr.C.C., prohibits the defendant / respondent from pleading the right that provides him the right to exercise the power over a good.93 The prohibition provided in art. 991 only applies to the actions for possession.94 Claims for eviction and disturbance prescribe after the lapse of one year from the date of the eviction or disturbance (art. 992 Gr.C.C.).

(a)

Action for eviction

According to art. 987 Gr.C.C., a person who has been dispossessed unlawfully and without his consent, can protect his possession by the legal remedy of the action for eviction. In the action for eviction he can ask for the recovery of possession. The relevant action for ownership is provided in art. 1094 Gr.C.C. The eviction may consist in the deprivation of the possibility of exercising physical power over the movable good (or part of it), the deprivation of the thing itself (for example by the thief), or unjustified refusal to deliver the good (for example after the termination of a lease agreement) and so on. This action can be brought by the person who was in possession of the good, at the time he was evicted, against the current possessor, whose possession is defective according to art. 984 para. 2 Gr.C.C. (which also applies to successors of such parties, under the precondition that the person bringing the action has had such rights assigned to him).95 When possession is exercised through a detentor, such as a lessee, the action may be brought either by the possessor or the detentor.96 When it is usurped by the 92 93

94 95

96

Georgiadis, Property Law I, p. 133 et seqq. Art. 991: A person sued in court on account of disturbance or eviction shall not have the right to rely on a right that grants him power over a thing except if such right has been recognised by a final judgement as a result of legal proceedings instituted between him (the person sued) and the aggrieved party. Georgiadis in Georgiadis – Stathopoulos, Civil Code V, art. 991, p. 288. Athens Court of Appeal 1960 / 1970. But cf. a decision of the Magistrates’ Court of Orestiada, which ruled in its decision 94 / 1972 that the singular successor could file an action for eviction where the action had not been assigned to him. Art. 997: In the case of an illegal disturbance of or an eviction from the possession of a good or of a right, the person who acquired such possession from the (original) possessor in the capacity as lessee, depositary, or by reason of some other similar

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detentor, the possessor may bring the possessory action against him. But an evicted detentor has no possessory action against the person from whom he derived his detention, for example, against the lessor. The person exercising possession on behalf of the possessor cannot bring this action for eviction, he can only make use of self-help in order to protect his right (art. 986). According to art. 992, the claim for eviction prescribes after the lapse of one year from the date of the eviction.97

(b)

Action for the return of the good by virtue of a personal right

A disturbance of possession that falls short of eviction is also actionable by an action seeking judgement suppressing the disturbance and prohibiting future invasions (art. 989 Gr.C.C.). The disturbance must be of some duration or the danger of repetition must be implied. Where the disturbance is constituted in a single and temporary incidence, then the possessor can protect his right by the exercise of reasonable force (privilege of self-help). The disturbance must be unlawful and conducted without the possessor’s consent.98 Like the action for eviction, where possession is exercised through a detentor, such as a lessee, the action may be brought either by the possessor or the detentor.99 Rights to possession may be determined, independently of any possessory actions, in a summary proceeding for security measures for the provisional regulation of possession or detention, where the court may award possession on the basis of a cursory examination of the merits of the case. A possessor evicted unlawfully and without his consent has an action for the recovery of possession. When possession is exercised through a detentor the action may be brought by either the detentor or the possessor. When it is usurped by the detentor, the possessor may bring the possessory action against him. An evicted detentor has no possessory action against the person from whom he derived his detention, for example, against the lessor.

97

98 99

relationship shall also have the rights of action protecting possession as against third parties. In Athens Court of Appeal 595 / 1997, the Court of Appeal decided that the defendants had taken advantage of the claimant’s absence from his site and proceeded with the construction of a building on the claimant’s property, in so doing rejecting the defendants’ contention based on the grounds of prescription of the right to file the legal action for eviction. Supreme Court 50 / 1970 in Efimeris Ellinon Nomikon 37, p. 422. Art. 997 Gr.C.C.

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The defendant is the person who evicted the aggrieved party, if he is still in possession at the time of the commencement of the action, whether he exercises possession personally or through others. If, at the time of the commencement of the action, the defendant is out of possession, the opponent must either sue him for damages under the law of delictual obligations or proceed against any third person, whose possession is defective vis-à-vis the aggrieved party. If, after the commencement of the action, the defendant transfers possession to a third person or otherwise loses it, the proceeding continues regularly and the judgment is ordinarily executed against any person who took possession. The eviction action may be accompanied by an action for damages based on the provisions relating to non-contractual liability arising out of damage caused to another (art. 914, 919 Gr.C.C.) and by the rei vindicatio, where the aggrieved possessor is also the owner of the thing. On the other hand, the eviction action cannot be accompanied by an action on grounds of an expired lease agreement (art. 599 par. 1 Gr.C.C.), since these actions are subject to different proceedings.100 A disturbance of possession that falls short of eviction is also actionable by an action seeking a judgment for cessation of the disturbance and prohibiting future invasions. The defendant may oppose both possessory actions on the ground of defective possession, i.e. that the aggrieved party acquired possession wrongfully vis-à-vis the defendant or his predecessors during the year prior to the eviction or disturbance. He cannot assert a right by virtue of which he may be entitled to possession, unless this right has been recognised by a final and unappealable decision in litigation between the aggrieved party and the defendant. Both actions prescribe after the expiry of a year from the time of the eviction or other disturbance.

(c)

Security measures

Legal procedures initiated under the actions protecting possession are less time-consuming than legal procedures initiated by the corresponding actions protecting ownership. Nevertheless, there remains the need for instant protection, especially where the violation of possession creates the danger of conflicts and acts of violence between the opponents are expected. Therefore, rights to possession may be determined, independently of any possessory action, in a summary proceeding for security measures to provisionally regulate possession or detention,101 where the court may 100 101

Georgiadis, Property Law I, p. 222; Papadopoulos, Property Law Actions, p. 174. See art. 733, 734 Greek Civil Procedures Law; Supreme Court 889 / 1990 in Elliniki Dikeosini 1990, p. 546.

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award possession on the basis of a cursory examination of the merits of the case. Since the scope of this procedure is to obtain provisional regulation, the Greek Civil Procedures Law provides the following preconditions: 1. it has to be an urgent case; and 2. the need for the aversion of a present danger (art. 734 para. 2 and 682 para. 1 Greek Civil Procedures Law). For the protection of possession, the evicted party has the following three instruments to protect his possession: 1. the security measures, which are tried before the Magistrates’ Court (art. 733 Gr. Civil Procedures Law); 2. the main judicial procedure regarding the protection of the possession arising from the claim regarding the recovery of possession (action for eviction and the action for recovery of possession), which is tried before the Magistrates’ Court or the Court of First Instance; and 3. the main judicial procedure regarding the protection of ownership or any other real right, which is tried before the Magistrates’ Court or the Court of First Instance. Any decision has no res judicata effect in a subsequent possessory action (unless in identical factual circumstances). Possession, being a patrimonial right under the Greek Civil Code, is also protected by actions for a declaratory judgment, unjustified enrichment,102 and damages under the rules relating to non-contractual liability arising out of damage caused to another. The action based on unjustified enrichment, in contrast to property law, is not subject to the prescriptive limit of one year, but prescribes after 20 years according to art. 249 Gr.C.C.103

3.

The border between rights in rem and obligations

As already mentioned, ownership is a real right. Rights in rem give their holder absolute and direct power over the object of the right. An obligation, on the other hand, is the legal relationship between at least two persons. By virtue of this relationship one person has a certain obligation with respect to the other person (and possibly vice versa). This obligation owed can either be to act or not to act.104 This right to demand a certain performance from another person is called a right in personam (obligation). The obligation can bring about the acquisition of a movable (the right of the buyer to demand from the seller the transfer to him of the ownership 102

103 104

Supreme Court 1351 / 1994 published in Legal Database of the Athens Bar Association; Supreme Court 681 / 1977 in Nomiko Vima 1978, p.362; Athens Court of Appeal 7769 / 1978 in Nomiko Vima 27, p. 1488. Supreme Court 255 / 1983 in Nomiko Vima 1983, p. 1562. Art. 287 Meaning of obligation: An obligation is the relationship whereby a person undertakes to provide something to another. The obligation may also consist in abstaining (from doing something).

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of the purchased good according to art. 513 Gr.C.C., the right of the lessee to demand from the lessor the use of the leased good according to art. 574 Gr.C.C.). Compared to real rights, obligations are relative rights, due to the fact that they can only be enforced against a certain person. The principle of the relativity of obligations can be undermined by regulations of law. Then, the creditor is not only entitled to enforce his rights against the debtor but also against third persons, although such persons are not affiliated with the creditor by an obligation. In the case of a sub-lease or an assignment of the use of the leased thing to a third party, the lessor can, upon the expiration of the lease, claim back the leased thing also from the sub-lessee or from the person to whom the use was assigned (art. 599 para. 2 Gr.C.C.). The lessee can seek protection against any third party where ownership of the good has been transferred to another party (art. 616 Gr.C.C.). Where a borrower has handed a thing subject to a security right over to a third party, the secured lender can, upon default of the loan, claim the restitution of the thing from the third party (art. 819 Gr.C.C.). In the case of the alienation of an inheritance, the purchaser is liable to the creditors of the inheritance but the liability of the seller also remains fully in effect (art. 1953 Gr.C.C.). In the above-mentioned cases, one speaks of the “Verdinglichung”reification of the obligation105 as the undermining of the principle of the relativity of the obligations. According to the prevailing view the law “alters” the obligation in respect to the subject of the obligation,106 either by adding a new debtor (art. 599 para. 2, 819, 479, 1953 Gr.C.C.) or by transferring the contractual relationship as a whole to somebody else (art. 614 Gr.C.C.). The Greek Civil Code does not provide any regulations regarding a right of pre-emption (for example, the right of pre-emption of the lessee as stipulated in 577 BGB or §§ 1094 BGB regarding the right of pre-emption of an immovable). This does not mean that the contracting parties cannot agree such a right contractually.

4.

Field of application and definitions

4.1.

Field of application

4.1.1. Immovables For the transfer of ownership of an immovable, an agreement between the alienator and the acquirer that the ownership is being transferred for a legal cause is required. This agreement has to be incorporated into a notarial 105 106

Stathopoulos, Law of Obligations, General Part, p. 81 et seqq. Georgiadis, Property Law I, p. 46; Spyridakis, Property Law 3, p. 15 et seq.

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deed and this incorporation is followed by its entry in the relevant public land registers.107 According to art. 1194 para. 2 Gr.C.C., the registration of the deed can be requested by any person who has a lawful interest. Either the acquirer or the alienator can have the deed registered.108

4.1.2. Money Coins and banknotes are things and their ownership is transferred, according to art. 1034 Gr.C.C., with the delivery of the goods to the acquirer and the explicit or implicit agreement that ownership will be transferred. The acquirer must obtain the power over the goods.109

4.1.3. Bearer securities Ownership of bearer securities (such as lottery tickets,110 bearer bonds,111 bearer shares,112 dividend coupons, interest coupons etc.) is transferred according to the provisions for movable goods (art. 1034 Gr.C.C.).

4.1.4. Registered shares According to art. 8b para. 1 Law 2190 / 1920 (Law regarding Joint Stock Companies), a precondition for the transfer of ownership of registered shares (which are not traded on the stock exchange market) is that the transfer is registered in the specific book (register) of the company.113 With-

107

108

109 110 111 112 113

In Greece there is more than one land register: the Hypothikofilakion (where all titles and claims referring to an immovable are registered) and the Ktimatologion (where ownership titles are registered); the latter is new and the procedure has not been completed yet. Other parties that can request the registration of the deed would include the notary public who concluded the deed and a secured creditor (who by virtue of his secured creditor status has a lawful interest). Supreme Court 439 / 1987 in Nomiko Vima 36, p. 915. Supreme Court Full Session 910 / 1981 in Efimeris Ellinon Nomikon 1982, p. 579. Supreme Court Division A, 1137 / 1981 in Efimeris Ellinon Nomikon 1982, p. 771. Supreme Court, 471 / 1984, in Commercial Law Review 1985, p. 467. Supreme Court, 1261 / 2003 in Commercial Law Review 2004, p. 68.

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out this registration the transfer is not valid in regard to the company.114 Thus, the transfer, if completed according to art. 1034 Gr.C.C. (regulation for the transfer of ownership of movables), is valid between the parties, since registered shares are movable goods which can be the object of a real right and, therefore, the provisions regarding the transfer of movable goods are applicable.115 However, according to law 2396 / 1996 (as amended by laws 2533 / 1997, 2651 / 1998, 2733 / 2001 and 2992 / 2002), significant alterations regarding the status of the registered shares quoted on the Athens Stock Exchange were introduced. Significantly, according to art. 39 of the law 2396 / 1996, the obligation of the companies quoted on the Athens Stock Exchange (both the main and the parallel Stock Exchange Market) to issue paper shares was abolished. The existing shares, as well as all necessary filings, had to be deposited at the “Central Securities Depository S.A.”, which set up an electronic archive, the SAT (Sistima Aylon Titlon: Dematerialised Titles System). The shares have an electronic form and all transactions of them are carried out through the SAT electronic system. From the aforementioned regulation the inference is that from the day the registered shares were dematerialised, the papers of the shares lack their former status as securities; they are no longer tangible.116 The person entitled exercises his rights as a shareholder by reason of the registrations conducted by the Central Securities Depository S.A.117 The shareholder is entitled, according to art. 53 of the aforementioned law, to request from the Central Securities Depository S.A. the issue to him of a shareholder’s certificate, certifying that he has the status of a shareholder and stating the amount of the shares held by him.118 The transfer of dematerialised shares is valid from the moment the transaction is registered by the Central Securities Depository S.A. without the obligation to announce the transaction to the company that issued the shares. 114

115

116

117 118

N. K. Rokas, Trading Companies, p. 248; Athens Court of First Instance 2959 / 1987 in Commercial Law Review 1988, p. 63; Supreme Court, 631 / 1995 Episkopisi Emporikou Dikeou, 1995, p. 792 (for shares which are traded on the stock exchange market). Athens Court of First Instance 2959 / 1987 in Commercial Law Review 1988, p. 63; Athens Multimember Court of First Instance 6884 / 1995 in Commercial Law Review 1996, p. 531; Athens Court of Appeal 5952 / 2004 in Dikeo Epichiriseon ke Eterion 2005, p. 172. Thessaloniki Multimember Court of First Instance 5855 / 2001 in Commercial Law Review 2001, p. 513 et seq.; Georgakopoulos, Stock Market and Banking Law – The Law of the Greek Stock Market and Money Market System, p. 55. Athens Court of Appeal 7528 / 2005 in Dikeo Eterion ke Epichiriseon 2005, p. 1184. Thessaloniki Multimember Court of First Instance 5855 / 2001 in Commercial Law Review 2001, p. 513 et seq.

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4.1.5. Intellectual property rights For intellectual property rights the provisions for the transfer of ownership of movable goods are applied analogously,119 since no specific regulations exist. Bona fide acquisition and acquisition by acquisitive prescription of intellectual property rights is possible.120 The transfer of an intellectual property right has to be differentiated from the transfer of ownership of the movable in which the intellectual property right has been incorporated.121

4.1.6. Cars and motorcycles The general law applicable to the transfer of ownership of movable goods in art. 1034 Gr.C.C. is applicable to transfer of ownership of cars and motorcycles, but with supplementary rules contained in Law 722 / 1977 (Law regarding vehicle licences). Art. 1 Law 722 / 1977 provides that for the transfer of ownership of cars and motorcycles a legal act of the parties is necessary, which has to be certified in the appropriate certificate (the “ownership certificate”). This act replaces the need for delivery as provided in art. 1034 Gr.C.C.122 For imported cars and motorcycles, the ownership certificate is the certificate issued by customs,123 for cars and motorcycles built in Greece the ownership certificate is the manufacturer’s certificate and for cars and motorcycles sold by the Organisation for Administration of Public Supplies, the ownership certificate is the certificate issued by this organisation. For all other categories of vehicles, the agreement has to be registered in the “ownership and possession changes booklet” provided for by law for each individual vehicle.124 This registration act is constitutive for the real agreement and not declaratory.125 It does not affect the underlying 119

120 121

122

123 124

125

Koumantos, Copyright, p. 181; Supreme Court 512 / 1986 in Elliniki Dikeosini 1987, p. 451; Athens Court of Appeal 3403 / 1988 in Commercial Law Review 1990, p. 160; Athens Court of First Instance 5417 / 2000 in Episkopisi Emporikou Dikeou 2001, p. 221. Georgiadis, Property Law I, p. 478. Koumantos, Copyright, p. 182; Magistrates’ Court of Athens 32992 / 1997 in Commercial Law Review 1999, p. 409. Athens Court of Appeal 2748 / 1982 in Nomiko Vima 1983, p. 511; Supreme Court 2 / 2004 in Episkopisi Emprikou Dikeou 2004, p. 374. Supreme Court 1385 / 2004 First Publication in Nomos Legal Database. Larissa Court of First Instance 409 / 1999 in Dikografia 2000, p. 114; Athens Court of Appeal 9538 / 1998 in Archio Nomothesias 2002, p. 767. Georgiadis, Property Law I, p. 479; Supreme Court 2 / 2004 in Episkopisi Emporikou Dikeou 2004, p. 374.

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237

agreement pursuant to which the transferee is entitled to the transfer of ownership as against the transferor, which can be concluded informally126 or before a public notary. The actions of the parties in relation to the transfer of ownership can not be challenged as a sham transaction.127 Similarly, it is not possible to lead counter-evidence regarding the content of the document.128 In conclusion, for the transfer of ownership of a car the preconditions of art. 1034 Gr.C.C. must be fulfilled: the transferor must be the owner of the vehicle; an agreement between the transferor and the acquirer that ownership is being transferred has to be concluded; and the vehicle has to be delivered. Additionally, Law 722/1977 provides that the acquirer and the transferor have to make sure that the transfer is certified by the competent department of the Ministry of Transport on the ownership certificate. As noted, this act is constitutive for the real agreement and not merely declaratory.

4.1.7. Vessels The ownership of vessels is transferred in a similar way to the transfer of ownership of immovables. According art 6 Greek Private Maritime Law Code, the preconditions for the transfer of ownership of vessels are: the transferor must be the owner, an agreement between the parties must be obtained regarding the transfer of ownership, the legal requirement of writing (a notarial deed is not required), the existence of a legal cause and the registration of the agreement in the ships’ register. The written form is a requirement for the real transaction as well as for the underlying agreement.129 The transfer of the ownership of a vessel is causal. Therefore, the transfer has to be based on a valid foundation such as a contract for sale.130

4.1.8. Aeroplanes According to Art. 41 Civil Aviation Code, airplanes are considered movable goods and, therefore, the regulations of art. 1034 Gr.C.C. are applicable. According to art. 41 para. 3 Law 1815 / 1988 (Civil Aviation Code), 126 127 128

129

130

Georgiadis, Property Law I, p. 479. Supreme Court 625 / 2007 in Nomiko Vima 2008 p. 579. Georgiadis, Property Law I, p. 479; Larissa Court of First Instance 409 / 1999 in Dikografia 2000, p. 114. Piraeus Court of Appeal 1131 / 2002 in Peiraiki Nomologia 2003, p. 95; Piraeus Court of Appeal 539 / 2000 in Peiraiki Nomologia 2000, p. 343. Piraeus Court of Appeal 1131 / 2002 in Peiraiki Nomologia 2003, p. 95.

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ownership of an airplane cannot be transferred without the registration (constitutive act) in the appropriate register, which is kept by the Greek Civil Aviation Commission.

4.2.

Definitions

Articles 947 through 973 establish the notion of things as objects of property rights and their division into several broad categories, such as movables and immovables, fungibles and non-fungibles, consumables and non-consumables, component parts and accessories, fruits and profits, and things “in commerce” and “out of commerce”.

4.2.1. Object and thing Following the model of the German Civil Code, the Greek Civil Code distinguishes between object and thing. The word “object” (antikeimeno) applies to anything that may be the subject of a legal relation, with the exception of strictly personal relations. An object may be anything having a pecuniary value, whether corporeal or incorporeal. A “thing” (pragma) is a corporeal object when is susceptible to appropriation. Ownership and other real rights may attach, as a rule, to things only and not to incorporeals. Thus, rights having a pecuniary value, though forming part of a person’s patrimony, are not governed by the law of property. Fluid and gaseous substances are corporeal and, as soon as they acquire the character of individual existence, become things. Natural forces and energies, though incorporeal, are, by means of a legal fiction, classified as things.131 The precondition is, however, that they are subject to control by humans. Therefore, energy which is produced by lightning can not be considered as a thing in the sense of art. 947 para. 2. Gr.C.C.132 Thus, producers of energy enjoy full proprietary protection in Greece. Rights, aggregates of things, and universalities of rights, such as an entire patrimony or an enterprise, are incorporeal; therefore, they are not things under the Greek Civil Code. The entire patrimony or an enterprise are considered a “group of assets”. They form a financial unity according to 131

132

See Article 947 para. 2: Natural forces or energies, particularly electric currents and heat in so far as such forces are subject to control when concentrated within a delimited space, are considered to be things.; Dimakou in Georgiadis – Stathopoulos Greek Civil Code V, art. 947, p. 28, 29, see also Supreme Court (Criminal Division) 1678 / 1999 in Pinika Chronika 2000, 739 et seqq. Georgiadis, Property Law I, p. 79.

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239

the accepted view and they cannot be transferred as one thing. According to the principle of specificity only individual parts of the patrimony or enterprise can be transferred. A “group of assets” can be subject as a total to an obligation (sale of an inheritance as a whole, art. 1942 Gr.C.C.) but not to a real agreement. The incidents of human personality are not things susceptible to appropriation. Thus, one’s name, likeness, liberty, personal integrity, and honour are not objects of property, but incidents of a comprehensive right of personality that is accorded an almost absolute protection without regard to rules of property law. A living human body and its parts are incidents of man’s human personality rather than objects of patrimonial rights. According to one opinion, upon death a human body becomes a thing extra commercium and, therefore, the heirs cannot obtain ownership.133 A second opinion argues that the corpse is part of the dead person’s personality and, therefore, cannot be a thing.134 The rules of detention can be applied analogously.135 It is however generally accepted that certain parts, such as blood, hair or organs, may become things upon their separation from a living human body. Skeletons and mummies are things according to art. 947 para. 1 Gr.C.C., due to the fact that they are no longer connected to a certain human personality and, therefore, can be the object of a transaction.136

4.2.2. Movables and immovables; component parts and accessories Things are divided into movables and immovables (art. 948 Gr.C.C.). Immovables are the ground and its component parts. Movables are all things not classified as immovables. The division of things into movables and immovables applies to corporeal objects only, with one modification: when the law or juridical acts refer to movable property, as distinguished from immovable property, related obligations are classed as movable, while the usufruct of immovables and predial servitudes, are classed as immovable.137 Most provisions of law governing the classification of things into 133

134 135 136 137

Athens Court of Appeal 5316 / 1990 in Elliniki Dikeosini 1991, p. 1043; Georgiadis, Property Law I, p. 80. Dimakou in Georgiadis – Stathopoulos Civil Code V, art. 947 p. 29. Dimakou in Georgiadis – Stathopoulos Civil Code V, art. 947 p. 29. Dimakou in Georgiadis – Stathopoulos Civil Code V, art. 947 p. 30. Art. 949: In the case where, whether by law or in a legal transaction, a distinction has been made between immovable assets of a person as a whole and his movable assets the usufruct of an immovable as well as real easements encumbering immovables shall form part of the immovables, while any and all claims shall form part of the movables.

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movables and immovables are considered to be rules of public order, from which derogation by agreement is forbidden. The component parts of an immovable can be a mixture of movables and immovables; the component parts of a movable may only be movable themselves. Certain component parts are susceptible to separate real rights but others are not. Things unsusceptible to separate real rights are those firmly fixed to the ground, such as buildings, movables incorporated into a structure or a building, vegetation and mineral substances, water under the surface, seeds when sown and plants when planted. The list is considered to be exhaustive rather than indicative. The Greek Civil Code expressly provides that things attached to the ground or a building for temporary purposes, though firmly fixed, do not become component parts and as such remain susceptible to separate real rights. The same rule applies to buildings and other structures erected on the ground of another by a usufructuary or other person having a real right. These things remain movable and are susceptible to real rights separate from those in the land. The practical consequences of the characterisation of a thing as a component part insusceptible to separate real rights are significant. The owner is always free to terminate the status by actual detachment, but, as long as it lasts, separate ownership and separate real rights are not recognised. Seizure, and any transfer or encumbrance, includes all component parts of this kind, even if incorporated subsequently. However, according to special legislation, machinery in industrial plants, in order to be included in a real mortgage, must be mentioned specifically, and standing crops may be seized separately from the land. Real rights affecting movables prior to incorporation are extinguished and do not revive upon detachment. Real rights acquired in the component parts of a thing by incorporation continue to exist, even after the movables are detached. An exception is made as to the rights of a real mortgagee; movables covered by the mortgage may be detached and transferred to third persons free of the mortgage. Parties may, in their private relations, establish personal rights with respect to component parts unsusceptible to real rights.138 Thus, the sale of standing crops, standing timber, and mineral substances are valid transactions if effected according to the formalities governing movables. The seller of the component can not be forced to detach it, his obligation is to deliver and transfer ownership of the component to the buyer after the detachment.139 Hence, no real rights are created and in case of non-performance the purchaser is entitled to damages only.140

138 139 140

Georgiadis, Property Law I, p. 106. Georgiadis, Property Law I, p. 105. Dimakou in Georgiadis – Stathopoulos Civil Code V art 953, p. 55.

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241

Component parts are distinguished from accessories. An accessory is a movable which, without being a component part of the principle thing, is destined to serve its economic purpose and has been placed, with regard to the principle thing, in a spatial relationship appropriate to its destination.141 The principal thing may be a corporeal movable or immovable; the accessory must be a corporeal movable. Accessories are susceptible to separate real rights.142 The rules governing the classification of a thing as principal or accessory are illustrative. The significance of the classification is that, in certain instances, the law regards the two as an economic unit and the transfer or encumbrance of the principal thing includes the accessory: accessorium sequit principali.143 However, unlike in the case of an inseparable component part, one may own the accessory of a thing belonging to another or may have another real right in it.

4.2.3. Fungibles Fungibles (antikatastata) are movables which are ordinarily determined by number, measure or weight. This quality is determined by objective criteria and notions prevailing in trade. The distinction is important in the field of obligations and particularly for the contracts of loan, deposit and annuity. Responsibility for the loss or deterioration of a fungible is absolved by the delivery of similar things, while, with regard to non-fungibles, a monetary valuation is the only permissible substitute. The distinction between fungible and not-fungible goods is important in the law of obligations, for example: a) the provisions for loan agreements (art. 806 Gr.C.C.), for irregular deposits (art. 830 Gr.C.C.), for life annuities (Arios Pagos 85/1965, Pr. Larissas 35/1966) (art. 840 Gr.C.C.), for delegations (art. 876 Gr.C.C.), refer only to fungible goods; and b) according to art. 297 Gr.C.C. the restitutio in natura, in the case of the destruction of a thing, is only possible where it is a fungible good. The execution process for fungible goods is completed according to art. 942 Gr. Civil Procedures Law. The court bailiff, in execution of his order, takes the necessary quantity of goods. Where this is not possible the court defines their value in money and the execution is completed with the collection of the equivalent amount.144 141

142 143 144

Article 956: An accessory is the movable thing which, by not being a constituent part of the main thing, has been destined to permanently serve the economic purpose of the main thing and has already been placed, in regard to the main thing, in a relationship corresponding to such purpose. Georgiadis, Property Law I, p. 99. Georgiadis, Property Law I, p. 100. Athens Supreme Court, 233 / 1977 in Nomiko Vima 25, p. 1180.

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The above-mentioned distinction is of no importance in property law, due to the principle of speciality which governs property law, according to which real rights can only be attached to a particular, individually specified good.

4.2.4. Determination of identity (fungible goods) Therefore, in the case of the transfer or the claiming of fungible goods, the determination of their identity is necessary.145 Fungible goods must be individually specified.146 For example: according to the Supreme Court’s ruling Nr. 141 / 1951147 in a case involving coins and bank-notes, which are fungible goods,148 such items have to be determined either by their serial number or classified as the content of a specific container.149 The transfer of ownership of fungible goods is completed, according to art. 1034 Gr.C.C., with the delivery of the goods to the acquirer and the explicit or implicit agreement that ownership will be transferred. The acquirer must obtain the power over the goods.150 In case of a generic obligation, the seller has to proceed with the individualisation (art. 289 para. 1 Gr.C.C.), provided that there has not been any other agreement between the parties. The identification can also be obtained by the agreement of the parties. The parties can agree which concrete thing has to be delivered.151 The parties can also agree that the seller authorises the buyer to proceed with the identification. In this case, besides the individualisation, there is also the fulfilment of the obligation by obtaining possession brevi manu or by constitutum possessorium152 (when the content of the generic obligation is the transfer of an object). Identification can also be obtained when the 145

146

147

148 149

150

151

Chania Court of First Instance 896 / 1957, Nomiko Vima 6, p. 61; Heraklion Court of First Instance 190 / 1993, Elliniki Dikeosini 1994, p. 179. Supreme Court, 312 / 1999, Elliniki Dikeosini 1999, p. 1364; Piraeus Court of Appeal 878 / 2004 in Piraiki Nomologia 2004, p. 400. Efimeris Ellinon Nomikon 18, p. 514 also Experts Report of the Legal Advisor of the State 749 / 1998. Dimakou in Georgiadis – Stathopoulos Civil Code V, art. 948, p. 42. The First Instance Court of Heraklion considered in its ruling Nr. 190 / 1993 olive oil which was originally filled in containers and, therefore, the necessity of individual determination was fulfilled. However, it was then mixed with olive oil in tanks in order to be stored, meaning the individualisation no longer existed. See also Athens Court of Appeal 1172 / 1987 for oil. Georgiadis in Georgiadis – Stathopoulos Civil Code V, art 976-977, p. 229, 230 and art. 1034 p. 429; Athens Court of Appeal 1172 / 1987, Dikeosini 1988, p. 517. Georgiadis, Law of Obligations General Part, p. 97 & 98.

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buyer shows the seller a sample of the good that has to be delivered.153 For the individualisation a change in the substance of the object is not necessary such as, for example, the attachment of a sign. The verbal reference to the selection of a certain thing by the other party is sufficient.154 Every act that serves the identification of a thing that the seller wishes to deliver to the buyer is an act of individualisation, i.e. individualisation is not isolated to removal in the sense of location.155 A necessary precondition is that the seller has the right to dispose of the thing. The delivery of the thing by the non-owner, even if the buyer acts in good faith, does not effect individualisation.156 If, at the request of the buyer, the seller has to send the object to a place other than the place agreed for the performance of the obligation, the identification occurs from the moment the thing is handed over for dispatch (art. 290 para. 2 Gr.C.C.). From this point on, the buyer bears the risk of loss. The seller can either hand the good over to a carrier or he (or his representative) can transport the item himself.157 Art. 290 para. 1 Gr.C.C. provides that, where the seller specifies one thing out of the class in order to perform the contract, the identification of the thing is completed at the moment the buyer puts himself in default of acceptance (unilateral act of the seller and buyer’s default of acceptance). This means that the specification is completed when the seller who has the right to choose separates one thing that conforms to the provision of art. 289 para. 2 Gr.C.C.158 in order to deliver it to the creditor. The tender of the separated thing to the buyer has to be effective and appropriate according to the provisions of Greek Civil Law (art. 349 para. 2-art. 354 Gr.C.C.), and finally the buyer does not accept the offered good (buyer’s default of acceptance). 152

152

153

154 155

156 157 158

Chelidonis, The unspecific performance in the case of a generic obligation, Elliniki Dikeosini 2000, p. 613 et seqq., p. 621. Thessaloniki Court of First Instance 789 / 1993, Armenopoulos 1993, p. 1100; Athens Court of Appeal 1987, 8263 in Elliniki Dikeosini 1991, p. 1673. Chelidonis, Elliniki Dikeosini 2000, p. 621. For example, the seller issues an invoice with the name of the buyer and the vehicle identification number as well as the serial number of the engine. Georgiadis, Law of Obligations General Part, page 97 footnote 16. Chelidonis, Elliniki Dikeosini 2000, p. 622. Georgiadis, Law of Obligations General Part, p. 98. Art. 289 Gr.C.C. Delivery of generic goods: Para.1 Where the good that has to be delivered is a generic good, the right of choice belongs to the debtor, subject to contrary agreement. Para. 2 The seller has the obligation to deliver from the best things of the class, and he does not have the right to deliver from the worst things of the class.

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Identification is also possible where all goods of a kind are destroyed except the one which has to be delivered. Finally, the identification of a thing, which is a generic good, is also completed when the seller has performed “everything that he has to do to perform under the contract”.

4.2.5. Consumables Consumables (analota, art. 951, 952 Gr.C.C.) are movables, the intended use of which consists in their consumption or alienation. Stocks of goods and other aggregations of things, the intended use of which is the alienation of the objects separately, are likewise considered to be consumables.159 The quality of consumability depends on objective criteria and prevailing notions in trade rather than physical notions. The classification as consumables or otherwise has practical consequences in that one may be under a duty to return either individual things or things of the same kind as regards quantity and quality.160

4.2.6. Things “out of commerce” The Greek Civil Code has retained a special category of things “out of commerce” (ektos synallagis, art. 966 Gr.C.C.) which includes things common to all, things subject to public use and things dedicated to serve public, municipal, communal, or religious purposes. Things common to all are the air and the open sea. Things subject to public use are, particularly, freely and perpetually running water, roads, public squares, the seashore, harbours and roadsteads,161 the banks of navigable rivers, large lakes and their shores. The list is illustrative. Things subject to public use may belong to the state, to towns or communities, or to private persons when this is authorised by

159 160 161

Dimakou, in Georgiadis – Stathopoulos, Civil Code V, art. 951, 952, p. 46. Georgiadis, Property Law I, p. 97. In case law roadsteads are in some cases treated separately to roads, as in Supreme Court 1256 / 2005 first published in Nomos Legal Database; Dodekanese Court of Appeal 298 / 2003 first published in Nomos Legal Database, and in other cases considered to be covered by “roads”, as in Supreme Court 1033 / 2000 in Nomiko Vima 2001, p. 1446; Patras Court of Appeal 1064 / 2003 in Achaiki Nomologia 2004, p. 141. This distinction however is of no practical importance since roadsteads are in both cases considered to be things common to all.

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245

law.162 The owner of a thing subject to public use may exercise all prerogatives of ownership that are compatible with public use.163 The last category of things out of commerce encompasses all sorts of things dedicated to a public purpose other than public use, including state-owned buildings, housing, governmental offices, and educational and health institutions. Municipal buildings, housing, municipal offices and institutions belong to the same category. State and municipal enterprises, whether autonomous or not, may serve public purposes. The accepted criterion is whether the main purpose of the enterprise is to produce revenue or to serve the public.164 The state-owned railroad, telecommunications systems and electric utilities are regarded as serving a public purpose and, therefore, are things out of commerce. Finally, religious institutions and cemeteries also belong to this category. Once the special purpose of their use ceases, things out of commerce lose this quality and become like all other things.165

4.2.7. Fruits and profits The terms “fruits” (karpoi) and “profits” (ophelimata) are regulated in art. 961 and 962 Gr.C.C. The Greek Civil Code, following the pattern of Byzantine-Roman law, distinguishes natural fruits from civil fruits. In addition, following the German Civil Code, it distinguishes between fruits of things and fruits of rights, and introduces the notion of profits.166 Fruits of things are organic products, advantages obtained according to the classification of a thing, and any revenue a thing may produce by the operation of law or by virtue of a legal relationship. According to the prevailing view, organic products can only be regarded as fruits if the substance of the principal thing is preserved. The classification of a thing as fruit-producing is determined by reference to its nature, prevailing conceptions in society, and the intention of the parties to a transaction.167 Fruits of rights are royalties and interests deriving from rights other than ownership.168

162 163 164 165 166

167 168

Article 968 Gr.C.C. Georgiadis, Property Law I, p. 126 Pappas, in Georgiadis – Stathopoulos, Civil Code V, art. 966-971, p. 101. Georgiadis, Property Law I, p. 131. Art 962: Profits are not only the fruits of a thing or of a right, but also every advantage which the use of the thing or the right confers. Georgiadis, in Georgiadis – Stathopoulos, Civil Code V, art. 961, p. 83. Georgiadis, in Georgiadis – Stathopoulos, Civil Code V, art. 961, p. 83.

Part II: Derivative acquisition 5.

Which system of transfer is used

5.1.

Basic overview

Greek property law provides a uniform (unitary) concept for the transfer of ownership, meaning that all rights and powers connected to ownership pass over to the acquirer at the same moment. Derivative acquisition involves the transfer of ownership from a previous owner. The transfer may be voluntary, such as by agreement, or involuntary, as in the case of a judicial sale. The transfer of ownership by contract is subject to different requirements for movables and immovables. For movables an informal agreement and delivery of the possession of the thing complete the transfer. An exception is of course made as to certain movables that may be acquired a non domino. For the transfer of ownership of immovables, the law requires an agreement between the owner and the transferee confirming that the ownership is transferred for a lawful cause, the execution of this agreement in the notarial form and its lodgement in the conveyance records in the district in which the immovable is located. The same rules are applicable to all kinds of obligations by reason of which ownership is transferred, since Greek property law provides an abstract system which does not depend on an underlying valid obligation. According to art. 1034 Gr.C.C.,169 for the transfer of ownership of movable goods the delivery of the possession thereof by the owner to the acquirer and the agreement of both to the effect that the ownership has been transmitted is required. From the regulations provided in art. 1034 Gr. Civil Code, it follows that for the acquisition of a movable good by contract, three principles apply: 1. the distinction between the real agreement and the obligation; 2. the abstract nature of the real agreement; and 3. the delivery of possession.

169

Art. 1034: For the transfer of a movable the delivery of the possession thereof by the owner to the acquirer and the agreement of both to the effect that ownership has been transmitted is required.

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247

Art. 1034 Gr.C.C. provides that for the transfer of ownership of a movable good the delivery of the possession according to art. 976-978170 Gr.C.C. (by way of brevi manu traditio, order to the third person to hold the good for the acquirer, constitutum possessorium, by the transfer of the bill of lading or the warehouse warrant) by the owner to the acquirer and the agreement of both to the effect that ownership has been transmitted is necessary. This agreement differs from the contracts for sale (art. 513 Gr.C.C.), donation (art. 496 Gr.C.C.), exchange / barter (art. 573 Gr.C.C.) etc., in execution of which ownership is being transferred. The transfer of ownership occurs exclusively with the real agreement. On the contrary, the contract for sale, by itself, does not realise any alteration of the proprietary situation of the sold good; the contract only creates an obligation of the seller to transfer the property. The alienation is completed with the real contract, which does not necessarily have to be executed simultaneously with the underlying contract.171 The real contract is completed with the delivery of the good,172 although this does not mean that the contracting parties cannot make the transfer of the ownership dependent on the existence and the legal force of an obligation as a dissolving / resolutive or suspensive condition.173 The real agreement is an “abstract agreement”, meaning that the effectiveness of the transfer of ownership is not dependent on the existence of a causa. Where the real agreement is valid (and delivery is made), ownership is transferred, even if there is no causa acquirendi at all or the

170

171 172 173

Art. 976: Acquisition of possession. With regard to a good that is in the possession of another, possession shall be acquired by delivery effected voluntarily by this person. However, an agreement between an erstwhile possessor and the new possessor is sufficient for the acquisition of possession, where the new possessor is in a position to exercise power over the good. Art. 977: Delivery to an acquirer is also effective where it has been agreed between him and the erstwhile possessor that the acquirer or a third party will remain, by virtue of the strength of a certain legal relationship, in possession of the good. In such a case the possession shall, with regard to the third party, be transferred to the acquirer as from the time the transfer has been brought to the knowledge of such third party by the erstwhile possessor. Art. 978: In the matter of goods and, generally, of movable things deposited by using a warehouse warrant, or if bill of lading has been issued in respect of such goods or things, the transfer of possession will be effected by the transmission of the warehouse warrant or the bill of lading. Georgiadis, Property Law I, p. 465. According to art. 1034 Gr.C.C. Balis, General Principles, para. 34; Magistrates’ Court of Athens 328 / 1989 in Archio Nomologias 1990, p. 822; Athens Court of First Instance 9255 / 1987 in Elliniki Dikeosini 29, p. 1628.

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contract (enochiki symbasi) which forms the causa is invalid or voidable.174 The transfer of ownership is a result of the abstract real agreement and not of the obligation.

5.2.

General issues

5.2.1. Specific goods – generic goods See above, 4.2.4.

5.2.2. Party autonomy The application of the principle of party autonomy in property law is rather restricted,175 due to the numerus clausus of real rights. The contracting parties cannot create real rights other than those provided by property law.176 The numerus clausus of real rights is provided in the exhaustive enumeration of art. 973 Gr.C.C. Therefore, there is only a restricted number of real rights with a content which is defined by the legislator in order to ensure the security of transactions and protect third parties. If the law were to afford the possibility of creating real rights without placing restrictions on the parties as to content, this would result in the fragmentation of ownership. An exception to this principle are personal servitudes and easements, regulated by property law, which leave the contracting parties room for party autonomy.177 They can define the advantages for the owner of the dominant tenement.178 To a certain extent, party autonomy also exists in the creation, transfer or loss of a real right that is provided by the law. The agreement for the transfer of possession can be subject to a resolutive condition, a suspensive condition or a time limit.179 The content of this agreement, where the goods do not exist yet or are not yet acquired by the transferor, can also include the additional clause that the transferor will transfer ownership to the acquirer, as soon as he acquires possession of the movable and that he will retain detention of the good based on a legal relationship (constitutum possessorium anticipatum).

174 175 176 177 178 179

Athens Court of First Instance 9255 / 1987 in Elliniki Dikeosini, 29, p. 1628. Kousoulas, Property Law, p. 26. Georgiadis, Property Law I, p. 17. Georgiadis, Property Law I, p. 19. Georgiadis, Property Law I, p. 19. Georgiadis, Property Law I, p. 177.

5. Which system of transfer is used

5.3.

249

Valid obligation is not required

5.3.1. Obligations on which the transfer of ownership can be based As already mentioned, an agreement of the owner and the acquirer to the effect that ownership is transferred is necessary. This agreement, along with the delivery, is the real contract according to which ownership is being transferred. This agreement differs from the obligation in execution of which ownership is being transferred. Since the system of transfer established by Greek Civil Law is an abstract system, the transfer of ownership of movables does not have to be based on a valid obligation. This, however, does not apply to the transfer of ownership of immovable assets.180 The obligation in execution of which ownership is being transferred can be of a different kind: in particular, the transfer of ownership can be based on contracts such as a contract for sale (art. 513 Gr.C.C.), donation (art. 496 Gr.C.C.), or barter (art. 573 Gr.C.C.).181 An example is donation. From the regulations provided in the Greek Civil Code (for example art. 501 Gr.C.C., the donor has the right to refuse the fulfilment of the donation, art. 509 Gr.C.C., revocation of a donation etc.) it follows that a donation is an obligation.182 A donation, in order to be valid, has to fulfil the requirements of the law regarding the written form of a notarial deed (art. 498 Gr.C.C.). According to art. 498 para. 2 Gr.C.C., the donation of a movable in respect of which a notarial deed has not been drawn up, becomes valid from the time of delivery of the thing by the donor to the donee. There are also non-contractual obligations to transfer ownership. Here, the same principles apply, which can be illustrated with an example from the law of succession. In the case of a legacy (art. 1967 et seqq. Gr.C.C.), the person appointed by the deceased to carry out the obligation with which a legacy has been burdened (i.e. to deliver a movable to the legatee) carries it out according to the deceased’s wish. After that, a new testimony is found revoking the legacy. In this case, the transfer of ownership of the 180

181

182

Filios, Property Law, p. 53. The transfer of ownership of immovables under Greek Law is “causal” and not “abstract” (as the transfer of ownership of movables). The same applies to real agreements regarding the real and personal servitudes (cf. art. 1121, 1143, 1187, 1191 Gr.C.C., which refer directly to art. 1033 Gr.C.C. regarding the transfer of ownership of immovables) and real agreements regarding the constitution of a pledge (art. 1211, 1214 Gr.C.C.) or a mortgage (art. 1265,1266 Gr.C.C.). Georgiadis in Georgiadis – Stathopoulos Civil Code V, comments regarding articles 1033-1093, p. 410. Kornilakis, Specific Law of Obligations I, p. 27.

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asset is valid and it can only be retrieved with a claim based on unjustified enrichment (art. 904 Gr.C.C. – see below 5.3.2.(b)).183

5.3.2. Defects regarding the obligation and their effects on the transfer As already mentioned, the transfer of ownership of movable goods is a result of the abstract real agreement and not of the obligation. The consequences of the problems regarding the invalidity of contracts are the set out below.

(a)

Void contracts

The underlying contract is void in the following cases: 1. lack of legal capacity (art. 128, 131 Gr.C.C.); 2. the legal act has not been performed in the requested form (art. 159 Gr.C.C.: a transaction in respect of which the form laid down by the law or having been determined by the parties, has not been complied with, is null and void); 3. the legal act is inconsistent with a prohibitive provision of the law (art. 174 Gr.C.C.); 4. the transaction is contrary to rules of morality (art. 178-179 Gr.C.C.), 5. the transaction is a sham / fiction (art. 138 Gr.C.C.); 6. unilateral transactions made by a representative who is lacking the authority to represent (art. 232 Gr.C.C.) (in contrast, bilateral contracts which have been concluded by a representative without the authority to act depend on the approval of the represented person). Nevertheless, where there is a valid real agreement and delivery of the object, ownership passes in spite of the underlying obligation being void (abstraction principle). There may, however, be cases, where the defect / voidness does not only affect the underlying obligation, but the real agreement as well. Evidently, in these cases ownership cannot pass. (For a more detailed discussion see 5.3.3. below).

(b)

Voidable contracts

Legal acts are voidable in the case of error, fraud and threat (art. 140, 142, 147 Gr.C.C.). According to art. 184 Gr.C.C., a voidable legal act has, after 183

Georgiadis, Property Law I, p. 66, 398, 399.

5. Which system of transfer is used

251

its annulment, the same effect as a void legal act (but not retrospectively). This means that after the court decision, ordering the annulment of the legal act in question can no longer be subject to appeal, all the effects of the legal act are abolished ex nunc. This does not apply to continuing obligations (such as employment contracts),184 but this exception does not seem to have practical importance in the context of the transfer of ownership in movables. A mistake regarding the solvency of the other party (“Irrtum ueber die Zahlungsfaehigkeit”) is not considered as a mistake on a material point but as a mistake in the inducement to contract (Motivirrtum);185 therefore, the contract cannot be avoided with a retroactive effect. Due to the principle of abstraction, ownership passes where the underlying obligation is voidable, and ownership does not automatically fall back to the former owner if the contract is avoided subsequently. The transfer based on the real agreement is and stays valid (unless the real agreement suffers the same defect and is avoided as well, see below 5.3.3.). This, however, does not mean that, if the legal basis is lacking or suffering from a defect, the real effects will be allowed to subsist. In cases in which the obligation (but not the real agreement) is void or voidable, or simply does not exist, the ownership is transferred, but the former owner can claim the movable by virtue of the law of unjustified enrichment (art. 904 Gr.C.C.). However, the legal action based on the provisions of unjustified enrichment does not have the same effect as a real action for the following reasons:186 – if the acquirer transfers the movable to a third party, the transfer is executed by the owner according to art. 1034 Gr.C.C. and, therefore, one cannot claim for reversal of the unjustified enrichment against the third party. – the acquirer is only obliged to pay to the former owner the amount he received from the third party (art 908 Gr.C.C.). – there is no obligation where the enrichment no longer exists. – where the acquirer becomes insolvent before he has re-transferred ownership, the original owner is left to rank as an unsecured creditor in the insolvent party’s estate.

184 185

186

Georgiadis, General principles of Civil Law, p. 311. Athens Court of First Instance 7241 / 1999 in Nomiko Vima 2000, p. 1146; Supreme Court 113 / 2002 first publication in NOMOS Legal Database 2002. Georgiadis, Property Law I, p. 465.

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(c)

Termination of contract providing for continuous performance

The termination of a contractual relationship is the contracting party’s right to dissolve, by way of unilateral statement, a contract for the performance of a continuing or recurring obligation. The right of termination can be agreed between the parties in the contract or it can be provided by law. Ordinary termination is the termination of the contract without a concrete reason.187 When there is the need for a concrete reason in order to terminate a contract, then the termination is called extraordinary termination (e.g. lease agreement: the agreed use was not granted by the lessor to the lessee (art. 585); unconscionable use of the leased asset (contrary to the contract) (art. 594), delayed payment or non-payment of the agreed rental amount (art. 595, 597) etc.). The termination of a contract has the effect that the legal relationship is terminated from that point forward: it has no retroactive effect. The effects of the termination begin from the moment the termination was declared to the contracting counterparty, provided such this declaration complied with any prescribed time limit or other condition. The contract is then, ipso jure, terminated ex nunc.188 The contract remains in force for the time period before the termination.189

(d)

Rescission (termination) of a contract

The rescission of a contract is the right of the parties to terminate the contract (obligation). It is executed with a unilateral declaration to the other contracting party. The right of rescission of a contract can be contractually agreed or it can be provided by law190 (e.g. art. 382 Gr.C.C. impossibility of performance due to the fault of the promisor; art. 383 Gr.C.C. delay in performance; art. 386 Gr.C.C. non-performance in the case of contracts where successive partial performance has been agreed etc.). Rescission is the instrument to terminate reciprocal contracts. It has the effect that the contract is terminated, both parties are released from the obligation to perform and an obligation for both parties respectively to return what has been received is created. This obligation is based on the provisions of unjustified enrichment. Other forms of ending a reciprocal contract are the rescission of a sale on the ground of non-conformity of the delivered goods (art 540-547 Gr.C.C.), the revocation of a donation (art. 505 Gr.C.C.), the 187 188 189

190

Georgiadis, Law of Obligations – General part, p. 526. Georgiadis, Law of Obligations – General part, p. 530. Supreme Court 236 / 1992 in Elliniki Dikeosini 1993, p. 1309; Piraeus Court of Appeal 598 / 1996 in Elliniki Dikeosini 1998, p. 673. Georgiadis, Law of Obligations – General Part, p. 511.

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dissolution of the contract in case of an unforeseeable change of circumstances (art. 388 Gr.C.C.). The rescission has a retroactive effect as regards the obligation; the contractual obligations to perform are extinguished, ipso jure, ex nunc,191 according to art. 389 para. 2 Gr.C.C. The effects of the rescission depend on the intention of the parties and they do not arise ex lege.192 The contract is treated as if it was never concluded. Therefore, the contracting parties have the right to claim back, based on the provisions of unjustified enrichment, what they have performed (art. 904 par. 1 b: legal ground ceased to exist).193 The real agreement is not affected by the rescission. The ownership of the thing does not ipso jure return to the former owner.194 He has the right, as already mentioned (according to art. 389 para. 2 Gr.C.C.), to claim it back based on the provisions of unjustified enrichment (art. 904 para. 1 b Gr.C.C.: legal ground ceases to exist) and not on the provisions regarding the protection of ownership. According to the regulations regarding unjustified enrichment, as provided in art. 908 et seq. Gr.C.C. (extent of the holder’s liability), “the holder has to return the thing received or, eventually, what he received in exchange for it. He also has to pass the fruits collected as well as anything else he derived from the asset”. The real rights of third parties are not annulled, even if they had knowledge of the right of rescission.195

(e)

The revocation of a donation (art. 505 Gr.C.C.)

The revocation of a donation has the effect that the obligation is terminated ex nunc. Where the donor has not performed his obligation to provide the donee with the asset, his obligation no longer exists. Where ownership has transferred to the donee but the donor has not yet delivered possession, the donor is no longer obliged to do so. The donee cannot invoke the vindicatory action against the donor, since the latter has, according to art. 1095 Gr.C.C., a right to possess vis-à-vis the “owner” (in this case the donee). This is relevant in the case of immovables, where the ownership of property has been transferred but the donor is still the possessor.196 Where the donee has also delivered possession, the real agreement is not automatically reversed but the donor has the right to claim back the asset 191 192 193

194 195 196

Piraeus Court of Appeal 598 / 1996 in Elliniki Dikeosini 1998, p. 673. Georgiadis, Law of Obligations – General Part, p. 517. Supreme Court 236 / 1992 in Elliniki Dikeosini 1993, p. 1309; Supreme Court 696 / 1982 in Nomiko Vima 1983 p. 659. Georgiadis, Property Law I, p. 65. Georgiadis, Law of Obligations – General Part, p. 519. Thessaloniki Court of Appeal 2350 / 1991 in Armenopoulos 1991, p. 1195.

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delivered based on the provisions of unjustified enrichment (art. 509 (b) Gr.C.C., art. 904, 908 Gr.C.C. conditio possessionis).

(f)

Impossibility of performance

In the case of impossibility of performance without the fault of the either party, both parties are freed from their obligation to perform (art. 363 and 380 Gr.C.C.).197

(g)

Contract subject to a condition

The general provisions regarding legal transactions are applicable to the real agreement. Therefore, the real agreement can also be subject to a condition. The retention of ownership clause can be, depending on the intention of the contracting parties, either a resolutive or a suspensive condition.198 According to art. 532 Gr.C.C., where the parties have not agreed otherwise, the retention of ownership clause is a suspensive condition.199 This means that the purchaser obtains detention of the movable and executes possession for the owner. As soon as the condition is fulfilled he also obtains ownership ipso jure.200 The agreement that the contract is subject to this condition must be part, not only of the obligation, but also of the real agreement. Otherwise, the purchaser will obtain ownership and then the scope of this condition will not be fulfilled.

5.3.3. Cases where the abstract system might be said to be undermined The abstract system is considered to be undermined in cases where the general rules of the civil law are applicable to the real contract, as set out below. (a) The problem may, first, occur where both the real contract and the obligation are void or voidable, such as in cases of lack of legal capacity

197 198 199 200

Athens Court of Appeal 6619 / 1997 in Armenopoulos 1998, p. 1350. Athens Magistrates’ Court 2049 / 2000 in Archio Nomologias 2003, p. 546. Georgiadis in Georgiadis – Stathopoulos Civil Code V, art. 1034, p. 433. Georgiadis in Georgiadis – Stathopoulos Civil Code V, art. 1034, p. 433.

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(art. 128, 131 Gr.C.C.),201 simulated declaration,202 declaration made in error and sham transactions.203 According to art. 138 Gr.C.C., this mostly happens in cases where both contracts are conducted at the same time. It has to be noted that this does not mean that where contracts are simultaneously performed and there is a defect regarding the obligation, this should automatically affect the real contract. Whether the defects of the obligation burden the real contract depends on the special circumstances of every single case.204 For example: A is under compulsory psychiatric treatment and, therefore, lacks legal capacity, but nevertheless purchases a movable good on credit and accepts it. In this case, the purchase contract, like the real agreement, is void. In the case of the sale of immovables, both the real agreement and the obligation have to fulfil the precondition of the prescribed written form. Both have to be conducted in the form of a notarial agreement. If the obligation does not fulfil this precondition in respect of one of the essential parts of the agreement, then only the part of the agreement which does not have the requested form is void.205 This can happen where the contracting parties agree a higher price for the sale of a property, but refrain from mentioning it in the contract. In this case, the seller cannot raise a claim for the difference based on the provisions of unjustified enrichment against the purchaser, since the latter has lawfully acquired the property and has paid the agreed purchase amount. The purchaser, on the other hand, has a claim against the seller based on the provisions regarding unjustified enrichment, in case he paid a price higher than the lawfully agreed amount.206 (b) Where the transaction is inconsistent with a prohibitive provision of the law, the transaction is considered null (art. 174 Gr.C.C.).207 From the interpretation of the provision, it follows that it prohibits not only the obligation but the real contract as well.208

201

202 203

204 205

206

207

208

Thessaloniki Court of Appeal 2578 / 1986 in Armenopoulos 1987, p. 117; Supreme Court 1274 / 1994 in Elliniki Dikeosini 1996, p. 608. Thessaloniki Court of Appeal 2578 / 1986 in Armenopoulos 1987, p. 117. Supreme Court 1169 / 2003 (purchase agreement for real estate); Thessaloniki Court of Appeal, 2578 / 1986 in Armenopoulos 1987 p. 117. Balis, General Principles, para. 75, I; Spyridakis, Property Law 3, para. 141δβ. 4 / 2005 Experts’ opinion of the Public Prosecutor of the Court of First Instance Larissa and see also footnote below. Supreme Court 1126 / 2002, in Elliniki Dikeosini 2004, p. 208; Court of First Instance Ilia, 108 / 2002 in Archio Nomologias 2003, p. 375. Art. 174: A transaction which is inconsistent with a prohibitive provision of the law is, unless a different conclusion can be drawn, null. Georgiadis, Property Law I, p. 467;Spyridakis, Property Law 3, para. 141δβ.

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(c) Where the transaction is contrary to rules of morality (art. 178 Gr.C.C.), this may affect the underlying contract as well as the real agreement. Normally, the transfer of ownership is a morally neutral act.209 In most cases the immoral motives exist only in relation to the obligation. These motives can also apply to the real agreement, where ownership is being transferred in order to complete unethical purposes.210 For example, a burglar planning to break into a shop buys a tool that is necessary for his undertaking from B who is aware of A’s plan. Both the obligation and the real agreement are unethical. As noted, transfer is ordinarily a morally neutral act, although sometimes, from the interpretation of the circumstances, it follows that with the transfer of ownership immoral targets / goals are pursued, or an immoral cause was the reason for the annulment of the transfer of ownership, or indeed the real agreement itself is immoral.211 According to art. 179 Gr.C.C., a transaction is contrary to morality in the following cases: (1) where the freedom of a person is prejudiced excessively; (2) where a benefit (or a third party’s benefit) is achieved through an exploitation of the need, levity of character or lack of experience of the other party; or (3) where the pecuniary advantages of the transfer are obviously out of proportion to the consideration furnished. Art. 179 Gr.C.C. is not applicable when there is merely an obvious discrepancy between performance and counter-performance, both preconditions must also be fulfilled.212 It is sufficient that the person who obtained the disproportionate advantages obtained them having knowledge of the existing need of his contracting counterparty213 and knowingly takes advantage of this. Note that when it can be proved, for example, that a piece of property has been transferred to the acquirer at an extremely low purchase price not representative of the property in question for a specific reason (e.g. for reasons of gratitude due to the fact that the acquirer had provided her domestic services to the former owner), then, in this case, art. 179 is not applicable.214 Both the purchase agreement and the real agreement are valid. In the case of usury the voidness is absolute,215 resulting in the real contract and the obligation being null. According to the prevailing opinion, the voidness affects not 209 210 211 212

213

214 215

Georgiadis in Georgiadis – Stathopoulos Civil Code V, art. 1034, p. 428. Balis, General Principles, para. 65. Balis, General Principles, para. 65. Piraeus Court of Appeal 960 / 1989 in Archio Nomologias 1989, p. 446; Patras Court of Appeal 1347 / 1990 in Elliniki Dikeosini 1991, p. 1338. Piraeus Court of Appeal 96 Archio Nomologias 2002, p. 470; Lamia Magistrates’ Court 76 / 2004 in Archio Nomologias 2005, p. 85. Athens Court of Appeal 5506 / 2001 in Archio Nomologias 2002, p. 470. Athens Court of Appeal 5506 / 2001 in Archio Nomologias 2002, p. 470; Piraeus Court of Appeal 960 / 1989 in Archio Nomologias 1989, p. 446; Thessaloniki Court

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only the obligation but the real contract as well.216 Art. 179 Gr.C.C. is also applicable in case of deceit.217 (d) The validity of the obligation may be a condition for the validity of the transfer of ownership (“Bedingungszusammenhang”). Such a condition can be considered as agreed between the parties when the contracting parties have reservations about the validity of the underlying contract and, at the same time, they do not wish the ownership to be transferred on grounds of a void obligation.218 (e) Finally, there may be cases where the obligation and the real contract can be considered as a whole. Art. 181 Gr.C.C., according to which “the nullity of a part entails the nullity of the transaction as a whole if it can be deduced that the transaction would not have been concluded without the void part”, can be applied analogously. As the obligation and the real contract appear, from an outside perspective, as a single act in the transfer of movable property, the nullity of the obligation could also affect the validity of the real agreement.219 However, the analogous application of art. 181 Gr.C.C. would invalidate the basic principle of the abstract system, which regulates the transfer of ownership of movable goods.220

5.4.

Traditio

5.4.1. Purposes of the delivery requirement, policy behind the rules For the transfer of ownership, the agreement between the alienator and the acquirer is not sufficient. The transfer of possession is required. Through the delivery of possession, the importance of the transaction is made clear to third parties (transparency) and, at the same moment, it is made obvious that there is a change regarding the real situation (protection of third parties). The delivery of possession fulfils the requirement of publicity in the same way as the registration of immovables. This requirement is only partially accomplished, since the delivery of possession is understood in the ways described in articles 976 through 978 Gr.C.C., meaning that not only the delivery of possession but also the delivery equivalent is a lawful way to

216

217 218 219 220

of Appeal, 2578 / 1986 in Armenopoulos 1987, p. 117; Supreme Court 1734 / 1998 in Episkopisi Emborikou Dikeou 2000, p. 286. Balis, General Principles, para. 66; Georgiadis, General Principles of Private Law, p. 277; Supreme Court 1601 / 2003 Nomiko Vima 2004, p. 980. Supreme Court 1734 / 1998 in Episkopisi Emborikou Dikeou 2000, p. 286. Georgiadis in Georgiadis – Stathopoulos, Greek Civil Code V, art. 1034, p. 428. Georgiadis, Property Law I, p. 468. Georgiadis in Georgiadis – Stathopoulos, Civil Code V, art. 1034, p. 428.

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transfer ownership of movable goods. This gives rise to questions regarding the appropriateness of delivery as a prerequisite for the acquisition of the ownership of a movable asset.221

5.4.2. Forms of delivery and delivery equivalents Art. 1034 Gr.C.C. provides that for the transfer of ownership the delivery of possession is required. Delivery of possession is normally performed through physical delivery. In some cases, instead of physical delivery, the possession can be transferred by means of the delivery equivalents as provided in articles 976 through 978 Gr.C.C.222 (see above 2.3.). The law provides that in the following cases physical delivery of possession is not necessary and the agreement between the parties (transferor and transferee) is sufficient for the possession to be transferred: 1. the transferee is able to exercise physical power over the asset at any time; 2. the transferee already handles the asset (the transferee is detentor); 3. physical delivery is temporarily not possible; or 4. it would make no sense (for example, when the possessor is going to keep the asset as detentor).

(a)

Physical delivery

The transfer of possession is realised with the corporeal delivery of the good from the former possessor to the new possessor. From the wording of art. 976 (1) Gr.C.C. it follows that, for the realisation of the corporeal delivery, the requirements below must be fulfilled. (i) The former possessor must be withdrawn from any form of physical power over the movable asset. The transferor gives up possession when he delivers the asset to the transferee personally, or when the servant in possession or the detentor delivers the asset to the transferee following the transferor’s orders. He also gives up possession when he causes the servant in possession to be the new possessor. This is also the case when the transferor indicates to the servant in possession that he no longer is his servant in possession but 221

222

Greek writers consider this question as a matter of legislative politics and give reference, in respect of this matter, to German literature. At this point, it should be mentioned that in Greek legal literature (sometimes also in court decisions) it is common use to give reference not only to German legal literature but also to decisions of German courts. Georgiadis in Georgiadis – Stathopoulos, Civil Code V, art. 976-977, p. 229; Spyridakis, Property Law 3, para. 73δ; the delivery equivalents are a means of contractual transfer of possession, which were established in order to facilitate the transactions.

5. Which system of transfer is used

259

the servant in possession of the transferee and, therefore, he has to follow the transferee’s orders. (ii) The transferee must obtain physical control over (possession of) the asset. This requirement is considered to be fulfilled when the movable is either delivered to the transferee in person, or to his servant in possession or to a third authorised party who will be in detention of the asset on behalf of the new possessor. The transferee also obtains physical control over the asset in the above-mentioned cases and in the case where the servant in possession is turned into a possessor or a servant in possession on behalf of the transferee. (iii) The transfer of possession from the former possessor to the transferee must be conducted with the will of both parties. The will of the transferee alone is not sufficient. It is necessary that the transferor acts voluntarily, otherwise the transferee would enjoy possession wrongfully and the transferor could bring against him the action for eviction according to art. 987 Gr.C.C. Where the delivery is not effected voluntarily, as provided in art. 976 Gr.C.C. (for example the transferor lacks capacity through mental illness), possession is not delivered. The transferor loses possession (art. 984 and 1038 Gr.C.C.)223 and the transferee acquires original possession according to art. 974 Gr.C.C. As a consequence of this defective delivery, the party who loses possession can claim that the possession of the acquirer is similarly defective, and may be able to regain possession if the transferee has not satisfied the requirements for original acquisition. The delivery of possession as a factual act does not depend on the legal transaction which constitutes the cause for the transfer of ownership (for example a contract for sale). With the physical delivery of an asset the transferee becomes possessor even if this legal transaction is void.224 The courts have ruled in several decisions that the corporeal delivery of an asset is an abstract (indefeasible) and informal contract (even in the case of the transfer of ownership of an immovable) and, therefore, the regulations regarding legal transactions are applicable.225

223

224

Art. 984: Interruption of possession: Para. 1: Possession may be interrupted either by the disturbance or by the eviction of the possessor, such interruption being illegal and against the possessor’s will. Para. 2: Possession acquired by such eviction shall be defective. Such defect of possession may also be relied upon as against the successors of the possessor; it may only be set up as against a defective possessor’s successor in title if such person knew, at the time of acquisition, of the defect in the possession of his predecessor. Art. 1038: Things stolen or lost. A transfer by a person who is not the owner to a good faith acquirer shall not be effective if the owner was dispossessed of the thing transferred by theft or loss. Georgiadis in Georgiadis – Stathopoulos, Civil Code V, articles 976-977, p. 231.

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(b)225

Fictitious possession

In some cases, in order to provide to a person some of the privileges of possession, the law treats this person as a possessor, even if he does not fulfil the requirements needed: fictitious possession (plasmatiki nomi/possessio ficta). This way, the transfer of ownership of movable assets is realised without the corporeal delivery of the goods.226 For example, in the case of the possessor’s death the possession is, according to art. 983 Gr.C.C., transferred to his heirs, without the necessity of them having acquired physical power over the asset or them having obtained knowledge of the death. Another example is art. 2 para. 1 Law 1539/1938 “regarding the protection of public property”. The physical delivery of possession requires that both parties act voluntarily. It does not, however, require declarations of intention in the technical sense of art. 127 et seqq. Gr.C.C. A declaration of intention is not required and the provisions regarding legal capacity are not applicable. Physical delivery is considered to be a factual act.227 The annulment of the physical delivery on the ground of error is not possible. Also, it is not possible to make the physical delivery of possession subject to a condition or a term.

(c)

Handing over certain means or an “instrument”

This is the case of longa manu traditio (see above 2.3.2.(a) on the acquisition of possession). The requirements for the longa manu traditio are: (a) The transferor must be the possessor. Where the agent in possession is not authorised by the possessor to transfer possession, he is not entitled to transfer possession according to art. 976 Gr.C.C. (b) The transferee must have the capacity to exercise physical power over the thing. Temporary hindrances do not impede the delivery. For example: a boat anchored at the seaside; a certain quantity of timber situated outdoors; insulation material which is stored outside. Similarly, the transferor hands over to the transferee the one and only key that exists for the warehouse where the movable asset is stored. The parties can 225

226 227

Supreme Court 1307 / 1982 in Efimeris Ellinon Nomikon 50, p. 585; Single Member Court of First Instance Messolongi 72 / 1991 in Archio Nomologias 1993, p. 49; Multi Member Court of First Instance Thessaloniki 5221 / 1993 in Elliniki Dikeosini 1993, p. 1546; Supreme Court 809 / 1989 in Nomiko Vima 1990, p. 1434; Multi Member Court of First Instance Larissa 725 / 1994, in Archio Nomologias 1997, p. 533; Athens Court of Appeal 573 / 2002 in Elliniki Dikeosini 2003, p. 225; Multi Member Court of First Instance Drama 65 / 2004 First publication NOMOS Legal Database. Kousoulas, Property Law, p. 169. Georgiadis in Georgiadis – Stathopoulos, Civil Code V, art. 976-977, p. 231.

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agree that the possession of a car can be transferred by the handing over of the keys of the vehicle.228. The purchaser of iron receives from the seller the receipt for the payment and obtains ownership of the amount of iron he purchased.229 (c) An explicit or an implicit agreement between the transferor and the transferee, that the transferor abandons possession and the transferee acquires it, is also necessary. The agreement must not be made at the location the thing is situated. This rule covers methods that enable access to and physical control over the asset.

(d)

Transfer by transferring certain documents of title

The law recognises the following types of documents: the warehouse warrant, the bill of lading, the sea waybill (Seefrachtbrief), the air consignment note (Luftfrachtbrief). According to art. 978 Gr.C.C., regarding movable things deposited in a warehouse or taken over by a transporter, if a warehouse warrant or bill of lading has been issued in respect of such goods or things, the transfer of possession is effected by the transmission of the warehouse warrant or the bill of lading. Art. 978 Gr.C.C. varies art 977 Gr.C.C. due to the existence of documents of title. With the delivery of the goods to the transporter for transportation he becomes a detentor, while the consignor remains possessor. For the delivery of possession, the delivery of the documents of title is necessary and also sufficient. Those documents incorporate the right of possession over the goods to be transported, as long as they remain in the detention of the transporter. Where the goods leave the transporter’s sphere of control, i.e. get lost or stolen, then the real power of the documents of title terminates and the delivery of them does not constitute the delivery of possession of the goods.230 Art. 978 Gr.C.C. provides that the transmission of the warehouse warrant or the bill of lading is necessary, which also includes the delivery of the paper. This can not be done by the simple possessor (for example, thief) or the detentor, but only by the one who has been authorised by the paper to act in that manner (i.e. the owner of the 228

229 230

Kousoulas, Property Law, p. 201. As the transfer of ownership of cars requires the preconditions of art. 1034 Gr.C.C. to be fulfilled, the longa manu traditio can be an appropriate delivery equivalent. Over and above the requirements of art. 1034 Gr.C.C., certification of the transfer is necessary; see above 4.1.6. Alexandroupolis Court of Misdemeanours 357 / 1991 in Iperaspisi 1993, p. 629. Georgiadis, Property Law I, p. 171 et seq.

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rights incorporated in the paper). The transmission of the paper, i.e. the rights incorporated in the paper, has to be completed according to the legal rules governing the transmission of documents of title.

(e)

Constitutum possessorium

As to transfers by way of constitutum possessorium (art. 977 cond. A Gr.C.C.), see above 2.3. on the acquisition of possession).

(f)

Transfer of goods in possession of third party

Where a third party exercises physical control over the goods, Greek property law provides for two ways for a transfer of ownership. On the one hand, a transfer is possible by giving an order to the third party holding the movable (ektaxi nomis) (art. 977 section 2 Gr.C.C.). This option is considered above (see 2.3.2.(d)). Alternatively, where the owner of an asset does not have possession or detention of it, he can then transfer ownership of the asset by assigning his claim against a third person for the return of his property to the acquirer (art. 1035 Gr.C.C.).231 The purpose of this provision is to facilitate the transfer of ownership of a movable asset and, in order to achieve this, the law accepts the lack of publicity which is ordinarily manifested by the delivery of possession. The assignor must be the owner of the asset without having possession of it. He must also have the power to dispose of the good. The owner and the acquirer must conclude an agreement that ownership will be passed over to the acquirer. The claim for the return of property must be assigned. The claim has to be understood in a material way (Herausgabeanspruch) and not in a procedural way, since legal actions cannot be subject to assignment. It is not necessary that the assignment of the claim is explicitly agreed. Since the owner is not in possession of the good, it is agreed that the agreement regarding the transfer of ownership also necessarily implies the assignment of the claim.232 It is not required that the third party has to be given notice regarding the assignment of the claim since, probably, this is an unknown person.233 However, where the identity of the holder of the good is known to the owner or the assignee it makes sense (but it is not compulsory) to give him 231

232 233

Supreme Court 1136 / 2000 in Elliniki Dikeosini 2001, p. 1350; Athens Court of Appeal 464 / 2005 in Elliniki Dikeosini 2005, p. 1524. Georgiadis, Property Law I, p. 480 et seq. Georgiadis in Georgiadis – Stathopoulos, Civil Code V, art. 1035, p. 449.

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notice of the assignment of the claim. This protects the interests of the acquirer by opening up the possibility of filing an the action for return of his property (art. 461). Also, a liability on the third party, who is in possession of the asset, vis-à-vis the assignee-acquirer is established.234 Ownership passes when both legal transactions become effective. The differences to transfer of ownership by giving order to the third party holding the movable (ektaxi nomis) are the following: (a) in the case of the assignment of the claim for the return of the property, the owner does not have possession while, in the case of the transfer of ownership by giving order to the third party, he has possession but lacks detention of the good; (b) in the case of the assignment of the claim for the return of the property, ownership is transferred with the assignment of the real claim while, in the case of the transfer of ownership by giving order to the third party, the obligation is transferred to the acquirer, which is based on the underlying contractual relationship (e.g. lease etc.); and (c) where an order is given to the third party, the transfer of possession is only valid from the moment he receives notification of it while, in the case of the assignment, notification is not a prerequisite for the acquisition of ownership.

5.5.

Registration

See above, 4.1.

5.6.

Consensual system

In Greece the transfer system is abstract.

5.7.

Real agreement

Regarding the case that the obligation to transfer ownership is not a contractual one but an obligation from unjustified enrichment see above 5.3.2.(b). According to the Greek system, which is abstract, for the transfer of ownership of movable goods an agreement between the transferor and the acquirer is necessary. This agreement, together with the delivery of the as-

234

Georgiadis in Georgiadis – Stathopoulos, Civil Code V, art. 1035, p. 449.

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set, constitutes the real agreement, which is separate from the underlying obligation. The real agreement is decisive for the transfer of ownership. The real agreement is a bilateral act and it is concluded informally; it can be concluded both explicitly and implicitly. It is usually concluded implicitly: the agreement is inherent in the delivery of the asset.235 The general provisions regarding legal transactions are applicable e.g. legal capacity, representation, conditions etc. The existence of the concept of “real agreement” in the Greek Civil Code is justified because it derives from the Byzantine-Roman law and has been included Greek jurisprudence. On the other hand, it can be criticised as a construction contrary to the understanding of everyday life.236

5.8.

Payment

In Greek Civil Law there is no requirement that the transfer of full ownership requires payment, unless there is an agreement to the contrary.237

5.9.

Right to dispose

Ownership can be validly transferred by the person entitled, who is normally the owner. Sometimes, however, someone else has a right to dispose besides the owner. This can be based on the will of the owner, e.g. the owner has granted a right to a representative to conduct, in his name and for his account, legal transactions (art. 211, 216 Gr.C.C. – representation). In these cases, the disposition is treated as if it was made by the entitled person himself. The right to dispose can be granted to a person other than the owner by law, e.g. the pledgee and the mortgagee. In the case of a direct representation, the ownership is transferred directly, without becoming part of the representative’s property first (regarding indirect representation, see below 8.).238 The disposition can be conducted by a person lacking the authority to do so. If, however, it was made with the consent of the rightful owner, art. 239 Gr.C.C. additionally provides that in the following cases, the disposal, effected without the consent of the person entitled, is valid. Those cases are: a) if the rightful owner has approved the transaction the disposal 235 236 237

238

Georgiadis in Georgiadis – Stathopoulos, Civil Code V, art. 1034, p. 429. Filios, Property Law, p. 52 et seq. The real agreement as already mentioned can be subject to conditions. The reservation of title has to be agreed between the parties. No discussion is made on the question regarding an implied of reservation of title. Georgiadis, Property Law I, p. 474.

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becomes retroactively valid; b) where the person disposing obtains ownership of the good then the transaction is cured with an ex nunc effect; and c) where the person who disposed inherits from the owner, the disposal is confirmed ex nunc. Regarding the last two cases, if several disposals incompatible with each other were made, the earlier in date prevails. The regulations regarding the acquisition of ownership a non domino (art. 1036 Gr.C.C.) also apply. The owner can ratify an act of disposition by a person lacking the right to dispose, according to art. 236 et seqq. Gr.C.C. Until the owner ratifies the transaction, it is provisionally invalid but binding. Where the approval is granted, then the transaction is valid from the date of the transaction (ex nunc), according to art. 238 Gr.C.C. The approval cannot be subject to a condition or a time limit, or effect the alteration of the conditions agreed regarding the transaction.239

6.

The rules on double selling

The owner of an asset can make as many agreements as he wishes, but he can only transfer ownership to one person. By transferring ownership, his ownership right is extinguished and he can no longer transfer ownership to a third party unless the rules on good faith acquisition are applicable in favour of such third party. The rules on double selling are, therefore, understood to be rules on good faith acquisition (see below 12.).

7.

Rules on selling in a chain

Regarding the rules on selling in a chain, a reference has to be made to the transfer of ownership by means of indirect representation (see below 8.).

8.

Transfer or acquisition by means of indirect representation

The representation is indirect when the representative conducts the legal act in his own name, but on the account of the principal. In this case, an additional legal act between the representative and the represented person is necessary in order to transfer to the represented person the rights obtained or the obligations entered into by the representative by means of the initial legal act. The Greek Civil Code does not explicitly provide for the form of 239

Georgiadis, General Principles of Civil Law, p. 367.

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indirect representation, but from wording of the art. 211 para. 1 and 212 Gr.C.C. it follows that it is considered as existing.240 Indirect representation is possible in respect of the transfer as well as in respect of the acquisition. 1. Indirect representation of the acquirer. Where the (indirect) representative conducts the transfer agreement in his own name, but on the account or in the interest of the person represented (art. 212 Gr.C.C.), ownership is transferred first to the indirect representative who then subsequently transfers ownership, based on a new real contract with the person represented. The fact that ownership is acquired first by the intermediary can create a problem, e.g. where the asset is seized by the intermediary’s creditors. The remedy for these cases is to pre-agree that the intermediary will transfer ownership to the principal by way of a constitutum possessorium anticipatum (see above 2.3.2(c)). 2. Indirect representation of the transferor. In this case, the representative conducts the real contract in his own name, having the consent of the owner241 according to art. 239 par. 1 Gr.C.C., and he delivers the asset which he is entitled to have in his hands either as a servant in possession or as a detentor. 3. Representation regarding everyday purchases. Everyday purchases are cash transactions which are contemporaneously performed and it is irrelevant for the wholesaler who his customer is.242 With everyday purchases, ownership passes directly to the principal. The requirements are: a) it is irrelevant to the seller who acquires ownership and possession of the movable; and b) it must result from the circumstances that the intermediary acquires for the principal (whom it may concern or agent as such for an unnamed principal).243 The difference between the transfer of ownership by means of indirect representation and constitutum possessorium anticipatum, and the transfer of ownership to whom it may concern is, in the first case, ownership is acquired by the intermediary for a logical second and then passes over to the

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Georgiadis, General Principles of Civil Law, p. 342: From art. 211 and 212 it follows that direct representation exists only in the case where the representative obviously acts in the name of the person represented. Art. 239 para. 1 Disposal without right: The disposal of a thing without a right shall be valid if the disposal was made with the consent of the rightful owner. Georgiadis, General Principles of Civil Law, p. 361. Georgiadis, Property Law I, p. 477, Greek authors and Greek case law follow the theory of the German BGH with respect to the ”Geschäft für den, den es angeht” and it is also considered to be part of the Greek legal system. Supreme Court 58 / 1975 in Nomiko Vima 23, p. 879; Piraeus Court of Appeal 256 / 1997 in Commercial Law Review 1997, p. 329.

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acquirer while, in the second case, the principal obtains ownership directly from the alienator.244

9.

Consequences of the insolvency of transferor or transferee

9.1.

General issues

9.1.1. Insolvency and contracts According to the new Greek Insolvency Code (Law Nr. 3588 / 2007), which came into force on September 16th 2007, special provisions are stipulated regarding synallagmatic contracts, also known as reciprocal or bilateral contracts (articles 28 through 36 bear the title “Consequences of Insolvency regarding contracts”).245 It has to be noted that the provisions of the Greek Insolvency Code are mandatory. The rule formulated in art. 28 through 31 Greek Insolvency Code246 is a general rule. According to this rule the insolvency does not terminate ipso 244 245

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Georgiadis, Property Law I, p. 475 et seqq. Until the new Greek Insolvency Code was put in force, there were no specific regulations so therefore the general rules regarding synallagmatic contracts and art. 671, 672 Gr. Commercial Law were applicable by analogy. According to those provisions insolvency was no reason for the termination of pending synallagmatic contracts. Regarding the pending contracts which remained valid after the commencement of the insolvency proceedings the administrator in insolvency proceedings had the right by applying art. 672 Gr. Commercial Law in analogy, to subrogate the group of creditors’ rights. Nikos K. Rokas, Elements of Insolvency Law, p. 50 et seqq. Art. 28 Contracts remain valid: The synallagmatic contracts that the debtor is a party to, which at the commencement of the insolvency proceedings are pending, remain valid, except for the cases where the law provides otherwise. Art. 29 Right to choose: Para. 1 The administrator in insolvency proceedings has the right to adopt the pending contracts. In this case he supersedes the group of creditors as debtor and he can claim performance from the contracting party. This makes the latter (the contracting party) a creditor of the group. Para. 2 Where the administrator in insolvency proceedings does not make use of his right to choose within 10 days from the submission of his report, the contracting party has the right to set a reasonable time limit within which the administrator in insolvency proceedings can exercise his right. Where the administrator in insolvency proceedings does not respond within this time limit set by the contracting party, or where he denies performance the contracting party has the right to rescind the contract and claim damages for non-performance, at which point he has to be satisfied as a creditor of

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jure synallagmatic contracts which have not been fulfilled at the moment of insolvency (pending synallagmatic contracts) and the contracts in execution of which performance has commenced but has not been completed yet (Dauerverträge). The administrator in insolvency proceedings succeeds to such obligations which exists at the moment the insolvency proceedings commence.247 Pending synallagmatic contracts, by the means of the regulations of art. 28 et seqq. Greek Insolvency Code, are classed as the contracts which have been concluded by the debtor before the commencement of the insolvency proceedings, but have not been fulfilled at the moment of insolvency.248 Art. 29 of the Greek Insolvency Code allows the administrator in insolvency proceedings to choose whether to adopt the pending contract(s) or not (Wahlrecht, right to choose). Where he decides to adopt the contract, then the group of creditors supersedes the debtor. The contracting party whose performance is claimed by the administrator in insolvency proceedings becomes a creditor of the group (omadikos pistotis – ομαδικός πιστωτής).249 The regulations of art. 374 et seqq. Gr.C.C. are applicable and the claims that might arise will also be claims of the creditors of the group. Where the contracting counterparty is obliged according to contract to perform in advance, the administrator in insolvency proceedings can claim this. The contracting party obligated to perform in advance can refuse to

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the insolvent debtor. Para. 3 The right of the administrator in insolvency proceedings for performance or otherwise relate to the synallagmatic contracts that are known to him, particularly those included in the list handed to him by the debtor. Art. 30 Contracts concluded by the administrator in insolvency proceedings: Claims deriving from contracts concluded by the administrator in insolvency proceedings are to be satisfied as claims of the group of creditors. Art. 31 Contracts which are void or maintained: Para. 1 Contracts, in execution of which performance has commenced but has not been completed yet are not terminated, except where the law or such contract provides otherwise. Para. 2 The commencement of insolvency proceedings is a valid cause for the termination of a contract with a personal character (intuitus personae) where the debtor is contracting party and for the contracts which are terminated or can be terminated by a special provision of law. Kotsiris, Insolvency Law, p. 318. Psychomanis, Insolvency Law, p. 158. Psychomanis, Insolvency Law, p. 160. The decision that declares the insolvency simultaneously joins the creditors de jure as a group. This is considered to be a consequence of the insolvency having the character of a collective procedure – Kotsiris, Insolvency Law, p. 272. In the group of creditors all in abstracto creditors are represented. At the meeting of creditors only the in concreto creditors participate.

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perform if the settlement of his claim from the debtor’s estate is doubtful. In this case he can deny the performance until the administrator in insolvency proceedings provides security or proceeds simultaneously to the fulfilment of his part of the contract (according to art. 377 Gr.C.C.).250 However he has no right to dissolve the contract. Where he proceeds with his in advance performance then regarding his claim for counter performance he is considered as a creditor of the group of creditors, according to art. 29 para. 1 Greek Insolvency Code.251 Where the insolvent party is obliged to perform in advance then the administrator in insolvency proceedings has to proceed with the in advance fulfilment in order to have the right to claim counter-performance from the contracting party. In the case of contemporaneous performance (Zug um Zug Leistung) the administrator in insolvency proceedings has to provide his counter-performance when he claims performance, otherwise the contracting party can refuse performance by the reciprocal defence of lack of performance of the contract (art. 374 Gr.C.C. plea non adimpleti contractus).252 The right to adopt a contract has to be exercised within a time period of 10 days after the administrator in insolvency proceedings has entered into his duties and after he has submitted to the creditors’ meeting the report required under art. 70 Greek Insolvency Code253 or within a reasonable time period set by the contracting party where the administrator in insolvency 250

251 252

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Art. 377: A person who has the obligation arising from a synallagmatic contract to perform in advance and who’s claim for counter performance is endangered by a substantial diminution of the estate of the other party, which he did not know nor ought to have known at the time of the conclusion of the contract, can refuse the performance until the other party has provided security. Psychomanis, Insolvency Law, p. 163. Art. 374 Defence of lack of performance (or non-performance) of the contract: Para. 1 A person whose obligation arises from a synallagmatic contract has the right to refuse his performance as long as the other party does not perform or does not offer the counter-performance unless he is obligated to perform first. Para. 2 Where performance has to be made to numerous parties, the defence can be held against each one of them up to the corresponding part until the performance in total is provided or offered. Art. 70 Greek Insolvency Code – The report of the administrator in insolvency proceedings: Para. 1 The administrator in insolvency proceedings is obliged to submit to the creditors’ meeting a report regarding the financial situation of the debtor and the reasons for his insolvency, the options for keeping the enterprise wholly or partly as a going concern, the viability of the application of a reorganisation plan and the expected outcome for each case as may be in order to satisfy the creditors’ claims. Para. 2 The administrator’s report must be disclosed to the judge in insolvency, the

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proceedings has been inactive (art. 29 para. 2 Greek Insolvency Code). In this period of time the contract is considered pending or dormant.254 The contracting party does not have to set a reasonable time period if from the administrator’s behaviour renders this unnecessary or if the contracting party is no longer interested in the fulfilment of the contract due to the delay. After the lapse of time due to inactivity or the refusal of the administrator in insolvency proceedings to perform, the contracting party has the right to rescind the contract and to claim damages for non-performance. In order to fulfil this claim he participates in the insolvency proceedings as a creditor in insolvency (art. 29 para. 2, Greek Insolvency Code).

9.1.2. Sale under the condition of retention of title Art. 35 Greek Insolvency Code provides a special regulation for the sale of a movable under the condition of retention of title.255 (a) If the insolvent transferor sold the movable before the commencement of the insolvency proceedings under the condition of the retention of title and he delivered (in the understanding of art. 1034 G.C.C.) the movable to the transferee, then the commencement of the insolvency proceedings is no reason to terminate or rescind the contract. The transferee will acquire ownership of the movable as agreed between the contracting parties. The contracting parties are bound to the contract and the admin-

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debtor, the committee of inspection, the representative of the employees at least 10 days before the meeting of the creditors’ takes place, in order to comment it. Psychomanis, Insolvency Law, p. 162. Art. 35 Greek Insolvency Code – Retention of title: Para. 1 Where the debtor before the commencement of the insolvency proceedings sold a movable good with the reservation of ownership until the payment of the purchase price and has delivered the movable to the purchaser, the commencement of the insolvency proceedings does not form a cause for the termination or rescission of the contract and it does not prevent the purchaser from acquiring ownership as agreed. Para. 2 Where the debtor before the commencement of the insolvency proceedings purchased a movable good with the reservation of ownership until the payment of the purchase price and the movable was delivered to him, the commencement of the insolvency proceedings does not prejudice the seller’s rights deriving from the retention of title. The seller has the right to set a time limit to the administrator in insolvency proceedings so he can exercise his right to choose according to art. 29. If the administrator in insolvency proceedings refuses to perfect the clause, the seller has the right to appropriate the movable from the insolvent party’s estate without a prior rescission of the contract. The seller can exercise this right only after the submission of the administrator’s report under to art. 70 Greek Insolvency Code.

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istrator in insolvency proceedings can exercise the rights deriving from art. 532 Gr.C.C. (see below 15.) If the transferee is in default of payment of the purchase amount, the administrator in insolvency proceedings can either claim the payment of the amount that remains outstanding or rescind the contract for sale and consequently claim the recovery of the movable according to the provisions for unjustified enrichment or with the action for recovery of goods (since the condition under which the movable was transferred has failed).256 The expectation of the purchaser to acquire ownership by paying off the agreed amount does not depend on the right of the administrator to choose whether or not to perform under art. 29 Greek Insolvency Code. Further, it can not be defeated by the administrator’s refusal to perform.257 Where the parties had agreed that the transferor was not only to transfer the ownership of the movable but also to assemble the movable, and the administrator does not fulfil this obligation by making use of his right to choose, then the acquirer can obtain ownership with a reduction of the purchase price.258 (b) If the insolvent transferee purchased the movable before the commencement of the insolvency proceedings under the condition of the retention of title and the movable was delivered to him, the commencement of the insolvency proceedings does not prejudice the transferor’s rights deriving from the condition of retention of title. The transferor has the right to set a time limit for the administrator in insolvency proceedings to exercise his right to under art. 29 Greek Insolvency Code. Where the administrator in insolvency proceedings decides to refuse performance, the transferor has the right of separation of the movable in question from the debtor’s estate (according to art. 37 Greek Insolvency Code, considered further below). This does not require the transferor to rescind the contract in order to make use of his right. However, there is a precondition that the administrator in insolvency proceedings has submitted his report under art. 70 Greek Insolvency Code. This is to prevent assets belonging to the debtor’s estate being taken away immediately after the commencement of the insolvency proceedings.259

256 257 258 259

Psychomanis, Insolvency Law, p. 165. Kotsiris, Insolvency Law, p. 347. Kotsiris, Insolvency Law, p. 349. Kotsiris, Insolvency Law, p. 347.

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9.1.3. Avoidance and actio Pauliana Any alienation effected by the insolvent debtor to the detriment of the creditors or to the benefit of only one creditor (or a select group of creditors), can be defeated. The insolvent party’s actions can be avoided according to the general provisions of art. 939 et seqq. Gr.C.C. (defrauding creditors – actio Pauliana) as well as according to the specific regulations stipulated in art. 41260 through 51 Greek Insolvency Code. The scope of the avoidance stipulated in the Greek Insolvency Code is to reverse the reduction in assets which occurred up to the moment of the commencement of the insolvency proceedings and to restore the situation of the debtor’s property as it would have been if he had not proceeded with the actions that caused the reduction. The legal instrument of avoidance is to be used for actions which were conducted within the time period from the cessation of payment until the commencement of the insolvency proceedings. This time period is referred to as the challengeable period (ύποπτη περίοδος). Actions of the debtor before the challengeable period can be avoided only by the administrator in insolvency proceedings and not by each individual creditor, according to the general provisions of art. 939 Gr.C.C. (actio Pauliana) or according to art. 44 Greek Insolvency Law regarding the unfair preference of creditors. For the actio Pauliana, the following conditions must be fulfilled. 1. There must be alienation in the sense of art. 939 Gr.C.C., being any disposition of the insolvent debtor’s property rights. The disposition can be conducted either by legal transaction or with any other procedural act.261 The alienation can be based on a gratuitous title (donation, grants of parents towards their children etc.) or on a non-gratuitous title (contract for sale etc.) – the distinction has no affect on a claim based on art. 939 Gr.C.C.262 2. The alienation has to be performed by the debtor i.e. either by himself or through a representative. 260

261 262

Art. 41 Greek Insolvency Code: Actions of the debtor which were realised within the time period from the cessation of payment until the commencement of the insolvency proceedings (challengeable period) and are injurious for the group of creditors, are avoided or can be avoided by the administrator according to the provisions of the following articles. Georgiadis, Law of Obligations – General Part, p. 718. Supreme Court 638 / 2004 in Elliniki Dikeosini 2006, p. 157; Athens Court of Appeal 5061 in Elliniki Dikeosini 2005, p. 563; Athens Court of Appeal 7239 / 2003 in Elliniki Dikeosini 2004, p. 877; Supreme Court 1482 / 2004 first publication in NOMOS Legal Database.

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3. The debtor must have acted with the intention to harm the creditors. Intention in this sense is the knowledge of the debtor that the alienation will cause a reduction in the debtor’s assets, so the interests of the creditors are harmed. Conditional intent is also sufficient, but ignorance is not sufficient, even if such ignorance has been reached through wilful blindness or is based on gross negligence.263 4. As regards the knowledge of the party in favour of whom the alienation was performed, the following distinction has to be made according to art. 941 and 942 Gr.C.C.: a) where the alienation was effected for remuneration, the third party has to have knowledge that the debtor’s alienation is harming the interests of the creditors; or b) where the alienation was made gratuitously, the knowledge of the third party is not a precondition for the avoidance of the contract. Knowledge is presumed when the debtor and the third party are relatives (art. 941 para. 2). This presumption lasts for one year from the moment the alienation is made.264 5. Insolvency of the debtor.265 The third party is obliged by virtue of the actio Pauliana to restore the original (i.e. before the alienation) condition, as the avoidance has an effect with regard to the obligations, which entails the need to retransfer the alienated asset. The court orders the avoidance only for the part of the alienation that is necessary for the fulfilment of the creditor’s claim.266 Additionally, damages can be claimed according to art. 914 or 919 Gr.C.C. (based on non-contractual liability arising out of damage caused to another). This claim is subject to a limitation period of five years from the date of the alienation, according to art. 946 Gr.C.C. In the case of the insolvency of the debtor, the actio Pauliana is brought by the insolvency administrator who represents the group of creditors and claims the retransfer of the alienated asset to the debtor’s estate.267 The respective creditors have no individual right of action against the third party (to whom the asset was alienated), since this would harm the interests of the other creditors, (as the avoidance is only effective with regard to the creditor who claims it). This would be contrary to the policy of the 263 264 265 266

267

Georgiadis, Law of Obligations – General Part, p. 720. Supreme Court 1112 / 2004 in Elliniki Dikeosini 2005, p. 74. Supreme Court 6 / 2003 in Nomiko Vima 2003, p. 1404. Supreme Court 479 / 2005 in Elliniki Dikeosini 2005, p. 1450; Supreme Court 1127 / 2005 first publication in NOMOS Legal Database. Supreme Court 1 / 2006, first publication in NOMOS Legal Database, Volos Multimember Court of First Instance 71 / 2000 in Armenopoulos 2000, p. 1262.

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proportional satisfaction of the creditors.268 The actio Pauliana can also be brought against both, the debtor and the third party, as they form a joinder of parties.269 The differences between the two legal instruments are the following: – In the course of the actio Pauliana the intent of the debtor has to be proven, but this is presumed with avoidance.270 – The actio Pauliana is more penal in character, with a view to punish the intent of the transaction(s), while avoidance is an instrument to prevent the actions of the debtor breaking the principle of the equality of the creditors. – The actio Pauliana can extend to actions from before the challengeable period. The Greek Insolvency Code also provides, in art. 44,271 regulations similar to art. 939 Gr.C.C. on the avoidance of wilful acts by the debtor.

9.2.

Insolvency of the transferor

From the moment the contract has been concluded between the transferor and the transferee, and possession (or equivalent) has been delivered, the transferee obtains ownership of the good. Where the transferor is declared insolvent the transferee is protected against the transferor’s general creditors: he can claim according to the general rules as provided by art. 1094 Gr.C.C. – action for vindication; and the separation of the movable asset from the insolvency estate according to the provisions of insolvency law (see below 9.2.1.).

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Athens Multimember Court of First Instance 1058 / 2002 in Dikeo Eterion ke Epichirisieon 2002, p. 714; Supreme Court 479 / 2005 in Elliniki Dikeosini 2005, p. 1450; Supreme Court 1127 / 2005 first publication in NOMOS Legal Database. Athens Multimember Court of First Instance 1058 / 2002 in Dikeo Eterion ke Epichirisieon 2002, p. 714. Kotsiris, Insolvency Law, p. 385. Art. 44 Greek Insolvency Code – Willful damage of creditors: The debtor’s actions performed during the five years preceding the commencement of the insolvency proceedings, performed with the intention to harm his creditors or to benefit some of them to the detriment of others, can be avoided if the third party involved knew that the debtor was acting with such intention at the moment of the performance of the action.

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9.2.1. Right of separation by the owner of a thing Ownership of a movable is not altered by the commencement of insolvency proceedings of the person who is only in possession of it. Therefore, the owner of a movable can claim the separation of the movable from the debtor’s estate based on the general provisions of art. 1094 Gr.C.C. (vindicatory action). With the vindicatory action the entitled person claims the acknowledgement of his right and the restitution of the asset. In art. 37 Greek Insolvency Code specific provisions for the separation of the movable from the debtor’s estate are stipulated (Aussonderungsrecht – πτωχευτική διεκδίκηση). Art. 37 Greek Insolvency Code272 provides the third party the power to protect his right in the movable where it has been acknowledged by the provisions of civil law.273 Separation can only be claimed for movables. Art. 37 Greek Insolvency Code stipulates that the assets that do not belong to the debtor have to be separated from the debtor’s estate and handed over to the person who has a real right or a right deriving from the law of obligations in the asset. Art. 37 Greek Insolvency Code refers to assets which are specifically determined (individualisiert) as: movables, immovables, rights in intangible assets, patents, trademarks etc. Money that has been delivered to the debtor as a deposit (art. 830 Gr.C.C. – irregular

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Art. 37 Greek Insolvency Code – Right of separation: Para. 1 A person claiming a real right or a right deriving from the law of obligations in an asset, which does not belong to the insolvent debtor, has the right to claim the separation of the asset from the debtor’s estate and its delivery to him, after prior request to the administrator. The delivery by the administrator can only be made with the consent of the judge in insolvency proceedings. Where the request is denied, the claim for separation is exercised against the administrator in insolvency proceedings according to the general provisions corresponding to the nature of the movable. Para. 2 Where an asset, the separation of which could be claimed according to section 1, has been alienated before the commencement of the insolvency proceedings by the debtor to a third party when he was not entitled to do so or has been alienated after the commencement of the administrator in insolvency proceedings, the person entitled can claim the assignment of the claim against the third party for counter-performance or the separation of the counter-performance from the debtor’s estate if identification is possible. Para. 3 Where the separation is not possible according to the above mentioned sections, the person entitled participates in the insolvency procedure as a creditor of the insolvent party according to the value of the asset. (4) In the case of the transfer of ownership by way of security with retention of possession by the debtor, the creditor, being the owner of the asset, is entitled to the separation of it. Kotsiris, Insolvency Law, p. 352.

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deposit) does not give rise to a claim for separation in such situations, only a claim against the debtor’s estate is available.274 The asset must be specifically determined and particularly defined. An entirety of goods can only be separated by the delivery of the individual components that make up such entirety.275 The person entitled to receive the separated asset has to request distribution from the administrator, who needs the prior permission of the judge in insolvency proceedings (according to art. 37 para. 1, 2 Greek Insolvency Code). Where the request of the person entitled is rejected, the claim of separation has to be exercised against the administrator according to the general provisions corresponding to the nature of the movable (art. 37 para. 1, 3 Greek Insolvency Code). Where the asset subject to a separation claim has been sold either by the debtor or by the administrator then the person entitled can claim the assignment of the claim against the third party (i.e. the purchaser) for counter-performance or the separation of the counter-performance from the debtor’s estate according to art. 37 para. 2 Greek Insolvency Code.276 Where separation is no longer possible, then the person entitled participates in the insolvency proceedings as an unsecured creditor according to the value of the movable in the usual way (art. 37 para. 4 Greek Insolvency Code). According to art. 37 Greek Insolvency Code, the insolvent debtor must have possession of the movable asset based on a deposit or on a mandate in order to sell it. Regarding the case of the “deposit in order to sell”, it is to be understood as a relationship within the framework of which the goods are deposited, in order to be sold in the name of the commission agent but for the account of the principal (indirect representation). According to the prevailing opinion, the person claiming the separation has to prove his ownership right and not the commission relationship.277 In the situation where the owner-creditor in a relationship of the transfer of ownership by way of security has been declared insolvent, case law is of the view that the transfer of ownership according to art. 977 and 1034 Gr.C.C. is valid and legally effective.278 This opinion has been adopted by the Greek Insolvency Code in art. 37 para. 4, providing the owner-creditor with a right of separation. Where the debt is not paid after the separation, the creditor, being the owner of the movable, proceeds to the alienation of the goods by way of auction according to art. 792 Gr. Civil Procedures Law. Since he is the owner he is not forced to proceed to a compulsory auction. 274 275 276 277 278

Kotsiris, Insolvency Law, p. 353. Kotsiris, Insolvency Law, p. 353. Psychomanis, Insolvency Law, p. 179. Kotsiris, Insolvency Law, p. 356. Supreme Court 1307 / 1994 in Nomiko Vima 1996, p. 416.

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In the event a surplus is achieved, it has to be remitted to the insolvency estate (art. 1237279 – 1241 Gr.C.C. are applicable by analogy).280

9.2.2. Restitution of a movable asset The restitution by means of insolvency law is stipulated in art. 38 through 40 Greek Insolvency Code and refers only to movable assets and bearer securities. Insolvency Law provides three cases of the right to claim restitution of movable assets (Πτωχευτική Διεκδίκηση). (a) the separation of movable goods; (b) the separation of the amount paid for the goods in the event of prior sale; and (c) the separation of bearer securities. (a) Movable goods. Art. 38 Greek Insolvency Code is applicable regarding every kind of movable asset.281 The movable asset must not have been altered. If at the time of the declaration of insolvency the movables do not exist in their original form, because they were either sold by the debtor or have been substantially altered, restitution cannot be claimed. Where only part of the movable asset exists, then partial restitution can be claimed. Where assets were sold after the declaration of insolvency by the administrator in insolvency proceedings, restitution is not possible, but the owner of the good has the right to claim damages and is treated as a creditor of the group. The identity of the goods claimed has to be proved. Money and assets which have been mixed with the debtor’s property and cannot be identified as specific goods cannot be claimed.282 (b) With regard to the restitution of the amount that the goods have been sold for (art. 38 para. 2 Greek Insolvency Code), the goods must have 279 280 281

282

See above 1.2.3. Kotsiris, Insolvency Law, p. 359. Kotsiris, Insolvency Law, p. 361; Art. 38 Greek Insolvency Code – Restitution: Para. 1 To the right of restitution is the person entitled, who before the commencement of the insolvency proceedings delivered goods to the debtor due to a deposit in order to sell or due to a mandate, so far as the goods are part of the debtor’s estate in an unaltered condition (in its totality or partly). Para. 2 In case the goods referred to in section 1 have been sold and the price is still owed at the moment of the commencement of the insolvency proceedings, the depositor or principal can claim the purchase amount directly from the purchaser. Para. 3 The person entitled claims bearer securities, which were given before the commencement of the insolvency proceedings to the debtor in order to cash them or to be used for concrete payments, insofar as those are at the moment of the commencement of the insolvency proceedings in the hands of the debtor unalienated. Kotsiris, Insolvency Law, p. 362

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been delivered for sale or deposit and the assets must have been sold before the declaration of insolvency. The amount for which the goods have been sold must not have been paid to the owner or credited to an account. The principal has a direct claim against the third party owing the amount which substitutes the claim for restitution of the movable.283 (c) Restitution of bearer securities (art. 38 para. 3 Greek Insolvency Code) relates to a situation where the owner of the bearer securities has given them to the person who was afterwards declared insolvent, in order for him to cash such bearer securities and keep the amount for the performance of payments to the owner over time. For this rule to apply, the bearer securities must be unaltered and the owner claiming restitution has to prove that the bearer securities were given to the debtor not in order to transfer ownership and that the owner’s title is the one that is in the debtor’s hands. If the title was transferred by the debtor before the commencement of the insolvency proceedings, then any outstanding amount owed by the new acquirer can be claimed according to art. 38 para. 2 Greek Insolvency Code in analogy. If the bearer securities were cashed / redeemed by the administrator, then the principal becomes creditor of the group in respect to the amount collected.284

9.3.

Insolvency of the transferee

The rights of the transferor (owner) in the case of the insolvency of the transferee are stipulated in art. 39 Greek Insolvency Code.285 The owner of a good (which was to be alienated by real agreement) has the right to claim the goods from the insolvent transferee where they have not yet been delivered to the transferee’s warehouse for his disposal or to the warehouse of his agent who has the order to sell them for the acquirer (art. 39 para. 1 Gr. Insolvency Code). The commencement of the insolvency proceedings of the transferee does not terminate the pending synallagmatic contracts for. Art. 39 Greek Insolvency Law is applicable whether if the seller is a wholesaler or not and also whether in case of a civil sale or commercial 283 284 285

Kotsiris, Insolvency Law, p. 364. Psychomanis, p. 186. Art. 39 Greek Insolvency Code Restitution to the seller: Para. 1 The person who sold goods before the commencement of the insolvency proceedings of the debtor has a right of restitution, which at the moment of the commencement of the insolvency proceedings have not been delivered to the debtor or a third person acting for the debtor and for which the purchase amount is still outstanding. Para. 2 If in the case of the previous paragraph the seller is in detention of the asset he has a right of retention.

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sale.286 The use of the right provided to the seller by art. 39 Greek Insolvency Code, does not terminate the contract for sale: the right to rescind can be claimed if the administrator denies performance (see above 9.1.1., art. 29 para. 1 and 2 Greek Insolvency Code). The preconditions are: 1. contract for sale without physical delivery of the goods; 2. the preparation of the goods for delivery towards the facilities of the purchaser (without the goods being altered in any way); 3. the purchase amount has not been paid, in whole or in part, for any reason. If part of the amount has been paid then this can be claimed, according to art. 904 et seqq. Gr.C.C. the claimant must return the amount received to the group of creditors. Where the administrator exercises the right of subrogation according to art. 29 Greek Insolvency Code, then he has to pay the total amount; 4. before the commencement of insolvency proceedings, there must have been no delivery of the goods to the transferee’s warehouse for his disposal, to public warehouses or to the warehouse of his agent who has the order to sell them to the acquirer; and 5. the goods have not been re-sold to third parties. Where the goods are lost before the seller can exercise his right of recovery the risk bears the purchaser (according to art. 524 Gr.C.C. CIF (Cost, Insurance and Freight) and FOB (Free On Board)287 clause).288 The seller becomes creditor of the insolvent party. The seller has a right of retention according to art. 39 para. 2 Greek Insolvency Code. This can be utilised if goods have not yet been delivered to the transferee’s warehouse, or to a public warehouse for his disposal, or to the warehouse of his agent who has the order to sell them for the acquirer. In order for the transferor to make use of his right, he must be in detention of the goods. The seller’s right of retention is exercised as an objection and not as a legal action.289 This is of practical importance in cases where the sale has been agreed with the condition that a respite will be granted regarding the purchase amount and therefore the seller has to perform in advance. Otherwise the seller could refuse to perform based on the plea non adimpleti contractus (art. 374 Gr.C.C. see above 9.1.1.) or refuse performance according to art. 377 Gr.C.C. before the commencement of the insolvency proceedings. After the commencement of the insolvency proceedings he would have a right of retention based on art. 325 Gr.C.C.290

286 287 288 289 290

Kotsiris, Insolvency Law, p. 369. Both Incoterms (International Commercial Terms) 1990. Psychomanis, Insolvency Law, p. 190. Kotsiris, Insolvency Law, p. 373 with further references. Psychomanis, Insolvency Law, p. 190.

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For the exercise of the right of retention it is irrelevant whether ownership has been transferred or not. The re-sale of the goods by the purchaser, while they are still in detention of the seller, does not frustrate the right of retention of the seller.291

10.

Passing of risk and passing of ownership

10.1.

The passing of risk

The Greek Civil Code provides regulations for the passing of risk only in the context of contracts for sale (i.e. regarding movables art. 522 para. 1 Gr.C.C.: As from the time of delivery of the thing sold, the risk of destruction by chance or of deterioration is to be borne by the debtor). Art. 522 Gr.C.C. is a non-mandatory provision.292 The passing of risk is only initiated by the delivery of the good in fulfilment of the obligation based on a valid sales contract. The delivery of possession is understood in the sense of art. 976-978 Gr.C.C. The assignment of the vindicatory action is not sufficient for risk to pass. The main issue in the context of the contract for sale is whether the purchaser is liberated from his obligation to pay the purchase amount, in case the object of the sale is destroyed or accidentally deteriorated in the time period between the conclusion of the sales agreement and the complete fulfillment of it.

10.1.1. Regarding generic goods According to the general provisions, the risk of accidental loss of the goods sold in respect of a generic obligation burdens the seller, since impossibility of performance is unlikely to arise and, therefore, the seller has the obligation to deliver other things of the generic class. The moment in time when the goods are delivered is also the moment when the risk passes over from the seller to the purchaser.

10.1.2. Regarding specific goods Risk for a specific good passes to the purchaser at the moment the good is delivered to him. Due to the fact that, in the context of a contract for sale, 291 292

Kotsiris, Insolvency Law, p. 374. Kornilakis, Specific Law of Obligations I, p. 324.

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delivery of the good corresponds with the transfer of ownership (art. 1034 Gr.C.C.), the importance of art. 522 para. 1 Gr.C.C. is of significance where the ownership is not transferred despite the delivery of possession (i.e. in the case of ownership retention under art. 532 Gr.C.C.).293

10.1.3. In the case of a sale under retention of title Where there is a retention of title (art. 532 Gr.C.C.), the passing of risk has real practical importance. In a situation where a good is delivered to the purchaser and was destroyed or damaged as a result of an unlawful act of a third party, the ownership remains with the seller due to the reservation of title, but risk has transferred to the purchaser with the delivery of the good. The purchaser has the obligation to pay the purchase amount, since the good was delivered to him. The right of the purchaser to claim damages from a responsible third party, under the regulations relating to non-contractual liability arising out of damage caused to another, can be based on the fact that after the delivery of the good it becomes part of the financial sphere of the purchaser. Since, from a financial point of view, it “belongs” to the purchaser,294 he is entitled to claim from the seller any advantage (i.e. damages) acquired according to art. 338 Gr.C.C. If a debtor has been exonerated from his obligation due to an event in respect of which he bears no responsibility, the debtor is bound to furnish to the creditor any advantages the debtor has derived from the occurrence of the event. The advantage here is the claim for compensation against the third party. Also according to art. 525, a purchaser, as from the time he bears the risk, collects the benefits and bears the burdens deriving from the good. The claim for compensation is to be considered as a benefit deriving from the good.295

10.1.4. Goods damaged or destroyed after the passing of risk Where the good was damaged accidentally after the risk has passed to the purchaser and the seller has not fulfilled all of his obligations yet (e.g. legal defects in the transfer of ownership), such default occurring before the 293 294

295

Kornilakis, Specific Law of Obligations I, p. 324. Piraeus Court of First Instance, 1914 / 2003 in Dikeo Epichiriseon ke Eterion 2006, p. 678; Pireaus Multimember Court of First Instance 1914 / 2003 in Dikeo Epichiriseon ke Eterion 2004, p. 678; Athens Court of Appeal 734 / 1995 in Elliniki Dikeosini 1997, p. 142; Athens Court of Appeal 1554 / 1996 in Elliniki Dikeosini 1998, p. 603. Kornilakis, Specific Law of Obligations I, p. 326.

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good was damaged, then he has the rights arising from art. 516 and 374 et seqq. Gr.C.C. (plea non adimpleti contractus) with the following alterations: a) the purchaser has the right to be compensated for any damage he suffers due to the non-fulfilment by the seller up to the moment of the damage or deterioration of the good; and b) the purchaser is not entitled to rescind the contract in the case of the complete or severe destruction of the good.296

10.1.5. Where goods are defective or the guaranteed qualities are lacking The liability of the seller in respect of defective goods or the lack of certain qualities is not abrogated where the good is destroyed after the passing of risk. In the case of severe damage to the good, the purchaser can claim a reduction of the purchase price.297

10.1.6. Consequences of the passing of risk Where the good is accidentally destroyed or deteriorates after risk passes, the purchaser is obliged to pay the total purchase amount, but can claim from the seller any advantage (i.e. damages) he obtains (art. 338 Gr.C.C.). Where the good was accidentally destroyed before the passing of the risk, then both parties are liberated from their respective obligation to perform (art. 380 Gr.C.C.). Where the good has deteriorated, the seller is liable to the buyer for such deterioration according to art. 534 et seqq. Gr.C.C. if the deterioration is attributable to the good being defective or lacking the agreed qualities.

10.2.

Attribution of benefits and expenses

The moment at which risk passes to the purchaser is also important as regards benefits (and burdens) and the reimbursement of expenses.

10.2.1. Benefits According to art. 525 Gr.C.C., the purchaser shall, as from the time he bears the risk, benefit from the advantages and bear the burdens flowing 296 297

Kornilakis, Specific Law of Obligations I, p. 328. Kornilakis, Specific Law of Obligations I, p. 328.

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from the good. The right to collect the benefits and the obligation to bear the burdens of the good belong, until the time of the passing of the risk, to the seller. This determination is only valid between the parties and does not alter the determination according to property law.298 Where the purchaser bears the risk without having obtained ownership, he has a claim based on the law of obligations against the seller for any benefits.

10.2.2. Reimbursement of expenses Where risk passes to the purchaser before the good is delivered to him, he is obliged to reimburse the seller the necessary expenses he incurred in the time period between the passing of risk and delivery of the thing according to the provisions for mandate (art. 528 para. 1 Gr.C.C.). Useful and luxury expenses have to be reimbursed to the seller according to the provisions for benevolent intervention (negotiorum gestio) under art. 528 section 2 Gr.C.C.

10.3.

Non-sale situations

The above mentioned principles regarding the passing of risk in the context of contracts for sale are also applicable for barter. Regarding donations, art. 496 Gr.C.C. states that the donor has the obligation to deliver the thing. According to the provisions of art. 499 para. 1 Gr.C.C. the donor is only liable for damage caused intentionally or by gross negligence. It is also possible to contractually extend his liability to (general) negligence. Art. 499 para. 2 Gr.C.C. stipulates that the donor is only liable for the actual and legal defects of the asset donated where he previously promised that it would be free of such defects, or where he fraudulently concealed them. The donor is not freed of his obligation to deliver according to art. 288, 300 Gr.C.C. and the donee has the right to claim damages according to the provisions for breach of duty prior to contract (art. 197, 198 Gr.C.C.) and according to the provisions for noncontractual liability arising out of damage caused to another. In general, it can be seen that primarily the owner has to bear the risk according to the rule “casum sentit dominus”. Regarding unilateral contracts (where no counter-performance has to be provided), the debtor is not obliged to provide an equivalent performance or compensation (art. 336 Gr.C.C.) in the event of loss. The creditor does not receive the expected performance, so in these cases the creditor bears the risk. 298

Kornilakis, Specific Law of Obligations I, p. 338.

Part III: Original acquisition 11.

Acquisition by accession, commixture, specification

According to art. 953 Gr.C.C., the constituent parts of movables cannot be a distinct object of ownership or other real right. This rule has to be supplemented with provisions that provide who will acquire ownership when movables belonging to different owners are united in such manner as to become constituent parts of a unitary thing. Such provisions are found in art. 1057-1060 Gr.C.C., which provide modes of original acquisition: acquisition by accession, commixture (commixtion), specification. The distinction between accession (adjunctio, συνάφεια), commixture (commixtio, σύμμειξη) and confusion (confusio, σύγχυση) derives from Roman law. However, this distinction is of no practical importance to modern Greek law, since there is uniform regulation for all cases.299

11.1.

Accession of movables

The Greek Civil Code, in art. 1058, provides that when movables which belong to different owners have been united in such way as to become constituent parts of a unitary thing, their erstwhile owners acquire co-ownership of the unitary thing. The regulation of art. 1058 Gr.C.C. contains mandatory provisions of law.300 Their shares in the unitary thing are determined by reference to the value of the movables at the time they were united. An exception to the standard rule that provides for co-ownership of the new thing is where one of the movables has to be considered as the principal. In this situation the owner of the principal acquires ownership of the whole (art. 1058 para. 2 Gr.C.C.). The part considered to be the principal part is the one that cannot be separated without damaging the substance of the unitary thing.301 This is determined by applying generally accepted standards (nach der Verkehrsanschauung): the principal is the part

299 300 301

Georgiadis, Property Law I, p. 513 fn. 10. Filios, Property Law, p. 210. Filios, Property Law, p. 210 with reference to Baur – Stürner § 53a II 2b.

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which, due to its great value, usefulness or superiority to the other parts, has a prevailing position and, therefore, determines the unitary thing.302 Where no part can be considered as the principal part, the owners become co-owners of the unitary thing. Accession is a fact and the way accession has been completed is irrelevant.303 It is of no importance whether the person conducting the accession is acting in good or bad faith and whether he has legal capacity or not. Through accession, ownership of the movables that were united is extinguished and cannot be regained. From the regulations of the Code of Private Maritime Law and the Greek Civil Code it follows that the contract for the building or repair of a vessel is a contract for work and services.304 Where the principal materials are provided by the person ordering the building of the vessel, he retains ownership of the materials until the work has been completed and then also obtains ownership on the vessel. Where the principal materials are all provided by the shipbuilder, he obtains ownership of the vessel but has the obligation arising from the contract to transfer ownership to the person who ordered the construction. Where the shipbuilder provided ancillary materials, the person ordering the building of the vessel automatically obtains the ownership of those materials according to art. 1058 para. 2 Gr.C.C. The classification of the materials as principal or ancillary is based on the generally accepted standards. Union of a movable asset with an immovable asset (ένωση): According to art. 1057 Gr.C.C., if a movable asset has been attached to an immovable asset in such manner as to become a constituent305 part of the immovable, the owner of the immovable also becomes owner of the movable asset.306 The pre-existing real rights of third parties in the movable asset are also extinguished according to art. 1060 Gr.C.C.307 Where the movable asset does not become a constituent part of the immovable, no extinction of ownership occurs: the movable asset must become a constituent part of the immovable (art. 953-955 Gr.C.C.; mandatory rules with the consequence that the extinction of ownership cannot be contracted out of by agreement).308 302

303 304

305 306

307 308

Georgiadis, Property Law I, p. 512; Athens Multimember Court of First Instance 7797 / 1985 in Archio Nomologias 1986, p. 681. Kousoulas, Property Law, p. 342. Piraeus Multimember Court of First Instance 231 / 1989 in Peiraiki Nomologia 1980, p. 232; Thessaloniki Court of Appeal in Commercial Law Review 1999, p. 577. See § 946 German Civil Code. Kos Single Member Court of First Instance 143 / 1988 in Elliniki Dikeosini 1989, p. 1480. Thessaloniki Court of Appeal 2863 / 1990 in Armenopoulos 1992, p. 44. Georgiadis, Property Law I, p. 511; Kousoulas, Property Law, p. 342.

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The union must be permanent.309 The way in which and by whom the union is completed is of no relevance.310 It is also irrelevant whether it was lawful or whether the person acted in good faith or not.311 The union of the two assets is a fact and, therefore, it is not required that the person acts with legal capacity. A consequence of this union is that the owner of the immovable asset also becomes ipso jure, permanently and by way of original acquisition, owner of the movable asset. Where the movable asset is separated from the immovable, the previous owner does not automatically regain ownership,312 but he can claim the re-transfer of ownership according the provisions of unjustified enrichment and non-contractual liability arising out of damage caused to another (art. 904, 914 in connection with art. 297 Gr.C.C.); for example if the owner of a house who used material owned by somebody else to build or extend that house demolishes the building, the material still belongs to the owner of the house and not to the previous owner.313

11.2.

Commixture, confusion

Commixture means that movables, which belong to different owners, are connected in such manner that makes their separation impossible, or their separation would entail disproportionate expenses (art. 1059 Gr.C.C.). Commixture is the mixing of materials – ordinarily fungibles, such as cereals, money, metals, shares etc. – and confusion is the mixing of liquids or gases, such as oil, fuels etc.314 According to art. 1059 Gr.C.C., the provisions regarding accession of movables (art. 1058 Gr.C.C.) are applicable by analogy. The regulation of art. 1059 Gr.C.C. contains mandatory provisions of law.315 309

310

311 312 313

314 315

Supreme Court 1376 / 1977 in Nomiko Vima 1978, p. 1063; Patras Court of Appeal 362 / 1995 in Dikeo Epichiriseon ke Eterion 1996, p. 700. Kos Single Member Court of First Instance 143 / 1988 in Elliniki Dikeosini 1989, p. 1480. Filios, Property Law, p. 208. Georgiadis, Property Law I, p.511. Art. 1057 Gr.C.C. is of practical importance when machinery is purchased (which is especially relevant to the retention of ownership clause) and then stored on the premises of a company. Therefore, the provision of art. 1057 Gr.C.C. should be construed narrowly in order to protect the sellers of this kind of equipment who according to art. 1057 Gr.C.C. would lose ownership (see Spyridakis, Property Law 3, para. 151βη). Georgiadis, Property Law I, p. 513. Filios, Property Law, p. 210.

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A precondition, in order to apply the regulations for commixture and confusion, is that the movables belong to different owners.316 The movables have to be connected and it is irrelevant what caused this connection, i.e. it is irrelevant whether the connection was caused by a natural phenomenon or by the act of a person, and whether it was intended by such person or not.317 It is also irrelevant whether the person who caused the connection had legal capacity or acted in good or bad faith.318 Bad faith is only relevant for that person’s obligation according to art. 1063 para. 1 Gr.C.C. to pay damages under the rules of unjustified enrichment and non-contractual liability arising out of damage cause to another, and the obligation to reimburse any disbursements incurred319 (see below 11.4). As noted, the union must be of such nature that makes separation impossible or uneconomic. The converse is true: if separation is possible and does not entail disproportionate expenses no alteration regarding the real rights occurs and each owner keeps his respective rights in the movables. From the application of art. 1058 Gr.C.C. by analogy, it follows that the owner of the principal part also becomes the owner of the ancillary part. Which part is the principal part and which one the ancillary part is determined by applying generally accepted standards (nach der Verkehrsanschauung), whereby the value, the amount or size are together decisive.320 The owner of the principal (main) part also becomes the owner of the smaller quantity of materials which are mixed.321 When goods of the same kind are mixed, the question that arises is whether the goods in the larger quantities always have to be classed as the principal part.322 According to the prevailing opinion, in this case there is no principal part and the owners of the goods mixed become co-owners of the total (according to art. 1059 Gr.C.C. and 1058 para. 1 Gr.C.C.).323 In the case of the mixture of goods of the same kind and quality, the shares of co-ownership are usually determined on the basis of the quantity or the amount of the mixed goods.324 When the quantity or amount of the goods

316 317 318

319 320 321

322 323 324

Georgiadis in Georgiadis – Stathopoulos Civil Code V art. 1057 p. 504. Georgiadis in Georgiadis – Stathopoulos Civil Code V art. 1057, p. 504. Georgiadis in Georgiadis – Stathopoulos Civil Code V art. 1057, p. 504; Supreme Court Athens, 516 / 1972 in Nomiko Vima 1972, p. 1317. Kousoulas, Property Law, p. 345. Spyridakis, Property Law 3, para. 151γδ; Georgiadis, Property Law I, p. 513. Georgiadis in Georgiadis – Stathopoulos Civil Code V articles 1059-1060, p. 508; Filios, Property Law, p. 210, Spyridakis, Property Law 3, para. 152β. So Balis, Property Law, para. 79 3. Georgiadis, Property Law I, p. 513. Georgiadis in Georgiadis – Stathopoulos Civil Code V articles 1059-1060, p. 508.

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that have been mixed is no longer determinable, ownership in equal shares is obtained (see also art. 785 Gr.C.C.325)326

11.3.

Specification

Specification (processing, ειδοποιϊα) is the production of a new movable asset by elaboration (improvement) or transformation of material owned by another person (art. 1061 para. 1.s. 1 Gr.C.C.). According to art. 1061 Gr.C.C., a person who, through an elaboration or transformation of material owned by another person, has produced a new movable thing, acquires ownership thereof only if the value of work contributed is obviously higher than the value of the material. Elaboration is an act that has the purpose of modifying the material. This modification has to be creative. Writing, painting, design, photography, printing, engraving and any other similar fashioning of the surface is considered as elaboration (art. 1061 para. 1 section 2 Gr.C.C.). Repairs of movable assets are not considered to be specification.327 A new movable asset has to be produced. Whether the movable asset produced is in fact a new thing is determined by applying generally accepted standards (nach der Verkehrsanschauung).328 The generally accepted standards also help us to define whether there is specification or another form of original acquisition, accession. If the preconditions of specification are fulfilled and a new asset is created by the processing of materials, then art. 1061 is applicable and the application of 1058 Gr.C.C. is excluded.329 In order to obtain ownership of the new asset created by specification or by processing of materials owned by another person, the creator need not be in good faith.330 This means that even a thief of material (for example, gold)

325

326

327 328

329 330

Art. 975 Gr.C.C. Undivided right in common: Subject to any different legal provision, if a right belongs to several persons in common, each of the co-owners shall have the right to an undivided share in the common thing. In the event of doubt, it shall be considered that the shares are equal. Spyridakis, Property Law 3, para. 152; Georgiadis in Georgiadis – Stathopoulos Civil Code V, articles 1059-1060, p. 508, also Balis, para. 79 3; Agrinion Single Member Court of First Instance 223 / 1991 in Archio Nomologias 1992, p. 235. Filios, Property Law, p. 211, Spyridakis s.a. 153α. Filios, Property Law, p. 212 with reference to Baur – Stürner § 53B II2, Spyridakis, Property Law 3, para. 153α. Georgiadis in Georgiadis – Stathopoulos Civil Code V, articles 1061-1062, p. 511. Filios, Property Law, p. 212; Georgiadis, Property Law I, p. 523.

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acquires ownership of a new asset (jewellery) created by him.331 However, where the person who created the new thing has acted in bad faith, the owner of the materials has the right not only to claim damages according to art. 1063 Gr.C.C. but he also has the right to claim from the court a ruling that he is the owner of the new movable asset that was created. In this case, the court may, on reasonable grounds, adjudge the owner of the new thing to is the owner of the materials (art. 1062 Gr.C.C.). The creator can be taken to have acted in bad faith where he knew that he was not the owner of the material, or where through his wilful blindness or gross negligence he did not know whether he was the owner of the material. Finally, to the extent that ownership of the material has been extinguished, any real rights of third parties in such material will also be extinguished (art. 1061 para. 2 Gr.C.C.). The question of whether the regulations of art. 1061 and 1062 Gr.C.C. contain provisions of law are subject to the contrary agreement of the parties is a controversial one.332 Some authors express the opinion that art. 1061 Gr.C.C. is not mandatory and the parties are free to agree that one will produce a new product in favour of the other, whereas others believe that the relevant regulations must be regarded as mandatory in view of the fact that in property law the clarity of relationships in rem for third parties takes precedence over other considerations.333 Regarding the application of art. 1061-1062 Gr.C.C., in cases of a contract for work and services it is important to consider whether the material to be processed is being provided by the person ordering the work or by the contractor. 1. Where the materials are provided by the person ordering the work, art. 1061 Gr.C.C. is not applicable. Were this not the case, the contractor would obtain ownership of the new thing created and he would have to transfer ownership to the person who ordered the construction of the thing in the first place. This also results from the regulations of the Gr.C.C. regarding the contract for work and services, which, on the one hand, do not provide for an obligation on the contractor to transfer ownership to the person ordering the work and, on the other hand, gives the contractor a lien on the new movable assets.334 2. Where the materials are provided by the contractor, again art. 1061 Gr.C.C. is not applicable because the processor is the owner of the materi331 332 333

334

Georgiadis in Georgiadis – Stathopoulos Civil Code V, articles 1061-1062, p. 512. Filios, Property Law, p. 212. Filios, Property Law, p. 212 regards the provisions as not mandatory, contrary to Georgiadis, Property Law I, p. 526. Georgiadis in Georgiadis – Stathopoulos Civil Code V, articles 1061-1062, p. 513, with reference to German legal literature.

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als. From the application of generally accepted standards, the contractor is processor and therefore the immediate owner of the new movable asset. Therefore, the person ordering the work obtains ownership of the new asset that was created by virtue of a transfer of ownership according to art. 1034 Gr.C.C.335

11.4.

Further general aspects

Where a party purchases goods from another under a reservation of title and then specification takes place, the reservation of ownership is extinguished and the processor obtains ownership of the new movable asset created according to art. 1061 Gr.C.C. By agreement, the parties can provide that the reservation of title for the materials purchased will also be extended to the new movable asset created by the purchaser. It is accepted that this kind of agreement is valid and that the ownership of the new asset created does not belong to the purchaser-creator but to the seller. Ownership is transferred to the purchaser when the payment for the materials is settled.336 If ownership of a movable asset has been extinguished as a result of accession, commixture or confusion (under art. 1060 Gr.C.C.), then any pre-existing real rights of third parties in such movable asset are extinguished.337 Consequently, when co-ownership has been established in the unitary thing, any third party real rights in the constituent movables are transformed into rights in the corresponding share of the unitary thing.338 Art 1063 Gr.C.C. provides that a person who has lost ownership or any other real right by reason of accession, commixture or specification has a claim according to the provisions for unjustified enrichment against the person who benefited therefrom. This claim stands alongside the right to claim damages relating to non-contractual liability arising out of damage caused to another, or for the reimbursement of disbursements incurred, or for the removal of movable property which was formerly united with the principal movable or immovable and was a constituent part of it.339 A claim 335

336

337 338 339

Georgiadis in Georgiadis – Stathopoulos Civil Code V, articles 1061-1062, p. 513 and 514 with reference to German legal literature. Georgiadis in Georgiadis – Stathopoulos Civil Code V, articles 1061-1062, p. 514; Spyridakis, Property Law 3, para. 153γδ. Kousoulas, Property Law, p. 342. Kousoulas, Property Law, p. 342. The sort of movables which the right of removal could affect would include, for example, a sink or a heater integrated in another person’s house. From the scope of art. 1063 para. 2 Gr.C.C. it follows that where the former condition is restored (for example by demolishing a building), then the person who lost ownership due to the

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for reinstatement of the former condition from a proprietorial perspective is excluded according to art. 1063 para. 2 Gr.C.C. A person who continues to have an ownership right (e.g. the owner of the immovable which was connected with a movable asset) but has had such ownership right disturbed due to the union with another asset has the right to claim, under art. 1108 Gr.C.C., the cessation of the disturbance from the offender. This means that, essentially, he can claim the restoration to the original condition.340 This has to be in accordance with art. 302 and 1104 Gr.C.C.341 For the claim against the acquirer on the basis of the provisions on unjustified enrichment, the preconditions set in art. 904 – 913 Gr.C.C. have to be fulfilled. He has to compensate the former owner financially, according to the value of the movable at the time he was dispossessed.342 In the case of co-ownership (art. 1058 par.1, 1059), claims under unjustified enrichment are excluded.343 Any person who lost ownership can also claim damages arising from non-contractual liability arising out of damage caused to another where the preconditions of art. 914 Gr.C.C. are met. Art. 1063 Gr.C.C. also provides a claim for the reimbursement of expenses. The expenses can be claimed on the basis of the provisions which provide for the relationship between the parties (e.g. mandate, benevolent intervention in another’s affairs, possessor-owner relationship etc.). If the preconditions for the claims based on unjustified enrichment are also

340 341

342 343

operation of accession, commixture etc. does not regain ownership ipso jure but has the right to claim the retransfer of ownership. Filios, Property Law, p. 214, with reference to German legal literature. Art. 302 Right of removal: A person who incurred expenses in relation to a thing that has to be restored is entitled to remove all additions made to it, and on exercising the right of removal has the obligation to reinstate – at his own expenses – the former situation. If possession has passed to the other person (the person claiming restitution) then this person has the right to prevent removal, unless security is provided to cover his potential claims for damages arising from removal. Art. 1104 Right of removal: Para. 1 The possessor of a thing that was connected with another thing (the principal part) as a component of the principal part, has the right to remove it. Para. 2. This right is excluded: 1 where the possessor has enjoyed the benefits, meaning he is not entitled to compensation for the usual disbursements made for maintenance; 2. if the possessor does not derive any benefits from the removal; or 3. if the possessor receives the value that would have been attributable to the component after separation. Patra Court of Appeal 362 / 1995 in Dikeo Epichiriseon ke Eterion 1996, p. 700. Georgiadis in Georgiadis – Stathopoulos, Civil Code V, art. 1063, p 516.

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fulfilled, the person entitled has the choice344 of grounding his claim on unjustified enrichment or the rules relating to non-contractual liability arising out of damage caused to another. Based on the provisions of law which provide for the relationship between the parties, the removal of the objects contributed can be claimed. According to art. 1063 para. 1 Gr.C.C., this claim can be raised as an alternative to the claim based on unjustified enrichment.345 The claims provided in art. 1063 Gr.C.C. do not apply in the case of accession (art. 1058 para. 1 Gr.C.C.). If the person whose real right was extinguished also had the right to claim the restoration of the original condition, this would be contrary to the policy of the civil law to retain the economic unit which was created by the rules of original acquisition according to art. 1057 et seqq. Gr.C.C. Therefore, art. 1063 para. 2 Gr.C.C. provides that the claim for restoration of the original condition is excluded.

12.

Good faith acquisition

According to art. 1036 Gr.C.C., ownership of a movable asset can be acquired, in accordance with the provisions of art. 1034 Gr.C.C., from the person who is not the owner where the acquirer acts in good faith.

12.1.

Field of application

A precondition for the application of this rule, as provided in art. 1036 par.1 Gr.C.C., is that the alienator is not the owner of the asset,346 but must have a right of detention of the good, which he usually acquires in accordance with the owner’s will. This results from the wording of art. 1036 para. 2 Gr.C.C.: This provision (i.e. art. 1036 para. 1) shall apply, inter alia, where an alienation without right has been made by a person enjoying a right of usufruct or pledge in the asset, or by a lessee or a depositary or by a person having a similar relationship to the owner. This is a demonstrative, rather than exclusive, list.347 The rules on good faith acquisition cover only the lack of ownership of the seller. They do not cover any other issues that may relate to the seller (such as legal incapacity, limited legal capacity or the lack of a power of 344 345 346 347

Georgiadis in Georgiadis – Stathopoulos, Civil Code V art. 1063, p 517. Georgiadis in Georgiadis – Stathopoulos, Civil Code V art. 1063, p 517. Thessaloniki Court of Appeal 1301 / 1989 in Armenopoulos 1989, p. 527. Filios, Property Law, p. 185 and 186.

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disposal) or any transactional problems (such as the invalidity or voidability of the agreement or the lack of an agreement at all). Similarly, the rules are not applicable where disposal of the asset is prohibited by law or a prohibition has been imposed by a court decision (art. 175-176 Gr.C.C., see below at 12.6).348 Where the seller is the owner but his ownership is revocable on the perfection of a condition, it is questionable whether the above-mentioned rules are applicable. When the condition is fulfilled his ownership will be revoked and any transfer of ownership is ipso jure void (art. 206 Gr.C.C.).349 This regulation as provided in the Greek Civil Code has been subject to criticism in Greek legal literature: it can be persuasively argued that if the good faith acquirer can be protected where the seller is not the owner, it should also cover the case where there is ownership but it is subject to a condition350 (argumentum a majore ad minus). Art. 1036 Gr.C.C. prevails over 206 Gr.C.C., having the consequence that if the person who obtained ownership under a condition transfers the movable and delivers it to a third party who is acting in good faith, the latter acquires ownership free of any condition.351 The rules on good faith acquisition are also applicable to the cases of double sale. Some types of assets are subject to specific rules under the Greek Civil Code. According to art. 1038 Gr.C.C., ownership of movable assets that have been stolen or lost cannot be acquired in good faith. Loss is broadly defined and includes every kind of loss of possession without the direct or indirect will of the owner. The loss of control must be against the owner’s will. Theft is defined with reference to the relevant provision of the criminal law (art. 372 Greek Criminal Law).352 According to art. 1036 Gr.C.C., ownership can be transferred in money or bearer securities despite any dispossession of a previous owner of such goods by theft or loss. This is also applicable to movables which have been alienated by public auction, in a fair or on the market (a market overt). Art. 1036 Gr.C.C. is not applicable to vessels.353 As far as motor vehicles are concerned, the judicature and the prevailing opinion in literature 348 349 350

351

352 353

Georgiadis, Property Law I, p. 489. Balis, Property Law para. 56. Georgiadis, Property Law I, p. 489 with further references, Athens Court of Appeal 2748 / 1982 in Nomiko Vima 1983, p. 511; Thessaloniki Court of Appeal 231 / 1986 in Armenopoulos 1987, p. 1047. Athens Multimember Court of First Instance 7640 / 1995 in Armenopoulos 1997, p. 910. Athens Court of Appeal 3182 / 1982 in Armenopoulos 1983, p. 967. Spyridakis, Property Law 3, para. 142ζ.

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argue as follows that the transfer of the ownership of cars must comply with the requirements provided in Law 722 / 1977 and the car has to be delivered to the new owner. In order to obtain ownership on the basis of the rules on good faith acquisition, good faith in the ownership of the alienator is required. Art. 1036 Gr.C.C. covers only the lack of ownership, it does not cover the non-fulfilment of the formalities provided in Law 722 / 1977, so therefore art. 1036 is not quite the full story for motor vehicles.354

12.2.

Good faith acquisition must be for value

Good faith acquisition is only possible where the transfer of ownership is based on a legal transaction. Therefore, the transfer of ownership on the basis of a legal regulation is not covered by the rules on good faith acquisition. Whether the transfer is for value or gratuitous is not necessarily relevant, but if the transfer is gratuitous it is relevant in respect of the question of whether a claim can be brought against the good faith acquirer on the basis of unjustified enrichment according to art. 913 Gr.C.C.355

12.3.

Physical control of the non-owning “transferor”

The fact that the non-owning transferor has possession of the movable asset creates the impression for the acquirer that the non-owner is the owner of the asset. Therefore, his good faith in this apparent fact has to be protected. Contrary to this, the fact that the transferor is the possessor and transfers possession to the acquirer does not justify the acquirer’s certainty that the rest of the preconditions for a valid agreement regarding the transfer of ownership are fulfilled. The acquirer’s error regarding the ownership of the transferor is only justified by the legitimising appearance of possession and, therefore, he has to be protected. If the acquirer’s error does not concern the above-mentioned factors, then there is no reason for the law to value the acquirer’s interests more highly than the interests of the real owner (Rechtscheinwirkung des Besitzes).356 Other dogmatic attempts have also been made to justify the legal provision on the basis of the importance of the certainty 354

355

356

Thessaloniki Court of Appeal 174 / 1983, in Armenopoulos 1983, p. 580, Athens Court of Appeal 2748 / 1982 in Nomiko Vima 1983, p. 511, Athens Multimember Court of First Instance 7640 / 1995 in Armenopoulos 1997, p. 910, Georgiadis in Georgiadis – Stathopoulos Civil Code V, p. 459. Georgiadis in Georgiadis – Stathopoulos Civil Code V, articles 1036-1037, p. 452 et seq. Georgiadis, Property Law I p. 489, Spyridakis, Property Law 3, para. 142α.

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in transactions and the need for the facilitation of commerce. The regulation of the Greek law (created in accordance with the corresponding German provision), which favours the acquirer’s interests over the real owner’s interests, can only be justified by the application of the combination of the above-mentioned three attempts.357

12.4.

Physical control of the acquirer

The possession has to be delivered to the acquirer. Further, the acquirer who is in good faith must also obtain detention (i.e. physical control over the movable). The regulation on good faith acquisition (art. 1036 Gr.C.C.) makes a reference to art. 1034 Gr.C.C., in which the transfer of possession is understood to be physical delivery and the use of delivery equivalents. Therefore, according to one opinion, delivery of the assets in accordance with art. 1036 Gr.C.C. is made when there is either physical delivery or the use of delivery equivalents.358 The better view does not accept the constitutum possessorium, the transfer by notice to a third holder and the assignment of the action for vindication in accordance with art. 1035 Gr.C.C., as the acquirer does not obtain physical control over the movable asset when such delivery equivalents are used. In those cases, good faith acquisition is only possible at the moment the asset is delivered to the acquirer and he continues to be in good faith thereafter.359 Good faith acquisition is only justified when the acquirer’s good faith is accompanied by acquisition of the detention. This is the case when the transferor is in possession or detention of the movable good and he transfers it to the acquirer, who is acting in good faith, in such a manner that the latter obtains physical control over the asset.

12.5.

Specific requirements with respect to the circumstances of transfer

According to art. 1039 Gr.C.C., the rule on good faith acquisition, as provided in art. 1036 Gr.C.C., is also applicable to movable assets, which have been alienated by public auction, in a fair or on the market. A public auction, in terms of art. 1039 Gr.C.C., is the auction and the sale by court order.360 The Greek Civil Procedures Law provides specific 357 358 359 360

Property Law 3, para.142α. Balis, Property Law para. 56, Spyridakis, Property Law 3, para. 142γβ. Georgiadis, Property Law I, p. 487. Thessaloniki Multimember Court of First Instance 22631 / 2003 in Armenopoulos 2004, p. 403.

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regulations for the good faith acquisition of movables alienated at a sale by court order.361 Therefore, art. 1039 Gr.C.C. is applicable in cases of private auctions according to art. 1017 Greek Civil Procedures Law. For the sale of a movable asset on an open market or at a fair it is required, in order for the good faith acquirer to obtain ownership, that the acquirer purchases the asset in the course of his ordinary business in accordance with given commercial practice.362

12.6.

Specific requirements with respect to the circumstances in which the original owner “lost” the movable

As noted at 12.1, according to art. 1036 para. 2 Gr.C.C., the provision on good faith acquisition is particularly applicable when the transferor was a person enjoying a right of usufruct or pledge in the asset, or by a lessee or a depositary or by any other person having a similar relationship with the original owner. Good faith acquisition only covers the cases in which the transferor has no right of ownership in the alienated goods. It does not, however, cover the other preconditions for the transfer agreement (see above 12.1). The rules on good faith acquisition also do not cover the prohibition of a disposal imposed by law or by court decision (art. 175 and 176 Gr.C.C.). According to the prevailing opinion, good faith acquisition should be possible in the aforementioned case. The acquirer obtains ownership, according to the rules on good faith acquisition, from the transferor who is not the owner, so he should also be able to acquire ownership from the owner whose power of disposal is limited in respect of a certain group of persons (e.g. art. 958 para.1 Gr. Civil Procedures Law: any disposal of the goods by the debtor is invalid vis-à-vis the registered creditors and the initiator of the execution). Therefore, the rules on good faith acquisition should be applicable also in the case of the prohibition of a disposal which is stipulated vis-à-vis certain persons to protect a good faith acquirer not aware of such prohibition.363 According to the prevailing opinion, the rules on good faith acquisition should also be applicable in the case of an existing condition, the existence of which was not known to the acquirer (art. 206 Gr.C.C. – see above 12.1).364 361 362 363 364

Athens Court of Appeal 4887 / 1995 in Elliniki Dikeosini 1996, p. 161. Georgiadis, Property Law I, p. 505. Georgiadis, Property Law I, p. 489, 490. Georgiadis, Property Law I, p. 490, 491; Athens Court of Appeal 2748 / 1982 in Nomiko Vima 1982, p. 511.

12. Good faith acquisition

12.7.

297

Good faith

12.7.1. Object of good faith Art. 1037 Gr.C.C. provides that an acquirer acts in bad faith if he knew or ignored, due to wilful blindness or gross negligence imputable to him, that the transferor did not have ownership of the movable asset transferred.

12.7.2. Standard of good faith From the wording of art. 1037 Gr.C.C. it follows that the acquirer acts in bad faith if he knows or, due to wilful blindness or gross negligence, ignores that the alienator is not the owner of the movable asset. Actual knowledge (specific intent) does not include the knowledge of the circumstances which would make the transfer of ownership impossible. To avoid acting in a grossly negligent manner, the acquirer is obliged, in some cases, to collect and check information as to ownership of the thing. Therefore, the acquirer is obliged to clarify who is the owner of the movable asset in the following cases: (a) he purchases movables of high value from a person who is suspected of dealing with stolen goods; (b) he purchases a movable which is normally sold with a reservation of ownership; or (c) he purchases a good which is registered.365 Generally, he is obliged to collect information when serious doubts arise regarding the ownership of the movable asset.366

12.7.3. Time of good faith Good faith is required at the moment of delivery of the movable asset. Since delivery of the movable asset is the physical delivery of the thing, or the use of the delivery equivalents as already mentioned above under 12.4., the moment in time at which good faith is crucial (and therefore required) is the moment when the acquirer obtains physical control over the movable asset. In the case of longa manu and brevi manu traditio, this means the moment the transfer agreement has been concluded. In case of the delivery of a warehouse warrant or a bill of lading, this means the moment the papers in question are transferred.367 365 366

Georgiadis, in Georgiadis – Stathopoulos, Civil Code V, articles 1036-1037, p. 455. Thessaloniki Multimember Court of First Instance 785 / 1989 in Armenopoulos 1989, p. 746, Piraeus Multimember Court of First Instance 1914 / 2003 in Dikeo Epichiriseon ke Eterion 2004, p. 678.

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Art. 1036 para. 1 Gr.C.C. provides that the moment of the delivery of possession is the point in time when good faith is required, due to the fact that it is the common case that possession is delivered either at the same time the parties agree on the transfer of the possession or shortly after the conclusion of the agreement. When the delivery of possession takes place before the transfer agreement is finalised, then the decisive point in time is the moment of the entering of the agreement, meaning the conclusion of the agreement negotiations. If ownership is transferred under a condition precedent or is to be transferred after the expiry of a set time-limit, then the acquirer must be in good faith at the moment the asset is delivered to him and not at the moment the condition is fulfilled or the time-limit reached. Where the acquirer had, at the moment the asset was delivered to him, doubts regarding the transferor’s right of ownership, which he failed to clarify through his gross negligence, there is no acquisition of ownership. This is also the case when, later on, the acquirer becomes falsely convinced (by being misled) that the transferor was the owner.368 This means that good faith that occurs after the delivery of the asset does not lead to the acquisition of ownership. From the wording of art. 1036 para. 1 Gr.C.C., it follows that there is a presumption of good faith in favour of the acquirer. The policy of this regulation is of a procedural nature. Therefore, the owner of the asset, or any third person claiming that the transfer of ownership is invalid due to the acquirer’s bad faith, has the burden of proof to lead evidence to rebut this presumption.369 367

12.8.

Lost goods and stolen goods

Art. 1038 Gr.C.C. provides that the transfer of movable assets by the nonowner to the good-faith acquirer does not effect a transfer of ownership where the original owner was dispossessed by theft or loss. This rule forms an exception to art. 1036 Gr.C.C. The original owner can claim those assets back. This exception is based on the consideration that the interest of the real owner takes precedence over the interest of the good faith acquirer. The owner did not contribute in any way to the fact that the transferor acted as the owner and, therefore, he should not be burdened with the consequences of the illegal behavior of the transferor.370 367 368 369

Georgiadis, in Georgiadis – Stathopoulos, Civil Code V, articles 1036-1037, p. 456. Balis, Property Law, para. 57 Nr. 1. Georgiadis, Property Law I, p. 492; Athens Court of Appeal 4887 / 1995 in Elliniki Dikeosini 1996, p. 161; Thessaloniki Multimember Court of First Instance 22631 / 2003 in Armenopoulos 2004, p. 403.

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The goods are lost when they have been removed from the owner’s possession without his direct or indirect will.371 Movable assets are considered to be lost in the situations set out below. (a) The movable assets were removed from the owner’s detention against his will. Where a third person had detention for the owner, then the assets became lost when they were removed from the third person against the will of the owner and the third person.372 (b) The alienation or abandonment of the movable assets by the agent in possession against the will of the owner. From the property law perspective of whether the assets are lost or not, it is of no relevance that this act of the agent in possession constitutes, with regard to criminal law, the act of embezzlement.373 (c) The alienation or abandonment of a movable asset that was inherited where the person effecting such alienation or abandonment is not an heir, but it must be noted that where such person has a certificate of inheritance he can legally transfer ownership of the movable asset, and any good faith acquirer would acquire ownership on the basis of the provisions on the law of succession (art. 1963 Gr.C.C.) and art. 822 Gr. Civil Procedures Law, which have nothing to do with lost goods.374 (d) The owner alienates or abandons the movables voluntarily, but he lacks the capability to understand the consequences of his action. (e) It is questionable whether a movable asset is considered to be lost where the owner has transferred it and the transfer has been revoked due to error, deceit or threat. The judicature have followed the opinion that the revocation of the alienation of the movable asset does not turn the voluntary delivery of the asset into an ex nunc loss in terms of art. 1038 Gr.C.C.375 (f) It is also questionable whether assets are to be considered as lost in terms of art. 1038 Gr.C.C. when they have been taken away from the owner by virtue of a court decision or an administrative act which is defective in respect of procedural rules or illegal. Since those acts are effective until they have been revoked by the competent authority, it seems to follow that the movable assets are not lost.376 370

370 371

372 373 374 375

376

Georgiadis, Property Law I, p. 499. Supreme Court 910 / 1981 in Efimeris Ellinon Nomikon 1982, p. 579; Supreme Court 926 / 1989 in Commercial Law Review 1990, p. 440. Georgiadis in Georgiadis – Stathopoulos, Civil Code V, articles 1038-1039, p. 461. Spyridakis, Property Law 3, para. 142εγ; Georgiadis, Property Law I, p. 492. Athens Court of Appeal 8588 / 1998 in Elliniki Dikeosini 2002, p. 1079. Supreme Court 910 / 1981 in Efimeris Ellinon Nomikon 1982, p. 579; Supreme Court 926 / 1989 in Commercial Law Review 1990, p. 440. Georgiadis, Property Law I, p. 503.

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Goods that have been taken away from the owner by theft are stolen according to Greek Criminal Law. Even if the perpetrator of the act is not punished for any reason (e.g. due to mental incapacity), the assets are still treated as stolen. It is irrelevant whether the goods were stolen from the owner or from a third person who had possession for the owner, such as the agent in possession, the lessee, the usufructuary or the pledge.377 Art. 1039 Gr.C.C. provides that the good faith acquirer can obtain ownership of money or bearer-securities that have been stolen or lost from the person who is not the owner. This means that the rule provided in art. 1036 Gr.C.C. is applicable to stolen or lost money and bearer-securities. Money is considered to be the national or foreign currency which is in circulation. Bearer-securities are the securities of which the beneficiary is the legal possessor of the paper, such as shares, bonds, lottery tickets, coupons, dividend coupons etc.378 According to art. 1039 Gr.C.C., the rule provided in art. 1036 Gr.C.C. also applies to movable assets that have been alienated by public auction, or in a fair or on the market.

12.9.

Re-transfer of the movable asset to the original owner

The consequence of the application of art. 1036 Gr.C.C. is that the good faith acquirer becomes the owner of the good. By good faith acquisition, the ownership of the former owner is extinguished. Therefore, the original owner cannot claim the asset from the acquirer. He cannot base his claim on unjustified enrichment according to art. 904 Gr.C.C. The cause for the new owner’s acquisition is the contractual obligation arising from his contract with the transferor. The original owner cannot base his claim on the rules relating to non-contractual liability arising out of damage caused to another (art. 914 Gr.C.C.), even if the acquirer, due to slight negligence, did not know that the transferor was not the owner.379 It is assumed that the transfer of ownership from the acquirer, who acted in good faith, to the original owner is legally effective. If it was not, the original owner’s title may not have been extinguished and as such he may have a vindicatory remedy for the return of the thing.

377 378

379

Georgiadis in Georgiadis – Stathopoulos, Civil Code V, articles 1038-1039, p. 460. Supreme Court 910 / 1981 in Efimeris Ellinon Nomikon 1982, p. 579; Supreme Court 926 / 1989 in Commercial Law Review 1990, p. 440; Athens Court of Appeal 6653 / 1994 in Elliniki Dikeosini 1996, p. 1647; Piraeus Single Member Court of First Instance 1177 / 2000 in Armenopoulos 2000, p. 1133. Spyridakis, Property Law 3, para. 142δα; Georgiadis, Property Law I, p. 496.

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12.10. Rules on good faith acquisition free of encumbrances According to art. 1040 Gr.C.C., with the transfer of the ownership of the movable asset to the acquirer, any real rights existing therein in favour of third parties shall be extinguished. This does not happen where the acquirer acted in bad faith with respect to the right of the third party at the time of the delivery of possession. The requirements for the acquirer to obtain the movable free of encumbrances are the following: (a) the acquirer must have obtained ownership according to art. 1034 Gr.C.C. (acquisition of a movable by contract), or according to the rules on good faith acquisition (art. 1036 Gr.C.C.); (b) possession must be transferred to the acquirer (physical delivery or the use of delivery equivalents (see above 12.4.)); (c) the acquirer must be in good faith regarding the third party’s right (and will not be in good faith if at the moment of delivery he knew or, due to his wilful blindness or gross negligence, did not know about the existence of a real right of the third party in the asset); and (d) the asset must not have been stolen from or lost by the third party (unless the third party’s real right exists in money, bearer securities or movables that are alienated by way of public auction, or in a fair or on the market (art. 1038 and 1039 are applicable by analogy)).380

12.11. Retransfer of ownership to the transferor As already mentioned (12.1.), the third party who is in good faith (the acquirer) can lawfully transfer ownership, even to a person in bad faith according to art. 1034 Gr.C.C. This would allow the non domino to use an intermediate person as a third party acting in good faith, who would retransfer the asset to him, allowing him to obtain ownership of the asset. In order to avoid constructions like these, the above-mentioned rule is undermined in the following cases: – When the non domino alienated the asset to a third party in good faith, but he himself was acting in bad faith with the intention to obtain ownership through the retransfer of the asset to him. – When the first transfer of the ownership to the acquirer, who acted in good faith, and the retransfer to a party who is not the original alienator who is not the owner, but forms a legal and financial unit with the original alienator. This is the case when the retransfer is a consequence 380

Balis, Property Law, para. 60 Nr. 1; Georgiadis, Property Law I, p. 508; Spyridakis, Property Law 3, para. 142η.

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of an unjustified enrichment, a buy-back or a rescission. In those cases, there is no retransfer but the original transfer of ownership, by which good faith acquisition was achieved, is considered annulled and the original situation is restored. This solution is based on the teleological interpretation of art. 1036 Gr.C.C., which has the purpose of protecting the third party acting in good faith. It is accepted that the retransfer of the ownership by the good-faith acquirer to the non-owner transferor is valid. Exceptions are made in the following cases: (a) The non-owner transferred the movable asset to the good faith acquirer with the intention to obtain ownership by a re-transfer to him from the good-faith acquirer; and (b) where the re-transfer is a consequence of rescission, termination, or unjustified enrichment. In those cases, the original owner re-acquires ownership.381 The non-owner obtains possession or detention, while ownership is returned to the original owner. This has the effect that the original situation is restored.382 This is based on the teleological interpretation of art. 1036 Gr.C.C., where the protection of the good faith acquirer is provided for.

13.

“Acquisitive” prescription of movables

13.1.

Functions of acquisitive prescription

Acquisitive prescription provides a means of original acquisition to a person where he has been in possession of a movable for a long period of time. Its practical importance is clear with regard to immovable assets, but it is less important in the field of movable property law as good faith acquisition of movables is possible. Therefore, acquisitive prescription is effectively restricted in scope to lost and stolen movable goods. Regarding immovables, it is of a high importance due to the fact that in Greece a system of the land registration, as it is known in countries like Germany, has not yet been completed. The system, which is still in use, only provides formal publicity of title to land. Acquisitive prescription will lose its importance in the years to come when the creation of the national land register will be completed. Greek Civil Law differentiates between ordinary (art. 1041 Gr.C.C.) and extraordinary (art. 1045) acquisitive prescription. This distinction is based on the preconditions as provided by the Civil Code. Art. 1041 381 382

Spyridakis, Property Law 3, para. 142δγ. Georgiadis, Property Law I, p. 498 et seq.

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Gr.C.C. stipulates the rules for ordinary acquisitive prescription. A person who in good faith and by virtue of a lawful title had a movable asset for three years, or an immovable for ten years, in his possession acquires ownership by way of ordinary acquisitive prescription. According to art. 1045 Gr.C.C., a person who has a movable asset or an immovable asset in his possession for twenty years shall become the owner thereof. In the case of extraordinary acquisitive prescription the longer time of possession overcomes the lack of a lawful title and the possessor’s good faith. The purpose of this rule383 is to protect the possessor who acquired possession in good faith by legalising the real situation which results from the long-term utilisation of the asset despite any initial defect in his title. The rule also facilitates commerce by facilitating the proof of ownership, since it is easier for the owner to prove the fulfilment of the preconditions for acquisitive prescription than the fulfilment of those for ownership. In general, the security of transactions is the main policy aim that behind acquisitive prescription. The following applies both to ordinary and extraordinary acquisitive prescription.

13.2.

Requirements for acquisitive prescription

13.2.1. Assets excluded Some assets are excluded from the field of acquisitive prescription, either because they are things which are expressly “not subject” to acquisitive prescription (art. 1054 Gr.C.C.), or they are excluded (art. 1055 Gr.C.C.), or because they are “not subject” to acquisitive prescription by default. (a) Assets that are “not subject” to acquisitive prescription are those which are outside the ambit of transactions, being the things which are dedicated to common use and things destined to serve public, municipal, communal or religious purposes. On the basis of art. 1054 Gr.C.C., the judicature has decided in various cases that the following movable assets are not subject to acquisitive prescription: relics; icons; canonicals; documents and archives in monasteries;384 ancient objects385 etc. (b) Assets that are excluded from acquisitive prescription (ordinary and extraordinary) are things that belong to persons placed under parental care, tutelage, or judicial assistance for the duration of these legal conditions. 383 384

385

Georgiadis, Property Law I, p. 413. Supreme Court 1558 / 2001 in Elliniki Dikeosini 2003, p. 1650; Supreme Court 1276 / 1997 in Elliniki Dikeosini 1998, 861. Articles 7 and 21 Law 3028 / 2002.

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(c) Assets that are “not subject” to acquisitive prescription by default are the constituent parts of a thing and the group of assets as a total.

13.2.2. Possession According to art 1041 Gr.C.C., it is required that the possessor has the movable in his possession for three years for ordinary acquisitive prescription to apply. For extraordinary acquisitive prescription (art. 1045 Gr.C.C.) it is required that the possessor has a movable asset or an immovable asset in his possession for twenty years in order to become the owner thereof (see also above 13.1.). Regarding possession in terms of art. 1041 and 1045 Gr.C.C., the general regulations for possession in art. 947 et seqq. are applicable. It is not necessary to announce the intention to possess the asset as an owner (Γνωστοποίηση διάνοιας κυρίου)386 and to inform the former possessor.387 It is irrelevant whether the possession is faulty or not.388 In order to establish a claim that ownership has been acquired by acquisitive prescription, the possessor has to prove that he obtained possession according to the provisions of civil law and had possession throughout the whole period of time which is necessary for effecting an acquisition according to the rules of acquisitive prescription. As this can be a rather difficult task, the law provides a presumption in favour of the possessor. The possessor who held the asset in his possession at the commencement and termination of a certain time period is presumed to have possessed the asset throughout the intervening time as well (art. 1046 Gr.C.C.).389 This presumption can be rebutted390 by proving that his possession was interrupted.

13.2.3. Accessio temporis Regarding the expiration of the time-limit of three (ordinary acquisitive prescription of movables), ten (ordinary acquisitive prescription of immovables) or twenty years (extraordinary acquisitive prescription), questions arise about the treatment of the accessio temporis rule. Accessio temporis means that the prescription period of the predecessor is added to the ac386 387

388 389 390

Supreme Court 14 / 2003 in Elliniki Dikeosini 2003, p. 795. Georgiadis in Georgiadis – Stathopoulos, Civil Code V, art. 1041, p. 469; Supreme Court 1199 / 1982 Efimeris Ellinon Nomikon 1983, p. 544. Athens Court of Appeal 2897 / 2001 in Elliniki Dikeosini 2001, p. 1411. Supreme Court 1003 / 1979 in Nomiko Vima 1979, p. 474. Filios, Property Law, p. 194.

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quisitive possessor’s time period of possession.391 According to the prevailing opinion, for both singular and universal succession, it is necessary that, in order to apply accessio temporis, the predecessor and the legal successor have to fulfil the preconditions of acquisitive prescription (good faith, valid title, possession). Where the predecessor does not fulfil these preconditions, then the predecessor’s time period is not added to the legal successor’s time period. This is a teleological approach to art. 1051 Gr.C.C., which should be applied in accordance with art. 983, 1710 para. 1 Gr.C.C. In the case of universal succession, if the testator fulfilled all the preconditions regarding acquisitive prescription, then the heir continues this acquisitive prescription even if he does not fulfil the requirements of acquisitive prescription. Consequently, regarding universal succession, there is no adding up of the time periods to calculate the prescription period of the legal successor, instead a succession in acquisitive prescription takes place. This approach392 establishes, for universal succession, the continuation of acquisitive prescription (successio in usucapionem) and, for singular succession, the accessio temporis. The important consequences of which route is followed becomes evident in the acquisitive prescription of immovables. Art. 1051 Gr.C.C. is also applicable when the asset is transferred from the acquisitive possessor to a third party and subsequently retransferred to him following the avoidance or annulment of the transfer for any reason (e.g. the transfer was void or voidable, the transfer was subject to a resolutive condition which was fulfilled, ownership was re-transferred according to the provisions of unjustified enrichment etc.), then the time period for which the asset was in possession of the third party is added to the acquisitive prescription period of the acquisitive possessor.393 According to art. 1052 Gr.C.C., any time of acquisitive prescription that has elapsed in favour of the possessor of an inheritance is, in reality, being accounted for the true heir. The law treats the true heir as the successor of the possessor of the inheritance in order to protect him from any eventual negative consequences, which could include the possessor of the 391

392

393

Art. 1051 Gr.C.C.: A person who has acquired possession, as a general or particular successor in title, may add the time period of his own acquisitive possession to the time period of the acquisitive possession by the person from whom he derives his right. Georgiadis, Property Law I, p. 430; Spyridakis, Property Law 3, para. 144αβστ; Supreme Court 165 / 2004 in Elliniki Dikeosini 2004, p. 816; Supreme Court 353 / 2002 in Elliniki Dikeosini 2003, p. 194; Supreme Court 622 / 2001 in Elliniki Dikeosini 2002, p. 1431; Supreme Court 1082 / 2002 in Elliniki Dikeosini 2001, p. 429; Supreme Court 370 / 1998 in Elliniki Dikeosini 1998 p. 1334; Supreme Court 1429 / 1997 in Elliniki Dikeosini 1998, p. 859. Spyridakis, Property Law 3, para. 144αβστ.

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inheritance temporarily taking possession of an asset of the inheritance that did not actually belong to the testator.394

(a)

Suspension of the prescription period

According to art. 1047 Gr.C.C. the acquisition of ownership by acquisitive prescription does not commence, and if commenced it cannot be completed, in the (separately running) time period in which the prescription of the action for vindication is suspended or the completion of the prescription is legally prevented. From the wording of art. 1047 Gr.C.C., which refers to art. 255 through 259, there are two kinds of suspension. (i) Absolute suspension according to art. 256 Gr.C.C.: acquisitive prescription is suspended regarding claims arising: (a) between spouses during marriage395 even if the marriage has been subsequently annulled; (b) between parents and children, during the minority of the children; (c) between tutors and wards during tutelage; and (d) between masters and servants (or employers and employees) during the service relationship. In this case the suspension shall not exceed a time period of more than fifteen years. (ii) Suspension of the term of prescription according to art. 255 Gr.C.C.: the prescription period is suspended, as is the commencement of the acquisition of ownership by the way of acquisitive prescription, for the time during which a challenger has been impeded by reason of a moratorium or on account of some other case of force majeure from pursuing his claim within the last six months of the term of prescription.396 The prescription period shall also be suspended for the time period included in the last six months of the term of prescription during which the challenger of the claim was fraudulently dissuaded by the debtor from pursuing his claim (for example: conduction of negotiations to reach a settlement agreement without the intention to do so, but with the goal of consuming time so the challenger’s claim would prescribe). According to art. 1047 and 258 Gr.C.C., the legal incapacity of the owner of the asset does not impede the commencement or the course of the acquisitive prescription against him from the outset, but it does hinder the 394 395

396

Georgiadis, Property Law I, p. 431. Rodos Multimember Court of First Instance 143 / 2005, first publication NOMOS Legal Database. Supreme Court, 1253 / 1996 in Elliniki Dikeosini 1997, p. 1797.

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completion of the time necessary for the acquisition of the asset by way of acquisitive prescription where the state of incapacity continues in the final six months of the required time.397 According to art. 1047 and 259 Gr.C.C. the prescription period is also suspended for the time period of six months starting at the moment the heir entered upon the inheritance.398 According to art. 257 Gr.C.C. the result of the suspension of the acquisitive prescription is that the time period of the suspension is not included in the calculation of the time period for acquisitive prescription. When the suspension is over, then the acquisitive prescription continues from the point at which suspension began, but may in no case be completed before the lapse of six months from when the suspension stopped. The burden of proof for the suspension of the plea (Einrede) of suspension of acquisitive prescription lies with the party putting it forward.399

(b)

Interruption of the prescription period

According to art. 1048 Gr.C.C. and 1049 Gr.C.C. the prescription period is interrupted by the loss of possession and the commencement of a legal action for vindication against the possessor. (i) Loss of possession: where the person who lost possession repossesses the asset within a year of the loss of possession or repossesses the asset after more than a year but such repossession is attributable to a legal action filed within a year from the loss of possession, then the prescription period is not considered interrupted.400 (ii) Legal action for vindication: the prescription period is interrupted with the service of process (art. 221 para. 1 Gr. Civil Procedures Law) of the action for vindication by the owner to the adverse possessor (or to the person who has the detention of the asset for him), or the action for a declaratory judgment (Eigentumsfeststellungsklage), or the actio publiciana, or the action of division of co-ownership in a movable. It is also interrupted with the filing of a counterclaim, a third party intervention in an action against the two parties to a pending lawsuit (Hauptintervention), or a third party proceedings in the case of a judicial execution (art. 936 Gr. Civil Procedures Law). 397 398

399

400

Georgiadis, Property Law I, p. 433. Supreme Court 7 / 2004 in Elliniki Dikeosini 2004, p. 412; Supreme Court 1538 / 1995 in Elliniki Dikeosini 1997, p. 1581. Papadopoulos, Claims of Property Law I, p. 88; Georgiadis, in Georgiadis – Stathopoulos, Greek Civil Code V, art. 1048, p. 486. Filios, Property Law, p. 202.

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The filing of an action for eviction (art. 987 Gr.C.C.) or of an application for security measures (art. 733-734 Gr. Civil Procedures Law) does not lead to the interruption of the prescription period, since with their filing the judicial determination401 of the right of ownership is not requested.

(c)

Results of the interruption

1. The interruption caused by the loss of possession is absolute, i.e. has an effect against everybody.402 2. The interruption caused by the commencement of legal proceedings only has an effect in favour of the claimant art. 1049 section 2 Gr.C.C. and his successor. The interruption does not have an effect in favour of a third party, even if this person is the real owner of the asset but did not file the rei vindicatio. 3. According to art. 1049 para. 3 Gr.C.C., the provisions governing the interruption of prescription by the institution of legal proceedings are applicable in analogy, particularly articles 261 through 263.403 4. The interruption of the acquisitive prescription has the effect that the time which passed until the interruption is not calculated to the acquisitive prescription, according to art. 1050 section 1 Gr.C.C.. 5. A new acquisitive prescription can only commence after the termination of the interruption (art. 1050 section 2 Gr.C.C.). As regards or401 402

403

Papadopoulos, Claims of Property Law I, p. 88. Georgiadis, in Georgiadis – Stathopoulos, Greek Civil Code V, art. 1048, p. 485; Spyridakis, Property Law, para. 144βαε. Art. 261 Commencement of legal action: The term of prescription shall be interrupted by the commencement of legal action. A prescription thus interrupted shall begin to run again as from the last act of procedure made by the parties in litigation or by the court. Art. 262 Gr.C.C.: In the cases where a procedure is required in preparation for the commencement of the legal action, the interruption of the term of prescription shall be deemed to have taken place as from the start of the preparatory procedure if the legal action was commenced within three months as from the termination of the preparatory procedure or within the period prescribed by law. Art. 263 Gr.C.C.: A term of prescription which was interrupted by the commencement of a legal action, shall be deemed not interrupted if the claimant desisted from the legal action or if the legal action was rejected by a final decision on grounds unconnected with the merits. If the beneficiary of the right has within six months reintroduced the legal action, the term of prescription shall be deemed to have been interrupted by the previous legal action.

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dinary acquisitive prescription, at the moment of the commencement of the new acquisitive prescription good faith and a putative title are required.

13.2.4. Title The Greek Civil Code requires, as a precondition for ordinary acquisitive prescription, a valid title (art. 1041 Gr.C.C.) or a putative title (art. 1043 Gr.C.C.). Every lawful way of acquiring ownership, original or derivative, is a valid title. This title, however, must be an imperfect title, because otherwise acquisitive prescription would not make any sense. Depending on the kind of defect, one differentiates between valid title and putative title.

(a)

Valid title

A valid title, according to art. 1041 Gr.C.C., is the ownership title which, due to a defect regarding its content, does not lead to the acquisition of an ownership right (e.g. legal incapacity of the transferor, lack of ownership, lack of a power to dispose etc.). According to another opinion,404 there is a valid title when the manner in which ownership is acquired features all the necessary elements regarding its validity; it does not, however, effect the transfer of ownership by reason of the transferor not having ownership. The possessor does not directly acquire ownership by reason of this defect; as long as he is certain that he acquired ownership on the basis of a valid title (e.g. purchase agreement, donation, legal succession etc.), he will acquire ownership by way of acquisitive prescription. According to case law, the following are not valid titles: the preliminary contract; the fictitious title because, according to art. 138, it is null and void; the invalid contract; the invalid testament; the order to make a declaration of intention.

(b)

Putative title

According to the prevailing opinion, a putative title is the title which is non-existent but which the possessor excusably (without acting with gross negligence) thought extant, and the void title which the possessor excusably thought was valid. In some cases, there is not a title at all, not even formally. In other cases, there is a title which is bad and its defect lies in the 404

Georgiadis in Georgiadis – Stathopoulos, Civil Code V, art. 1041, p. 470.

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fact that the transferor has no ownership right. This means that, initially, the possessor cannot acquire ownership. But, where he takes no regard to the fact that no title exists or that the title is bad, provided he is not acting in a grossly negligent manner, then there is a putative title on the basis of which he can acquire ownership.

13.2.5. Good faith In order to obtain ownership by way of “ordinary” acquisitive prescription, the acquirer must be acting in good faith (art. 1041, 1042 Gr.C.C.). The acquirer acts in good faith when he is convinced, without acting in a grossly negligent manner, that he acquired ownership on the basis of the relevant title.405 Good faith in terms of acquisitive prescription has to be understood in a broader sense than good faith in terms of the provisions on good faith acquisition. According to art. 1037 Gr.C.C., the acquirer’s good faith must refer to the ownership right of the transferor while, according to art. 1042 Gr.C.C., the acquirer’s good faith must refer to his own ownership right. E.g. the acquisitive possessor is acting in good faith when he knows that the transferor has no ownership right but believes that he has the consent of the owner to alienate the asset. In this case, although the requirement for good faith in terms of good faith acquisition is not fulfilled, the requirement for good faith according art. 1042 is fulfilled. It is irrelevant whether the possessor’s conviction is based on an error in respect of the facts or an error of law, but his error must not be caused by gross negligence.406 Good faith must be present when acquiring possession (art. 1044). In the case of the acquisitive possessor who at the moment he acquired possession believed that he was acquiring ownership but, later on, finds out that the transferor had no ownership right or that the transfer was invalid, there is no prejudice to acquisitive prescription.407 According to art. 1044 Gr.C.C., supervening bad faith is not prejudicial (mala fides superveniens non nocet). Good faith has to be associated with the legal title, e.g. the purchaser of an immovable has to believe that he acquired ownership with the sale and the registration of the sales contract.408 This, however, does not mean 405

406 407 408

Supreme Court 92 / 2002 in Elliniki Dikeosini 2002, p. 1065; Supreme Court 980 / 1990 in Elliniki Dikeosini 1991, p. 560. Thessaloniki Court of Appeal 2235 / 1990 in Armenopoulos 1991, p. 359. Supreme Court 1019 / 1977 in Nomiko Vima 26, 918. Georgiadis, Property Law I, p. 422.

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that the existence of a legal title is also a presumption of good faith.409 The fulfilment of the preconditions, good faith and legal title, have to be proved separately. If possession is acquired through a representative, then it is also necessary for the representative to act in good faith. According to art. 215 Gr.C.C., the acquisitive possessor cannot rely on the representative’s lack of knowledge of the facts where the possessor himself knew or ought to have known them. The consequence of acquisitive prescription is that the acquisitive possessor acquires original ownership of the asset. According to the prevailing opinion, the original owner can not claim the return of property from the new owner on the basis of the provisions on unjustified enrichment (art. 904 et seqq. Gr.C.C.).410 Furthermore, he cannot claim damages on the basis of the provisions relating to non-contractual liability arising out of damage caused to another according to art. 914 et seqq. Gr.C.C. According to art. 1053 Gr.C.C., the real rights of third parties in the acquired asset are extinguished. The preconditions of acquisitive prescription must also be fulfilled in respect of third party real rights. This means that the acquirer must be acting in good faith with respect to each, and that the required time period has elapsed (usucapio liberationis). Consequently, the real rights are not extinguished where the acquirer was not acting in good faith regarding the third parties’ rights at the moment he acquired possession. The real rights of third parties, which were constituted after the acquisition of possession, are not extinguished. If the preconditions of acquisitive prescription are fulfilled but the preconditions of usucapio liberationis are not, the acquisitive possessor acquires ownership limited by the encumbrances of the limited rights in rem of the third parties.411 It should be noted that the usucapio liberationis does not require that ownership has been acquired by way of acquisitive prescription. Art. 1053 Gr.C.C. is also applicable when ownership has also been acquired by transfer, succession by inheritance etc.412 and therefore has a potentially wide ranging application. As mentioned above (13.1.), acquisition of ownership by “extraordinary” acquisitive prescription in the sense of art. 1045 Gr.C.C. does not require good faith of the possessor.

409 410

411 412

Georgiadis, Property Law I, p. 422. Filios, Property Law, p. 204; Kousoulas, Property Law, p. 341; Georgiadis, Property Law I, p. 341; Spyridakis, Property Law 3, para. 144βδγ. Georgiadis, Property Law I, p. 438 et seq. Spyridakis, Property Law 3, para. 144βγ 3.

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13.3.

Prescription of ownership

The extraordinary acquisitive prescription forms a supplement to the rules of limitation. The vindicatory action prescribes in 20 years. This prescription affects the real claim and not the ownership right. It applies in favour of the possessor and his legal successors, but not in favour of a third party.413 Consequently, where the possessor was in possession of an asset for 25 years, even if the vindicatory action has prescribed, he can base his claim on the regulations regarding extraordinary acquisitive prescription and be protected.

14.

Other forms of original acquisition

14.1.

Finding of lost things

Finding is the discovery of lost assets. According to art. 1081 Gr.C.C., lost assets are owned, but not possessed, by a person.414 The loss of possession can either be voluntary or involuntary.415 The person who found the lost asset has a number of rights and obligations, as set out below. Finding of lost assets creates a legal relationship ex jure. From this relationship, which can be described as specific form of benevolent intervention in another’s affairs (articles 730-739 Gr.C.C.), the obligations and rights of the finder are derived. Systematically, the relationship belongs to the law of obligations, however it is simultaneously stipulated in property law. Under the preconditions required in art. 1088 Gr.C.C., finding is a method of original acquisition of an asset.416 The finder has the right (and duty) to hand the lost thing over to the police department (art. 1082 Gr.C.C.). This does not prejudice his rights (art. 1090 Gr.C.C.). He has the right to claim any justifiable expenses in the circumstances for the maintenance and safekeeping of the asset, or in the search for the person having a right to the asset, from the possessor (art. 1085 Gr.C.C.). He has the right to claim a reward from the person 413 414

415

416

Spyridakis, Property Law 3, para. 144γζ. Filios, Property Law, p. 225 with reference to Baur-Stürner, Property Law, § 53g II 1; Kousoulas, Property Law, p. 347. Under Greek law, the rules on finding apply to goods which were lost, forgotten, or intentionally hidden (provided actual physical control is no longer possible) by the previous possessor. It is therefore considered irrelevant whether physical control was lost voluntarily or involuntarily. Also, where a thief voluntarily abandons goods, they are considered to be lost goods. Georgiadis, Property Law I, p. 540.

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who has a right to the asset. He has a right of retention of the asset until he has been satisfied in respect of the expenses and in respect of the reward (art. 1087 and 1106 Gr.C.C.). The finder is obliged to inform, without delay, the person who lost the asset or the owner or any other person entitled. Where this is difficult, he is obliged to inform the competent authorities (art. 1081 Gr.C.C.). The finder is obliged to keep and maintain the asset, and is liable only for intentional and gross negligence that leads to damage (but has no responsibility beyond that) (art. 1082, 1083 Gr.C.C.). Finally, he is obliged to hand over the thing he found to the police (art. 1084 Gr.C.C.). The finder acquires ownership ex nunc when the following two preconditions are fulfilled (art. 1088 Gr.C.C.): 1. one year has elapsed from the moment he informed the authorities; and 2. the finder or the authorities still do not know who the person entitled is. With the acquisition of ownership, any real right belonging to a third party is extinguished. It is a way of original acquisition and the finder, until he acquires ownership, has an expectant right.417 Where the identity of the person entitled becomes known before the time period of one year has elapsed, then the finder can set a time-limit expiring no shorter than the remainder of the one year period for the payment of his expenses and reward (art. 1089 para. 1 Gr.C.C.). If this time-limit expires without any action having been taken, then the finder acquires ownership of the asset (art. 1089 par.2. 1088 Gr.C.C.). The police can set a time period for the finder to collect the asset he has acquired ownership of. If the finder does not collect it within the time period set by the authorities, then ownership of the good is conveyed to the municipality or to the authority of the locality where the good was found (art. 1091 Gr.C.C.).

14.2.

Occupation of goods not owned by anyone

The acquisition of ownership by occupation (occupatio) is only relevant in respect of movable goods (art. 1075 Gr.C.C.). Immovables that are seemingly not owned by anyone and the property of those who die having no heirs belong to the state (art. 972 Gr.C.C.). Abandoned movables in the sense of art. 1075 Gr.C.C. are movables in which no-one has an ownership right.418 A movable becomes abandoned, if its owner has given up possession thereof with the intention of abandoning ownership (art. 1076 Gr.C.C.). This means that both the abandonment of the possession and the intention of the owner to do so have to be categori417 418

Filios, Property Law, p. 228. Filios, Property Law, p. 221.

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cally made clear.419 The acquisition of ownership is effected ipso jure with the acquisition of possession through occupancy under the precondition that it is not prohibited by law (e.g. capture of a wild animal in a place where hunting is prohibited). Wild animals are not owned by anyone as long as they remain in a state of natural freedom. Wild animals within an enclosed space and fish in a fish-farm or in other enclosed waters are not stray animals.

14.3.

Separation

Art. 1064-1068 provides for the acquisition of ownership of fruits (e.g. fruits of a tree), other constituent components of an asset which are equated with fruits (e.g. minerals from a mine), and any other constituent components which do not appertain to the natural fruits (e.g. materials from the demolition of a building). According to these provisions, ownership of the above-mentioned goods is acquired after their separation according to the following ranking: first from the possessor in good faith (art. 1066 Gr.C.C.); in case of the absence of the possessor in good faith, a person holding a restricted real right (e.g. usufruct, pledge, real servitude, limited personal servitude)420 acquires the ownership (art. 1065); or, in his absence, the owner of the good (art. 1064 Gr.C.C.). They obtain the natural fruits and the constituent parts by their separation from the asset. Art. 1067 and 1068 Gr.C.C. provide for the acquisition of ownership of the above-mentioned fruits and components from persons who, due to a contractual relationship, have been granted the right to enjoy the fruits or other components (e.g. farm tenant).421 They acquire ownership by harvesting the fruits etc., even if they have already been separated.

419 420 421

Kousoulas, Property Law, p. 346. Georgiadis, Property Law I, p. 530. Kousoulas, Property Law, p. 346.

Part IV: Additional questions 15.

Reservation of title

15.1.

Reservation of title as a condition of the agreement

The most common condition to which the real agreement for the transfer of ownership of a movable asset according to art. 1034 Gr.C.C. is made subject to is the sale of a thing with a retention of ownership clause (art. 532 Gr.C.C.). The parties agree that ownership will not be transferred until the purchase amount is paid. The scope of this agreement is to secure the seller’s claim of the purchase amount where the purchaser has been given credit. The owner delivers the asset to the purchaser, but he retains ownership until the payment of the purchase amount has been obtained. In this case, the obligation (contract for sale) is created without this condition, but the real agreement is created with this condition. This condition can be, depending on the intention of the contracting parties, either a resolutive or a suspensive condition.422 According to Art. 532 Gr.C.C., where the parties have not agreed otherwise the retention of ownership clause is a suspensive condition.423 This means that the purchaser obtains the detention of the movable and executes possession for the owner. As soon as the condition is fulfilled, he also obtains ownership ipso jure.424 Only the real agreement is subject to the suspensive condition (that the purchase amount has to be paid in due time). The obligation on the other hand is free of conditions but it can be cancelled by the seller based on his power to rescind the contract if the buyer does not pay in accordance with the contract. If the real agreement is not subject to this condition, the purchaser will obtain ownership and then the purpose of this condition will not be fulfilled. There are no specific requirements that have to be fulfilled in order to make the reservation of title effective in relation to third parties. The purchaser has the detention of the movable and has a right to possess the movable. Therefore, the seller cannot file a vindicatory action against the purchaser,425 but he is protected under criminal law where 422 423 424 425

Athens Magistrates’ Court 2049 / 2000 in Archio Nomologias 2003, p. 546. Georgiadis in Georgiadis – Stathopoulos Civil Code V, art. 1034, p. 433. Georgiadis in Georgiadis – Stathopoulos Civil Code V, art. 1034 p. 433. Athens Magistrates’ Court 2049 / 2000 in Archio Nomologias 2003, p. 546.

316

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the purchaser embezzles the movable goods (art. 375, 377 Greek Criminal Law).426 Since the seller’s right of ownership is revocable, he can rely on the restrictions of art. 204 and 206 Gr.C.C.427 Where the movables are seized by the purchaser’s creditors, the seller as the owner of a real right has, according to art. 936 Gr. Civil Procedures Law, the right to bring an action (Τριτανακοπή, Widerspruch Dritter) in opposition to the execution of a judgment (see above 9.1.2.).428 The seller can: a) claim the payment of the purchase amount, the collection of which will have the effect that ownership will be transferred to the purchaser; b) rescind the purchase contract then claim the rights arising from ownership against the purchaser-detentor; or c) claim his right on the basis of the rescission of the contract and claim the restitution of the goods on the basis of the provisions regarding unjustified enrichment.429 Where movable goods are destroyed or damaged as a result of a third party’s actions giving rise to non-contractual liability arising out of damage caused to another, the purchaser has the right to claim restitution, although the seller is still the owner of the goods.430 Regarding the problems that occur with regard to the retention of ownership clause, see above (9.1.2.). A seller is at risk of losing his ownership where the purchaser alienates the goods to a third person in good faith. On the contrary, the one who acquires a non domino is in bad faith, when he knows or grossly negligently disregards that the movables do not belong to the purchaser. He acts grossly negligent if, from the circumstances it can be discerned that he should not proceed with the purchase of the goods (bearing in mind that the acquirer must ask for the necessary information about the legal status of the goods transferred and information regarding the solvency of the of the transferee, such information and business practice, along with the use of common 426 427

428 429 430

Athens Court of Appeal 6214 / 1988 in Archio Nomologias 1988, p. 609. Art. 204: A person benefiting from a conditional right may, upon the fulfilment of the condition, claim damages from the other party if such party, while the condition was pending, had, through his fault, frustrated or impeded the operation of the conditional right. Art. 206 Disposal while the condition is pending: Upon the fulfilment of the condition, any disposal of the subject matter of the transaction while the condition was pending shall become ipso jure null and void if such disposal frustrated or impaired the effect which was dependent on the condition. The same rule applies if, while the condition was pending, the subject matter of the transaction was alienated by compulsory execution. Athens Court of First Instance 4918 / 1986. Supreme Court 1136 / 2000 in Elliniki Dikeosini 2001, p. 1350. Piraeus Court of First Instance 1914 / 2003 in Dikeo Epichiriseon ke Eterion 2004, p. 678.

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317

sense, should be sufficient to make the purchaser suspicious regarding the ownership of the transferee).431 The original owner can claim the goods from the acquirer who, in respect of the above-mentioned requirements, was in bad faith.

15.2.

Accessio, confusio, commixtio, specification and reservation of title

Regarding the effects of accessio, confusio, commixtio and specification see above 11.

15.3.

Extended reservation of title

Where the acquirer wants to use the acquired good in order to pay the purchase price from the re-sale proceeds, the condition of a reservation of title in its strict sense is not a useful means to secure the acquirer’s interests. If the seller consents to the transfer of the good, then the retention of title is not of any practical importance for him, since the buyer could validly transfer ownership to third parties. Therefore, an extended reservation of title is required: this is the reservation of title which is accompanied by: a) the authorisation of the buyer by the seller so the former can transfer the good (after it has been processed into a new thing or not art. 239 para. 1 Gr.C.C.); and b) the pre-assignment (Vorausabtretung) of the buyer’s future claims from the re-sale of the good (verlängerter Eigentumsvorbehalt). Where the good has been processed, it is agreed that this specification takes place for the account of the seller and, consequently, ownership is extended to the new thing that is created.432

16.

Abandonment and acquisition of a hoard

16.1.

Abandonment

Abandonment of a movable good is the abandonment of the possession by the owner with the intention to give up ownership (art. 1076 Gr.C.C.). Abandonment in the sense of art. 1076 Gr.C.C. is a legal transaction with 431

432

Piraeus Court of First Instance 1914 / 2003 in Dikeo Epichiriseon ke Eterion 2004, p. 678; Thessaloniki Court of First Instance 785 / 1989 in Armenopoulos 1989, p. 745. Kornilakis, Specific Law of Obligations I, p. 357.

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two elements: the unilateral declaration of the intention to give up ownership and the actual corporeal giving-up of the material asset.433 The declaration of the intention to give up ownership can be explicit or implicit. The intention to abandon an asset has to be made clear beyond any doubt.434

16.2.

Acquisition of a hoard

According to art. 1093 Gr.C.C., a person who finds and takes possession of a movable thing of value that was hidden inside another movable or immovable for such a long period of time that the owner thereof cannot be ascertained will acquire ownership of one half of the hoard. The other half belongs to the owner of the asset in which the hoard was hidden. This is another form of the original acquisition of ownership. In order to obtain ownership, the finder must not only find the hoard but also take possession of it. From the moment on when the finder takes possession of it, he and the owner of the thing where the hoard was hidden become coowners in equal shares.435

17.

Transfer rules for co-ownership

Co-ownership means that ownership jointly belongs to more than one person. Each of them has an undivided share in the asset (art. 113 Gr.C.C.). Co-ownership is created by law (e.g. accession, commixture), by a legal act (a movable good is purchased jointly etc.) or by acquisitive prescription (the preconditions for acquisitive prescription must be fulfilled by both coowners). In a case of co-ownership, the law provides that the provisions on undivided joint rights are applicable (art. 785 Gr.C.C.). For the transfer of the undivided share in the common movable asset, the rules on the transfer of ownership of movable goods (art. 1034 et seqq.) are applicable. Although it is not very common, the rules on good faith acquisition (art. 1036 et seqq. Gr.C.C.) are also applicable.436 Ownership of the undivided share can also be acquired by acquisitive prescription (ordinary or extraordinary). Co-ownership is terminated where: (a) one person has acquired ownership of the total, which can happen by virtue of law (e.g. intestate succession) or by a legal act (purchase 433 434 435 436

Georgiadis, Property Law I, p. 537. Georgiadis, Property Law I, p. 537. Georgiadis, Property Law I, p. 547 et seqq. Georgiadis, Property Law I, p. 645.

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agreement, donation etc). The acquirer obtains exclusive ownership of the good. If, in this case, a third party has a limited real right in one of the shares, the encumbrance remains on the percentage of the ownership which corresponds to that share;437 (b) the asset as such has been divided into more than one distinguishable part (dissolution art. 798 Gr.C.C.) and, therefore, independent ownership rights are created. The dissolution can be voluntary when all coowners agree. Where they do not agree, then each of them can claim judicial dissolution according to art. 478-494 Gr. Civil Procedures Law (art. 799 Gr.C.C.); or (c) the movable asset is destroyed. The claim for dissolution of co-ownership is not subject to prescription (limitation) according to art 805 Gr.C.C.

18.

Transfer of ownership of unspecified goods

18.1.

Transfer of shares in an identified bulk

According to Greek Civil law, rights in rem can only refer to specified movable assets that are capable of legal disposal. The movable assets must be self-existent. The self-existence of an asset is determined according to generally accepted standards and not according to its physical distinctness.438 A bulk is the entirety of independent assets of the same kind (e.g. heap of flour, heap of sand, pack of cards, bee-swarm etc.). The bulk is legally treated as a unitary thing, since the consistent parts, despite the fact that they are self-existent, individually have little or no financial value.439 In order to become subject to a financial transaction, they have to be pooled with other like things in the form of a quantity. The quantity is determined in weights and measures, according to the generally accepted standards governing transactions.440 This, however, does not mean that a single good out of the bulk (e.g. an apple) cannot be the object of a transaction as an independent good. The bulk has to be differentiated from the group of goods (universitas rerum): the group of goods is the entirety of assets, either of the same or of a different kind, that constitute, according to generally accepted standards, a financial unit. Both the individual goods as well as the group of goods 437 438 439 440

Georgiadis, Property Law I, p. 654. Dimakou in Georgiadis – Stathopoulos, Civil Code V, art. 947, p. 28 et seq. Dimakou in Georgiadis – Stathopoulos, Civil Code V, art. 947, p. 28 et seq. Kousoulas, Property Law, p. 36.

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have a financial value. The provisions of property law are applicable to the individual goods of the group. Therefore, only the individual goods can be transferred and not the group. Since the bulk is treated as a unitary thing, ownership of the bulk as such can be transferred.441

18.2.

Pledge without delivery

A similar regulation to the floating charge (as existing, e.g., in English law) is the pledge without delivery. Law 2844 / 2000 provides for the creation of a right of lien, the creation of which does not require the delivery of the movable asset. The debtor and the creditor have to be companies or businessmen, and the security is provided for the needs of the company or the enterprise of the businessman. The pledgor can be the debtor or a third person. The third person does not have to be a company or a businessman. In addition to the provisions of the Law 2844 / 2000 (right of lien without delivery), the general provisions of the Gr.C.C. on pledge are applicable insofar as they are consistent with the nature of the pledge without delivery. Also, the provisions on mortgages are applicable due to the similarities shared by both instruments (no delivery, public registration). The pledge, according to Law 2844 / 2000, has a restricted period of duration. It is extinguished 10 years after its registration, but can be reregistered on expiry in accordance the creditor’s wishes. Every renewal is valid for 10 years. The parties can conclude an agreement that the duration of the pledge will be less than 10 years. This agreement has to be registered. The pledgor, the debtor or a third party having a legal interest can oppose the renewal of the pledge. The above-mentioned law provides regulations for the publicity in the creation of the pledge and provides that it has to be registered at the Pledge Register (which has not yet been brought into existence). Until the Pledge Register is created the pledges, in the sense of Law 2844 / 2000, have to be registered at the Land Register. A pledge without delivery can be created on movable goods with the following exceptions: money; bearer securities; household objects; and movables that can be subject to a mortgage (e.g. aeroplanes, vessels, machinery installations etc.). The pledge can be created on future goods, which is of particular use for the future fruits of goods.

441

Dimakou in Georgiadis – Stathopoulos, Civil Code V, art. 947, p.28 et seq.

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18.2.1. Over-collateralisation Where the pledge exists on more than one movable (which movables may be defined individually or may exist as a group), then the pledgor can claim the restriction of the pledge to as many movables as represent a value capable of securing the claim sufficiently.442 Where the creditor does not agree with the restriction of the pledge, the Court of First Instance of the place where the pledge was registered has jurisdiction to settle a dispute.

18.2.2. Union, accession etc. In cases of union, accession, commixture and processing, the pledge is maintained, except in the cases when it is extinguished according to the provisions of 1057-1061 Gr.C.C. (see above 11). The pledge is also maintained where the pledgor proceeds to unite the movables, if not otherwise agreed between the parties. If co-ownership is created due to the union etc., the pledge is attached to the corresponding share in the new asset.

18.2.3. Good faith The good faith acquisition of the pledge is possible (1037 Gr.C.C.). The decisive moment for the good faith criterion is the moment of the conclusion of the pledge agreement.

18.2.4. Legal situation According to art. 7 Law 2844 / 2000, the pledgor has to allow the pledgee to verify the existence and the condition of the movable every six months. According to art. 7 para. 2 Law 2844 / 2000, the pledgor, subject to contrary agreement with the creditor, must not: (a) transfer ownership of the movable, (b) deliver detention of the movable for any reason to a third party, (c) transfer the movable to any other place, (d) not to alter the movable’s use without the consent of the creditor. Where it is agreed that the scope of the pledge will be expanded to secure the claim for payment arising from the alienation of the pledged movable,

442

Filios, in Property Law p. 384.

322

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the provisions on the second distress (Nachverpfaendung) of the claim are applicable (art. 8 para. 3, 11-14 Law 2844 / 2000). Should the pledgor infringe his obligations, the creditor can declare the debt due for payment. If, through the fault of the debtor, the movable could deteriorate or reduce in value, then art. 1284 Gr.C.C. is applicable by analogy (Deterioration of mortgaged property: Where the mortgaged property runs the risk of deterioration or of reduction in value due to a fault imputable to the debtor, the creditor has the right to demand the cessation of the harmful acts, or an immediate settlement of the debt, or, finally, the granting of another similar mortgage. A claim for damages according to the provisions relating to non-contractual liability arising out of damage caused to another shall not be excluded). According to art. 537 Commercial Law, which is applicable according to art. 8 para. 1, the creation of a pledge, in order to secure a pre-existing debt in the case of the court having declared the suspension of payments in insolvency proceedings, is invalid. The pledge is extinguished according to the general provisions of art. 1243 Gr.C.C. The law relating to the cancellation of a pledge follows the provisions on the cancellation of a mortgage.

18.2.5. Special forms of the pledge without delivery (a) Pledge regarding entrepreneurial claims (based on Law 2844 / 2000). These are claims deriving from entrepreneurial activities, together with any claims of suppliers against those who issue credit. Claims against consumers are not included. Future claims can be the object of the pledge, but they have to be created (the pledge is only activated by their creation). A group of claims can also be object of the pledge. The regulations on overinsurance (see above 18.2.1.) are also applicable. The pledge is created in the same way a claim is transferred, i.e. by assignment, and it has to be registered. (b) Floating pledge (based on Law 2844 / 2000). This is a pledge on a group of movable goods or rights with a changeable composition. For constitution, an agreement of the parties is necessary and the regulations on the pledge without delivery are applicable. The floating pledge is considered to be a legal fiction, which has been agreed where the group of pledged movables contains merchandise that is to be disposed of or consumed. A floating pledge will not be created where it is obvious that the parties wish a fixed security. The pledgor can dispose of the goods in the group of movables free of encumbrances. He is obliged, though, to replace them with others of the

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same value. This also applies in the case of consumption, loss etc. (art. 16 Law 2844 / 2000). In respect of the agreement that the pledge will also be expanded to the claim for payment received from the sale of the asset(s), the pledgor is obliged to inform the creditor about the identity of the debtor(s). The pledgor is obliged to send a quarterly list of the movables and the changes that may have occurred to the creditor every. He is also obliged to accept that the creditor is allowed to check the pledged assets according to the provisions of art. 7. Where he does not fulfil his obligations, the consequences of art. 7 will be imposed. In the case of the pledgor’s default, the creditor is entitled to deprive him of the power to dispose the assets of the group (stabilisation of security art. 18 para. 1). This can be done by confiscation, security measures or any measures that imply the deprivation of the power to dispose.

19.

Consequences of restitution of the movable to the owner

19.1.

Entitlement to benefits resulting from the movable

Where the vindicatory action is successful, then claims of the owner against the possessor, regarding the restitution of benefits deriving from the good and for the damages the movable asset suffered until it was restored to the owner, are the consequence.

19.1.1. Benefits Benefits in the sense of the proprietary regulations (art. 961 and 962 Gr.C.C.) of the Greek Civil Code are understood to be: 1) the fruits of a good, which are the products thereof (natural fruits, being organic products from animals – such as milk from cattle or from the ground – such as trees, fruits, seeds, plants etc.); 2) everything that is extracted from it in conformity with its designated use. Those are the inorganic products of the ground (e.g. sand, marble, gravel etc.) The designated use is defined according to the generally accepted standards governing transactions and the will of the person who has the power to dispose of the good;443 3) fruits of a right, being any revenues (corresponds to German law: Ertrag) that the right yields according to its designated use (e.g. usufruct, tenancy etc.); 4) civil fruits, which are the proceeds that a thing or a right yields by virtue of a 443

Filios, Property Law, p. 77 et seq.

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legal relationship (e.g. lease agreement, loan etc.);444 and 5) any advantage brought by the use of the thing or the right. The liability of the possessor or detentor in such situations is specifically dealt with in the Greek Civil Code without reference to the general provisions of the law of obligations. The liability of the possessor has to be differentiated according to the following criteria: whether he was acting in good or bad faith; whether he collected the benefits; and whether damage occured before or after the bringing of the vindicatory action against the opponent. Where the general provisions on unjustified enrichment and non-contractual liability arising out of damage caused to another (tort) are applicable, then the range of liability is the same irrespective of good or bad faith. The good faith possessor would be obliged to restore all the benefits deriving from the good according to the provisions on unjustified enrichment and would be liable to pay compensation, even if the good was destroyed or deteriorated due to slight negligence according to the provisions of the law relating to non-contractual liability arising out of damage caused to another. The good faith possessor believes himself to be a lawful possessor and, therefore, he acts as a possessor. Consequently, he cannot be held liable. (a) For the time period preceding the initialisation of the proceedings for restitution, the owner cannot claim benefits deriving from the good from the possessor who took possession of the movable in good faith and continued to exercise possession in good faith. For this time period he has no claim for damages on account of deterioration, destruction or impossibility of restitution of the movable (art. 1100 Gr.C.C.). Where there is an underlying contract for sale that is avoided but the real transaction is valid, the possessor has to restore the ownership of the movable and the fruits deriving from the movable according to art. 904, 908 Gr.C.C. (unjustified enrichment). (b) After the service of the summons instituting the legal proceedings of the vindicatory action, the owner can claim: (i) from the good faith possessor, the restitution of benefits derived from the movable (according to art. 1094, 1096 Gr.C.C.). The possessor is also liable for the benefits that he failed to collect after the service of the summons, but which he could have collected according to the rules of orderly management (art. 1096, 1098 Gr.C.C.); (ii) from the bad faith possessor (whether such bad faith began at the time he got hold of the thing or where he become aware later that he was not entitled to possess (art. 1098 s. 1 Gr.C.C.)). The moment the holder became possessor in bad faith, rather than the 444

Filios, Property Law, p. 79.

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later time of the bringing of the legal action, is decisive for his liability.445 In this case, the possessor has to restore the fruits he collected and which still exist, the value of the fruits he alienated or consumed and the benefits which, due to his fault, he did not collect. In parallel the possessor in bad faith is also obliged according to art. 1094 Gr.C.C. to restore any still existing fruits that were separated which he did not obtain ownership of in bad faith.446 (c) Where the possessor is both in bad faith and in default, he is liable for all damage that occurs in the time period throughout which he was in default and, therefore, also for the benefits which were not collected, regardless of whether the non-collection was his fault (art. 1098 section 2 and 343 para. 1 Gr.C.C.). He is also liable for any accidental impossibility of performance. However, if he can prove that the damage would have also occurred where the movable had been restored when due, he is not liable. Besides the above-mentioned obligations (see above 19.1.1.(b)(ii)), he is further obliged to restore the value of the fruits he could not collect, and to restore the value of the fruits which were destroyed while he was in default. He is also liable for the accidental perishing of a chattel. (d) Where the possessor obtained ownership based on an illegal act (art. 1099), he is liable for the fruits irrespective of the point in time of the bringing of the legal action or his bad faith. In this case, the possessor is also liable for any negligence, howsoever slight. He has the obligations mentioned above. As far as the preconditions for non-contractual liability arising out of damage caused to another (wrongful act) are fulfilled, the possessor is liable according to the regulations relating to non-contractual liability arising out of damage caused to another (art. 914, 934, 343, 344 Gr.C.C.).447 The liability of the possessor, on the basis of the provisions relating to non-contractual liability arising out of damage caused to another, is concurrent with the regulations on the possessor’s liability according to art. 1096 et seqq.448

445 446

447

448

Georgiadis, Property Law I, p. 592. According to art. 1066 Gr.C.C. the good faith possessor acquires ownership of the fruits or other products considered as fruits if he acts in good faith at the moment of their separation. Supreme Court 540 / 2002 First Publication 2002 in NOMOS Legal Database; Athens Court of Appeal 2653 / 2000 in Elliniki Dikeosini 2001, p. 217. Georgiadis, Property Law I, p. 594.

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19.1.2. Necessary expenses The owner is obliged to reimburse the possessor for any necessary expenses. Necessary expenses are the expenses, which have been made in order to maintain the good (e.g. food for the animals, repairs to the house, paint for the boat etc.), and the expenses which have been made in order to make the good suitable for fulfilling its financial purpose (e.g. fructification expenses for an olive grove etc.).449 The criteria for whether the owner needs to reimburse the expenses made by the possessor are: whether the possessor was in good or bad faith; whether the expenses were incurred before or after the bringing of the legal action; and the differentiation between necessary and useful expenses (see below 19.3.2). The bad faith possessor is liable for the benefits that have been generated or could have been collected in the period of time he was in bad faith, (art. 1098 section 1 and 1096 Gr.C.C., see above 19.1.1.).450 He is also liable on the basis of the provisions relating to non-contractual liability arising out of damage caused to another and unjustified enrichment. In this case, the aforementioned provisions are applicable in parallel with the provisions of 1096 and 1098 Gr.C.C.451

19.2.

Loss and deterioration of the movable.

According to art. 1097 Gr.C.C., the possessor is liable to compensate the owner if, due to his fault, the thing has deteriorated, has been destroyed or cannot be restored for some other reason. Good faith is defined in the same sense as above 19.1. The extent of such liability is set out below. 1. The liability of the good faith possessor before the bringing of the legal action (art. 1100 Gr.C.C.): the good faith possessor is not liable before the bringing of the legal action, since he believes himself to be the lawful owner of the movable asset. However, this does not cover the case where the good faith possessor alienates the good in a manner that leads to profit. In such case, the owner has a claim against him based on the provisions of unjustified enrichment. 2. The liability of the good faith possessor after the bringing of the legal action (art. 1097 Gr.C.C.): the good faith possessor is liable to compensate the owner if the good, due to his fault, was destroyed, deteriorated or, due to some other reason, cannot be restored. Where the good cannot 449 450 451

Georgiadis, Property Law I, p. 606. Athens Court of Appeal 2653 / 2000 in Elliniki Dikeosini 2001, p. 217. Athens Court of Appeal 2653 / 2000 in Elliniki Dikeosini 2001, p. 217; Drama Single Member Court of First Instance 4 / 2002 first publication in NOMOS Legal Database.

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327

be restored due to the fact that the (prior) possessor has alienated it has to be differentiated such alienation was effective and whether the acquirer obtained ownership or not. In the first case, the (prior) possessor is liable according to art. 1097, 1098 Gr.C.C. and, eventually, also according to the provisions on unjustified enrichment, non-contractual liability arising out of damage caused to another or benevolent intervention in another’s affairs. Where the acquirer did not obtain ownership, the original owner can claim the good from the acquirer, but this does not mean that the owner has to be burdened with the expenses and the effort of claiming the good from the third party and he can choose to claim compensation from the (prior) possessor according to art. 1097, 1098 Gr.C.C. Where the alienation of the good to a third party is invalid and the owner chooses to claim compensation from the (prior) possessor, then it is accepted that the acceptance of the compensation implies the approval of the alienation to the third party (otherwise, the owner could receive the compensation from the possessor and, at the same time, claim the restitution of the movable asset,452 which would be a double benefit). Finally, if the (prior) possessor alienates the good after the legal action has been brought against him, the decision of the court can be executed against the third party, but if the owner does not execute as against the third party, he can claim compensation from the (prior) possessor according to art. 1097, 1098 Gr.C.C. 3. The liability of the bad faith possessor (art. 1098 s. 1. Gr.C.C.) is the same as the liability of the good faith possessor (see above 19.1.b) after the proceedings for restitution have been initiated. The difference is that the moment he became possessor in bad faith is decisive. A further precondition, besides the bad faith of the possessor, is the possessor’s fault regarding the deterioration, destruction or non-restitution of the good. The fault is defined in accordance with art. 330 et seqq. (responsibility arising from a fault).453 Where the possessor obtained possession through a representative, the provisions on representation are applicable. 4. Where the possessor is in bad faith and in default, his liability is extended and he is obliged, besides performing, also to provide compensation for the damage arising to the creditor from any delay (art. 343 para. 1 Gr.C.C.).454 5. Where the possessor obtained ownership on the basis of an illegal act, he is liable for any kind of damage, including chance events according to art. 344 Gr.C.C. 452 453 454

Georgiadis, Property Law I, p. 598. Filios, Property Law, p. 250. Georgiadis, Property Law I, p. 599.

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The above-mentioned claims are based on ownership but they are claims arising from the law of obligations. In all the above-mentioned claims the provisions of the law of obligations are applicable. Art. 1096-1100 are not applicable where there is no vindicatory situation. Then, the claims for compensation can be based on the general provisions on unjustified enrichment, non-contractual liability arising out of damage caused to another,455 or benevolent intervention in another’s affairs. The possessor can bring the following defences against the owner’s claims: the objection based on the right of possession; the objection that he is in fact the owner of the asset; the objection of general intention (art. 200, 281 and 288 Gr.C.C.); the objection of retention; and the objection of prescription.456

19.3.

Reimbursement for improvements made and expenses incurred during the possession of the movable

19.3.1. Jus tollendi According to art. 1104 Gr.C.C., with regard to an ancillary thing that has been joined with a principal the thing as a component of the principal, the possessor has the right to remove the ancillary thing (jus tollendi). The jus tollendi is a right grounded on the law of obligations. It is of no relevance whether the individual attaching the ancillary thing was acting in good or bad faith, whether the attachment can be classed as a necessary or useful expense, or whether or not he was the owner of the attached movable.457 The jus tollendi is excluded in the following cases (art. 1104 para. 2 Gr.C.C.): 1. if the attachment forms a usual disbursement for the purpose of maintenance, for which the possessor is not entitled to claim compensation since he has enjoyed the benefits; 2. if the possessor draws no advantage from the removal; or 3. if the possessor receives the value that would have been attributable to the principal thing after separation.

455 456 457

Georgiadis, Property Law I, p. 601. Papadopoulos, Claims of Property Law I, p. 341, 260 et seqq. Spyridakis, Property Law 3, para. 177ε.

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19.3.2. Reimbursement of expenses (a) The following categories of expenses are distinguished: 1. necessary expenses, which are the expenses made in order to maintain the good in a condition proper for an orderly exploitation (art. 1101 Gr.C.C.) (see above 19.1.2); 2. The law equates the expenses made for the settlement of securities encumbering the thing with necessary expenses (art. 1101 Gr.C.C.); 3. useful expenses, which are the expenses that lead to an increase in the value of the thing (art. 1103 Gr.C.C.); and 4. luxury expenses, which are the expenses made for special aesthetical reasons and are not reimbursed.458 The evaluation of how much has to be reimbursed is restricted by rules which state that the possessor cannot claim a higher amount than the enrichment or a higher amount than the value of the expenses incurred.459 (b) As noted above, the good faith of the possessor and whether the expenses were made before or after the bringing of the legal action are relevant for the possessor’s claims, which allows the following situations to be distinguished: 1. The good faith possessor has the right to claim reimbursement for necessary expenses, expenses made for the settlement of charges encumbering the asset and for useful expenses made before the bringing of the legal action (art. 1101 section 1 Gr.C.C.) He also has the right of jus tollendi for a thing that was adjoined to the asset as a component. Luxury expenses are not reimbursed. 2. Costs incurred by the bad faith possessor are to be reimbursed on the basis of the provisions on benevolent intervention in another’s affairs, for necessary expenses and expenses incurred for the settlement of charges encumbering the asset. He has the right of jus tollendi (art. 1104 Gr.C.C.). 3. The good faith possessor has the right to claim reimbursement for the expenses incurred after the bringing of the legal action (art. 1102 s. 1 Gr.C.C.) only on the basis of the regulations for benevolent intervention in another’s affairs (see above 19.2., which correspond to the rules for a bad faith possessor).460

458 459

460

Spyridakis, Property Law 3, para. 177αδ. This is the prevailing opinion: see Filios, Property Law, p. 259 but cf. Georgiadis, Property Law I, p. 609. There are two ways to proceed with the evaluation: the abstract evaluation and the evaluation in connection with the function and position of the good in the owner’s estate. Georgiadis, Property Law I, p. 612, 613; Spyridakis, Property Law 3, para. 177γα et seqq.

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19.4.

Possessor’s right to retain the movable

The possessor has the right to retain the movable until he has been satisfied in respect of disbursements repayable to him (art. 1106 Gr.C.C.). The expenses must be payable to him according to art. 1101-1103 or on the basis of other provisions.461 Art. 328 (security) and art. 329 (concurrent performance) are applicable.462 The court decides, within the framework of the vindicatory action, that the defendant-possessor has to deliver the good under the condition that the plaintiff-owner simultaneously pays for the expenses incurred on the asset. This right of retention is not granted to the possessor who acquired the asset through an illegal act. The right of retention is a personal right and cannot be held against third parties.463 It is exercised as an objection, and not as an independent legal action, against the person claiming the delivery of the good.464

19.5.

The expenses of the restitution of the movable to the owner

Assuming he was acting in good faith within the time period before the bringing of the legal action, the possessor who is obliged to restore the movable to the owner has the right to claim: necessary expenses; useful expenses according to art. 1001 Gr.C.C. et seqq.; and he has also the right of jus tollendi (see above 19.3.2.), as well as a right of retention. The good faith possessor, after the serving of the legal action, and the bad faith possessor can claim necessary expenses on the basis of the provisions on unjustified enrichment. In this case, both also have the right of jus tollendi and a right of retention. The possessor who obtained possession through an unlawful act can only claim necessary expenses (art. 1102, 935 Gr.C.C.). According to art. 1006 para. 2 Gr.C.C., the possessor who obtained ownership through an illegal act has no right of retention.

461 462 463 464

Georgiadis in Georgiadis – Stathopoulos, Civil Code V, art. 1106, p. 613. Filios, Property Law, p. 262. Georgiadis in Georgiadis – Stathopoulos, Civil Code V, art. 1106, p. 613. Georgiadis in Georgiadis – Stathopoulos, Civil Code V, art. 1106, p. 613.

Table of Literature Balis Georgios, General Principles of Civil Law (Athens, 8th ed. 1961) Balis Georgios, Property Law (Athens, 2nd ed. 1951) Chelidonis M. Apostolos, The unspecific performance in case of a generic obligation, Elliniki Dikeosini 2000, p. 613 et seqq. Filios Ch. Pavlos, Property Law (Athens-Komotini: Sakkoulas Publishers 2nd ed. 2006) Georgakopoulos Leonidas, Stock Market and Banking Law – The Law of the Greek Stock Market and Money Market System (Athens: P.N. Sakkoulas Law and Economy 1st ed 1999) Georgiadis S. Apostolos and Stathopoulos P. Michalis (Editors), Greek Civil Code vol V (Sakkoulas Bros. Editions Athens 1985) Georgiadis S. Apostolos, General principles of Civil Law (Athens: Ant. N. Sakkoulas Publishers, 1996) Georgiadis S. Apostolos, Law of Obligations General Part (Athens: P.N. Sakkoulas Law and Economy 1999) Georgiadis S. Apostolos, Property Law, vol I (Athens: Ant. N. Sakkoulas Publishers, 1991) Georgiadis S. Apostolos, Property Law, vol II (Athens: Ant. N. Sakkoulas Publishers, 1993) Kornilakis K. Panos, Specific Law of Obligations vol I (Thessaloniki: Sakkoulas Editions, 2002) Kotsiris E. Lambros, Insolvency Law (Thessaloniki: Sakkoulas Editions 7th ed. 2008) Koumantos A. Giorgos, Copyright (Athens: Ant. N. Sakkoulas Publishers 6th ed. 1996) Kousoulas L. Christos, Property Law (Thessaloniki: Sakkoulas Editions, 2004) Papadopoulos A. Konstantinos, Claims of Property Law I and II (Athens: 1989) Psychomanis D. Spyros, Insolvency Law (Thessaloniki: Sakkoulas Editions, 3rd ed. 2008) Rokas K. Nikolaos, Elements of Insolvency Law, (Athens: Ant. N. Sakkoulas Publishers 2nd ed. 1997)

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332 Rokas K. Nikolaos, Trading Companies (Athens: Ant. N. Sakkoulas Publishers 4th ed. 1996) Spyridakis S. Ioannis, Handbook of Civil Law, Part 3, Property Law (Athens: Ant. N. Sakkoulas Publishers 1983) Spyridakis Ioannis-Perrakis Evaggelos, Civil Code, vol. Property Law (Athens: 1977) Stathopoulos P. Michail, Law of Obligations, General Part (Athens Komotini: Ant. N. Sakkoulas Publishers 3rd ed. 1998) Zepos P.I., Law of Obligations vol. II (Athens: 2nd ed. 1955)

Table of Abbreviations art.

article

BGH

Bundesgerichtshof

e.g. etc. et seqq. et seq.

for example and so forth and those following and the following

Gr.C.C. Gr. Civil Procedures Law Gr. Commercial Law

Greek Civil Code Greek Civil Procedures Law

i.e.

that is to say

NOMOS nr.

Legal Database number

para. p.

paragraph page

s.a.

see above

Greek Commercial Law

National Report on the Transfer of Movables in Lithuania Valentinas Mikelenas

Table of Contents Part I: Basic information on property law 1. Notion of ownership and other property rights 1.1. Sedis materiae 1.1.1. General basics 1.1.2. Numerus clausus principle 1.2. Notion of ownership 1.2.1. Definition of the right of ownership 1.2.2. Restrictions regarding the use of a thing 1.2.3. Restrictions regarding possession (vindication) 1.2.4. Restrictions regarding the right to dispose of the thing 1.3. Other property rights in movables 1.4. Protection of ownership and other property rights 1.4.1. Vindication 1.4.2. Negatorian action 1.4.3. Non-contractual liability arising out of damage caused to another (injunction, damages) 1.4.4. Unjustified enrichment 1.5. Transferability of movable assets 2. Possession 2.1. Notion of possession 2.2. Forms of possession 2.3. Functions of possession 2.4. Acquisition of possession 2.5. Protection of possession 3. Relationship between personal and real rights 3.1. Introduction 3.2. Position of the lessee 3.3. Position of a buyer in the event of a reservation of title and other similar situations 3.4. Indirect representation

339 340 341 342 342 344 345 345 346 347 348 349 350 350 351

352 353 354 355 357

359 359 360 360

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Lithuania

4. Field of application and definitions 4.1. Field of application 4.2. Definitions

360 361

Part II: Derivative acquisition 5. The system of transfer of ownership under Lithuanian law 5.1. Basic characteristics / overview 5.1.1. Uniform concept of the transfer of ownership 5.1.2. The same transfer rules are applicable to all kinds of obligations 5.1.3. Basic transfer requirements 5.1.4. Categorisation of the transfer system (a) Causal or abstract? (b) Consensual or tradition system? (c) Requirement of payment? 5.2. General issues 5.2.1. Specific goods – generic goods 5.2.2. Party autonomy 5.3. Requirement of a valid obligation to transfer ownership 5.3.1. Obligations on which the transfer of ownership can be based 5.3.2. Defects regarding the obligation and their effect on the transfer of ownership (a) Kinds of invalidity (b) Capacity of parties (c) Mistake (d) Fraud (e) Violence (duress) (f) Legal consequences of the nullity of the transaction (g) Termination of a contract 5.4. Delivery and delivery equivalents 5.4.1. Purposes of the delivery requirement 5.4.2. Forms of delivery 5.5. Registration 5.6. Real agreement 5.7. Payment 5.8. Right to dispose

363 363 363 364 365 365 365 366 366 366 368 369 369 370 370 371 372 372 373 373 375 376 376 377 379 379 379 380

Table of Contents

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6. Double selling

380

7. Selling in a chain 7.1. General rules 7.2. Rules when contracts fail

381 381

8. Transfer or acquisition by means of indirect representation

382

9. Insolvency of the transferor or transferee 9.1. General issues 9.2. Insolvency of transferor 9.3. Insolvency of transferee

383 384 385

10. Passing of risk and passing of ownership

386

Part III: Original acquisition – no direct transfer of ownership from owner to transferee 11. Acquisition by accession, commixture, processing 11.1. Accession of movables 11.2. Commixture, confusion 11.3. Specification, processing 12. Good faith acquisition 12.1. Field of application 12.2. Requirement of acquisition for value 12.3. The need for physical control 12.4. Circumstances of the ‘transfer’ 12.5. Specific requirements regarding the way the original owner ‘lost’ the movable 12.6. Good faith 12.7. No right to buy back 12.8. Encumbrances 13. Acquisitive prescription of movables 13.1. Functions of acquisitive prescription 13.2. Requirements of acquisitive prescription 13.3. Prescription period

388 388 389

389 390 391 391 391 391 392 392

393 393 395

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14. Other forms of original acquisition 14.1. Ownerless thing (res nullius) 14.2. Finding 14.3. Treasure trove

Lithuania 395 395 396 396

Part IV: Additional issues 15. Reservation of title

398

16. Abandonment and other ways of losing ownership

399

17. Co-ownership

400

18. Unspecified goods 18.1. Transfer of shares in an identified bulk 18.2. Floating charge

402 402

19. Consequences of restitution of a movable to the owner 19.1. Entitlement to fruits resulting from the movable 19.2. Loss and deterioration of a movable 19.3. Reimbursement for improvements and expenses incurred during the possession of a movable 19.4. Possessor’s right to retain a movable 19.5. Who bears the expenses of the restitution of a movable to the owner?

403 404 405 406 406

Table of Literature

407

Table of Abbreviations

407

Part I: Basic information on property law 1.

Notion of ownership and other property rights

1.1.

Sedis materiae

The legal rules regarding property law are to be found in Book 4 of the Civil Code of 2000. The new Civil Code of the Republic of Lithuania (“CC”) was adopted by the Parliament on 18th July 20001 and has been in force as from 1st July 2001. The CC has replaced the Soviet Civil Code of 1964. The adoption of the CC was a real revolution in the area of private law, especially in property law. The Soviet Civil Code paid little attention to property law. The legal concept of private ownership was in fact abolished during the Soviet period. The Soviet Civil Code of 1964 contained only 69 articles on property law, dealing mainly with State ownership. Land, apartments, company shares and many other objects were excluded from the scope of private ownership. The Constitution of 1992 (Article 46) has established that the economy of Lithuania is based on private ownership and the right of ownership is one of the fundamental human rights (Article 23). The CC establishes property law as one of the main parts of private law. Book Four of the CC is entitled ‘Real Rights’ and contains 262 articles. However, other Books of the CC are also important for property law, e.g., Book Three ‘Family Law’ deals with specifics of matrimonial property including various restrictions on the use and disposal of matrimonial property by the spouses. Book Five ‘Succession’ deals with the transfer of property of deceased individuals to their heirs. Book Six ‘Law of Obligations’ deals with various contracts regarding the transfer of the right of ownership – sale, donation, exchange, etc. Book One ‘General Provisions’ establishes private international law rules regarding the applicable law in respect of real rights. Due to the recent transformation of the legal system, the main source of property law in Lithuania is statutory law. The other sources of law, like precedent and legal doctrine, are currently catching up. For example, the preparation of a new textbook on property law is still to be completed. For this reason, the main attention in this report is paid to the analysis of statutory law. 1

Valstybes zinios, 2000, No. 74-2262. The translation of the Civil Code into English language can be found on the Internet site of the Parliament of Lithuania: http://www.lrs.lt.

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1.1.1. General basics The private law provisions in the Lithuanian CC are clearly subdivided into several categories: the law of obligations; family law; property law; succession; and law of persons. However, the CC does not provide criteria to divide property law and the law of obligations. Such criteria are provided by legal doctrine. According to legal doctrine, there are several main differences between property law (real rights) and the law of obligations: – real rights are absolute rights, i.e. rights which may be enforced against all persons (erga omnes). Article 4.20 CC defines a real right as an absolute right that manifests itself by the right of the owner to implement the right of possessing, using, disposing, or (in the case of limited proprietary rights) by some of these rights. In contrast, rights stemming from the law of obligations are personal rights, i.e., the creditor may enforce his rights only against the party holding the counter-obligation – the debtor; – all real rights are provided by law, i.e. statutory law provides a closed list of real rights (the so-called numerus clausus principle). The principle of numerus clausus is not applied in respect of obligatory rights; – real rights have the characteristic that is expressed by the notion le droit de suite. This is explained by the fact that real rights are ‘attached’ to a thing and in the event of transfer of the thing, they follow the thing. Personal rights do not possess this feature, except in cases of so-called ‘real’ obligations; – the person who has a real right also ranks in priority in respect of a thing against another who has no real right (or a lesser real right), e.g. the secured creditor who has the right of pledge has ranks in priority against the non-secured creditors; or the person, who was the first to acquire the real right, has priority over a subsequent purported acquirer of the same real right; – while real rights, by their nature, require publicity in some form, certain real rights must be publicised in a prescribed manner, i.e. they are enforceable against other persons only if registered in the relevant public registry; and – there are various specific remedies established for the protection of real and personal rights: real rights are protected by special types of action – a possessory action and an action of vindication; personal rights are protected by other types of action – an action for damages, an action for specific performance etc.2 However, this list of differences between property law and the law of obligations is not exhaustive. A greater elaboration is found in legal doctrine, 2

Civil Law. Textbook (in Lithuanian). Kaunas: Vijusta, 1998, p. 234.

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which also provides a further range of differences. For example, doctrine distinguishes between objects of property law (the objects of property law are things) and objects of the law of obligations (the subject matter of an obligation is the act (or undertaking not to act) of an individual). The principle of priority in time or priority in publicity is also recognised. For example, according to paragraphs 3 and 4 of Article 1.75 CC, if the same real right or the same thing is acquired by several acquirers but only one of them registers that transaction, it shall be presumed that the acquirer who has registered the transaction is vested with ownership of that thing or with the real right in that thing. If none of the acquirers register the transaction and registration is not compulsory, it shall be presumed that the acquirer who is the first to conclude that transaction is vested with the rights indicated above. If several persons register their real rights in the same thing, the person who is the first to register that transaction shall be vested with such rights. At the same time, doctrine recognises some similarities between property law and the law of obligations. For example, there is a distinction between the so-called ‘real’ obligations which have some features of real rights (e.g., le droit de suite).3 It must also be mentioned that the law of property is based on the general principles of private law which are established in Book One ‘General Provisions’. Such general principles of private law are: the principle of good faith (Article 1.5 CC), the principle of prohibition of abuse of rights (Article 1.2 CC), principles of reasonableness, of justice, of equality, and of legal certainty.

1.1.2. Numerus clausus principle The numerus clausus of property rights principle is clearly recognised by legal doctrine. Such conclusion is based on the interpretation of the rules of Book Four of the CC ‘Real Rights’. This conclusion cannot be reached in respect of statutory law, which does not clearly establish this principle. Book Four of the CC provides various real rights: possession, ownership, trust, pledge, usufruct, servitudes, superficies, emphyteusis and the right of retention. Doctrine is such that only those real rights which are provided for by Book Four of the CC are property, i.e. real, rights.4 3

4

MIKELENAS, VALENTINAS. The Law of Obligations (in Lithuanian). Vilnius: Justitia, 2002, p. 43-44; MIKELENIENE, DALIA, MIKELENAS, VALENTINAS. Contract Law of Lithuania. In International Encyclopedia of Law. General Editor R. Blanpain. The Hague: Kluwer Law International, 2004, p. 39-40. MIKELENAS, VALENTINAS. The Law of Obligations (in Lithuanian). Vilnius: Justitia, 2002, p. 44.

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On the other hand, court practice is even more ambiguous. In one of its recent judgments, the Supreme Court ruled that the law did not provide all possible real rights, so other rights, even though not designated by the law as real rights, may be recognised as such (real rights).5 However, this judgment is subject to criticism by legal doctrine.

1.2.

Notion of ownership

1.2.1. Definition of the right of ownership The right of ownership, as the most comprehensive and important real right, is defined as the right to possess, use and dispose of the object of the ownership right at one’s volition, but without otherwise violating the law and the rights and interests of other persons (paragraph 1, Article 4.37, CC). It is evident from this definition that the right of ownership consists of three different powers of the owner: (a) right to possess; (b) right to use; and (c) right to dispose. The right of ownership does not include the right to vindicate a thing and it is not reflected in the above list of powers conferred by ownership because the right of vindication is a remedy available to the owner (it is dealt with in Articles 4.95-4.97 CC).6 Article 4.38 CC provides that the subject matter of an ownership right may be things and other property (like money, securities, trade marks, etc). Things are defined as objects of the material world obtained from nature or manufactured. Things are divided into immovables and movables (Article 4.2 CC). Immovables are things immovable by nature, and things movable by nature but deemed immovable by law. Immovable things are parcels of land and things related thereto which cannot be moved from one place to another without altering their essence and without significantly reducing their value. The rules established for immovable things may be applied to movable things, and vice versa, provided that this is established by law or by agreement between parties on the condition that such agreement does not contradict the law. On the other hand, some movable things are

5

6

Judgment of the Supreme Court of June 5, 2006, Case No. 3K-3-377; E.g., in a judgment of March 9, 2005, the Supreme Court ruled that the priority right of a coowner to the share of another co-owner is a real right (case No. 3K-3-165 / 2005). Civil Law. Textbook (in Lithuanian). Kaunas: Vijusta, 1998, p. 257.

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treated by the law as immovable things. For example, aircraft7 and seagoing ships8 are immovable things. The position regarding small river boats is unclear – one author classifies such boats as immovable things, another one as movables.9 Movable things are things that can be moved from one place to another without altering their essence and without significantly reducing their value. Things are also divided into: fungibles and non-fungibles (Article 4.3 CC); things with individual characteristics and things with properties of a genus (Article 4.4 CC); consumable and non-consumable things (Article 4.5 CC); divisible and indivisible things (Article 4.6 CC); and things taken out of circulation (extra commercium), things in limited circulation and things remaining in full circulation (Article 4.7 CC). Special Articles of Book Four of the CC define the specifics of the content of the right of ownership depending on the nature of the object. For example, the owner of a land parcel owns the upper layer of the soil of the parcel, the buildings and the appurtenances constructed on the parcel, as well as other immovable things, if the law does not provide otherwise. The owner of land also enjoys rights to the airspace above his land and has ownership of the topsoil and the minerals in the soil insofar as this does not contradict the law and is necessary for the intended use of the land (Article 4.40 CC). According to paragraph 2, Article 4.37 CC, the owner enjoys the right to pass the entire object of ownership rights or a part thereof to another person, or only specific rights that are provided in paragraph 1 of Article 4.37. However, the right of ownership implies not only potentialities for the owner, but also some legal and social responsibilities. For example, the owner of a building or other immovable thing is responsible for the due maintenance of the property and is strictly liable to third parties according to the rules of non-contractual liability arising out of damage caused to another (often referred to as tort law or delict) for damage caused by any defects or in the event of a collapse of the thing (Article 6.266 CC). The rules on strict tort liability apply also in the respect of the owners of some movable property. For example, the owners of motor cars and other transport means are strictly liable for the damage caused to another (Article 6.270 CC). 7 8

9

Article 2 of the Law on Civil Aviation In Valstybes zinios, 2000, No. 94-2918. Article 6 of the Law on Commercial Shipping In Valstybes zinios, 1996, No. 101-2300. BLIUVATE, SANDRA. Peculiarities of the forming and performance of a contract for sale of immovable property (in Lithuanian) In Justitia, 2006, No. 3, p. 29; Civil Law. Textbook (in Lithuanian). Kaunas: Vijusta, 1998, p. 256.

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Lithuania

1.2.2. Restrictions regarding the use of a thing Despite the fact that the right of ownership is the most comprehensive real right, the CC provides for the possibility of various restrictions of this right. According to Article 4.39, the right of ownership may be restricted by the intention of the owner, by law, or by court judgment. However, if doubts regarding the restriction of the right of ownership arise, it is considered in all cases that the right of ownership is not limited, i.e. the CC imposes the presumption of non-restriction of the right of ownership. The restrictions may be imposed in respect of various components of the right of ownership: use, possession and disposal. The use of the thing could be restricted in various ways, as set out below. (a) The owner is obliged to respect the restrictions imposed by law (the term ‘law’ in this respect means acts of the Parliament, decrees of the Government, ministries and departments, and also the acts of the local government). E.g., Article 4.41 CC provides that in exercising ownership, the owner of animals must follow the laws governing the protection and keeping of animals, and other requirements established by legal acts. (b) The owner is obliged to respect the rights of other persons. Other persons may have certain real or personal rights in respect of a thing owned by the owner on the basis of a contract with the owner, e.g., in the event of the lease or pledge of a thing. Other persons may also have certain rights in respect of a thing on the basis of a court judgment (e.g. establishment of servitudes) or on the basis of the rules of private or public law. For example, Article 4.42 CC provides that the owner of a land has the right to cut off and remove such roots and branches from trees, bushes, and other vegetation growing on neighbouring land as grow (reach) over into his land after he has requested such removal to be performed from the neighbouring owner beforehand, by establishing the time limit for the relevant action to be performed, and only after having noted the failure to remove the relevant parts of vegetation within the time limit prescribed. Similar rules are established in respect of some movable things. For example, according to the rules on road traffic, motor cars parked in prohibited areas can be removed into special safekeeping zones for the safekeeping at the expense of the owner. (c) The right to use the thing is also restricted by the general principles of law, e.g. principles of good faith, prohibition of abuse of rights, and the the rules of public law. For example, according to the rules on road traffic, the police have the right to request the owner of a motor car to leave the car to the temporary use of the police for the performance of the functions of the police.

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1.2.3. Restrictions regarding possession (vindication) In the event of the loss of possession of a thing, the ownership right is protected by a special kind of action in rem – action of vindication. According to Article 4.95 CC, the owner has the right to recover his thing from another’s illegal possession. However, Article 4.96 CC establishes several restrictions to the possibility of vindication. (a) The owner must prove the illegality of possession by the defendant. (b) If a movable thing was acquired upon payment (onerous acquisition) from a person who had no right to transfer a thing, and the acquirer did not and could not know this (acquirer in good faith), the owner has the right to vindicate the thing from the acquirer only if the thing belongs to the owner or to a person into whose possession the owner had given it, if the thing was lost by or stolen from one of them, or if it stopped being in their possession against their volition. (c) If a thing was acquired without recompense (gratuitous acquisition) from a person who had no right to transfer its ownership, the owner has the right to vindicate the thing in all cases. This rule applies to movable as well as immovable things. (d) The owner may only vindicate a movable thing within three years of the loss of the thing. It must be emphasised here that different rules of vindication exist for immovables. An immovable thing may not be recovered from an acquirer in good faith, except where the owner has lost possession due to a crime committed by other persons. The period of limitation for vindication of immovable thing is ten years.10 The right of possession and use may also be restricted temporarily on the basis of Article 4.94 CC. According to this Article, in cases established by law, it is permissible to temporarily use a thing against the will of the owner for public purposes. The owner is indemnified for the expenses incurred as well as the damage caused by such temporary use of a thing as arises from Article 4.94.

1.2.4. Restrictions regarding the right to dispose of the thing The right to dispose of a thing can be restricted by law or contract. For example, several rules are provided in Book Three of the CC ‘Family Law’ regarding the restriction of the disposal of conjugal community property 10

MIKELENAS, VALENTINAS. Vindication and its application (in Lithuanian) In Justitia, 2005, No. 1, p. 2-13.

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of spouses. A spouse may only dispose of immovable property, and also securities which form part of the conjugal community property, with the written permission of the other spouse (Article 3.96 CC). The disposal of movables which are family property, e.g. furniture, is possible only on the basis of mutual agreement of both spouses. There also are some restrictions imposed by property law. For example, according to Article 4.79 CC, co-owners enjoy the priority right to buy another’s share on the sale of the commonly owned property, at the price at which it is to be sold and under the same conditions, with the exception of cases when the sale takes the form of a public auction. The seller of a share of commonly owned property is under the duty to inform the other co-owners in written form about the intention to sell his part to anyone other than the co-owners, indicating the price and other conditions of sale. When the other co-owners renounce their priority right to buy the share or fail to make use of such right to movable things within ten days of the day of receipt of such notification, the seller has the right to sell his share to any other person. If the share is sold in violation of the priority right to buy it, the other co-owner has the right, within three months, to demand from the purchaser, via the court, the transfer of the purchaser’s rights and obligations. Restrictions regarding the disposal of a thing can also be imposed by contract according to the law of obligations. E.g., in the event of a repurchase contract, the buyer’s right to dispose is restricted by contract (Article 6.417-6.418 CC).

1.3.

Other property rights in movables

Article 4.20 CC defines a real right as an absolute right that provides its holder the powers to possess, use and dispose of a thing, or only some of these powers. According to the CC, there are further real rights besides the right of ownership, as set out below. (a) The right of possession. Possession as an independent real right in things, which is the basis for acquiring the right of ownership as regards acquisitive prescription, is the actual holding of a thing with the purpose of holding it as one’s own.11 However, possession is not considered an independent real right in a thing when the actual holder of a thing recognises another person as being the possessor or owner . (b) The right of trust. The right of trust is the right of the trustee to possess, use and dispose of property in the manner and under the conditions defined by the trustor (Article 4.106 CC). The right of trust is established for personal or public purposes. The right of trust may 11

Civil Law. Textbook (in Lithuanian). Kaunas: Vijusta, 1998, p. 233.

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originate from law, an administrative act, a contract, a will, or court judgment (Articles 4.107-4.108 CC). (c) Usufruct. Usufruct is the real right (the right of the usufructary) of use and enjoyment granted for a period of a person’s life or for a certain period that may not be longer than the lifespan of a person, or the functioning period of another’s thing and its fruits, products and revenues (Article 4.141 CC). (d) Pledge. A pledge means the pledging of a movable thing, or of a real right, securing the performance of an existing or future obligation, when the object of the pledge can be transferred to the creditor or a third party or may, if certain steps are taken, remain with the pledgor (Article 4.198 CC). In the case of the object of a pledge remaining with the pledgor, such steps would include locking, sealing or marking the item with marks indicating that it has been pledged. Pursuant to the pledge, the creditor (the pledgee) has the right to satisfy his claim out of the value of the collateral (i.e. the pledged item) prior to other creditors if the debtor fails to perform the obligation secured. (e) The right of retention of the thing. The lawful possessor of another’s thing who has the right to claim for the ownership of such thing is entitled to retain such thing until his claim is satisfied. The right of retention may not be exercised until the performance of the obligation on which the right of retention is based becomes due (Article 4.229 CC). In addition to the above-mentioned real rights which may be created in respect of movables, there are also four real rights which are attached exclusively to immovables: servitudes (Articles 4.111-4.140 CC); mortgage (hypothec) (Articles 4.170-4.197 CC); superficies (Articles 4.160-4.164 CC); and emphyteusis (Articles 4.165-4.169 CC).

1.4.

Protection of ownership and other property rights

The right of ownership is a constitutional right provided by Article 23 of the Constitution. This Article establishes that the right of ownership is protected by law. Special remedies for the protection of the right of ownership and other real rights are provided by the CC. According to Article 4.93 CC, the Republic of Lithuania guarantees all owners the equal protection of rights. Nobody has the right to seize property by force, with the exception of cases established by law, or demand that an owner should join his property with that of another against his will. Property may be taken from the owner without recompense only by way of a court judgment . For public needs, property may only be seized upon the payment of fair compensation.

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The principles indicated above are elaborated in Article 4.100 CC. According to this Article, a thing or other property privately owned by a person may be expropriated for public needs only in special cases and only in the manner established by law. In such a case, the owner of a thing must be compensated in money for the market value of such a thing or, by agreement between the parties, by the transfer to him of another thing. Disputes over the expropriation of property, its value, and over losses incurred due to such expropriation are decided by court. The main actions that are used for the protection of ownership are the vindication action and negatorian action. The above-indicated actions provided by property law are actions in rem. The right of ownership is also protected by other general remedies provided by Book One of the CC, e.g. in the event of a dispute over who owns a thing or holds a real right, the legitimately interested person is able to raise a claim for a declaratory judgment, i.e. to request the recognition of the right of ownership or the annulment of encumbrances of the real right, e.g. the annulment of a pledge.

1.4.1. Vindication The owner has the right to vindicate his thing from another’s illegal possession (Article 4.95 CC). However, legal doctrine recognises that this right is not restricted to the owner, the legal possessor also has the right to vindicate the thing.12 This kind of action is used when the owner loses the possession of a thing. However, this remedy is available only in the event of the continuing physical existence of a thing. In the event of the destruction of a thing, the owner may only claim damages on the basis of non-contractual liability arising out of damage caused to another. The possibility of vindication depends on the character of illegal possession (i.e. whether the illegal possessor is in good faith or bad faith). The owner is able to vindicate a thing from a possessor in bad faith in all cases. The limitation period for the vindication of movables is 3 years (regarding immovables, the period is 10 years). The vindication of a thing from a possessor in good faith is restricted by some special conditions. If a movable thing was acquired onerously (i.e. on an arm’s length basis) from a person who had no right to transfer that thing, and the acquirer did not and could not know this (acquirer in good faith), the owner may only vindicate the thing from the acquirer if: (a) the thing was lost by or stolen from the owner; or (b) it stopped being in the possession of the owner against his will. 12

Civil Law. Textbook (in Lithuanian). Kaunas: Vijusta, 1998, p. 336.

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If a thing was acquired gratuitously from a person who had no right to transfer its ownership, the owner has the right to vindicate the thing in all cases. However, the above-mentioned rules do not apply where a thing is sold or otherwise transferred in compliance with a procedure for the enforcement of court judgments (Article 4.96 CC). The owner, in vindicating a thing, has the right to demand: (a) from the person who knew or should have known that his possession was illegal (possessor in bad faith) – the restitution or recompense of all income that such person received or should have received during the entire period of possession; and (b) from an illegal possessor in good faith – all income that such possessor received or should have received since the time when he found out or should have found out about his possession being illegal, or found out about the commencement of civil proceedings for the restitution of the thing. As regards vindication, the extent of a possessor’s rights varies subject to the quality of his possession. The illegal possessor in bad faith has the right to claim from the owner the necessary expenses incurred on the thing as from the moment the owner starts receiving income from such thing.13 The illegal possessor in good faith has the following rights: the right to claim from the owner compensation for all the expenses incurred by him on the thing that have not been covered by income received from the thing; and the right to keep the parts that have been added to improve the thing, provided that these can be separated without causing damage to the thing. If the parts added for the purpose of improvement cannot be separated, or when the ameliorations have been superseded by further improvements, the illegitimate possessor in good faith has the right to claim for the indemnification of expenses arising from such an improvement, which right does not exceed the increase in value of the thing (Article 4.97 CC).

1.4.2. Negatorian action The owner is protected from violations not involving the loss of possession by the negatorian action. According to Article 4.98 CC, the owner may claim for the cessation of all violations of his right, even if such violations do not involve the loss of possession. In such a case, the owner must prove the defendant’s illegal acts that disturb the owner’s right of use. The nega13

MIKELENAS, VALENTINAS. Vindication and its application (in Lithuanian) In Justitia, 2005, No. 1, p. 2-13.

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torian action normally means a request for the order of some kind of injunction.14 For example, an owner of a car may request an injuction against his neighbour by whose actitvity the owner can not use the car.

1.4.3. Non-contractual liability arising out of damage caused to another (injunction, damages) The claim for damages is an action based on a personal right (actio in personam) provided by the law of obligations (Articles 6.263-6.304 CC). Such action is used in the event of the destruction or damage of a thing, and also in cases where the vindication of a thing is not possible. Usually damages are awarded in the form of sum of money, however, there still exists a theoretical possibility of compensation in natura (Article 6.281 CC). In the event of a real threat of damage to property, a preventive action (Article 6.255 CC) may be brought for an injunction prohibiting certain potentially dangerous activities.15

1.4.4. Unjustified enrichment Unjustified enrichment is one of several quasi-contractual obligations and is regulated by Articles 6.237-6.242 CC. One of the essential features of obligations resulting from unjustified enrichment is their subsidiarity, i.e. this remedy can be applied only if other branches of civil law – contract law, the law relating to non-contractual liability arising out of damage caused to another, property law, or special rules of family law may not be applied.16 There are several conditions necessary for the application of the rules of unjustified enrichment: – there must be an enrichment of the defendant; – the enrichment must not be merited; – the plaintiff must have suffered a loss; – there must be a causal relationship between the enrichment of defendant and the loss of the plaintiff; and – the legal rules of other branches of law cannot be applied.

14 15

16

Civil Law. Textbook (in Lithuanian). Kaunas: Vijusta, 1998, p. 336. MIKELENAS, VALENTINAS. Commentary of Civil Code Book Six ‘Law of Obligations’. Vilnius: Justitia, 2002, p. 369. MIKELENAS, VALENTINAS. Commentary of Civil Code Book Six ‘Law of Obligations’. Vilnius: Justitia, 2002, p. 357.

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When unjustified enrichment manifests itself through receiving a thing not due, the unjustifiably received thing must be restored in kind (restitutio in integrum). Where the unjustifiably received thing has been lost or damaged, its true value, expressed in terms of money, at the moment of its acquisition, must be compensated, and, in the event of detrimental subsequent modification of the thing, this too must be compensated. The acquirer of the thing is liable towards the aggrieved person for any deterioration or loss, including that of accidental character, of the thing acquired that occurred after the acquirer became aware or should have become aware of the unjustified enrichment, or the receipt of a thing not due. Until such moment, he is liable only for his intentional or grossly negligent acts. It should be noted that the good faith of the unjustifiably enriched person is significant in this case as well. Where a person sells a thing acquired in good faith, he is bound to return only the proceeds he realised by selling the thing (Article 6.237 CC). However, Article 6.241 CC restricts the possibility of recovery to certain property that can never be categorised as unduly received, including: – property transferred for the purposes of the performance of an obligation prior to the expiry of the time limit allotted for the performance of that obligation (subject to contrary agreement); – property transferred for the purposes of the performance of an obligation after the expiry of a prescription period; and – property transferred by a person who is aware that he actually has no duty to perform the obligation, or by a person who, even though not bound to perform the obligation, nevertheless performs and such performance conforms to the principles of good morals. In the above-mentioned cases, the acquirer of a thing becomes the owner of that thing by operation of law.

1.5.

Transferability of movable assets

According to Article 4.7 CC, each person is capable of owning any thing not taken out of circulation or in limited circulation. Consequently, all things which are not taken out of circulation or are not in limited circulation are transferable. Some immovable things are taken out of circulation. They are the exclusive property of the State, e.g., public roads. Such things are not transferable. Some things, e.g., guns, certain drugs, etc., are in limited circulation (Articles 4.7, 6.306 CC). The transfer of such things is limited due to safety, health concerns or other public needs.17

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The transfer of certain things may be limited not only by law but also by agreement. Such possibility is not directly provided by statutory law, but the conclusion can be drawn from the general principles of private law, e.g., the principle of freedom of contract (Article 6.156 CC). For example, parties may limit the transfer of a thing by their agreement. Such an agreement is valid inter partes if it does not violate mandatory legal rules and does not contradict rules of public order or good morals. It is only possible to invoke such an agreement against bona fide third parties where it is registered with the relevant public registry . This conclusion is based on the general principle of good faith (Articles 1.5, 6.153 CC). The CC also provides a classification of things into principal things and accessory things. Principal things are those that may be independent objects of legal relationships (Article 4.12 CC). Accessory things are those that exist only in conjunction with principal things, or are attached to principal things, or are otherwise associated thereto. Accessory things can be essential parts of principal things, fruits obtained from principal things, produce and income thereof, and appurtenances of principal things (Article 4.13 CC). Accessory things are treated in the same way as principal things, unless otherwise provided for by law. However, where during the process of transferring a principal thing to another a dispute arises regarding an accessory thing, the accessory thing must be transferred together with the principal thing, subject to contrary agreement (Article 4.14 CC). 17

2.

Possession

2.1.

Notion of possession

The term ‘possession’ in Lithuanian property law has three different meanings. First of all, possession is recognised as an independent real right. Possession, as an independent real right in a thing, which is the basis for acquiring an ownership right in the case of acquisitive prescription, is the actual holding of a thing with the purpose to hold it as one’s own (paragraph 1, Article 4.22 CC). Thus, in this case, possession, as a real right, requires an intention to hold a thing as one’s own. However, this meaning of possession is important only in one area of possession of a thing – in respect of the acquisition of the right of ownership by acquisitive prescription. E.g., in this respect, a lessee is not considered as a possessor.18 In such a case, possession requires the possessor’s intention to hold a thing as his own (which means that the possessor must have legal capacity to form such intention). 17 18

Civil Law. Textbook (in Lithuanian). Kaunas: Vijusta, 1998, p. 232. Civil Law. Textbook (in Lithuanian). Kaunas: Vijusta, 1998, p. 299.

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Secondly, in all other instances not connected with acquisitive prescription, possession denotes the fact of detaining (i.e. the de facto situation) property for oneself and is not considered as a real right. According to paragraph 2 of Article 4.22 CC, possession is not considered as an independent real right in a thing when the actual holder of that thing recognises another person as the possessor or owner. In this respect, the lessee, the user or any other actual holder are considered possessors. Legal capacity is not necessary for possession in the sense of a factual holding of a thing. E.g., possession may be acquired even by an act of a person who has no legal capacity (minor, person recognised by a court as legally incapable, etc.). However, legal capacity is necessary for the acquisition of possession by legal transaction (e.g., lease contract), because otherwise the legal transaction will be void. Thirdly, the right of possession is one of the three elements of the right of ownership (Article 4.37 CC). It is possible that two or more persons are at the same time in possession of a thing, e.g. co-owners. Any corporeal thing that may be an object of the right of ownership is an object of possession (Article 4.24 CC ).

2.2.

Forms of possession

Possession as the de facto control of the thing does not require the intention to hold the thing as one’s own. However, in the case of acquisitive prescription, such intention is necessary. According to Article 4.30 CC, possession may be direct and indirect . Direct possession is the actual physical holding of a thing by the possessor. However, possession is also possible through another person, and such legal relationships are defined as indirect possession. In other words, indirect (or mediate) possession is a situation when a possessor possesses a thing through another person. In such a case, the person who exercises actual physical control over the thing must obey the instructions of the possessor. The legal distinction between direct and indirect possession is not clear. Case law and doctrine provide little assistance as to how situations where an employee uses a company car, where a garage owner uses a customer’s car, etc. should be classified. However, it is absolutely clear that the lessee is considered as the direct possessor. Possession is also divided into legal and illegal possession. The possession of a thing is considered to be legal when the thing is held on the same basis as the right of ownership. E.g., the acquisition of possession on the basis of a contract with the owner of a thing is legal possession. Statutory law provides

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a presumption of the legality of possession – possession is considered legal unless the opposite is proved (paragraph 2, Article 4.23 CC). Illegal possession includes possession exercised by force, in a secret manner, or by violating other legal acts (paragraph 3, Article 4.23 CC). E.g., a thief may be a possessor, but he is an illegal possessor. Statutory law also makes a distinction between bad faith and good faith possessors. According to Article 4.26 CC, possession may be acquired in good faith and in bad faith. There is a presumption of the acquisition of possession in good faith – possession is deemed to be in good faith until the opposite is proved (paragraph 2, Article 4.26 CC). Possession is deemed to be in good faith when a person who takes possession is convinced that nobody has more rights to the thing he is taking control of than himself. Possession is deemed to be in bad faith when the possessor knew or ought to have known that he had no right to acquire the possession of the thing or that another person had more rights to the said thing. Joint possession is the possession of the same thing by two or more persons, e.g., by spouses.

2.3.

Functions of possession

The functions of possession depend upon the meaning of possession, i.e. it depends on how the notion of possession is interpreted – as the real right or as the factual holding of a thing. (a) Possession as a real right expresses itself through a very important function – it enables the acquisition of ownership by way of acquisitive prescription. According to Article 4.68 CC, a natural or legal person who is not the owner of a thing can acquire ownership of such thing where: (a) he acquired it in good faith; (b) whilst remaining in good faith, he possessed it legitimately, overtly and continuously, as his own for at least three years; and (c) during this entire period, the owner of the thing had the legal possibility to exercise his rights over the thing but did not do so. (b) Both possession as the real right and as the factual holding of a thing entitles the possessor to protection. Each possessor is entitled to defend his current possession and to recover the possession of the thing that has been taken away forcefully. The possessor may seek not only a court order for the protection of possession but also compensation for the losses incurred due to a disturbance of possession. A possessor in good faith may be indemnified for the expenses incurred while having possession, with the exception of cases when these are covered by the income generated by the movable during its possession. A possessor in good faith also has the right to retain improvements to the movable

2. Possession

(c)

(d)

(e)

(f)

355

made during its possession, provided that their separation does not cause any damage to the movable. If these parts cannot be separated, a possessor in good faith has the right to demand compensation for the expenses incurred in improving the movable, but this cannot exceed the increase in the value of the movable (Article 4.34 CC). The possibility of vindication of a thing from a possessor in good faith is limited (Article 4.96 CC). Moreover, an illegal possessor in good faith has the right to claim recompense for all expenses he had to incur with respect to the thing (which have not been covered by the income received from that thing during the good faith possession) from the vindicating owner. The illegal possessor in good faith also has the right to keep any parts added to improve the thing, provided that these can be separated without causing damage to the thing. If the parts added for the purpose of improvement cannot be separated, or where the ameliorations have been superseded by further improvements (Article 4.97 CC), the illegitimate possessor in good faith has the right to claim recompense for expenses arising from such an amelioration, not exceeding the increase in value of the thing. The state of possession creates very important rebuttable legal presumptions – the presumption of the legality of possession and the presumption of possession in good faith. Possession of a thing imposes certain obligations on the possessor. The possessor is liable for damage caused by the thing. For example, the possessor of a car or other dangerous things, as well as the possessor of animals and, in relation to immovable property, buildings, are all strictly liable for the damage caused by those things (Articles 6.266, 6.267, 6.270 CC). Property law establishes a general principle that the acquirer of a thing acquires the ownership right in the thing as of the moment of delivery of the thing into the possession of the acquirer, provided that the law does not provide, and the contract does not stipulate, otherwise (paragraph 1, Article 4.49 CC).

2.4.

Acquisition of possession

Paragraph 1 of Article 4.25 CC provides that possession may be acquired by taking over a thing, or by transferring or inheriting the right of possession. Possession is initiated by taking physical control of a thing (occupatio), where the person taking control may use the thing as he wishes. In this case, one condition must be satisfied: when taking over a thing, the person must express the intention to hold the thing as his own, i.e. to exclude the

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possession or other real right of another.19 On the other hand, the person may possess a thing without having direct or indirect physical contact with the thing (paragraph 3, Article 4.25 CC). If the person relinquishing the possession of a thing through another person has the intention to abandon such thing for the benefit a designated person, possession of a thing so abandoned newly commences if the person through whom possession was previously exercised forms the intention to acquire the thing for himself or for yet another person (Article 4.29 CC). As no special rules for the transfer of the real right of possession are provided in Lithuanian property law, the general rules on the transfer of the right of ownership are applied. According to Article 4.50 CC, the delivery of a thing gives the acquirer the opportunity to use the thing delivered to him according to the purpose it serves with due regard to its condition and legal status. The CC provides a definition of ‘delivery’. Delivery can be in the form of the handing over of a thing to the acquirer, the delivery of a thing to a transport company for the purpose of its carriage to the acquirer or delivery by post to the acquirer, subject to any contrary law or agreement. Delivery of a bill of lading, or another document evidencing the disposal of a movable, also equates to the delivery of the underlying movable. At the same time, the CC provides another regulation for the acquisition of possession of movables and immovables. According to Article 4.28 CC, the acquisition of possession of a movable thing starts when: (a) a person desiring to acquire the possession of a movable thing takes the thing into his hands; (b) a person desiring to acquire possession of a movable thing has started taking the thing into his safekeeping, or when the safekeeping is being carried out in accordance with his instructions; (c) upon the instruction of the person desiring to acquire possession of a thing, such thing is given to a person nominated by him; (d) a thing is placed on premises owned by the person desiring to acquire possession of the thing; (e) a person desiring to acquire possession of a thing is given the keys to premises on which the thing is located; (f) a person desiring to acquire possession marks an ownerless thing (res nullius) accordingly; (g) a thing to be captured falls into a trap, goes into a net, etc.; and (h) upon the completion of any other acts expressing a person’s will to acquire the possession of a thing.

19

Civil Law. Textbook (in Lithuanian). Kaunas: Vijusta, 1998, p. 301.

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A successor is deemed to have accepted his inheritance when he actually starts possessing the estate (or part thereof) of the deceased, has applied to the district court of the place of the opening of the succession proceedings for raising an inventory of the estate, or when the beneficiary files an application for the acceptance of succession with the notary public of the place of the opening of the succession proceedings (Article 5.50 CC). The general rule is that possession is terminated when the possessor relinquishes his rights as possessor of the thing, i.e. when he abandons the actual possession of a thing or stops keeping it as his own, and in other cases provided by law. The relinquishing of possession can be clearly expressed or implied. Special rules are applied to the termination of possession of movables. Possession of a movable thing terminates upon the possessor losing his ability to use the thing as he wishes, when: (a) possession of a thing is taken over by another person, even if the act of taking was secret or effected by force, e.g. in the event of theft or robbery; (b) the possessor has lost the thing and fails to find it; or (c) the possessor is unable to use the thing for other reasons (Article 4.32 CC). In comparison, possession of an immovable thing is not terminated when the possessor simply loses the ability to use the thing as he wishes, there is a further requirement that he undertakes nothing to restore this ability or when his efforts to restore his influence on the thing have been unsuccessful (Article 4.33 CC).

2.5.

Protection of possession

There are special rules provided in the CC regarding the protection of possession. Possession may be violated by taking or attempting to take possession of a thing, or a part thereof, as well as the rights connected thereto, or by impeding possession. Violation of possession may take the form of threats that cause real danger to possession. However, the above-mentioned actions are not considered violations of possession where the person alleged to be the violator of possession can prove that the plaintiff has derived possession from him illegally. In a situation where the possession of the plaintiff was illegally derived from a third party, rather than the person alleged to be the violator of possessor, the claim by the alleged violator that possession was illegally derived from a third party is not considered a reason for

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regarding the alleged violator of possession as not having violated possession (Article 4.35 CC).20 Each possessor is entitled to defend his current possession and to retake possession that has been forcefully taken away from him (paragraph 1, Article 4.34 CC). This means that the possessor (which term includes a lessee) can institute an action to recover possession in the event of a loss of possession. In the event of violations which only disturb possession, the possessor may institute the actio negatoria. Articles 419-423 of the Code of Civil Procedure of 2002 provide a special procedure for the protection of the right of possession. This establishes a short time limit for the trial of such cases (60 days) and special rules on evidence and proof. If a dispute regarding possession arises when two or more persons claim to be the possessors of the same thing and when they furnish facts proving that their possession continues, the possession by the person who proves that he is the legitimate possessor of a thing is protected. If none of the persons involved in a dispute manage to prove this, the possession of the person who was the first to enter into possession is protected (Article 4.36 CC). The right of possession is also protected by actions in personam. For example, the possessor may claim damages for a violation of possession. A possessor in good faith is afforded certain special protections. Such a possessor : – may be indemnified for any expenses incurred through being in possession, except when these are covered by income received during possession; – has the right to keep the parts that have been added to improve the movable, provided their removal does not cause any damage to it; and – if the parts that have been added to improve the thing cannot be separated, the possessor in good faith has the right to demand compensation for the expenses incurred in improving the movable, but not exceeding the increase in the value of the movable. Self-help is allowed only in exceptional cases. According to Article 1.139 CC, self-help may be exercised for the purposes of protecting one’s civil rights only in the situations prescribed by the CC, e.g. in the event of a robbery, the possessor of the thing shall have the right to protect his possession. In any case, the methods and means of self-help must correspond to the nature of the unlawful act and cannot exceed the limits of self-help in each particular case (following the so-called principle of proportionality). In exercising self-help, the rights and freedoms of individuals must be respected and the requirements of laws must be observed. 20

Civil Law. Textbook (in Lithuanian). Kaunas: Vijusta, 1998, p. 304.

3. Relationship between personal and real rights

3.

Relationship between personal and real rights

3.1.

Introduction

359

Lithuanian law makes a clear distinction between personal and real rights. The mere fact that a person possesses or uses a thing does not necessarily mean that such a person has a real right in that thing. The main criterion distinguishing between a personal and a real right is the existence or nonexistence of an obligation between the parties.21 If an obligation exists between the parties, and the right to possess or to use a thing is the subject matter of that obligation, such right is a personal right (e.g., Article 6.484 CC). It must also be kept in mind that according to Lithuanian legal doctrine, the so-called real obligations are recognised.22 Because of this, some personal rights are deemed to have certain features of real rights.

3.2.

Position of the lessee

The right of a lessee to use and to possess a (movable or immovable) thing is a personal rather than a real right. The character of the lessee’s rights as personal rights does not depend on the duration of or rent payable in a lease agreement. The rights of a lessee are based on a contract of lease, not on the fact of possession. For example, the lessee has the right to claim the thing from the lessor in the event of the lessor refusing to deliver the thing to the lessee, by instituting an action for specific performance, but not an action of vindication (Article 6.484). The contract of lease also vests other rights of a personal character in the lessee: the right of priority to enter into a lease contract for a new term (Article 6.482 CC); the right to acquire fruits generated by a leased thing, if the lease contract does not stipulate otherwise (Article 6.488 CC); the right to sublease a thing (Article 6.490 CC); the right to pledge a right of lease (Article 6.491 CC); and the right to enforce a lease contract against a successor lessor (Article 6.494 CC). That said, some of the lessee’s rights may be invoked only in the event of the registration of the lease contract with the public registry. For example, in the case of a financial lease, the lease contract may be invoked against third parties only if it has been registered with the relevant public registry.

21

22

Civil Law. Textbook (in Lithuanian). Kaunas: Vijusta, 1998, p. 234; MIKELENAS, VALENTINAS. The Law of Obligations (in Lithuanian). Vilnius: Justitia, 2002, p. 43-44. MIKELENAS, VALENTINAS. The Law of Obligations (in Lithuanian). Vilnius: Justitia, 2002, p. 76-78.

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3.3.

Position of a buyer in the event of a reservation of title and other similar situations

Different kinds of sale, such as a sale with the right of repurchase, a preliminary contract of sale, a sale on approval, etc., do not create real rights on the part of the (future) buyer . All rights of a buyer in such cases are based on a sale contract and are personal rights (Articles 6.361, 6.401, 6.411, 6.417, 6.418 CC).

3.4.

Indirect representation

If a movable is acquired through an indirect agent, the real rights are acquired by the principal. An agent acquires only personal rights. The general rule is that the principal acquires a real right from the moment of the delivery of a thing to him. E.g., in the case of a commission contract, things received by a commission agent from a principal remain in the principal’s ownership, while things acquired at the expense of the principal become the principal’s from the moment of delivery (Article 6.786 CC).

4.

Field of application and definitions

4.1.

Field of application

The rules on the transfer of property are distributed across several Books of the CC. Book Four ‘Real rights’ establishes a limited number of rules regarding the modes of acquisition of the right of ownership (Article 4.47 CC), the moment of acquisition of the right of ownership (Article 4.49 CC), the notion of delivery (Article 4.50 CC), etc. The majority of these rules are applicable to all kinds of property – movables, immovables and incorporeal rights. Book Six ‘Law of Obligations’ contains further rules on the transfer of property. These rules are concentrated in the Chapters of Book Six which deal with specific kinds of contracts: sale (Articles 6.305-6.431 CC); exchange (Articles 6.432-6.435 CC); and donation (Articles 6.465-6.476 CC). Some of these rules are general, i.e. applicable to all kinds of property, but some of them are special and are applicable only to movables (e.g., Articles 6.350-6.368 CC) or immovables (e.g., Articles 6.392-6.410 CC), or the transfer of incorporeal rights (Articles 6.425-6.427 CC).

4. Field of application and definitions

4.2.

361

Definitions

Book Four of the CC ‘Real rights’ provides a classification of things into immovables and movables. Paragraph 1 of Article 4.2 CC defines immovable things as things that are immovable by nature, and also things movable by nature but considered immovable by law. Other paragraphs of the said Article elaborate on the general definition presented in paragraph 1, by revealing the main differences between movables and immovables. Thus, land and things related thereto, which cannot be moved from one place to another without altering their essence and without significantly reducing their value are immovable. Things consistently forming part of an immovable thing but separated temporarily therefrom maintain the nature of an immovable thing if these parts are to be restored thereto. The rules established for immovable things may be applied to movable things, and vice versa, provided that this is established by law or by an agreement between the parties, provided such agreement does not contradict the law. Movable things are things that can be moved from one place to another without altering their essence and without significantly reducing their value. A movable thing incorporated into an immovable thing that has lost its individual characteristics is deemed to be a part of the immovable. A movable thing that is physically fastened or in any other way attached to an immovable thing, also forming a part thereof, but without losing its individual characteristics is not considered an immovable thing. Animals, liquids, gas, electricity are considered to be movable things. Money forms a special type of movable things. For example, lost money cannot be vindicated. The CC does not provide a classification of property into tangible and intangible. However, such classification is provided by legal doctrine. In accordance with doctrine, all (physical) things are tangible, while rights and certain other property (e.g., shares in a company) are intangible property. The transfer of certain intangible property, e.g., shares, is regulated by separate laws (Law on Companies of July 13, 2000 and Law on Public Circulation of Securities of January 16, 1996).23 The CC also provides a division of things into registered and unregistered things. Ordinarily, registered things can only be immovable (Article 4.253 CC). However, the registration of a thing and the contract by which the right of ownership is transferred has only a declaratory effect (Article 1.75 CC) . A transaction shall produce its effects between the parties even if it is not registered in the mandatory order. In such cases, the rights and duties of the parties produce their effects between them not from the moment of registration of the transaction but from the moment established 23

Valstybes zinios, 1996, No. 16-412; 2000, No. 64-1914.

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by the law or agreement of the parties, except in cases where it is expressly determined by the CC that the rights and duties of the parties shall arise only from the moment of registration of the transaction concerned. However, the parties to an unregistered transaction may not invoke the fact of transaction against third persons and argue their rights against third persons by relying on other means of proof. The registration is also important in the event of the transfer of the same thing to different persons. If the same thing is acquired by several acquirers but only one of them registers that transaction, it shall be considered that the acquirer who has registered the transaction is vested with that thing or with the real rights in that thing. If none of the acquirers register the transaction, it shall be considered that the acquirer who is the first to form that transaction is vested with the rights indicated above. If several persons register their property rights or real rights in the same thing, the person who is the first to register that transaction shall be vested with these rights (paragraphs 3, 4, Article 1.75 CC). Some movables, like cars and guns, are also registered because of their special character. In these situations, registration is performed for public security reasons and has no impact from a property law perspective.

Part II: Derivative acquisition 5.

The system of transfer of ownership under Lithuanian law

5.1.

Basic characteristics / overview

5.1.1. Uniform concept of the transfer of ownership Lithuanian law establishes a uniform concept of the transfer of ownership. This means that all rights and powers related to ownership – the right to dispose, protection against interference by third parties, etc. – pass to the transferee at one moment in time. Article 4.48 CC provides only one general rule regarding the transfer of ownership: the right of ownership may only be transferred to another person by the owner of a thing or by a person given such powers by the owner. The new owner acquires such rights and obligations regarding the transferred thing as those held by the former owner of the thing, provided the law does not provide, and the contract does not stipulate, otherwise.

5.1.2. The same transfer rules are applicable to all kinds of obligations According to the general rule of Article 4.49 CC the acquirer of a thing acquires ownership of the thing from the moment of delivery of the thing into the possession of acquirer, unless otherwise provided by law or by party agreement . The requirement of the delivery of the thing for the transfer of ownership is a general rule which applies to all modes of acquisition: sale, donation, unjustified enrichment, succession, etc. However, as seen from the wording of Article 4.49, the law may provide, or the contract may stipulate, different rules. Hence, the parties to a sale contract are allowed to agree upon other requirements for the transfer of ownership. E.g., the contract may stipulate that the ownership right passes to the acquirer only after the latter has fulfilled a condition established by the contract. The ownership right in a future thing, with the exception of a thing subject to registration, may be transferred by contract in advance.

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5.1.3. Basic transfer requirements There are several general requirements for the validity of the transfer. (a) Transferability of property. The object of a transfer should be susceptible to transaction. According to Article 4.7 CC, every person may own any things provided these are not taken out of circulation or are not in limited circulation. Things out of circulation are the exclusive property of the State. Things in limited circulation are things with certain properties whose circulation is limited due to safety or health concerns, or other public needs, e.g., guns. In the event of a sale, the things which form the subject matter of a contract for sale may be either already existing things owned (or, in some cases, possessed) by the seller, things to be manufactured or acquired by the seller in future. or property rights. .However, there are some restrictions regarding the transfer of certain property on death. For example, the following are not subjects of a transfer by succession: personal non-proprietary rights and property rights inseparable from the person of the deceased (right to honour and dignity, authorship, right to author’s name, inviolability of creative work, name of performer and inviolability of performance); right to alimony and benefit paid for the maintenance of the deceased; and the right to a pension (Article 5.1 CC). (b) Valid legal basis. The word ‘title’ is not used in Lithuanian law. This notion is replaced by the notion of ‘legal basis’ or ‘legal ground’ which means a legal transaction, e.g. contract or other legal acts, including court judgments, administrative acts, etc. (Article 1.136, CC). The transfer is valid only if the legal basis of the transfer is valid. Invalidity of the legal basis of transfer results in invalidity of the transfer itself. On the other hand, the mere fact of the delivery of the thing by the owner to the buyer is classed as a contract for sale. For example, according Article 6.309 CC, the promise of the sale of a thing with the delivery thereof to the future buyer for the purpose of actual possession is equivalent to the sale of the thing. Any amount paid on the occasion of a promise of sale is presumed to be a deposit (in advance) on the price unless otherwise agreed by the parties. The failure by the promisor, whether he is the seller or the buyer, to execute a contract according to the formal requirements entitles the beneficiary of the promise to obtain a court judgment ordering the performance of the contract for sale. (c) Right to dispose. Property may only be transferred by someone entitled to do so. Normally, only the owner is so entitled. According to Article 6.307 CC, a contract for sale may be declared null on the basis of an action filed by the owner, manager or buyer where the thing is sold by a person other than the owner, or a person in charge of its sale, author-

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ised to sell it by the owner or entitled by law to sell it. It can therefore be seen that the owner may authorise another person to dispose of a thing, e.g., an agent. There are many more cases where a person besides the owner has the right to dispose a thing on the basis of law, e.g., an administrator of property in the case of the insolvency of a company, a guardian of a legally incapable person, etc. However, persons who are not owners but have a right to dispose are often restricted from using this right without the supervision of a court. For example, a guardian is obliged to receive court authorisation for the disposal of property, the value of which exceeds 5,000 litas (Article 3.244 CC).

5.1.4. Categorisation of the transfer system (a)

Causal or abstract?

According to Article 4.47 CC, the transfer of property must have a clear legal and valid basis. The absence of a legal and valid basis, e.g., the annulment of a contract, leads to the invalidity of the transfer. Thus, Lithuanian law clearly establishes a causal system of transfer.

(b)

Consensual or tradition system?

Article 4.49 CC provides that the acquirer of a thing acquires the ownership right in the thing from the moment it is delivered into his possession, subject to contrary agreement. Hence, there is a general principle of traditio. However, delivery is not considered as a separate ‘real agreement’. It is simply an act of the transferor which is necessary for the performance of a contract or other legal act, i.e. the act of performance, not a separate contract. However, the law or mutual agreement may provide for a different solution. For example, it is permissible for the parties to a contract for sale to agree that ownership passes to the buyer at the moment of conclusion of a contract. The arguments presented above mean that Lithuanian law has adopted a mixed tradition-consensual system. Notwithstanding this, delivery is necessary for transfer in certain cases. This is true in respect of so-called ‘real’ contract, e.g. donation, which, like any other ‘real’ contract, is effective only in the event of the delivery of the thing.

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(c)

Requirement of payment?

Payment is not a prerequisite of transfer. The buyer acquires ownership at the moment of the delivery of a thing or, if the contract so provides, at the moment of the entry into the contract. However, the buyer’s non-fulfilment of the duty to pay the purchase price may lead to certain consequences. First of all, as the contract of sale creates mutual obligations, in the event of non-payment, the seller may refuse to effect the delivery of the thing (Article 6.314 CC). If the delivery has already been effected, the seller has the right to claim the price or to claim the annulment of the contract and the restitution by court proceedings. Notwithstanding the above, there is nothing to stop parties agreeing that ownership should pass to the buyer only after full payment of the purchase price. In such a case, payment is a prerequisite of the transfer of ownership (Article 6.411 CC). In the event of a non-consumer sale, such a contract, in addition, must be registered with the relevant public registry. The buyer may only invoke his right of ownership against third parties on the registration of such contract.

5.2.

General issues

5.2.1. Specific goods – generic goods The CC provides a classification of things into things with individual characteristics (individual or specific things) and things with the characteristics of a kind (generic things). Things are deemed to have individual characteristics when they are distinguishable from other things of the same kind by some characteristics or other specific features, e.g. a car is individualised by serial number, colour, etc. Things are considered to have characteristics of a kind when they have the characteristics common to a kind of things (Article 4.4 CC), e.g., ten tons of potatoes. The subject matter of a transfer may be characterised by individual characteristics or by its kind. E.g., the subject matter of a contract for sale is deemed to have been agreed where the content of the contract allows the determination of the name and quantity of the things that are to form the subject matter of it (Article 6.306 CC). There are no special rules in the CC regarding the procedure of individualisation of a thing. Thus, this question is left to the agreement of the parties. In the case of generic things, the transferor must distinguish the things subject to the transfer from other things of the same kind. Such distinction is made by marking things or putting them into special places or boxes, etc. It is open to parties to agree that the individualisation must

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be effected by the buyer, e.g., the buyer has the right to select things in the warehouse of the seller. The classification of things into specific and generic is important for several reasons. (a) It is important for the transfer of risk. Unless the contract of sale provides otherwise, the risk of the accidental perishing of or damage to the things passes to the buyer at the moment when the seller is deemed, under the contract or by law, to have been duly discharged of his duty to deliver the things, regardless of the time when the right of ownership was passed. Where the subject matter of a contract is things characterised by a description of their genus and the buyer refuses to take delivery of the things or is otherwise in breach of the contract, the risk of the accidental perishing of or damage to the things transfers to the buyer at the moment when the seller identifies the things and notifies the buyer thereof (Article 6.320 CC). (b) It is important for the interpretation of the content of the transferor’s duties regarding the quality of a thing in performing the obligation. When the subject matter of an obligation is a thing specified only by reference to its kind, the debtor must deliver a thing of this kind, which must not be below the average quality typical of the kind concerned. When the subject matter of an obligation is an individually specified thing, the transferor is liable for any deterioration of the quality of that thing if such deterioration occurs through his own fault (Article 6.41 CC). (c) It is important for the determination of the place of performance of the obligation to deliver a thing. Where no place of performance is indicated by an agreement of the parties, the obligation to deliver an individually specified thing is performed at the place where the thing was situated when the obligation arose. The obligation to deliver a thing specified by reference to its kind is performed at the place of residence or business of the debtor (Article 6.52 CC). (d) There are different consequences of the non-performance of an obligation to deliver a specific thing and to deliver a generic thing. Where a debtor fails to perform the obligation to deliver an individually determined thing into the transferee’s ownership or possession thereof by transferring the right of trust or use, the transferee has the right to demand the delivery of that thing. This right becomes extinct upon the thing concerned being handed over to another transferee with the same kind of right. As long as the thing is not handed over, the priority to receive it belongs to the transferee in whose favour the obligation arose first of all, and in the event where it is impossible to identify such person, to the transferee who was the first to bring a court action. In the situation of a transferee who cannot avail himself of the right to

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compel the performance of the obligation in kind, such transferee is only entitled to damages. Where a penalty has been provided for by the contract, the transferee has a right to choose whether to claim for the payment of the penalty or delivery of an individually determined thing (Article 6.60 CC). (e) Only specific things or individualised generic things may be subject to vindication. This rule is not directly provided by statutory law, but it follows from the general features of the vindication action and is recognised by legal doctrine.24

5.2.2. Party autonomy The transfer system provided by Lithuanian law is based on the principle of party autonomy. The principle of party autonomy is a general principle of private law (Article 1.2 CC) applied to all institutes of private law, including property law. This means that parties may agree on various specific points regarding the transfer. For example, the parties may agree not only that the ownership passes to the buyer at the moment of entry into a contract, but they also may postpone the time of transfer of ownership to some later time by inserting a time limit or condition; parties may also agree on the transfer of things which have not yet been manufactured. At the same time, the purpose of the State is to seek to secure market relationships, to guarantee legal certainty and to protect the rights of third parties. For these purposes, the law establishes a system of registration of certain contracts with the public registry. If the law provides for the compulsory registration of a contract, the parties to a contract may invoke their rights against third parties only if the contract has been registered. For example, in the case of a financial leasing contract, the lessor’s rights of ownership in the object of the leasing agreement is only valid against third parties if the leasing agreement has been registered under the procedure provided for by law. In the case of the lessee’s bankruptcy , the lessor’s rights shall be valid against the lessee’s creditors and the administrator only if the leasing agreement has been registered under the procedure provided for by law (Article 6.572 CC). The rights and interests of third parties are also protected by the principle of privity of contract, according to which parties to a contract cannot influence the legal status of a third party, except in the cases provided by law (Articles 6.189-6.190 CC).

24

Civil Law. Textbook (in Lithuanian). Kaunas: Vijusta, 1998, p. 233.

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Requirement of a valid obligation to transfer ownership

5.3.1. Obligations on which the transfer of ownership can be based Article 4.47 CC does not provide an exhaustive list of legal grounds of the acquisition of ownership. According to this Article, the right of ownership may be acquired in the following ways: 1. by transaction, e.g. contract for sale; 2. by inheritance; 3. by appropriating fruit and income from a thing; 4. by producing a new thing; 5. by appropriating an ownerless thing; 6. by appropriating wild animals and wild and domestic bees; 7. by appropriating stray domestic animals; 8. by appropriating a found item or treasure; 9. by obtaining, in return for compensation, inappropriately kept public cultural artefacts and other property; 10. by confiscating or otherwise expropriating property as a sanction for the violation of laws; 11. by acquisitive prescription; and 12. in any other way provided by law. The legal grounds of the acquisition of property are classified into original and derivative. Original acquisition is made up of the grounds when the acquirer is the first person who acquires ownership of the thing, or at least acquires title without reference to the former owner, e.g., the producing of a new thing, or the seizure of property against the will of the former owner, e.g. nationalisation or confiscation. Derivative acquisition is acquisition from a former owner.25 One of the main legal grounds for the derivative acquisition of ownership is a contract. There are several types of contract provided for in the CC specifically for the transfer of ownership: sale, exchange (barter), donation (gift). According to Lithuanian law a contract is binding immediately after the parties have reached a consensus on the essential terms of a contract. Article 6.162 CC provides that where the parties have agreed on all essential terms of a contract (e.g., in the case of a sale such essential terms shall be the denomination and quantity of goods), the contract shall be binding, even though the parties have reserved their respective rights as to secondary terms. If the parties do not reach an agreement on the secondary conditions, the dispute may be resolved by judicial proceedings, having 25

Civil Law. Textbook (in Lithuanian). Kaunas: Vijusta, 1998, p. 278.

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regard to the nature of the contract, non-mandatory norms, usages and the principles of justice, reasonableness and good faith. Donation (gift), in contrast to sale, is a real, not a consensual contract. Thus, for the validity of a real contract, two acts must occur – an agreement between the parties and delivery of a thing. A unilateral promise to donate property or a property right or to relieve someone of a property duty in the future does not constitute a gift contract. However, the beneficiary of the promise of gift has the right to claim from the promisor damages suffered in preparing to accept the gift, if the donor has refused to conclude the gift contract without any justifiable reason (Article 6.465 CC). The possibility of the transfer of ownership is also granted by other types of contracts , e.g., in the event of a rental contract, financial lease contract, construction contract, commission contract. The transfer of ownership is also possible on the basis of non-contractual obligations, e.g., in the event of compensation for damage being made in natura (Article 6.281 CC) or restitution of a thing not due in the event of unjustified enrichment (Article 6.237 CC).

5.3.2. Defects regarding the obligation and their effect on the transfer of ownership The causal system of transfer always requires a valid legal ground for ownership transfer. Invalidity of the legal ground of the transfer leads to the invalidity of the transfer itself.

(a)

Kinds of invalidity

A contract or any other legal transaction may be declared null and void on the basis of the grounds of invalidity of transactions established in Book One of the CC ‘General provisions’, and, likewise, on the basis of any other grounds established by law. Article 6.225 CC provides for two types of nullity of legal transactions – absolute and relative nullity. A legal transaction is absolutely null (void transaction – void ab initio) where a violation of the main principles of law that occurred in concluding the legal transaction has also lead to violation, not only of the interests of a party to the transaction, but also of public interests. If the nature of nullity is clearly indicated by law, a legal transaction is presumed to be null, without the need for a court judgment in relation to its nullity. Void transactions in this named sense are unenforceable. Absolute nullity means that the parties may not ratify the transaction and no legal remedy may be used to enforce it. There are five

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distinct groups of void legal transactions: illegal transactions, i.e. transactions which violate mandatory legal rules (Article 1.80 CC); transactions which contradict good morals or public order (Article 1.81 CC); fictitious (or sham) transactions (Article 1.86 CC); simulated transactions (Article 1.87 CC ). A transaction is relatively null (voidable transaction) where, in concluding it, one party acted in good faith, and the declaration of its nullity is necessary only for the protection of the private interests of the party in good faith. Where the declaration of nullity by a court judgment is necessary, a transaction is relatively null, i.e. voidable (Article 1.78 CC). A legal transaction that is voidable may be ratified by the parties to it, provided that such ratification results from their express intentions (Article 1.79 CC). Incapacity, mistake, duress, fraud, violation of formal requirements, are common grounds for the voidabilty of a transaction.

(b)

Capacity of parties

The transfer of ownership by delivery is the consequence of an act of will. This means that only legally capable subjects of legal relationships can enter into a contract. On the other hand, a contract is a legal transaction (legal act). According to Article 6.159 CC, the necessary element of any contract is a declaration of intention by legally capable persons. Consequently, the legal capacity of parties is a necessary condition of the validity of a transaction. A transaction concluded by an incapable person, e.g. a minor under fourteen years of age, is voidable. According to Article 1.84 CC, parents or guardians of such minors or a public prosecutor have the right to bring an action before the court and to request such contracts to be declared void on the sole ground of the incapacity of the person. The other party to such a contract has no right to set aside a contract based on the incapacity of the party. If the court sets aside such a contract, the normal legal consequence is restitution. In the case of the insolvency of the buyer, the seller may recover the thing from the buyer if the price has not been paid. However, the seller cannot recover things for which the purchase price has not been paid if the buyer’s administrator offers to pay it or presents a guarantee of performance of the obligation within a reasonable time (Article 6.345 CC). Where, under the contract for sale, the buyer is bound to pay the price after the delivery of the things, the seller is not bound to deliver the things if the buyer has become insolvent since the conclusion of the contract (Article 6.317 CC).

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(c)

Mistake

A mistake is an erroneous understanding of essential facts that exists at the moment of entering into a legal transaction (paragraph 2, Article 1.90 CC). According to paragraph 4, Article 1.90 CC, a mistake is a ground for the annulment of a legal transaction if it is essential (fundamental). A mistake is essential where the error vitiating the consent of one or both of the parties relates to the nature, subject matter or any other essential term of a contract or the legal status of the other contracting party, and where a person showing normal diligence and attentiveness would not have concluded the transaction or would have concluded it on different terms if he had known of the real situation. Hence, the insolvency of another party may be classified as a mistake only if it is proved that the solvency of the other party was as essential term of the legal transaction, but it should be noted that the invalidity of a transaction is normally claimed on the basis of fraud in such a situation. On the other hand, the new CC introduced some limitations to the annulment of legal transactions on the ground of mistake. These changes result from the intention of the legislator to secure civil relationships and to ensure their stability. First of all, according to paragraph 5, Article 1.90 CC, a mistake cannot be considered essential if the mistake is the result of gross negligence of the mistaken party. Similarly, a party making an assumption as to the existence of some circumstances unknown to him may not claim for the annulment of the legal transaction on the sole ground of mistake.

(d)

Fraud

According to paragraph 1, Article 1.91 CC, a legal transaction may be declared void by a court at the instance of the aggrieved party where that party’s whose was obtained by fraud. Legal doctrine and case law include within the notion of fraud all intentional fraudulent artifices designed to deceive or surprise the other party. As a rule, fraud involves the positive actions of one party, i.e. positive conduct to mislead the other contracting party about the effects of the contract, the essential terms thereof, the legal capacity of the person who enters into transaction, or other essential circumstances. However, paragraph 5, Article 1.91 CC provides that fraud may result from silence, i.e. it may result from the concealment of such circumstances that would have deterred the other contracting party from contracting if such circumstances had been known, and where within the principles of reasonableness, justice and good faith such circumstances had to be disclosed to another party.

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373

Violence (duress)

Paragraph 1, Article 1.91 CC provides that a legal transaction may be declared void by a court at the instance of an injured contracting party where that party’s consent was obtained by extortion, duress, economic pressure or considerable threat. Duress is not defined in the CC, but the notion of real threatening is explained. According to paragraph 4, Article 1.91 CC, real threatening means the acts of the other contracting party or a third party directed at the person, property or reputation of the other contracting party or of his parents, children, other close relatives or spouse. To constitute the sole ground for the annulment of a legal transaction, the threatening must be real, i.e. it must be of such nature as to affect a reasonable person and to cause him fear that the person, property or reputation of the persons mentioned above may be exposed to an injury, and there is no other reasonable alternative than entering into the legal transaction. The threatening is also deemed to be real where a contracting party or a third party threatens to enforce measures of economic pressure against the other contracting party who is economically weaker or is economically dependent in order to compel him to enter into the legal transaction under economically disadvantageous conditions. In this respect, age, gender, and the economic and financial position of the party at whom the threat is directed, the nature of the threat, and other circumstances significant in the case, must be taken into account by the court (paragraph 4, Article 1.91 CC).

(f)

Legal consequences of the nullity of the transaction

Absolute and relative nullity (when a judgment to the benefit of the prejudiced party has been obtained) of a legal transaction have the same effect. When a legal transaction is declared null and void, each party is bound to restore to the other party everything he has received as a result of that legal transaction (restitution), and where it is impossible to restore that which has been received in kind, the parties are bound to compensate each other in money, unless the law provides for other consequences of the nullity of such legal transaction. The rules of restitution are established by Articles 6.145 to 6.153 of Book Six of the CC ‘Law on Obligations’. Another consequence of the nullity of the legal transaction can be compensation for damage. However, there are other important differences between the absolute and relative nullity of a legal transaction. An action for the absolute nullity of a legal transaction may be brought by any person whose rights and lawful interests are violated by such legal transaction. Legal consequences of a

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void legal transaction, and the fact of its absolute nullity must be stated by the court ex officio (on its own motion) (Article 1.78 CC). An action for the relative nullity of a legal transaction may be brought by a contracting party in good faith who has sustained damage by entering into that legal transaction, or by a third party in whose interest it is concluded, or by a person whose rights or lawful interests are violated by that legal transaction (Article 1.78, 6.225 CC). In the event of the relative nullity of the legal transaction, a party possessing the right to claim voidability of the legal transaction may ratify it within the time-limit established by the other party or the law. By ratifying a legal transaction, the party forfeits his right to claim for the nullity of the legal transaction (Article 1.79 CC). As a general principle, the legal transaction which has been annulled is deemed to be null ab initio (Article 1.95 CC). This rule applies without exception to legal transactions which are absolutely null. The same rule applies in the event of the relative nullity of a legal transaction. However, Article 1.95 CC provides that where the content of a transaction makes it impossible to declare it null ab initio, it may be declared null only for the future, i.e. as from the time when the judgment acquires legal effect (res judicata). The partial nullity of a transaction does not cause the nullity of the entire transaction where it can be assumed that the contracting parties would have entered into that transaction even without the part affected by nullity having been included (Article 1.96 CC). As was mentioned above, the main consequence of the nullity of a legal transaction between the parties is restitution. But in exceptional cases, the court may modify the mode of restitution or refuse restitution altogether where it would cause undue and unfair prejudice to one party and, accordingly, an undue advantage to the other party (Article 6.145 CC). Restitution is made in kind, except in the instances where this is impossible or would cause serious inconvenience to the parties. In these cases, restitution is effected by payment of a monetary equivalent (Article 6.146 CC). At the same time, the CC protects third parties in good faith from negative consequences of the nullity of a legal transaction. According to Article 1.80 CC, the thing – an object of the legal transaction that is annulled – may not be claimed from a third person party in good faith, except in the cases provided for in paragraphs 1, 2 and 3 of Article 4.96 CC (see para. 1.4.1.). Article 6.153 CC provides that a good faith transferee for value whose property becomes subject to restitution is able to rely on his transaction against a person who claims for restitution. Any other actions performed in favour of a third party in good faith may be invoked against a person who claims for restitution.

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However, third parties who acquire a thing in good faith but not for value are not able to invoke this transaction against a person who claims for restitution, as long as the person claiming restitution complies with the prescription period (paragraph 2, Article 6.153 CC).

(g)

Termination of a contract

According to Article 6.333 CC, the seller is bound to deliver to the buyer goods of a quality that meets both the conditions of the contract of sale and the requirements of the documents that determine the quality of the goods. The seller’s warranty of the quality of goods is a statutory warranty and exists irrespective of whether or not this warranty is stipulated in the contract (Article 6.317 CC). A breach of a warranty of quality of goods by the seller entitles the buyer to use the remedies provided for by Article 6.334 CC. According to this Article, the buyer has a choice between four possible remedies: (i) the buyer may claim for a replacement of the goods which are specified in the contract by goods of satisfactory quality of the same kind, unless the defects are minor or appeared to have been caused by the fault of the buyer, and for damages ; (ii) the buyer may claim for a reduction in price and for damages; (iii) the buyer may claim for the elimination of defects by the seller within a reasonable time period without being able to claim for any additional payment or reimbursement for the elimination of defects from the latter if these defects may be eliminated, and for damages; or (iv) the buyer may claim for the repayment of the purchase price and termination of the contract, and for damages, where the sale of goods of unsatisfactory quality is a material breach of the contract. The main obligation of the buyer is to pay the purchase price of goods within the time period fixed in the contract and at the set place. Nonperformance of this obligation by the buyer entitles the seller to use one of the following three remedies: (i) to sue the buyer for specific performance; (ii) to terminate the contract and re- take the thing; or (iii) to suspend the performance of an obligation, i.e. to suspend the delivery of the thing. The right of the seller to terminate a contract of sale and to re-take the delivered things from the buyer is provided for by Article 6.345 CC. The possibility to re-take the thing can be exercised when the buyer becomes the owner of the goods. If the seller remains the owner of the things after

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their delivery to the buyer, the former will only re-take the possession of the goods. This remedy is possible only in the event of the sale of movable things. Where movable things have already been delivered to the buyer but the buyer fails to pay the purchase price, the seller has the right to terminate the contract, notifying the buyer thereof in writing, and to retake the things. If only part of the price has not been paid, the seller may only retake an equivalent quantity of movables, i.e. the value of which is equivalent to the unpaid sum, provided the things are divisible. However, the seller retains the right to re-take the things only as long as these: are located in the country of their delivery ; have not been transferred to a third party for payment; have not been pledged; and have not become subject to a right of usufruct.

5.4.

Delivery and delivery equivalents

5.4.1. Purposes of the delivery requirement As already noted, Lithuanian property law establishes a mixed system of transfer. Notwithstanding this, the general rule is that a transfer requires the delivery of a thing. The consensus of the parties is sufficient for a transfer of property only in cases specifically provided for by a contract or law. The main principles of delivery are legal certainty, the protection of third parties, the realisation of the principle of the passing of risk, and the withholding of the performance of an obligation. The delivery principles create legal certainty because the fact of holding a thing creates a presumption of possession or, further , a presumption of ownership (‘en fait de meubles, la possession vaut titre’). Such a system of transfer creates stability and security of the market. However, the possession of a thing is not always by virtue of the right of ownership. Therefore the law establishes some requirements for the registration of a transaction as the legal basis of a transfer. The registration system provides protection of the rights and interests of the parties to a contract and indeed those of third parties, while at the same time ensuring the stability and security of the market. The requirement of delivery allows for the parties to withhold performance if the transfer is based on a bilateral obligation, giving protection to one party where the other party has not fulfilled his (reciprocal) obligation. For example, the buyer may withhold payment until the delivery of a certain thing by the seller, if the seller must perform his obligations first. On the other hand, the seller may withhold delivery until the payment of the price by the buyer , if the buyer must perform his obligations first (Article 6.58 CC).

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The rules on the passing of risk are also tied to the principle of delivery. Article 6.320 CC establishes that unless the contract of sale provides otherwise, the risk of the accidental perishing of the goods or damage thereto passes to the buyer at the moment when the seller is deemed under the contract or law to have been duly discharged of his duty to deliver the goods, regardless of the time of transfer of the right of ownership.

5.4.2. Forms of delivery Article 4.50 CC provides a general rule according to which delivery is performed by the handing over of the thing to the transferee. Some details of this general rule are provided in Book Six ‘Law of Obligations’ in the Chapter on contracts for sale. According to Article 6.317 CC, the seller is bound under the contract for sale to deliver the things to the buyer, i.e. to put the things into the buyer’s possession in the course of transferring the right of ownership and to warrant the legality of ownership of the things, as well as the quality thereof. The obligation to deliver the things is deemed to have been performed when the seller puts the buyer in possession of the things or consents to his taking possession of them, and all hindrances thereto are removed. Unless otherwise provided by the contract, the seller is bound to deliver the things together with all their accessories in the condition they are in at the time of formation of the contract for sale. Delivery costs are borne by the seller, unless the contract provides otherwise. At the moment of delivery, the seller is bound to surrender to the buyer the related documents and title deeds of ownership in his possession, where this is prescribed by the contract or provided by law. If the seller himself needs the above documents for enforcing other rights not related to the things sold, the seller is bound to deliver to the buyer such copies of the documents as are valid in the appropriate case. The fruits of and revenues flowing from the things belong to the buyer from the time of the delivery of the things. The parties are free to agree upon a special delivery procedure. E.g., they may agree that the occurrence of delivery must be confirmed by a special document (act of delivery), signed by both parties or their representatives. The CC provides for further forms of delivery. According to Article 4.50 CC, delivery is also possible by handing over a thing to a transport company for delivery to the acquirer, as well as delivery by post to the acquirer, if the law does not provide and the contract does not stipulate otherwise. Delivery is also possible by the handing over of certain documents. E.g., delivery of a bill of lading or another document certifying the disposal of the thing equates to the delivery thereof (Article 4.50 CC).

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Some special rules regarding the time and place of delivery in the case of a sale are provided for in Book Six of the CC. According to Article 6.318 CC, if the seller is not bound to deliver the things to any particular place, the seller’s obligation to deliver consists of the following: (a) if the contract of sale involves carriage of the things – he must hand the things over to the carrier for transmission to the buyer, unless otherwise provided in the contract; (b) where the contract does not involve carriage, if the contract relates to specific things that are to be delivered out of a specific stock or to be manufactured, and at the time of the conclusion of the contract the parties knew thereof – he must place the things at the disposal of the buyer or the person nominated by him at the place of storage or manufacture; or (c) where points (a) and (b) do not apply – he must place the things at the buyer’s disposal at the seller’s place of business or residence as at the time of the conclusion of the contract or at the place of business or residence of the representative of the buyer at the time of delivery. The seller is bound to deliver the things at the point in time stipulated in the contract of sale. Where the time of delivery is not specified by the contract, the things are bound to be delivered within a reasonable time after the conclusion of the contract of sale. The contract is presumed to contain a clause prescribing the performance thereof at a specific point in time if it is clear from the content of the contract that in the event of the breach of this clause the buyer shall have no more interest to receive the goods. Where the contract contains such a clause, the seller is entitled to perform the contract until the expiration of the time limit, or, with the buyer’s consent, after the expiration thereof (Article 6.319 CC). As the transfer system is mixed, the parties are free to agree that the ownership is to pass to the acquirer immediately after the entry into the contract even if the thing remains in the possession of the transferor. The parties are also free to agree upon another form of delivery. The contract may stipulate that the ownership right passes to the acquirer only after the acquirer has fulfilled a condition established in the contract (Article 4.49 CC). Other forms of delivery are also possible: delivery brevi manu, e.g. when the lessee buys the leased thing in his possession from the lessor (Article 6.361 CC); constitutum possessorium, e.g., the sale of things in transitu when they remain in the possession of the transferor until delivery to transferee; longa manu, e.g., in the case of the sale of a leased thing which is in the possession of the lessee to a third party (Article 6.494 CC).

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379

Registration

Motor vehicles are not registered property, but the transfer of these is registered. This means that the buyer must transfer the car registration certificate in his own name. Registration in this case is evidential rather than constitutive in effect (Article 1.75 CC ); see also chapter 4.2. above. Seagoing ships and aircraft which need to be registered are considered to be immovable property by law (Article 1.98 para. 3 CC).26 However, the registration in these cases has also evidential rather than constitutive effect – the ownership is transferred at the moment of the signing of a special document of transfer (Articles 4.49, 6.398 CC) and this document (called “act of transfer and acceptance of the thing”) is the legal basis for the registration of the right of ownership in the relevant public register.

5.6.

Real agreement

According to Lithuanian law, the delivery of a thing is not a real agreement, it is simply an act of performance of an obligation. It is, of course, a juridical act, because duly performed delivery extinguishes the obligation of delivery (Article 6.123 CC), but delivery is not a separate agreement.

5.7.

Payment

The general rule is that payment is not a precondition of the transfer of ownership. However, some special rules of Book Six regarding the contract for sale protect the seller and provide certain remedies in the event of nonpayment by the buyer. According to Article 6.345 CC, in the event of nonpayment, the seller has the right to re-take the thing from the buyer. If only a part of the price has not been paid, the seller may only re-take things that have not been paid for, provided these are divisible (see para. 5.3.2. (g)). On the other hand, the parties are free to agree that ownership passes only after full payment of the price. In such a case, payment is a prerequisite for the transfer of ownership (Article 6.411 CC); see para. 5.1.4 (c).

26

See also para. 1.2.1. with footnotes 7 and 8.

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5.8.

Right to dispose

The general rule is that only the owner may transfer ownership. According to Article 4.48, only the owner or a person authorised by the owner has the right to transfer ownership. The law also nominates certain persons who, though not being owners, nevertheless have the right to transfer ownership under the relevant conditions, e.g. the administrator of an insolvent company or the guardian of legally incapable person. A contract for sale made by an individual not entitled to sell may be declared void on the basis of an action filed by the owner, manager or buyer. However, a contract of sale is validated if the seller becomes the owner of the thing originally sold by a non-entitled seller. Where the contract is declared void, the thing is returned to the owner, except in the cases provided for in Article 4.96 CC, which may operate to prohibit vindication from a possessor in good faith (Article 6.307 CC).

6.

Double selling

There are no specific provisions in statutory law regarding the legal consequences of double selling. So, the solution to such a problem must be based on the general principles of the CC and its systematic interpretation. If a seller sells the same thing twice to different persons, the following general rules of CC are applied: – if A sells the same thing to B and afterwards also to C, B acquires ownership if the thing is delivered to B, or if the contract provides that ownership passes immediately at the moment of the conclusion of the contract. Thus, as A, when selling the same thing to C, was no longer the owner, the contract between A and C is null on the basis of Article 6.307 CC; – if the contract between A and B provides that ownership passes immediately at the moment of its conclusion, but the thing subject to the transfer of ownership is delivered to C, B may vindicate the thing from C according to the rules of Article 4.96 CC; – if the general rule that ownership passes at the moment of delivery applies, and the specific thing in question is delivered to C, C is the owner and B has only the right to claim for damages from A; and – if the thing is not delivered either to B or to C, the rights of B are protected and B has the right to claim for the delivery of the thing from A, because the obligation between A and B arose earlier than the obligation between A and C. However, B must prove this fact, and where it is impossible to ascertain which obligation arose first, the creditor who was the first to bring the action will be protected (Article 6.60 CC).

7. Selling in a chain

7.

Selling in a chain

7.1.

General rules

381

What is the correct legal analysis where A sells to B and B to C, then A delivers the movable directly to C? There are no specific provisions in statutory law regarding the legal consequences of a selling in chain. As with chapter 6 above, the following conclusions are based on a doctrinal analysis and systematic interpretation of the CC. The answer to the opening question depends on the content of the contract. If a contract provides that ownership is acquired immediately at the moment of the conclusion of the contract, ownership passes to B, and from B to C. Consequently, in such a case A, when delivering thing to C, does not act as the owner, but just as an intermediary because the ownership has been passed to C by B. If the contract does not adhere to the consensual principle and the general rule is applied, the contract between B and C could be qualified as a conditional contract, i.e., B will have a duty to deliver the thing to C only after he has received the thing from A. A in such a case could be qualified as an intermediary or agent of B. Thus, the legal ground for the acquisition of ownership by C will be the contract between B and C, but not the delivery of the thing by A.

7.2.

Rules when contracts fail

There are no special provisions regarding selling in a chain, except the general provisions in Book One (paragraphs 2 and 4 of Art icle 1 .80 CC, providing for the legal consequence of the nullity of transaction – restitution) and Book Six (Articles 6.145-6.153 CC, providing the rules on the restitution procedure). Academic writing and case law on this point is also lacking. Again, this answer is based on the systematic interpretation of the CC. If the contract between A and B is invalid, this leads to the invalidity of the contract between B and C, because the first contract was the legal basis for the acquisition of ownership by B. B was not the owner when he entered into the contract with C. However, A may not request the restitution of the thing from C, because C is a third party in relation to A: restitution is an instrument of the law of obligations and may not be applied in respect of a person who is not a counterparty to an obligation (Article 1.80 CC). Therefore, A has no personal remedy against C, but A has a remedy provided by property law: A may vindicate the thing from C under Article 4.96 CC. In such a case, the restrictions to vindication which protect a possessor

Lithuania

382

in good faith may also apply. If C is a possessor in good faith, Article 4.96 does not allow the vindication of a thing from him and C will become the owner by force of law (Article 4.96 CC ). If the contract between B and C is invalid, C will not become owner, because Lithuanian law provides for a causal system of transfer of ownership. In the event of the nullity of a contract between B and C, restitution will be possible. So C is under the obligation to restore the thing to B. If the contract between A and B is valid, after the restitution of the thing by C to B, B will remain the owner. However, if the contract between A and B is also invalid, B is under an obligation to restore the thing to A due to being party to an invalid contract. So , in the event of the invalidity of a contract, the restitution of a thing between the parties to the invalid contract is based on the rules of the law of obligations, which provides for the consequences of the nullity of a contract. On the other hand, in the event of the nullity of both contracts, i.e. between A and B and between B and C, A is entitled to vindicate the thing from C directly, if C refuses to restore the thing to B and if all conditions of vindication provided by paragraphs 1 and 3 of Article 4.96 CC are satisfied.

8.

Transfer or acquisition by means of indirect representation

Indirect representation may occur when one person, not being an agent, acts independently but in the interests of another person, e.g. in the case of a commission contract. The provisions on indirect representation are established by the law of obligations, not by property law. According to paragraph 2, Article 6.780 CC, a commission agent acquires rights and duties resulting from a transaction concluded by him with a third party even though the principal was also disclosed to the third party or entered into a direct contact with the third party with regard to the performance of the transaction. This means that if party X transfers or acquires a movable asset in his own name, but for the account of or in the interest of A, X is a party to the contract. However, X does not acquire ownership, because according to Article 6.786 CC, things received by the commission agent from the principal or acquired at the expense of the principal are owned by the principal from the moment of transfer. On the other hand, a commission agent has a right of retention in respect of things which are placed with him and which are subject to transfer to the principal or to a person indicated by the principal if the third party should fail to perform the obligations he owes to the commission agent. Thus, ownership passes directly from A to B and then retroactively from B to A . The insolvency of X does not prevent such a direct transfer.

9. Insolvency of the transferor or transferee

383

In the event the insolvency proceedings have been initiated against the principal, the commission agent loses the right of retention and acquires a right of pledge (so-called statutory pledge) in respect of the thing concerned, while his claims for the value of the retained thing will be satisfied together with the claims secured by the pledge. The CC does not provide any other rules on indirect representation.

9.

Insolvency of the transferor or transferee

9.1.

General issues

Property law does not provide any rules regarding the effect of insolvency, but some rules can be found in the law of obligations. According to paragraph 2, Article 6.345 CC, where the buyer becomes insolvent, the seller cannot recover things for which the price has not been paid if, within a reasonable time, the buyer’s administrator offers to pay the price or presents a guarantee of the performance of the obligation. On the other hand, insolvency questions are not subject to regulation by the CC. These are regulated by specific legislation, the Law on Insolvency of March 20, 200127 (“Law on Insolvency”). The Law on Insolvency has priority over the CC (paragraph 2, Article 1.3, Article 6.923 CC). The general legal consequence of insolvency is the prohibition of the performance of any obligations by the insolvent person. According to Article 10 of the Law on Insolvency, the commencement of insolvency proceedings means a discharge of all financial obligations not met prior to the institution of insolvency proceedings, including interest on outstanding debts, any default interest, taxes and other mandatory payments. The recovery of debts by the insolvent party through court or non-court proceedings is also prohibited. If the administrator does not notify the interested parties within 30 days from the date at which the court order to initiate insolvency proceedings takes effect that he will not perform the unperformed contracts entered into by the insolvent person, the said contracts (including contracts of lease and loan for use agreements), except for employment contracts and contracts from which claims of the company in insolvency arise, are deemed to have terminated, and claims arising by reason thereof are met in the manner specified by Article 35 of the Law on Insolvency.

27

Valstybes zinios, 2001, No. 31-1010.

Lithuania

384

9.2.

Insolvency of transferor

The insolvency of the transferor discharges him from the obligation to deliver the thing to the transferee and the transferee may not claim for specific performance (Article 10, Law on Insolvency). However, if the contract provides that the transferee will become the owner of the thing immediately at the moment of the entry into the contract, the ownership right of the transferee is protected and the thing is excluded from the insolvency estate of the insolvent person. The administrator of an insolvent person has the right to institute an actio Pauliana for the annulment of a contract if the contract was harmful to the insolvent person or the creditors of the insolvent person (Article 10, Law on Insolvency). A legal transaction may be annulled if there was no legal obligation for the insolvent person to enter into such a transaction and the interests of the insolvent person or the creditors are harmed, provided that the insolvent person knew or ought to have known that prejudice to the creditors would result from that transaction. A bilateral transaction may be annulled only where the individual concluding the transaction with the insolvent party was in bad faith, i.e. he knew or ought to have known that the transaction violated the rights of the insolvent party’s (other) creditors. A gratuitous transaction may be annulled irrespective of the transferee’s good or bad faith (Article 6.66 CC). Under Article 6.67 CC, it is presumed that the parties to a transaction by which the interests of creditors are prejudiced were in bad faith if: 1. the insolvent party transacted with any of his spouse, children, parents or other close relatives; 2. the insolvent party transacted with a legal person of which his spouse, children, one of the parents, or any other close relative is a director, a member or a participant of its managing body, who either directly or indirectly owns at least fifty percent of the issued shares (number of shares owned by a shareholder, contributions, etc.); 3. (where the insolvent party is a legal person) the insolvent party has transacted with a natural person who is a director or member of the managing body of that legal person, or with his spouse, children, one of his parents or any other close relative; 4. the value of the insolvent party’s performance considerably exceeds the counterperformance rendered by the other party to the transaction (disproportionality of counter-obligations); 5. a transaction has been made for the purposes of the payment of a debt that has not yet fallen due; 6. (where the insolvent party is a legal person) the insolvent party has transacted with a natural person who either himself, or his spouse,

9. Insolvency of the transferor or transferee

385

children, parents, or any other close relative, or jointly with them, are members of that legal person and own, directly or indirectly, at least 50 percent of the shares (number of shares owned by a shareholder, contributions, etc.) in that legal person; 7. (where the insolvent party is a legal person) the insolvent party has transacted with another legal person that is controlled by the insolvent party, or if a director or a member of the managing body of one of the parties to the transaction is a person who individually or jointly with his spouse, children, parents or close relatives, owns (directly or indirectly) at least 50 percent of the issued shares (number of shares owned by a shareholder, contributions, etc.) in the other legal person or of the issued shares in both legal persons; or 8. (where the insolvent party is a legal person) the insolvent party has transacted with an association of legal persons or to any other corporation of which the insolvent party is a member. The administrator has the right to set aside a contract concluded up to 36 months prior to insolvency, and in the event of an intentional insolvency (in the sense of a criminal offence according to the Criminal Code), concluded within the last 5 years. Such an action may be brought even if the thing has been delivered to the transferee. If the actio Pauliana succeeds, the thing is restored to the transferor and is used for the purposes of satisfying the claims of all creditors.

9.3.

Insolvency of transferee

If the price has not yet been paid, the insolvency discharges the transferee from the duty to pay the price. If the thing has already delivered to the transferee, the unpaid transferor becomes an ordinary creditor and his claim is satisfied in accordance with the general provisions of the Law on Insolvency. Thus, in the event of the insolvency of the transferee, the rights of the transferor are not protected. As the Law on Insolvency has priority over the Civil Code, in such a case, Article 6.345 CC is not applicable. However , the administrator has the right, exercisable within 30 days, to decide whether to perform a contract or not. In addition, the transferor may bring an action for the annulment of a contract, e.g., on the basis of a fraud committed by the transferee (Article 1.91 CC). Such an action is heard by the insolvency court . In the event of the annulment of the contract, the annulment has a retroactive effect (Article 1.95 CC). On the other hand, the administrator may bring a counterclaim for the annulment of the same contract on the basis of the actio Pauliana (Article 10, Law on Insolvency).

Lithuania

386

10.

Passing of risk and passing of ownership

Rules on the passing of risk and the passing of ownership are found in two separate Books of the CC – Book Four ‘Real Rights’ and Book Six ‘Law of Obligations’. According to Article 4.52 CC, the risk of the accidental perishing of or damage to a thing being delivered passes to the acquirer at the moment when he acquires the ownership right, unless otherwise provided by law or stipulated by the contract. Thus, property law provides the parties with the possibility to agree upon the moment of the passing of risk. In addition, Article 4.52 provides that if the transferor misses the deadline to deliver the thing or the acquirer misses the deadline to take delivery of the thing, the risk of the accidental perishing of or damage to the thing is borne by the party in default, unless otherwise provided by law or stipulated by contract. Special rules on the passing of risk are provided by the law of obligations in respect of contracts for sale. According to Article 6.320 CC, unless the contract for sale provides otherwise, the risk of the accidental perishing of or damage to the things passes to the buyer at the moment when the seller is deemed under the contract or law to have been duly discharged of his duty to deliver the things regardless of the time of the passing of the right of ownership. Article 6.320 establishes some additional rules. According to paragraph 2 of this Article, the risk of the accidental perishing of or damage in transit to things already sold passes to the buyer at the time the contract of sale is concluded, unless the contract or market practice provide otherwise. As can be seen, the law of obligations also provides the parties with the possibility to agree upon the moment of the passing of risk. However, freedom of contract in this area is limited by some mandatory provisions. According to paragraph 3 of Article 6.320, a condition in the contract that the risk of the accidental perishing of or damage to the things passes to the buyer after the handing over of the thing to the first carrier may be declared as null and void at the buyer’s request if, at the time of the entry into the contract for sale, the seller knew or should have known that the things had perished or had been damaged , and nevertheless did not notify the buyer thereof. There is a general prohibition on including such terms in consumer contracts, as they violate consumers’ rights and do not correspond with the requirement of good faith (Articles 6.188, 6.350 CC). If a thing perished or was damaged after its sale through no fault of the seller, the buyer must pay the purchase price to the seller. The abovementioned rule is also applicable in cases where the seller was unable to deliver the things to the buyer due to the buyer’s insufficient cooperation with the seller and, for this reason, was in breach of the contract (paragraph 4, Article 6.320 CC).

10. Passing of risk and passing of ownership

387

Where a contract involves things characterised by a description of their kind (generic goods) and the buyer refuses to accept these things or is otherwise in breach of the contract, the risk of the accidental perishing of or damage to the things transfers to the buyer at the moment when the seller identifies the things and notifies the buyer of this identification (paragraph 5, Article 6.320 CC). If the buyer brings an action (which is not frivolous) for the annulment of the contract or for the replacement of the things, the risk of the accidental perishing of or damage to the things is borne by the seller (paragraph 6, Article 6.320 CC). If the risk of the accidental perishing of or damage to the things remains with the seller even after the delivery thereof to the buyer, the seller is liable for the perishing of or damage to the things, even though this might have been caused by the non-faulty actions of the buyer . However, as from the moment the buyer could have reasonably foreseen that he had to return the things to the seller, he is responsible for the safekeeping thereof as bonus pater familias(paragraph 7, Article 6.320 CC). In the event of a sale where the price is paid in instalments, the risk of the accidental perishing of or damage to the thing transferred to the buyer is borne by the buyer, except in consumer contracts, unless otherwise provided by the contract for sale by instalments (Article 6.412 CC). As a general rule, all interests in the property switch to the transferee at the moment at which the ownership passes. For example, any fruit borne by a thing belong to their owner, unless the law or the contract establishes otherwise (Article 4.53 CC).

Part III: Original acquisition – no direct transfer of ownership from owner to transferee 11.

Acquisition by accession, commixture, processing

11.1.

Accession of movables

A movable thing incorporated into an immovable thing that has lost its individual characteristics is considered a part of an immovable thing (paragraph 4, Article 4.2 CC). However, a movable thing that is physically fastened or otherwise attached to an immovable thing, or constitutes a part thereof without losing its individual characteristics , is not considered to be immovable. For example, a satellite TV dish on the roof of a building is not considered to be immovable (paragraph 5, Article 4.2 CC ). Things consistently forming part of an immovable thing but separated therefrom temporarily maintain the nature of an immovable thing if these parts are to be restored thereto (paragraph 6, Article 4.2 CC). Putting together two or more things does not render one of these things an accessory of the other if neither of them has the characteristics described in Article 4.19 CC. According to Article 4.19 CC, accessories are independent secondary things with the purpose of serving the principal thing and constantly linked to the principal thing by virtue of their qualities.

11.2.

Commixture, confusion

Confusion is defined by Article 4.54 CC as the joining of two or more movable things. When movable things that are owned by different owners are joined to form a new thing and there is no possibility of reverting them to their original state by separating them or if the costs of separation would be excessive, and when the owners have not specifically agreed upon joining these things, the new movable property arising therefrom is considered to be an object of ownership in common. Ownership of the new thing rests with the contributing co-owners (in proportion to the value of their respective contributions). If movable things belonging to different owners are joined by the owner of one (or more) of the constituent parts without the consent of any of the

12. Good faith acquisition

389

other owners of the remaining constituent parts and there is a possibility of separation and reverting the things to their original state, this will be done at the expense of the person who joined them.

11.3.

Specification, processing

Specification is defined as the processing (creation) of a new thing from material owned by another person. There are two provisions that regulate specification. The first of them provides that a person who has made a new thing from the material of another becomes its owner if the value of the work is greater than the value of the material, and if the person did not and could not have known that the material was owned by someone else. In such a case, the person who has used another’s material must compensate its owner for its value. If the value of the material is greater than the value of the costs involved in producing the thing, the owner of the material is the owner of the thing. He has the right to keep the thing (subject to payment of compensation to the producer for the value of its production), or to leave the thing to the producer and to claim compensation from him (Article 4.55 CC). The second provision regulates the situation where a thing is processed from material that is the object of mixed ownership: from the producer’s material and another person’s material. A person who has produced a new thing from his and another’s material becomes the owner of the thing if the value of the work and that of his own material is greater than the value of the other person’s material and if such person did not and could not have known that the material was owned by another person. In such a case the person who made use of another’s material must repay the owner the value of the material used. If the value of the other person’s material is higher than that of the producer’s work and material, the former owner of such material will be considered the owner of the thing. He has the right to keep the thing (subject to payment of compensation for the costs of producing incurred by the producer and for the producer’s share of material), or to leave the thing to the producer and to claim compensation from him (Article 4.56 CC ).

12.

Good faith acquisition

12.1.

Field of application

A is the owner of a movable. The movable is ‘transferred’ by non-owner B to the potential ‘good faith acquirer’ C. Quid iuris?

Lithuania

390

There are several rules for dealing with good faith acquisition established by the CC (Articles 1.80, 4.96, 6.153 CC). These rules are applied in all cases where there are no contractual obligations between the owner and the acquirer. Thus, in this context, C must be a third party in relation A. Where contractual obligations between the owner and the acquirer exist, the rules of restitution are applied. For example, if B is an agent of A and B exceeds his own authority, the rules of restitution must be applied, not the rules on good faith acquisition. The rules on good faith acquisition are applicable where there are no contractual obligations between A and C, such as where B has never been the owner or he has lost his ownership right with retroactive effect, for example due to a double sale.

12.2.

Requirement of acquisition for value

If a thing was acquired gratuitously (e.g. by donation) from a person who had no right to transfer its ownership, the owner has the right to vindicate the thing in all cases. This rule is applied both to movable and to immovable things (paragraph 3, Article 4.96 CC). It is apparent that Lithuanian law only provides for onerous good faith acquisition (i.e. acquisition for value). There are several justifications for this approach. The primary reason is to provide a fair and just balance between the interests of the owner and the acquirer. In the event of gratuitous acquisition, the acquirer does not deserve protection because the acquirer has not incurred any expenses in acquiring the thing. In contrast, when the acquirer receives the thing against payment, his right is protected because he has incurred expenses, while the owner’s interests are protected by other remedies, e.g., by a claim for damages under the rules of non-contractual liability arising out of damage caused to another or by a claim for unjustified enrichment. A second policy intention of the legislator is the protection of stability of civil relationships in the marketplace.28 If a movable thing was acquired onerously from a person who had no right to transfer such thing, and the acquirer did not and could not know this, the owner has the right to vindicate the thing from the acquirer only if the thing was lost by or stolen from its owner (or the person to whom the owner had given the possession thereof), or if it in any other way ceased to be in the possession of the owner (or authorised possessor) against his will. The owner has three years from the moment of the loss of a thing to vindicate (Article 4.96 CC).

28

MIKELENAS, VALENTINAS. Revindication and its application (in Lithuanian) In Justitia, 2005, No. 1, p. 8.

12. Good faith acquisition

391

Onerous acquisition means acquisition by an onerous legal transaction, e.g. sale, exchange. The actual payment of a purchase price in such a case is not relevant . However, the above-mentioned rule is not applicable when a thing was sold or otherwise transferred in compliance with a procedure for the enforcement of court judgments (paragraph 4, Article 4.96 CC).

12.3.

The need for physical control

There are no special provisions in the Civil Code requiring the person transferring to the good faith transferee to have physical possession. According to legal doctrine, all forms of possession by transferor B are sufficient and physical control by B or C is not necessary for the application of the above-mentioned rules.

12.4.

Circumstances of the ‘transfer’

The circumstances of a transfer do not have any legal importance. However, different standards of good faith are applied by the courts to consumers and businessmen. If the acquirer is a businessman, his business acumen is deemed to be such that the standards of good faith are more stringent.29

12.5.

Specific requirements regarding the way the original owner ‘lost’ the movable

Vindication of a thing by the original owner is only possible in the circumstances described in 12.2. above.

12.6.

Good faith

Case law on this issue is somewhat contradictory in its treatment of good faith. In some cases, courts require proof of the existence of good faith in respect of the transferor’s right of ownership. In other cases courts have established a considerably more liberal position: they have held that the acquirer’s bona fide belief that the transferor is entitled to dispose of the thing is a sufficient element for the declaration of the presence of good 29

Judgment of the Supreme Court of Lithuania of March 15, 2000, Case No. 3K-3321 / 2000.

Lithuania

392

faith of the acquirer.30 Legal doctrine supports the second position as this position corresponds to the wording of Article 4.96 CC. Statutory law does not impose any standards of good faith. This issue, therefore, is left to case law to define, but there is no unanimous standard of good faith defined by case law that could be applicable in all possible events. The courts tend to apply one standard in consumer contracts and another in commercial contracts. In the case of a consumer, actual knowledge and gross negligence are necessary conditions for the exclusion of good faith.31 In the case of a businessman, even slight negligence is sufficient for the exclusion of good faith.32 In any case, both criteria – subjective and objective good faith – are necessary for the existence of good faith.33

12.7.

No right to buy back

Lithuanian law does not provide the original owner with a right to buy back property validly acquired by a good faith transferee.

12.8.

Encumbrances

Any encumbrances that have been registered with the public registry remain attached to a thing on its transfer (paragraph 2, Article 4.9 CC). Hence, in the event of a registered encumbrance, it is impossible for the acquirer to claim to have been unaware of the existence of the encumbrance, i.e., to make an attempt to prove his good faith. A contrasting legal situation can be seen where there is a non-registered encumbrance – such an encumbrance may not be enforced against an acquirer in good faith. Article 4.9 provides that where registration of an encumbrance is required, only encumbrances so registered pass to the new owner together with the thing. However, there is nothing to stop encumbrances being transferred with the encumbered thing where there is mutual consent of the persons involved (Article 4.207 CC). 30

31

32

33

Judgment of the Supreme Court of Lithuania of April 11, 2001, Case No. 3K-3439 / 2001; Judgment of the Supreme Court of Lithuania of January 22, 2003, Case No. 3K-3-106 / 2003. Judgment of the Supreme Court of Lithuania of January 22, 2003, Case No. 3K-3106 / 2003. Judgment of the Supreme Court of Lithuania of March 15, 2000, Case No. 3K-3321 / 2000. Judgment of the Supreme Court of Lithuania of April 11, 2001, Case No. 3K-3439 / 2001.

13. Acquisitive prescription of movables

13.

Acquisitive prescription of movables

13.1.

Functions of acquisitive prescription

393

Acquisitive prescription is regulated by Articles 4.68 to 4.71 CC. All things which can be objects of private ownership may be acquired by way of acquisitive prescription. However, ownership by acquisitive prescription is not applicable in the case of things obtained by force, e.g. by robbery, or in a secret manner, e.g. in the case of stolen goods, a rule which applies whether it is the rog ue or somebody else following on from this who seeks to acquire the ownership right in this manner. So, according to paragraph 2, Article 4.69 CC acquisitive prescription is always excluded for robbed and stolen goods. If the thing was robbed or stolen, even an acquirer in good faith cannot acquire ownership. Acquisitive prescription is also not applicable to the acquisition of an ownership right in things that are the property of the State or a municipality, and also to things registered in another person’s (not the possessor’s) name. The question of whether an acquisition of ownership by acquisitive prescription occurred is decided by the court. Acquisitive prescription is one of the legal grounds for the acquisition of the right of ownership. The rule is justified by the interests of commerce and the market, the principles of legal certainty, justice and good faith.34

13.2.

Requirements of acquisitive prescription

There are several requirements for the application of acquisitive prescription (Article 4.68 CC). (a) The acquisition of possession in good faith (aimed at preventing a thief from acquiring ownership to stolen goods). According to paragraph 2, Article 4.26 CC the presumption of good faith is applied in respect of the acquisition of possession as well. A person acquiring property by acquisitive prescription must act in good faith not only at the initial moment of the acquisition of possession. This means he must be convinced that nobody else has more rights to that thing than he has, and he must remain a possessor in good faith during the entire prescriptive period. In addition, even upon acquiring ownership of the thing he must not know about any impediments that hinder his acquisition, if such impediments exist. Possession in bad faith of part of a thing or several parts thereof does not prevent the possessor from acquiring, by way of acquisitive prescription, the other parts thereof that were possessed 34

Civil Law. Textbook (in Lithuanian). Kaunas: Vijusta, 1998, p. 327.

394

(b) (c) (d) (e)

(f) (g)

Lithuania

in good faith. If the right of possession is acquired by a representative, good faith is required from both the agent and the principal. The legitimacy of acquisition of possession (this ground is also the reason why a thief may not acquire the ownership of stolen goods). The legitimacy and good faith of possession during the entire prescriptive period. The transparency of possession during the entire prescriptive period. The continuity of possession during the entire prescriptive period. Possession of a thing is deemed to be continuous when a person has possessed the thing uninterr upted from the moment of acquiring the right of possession until the moment of acquiring the ownership of the thing by acquisitive prescription (interruption of possession may occur due to a voluntary transfer of possession to another person, or due to physically taking the thing away from the possessor). Article 4.71 CC does not create a presumption of continuous possession, so the acquirer is under the duty to prove this fact. If, during the period of acquisitive prescription, the possession of the thing passed to several persons and the possession of each of these persons met the requirements indicated in Article 4.68 CC, then the time periods of possession of each of these persons are added up, beginning with the foundation of the first prescriptive transfer of possession. Acquisitive prescription is not interrupted by the loss of the thing against the will of the possessor, provided possession was restored within a year of such interruption. If the owner of the thing that is subject to acquisitive prescription did not have a legal opportunity to exercise his right over the thing (e.g., in the case of incapacity), the running of the acquisitive prescription period is suspended for the time period for which such impediment to the owner exists. The possessor’s possession of the thing as his own. The duration of possession must be at least three years. It seems that there are no special rules regarding the suspension or interruption of the acquisitive prescriptive period in property law. Suspension and interruption are only provided for in relation to the provisions on negative prescription , e.g. the operation of negative prescription is suspended in the event of force majeure, incapacity, etc. (Art. 1.129 CC). A negative prescriptive period is interrupted (but not suspended) in the event of the filing of a suit with a court or in the event of the recognition of debt (Art. 1.130 CC). In principle, these rules could be applied by analogy to acquisitive prescription but, at the moment, there is no case law which supports such a conclusion.

14. Other forms of original acquisition

13.3.

395

Prescription period

According to Article 4.68 CC, the prescription period for the acquisition of a movable thing is three years (as compared to ten years for the acquisition of immovables). It must be kept in mind that Lithuanian law provides for negative prescription, which normally operates after 10 years. However, for the vindication of movable thing the limitation period is 3 years (paragraph 1, Art. 4.96 CC). It is clear that both time periods operate concurrently. After 3 years of possession, the possessor may acquire ownership on the basis of acquisitive prescription, because the former owner will have no legal possibility to vindicate the thing after the lapse of the limitation period of 3 years. However, where this period has elapsed a court has the discretion to renew the limitation period if there are serious compelling reasons for such renewal (paragraph 2, Article 1.131 CC).

14.

Other forms of original acquisition

There are several other forms of original acquisition provided in the CC (Articles 4.57-4.65 CC).

14.1.

Ownerless thing (res nullius)

According to Article 4.57 CC, any thing that does not have an owner or whose owner is unknown is considered an ownerless thing. Movable ownerless things include animals and inanimate movable things which have not been anybody’s property or which have been renounced by the owner, or which have been lost or hidden (found), including a treasure trove. It should be noted that a thing that is possessed in good faith while a period of acquisitive prescription is running is not considered ownerless, even though the possessor has not yet acquired the right of ownership in such thing by prescription . An ownerless thing may only be transferred to the ownership of the State or of municipalities by a court judgment given on the basis of an application filed by a financial, controlling or municipal institution. The application must be filed within a year from the day the thing was inscribed in the public register, unless the law provides otherwise. Ownership of an ownerless thing may not be acquired if this is prohibited by law or if the appropriation of such a thing violates another individual’s right to appropriate the thing (right to a treasure trove, etc.). Movable things which had no owner or which have been abandoned by the owner by an express statement to this effect or by discarding the thing, become

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the property of the person who takes possession of such things (Article 4.58 CC). Wild animals that have been caught in accordance with the law, become the property of the person who caught them, unless the law provides otherwise (Article 4.59CC).

14.2.

Finding

As described in the CC, a find is a lost thing, the owner of which is unknown (Article 4.62 CC). A person who has made a find must return it to the owner if such becomes known. If such a person is not known, the finder must bring the find to the police within a week of the act of finding and submit it to the police if he cannot or is not willing to keep the thing himself. The finder or the police must keep the find in custody for six months. Within this period, any use of the find is prohibited. If within this time the owner of the thing is found, the thing is to be restored to the owner upon the latter making a compulsory compensation payment for the expenses involved in keeping the thing or any other expenses related thereto. If the owner is not found within the given period, the finder becomes the owner of the thing, on the condition that the finder agrees to cover the expenses of keeping the thing or any other expenses arising when the find is being stored. If the finder does not agree to cover the expenses, the find is transferred gratuitously to the ownership of the State, while the finder is indemnified by the State for the expenses incurred in relation to the find. As noted, the person who has found a thing and restored it to the owner or submitted it to the police, as provided by law, has the right to compensation from the owner of the lost thing, as well as a finder’s reward. The owner who has lost a thing must pay the finder a finder’s reward amounting to five per cent of the value of the find, provided that the owner has not promised a higher reward for the find or has not agreed upon the payment of a larger sum with the finder. A finder’s reward does not have to be paid where the finder failed to declare the find in accordance with the provisions of law, or if he, when asked, concealed the fact of finding (Article 4.64 CC).

14.3.

Treasure trove

Treasure is money or valuables buried in the ground or otherwise hidden, the owner of which cannot be established (ordinarily due to a considerable period of time having passed since the concealment). A person who has

14. Other forms of original acquisition

397

found a treasure trove on his own land or in any other thing owned by him becomes the owner of the find. It is prohibited to search for a treasure trove on another person’s land or property. A person who violates this rule does not receive any part of the treasure trove, and the entire treasure trove becomes the property of the person who owns the thing where the treasure trove was found. A person who finds a treasure trove on another person’s land or in another’s movable, by chance or with the permission of the owner to search for a treasure trove, receives one-fourth of the treasure trove, while threefourths are given to the owner, unless they have agreed otherwise. The agreement must be made in writing. If digging or searching for valuables is part of the job description of a person, such person does not acquire the right of ownership in the treasure trove or any part thereof. If a treasure trove has a historic, cultural or archaeological value, it will be appropriated by the state for public benefit. In accordance with the law, the persons who would have otherwise appropriated the find have a right to compensation (Article 4.65 CC).

Part IV: Additional issues 15.

Reservation of title

Paragraph 3 of Article 4.49 CC provides that a contract may stipulate that ownership passes to the acquirer only after the acquirer has satisfied a condition established in the contract. Thus, Lithuanian law provides for the possibility of a reservation of title. This is a consensual instrument that may be utilised by an agreement of the parties. Because of the contractual nature of the reservation of title, more detailed rules related to this matter are contained in Book Six ‘Law of Obligations’ of the CC. Articles 6.411 – 6.416 CC establish a special type of contract for sale – the instalment sale. This is one way to achieve a reservation of title, but is not the only way of achieving this result. There are more contracts that may serve as the grounds for the reservation of title, including hire purchase contracts (Article 6.361 CC), and financial leasing contracts (Article 6.567 CC). Under the contract of instalment sale, the seller retains ownership of the thing which is being sold until payment of the full sale price set out in the contract is rendered, unless the contract provides otherwise. A reservation of the ownership right in a thing is generally not subject to registration, but in the case of a thing acquired for the service or operation of a company (for business purposes) registration in the public register is necessary before the arrangement has any binding effect against a third party (Article 6.441 CC). The contract of instalment sale must be made in writing. The price of the thing and the amount of regular instalments, the schedule of payment of the regular instalments and the settlement procedure must be specified in the contract. In the event of an instalment sale, the risk of the accidental perishing of or damage to a thing transferred to the buyer is borne by the buyer, except in consumer contracts, unless otherwise provided by the contract of instalment sale (Article 6.412 CC).35 Where, in the case of a reservation of title, the buyer fails to comply with the schedule of payment of regular instalments laid down in the contract, the seller may demand immediate payment of all due instalments or re-take 35

See chapter 10.

16. Abandonment and other ways of losing ownership

399

the thing, but if the buyer has paid more than half of the price of the thing, the seller has no right to re-take the thing, unless the contract provides otherwise. The expenses incidental to depreciation , and to the use of the thing as provided in the contract, are deducted from the repayable instalments. Where the right of ownership passes to the buyer at the moment of the delivery of the thing, it is presumed that, as from the moment of such delivery until the payment of the full price, the thing has been pledged to the seller for the purpose of securing the buyer’s performance of obligations (statutory pledge), unless the contract provides otherwise. Where the buyer, without having obtained the seller’s consent, transfers the things delivered to him to another person, or the things are seized due to the buyer’s unlawful actions, the seller has the right to demand the immediate payment of the balance of the sale price due. If the contract for sale of things by instalments has been registered, the seller, having retaken the things, must within twenty days cancel the registration of the contract in accordance with the procedure established by law (6.414 CC).

16.

Abandonment and other ways of losing ownership

There are no special provisions regarding the abandonment of an ownership right. However, general principles of civil law such as the principle of party autonomy, freedom of contract, etc., permit one to speak of the existence of certain basic provisions related to this issue. That said, there are general rules of the law of obligations, the application of which may lead to abandonment. For example, a creditor has the right to unilaterally release the debtor from performance or declare the non-existence of the obligation if such release does not violate the rights of the creditor’s creditors. Such release may be onerous or gratuitous (Article 6.129 CC). The ownership right may also be lost by way of expropriation or confiscation. For example, Article 4.67 CC provides that the State may, with or without payment of compensation, expropriate a thing from its owner for public purposes as a sanction for a violation of law (confiscation), but only in the cases and according to the procedure established by law. According to Article 4.66 CC, when a person fails to properly maintain property (including a movable thing) that has a public value by virtue of its historic, artistic or other characteristics, the public institution whose role is to protect such heritage is to issue a warning to the owner concerning the improper upkeep of such property. If the owner continues to fail to fulfil the requirements, his property may be taken away from him upon the bringing of a claim by the relevant institution. Things that are seized in such a way are transferred to the State’s ownership. The person concerned is compen-

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sated for the value of the things taken away, the value being determined by an agreement between the former owner and the relevant institution, or, in the case of a dispute, by the court.

17.

Co-ownership

Lithuanian property law contains quite detailed rules on co-ownership. Coownership is defined as a right of two or more owners to possess, use, and dispose of an object owned by them in common. A co-owner may be any person who has capacity to hold property rights. Any thing or other property may be the object of a co-ownership right, unless otherwise provided by law (Article 4.72 CC). There are two kinds of co-ownership according to Lithuanian law: (a) common partial ownership; and (b) common joint ownership. Common partial ownership is ownership where each co-owner’s share is a determined fraction, e.g., half each or one third to A and two thirds to B, of the relevant property. This is the default situation: common ownership is deemed to be partial unless the law provides otherwise. Where the size of the respective shares of the co-owners are not specified, it is presumed that these shares are equal (Article 4.73 CC). Common joint ownership is ownership where the size of each co-owner’s share is not established (Article 4.73 CC). The common joint ownership right may only arise in cases established by law. The main example of common joint ownership is the common joint ownership of spouses, which is regulated by Book Three ‘Family Law’ (Articles 3.87-3.100 CC). A thing subject to co-ownership is possessed, used and disposed of by the common agreement of the co-owners. In the case of disputes, the procedure relating to possession, use or disposal is established by a judicial order, which would result from a claim brought by one of the co-owners (Article 4.75 CC). Each co-owner has, in proportion to their respective shares, a right to the profits obtained from the thing and is under the obligation to account to third parties in respect of the fulfilment of duties related to the thing and to pay expenses related to the thing’s maintenance, taxes, dues and other payments. If one of the co-owners fails to fulfil his obligation to maintain and take care of a thing, the other co-owners have a right to compensation for any losses suffered (Article 4.76 CC). Each common partial owner has the right to transfer ownership, lease, pledge or encumber in some other way all or a part of his share in the property that is subject to common partial ownership, except where the

17. Co-ownership

401

CC provides otherwise (Article 4.78 CC). However, the co-owners enjoy a priority right to buy another co-owner’s share in the case of a sale of the outgoing co-owner’s share in the commonly owned property, at the price at which it is being sold and under the same conditions, with the exception of cases where the sale takes the form of a public auction. The outgoing co-owner must inform the other co-owners in writing about his intention to sell his share to persons other than the co-owners, and indicate the price and the other conditions of sale. Considerably more stringent rules are established in regard to the transfer of a share in an immovable thing: when a share in a commonly owned immovable thing is sold, the other coowners must be notified by a notary. Where the other co-owners renounce their priority right to buy the share or fail to realise such right during the period of one month (provided the co-owners have not agreed otherwise), the seller has the right to sell his share to any other person. If the share is sold in violation of the other co-owners’ priority right to buy it, the other co-owners have the right, within three months, to apply for a court order for the transfer of the buyer’s rights and obligations to them. The seller and the buyer of a share in common property are solidarily liable to the other co-owners for the fulfilment of the obligations pertaining to the sold share that came into existence prior to its sale (Article 4.79 CC). Each co-owner has the right to demand that his share be separated from the property subject to common partial ownership. When no agreement is reached on the mode of separation, the thing is to be divided in kind, if possible, without disproportionately damaging its capability of fulfilling its designated purpose. In other cases, one or several co-owners affected by separation will receive compensation in money. In addition, the creditor of a co-owner has the right to demand the separation of his debtor’s share for the purpose of satisfying his claim out of it (Article 4.80 CC). In the case of common joint ownership, the co-owners have equal rights to the income generated by the commonly owned thing. As for duties, they are obliged (solidarily) to fulfil the obligations owed to third parties pertaining to the thing and must pay expenses arising from the use and maintenance of the thing as well as taxes, dues and other fees, provided they have not agreed differently or the law does not provide otherwise. A thing which is the object of common joint ownership may only be used, possessed and disposed of upon the reaching of an agreement by the co-owners. A co-owner has no right to transfer his share of common joint ownership until his share in the commonly owned thing has been determined, with the exception of cases where the thing is subject to a transfer by way of succession and in other cases established by law (Article 4.88 CC). Other restrictions regarding the use, possession and disposal of common joint matrimonial ownership are established by the legal provisions of Book Three ‘Family Law’.

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18.

Unspecified goods

18.1.

Transfer of shares in an identified bulk

The law of obligations provides rules on unspecified goods that form the subject matter of a contract for sale. According to paragraph 4 of Article 6.306 CC, the clause of a contract for sale as to the subject matter of the contract is deemed to have been agreed upon, provided that the content of the contract allows the determination of the name and quantity of the goods, e.g. ten tons of sugar. There are several ways of determining quantity: (a) the quantity of things which the seller is bound to deliver to the buyer must be established in the contract of sale in terms of weight, quantity, volume or other units, or in monetary terms; (b) the contractual term regarding the quantity of the things may also be agreed upon by the parties by way of establishing only the procedure for determining the quantity in the contract; (c) where the performance of a contract has commenced, the contract is deemed to be concluded with reference to the quantity of things actually accepted by the buyer. Where the quantity of things to be delivered cannot be determined from the contents and interpretation of the contract, the contract for sale is deemed not to have been concluded (Article 6.329 CC). In the event of a sale of succession rights, a person who, upon accepting the property to be received by succession, sells the succession rights without specifying in detail the property thus transferred, is only bound to warrant to the buyer his status as heir (Article 6.426 CC).

18.2.

Floating charge

A floating charge is associated with a pledge of movables. According to Article 4.202 CC, the object of a pledge may be things in stock. In such a case, a pledgor, having pledged things in stock (go ods, raw materials, semifinished goods, finished goods), has the right to change the composition and form of the pledged goods in stock, provided that their total value is not reduced. When the pledged goods are sold in the course of the seller’s business in conformity with its articles of association, the pledge of goods is released and any new goods in stock acquired by the pledgor become subject to the floating charge as from the time of acquisition.

19. Consequences of restitution of a movable to the owner

403

19.

Consequences of restitution of a movable to the owner

19.1.

Entitlement to fruits resulting from the movable

Depending on the specific factual situation, different rules regarding the restoration of a thing to its owner are applied. Thus, the questions on the consequences of restoration of a thing must be dealt with separately. First of all, the rules of vindication of a thing from an illegal possessor in good or bad faith must be discussed. These rules are provided for by property law (Articles 4.95-4.97 CC) and are applied in the situation where the owner has no personal right against the possessor of the thing. In such a case there is only one remedy provided by property law available to the owner, the actio in rem, which would be used in the event of the vindication of a thing from a third party (paragraph 4, Article 1.80 CC). Secondly, in the event of obligations existing between the owner and the illegal possessor, the rules of restitution provided for by Book Six ‘Law of Obligations’ are applied (Articles 6.145-6.153 CC). According to the provisions on the vindication of a thing, the owner has the right to demand: (a) from a possessor in bad faith, restitution or the repayment of all income (according to Article 4.18 CC, ‘income’ includes fruits, profits, interest, etc.) that such person received or should have received during the entire period of possession. Hence, a possessor in bad faith is not entitled to any benefits. The good faith of the possessor is presumed (Article 4.26 CC), and it is the duty of the owner to prove that the possessor was in bad faith, i.e. that the possessor knew or should have known that he had no right to acquire the possession of the thing or that another person had more rights in the said thing (Article 4.26 CC); or (b) from a possessor in good faith – all income that such a possessor received or should have received as from the time when he (i) found out or should have found out about his possession being illegal or (ii) found out about the commencement of civil proceedings for the vindication of the thing (see para. 1.4.1.). In the event of the restitution in kind (in natura) of a thing, according to the rules of the law of obligations (e.g., in the event of the annulment of a contract between the parties, or in the event of the termination of a contract, etc.), the following principles are applied. (a) All fruits and income generated by a thing that is subject to restitution belong to the person bound to make such restitution. This person bears all the costs incurred in the production of those fruits and revenues. However, in the event where the person bound to make restitution is in bad faith, or if the obligation to make restitution arose due to his

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own fault, he is obliged not only to return the fruits and income but also to indemnify the person seeking restitution for any benefit he has derived from the thing. Nevertheless, the creditor must compensate such person for the necessary expenses incurred by him in producing the fruits and income (Article 6.151 CC). (b) Third parties in good faith who, as a result of an onerous contract of alienation, acquire property subject to restitution are able to enforce this onerous contract against a person claiming for restitution and as such resist any claim. (c) Third parties in good faith who, in accordance with a gratuitous contract of alienation, acquire property that is now subject to restitution are not able to enforce this contract against a person who claims for restitution, unless the prescription period has lapsed at the time of the bringing of the claim. (d) Any other transactions in favour of a third party in good faith may be enforced against the person who claims for restitution (Article 6.153 CC).

19.2.

Loss and deterioration of a movable

The right to bring an action for vindication ceases in the event of loss of or destruction of the thing. In such a case, the owner only has the right to claim damages on the basis of rules of non-contractual liability arising out of damage caused to another. According to the general principle of that damage should be compensated, the owner is entitled to all kinds of damages – direct damages, e.g. value of the thing, and indirect (lost profits) (Articles 6.249, 6.263 CC). In the event of the restitution of a thing in accordance with the law of obligations, the following rules are applied. (a) In the case of loss or alienation of the thing subject to restitution, the person is bound to compensate for the value the thing had at the time when it was received, lost or alienated, or the value at the time of its restitution, whichever value is lower. In the event of the person liable to make restitution being in bad faith, or where the obligation to make restitution has arisen due to his own fault, he is obliged to compensate for the highest value of the thing (Article 6.147 CC). (b) If a thing is destroyed by force majeure, restitution will not be made, though a debtor will be bound to assign to a creditor a claim for compensation for value of the lost thing, or to deliver to him the compensation he himself has received for the destroyed thing. If the debtor is in bad faith, or the obligation to make restitution has arisen due to his own fault, he is bound to return the value of the property, calculated in accordance with the rules provided in the above described Article

19. Consequences of restitution of a movable to the owner

405

6.147 CC, except where the debtor proves that the thing would have been destroyed even if it had been in the possession of the creditor (Article 6.148 CC). (c) Where the thing has suffered a partial loss or any other depreciation in value, a debtor is bound to pay to a creditor the monetary equivalent of such partial loss, or to compensate for the depreciation in value of the property unless it results from the normal wear and tear of the thing.

19.3.

Reimbursement for improvements and expenses incurred during the possession of a movable

1. In the event of the vindication of a thing in accordance with property law rules, the right of the possessor to claim compensation for expenses is regulated in the following way: (a) the possessor in bad faith has the right to claim from the owner only the necessary expenses incurred on the thing as from the moment when the owner starts receiving income from such thing; and (b) the possessor in good faith has the right to claim from the owner compensation for all, i.e. not only the necessary, expenses incurred by him on the thing, which have not been covered by the income generated by the thing (Article 4.97 CC).36 2. In the event of the restitution in kind (in natura) of a thing according to the rules of the law of obligations (e.g., in the event of the annulment of a contract between the parties, or in the event of the termination of a contract, etc.), the following rules are applied: (c) a person incurring expenses in the care for and custody of a thing that he is now bound to restore is to be indemnified in accordance with the above-mentioned provision of Article 4.97 on the vindication of things (Article 6.150 CC); and (d) all fruits and income generated by the thing that is now subject to restitution belong to the person bound to make restitution. This person bears all the expenses incurred in the production of those fruits and revenues. However, in the event the person bound to make restitution is in bad faith, or if the obligation to make restitution has arisen due to his own fault, he is obliged not only to return the fruits and income but also to compensate the creditor for any benefit he has derived from the thing. Nevertheless, the creditor must compensate such person for the necessary expenses incurred by him in producing the fruits and income (Article 6.151 CC ). 36

See para. 1.4.1.

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19.4.

Possessor’s right to retain a movable

Only the legal possessor has the right to retain the thing (Article 4.229 CC). Therefore, an illegal possessor (whether in good or bad faith) has no right to retain the thing.

19.5.

Who bears the expenses of the restitution of a movable to the owner?

Costs of restitution are borne by both parties in equal shares unless they have agreed otherwise. However, where one party is in bad faith or where the obligation to make restitution has arisen due to his own fault, all costs of restitution are borne by that party alone (Article 6.152 CC). In the event of court proceedings, legal costs, any taxes or duties, lawyers’ fees, etc., are reimbursed according to the rules of the Code of Civil Procedure (the general rule is that expenses follow success, i.e. the losing party is obliged to compensate the winning party for the legal costs the winning party incurred).

Table of Literature Civil Law. Textbook (in Lithuanian). General editor V. Staskonis Kaunas: Vijusta, 1998 BLIUVATE, SANDRA. Peculiarities of the forming and performance of a contract for sale of immovable property (in Lithuanian) In Justitia, 2006, No. 3 MIKELENIENE, DALIA, MIKELENAS, VALENTINAS. Contract Law of Lithuania. In International Encyclopedia of Law. Gen. editor R. Blanpain. The Hague: Kluwer Law International, 2004 MIKELENAS, VALENTINAS. The Law of Obligations (in Lithuanian). Vilnius: Justitia, 2002 MIKELENAS, VALENTINAS. Vindication and its application (in Lithuanian) In Justitia, 2005, No. 1 MIKELENAS, VALENTINAS. Commentary of Civil Code Book Six ‘Law of Obligations’. Vilnius: Justitia, 2002

Table of Abbreviations CC

Civil Code of the Republic of Lithuania

e.g. etc.

exempli gratia (for example) et cetera

i.e.

id est (that is)

No.

Number

p. para.

page paragraph

National Report on the Transfer of Movables in Hungary Ferenc Szilágyi

Table of Contents Introduction

429

A. The context: Hungarian private law – historical background

430

B. Systematic deliberations and the concept of the right of ownership in Hungarian private law B.1. Law of the right of ownership (tulajdonjog) or property law (dologi jog) in Hungarian private law B.2. Right of ownership in Hungarian private law: unfragmented versus fragmented concept

435 435 436

Part I: Basic information on property law 1. General basics 1.1. The notion of ownership and different property rights existent in Hungarian private law 1.1.1. Characteristics of property (in rem) rights 1.1.2. The principles governing property law (a) Numerus clausus of property rights (b) Principle of restricted party autonomy (c) Principle of absolute (or property) effect (d) Principle of publicity (e) Principle of specificity (or determination) 1.2. Notion of ownership 1.2.1. Definition of the right of ownership in Hungarian private law (a) Current Hungarian private law (b) Prospective new Civil Code 1.2.2. Interests linked to the right of ownership (a) Triad of ownership: entitlement to possession (birtoklás joga) (b) Entitlements of use and utilisation (használat és hasznosítás joga) (c) Entitlement of disposition (rendelkezési jog)

438 438 439 439 440 441 441 442 443 443 443 444 444 445 446 446

412

Hungary

(i) Ceding the corporeal object’s possession to another (az ingó dolog birtokának átengedése más részére) 447 (ii) Ceding the use and the fruits deriving from a thing to another (a dolog hasznai és a dolog gyümölcsei szedésének átengedése más részére) 447 (iii) Entitlement to encumber the property (a dolog megterhelésének joga) 447 (iv) Entitlement to transfer the right of ownership (a tulajdonjog átruházásának joga) 448 (v) Entitlement to abandon the right of ownership (a tulajdojoggal való felhagyás joga) 448 (d) Progressing towards the new Civil Code 448 (i) First Draft, Second Draft and Academic Proposal 448 (ii) Legislative Proposal 449 1.2.3. Restrictions of the right of ownership 449 (a) Private law restrictions of the right of ownership in Hungarian private law 450 (i) Property law restrictions 450 (ii) The general clause on the limits to exercise the entitlements deriving from the ownership right (so-called general clause of neighbour law) 452 (iii) Restrictions according to the law of obligations by the parties’ agreement 453 (aa) Right of pre-emption (elővásárlási jog) 453 (bb) Right of redemption (visszavásárlási jog) 454 (cc) Purchase option (vételi jog) 455 (b) Public law restrictions of the right of ownership 455 (i) Restrictions concerning the acquisition of right of ownership 456 (ii) Restrictions of possession 456 (iii) Restrictions of use, utilisation and disposition 456 (iv) Special treatment of cultural goods 457 (v) Other movables subject to a statutory right 458 of pre-emption (c) Progressing towards the new Civil Code 459 (i) Property regime restrictions 459 (aa) First Draft, Second Draft and Academic Proposal 459 (bb) Legislative Proposal 460 (ii) Restrictions from the law of obligations 460

Table of Contents

1.3.

1.4.

(aa) First Draft, Second Draft and Academic Proposal (bb) Legislative Proposal (iii) Other special instances of sale which may interact with the right of disposition (aa) First Draft, Second Draft and Academic Proposal (bb) Legislative Proposal Other property rights (or property positions) in Hungarian private law 1.3.1. Restricted property rights other than proprietary securities (a) Usufruct (b) Beneficial use (c) Progressing towards the new Civil Code (i) First Draft, Second Draft and Academic Proposal (ii) Legislative Proposal 1.3.2. Fiduciary property position: transfer of ownership for security purposes Protection of property rights (dologi jogok védelme) 1.4.1. Is the distinction between real and personal rights alongside the absolute and relative structure appropriate? 1.4.2. Protection of the right of ownership (a) Legal nature of the “ownership claim” (tulajdoni igény) (b) Self-help (ownership) (c) The ownership action – rei vindicatio (tulajdoni per) (d) Action protecting against the disturbance of ownership (negatoria in rem actio) (e) Recovery claim in the case of property seizure in the course of enforcement proceedings (f) Unjustified enrichment (jogalap nélküli gazdagodás) regime and protection of ownership (g) Non-contractual liability regime and protection of ownership (h) Contractual liability and protection of ownership 1.4.3. Protection of other property rights

413

460 461 461 461 462 462 462 463 464 464 464 466 467 469

469 470 470 471 471 472

472 473 476 479 481

Hungary

414

1.5.

1.6.

1.4.4. Progressing towards the new Civil Code (a) First Draft, Second Draft and Academic Proposal (b) Legislative Proposal Restrictions of transferability in the HCC 1.5.1. Restrictions with erga omnes effect 1.5.2. Restrictions with inter partes effect The boundary between movable and immovable property in Hungarian private law

2. The regulatory regime on possession within the HCC 2.1. Notion of possession in the HCC 2.1.1. Definition of possession 2.1.2. Animus and possession 2.1.3. Possession as a legal relationship 2.1.4. The wide concept of possession in the HCC 2.1.5. Subject of possession 2.1.6. Categorisation of possession 2.2. Acquisition and loss of possession 2.2.1. Acquisition of possession 2.2.2. Loss of possession 2.3. Protection of possession 2.3.1. General 2.3.2. Unlawful interference with possession 2.3.3. The current scope of possession protection 2.3.4. Entitlement to protection (a) Determining the identity of the interferer (b) The possessor’s entitlement to protection 2.3.5. Instruments of protection provided in the HCC (a) Self-help (b) Protection provided by the local authority through public law (possessorial protection) (i) Subject of the proceedings before the local authority (ii) Protection provided as a result of the public administration proceedings (c) Judicial protection of possession: Possession action (birtokper) (i) Judicial proceedings directed to the re-examination of the town clerk’s decision (ii) Direct judicial protection (iii) Characteristics and possible outcome of the judicial proceedings

482 482 482 482 482 483 483

485 485 486 486 487 487 487 489 489 490 490 490 491 492 492 493 493 494 494 495 496 497 497 497 498 499

Table of Contents

2.4. 2.5.

Relevance and function of possession within the HCC Progressing towards the new Civil Code 2.5.1. General (a) First Draft, Second Draft and Academic Proposal (b) Legislative Proposal 2.5.2. Notion and definition of possession 2.5.3. Sui generis role for possession within the transfer of ownership? (a) First Draft, Second Draft and Academic Proposal (b) Legislative Proposal 2.5.4. Acquisition of possession by occupatio and loss of possession 2.5.5. Protection of possession (a) First Draft, Second Draft and Academic Proposal (b) Legislative Proposal

3. The legal nature of the various rights to hold, use or acquire a movable 3.1. Restricted property rights to hold, use and exploit a movable 3.2. Personal rights to hold, use and exploit 3.2.1. Hire-purchase (lízing) (a) Phases of the hire-purchase relationship (b) Characteristics and functions of the contracts implied (i) Sale contract (adásvételi szerződés) including special forms (ii) Lease (hire) and beneficial lease (iii) Loan agreement (kölcsönszerződés) (c) Distribution of entitlements according to the hire-purchase relationship (d) Rights and duties of the lessee and lessor (e) Non-regular termination of the hirepurchase relationship (f) Progressing towards the new Civil Code (i) First Draft, Second Draft and Academic Proposal (ii) Legislative Proposal 3.2.2. Lease (bérlet)

415 499 500 500 500 500 501 501 501 502 502 503 503 503

503 504 504 505 505 505 506 506 507 507 508 509 510 510 511 511

416

4. Field of application of the rules on the transfer of ownership in movables – The subject of transfer (az átruházás tárgya) 4.1. The notion of accessory (component part – alkotórész) and equipment (tartozék): the issue of transferability 4.2. Transferability of regular derivatives (fruits) of a movable: issues related to the qualification as independent subject of transfer 4.3. Securities (értékpapírok): stocks, bonds and other negotiable instruments 4.4. Other entitlements with monetary value treated like things and account money 4.5. The status and transferability of rights in contrast to corporeal objects: is there place to keep the principle of speciality in the field of property law? 4.5.1. Things and assets 4.5.2. Incorporeal things not susceptible to ownership 4.5.3. Transferability of rights under current Hungarian law 4.6. The category of public ownership and the category of objects exclusively within state ownership 4.7. Progressing towards the new Civil Code 4.7.1. Concept in general (a) First Draft, Second Draft and Academic Proposal (b) Legislative Proposal 4.7.2. Component parts and equipment (a) First Draft, Second Draft and Academic Proposal (b) Legislative Proposal 4.7.3. Transferability of rights which may not be regarded as corporeal objects in the sense of property law (a) First Draft, Second Draft and Academic Proposal (b) Legislative Proposal 4.7.4. Securities (a) First Draft, Second Draft and Academic Proposal (b) Legislative Proposal

Hungary

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515 515 518

519 519 520 521 521 522 522 522 523 524 524 524

525 525 525 525 525 527

Table of Contents

4.7.5. The concept of public ownership within the Drafts and Academic Proposal: the notion of state ownership considered inappropriate (a) First Draft, Second Draft and Academic Proposal (b) Legislative Proposal

417

528 528 529

Part II: Derivative acquisition of ownership 5. System of transfer in Hungarian private law 5.1. Basic characteristics of the transfer of ownership system 5.2. General issues 5.2.1. Generic goods, aggregate of goods (a) Obligation defined in genus and quantity in Hungarian private law (i) Reconciling the performance defined in genus and quantity with the principle of speciality (ii) Effects of marking or separating the objects in a bulk of generic goods (iii) Deposit in money and replaceable goods: irregular deposit (rendhagyó letét) (iv) Deposit of generic goods for storage purposes, primarily in public warehouses (b) Aggregate of goods (c) Quality of the performance in case of generic goods (d) Progressing towards the new Civil Code (Academic Proposal and Legislative Proposal) (i) Quality requirement when performing the goods defined by genus and quantity (ii) Irregular deposit 5.2.2. Transfer of movables and party autonomy 5.3. Contract or legal titulus directed to the transfer – Causa of transfer 5.3.1. Requirement of a valid obligation to transfer the right of ownership in a movable (causa / ​titulus) 5.3.2. Defects of the causa and other instances of termination of the contract (a) The category of contract which has not come into existence

530 532 532 532

532 532 533 534 536 536 537 537 537 537 538 541 543 543

418

Hungary

(b) Contracts invalid (érvénytelen szerződések) 544 (i) Contracts null and void (semmis szerződések) 545 (aa) Nullity on grounds of failure affecting the intention of the contracting party 545 (α) Simulated contract (színlelt szerződés) 545 (β) Physical force (fizikai kényszer) 546 (γ) Lack of legal capacity (cselekvőképtelenség) 546 (bb) Nullity on grounds of failure of the legal effect pursued by the contract: prohibited contracts (tilos szerződések) 547 (α) Contract in breach of or evading a legal provision (jogszabályba ütköző vagy jogszabály megkerülésével kötött szerződés) 547 (β) Contract contrary to the principle of good morals (jóerkölcsbe ütköző szerződés) 547 (γ) Contract implying disproportional benefit by taking advantage of another’s situation – usury – (uzsorás szerződés) 548 (δ) Contract directed to impossible performance (lehetetlen szolgáltatásra irányuló szerződés) 548 (ε) Nullity on grounds of unfair contract term in consumer contract 548 (ii) Contracts voidable (megtámadható szerződések) 549 (aa) Voidability on grounds of mistake (tévedés) 550 (bb) Voidability on grounds of fraud or unlawful threat (megtévesztés vagy jogellenes fenyegetés) 551 (cc) Voidability on grounds of gross disparity (szolgáltatás és ellenszolgáltatás feltűnő értékaránytalansága) 552 (dd) Voidability on grounds of unfair contract terms (szerződési feltételek tisztességtelensége) 552 (iii) Consequences of invalidity (nullity and voidability) 553 (aa) Consequences in general 553 (bb) Restitutio in integrum as a legal consequence (az eredeti állapot helyreállítása) 554 (α) Restitutio in integrum in general 554 (β) Restitutio in integrum as a property claim 554 (γ) Restriction of restitutio in integrum as a property claim 555 (δ) Restitutio in integrum realised by restitution of monetary value 556 (ε) Scope of restitutio in integrum 557

Table of Contents

(ζ) Additional causes of action (η) Barriers to restitutio in integrum (θ) Main directives of the Supreme Court concerning restitutio in integrum (cc) Deeming the contract effective as a subsidiary legal consequence (dd) Deeming the contract valid by termination of the reason for invalidity (ee) Optional consequences provided for particular cases of invalidity (α) Optional consequence in case of contract implying disproportional benefit by use of another’s situation (usury) (β) Optional consequence of restitution in hands of the state (c) Outright termination (annulment) of the contract (elállás) (i) Instances of annulment (ii) Consequences of annulment (d) Termination as a special remedy to terminate a contractual relationship for the perfor­ mance of a continuing obligation (felmondás) (e) Termination (ex nunc) or annulment (ex tunc) of the contractual relationship by mutual agreement by the parties (a szerződés megszüntetése vagy felbontása) (f) Resolutive condition, or certain date set out in the contract (g) Concept on the consequences of invalidity in the Academic and Legislative Proposal (i) Academic Proposal (ii) Legislative Proposal 5.3.3. Contracts for the benefit of third persons 5.4. Delivery as element of modus 5.4.1. Phyisical delivery – surrender 5.4.2. Delivery equivalents (a) Instances of delivery equivalents in Hungarian private law are the following: (i) Brevi manu traditio (ii) Constitutum possessorium (iii) Longa manu traditio (iv) Cessio vindicationis

419 557 558 559 560 561 561

561 562 562 563 564

565

565 565 566 566 567 569 570 570 570 570 570 571 572 572

Hungary

420

5.5.

5.6.

5.7. 5.8. 5.9.

(b) Traditio symbolica not part of Hungarian private law 5.4.3. Role of delivery 5.4.4. Particularities related to transfer (delivery) in case of negotiable instruments and other securities (a) Securities in the form of a (printed) document (i) Bearer instrument (ii) Registered securities (b) Dematerialised securities Movables registered – general 5.5.1. Vessels – constitutive registration (a) Multiple sales (b) Effect of transfer of ownership: registration with constitutive effect 5.5.2. Aircraft 5.5.3. Motor vehicles 5.5.4. Acquisition by transfer from the owner only (nemo plus iuris principle) Modus: Does it imply a real agreement (dologi jogügylet) or is it a simple real act (reálaktus)? 5.6.1. Modus in sense of the system of transfer: is there a real agreement or real act in current Hungarian law? 5.6.2. The “abstract transaction” 5.6.3. Conclusions on the causal modus within the transaction of transfer of ownership (a) General remark (b) Conditions and consequence of the causal modus implying real agreement (c) Transfer of possession as causal modus implying real agreement The role of payment in patrimonial relations in Hungarian private law Ratification of the disposition made by a representative acting without authority Progressing towards the new Civil Code 5.9.1. First Draft: causal modus implying real agreement (a) Causal modus designed as transfer of possession (b) Characterisation of transfer of possession: causal real agreement and delivery (c) Classification of the causal real agreement concept

573 574 574 574 574 575 575 575 576 576 576 577 577 578 578

579 581 582 582 582 583 583 584 585 585 585 585 586

Table of Contents

5.9.2. Approach as in the Second Draft: dismissing the real agreement, step towards the consensual transfer? 5.9.3. Academic Proposal 5.9.4. Legislative Proposal (a) Transfer of ownership in movables: modus implying the causal real agreement is needed (b) Special provisions for transfer of ownership in dematerialised and registered securities (i) Transfer of the right of ownership in dematerialised securities (ii) Transfer of the right of ownership in registered securities

421

587 587 587 588 588 588 589

6. Double / multiple selling

589

7. Selling in a chain 7.1. Construction of selling in a chain within the systematic of the HC 7.2. Invalidity of the causa

590 591

8. Transfer or acquisition by means of indirect representation 8.1. Possible construction in the current regulation 8.2. Indirect representation in the Legislative Proposal

591 593

9. Consequences in the case of insolvency 9.1. Termination of a continuing obligation and annulment by the insolvency administrator 9.2. Actio pauliana specialis within the scope of Insolvency Act 9.3. Insolvency of the transferor 9.3.1. Movables not delivered 9.3.2. Satisfaction order 9.3.3. Void or avoided contract 9.3.4. Annulment of the contract 9.4. Insolvency of the transferee 9.5. Right of stoppage in transit

594 595 595 595 595 596 596 596 597

10. Passing of risk and inter partes distribution of benefits, liability for charges as connected to transfer 10.1. Passing of risk 10.1.1. General (a) General on the issue (b) Role of approving the performance

597 598 598 598

Hungary

422

10.1.2. 10.1.3. 10.1.4. 10.1.5. 10.1.6.

Passing of risk as related to default in performance Exceptions from the general principle Passing of risk in the case of delivery equivalents Passing of risk in the case of generic goods Passing of risk in goods transported by an independent carrier 10.1.7. Passing of risk as related to condition stipulated by the parties 10.1.8. Passing of risk in the transfer of restricted property rights 10.2. Inter partes distribution of benefits and liability for charges as related to different stages 10.2.1. Point in time when the entitlement to benefits passes 10.2.2. Bearing of expenses

599 599 600 600 600 602 602 603 603 603

Part III: Original acquisition 11. Acquisition by accession, commixture, specification 11.1. Accession (növedék – accessio) 11.2. Commixture and processing 11.2.1. Commixture (dologegyesülés) 11.2.2. Processing (feldolgozás vagy átalakítás) 11.2.3. As to the non-mandatory (dispositive) or mandatory (cogent) character of the legal consequences defined in the HCC 11.2.4. General interaction with non-contractual liability – Invoking HCC § 339 in the event of commixture or processing 11.2.5. Progressing towards the new Civil Code (a) First Draft, Second Draft and Academic Proposal (b) Legislative Proposal 11.2.6. Third persons’ rights encumbering the movable (a) First Draft, Second Draft and Academic Proposal (b) Legislative Proposal

606 606 606 607

607

608 609 609 609 610 610 610

Table of Contents

11.3. Integration of movables into immovables 11.3.1. Construction using foreign materials (movable) on a piece of land owned by the builder (beépítés – inaedificatio) 11.3.2. Construction on a piece of land being property of another (ráépítés) 11.3.3. Extension or alteration of an existing building (in separate ownership) by use of own materials (hozzáépítés, átépítés) 11.3.4. Progressing towards the new Civil Code (a) First Draft, Second Draft and Academic Proposal (b) Legislative Proposal 12. Acquisition of ownership in movables from a non-owner (good faith acquision) 12.1. The regulatory regime in the HCC 12.1.1. Acquisition from a non-owner in course of trade (especially consumer situation) 12.1.2. Acquisition from a non-owner outside of the course of trade 12.1.3. Acquisition of ownership from a non-owner in money and bearer instruments 12.1.4. Remarks on the application of the provision (a) Requirement of transfer (b) The role of good faith in connection with HCC § 118 (1) and (2) in general (c) Burden of proof 12.2. Progressing towards the new Civil Code 12.2.1. First Draft, Second Draft and Academic Proposal 12.2.2. Academic Proposal 12.2.3. Legislative Proposal 12.3. Acquisition of ownership on grounds of public authority decision or auction organised by a (public) authority 12.3.1. The regulatory regime in the HCC 12.3.2. Progressing towards the new Civil Code (a) First Draft, Second Draft and Academic Proposal (b) Legislative Proposal

423 611

611 611

612 612 612 613

614 614 615 616 618 618 618 618 619 619 620 620 621 621 622 622 623

424

13. Acquisitive prescription (elbirtoklás) 13.1. The current regulation in the HCC 13.1.1. Acquisitive prescription – main rule 13.1.2. Succession in acquisitive prescription (considering the time lapsed in the possession of the preceding possessor) 13.1.3. Suspension of adverse possession 13.1.4. Instances of suspension when dealing with certain conflicts of interest 13.1.5. Interruption of adverse possession 13.1.6. Acquisition of a share of ownership by acquisitive prescription 13.1.7. Legal consequences of acquisitive prescription 13.1.8. Situation of the (previous) owner 13.2. Progressing towards the new Civil Code 13.2.1. First Draft, Second Draft, Academic Proposal (a) General on the concept (b) Special instance of acquisitive prescription 13.2.2. Legislative Proposal 13.3. Prescription of the right of ownership and other property rights 13.3.1. General 13.3.2. Marital property, life partnership and persons living in the same household 13.3.3. The situation in the case of irregular deposit (replaceable goods) 13.3.4. Progressing towards the new Civil Code (a) First Draft, Second Draft and Academic Proposal (b) Legislative Proposal 14. Acquisition of ownership by occupation of ownerless things, finding and separation 14.1. Acqusition of ownership by occupation of ownerless things (gazdátlan dolog elsajátítása) 14.1.1. The regulatory regime in the HCC 14.1.2. Progressing towards the new Civil Code (a) First Draft, Second Draft and Academic Proposal (b) Legislative Proposal 14.2. Finding (találás) 14.2.1. The current regulation in the HCC (a) The main rule

Hungary

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625 626 626 628 628 629 629 630 630 630 631 632 632 632 633 634 634 634 634

635 635 635 635 636 636 636 636

Table of Contents

(b) The finder’s reward (c) Special instance of finding: a thing of high value (treasure) 14.2.2. Progressing towards the new Civil Code (a) First Draft, Second Draft and Academic Proposal (b) Legislative Proposal 14.3. Separation (termékek, termények és szaporulat elsajátítása) 14.3.1. The current regulation in the HCC 14.3.2. Progressing towards the new Civil Code (a) First Draft, Second Draft and Academic Proposal (b) Legislative Proposal

425 637 638 638 638 639 639 639 640 640 640

Part IV: Additional issues 15. Rules on the retention of ownership (tulajdonjog-fenntartás) 15.1. General 15.2. Legal effects of the retention of ownership 15.3. Progressing towards the new Civil Code (a) First Draft and Second Draft (b) Academic Proposal: retention of ownership concepted as a proprietary security (i) General (ii) Functional approach (iii) Scope and consequence of re-characterisation (c) Legislative Proposal 16. Abandonment and destruction 16.1. The current regulation in the HCC 16.2. Progressing towards the new Civil Code 16.2.1. First Draft, Second Draft and Academic Proposal 16.2.2. Legislative Proposal 17. Rules on co-ownership 17.1. The regulation in the HCC 17.1.1. Definition of co-ownership 17.1.2. General instances of co-ownership (difference between co-ownership and partnership) 17.1.3. Special instances of co-ownership

641 642 642 642 643 643 643 644 644

645 645 645 646

646 646 646 647

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426

17.1.4. Internal effects of co-ownership (a) Fruits / benefits of the movable. Costs of maintenance, other expenses and bearing of risk (b) Protection of minority interests 17.1.5. External effects: Rules on transfer of ownership and protection of ownership 17.1.6. Termination of co-ownership (by way of division in natura or liquidation) 17.2. Progressing towards the new Civil Code 17.2.1. Frist Draft, Second Draft and Academic Proposal (a) Decision making in relationships implied by co-ownership (b) The right of pre-emption, pre-rental and pre-beneficial lease (c) Rules on termination of co-ownership 17.2.2. Legislative Proposal (a) Decision making concerning relationships implied by co-ownership (b) Rights of pre-rental, pre-emption and pre-beneficial lease (c) Rules on termination of co-ownership (i) Claiming the termination of co-ownership as basic entitlement (ii) Governing principles in termination of co-ownership (iii) Detailed rules on termination of co-ownership 18. Rules applying to unspecified goods 18.1. Transfer of ownership in individualised / specified goods 18.2. Role of specification as related to the floating charge: protection of security interests 19. Consequences of restitution of the movable to the owner 19.1. Restitution of the movable with reference to certain constellations 19.1.1. Transfer based on void or avoided contract 19.1.2. Void or avoided right to use 19.1.3. Right to use of the movable has ended 19.1.4. Theft 19.1.5. Restitution from a finder 19.1.6. Acquisition from a non-owner

648 649 649 650 651 653 653 653 654 654 655 655 655 656 656 656 657 657 657 658

659 659 659 660 660 660 660

Table of Contents

19.1.7. Right to use granted by a person not entitled thereto 19.1.8. “Garage” cases 19.2. The owner-possessor-relationship 19.2.1. Possession without legal basis (HCC §§ 193-195) (a) Preliminary remarks: Categories dealt with in this regime (i) Expenses (ii) Benefits (iii) Damages (b) Status of the possessor without legal basis regardless of his status of fide (c) Status of the possessor without legal basis in good faith (d) Status of the possessor without legal basis in bad faith 19.2.2. Responsible custody (a) Basic definition (b) Status of the responsible custodian 19.2.3. Costs of restitution 19.2.4. Progressing towards the new Civil Code (a) First Draft, Second Draft and Academic Proposal (b) Legislative Proposal

427

661 661 661 661 661 661 662 663 663 663 664 665 665 665 667 668 668 668

Table of Statutory Provisions

670

Table of Literature

691

Table of Abbreviations

699

Introduction This report incorporates comparative research in the area of property law undertaken by the Working Team on Transfer of Movable Property in Graz / Salzburg within the framework of the Study Group on a European Civil Code. I am especially grateful to Professor ATTILA HARMATHY (Eötvös Lóránd University, Faculty of Law, Budapest), Professor TAMÁS LÁBADY (Pázmány Péter University, Faculty of Law, Budapest) and Professor ATTILA MENYHÁRD (Eötvös Lóránd University, Faculty of Law, Budapest) for their comments on earlier drafts of this report. The area of analysis dealt with in the report is slightly broader than the one defined in the Questionnaire as the objective was to provide a comprehensive overview of the various topics discussed. For this reason, the rules on co-ownership are presented in detail, since this form of ownership involves special problems and therefore requires particular treatment. The prospective Hungarian Civil Code has been explained, so far as possible, as an evolving process. In addition to the Legislative Proposal, I have also considered the major interim drafts (First Draft, text prepared by the Academic Committee, and Second Draft, text prepared by the Ministry of Justice, mainly based on the First Draft) and the so-called Academic Proposal. English translations of the provisions of the HCC referred to in the Report are contained in the Annex. The translation of the provisions as far as the current Hungarian Civil Code is concerned is based on the translation provided by KJK-Kerszöv Publisher Budapest (on compact disc), but revised where this appeared necessary. The translations of the draft provisions in the Legislative Proposal are the author’s. Where there are considerable discrepancies between the Legislative and the Academic Proposal, a translation of the latter’s provisions is also provided. Regarding the literature used while writing this report, it may be noted that at this moment, in contrast to the situation before the enactment of the current Civil Code, there are only a few scientific works available on property law. On current Hungarian private law, apart from some monographs (MENYHÁRD, LÁBADY and KISFALUDI) the sources of literature used are the commentaries and a survey on property law, as well specific articles published on property law or related issues. Nevertheless, within the context of and connected to the preparatory works on the new Civil Code a significant debate among scholars has emerged; impressive studies of and articles on property law have also been published.1 The report is

Hungary

430

mainly based on five sources of literature, namely: the recently published comprehensive monograph on property law by ATTILA MENYHÁRD, a survey on property law by BARNABÁS LENKOVICS, the two commentaries (the standard Commentary, and the so-called Commentary for the Practice) and the last standard work on property law from the period of old Hungarian private law by BÁLINT KOLOSVÁRY and ENDRE NIZSALOVSZKY (published in 1942 as the fifth volume of the six volume compendium on Hungarian private law A magyar magánjog, edited by KÁROLY SZLADITS). Nevertheless, a great number of other works written by other distinguished authors have also considerably contributed to this report. The titles of the works referred in the footnotes have been quoted as translated into English, often in abridged form, as indicated in square brackets below each of the works listed in the table of literature. The titles of legislation in the report are cited in English; the original Hungarian title is indicated in the appropriate footnote or in the Table of Abbreviations.1 On 9 November 2009 the Parliament adopted the new Civil Code.2 The adopted text could not be considered in this report. As compared to the Legislative Proposal, in the field relevant for this report no significant policy changes were made in the parliamentary process. However, the joint consideration of Academic Proposal and Legislative Proposal can be considered to provide a satisfactory view on the future regulation in the field of movable property law in Hungary. The law in this Report is stated as at the end of 2008.

A.

The context: Hungarian private law – historical background

The development of Hungarian private law3 as customary law principally resembles that of English private law, characterised by building on original national grounds and rarely experiencing influence by foreign laws.4 While 1

2 3

4

Some of the authors are ATTILA MENYHÁRD, LAJOS VÉKÁS, ATTILA HARMATHY, NORBERT CSIZMAZIA, ISTVÁN SÁNDOR, and ZOLTÁN FABÓK. OJ 2009 / 165 (20 November 2009). See for a short survey on the history of Hungarian civil and commercial law also HARMATHY, in: Introduction to Hungarian Law, pp 11-21. LÁBADY: The General Part of Hungarian Private Law, p 81. See furthermore on the topic parallels between Hungarian and English law BÉNI GROSSCHMID: Werbőczy és az angol jog [Werbőczy and the English Law], A Magyar Jogász Egylet Deák Ferenc Irodalmi Bizottságának kiadványai, Franklin Társulat, Budapest 1928; on the topic constitutional parallels see JOSHUA TOULMIN SMITH: Parallels between the Constitution and Constitutional History of England and Hungary. E. Wilson (Publisher),

Introduction

431

presenting the development of Hungarian private law, the process may be divided into five historical periods. The first period identified lasts from the founding of the modern Hungarian State (in 1000 A.D.) until the sixteenth century, when ISTVÁN WERBŐCZY was commissioned to provide the first restatement of Hungary’s customary law. This period is characterised by autonomous development free from foreign influence, relying exclusively on traditional basics. The restatement called TRIPARTITUM OPUS JURIS CONSUETUDINARII INCLYTI REGNI HUNGARIAE5 was finished in 1514, however, it never came into wide circulation. Nevertheless, the TRIPARTITUM has served as a primary source of customary private law and preserved for centuries the unity of Hungarian private law.6 The second period lasts until 1848, considered the date of transition from a feudalistic to a civil society. In 1584 the CORPUS JURIS HUNGARICI was published as edited by ZAKARIÁS MOSÓCZY and MIKLÓS TELEGDY, a collection of the laws in force, though focussed rather on public law, nevertheless including also sources of private law. A compendium of case law was served by the PLANUM TABULARE approved by all sessions of the Royal Hungarian Curia (Királyi Magyar Kúria) and binding from 1769, initiated by Maria Theresa. These three works are considered the pillars of Hungarian private law until transformation in 1848. The third period lasts until the end of the Second World War, the beginning of the Soviet influence. The so-called “LAWS OF 1848”7 introduced the concept of civil equality before the law and the civil legal order based on private property. After the cessation of the War of Independence in 1849, a period of influence of the Austrian Civil Code followed until 1861, when the traditional law – again in the form of written customary law – was reinstated by the document called Provisional Judiciary Rules,8 also concerning the

5

6 7 8

London 1849, p 29 – especially concerning the theory on the relationship between the central and local power, where SMITH’s point of view is that local authorities did not owe their status and powers to either Crown or Parliament. See in English and Latin STEPHEN WERBŐCZY: The Customary Law of the Renowned Kingdom of Hungary: A Work in Three Parts (The “Tripartitum”). Edited and translated by János M. Bak, Péter Banyó and Martyn Rady, Charles Schlacks, Jr. Publisher, Idyllwild CA – Department of Medieval Studies, Central European University, Budapest 2005. LÁBADY: The General Part of Hungarian Private Law, p 81. 1848-49 War of Independence against the Habsburgs’ influence. Ideiglenes Törvénykezési Szabályok – in the literature often cited abreviated as “ITSZ” (1861). The “ITSZ” were adopted by the assembly consisting of the presidents of the country’s upper courts (Országbírói Értekezlet, or in German Judexcurialkonferenz). Although adopted both by the House of Representatives (Képviselőház) and the Upper House (Főrendiház), these decisions had never become law in a formal sense

432

Hungary

private law. Nevertheless, in this period the Hungarian legal science came under the influence of Austrian-German-Roman legal scholarship.9 From 1867 – the year of the constitutional settlement with Austria – a modern and intensive process of legal development had started. In 1875 the Commercial Code (Kereskedelmi törvény) was enacted, modelled after the German Commercial Code (Allgemeines Deutsches Handelsgesetzbuch10), but nonetheless including independent concepts in several areas,11 prepared by ISTVÁN APÁTHY, which had significant impact on the development of the key concepts of Hungarian private law. This period is characterised by codification attempts, between 1880 and 1885 drafts covering almost the complete area of private law (except family law) were prepared, and finally in 1895 a codification commission12 was set up, who presented the first Draft of the Civil Code in 1900.13 The Draft underwent several reviews, and finally in spring 1928 the revised fourth Draft – significantly influenced by the German Civil Code and the Swiss Civil Code – under the name LEGISLATIVE PROPOSAL ON THE PRIVATE LAW CODE FOR HUNGARY (Magyarország Magánjogi Törvénykönyvének Törvényjavaslata – often cited as “Mtj.”) came before the House of Representatives, but was never adopted. Nevertheless, judicial practice accepted it as a restatement and it has served – like the TRIPARTITUM – as a written source of customary private law for decades. From a systematic point of view, the Codex follows the make-up of the Swiss Civil Code: it does not include a general part, the law of persons and family law is followed by the property law, law of obligations and finally inheritance law. Another recognisable impact of the Swiss Civil Code is the breakthrough of the principle of inviolability of property, particularly that of contractual freedom and pacta sunt servanda.14

9 10

11

12

13 14

since the Austrian emperor Ferenc József (Franz Joseph) was at this time still not crowned Hungarian King. As a consequence, he only could confirm these, but not “assent” (i.e. confirm as part of legislative power), as required for them to become formal law according to the Hungarian constitutional rules. LÁBADY: The General Part of Hungarian Private Law, pp 82-84. From 1861, with the territorial scope being later extended to the German Federation founded in 1871. For example in the field of rules on stock, associations, publishing business, warehouse business, brokerage – ZEHNTBAUER: Introduction to the modern history of Hungarian private law, p 26, SZLADITS: Notion, development and science of private law, pp 101-102; §§ 291-298 remain in force today. Members of the first Hungarian “Codification” Committee: GROSSCHMID – Marriage law, SIPŐCZ – Other areas of family law, IMLING – Property law, THIRRING – Law of obligations and SZÁSZY-SCHWARZ – Inheritance law. LÁBADY: The General Part of Hungarian Private Law, pp 85-86. LÁBADY: The General Part of Hungarian Private Law, p 87.

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The fourth period concerns the era of Soviet influence. In 1953 the elaboration of a civil code was started and the first draft of the Civil Code was presented in 1956. After the 1956 Revolution and War of Independence against the Soviet influence, in 1957 a second draft was presented to then adopted by the Hungarian Parliament in 1959. The Civil Code became law on 1st May 1960. One idea behind adopting a Civil Code was to break with traditions of the historically developed Hungarian private law. In this respect it differs from any prior attempts. The Introductory Decree § 5 (1) declares explicitly the stand alone character of the HCC, which is indicative of a political message of that time: “The provisions of the Civil Code may not be interpreted according to legal principles developed in case law prior to its entering into force.” The Civil Code suffered its first significant amendment in 1977 (also called Fundamental Revision of the Civil Code),15 and from the 1980s to the present day the Civil Code has been subject to more than sixty further amendments. The amendments from 1991 and 1993 affected the integral structure of the Civil Code, while others focussed on certain areas, e.g. revision of the field concerning proprietary securities (the socalled ‘First amendment of proprietary securities’ in 1996, and the ‘Second amendment of proprietary securities’ in 2000),16 standard form contract terms (1997),17 extinction and creation of ownership through adverse possession (also known as acquisitive prescription) (2001),18 provisions on warranty and guarantee (2002),19 etc., mainly related to the system trans-

15

16

17

18

19

1977. évi IV. törvény a Magyar Népköztársaság Polgári Törvénykönyvéről szóló 1959. évi IV. törvény módosításáról és egységes szövegéről [Act IV of 1977 on the amendment of Act IV of 1959 on the Civil Code of the People’s Republic of Hungary]. 1996. évi XXVI. törvény a Magyar Köztársaság Polgári Törvénykönyve egyes rendelkezéseinek módósításáról, 2000. évi CXXXVII. törvény a zálogjoggal kapcsolatos törvényi szabályozás módósításáról [Act XXVI of 1996 on the amendment of certain provisions of the Civil Code of the Republic of Hungary, Act CXXXVII of 2000 on the amendment of the statutory regulation regarding proprietary securities]. 1997. évi CXLIX. törvény a Magyar Köztársaság Polgári Törvénykönyvéről szóló 1959. évi IV. törvény módósításáról [Act CXLIX of 1997 on the amendment of the Act IV of 1959 on the Civil Code of the Republic of Hungary]. 2001. évi XIX. törvény a Polgári törvénykönyvről szóló 1959. évi IV. törvényben szabályozott elbirtoklási határidő módósításáról [Act XIX of 2001 on the amendment of the term effecting extinction and creation of ownership through acquisitive prescription regulated in Act IV of 1959 on the Civil Code]. 2002. évi XXXVI. törvény a Magyar Köztársaság Polgári Törvénykönyvéről szóló 1959. évi IV. törvény, valamint egyes törvények fogyasztóvédelemmel összefüggő jogharmonizációs célú módósításáról [Act XXXVI of 2002 on the amendment with

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formation and influenced by European (EC) guidelines.20 With regard to the impact of EC law in the area of property law, it is difficult to see any direct influence. The regulation of transfer of ownership and related issues are left in the competence of the Member States, i.e. in the competence of the national legal systems.21 Nevertheless, the Hungarian Codex is not entirely comprehensive. Other private law provisions are to be found in several external special laws as well (e.g. family law, company law, land registration). The fifth period concerns the period of change of the political and economic system from the middle of the 1980s until the present day, and its impact to the whole legal system. This period is characterized by the reorientation of private law, owing to the Europeanisation of private law and indeed law generally.22 Following a Government Decision,23 in 1998 the preparatory work for a new Civil Code began, and the revised draft concept of the new Civil Code was approved by the Government in 2003,24 and subsequent to this the concrete codification assignments begun. In the course of 2006, the First Draft of the Academic Codification Committee was published, in successive books, on the website of the Hungarian Ministry of Justice, initiating the public debate on the First Draft. The Second Draft was then made accessible for public debate at the end of October 2007, again being prepared by the Ministry of Justice. In March 2008 the so-called Expert Proposal on the Civil Code for Hungary was published as the final text of the Academic Codification Committee. On 5th June 2008 the Legislative Proposal on the Civil Code was submitted to the Parliament, being the text prepared by the Ministry of Justice. The

20 21

22

23

24

legal harmonisation purposes of Act IV of 1959 on the Civil Code of the Republic of Hungary, as well as of certain statutes connected to consumer protection. Introductory Part, in: Commentary, pp 24-25. European Communitity rules transposed into Hungarian law relating to issues of property law are as follows: 94 / 47 / EEC (timeshare), 93 / 7 / EEC (cultural objects), 2000 / 35 / EC (late payment) (with regard to retention of ownership in cross border transactions). ATTILA MENYHÁRD, in: Expert Proposal, p 577. See in detail HARMATHY: Transformation of Hungarian Civil Law (1985-2005). The Hague 2007. See also: Hungarian Civil Law at Turn of the Century, Budapest 2002; Law of business in transition in Hungary. Uppsala 2007. 1050 / 1998 (IV. 24.) Kormányhatározat a polgári jogi kodifikációról [Government Decision on the Codification of Civil Law]. 1003 / 2003 (I. 25.) Kormányhatározat az új Polgári Törvénykönyv koncepciójának elfogadásáról, valamint a polgári jogi kodifikációról szóló 1050 / 1998. (IV. 24.) Kormányhatározat időarányos végrehajtásáról és módosításáról [Government Decision on the Approval of the Concept of the New Civil Code, as well as on the pro rata temporis execution and on the amendment of the Government Decision no. 1050 / 1998].

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re-codification in Hungary is considered the final act in the field of private law at the end of the process of system transformation.25 Some basic works of Hungarian legal scholars focussing on property law besides those referred in the report: BÉNI GROSSCHMID: Dologjogi jegyzetek [Notes on Property Law]. Budapest 1896; MIHÁLY HERCZEGH, A magyar dologbeli és kötelmi jog [The Hungarian Property Law and Law of Obligations]. Budapest 1892; LAJOS TÓTH: Magyar magánjog. Dologi jog. [Hungarian Private Law. Property Law]. Debrecen 1930; ENDRE NIZSALOVSZKY: Magyar magánjog mai érvényben – II. kötet – Dologi jog [Hungarian Private Law as Effective Today – Vol. II – Property Law]. Budapest 1931; ISTVÁN SÁNDOR: A dologi jog története és legújabb fejlődési tendenciái Nyugat-Európában [The History of Property Law and its Most Recent Tendencies of Development in Western Europe]. Állam-és Jogtudomány, Budapest 1999.

B.

Systematic deliberations and the concept of the right of ownership in Hungarian private law

B.1.

Law of the right of ownership (tulajdonjog) or property law (dologi jog) in Hungarian private law

The current Hungarian Civil Code from 1959 follows the tendency of the time by its elaboration style that is particular to the legal systems influenced by socialist ideology. This influence stems from the Soviet socialist legal literature, according to which the traditional notion of “property law” concentrates on and emphasises the relationship between a human being and a corporeal object, however, the correct characterisation of this legal relationship is to be seen as one between human beings.26 Following this ideological aspect, the Third Part of the HCC is devoted to property law. This Part about property law also includes the restricted property rights – iura in re aliena (Chapter XIII on the Rights of Use), while real security rights have been placed within the general part on the law of contracts (Chapter XXIII on the Law of Contracts). Another characteristic of the original version was the dominance of the provisions about state property in Chapter III, though it appears understandable why this Part of the HCC was subject to the most modifications in the period of political and economical transformation between 1988 and 1991. But for all that, the socialist ideological background did not affect the essential structure of the law, though the abstract character of private law rules is in fact not connected to the system 25 26

Government Decision 1050 / 1998. See on this view for example VILÁGHY: Hungarian Civil Law – Right of Ownership, pp 53-54.

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applied on the distribution of goods. Nevertheless the concept of property law as a comprehensive regime of the law of (patrimonial) status (see 1.1.1, below) within the system of private law also has dogmatic reasons: the fusion of the restricted property rights into a system of rules entitled “The Right of Ownership” (i.e. as in the current Hungarian Civil Code) would not serve as appropriate solution, they build a dogmatic unity, but the restricted property rights are considered as relatively independent rights deriving from the power of use and of disposition of the property right. Furthermore, the increased and emphasised role of pledge and mortgage as proprietary securities in a market governed economy also requires integration in the autonomous part on property law.27

B.2.

Right of ownership in Hungarian private law: unfragmented versus fragmented concept

Even at the beginning of nineteenth century there was no unfragmented (exclusive) conceptualisation of the right of ownership prevailing in Hungarian law. IGNÁC FRANK, a legal scholar of that time, does not speak about a fragmented concept of the right of ownership, however, he remarked that such a definition of the right of ownership may not be used in Hungarian law, as this would presuppose the free right of disposition. Especially, the presence of certain feudalistic institutions in inheritance law at that time would have contradicted such a definition. The feudalistic ownership focussed on the state of possession of the thing rather than on the free disposition thereof. This position in Hungarian private law of that time corresponds to the concept followed by the legal systems belonging to the Germanic legal tradition, where e.g. the Austrian Civil Code of 1811 determines a fragmented right of ownership, nevertheless a real division line between the Germanic fragmented concept and the Romanic unfragmented one cannot be drawn. Furthermore, it may even be argued that the abstract, absolute, unfragmented concept of the right of ownership as defined in the German Civil Code and also followed by Hungarian private law may not be found in Roman law.28 Accordingly, modern Hungarian private law follows the unfragmented concept of right of ownership under the influence of the German private law.29 27

28 29

The Conception and the Regulatory Syllabus of the New Civil Code, Book Three – Property Law. For the core version of the Concept see Government Decision no. 1003 / 2003. HARMATHY: Property Law – Law of Obligations, pp 119-138. A legal scholar at the beginning of the 20th century in his work on property law labels the “fragmented concept” as ‘absolutely outdated theory’. He further on notes that it is ‘beyond debate that in all the cases which are vested with the quality of the

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For comparison, the French Civil Code appears to follow the fragmented concept, according to which the parties are free to establish new property rights, as well as deviate from legal provisions on property rights if this does not violate the ordre public, subsequently neither the principle of numerus clausus nor the principle of restricted autonomy play a significant role in French law.30 Following generally a different systematic concept of property rights, the concept on the right of ownership followed in the common law world may also be identified as a fragmented one (of course not in sense of the distinction used on the continent).31 It may be noted that a recently published work on property law confers the “divided ownership”32 a wholly independent chapter; the chapter includes the right of administration of assets under state ownership, the use of land (HCC §§ 155-156) and the permanent right of use of a member of a housing association33 as in conjunction with his membership. The last example is seen as specific to the right of use defined in the HCC and may be transmitted on death according to the law of succession (§ 12 (5) Act CXV of 2004 on the housing associations).34 However, according to the prevailing categorisation, the right of land use is interpreted as one of the so-called rights of use (or “rights in substance“ in contrast to “rights in value”, these being the two groups of the restricted proprietary rights) among the listed restricted proprietary rights. The right of land use as defined in the HCC may come into existence as a result of construction on a piece of land in another’s ownership where the parties are in agreement (HCC § 97 (2)), respectively the court’s decision (HCC § 137 (2)), or ex lege on succession or transfer, whereas this does not affect the content of the right (HCC § 156 (2)). Conclusively the breakthrough of the superficies solo cedit principle may be interpreted as fragmentation of the right of ownership. However, the owner and the person entitled by the right of use may not be one and the same person. The right of land use as such brings the entitlement to utilise the land and collect the benefits (fruits) therefrom, while imposing the duty to bear any related public taxes.35 The right is not connected to the person but to the original right it derives from, as acquired following the erection of the building.

30 31 32

33 34 35

fragmented concept of ownership that there is, in fact, no fragmentation of ownership, rather such cases can only be about the restriction of ownership’ – LÁNYI: The Right of Ownership, p 21. HARMATHY: Property Law – Law of Obligations, p 122. HARMATHY: Property Law – Law of Obligations, pp 123-125. PETRIK: The Right of Ownership Today, pp 109-117, “Chapter V – Fragmented Ownership”. As it may be translated into German, by Wohnungsgenossenschaft. 2004. évi CXV. törvény a lakásszövetkezetekről. PETRIK: The Right of Ownership Today, p 114.

Part I: Basic information on property law 1.

General basics

1.1.

The notion of ownership and different property rights existent in Hungarian private law

1.1.1. Characteristics of property (in rem) rights In Hungarian private law the area of property law is considered, at first instance, the law of patrimonial status, in contrast to the law of obligations, which is considered the law of patrimonial dynamics.36 At another level, property rights are defined rights with absolute structure as compared to the rights established by the law of obligations regime (establishing rights with relative structure). A right with absolute structure establishes, from one aspect, a legal position with effect against everyone, while, from the other aspect, the persons obliged have a (negative) duty to abstain from any act.37 In this respect the in rem legal relationship appears a direct and close exclusive relationship between a person and a thing;38 in legal literature this is also called a “concentrated obligation”.39 Most evident examples for legal relationship with negative content provide the legal relationships concerning one’s person (personality rights) and the right of ownership.40 In comparison, a legal relationship with relative structure is characterised by defining the person obliged, and its content is usually (but not necessarily) a positive one.41 36 37

38 39 40 41

LÁBADY: The General Part of Hungarian Private Law, pp 152-153, pp 284-285. In his comprehensive work on the structure of private law, László (Villányi) Fürst approaches the essential of the absolute structure from the perspective of the legal protection provided. He notes that where legal protection is realised through the construction of an absolute right, in fact we are confronted with a concentration of legal effects on an asset which can be properly delimited. This concentration is not the result of logical deliberations or of higher laws of metaphysics, but is simply a matter of practical appreciation. See VILLÁNYI: Structure of private law, p 161. LÁBADY: The General Part of Hungarian Private Law, p 285. KOLOSVÁRY: Introduction, p 2. LÁBADY: The General Part of Hungarian Private Law, p 283. LÁBADY: The General Part of Hungarian Private Law, pp 284-285.

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1.1.2. The principles governing property law There is no generally accepted view on the existence and role of principles governing the area of property law. The role of these may be compared to those of general clauses in private law, which operate as intruments to aid interpretation and guide application. In normative terms property law does not have its own independent principles, meaning that there are no legal norms which pervade the area of property law beyond the expectations formulated in general clauses that can overwrite the content of property law provisions, which could lead to results which do not necessarily follow from the interpretation of legal rules. Nevertheless, there are aspects of regulation, necessities deriving from the internal logic of the regulation, which pervade and underly the whole area of property law, or may provide an aid to interpretation with regard to particular instruments in property law.42 Until recently, Hungarian private law had never dealt with the principles of property law, but the existence of particular principles applying only in the area of property law is now generally accepted.43 The relative significance of these particular principles is reflected by MENYHÁRD, who in his very sophisticated monograph on property law does not pay special attention to these. He identifies only two explicitly – numerus clausus (with the related principle of restricted autonomy) and specificity. Other principles are only touched on in the context where they prove of functional relevance.44

(a)

Numerus clausus of property rights

The Hungarian concept of property law follows the traditional numerus clausus principle, according to which new property rights can be created only by law, meaning the creation of new property rights is not subject to party autonomy.45 In Hungarian legal writing the term “closed system” – the numerus clausus principle (zártkörűség elve) – is used, the synonym of typeconstraint (típuskényszer – Typenzwang) in German literature. In contrast to the principle of numerus clausus in property law stands the principle of freedom of contract in the area of the law of obligations,46 the freedom of type (típusszabadság – Typenfreiheit). The principle of numerus clausus is strongly connected to the principle of clarity (áttekinthetőség), an important 42 43 44 45 46

MENYHÁRD: Property Law, pp 17-18. KISFALUDI: Is the Principle of Specificity Sustainable?, p 29. MENYHÁRD: Property Law, p 18. LENKOVICS: Property Law, p 20. LENKOVICS: Property Law, p 21.

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requirement of legal certainty. This follows from the imperative character of property law rules.47 The significance of this principle is linked primarily to the unitary and abstract concept of ownership: they stand in conditional interdependence to each other. Thus it is the seal that entitlements deriving from ownership cannot be permanently divided; the ownership cannot be excluded from commerce and become tied or restricted in some manner (as in feudalism). This does not mean that other explanations regarding this principle cannot constitute aspects which would indicate and underpin the sustaining of this principle – such explanations including transparency and publicity, restrictions on of establishment of rights burdening third persons, simplifying commerce and securing information. Altogether, these aspects make up the system of arguments justifying the numerus clausus principle as a necessary and indispensable element of property law regulation.48

(b)

Principle of restricted party autonomy

Not only are the types of rights in rem determined by law, but the content of these rights is also prescribed. In contrast to this principle stands the principle of contractual freedom in the law of obligations, and the connected freedom to determine the content of the legal relationship. The principle plays a greater role in the case of restricted property rights, than in case of dominium (ownership), being the main property right: the content is restricted to certain entitlements. In this respect, according to the principle of restricted autonomy the freedom to determine the content is excluded or significantly restricted where property rights are concerned, serving in this way – similar to the numerus clausus principle – legal certainty.49 This principle is strongly connected to the numerus clausus principle, since this would make little sense without restricted autonomy. An example of the functionality of this principle is given by MENYHÁRD in his monograph: statutory regulation does not only restrict the ceding of the right of exploitation to usufruct, it also regulates the duration excludes its transfer. If the usufruct was transferable, i.e. if the parties could construct it to be transferable, it would render the ownership divided due to the undetermined duration of such entitlement.50 As a consequence of the principle of numerus clausus and restricted autonomy is to be distinguished between property law effect and law of obligations effect.51 47 48 49 50 51

LENKOVICS: Property Law, p 21. MENYHÁRD: Property Law, pp 143-144. LENKOVICS: Property Law, p 22. MENYHÁRD: Property Law, p 144. MENYHÁRD: Property Law, pp 145-146.

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441

Principle of absolute (or property) effect

The principle of absolute effect focusses on the most significant characteristic of property rights, namely their structural particularity: they constitute legal relationship with definite structure.52 The particularity of absolute effect is embodied in the distribution of powers in the legal relationship established: on one side, the position of the entitled party is always a determined person exercising exclusive power, while, on the other side, everybody else is – at least incidentally – obliged. The legal position of the entitled party is characterised by the indivisibility of subject, object and content of the legal relationship. Subsequently, it is not possible that X is regarded owner of a thing in relation to a certain person, and Y is regarded owner of such thing in relation to all other persons. Similarly, it is not possible that owner X exercises only certain entitlements deriving from the property, while owner Y exercises the other entitlements. This derives from the concept of the undivided ownership right. As regards a thing that is subject to ownership, it is not possible for X to have ownership in a certain part of the object, while Y has ownership of the other part.53 On the other hand, the obligations of the obliged persons are manifested in at least three ways, namely the recognition, toleration and abstention.54 Finally, the absolute effect is not affected when the property law entitlement is violated: the violation establishes a relative relationship between the owner and the person violating his property right.55

(d)

Principle of publicity

A general governing principle in private law is privacy, deriving from party autonomy, which is the basis of private law relations. This principle may be set aside if there is a strong private or public interest. In the case of rights in rem this principle is indeed trumped – as result of strong private and public interests – and publicity reigns, making party autonomy the exception rather than the rule. One’s direct power over a thing is recognisable and obvious to everybody, a fact strongly connected to the absolute structure of rights in rem. Rights in rem, as a building block of patrimonial relations, require transparency and recognisability, a requirement connected to the

52 53 54 55

MENYHÁRD: Property Law, p 18. LENKOVICS: Property Law, p 23. LENKOVICS: Property Law, p 24. LENKOVICS: Property Law, p 24.

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security of patrimonial relations.56 According to the wording of HCC § 117 (2) the transfer of ownership in a movable requires delivery, where delivery consists of “providing real possession of a thing or in any other way making it indisputable the movable has moved from the dominium of the transferor into the dominium of the transferee”. The publicity here seems to concern the recognisability of the position, meaning dominium over the movable. The publicity principle in the case of a right in rem in immovable property is provided by the land registry. MENYHÁRD deals with the principle of publicity when explaining certain institutions in property law, where it proves relevant.57

(e)

Principle of specificity (or determination)

The principle of specificity stands for the requirement that the subject of a right in rem is always an object individually determined, where the determination means an individualisation strictly in the legal sense in order to establish a clear and self-evident legal situation. It should be noted that an individual’s patrimony, as such, cannot be subject of property law because it lacks the individualisation required. Ownership can only be established individually in certainly determined objects. There are two exceptions from the principle of specificity: one is the universal succession (whether by inheritance or legal succession), the other is the transfer of patrimony by contract. From property law’s perspective, this represents simultaneous individual disposal of each of the objects concerned.58 In his monograph, MENYHÁRD treats the principle of specificity in the context of the explanation of an aggregate of things. According to his deliberations, if the principle of specificity was not accepted in the area of property law, this would presuppose that several persons could own one and the same thing, without any ranking of such rights, and having identical content, i.e. in an “undivided” sense. The principle of specificity prevents the existence of two different rights of ownership on an enterprise (as a legal entity) and on the goods making out the enterprise per se. For that reason it is closely related to the issue of aggregates of things and the issue of connection of a component part. The principle of specificity together with the notion of “component part” identifies the subject of the right of ownership and that of the property rights.59

56 57 58 59

LENKOVICS: Property Law, pp 25-26. MENYHÁRD: Property Law, p 18. LENKOVICS: Property Law, pp 27-28. MENYHÁRD: Property Law, pp 84-85.

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Considering the old Hungarian private law KOLOSVÁRY also confirms that the subject of ownersheip can only be a thing which is individually determined. A certain mass of non-individualised fungible things may be subject to ownership where secession and distinction from things which belong to the same genus has taken place, since by secession these fungible things will become individualised.60 In conjunction with this issue, in recent legal writing KISFALUDI shares the view that the principle of specificity does not necessarily mean that the thing that is the subject of ownership must also be a specific thing. In his opinion the key issue is whether the principle of specificity and ownership in non-individualised things gives rise to a contradiction. The answer to this question is given at the moment of secession.61

1.2.

Notion of ownership

1.2.1. Definition of the right of ownership in Hungarian private law (a)

Current Hungarian private law

In Hungarian private law the right of ownership is a subjective right (alanyi jog, according to the German terminology subjektives Recht), the basic legal relationship of all patrimonial relations regulated by civil law.62 The Hungarian Civil Code does not include an explicit legal definition of the notion of ownership, however one may reach an indirect definition by the provisions on the interest linked to the ownership right (see 1.2.2.). The absence of an explicit definition of the right of ownership in the HCC of 1959 is consistent with the overall codification policy that followed, namely that there is no place for the definition of notions within a code. The HCC defines the content of the right of ownership primarily by the provisions on the right of possession, of use, of enjoyment of the benefits and the right of disposition. The Ministry Explanatory Statement also declares that this enumeration is not exhaustive, other entitlements may be deduced from these. Accordingly, the prototype behind the provisions on the right of ownership in the HCC is the unitary abstract concept of ownership.63 Nonetheless, definitions of the right of ownership may be found in the old Hungarian private law. The right of ownership is approached from its content: 60 61 62 63

KOLOSVÁRY: The Right of Ownership, p 115. KISFALUDI: Is the Principle of Specificity Sustainable?, p 30. LENKOVICS: Property Law, p 59. MENYHÁRD, Property Law, pp 133-134.

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the hypothetical possibility of all imaginable manners of disposition in the corporeal object concerned. Conclusively, as compared to other proprietary rights, the main feature of the right of ownership is seen in the general character of the legal dominium that is prevailing.64 Another author describes the right of ownership as the most unlimited legal right.65 A normative definition of the right of ownership is also in PrivLawCodePROP § 562, according to which the owner is entitled to absolute and exclusive control over the corporeal thing subject to his right of ownership.

(b)

Prospective new Civil Code

All of the Drafts, the Academic and the Legislative Proposal include an explicit definition in this respect, according to which the owner is entitled to absolute and exclusive legal control over the object of his right of ownership (1stDCC § 4:13 (1), identical 2ndDCC § 4:12 (1), AcadDCC § 4:13 (1)).66 The Legislative Proposal includes the essential entitlement implied by the right of ownership consisting of the right to exclude anybody’s intrusion (Legislative Proposal § 4:14 (1)), whereas in the case of the Drafts this is subject of subsection (2). Subsequently, the right of ownership is defined as the owner’s absolute and exclusive legal power over the object. However, this legal power cannot be regarded as unlimited: according to subsection (2) the owner exercises the entitlements deriving from his right of ownership within the limits set out by statute and the rights of another (1stDCC § 4:13 (2), identical 2ndDCC 4:12 (2), AcadDCC § 4:13 (2)). As compared to the Drafts, the Legislative Proposal applies a different wording while defining the limits, as those set out by statute, respectively on grounds of empowering statutory provision set out by a decision of a court or public authority, or a contract (Legislative Proposal § 4:14 (2)).

1.2.2. Interests linked to the right of ownership The ownership right in Hungarian private law may also be characterised, at first instance, by the triad of entitlements implied which originate from Roman law (“triad of ownership”), being: the entitlement to possess; the entitlement to use and to exploit; and the entitlement to dispose of the thing. In this respect the entitlements focus on the physical power over a thing, meaning 64 65 66

LÁNYI: The Right of Ownership, p 20. ALMÁSI: Handbook of Property Law Vol. I, p 215. See a similar definition at KOLOSVÁRY: The Right of Ownership, p 102; LÁBADY: The General Part of Hungarian Private Law Vol. I, p 285.

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that the owner may give his thing into another’s power, may improve it or derive fruits from it, or even destroy it. Nevertheless, the power determined by the triad may never be perfect: it is subject to restrictions (see below), whether by the state while exercising sovereign rights (restrictions imposed vertically) or on grounds of private law regime, e.g. usufructus, rental (restrictions imposed horizontally). The literature also defines the burden linked to the ownership right67: on one side, the owner is interested in using the thing and obtaining any fruits from the thing in an efficient manner, implying consequently the attempt to exclude, or at least mitigate, losses connected thereto, while on the other side the ownership right imposes the duty to bear the risk deriving from and connected to the thing, i.e. the owner is liable for the damage caused to another by or deriving from the thing (but there are several exceptions to this rule, e.g. hire-purchase relationship, usually concerning motor vehicles). Furthermore, in contrast to the positive interests referred to before, there may be negative duties of the owner, such as the obligation to tolerate restrictions and the positive duties such as the obligation to act in a common sense manner, for reasons of public interest.

(a)

Triad of ownership: entitlement to possession (birtoklás joga)

The owner’s entitlement to possess the corporeal object is considered the core interest linked to the right of ownership, the manifestation of which is his entitlement to possession protection (HCC § 98). Pursuant to HCC § 187, the possessor is entitled to possession protection against third persons, whereas the status of the possessor is maintained even where the thing gets temporarily into the possession of another, or (in the case of immovable property) the piece of land is encumbered by the right of use of another. The owner is entitled to possession protection on grounds of his ownership right, meaning that providing possession protection may imply necessarily and automatically the decision over his ownership right as well, though in such a case he may immediately resort to judicial protection of possession (pursuant to HCC § 192 (2)). (From the point of effectiveness, the owner’s entitlement to resort to possession protection against third persons interfering with his ownership being in the lawful possession of another person – qualifying sub-possessor – also focusses on the true absolute structure of the right of ownership mirroring the most powerful right a person may have over a thing.) The owner may also be entitled to make use of the so-called third party motion to vacate68 provided 67 68

FERENC PETRIK, in: Commentary, p 361. Drittwiderspruchsklage, according to the German legal terminology.

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by § 371 Code of Civil Procedure where his thing is seized in the course of judicial enforcement proceedings directed against a third person’s assets (see in detail 1.4.2.(e) on recovery of property seized in the course of judicial enforcement proceedings).

(b)

Entitlements of use and utilisation (használat és hasznosítás joga)

An important element of the ownership right is the entitlement to use and to collect the fruits deriving from the thing (HCC § 98), which may only be restricted by statutory provision (however, the prevailing view in legal writing produced under socialist influence interpreted this notion restrictively, to meet the owner’s and his dependants’ personal needs only). In certain cases the right of use deriving from ownership may be regarded as founded even by the initiation of the ownership claim (co-ownership coming into existence by work, investment realised by the owner’s dependants in order to reach the purpose pursued jointly).69

(c)

Entitlement of disposition (rendelkezési jog)

The right of disposition may be defined in the broader sense as the entitlement of the owner to establish contractual relationships under private law regarding the property, or to terminate the right of ownership.70 The scope of disposition includes: the ceding of possession; granting the use of the thing to another; entitling another to collect the fruits deriving from the thing; to provide the thing as security; to encumber the thing in another way; to transfer the right of ownership in the object; or to abandon with the right of ownership. Regarding the conflict in the interest of the architect of a building, who holds intellectual property rights related thereto, and the right of disposition of the owner of the building, the exercise of the latter enjoys priority and may not result in the infringement of the architect’s intellectual property rights (EBH2005 / 1201).

69 70

PETRIK, in: Commentary, p 362. Provided as the basic definition in VILÁGHY / EÖRSI: Hungarian Civil Law – General Part, p 299; as also referred by PETRIK, in: Commentary, p 386.

1. General basics

(i)

447

Ceding the corporeal object’s possession to another (az ingó dolog birtokának átengedése más részére)

The transfer of the thing’s possession usually implies with it the transfer of the right of use, but there are certain exceptions: the deposit (HCC §§ 462-463) and the pledge (HCC § 257 (2)). Furthermore, ceding natural possession may be necessary in the case of certain other contractual relationships such as carriage (HCC §§ 488-506) and transport (HCC §§ 514521), where the transfer of possession is in fact not considered essential of the legal relationship.71 (ii)

Ceding the use and the fruits deriving from a thing to another (a dolog hasznai és a dolog gyümölcsei szedésének átengedése más részére)

The owner may cede the entitlement to use at the same time as ceding possession of the object (in the context of movables) in the case of hire of property (HCC §§ 423-433) or a gratuitous loan for of an object [commodatum] (HCC §§ 583-585). Other instances are those when the entitlement to collect the fruits deriving from the property is ceded jointly with the possession, such as in the case of usufruct (HCC §§ 157-164), beneficial use (HCC § 165 (l)-(2)) and beneficial lease (használat) (HCC § 165)72 (HCC §§ 452-461). (iii)

Entitlement to encumber the property (a dolog megterhelésének joga)

The owner is entitled to provide the property for security purposes (e.g. by pledging the property) or otherwise encumber the thing (e.g. by establishment of a usufruct).73

71 72

73

PETRIK, in: Commentary, p 387. A beneficial lease exists where the leased thing produces fruits and the lessee is entitled collect the benefits deriving from it according to contract. A right may also be the subject of a beneficial lease, e.g. the right for hunting, where the beneficial lessee may be a hunting association. ÖDÖN ZOLTÁN, in: Commentary, p 1726. The German term for a beneficial lease is “Pacht”, which can be contrasted with “Miete” (the German term for the standard right to use, which stems from a hire (or lease) relationship). PETRIK, in: Commentary, p 388.

Hungary

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(iv)

Entitlement to transfer the right of ownership (a tulajdonjog átruházásának joga)

The most essential element of the right of disposition is the owner’s power to transfer his right of ownership, by way of transfer to another, or to abandon ownership entirely. The instances of transfer of ownership may be arranged into three groups74: gratuitous and non-gratuitous transfer, as well transfer for a certain interest75 (e.g. bringing the property into the estate of a commercial company, pursuing a particular interest thereby, or by the establishment of a foundation). To the first group belongs the donation contract (HCC §§ 579-582), to the second group belongs the contract for sale (HCC §§ 365-377), and there also other non-gratuitous contractual relationships when transfer of ownership is necessarily implied, such as in the case of a supply contract (HCC §§ 379-385), or in certain cases within the scope of service contracts (HCC §§ 389-416), and contracts for barter (HCC § 378, the counter-performance in this instance being another thing “in exchange”). (v)

Entitlement to abandon the right of ownership (a tulajdojoggal való felhagyás joga)

The owner may at any time abandon his right of ownership in a movable (HCC § 112 (1)). In contrast, the right of ownership in immovable property may not be terminated by abandonment (HCC § 112 (2)).

(d)

Progressing towards the new Civil Code

(i)

First Draft, Second Draft and Academic Proposal

The interests linked to the right of ownership are enumerated explicitly by the Drafts, as including particularly the entitlement to possess, use, utilise and to collect the fruits, as well as the right of disposition; the core interest being expressed by the absolute structure of the dominium as spelled out above, according to which the owner is entitled to exclude any kind of unlawful interference (1stDCC § 4:13 (2), identical 2ndDCC § 4:12 (2)). The content of the right of disposition is also defined explicitly: the owner may cede possession, use of the object, or entitlement to collect the fruits deriving from the thing, may provide it for security purposes, may encumber 74 75

PETRIK, in: Commentary, p 388. An analogy to the German concept Sacheinlage is relevant here, being something of a “contribution in kind”.

1. General basics

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it in any other way, may transfer the right of ownership to another, and may abandon the right of ownership (1stDCC § 4:37 (1), identical 2ndDCC § 4:35 (1)). The Academic Proposal is identical to the black letter texts as proposed in the Drafts (AcadPROP § 4:13 (2), in connection with § 4:37 (1)). (ii)

Legislative Proposal

The Legislative Proposal follows the concept in the Drafts and Academic Proposal as presented above, but the wording of the provisions slightly differ: by the exclusive legal power as conferred on him by the right of ownership, the owner is entitled to exclude anybody else’s unlawful intrusion against his right of ownership (Legislative Proposal § 4:14 (1)); the interests linked to the right of ownership are listed, which apply unless otherwise provided: by statute; by court or public authority decision; or by contract made upon authority granted by statute (Legislative Proposal § 4:14 (2)). The content of the right of disposition is also defined in an identical manner, but the subsection is supplemented by a sentence providing that the content of the right of disposition may be subject to restriction by statutory provision (Legislative Proposal § 4:38).

1.2.3. Restrictions of the right of ownership In this respect it is necessary to resort to the general clause at the beginning of the HCC, according to which the persons entitled to exercise rights must do so in accordance with the social function of these rights (HCC § 2 (2)). Subsequently, the exercise of the entitlement to use and to possess (deriving from ownership) cannot result in the violation of another person’s rights. The literature differentiates between private law and public law restrictions of the right of ownership, but there can also be a distinction drawn between restrictions affecting the right of disposition and restrictions affecting the use of the object.

Hungary

450

(a)

Private law restrictions of the right of ownership in Hungarian private law

(i)

Property law restrictions

To the first category belong the so-called neighbour rights (HCC §§ 100107) and the rules on superstructure76 (HCC §§ 109-111), affecting the right of use (affecting indirectly, of course, also the right of disposition). However, both of these have more significance in the field of immovables than movables. The second category includes the prohibition to alienate and the prohibition to encumber. One of the most comprehensive expressions of the owner’s exclusive and absolute legal power over a thing is his right of disposal. This entitlement can also be subject to restriction or exclusion by statute, court decision or by contractual agreement (HCC § 114 (1)-(2)). Concerning the right of disposition, the most common restriction provided by a legal provision is that declaring a certain object non-transferable (res extra commercium). Non-transferable things include state property and objects declared non-transferable by special laws (HCC § 173 (1)); any alienation of non-transferable things is null and void (HCC § 173 (2)). The restriction of the right of disposition may cover the property right in its entirety, or only entitlements deriving from it: the two most important entitlements are the right to alienate and the right to encumber. A restriction based on a legal provision or court decision has absolute effect, and excludes ex lege good faith acquisition for value, but the counterparty in such a purported transaction may nevertheless demand compensation for breach of contract.77 The prohibition may also based on a contractual agreement, by fulfilling two conjunctive conditions: firstly, stipulating a restriction is only possible when there is a disposition of the right of ownership – in case of sale, donation, etc.; and secondly, the stipulation should have the scope to secure the disposing person’s or somebody else’s right over the corporeal object concerned (HCC § 114 (2)). It is possible, for example, to stipulate a prohibition of alienation and encumbrance in the case of donation, because the stipulation secures the donor’s right to claim back the thing donated.78 Instances of prohibition stipulated by virtue of law in the HCC include: in the case of a contract for sale with retention of title clause until the purchase price is paid (HCC § 368 (1)-(2)); in the case of inheritance contract,79 if an immovable is part of the inheritance, a prohibition of alienation and encumbrance must be entered into the land regis76

77 78

This applies in the event a building is constructed so as to encroach onto another individual’s land. LENKOVICS: Property Law, pp 106-107. To claim the return of the donation pursuant to HCC § 582 (2).

1. General basics

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try (HCC § 657 (1)). These cases do not affect situations of non-gratuitous acquisition in good faith, they only have relative effect.80 An example of relative effect in case law is the case where the buyer of a car was held to have acted in good faith by the court and subsequently, notwithstanding an effective prohibition of alienation, the acquisition of ownership in the car was recognised when he acted without having the vehicle registration document (BH2005 / 184). There are cases when the prohibition of alienation and encumbrance stipulated by contract may have absolute effect,81 connected to: the publicity thereof (provided by the land register in the case of immovables); to the bad faith of the person acquiring a right; or to the gratuitous character of the contract (HCC § 114 (3)). Nevertheless, according to case law, the voidness of these contracts is remediable (pursuant to HCC § 237 (2)), if the party protected provides his consent retrospectively.82 Beside the restrictions mentioned before, property law also imposes a potential duty on any owner in the case of an emergency to tolerate the utilisation, consumption or damaging of the thing being his property (benevolent intervention in another’s affairs), which may result in a temporary restriction of the ownership right (HCC § 107). However, to invoke the rules relating to benevolent intervention in another’s affairs as a legal ground for the interference, there are strict conditions to be fulfilled, the situation covered being extraordinary and exceptional. The regime may be interpreted as sui generis as to the legal consequences as well: the lawful invoking establishes a relationship between the persons involved governed by the regime. Finally, one may note that use in public interest may apply, exclusively in the case of immovables (HCC § 108), where the justification for the interference is the satisfaction of public interests (e.g. installation / setting up of a power supply line, protection measures against water, etc.). 79

79

80 81

82

An inheritance contract is not to be confused with a will. Hungarian private law also knows the so-called inheritance contract which, unlike a will, also provides for a performance on the part of the heir to provide life annuity or maintainance in kind (HCC §§ 655-658). LENKOVICS: Property Law, p 107. In certain cases the old Hungarian private law also accepted the absolute effect with regard to movables where the prohibition of alienation was recognisable to third persons (e.g. depositing the object with the court, or in the case of bearer instruments the restriction of transferability by setting out the need for an agreement requiring publicity for transmission (in German Vinkulation)). These are exceptions for there are a very limited number of cases where the publicity of the restriction can be effected – see LÁNYI: Prohibition of Alienation and Encumbrance, pp 96-104. LENKOVICS: Property Law, p 109.

452

Hungary The prohibition of alienation and encumbrance established by operation of law as a consequence of property seizure in judicial enforcement proceedings prevents a purchase option tied to the event of seizure from taking effect (EBH2005 / 1319).

(ii)

The general clause on the limits to exercise the entitlements deriving from the ownership right (so-called general clause of neighbour law)

It seems desirable to present the central normative source of private law restrictions on the exercise of the various entitlements deriving from the ownership right in the HCC, but it should be noted that the provision’s scope of application was designed more for immovables than movables. HCC § 100 states generally that the owner is obliged to refrain from using the thing in such a way that may unnecessarily disturb others, especially his neighbours, or which would endanger the exercise of his neighbours’ rights. The provision sets limits for the right of use in a thing generally, but case law directs the application primarily to immovables, focussing on the persons using the immovables situated in the neighbourhood. Instances which may be subsumed under the general clause is the disturbance caused by plants, disturbance caused by noise, disturbances caused through animal keeping, disturbances caused in connection with building operations (e.g. by erecting a new building).83 Among these instances listed the category of disturbance caused by noise may also have relevance concerning movables (e.g. by exercising the right of use and causing noise consequently). Restriction of the right of use in order to avoid the disturbance caused by noise effect: while using the corporeal object, the owner may not cause such noise effects which would result in unnecessary disturbance of another. Conclusively, the operation of any kind of mechanism causing noise is considered to infringe an interest protected by neighbour law (BH1975/117). According to case law, when determining whether the noise was necessary the character of the area should be taken into account (BH1988/2). The courts may restrict the night operation of premises, considering the tourism interest less significant as compared to the negative impact the noise has on the population’s life conditions (e.g. BH1985/334, BH1992/100).84

83 84

TAMÁS SÁRKÖZY, in: Commentary for the Practice – Vol. II, pp 247-248. SÁRKÖZY, in: Commentary for the Practice – Vol. II, p 248.

1. General basics

(iii)

453

Restrictions according to the law of obligations by the parties’ agreement

According to the obligations regime of the HCC, the owner’s right of disposition may be restricted by a right of pre-emption (HCC § 373), a right of redemption (HCC § 374) and a purchase option (HCC § 375). These are regarded as special instances of the contract for sale, although they are included within the special part of the law of obligations. (aa)

Right of pre-emption (elővásárlási jog)

The right of pre-emption provides a so-called preference according to which the person entitled may establish a legal relationship between him and the seller by his unilateral legal act. This means that if the owner wishes to sell the thing being his property, the person entitled to pre-emption may supplant any potential buyer by making use of the right of pre-emption, and in so doing entering into a contract for sale. From the point of view of the achieved legal effect, the right of pre-emption operates as a restriction of the owner’s right of disposition over the movable. The subject of a pre-emption right may be movable or immovable. It is necessary for the pre-emption agreement to be in writing. The beneficiary of the pre-emption right may be any person, and the right may exist for a definite or indefinite period of time. The renunciation of the right of pre-emption may be effected without formality, meaning orally and by concludent factum. It will also be classed as renunciation if the person entitled does not give any statement within a reasonable time limit set out by the owner. The owner may claim that the contract which will come into existence also includes any thing(s) which cannot be separated from the principal thing without damage. The right of pre-emption as such only covers the contract for sale, it does not the owner donating or bartering the thing. A related question arises where the sale is an enforced one: in the case of a public authority auction within enforcement proceedings (e.g. as a result of insolvency) the sale is not taking place by the seller’s intention so the chance to exercise the right of pre-emption does not materialise (and, in a situation of co-ownership, the co-owner(s) may not exercise the general entitlement to pre-emption). The situation proves similar if the transfer of ownership takes place within the scope of a life care and maintenance contract (HCC §§ 586-590). The situation is a different one though where the pre-emption right concerned is that of the co-owners in the course of termination of co-ownership proceedings (the main distinction identified is that the procedure is not a forced one) (HCC § 148 (3) – on the special pre-emption entitlements related to co-ownership, see 17.1.5. on the external effects: rules on transfer of ownership and protection of ownership – below). The right of pre-emption may also be established in

Hungary

454

the case of registered shares, but this has to be mentioned in the share documentation. A minor may be entitled to exercise the right of pre-emption; nevertheless a renunciation (non-exercise) of such right does not mean a (gratuitous) renunciation of the right, which is subject of approval by tutelary authority. The resultant contract for sale comes into existence by exercising the right of pre-emption, meaning that the person entitled embraces the offer communicated with him in its full content. However, the contract does not come into existence if the notification of the proposed sale (the trigger for the pre-emption) was not made by the seller, but by the person who made the offer, because of the lack of legal relationship between the two persons concerned. If the person entitled does not answer to the communicated offer (or he gives a negative answer), the owner is free to sell the thing concerned but only according to the conditions set out in the offer, or indeed under better terms (so as to ensure the eventual sale has not operated to avoid the pre-emption, which would be the case if a lower price was agreed after the non-exercise of the pre-emption right). If there is an attempt to re-negotiate the price downwards, the owner is obliged to notify the person holding the pre-emption. The legal consequence of a failure to notify is the relative ineffectiveness of the contract concluded with the third party. The party whose right has been infringed by the contract concluded may request from the court the assessment of the ineffectiveness of the contract. A right of preemption may not be subject of transfer or of succession.85 Special statutory instances of pre-emption relate to certain categories of goods (see 1.2.3.(b) (iv) on the special treatment of cultural goods and (v) on other movables subject to a statutory right of pre-emption). (bb)

Right of redemption (visszavásárlási jog)

The establishment of a redemption right (HCC § 374) presupposes (or is based on) a contract for sale; it is agreed in written form at the conclusion of the underlying contract. On the basis of the redemption right agreed the seller may re-acquire the thing sold by his unilateral legal act. The redemption right is exercised by his declaration directed to the buyer. The seller’s statement establishes a (reverse) contract for sale between the buyer (who now acts as seller) and the seller (who now acts as buyer). Rights of redemption may be set out for a maximum period of five years, an agreement which ignores this restriction will be deemed null and void. If the parties have not agreed on the period for which the redemption right will be established, the redemption right will cease to exist after five years. A potential issue is the price to be applied in the event re-acquisition, but generally the price applied is the same as that of the initial contract for sale. 85

ZOLTÁN, in: Commentary, pp 1445-1447.

1. General basics

455

That said, according to HCC § 374 (3) re-assessment is possible according to the current state of the thing concerned (applying a higher or lower purchase price). The buyer is liable for the destruction or deterioration of the thing, if this is attributable to him. The general principles concerning the pre-emption right also apply to the redemption right, mutatis mutandis (relative ineffectiveness in the case of alienation towards a third person, non-transferability of the right of redemption, etc.).86 (cc)

Purchase option (vételi jog)

Where a purchase option (HCC § 375) is agreed the person entitled may acquire the ownership of the thing concerned by his declaration directed to the owner. This means in fact that by his unilateral legal act the person entitled will constitute a contract for sale. The purchase option must be established in written form, determining the thing concerned (which may be any transferable thing) and the purchase price. Like a right of redemption, the period of time a purchase option may be established is limited to five years – an attempt to create a longer period will be null and void. Where no period is defined, the purchase option will cease to exist after six months. The purchase option may also ceases to exist by the court’s decision: the court may release the seller from the duty imposed on him by the purchase option if he proves that his circumstances have changed so fundamentally that compliance with the duty is no longer realistic (HCC § 375 (3)). While the court’s entitlement to release is a conditional one, a legal rule may direct otherwise. The general principles concerning the preemption right apply to the purchase option mutatis mutandis. The purchase option may also be established by virtue of law, or by a “special” option established by the HCC (according to HCC § 578 / D (2) the new member entering into a joint building venture has an option for the share of the departing member).87

(b)

Public law restrictions of the right of ownership

Pursuant to the categorisation presented in Lenkovics’s survey on property law,88 one may deal with restrictions concerning the acquisition of ownership, restrictions of possession, restrictions of the right of use and exploitation, and finally restrictions of the right of disposition.

86 87 88

ZOLTÁN, in: Commentary, pp 1450-1453. ZOLTÁN, in: Commentary, pp 1453-1457. LENKOVICS: Property Law, pp 108-113.

Hungary

456

(i)

Restrictions concerning the acquisition of right of ownership

Ownership may not be acquired in things that cannot be subject of possession (res communes omnium, e.g. air, wind, rain). Of course, there is no positive and exhaustive enumeration of these things in the HCC, these being defined in case law by way of a contrario interpretation of the core property law provision (HCC § 94 (1)). Objects which constitute state property (and local government property) cannot be owned by other persons. The most problematic cases are those of conditional acquisition: the fulfilment of a condition stipulated in a statutory provision may operate as prerequisite for acquisition, but may also operate to exclude acquisition.89 (ii)

Restrictions of possession

The restriction of possession is strongly connected to the restriction of acquisition but, notwithstanding, the possession of certain things may be restricted independently of the title to a thing. Such things are those dangerous to the possessor and to the environment (e.g. explosives, certain chemicals, poisons, etc.) or those of which possession may be bound to conditions because of public interest, like cultural goods, official records, etc. In addition to the prohibition to possess as such, there may be other formalities to comply with, such as the possessor’s duty to obtain authorisation, registration, certification, etc.90 (iii)

Restrictions of use, utilisation and disposition

The restrictions of possession usually, but not necessarily, imply the restriction of use and exploitation. An example for restriction of ownership on the grounds of public law concerning immovables is the right of use in the public interest (HCC § 108). The public law restrictions focus on the person exercising the right of use, on the thing itself or on the purpose, manner and extent of use. Public law restrictions include the duty to register, the requirement of authorisation concerning the use and / or putting into practice certain protective measures (e.g. where a certain danger is constituted), things being under special protection (e.g. cultural goods, discussed below), the public authority’s entitlement to control that the thing is used in a legal and appropriate manner, the prohibition of the use and exploitation, or of a certain manner of use, etc. Within the category of the public law restrictions also appears the prohibition of alienation and encumbrance

89 90

LENKOVICS: Property Law, p 109. LENKOVICS: Property Law, pp 110-111.

1. General basics

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(HCC § 114 (1) – discussed above), but it may also be considered on the public law side as it may involve a duty to alienate the thing to the state.91 (iv)

Special treatment of cultural goods

The restrictions in this respect derive from both national law and international law. From national law, the framework is provided by the Act on the Protection of Cultural Heritage Act as lex specialis: on the cultural goods declared to be under protection the state may exercise a right of preemption in the case of non-gratuitous transfer of ownership (§ 51 (4)). From international law, the provisions are directed to prohibit and prevent illegal import and export. The basic legal framework in this respect constitutes the Paris Convention as transposed into Hungarian law.92 Accordingly, the Protection of Cultural Heritage Act constitutes the national lex specialis, where for export of cultural goods falling under the scope of application the prior approval of the competent authority is needed. In this respect, there is a difference to be made as between the point of origin of the goods concerned, invoking the application of different regimes, whether the territory of Hungary or the territory of the European Union. The list of the goods that require prior approval, and the procedural rules to be followed, are provided in Annex 1 of Decree 17 / 200193 (made by the Ministry of National Cultural Heritage). Where the export concerns the territory of the European Union, the provisions set out in Regulation 3911 / 92 / EEC apply, while Regulation 752 / 93 / EEC applies in relation to any subsequent procedural issues. A cross-border recovery procedure – which acts as a quasi crossborder possession protection instrument – is subject to one of two special regimes in Hungarian law, depending on whether the illegal export / import of the cultural goods concerns the territory of a member of the European Economic Area94 (EEA) – implementation of the Directive 93 / 7 / EEC – or the territory of a third country, which invokes the application of the regime 91 92

93

LENKOVICS: Property Law, pp 111-112. 1979. évi 2. törvényerejű rendelet a kulturális javak behozatalának, kivitelének és tulajdona jogtalan átruházásának megakadályozását és megelőzését szolgáló eszközökről szóló, az Egyesült Nemzetek Nevelésügyi, Tudományos és Kulturális Szervezetének Közgyűlése által Párizsban az 1970. évi november hó 14. napján elfogadott Egyezmény kihirdetéséről [Law-Decree 2 of 1979 on the promulgation of the Paris Convention on Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership in Cultural Goods from November 14th, 1970]. 17 / 2001. (X.18.) NKÖM (Nemzeti Kulturális Örökség Minisztériuma) rendelet a kulturális javak kiviteli engedélyezésének részletes szabályairól [Cultural Heritage Ministry Decree 17 / 2001 on the detailed rules concerning the approval of export of cultural goods].

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established by the appropriate international convention.95 The regime for EEA cases provides a special title to recover, by declaring the duty to restore (§ 3 (1)-(2)) and setting out also the law (jurisdiction) applicable to determine the ownership right of the cultural goods concerned is that of the state requesting the return (§ 4 (1)). On the other side, the non-defaulting possessor is entitled to receive equitable compensation from the state requesting the return (§ 3 (3)). The special restitutory title ceases to exist after 30 years where the cultural goods are private property, or 75 years in the event that the cultural goods are part of a public collection (§ 5 (2)); it can therefore be seen that the special recovery title is subject to prescription. The title provided does not affect remedies available on other grounds (§ 4 (2)). The regime applicable to third countries (other than EEA) provides similar instruments: duty to restore (Art. 3 (1)) in the case of cultural goods stolen, and in the case of cultural goods brought abroad illegally the entitlement to request from the concerned country’s authority or court to deal with the restitution (Art. 5 (1) – it is not seen as duty), whereas a duty exists insofar a special interest as listed is present (Art. 5 (3)); the non-default possessor’s entitlement to equitable compensation from the state requesting the restitution (Art. 4 (1), respectively Art. 6 (1)); and there are some prescriptive rules, the term of prescription is defined as 50 years (Art. 3 (3), respectively Art. 5 (5)), but the duty to return goods stolen being an integral part of a monument or archaeological site or belonging to a public collection is not subject to a time limit (Art. 3 (4)), but nevertheless a state concerned may invoke a prescription period of 75 years or even longer as it may correspond to applicable national legislation (Art. 3 (5)). 94

(v)

Other movables subject to a statutory right of pre-emption

Additionally, there are four further categories of goods subject to a statutory right of pre-emption for purposes of public interest: 1) the Széchényi István National Library may exercise a right of pre-emption on books subject of sale by public auction (§ 61 (5) Museum Institutions, Public Library Services and Public Access to Culture)96; 2) in the case of alienation of protected 94

95

96

2001. évi LXXX. törvény a jogellenesen kivitt kulturális javak visszaszolgáltatásáról [Act LXXX of 2001 on the restitution of the illegally exported cultural goods]. 2001. évi XXVIII. törvény a lopott vagy jogellenesen külföldre vitt kulturális javak nemzetközi visszadásáról szóló, Rómában, 1995. év június hó 24. napján aláírt UNIDROIT Egyezmény kihirdetéséről [Act XXVIII of 2001 on the promulgation of the UNIDROIT Convention on international restitution of cultural goods stolen or brought abroad illegally, signed in Rome on June 24th, 1995]. 1997. évi CXL. törvény a muzeális intézményekről, a nyilvános könyvtári ellátásról és a közművelődésről.

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archive material the Archive (institution) named in the decision ordering the protection may exercise a right of pre-emption on that archive material (§ 33 (5) of Act LXVI of 1995 on public documents, public archives and protection of the archive material that is the subject of private archive)97; 3) in the case of transfer of ownership in protected environmental value (special statutory category, according to Environmental Protection Act) the State may exercise a right of pre-emption (§ 68 (5) of Act LIII of 1996 on the Protection of the Environment); 4) in the case of sale of mining memorabilia the museums founded for the collection and custody thereof may exercise a right of pre-emption on these (§ 26 (6) of Government Decree no. 203 / 1998 on the application of the Mining Act).98

(c)

Progressing towards the new Civil Code

(i)

Property regime restrictions

(aa)

First Draft, Second Draft and Academic Proposal

The Drafts have broadened the scope of the prohibition of alienation and encumbrance by the abolition of the requirement that such a security may be stipulated only in connection with a transfer of the property (see above). The black letter rules introduce some clarifications(1stDCC § 4:38, similar 2ndDCC § 4:36): sub-section (1) enables the stipulation of a prohibition of alienation on its own, while (2) makes clear that the prohibition of alienation does not include the prohibition of encumbrance unless the parties agree explicitly. Sub-section (3) declares the accessory character of the prohibition. The legal effects of the prohibition of alienation and encumbrance are regulated in some detail (1stDCC § 4:39, similar 2ndDCC § 4:37). Furthermore, the Drafts abolished the privileged status in the case of restrictions established by a legal rule or court decision, which are treated in exactly the same way as those agreed in a contract (1stDCC § 4:40, similar 2ndDCC § 4:38).99 The provisions included in the Academic Proposal are identical to those in the First Draft (AcadPROP §§ 4:38-4:40).100 97

98

99

100

1995. évi LXVI. törvény a köziratokról, a közlevéltárakról és a magánlevéltári anyag védelméről. 203 / 1998. (XII. 19.) Kormányrendelet a bányászatról szóló 1993. évi XLVIII. törvény végrehajtásáról. See on the deliberations concerning the property regime at an early stage of the codification process MENYHÁRD: Remarks and Proposals, p 17. ATTILA MENYHÁRD, in: Expert Proposal, pp 618-620.

Hungary

460

(bb)

Legislative Proposal

The provisions included in the Legislative Proposal follow predominantly the model in the Second Draft, but nonetheless Legislative Proposal § 4:40 (1) keeps the approach as included in HCC § 114 (3). This states that where the restriction is publicised (through registration), the acquirer is in bad faith, or in cases of gratuitous acquisia disposition contrary to the prohibition is deemed null and void. Sub-section (2) makes clear that the prohibition of alienation and prohibition of encumbrance may also apply separately from each other and the effects accordingly invoked are also relative.101 (ii)

Restrictions from the law of obligations

(aa)

First Draft, Second Draft and Academic Proposal

There are no changes to the restrictions flowing from the law of obligations in the prospective texts. The concept of the special standing of the contract for sale has been kept, which covers: the right of pre-emption (1stDCC §§ 5:186-188, identical 2ndDCC §§ 5:192-194); the right of redemption (1stDCC § 5:189, identical 2ndDCC § 5:196); and the purchase option and sale option (1stDCC § 5:190, identical 2ndDCC § 5:197). Furthermore the right of pre-emption and right of redemption stipulated by contract may achieve absolute (in rem) effect by the entering into the land registry or into a public registry which records (and proves) who the owners of movables are (1stDCC § 5:186 (3), identical 2ndDCC § 5:192 (4)). The Second Draft introduces a new entitlement: the right of first refusal (i.e. the right to make the first offer) granted to a person in the event the owner wishes to sell the thing. This applies in both directions: the owner is obliged to accept the first offer from the person entitled, and is entitled to request the first offer be made by this person (2ndDCC § 5:195)). The Second Draft enables the transfer of the right of pre-emption with the consent of the owner (2ndDCC § 5:192 (3)), and special provisions applicable to consumer transactions are also included (2ndDCC § 5:196 (2), § 5:197 (3)). The concept of the Academic Proposal is identical to the First Draft: right of pre-emption (AcadPROP §§ 5:200-202),102 redemption (AcadPROP § 5:203),103 purchase / sale option (AcadPROP § 5:204), the absolute effect in case of registration (AcadPROP § 5:200 (3)).104 101 102 103 104

Legislative Proposal – Explanatory Statement – § 4:40, pp 769-770. ANDRÁS KISFALUDI, in: Expert Proposal, pp 875-879. KISFALUDI, in: Expert Proposal, p 879. KISFALUDI, in: Expert Proposal, pp 875-876.

1. General basics

(bb)

461

Legislative Proposal

The Legislative Proposal is identical to the Second Draft: right of preemption (Legislative Proposal §§ 5:190-5-192); right of first offer (Legislative Proposal § 5:193); right of redemption (Legislative Proposal §§ 5:194); purchase / sale option (Legislative Proposal § 5:195); and the absolute effect in case of registration (Legislative Proposal § 5:190 (4)); transferability by consent of the owner (but generally the entitlement is not transmitted by way of succession) (Legislative Proposal § 5:190 (3)); special rules for consumer transactions concerning the right of redemption and purchase / sale option (in both cases limiting the maximum period applicable to five years) (Legislative Proposal § 5:194 (2), § 5:195 (3)); and setting a minimum period of a binding offer (Legislative Proposal § 5:191 (2), § 5:193 (2)). It may be noted that where by registration absolute effect is achieved, the entitlement appears to be of a stature very similar to a property entitlement. A special instance of purchase option for security purposes is conceptualised as a special contract, making it part of the group of security contracts (Legislative Proposal § 5:373): here conclusively the Legislative Proposal recognises the purchase option for security purposes as sui generis within the law of obligations for credit security (non-proprietary security). Finally, some remarks on the concept of purchase options as non-proprietary credit security in the Legislative Proposal may be added. The Legislative Proposal regulates the purchase option for security purposes as a distinct type of contract within the group of security contracts (Legislative Proposal § 5:373). The concept codifies the principles developed by the Supreme Court in this field, where special guarantee rules have been implemented. Subsection (2) sets up three conditions for the establishment of the guarantee: a) the security agreement must be included in a public document, or a private document countersigned by a lawyer; b) there must be registration in the appropriate registry; and c) the value of the object shall be determined in the document by expert opinion. Exercise of the purchase option by the security taker requires the claim and the value of the claim secured by the purchase option to be set against each other, and subsequent mutual accounting with the security taker (Legislative Proposal § 5:373 (3)).

(iii)

Other special instances of sale which may interact with the right of disposition

(aa)

First Draft, Second Draft and Academic Proposal

There are other instances of sale which may interact with the right of disposition: instalment sale (1stDCC § 5:191, 2ndDCC § 5:198, AcadPROP

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§ 5:205) where the seller may withdraw from the contract where the buyer fails to fulfil his duty to pay (usually combined with retention of ownership); sale on approval (1stDCC § 5:192, 2ndDCC § 5:199, AcadPROP § 5:206) where a contract comes into existence implying the intention to transfer the ownership, but the contract remains ineffective until the buyer has inspected the object concerned and approved the thing; trial purchase (1stDCC § 5:193, 2ndDCC § 5:200, AcadPROP § 5:207) where again a perfect contract comes into existence and the buyer takes the object into his possession for trial purposes, but the buyer, by his statement based on his experience of the item while it is on trial, may render the contract ineffective. (bb)

Legislative Proposal

The Legislative Proposal integrates the regulation in the sense of the Drafts presented above: instalment sale (Legislative Proposal § 5:196), sale on approval (Legislative Proposal § 5:197) and trial purchase (Legislative Proposal § 5:198).

1.3.

Other property rights (or property positions) in Hungarian private law

When addressing the category of other property rights in Hungarian private law one may think automatically on the restricted property rights (korlátolt dologi jogok) included in the HCC. Nonetheless, there may also be identified attempts to establish differing functional property positions – in concreto fiduciary positions – as well, but such attempts seem to prove unsuccessful – see 1.3.2. on the fiduciary property position below.

1.3.1. Restricted property rights other than proprietary securities After the right of ownership, the most comprehensive of the property rights, the HCC also includes a system of restricted property rights. From a systematic point of view, according to the literature, the restricted property rights may be divided into two groups: the first group consists of the so-called exploitation rights (használati or állagjogok); and the second group of the so-called rights of value (értékjogok). The first category includes usufruct, beneficial use (personal servitudes), land use, servitude, and public interest use. The second category includes the proprietary securities: pledge and mortgage (immovable), pledge on assets, pledge on rights and claims, independent (abstract) pledge. However, the following overview is restricted to property rights relevant for the report.

1. General basics

(a)

463

Usufruct

According to the right of usufruct (HCC §§ 157-164) a person is entitled to possession, use, exploitation and the fruits of another’s movable or immovable corporeal object. At the end of the legal relationship the person is obliged to return the object without deterioration. The subject of the usufruct is usually an immovable or inconsumable movable thing. As an exception the so-called irregular usufruct also exists, where the things subject to the usufruct are consumable movables (the typical example being money). In this case the usufructuary becomes owner of the movable and, at the end of the legal relationship, he will be obliged to give back just as much he received. The subject of the usufruct may also be a chargeable claim or a right bringing profit – i.e. not a corporeal movable. Where several things are joined to form one item, the usufruct may encumber the principal movable, or only on a part of it. The usufruct may be established by contractual agreement, a legal rule, or court order (including a public authority decision). The right of usufruct is always for a limited period of time, the longest possible time being for the life of the person entitled. There may be more than one person entitled to usufruct on a movable: in this case the persons entitled may exercise their right simultaneously, or in a successive way, one after the other.105 If a usufruct has not been established for a definite period of time, in a situation of multiple entitled persons the usufruct, being a personal servitude, will encumber the movable until the last usufructuary dies. The right of usufruct entitles the usufructuary to possession, use and exploitation of the movable. Furthermore, the person entitled has the possibility to cede the exercise of the right of usufruct to another. Duties of the usufructuary are: to act according to the principles of ordinary economics; to bear the burdens incurred in connection with any maintenance; to bear the common charges; to inform the owner about an impending danger and damage incurred; to tolerate the measures necessary to prevent or avert a damage by the owner; to tolerate the inspection by the owner concerning the use of the movable; and to return the movable to the owner after the usufruct ends.106 The usufruct ceases to exist on the death of the usufructuary, by the usufructuary renouncing the right, and where the thing is destroyed and the owner does not restore the previous state.107 In the case of destruction or deterioration the owner has no obligation to restore the object (HCC § 163 (1)).

105 106 107

LENKOVICS: Property Law, p 216. LENKOVICS: Property Law, p 217. LENKOVICS: Property Law, p 219.

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With regard to the duration (and possible extension) of the right of usufruct the content of the contract – i.e. the agreement of the parties establishing the right – is decisive. Although the right of usufruct constitutes a legal relationship with continuous character, it cannot be subject of modification by the court. The usufruct is a proprietary right with absolute structure, according to which the court cannot modify either the duration or the content of it. Nor is it possible for the court to modify the contract establishing the usufructuary’s right on grounds of HCC § 241, for it implies a singular performance, and as such the coming into existence of the right the performance is the perfection of the contract (BH1987 / 5).108

(b)

Beneficial use

On the basis of beneficial use (HCC § 165 (l)) a person is entitled to use and to collect the benefits deriving from the object up to an extent which does not exceed his and his family members’ needs. As compared to the usufruct the difference is that the person entitled cannot (overly) exploit the object and cannot cede the use of it. Subsequently, the beneficiary of this right can only be a natural person.109

(c)

Progressing towards the new Civil Code

(i)

First Draft, Second Draft and Academic Proposal

The deliberations on the right of usufruct while drafting the new HCC were focussed on the attempt to establish a regime mostly compatible with the market economy. The right of usufruct in the HCC has been designed more for immovables than movables, the central scope of application being connected to inheritance law concerning the spouse’s right of usufruct on common goods acquired in course of the marriage. The main issues connected to the reform of the regulatory regime were: the right of usufruct entitling a legal person; the rules concerning the termination of contracts concluded by the usufructuary when the right of usufruct ends; the duty of the usufructuary to maintain the function of the thing subject to the right of usufruct, and finally the explicit treatment of usufruct on rights. The First Draft and the Second Draft follow different approaches in this respect; the reformatory steps considered necessary or desirable are evaluated differently. In accordance with the general approach followed in the 108 109

SZŐKE: Analysis of the Judicial Practice (…) p 12. LENKOVICS: Property Law, pp 220-221.

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field of property law in the First Draft, being devoted to strengthening the causal modus system of transfer, as far as a corporeal movable is concerned, in addition to the titulus the transfer of possession (real agreement and delivery) of the thing is also needed, but in the case of a usufruct on (encumbering) rights this will come into existence according to the rules on the transfer of rights. The right of usufruct will not affect later growth in the property concerned (1stDCC § 4:131 on the establishment of the right of usufruct). In order to provide a clear split of the entitlements in the two legal positions concerned, the First Draft abolishes the owner’s entitlement to exercise possession, use and exploitation where the person entitled refrains from exercising these rights;110 such a rule would lessen the absolute character of the usufruct as a legal position. However, the Second Draft maintains this rule (2ndDCC § 4:170 (4)). The right of usufruct in fact results in the division of the ownership right, affecting the market value of the thing encumbered; hence why the right of usufruct may be established only for a certain period of time, but at most until the death of the usufructuary (1stDCC § 4:132 (4), similar 2ndDCC § 4:179 (1)). Another reformatory point directed to provide a clear outline of the legal position may be the exclusion of the owner’s priority right when ceding the exercise of the right of usufruct to another non-gratuitously (1stDCC § 4:133, similar 2ndDCC 4:172 (3)). Different policy considerations prevail concerning the transferability of the right of usufruct: while the First Draft clearly excludes it (§ 4:133), transfer is permitted in the Second Draft provided that the owner has consented to the transfer (§ 4:172 (2)). Contrary to the policy consideration in the HCC, both drafts spell out explicitly the prohibition to effect changes in the thing subject to the usufruct, namely to transform the thing encumbered, even if this leads to an increase in value of the thing, without previous consent of the owner (1stDCC § 4:134 (2), identical 2ndDCC § 4:173 (2)); the requirement to act according to the principles of ordinary economics while exercising the entitlements deriving from the right of usufruct is spelled out (1stDCC § 4:134 (1), identical 2ndDCC § 4:173 (1)). Concerning the issue of expenses, the usufructuary bears the ordinary expenses, while extraordinary expenses are borne by the owner; the issue of reimbursement of extraordinary expenses effected by the usufructuary at the termination of the right of usufruct is subject to the unjustified enrichment regime (1stDCC § 4:135, identical 2ndDCC § 4:174). Both Drafts re-establish the category of the so-called irregular right of usufruct (usufructus irregularis) known by the old Hungarian private law, the subject of this category of usufructary right being movable things which may be consumed, or the transfer of which is considered standard in accordance with the principles of ordinary economics (1stDCC § 4:136, identical 110

First Draft – Property Law, pp 195-196.

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2ndDCC § 4:175). Where the usufructuary jeopardises the thing subject to the usufruct and, on request, does not provide appropriate security, the owner may request the termination of the usufruct (in contrast to the position in the HCC) from the court (1stDCC § 4:137 (3), identical 2ndDCC § 4:176 (3)). The rules on the protection of ownership may be applied appropriately also to the right of usufruct (1stDCC § 4:140 (2), identical 2ndDCC § 4:180 (2)). Both versions include special provisions concerning the usufruct of rights and receivables (1stDCC §§ 4:141-4:143, identical 2ndDCC §§ 4:181-4:183), while the Second Draft also contains a special provision if the subject of the usufruct is a company share (2ndDCC § 4:177). Beneficial use has not undergone a conceptual change as compared to the current regulation; however the beneficiary’s position has been completed with special provisions concerning the legal person111 (1stDCC § 4:144, identical 2ndDCC § 4:184). The Academic Proposal includes the regulation as in the First Draft (AcadPROP §§ 4:170-4:182) with slight changes of for the purposes of clarification: in the case of juristic personalities other than natural persons the right of usufruct may be established for a maximum of ninety-nine years (AcadPROP § 171 (5)),112 usufruct cannot be acquired by way of succession (AcadPROP § 4:172 (2)),113 while the regulation of beneficial use is identical (AcadPROP § 4:183).114 (ii)

Legislative Proposal

The Legislative Proposal seems devoted to introducing a more structured regulatory regime, nevertheless – besides some changes of a technical character – in content it is identical with the foregoing Drafts, comprising: an explicit passage destined for the definition of the right of usufruct (Legislative Proposal § 4:168); rules on establishment (Legislative Proposal § 4:169); rules where several persons are entitled by the usufruct; rules for the transfer of the usufruct (Legislative Proposal § 4:170); the rights of the usufructuary (Legislative Proposal § 4:171); the rights of the owner (Legislative Proposal § 4:174); rules on deterioration of the thing (Legislative Proposal § 4:176); rules on termination (Legislative Proposal § 4:177), etc. The new features included in the regime should be pointed out: the benefi111

112 113 114

The practice may raise the question of interpretation whether claims or other lucrative rights can be subject of beneficial use or not. If the beneficial use is not focused solely on personal needs, but also includes the entitlement to collect the benefits, it follows that it may not be given an extensive interpretation – see in this sense PETRIK: The Right of Ownership Today, p 391. MENYHÁRD, in: Expert Proposal, p 712. MENYHÁRD, in: Expert Proposal, p 713. MENYHÁRD, in: Expert Proposal, p 720.

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ciary’s right to demand from the owner the reimbursement of his extraordinary expenses effected according to the unjustified enrichment regime is limited to five years (Legislative Proposal § 4:172 (2)); a special provision concerning the membership right in a company or partnership as subject of usufruct is introduced (Legislative Proposal § 4:175); and the regime is includes a special sub-regime on usufructs in rights and claims (Legislative Proposal §§ 4:179-4:181). There is no change with regard to beneficial use (Legislative Proposal § 4:182).

1.3.2. Fiduciary property position: transfer of ownership for security purposes115 This institution serving for credit security purposes has been developed by judicial practice in the German speaking countries – considered to form the so-called Germanic legal tradition – mostly to overcome the difficulties related to the publicity requirement handled strictly concerning proprietary security rights in movables. Hungarian private law is not familiar with the institution of transfer of ownership for security purposes.116 Like the old Hungarian private law117 – and similar to Austrian private law – such a transfer is characterised by a simulated (or sham) contract, and, according to HCC § 207 (6), from the point of view of the legal effects of the contract covered must be taken into consideration if it affects another contract, otherwise the simulated contract is deemed null and void by virtue of law. This may lead to the application of the appropriate provisions on proprietary securities (HCC §§ 251-265).118 The basic idea behind this construction is strongly con115 116

117

118

In the sense of the German legal term of Sicherungsübereignung. See for the dispute in the literature on the status of fiduciary constructions in Hungarian private law NORBERT CSIZMAZIA, “Tulajdon mint biztosíték?” [Ownership as security?], in: Civil Law Codification 1-2 / 2004, pp 3-22; ZSOLT LAJER, – LÁSZLÓ LESZKOVEN, “A bizalmi (fiduciárius) biztosítékokról” [On fiduciary securities], in: Civil Law Codification 1-2 / 2004, pp 23-32; ISTVÁN GÁRDOS, – PÉTER GÁRDOS, “Van-e a fiduciárius biztosítékoknak helyük a magyar jogban?” [Is There Place for Fiduciary Credit Securities in Hungarian Law?], in: Civil Law Codification 1-2 / 2004, pp 33-47. In contrast, the old Hungarian private law before the Second World War did not consider simulated fiduciary constructions per se invalid, other fiduciary construction were recognized – see BÁRDOS / MENYHÁRD: Commercial Law, p 399. BH2006 / 118 – if the simulated sale contract over an immovable has been concluded with the purpose of securing the repayment of a credit provided and corresponds to the validity requirements set out for mortgage agreements, the person obliged must-

468

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nected to constitutum possessorium, where the seller keeps the possession of the object on the basis of an agreement with the buyer.119 However, the right of ownership to serve for security purposes is used in combination with another institution, namely by agreeing upon a purchase option clause for the event of non-payment over and above an in rem security (usually a mortgage over immovable),120 or in the case of claims pledged the construction followed is that of the security assignment of the claim121: generally speaking, case law recognises these constructions unless it is self-evident that the construction applied is directed to the fraudulent evasion of the lex comissoria provision (HCC § 255 (2)).122 (Art. 9 of the Uniform Commercial Code was also examined while the first amendment on the proprietary securities area (1996) was prepared. A complex view of the credit securities was in a certain respect achievable though the proprietary securities are integrated in the law of obligations (contract) regime in the HCC.) The policy rather seems to favour proprietary securities: The newly introduced § 49 / D of the Insolvency Act strengthens the position of the person entitled by the proprietary security, where during insolvency proceedings the insolvencyadministrator is only allowed to set certain things against the purchase price received for the object pledged, being: the costs related to the custody of the object; the expenses connected to preservation of substance and costs of sale; and his personal fee. The amount remaining must be used entirely for the satisfaction

119 120

121

122

tolerate the entering of the mortgage into the land registry – similar BH2006 / 17; see concerning the transfer of ownership of the object serving proprietary credit security BH1995 / 649 (stocks being provided for security purposes) – see also MENYHÁRD: Property Law, pp 471-475, p 480. MENYHÁRD: Property Law, p 479. BH2005 / 73 – this establishes that it is competent to agree a purchase option clause for security purposes (defining the thing being subject of the purchase option and the price) over and above a proprietary credit security, provided that the entitlement to exercise is effective only after the entitlement to satisfaction has become due – (i.e. there has been an event of default); other court decisions have considered this issue – BH1998 / 350, EBH1999 / 27, BH2001 / 584 – and see also MENYHÁRD: Property Law, pp 480-482. For the main decisions in the judicial practice concerning the security assignment of claims see: EBH2001 / 439 – on the legal status of the claim assigned for security purposes in the insolvency proceeding; and BH2005 / 16 – on the aspects qualifying the assignment to be effected for security purposes (security assignment). For an argument in favour of the general acceptance of fiduciary constructions in Hungarian law, see SZABADOS: Admissibility of true fiduciary constructions, pp 79-80. He argues that although an abuse for lack of publicity may not be excluded, this is in no way specific to these agreements.

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of the claim secured. In the case of floating charge the insolvency administrator must use fifty per cent of the purchase price received as reduced by the expenses related to the sale of the object.123 Nevertheless, the ownership as providing the best position from the point of view of the creditor remains uncontested.124

1.4.

Protection of property rights (dologi jogok védelme)

1.4.1. Is the distinction between real and personal rights alongside the absolute and relative structure appropriate? ATTILA MENYHÁRD’s recent monograph on property law addresses the issue of whether the differentiation between real rights (flowing from property law) and personal rights (flowing from the law of obligations) can be regarded as appropriate alongside the absolute and relative structure: can a strict division line be drawn at all? The issue was addressed in the period of old Hungarian private law, as for example by BÉNI GROSSCHMID (ZSÖGÖD) defining the property relationship as a “concentrated obligation”. Based on this statement, KOLOSVÁRY points out that the property relationship is only separated from the personal relationship by a gradual difference.125 MENYHÁRD points out126 that both a personal and real right imply both absolute and relative characteristics: on one hand, the personal right has an absolute aspect as it may be enforced only by the person entitled and by no one else (and if somebody does enforce a claim belonging to another, the law provides a claim based on unjustified enrichment for the person entitled as against such person). It can also be seen that ownership has a relative side, as it may be enforced only against certain, or specifically determined, persons:127 the ownership claim is in fact the fortified dimension of the absolute structure of the relationship established by the right of ownership, resembling in its content the personal claim insofar as it is directed to a performance, which consists in the recovery of the object or the termination of the disturbance.128

123 124 125 126 127 128

MENYHÁRD: Property Law, p 472. MENYHÁRD: Property Law, pp 479-480. KOLOSVÁRY: Introduction, p 2. MENYHÁRD: Property Law, p 359. MENYHÁRD: Property Law, p 359. SZLADITS: Property Law, p 212; – as also referred by MENYHÁRD: Property Law, p 359.

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1.4.2. Protection of the right of ownership In Hungarian private law the protection of the right of ownership may be achieved in two ways: the direct protection of the right of ownership (HCC §§ 115-116); and the indirect protection through the right of possession (both based on factum and better title, HCC §§ 188-192). The instruments provided in the HCC with the scope of protection of the right of ownership in the case of movables are the following: self-help (HCC § 115 (2)); rei vindicatio – as implied by the so-called ownership action (HCC § 115 (3)); and action protecting against disturbance of ownership (HCC § 115 (3)). The so-called recovery claim concerning property seized in course of judicial enforcement proceedings is provided in §§ 371-383 of the Code of Civil Procedure. Finally, regarding immovable property the HCC § 116 (1) provides the so-called land registry claim, where the right of ownership is acquired extra tabulam, including the land registry erasure and correction claim as pursuant to § 54 Land Register Act. As a starting point, the HCC states that there is no limitation for the ownership claim (HCC § 115 (1)), thus qualifying as imprescriptible. Nevertheless, the claim is characterised as imprescriptible only if the object is available (i.e. the object exists in a physical sense) and a potential recovery is possible. Otherwise, the claim is a personal one based on the law of obligations and subject to prescription according to the general prescription rules (see 13.3. on prescription of the right of ownership and other property rights).129 The imprescriptibile character, of course, is only relative in that the right of ownership is vulnerable to extinction through the operation of acquisitive prescription. The HCC includes the general instruments of protection of the right of ownership which, of course, do not exclude other special instruments for protection within other areas of law, such as criminal or administrative law.130

(a)

Legal nature of the “ownership claim” (tulajdoni igény)

Where the owner’s right of ownership is violated he is entitled to use the “ownership claim” against the interferer, which will be directed either to recover possession or to terminate the illegal disturbance. The ownership claim is always an objective entitlement, which may be invoked any time the ownership is violated or disturbed, while the violation is realised by the factum regardless of the interferer’s intent (or lack of intent) in this 129 130

PETRIK, in: Commentary, pp 396-397. MENYHÁRD: Property Law, p 358.

1. General basics

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respect. The ownership claim cannot be considered identical to the right of ownership itself: it experiences relative structure – i.e. as a claim it is directed against a certain person – as compared to the absolute structure of the right of ownership.131 As such, the protection provided by the court (or public authority) will always concern a relative relationship, and invoke inter partes effect as the resolution of a certain dispute.

(b)

Self-help (ownership)

The owner is entitled to self-help pursuant to the rules on protection of possession. This allows him to exclude or eliminate any illegal interference limiting or rendering impossible the exercise of the property right, as indeed can a non-owner who is entitled to possess, use or to exploit the property (HCC § 115 (2)).132 (On the conditions for exercising self-help see 2.3.5.(a) on self-help.)

(c)

The ownership action – rei vindicatio (tulajdoni per)

The purpose of the rei vindicatio is, in abstract sense, the ascertainment of the claimant’s ownership right against the defendant being in possession of the object concerned. Within the scope of the lawsuit the owner may apply, on one side, for the cessation of the illegal possession by the unlawful possessor, and, on the other side, for the possession to be returned. In order to make use of this remedy, the owner must allege and prove his right of ownership – which may involve proving his acquisition of ownership, the means of such acquisition, and the lawfulness of the predecessor’s acquisition – and the defendant’s possession in the sense that he holds the thing claimed. The defendant may use the defences of denial of the claimant’s ownership (exceptio posterios dominii), denial of the possession of the object, or invoke a title legitimating his possession.133 In the case of a successful claim, in abstract sense, the ownership will be returned (or, more accurately, confirmed, as the true owner never lost ownership) together with the fruits earned during the unlawful possession.134 From the technical aspect, the regime on protection of possession applies in a subsidiary and complementary manner (see 2.3. on protection of possession and 19.2. on the owner131 132

133 134

MENYHÁRD: Property Law, p 358. MENYHÁRD: Property Law, p 360; LENKOVICS: Property Law, p 201; PETRIK, in: Commentary, p 398. PETRIK, in: Commentary, p 398. LENKOVICS: Property Law, p 202; PETRIK, in: Commentary, p 398.

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possessor-relationship). Money held on account constitutes in this respect an exception (i.e. the value is not embodied in “corporeal” form): on money transferred incidentally from one account to another – i.e. without a legal basis for that transfer – the unjustified enrichment regime will apply and the sum will be recoverable under that regime (HCC §§ 361-364).

(d)

Action protecting against the disturbance of ownership (negatoria in rem actio)

Pursuant to his right of ownership, the owner is entitled to undisturbed possession, use and exploitation of the object concerned. This action may be called upon where the exercise of the right of ownership has not become entirely impossible, but there is an interference hampering the undisturbed exercise of the right. In order to make use of this action, the owner must allege and prove: the existence of his right of ownership; and the defendant’s unlawful interference with his ownership. A successful claim may result in the discontinuation of the disturbance, embodied in the prohibition of unlawful interference in the future, and possibly in compensation for the damage incurred by the interference. Like in the case of the rei vindicatio, there is no limitation of this claim either.135

(e)

Recovery claim in the case of property seizure in the course of enforcement proceedings

The owner may claim the restitution of his property seized in the course of enforcement proceedings from the person requesting it. The legal basis for this is provided by the Code of Civil Procedure (§§ 371-384). According to the wording of § 371 (1) a person may claim for an object seized to be returned on the grounds of his ownership, or other right which may be an impediment of the sale intended. The claim cannot be used if the person seeking to initiate the claim is jointly responsible for a debt with the (co-) debtor (a solidary obligation). In this case the enforcement proceedings instituted will in fact be directed also against him, meaning any seizure cannot be regarded as unlawful in relation to the co-debtor.136 The subject of the claim sought to be removed from the seizure may also be an amount of money, being a claim under seizure.137 While the recovery claim may also 135

136 137

MENYHÁRD: Property Law, pp 362-363; LENKOVICS: Property Law, pp 203-204; PETRIK, in: Commentary, p 399. PETRIK, in: Commentary, p 399. PETRIK: The Right of Ownership Today, p 277.

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be instituted on grounds of a different entitlement than the ownership right (e.g. entitlement provided by the proprietary security), the institution of a recovery claim by a usufructuary for a seized immovable cannot, as the person liable on an identical basis to the debtor is excluded. Marriage provides an interesting example of an application of this rule. The liability of a spouse is limited up to the value of his or her stake in the marital assets, but the spouse may institute the recovery claim concerning any objects seized that are part of his or her individual assets. If there are numerous persons requesting enforcement, the recovery claim will be directed against each of these persons. The court proceedings may be suspended as regards the enforcement proceedings for the object claimed. Where a claim is successful the court releases the seized object, or, if the object has already been sold, an amount of money corresponding to the purchase price received has to be allocated for the claimant (Judicial Enforcement Act § 377). When instituted, the recovery claim may also have dilatory effect regarding dealings with the disputed thing if the claim is submitted within eight days of the seizure being effected (Judicial Enforcement Act § 115 (2)), or within fifteen days of the surrender of the movable to the person requesting the enforcement (Judicial Enforcement Act § 178 (2)). In these cases the object concerned may only be sold after a legally binding decision is available. In other respects there is no statutory time limit defined for requesting the recovery, as ownership is not subject to prescription. The decision of the court – according to the general principles – has only inter partes effect and subsequently does not affect issues related to the relationship between the owner and the third person.138 The duty to bear the expenses of legal proceedings in this case – according to the defendant’s special position in the context – is imposed on the claimant (being the owner or, if appropriate, another person having an entitlement), unless the defendant was present at the seizure and acted in bad faith (CCP § 378 (1)). Nonetheless, in the case of an unsuccessful appeal, the defendant is obliged to bear the expenses of the connected legal proceedings (CCP § 378 (2)).

(f)

Unjustified enrichment (jogalap nélküli gazdagodás) regime and protection of ownership

The unjustified enrichment regime has a strictly subsidiary character in Hungarian private law and is not generally considered an appropriate instrument for protection of ownership, (but it is appropriate in the context of money and bearer instruments). Nonetheless, from a theoretical point 138

KENGYEL: Hungarian Civil Procedure Law, pp 455-456.

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of view, in connection with acquisition from a non-owner (see in detail 12. on acquisition of ownership in movables from a non-owner) there may be some constellations when the unjustified enrichment regime could be an appropriate instrument to provide a remedy. According to the prevailing view, the unauthorised disposition of a movable results in a non-existent contract, but the acquirer in good faith acquires ownership in the object pursuant to the rules on acquisition from a non-owner. In this case the owner may turn against the person acting without authority on grounds of the unjustified enrichment regime (if, according to the circumstances, he has no claim under the rules for non-contractual liability arising out of damage caused to another). Where the seller acquired the possession of the movable incidentally (which is necessary because otherwise the unjustified enrichment regime would prove inappropriate), the owner may claim from the seller the price received (surrogatum) for the thing sold (HCC § 118 (1)). The second instance of acquisition from a non-owner (HCC § 118 (2)) requires the movable to be entrusted by the owner to the transferor. In this situation, should the person entrusted lose the movable the owner becomes entitled to damages on grounds of contractual liability, or if possession of the movable was acquired by coincidence, on grounds of responsible custody (see 19.2.2. on responsible custody). The unauthorised disposition of a property and subsequent good faith acquisition of ownership by a third party serves as a connected example, where the rules of non-contractual liability arising out of damage caused to another are unable to provide an appropriate remedy (e.g. the conduct is not blameworthy): the unjustified enrichment regime may prove appropriate to recover the surrogatum received. The acquisition of ownership in money and bearer instruments constitutes a special case, where, in principle, the acquirer will acquire ownership in these in any case (nevertheless, this view may be regarded as problematic, see explanatory paragraph to 12.1.3. on acquisition of ownership in money and bearer instruments from a non-owner). In the case of money held on account the role of the unjustified regime is self-evident, for money held on account does not qualify as a thing in the sense of the property regime but a claim in the sense of the law of obligations. It may be referred to the view expressed by MENYHÁRD on the role of the unjustified enrichment regime in conjunction with the protection of ownership: a broader interpretation or more flexible approach of the rules on unjustified enrichment would enable its application in the field of neighbour law, meaning that the intrusion into another’s right of ownership is percieved use, being a deprivation of another’s ownership. According to this point of view, the violation of the right of ownership will bring a claim on unjustified enrichment. In this context MENYHÁRD also points out the advantange of the unjustified enrichment regime as compared to the non-contractual liability regime: in the case of violation of the right of

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ownership a remedy on the grounds of unjustified enrichment, as operating without the possibility of exemption, is more appropriate and efficient. The unjustified enrichment regime even appears more sound from conceptual point of view, since somebody gains profit by using the property of another, without having any legal title, a contractual basis, or legal provision to authorise sich use.139 The scope of application of the unjustified enrichment regime as related to the economic aspect of losing a movable (i.e. not competing with the rei vindicatio) is as follows. The (non-owner) carrier may claim the restitution of goods delivered to a wrong addressee on the grounds of unjustified enrichment where the carrier has compensated the addressee on the letter of carriage for the goods lost on the basis of the carriage relationship (BH1996 / 650). The role and place of the unjustified enrichment regime in the HCC is included within “Title II on the liability for damage caused outside contractual relationships and for unjustified enrichment” (HCC §§ 361-364),140 placed at the end of the general part on the law of obligations. Accordingly, the unjustified enrichment regime also invokes “liability” – pursuant to the wording in the HCC but, nevertheless, such an interpretation may be considered substantially imprecise as the unjustified enrichment regime does not operate on the basis of (subjective) blame. The regime concentrates only on the shifting of economic advantages (any advantage which may be expressed in money), with any such shifting being regarded from a purely objective perspective. Although it is not spelled out in the black letter text, the regime has subsidiary and supplementary character and may only be invoked if there is no other suitable normative ground within the HCC to cover the issue. The scope of application concerns mainly invalid service contract relationships, as well as the payment of money in the mistaken belief that it was due (condictio indebiti) and performance after the legal basis therefor ceased to exist (condictio ob causam finitam). There are three conditions to be fulfilled in order to invoke the application of the unjustified enrichment regime: the existence of patrimonial advantage; the lack of legal basis for the acquisition of the advantage; and the advantage is acquired to the detriment of another. The acquirer’s status of fide plays a role insofar as there is a negative balance. In a situation where the enrichment is no longer in an enriched individual’s patrimony at the moment it is reclaimed, an acquirer in good faith is not liable, but an acquirer in bad faith or someone who ought to have accounted for the 139 140

MENYHÁRD: Property Law, p 185. HCC § 361 (1) provides the general clause of the subsidiary nature of the unjustified enrichment regime: “A person who acquires patrimonial advantage to the detriment of another without legal grounds, is obliged to reverse this enrichment.”

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duty of reversal (e.g. an individual who has been warned the enrichment must be reversed) may be liable for the value of the enrichment. If the enrichment is a result of the disadvantaged person’s illicit acting, or acting in contravention of good morals, in principle it is also possible for the court, on request of the prosecutor, to decide about the reversal in favour of the state (however, this rule may no longer apply after the political and economical system transformation). On the reversal of patrimonial advantages the rules on possession without legal basis (owner-possessor relationship) apply appropriately – HCC § 195 ff., see 19.2 below – where the reversal is to be effected in natura, or by paying the monetary value. In addition, the rules on extra-contractual liability apply appropriately in a subsidiary manner.141 The supplementary character of the unjustified enrichment regime is mirrored in judicial practice. This makes clear that the rules on unjustified enrichment may only be invoked if the dispute cannot otherwise be decided on the grounds of the legal relationship of the parties (BH1997 / 483), and the obligation on grounds of unjustified enrichment regime only has a secondary character, and may only be invoked if there is no other legal title to claim restitution (BH1985 / 230).

(g)

Non-contractual liability regime and protection of ownership

The protection of ownership on grounds of non-contractual liability (general clause HCC § 339) appears functionally inappropriate: the interference with property rights does not characterise damage per se in Hungarian private law. A suitable means for recovery may rather be vindication exercised by the owner (HCC § 115 (3)), or the request to surrender the thing by the possessor deprived on basis of his title to possess – judicial possession protection (HCC § 193 (1)). The regime for non-contractual liability arising out of damage caused to another focusses on the loss as such, and as long as the thing concerned exists (in an undeteriorated state) there is no perceivable damage from the point of view of the regime for non-contractual liability arising out of damage caused to another. Nevertheless, loss may incur in connection with the deprivation (e.g. loss of income). The regime for non-contractual liability arising out of damage caused to another may also be an instrument for protection against other interferences with ownership, focussing on the loss subsequently suffered (damaging the substance of the thing, disturbance in possession, etc.). The rationale behind the civil law liability (as far as it concerns pecuniary losses) is to restore the person suffering the damage to the situation he would have been in had the damage 141

BENEDEK, in: Commentary, pp 1385-1400.

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not occurred. This is realised primarily by compensation in natura (by actual reinstatement of the prior state) or by paying compensation for the damage suffered (HCC § 355 (1)) (where it is compulsory to try to effect in natura restoration, especially concerning issues of disturbance in possession.142 The direct invoking of HCC § 339 may be appropriate to demand compensation from a thief if the movable stolen is no longer available and it cannot be handed over to the owner. The regime for non-contractual liability arising out of damage caused to another may be invoked for protection of property rights, but the protective effect achieved is considered to be one having indirect character. Generally, the regime for non-contractual liability arising out of damage caused to another is appropriate to protect the interests linked to the right of ownership in cases of the destruction of the movable or where there is a loss of the prospective rent (which is a loss of an advantage).143 A typical field of application of non-contractual liability for protection purposes is in connection with infringement of the standard stipulated in the ‘general clause’ of neighbour law (HCC § 100 – modelled with view to immovables), which is also regarded as a general private law restriction of the right of ownership. The general clause prohibits any behaviour of the owner which constitutes an unnecessary disturbance to neighbours, or endangers the exercise of another’s rights. Infringement leads to the application of the rules of non-contractual liability arising out of damage caused to another (HCC § 339 (1)), but the interaction between the requirement of imputability (blame) and unnecessary disturbance or endangering the exercise of rights is not clear. It is possible that despite the prohibition stipulated in HCC § 100 the interferer will be exempt from liability under HCC § 339 (1) by proving he has acted in a manner that is consistent with what can usually be expected in the given situation. With regard to such disturbing effect caused by masts of mobile telecommunications operators the Supreme Court has ruled that if the disturbance was of unnecessary character, the tortfeasor (owner) will not have acted as can be expected under the given circumstances, therefore his liability under HCC § 339 (1) can be assessed (BH 2006 / 184). The issue of necessity is assessed by cross-checking the owner’s and his neighbours’ interests (BH 2002 / 357).144 The regime for non-contractual liability arising out of damage caused to another in Hungarian private law follows the concept particular to the systems influenced by the French Civil Code, according to which non-contractual li-

142 143 144

BENEDEK, in: Commentary, p 1352. See for example MENYHÁRD: Pure Economic Loss, pp 331-332. MENYHÁRD: Property Law, pp 183-184.

478

Hungary ability is based on a general clause (HCC § 339 (1) – first sentence)145 and is conceptualised to operate common – erga omnes – obligations to protect private law rights and interests from any interference. The wording of the general clause primarily suggests a system based on fault with a reversed burden of proof.146 Pursuant to the concept formulated in the general clause, for noncontractual liability arising out of damage caused to another to apply there must be four constituent elements present: damage or loss (either pecuniary or non-pecuniary); unlawful conduct causing the damage; causal connection between these two elements; and imputability (or culpa), which is used as a generic (legally constructed) term, including the categories of intention and negligence. The rules on liability do not usually distinguish according to the protected interests or objects.147 In fact, the person who has suffered the loss / damage only has to prove the damage incurred and the causal connection between the damage and unlawful conduct causing the damage. Concerning the other two elements, any damaging conduct will be regarded unlawful per se, while imputability is interpreted in case law as having an objective content. Nevertheless, the person causing the damage may be exempted from liability if he proves that he has taken all the measures which might generally be expected under the given circumstances (HCC § 339 (1) – second sentence). In correlation, there is also a duty imposed on the person suffering the damage to act as it could be generally expected in order to avert and mitigate the damage (HCC § 340). The regime for non-contractual liability arising out of damage caused to another in the HCC also follows the dichotomy concept,148 meaning that the system consists of two sub-regimes: the general clause of the classic fault based liability (HCC § 339(1)) and the general clause of strict liability (HCC § 345(1)). Further special instances of non-fault based liability (liability for person of restricted or no capacity, vicarious liability, liability for animals, liability for dangerous premises) are also regulated (HCC §§ 347-353). The only case where the HCC admits equity as a basis of compensation is in connection with liability for persons of restricted or no capacity (HCC § 347 (2)).149 The legal consequence of liability on grounds of non-contractual liability arising out of damage caused to another will result in pecuniary or non-pecuniary compensation. An imminent loss or damage are also regarded an interests protected by the regime for non-contractual liability arising out of damage caused to another

145

146 147 148

149

The general clause provides as follows: HCC § 339 (1) “A person who causes damage to another unlawfully is obliged to repair it. The person may be exempted from the liability if he proves he acted in a manner which may be expected generally in that given situation.” ATTILA HARMATHY, in: Introduction to Hungarian Law, p 115. HARMATHY, in: Introduction to Hungarian Law, p 115. Which also exists in German private law, the so-called theory of Zweispurigkeit des Haftungsrechts is referred here. HARMATHY, in: Introduction to Hungarian Law, pp 119-120.

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(HCC § 341). The HCC establishes a compulsory order on the mode by which compensation is to be awarded (HCC § 355 (1)): in the case of pecuniary loss the declared policy of private law is to bring the person who has suffered damage back to the situation in which he would have been in had the damage not occured. The primary mode of providing reparation is directed at restoring the previous state, but the restoration of the orginal state may only be regarded as reparation in this sense if it is carried out or commissioned by the person held liable. The second way to provide reparation is subsidiary in character, directed to awarding compensation for the damage incurred either in money or in kind, but the compensation awarded in natura is subsidiary to a monetary award as the compensation generally has to be made in money (HCC § 355 (2)). Allowance on a monthly basis may also be awarded as compensation where this is directed to provide maintenance for the person damaged or for his dependants, while finally the reparation may also be directed to compensate the decrease in assets or of a benefit not realised and the expenses made for the purposes of averting or mitigating any damage (HCC § 355 (3)-(4)).

(h)

Contractual liability and protection of ownership

Contractual liability may not serve directly to protect the right of ownership, but it may serve this purpose indirectly. Any contractual relationship implying temporary possession of the movable (hire of property, gratuitous loan for use of an object (commodatum), possessory pledge, usufruct, etc.) also bears the potential risk for loss of the movable. All these contractual relationships contain the duty to return the movable after the contractual relationship has ended; non-compliance with this duty is a breach of contract and leads to an entitlement to claim damages. A typical example is the sale of a hired movable: the third party buyer in good faith will acquire ownership in the movable on grounds of acquisition of ownership from a non-owner (HCC § 118 (2) – see 12.1.2. on acquisition from a non-owner outside of course of trade). Nonetheless, the provision grants the owner the option to re-acquire the movable within one year by reimbursing the price paid by the good faith acquirer. In this case the price reimbursed (and possible other costs in conjunction with re-acquisition) will equate to the damage the owner will claim as a consequence of the breach of contract (HCC § 318). Generally, the contractual liability will lead to the duty to compensate only if the party in breach was at fault. Nonetheless, the burden of proof in respect of fault is reversed and is imposed on the party in breach; the exemption from liability is therefore in practice hardly realisable. The consequences in a situation of breach of contract may be presented as divided into two categories. The first category will apply under the condition that

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the party in breach was at fault, whereas the second category includes special cases of breach and will apply regardless of fault. The latter category turns on a relevant specific provision and will include for example the right to terminate the contract (or annul the contract – see 5.3.2.(c) on outright termination (annulment) of the contract), which is granted by law without regard to whether the party in breach was at fault or not. The first category expresses the general consequence of all kinds of breach of contract, namely the obligation to compensate the other party for the damage suffered.150 The concept of contractual liability in Hungarian private law is based on breach of promise, meaning the conduct contrary to that agreed by the parties or to legal provisions. From a structural point of view, the HCC does not provide a separate regime for contractual liability, it instead applies the regime for non-contractual arising out of damage caused to another regime to damages that occur as a consequence of breach of contract (technically HCC § 318 (1) redirects to HCC § 339 (1)). Contractual liability is a complex notion, in this respect Hungarian private law does not distinguish (in contrast to French private law) between an obligation directed for a certain conduct and obligation to deliver a result (obligation de moyens and obligation de résultat). Nonetheless, this does not mean that there is no scope for differentiated application of the standard of care a person should observe. The framework therefore is provided by the general clause itself (HCC § 339 (1) – second sentence), the standard corresponds to the undertaking of all measures which might be expected under the given circumstances. Case law does not formally give effect to a differentiated interpretation. Nonetheless, a differentiated approach still seems in this context the best view. Thus, the idea of a guarantee (meaning a contract directed to take care of an object, as opposed to a guarantee to pay someone else’s debt should that person default) or the idea of how hazardous activities are (such as construction) will be considered. The gratuitous contract also serves as an example, in that the granter is very likely to have a less rigorous standard (and lower subsequent liability) imposed. According to court decisions it seems impossible for the seller to prove that he was not at fault in a case of defective performance where the goods sold caused damage to the buyer. Furthermore, the lack of money to perform a monetary obligation cannot be excused.151 The concept does not distinguish between foreseeable and unforeseeable damages, but this is considered by way of procedural methodology in that the courts require convincing proof of damage.152 Conclusively, the judge is able to adjust the requirements of proof and therewith to consider the particularities of a given case.

150 151 152

HARMATHY, in: Introduction to Hungarian Law, p 113. HARMATHY, in: Introduction to Hungarian Law, p 114. HARMATHY, in: Introduction to Hungarian Law, p 115.

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1.4.3. Protection of other property rights While dealing with other property rights, the category may be divided into two groups. The first group includes the restricted property rights (usufruct, beneficial use, as well as proprietary securities and fiduciary asset administration (trust) – the latter concept only as it was envisaged in the 2ndDCC), while the second group includes personal entitlements providing a quasi property position (e.g. hire-purchase, lease, etc.). The protection of these rights is possible through the means of protection of possession, or, where the thing encumbered is not in the possession of the person entitled, the protection of the interests linked to his legal position is provided for by special negatoria instruments153 (non-possessory proprietary security in movables), which are set out within the regime on proprietary credit securities. According to HCC § 188 (2) the possessor is entitled to possession protection, such protection having erga omnes character; the protection is directed against unauthorised power, namely deprivation of possession and disturbance of possession. From this aspect, the instrument of possession protection may serve for restorative, declaratory and and prohibitory (in the sense of prohibition of future interference) purposes. Possession protection may even prove a suitable instrument of protection on behalf of the person entitled against the owner – i.e. from a theoretical point of view the person entitled as qualifying sub-possessor in contrast to the owner who is characterised as principal-possessor – (HCC § 188 (3), protection according to the legal title to possess against the person from whom the person entitled originates his possession). In the case of non-possessory pledge – where publicity of the encumbrance is realised by the relevant public register and not by possession – if the substance of a thing provided for security purposes is endangered by the owner or a third person, the person entitled by the in rem security right may request from the court the prohibition of the activity endangering and measures necessary to prevent it (actio negatoria function) (HCC § 261 (1)). If the thing’s substance is threatened to an extent which endangers the satisfaction of the claim secured by that thing, the person entitled may request the restoration of that thing or the providing of security appropriate to the extent of the threat (restorative function), while in the case of not complying with these duties within any term set out, the person entitled may exercise his right to satisfaction independently of the term agreed for performance (HCC § 261 (2)).

153

Here the actio negatoria allows for restoration to the status quo ante, a declaration of status or prohibition of future interference.

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1.4.4. Progressing towards the new Civil Code (a)

First Draft, Second Draft and Academic Proposal

The regulation established for protection of the right of ownership in the Drafts and Academic Proposal – being identical – (1stDCC §§ 4:42-4:43, 2ndDCC §§ 4:40-4:41, AcadPROP § 4:42-4:43) brings a more individual character than the current regulation in the HCC. From a systematical aspect, the regime starts with the imprescriptibile character of the right of ownership. The core provision on the protection of the right of ownership is reshaped and clarified: subsection (1) declaring the owner’s right to demand the termination of illegal interference or intrusion and claim back the object from the person possessing it without legal grounds; subsection (2) on the entitlement of the owner to claim back the object in the name of the sub-possessor from the possessor without legal basis where the subpossessor has ceded the possession to this third person illegally; sub-section (3) on the subsistence of the possessor’s defences as against the owner where the owner acquired ownership by way of cessio vindicationis; and subsection (4) on self-help (referring in this respect to the rules on protection of possession).

(b)

Legislative Proposal

The regime in the Legislative Proposal is identical to the concept included in the Drafts (Legislative Proposal §§ 4:42-4:43).

1.5.

Restrictions of transferability in the HCC

From a theoretical point of view, the differentiation between restrictions with erga omnes effect and restrictions with inter partes effect seems desirable and is discussed below. (Public law restrictions are discussed above at 1.2.3.(b) on public law restrictions of property right.)

1.5.1. Restrictions with erga omnes effect The erga omnes effect is connected to the principle of publicity and refers to the third parties’ ability to identify a given situation. The prohibition of alienation and encumbrance has erga omnes154 effect if it has been established by a legal provision or court decision (HCC § 114 (1)). A prohibition stipulated by contractual agreement only has effect where there has

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been acquisition by a person in bad faith or in a case of gratuitous transfer (HCC § 114 (3)). The two Drafts, the Academic Proposal and the Legislative Proposal all abolish the privileged status of prohibitions on grounds of legal rule or court decision (see 1.2.3.(c)(i) on property regime restrictions – supra), but the erga omnes effect will remain for acquisition in bad faith and gratuitous acquisition.154 From the law of obligations, generally the right of pre-emption (see 1.2.2.(c)(i) on the right of pre-emption – supra) may not be regarded a restriction of transferability with erga omnes effect (except in case of immovables if it is entered into the land registry). However, the Drafts and the Legislative Proposal extend the erga omnes effect also to movables as a result of entering into a public register ensuring the publicity required (see 1.2.3.(c)(ii)(bb) on restrictions from the law of obligations in the Legislative Proposal – supra).

1.5.2. Restrictions with inter partes effect The prohibition of alienation and encumbrance operates with inter partes effect if it has been established by a contractual agreement, meaning there is no publicity. The right of pre-emption (almost) always constitutes a restriction of transferability with inter partes effect, no matter whether this is established on grounds of contractual agreement or according to special instances (e.g. co-ownership – see 17.1.5. on the external effects of co-ownership).

1.6.

The boundary between movable and immovable property in Hungarian private law

As the HCC does not contain a general part in the sense of the German Civil Code, the notion of “thing” in the sense of property law may only be inferred indirectly, as approached through the definition of the subject of the right of ownership in HCC § 94 (1). With regard to the division between movable and immovable property in Hungarian private law, the starting point of the regulation is that the land registry records all immovable property. This makes an external (i.e. what is not included in the land registry) definition of immovable property on a normative level superfluous. Accordingly, immovable property is anything which is characterised as independent immovable property in terms of §§ 11-13 Land Register Act. 154

Meaning that good faith acquisition (non-gratuitous acquisition from a non-owner) is excluded.

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It follows that a definition of movable property also appears superfluous, as movable property will be anything else not recorded in the land registry, regardless of its size or de facto movability (as for example the oven in a cast steel plant as long as this is not a component part of the immovable property on which it is located). In contrast to the previous drafts of the Civil Code (e.g. Legislative Proposal on the Private Law Code for Hungary of 1928), the HCC, having regard to the overall objective of the Code to contain as few definitions as possible, had rejected the chance to include a differentiation on a normative level between movable and immovable property. The differentia specifica of immovable property from a legal point of view is seen in its registration and the legal effects tied to its registration. From this aspect the approach followed by the HCC appears correct, meaning that Hungarian private law defines the notion of immovable property from the application of the rules on land registration. Here the HCC follows the approach of a unitary regulation, while this legislative technique is realised in a twofold manner: on the one side by the appropriate level of abstractness of the provisions, which are suitable to be applied both to movable and immovable property (e.g. regulation of component part HCC § 95), while on the other side the incorporation of rules considering particularities, in the context of the general rules (rights of neighbour law in the context of the rules on benefits and collection of benefits). As a result of the abstract way of formulation of the particular provision it will follow, for example, that by sowing the seed into the soil or planting the flower these will become component parts of the grounds and after maturing (as immovable property), ownership may be acquired in their fruits by way of separation (cf. HCC § 95).155

2.

The regulatory regime on possession within the HCC

Possession tends to be seen as the most basic manifestation of dominium of a person over a thing. The majority of civil codes, and the majority of legal textbooks in Europe, deal with it from a systematic point of view at the beginning of their parts concerning property law. Logically and systematically, however, there is another view that can be seen as appropriate, according to which the provisions on possession are placed at the end of the part concerning the law of property (prior to the law of obligations).

155

MENYHÁRD: Property Law, p 62. For historical comparison see the TRIPARTITUM at Introduction A. The context: Hungarian private Law – historical background, where it is considered that a stud farm (ménes) of fifty or more horses is immovable property.

2. The regulatory regime on possession within the HCC

485

This concept suggests the transitive and connective character of possession between property law and the law of obligations.156 The HCC follows the latter concept. In contrast, the Drafts and the Academic Proposal place the provisions on possession as proprietary and therefore position these provisions at the beginning (1stDCC §§ 4:1-4:12, identical 2ndDCC §§ 4:1-4:11, AcadPROP §§ 4:1-4:12) of the area. From a systematic point of view, the First Part is divided into two titles, whereas the first title includes the rules on possession in general and protection of possession (1stDCC §§ 4:1-4:8, 2ndDCC §§ 4:1-4:7, AcadPROP §§ 4:1-4:8), while the second title includes possession without legal basis (1stDCC §§ 4:9-4:12, identical 2ndDCC §§ 4:8-4:11, AcadPROP §§ 4:9-4:12). The Legislative Proposal deviates from the Drafts inasmuch as it keeps the institution of responsible custody and therewith the regulation in the HCC. (On the prospective development of this area see 2.5. on progressing towards the new Civil Code.)

2.1.

Notion of possession in the HCC

2.1.1. Definition of possession The HCC does not provide a direct definition of possession: possession is defined by the possessor’s position according to how possession was acquired by the act of taking a thing into possession, i.e. securing control over the thing concerned in any way. The legal position as possessor exists also where the thing temporarily comes under the power of another (HCC § 187). Though, the prime requisite of possession is considered the manner in which a person exercises factual control and power of a thing, in either a direct or indirect manner. The possessor’s status is defined by the factual situation of having control and power over the thing. A possessor may be a natural or a legal person.157 To determine whether a person has acquired control and power over a thing or not is to be decided according to the communis opinio, focussing on the nature, proper functioning and manner of use of the thing concerned. Undisputable cases are e.g. if the possessor takes the thing as his own, places or uses it on his land or in his dwelling, as well as in the case where he does not hold it personally but nevertheless disposes of it.158

156 157 158

LENKOVICS: Property Law, p 253. PETRIK, in: Commentary, p 673. LENKOVICS: Property Law, pp 253-254.

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2.1.2. Animus and possession As a starting point, Hungarian private law does not count animus among the notional elements of possession. According to this concept, possession of a movable may be acquired by the possessor without his awareness and intention. Though possession is able to come into existence objectively, the possessor’s awareness and intention does play an important role concerning his status as possessor. An appropriate example is the situation of goods wrongly uploaded to the land of a third person: the third person is to be seen as possessor, but if he makes an assertion that he does not wish to possess, he will become a so-called responsible custodian according to which he will keep the goods in favour of the person entitled to possession pursuant to HCC § 196 (see 19.2.2 below). Subsequently, the state of possession (whether possession as own or possession in another’s interest) may depend on the possessor’s intention to possess, the subjective element. Pursuant to the concept, possession may be acquired and held without prejudice to the person’s contractual capacity (incapacity, or diminished capacity). However, in the case of incapable persons, the question whether he qualifies as possessor or not may be answered according to the communis opinio, focussing on the person’s actual power over the thing, whether his intention is suitable to be directed to possess the thing, i.e. to have it under his power, or not.159 On the other side appears the possessor’s status of fide (possession in good or bad faith), the subjective element. The HCC does not distinguish between possession and detention. In legal practice, however, the distinction can have significance where there are numerous lawful (or unlawful) possessors competing. According to this concept, both the lawful possessor and unlawful possessor (possessor without legal basis, HCC §§ 193-195, see 19.2.1 below) will have possession. A lawful possessor would include, amongst others: the owner; the lessee (or, in the case of a beneficial lease, the beneficial lessee); the depositary; and the person who exercises factual control / power on grounds of his employment.160

2.1.3. Possession as a legal relationship Another approach to define the concept of possession may be provided by examining it as a legal relationship. The possessor is entitled to insist on negative behaviour (as in a lack of conduct) from everybody as regards the thing possessed (proprietary – in rem – effect).161 159 160

PETRIK, in: Commentary, p 676. LENKOVICS: Property Law, pp 254-255.

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2.1.4. The wide concept of possession in the HCC161 According to the concept of the HCC, the notion and the legal state of possession is a simplified one, direct or indirect factual control and power of a thing is (from the legal point of view) irrelevant. As such, the possessor is to be regarded: (a) the owner, irrespective whether or not he has de facto factual control over the thing; (b) the person who has de facto factual control over the thing, irrespective of whether he has acquired the thing intentionally, or it has otherwise come under his control; (c) the person who had de facto control over the thing where the thing has temporarily come under the factual control of another person.162

2.1.5. Subject of possession Possession as a legal state concerns a thing, though the subject of possession may be any kind of thing susceptible to human factual control and power. Possession may exist over a certain part of a thing, it is not limited to an entire object. However, in the case of a compound thing, as long as the connection of the component parts exists, there may only be possession concerning the sole – unified – thing. Accessories, as a general rule, may be the autonomous subject of possession. The possession of certain rights is also recognised in Hungarian private law.163 Examples of rights implying possession under the law of obligations include: hire / rental (HCC §§ 423434); deposit (HCC §§ 462-473); loan for gratuitous use of an object (HCC §§ 583-585); hire-purchase relationship (see 3.2.1. on hire-purchase); and operation of goods belonging to the state, such as local government ownership on grounds of a concession contract. Examples from property law implying possession (mainly restricted property rights) include: usufruct and beneficial use (HCC §§ 157-165); servitude over land (HCC §§ 166170); and possessory pledge (HCC § 265).

2.1.6. Categorisation of possession As stated above, the HCC does not generally distinguish between natural possession and other types of possession in another’s interest. But for practi161 162 163

LENKOVICS: Property Law, p 255. LENKOVICS: Property Law, p 256. LENKOVICS: Property Law, p 256.

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cal reasons the complex term of possession experiences such categorisation in practice,164 as follows: (a) Natural possession – civil possession. The natural possessor holds the thing as his own under his factual control and power, such as the owner (being the most “powerful” possession) or somebody lacking any legal title to exercise factual control and power (e.g. the thief); while the civil possessor holds the movable according to an agreement, in this case the possessor is exercising his factual control and power on grounds of delegated title, such as the depositary, the lessee, the beneficial lessee, etc. (Further classifications are possible – and used for practical reasons – for these relationships as well: principal-possession compared to sub-possession; and secondary possession compared to primary possession.) According to the distinction between natural possession and civil possession the following groups may be established:165 (i) possession in his own name and in his own interest, being the strongest possessory position; (ii) possession in his own interest, but in the name of another, meaning that the title to possess is originated from another (so-called possession for use); (iii) possession in his own name, but in the interest of another (e.g. possession of the guardian in the interest of the minor, the administrator of the insolvency assets); and (iv) possession in another’s name and interest, consisting of two subgroups: (1) possession in another’s name and interest without having an individual legal title thereto (e.g. employee of the possessor), (2) possession in another’s interest, but not having any legal title thereto and not having any intention to hold the thing. (b) Lawful possession – unlawful possession. The lawful possessor has a valid title to possess, while the unlawful possessor has no valid title (e.g. a thief is an unlawful natural possessor). (c) Unlawful possessor in good faith – unlawful possessor in bad faith. The possessor in good faith is a person who has reasonable grounds to assume that he has a valid legal title to possess, while the possessor in bad faith knows or should know that he has no valid legal title to possess. Possession acquired by a criminal act or in another duplicitous way is regarded to be an aggravated instance of bad faith possession (i.e. possession acquired by criminal act or otherwise acquired in violent or fraudulent way). 164 165

LENKOVICS: Property Law, pp 257-258. PETRIK, in: Commentary, pp 674-675.

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The categorisation listed at (a) gains special relevance in the field of possession protection, being the de facto manifestation of possession from the legal point of view. In cases from (i) to (iii) the possession protection provided against third persons is the strongest (i.e. possessorial and judicial), while in the case of (iv) the instrument of protection that may be resorted to is restricted to self-help.

2.2.

Acquisition and loss of possession

2.2.1. Acquisition of possession In order to acquire possession there must be acquisition of factual control and power over the thing, or the status of possessor must be conferred by virtue of law (HCC § 187). From a systematic point of view one may distinguish between the categories of unilateral acquisition and derivative acquisition. In unilateral acquisition possession of the movable is acquired by the possessor’s own acting, with no regard to the previous possessor, and will always effect original acquisition, while in the case of derivative acquisition possession is acquired by way of transfer from the previous possessor. The acquisition of factual control and power over a movable is the corporeal aspect, the so-called real act, meaning the direct acquisition – i.e. the surrender of the thing from one to another, or in the case of immovables the introduction of the new possessor by the previous possessor. There are some instances where direct acquisition is not needed, as follows:166 (a) Possession may be acquired by way of representation. In this case the representative acts in the name and on behalf of the acquirer, and using the aforementioned classification, but the represented person becomes the principal-possessor. The representative is characterised as subpossessor. A legal person (or a partnership without legal personality, where the liability of the partners is not limited to the value of their share in the partnership but, in contrast to the example of an LLC, the associates are also liable with their personal assets) may only become a possessor through a representative. (b) Acquisition of possession by delivery equivalent, e.g. the acquisition of the possession of an apartment by handing over the keys, or the acquisition of a car’s possession by handing over the keys and the vehicle registration book167 (see 5.4.2.(b) on traditio symbolica in the system of Hungarian private law). 166 167

LENKOVICS: Property Law, p 258. In German Fahrzeugschein.

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(c) Acquisition of rightful but indirect possession (natural or civil possession) by juridical act (e.g. ceding the right to dispose over a bank account, or the transfer of dematerialised securities), which categorically shows the transfer of the legal power.

2.2.2. Loss of possession According to case law the instances when possession is lost may be divided into three groups: first, the owner – or other natural possessor – transferring the right of ownership in the object delivers to the acquirer (with a definitive intention to surrender); second, the sub-possessor returns the possession of an object to the principal-possessor when the legal relationship which led to the entitlement for such civil possession ceases to exist (or in other circumstances); third, by the possessor’s unilateral act with the unequivocal intention of abandoning possession.168 The loss of possession occurs by the termination of the factual control and power over the thing or by losing the legal status of possessor provided by operation of law. (Of course, possession will not terminate if the exercise of factual control and power over the thing is impossible due to a temporary impediment, e.g. the possessor has left the thing somewhere without supervision, or if the exercise of factual control and power is temporary ceded to another pursuant to a legal relationship – e.g. hire.)169

2.3.

Protection of possession

2.3.1. General The HCC provides three instruments for possession protection (HCC §§ 188-192): (a) where there has already been interference with the possession, protection is available by means of self-help170 (HCC § 190 (1)); (b) possessorial protection (focussing on the factum of possession) through local public administration, in the first year of disturbance, as quasi first instance protection (HCC § 191 (1), (3)-(4)); and (c) judicial protection (focussing on the title to possess) provided by the court (HCC § 192 (1), (2)).

168 169 170

PETRIK, in: Commentary, p 678. LENKOVICS: Property Law, p 259. According to the German legal terminology Eigenmacht.

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The two latter instruments are those provided by the state, while the first one – self help – is considered an exceptional private remedy. All three are instruments for protecting against unlawful interference. Unlawful interference171 (tilos önhatalom) as such may consist of illegitimate interference, the prime example being disturbance of possession pursuant to HCC § 188 (1).

2.3.2. Unlawful interference with possession Interference with possession as a generic term (not used in the HCC, but in the literature) includes the deprivation of a thing from the possessor and the possessor’s disturbance in possession. Unlawful inference is measured objectively, the interferer’s fide or culpability – the subjective element – is irrelevant. Unlawful interference is to be seen in principle as conduct without legal grounds. Justified interference can only be established in a situation where both the conduct interfering with possession is based on a direct entitlement and the possessor is not entitled to possession, or is obliged to tolerate the disturbance of possession. An example of the obligation to comply is found in neighbour law. A landowner may request the demolition of a building by a builder who, in bad faith, has built a house beyond the boundary line of his land, but the builder may remove the materials recovered (ius tollendi) and the neighbour who requested demolition must tolerate the recovery of materials from his land, meaning this cannot be considered interference with his possession pursuant to HCC § 110). Case law, however, interprets the notion of interference with possession in a flexible and extensive way, applying also to cases of environmental harm (which is more relevant to the field of immovable property than to movables).172 The interferer is usually acting in his own interest, but there are also cases when the person of the interferer and perpetrator differs (e.g. the employer is regarded interferer where the employee, acting in the interest of the employer, is the perpetrator). This aspect is particularly relevant for legal persons where the legal person is classed as interferer and will be responsible for the person acting on behalf of it (e.g. the company as the responsible entity is responsible for the actions of its managing director).173 However, a person who does not return the possession ceded to him on the basis of an agreement does not cause interference with possession (BH 2007 / 186).

171 172

173

According to the German legal terminology verbotene Eigenmacht. The possession protection could in this way become the legal instrument of environmental protection in addition to the field of neighbour law. LENKOVICS: Property Law, pp 260-261.

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2.3.3. The current scope of possession protection The scope of application of possession protection has shifted from the original objective of protecting, with erga omnes effect, against interference with the current status of possession. Possession as a legal status may also be interpreted as a legal relationship of in rem character, but the protective objective no longer concentrates expressly on the maintenance of power over the thing without disturbance (or in the case of interference with possession, the restitution of such power). Nowadays, the protective objective focusses on the possessor’s surroundings and environment, thereby ensuring comfortable conditions, free of nuisance to others, amongst which a possessor may possess a corporeal object. Subsequently, the relationship between possessor and thing could be classed as being of secondary relevance, the primary relevance being focussed on the protection of a comfortable environment from disturbing factors like noise, dirt, air pollution, light effects caused by lighting placed inappropriately, etc.174 Accordingly, the interference with possession is interpreted by case law in a broad sense, covering also activities which may hinder the proper use of the thing being under the possessor’s power,175 in addition to the protection of the exercise of power over the thing as such.176

2.3.4. Entitlement to protection Pursuant to the wording of the HCC, the possessor is entitled to protection against unlawful interference. The possessor is entitled to protection, in principle, against everybody (in rem character with erga omnes effect) except a person from whom he has acquired the thing by unlawful interference (HCC § 188 (2)). This is the point where the distinction between natural possession and civil possession (see categorisation of possession above) becomes relevant. Where the possessor’s possession is derived from 174

175

176

The manner in which possession protection is provided in the case of interference caused by noise resulting from a business activity is to be determined by setting the business’s interests against the (counter) interests of the parties involved (BH 2002 / 179). For example BH 1986 / 324 characterises the storage of chemicals close to a flat as interference with possession if it affects the usability of the flat or the dwellers of the flat. The entitlement to protection of possession is granted to the claimant even if the chemicals stored close to the flat are not ordinarily harmful to health, but due to that particular claimant’s illness harm would be occasioned. The court here considered the subjective position of the claimant. PETRIK, in: Commentary, pp 680-681.

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another (civil possession), he is entitled to protection according to his title to possess (HCC § 188 (3)). For example: the relationship between the lessor (owner, usufructuary, etc.) and the lessee, where, for the duration of the lease the lessor is not entitled to make use of his right against the lessee177 and, conversely, the lessee is entitled to protection against the lessor (BH 1994 / 185). However, if the lessee no longer has a valid title – e.g. where the contract has been terminated – and his right to possession has ceased, the owner is ordinarily free to make use of his right to protection of possession, but for social-policy considerations the tenant of a flat is entitled to make use of his right of protection until the point in time the legally binding judgment ordering eviction is enforced (Introductory Decree § 64). In this respect he is “protected through, and by virtue of possession” until the last moment, although, according to case law the gratuitous use of a thing or immovable is not considered to constitute a title which entitles one to protection (against the owner). In cases of joint possession the right to protection is provided to each possessor separately, and each of them is entitled to enter into possession. Joint possessors are entitled to protection as against one another, in proportion to their stake of possession (“internal interference with possession”).178

(a)

Determining the identity of the interferer

While determining who has interfered with possession, one may focus on the question of whose acting has caused the interference concerned, but this approach may not always give appropriate results. The second stage may concern the issue in whose scope of interest has the interference occurred.179

(b)

The possessor’s entitlement to protection

The possessor is entitled to possession protection against anybody except a person from whom he has acquired possession by unlawful interference. This means that the original possessor deprived of his possession by unlawful interference may reacquire possession from the interferer through selfhelp, or disturb the state of possession established in such way, with such a reacquisition or disturbance – as an exception to the general principle prohibiting self-help – being permitted in this case (i.e. not being “unlawful” in this event). It should be noted that both the owner and any person 177 178 179

Of course the lessor can make use of it against third persons. LENKOVICS: Property Law, pp 261-262. PETRIK, in: Commentary, p 681.

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exercising the legal title to possess (civil possession) are entitled to resort to the instrument of possession protection.180

2.3.5. Instruments of protection provided in the HCC The instruments provided by the HCC may be divided into two main categories: the protection by way of (permitted) self-help and instruments of protection provided by the state (through public administration channels or by the court).

(a)

Self-help

Self-help (which is actually more accurately translated from Hungarian as self-power) as an instrument of remedy is generally prohibited in Hungarian private law. There are two cases in the HCC when self help may be considered legitimate in the field of protection of in rem rights, namely in the field of protection of ownership (HCC § 115 (2)) and in the field of protection of possession. The scope of application of self-help permitted in the area of possession protection may include two cases: firstly, the possessor may avert an attack directed against the possession by mean of self-help, and secondly, under certain circumstances, in order to recover the possession lost, where relying on other instruments could lead to a loss of possession (HCC § 190).181 Self-help may be exercised by the (original) possessor where an attack is directed against his possession in order to avert this attack. The notion of attack is narrower than the notion of interference with possession. Attack is to be interpreted in this respect as an action which endangers directly the possessor’s factual control (power) over the movable. According to this authorisation by law the possessor is entitled to frustrate by self-help the deprivation of his possession (i.e. the use of the movable by another, the entering into or passing across his land, a challenge to the status quo, etc.). However, he is not entitled for example to avert a non-harmful disturbance (e.g. noise, light, odour, etc.). Subsequently, the notion of attack directed against the possession is a narrower one than the notion of interference. In certain cases defined in HCC § 190 (2), the possessor may also be entitled to recover his possession by resorting to self-help, although this may only be regarded as justified if the time involved in the recourse to another instrument of protection – such as the administrative or judiciary way (discussed below) – would prejudice the success of the measure directed to possession 180 181

PETRIK, in: Commentary, p 682. PETRIK, in: Commentary, p 684.

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protection. A general requirement while resorting to self-help is that of proportionality, meaning that self-help may not exceed the extent necessary to avert the attack or for the protection it is designed to afford. Proportionality is measured by the relationship between the disadvantage of the original possessor and the disadvantage potentially suffered by the interferer as a result of resorting to self-help. Any infringement of the proportionality requirement invokes non-contractual liability arising out of damage caused to another and the duty to pay compensation.182 In the HCC there is no limitation in time to recourse to self-help as an instrument of protection, however, a delay in the recovery may also have negative legal consequences for the deprived individual, e.g. the interruption of the period of adverse possession pursuant to HCC § 124 (1) c).183 (On extinction and creation of ownership through adverse possession in the HCC see 13.1.1 below.)

(b)

Protection provided by the local authority through public law (possessorial protection)

For practical reasons, the first instance of protection is provided through public administrative channels by the local authority (town clerk). The possessor deprived or disturbed in his possession may request protection from the town clerk within one year of such deprivation or disturbance (HCC § 191 (1)). The period of one year begins when the deprivation occurs. In the case of disturbance, a distinction is drawn between non-recurring and recurring interference. If the interference with possession is prolonged (or recurring), the period concerned begins when the interference ends; the interference will be classed as a continuous one if it consists of identical conduct that persists for a long period without interruption or with small interruptions only. After the lapse of one year the protection has to be requested directly from the court. According to § 29 Introductory Decree proceedings before the town clerk are governed by the appropriate provisions of the Public Administration Proceedings Act. Pursuant to § 15 of this Act the client is that person (meaning a legal person or entity without legal personality) whose right or legal interest is affected by the case. Subsequently, both the (original) possessor and the interferer may be classified as a client in the sense of the Public Administration Proceedings Act and therefore determine the jurisdiction of the proceedings before the town clerk.184

182 183 184

PETRIK, in: Commentary, p 685. LENKOVICS: Property Law, pp 262-263. PETRIK, in: Commentary, pp 687-688.

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(i)

Subject of the proceedings before the local authority

The protection provided through the public administration proceedings concentrates on the factum of possession. The examination of legal issues is to be regarded as an exception, and will only come into play if it is obvious that the person requesting the protective measure is not entitled to possession or is otherwise obliged to tolerate the disturbance. Accordingly, the town clerk (i.e. the head of the local public administration) decides in principle according to the factum of possession and does not examine the title to possess, but as an exception there may also be titles competing, where the interferer makes obvious that his counterparty was not entitled to possess or the disturbance is to be regarded lawful. In order to decide whether something is in fact obvious regard is to be had to whether the facts of the case may be determined beyond doubt on the basis of the records / evidence available, and therefore the legal issue on the entitlement to possession may also be put beyond doubt. The (deprived or disturbed) possessor applying for protection may also request the town clerk to decide on the issues of benefits, damages and expenses, but he is not obliged to decide on such matters; a decision in these issues is only reasonable if they can be made quickly and, from a legal point of view, without the need for complicated clarification.185 If mattters are not clear, while requesting protection from the town clerk the (deprived or disturbed) possessor has to prove that he has been possessor and that he has been deprived of or disturbed in his possession. The possessor’s request may be directed to the restoration of the state previous, i.e. the termination of disturbance, along with issues of benefits, damages and expenses. In his decision the town clerk may decide on the restoration of the original state of possession and interdict the interferer from further interferences unless it is obvious that the person who requested protection is not entitled to the possession, or he has been obliged to tolerate the disturbance (HCC § 191 (3)). The burden of proof rests upon the interferer, the possession of the initial possessor is presumed to be lawful. Generally, the policy consideration behind this instrument is to provide a quick and efficient – “at face value” – protection of possession, usually by restoration and protection of the original possessory status until the point in time the legal issue has been decided. The duration of the proceedings is limited up to 30 days, and as such there is usually no place for difficult deliberations on details of the particular case in order to provide an efficient mean of protection.186

185 186

PETRIK, in: Commentary, p 688. PETRIK, in: Commentary, pp 688-689; LENKOVICS: Property Law, pp 263-264.

2. The regulatory regime on possession within the HCC

(ii)

497

Protection provided as a result of the public administration proceedings

The town clerk’s decision may restore the state previous, interdict further disturbance where the interference is a continuous one, or, if the disturbance constitutes in a single act, it may state the fact of the disturbance and interdict the interferer from any repetition. Additionally, pursuant to CSS no. 30 the town clerk may determine the costs of proceedings, but if the proceedings reach the court stage, the court has the competence to take a final decision on these issues.187 The decision shall be put into effect within three days (HCC § 191 (4)), even if the unsuccesful party has requested the re-examination of the decision from the court. The enforcement of the decision concerning the benefits, damages and expenses is provided by the court, but if there is to be an appeal no enforcement will take place pending re-examination (§ 27 (2) Introductory Decree). Furthermore, the court proceedings may suspend the execution of the administrative decision (§ 27 (4) Introductory Decree). Subsequently, the possessor deprived or disturbed may request protection from town clerk based on the factum of his possession,188 but with regard to the legal entitlement to possess the town clerk’s decision has no material legal effect, meaning that both of the parties may request from the court at any time the protection on grounds of the title to possess.189

(c)

Judicial protection of possession: Possession action (birtokper)

The judicial proceedings are considered to be the top of the hierarchy as far as possession protection is concerned, and may modify the town clerk’s decision, as well as be invoked directly by the possessor deprived or disturbed. The legal basis for the protection requested rests on the titulus to possession (HCC § 192). (i)

Judicial proceedings directed to the re-examination of the town clerk’s decision

According to § 28 Introductory Decree I re-examination does not mean the judicial control of an administrative decision, rather it is an instrument provided for protection. The action filed to court is directed to change the decision taken by the town clerk in the issue of possession. Any party in187 188 189

PETRIK, in: Commentary, p 689. PETRIK, in: Commentary, p 690; LENKOVICS: Property Law, p 264. PETRIK, in: Commentary, p 692.

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volved may use this legal remedy. On proceeding as such the provisions of the Code of Civil Procedure apply appropriately, however with a slight deviation pursuant to § 27 (3) Introductory Decree I and CSS no. 29. Accordingly, in contrast to CCP § 215 including the so-called principle of “petitionboundness”190 in civil proceedings, if the original administrative decision taken by the town clerk rules on the benefits, damages and expenses, the scope of the court’s decision will include these issues regardless of whether this was requested by the claimant or not. Otherwise the court is constrained by the petition filed, particularly in relation to the counter-petition of the party involved in the court proceedings.191 Concerning the execution of the court’s decision, the CSS no. 31 states that where the request is rejected, the enforcement measures will fall into the competence of the administration authority (but, if relevant, under exception of the benefits, damages and expenses), but where the administrative decision of the town clerk is changed – the court may rule on the so-called “reverse-enforcement”.192 (ii)

Direct judicial protection

Resorting to judicial protection directly may be suitable in two cases. One case concerns the situation when the time limit of one year set out for requesting protection through the public administration channel has expired, while the second case concerns the situation when the possessor deprived or disturbed requests protection on the basis of his title and not on factum.193 Pursuant to the view represented in the Commentary, examining the legal issue within the scope of the public administration proceedings may only be an exception invoked as a defence by the counterparty; this route is designed to protect the factum, though the proceedings may not be interrupted and delegated to the court because of a dispute concerning the titulus of possession. Furthermore one may differentiate – especially from a procedural point of view – between the so-called “action on interference with possession” (birtokháborítási per) and the “action on possession” (birtokper), the latter being a generic term implying not only cases of interference, i.e. the person invoking has had the possession of the corporeal object, but also cases when 190

191 192 193

This principle of civil procedure constrains what the court may do, i.e. the court is bound to your action and can only decide an issue in a manner consistent with what has been requested (filed) in the action (petition). PETRIK, in: Commentary, p 691. PETRIK, in: Commentary, p 692. Judicial protection of possession must be resorted to where the possessor requests the surrender of the thing which was in his possession from a possessor without legal basis (BH 1981 / 357); where the titulus of possession is also disputed, the possession dispute falls within the competence of the court (BH 2005 / 101).

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the possessor has never had physical possession of the movable and his petitum is directed to acquire the possession for the first time (e.g. a contract for sale where the element of traditio has been realised by delivery equivalent and the purchaser has acquired ownership of the movable).194 (iii)

Characteristics and possible outcome of the judicial proceedings

The disturbed or deprived possessor’s entitlement to possession is presumed in the judicial proceedings, meaning the burden of proof is imposed on the person interfering with the status of possession. This presumption may only be affected where the person who has acquired the possession has done so through unauthorised self-help. The titulus of possession may be examined by the court in the course of the proceedings only in relation to the interference being the subject of the legal dispute: the examination concerns exclusively the relationship between the persons involved, where the court assesses the stronger entitlement, in accordance with the principle known as actio publiciana. It may happen that clarification of the titulus is not possible, in this case the court’s decision will be based on the factum of possession. In some circumstances, the court’s assessment of the titulus may lie on the defendant’s counterclaim.195

2.4.

Relevance and function of possession within the HCC

Possession as factum with legal relevance is of crucial importance in all cases when ownership is voluntarily transferred,196 is transmitted automatically or indeed is created by law (extinction and creation of ownership through adverse possession (acquisitive prescription)197, or good faith acquisition). Finally, the “first instance” of possession protection provided by the HCC – possessorial proceedings – is based on the factum of possession (HCC § 188 (2), § 191 (1)) and even in the “second instance” before the court – judicial proceedings – the lawful possession of the person disturbed is presumed (HCC § 192 (3)). 194 195 196

197

PETRIK, in: Commentary, pp 692-693. PETRIK, in: Commentary, p 693; LENKOVICS: Property Law, pp 264-265. For transfer of ownership the object concerned must be delivered (HCC § 117 (2)), the same applies to good faith acquisition (in this case the transfer of ownership does not conform with the nemo plus iuris principle). On delivery see 5.4 below. For acquisitive prescription, the HCC requires a new to possessor to have continuous possession of a movable as his own for a period of ten years (in the case of immovables the period is fifteen years) (HCC § 121). On acquisitive prescription see 13, below.

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2.5.

Progressing towards the new Civil Code

2.5.1. General (a)

First Draft, Second Draft and Academic Proposal

Possession may be accorded a different role depending on the system of transfer of ownership applied (movables). The First Draft (1stDCC § 4:45 (1) in conjunction with § 4:3 (1)) is devoted to the system of “causal modus” (as followed traditionally by Hungarian private law), meanwhile the Second Draft has moved towards a consensual system of transfer, where the transfer of possession is required to protect the acquirer against third parties (i.e. publicity). The system of transfer of ownership constitutes the very basis of any property law regime and may necessarily influence other connected areas (especially acquisition from a non-owner, retention of ownership, etc.). The choice between the two systems represents a basic policy decision on one general fundamental characteristic in the private law system concerned. A comparison of the First Draft and the Second Draft highlights the more autonomous role of possession within the transfer of ownership in the First Draft: the concept is devoted to consolidating the current uncertainties concerning the interconnectedness of the transfer of possession and the transfer of ownership. The Second Draft keeps the transfer of possession as an idependent transaction also outlined (2ndDCC § 4:2 (1)), but there is no individual position granted for the transfer of possession in the context of transfer of ownership (the transfer of ownership shall become effective inter partes by the parties’ agreement); the transfer of possession may only prove relevant concerning the effect of transfer in relation to third parties (2ndDCC § 4:45 (1)). The regulation included in the Academic Proposal (AcadPROP § 4:3 (1)) is in this respect identical with that included in the First Draft.

(b)

Legislative Proposal

The Legislative Proposal confirms the traditional approach on transfer of ownership in Hungarian private law consisting of two agreements, personal agreement and real agreement, whereas possession enjoys a certain role as the transfer of possession constitutes the real agreement (see 1.2.2.(c)(i) on the right of pre-emption § 4:48 in conjunction with § 4:2 (1)).

2. The regulatory regime on possession within the HCC

501

2.5.2. Notion and definition of possession As compared to the comprehensive notion used in the HCC (see above), the Drafts, Academic Proposal and the Legislative Proposal distinguish between “principal-possession” and “sub-possession” (1stDCC § 4:1 (2), identical 2ndDCC § 4:1 (2), AcadPROP § 4:1 (2), Legislative Proposal § 4:1 (2)). This distinction – also known in the old Hungarian private law198 – serves primarily for clarificatory purposes.

2.5.3. Sui generis role for possession within the transfer of ownership? (a)

First Draft, Second Draft and Academic Proposal

The transfer of possession may be an explicit requirement for the transfer the ownership, as in the First Draft (1stDCC § 4:45 (1)) and Academic Proposal (AcadPROP § 4:45 (1)). The transfer of possession is conceptualised as an autonomous transaction subject to the possession regime. The transfer of possession comprises two stages: the real agreement directed to transfer the possession (first stage); and the delivery of the thing as taking place either by real physical delivery or by one of the delivery equivalents (second stage). Where delivery equivalents are used the parties’ agreement (first stage) will in fact be absorbed into the delivery equivalent (second stage). In contrast to the First Draft, in the Second Draft there is no such autonomous role designated to transfer of possession within the transfer of ownership: the transfer of ownership in movables is effected inter partes by the contract or legal title directed thereto (2ndDCC § 4:45 (1) – first sentence), but the erga omnes effect of the transfer will be achieved by the delivery of the possession in the thing (second sentence) – the delivery of possession is governed by the possession regime. It should be noted that there may be a discrepancy as between the transfer of ownership and transfer of possession that is subject to the possession regime: the latter provides the rules on transfer of possession which also imply the parties’ agreement, nonetheless the issue by which regime this agreement will be governed by is left unadressed. The Academic Proposal copes with this deficit by providing for the appropriate application of the rules on the conclusion of contracts to agreements for the transfer of possession (AcadPROP § 4:3 (1)).199

198 199

KOLOSÁVRY: The possession and protection of possession, pp 86-87. MENYHÁRD, in: Expert Proposal, pp 588-589.

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The Drafts and the Academic Proposal codify the classic instances of delivery equivalents (brevi manu traditio, constitutum possessorium, longa manu traditio and cessio vindicationis) as already well recognised in case law (1stDCC § 4:3 (2)-(4), identical 2ndDCC § 4:2 (2)-(4), AcadPROP § 4:3 (2)-(4)). The reason for including these instances in the level of a black letter text is to be seen in an economic context, serving thereby the security of commerce200 (see 5.4.2. on the instances of delivery equivalents).

(b)

Legislative Proposal

With regard to the transfer of ownership the Legislative Proposal follows the causal modus system, where the real agreement is implied. From a technical point of view, the Legislative Proposal follows the concept included in the First Draft and Academic Proposal: the transfer of possession in the movable is required (Legislative Proposal § 4:48 in conjunction with § 4:2 (1)); the transfer of possession is governed by the possession regime.

2.5.4. Acquisition of possession by occupatio and loss of possession The acquisition of possession by occupatio is regulated in the same way as the HCC (1stDCC § 4:2, identical 2ndDCC § 4:1 (4), AcadPROP § 4:2). Both the Drafts and the Academic Proposal introduce explicit provision concerning the instances of loss of possession (1stDCC § 4:4, identical 2ndDCC § 4:3, AcadPROP § 4:4). Related to the perception of possession as a subjective right, the introduction of paragraph (3) is necessary in order to enable the transfer (“passing”) of possession without acquisition of the actual power over the object concerned.201 The Legislative Proposal is identical to the Drafts and the Academic Proposal both concerning the acquisition by occupation (Legislative Proposal § 4:1 (4)) and loss of possession (Legislative Proposal § 4:3).

200 201

First Draft – Property Law, p 31; MENYHÁRD, in: Expert Proposal, p 589. First Draft – Property Law, p 34.

3. The legal nature of the various rights to hold, use or acquire a movable

503

2.5.5. Protection of possession (a)

First Draft, Second Draft and Academic Proposal

Both Drafts essentially maintain the rules on possession protection as included in the HCC and Introductory Decree. However, from a systematic point of view a clear build-up is established according to the certain stages in the Drafts: 1stDCC § 4:5 on the possessor’s entitlement to protection of possession (the main rule of protection of possession), identical 2ndDCC § 4:4; 1stDCC § 4:6 on self-help, identical 2ndDCC § 4:5; 1stDCC § 4:7 on possessorial protection (protection accorded on factum basis), identical 2ndDCC § 4:6; 1stDCC § 4:8 on judicial protection (protection accorded on titulus basis), identical 2ndDCC § 4:7. It may be noticed that the scope of application of self-help was broadened and may be used for protection against any unlawful interference (i.e. it also includes the instance of disturbance in possession, e.g. noise, etc.). The proposed text in the Academic Proposal (AcadPROP §§ 4:5 – 4:8) is identical to the texts in the Drafts; as compared to the Drafts, for clarification purposes, AcadPROP § 4:7 subsection (4) has been supplemented by mentioning that the institution of judicial proceedings has no negative effect on the enforcement of a decision made by the town clerk.202

(b)

Legislative Proposal

The Legislative Proposal (Legislative Proposal §§ 4:4 – 4:7) is identical to the texts proposed in the Drafts, for clarification purposes to Legislative Proposal § 4:6 sub-section (6) has been inserted defining the regime applicable on the proceedings.

3.

The legal nature of the various rights to hold, use or acquire a movable

The legal nature of these various rights depends on their classification by the legal system concerned. In this respect the proprietary rights existent build a closed system according to the numerus clausus principle, while the number of personal rights is in fact unlimited pursuant to the principle of party autonomy governing the law of obligations.

202

MENYHÁRD, in: Expert Proposal, p 593.

Hungary

504

3.1.

Restricted property rights to hold, use and exploit a movable

Usufruct and beneficial use qualify as restricted property rights both implying the use of the movable, with usufruct also implying the right to exploit (e.g. to let (hire out) the object) and to cede the exercise of the usufruct to a third person as well, while the beneficial use is restricted to use of the object for personal purposes (a kind of restricted usufruct, see 1.3.1.(a) on the right of usufruct and 1.3.1.(b) on beneficial use). Focussing on the protection of possession, these rights have erga omnes effect. Nevertheless, concerning the two previously mentioned property rights, the owner’s position is still a significant one: the person entitled to usufruct or beneficial use “is obliged to inform the owner of any impending danger to the object and any damage incurred, including any attempt by a third party to obstruct him from exercising his beneficial right; he must, furthermore, tolerate that the owner takes the necessary measures to prevent the danger or eliminate the consequences of the damage” (HCC § 159 (3)). The usufruct seems very close to ownership, but essential characteristics related to the right of ownership are still kept for the owner as connected also to the principle of publicity (e.g. entitlement to make use of instruments available for protection of the right of ownership). Pledge is the only restricted property right which implies the right to hold the movable exclusively and excludes the right to use or exploit it. However, it seems inappropriate to categorise pledge as a species of right to hold; the possession entitlement is strongly connected to the functionality while the security purpose is prevailing.

3.2.

Personal rights to hold, use and exploit

Entitlements to hold, use and exploit a movable are usually created as personal rights according to the law of obligations. The most important personal rights to use and exploit a movable, deriving mostly from the special contract regime, are: the hire of objects (HCC §§ 423-433); beneficial lease203 (which may be applied to movables) (HCC §§ 452-461); deposit (HCC §§ 462-473); and the atypical hire-purchase contract (discussed in detail below). Rights to hold may exist (and may even be necessary for the proper fulfilment of obligations) on the basis of service relationships, such as: carriage (HCC §§ 488-506); commission (HCC §§ 507-513); transport (HCC §§ 514-521); and loan for gratuitous use of an object (commodatum – HCC §§ 583-585). 203

The subtle difference between hire and beneficial lease is explained above at 1.2.2.(c)(ii).

3. The legal nature of the various rights to hold, use or acquire a movable

505

3.2.1. Hire-purchase (lízing) In Hungarian private law the hire-purchase contract is a mixed-contract that is in a class of its own. The so-called financial hire-purchase is a mix of sale, hire and credit agreement. The hire-purchase contract establishes a durable legal relationship between the contracting parties, all three included contracts (obligation directed to the transfer of ownership where the parties agree on a long-period for the payment, the obligation directed to use and loan agreement with a financial service provider) are of durable character.204 There is no official definition of hire-purchase in Hungarian private law, however, there are several statutes including a definition in this respect, as for example § 10 g) of the previous Public Procurement Act,205 according to which “the hire-purchase is the surrender of the thing according to such a contractual agreement which grants a lease of the thing under the condition that the lessee may acquire the ownership right in the thing by payment of the last instalment, by termination of the contract, or granting the lessee the option to purchase from the lessor”. The Supreme Court also interpreted the hirepurchase relationship as mainly lease when it ordered the appropriate rules on sub-lease to be applied.206

(a)

Phases of the hire-purchase relationship

It can be seen that the hire-purchase contract is conceived as a complex legal relationship where one may identify three successive phases. In the first phase the preliminary contracts [Vorvertrag] and later on the purchase contract are concluded and performed (thereby, in fact, the core of the hire-purchase relationship is created); the second phase is that of the use of the object leased; the third phase gives the possibility to conclude further contracts in order to effect property changes.207

(b)

Characteristics and functions of the contracts implied

The hire-purchase relationship (contract) is constructed mainly of three special contracts: contract for sale, lease (hire) and credit. 204 205

206 207

PORKOLÁB: The Hire-Purchase, pp 75-102. 1995. évi XL. törvény a közbeszerzésekről – ineffective, replaced by 2003. évi CXXIX. törvény a közbeszerzésekről. Also referred by BENEDEK, in: Commentary, p 1676. BENEDEK, in: Commentary, p 1676. PORKOLÁB: The Hire-Purchase, pp 88-89.

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(i)

Sale contract (adásvételi szerződés) including special forms

The hire-purchase transaction shows similarities to instalment purchase (HCC § 376) because the lessee may acquire ownership only at the end of the long term legal relationship (but this is not a prerequisite of the instalment purchase), and the buyer bears the risk of the object’s destruction and depreciation even if retention of title has been agreed by the parties (HCC § 376 (4)). In the case of buyer’s default in payment the seller may withdraw from the contract concerned (HCC § 376 (2)). The instalment purchase is mainly applied in combination with the purchase under retention of title (HCC § 368). Further on, a so-called open financial hire-purchase agreement implies the option to acquire the ownership of the leased object (HCC § 375) by paying its salvage value. (ii)

Lease (hire) and beneficial lease

A first difference between the hire-purchase agreement as such and hire is that hire always implies a two party relationship, while the hire-purchase agreement implies a three party contractual relationship (first, the seller of the object; second, the purchaser and lessor (normally a finance house, bank, or a leasing company; and third, the lessee (or hire-purchaser)). The lessee has a free choice to contract with anybody offering (distributing) an object, but the lessor is restricted by the seller and must hire out the object concerned. A similarity may be identified in the purpose of the legal relationships: both imply the decoupling of the right to use from the right of ownership as a comprehensive right. The hire relationship may be established for an undetermined period of time, while the hire-purchase relationship is always established for a definite period of time. At the conclusion of the hire relationship the right of use ceases but there is no change effected in the property status, while at the end of the hire-purchase relationship the right of use remains unaffected and the right of ownership (title) passes to the lessee. Differences also appear concerning remuneration matters where the lessee is obliged to pay the hire-purchase fee even if he (temporarily) does not use the object leased for a reason not attributable to him, while in this case the hirer is not obliged to pay for the period he is not able to use the object of hire (HCC § 428 (1)). The ancillary expenses of the object, such as any common charges, are supported by the lessor (HCC § 427 (1)), while the lessee bears any costs incurred in connection with the object’s use. Another significant difference may be identified concerning the risk of the object’s destruction: the lessee bears any risk of the object for all he is not the owner (casum sentit dominus). The rules applicable after the object has been destroyed also displays significant differences: in the case of hire the hire relationship ceases to exist (HCC § 430 (2)), while in contrast the

3. The legal nature of the various rights to hold, use or acquire a movable

507

hire-purchase relationship does not terminate, it transforms to a duty of lump-sum payment. As regards termination of the hire-purchase contract, only the lessor is entitled to extraordinary termination in the case of severe breach of contract. The lessee exercises his warranty entitlements directly against the original seller if the lessor has assigned these entitlements to the lessee, which would usually be the case.208 (iii)

Loan agreement (kölcsönszerződés)

In the case of financial hire-purchase the lessor covers the costs of acquisition of the thing, establishing, in fact, a credit relationship (HCC §§ 523528) between the lessor and the lessee. Although the lessor does acquire ownership, the lessor does not do so to satisfy his own contractual interest, but rather to satisfy that of the lessee’s. Similarly, any sum provided under the credit agreement is always provided with a certain purpose. Concerning the ownership of the object acquired, in the case of an orthodox loan (credit) agreement the borrower acquires ownership, but an essential of the hire-purchase relationship is that ownership is acquired by the lessor, being the individual who pays the price of object. Ownership (title) only passes at the end of the hire-purchase relationship. The lessee takes over the object in the name and on behalf of the lessor (as the direct representative of the lessor).

(c)

Distribution of entitlements according to the hire-purchase relationship

The lessor keeps the following entitlements deriving from the hire-purchase contract: the ownership right; and, in connection with ownership, the right of disposition and the right of termination of the contract. Any other entitlement is ceded to the lessee, such as the right to possess, and as such protection of possession and the right to use including the duty to bear all the public charges (e.g. taxes). The right of disposition implies the right to cede the right to possess, to use and to exploit towards a third person, the right to encumber the object of the hire-purchase relationship, and indeed the right to transfer ownership to another or to give up ownership entirely.

208

PORKOLÁB: The Hire-Purchase, pp 86-87.

Hungary

508

(d)

Rights and duties of the lessee and lessor

During the hire-purchase relationship the lessee is entitled to exclusive use of the object, but this must be done in a proper way. He may cede the right of use to a third person, but he will be liable for the conduct of such third person in the same way as he would be for his own conduct. The lessee is obliged to maintain the object leased, but the lessor’s prior consent (in written form) is needed for the transformation of the object. The lessee has the obligation to pay the hire-purchase fee agreed, usually on a monthly basis. In the case of a so-called operational hire-purchase relationship, the residual value the lessee has to pay at the end of the hire-purchase relationship corresponds to the actual market value of the object, and the monthly hire-purchase fee is similar to that of a renting fee. In the case of a financial hire-purchase relationship the hire-purchase fee is a combined one, consisting of the purchase price, the fee of use, any interest applicable and the lessor’s profit. Concerning the final phase of the hire-purchase relationship, there is no salvage value to be paid in the case of a so-called “closed” hirepurchase, while in the case of an “open” hire-purchase the salvage value is usually 20 % of the total hire-purchase fee is due. The lessor is entitled to control the object at anytime, and the lessee is obliged facilitate this. Risk is borne by the lessee. This is an objective liability; it is not possible to be exempted of the duty to pay the hire-purchase fee even in case of vis maior – i.e. destruction of the object. In this respect the lessee’s position is identical with that of the owner, the casum sentit dominus principle will apply. (The interaction with insurance may be important at this point, building a consistent part of the complex hire-purchase relationship.) Concerning the entitlements on the ground of undue performance, as mentioned above the lessor ordinarily assigns his entitlements to the lessee within the agreement establishing the hire-purchase relationship (and in any event Chapter II Art. 10 sub-section 1 of UNIDROIT Convention (ratified by Hungary) states explicitly that the lessee may exercise the rights deriving from the sale contract against the original seller as if he would be contracting party in the sale contract – so-called presumed party status). However, the assignment may only be regarded as valid if the rights and claims assigned are appropriate to provide a remedy for the entire extent of the disadvantage deriving from the infringement. The assignment stands usually in correlation with the exclusion of the lessee’s entitlements to exercise his rights against the lessor on the basis of breach of contract. (According to HCC § 314 (2) liability for breach of contract – in this case lessor’s – cannot be excluded unless there is another advantage provided in exchange, which in this case would consist of the assignment of the warranty entitlements.) Nevertheless, the entitlements deriving from the sale contract and the lessee’s demands may not meet in every respect. One of the remedies pro-

3. The legal nature of the various rights to hold, use or acquire a movable

509

vided by the HCC in a case of undue performance is price reduction. This refers to the reduction of the purchase price paid for the object leased, but this will invariably be lower than the hire-purchase fee. This does not cover the lessee’s interest, which is the reduction of the hire-purchase fee. Though the lessor cannot assign to the lessee an entitlement to reduction of the hire-purchase fee per se (because the entitlement as such does not exist), the assignment covers the entitlement to price reduction and the entitlement to claim the damages resulting from the difference between the original hire-purchase fee and the hypothetical hire-purchase fee applying to the new – reduced – purchase price. As regards withdrawing from the contract, it is not possible to do so without the lessor’s involvement: if the lessee withdraws from the ultimate sale contract, this does not terminate the hire-purchase contract as such, i.e. it will not release the lessee from the duty to pay the hire-purchase fee. Therefore the lessee usually exercises his right of termination against the lessor, which brings about a mutual accounting relationship between the lessee and the lessor. Subsequently, based on his loss, the lessor will exercise his entitlements of warranty and damages incurred against the seller. The assignment still shows practical importance: the lessee may claim any additional damages incurred as result of the undue performance (HCC § 310) directly from the seller.

(e)

Non-regular termination of the hire-purchase relationship

It is considered essential that the hire-purchase relationship cannot be terminated prior to the expiry of the term specified. The exception is the case of fundamental breach of contract, the prime example being the lessee’s failure to pay the hire-purchase fee. In cases not involving a failure to pay, fundamental (or material) breach of contract would be the unauthorised use of the object leased, e.g. by ceding the use to a third person without the lessor’s prior written consent, or if the lessor is hindered in exercising his right of control. In the case of financial hire-purchase the lessee is obliged to pay the hire-purchase rates even if the object deteriorates, in a manner similar to the provisions on instalment purchase (HCC § 376 (4)). According to this, in Hungarian private law the instalment purchase is the closest nominate contract to the financial hire-purchase relationship, and is not classed as a lease. Concerning the legal consequences of breach of contract, the provisions on instalment purchase apply appropriately: the lessor may withdraw from the contract, or (using the privilege of applicable to instalment purchase) may claim the payment of the integral hire-purchase fee (HCC § 376 (2) (3)). Termination of the contract will concern the “sale”: the lessee will be obliged to pay for the use of the object for this period, while the lessor may claim damages incurred due to the termination of the

Hungary

510

contract before the end of the specified term. Nevertheless, the lessor is obliged to mitigate any damage to the lessee by selling the object concerned and setting the price received off against his damage incurred. The situation with operational hire-purchase is similar to hire: termination brings the hire-purchase relationship to an end with immediate effect, where the hire-purchase fees paid are to be considered as counter performance for the use, but the lessor will be entitled to claim any damages incurred due to the early termination of the hire-purchase relationship.209

(f)

Progressing towards the new Civil Code

(i)

First Draft, Second Draft and Academic Proposal

The First and the Second Draft diverge as to the systematic appreciation of the complex hire-purchase relationship, the key issue being whether there is need to construct a special contract for the hire-purchase relationship or not. According to the explanatory statement in the 1stDCC, the hirepurchase relationship as such is not considered to render enough uniform transaction contents which could be abstracted appropriately in order to construct it as a sui generis sub-type of the lease (hire) contract.210 Nevertheless, within the context of the lease contract a special provision has been introduced for the hire-purchase relationship concerning the liability of the lessor (1stDCC § 5:313 – Special rules concerning the restriction of the lessor’s liability). Accordingly, the First Draft maintained the atypical character of hire-purchase relationship and provided particular rules focussing on the rules of the relationship from the law of obligations – lease – aspects, which are considered to prevail. In contrast, the Second Draft makes the hire-purchase relationship a special contract (2ndDCC §§ 5:367-5:374, Chapter VIII on the hire-purchase contract): with a hire-purchase contract, on one side, the lessor is obliged to acquire the ownership of, or to produce the object defined in the contract, on behalf of and in accordance with the conditions chosen by the lessee for the purposes of ceding it to the lessee for his use for the duration of the contract, by way of asset based financing, whereas on the other side, the lessee is obliged to take the object and to pay the fee. The lessee is entitled to acquire ownership in the object when the contractual term ends to according to the conditions defined in the contract (2ndDCC § 5:367). The Academic Proposal follows the concept in the First Draft and considers the construction of hire-purchase as a nominate contract systematically inappropriate.211 209 210

PORKOLÁB: The Hire-Purchase, p 97. First Draft – Law of Obligations II, p 11, p 211.

3. The legal nature of the various rights to hold, use or acquire a movable

(ii)211

511

Legislative Proposal

With regard to the hire-purchase relationship the Legislative Proposal follows the concept as in the Second Draft and regulates the hire-purchase relationship within the framework of a special contract (Legislative Proposal §§ 5:340-5:347).

3.2.2. Lease (bérlet) Lease (or hire) is classified in the HCC as a special (nominate) contract (§§ 423-433, and see also § 434 concerning immovables, which are considered special in this respect because of social policy considerations), but in the case of movables the regulatory regime applicable is characterised as a dispositive one and subsequently the parties are free to deviate from the provisions of the HCC. However, by outlining the particularities of the hirer’s position within the legal relationship one may identify a position similar to an in rem position in a classical sense. There are three main aspects to focus on: the establishment and termination of the legal relationship as such; in rem entitlements implied by the lessee’s legal position; and finally the recently emerging development of a lease’s transferability. (a) The lease as a legal relationship may be established by the parties’ contractual agreement directed thereto. The subject of the legal relationship is the use of the thing in the way determined in the contract (HCC § 423). Regarding the duties and entitlements of the parties contracting, one may note the most fundamental ones: on one side, the person disposing (owner, usufructuary, etc.) the property has the duty to ensure the capability of the thing to be used as contractually agreed (including his liability that there is no right of a third person encumbering the thing which may hinder the use) and he is entitled to receive the rent agreed, while on the other side the main duty of the lessee is to pay the rent, in turn giving the entitlement to use the thing according to the use stipulated in the contract (HCC § 424). The lessee’s position shows similarities with the in rem position of beneficial use (see above), in the respect that he is entitled to proper use of the thing, and he may not cede the use to a third person without previous consent of the owner (any non-conforming behaviour is met with increased liability (HCC § 426)). The legal relationship may terminate at the end of the period contractually agreed, as well as by termination, with a distinction to be drawn between ordinary and extraordinary termination (HCC §§ 430-431). However, the durability-test regarding 211

MENYHÁRD, in: Expert Proposal, p 985

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Hungary

the lessee’s position is especially relevant where there is a change in the owner’s position: there is no Kauf bricht nicht Miete (sale does not touch the lease relationship) principle prevailing in Hungarian private law, meaning that where alienation of the thing occurs the continuance of the legal relationship depends on the duration agreed in the contract, whereas in the case of a legal relationship established for an indefinite period the issue is not considered problematic for the termination to be effected at any time (with regard to the statutory terms defined); and subsequently there is not a privileged termination entitlement where the contract has been concluded for a definite period, the new owner simply takes over the contractual position of the previous lessor (however, there are exceptions as related to the lessee’s fraudulent behaviour, HCC § 432). Nevertheless, there is a special provision if the change takes place concerning the lessee’s contractual position as a result of succession: the lessee’s heirs may cancel a contract concluded for a definite period (HCC § 431 (3)). When the legal relationship ends, the lessee is entitled to retain the thing concerned until any appropriate claims – expenses made on thing – have been reimbursed by the lessor (HCC § 433 (2)). (b) The lessee’s position may also be provided with an instrument of protection on grounds of the proprietary regime within the scope of the rules on possession protection in the HCC: the lessee is entitled to demand possession protection on grounds of his legal title, which is effective even against the lessor (HCC § 188 (3)). (c) As to the problem related to the boundary between the obligations and property (i.e. personal or real rights), one may note the phenomenon when the lease – in sense of a personal entitlement to use an immovable – emerged to become an independent transferable right having monetary (market) value in its period, the proprietary positions having been determined by planned economy and state monopoly. However, as result of the system transforming and the subsequent establishment of the free market in the field immovable property, such a phenomeon of the lease’s independence has faded into the background.212 (d) The lease position (right of lease) in immovable property is explicitly declared capable of being the independent subject in business relations and may become subject of transfer or be classed as a contribution in kind213 (§ 42 (1) of Act LXXVIII of 1993 on the lease of flats and premises, furthermore on certain rules concerning their alienation).214 212 213 214

BENEDEK, in: Commentary, p 1674. Similar to the treatment of know-how, see 4.5.3. footnote 243. 1993. évi LXXVIII. törvény a lakások és helyiségek bérletére, valamint elidegenítésükre vonatkozó egyes szabályokról.

4. Field of application of the rules on the transfer of ownership

4.

513

Field of application of the rules on the transfer of ownership in movables – The subject of transfer (az átruházás tárgya)

There is no explicit definition of movables within the HCC, however the Code uses the distinction between movable and immovable as if it is selfevident at several places (e.g. HCC §§ 95, 108, 116, 117, 121). In fact the HCC is based on the distinction provided by PrivLawCodePROP § 434 focussing on the definition of the immovable, according to which “immovables are the lands, certain defined parts of the land surface, including their component parts; any other thing is movable.” According to HCC § 94 (1) any thing that can become the object of possession may be subject to ownership, while the rules on ownership appropriately apply to money and paper securities (the legal characterisation of account money seems problematic see 4.4. on other entitlements with monetary value treated like corporeal objects and account money), as well as to natural phenomena which may be exploited like a thing (HCC § 94 (2)). Electricity and other natural phenomena used like corporeal natural phenomena are treated like things; water-power may qualify as a natural phenomenon. Within the scope of this provision a natural phenomenon is “a phenomenon which may be defined though scientific methods building the basis for services having patrimonial value”.215 Parts detached from the human body (nails, hair, blood) are classed as things; subsequently these may be subject of alienation. The human cadaver may also qualify as property in sense of HCC § 94 (of course, this is restricted by the deceased’s dependants’ personality rights over the cadaver).216 In conformity with the provisions set out in the legislation on healthcare (Act CLIV of 1997 on the healthcare)217 a human being may dispose of his living organs, allowing for the offering of certain organs to another for purposes of transplantation (Healthcare Act § 206).

4.1.

The notion of accessory (component part – alkotórész) and equipment (tartozék): the issue of transferability

The literature distinguishes between main thing and ancillary thing. The ancillary thing is defined to be in a position subordinated to the main thing and their legal situation is dependent on and connected to the situation of 215 216

217

PETRIK, in: Commentary, p 352. See a critical approach related to this issue LÁBADY: The General Part of Hungarian Private Law, pp 288-290. 1997. évi CLIV. törvény az egészségügyről.

514

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the main thing. Species of ancillary things are as follows: accessory (component part); equipment; fruits; (gyümölcs) and growth (növedék), where the latter includes any object which becomes a component part of the movable at a later time.218 In this relationship the category of fructus pendentes (especially when immature) will be classed as growth being a component part of the land.219 (a) Accessory220 (component part) is the thing qualifying as unified in a strong manner (i.e. connected in substantance to) with the principal object (HCC § 95 (1)). The unification (connection) is as comparatively strong as any damage the separation from the main object would result in, be that the destruction or significant decrease in value or usability of any of the objects concerned. The component part may also become the independent subject of ownership if it is separated from the main object (which would affirm the transferability of a component). The concept of “strongest unification” has two aspects: on one side the connection in physical sense; while on the other side the connection in economical sense. The legal category of component part implies both of them. It may be pointed out that an object classed as an accessory may only become an individual subject of ownership while still attached to the principal object if there is a special provision of statute to this effect. An example for such disposition comes from the field of environmental protection, which states that protected plants are subjects of public ownership. (b) Equipment221 characterises a thing being connected in an economical sense (where the functional aspect is also included) to the main thing, usually a thing necessary for the proper utilisation or maintenance of the main thing, respectively it serves as facility of the thing (HCC § 95 (2)). According to the wording of the HCC, if there is doubt, the ownership right includes the equipment as well. The equipment may be separated from the main thing and therefore it may become subject of transfer. However, the equipment is to be seen as a unity with the main object as long as there is no other legally relevant fact to be identified. Generally speaking, the equipment does not qualify as an independent subject of transfer as long as it is not obviously separated from the main object.222 Nonetheless, the essential difference as compared to the 218

219 220 221

An example of such growth in relation to immovable property is where land “grows” through the process of alluvion by the operation of nature (for example, the action of a river). PETRIK: The Right of Ownership Today, p 77; identical in: Commentary, p 352. In the sense of unselbständiger Bestandteil according to German legal terminology. In the sense of selbständiger Bestandteil or Zubehör according to the German legal terminology.

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accessory is that the equipment does not lose its individual property existence.222

4.2.

Transferability of regular derivatives (fruits) of a movable: issues related to the qualification as independent subject of transfer

Fruits are constant and regular derivatives of a movable which do not affect the substance or quality of the thing. The fruits may be divided into the category of natural fruits and civil fruits. The latter category includes the monetary benefits deriving from a thing resulting in patrimonial advantage for the owner (e.g. income realised from rental of the movable, income realised by interest, etc.). The literature distinguishes between three sub-categories in the case of natural fruits, which may be relevant as to acquisition of ownership in these fruits when interacting with the owner-possessor-relationship regime: fructus pendentes (pending fruits) characterises things which in fact constitute part of the movable (see 4.1. on the notion of accessory); fructus separati (separated fruits); and fructus percepti (fruits which have already been taken in possession by somebody). The owner of the movable also has ownership of any pending fruits as a component part of the movable. By separation the fruits become the independent subject of ownership right. Generally, the owner of the movable acquires the ownership right in the fruits separated, but there are two exceptions from this rule, namely: where ownership in the fruits is acquired by the person having an appropriate legal title to collect them (HCC § 125 (1)); and (as in interaction with the owner-possessorrelationship regime) the possessor in good faith acquires ownership in the fruits separated (HCC § 125 (3) in conjunction with HCC § 195).223

4.3.

Securities (értékpapírok): stocks, bonds and other negotiable instruments

In this section, “securities” is used as a generic term224 and includes both bearer (bemutatóra szóló értékpapír)225 and non-bearer instruments (névre

222 223 224 225

PETRIK: The Right of Ownership Today, p 78; identical in: Commentary, p 353. PETRIK: The Right of Ownership Today, p 78; identical in: Commentary, p 353. In the sense of “Wertpapier” according to the German legal terminology. HCC § 338/B (2): Unless otherwise provided by legal provision the security is a bearer instrument if it does not include the name of the entitled person [creditor] or if it includes the name of the entitled person, but according to the content of the security the debtor of the security has

516

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szóló értékpapír)226 (compare HCC § 338/A (3)), the essential element of a bearer instrument being that ownership depends on the possession of the instrument. However, when dealing with other securities, there may also be other relevant requirements that must be considered in order to establish the right of ownership. An example is the endorsement, particularly the electronic data recorded in the case of a dematerialised security (dematerializált értékpapír – which can be the electronic form of both bearer and non-bearer instruments) replacing the role of physical possession or physical endorsement. Securities (no matter whether bearer or non-bearer in character) are treated – in the same way as money – as particular corporeal objects in Hungarian private law. Securities are documents embodying entitlement and in this way enabling the integration of the value into commercial exchange. Within the system of the Hungarian Civil Code, Chapter XXVIII / A is designated to serve with the general regulatory regime on securities: regarding the claim embodied by the security, it may be distinguished between security over a monetary claim (HCC §§ 338 / A-338 / C) and security flowing from the right of ownership or other right issued on grounds of other special legal provisions (HCC § 338 / D). HCC § 338/A (2) defines the security in these terms: “Only a document, or – where indicated in legal provisions – data recorded, listed and forwarded in another manner, which has the attributes defined in legal provisions and its issue (emission) or, as the case may be, its appearance in this form is enabled by legal provisions, constitutes a security.” The use of the word security should not be confused with its other use to mean a proprietary security interest often granted by a debtor to a creditor. HCC § 338 / A (1) defines the security over a monetary claim (claim over money), according to which the security over a monetary claim is an unconditional unilateral written promise for payment. Disposition of the security is only possible by the person entitled to the security, in sense of being in possession of the security (HCC § 338 / B (1)). In the case of a bearer instrument, the person entitled by the security is the possessor of the document, while in case of a registered security the person entitled is determined by the actual inscription on the paper or electronic register (HCC § 338/C(1)). The acquirer obtains ownership in a bearer instrument regardless of the transferor’s entitlement (HCC § 338 / C (2)). The good

226

the duty to perform to any person presenting the security (bearer clause). The bearer security can be transferred by surrendering possession. HCC § 338/B (3): A non-bearer instrument in printed form may be transferred by full endorsement or blanket endorsement. HCC § 338/B (7): Legal provision may empower the issuer to exclude by its written declaration included in the security the transfer by way of endorsement (negative disposition clause).The effect of transfer of such a security is that of assignment of claims.

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faith of the acquirer is relevant as far as the entitlements flowing from the security are concerned: unless otherwise regulated in legislation, if the entitled person (according to HCC § 338/C (1)) was in good faith, his entitlement flowing from the security is not affected even if a previous transfer lacked a titulus, or the titulus was invalid or ineffective (HCC § 338/C (4)). Securities embodying a monetary claim and the statutory basis thereof follow (but note the enumeration may not be exhaustive): – bill of exchange (váltó – Decree-Law 1 of 1965 on the promulgation of the Convention Providing a Uniform Law For Bills of Exchange and Promissory Notes – Geneva 1930 and in conjunction Decree of the Ministry of Justice no 1 / 1965 publishing the text of the rules on bills of exchange);227 – cheque (csekk – Decree-Law 2 of 1965 on the promulgation of the Convention Providing a Uniform Law for Cheques – Geneva 1931 and in conjunction Decree of the Ministry of Justice no 2 / 1965 publishing the text of rules on cheques);228 – compensation note (kárpótlási jegy – § 5 Act XXV of 1991 on Compensation for Unjust Damages Caused by the State in Ownership of the Citizens);229 – stocks (részvény – Act IV of 2006 on Business Companies); – secondary securities (másodlagos értékpapír – Capital Market Act § 24); – investment fund certificate (befektetési jegy – Capital Market Act § 243); – venture fund note (kockázati tőkealap-jegy – Capital Market Act § 296 / J); – bond (kötvény – Government Decree 285 / 2001 (XII. 26) on the bond);230 – treasury bill (kincstárjegy – Government Decree 286 / 2001 (XII. 26) on the treasury bill);231 and – deposit receipt (letéti jegy – Government Decree 287 / 2001 (XII. 26) on the deposit receipt).232 Beside monetary claims, documents of title may also be issued for the right of ownership in a corporeal object, or for other rights, as well as in relation to entitlements deriving from membership in a company or as a partner in a

227

228

229

230 231 232

1965. évi 1. törvényerejű rendelet a Genfben, 1930. június 7-én megkötött váltójogi egyezmények kihirdetéséről. 1965. évi 2. törvényerejű rendelet a Genfben, 1931. március 19-én megkötött csekkjogi egyezmények kihirdetéséről. 1991. évi XXV. törvény a tulajdonviszonyok rendezése érdekében, az állam által az állampolgárok tulajdonában igazságtalanul okozott károk részleges kárpótlásáról. 285 / 2001. (XII. 26.) Kormányrendelet a kötvényről. 286 / 2001. (XII. 26.) Kormányrendelet a kincstárjegyről. 287 / 2001. (XII. 26.) Kormányrendelet a letéti jegyről.

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partnership. In these cases the rules on securities over monetary claims will apply appropriately (HCC § 338 / D).233 Two examples in this category are: – public warehouse (store) warrant234 (közraktári jegy – Warehouse Act § 1 (3)); and – mortgage bond (jelzáloglevél – Act XXX of 1997 on the Mortgage-Bond Credit Institute and the Mortgage-Bond)235 Dematerialised securities – usually company shares, bonds, etc. subject to free market trade – are securities electronically registered and traded, kept electronically on an individual securities account held by the owner. The pack of data stored includes the components of the security pursuant to HCC § 338 / A (2) and by virtue of HCC § 94 (2) are to be regarded as corporeal things in the sense of property law. Meanwhile – as discussed below – money on account constitutes only a personal right against the financial institution keeping the account.236 Securities issued under foreign law are recognised pursuant to § 21 (2) DecreeLaw 13 of 1979 on international private law.237 § 21 / A applies the same approach to dematerialised securities.

4.4.

Other entitlements with monetary value treated like things and account money

According to LENKOVICS, the digital data stored may also be treated like corporeal objects within the scope of HCC § 94 (2), because they may be the subject of disposition, transfer and use in the same manner as a thing.238 A share in a limited liability company (korlátolt felelősségű társaság – most commonly refered by using the abreviation in Hungarian “Kft.”) may be treated identically to corporeal objects and may also be the subject of ownership.239 Nonetheless, within the system of Hungarian private law the 233 234

235 236 237 238 239

ANDRÁS KISFALUDI, in: Commentary for the Practice – Vol. II, p 558 / 2. BH1996 / 162 – The warehouse bond consisting of the so-called goods receipt and the so-called security receipt characterises a security which may be transferred either jointly or individually by endorsement [§§ 434 (2), 441 Commercial Code of 1875] – on the legal nature of warehouse bond see also 5.2.1.(a)(iv) on the situation of goods deposited in a public warehouse. 1997. évi XXX. törvény a jelzálog-hitelintézetről és a jelzáloglevélről. MENYHÁRD: Property Law, p 50-51. 1979. évi 13. törvényerejű rendelet a nemzetközi magánjogról. LENKOVICS: Property Law, p 36. PETRIK, in: Commentary, p 349.

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correct characterisation of such share in a Kft. is that it is a personal right. The basic distinction between a thing and other assets (personal rights) is that the latter are transferred by force of agreement because the mechanism of delivery (traditio) cannot be constructed in a reasonable and, from the point of view of practice, useful manner.240 Court practice has shown several difficulties and inconsistencies while treating a share in a Kft. as a so-called “imaginary thing”.241 According to the prevailing view money held on account (account money) may not be regarded as a corporeal object in the sense of property law, but rather a personal right directed against the bank keeping the account.242 As such, in a case of misdirected performance any “recovery” will be based on the unjustified enrichment regime. There are diverging views on the characterieation of money held on account (account money),243 which is demonstrated by the two commentaries providing different views. According to one author, with regard to case law the notion of “money” also includes account money, and the holder of the bank account may convert it to “real” money at any time.244 However, it may be noticed that the situation embodied in case law is not that clear, and it seems there may be more arguments (also in case law) in favour of a solution from the law of obligations. Both views are represented, for example: BH1997 / 87 considers account money like a thing, but this view seems not to be that clear towards the end of the decision; whereas BH1994 / 552 – in connection with bankin contract – opts clearly for the law of obligations treatment (the property law regime aspect is not even raised in the context). Nevertheless, treatment of account money within the law of obligations results in many consequences, the most significant one may be the prescriptability of the claim in contrast to the imprescriptability of property claims.

4.5.

The status and transferability of rights in contrast to corporeal objects: is there place to keep the principle of speciality in the field of property law?

4.5.1. Things and assets As a starting point, it seems appropriate to distinguish between the notion of things and assets. Usually a thing will be any corporeal object capable of 240 241 242 243 244

MENYHÁRD, Property Law, p 46. MENYHÁRD, Property Law, p 48. MENYHÁRD: Property Law, p 50-51. PETRIK, in: Commentary, p 351. SÁRKÖZY, in: Commentary for the Practice – Vol. II, p 239.

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coming under the power of a person, the corporeal character refers to the object’s physical existence and defined character, while another essential characteristic is that it may be subject to possession.245 The category of assets includes the totality of one person’s rights and duties of patrimonial character. Such a totality may be active or passive. The net assets may be established by deduction of the passive part from the active part.246 Pursuant to this concept rights will not qualify as objects in the sense of property law, but nonetheles they are included within the category of assets.

4.5.2. Incorporeal things not susceptible to ownership Pursuant to the strictly corpus centred concept of things followed in the HCC, incorporeal goods will not fall under the scope of property law. Nevertheless, the characteristics of the “ownership” right in incorporeal goods are very similar to that of corporeal things, being absolute in structure and exclusive. Where the transfer concerns the rights and duties connected to a share (részvény)247 in a public limited company (részvénytársaság, abbreviated Rt.)248 – from the perspective of the law of obligations meaning in fact the transfer of rights and duties connected to the membership – the subject of such transfer consists in the transfer of stocks – negotiable instruments and other securities – embodying the right and duties by providing them a corporeal appearance. Another view in the literature stresses the need for the notion of ownership to be applied also to incorporeal goods (copyrights, patents, etc.) and on cases of merger and acquisition in companies. In the latter case the subject of transfer affected is more than a simple transfer of shares embodying the rights and duties in a company. The company being the subject of transfer constitutes a “unit of assets” having an independent market value, where the market value is usually not identical to the value on the company’s balance sheet (because it includes invisible and incorporeal concepts that have value like know-how, goodwill, etc. as well). According to this view, the rules on the right of ownership should apply appropriately to such entitlements as well.249

245

246 247 248 249

LÁBADY: The General Part of Hungarian Private Law, p 288; MENYHÁRD, Property Law, pp 46-47. LÁBADY: The General Part of Hungarian Private Law, pp 291-292. In the sense of Aktie according to the German legal terminology . In the sense of Aktiengesellschaft (AG) according to the German legal terminology. SÁRKÖZY, in: Commentary for the Practice – Vol. II, p 240; see a similar critique by KISFALUDI: Is the Principle of Speciality Sustainable?, pp 29-35.

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4.5.3. Transferability of rights under current Hungarian law Generally, rights may be transferred provided the legal norm establishing such rights explicitly allows transfer. That said, this may not be a complete statement for the negotiability may not be excluded in the case of rights where the transferability cannot be explicitly deduced from the provisions of material law. If the legislator’s intention concerning the negotiability regarding a certain right does not appear obvious, the negotiability will depend on the treatment of the right in case law (e.g. know-how,250 goodwill).251 In Hungarian private law intellectual property and connected rights cannot be the subject of ownership, nevertheless, the transfer and inheritability of patrimonial rights deriving from intellectual property is regulated by law. Some rights are transferable by the material law by which they are created: purchase option or right of pre-emption in stock transactions – § 323 Capital Market Act; unit of emission of gases with greenhouse effect – § 3 c) Act XV of 2005 on the commercial trade of units of gases with greenhouse effect; the right of use connected to the membership in a housing association – § 12 Act CXV of 2004 on housing associations; and the right to establish an individual medical practice awarded by the Hungarian Medical Council – § 2 (3) Act I of 2000 on the individual medical activity.252

4.6.

The category of public ownership and the category of objects exclusively within state ownership

There are four categories of ownership in the Hungarian legal order according to the Constitution, as follows: ownership of national assets by the Hungarian State (Const. § 10 (1)); public ownership (Const. § 9 (1)); private ownership (Const. § 9 (1)); and ownership by local governments (Const. § 12 (2)).253 The notion of public property is used in two different senses in the literature. In the first sense, public property simply means not private property, meaning that the ownership system consists of these two main categories. In the second sense, public ownership includes things which serve the public and to which free access for the public is provided 250

251 252 253

The transferability of know-how in Hungarian private law is recognised, as know-how is an intellectual property right, but this recognition is extremely restricted, being limited to the single momentum recognised to constitute the subject of transfer for purpose of contribution in kind in the course of establishment of a business, identified through HCC § 86 (4)) – MENYHÁRD: Property Law, pp 158-160. MENYHÁRD: Property Law, pp 162-163. MENYHÁRD: Property Law, pp 154-157. PETRIK, in: Commentary, p 613.

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by the owners. One may make a distinction within this category between treasury and non-treasury assets, with treasury assets being a narrower category in comparison. One may identify the category of so-called state entrepreneurship assets which do not belong to the treasury, and a further category of local government property, which serves for purposes connected to the accomplishment of their statutory duties.254 Public (or state) ownership is characteristically subject to regulation by the public law regime. The things that may only be subject to state ownership are listed in HCC § 172, as follows: a) treasures of the soil; b) underground waters as well as their natural basins, rivers and natural lakes, together with the beds thereof; c) abandoned riverbeds and newly formed islands in rivers; d) national public roads, railroads, international airports serving for commercial use and the airspace above the country’s territory; e) frequencies which may be used for telecommunication purposes; and f) the full range of authentification codes used for telecommunication purposes. (Treasures of the soil may touch issues connected to the transfer of ownership in movables, while the other categories, of course, appear irrelevant in this context.) Regarding the legal effects related to the characteristic of state ownership, the following may be noticed: on one side, these objects may not be taken out from the scope of state property, constituting res extra commercium; while on the other side, if these objects come into existence initially they may only be state property, as for example islands newly formed, but nevertheless, the right of use of these things may be ceded non-gratuitously by way of contract (licensing).255 These objects are deemed non-transferable ex lege, as are other objects defined in a statutory provision (by reference to HCC § 173 (1)) – any alienation of these objects is null and void (HCC § 173 (2)).

4.7.

Progressing towards the new Civil Code

4.7.1. Concept in general (a)

First Draft, Second Draft and Academic Proposal

The First Draft maintained the current prevailing view256 according to which the essential nature of the corporeal object in the sense of private law is its physical appearance. The view prevailing is that patrimonial rights may not be regarded as typical subjects of property law regulation and their inclusion into the category of things would cause serious discrepancies from 254 255 256

PETRIK, in: Commentary, p 614, p 620. PETRIK, in: Commentary, pp 630-631. It is submitted that from a dogmatic perspective this is the correct approach.

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the perspective of theoretical consistency. Nevertheless, the Second Draft seems to part with this consideration and broadens the scope of application, providing for the the analogous treatment of account money and securities – including derivative securities, being rights with monetary (market) value embodied by the security but also independently transferable. Also included in this broader concept are shares in cooperative societies and limilted liability companies, as well as of certain rights with monetary (market) value as determined by statutory provision (2ndDCC § 4:13 (2)). There are differences in the terminology used in the Drafts. The First Draft focusses on the corporeal object as such (1stDCC § 4:14 on corporeal objects), while the Second Draft puts the emphasis on the right of ownership (2ndDCC § 4:13 on the subjects of the right of ownership). There is a special provision for animals (1stDCC § 4:14 (3), identical 2ndDCC § 4:13 (3)), based on Act XXVIII of 1998 on the protection and care of animals257 enacted in conformity with EC legislation for harmonisation purposes. The Academic Proposal includes a substantially identical provision as in the First Draft, but a slight difference may be that money, securities and natural phenomena which may be used like objects are not to be regarded as objects (like in the HCC and First Draft), however they are declared to qualify as objects per se (AcadPROP § 4:14 (1)258 – with regard to the movables that are subject to registration see 5.5. on movables registered).

(b)

Legislative Proposal

The Legislative Proposal slightly broadens the range of things that can be owned and thereby predominantly follows the concept in the Second Draft. Pursuant to Legislative Proposal § 4:15 (2) is the following are regarded as things: money-market instruments; shares in a limited liability company; natural phenomena which may be utilised like objects; and – if so provided by statue – a right having monetary value as defined in such statute. The Legislative Proposal does not extend generally the sphere of what can be owned to rights. However, it may be noticed that this approach leaves it open to the legislator to deemcertain rights as things, but this remains an exception. Share in a limited libility company – considered functionally very similar to stocks – and money-market instruments are explicitly included by the proposed normative text. The explicit inclusion of these instruments is related to their actual function in the course of business. Thus, it is considered that there is no reasonable property law ground to treat the shares in a limited liability company differently from a demate257 258

1998. évi XXVIII. törvény az állatok védelméről és kíméletéről. MENYHÁRD, in: Expert Proposal, pp 597-602.

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rialised security, or to treat the well established money-market instruments differently from securities. The transfer of claims, rights and contracts is the province of the law of obligations regime in the Civil Code, while the transfer of membership rights in a company falls in the realm of company law. Another property law objection against the inclusion of the law of obligations entitlements into the range of things that can be owned may be that certain rules of property law cannot be applied to these entitlements (e.g. co-ownership, prohibition of alienation and encumbrance). There appears to be no feasible way to enable the free transferability of a business entity (company) as an independent unity of assets, although this may be a situation of a universalis successio in the sense of company law, which requires particular treatment in order to balance the interests of the creditors and of the buyer. The framework provided by private law may not provide proper instruments in order to cope with this problem.259

4.7.2. Component parts and equipment (a)

First Draft, Second Draft and Academic Proposal

The regimes in the Drafts are identical to the current provisons in the HCC, however when referring to a component part this implies a slight systematical correction, according to which the provision applies provided there is no other legal provision to the contrary (1stDCC § 4:17 on the component part (accessory), identical 2ndDCC § 4:14) in order to cope with the discrepancies existent in the interaction with other areas of law. The regulation of equipment is identical to the current regulation in the HCC (1stDCC § 4:18, identical 2ndDCC § 4:15). The Academic Proposal is identical to Drafts in this field (AcadPROP § 4:17 on component parts and AcadPROP § 4:18 on equipment).260

(b)

Legislative Proposal

The Legislative Proposal is identical to the texts included in the Drafts and Academic Proposal (Legislative Proposal § 4:16 on accessory (component part) and § 4:17 on equipment).

259 260

Legislative Proposal – Explanatory Statement – § 4:15, pp 749-755. MENYHÁRD, in: Expert Proposal, pp 605-606.

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4.7.3. Transferability of rights which may not be regarded as corporeal objects in the sense of property law (a)

First Draft, Second Draft and Academic Proposal

Both the First Draft and the Second Draft have followed the prevailing view and regulated the “transfer” of rights as a special instance of assignment (1stDCC § 5:172, identical 2ndDCC § 5:175). Beside this, the Second Draft already includes particular rules for the transfer of rights deriving from a contractual position (2ndDCC §§ 5:180-5:183). The concept in the Academic Proposal is identical to those presented in the Drafts: the transfer of rights – is classed as a special instance within the rules on assignment (AcadPROP § 5:183),261 but sub-section (2) on recorded rights and sub-section (3) excluding the application of the rules on the need for notification of the debtor have been added. The transfer of rights deriving from a contractual position is also classed as a separate regime (AcadPROP §§ 5:189-5:192).262

(b)

Legislative Proposal

The Legislative Proposal follows the concept included in the Drafts and Academic Proposal, where the transfer of rights is classed as special instance of assignment (Legislative Proposal § 5:173) and for the transfer of a contractual position an individual regulatory regime has been established (Legislative Proposal §§ 5:178 -5:181).

4.7.4. Securities (a)

First Draft, Second Draft and Academic Proposal

The deliberations concerning the regulatory regime on negotiable instruments and other securities as in the new Civil Code focussed on the question of whether it is desirable to provide a comprehensive regime featuring basic procedural rules. The framework provided in the HCC (placed at the end of the general law of obligations regime) is considered to be partly inconsistent. As an example, on one side the HCC attempts to provide a normative definition of the security (HCC § 338 / A (1), § 338 / B (1)), while on the other side a contradiction appears in that to qualify as a security the 261 262

PÉTER GÁRDOS, in: Expert Proposal, p 856. GÁRDOS, in: Expert Proposal, pp 860-863.

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recognition by a separate legal provision is needed. The two Drafts display different approaches in this respect. The core objective of the concept in the First Draft is to provide a comprehensive autonomous private regulatory regime. This regime is governed by the principle of private autonomy and grants the parties the general entitlement to embody their rights and claims by emitting a security. The concept is broken into three sections (titles): Title I on securities (1stDCC §§ 5:519-5:524), Title II on dematerialised securities (1stDCC §§ 5:525-5:534) and Title III on the common rules for securities and dematerialised securities (1stDCC § 5:535). The concept attempts to provide a normative private law definition for securities. The right or claim embodied by the security has abstract character: in this respect the emittance (being the terminology used in the First Draft) of the security according to the requirements set out in the regulatory concept establishes the right or claim embodied, gaining from this the independence that the obligation is based on. Subsequently, the security comes into existence by the emittance, legally creating the effects connected to the establishment of the security. The emittance has to correspond to the formal requirements set out in the relevant provisions.263 The regulatory concept recognises three types of securities: bearer instrument; registered security; and dematerialised security (which constites a regulatory sub-regime sui generis). The economic function is the embodiment and fortification of the obligation, thus enabling it to become a “property-like” subject of transfer in business transactions (mobilising function of rights and duties): in this respect by the transformation into securities the rights and claims concerned are “lifted out” of the scope of the law of obligations regime (otherwise the transfer of rights and claims would be subject to the rules on assignment of claims). Emphasis is put on formal requirements connected to the emittance (the “emittance” as such is not identical with the “issue” – it also implies the bringing into being of the security for the first time, invoking the constitutory legal effects) and physical possession of the document (1stDCC § 5:519 (2)). Another manifestation of the abstract nature of securities is the provision excluding the defence as against a third person holder in good faith on grounds of any default connected to the emittance of the security (1stDCC § 5:519 (3)). Regarding the legal effects of the transfer of the security, the concept provides two consequences: formal legitimation, meaning the possession of the security as such will legitimate the entitlement of the person having possession (1stDCC § 5:522); while on the other side the person obliged may not raise any plea on any grounds relating to the obligation embodied against a third person holder in good faith (1stDCC § 5:523). Furthermore, it is selfevident that the nemo plus iuris principle will not apply on the transfer of 263

First Draft – Law of Obligations – Vol. II, p 444.

4. Field of application of the rules on the transfer of ownership

527

securities (1stDCC § 5:521). The regime concept also includes explicit rules on the abolition of securities (1stDCC § 5:524). Another declared objective of the regulatory concept is to integrate the rules on dematerialised securities that are subject of regulation in external laws into the Civil Code. The regime provided in the Civil Code is of general application, meaning the provisions are mandatory and parties may only deviate where such deviation is permitted by a statutory provision (1stDCC § 5:535 (2)). A different concept is followed by the 2ndDCC concerning the regulatory concept on securities: the Second Draft maintained the current approach in the HCC providing a framework regulation (a regime that is not self-contained), with substantial issues left to external laws of public law character. According to the regime concept security will be characterised as the investment instrument declared as such by the person emitting (issuing) it, disposing of the properties determined in the relevant legal regulation and with prior approval of the state authority responsible for financial services. In particular, security may be issued for monetary claims, membership rights, credit relationships and rights with monetary value being an independent subject of transfer (2ndDCC § 5:495 (1)).264 The concept also distinguishes between bearer and registered securities, including dematerialised securities (the rules on this category only concern basic characteristics as related to its speciality). As compared to the First Draft the framework character of the regime, imbued with public law regulation achieved by way of delegated provisions, is noticeable. The Academic Proposal is identical to the concept as in the First Draft, the objective being to integrate within the Civil Code a comprehensive regime on negotiable instruments and other securities (AcadPROP §§ 5:493-5:498 on the instrument / security, AcadPROP §§ 5:4995:507 on the dematerialised instrument / security, AcadPROP § 5:508 different regulation).265

(b)

Legislative Proposal

The Legislative Proposal opts for the approach of the framework regulation (Legislative Proposal §§ 5:455 – 5:457) and follows thereby the concept of the Second Draft. The purpose of the framework regulation, included within the law of obligations regime, is to determine when an instrument is to be regarded as a negotiable instrument or other security. Instead of property law regulating the issues related to transfer, the framework regulation will establish who is entitled to exercise the right of disposition and to enforce 264 265

Explanatory Statement to the Second Draft – 51.2, p 94. KISFALUDI, in: Expert Proposal, pp 1090-1112.

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the claim embodied (Legislative Proposal § 5:456).266 It is submitted that the reason for not opting in favour of a more detailed regulatory regime within the Civil Code does not seem appropriate, as this may constitute an obstacle for the law governing investments securities to respond to market events in an efficient manner. Furthermore, it seems superfluous for the appropriate regulation already exists in relevant, specific laws. Nonetheless, the concept also introduces substantial changes as compared to the HCC, making the requirements to classification as negotiable instruments and other securities more flexible, serving thereby to a greater extent the needs of the innovative securities market. According to the Legislative Proposal (indentical with the 2ndDCC), a document or data record may be characterised as security in three ways: fistly, the emitter (or issuer) declares the document or data recorded to be a security and complies with the formal requirements set down by legal provision; secondly, the document or data record emitted or issued must be classified as a security by the rules applicable at the place of emittance or issue; thirdly, it characterises as security anything deemed to be so by legal provision (Legislative Proposal § 5:455 (1)). The framework regulation distinguishes between the security issued as a document (existing material) and the security in the form of electronic data record (dematerialised security). A security may be a bearer instrument (not indicating the name of the entitled person or indicating the name but including also a bearer clause) or a registered security (indicating the name of the entitled person) (Legislative Proposal § 5:455 (2)). The prohibition of rematerialisation is declared with regard to both the security emitted in an initially dematerialised form and a security which began in material form but was later dematerialised (Legislative Proposal § 5:455 (3)). The rules on liquidation of securities remain subject to ancillary regulation (Legislative Proposal § 5:457).

4.7.5. The concept of public ownership within the Drafts and Academic Proposal: the notion of state ownership considered inappropriate (a)

First Draft, Second Draft and Academic Proposal

The First Draft makes an attempt to resolve the inconsistencies connected to the categories used. Public property operates as a generic (umbrella) term including the things subject exclusively to state, local government and public body ownership (1stDCC § 4:15 (1)). The provision goes on to declare the inalienability of these corporeal objects and the inability to establish a 266

Legislative Proposal – Explanatory Statement – § 5:456, p 1244.

4. Field of application of the rules on the transfer of ownership

529

proprietary security thereon (1stDCC § 4:15 (2)). The state or local government as owner may cede the right to possess, use and collect the benefits deriving from the public thing (as well as the right of disposition in these aspects) to another (1stDCC § 4:15 (3)). The First Draft maintains the provision listing the exclusive subjects of state ownership, but those connected to wireless communication are not included (1stDCC § 4:16). The Second Draft follows a slightly different concept as to what it defines as the generic term of public property, including the two sub-categories of state and local government property, while these categories may include what is provided by a statutory provision: the state treasury assets and the local government capital assets, including the business assets in both of these cases (2ndDCC § 4:20 (1)). However, it may be noticed that there is no provision in the Second Draft which deems public ownership inalienable, it rather delegates the competence to external laws: a statutory provision may exclude or restrict the transferability of these assets (2ndDCC § 4:20 (2)). The normative enumeration of the exclusive subjects of state property is considered by the Second Draft to be inappropriate and unnecessary.267 The Academic Proposal is identical to the concept included in the First Draft providing an (exhaustive) enumeration of the subjects of exlusive state ownership (AcadPROP § 4:15 on the range of subjects and transferability of subjects of public ownership, § 4:16 on the subjects of exclusive state ownership).268

(b)

Legislative Proposal

The Legislative Proposal attempts to provide a precise definition of public ownership (Legislative Proposal § 4:21 (1)) followed by a non-exhaustive enumeration of things that are extra commercium (i.e. such things may only be owned by the state) (Legislative Proposal § 4:21 (2)-(3)), declaring these things to be inalienable and not susceptible to security while providing the option to cede the entitlements implied by the right of ownership (possession, use, collection of benefits) to another (Legislative Proposal § 4:21 (4)-(5)).

267 268

Explanatory Statement to the Second Draft – 13, p 40. MENYHÁRD, in: Expert Proposal, pp 602-604.

Part II: Derivative acquisition of ownership In the event of derivative acquisition a new right of ownership does not come into existence (as it would in a situation of original acquisition), instead there is a change in the existent right of ownership with regard to the person holding the right (position of the owner). According to theory, in the case of movables the following instances of acquisition are derivative: acquisition by transfer (HCC § 117); processing (HCC § 133); commixture (HCC § 134); inheritance (here also including the general bequest, legacy and donatio mortis causa); and legal succession between natural persons. It should be noticed that processing may be characterised as both derivative and original acquisition, depending on who will acquire the ownership in the new object. Accordingly, in one constellation the ownership is acquired on grounds of the previous right of ownership (meaning that the owner of the processed material also aquires the ownership of the new thing) meaning derivative acquisition, where in the other constellation the right of ownership is acquired by the other person virtue of law meaning original acquisition.269

5.

System of transfer in Hungarian private law

5.1.

Basic characteristics of the transfer of ownership system

An exact definition and categorisation of the system of transfer in current Hungarian private law can hardly be provided. The transfer of ownership in movables in Hungarian private law consists of titulus and modus,270 where the exact content of modus – whether implying a real agreement or a simple

269

270

MENYHÁRD: Property Law, p 232; on the instances of original acquisition see introductory paragraph to part III on original acquisition. Processing is discussed in more detail at 11.2.2. See on the connection between modus and titulus for example BH2003 / 190.The possessor is regarded possessor without resort to legal matters (such as titulus for the transfer).

5. System of transfer in Hungarian private law

531

real act – is a matter of dispute. With regard to recent developments, this report considers that in order to transfer the right of ownership, beside the underlying agreement to transfer, a real agreement is also required in Hungarian private law.271 According to the wording of the black letter text, in order to acquire the right of ownership in addition to a contract or other legal title (causa), the delivery of the corporeal object is also required (HCC § 117 (2)). Accordingly, in Hungarian private law the right of ownership (title) passes by delivery of the movable on grounds of a valid agreement (where agreement is understood in a broader sense – including any juridical act).272 According to the traditional view (as in the old Hungarian private law)273 the transfer of ownership requires four elements to be fulfilled: a contract or other legal title directed to transfer of ownership (causa); delivery of the movable; such delivery must be directed to transfer ownership; and the transfer has to be by the owner. The requirement of delivery directed to transfer shows the complexity of the modus in Hungarian private law: the modus appears to be more than “simple” delivery of the corporeal object, it has to have a mental element. Another view represented by some post Second World War legal scholars (and the view represented in the Commentary) is the mental element of delivery does not imply a real agreement, meaning that the transfer of ownership is effected by the contract (legal title) and the delivery of the movable in the sense of a joint real act, and the delivery does not imply a subsequent agreement.274

271

272 273

274

Among others supporting this view in the recent literature VÉKÁS: Preliminary Questions of the New Civil Code, pp 202-216; MENYHÁRD: Property Law, p 288290; BÁRDOS / MENYHÁRD: Commercial Law, p 366. LENKOVICS: Property Law, p 130. See KOLOSVÁRY who strongly underlines that the transfer of the right of ownership in movables takes place by the factum of the surrender with the parties’ unanimous will directed to the transfer and acceptance of the ownership right in the movable, in: The Right of Ownership, p 245. Nevertheless the transfer consists of two aspects, however the division line is not as strictly defined as in case of the concept implying a real agreement – see PETRIK: Real Agreement or Unitary Transaction, pp 15-19.

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5.2.

General issues

5.2.1. Generic goods, aggregate of goods (a)

Obligation defined in genus and quantity in Hungarian private law

(i)

Reconciling the performance defined in genus and quantity with the principle of speciality

The HCC does not address explicitly the controversy existent as between the subject of a contract for sale where the performance is defined in genus and quantity on one side and the requirement of speciality in property law relationships on the other side. A performance determined in genus and quantity is not conducive to achieve a proprietary effect, a momentum of individualisation is needed to ensure the compatibility between that kind of obligation and the change in the status of ownership as desired.275 The HCC does not include a special rule on the momentum of individualisation, however, indirectly, the issue appears in connection with the provisions on delay in performance on behalf of the creditor regulated in the general law of contract: according to HCC § 304 where the performance is determined by genus and quantity the consequences provided for will apply if the objects destined for performance have been marked or separated. The marking or separating overcomes the discrepancy between the obligations generality on one side and the property speciality on the other side and enables the transfer of ownership. (ii)

Effects of marking or separating the objects in a bulk of generic goods

The rule in HCC § 304 has to be interpreted in connection with HCC §§ 302-303. The marking or separating does not imply the performance as such and HCC § 304 refers to the momentum when the objects marked and separated are still in the possession of the debtor though but not taken over by the creditor, which is particularly relevant where the buyer has failed to take the steps necessary for performance. Subsequently, according to HCC § 302 (2) the person entitled (creditor – transferee) bears the risk concerning the objects which have been marked or separated within the bulk, has assessed in an objective manner. Implicitly, the marking or separating only produces the above effect if it has been carried out by the parties jointly, a unilateral act of the debtor cannot be considered in this 275

KISFALUDI: The Contract for Sale, p 178.

5. System of transfer in Hungarian private law

533

respect; nonetheless the creditor’s failure to cooperate may also lead to this effect. Conclusively, regardless of the generic character, from this moment on there exists no duty imposed on the person obliged to deliver the goods undamaged.276 This principle may be applied where there is shrinkage in the bulk as well – due to the bulk’s characteristics – and also where objects have been previously marked or separated. (iii)

Deposit in money and replaceable goods: irregular deposit (rendhagyó letét)

The so-called irregular deposit (HCC § 472) is regulated within the regulatory framework of the deposit contract (contractus nominate) in the special part of law of obligations:277 the rule applies insofar as the subject of deposit consists of money or any other replaceable good, whereas pursuant to the parties’ agreement the depositary is obliged to return the same quantity from the same genus of goods. Tellingly, the depositary keeps these goods unseparated from others, thus the goods lose their individual character. Pursuant to the wording, the provision shall be regarded specialis as to those on loan (HCC §§ 523-538, pointing out especially HCC § 528 (1)); the provisions on loan operate in a complementary manner in this context. The similarity to loan consists in the transfer of ownership in the goods, but the distinction from loan flows from the objective pursued: the loan is destined to be used up (consumed), while the deposit focusses on the custody of these goods. Subsequently, regarding certain issues the legal relationship is characterised as distinct from loan inasmuch as it focusses on the custody of goods. The rules on deposit will apply to determine the time and place of return. Set-off of claims against the goods deposited are restricted to those in connection with the depositary relationship.278 In summary, in a case of irregular deposit the depositor “gives up” his per se ownership and only retains a personal right against the depositary, subject to prescription according to the general prescriptive rules (see 13.3.3. on 276 277

278

KISFALUDI: The Contract for Sale, p 212. A parallel institution in the field of proprietary securities is the so-called irregular pledge (proprietary security in replaceable goods – rendhagyó zálogjog), well known by the old Hungarian private law – see NIZSALOVSZKY: Restricted Property Rights, pp 798-799. The irregular pledge as a distinct category is also included in the Academic Proposal (AcadPROP § 4:120 on irregular pledge – see ISTVÁN GÁRDOS, in: Expert Proposal, pp 677-678) and Legislative Proposal (Legislative Proposal § 4:111 on irregular pledge – Explanatory Statement to § 4:111, p 828). According to the concept in the Legislative Proposal, the irregular pledge has also been designed to cover the scope of security deposit (in German Kaution). KEMENES, BÉLA, in: Commentary, p 1760.

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prescription issues in case of irregular deposit). The so-called storage contract constitutes an exception from the irregular deposit insofar as there is no ownership transferred in the goods deposited and the storage may concern generic goods as well.279 The scope of irregular deposit is characterised as a mixed one LÁSZLÓ VILLÁNYI: from the economic perspective it stands near to deposit, while from the aspect of structure of services it stands near to loan.280 This means that the irregular deposit implies both the transfer of ownership in the goods deposited (pursuant to the rules on loan) and the obligation to restore (pursuant to the rules on deposit). Nonetheless, the time and place of restitution will be determined by the rules on deposit will apply, subsequently the bailor may at any time request the return of the deposited goods. Another aspect in which the irregular deposit follows the rules on deposit, also indicating the special destination of the goods in this case, is that only claims derving from the deposit relationship may be set off against the restitution claim of the bailor (see above).

(iv)

Deposit of generic goods for storage purposes, primarily in public warehouses

This topic may be considered specialis as in relation to the irregular deposit, the justification for this being seen in the objective of proper storage. Goods deposited in a public warehouse are subject of a sui generis deposit relationship regulated in Warehouse Act §§ 14-21: On grounds of the storage contract the warehouse operator is obliged to keep the goods deposited and to issue the warehouse bond enabling therewith the transferability of the goods in “abstracted” form (meaning in fact the the goods, through this document of title, are treated as a security), while in return the depositor is obliged to pay the warehouse fee. Where the warehouse operator does not issue the warehouse bond or the causa of issuing (being the warehouse contract) has failed, the transaction will be characterised as a deposit in the sense of the HCC §§ 462-466 (Warehouse Act § 14 (2)). The deposit may take place independently of other goods or mixed with replaceable goods of the same kind belonging to other depositors (Warehouse Act § 16 (3)). Where generic goods are mixed the bearer of the warehouse bond may claim the surrender of goods in the quality and quantity specified and recorded on the warehouse bond (Warehouse Act § 16 (4)). The liability of the warehouse operator for the goods deposited is strict281 (Warehouse Act 279 280 281

KEMENES, in: Commentary, p 1761. VILLÁNYI: Textbook – Hungarian Private Law, p 384. Exemption from liability is possible only where the damage has been caused by an unavoidable external factor (force majeure), inherent characteristics of the goods

5. System of transfer in Hungarian private law

535

§ 22 (1)). The basis of estimation for the compensation claim is the value stated and recorded at the point in time when the goods were received by the warehouse (Warehouse Act § 16 (5)). The regulation distinguishes between deposit in premises operated by the warehouse operator and deposit in premises rented (external), the latter being the so-called artificial storage (Warehouse Act § 20 (1)). In a case of artificial storage the goods remain at their original storage place, usually in the premise operated by the depositor, and the warehouse operator rents the premises and enters into possession in order to exercise the supervision while the deposit lasts (Warehouse Act § 20 (2)). The goods must be stored separately from the goods of the operator, thus artificial storage means in fact the separated custody of goods to preserve individuality. The category of artificial storage was not included in the Commercial Code of 1875, the institution is a result of constant development by economic life and case law, even prior to the enactment of the current regulatory regime in 1996. As compared to the “ordinary” storage the only difference concerns the external character of the premises serving for storage purposes, the accountability of the warehouse operator on an objective basis remains essential (BH1999 / 78). On one side, the goods deposited cannot be subject of seizure in the event of judicial enforcement proceedings initiated against the warehouse operator, furthermore they don’t belong to the insolvency estate in the event of insolvency proceedings; the situation in this respect is somewhat similar to the case of the commission agent as provided in HCC § 509 (3).282 On the other side the warehouse bond is classed as a negotiable instrument per se and may be the subject of seizure in the course of judicial enforcement proceedings and it must be considered in the course of insolvency proceedings as it belongs to the insolvency estate (Warehouse Act § 38 (1)). Nonetheless, the issue of ownership in the goods deposited is not addressed explicitly in the regulatory regime or by case law. A court decision states that the warehouse operator acquires possession butnot ownership in the goods deposited, while the warehouse bond replaces the goods deposited and its transfer has the same effect as the transfer of ownership in the goods (BH1997 / 244), however this particular case deals with the special construction of artificial storage. The unsettled nature of the relationship to the

282

deposited, hidden failure in the packaging or the culpability of the depositor or his direct representative. The burden of proof is imposed on the warehouse operator for establishing the first ground and on the depositor concerning the inexistence of the second ground. Inappropriate packaging should be proved by the warehouse operator, subject to contrary argument from the depositor, and finally the depositor has the chance to prove that his or his representative’s conduct was of a generally expected standard (Warehouse Act § 22 (2)). See chapter 8. on transfer or acquisition by means of indirect representation, below.

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Civil Code is considered another weak point of the regulatory regime, but the subsidiary application of the Civil Code may be considered appropriate and even unavoidable, especially to HCC § 472 on the irregular deposit (see 5.2.1.(a)(iii) on the irregular deposit). The option to derogate from the rules in the HCC in favour of the depositor by special statutory provisions is explicitly provided in HCC § 473 (2) if the deposit relationship is directed to storage of goods. In this respect the provision may be regarded as highlighting the supplementary role of the Civil Code. Analysing case law it may be noticed that the issue of ownership is usually left untouched, the court seems to tacitly adopt an approach similar to the divided ownership concept and concentrates on the right of disposition over the goods embodied by warehouse bond, and in particular will characterise the possession of the warehouse operator as the right of disposition over the goods “in the manner of an owner” (EBH2005 / 1219). Focussing on the practice, the warehouse bond is characterised as a security replacing the goods and in connection therewith embodying the right of disposition in commerce.

(b)

Aggregate of goods

An aggregate of objects is a unity of things from the point of view of trade relations. The aggregate as such consists of things belonging to a certain species (e.g. library, comprising many books), or to different species (e.g. a ranch, comprising many animals, albeit animals of different breeds and species of animals). Nevertheless, this does not exclude the application of the principle of speciality, i.e. the things included can still be classed as separate subjects of ownership. The acquirer’s obligation to investigate the objects delivered (i.e. to identify whether they correspond to those agreed in the contract or not) is dealt with in the HCC in connection with the performance of contractual duties, within the area of contract law.

(c)

Quality of the performance in case of generic goods

Pursuant to HCC § 288 concerning the quality standard to be applied where this is not agreed in advance by the parties where performance is defined in genus and quantity, the objects are to hav the good quality that is usual in the course of trade.

5. System of transfer in Hungarian private law

(d)

Progressing towards the new Civil Code (Academic Proposal and Legislative Proposal)

(i)

Quality requirement when performing the goods defined by genus and quantity

537

Both the Academic Proposal (AcadPROP § 5:98 (5) and the Legislative Proposal (§ 5:104 (5)) maintain the current regime, providing that, unless otherwise agreed by the parties, where the subject of the contract consists in goods defined by genus and quantity, the performance shall be effected by goods having the good quality expected in the usual course of business. (ii)

Irregular deposit

The Academic Proposal (AcadPROP § 5:370) and Legislative Proposal (§ 319) include identical provisions in this field, based on the old Hungarian private law. Subsection (1) – identical to the PrivLawCodePROP § 1343 (1) – spells out explicitly the acquisition of ownership in the money or replaceable good deposited by the depositor. The depositary is obliged to restore the goods of the same genus and quantity (meaning the rules on loan are applicable here); the rules on deposit are applicable on the place and time of restitution. According to subsection (2) – identical to PrivLawCodePROP § 1343 (2) – the right of ownership may not be transferred, but rather only the right of disposition to the depositary: the legal relationship characterises regular deposit as long as the depositary does not resort to his right of disposition. In the event of disposition the legal relationship transforms to irregular deposit and will be governed by subsection (1).283 Although both subsections referred to have non-mandatory character, the legal relationship should imply the transfer of ownership or, at least, the transfer of the right of disposition, in order to be classed as irregular deposit. It should be pointed out that the rules on irregular deposit operate in a subsidiary manner in the case of irregular pledge,284 and provide thereby also the functional approach of security deposit.

5.2.2. Transfer of movables and party autonomy It may be the case that the parties – especially the seller – do not wish that ownership (title) passes at the time the movable is surrendered. They may agree that ownership (title) passes only at a certain time, or by the fulfil283 284

Legislative Proposal – Explanatory Statement – § 5:319, p 1155. NORBERT CSIZMAZIA, in: Expert Proposal, p 1010.

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ment of a certain condition, but this “autonomy” is restricted by law. The seller may retain the right of ownership in the object only at the time the sale contract is concludedand only until the payment of the purchase price in full, such retention to be document in written form (HCC § 368 (1)).285 Furthermore, concerning the point in time when the right of ownership (title) in the object passes, beside the general rules in property law, attention must be paid also to the underlying obligation as well. The delivery of the object concerned may be analysed only having regard to the consensus of the parties. The place, time and manner of performance are determined by the law of obligations regime, according to which the ownership (title) passes – generally – with the performance of the contract. The same will apply to risk, where the risk usually passes over by the delivery of the object (HCC § 279 (2)). An exemption may be the case of the creditor’s delay – i.e. the delivery (performance) is impossible due to a circumstance imputable to the creditor – in which case the risk passes over in the same way as if he had received performance (i.e. he is not in possession of the thing, but nevertheless he bears the risk) (HCC § 303 (2) b)).286

5.3.

Contract or legal titulus directed to the transfer – Causa of transfer

The legal title directed to the transfer of ownership usually consists of a contract, being a contract for sale, donation or exchange (barter). Other title transfers may be e.g. compensation in natura for damage caused, compensation for justified damage, restitution of unjustified enrichment, etc. – mostly based on a court decision. The underlying legal title operates as a prerequisite for the transfer: in the event the causa has failed, the ownership does not pass and subsequently vindication as a remedy remains open to the transferor to recover the movable concerned.287 However, this statement should only be regarded as a basic starting point: by considering the interaction of the law of property and law of obligations regimes while assessing the invalidity of the causa this statement may turn out to be only relative. Concerning the legal consequences where the causa has failed, it may be noticed that the assessment of the failure (invalidity) is ordinarily the subject of court proceedings. The court will invariably apply – as provided in the HCC – the “invalidity regime”, which has the objective of restoring the previous state (see 5.3.2.(b)(iii) on the consequences of invalidity). However, limitation of the claim for payment of the purchase price 285 286 287

PETRIK, in: Commentary, p 432. PETRIK, in: Commentary, p 433. LENKOVICS: Property Law, p 131.

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will not affect the passing of title (right of ownership) by delivery of the thing, meaning that the supplier cannot claim it on the basis of his ownership (BH 1989 / 409). Concept of contract in Hungarian private law: Hungarian private law also deals with the category of legal act (jogi tény), accepting the German concept of Rechtshandlung. Accordingly, obligations may arise either from lawful or unlawful legal acts. This distinction also corresponds to the category of contractual obligation and obligation from non-contractual liability arising out of damage caused to another. Nonetheless, there are special statuses for benevolent intervention in another’s affairs (negotiorum gestio, in Hungarian megbízás nélküli ügyvitel) and unjustified enrichment; both are non-contractual obligations, but they arise from a lawful legal act. A lawful act done with the purpose of achieving legal effect is called juridical act (jogügylet). The most important type thereof is the contract (szerződés). The concept of legal act gains practical importance with regard to unilateral declarations, which may have legal effect only if so provided by legal provision, in which case they are governed by the rules on contracts.288 The HCC does not contain a general part, subsequently there are no general rules on juridical acts. Thus the rules on contracts are applicable, in fact, to any relationship of pecuniary character. The most important example is the rule defining the period of prescription. It can be found among the general rules on contract and sets out a period of five years (HCC § 324 (1)). However, the rule is applied with regard to any private law personal right unless there is a special rule concerning a particular right. Although the scope of the rules on contracts in the HCC is a limited one (restricted to the law of obligations), the notion of contract and its rules are widely applied, their scope of application being extended even outside of the de facto private (civil) law.289 The rules on contracts in the HCC follow the principle of unity of private law (no distinction between business to business and consumer to consumer contracts). Of course, the developing area of business to consumer contracts has been present in the HCC since the amendment in 1977, which has experienced a dynamic evolution in connection with the country’s accession to the European Union. Contracts are concluded by reciprocal declarations of will (HCC § 205 (1), §§ 211-215). Accordingly, the Hungarian concept of contract is near to the German one, nonetheless the “will” theory has not been codified, meaning that the declaration is the subject of interpretation in general. A declaration of will may be an offer or acceptance. An offer is eligible to be withdrawn if the withdrawal is notified to the addressee earlier than the offer becomes effective, which is especially relevant if the offer states that it is not binding. Inter absentes the offer and / or acceptance (declarations) become binding when they 288 289

HARMATHY, in: Introduction to Hungarian Law, p 95. HARMATHY, in: Introduction to Hungarian Law, p 96.

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reach their addressee, thus in this respect Hungarian private law does not follow the postal rule theory.290 With regard to the content, the contract will come into existence if the parties have agreed on the essential issues, namely issues which one of the parties characterise as essential (HCC § 205 (2)). If there is no agreement on the essential issues, the contract will not come into existence (on the consequences in such case see 5.3.2.(a) on the category of contract which had not come into existence). In general, it may be stated that if one party delivers a performance which the other party does not refuse, the contract is considered to come into existence by concludent factum.291 The parties are bound to cooperate and inform each-other about any relevant circumstance (HCC § 205 (3)). Infringement of the duty to cooperate may lead to compensation on grounds of contractual liability (HCC § 318) or non-contractual liability arising out of damage cause to another (HCC § 339).292 Standard terms of contract become part of the contract if these were made accessible to the other party to learn about and he accepted them explicitly or by his actions (HCC § 205 / B (1)). A party that wishes to impose standard terms that have an unusual character must inform the other party separately of such terms and these must be accepted explicitly by him (HCC § 205 / B (2)). An individually negotiated contractual clause will have priority over a standard contract term (HCC § 205 / C). In Hungarian private law there is no equivalent or similar requirement to the doctrine of consideration as in Common Law or cause in French private law. Judicial practice would, in this case, probably focus on the issue of whether the parties wanted to be bound by law, or whether the agreement was but a mere gentlemen’s agreement or some other non-binding statement of intent (e.g. moral or political obligation).293 Since the amendment of the HCC in 1977 the preliminary agreement (előszerződés) is also regulated on a normative level (HCC § 208). As compared to concepts in other legal systems, the Hungarian regulation of the preliminary agreement ascribes a higher level of binding force and authorises the court to establish a contractual relationship between the parties if they fail to ultimately agree a contract. However, in practice the preliminary contract seems not to be a very beneficial instrument, for courts show reluctance to impose contractual terms on the parties if the content of the future contract is not clear enough, and instead prefer a claim for damages.294 As related to the issues of reliance and risk, Hungarian private law theory also admitted an additional source of obligation (over and above the contractual rules and non-contractual rules such as benevolent intervention in another’s affairs (negotiorum gestio) and unjustified enrichment), which is embodied in HCC 290 291 292 293 294

HARMATHY, in: Introduction to Hungarian Law, p 99. BENEDEK, in: Commentary, p 765. BENEDEK, in: Commentary, p 769. HARMATHY, in: Introduction to Hungarian Law, p 102. HARMATHY, in: Introduction to Hungarian Law, p 100.

5. System of transfer in Hungarian private law

541

§ 6. The article has been formulated under the influence of the comparative work published by LÁSZLÓ FÜRST (VILLÁNYI) in 1929 who paid special attention to cases of estoppel in Common Law.295 The scope of the provision is to absorb all cases where someone behaves in a way inducing another person to react by incurring expenses. Nonetheless, judicial practice shows a rather cautious approach to this provision and differentiates between acting at one’s own risk and reliance on the actings of another person.296

5.3.1. Requirement of a valid obligation to transfer the right of ownership in a movable (causa / titulus) The titulus or causa underlying the modus also has several aspects which may be deemed relevant under certain circumstances. According to the view expressed in the Commentary, the titulus will consist of the following aspects: purpose of acquisition; the permitted character of the possibility to acquire; and the agreement on the transfer of ownership. The structure of the causa is usually built up as follows:297 (a) the person transferring the ownership is entitled to transfer the right of ownership in the movable, while on the other side the person who acquires ownership must be capable of acquisition (legal capacity to acquire is needed); (b) the intention of the transferor is directed to transfer the ownership, while the intention of the acquirer is directed to acquisition of ownership (their intentions must meet); (c) the intention of the transferor and the acquirer concerning the titulus (in a narrow sense must meet) i.e. whether sale, loan for use, barter or donation; (d) the intention of the transferor and the acquirer characterises according to law an agreement capable of transferring the ownership; and (e) the subject of transfer corresponds to their intention. The above structure of the causa suggests a the concept where the modus implies only traditio (real act) and not also a real agreement. Otherwise, if the modus also implies a real agreement, the elements included in (b) and (e) are rather considered to form subject of the separate real agreement. 295

296 297

LÁSZLÓ FÜRST, “Utaló magatartások. A Budapesti Királyi Magyar Pázmány Péter Tudományegyetem Magánjogi Szemináriumának kiadványai 2.” [Conclusive actions. Editions of Private Law Seminar at the Royal Hungarian Pázmány Péter University of Budapest 2.], Dunántúl Egyetemi Nyomda, Pécs 1929. HARMATHY, in: Introduction in Hungarian Law, p 101. PETRIK, in: Commentary, pp 427-428.

Hungary

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The causa of the transfer usually consists of a contractual agreement. Nevertheless, the content of the agreement directed to the transfer is subject to the parties’ contractual freedom within the limits set out by private law. As such, the parties may agree that ownership (title) passes only when the buyer has paid the full purchase price (the delivery will be made, the object concerned is surrendered, but ownership (title) only passes when a certain condition is fulfilled (conditio suspensiva or conditio resolutiva)). This condition may also be part of the titulus. Any deficiency of the underlying obligation will affect the modus (no matter whether the modus is considered a real act or real agreement), i.e. the passing of title (right of ownership) will be affected. The validity of the underlying obligation always has to be assessed on grounds of the law of obligations regime. Subsequently, the invalidity of the underlying obligation will render the modus element void as well. Such deficiency may be the lack of the intention directed to the transfer of ownership (where there was an element of simulation and the character of the obligation was “pretended”). In the case of a so-called pretended obligation, the transferor’s real intention has to be taken into consideration (interpreted) according to HCC § 207. Annulment (elállás) of the contract – i.e. annulment of the obligation subsequent to the transfer – is only possible if the party exercising that entitlement is in the position to restore the status ante quo, i.e. to restore the movable (see 5.3.2.(c)). The titulus of the transfer may not only constitute a contractual agreement, but also the intention to restore the advantage earned as a result of unjustified enrichment, or in a case of non-contractual liability arising out of damage caused to another (tort) the intention to repair the damage.298 Unilateral promises (HCC § 199) are also recognised under certain circumstances: a prize or reward (HCC § 592); and assumption of an obligation for public purposes (HCC § 593). The promise or assumption of obligation may consist in the surrender of a thing, which may effect the transfer of ownership in the thing concerned. The titulus of transfer will be the performance of the obligation undertaken (prize or reward, or assumption of obligation for public purposes). In the case of universal succession (universalis successio) the transfer takes place ipso iure. Such case would be inheritance or legal succession (i.e. merger of companies) based on a legally effective contractual agreement, or court or administrative body decision). However, in the case of inheritance the ipso iure acquisition is conditional, provided that the heir does not reject the entitlement (from a property law perspective the acquisition is deemed in this case retrospectively ineffective). For singularis successio in the case of inheritance law, being the so-called in rem legacy (HCC § 641 (1)) disposing of a certain corporeal thing, the heir acquires ownership ipso iure by 298

PETRIK, in: Commentary, p 431.

5. System of transfer in Hungarian private law

543

devolution. (There also exists the legacy with personal character (HCC § 641 (2)) whereby the deceased obliges his heir to do something.299 In this case the person entitled has a claim through the law of obligations – which is accordingly subject to prescription – against the heir, meaning that ownership is not transmitted ipso iure. A possible transfer within the scope of inheritance law may take place on the basis of a contract of inheritance (HCC §§ 655-658) which may be directed to a certain property (subject of the contract). In such a situation ownership in the thing is transmitted ipso iure. As regards future goods, an obligation to transfer the ownership in an immovable property which is not owned by the transferor at that time may not be considered invalid in accordance with HCC § 227 (2) automatically (as may be referred to HCC § 365 (1)), for the contract is not directed to impossible performance (EBH1999 / 96).

5.3.2. Defects of the causa and other instances of termination of the contract (a)

The category of contract which has not come into existence

Beside the general category of invalid contracts the theory and practice also points out the category of contract which has not come into existence. In these cases the consensus of parties’ is affected for certain reasons, though as a result of the dissensus (the parties’ intentions do not meet) there is no agreement establishing the contract. Such situations may arise if there is no agreement in the issues considered essential or characterised as essential by any of the parties as required in HCC § 205 (2), as for instance in the case of a bilingual contract if there is an essential difference between the texts of the versions. Performances provided on grounds of a contract which had not come into existence are recoverable under the rules of unjustified enrichment.300 Another case where the contract will not come into existence is the case of disposition made by a person acting without authority. Where the performance comprised the delivery of goods and the third party acquires ownership on grounds of good faith acquisition (HCC § 118 (1)(2)), the consequences may vary as follows. If the person disposing without authority acted culpably the original owner may claim damages from him, but if he did not act culpably the owner may claim the surrogatum on grounds of unjustified enrichment law. Concerning the relationship with the third party, if the third party did not acquire ownership in the movable 299 300

GYÖRGY GELLÉRT, in: Commentary, p 2387. LAJOS VÉKÁS, in: Commentary for the practice – Vol. II, pp 370-370 / 1; HARMATHY, in: Introduction to Hungarian Law, p 106.

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on grounds of good faith acquisition for some reason – e.g. for lack of good faith – the property regime instrument (rei vindicatio) will have priority in relation to the unjustified enrichment regime (being of strictly supplementary character). Furthermore, some legal writers are of the view that the consequence of invalidity also applies to the contract which had not come into existence.301

(b)

Contracts invalid (érvénytelen szerződések)

Invalidity lies on nullity and voidability (assuming reduction follows such voidability) of the contract.302 From a practical point of view (purposes of opposability), the assessment of invalidity by the court will appear in both cases desirable.303 In this field Hungarian private law follows the principle of restitutio in integrum, meaning from the property law perepective there is primarily retrospective proprietary effect, while the relative consequences between the parties are channelled in the invalidity regime established for this purpose (HCC §§ 237-238) – see below. Of course, the invalidity may not affect the entire contract, but only a certain part of it (partial invalidity). Pursuant to HCC § 239 (1) the entire contract will be affected by the invalidity only if the parties would not have concluded the contract otherwise, subject to any specific legal provision to the contrary. Concerning business to consumer relationships, the entire contract can only be affected by partial invalidity if the contract cannot be performed without the invalid part (HCC § 239 (2)).

301 302

303

See for example BENEDEK, in: Commentary, p 722. The Academic Proposal (identical the Legislative Proposal) regulates the reasons of invalidity classified into three groups: Defect of Contractual Intent (§ 5:69 Mistake, § 5:70 Deception, Coercion, Threat, § 5:71 Reservation and Simulated Contract, § 5:72 Defect of Contractual Intent in the case of a Gratuitous Contract); Defect of Contractual Declaration (§ 5:73 Form of contract); and Defect of Intended Legal Effect (§ 5:74 Prohibited Contracts, § 5:75 Contracts Contradicting the Principle of Good Faith, § 5:76 Usurious Contract, § 5:77 Gross Disparity, § 5:78 Term Detrimental to Consumer, § 5:79 Unfair Contract Terms, § 5:80 Invalidity of Unfair Contract Terms, § 5:81 Popularis Action). The Legislative Proposal deviates from the Academic Proposal inasmuch as it maintains the impossibilium nulla est obligatio principle (obligation directed to impossible performance is null and void) and integrates a rule on the contract directed to impossible performance (§ 5:77) within the group on the Defect of Intended Legal Effect. BÁRDOS / MENYHÁRD: Commercial Law, p 230.

5. System of transfer in Hungarian private law

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With regard to HCC § 239 (1) in retrospect it is not easy to decide whether the parties would have concluded the contract or not, and if so what would the differences have been. In this case the burden of proof is imposed on the person requesting the court to assess that the parties would not have concluded the contract without the invalid part.304

(i)

Contracts null and void (semmis szerződések)

Nullity is considered an ipso iure instance of invalidity (and must therefore be taken into consideration automatically (ex officio), for an exception see (bb)(ε) Nullity on grounds of unfair contract term in consumer contract, below), which may be invoked without limitation in time by any person, and to which assessment there are no particular proceedings necessary (HCC § 234 (1)). In contrast to the aforementioned, in most cases a legally binding court decision assessing the nullity will be needed in order to put the matter beyond doubt. Although there is no limitation in time to invoke invalidity, the rules on prescription will set limits to the personal rights emerging as a consequence of invalidity (within the scope of restitutio in integrum). Case law also restricts the range of persons which may invoke invalidity on grounds of CCP § 3 (1) to persons who prove a legal interest, meaning someone who he has the power (granted expressly by a legal provision) to initiate court proceedings. The same is true with regard to claims of third persons. The requirement of legal interest also implies that there is no other legal instrument available.305 When addressing the grounds of nullity these may be treated as divided into two groups: (1) nullity on grounds of failure affecting the intention of the contracting party; and (2) nullity on grounds of failure of the legal effect pursued by the contract. (aa)

Nullity on grounds of failure affecting the intention of the contracting party

(α)

Simulated contract (színlelt szerződés)

The main rule is that a simulated contract is deemed null and void, and if it covers another contract, this contract shall be considered in the light of the simulated contract (HCC § 207 (5)). Subsequently, the sole fact that the purpose pursued by the contract is not a typical one will not cause the nullity of the contract if the intention to agree corresponds to the reality and – according to the rules on interpretation of contractual declarations – is mutual. In this sense the contract is not considered simulated; the origi304 305

BÁRDOS / MENYHÁRD: Commercial Law, p 297. BÁRDOS / MENYHÁRD: Commercial Law, pp 230-231.

Hungary

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nal purpose of the agreement is played down by the real economic purpose of it (see on the related problem 1.3.2. on fiduciary property position: transfer of ownership for security purposes). The nullity of the contract cannot be assessed if the intention of one of the parties was directed to conclude the given contract (BH2000 / 457).306 (β)

Physical force (fizikai kényszer)

The contract is regarded null and void on grounds of physical force if the declaration made by the contracting party does not correspond to his intention due to external circumstances (e.g. while signing his hand is conducted by someone else or he is otherwise subject to intimidation). In this case there is no expression of intention and subsequently it is more precise to speak about a non-existent contract rather than than a null and void contract.307 (γ)

Lack of legal capacity (cselekvőképtelenség)

A declaration made (contractual duty undertaken) by a person lacking contractual capacity is deemed null and void (HCC § 15 / A (1)), but there is an exception from this rule where the contract is of minor importance and of a kind that is entered into in every day circumstance (HCC § 15 / A (2)). Where a contract is conluded with someone lacking capacity, the restitutio in integrum regime is invoked.308 Declarations made by a person with diminished contractual capacity will lead to the same legal consequences, but in such a situation the nullity of the contract does not have absolute character: the contract is valid if the guardian has granted prior consent or retrospectively consents (HCC § 14 / B).309 Nonetheless, according to HCC § 16 / A both cases mean relative invalidity inasmuch as it may only be invoked in favour of the person lacking, or having diminished, contractual capacity.

306 307 308

309

BÁRDOS / MENYHÁRD: Commercial Law, pp 268-269. BÁRDOS / MENYHÁRD: Commercial Law, p 269. As mirrored in judicial practice, for example BH2006 / 408, whereas the voidance of the contract on grounds of lack of contractual capacity invokes a restoration process directed to reinstate the pre-existing state, pursuant to restitutio in integrum regime – see below. According to HCC § 16 / A, a contract is null and void on grounds of lacking or diminished contractual capacity, but this defect may only be looked to when it is for the benefit of the person lacking, or diminished in, his contractual capacity.

5. System of transfer in Hungarian private law

(bb)

Nullity on grounds of failure of the legal effect pursued by the contract: prohibited contracts (tilos szerződések)

(α)

Contract in breach of or evading a legal provision (jogszabályba ütköző vagy jogszabály megkerülésével kötött szerződés)

547

A contract which runs counter to a legal provision or has been concluded to evade the operation of a legal provision is deemed null and void unless otherwise provided by the relevant legal provision (HCC § 200 (2)).310 The relevance of the breach from the point of nullity of the contract has to be evaluated by individual interpretation of the relevant legal provision, the primary point to be assessed being whether the legislator’s intention extends to nullity of the contract or not.311 A contract evading a legal provision does not violate the legal provision directly. These contracts are usually those directed to release one party from an obligation imposed by legal provision (mainly obligations to pay taxes or other public charges) in a way that the obligation is not taken over by another, and the release is not reached by consent of the dominus of the obligation concerned.312 (β)

Contract contrary to the principle of good morals (jóerkölcsbe ütköző szerződés)

A contract which obviously breaches the principle of good morals is deemed null and void (HCC § 200 (2)). This provision is considered a general clause by which the HCC provides a gateway for rules of conduct of non-legal character. Conduct which obviously violates rules of morality (contra bonos mores) may only be defined in a complex way. By setting objective standards,313 judicial practice carefully examines whether any breach can be so categorised.314 Besides the classical implications of good 310 311 312

313 314

BENEDEK, in: Commentary, p 724. BÁRDOS / MENYHÁRD: Commercial Law, p 270. For example a simulated contract in order to evade obligation to payment of taxes (athough this can be null and void because of its simulated character) BÁRDOS / MENYHÁRD: Commercial Law, pp 270-271. Another example is a contractual clause stipulating the obligation of the employee to take over the employer’s duty to restore the amount of the pension paid without legal grounds by the social security service, although this obligation is imposed on the employer by virtue of law – BENEDEK, in: Commentary, pp 730-731. BÁRDOS / MENYHÁRD: Commercial Law, p 270. BENEDEK, in: Commentary, p 731.

Hungary

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morals (e.g. nullity of a contract directed to disturb a third person, etc.), recent literature here also refers for example to the excessive restriction of somebody’s economic freedom of action or autonomy to enter contracts, leading indirectly to the protection of the interest of certain social or economic groups.315 (γ)

Contract implying disproportional benefit by taking advantage of another’s situation – usury – (uzsorás szerződés)

A contract which is disproportionately weighted in favour of one party due to his taking advantage of another’s situation is deemed null and void (HCC § 202). As compared to HCC § 201 (2) deeming the contract voidable for gross disparity, for HCC § 202 to apply an additional subjective element is required which indicates a more severe consequence, namely the nullity of the contract. According to recent literature such a situation may be characterised in any life situation which may move the party to conclude a contract with disadvantageous content to him, while the other party makes use of this by stipulation of terms disproportionately weighted against the weaker party. Case law applies a restricted interpretation, requiring a straitened or disadvantageous situation in order to assess this event of nullity.316 (δ)

Contract directed to impossible performance (lehetetlen szolgáltatásra irányuló szerződés)

A contract directed to impossible performance is null and void (HCC § 227 (2)). The performance may be characterised as impossible both for physical (objective) or legal (performing the obligation would violate a legal provision) obstacles. The ground of impossibility of performance leads to nullity of the contract where the performance (whatever that may) already existed at the point in time the contract was concluded. Impossibility in this sense is attributable to the imputable conduct of one of the parties in course of the conclusion of the contract, which may also involve an entitlement to claim damages.317 (ε)

Nullity on grounds of unfair contract term in consumer contract

With regard to consumer contracts, any unfair term featuring as part of standard contract terms, or a unilaterally imposed and not individually 315 316 317

BÁRDOS / MENYHÁRD: Commercial Law, pp 277-281. BÁRDOS / MENYHÁRD: Commercial Law, p 287. BÁRDOS / MENYHÁRD: Commercial Law, p 287.

5. System of transfer in Hungarian private law

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negotiated unfair term, is null and void (HCC § 209 / A (2)). However, the nullity may only be invoked in the interests of the consumer (meaning relative nullity). (ii)

Contracts voidable (megtámadható szerződések)

In certain cases the contract is deemed invalid only if one of the parties wishes it to be so, for this reason voidability is also called “conditional invalidity”.318 Accordingly, the avoidance operates retroactively (HCC § 235 (1)), meaning that the contract is deemed invalid from the moment of its conclusion. The right to avoid the contract is provided for the party suffering a disadvantage, or for a person having a legal interest in the avoidance (HCC § 235 (2)). The normative requirement of reducing the contract “without delay” is measured on the principles of good faith and fair dealing (HCC § 4 (1)).319 In contrast to what is stipulated in HCC § 235 (2), case law does not consider the previous notice of the contracting party indispensable in order to admit the action (and claim).320 Avoidance of the contract is a unilateral legal act, exercised by notification of the other party in written form within a year of the conclusion of the contract. If unsuccessful, the avoidance shall be sought without delay before the court (HCC § 236 (1)). The point in time when the period of one year begins will vary according to the ground of voidability, as defined in HCC § 236 (2) (e.g. in the event of mistake or fraud, when the mistake or fraud is recognised; in the case of gross disparity or unfair terms, at the point in time when the party suffering the disadvantage performs etc.). On the time limit set out the general rules on suspension and interruption in prescription apply. However, there is a particular instance where the person entitled may exercise his right of avoidance against any claim on grounds of the contract in the form of a procedural exception even after the time limit for voidability – one year – has passed (HCC § 236 (3)). Once the period of voidability has started, the party entitled to avoid the contract may (by written instrument) confirm the contract or renounce his right to avoid the contract (HCC § 236 (4)). A renunciation clause affecting the right to avoid cannot lawfully be included in the contract.321

318 319 320 321

BÁRDOS / MENYHÁRD: Commercial Law, p 230. BÁRDOS / MENYHÁRD: Commercial Law, p 232. BÁRDOS / MENYHÁRD: Commercial Law, p 232. BÁRDOS / MENYHÁRD: Commercial Law, p 234.

Hungary

550

(aa)

Voidability on grounds of mistake (tévedés)

The following mistakes make a contract voidable: – a mistake concerning an essential circumstance caused by the other party, being one which the other party could have recognised (HCC § 210 (1)); – a mistake concerning the content of legal rules, where such mistake wassignificant and the was made on the basis of misinformation provided by a legal counsel to the parties jointly (HCC § 210 (2)); or – if the parties were in the same mistaken belief (HCC § 210 (3)). A unilateral mistake (first alternative) is regarded relevant if it exists at the point in time when the contract is concluded, but case law also admits the mistake concerning a future circumstance in the case of joint mistake (third alternative).322 The unilateral mistake must be excusable, as in accordance with the limits set by the nemo suam turpitudinem allegans auditur principle (HCC § 4 (4)), and the culpability (or otherwise) of the other party is relevant (causal) in determining the intention of the party.323 What mistake shall be regarded essential is assessed by case law on grounds of the public opinion and recognisable opinion of one of the parties: a circumstance where one of the parties recognisably would not have concluded the contract, or would have concluded it with a different content, is essential. Error in objecto characterises what is always relevant, whereas error in persona only concerns a legal relationship involving as an essential element a relationship of trust and confidence in the counterparty.324 Mistake in the reason for entering a contract may also prove relevant,325 while a mistake in price may also be considered essential, but the relationship with this rule to the rule on gross disparity is not clear in any aspect. Voidability on grounds of mistake requires a subjective element as well. The remediation of voidability is excluded, meaning that the consequence is always restitutio in integrum.326 Case law does not limit the exercise of the right of avoidance as in relation to damages on grounds of contractual liability and confers the right of choice on the party aggrieved.327

322 323 324 325 326 327

BÁRDOS / MENYHÁRD: Commercial Law, p 236. BÁRDOS / MENYHÁRD: Commercial Law, p 236. BÁRDOS / MENYHÁRD: Commercial Law, pp 238-239. BÁRDOS / MENYHÁRD: Commercial Law, p 243. BÁRDOS / MENYHÁRD: Commercial Law, pp 240-242. BÁRDOS / MENYHÁRD: Commercial Law, p 244.

5. System of transfer in Hungarian private law

(bb)

551

Voidability on grounds of fraud or unlawful threat (megtévesztés vagy jogellenes fenyegetés)

Where the other party used fraud or an unlawful threat to procure the conclusion of the contract, the aggrieved party may avoid the contractual. As compared to mistake there is no requirement of essential character and excusability, only the relevance (causation) of the fraud or unlawful threat is required. According to case law the fault of the aggrieved party does not affect the relevance of any fraud. In contrast, case law does not accept the fraud to be relevant if the party aggrieved did not have any basis to trust the other party. Suppressing facts may be classed as fraud if the party not providing the relevant information is obliged to do so. This may follow from a particular legal rule, or from HCC § 205 (4) stipulating the principle of cooperation in contract law. However, the duty to inform implied by this principle is not unlimited, it depends on the particular legal relationship. For example the scope of the duty to inform expectable from the seller of stocks is narrower than that expectable from the seller of a corporeal object (BH1998 / 296),328 a case which has direct property law significance. Unlawful threat means identifying a disadvantage to the party if he does not act in the manner the person exercising the threat expects. Under Hungarian private law unlawful threat implies psychological pressure. According to case law, relevant threat means identifying moral, patrimonial or physical disadvantage, directed against the threatened party or his close dependants (Supreme Court, Pfv. II. 20.399 / 1998 / 3).329 Highlighting the possibilityof non-payment if the party does not waive a part of the claim is not considered a relevant threat (Supreme Court, Pfv. VI. 20.007 / 1995 / 7). However, in another case the Supreme Court ruled that waiving a right as a consequence of putting in view unlawful patrimonial disadvantage consisting in non-payment or payment only after long lasting court proceedings is contrary to good morals and therefore establishes voidability (Supreme Court, Pf. I. 22.033 / 1994 / 4). Informing a counterparty of the legal sanction in the case of non-payment is not considered a relevant threat (Supreme Court, Pfv. IV. 22.502 / 1996 / 4), in the same way as the correct exercise of a right of termination is not (Supreme Court, Pfv. IV. 20.370 / 1997 / 4). The unlawful character can be realised both in an absolute and relative sense, but the disadvantage must be assessed objectively, the supposition of the party aggrieved cannot replace an objective assessment (Supreme Court, Pfv. II. 20.399 / 1998 / 3).330 Pursuant to HCC § 210 (4), as a special case the fraud or unlawful threat realised by a third person may also make the 328 329 330

BÁRDOS / MENYHÁRD: Commercial Law, pp 250-252. BÁRDOS / MENYHÁRD: Commercial Law, p 254. BÁRDOS / MENYHÁRD: Commercial Law, pp 254-255.

Hungary

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contract voidable and if applicable lead to the invalidity of the contract. However, this constellation is conditional inasmuch as it only applies if the other party had known or should have been known about the fraud or threat. (cc)

Voidability on grounds of gross disparity (szolgáltatás és ellenszolgáltatás feltűnő értékaránytalansága)

Pursuant to HCC § 201 (1), a counter-performance is due for the performance stipulated in the contract unless the contract or the circumstances expressly indicate otherwise. In conjunction with this presumption, the HCC provides the rule on gross disparity, according to which if there is a noticeably large disparity as between the performance and counter-performance when the contract is concluded and it is not a situation where one of the parties had the intention to make a donation, the party aggrieved may avoid the contract (HCC § 201 (2)).331 A noticeably large imbalancemeans an outstanding imbalance, assessed objectively. The disparity must be interpreted under market conditions and analysed on case by case basis. The circumstances at the conclusion of the contract are also considered, nevertheless, this does not change the objective content. On certain contracts, of course, the provision cannot be applied, such as auction purchase, aleatory contracts (involving an element of uncertainty, such as maintenance contracts, life annuity contracts and inheritance contracts,332 or where the agreement concerns an individual piece of art.333 (dd)

Voidability on grounds of unfair contract terms (szerződési feltételek tisztességtelensége)

In this field Hungarian regulation goes further than EC legislation expects in two aspects. Firstly, the invalidity of unfair standard form contract terms, and more generally the control of the content of valid standard contract terms, is not limited to business to consumer contracts. Secondly, with regard to business to consumer contracts the scope of application is not limited to standard form contract terms, but it also covers individually negotiated unfair contract terms. Accordingly, HCC § 209 / A (1) provides a right to avoid the unfair term that is part of standard form contract terms (on consumer contracts, see 5.3.2.(b)(i)(bb)(ε) above). HCC § 209 provides the definition of unfair term, as follows: “the standard contract term, 331

332 333

Since the transformation to market economy the rule is interpreted in a rather restrictive way – see HARMATHY, in: Introduction to Hungarian Law, p 105. See the explanation provided in footnote 78. BÁRDOS / MENYHÁRD: Commercial Law, pp 259-263.

5. System of transfer in Hungarian private law

553

particularly the not individually negotiated term in a consumer contract, where the contractual rights and duties of the parties are determined without reference to the requirements of good morals and fair dealing (HCC § 4) unilaterally and without reasoned consideration, to the detriment of the party entering the contract with the person stipulating such term.” When deciding upon the unfair character, the circumstances at the conclusion of the contract, the nature of the performance and the relationship to other terms in the contract and, if relevant, other contracts shall be considered. These rules are not applicable to the condition determining the principal performance, and as such are similarly not applicable on the proportion of performance and counter-performance.334 (iii)

Consequences of invalidity (nullity and voidability)

(aa)

Consequences in general

As in any other private law system, the legal consequences of invalidity may be considered one of the most complex fields in Hungarian private law. Indeed, this field of Hungarian private law deserves to be regarded as the most obscure field of all. The HCC establishes a special regime in order to address it with invalidity being integrated into the general contract law regime (Chapter XXI on nullity and voidability, HCC §§ 234-239). Three possible outcomes are envisaged by the invalidity regime: (i) restitutio in integrum (the restoration of the status quo ante (HCC § 237 (1)); (ii) as a subsidiary consequence, deeming the contract valid until the court’s decision (HCC § 237 (2) first sentence); and (iii) deeming the contract valid due to termination of the reason for invalidity (HCC § 237 (2) second sentence) (which operates as an alternative outcome to restitutio in integrum). Typical cases for the application of restitutio in integrum are contracts where the performance is directed to transfer of ownership (movable or immovable property), but the particular subsidiary consequence in the form of prospective invalidity will apply to contracts involving irreversible performance (mainly contracts of a service character). Although the following presentation of consequences is rather complicated, focussing on movables and on the retroactive property effect, the regular consequence shall be restitutio in integrum in kind or by payment of the movable’s value for the other party, both based on HCC § 237 (1). However, this is considered a merely simplified summary; the whole picture of the legal consequences appears to be much more complex and subtle, depending on the individual case.

334

BÁRDOS / MENYHÁRD: Commercial Law, pp 263-266.

Hungary

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(bb)

Restitutio in integrum as a legal consequence (az eredeti állapot helyreállítása)

(α)

Restitutio in integrum in general

As compared to the old Hungarian private law, the HCC has detached the avoidance of the contract from the unjustified enrichment regime and deemed restitutio in integrum be applied as the main rule (HCC § 237 (1)). By the 1977 amendment of the HCC restitutio in integrum as the legal consequence of invalidity has been supplemented by deeming the contract valid by court order as an alternative consequence if the reason for invalidity can be terminated (HCC § 237 (2), second sentence).335 The decision as to which one of the two consequences is applied in the given case lies with the discretion of the court. Nonetheless, the exact content of restitutio in integrum is not entirely clear, neither in theory nor in case law. Experience shows that restitutio in integrum operating sui generis and as the exclusive consequence of invalidity does not manage to deal independently with all the various circumstances arising within or in connection with the reinstatement of the previous state of affairs and to cordon off the unjustified enrichment regime entirely leads to conceptual problems.336 Restitutio in integrum – as such considered a property claim (see below) – is directed to reinstating the previous situation; this being an objective goal and process no regard is to be had to a party’s good or bad faith. (β)

Restitutio in integrum as a property claim

Although the location within the private law system for the inclusion of restitutio in integrum (HCC § 237 (1)) would seem to suggest a claim under the law of obligations,337 restitutio in integrum operates primarily as a property claim (rei vindicatio) in the case of movables as a direct consequence of the ex tunc effect of invalidity / avoidance. Consequently, the party seeking performing, who is the owner, may recover the movable not only from the other contracting party, but also from any third person. This also implies the entitlement to protection against seizure where insolvency or judicial enforcement proceedings are instituted against the possessor.338 Having regard to the legal nature of restitutio in integrum as a 335

336 337 338

According to the black letter text – HCC § 237 (2) second sentence – this consequence shall be applied in particular where the principle of reciprocity is violated and the reason therefore can be terminated. KISS / SÁNDOR: Invalidity of Contracts, pp 363-364. Civil Code, Part Four on the Law of Obligations, First Title on the Contract. VÉKÁS: Void contract, pp 386-387; KISS/SÁNDOR: Invalidity of Contracts, p 364.

5. System of transfer in Hungarian private law

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property claim there are diverging views among scholars as to whether the court must apply the consequences automatically (ex officio)339 or not.340 It is submitted that the better view is that the consequences are not to be applied automatically by the court.341 The main function of invalidity is to bar the legal effects connected to the obligation. The court may only grant remedies going beyond the intrinsic scope of restitutio in integrum where the facts disclose some additional benefit beyond the mere performance received on the basis of the claimant’s express request (see below).342 Since restitutio in integrum operates as a property claim it is not susceptible to extinctive (negative) prescription (HCC § 115 (1)). Nonetheless, it could be affected by acquisitive (positive) prescription through another’s adverse possession. Performance in money, in contrast, results in a personal right, which is the subject of the general five year prescription term.343 The circumstance that the contracting party (transferor) was not the owner of the movable does not exclude the application of restitutio in integrum. In this case the transferor will claim in fact the reinstatement of the state of possession within the limits set out by the rules on acquisitive prescription,344 as acquisitive prescription will operate concurrently as a separate property claim. (γ)

Restriction of restitutio in integrum as a property claim

Of course, the property claim against third persons may be barred in cases where the nemo plus iuris principle is set aside and the acquisition of ownership is effected by operation of law. For movables two groups of cases should be mentioned: firstly, where a third person acquires ownership by way of original acquisition (HCC §§ 120 (1), 121); and secondly, the cases where acquisition of ownership is possible even though the transferor was not the owner of the movable (acquisition of ownership from a non-owner – HCC §§ 118-119). Original acquisition of ownership in movables (thus excluding the claim against third persons) may arise from a public authority decision or auction (see 12.3.), acquisitive prescription (see 13.) or finding (see 14.2.). In cases of derivative acquisition (transfer, succession)345 the owner may exercise his claim against the possessor without any re339 340 341 342 343 344 345

VÉKÁS: Void contract, p 387. KEMENES: Recent Questions Regarding Voidability, pp 19-21. KISS / SÁNDOR: Invalidity of Contracts, pp 438-440. VÉKÁS: Void contract, p 387. VÉKÁS: Void contract, p 394. KISS / SÁNDOR: Invalidity of Contracts, p 365. Adopting the categorisation used by MENYHÁRD – see Part III on original acquisition.

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striction. In this context commixture and processing346 (HCC §§ 133-136) should be regarded as special cases for the owner may only claim back his movable under certain circumstances (see 11.2.).347 Additionally the question arises as to the grounds on which the third person may claim back the price paid for the movable. Judicial practice is not unanimous in this respect; possessor’s claim is usually based on contract or non-contractual liability arising out of damage caused to another (HCC § 318, HCC § 339). From a theoretical point of view the most appropriate approach in this case seems to be for unjustified enrichment to apply (see also 1.3.2.(f) on the unjustified enrichment regime and protection of ownership).348 (δ)

Restitutio in integrum realised by restitution of monetary value

After the introduction of the Civil Code it was not clear whether the general clause of restitutio in integrum (HCC § 237 (1)) envisaged only the duty of restitution in natura or also implied restitution in monetary value. Both Civil Senate Statements on the matter (CSS no. 836 and CSS no. 32) have clearly declared the possibility of restitution in monetary value (on CSS no. 32 see 5.3.2.(b)(iii)(bb)(θ) below), which is reflected in subsequent case law (for example EBH 2005 / 1225). A decision of the Metropolitan Court of Appeal (Budapest) of 2005 even suggests an alternative character of restitution in monetary value (Decision no. 5. Pf. 21.106 / 2005 / 6). Consequently, it seems that judicial practice is to apply restitution in monetary value in a subsidiary manner not only where the movable provided cannot be returned in natura due to subsequent irreversibility (where the movable has been lost or destroyed or has ceased to be owned by the contracting party obliged to restore), but also primarily on grounds of the court’s discretion if restitution in natura is considered inappropriate. Furthermore, the submission of restitution in monetary value also indicates that the burden of risk of loss of the movable is imposed on the party obliged to make restitution,349 underlying the strictly objective character of restitutio in integrum; no regard is had to whether a party is in good faith or bad faith, as this focusses exclusively on restoration in the inter partes relationship.

346

347 348 349

Whether these instances are to be regarded as instances of original or derivate acquisition in not clear in Hungarian scholarship: MENYHÁRD treats processing as a form of original acquisition, while KISS / SÁNDOR classifies both commixture and processing as instances of derivative acquisition. KISS / SÁNDOR: Invalidity of Contracts, p 366. KISS / SÁNDOR: Invalidity of Contracts, pp 373-376. KISS / SÁNDOR: Invalidity of Contracts, pp 376-379.

5. System of transfer in Hungarian private law

(ε)

557

Scope of restitutio in integrum

Restitutio in integrum implies additional elements besides the surrender of the movable. For example, in the case of a contract for sale the mechanism also includes compensation for the use of the movable, on the one side, or interest on the money paid, on the other. Nonetheless, the mere possession of the movable will not serve as a ground for compensation for the use of the movable. However, in this respect the recent case law tends to run counter to the principles set out in CSS no. 32. With regard to concomitant additional elements and claims the courts rather tend to apply the principle of “interest equivalent with the use” (Supreme Court, Decision no. Gf. I. 34.020 / 1993 / 4), meaning that the two claims de facto cancel each other out. Subsequently, the duty to pay for the use or to pay interest may only arise with regard to performances remaining without counterperformance. Furthermore, the courts do not decide about the additional elements automatically (ex officio),350 a fact which also indicates that these are not considered as belonging to the mechanism invoked by restitutio in integrum. Regarding these additional elements, the most appropriate framework for regulation appears the regime of possession without legal basis (see 19.2.1. on possession without legal basis – below). While the duty is stated to be one of paying interest on the money received, this is regarded as due from the day of performance (Metropolitan Court Budapest, Decision no. 45.Pf.22.172 / 1998 / 2). As regards the interest rate to be applied in these cases the Supreme Court specified the legal interest rate applicable in a case of delay, relying on HCC § 301 (1) (Supreme Court, Decision no. Gfv. IV.31.238 / 1998 / 8).351 (ζ)

Additional causes of action

CSS no. 32 provides that the appropriate provisions in the HCC may be invoked for anyadditional causes of action, which refers tothe provision for liability for reparation or the unjustified enrichment regime. Such additional causes of action which arise in connection with restitutio in integrum may be the following: damage in connection with conclusion of the contract; receipt of benefits or other advantages deriving from the movable; and the expenses effected with regard to the movable, including investments.352 A liability inter partes for damage resulting from the invalidity can arise in two respects: liability for damage in connection with the conclusion of the contract; and liability for damage in connection with 350 351 352

VÉKÁS: Void contract, p 387. KISS / SÁNDOR: Invalidity of Contracts, pp 379-386. VÉKÁS: Void contract, pp 393-394.

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restitutio in integrum if the movable to be returned was damaged (or has been destroyed).353 Concerning the second aspect, case law is divergent. The correct approach in such a case is restitution in monetary value according to the objective of restitutio in integrum (objective restoration of the status quo ante). Any other aspect of liability is decided in accordance with the general requirements of liability, where the fault of the party / parties is decisive. Where one party is culpable, the amount of compensation is limited to the damage deriving from the conclusion of the contract (expectation interest), but liability not based on fault is to be excluded in this context. Nonetheless, there are also exceptions to the fault based liability in bilateral constellations: liability of a falsus procurator (i.e. someone who goes beyond the scope of his authority) towards the contracting party (HCC § 221 (1)); and liability of the seller towards the purchaser of goods (HCC § 369 (4)).354 With regard to the relation to third parties who have relied in good faith on the existence of a contract, strict liability of the parties in the case of invalidity is provided for on a normative level (HCC § 238 (2)). The provision provides protection for the third party up to the amount of his damages stemming from this reliance (biztatási kár) without any further prerequisites. If one of parties is accountable for the invalidity, the duty of compensation will be imposed on him, while a party who has acted in bad faith towards the third party will always be held liable. This liability provison cannot be applied where the performance of the contract is not in breach of a legal provison.355 Regarding the set-off of benefits and advantages deriving from the movable, the right of retention provided in HCC § 193 (2) (owner-possessor-relationship) cannot apply in connection with the legal consequences of invalidity, since the court in a case of reciprocal duty will dispose of concomitant performance (BH1995 / 702). Accordingly, the simultaneous reimbursement of the expenses incurred by the court will operate as a condition for the restoration of the movable.356 (η)

Barriers to restitutio in integrum

Although it is not an issue strictly related to the restitution of a movable, the inability to perform may appear a barrier to restitutio in integrum. Focussing on movables, the practical relevance appears in relation to restitution in monetary value. The inability to perform what the court may assess will mean a barrier to the application of restitutio in integrum as the legal consequence of invalidity. On order, to prevent inequalities in the case of 353 354 355 356

KISS / SÁNDOR: Invalidity of Contracts, pp 409-410. KISS / SÁNDOR: Invalidity of Contracts, pp 411-417. KISS / SÁNDOR: Invalidity of Contracts, pp 417-418. KISS / SÁNDOR: Invalidity of Contracts, p 421, p 446.

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reciprocal restitutions the court will usually dispose of concommitant (Zugum-Zug) performance.357 A partial reversibility is also regarded a barrier to restitutio in integrum. Other circumstances which exclude the application of restitutio in integrum are the effects of acquisitive prescription and a failure to exercise the right to avoid the contract within the time period allowed as provided for in HCC § 236 (1)).358 (θ)

Main directives of the Supreme Court concerning restitutio in integrum

Civil Senate Statement no. 32: When reinstating the status quo ante before the contract was concluded pursuant to HCC § 237 (1) no regard has to be had to whether the contracting parties have acted in good or bad faith. The reinstatement is directed to restoring the state in which the parties would be if they had not concluded the invalid contract. The essentials and aspects to be taken into consideration when reinstating the status quo ante are as follows. The party performing by paying an amount of money must get back the money provided with interest due from the moment of payment. The interest is due from the moment of performance because the entitlement for return on grounds of invalidity of the contract is due from the moment of payment, and consequently the party obliged classed as delaying from this moment on. The party obliged to restore an immovable must pay the prevailing rent or beneficial leasing fee for the period of his possession; in the case of possession of other assets a usage fee must be paid according to the circumstances. From the point of view of the parties, the reinstatement of the status quo ante means that they are obliged to return the performance or other patrimonial advantage received in natura or to pay their value. The payment of the value is only available as a remedy if the return in natura is not possible, e.g. because the thing concerned has been alienated, destroyed, consumed, etc. The parties’ good or bad faith when concluding the contract cannot lead to an increase or decrease in what they have to return; this aspect may prove relevant as far as there is a proposal of the prosecutor for restitution to be awarded in favour of the state (see on this optional consequence 5.3.2.(b)(ii)(ee)(β) below).359

357 358 359

KISS / SÁNDOR: Invalidity of Contracts, p 446. KISS / SÁNDOR: Invalidity of Contracts, pp 388-390. This provision has almost no relevance in the judicial practice. The situations where it is relevant include: contract in breach of or evading a legal provision; contract contrary to the principle of good morals; fraud or unlawful threat; contract implying disproportionate benefit by taking advantage of another’s situation; or simple fraudulent acting. In the case of contract implying disproportionate benefit by tak-

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Decision for Uniform Application of Private Law no. 1 / 2005360 concerning the non-synallagmatic relationship which may not be compatible with the principle of equity in a non-gratuitous contract directed at the delivery of a thing: in the case of a contract directed at delivery of a thing, performed solely or partly, the status quo ante cannot be restored if after conclusion of the invalid contract, due to changes in the economy, the balance between the performance and counter-performance has changed to such an extent that the return of performances received would result in disparity in value incompatible with the principle of equity. Consequently, in such an exceptional situation the court may deem the contract valid up to the moment of its decision and with respect to HCC § 4 (1) on the basis of the principle of good faith, honesty, and the obligation of mutual cooperation, so as to ensure the balance between the respective performances. The Supreme Court, in this instance, rejected applying restitutio in integrum as a consequence of invalidity. (For the case which served as the foundation for this decision see BH2006 / 24.) (cc)

Deeming the contract effective as a subsidiary legal consequence

This particular subsidiary legal consequence (HCC § 237 (2)) is destined to cope with cases where the performance provided is irreversible from the outset (e.g. lease of a property), or the performance has become irreversible subsequently where one party has already performed. One may also look to instances of subsequent irreversibility where a movable has been delivered but has been destroyed and consequently restitution in natura is not possible. In such a situation, according to CSS no. 32 and case law based on it, restitution in value will apply (see 5.3.2.(b)(ii)(bb)(δ) on restitutio in integrum realised in monetary value – above). Nonetheless, case law shows that this consequence, in principle, may also be applied in the case of an obligation to transfer ownership of a property, if restitution in monetary value would have an unfair outcome (DUAPL no. 1 / 2005, see 5.3.2.(b) (ii)(bb)(θ) – above).361 However, from a dogmatic point of view it appears questionable how the objective characteristic of restitutio in integrum and the subjective approach embodied in the statement are mutually compatible.362

360 361 362

ing advantage of another’s situation the restitution to the person benefiting must be awarded for the state. KISS / SÁNDOR, Invalidity of Contracts, p 446. OJ 2005 / 56 (28 April 2005). KISS / SÁNDOR: Invalidity of Contracts, pp 396-397. KISS / SÁNDOR: Invalidity of Contracts, pp 400-401.

5. System of transfer in Hungarian private law

(dd)

561

Deeming the contract valid by termination of the reason for invalidity

Since the amendment of the HCC in 1977, this consequence of invalidity has been placed on an equal footing; its application lies in the discretion of the court focussed on the individual case. This consequence in HCC § 237 (2) applies in particular in cases of unfair contracts (HCC § 202 reason for nullity) and imbalanced contracts (significant disproportion in value between the performances: HCC § 201 (2) reason for voidability), where the reason for invalidity can be eliminated. This consequence cannot be applied where the invalidity of the contract is caused by non-observance of formal requirements set out in a legal provision (HCC § 217 (1), e.g. written form), to change invalid contractual clauses, or where an offer or acceptance has been made by mistake or induced by fraud. However, in the cases where the intention to contract is affected the court may deem the contract valid if the party entitled to avoid it requests this outcome from the court, meaning in fact that he would have concluded the contract even if he had known about the hidden facts. Although it is not spelled out explicitly in connection with HCC § 237 (2), deeming the contract valid by the court will operate with retroactive effect.363 (ee)

Optional consequences provided for particular cases of invalidity

There are particular cases when invalidity may lead to special consequences, this option being provided on a normative level in the Hungarian Civil Code (§ 237 (3)-(4)). It is submitted that these cases, which seem toimply blame (turpitudo), should actually be approached against the background of the general clause on fair and honest dealing (Treu und Glauben) as in HCC § 4, in line with the approach taken in legal literature.364 (α)

Optional consequence in case of contract implying disproportional benefit by use of another’s situation (usury)

According to HCC § 237 (3) the court may disregard the duty to restitute (entirely or partly) if the party aggrieved would be caused to be in serious need, even where payment in instalments is possible. Nothwithstanding, the party profiting will still be bound to restore the disproportionate ben-

363 364

KISS / SÁNDOR: Invalidity of Contracts, pp 402-408. BÁRDOS / MENYHÁRD: Commercial Law, p 294.

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efit that has been received to the party aggrieved.365 Where the contract is deemed valid, the rule is applicable insofar as the court disposed of the duty to restitute of the aggrieved party on grounds of the amended contract which was deemed valid, but nonetheless he has not performed or has only partly performed. The court may also derogate from the duty to restitute if the prosecutor requests the performance to be granted for the state (Introductory Decree § 33). This optional consequence is restricted to invalidity on grounds disproportionate benefit by use of another’s situation (EBH2002 / 744).366 (β)

Optional consequence of restitution in hands of the state

On the prosecutor’s request the court may grant to the state the performance due to the party responsible for the invalidity in the case of: a prohibited contract; a contract contrary to the principle of good morals; a contract concluded under influence of fraud or unlawful threat (including any other fraudulent actions). In the case of a contract implying disproportionate benefit, the performance due to the party using this situation shall be awarded to the state, with the performance in these cases usually being effected in monetary value (HCC § 237 (4)). Nonetheless, although provided on a normative level in the HCC, awarding performance to the state is rare in current judicial practice.367

(c)

Outright termination (annulment) of the contract (elállás)

In given circumstances a party may terminate a contract outright by a unilateral declaration addressed to the other party. This constitutes a right to alter the legal relationship (facultas). The effects are identical to a dissolution agreement (ex tunc); the effects are triggered by the factum of notification. It follows that there is no general possibility to withdraw the notification unilaterally.368 According to HCC § 320 (1) the person entitled to annul the contract under a legal provision or contractual clause may exercise his entitlement by a unilateral notice addressed to the other party. However, a right of annulment cannot be exercised by a party who 365

366 367 368

The rule provides a privilege for the party whose situation was taken advantage of. As a consequence of restitutio in integrum, in accordance with the objective of restoration of the status quo ante, without this rule otherwise he would ordinarily also be bound to return the performance received from the party profiting of his situation. KISS / SÁNDOR: Invalidity of Contracts, pp 386-387. BÁRDOS / MENYHÁRD: Commercial Law, p 296. LÁSZLÓ KAZAY, in: Commentary for the Practice – Vol. II, p 524 / 23.

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is not able to restore the performance already received or where he is only able to restore it with a considerably diminished value (HCC § 320 (3)). Although this rule may not be invoked where the right of annulment is granted by law, the ability to give back the performance received in its entirety and to perform in a concomitant manner to the other party obliged to make restitution is a condition for exercising the right of annulment (BH2004 / 320).369 Alternatively, the parties may agree on a lump sum (socalled retention money – facultas alternativa) which will become due if the party entitled exercises this right (HCC § 320 (2)). The retention money in this respect is the de facto price for annulment. (i)

Instances of annulment

The option to annul the contract is either granted by law or agreed to by the parties. An option to annul is granted by law in the following legal relationships, all of which may also involve aspects of transfer:370 – option granted relating to breach of contract where the non-defaulting party has no interest in demanding performance (HCC § 300 (1)); – a lack of interest being established where there was a strictly defined time of performance that has not been met or a period of grace fixed by the non-defaulting party has expired (HCC § 300 (2)); – non-conforming performance (HCC § 306 (3)); – warranty of title (HCC §§ 369 (1) and 370 (3)); – failing to pay an instalment in the case of a purchase in instalments (HCC § 376 (2)-(3)); – violation of the duty to cooperate within the scope of a service contract (HCC § 392 (3) and (4)); – prospective delay in performance (HCC § 395 (3)); – a contract of carriage (HCC § 492 (3)-(4)); – gratuitous contracts, as related to clausula rebus sic stantibus (e.g. change of circumstances between conclusion and performance of the contract of donation (HCC § 580)), or special class of contracts involving as an essential element a relationship of trust and confidence in the counterparty, as related to the breach of this element of trust and confidence (e.g. loan (HCC § 524), commodatum – gratuitous loan of an object for use (HCC § 583 (2)); – a contract which has been concluded in breach of the rules on public procurement (§ 342 (2) Public Procurement Act); and – the content of a contract is amended by a legal provision prior to its entering into force (HCC § 226 (2)).371 369 370

KAZAY, in: Commentary for the Practice – Vol. II, p 526. KAZAY, in: Commentary for the Practice – Vol. II, p 524 / 25.

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Contracts where there is an unlimited right of annulment granted by law for the consumer within the scope of consumer protection form a special group: in the case of distance contracts (§ 4 (1) Gov. Decree on Distance Contracts); and contracts concluded outside of business premises (§ 4 (1) Gov. Decree on Doorstep Sale).371 (ii)

Consequences of annulment

It follows from the function of annulment that it cannot be exercised once the contractual relationship has ended (i.e. all the contractual duties have been performed properly). Annulment will dissolve the contract ex tunc and lead to the duty to re-establish the state in which the parties would have been in had the contract not been concluded. However, this consequence, in fine, may differ from that of restitutio in integrum in the case of invalidity. Thus, in the event of annulment for breach of contract, in addition to the restitution of the performance the re-establishment of the status quo ante will also include compensation for any expenses and damage which would not have been incurred had the contract not been concluded (BH1995 / 3; BH1996 / 3).372 Nonetheless, if the parties have agreed upon the consequences of annulment, the case will be governed by that agreement, as according to HCC § 277 (1) contracts have to be performed pursuant to their content (BH2003 / 319). If the property delivered is no longer owned by the defendant, this will constitute a bar to the restoration of the status quo ante subsisting at the conclusion of the contract as a consequence of annulment (BH2002 / 2; BH2004 / 321). Where property has been delivered as performance under the contract, lawful exercise of the right of annulment has the effect that the entitled party possessing the property which is subject of restitution will become a responsible custodian with regard to the property. Accordingly, he is not permitted to use it and is liable for any damage caused by unlawful use (BH1993 / 9) or failing to fulfil the duty of preservation imposed on grounds of responsible custody (BH1988 / 453).373 Hence, if the contracting party disposes of the property after annulment of the contract his disposition is invalid owing to his lack 371

372 373

The purchaser cannot annul the contract on grounds of price modification enacted by a public authority after the purchase price has been paid even though the object concerned remained in the possession of the seller as agreed by the parties. By payment of the purchase price the performance of the contract has been perfected and the contract cannot thereafter be subject to annulment (BH1983 / 5). (In the sense of property law, this is an example of a sale being realised by way of constitutum possessorium.) KAZAY, in: Commentary for the Practice – Vol. II, p 524 / 24. KAZAY, in: Commentary for the Practice – Vol. II, p 526.

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of ownership at the time of the disposition (BH1997 / 448). In contrast, if the disposition of the property is made prior to annulment, this will be valid as he was the owner at that time (EBH2002 / 746). Considering these aspects note may be taken of the retroactive proprietary effect, by which the right of ownership (title) “passes back”, by operation of law, as a result of the lawful exercise of the right of annulment.

(d)

Termination as a special remedy to terminate a contractual relationship for the performance of a continuing obligation (felmondás)

According to HCC § 321 (1) the person entitled to termination by virtue of law or contractual clause exercises his entitlement by notification to the other party: the termination ends the contractual relationship (ex nunc). The termination may have immediate effect (extraordinary termination), or the termination may only occur on the expiry of a period of time (ordinary termination). Termination is not typical for contractual relationships directed to transfer of ownership, but rather for contracts of a service character (which may also imply instances of transfer of ownership). That said, termination may be relevant to contracts forming continuing relationships (contract for delivery, gratuitous loan for use of an object).

(e)

Termination (ex nunc) or annulment (ex tunc) of the contractual relationship by mutual agreement by the parties (a szerződés megszüntetése vagy felbontása)

The parties may terminate the contractual relationship by mutual agreement (bringing the contractual relationship to an end with prospective effect) (HCC § 319 (2)), but if the parties annul the contractual relationship by mutual agreement (bringing the contractual relationship to an end with the effect that performaces must be reversed) will have the effect that restitutio in integrum shall take place (HCC § 319 (3)).

(f)

Resolutive condition, or certain date set out in the contract

The parties may agree to a resolutive condition (HCC § 228 (2)) or validity from a certain date (HCC § 229 (3)) concerning the effectiveness of the contract. The condition or certain date set out in the contract results in a pending legal relationship. In the lead up to this condition being met

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or the date being reached the parties should abstain from any behaviour which infringes the rights of other party. A party who claims the fulfilment of the condition by his own blameworthy behaviour may not rely on it. A condition is always considered an uncertain event, meaning that the condition – whether resolutive or suspensive – may never be fulfilled.374 Where on grounds of such contract the ownership in a movable has been transferred, by the fulfilment of the resolutive condition, or the reaching of the certain date agreed, the effect of the contract is terminated outright, with the consequence thereof being the annulment, invoking in fact restitutio in integrum.375 (From a theoretical point of view the condition or certain date agreed by the parties concerns and characterizes in this case real agreement of the re-transfer.)

(g)

Concept on the consequences of invalidity in the Academic and Legislative Proposal

(i)

Academic Proposal

The invalidity regime as included in the Academic Proposal (AcadPROP §§ 5:82-5:88)376 is identical to the Drafts. The provisions on the consequences of invalidity will be subject to relatively significant amendments, not necessarily as compared to the current judicial practice but rather as compared to the current provisions in the HCC. There are four core issues which must be highlighted in this context. The first issue concerns the rule according to which anybody may call up invalidity without limitation in time, whereas the reform provides that, instead of “anybody”, a more precise connection, i.e. a legal interest (such as the express provision of a legal rule), is required before a person can invoke invalidity (AcadPROP 5:67 (3)).377 The second issue concerns the treatment of prohibited contracts. In this respect the reform clarifies that a contract which infringes a legal provision may only apply the consequence of invalidity if the legal provision prohibiting the contract expressly states that invalidity may follow, i.e. the clear purpose of the legal provision is to eliminate the contract (AcadPROP § 5:74 (1)).378 The third issue concerns the role of the parties’ autonomy while determining the consequences of invalidity. The reform states that the consequences may only be applied on the parties’ explicit re374 375 376 377 378

ZOLTÁN, in: Commentary, pp 850-855. ZOLTÁN, in: Commentary, p 852, p 854. LAJOS VÉKÁS, in: Expert Proposal, pp 788-793. VÉKÁS: Works for the Draft Civil Code, pp 282-283. VÉKÁS: Works for the Draft Civil Code, p 284.

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quest (AcadPROP § 5:82), meaning that the court will not decide upon this issue of its own motion. However, on the one side, the parties’ autonomy is not unlimited and the court may diverge from the consequence requested by the parties, but the court’s discretion is also limited as it may not apply a consequence that both the parties disagree with.379 Finally the reform reformulates the consequences as such. Restitutio in integrum applies as the main consequence (AcadPROP § 5:84), but this may only apply if the restoration in natura is possible (in the case of each of the parties). The Academic Proposal abandons the consequence of deeming the contract valid until the court’s decision (see 5.3.2.(b)(iii)(cc) – above) as it is a controversial remedy from the point of view of dogmatic coherence. In contrast to any other cases when the previous situation cannot be restored, the court disposes of restoration in monetary value by applying the principles of unjustified enrichment (AcadPROP § 5:85). Furthermore, the court may also apply this consequence if restoration in natura would contravene one party’s fundamental legal interest. Additionally, the Academic Proposal states that risk passes to the receiving party by performance based on an invalid contract (AcadPROP § 5:83).380 Except for the abandonment of the consequence of deeming the contract effective retroactively, these policy considerations are also followed by the Legislative Proposal, as discussed below. (ii)

Legislative Proposal

The Legislative Proposal integrates the developments established in case law since the introduction of the invalidity regime to Hungarian private law by the HCC. The new system of legal consequences are as follows: (a) no obligation arises on grounds of an invalid contract as expressed by the black letter text (Legislative Proposal § 5:84 (1)); (b) on request the court may call for restitutio in integrum (within the limits set by acquisitive prescription and extinctive (negative) prescription); (c) as an alternative to restitutio in integrum the termination of invalidity by the court and deeming the contract valid ex tunc; and (d) in lieu of restitutio in integrum where the performance is irreversible – no matter whether such irreversibility was ab initio or emerged later – the restoration in money according to the new sui generis unjustified enrichment regime.381 Concerning the consequences of invalidity, the two alternatives are kept: the contract is either deemed valid retroactively (Legislative Proposal § 5:85) or may be disposed of by restoring the previous state or in monetary compensation 379 380 381

VÉKÁS: Works for the Draft Civil Code, p 285. VÉKÁS: Works for the Draft Civil Code, pp 285-287. Legislative Proposal – Explanatory Statement – Chapter II. Legal consequences of invalidity, pp 943-944.

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(Legislative Proposal § 5:86). A special provision has been introduced to determine the regimes applicable for accessory claims, which will apply unless such have not been settled in connection wih the consequences of invalidity: (a) benefits and expenses shall be settled by applying the rules on possession without legal basis and unjustified enrichment (Legislative Proposal § 5:88 (1)); (b) damage caused by the conclusion of the invalid contract and damage caused in the performances that are to be reversed will be settled according to rules on non-contractual liability arising out of damage caused to another – for there was no contract between the parties – (Legislative Proposal § 5:88 (2)); and (c) the damages caused to third persons (Legislative Proposal § 5:88 (3)). The autonomy of the parties while deciding on the settlement (consequence) of the dispute is devoted an enormous amount of attention. Accordingly, the court may not dispose of the settlement without regard to this and as such is not allowed to apply a manner of settlement rejected by any of the parties (Legislative Proposal § 5:84 (2)) i. A party may request an assessment of the simple issue of invalidity (or otherwise) from the court (Legislative Proposal § 5:84 (3)). Restitutio in integrum is characterised as a property claim (rei vindicatio) directed primarily to reversal in natura by determining a reciprocal obligation: a party may claim the reversal in natura, provided that he (claimant) also reverses the performance received – his corresponding duty will exist independently of the operation of negative prescription or acquisitive prescription with regard to the performance received (Legislative Proposal § 5:85 (1)). Conclusively, the restitutio in intergrum may only apply if there is the possibility for the restoration of the previous state of affairs.382 Alternatively, in the event the previous state cannot be restored in natura (event of irreversibility), the Legislative Proposal provides an unjustified enrichment regime sui generis within the rules governing invalidity. The objective is to deal with irreversibility of performance in an appropriate manner, disposing of such a situation with a monetary equivalent, with this option also be applying if restitutio in intergrum would contravene the essential legal interests of one of the parties (Legislative Proposal § 5:85 (2)). This claim – being a sui generis unjustified enrichment claim – is subject to general prescription. In conjunction with the money equivalent restitution, sub-section (3) explicity regulates the bearing of the risk: by fulfilment of the performance the risk passes to the other party regardless of invalidity of the contract (Legislative Proposal § 5:85 (3)). This rule is specialis as compared to principles followed by the unjustified enrichment regime, excluding the defence of loss in accordance with the principle of the objective restoration criteria implied by restitutio in integrum. Another exception as compared to the general unjustified 382

Legislative Proposal – Explanatory Statement – § 5:86, p 946.

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enrichment regime is included in sub-section (4) regulating the liability where reversal is impossible due to the other party’s behaviour (Legislative Proposal § 5:85 (4)).383

5.3.3. Contracts for the benefit of third persons The parties may agree in contract that a third person (beneficiary) is to benefit from the performance of that contract (HCC § 233). The essential of the contract in favour of a third person is that person’s (direct) entitlement to claim the performance agreed on. It has to be differentiated from a contract concluded in the interest of a third person (i.e. the performance as such is directed to a third person). Subsequently, in order to be classed as a contract in favour of a third person it must explicitly include this objective. As regards the relationships of the parties involved, one may identify three legal relationships. Firstly, the core legal relationship is that between the person granting and the person obliged, constituting the socalled cover relationship (the validity of the contract has to be examined on grounds of this legal relationship). Secondly, the relationship between the person granting and the beneficiary, the so-called value or granting relationship, determining the appropriate personal relationship between these two persons – usually donation. Finally, the relationship between the person obliged and the beneficiary, the so-called performance relationship, which establishes the de facto contract in favour of the beneficiary. The beneficiary may use the right granted to him from the moment one of the parties notifies him about the contract (HCC § 233 (2)), but prior to the notification the beneficiary may accept the performance and may even assign it under suspensive condition. By the notification effected the entitlements of the person granting cease to exist, although the beneficiary, of course, may refuse to accept the entitlement granted to him by the contract, in which case the right is kept on behalf of the grantor. The person granting may even appoint a different beneficiary, or may claim the performance himself by unilateral declaration directed to the person obliged, as long as he has the right of disposition over the entitlement stipulated in the contract. Where the contract turns out to be invalid after the person granting has already ceded his right of disposition – i.e. notified the beneficiary and as such bringing the beneficiary’s right into being – the beneficiary may no longer claim the performance.384 Accordingly, by accepting the entitlement the beneficiary in fact takes over the contractual position of the person granting, entering the coverage relationship. A problematic issue 383 384

Legislative Proposal – Explanatory Statement – § 5:86, pp 947-948. ZOLTÁN, in: Commentary, p 867.

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in three party constellations may prove to be the invoking of defences, if appropriate, i.e. against whom may these defences be directed: the person obliged may invoke any defences on grounds of the contract against the beneficiary (HCC § 233 (3)). Of course, on the other side, the beneficiary is also entitled to invoke defences on grounds of the contract against the person obliged, but the person obliged is not entitled to invoke defences against the beneficiary on grounds of the granting relationship, which is logical as this has strictly inter partes effect.385

5.4.

Delivery as element of modus

5.4.1. Phyisical delivery – surrender Delivery in the sense of HCC § 117 (2) includes any situation where the power in the movable passess from the transferor to the acquirer. Conclusively, delivery cannot be restricted to physical delivery of the movable (i.e. the handover per se), the court shall determine the delivery analysing the circumstances of the certain case, focussing on the agreement and conduct of the parties. It appears more precise to characterise the dominium over the movable as a legal concept rather than a physical one, since delivery may also take place by the agreement of the parties, where the transferor renounces his right of disposition and cedes it to the acquirer (BH2002 / 28).386 In this respect the delivery is, as a minimum, transfer of the legal dominium in the corporeal object, meaning that on the basis of the agreement between the parties, by giving up his right of disposition, the transferor cedes it to the acquirer.387

5.4.2. Delivery equivalents (a)

Instances of delivery equivalents in Hungarian private law are the following:

(i)

Brevi manu traditio

In this case the acquirer (prospective principal-possessor) already has possession of the movable (as sub-possessor – e.g. a hired car).388 Accordingly, 385 386 387 388

ZOLTÁN, in: Commentary, p 867. MENYHÁRD: Property Law, p 284. BÁRDOS / MENYHÁRD: Commercial Law, pp 366-367. LENKOVICS: Property Law, p 131.

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the physical delivery is replaced by the agreement of the parties. Examples of this formulation include where the prospective acquirer rents the movable or otherwise possesses it on grounds of beneficial lease, usufruct, beneficial use, gratuitous loan. In fact in this case the modus consists only of the real agreement of the parties, which can hardly be separated from the titulus of the transfer, if the basis of the transfer is a contract. Subsequently, the transfer of ownership will take place by the agreement of the parties, implying both the real agreement and the titulus. The latter is needed insofar as the titulus is provided by the contractual agreement of the parties. A contract is not needed if the titulus of the transfer stems from non-contractual liability arising out of damage caused to another (for example in compensation for causing damage), or restitution of unjustified enrichment. A contractual agreement may be a contract for sale, a donation, the provision of a non-cash contribution to a company, a life annuity contract etc.389 Another typical case for application of brevi manu traditio is the perfection of the release from a rentention of ownership inserted in a contract for sale. Here, the purchaser acquires ownership of the movable, which is already in his possession, on payment of the price in full without the need for any further physical act.390 (ii)

Constitutum possessorium

Constitutum possessorium could be described as the inverse of brevi manu traditio. In this case possession is retained by the transferor, his status as principal-possessor will however change to sub-possessor. The transferor will keep the physical possession in the movable on grounds of the entitlement deriving from the acquirer.391 By way of constitutum possessorium the ownership is transferred by the real agreement of the parties without de facto physical delivery of the movable, provided that – according to the causal modus system – the parties also agree in the titulus of the transfer. For example, an owner who sells a movable but nevertheless retains possession on the grounds of the agreement concluded with the purchaser (e.g. the transferor becomes the hirer, lessee in case of beneficial lease, usufructuary, etc.).392 The delivery equivalent constitum possessorium could, in such a scenario, effect a “sale and leaseback” transaction without the need for the movable to change location. 389

390 391 392

MENYHÁRD: Property Law, pp 284-285; BÁRDOS / MENYHÁRD: Commercial Law, p 367. LÁNYI: The Right of Ownership, p 213. LENKOVICS: Property Law, p 131. MENYHÁRD: Property Law, p 285; BÁRDOS / MENYHÁRD: Commercial Law, p 367.

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The theory also addresses the problem related to the lack of publicity, i.e. how can the personal agreement and the real agreement necessary to transfer the ownership be differentiated. According to theory, in this case a mere declaration of the previous owner is not sufficient, there must also be the establishment of the legal relationship entitling the previous owner to continue to possess the movable. In this respect the constitutum possessorium can be nothing else than the unification of two acts of delivery, each attributable to a separate declaration of intention. A criticism of constitutum possessorium is that it favours simulated contracts, but the counter-argument to this is that ownership will only be transferred if the parties’ agreement corresponds to their real intention.393

(iii)

Longa manu traditio

In this case, possession passes to the new possessor when the original possessor gives up his possession and thus enables the acquirer to gain possession of the movable, meaning that the transfer of ownership will in fact consist in this action of the transferor. In reality, as with other delivery equivalents the transfer of ownership is effected by the agreement of the parties. The de facto acquisition of possession by the potential new possessor is no prerequisite. An example of this is where the transferor enables the acquirer to take the movable away from an agreed location (BH2000 / 248).394 (iv)

Cessio vindicationis

Cessio vindicationis may apply where the movable is in the possession of a third person. The transfer of ownership takes place by the owner transferring the claim for recovery to the acquirer, provided that all parties are in agreement. Accordingly, the cessio vindicationis enables transfer of the movable that is neither in possession of the transferor nor the transferee. This results in the de facto transfer of the right to raise a rei vindicatio in relation to the movable. This is not possible in any other cases apart from cessio vindicationis.395 While treating the question of transferability of the right to raise a rei vindicatio as related to instruments of protection of ownership MENYHÁRD also provides a systematic explanation of cessio vindicationis. Typical constellations for the application of this instance of delivery include the sale of a thing leased or encumbered by a usufruct or right of use. This delivery does not effect the ceding of the real control over the 393 394

395

LÁNYI: The Right of Ownership, pp 214-215. MENYHÁRD: Property Law, p 285; BÁRDOS / MENYHÁRD: Commercial Law, p 367. MENYHÁRD: Property Law, p 286; BÁRDOS / MENYHÁRD: Commercial Law, p 368.

5. System of transfer in Hungarian private law

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thing, but the dominium of the owner is exhausted as he has no right to claim the return of the thing (rei vindicatio). However, the change in the owner’s position cannot cause this right (rei vindicatio) to become stronger against the person who has possession at the time ownership is transferred, since the nemo plus iuris principle also applies with regard to rei vindicatio, meaning that the owner is successor in the transferor’s position and he cannot acquire more rights. The possessor is therefore entitled to exercise any relevant defences against the new owner. If the possessor of the thing has in fact acquired ownership, against him no rei vindicatio can be initiated. Against such a possessor the person deriving “title” from the former “owner” may exercise a claim on the basis of unjustified enrichment. A similar claim exists where the thing cannot be surrendered in kind. In such a case the claim to surrender will transform into a monetary claim when restitution in natura becomes impossible, which also marks the date when such monetary claim becomes due. In this respect the claim to surrender the thing may also form the subject of transfer, although individually per se does not constitute a transferable right. Since cessio vindicationis is an instance of delivery leading to acquisition of ownership, the person to whom the claim was transferred is already acting as owner.396 The old Hungarian private law also recognised the transferability of right to raise a rei vindicatio in the case of an immovable, thereby enabling the acquirer to claim possession even before his ownership was entered into the land registry (as acquisition of ownership is tied to entry into land registry (constitutive registration)).397

(b)

Traditio symbolica not part of Hungarian private law

Traditio symbolica means an act which replaces and expresses the ceding of possession, such as for example the delivery of a key, delivery of a car registration certificate, or placing a sign on the thing concerned. Traditio symbolica seems generally accepted in Hungarian private law, but in contrast to the other delivery equivalents the means to effect this cannot be deduced from HCC § 117 (2). The handover of a key may not lead to acquisition of power in the movable, in the physical or in the legal sense. If power in the movable is acquired de facto by the handover of the object provided symbolically, it may not be spoken anymore about symbolic delivery, while in the case where the transferee does not acquire legal or physical power over the movable, it may not be spoken of as delivery in accordance with HCC § 117 (2). Recognising symbolic delivery without the prerequisite of

396 397

MENYHÁRD: Property Law, pp 361-362. SZLADITS: Property Law, p 215.

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transfer of power in the movable would mean that the determination of the moment of delivery is entirely within the parties’ autonomy, resulting in fact in a different (open) system of transfer. Due to the flexible character of delivery in the sense of HCC § 117 (2), there is little need for symbolic delivery, meaning this form of delivery is not known in Hungarian private law.398

5.4.3. Role of delivery Delivery effects the transfer of ownership in the object only if the intention of the owner (of the person’s disposing) is directed to transfer ownership. The modus has an undisputedly clear role within the transfer. The transferor’s intention to transfer may be unconditional or conditional. A good example for the latter is the instalment purchase as combined with retention of ownership (see HCC § 368 (1)-(2)), where the ownership (title) only passes when the full price is paid by the buyer. Otherwise there exists no requirement to pay the counter-value – i.e. to provide counter-performance – in order the ownership (title) to pass to the acquirer. From a dogmatic point of view, however, the issue of delivery in the sense of transferring actual power over the thing is subject to the possession regime.

5.4.4. Particularities related to transfer (delivery) in case of negotiable instruments and other securities Negotiable instruments and other securities are regarded in the same way as corporeal objects in the sense of property law, but nonetheless, depending on the type of security, delivery may be effected in a number of different ways as defined in HCC § 338 / B.

(a)

Securities in the form of a (printed) document

(i)

Bearer instrument

The delivery of a bearer instrument, being security including a bearer clause, takes place by physical delivery (transfer of possession) of the security to the acquirer (HCC § 338 / B (2)).399 398

399

MENYHÁRD: Property Law, p 286; BÁRDOS / MENYHÁRD: Commercial Law, p 368. ZOLTÁN, in: Commentary, p 1210.

5. System of transfer in Hungarian private law

(ii)

575

Registered securities

The delivery of a registered security takes place either by means of direct endorsement or by means of endorsement in blank. The statute provides the definition of the notions of direct endorsement and endorsement in blank (HCC § 338 / B (3)). Direct endorsement is regarded as the written declaration inscripted on the security showing without doubt the intention to transfer and indicating the name of the acquirer (HCC § 338 / B (4)). The endorsement in blank includes only the intention to transfer but does not indicate the name of the acquirer (HCC § 338 / B (5)). In the latter case the possessor may have three options: he may insert his name or another person’s name in the blank; he may transfer the security by endorsement in blank, namely by inserting the name of the acquirer; or he may hand on the security to a third person without making any change with respect to the endorsement (filling out and inscripting a new endorsement) (HCC § 338 / B (6)). The issuer may also exclude the transfer by endorsement by his written declaration included in the security on grounds of authorisation provided by legal provision (HCC § 338 / B (7)), but such a security may still be transferred according to the rules on assignment.400

(b)

Dematerialised securities

The dematerialised security is also regarded as an object in the sense of property law. The statute also determines the way the transfer of these securities is realised: the security is transferred by crediting the security account of the acquirer (HCC § 338 / B (8)).401

5.5.

Movables registered – general

Generally, within the scope of the HCC registration is only required to transfer ownership in the case of an immovable, where the entry in the land registry has constitutive effect, i.e. the ownership (title) passes only on the registration of the new owner by the competent authority (Real Property Register Department). A similar rule to immovable goods can be found regarding the registration of vessels. In this respect vessels are treated like immovables in the Hungarian legal order, however this should be viewed as a sui generis regime. With other movables registration only serves an administrative purpose. 400 401

ZOLTÁN, in: Commentary, pp 1210-1211. ZOLTÁN, in: Commentary, p 1211.

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5.5.1. Vessels – constitutive registration Pursuant to § 7 (1) of Act XLII of 2000 on water traffic402 (WTA) vessels have to be registered, except some smaller water vehicles mentioned explicitly in WTA § 7 (2). According to WTA § 11 (1) in order to transfer ownership of a floating facility which has to be registered the entry of the change of ownership in the registry is required (over and above the contract or other causa).403 It is for the person who is entitled to acquire ownership of a floating facility to initiate the registration process (WTA § 8 (4)).

(a)

Multiple sales

According to WTA § 11 (2) in case of multiple sale, the buyer taking first possession in good faith may claim the registration of his ownership in the registry, if there is no such person, the previous buyer may demand his ownership registered in the registry, except if the ownership of a latter buyer has already been entered in the registry. This provision also applies to multiple donations.404

(b)

Effect of transfer of ownership: registration with constitutive effect

Following WTA § 11 (5) in case of transfer the registration by the shipping authority establishes the right of ownership; in this respect the registration has constitutive effect. Further similarities with immovable indicate WTA § 11 (3) on the rights or facts to be registered in the registry, according to 402 403

404

2000. évi XLII. törvény a víziközlekedésről. The rules on transfer of ownership in case of immovables have similar character: HCC § 117 (3): “In order to transfer the ownership of an immovable, in addition to the underlying contract, the entry of the change of ownership in the land registry is also required.” In the same way as immovable property is treated, in order to enter a change into the vessel registry, the clausula intabulandi (the owner’s consent to registration, de facto standing for the real agreement in the transfer) is also required, according to § 41 (1) Government Decree 198/2000 (XI. 29.) (by-law of the WTA). Compare HCC § 117 (4): “In the case of multiple sale, the buyer taking first possession in good faith may claim the registration of his ownership in the land registry. If there is no such person, the first buyer may demand his ownership registered in the land registry, except if the ownership of a latter buyer has already been entered in the land registry. This provision also applies to multiple donations.”

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the registry includes ownership, operation right, rent, mortgage, independent lien, usufruct, right of pre-emption, sale with option of repurchase, option to buy, enforcement title. Pursuant to WTA § 10 the registry certifies publicly and presumed conclusive405 the facts and rights entered.

5.5.2. Aircraft According § 12 (4) of Act XCVII of 1995 on air traffic406 (ATA) the registry certifies the data relating to the aircraft, among that data being the ownership as well as further rights and obligations. Pursuant to ATA § 12 (6), registered aircraft may be encumbered with a mortgage and this can be entered into the registry. ATA § 12 (7) provides that the registry certifies to the public and the data registered is presumed to be conclusive. In order to register the applicant has to present the registrar a document from which the ownership of the aircraft is traceable or a document proving the consent of the owner or the lessee to the registration (§ 3 (1) a) and b) Decree 32 of 2001 of the Ministry of Traffic and Water Affairs on the Rules on Registration of Aircraft).407 In this respect, aircraft seem to be treated as movables (the transfer requires causa and traditio, but they are not to be treated independently), the respective provision only deals with administrative matters concerning the national identification and registration duties regarding aircraft.

5.5.3. Motor vehicles Motor vehicles are treated as movables from a property law perspective. Act LXXXIV of 1999 on the Vehicle Registry408 serves as an administrative tool in order to ensure the accuracy of vehicle transfers. The so-called register-book (§ 5 (1) b)) of a vehicle is an official document that certifies the ownership of the respective vehicle in an administrative sense only.

405 406 407

408

In the sense of öffentlicher Glaube according to the German language terminology. 1995. évi XCVII. törvény a légiközlekedésről. 32 / 2001. (IX.28.) Közlekedési és vízügyi minisztérium (KöViM) rendelet a légijárművek lajstromozásának szabályairól. 1999. évi LXXXIV. törvény a közúti közlekedési nyilvántartásról.

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5.5.4. Acquisition by transfer from the owner only (nemo plus iuris principle) According to the wording of the HCC, acquisition of ownership by transfer may only be effected by the owner of the corporeal object, unless otherwise provided. The general rule is found in HCC § 219 (1) (2), providing that ownership may only be transferred by the owner or an authorised representative (direct representation in the sense of the authorized representative acting in the name and on behalf of the principal). A basic principle of any instance of derivative acquisition is that nobody can transfer more rights to another than he has.409

5.6.

Modus: Does it imply a real agreement (dologi jogügylet) or is it a simple real act (reálaktus)?

It seems important to outline and stress the legal effects connected to delivery while detailing the transfer of ownership system in Hungarian private law. Delivery and connected issues serve again as a good example that there is no sharp borderline between the law of obligations and the law of property. When determining the point in time of acquisition of ownership – and especially the passing of the risk – the general rules on performance (in terms of law of obligations) shall be interpreted in the context of the provisons from the law of obligations applicable to the titulus of the transfer. In this respect the strict rules of the titulus and modus system will be put aside as the delivery may be examined only by focussing on parties’ consensus (i.e. contractual agreement); pursuant to the provisions of the law of obligations the delivery of the thing takes place jointly with the performance of the contract – e.g. paying the purchase price agreed and surrendering the thing at the same time – though the issue of place, time and manner of delivery are subject to the rules of the law of obligations. The risk usually passess at the point in time the contract is performed, and if the party entitled does not accept the performance he will be in default according to the provisions on the performance set out within the scope of the law of contract.410

409 410

LENKOVICS: Property Law, p 132. PETRIK: The Right of Ownership Today, p 132.

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5.6.1. Modus in sense of the system of transfer: is there a real agreement or real act in current Hungarian law? It may be useful to analyse more closely the aforementioned theoretical problem in order to have a complete overview. The old Hungarian private law (in particular in the period before the conceptual changes after the Second World War) clearly required the real agreement. The scholars in this period were unanimous on the requirement of the so-called split system of transfer consisting of two separate agreements.411 Moreover, the debate even concerned the issue of whether the real agreement itself is causal or abstract, but the dispute was decided in favour of the causal concept.412 The turning-point affecting the traditional (original) view is brought by GYULA EÖRSI’s work “On the question about the passing of the right of ownership”,413 published in 1947. EÖRSI considers the real agreement concept as utmost defeasible. According to his view the transfer as such consists of a single agreement, a culmination of the personal agreement which in fact starts the dynamic process of the transfer of ownership. He considers the real act as a phase of the dynamic process which invokes the external effects of the transfer. Emphasis is put on the external effect, but this phase does not include a separate agreement, it is simply the next act necessary to effect the transfer according to the underlying contract. EÖRSI states that the new phase in the process is not invoked by a new agreement of the parties, but rather by the normative effect of the legal provision. In this respect the delivery nothing more than the reflex-phenomenon of the contractual agreement. In this respect the real agreement is considered to fade into the underlying agreement. In contrast there are legal sources devoted to and confirming the causal modus, implying a real agreement concept: in DUAPL no. 1 / 2000414 (a decision generally binding for the courts) the Supreme Court focussed on the system of transfer, concerning the transfer of ownership in securities (stocks) with endorsement. The Court ruled that the endorsement is not required for the validity of the contract underlying and serving as titulus of the transfer. Subsequently, the transcription of the endorsement is characterised within this context as modus and a prerequisite to the 411

412 413 414

See GROSSCHMID: Chapters – Law of Obligations Vol. I, p 112, p 158, p 139, p 172; ALMÁSI: Handbook of Property Law Vol. I, pp 242-243; LÁNYI: The Right of Ownership, p 206; PrivLawCode § 562 on the transfer of ownership referring explicitly to the application of the rules on transfer of possession §§ 449-451; VILLÁNYI: Textbook of Hungarian Private Law, p 178. See BECK: Abstract or causal real agreement, p 133. EÖRSI: Transfer of Ownership. OJ 2000 / 54 (06 June 2000).

580

Hungary

transfer of ownership. The reasoning, at Part III of the decision, states that the purpose of the decision was to clarify the relationship between the contract directed to the transfer and the endorsement effecting the transfer and to overcome the discrepancy in case law. The core question of whether there is place for such a distinction or not has been answered by the Supreme Court positively. Nevetheless, the traditional view (modus implying the real agreement) is also found in the literature, for example by KISFALUDI in his work on the contract for sale,415 where personal and proprietary effects are treated in connection with the different phases of the transfer. The importance and role of the real agreement is analysed and confirmed in the context of the contract for sale as interacting with issues on contractual capacity and representation. The delivery turns out to be more than a real act, the performance of the contract for sale must be classed as a transaction implying an agreement, where the performance (delivery) has to be carried out by the owner or an authorised representative disposing of the contracting capacity required, meaning the approriate contractual capacity is also required on the other side for the effective receipt of the performance, an instance which is considered to confirm the consensual (i.e. real agreement) character of the delivery.416 KISFALUDI also uses recurrently the special terminology of real agreement.417 Concerning immovables, the transfer system followed seems to clearly imply a real agreement. Although comprising two agreements, the second agreement (property regime) is coupled to the valid underlying agreement (from the law of obligations). Within the context of the special regulatory regime, the so-called authorisation for registration (clausula intabulandi), which is a prerequisite for registration, may be identified as a real agreement, the registration following thereon having constitutive effect. In practice the clausula intabulandi is usually integrated in the contract directed to the transfer and figures as a contractual clause. The separate real agreement as clausula intabulandi was well known by the old Hungarian private law418 (and indeed until 1918 the requirement of document form only applied to the clausula intabulandi, while the underlying agreement could even be concluded orally – the real agreement seems to rule within the transfer process, an approach apparently close to the abstract system in substance). The clausula intabulandi even survived the introduction of the new immovable registration regime419 at the 415 416

417 418

KISFALUDI: The Contract for Sale (for exact reference see the Table of Literature). VÉKÁS: Preliminary Questions on the New Civil Code, pp 211-212; in this sense, for a historical perspective of Hungarian private law see, for example, the deliberations by LÁNYI: The Right of Ownership, pp 208-212. KISFALUDI: The Contract for Sale, pp 193-194. – See also 6.4.1. below. KOLOSVÁRY: The Right of Ownership, p 271.

5. System of transfer in Hungarian private law

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beginning of the 1970s. The administrative practice in the newly established real property departments even considered it a prerequisite for registration, although on a normative level420 there was no explicit requirement. Nonetheless, the current regulatory regime (§ 29 Land Register Act) includes explicitly the requirement of the clausula intabulandi for registration. Furthermore, it may be pointed out that both the Drafts and the Academic Proposal appeared commited as to (re-)integrate the material rules on immovables registration into the property law regime (1stDCC §§ 4:150-4:173, identical 2ndDCC §§ 4:197-4:220, AcadPROP §§ 4:189-4:212), but in contrast the Legislative Proposal maintained the current approach of external regulation. The importance and role of the real agreement (consisting in the clausula intabulandi) is also mirrored in a recent decision (Decision for Uniform Application of Administrative and Private Law no. 3 / 2007) of the Supreme Court as connected to the exercise of the right of pre-emption, confirming the issuance of the clausula intabulandi by the owner as in accordance with the registry operates prerequisite of the registration (acquisition of ownership). The decision’s reasoning distinguishes between the inter partes agreement and the registration having proprietary effect and stresses the connection of the registration to the underlying agreement (i.e. the clausula intabulandi operates in this respect as an affirmation of the agreement, therefore the parties participating must be one and the same). 419

5.6.2. The “abstract transaction” The transfer of ownership may also take place by a so-called abstract transaction (not in sense of Abstraktionsprinzip in German private law): the general notion used therefore is transaction without titulus – the separate existence of delivery. In the case of abstract transfer one element of the titulus is deficient – but not a fundamental one – (for example, the purpose of the transfer is not clear, e.g. sale or donation, but the parties are clear that ownership is to transfer). The effect of delivery is left untouched by such a deficiency.421 419

420

421

A special authority (state administration regime) and connected network has been set up and the competence was separated from the judicial system (that it was part of) and transferred to the newly established authority. The material and procedural rules were integrated into a single regulatory act: 1972. évi 31. törvényerejű rendelet az ingatlan-nyilvántartásról – ineffective from January 1st 2000 [Law-Decree 31 of 1972 on the immovable registry]. PETRIK, in: Commentary, p 430; see in this sense BH 1997 / 436: Incorrect indication of titulus (“care” instead of “maintenance”) does not cause the invalidity of the contract directed to transfer of ownership

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5.6.3. Conclusions on the causal modus within the transaction of transfer of ownership (a)

General remark

As a starting point it should be noted that the HCC § 117 (2) does not specify the legal nature of delivery. Nevertheless, interpreting the wording of the provision, especially from a historical perspective, while also considering the guidance in the explanatory statement, it may be concluded that the HCC attempts to deviate from the old Hungarian private law and to follow the unitary concept (in contrast to the split concept). Within this concept the modus element seems to consist only of a real act and not also of real agreement.422 An argument in favour of the concept where the modus also implies a real agreement may serve the instances of delivery equivalents. An appropriate construction without implying the real agreement would be simply unfeasible in these cases for otherwise the transfer takes places solely by the consensus of the parties.423 Nonetheless, both legal scholarship and judicial practice, by virtue of the influence of that legal scholarship, show a strong current tendency towards the concept where the modus also implies the real agreement.424

(b)

Conditions and consequence of the causal modus implying real agreement

Delivery must be a voluntary act, which is carried out having regard to the legal title and implying the intention to transfer the right of ownership. On one side, the delivery must be carried out by the person entitled to dispose (having capacity / authorisation to represent), while on the other side, the voluntary acceptance of the delivery by the person entitled to receive is needed. An unlawful denial of the acceptance will result in default by the acquirer (HCC § 302); while the transfer of ownership will not be realised in such circumstances, the transfer of risk will take placee. Conclusively, if the delivery does not correspond to these conditions, the right of ownership (title) will not pass, meaning for the transferor may vindicate the movable. Having regard to these conditions the further elements of the transfer of ownership may not have any scope of protection because, according to the causal modus, the failures of the underlying contract (titulus) will also have an impact on the realisation of the transfer of ownership.425 422 423 424

VÉKÁS: Preliminary Questions on the New Civil Code, p 205. VÉKÁS: Preliminary Questions on the New Civil Code, p 210. MENYHÁRD: Property Law, pp 288-290.

5. System of transfer in Hungarian private law

(c)425

583

Transfer of possession as causal modus implying real agreement

The legal nature of delivery is strongly connected to the concept of transfer of possession. Aside from its role in reletion to transfer of ownership, delivery also plays a constitutive role in the establishment of restricted property rights in movables (e.g. usufruct – HCC § 158 (1), possessory pledge – HCC § 265 (1), etc.). Therefore the definition of delivery as transfer of possession appears the most precise one, suitable to define not only the transfer of possession as related to transfer of ownership, but also to define the instances of legal succession in acquisitive prescription, as pointed out by MENYHÁRD.426

5.7.

The role of payment in patrimonial relations in Hungarian private law

Payment has no direct effect on transfer of ownership. However, if for security purposes427 retention of title is applied the payment may also have direct effect on the transfer of ownership – i.e. determing the date of transfer. The role of payment may also be treated within the category of performance (of course, from the perspective of the law of obligations): HCC § 281 states the general principle of concurrent performance428 in the case of non-gratuitous contracts. The policy behind the provision is to strengthen the position of the party who is to perform first (making the initial step in performance): he is not obliged to perform until the other party has offered his performance as well (HCC § 281 (1)). The party obliged to perform may refuse the performance unless security is provided if: the performance has to be performed in portions, or is a continuous one, where the other party delays (HCC § 281 (2) a)); due to the change in the other party’s financial situation in the meantime endangering the counter-performance (HCC § 281 (2) b)); and due to the other party’s debts towards the person entitled to refuse performance (HCC § 281 (2) c)). The person entitled may even withdraw from the contract, if he sets a time limit as to when he must be provided with security and this time limit has expired without security being provided (HCC § 281 (3). According to HCC § 281 (4) the rules on responsible custody will apply on the person exercising the refusal, i.e. from the moment of the refusal on he will keep the 425 426 427

428

MENYHÁRD: Property Law, p 290. MENYHÁRD: Property Law, p 290. “Security” in this context is used in the non-technical meaning of the word; although the retention clause is designed to force the debtor to pay, it does not establish a proprietary security over a thing. According to the German legal terminology in the sense of Zug-um-Zug Prinzip.

Hungary

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thing in the interests of the other party.429 The ownership (title) in the thing will not pass because owing to the lack of delivery of the movable; nevertheless the position of the party who exercised the refusal – who is still regarded owner of the movable from a property law perspective – is not that of a “true owner”. In this respect, the dividing line between property and obligations does not seem to be sharp.

5.8.

Ratification of the disposition made by a representative acting without authority

According to HCC § 221 (1) it is possible to retrospectively ratify the transaction of a person who acted without authority (falsus procurator), and therefore to “repair” the act of disposition made by this person. The ratification is to be considered in the sense of the law of obligations, meaning an “after the fact” approval of the representation. By the approval the declaration made by the falsus procurator gains the same effect as a declaration made where the authority to represent existed or as if the declaration was made directly by the person represented.430 Dogmatically, the approval concerns the authority to represent, – i.e. the power to act in the name and on behalf of somebody. The conceptual problem arises in relation to legal consequences in cases where the person entitled does not ratify the falsus procurator’s disposition. Unfortunately this issue is not addressed by the HCC. According to case law, the contract concerned either has not come into existence (because there was no contractual will) or either the contract has come into existence, but is invalid, and classed as null and void. As to the legal reasons for being classed as null and void, case law also diverges, the contract concluded by the falsus procurator being labelled one which infringes a legal provision, one which does not correspond to the formal requirements set out by a legal provision, or even labelling the falsus procurator as a reason sui generis for voidness.431 Without the retrospective consent of the principal, as there is no mutual will the contract will not come into existence. Any purported relationship stemming from the non-existent contract will be governed by the rules on unjustified enrichment and possession without legal basis (BH2005 / 21). 429

430 431

A similar rule concerns the default (e.g. not enabling the performance) of the person entitled (creditor), where the person obliged (debtor) will keep the thing (performance) in the interest of the person entitled (the person entitled bears the risk, but he is not the owner from the perspective of property law). LÁSZLÓ KECSKÉS, in: Commentary, p 86. GÁL/ NÉMETH: Contract concluded by the falsus procurator, pp 87-90.

5. System of transfer in Hungarian private law

5.9.

585

Progressing towards the new Civil Code

Since the enactment of the HCC, case law has proven inconsistent as to its approach to which transfer of ownership system (i.e. whether “split” or “unitary”) prevails in Hungarian private law. The system of transfer has proved a matter of dispute in the literature as well. Notwithstanding, if anything can be drawn, it may be noticed from the most recent developments in case law and the texts of the drafts that there is a clear tendency towards the split (titulus and modus) system. The Drafts keep the wording of the HCC concerning the nemo plus iuris as basic principle for derivative acquisition.

5.9.1. First Draft: causal modus implying real agreement According to the First Draft, in order to transfer the right of ownership in a movable both the titulus directed thereto and the transfer of possession in the movable are needed. The transfer of possession is implies both an agreement (real agreement) and the physical delivery (traditio) of the movable (1stDCC § 4:45). Thus the modus appears transfer of possession. In the case of immovables, as compared to the transfer of movables, the equivalent of the real agreement is the issuing of the registration permission (clausula intabulandi).

(a)

Causal modus designed as transfer of possession

According to the concept the transfer of ownership consists of the titulus directed to transfer the right of ownership and the transfer of possession in the movable. Systematically, the transfer of possession is the subject of the possession regime, which has its own independent character and importance. Nonetheless, the scope of application of the possession regime is not restricted to the instances of transfer of ownership on the basis of contractual agreement, but also includes instances when the change in status is based on other legal basis. An important reason for a separate treatment is the establishment of legal certainty with regard to bearing of risk.

(b)

Characterisation of transfer of possession: causal real agreement and delivery

According to the concept proposed, the transfer of possession will take place on basis of the parties’ agreement (first momentum) and by the transfer

Hungary

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of possession in the movable (second momentum). However, the emphasis is put on the agreement of the parties, i.e. the agreement implying the parties’ actual intention to transfer, furthermore the transfer and acquisition must be made by persons having the right to dispose (legal capacity and / or proxy to act as a representative). As such, the law of obligations regime will not apply to the parties’ agreement.432 An important argument in favour of the real agreement concept is the issue of risk, but the relevance of the real agreement is relevant to more than transfer by contractual agreement, it also covers: the restitution of unjustified enrichment; providing of compensation for damages in natura; acquisition of movables in public auction; acquisition of movables by court decision; and also for establishing certain restricted proprietary rights, such as a usufruct right established by contractual agreement or possessory pledge (traditional form).433 Another argument relates to the dogmatic construction of retention of title in Hungarian private law: the retention of ownership as such operates by suspensive condition, meaning that ownership (title) in the movable will not pass by physical delivery, but at a later point in time. Accordingly, the modus is more than the real act, it also requires the real agreement concept.434 The real agreement comes to expression within the regulation on transfer of possession as part of the possession regime (e.g. 1stDCC § 4:3).

(c)

Classification of the causal real agreement concept

The separated transaction serves for the purposes of bridging the legal uncertainty surrounding the transfer system used in the period after the enactment of the HCC. From a comparative perspective, the clearly separated real transaction is more than a simple delivery, but is less than the abstract transfer system. Furthermore, the real agreement (in Hungarian: dologi jogügylet) is not a strange concept in Hungarian private law; it was well known prior to the enactment of the HCC and applied in conjuction with the transfer of movables.435

432 433 434 435

First Draft – Property Law, p 31-32. MENYHÁRD: Remarks and Proposals, pp 17-18. See also FABÓK: Retention of ownership and real agreement, pp 14-17. See KOLOSVÁRY: The Right of Ownership, p 245.

5. System of transfer in Hungarian private law

587

5.9.2. Approach as in the Second Draft: dismissing the real agreement, step towards the consensual transfer? The concept of transfer in the Second Draft dismissed the real agreement. According to the system envisaged the transfer by the agreement of parties would have resulted in inter partes effect, the delivery of possession in the thing (bringing publicity) was needed to produce erga omnes effect. The wording of the black letter text proposed provides as follows: 2ndDCC § 4:45 [The transfer] “(1) In order to acquire ownership in a movable object by transfer a contract or other legal title directed to the transfer is needed” – first sentence (inter partes effect is achieved by the titulus – under the law of obligations); “The transfer is effective against third persons if the possession in the movable is delivered as well” – second sentence. The change in concept – i.e. inter partes effect of transfer already invoked by the agreement of the parties – may be best demonstrated by contrasting the provision provided on transfer of immovables: “(2) In order to transfer ownership in an immovable property, the entering of the change in identity of the owner into the land register is needed in addition to the contract or other legal title directed to the transfer.” The argument for moving towards a consensual concept of transfer – as stated in the explanatory statement – is identified as considering the needs of practice (simplicity).

5.9.3. Academic Proposal The Academic Proposal is identical to the First Draft, with the real agreement being the transfer of possession (AcadPROP § 4:45 on the transfer in conjunction with § 4:3 on transfer of possession). As compared to the First Draft, the Academic Proposal addresses explicitly the rules applicable to the real agreement (transaction on transfer of possession), defining the appropriate application of the rules on conclusion and invalidity of contracts. The classical delivery equivalents included (AcadPROP § 4:3 (2)-(4)) are identical to those in the First Draft.436

5.9.4. Legislative Proposal Besides opting for the real agreement, the Legislative Proposal also introduces a special provision for the transfer of the right of ownership in dematerialised and registered securities.

436

MENYHÁRD, in: Expert Proposal, pp 588-590.

Hungary

588

(a)

Transfer of ownership in movables: modus implying the causal real agreement is needed

The Legislative Proposal opts for the distinct real agreement in the form of transfer of possession (Legislative Proposal § 4:48 (1) on transfer of ownership in conjunction with § 4:2 on transfer of possession), following the approach in the First Draft and Academic Proposal in this respect. From the point of view of the terminology used, the Legislative Proposal slightly differs from the Drafts and the Academic Proposal while defining the transfer of possession, replacing the phrase “actual power” with “surrender of the objects or instruments” (Legislative Proposal § 4:2 (1) as compared to AcadPROP § 4:3 (1)); this change may be considered as only technical in nature. The uniform regulation of all instances of delivery (Legislative Proposal § 4 (2)-(4) delivery equivalents) connected with the transfer of possession within rules governing possession is justified because: firstly, the transfer of possession relates not only to the transfer of ownership but also with the establishment of other property law entitlements (usufruct of a movable established by contractual agreement, pledge of a movable); and secondly, the transfer of possession also relates to the performance of contracts not directed to the transfer of ownership, e.g. personal entitlements to use (lease).437 Another independent function of transfer of possession may relate to the passing of risk as implied by certain instruments (e.g. retention of ownership).

(b)

Special provisions for transfer of ownership in dematerialised and registered securities

The provisions on the transfer of ownership in investments securities also mirror the causal real agreement concept as followed by the Legislative Proposal in the field of transfer of ownership. (i)

Transfer of the right of ownership in dematerialised securities

The provision starts with a rebuttable presumption according to which the holder of the security account the dematerialised security is kept on shall be regarded as owner of the dematerialised securities (Legislative Proposal § 4:49 (1)). The difficulties are connected to the non-corporeal appearance of the security and conclusively to possession, where the modus element is replaced by “modus tabularum” (involving some kind of registration), thus concerning securities the holder of the security ac437

Legislative Proposal – Explanatory Statement – § 4:48, p 777.

6. Double / multiple selling

589

count is characterised as possessor and shall be regarded, until contrary evidence is led, owner of the securities. The transfer of ownership in the dematerialised security requires: (1) a contract or other legal title directed to the transfer (titulus); and (2) the debiting of the transferor’s account on grounds of the transferor’s order as well as the crediting of the securities to the security account of the acquirer (modus) (Legislative Proposal § 4:49 (2)). The modus element here also implies two aspects, whereas the intention to transfer the possession is manifested in the transferor’s order to transfer.438 The Legislative Proposal attempts to establish a clear distinction as between the law of obligations and law of property provisions applicable to securities (e.g. as compared to HCC § 338 / B (8)), furthermore it incorporates the regulation – currently the subject of separate legal provision – into the Civil Code. (ii)

Transfer of the right of ownership in registered securities

The transfer of bearer instruments does not imply problems since it happens according to general rules on transfer of movables consisting of the underlying obligation and the transfer of possession. Nonetheless, registered securities require different treatment. The regime is similar to that in HCC § 338 / B (3)-(7) regulating the transfer in securities (modus within the transfer): beside the titulus of the transaction, the direct endorsement (Legislative Proposal § 4:50 (2)), or endorsement in blank (Legislative Proposal § 4:50 (3)) in the security is necessary, with the onward transfer in the case of security with endorsement in blank requiring special regulatory attention (Legislative Proposal § 4:50 (4)). The option for the emitter to exclude the transfer by endorsement in the case of registered security is also regulated, but the exercise of such option only restricts the legal effects of the transfer to assignment; it does not otherwise affect the transferability of the instrument. The instrument character of the registered security where transferability by endorsement has been excluded is shown by the requirement to possess the document in order to exercise the right (claim) embodied, and therefore be able to transfer it.439

6.

Double / multiple selling

Ownership is transferred on grounds of a valid obligation (causa) by the delivery of the movable (modus). Where there are multiple obligations directed to transfer ownership (pending and competing), ownership (title) 438 439

Legislative Proposal – Explanatory Statement – § 4:49, pp 778-779. Legislative Proposal – Explanatory Statement – § 4:50, pp 781-780.

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will pass according to which of these obligations is perfomed. Accordingly, these competing obligations are all binding and of equal force.440 Any purchaser who does not acquire ownership in the movable owing to a competing transfer that is perfected may claim compensation from the seller on grounds of breach of contract. In the situation where the purchaser who acquired ownership knew about the prior and competing obligation it appears that he is liabile to the excluded purchaser on grounds of non-contractual liability arising out of damage caused to another (HCC § 339). There is no explicit legal solution with regard to the issue of which of the purchasers may claim performance of the obligation – (i.e. no priority provision is available). All of them may claim the delivery, provided all the respective obligations are concurrent or the terms of performance are the same, and all of them have the same chance to acquire the movable. The movable will be delivered to the purchaser who first claimed, meaning the person whose action was first lodged at the court.

7.

Selling in a chain

7.1.

Construction of selling in a chain within the systematic of the HC

There are no special provisions in the HCC on selling in a chain, though the general rules on transfer of ownership will apply. The following may be an appropriate construction within the systematic of the HCC. Firstly, case law acknowledges constitutum possessorium as a delivery equivalent, meaning the buyer (B) may acquire ownership from the seller (A) without physical delivery of the thing concerned. Delivery – the second stage in transfer of ownership – is realised by the parties’ agreement and the legal transaction of transfer of ownership is perfected. As B is now the owner, he may dispose of the movable. If the new owner sells the thing being in the possession of the former owner to a third person (C), the delivery of the thing to C may take place by way of cessio vindicationis, with physical delivery being again replaced by the parties’ agreement. Subsequently, the thing is still in the possession of A, but nevertheless C acquires ownership in the movable.

440

BÁRDOS / MENYHÁRD: Commercial Law, p 372.

8. Transfer or acquisition by means of indirect representation

7.2.

591

Invalidity of the causa

Transfer of ownership requires a valid obligation and the delivery of the movable, where the delivery only effects the transfer if the underlying obligation is valid. Continuting with the example of 7.1. above, if the first stage (contract between A and B) is invalid, restitutio in integrum could operate as a property claim (and be effective against C) but this faces the impediment of acquisition of ownership of the thing in question by C on the grounds of the rules on acquisition from a non-owner (HCC § 118 (1)-(2)), therefore excluding the application of restitutio in integrum.441 A’s remedy then seems to rest on the law of obligations. If the second stage (contract between B and C) is invalid, restitutio in integrum will be applicable, meaning that – due to the retroactive proprietary effect of invalidity – B will have a property claim against C for restitution of the movable. C will be bound to return the movable (if it is available), for B is the owner (see 5.3.2.(b)(iii) on the consequences of invalidity – above). Looking again at invalidity in the first stage (A to B), there could be a situation when B is aware of the invalidity and seeks to transfer the movable with the purpose of divesting A of ownership. There is a specific provision in the HCC to deal with such situations, namely the actio pauliana provision in HCC § 203 (1). This applies if C knows about this fact (meaning C is in bad faith) or C acquires gratuitously. The transaction’s relative ineffectiveness concerning the relationship between C and A will not have a direct effect on the wider property situation (the contract is valid and C is the owner), but C is only obliged to tolerate the satisfaction from the movable concerned (i.e. the subject of the transaction). If the ineffectiveness lies on the gratuitous character of the transfer to C, he will not be liable to A if he loses the movable in non-culpable manner (HCC § 203 (3)). In relation to the consequence of invalidity of contracts, ineffectiveness on grounds of actio pauliana has a subsidiary character.

8.

Transfer or acquisition by means of indirect representation

8.1.

Possible construction in the current regulation

The entitlement to dispose of ownership in a thing may be granted within the scope of a mandate contract (HCC §§ 474) or consignment contract (HCC §§ 507). In the case of mandate, the person holding the mandate undertakes the acquisition of ownership of a thing specified by the principal. 441

KISS / SÁNDOR: Invalidity of Contracts, p 365.

592

Hungary

According to the Commentary, where the mandate relationship is directed to conclusion of a contract the mandate also implies the agency442 of the mandate holder (sometimes referred to as the mandatary).The mandate holder thus acts as direct representative of the principal, acquiring rights and duties directly for the principal. Another alternative is to grant for the commission agent a right to dispose within the scope of a consignment (commission) contract. Pursuant to HCC § 507, the commission agent is obliged to conclude a sale contract in favour of the principal (commissioner), but in his own name. Nevertheless, the position of the right of ownership – i.e. who acquires ownership in this case – is not addressed explicitly, but the provision concerning the situation of the principal’s claims against the commission agent implies an indirect acquisition (i.e. the commission agent acquires ownership): the principal’s claims (both monetary and directed to the object procured) are protected from the commission agent’s creditors’ claims (HCC § 509 (3) a)-c)). This provision provides a protection comparable to Aussonderungsrecht (right of separation) in German law. As a matter of fact, the indirect character of acquisition has been identified here in the situation of insolvency. In situations of purchase by way of commission and sale on commission (with the commission agent acting in his own name) the acts required to transfer ownership (title) are performed by the commission agent, and their effect, i.e. the passing of ownership will realise in the commission agent’s person, too. Conclusively, with sale on commission ownership will pass to the third person on delivery effected by the commission agent, whereas at buying on commission the commission agent will acquire ownerhip in the movable procured by taking possession. The delivery of the movable to the principal is realised within the scope of the mutual accounting relationship on grounds of HCC § 479 (2).443 Looking now at the issue of risk, reference should be made to § 7 (4) of the Independent Commercial Agent Contract Act, according to which risk in the movable surrendered to the agent remains with the principal. § 52 (2) of the Investment Ventures and Commodity Exchange Service Providers Act is also relevant, which provides that the execution of a purchaser order by the commission agent will lead to acquisition of ownership in the financial instruments procured.444

442 443 444

According to the German legal terminology, in the sense of Vollmacht. BÁRDOS / MENYHÁRD: Commercial Law, p 420. § 52 (2) “The investment venture may not dispose of the financial instrument or money in its administration as if such financial instrument or money is its own, as the customer has (or is entitled to acquire) ownership and thus has the ability to dispose of the financial instrument and money at any time.”

8. Transfer or acquisition by means of indirect representation

593

In the HCC, there is no special provision on the issue of risk bearing. Consequently, the question arises who acquires ownership in event of consignment purchase: by the conclusion of the contract (i.e. perfect transfer including titulus and modus) between the seller and the commission agent the risk passes, for the commission agent acts in his own name and not as the principal’s direct representative.445 The person commissioned with the sale of a certain movable (agent) will be liable according to the general rules on non-contractual liability; he will only be liable for damage imputable to him (EBH2001 / 415).

8.2.

Indirect representation in the Legislative Proposal

The Legislative Proposal explicitly regulates the instance of indirect representation. However, the regulation provided serves more for clarification purposes rather than providing a detailed system of rules on the issue. The proposed regulation spells out clearly that where the representative is acting in his own name, he personally will be obliged and entitled as towards the third person on grounds of the contract concluded (Legislative Proposal § 5:64 (1)). As compared to the mandate contract, the subject of regulation focusses on the relationship as between the representative and the third person, rather than on the relationship as between the principal and the representative. Nonetheless, as compared to PECL Art. 3:302, the Legislative Proposal does not intend to provide an in-depth regime by providing rules for the relationship between the principal and the third person in the event of insolvency of the representative. The provision is considered the first and an important step in Hunagrian private law towards a generalised regulation of a special instance of representation.446 Subsection (2) makes clear that the relationship where the representative (nominee) exercises the rights of the principal derives from a position as shareholder is the subject of special legislation (being governed by §§ 151-155 of Capital Market Act).447

445 446 447

HARMATHY: Property Law – Law of Obligations, pp 121-122. Legislative Proposal – Explanatory Statement – § 5:64, p 923. Legislative Proposal – Explanatory Statement – § 5:64, p 924.

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9.

Consequences in the case of insolvency

9.1.

Termination of a continuing obligation and annulment by the insolvency administrator

According to § 47 (1) Insolvency Act the insolvency administrator is entitled, in certain circumstances, to cancel with immediate effect any contract concluded by the debtor, meaning he can terminate any part of contract which has not yet been discharged. He may also terminate a contract outright (annulment), with retroactive effect. As a consequence, the other party affected (creditor) should intimate his claims within 40 days from the date of termination of the continuing obligation or annulment by the insolvency administrator, as the case may be. As compared to the HCC, the Insolvency Act establishes a unique general entitlement for termination of a continuing obligation with immediate effect, particularly relevant to the termination of contractual relationships. By termination of a continuing obligation the contract ceases to exist ex nunc (see 5.3.2.(d)(ii) on termination of continuing obligation – above), there will be no mutual accounting obligation as a consequence of termination of a continuing obligation (usually implying contracts of a service character). Annulment of the contract has retroactive effect (HCC § 319 (3)), leading to restitutio in integrum. As noted, the termination of the contract is only possible where the contract has not been performed at the time of insolvency (EBH1999 / 124), meaning questions may be raised as to whether a certain relationship has been discharged.448 Undischarged in this context will mean that at least one of the parties has not fulfiled his respective contractual duty. The party affected by the termination may claim damages as directed against the insolvency estate. There may be cases where both the special entitlement according to the Insolvency Act and the grounds conclusively defined in the Civil Code are available for the insolvency administrator. Invoking the Civil Code will normally appear preferable to the insolvency administrator, because in these cases the other party cannot claim damages (the entitlement to termination of a continuing obligation is predicated on the unlawful behaviour of the other party).449

448 449

TAMÁS ÚJLAKI, in: Commentary on Insolvency Law, pp 293-294. ÚJLAKI, in: Commentary on Insolvency Law, p 293.

9. Consequences in the case of insolvency

9.2.

595

Actio pauliana specialis within the scope of Insolvency Act

According to the Insolvency Act § 40 (1) the insolvency administrator or the court may annul the obligations undertaken by the insolvent debtor by filing an appropriate action in accordance with the categories determined in the Insolvency Act § 40 (2)-(3).450 The annulment has ex tunc effect, invoking restitutio in integrum meaning that the assets concerned will belong (whether in natura or an equivalent in money) to the insolvency estate.

9.3.

Insolvency of the transferor

9.3.1. Movables not delivered The transferee is not protected against the creditors of the transferor if the movable concerned has not been delivered to him (i.e. ownership – title – has not passed). If the transferee has already provided performance (e.g. has already paid the purchase price of the thing), his situation will be the same as a creditor having a claim against the insolvency estate according to the Insolvency Act § 57 (1) d) (applicable to non-business related claims of a private person, a small or medium size company, and farmers) or f) (other claims).451

9.3.2. Satisfaction order The Insolvency Act establishes the following order for satisfaction of claims (§ 57 (1) a)-h)): the costs related to the insolvency proceedings (including salaries and redundancy money); claims secured by pledge or guarantee up to the value of the pledged asset or of the guaranteeprovided; obligations of a commercial organisation to provide alimony or different kinds of annuity (life or compensatory); non-business related claims of private persons, small and medium size companies and farmers, except claims deriving from bonds; debts towards the social security and private pension systems, public duties (taxes and debts which have to be treated like taxes), water-rates and other communal services rates; other claims (e.g. a claim deriving from restitutio in integrum as a consequence of termination in the case of a transfer where no delivery has taken place (and therefore ownership – title – has not passed) but the purchase price has been paid, will fit under § 57 (1) f)); interests for delay, allowances 450 451

ISTVÁN SÁNDOR, in: Commentary on Insolvency Law, pp 267-270. ÚJLAKI, in: Commentary on Insolvency Law, pp 338-339.

Hungary

596

and penalties. Under § 57 (1) h) – at the bottom of the hierarchy – the claims of the company’s shareholders, member’s of the executive board, executive employees, of such individual’s close relatives, of companies in which the debtor is majority shareholder, and claims on grounds of gratuitous contracts all feature. In the case of a contract for sale the parties may agree on a retention of ownership at the conclusion of the contract (the requirements of which are discussed and the legal “situation” of the movable concerned will alter according to the time agreed for transfer of ownership (the latest point at which ownership (title) will pass being when the purchase price is paid in full). Inserting a suspensory condition will only have non-proprietary (personal) effect.

9.3.3. Void or avoided contract If the thing concerned has already been delivered to the transferee – meaning that ownership (title) has passed – and the underlying obligation turns out to be invalid at a later time (null and void or avoided), the restitutio in integrum regime will apply. Subsequently, the movable in naturaor the value thereof must be restored to the transferor.

9.3.4. Annulment of the contract Annulment leads to restitutio in integrum, which in turn means each of the contracting parties involved will have an appropriate restitution (a primarily property) entitlement (see above). From the transferor’s point of view, the annulment of the contract results in a restitution entitlement against the transferee (directed to restitutio in integrum, i.e. to return the corporeal object concerned, if possible, or restitution realised by monetary compensation), while from the point of view of the transferee a claim according to d) or f) in the order of satisfaction follows.

9.4.

Insolvency of the transferee

Hungarian law has no problems in dealing with the situation where movables have been delivered to a transferee who becomes insolvent, because of the causal modus transfer of ownership system (titulus and modus): the movable will belong to the insolvency estate of the transferee. If the movable was not yet delivered but the transferee has performed already, it will result in a claim against the transferor on grounds of breach of contract and/or of restitutio in integrum as a consequence of the termination/annulment of the contract.

10. Passing of risk and distribution of benefits

9.5.

597

Right of stoppage in transit

In Hungarian law the right of stoppage in transit is not regulated in the context of insolvency proceedings, but will rather arise as related to carriage contract: according to HCC § 496 (2) the transferor holds the right of disposition in the goods until the point in time of delivery to the transferee. Accordingly, the transferor may demand the carrier hold up the goods on the way (stoppage in transit), to bring back the goods to the place from where they were despatched, to deliver to another addressee, or to carry to another place of destination.452 The rule does not touch on the issue of transfer of risk; the factum of concluding the carriage contract as a nominate contract allows the parties to regulate the issue autonomously (see 10.1.6. on passing of risk in goods transported by an independent carrier – below).

10.

Passing of risk and inter partes distribution of benefits, liability for charges as connected to transfer

10.1.

Passing of risk

The issue ofrisk is crucial for contracts (obligations) directed to transfer the ownership in a thing. The main rule and starting point in this respect is provided by HCC § 99, imposing the burden to bear the risk on the owner. As this is a “property” relationship which only has an impact on the relationship of the parties involved and thus may not have any effect on third persons, the parties may opt out of this rule by agreement. Subsequently, the HCC does not touch on the relationship of the parties, only a general principle is declared in this respect. From another perspective, if there is a contractual relationship between the parties the bearing of risk is not necessarily bound to the performance, at most it has an indirect effect, although delivery can have a decisive role. An example of this can be found in HCC § 405 (2) concerning the construction contract. Here, although certain elements of the work may be accepted prior to the performance as such (i.e. advance delivery), the risk passes by the delivery in this case. Conclusively, from this point of view, the issue on passing of risk may be considered non-mandatory in Hungarian private law. Furthermore the issue of passing of risk, in a stricter sense, is considered the subject of the law of obligations.

452

KEMENES, in: Commentary, p 1805.

Hungary

598

10.1.1. General (a)

General on the issue

As a general principle the passing of risk in Hungarian private law is dealt with in connection with the performance of obligations: the performance of obligations directed to transferring the right of ownership (or right of administration) will result the passing of the risk as well (HCC 279 (2)).453 In this respect the performance plays an important role by determining (in the absence of an explicit contractual clause) who has to care about the transportation and conclusively who will bear the risk.454 Thus, the passing of the risk is considered one of the most significant consequences connected to transfer, whereas the interrelation between the passing of the risk and determining the place of performance may be noticed explicitly. Until performance the transferor bears the risk of destruction or deterioration of the movable. It should be noted that the destruction of the movable does not necessarily mean also the impossibility of performance (but if the contract was for a specific, non-generic thing performance may indeed be rendered impossible). While dealing with obligations other than those directed to transfer ownership, the bearing of the risk is used in a different sense and refers usually to the business risk connected.

The transfer is governed by property law, meaning delivery of the corporeal object is a prerequisite (HCC § 117 (2)). In this respect the transfer of ownership and passing of risk can move jointly (but one can be separated from the other by the parties’ agreement).455

(b)

Role of approving the performance

As a general rule, the person receiving the performance is obliged to promptly investigate whether the performance delivered is appropriate or not (HCC § 283 (1)), but he is not obliged to investigate those qualities which are the subject of warranty (HCC § 283 (2)). The investigation includes two aspects: the investigation of the quantity; and the investigation of the quality. In practice, the investigation of the quantity is usually performed without an investigation of the quality, where the latter is also 453 454 455

HARMATHY, in: Commentary, p 1015. HARMATHY, in: Commentary, p 1016. HARMATHY, in: Commentary, p 1020.

10. Passing of risk and distribution of benefits

599

called “qualitative acceptance”.456 The identification is a unilateral act carried out by the acquirer at the place of delivery, – unless otherwise agreed at his place of residence / seat (however, concerning special contracts the HCC may also specify particular rules, e.g. under HCC § 383 (3) (supply contract) the acquirer is obliged to begin the qualitative investigation within eight days of the date of delivery). The legal effect of the investigation is connected to the exercise of warranty rights on grounds of undue performance, which stems from the law of obligations; the passing of risk tends to be viewed as an issue linked to property law which is normally connected to delivery.

10.1.2. Passing of risk as related to default in performance Where the object of performance deteriorates prior to delivery or delivery takes place in a deteriorated state, this may be a case of failure to make due performance. However, it should be stressed that the deterioration must take place prior to the delivery in order to effect the consequences connected to a default in performance, such as a warranty claim against the transferor.

10.1.3. Exceptions from the general principle In the context of civil law there are exceptions from the general principle connecting with the transfer of ownership and the transfer of risk. These exceptions may be divided into two groups.457 the first group concerns HCC § 279 (2), stating that other provisions of the statute may deviate from the general principle, like in the case of the creditor’s default, meaning the risk passes by his default (the transferor thereafter keeps the object further under responsible custody). A second group of exceptions from the general principle comprise the various cases of retention of ownership (HCC § 368 (1)), particularly in combination with instalment purchase (HCC § 376 (4)) – as it follows explicitly from the normative provision; however, according to the rationale of the provision on retention of ownership, the risk passes in any case when the buyer acquires the possession of the object concerned. This principle is provided explicitly for immovables (HCC § 368 (3)), according to which the risk passes as soon as the acquirer takes possession (the passing of ownership – title – requires the entry into the land registry).458 Where the debtor is in default there may also be an exception, 456 457 458

HARMATHY, in: Commentary, p 1029. HARMATHY, in: Commentary, p 1020. HARMATHY, in: Commentary, p 1021.

Hungary

600

but the debtor may only be liable for the damage incurred in the subject of performance insofar as he failed to avoid or mitigate his default (HCC § 299 (1)). Similarly, he will not be liable if he can prove that the damage would have occurred regardless of whether there was a default regarding his performance (HCC § 299 (2)).459

10.1.4. Passing of risk in the case of delivery equivalents The problems of risk in connection with the instances of delivery equivalents have hardly been treated in the recent literature. Nevertheless, in this respect regard may be had to the prevailing view in old Hungarian private law as follows: in the cases of brevi manu traditio and constitutum possessorium risk passes upon agreement of the parties,460 whereas in the case of cessio vindicationis the prevailing view seems to indicate risk passes at the point in time when the buyer acquires the possession of the object concerned461 (here the special character justifies the special treatment). The instance of longa manu traditio is not pointed out explicitly, but regarding the similarity to the brevi manu traditio and constitutum possessorium, the risk may be considered to pass by the parties’ agreement as well. The passing of risk where the delivery takes place by delivery equivalent raises no additional questions.

10.1.5. Passing of risk in the case of generic goods The passing of the risk generally coincides with delivery, but as far as generic goods are concerned the modus element requires the identification of the unascertained goods, which effects the passing of the risk to the buyer (genus perire non censetur principle – see 5.2 2.(a)(ii) – above).

10.1.6. Passing of risk in goods transported by an independent carrier According to HCC § 278 (1) the place of performance is defined as the domicile / seat of the transferor, unless: a) otherwise provided by a legal provision; b) the subject of performance or destination of performance suggests otherwise; or c) the subject of performance is at another place known to the parties. As previously noted, this provision is of non-mandatory character. 459 460 461

BENEDEK, in: Commentary, p 1059. ANTALFFY: Sale and Barter, p 247. ANTALFFY: Sale and Barter, p 246.

10. Passing of risk and distribution of benefits

601

The problem arises where the respective domiciles or seats of the transferee and transferor are situated in different places and there is a need to resort to a means of transportation. Though the liability of the carrier is subject to a special regime, in these cases the passing of the risk may raise questions. If the performance is perfected by delivery to the carrier (or possibly earlier if agreed by the parties), the risk is subsequently borne by the transferee from that moment on. Conversely, where performance is perfected by delivery to the transferee, the risk is borne by the transferor. The issue of liability as in connection with the faulty packing of the good for carriage is treated differently as well: if the performance is perfected by delivery to the carrier, the transferor is liable for the damage caused; while if the performance is perfected by delivery to the transferee, this may lead to warranty claims against the transferor (i.e. the transferee is liable, on alternative grounds, either way). Following the wording of the black letter text, the instance of “point-to-point carriage”, when the subject of performance has to be sent to a place different from the domicile or seat of the transferor, imposes the risk in carriage on the transferor. A special provision is implied into business to business contracts, where the place of performance in the case of “point-to-point carriage” is defined as the place of destination (HCC § 278 (4)). Pursuant to the main rule (as in HCC § 278 (2)), the place of performance – and conclusively the time of passing of the risk – is the place where the transferor hands over the goods to the carrier.462 In this respect the carrier is not considered the performing agent of the transferor in the relationship. The reason for this approach is to be seen in the view prevailing at the time when the general rule on vicarious liability was developed, according to which one may be classed as the performing (vicarious) agent if there is a relationship of dependence as between him and the transferee. Subsequently, there may hardly be identified a dependence relationship as between the transferor and carriage company usually representing an independent and significant economic power. Concerning business to consumer relations a special provision was inserted in 2002 (HCC 278 (3) (last sentence)). In these cases the performance is perfected by delivery to the consumer. Of course, the main rule on point-to-point carriage may not be applied if the transportation is carried out by the transferor (using his own means of carriage) or his agent individually (HCC § 278 (3)).463

462 463

See in this sense also LÁNYI: The Right of Ownership, p 215. HARMATHY, in: Commentary, pp 1017-1018; similar KISFALUDI, in: Commentary for the Practice – Vol. II, pp 468 / 14-15.

Hungary

602

10.1.7. Passing of risk as related to condition stipulated by the parties The issue of passing of risk may be approached according to the type of contractual condition stipulated (typically concerning contract for sale). Such a condition is subject to the law of obligations regime.464 – In the case of a conditio suspensiva (suspensive condition) the passing of risk is linked to the fulfilment of the condition, i.e. when the contract becomes effective, meaning generally that risk may not pass retroactively. Regarding the legal consequences, the buyer has no obligation to pay the purchase price if the movable is destroyed. – In the case of a conditio resolutiva (resolutive condition) the risk passes by delivery of the movable to the buyer, but the ineffectiveness of contract is triggered by the fulfilment of the condition stipulated. As such, the contract ceases to exist ex nunc. Concerning the legal consequences, where the movable is destroyed, as the contract was effective(for a time), the buyer may not claim back the purchase price paid, or, if not already paid, has the obligation to pay the purchase price agreed. Owing to its destruction, he cannot give back the movable and he may not be obliged to pay the current value of the movable where it is higher than the purchase price agreed. As with all matters concerning risk, these consequences apply unless otherwise provided by the parties.

10.1.8. Passing of risk in the transfer of restricted property rights An analysis of the passing of risk in restricted property rights highlights the importance of the entitlement to possession provided by the right in question. Here, the passing of risk, as well as connected issues, take place in the same manner as in the transfer of corporeal objects. This rule is linked to the entitlement to possession provided by the restricted property right and to the erga omnes effect connected thereto (giving publicity). A related issue may be the possession of these rights; possession consists in the actual exercise of right as such.465

464 465

ANTALFFY: Sale and Barter, p 250. ANTALFFY: Sale and Barter, p 251.

10. Passing of risk and distribution of benefits

10.2.

603

Inter partes distribution of benefits and liability for charges as related to different stages

Where the passing of risk and delivery diverge, the distribution of benefits and bearing of expenses will be affected and be determined according to the system explained below.

10.2.1. Point in time when the entitlement to benefits passes The point in time when the entitlement to benefits passes is coupled to that of the passing of the risk (et commodum eius esse debet, cuius periculum est) applying to both movables and immovables. In the case of the seller’s default in performance the buyer is entitled to benefits from the moment on the default has incurred.466 Where the benefits have to be divided between the parties (e.g. benefits deriving from a right, annual crop, etc.) unless otherwise agreed, the division has to be realised pro rata temporis to the entitlement.467

10.2.2. Bearing of expenses The rules in this respect are linked to the acquisition of possession in the object concerned, and have non-mandatory character. The seller usually bears the costs connected to the hand over of the movable (e.g. costs of measuring as related to the delivery), while the buyer bears the costs related to the take over of the movable (in this respect the delivery is divided in two momenta: take over and hand over). If relevant, the buyer bears the costs arising in connection with the transport of the goods to a place that differs from the place of performance previously agreed. Concerning the expenses related to the transfer of ownership in immovable property, the seller bears the expenses in connection with the settlement of the status in the land registry, while the buyer bears the expenses in connection with the registration. Where other rights are transferred, the seller bears the expenses incurred in connection with the assessment and transfer of such rights. The treatment of expenses which actually improve the object is also coupled to the passing of risk: if the expenses on the object are incurred after the conclusion of the contract but prior to the passing of risk, the seller may not claim these expenses from the buyer. Conversely, if the expenses have been made after the passing of the risk but prior to the delivery of the 466 467

ANTALFFY: Sale and Barter, p 251. ANTALFFY: Sale and Barter, p 252.

Hungary

604

object, the seller may claim these expenses from the buyer.468In any of the cases where risk passes before delivery (i.e. delivery to a place different from that agreed, the buyer’s failure to accept performance), the seller is regarded in the resulting relationship as responsible custodian, meaning the reimbursement of any expenses will be determined by the rules on that regime.

468

ANTALFFY: Sale and Barter, pp 252-254.

Part III: Original acquisition This part of the Report deals with instances of original acquisition of ownership as defined in the Questionnaire. However, Hungarian private law theory may slightly differ from this categorisation. Under original acquisition the legal factum bringing about the legal effect establishes a new right of ownership, independent of another’s right.469 According to Hungarian theory, instances of original acquisition of ownership in movables are the following: acquisition of ownership on grounds of a public authority decision or auction (HCC § 120); acquisitive prescription (HCC § 121); appropriation of produce and progeny (HCC § 125); appropriation of objects without an owner (HCC § 127); capture of uncontrolled bee swarms (Introductory Decree § 22); acquisition of ownership in game, fish and other useful aquatic animals (HCC § 128), finding (HCC § 129); and processing (HCC § 133).470 Having regard to the interaction with movables, regard should also be had to construction on land with materials belonging to someone other than the landowner (HCC § 137 (2)). Acquisition of ownership from a non-owner (good faith acquisition) is regarded to be an instance of original acquisition by operation of law pursuant to recent Hungarian theory,471 in contrast to case law considering it derivative acquisition.472 The author of this report accepts the standpoint of the recent theory to be the correct one. Acquisition of ownership by operation of law means an instance of original acquisition of ownership, conclusively, the previous owner cannot claim from the new owner his investments effected on the property (EBH2001 / 420).

469

470 471 472

KOLOSVÁRY: The Right of Ownership, p 235; also referred by MENYHÁRD: Property Law, p 231. MENYHÁRD: Property Law, p 232. MENYHÁRD: Property Law, p 300. In this sense EBH1999 / 13.

Hungary

606

11.

Acquisition by accession, commixture, specification

11.1.

Accession (növedék – accessio)

The field of application of accession (HCC § 126) is primarily situations where movables become part of immovables. Typical examples include buildings, premises and plants becoming accessory to land. However, under certain circumstances accession may also concern movables in the initial stage, e.g. a seed (movable) before it becomes a tree. The “connection” to the immovable should be a durable and strong one, which does not enable the separation without damaging their substance.473 Accession of movables to other movables falls under the category of commixture in Hungarian private law, considered below.

11.2.

Commixture and processing

11.2.1. Commixture (dologegyesülés) Commixture, representing the merging or fusion of things, is present when things belonging to different owners mix or fuse and separation is only possible with disproportionate upheaval or disproportionate costs, or if separation is not possible physically or practically. By commixture co-ownership (joint ownership) of the aggregate thing comes into existence. The shares of ownership will be determined in a manner proportionate to the value of the things mixed or fused. Any of the co-owners may initiate the termination of co-ownerhip. At this point, the owner who has the most significant share may choose whether to acquire the part(s) belonging to the other co-owner(s) (with appropriate compensation), or he may cede his interest to the other(s) in exchange for compensation (HCC § 134 (1)). The status of fide plays an important a role concerning this right. Where the person who caused the mixing or fusion acted in bad faith, he is not entitled to such a choice, in such a case an individual in bad faith may only claim for the value of the enrichment of the other co-owner(s) (HCC § 134 (2)). If none of the coowners wish to acquire the ownership of the “totality of objects” created, the thing must be sold and the purchase price divided among the co-owners according to their respective shares of ownership in the thing (HCC § 135 (2)). As noted, a person who caused the mixing or fusion act in bad faith is only entitled to restitution of any enrichment, a claim which ranks behind what is due to the other co-owner(s) (HCC § 135 (3)). 473

LENKOVICS: Property Law, p 154.

11. Acquisition by accession, commixture, specification

607

11.2.2. Processing (feldolgozás vagy átalakítás) Processing or transformation means making component materials into a new thing. This has property law consequences when the component parts were not owned by the person who performed the work, or where the person who performed the work did not have a duty to do so. The main issue here is whether the previous state can be reasonably restored or not. If it cannot, the processor’s status of fide will be decisive in determing who has ownership of the new thing. A person who in good faith produces a new thing using things belonging to another may be required to do one of two things, according to the choice of the owner of the material. He may be obliged to reimburse the value of the material used, or he may have to cede ownership in the thing produced to the owner of the material used (HCC § 133 (1)). If, however, the value of the new thing is considerably higher than the value of the material used, the owner of the material does not have the right to choose, the new corporeal object becomes the property of the processor or transformer, the owner of the material may only claim for the value of the materials (HCC § 133 (2)). Where the processor or transformer was in bad faith, the new thing becomes the property of the owner of the material; the processor or transformer may only claim for the value of the owner’s enrichment (HCC § 133 (3)). If none of the parties demand ownership of the new thing, the thing should be sold and the purchase price received divided among the parties in proportion to the value of the material or to their work output (HCC § 135 (2)). As with a situation of bad faith and commixture, the processor or transformer in bad faith is only entitled to the residue after the reimbursement of the value of the materials (i.e. his claim ranks behind all others) (HCC § 135 (3)).

11.2.3. As to the non-mandatory (dispositive) or mandatory (cogent) character of the legal consequences defined in the HCC In the HCC, it is often not self-evident whether the provision concerned is a cogent (mandatory) or dispositive (non-mandatory) one. The HCC has no general part and there are no provisions which have comprehensive effect applying generally in the HCC. The non-mandatory character of the law of obligations is declared in HCC § 200 (1), pursuant to which the parties may deviate from the rules applicable to contracts by their mutual will, unless such a deviation is prohibited by a legal provision. However, the judicial practice from time to time gets over the problem that a certain principle may be found (or more accurately is declared) in the area of contract law

608

Hungary

and will also apply it in another area, e.g. in that of property law. Further on, the interpretation of certain property law provisions as having nonmandatory character may also seem reasonable (such as allowing the parties to agree on the time when ownership (title) passes, which is of particular importance in the case of a distance sale). The problem with this approach, however, is effect of property law has for third persons. Concerning the instances of commixture and processing, the appropriate application of proposition I of the CSS no. 7474 can be seen as a reasonable approach in that it grants priority to the parties’ arrangement, freely agreed to, on what the legal consequences of the act in question should be. Subsequently, it seems that in these cases the relevant rules in the HCC have non-mandatory character, i.e. the rules apply only insofar as the parties did not reach agreement on the issues in question. It is submitted that such an interpretation corresponds to the essential nature of the relevant provisions, and indeed the policy considerations behind them. Some of the instances when the border line between the law of obligations and the law of property in the HCC seems to be blurred, as mirrored in case law (primarily in the application of principles from the law of obligations to property law) are as follows: the provision on the amendment of a contract by the court (HCC § 241), which has been applied to change an agreement on the utilisation of a commonly owned thing (BH1987/201) and in the case of a usufruct established by contractual agreement (BH1981/499); the establishment of usufruct by contractual agreement, applying partly the provisions of contract law and the provisions on usufruct from the law of property (BH1980/126); restriction of the right of use by agreement which is characterised as a sui generis contract and consequently neither a servitude (a property law entitlement for use of land for determined purpose and extent) nor a loan for gratuitous use of an object [commodatum] (BH2005/51); preventing the exercise of a servitude right established by contractual agreement, which is classed as a breach of contract (BH1992/526).

11.2.4. General interaction with non-contractual liability – Invoking HCC § 339 in the event of commixture or processing The (original) owner of materials that have been mixed or processed by another may also invoke the application of the rules of non-contractual liability arising out of damage caused to another if he has suffered any dam474

CSS no. 7, Proposition I is as follows: “The legal consequences applicable to building with your own materials on a piece of land being property of another may not be applied if in that instance the parties come to another agreement regarding the issue of settlement of the question of ownership.”

11. Acquisition by accession, commixture, specification

609

age in the sense of HCC § 339, provided the general conditions thereof are fulfilled. The general conditions for non-contractual liability arising out of damage caused to another are as follows: damage suffered; the tortfeasor’s (i.e. the person who has caused the damge) negligence or intention; and causal connection between the actions of the mixer or processermix and the damage incurred by the owner.

11.2.5. Progressing towards the new Civil Code (a)

First Draft, Second Draft and Academic Proposal

From a systematic point of view, both the Drafts and the Academic Proposal maintain the current approach in the field of processing and commixture (1stDCC §§ 4:78-4:80, identical 2ndDCC §§ 4:73-4:75, identical AcadPROP §§ 4:78-4:80). However, for clarification purposes an explicit provision has been introduced concerning the legal situation of third persons’ rights.

(b)

Legislative Proposal

The Legislative Proposal is identical to the Drafts (Legislative Proposal §§ 4:72-4:74) concerning the general rules. At the end of the relevant provisions (on various kinds of commixture or alteration) the Legislative Proposal also declares explicitly the applicability of these rules to situations where the co-owner mixes, processes, builds with, alters, etc. the subject of co-ownership (Legislative Proposal § 4:78). The scope of this rule is shown in the field of co-ownership as interacting – among others – with the provision on the requirement of the other co-owners’ unanimous consent inasmuch as expenses to be effected exceed ordinary expenses. In a situation where the co-owner incurs such expenses without considering this provison, the regime will apply appropriately.475 Such expenses may constitute an investment and lead to a proportionate change in the stakes of ownership.

475

Legislative Proposal – Explanatory Statement – § 4:78, p 799.

Hungary

610

11.2.6. Third persons’ rights encumbering the movable (a)

First Draft, Second Draft and Academic Proposal

Both the Drafts and the Academic Proposal introduce explicit regulation on the legal situation of the rights of third persons encumbering the things involved in processing (1stDCC § 4:78 (5), identical 2ndDCC § 4:73 (5), AcadPROP § 4:78 (5)) or commixture (1stDCC § 4:79 (4), identical 2ndDCC § 4:74, AcadPROP § 4:79 (4)). These issues are not addressed in the HCC, but nevertheless they play a significant role and their explicit regulation is considered desirable.

(b)

Legislative Proposal

The Legislative Proposal is identical with the Drafts and the Academic Proposal as regards the legal situation of third persons’ rights encumbering the object (Legislative Proposal § 4:72 (5)). By processing a new object comes into existence, meaning the right of ownership in the new thing is acquired by the processor and, as such, the rights of third persons encumbering the object in its previous form will cease to exist in the new thing. This result would be inappropriate where the new object is acquired by the owner of the material processed, thus the previous rule may not apply in this case (as its operation would allow the rights of third parties to be extinguished by the unilateral actions of the processor).476 The principle followed in a case of commixture is similar: if co-ownership comes into existence the rights of third persons will encumber the respective stakes in ownership, while if the right of ownership is acquired by the owner of the principal component part(s) (i.e. a new thing and with it a new right of ownership comes into existence), any rights encumbering the accessory part(s) cease to exist, while any rights which encumbered the principal will extend to the new object (Legislative Proposal § 4:73 (4)).477

476 477

Legislative Proposal – Explanatory Statement – § 4:72, p 796. Legislative Proposal – Explanatory Statement – § 4:73, p 797.

11. Acquisition by accession, commixture, specification

11.3.

611

Integration of movables into immovables

11.3.1. Construction using foreign materials (movable) on a piece of land owned by the builder (beépítés – inaedificatio) Construction using foreign material characterizes particular instance of commixture of movables and immovables (HCC § 136). The rule constitutes an exception to the general principle that in such a situation co-ownership comes into existence ex lege. The policy consideration behind the rule is that co-ownership would not be a desirable result in the case of immovables: the owner of the land will acquire ownership of the attached material (aedificium solo cedit principle). The status of fide of the builder (i.e. whether he is in good or bad faith) plays no role in this respect. If the piece of land on which the material has been incorporated is not owned by the builder, according to HCC § 97 (2) he will only acquire ownership in the incorporated materials if he is separately entitled to ownership of the land or building. A prerequisite for the acquisition of ownership in the materials belonging to another on grounds of incorporation is that the materials should be connected to the land or existing building in such a manner as to make separation impossible. Furthermore, the scope of application of the rule is not restricted to buildings, but it also applies to any other kind of premises (such as static caravans or portable cabins).478

11.3.2. Construction on a piece of land being property of another (ráépítés) This situation occurs when the owner of the (movable) construction materials constructs a building on a piece of land belonging to another (HCC § 137 (1)). According to HCC § 137 (2) under certain circumstances the superficies solo cedit principle may not apply, and the owner of the building materials will acquire ownership in the immovable constructed by him. The acquisition of ownership in the building erected will be excluded if the builder was in bad faith or the landowner objected to it at a reasonable point in time (HCC § 137 (4)).

478

LENKOVICS: Property Law, pp 154-155.

Hungary

612

11.3.3. Extension or alteration of an existing building (in separate ownership) by use of own materials (hozzáépítés, átépítés) If the works of a person (using his own movables) comprise the construction of an additional part of an existing building, the new part will be the common property of the builder and the owner (HCC § 137 (3)). The builder’s stake of ownership in the immovable concerned will be calculated according to the value of the additional works in proportion to the original value of the building. Pursuant to CSS no. 7 the additional construction establishes co-ownership only if the actual structure of the building is affected.479 This rule does not apply where the builder is in bad faith (HCC § 137 (4)).

11.3.4. Progressing towards the new Civil Code (a)

First Draft, Second Draft and Academic Proposal

From a systematic point of view the Drafts and the Academic Proposal introduce a more refined regime for the instances of integration of movables into an immovable.480 A separate category has been introduced concerning the cases of extension and alteration of a building by a builder using his own materials (1stDCC § 4:81, identical 2ndDCC § 4:76, AcadPROP § 4:81). This provision, as compared to the CSS no. 7, does not attempt to define explicitly what kind of works are classed as construction and therefore lead to co-ownership.481 The instance of constructing with materials (movables) on separately owned land (1stDCC § 4:82 (1), identical 2ndDCC § 4:77 (1), AcadPROP § 4:82 (1)) or a building (1stDCC § 4:82 (2), identical 2ndDCC 4:77 (2), AcadPROP § 4:82 (2)) will result in co-ownership, unless otherwise agreed by the parties. The Drafts introduce substantial changes in relation to the policy consideration followed where there is construction in good faith on a piece of land that is the property of another, according to which co-ownership will come into existence ex lege, unless otherwise agreed (1stDCC § 4:83 (1), identical 2ndDCC § 4:78 (1), AcadDCC 479 480

481

PETRIK, in: Commentary, p 504. First Draft § 4:81 on the extension and alteration of an existing building, § 4:82 on the incorporation of materials, § 4:83 on acquisition of ownership by a builder constructing with his own materials on a piece of land belonging to another, § 4:84 on a builder constructing with his own materials in bad faith on a piece of land belonging to another and § 4:85 on the rules concerning co-ownership. Identical provisions, with different numbering, exist in the Second Draft. Civil Law Codification 5 / 2006, p 9.

11. Acquisition by accession, commixture, specification

613

§ 4:83 (1)) and provided the building is of a class that will endure for a reasonable amount of time (1stDCC § 4:83 (3), identical 2ndDCC § 4:78 (3), AcadPROP § 4:83 (3)). In this respect, the relationship of the parties’ involved will be subject to the co-ownership regime (see 17.2. on the progress towards the new Civil Code), ensuring the relationship is governed in an appropriate manner. As compared to the current regime, it may be noted that the Drafts abolish the landowner’s option to request that the court limit the builder’s acquisition of ownership to the building erected while granting him only a land use right on the piece of land concerned. The instances and legal consequences of integration in bad faith (1stDCC § 4:84, identical 2ndDCC § 4:79, AcadPROP § 4:84) are identical to the HCC.

(b)

Legislative Proposal

In this field, from a systematic point of view the Legislative Proposal deviates from the Drafts, but the current regulation as in the HCC is kept. The system adopted distinguishes between two main categories: the incorporation of materials with another’s land; and construction using materials on another’s land. Dealing with the first category, unless otherwise agreed by the owner of the material and the owner of the building or land, the incorporated movables automatically (ex lege) become owned by the owner of the building or land (Legislative Proposal § 4:75). The policy behind this provision considers the fact that these materials become a component part of the building or land as a decisive factor, resulting in the modification of the immovable, leading to the loss of the individual property character of the connected materials.482 Moving to the secondd category, where materials are used for construction on a piece of land owned by another the Legislative Proposal (Legislative Proposal § 4:76) maintains the current regulation (as in HCC § 137), meaning the situation is decided by considering three aspects: (1) the relationship of the new building and the land to each other from an economic point of view (it being provided that where the value of the building erected does not significantly exceed the value of the land, the landowner will acquire ownership in the building, but he will have to compensate for the enrichment received); (2) the status of fide of the builder; and (3) whether or not the owner had protested against the construction at a point in time appropriate and suitable for the builder to restore the previous state (Legislative Proposal § 4:76 (4)). The situation, where a building in the ownership of another is extended, altered or transformed is regulated within the section on incorporation of materials. In these cases co-ownership will come into existence, unless otherwise agreed 482

Legislative Proposal – Explanatory Statement – § 4:75, pp 797-798.

Hungary

614

by the parties (Legislative Proposal § 4:76 (3)). The bridging rule (identical to HCC § 138) between the rules on incorporation and those on construction (as regulated in the field of neighbour law) is provided by Legislative Proposal § 4:77 (2).483

12.

Acquisition of ownership in movables from a non-owner (good faith acquision)

12.1.

The regulatory regime in the HCC

The certainty of trade relations requires that, in certain circumstances, there are exceptions from the nemo plus iuris principle. The HCC deals with three instances when acquisition of ownership from a non-owner is possible, as follows: (a) acquisition in course of trade (HCC § 118 (1)), (b) acquisition from a person to whom the owner entrusted the thing (HCC § 118 (2)), (c) transfer of money or bearer instrument ((HCC § 119). In principle, the acquisition of ownership in stolen movables is possible as well: there is no provision that these exclusions to the nemo plus iuris principle do not apply, but naturally this can only have relevance in the context of HCC § 118 (1) and HCC § 119 (the latter constitutes a special case, see 4.3. above). In this respect HCC § 118 (2) is effectively excluded as it presupposes a legal relationship between the owner and the transferor concerned, which will not exist where a movable has been stolen.

12.1.1. Acquisition from a non-owner in course of trade (especially consumer situation) According to HCC § 118 (1) a buyer in good faith acquires ownership of a thing in course of trade even if the seller was not the owner. Subsequently, two connected conditions have to be fulfilled: the buyer must be in good faith; and the acquisition must take place in course of trade from a trader. The paradigm case for the operation of the provision is the buyer (normally a consumer, but not necessarily) who enters the seller’s commercial premises for shopping purposes. The good faith of the buyer is relevant where the seller is not the owner of the thing and therefore has no entitlement to dispose such thing. In this respect it is not relevant whether the thing 483

Legislative Proposal – Explanatory Statement – § 4:76, § 4:77, p 798.

12. Acquisition from a non-owner (good faith acquisition)

615

concerned came into the seller’s possession because of a criminal offence; the buyer’s good faith prevails over any defect connected to such crime. The provision only applies when a contract for sale is concluded,484 i.e. gratuitous contracts do not fall within the scope of application of the provision (the wording of the provision concerns only the instance of sale). Case law reflects the fact that the good faith of the buyer is not affected if he has not doubted the seller’s entitlement to transfer the thing and has not made any effort to find out the owner of the thing. Nonetheless, if the circumstances of the sale should have raised serious doubts for the buyer, the buyer’s good faith is tainted and subsequently there will be no acquisition of ownership. Such circumstance may be, for example, an unusually low purchase price of the thing (BH1996 / 419). Another decision deals with the requirement concerning the course of trade. The sale has to be carried out by an authorised natural or legal person and effected in the course of business, such person being a seller (meaning in this case someone selling his “own” goods), a selling agent, a person offering hire-purchase services, etc.; in this respect, the seller acting in his own name is regarded as the decisive criterion in order for HCC § 118 (1) to apply (EBH1999 / 13).

12.1.2. Acquisition from a non-owner outside of the course of trade The HCC also enables the acquisition of ownership from a non-owner in circumstances other than in the course of trade (HCC § 118 (2)). In order to apply three conditions must be fulfilled: the buyer must be in good faith; the buyer must acquire the movable for value (i.e. non-gratuitously); and this acquisition must be from a person who has been entrusted with the movable by the owner.485 The resulting acquisition is conditional for a period of one year: the owner may exercise his option to re-acquire the movable by reimbursing the value paid by the good faith acquirer,486 being in fact a purchase option provided by operation of law.487 In the event that the movable is not entrusted to the purported transferee, the acquisition of ownership under this provision is excluded. This exclusion 484 485

486 487

PETRIK, in: Commentary, pp 442-445. The rationale behind the last requirement is to exclude the acquisition of ownership in stolen goods, particularly those of higher value (e.g. a car). At the time the provision was introduced the technical ability to identify vehicles was not as advanced as nowadays. To have prioritised the buyer in the conflict with the interests of the true owner would not have resulted in a proportionate response in this case. PETRIK, in: Commentary, p 445. MENYHÁRD: Property Law, p 304.

Hungary

616

covers a situation where the possession of a movable has been lost by the owner through a criminal offence (CSS no 2).488 In this case the possessor may still be able to acquire ownership in the movable through the rules on acquisitive prescription. As compared to acquisition in course of trade (see 12.1.1. on acqusition from a non-owner in course of trade), the prerequisite good faith as is interpreted in a stricter sense, meaning that a purported acquirer would not be classed as being in good faith if he ought to have had concerns about the transferor’s ownership and did not undertake the steps necessary to clarify the situation: good faith in this case also implies an element of positive acting. Where the “original” owner uses his entitlement provided by law to re-acquire the object, the period in which the thing has been in the possession of the good faith acquirer will be governed by the rules on possession without legal basis. The policy behind the option enabling re-acquisition of the object is founded on the sentimental value (pretium affectionis, Affektionspreis) the owner may have. In both cases, notwithstanding the option to re-acquire, the owner may claim damages from the transferor disposing unlawfully (in the first case for losing his ownership, or in a situation wherehe re-acquires the object within one year, for his losses incurred in connection with the re-acquisition). Focussing on the dogmatic construction of re-transfer where the owner makes use of his option (i.e. a unilateral act): the good faith acquirer’s “ownership” is a conditional one and the option of the original owner to re-acquire provided by operation of law will be titulus of the transfer. As to the scope of the requirement of the owner entrusting the thing as considered in case law, the nemo plus iuris principle prevails where this has not occurred and subsequently the acquisition of ownership is excluded concerning a stolen object (BH1986 / 269).

12.1.3. Acquisition of ownership from a non-owner in money and bearer instruments According to HCC § 94 (2) on money and securities (which is not restricted to bearer instruments, being a narrower term) the rules on ownership apply appropriately. These are considered special subjects of property law; their significance does not consist in the corporeal character, but in the abstract value they incorporate and represent. Concerning money and

488

MENYHÁRD: Property Law, p 305.

12. Acquisition from a non-owner (good faith acquisition)

617

bearer instruments, the acquirer acquires ownership even if the transferor was not the owner (HCC § 119). The rule operates as an absolute exception from the nemo plus iuris principle. The privilege of this exception to the nemo plus iuris principleonly comes into play if the transfer corresponds to the general requirements of transfer set out in HCC § 117 (2) (titulus and modus).489 The provision applies to bearer instruments exclusively, meaning that securities with endorsement and dematerialised securities are not included in its scope. As to the requirement of good faith as related to HCC § 119 the following details may be added. Athough it is not spelled out in the black letter text, and is similarly not explicitly addressed in the commentaries available, the acquirer’s good faith connected to the acquisition may appear implied in the case of money and bearer instruments. Acqusition regardless of status of fide may lead to an unjust outcome, especially in the case of bearer instruments, a prime example being acquisition of ownership someone committing the crime of reset (i.e. handling stolen goods). The transfer – the connection between the acquisition of ownership (as a legal consequence) and the legal basis of acquisition (titulus, usually contract) – may serve as key leading to this conclusion. If the titulus of the transfer is valid, HCC § 119 will subsequently apply. However, if the titulus turns out to be invalid (e.g. for non-compliance with a statutory provision or on public policy grounds), the invalidity will also affect the acquisition of ownership on grounds of HCC § 119. The meaning of bad faith is to be analysed on a case by case basis, to determine how this may affect the validity of the titulus. This approach is seen in case law as well: BH2005 / 115 – this case deals with the creditor in good faith who was paid from money stolen, noting, “The party aggrieved may only make a claim against the creditor if he can prove the creditor accepted the payment knowing about the criminal act”; BH1999 / 75 – the acquisition of ownership in bearer instruments is effective even if the transferor was not the owner, but releasing from the obligation would not be possible if the contract contravenes a legal provision or good morals (such as a contract concluded to evade a legal provision). To summarise, the rationale behind the provision – especially from systematical perspective – seems to be the enabling of acquisition of ownership in money and bearer instruments in any case, whereas according to the point of view elaborated above, the acquirer’s good faith may be considered to be implied indirectly. Furthermore it may be observed that the acquirer’s good faith is considered a general reason for the trumping of the nemo plus iuris principle.490

489 490

PETRIK, in: Commentary, p 448. LENKOVICS: Property Law, p 134.

Hungary

618

12.1.4. Remarks on the application of the provision (a)

Requirement of transfer

Acquisition from a non-owner will apply to any transaction implying the transfer of ownership, meaning that the transfer will consist of titulus and modus. The provision operates as a cure for the missing right of disposition of the transferor. The other elements of transfer have to be fulfilled in the normal manner, particularly the aspect of delivery (acquisition of possession). The delivery operates in this respect according to common sense and will include both the physical delivery and the delivery equivalents recognised in Hungarian private law (see 5.4. on delivery as element of modus – above).

(b)

The role of good faith in connection with HCC § 118 (1) and (2) in general

Good faith operates like an open category which enables the analysis of all the circumstances and to consider the particularities of the case in question. Therefore, the standard of good faith does not focus on subjective awareness but on the behaviour which could usually be expected under the circumstances of the case, meaning the behaviour of a person acting carefully and prudently. The same analysis applies when dealing with the termination of rights encumbering an object. The standard of good faith required also depends on the nature of the object, enabling the allocation of risk related to the origin of the object, and thereby affecting the acquisition of ownership as adjusted to the case. Conclusively, good faith will imply the requirement of differentstandards of care and prudence in the case of a painting of high value as compared to the case of an object sold at a flea market. Also in this sense, an offer made under circumstances which are unusual with regard to the nature of the object and circumstances which are incompatible with the trade customs will be viewed differently to more orthodox transactions.491

(c)

Burden of proof

There is no presumption on the presence of good faith in the HCC or from case law. Accordingly, the burden of proof on the existence of the conditions of good faith acquisition will be determined according to the general rules of civil procedure. Pursuant to CCP § 164, the facts necessary to decide the case must generally be proven by the party who has an interest that 491

MENYHÁRD: Property Law, pp 302-303.

12. Acquisition from a non-owner (good faith acquisition)

619

those facts are to be considered the truth by court. Conclusively, in either instance (HCC § 118 and HCC § 119) the realisation of the conditions must be proven by the party who wishes to acquire the right of ownership, thus the determination of the burden of proof will play a significant role in deciding which of the parties is likely to succeed.492

12.2.

Progressing towards the new Civil Code

12.2.1. First Draft, Second Draft and Academic Proposal The First Draft and the Second Draft follow different paths in the area of good faith acquisition: the First Draft is more radical in this respect, while the Second Draft largely maintains the current regime. That said, in the Second Draft there is a slight re-thinking as to the systematical inclusion of the special provision on acquisition of ownership in money and securities, which are not considered a special instance of good faith acquisition, but rather a special category of acquisition focussing on the particular character of money and securities(2ndDCC § 4:44 on acquisition of ownership from a non-owner, 2ndDCC § 4:45 on transfer and 2ndDCC § 4:46 on acquisition of ownership in money and securities). As to the First Draft’s reform driven approach, this introduces corrections concerning the rules on good faith acquisition (1stDCC § 4:47). First of all, the wording of the First Draft states explicitly that the rules apply to movables. Secondly, the differentiation between the requirements in trade and outside of trade is no longer made: the rationale behind this being the difficulty of interpretation of such a notion and its reasonableness. Another point is the requirement that the thing has been entrusted by the owner to another, a circumstance that is difficule for a potential buyer to ascertain. The explanation also highlights the general policy consideration for good faith acquisition, explaining that the conflict of interests will ordinarily be decided against the original owner: the owner is in the most favourable position as regards the thing, and as such he may take any appropriate measures in order to ensure the thing is not dealt with in a manner against his intention.493 The complex reform exercise also requires the redefinition of the content of good faith: good faith is tested in a manner that is both subjective and objective criteria, meaning that the acquirer is in good faith if he did not know or, according to the circumstances of the case, had no reason to suspect a lack of authority (i.e. not being the owner) of the transferor.494 The regulatory concept maintains the special treatment of money and securities in documentary form; nevertheless the 492 493

MENYHÁRD: Property Law, p 303. First Draft – Property Law, p 91.

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620

scope is not restricted – as compared to the HCC – to bearer instruments (1stDCC § 4:48). 494

12.2.2. Academic Proposal The Academic Proposal is also reforming in nature, but nonetheless the concept is further simplified as compared to the First Draft (AcadPROP § 4:47 on the acquisition ownership from a non-owner, with the rule in subsection (1) being supplemented by the exception of objects being lost by the owner as a direct consequence of a criminal offence). Within the concept, subsection (2) is designed to regulate the situation of the rights of third persons. Another difference as compared to the First Draft that should be highlighted is the abolition of the option to re-purchase the object provided to the original owner and the person entitled by an encumbrance as against the original owner (1stDCC § 4:47 (3)). The similarity of the concept to that in the German Civil Code (BGB), and the consequent departing from the Austrian Civil Code (ABGB) (which served as the model for the regulation initially) is worth highlighting.

12.2.3. Legislative Proposal The Legislative Proposal maintains the current regulation in the HCC, specifying that the scope of the rule is restricted to movables.495 Systematically, the regulation proposed on acquisition by way of transfer starts from the principle of nemo plus iuris (Legislative Proposal § 4:46), followed by the rules on acquisition from a non-owner which constitute the exception (Legislative Proposal § 4:47)496 and the rules relating to transfer (Legislative Proposal § 4:48, special rules on transfer of ownership in securities are provided in Legislative Proposal §§ 4:49-4:50, see in detail on the transfer of dematerialised and registered securities 5.9.4.(b) above). Beside the rules on acquisition of ownership from a non-owner (an instance of breaking through the principle of nemo plus iuris) the acquisition of ownership in money and securities is a separate category (Legislative Proposal § 4:51) due to the replaceable character and particular function in course of business of these items. With regard to securities, the scope is not restricted to bearer instruments. Nonetheless, there is a prerequisite that the security must be transferred according to the rules defined by specifically applicable law.497 494 495 496

First Draft – Property Law, p 92 Legislative Proposal – Explanatory Statement – § 4:47, p 773. Legislative Proposal – Explanatory Statement – § 4:47, p 774.

12. Acquisition from a non-owner (good faith acquisition)

621

12.3.497 Acquisition of ownership on grounds of public authority decision or auction organised by a (public) authority Hungarian theory treats this instance as orginial acquisition of ownership.498

12.3.1. The regulatory regime in the HCC According to HCC § 120 (1) a person in good faith acquires ownership in a movable on the basis of public authority decision or public auction. Good faith here means that the acquirer is not aware about the illegal character of the public authority decision or of the auction organised by a (public) authority, if relevant. The acquirer’s awarness about the illegal character is particularly concerned with facts related to the ownership of the thing, for example the thing auctioned is not the property of the person against whom the enforcement was directed.499 An important condition – from the point of view of legitimacy – is the public authority’s competence to dispose over the ownership right and, in the case of an auction, the auction has to be one organised by the state in order to fall within the scope of the rule (public authority auction, or foreclosure sale – enforcement auction). The right of ownership (title) will pass at the point the decision or auction sale becomes legally binding, subsequently delivery, as an aspect of the modus, is not required. Ownership is acquired in an original, i.e. non-derivative, manner, which means that a new ownership right comes into existence without reference to the previous right of ownership, free of any encumbrance.500 As such, rights of third persons will cease to exist. The acquisition of ownership by the auction buyer in a foreclosure sale, of course, does not exclude the former owner’s entitlements to claim compensation through the law of obligations, if the requirements for non-contractual liability arising out of damage caused to another are fulfilled. There is an exception to this rule (HCC § 120 (2)): where the state acquires ownership of a thing by way of a court or public authority decision without paying compensation for the thing, the state will be liable to the extent of the value of the thing for claims of third persons in good faith, but only if the previous owner has no other seizable property; the state’s liability here is a limited one (pro viribus – i.e. the state’s liability does not go beyond the value of the object). It is irrelevant whether the claim is due at the moment of acquisition or only becomes due later on. 497 498 499 500

Legislative Proposal – Explanatory Statement – § 4:51, p 781. MENYHÁRD: Property Law, pp 231-232. PETRIK, in: Commentary, p 451. LENKOVICS: Property Law, p 124.

Hungary

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12.3.2. Progressing towards the new Civil Code (a)

First Draft, Second Draft and Academic Proposal

The Drafts maintain the current general rule in the HCC on acquisition of ownership on grounds of public authority decision and auction organised by a public authority. There has been no introduction of a requirement that the acquisition must be for value. The Drafts introduce some new provisions with regard to this instance of acquisition of ownership and clarify the consequences that apply from the acquisition of ownership and rights of third persons in the thing subject to acquisition. The importance of the aspect of modus implying the independent real agreement is emphasised by the provision on passing of risk and lapse of third persons’ rights encumbering the movable (1stDCC § 4:50): the point in time when ownership (title) passes is that of the transfer of possession, no matter whether it lies on public authority decision or court decision. The rule only has general character, meaning a public authority decision or the appropriate legislative provision applicable to auctions may dispose differently.501 Regarding the transfer of ownership as “two-stages” of the transaction, the titulus – first aspect – in this case is the decision of the public authority or the successful bid of the buyer. Sub-section (2) is to be interpreted as a special provision – for clarification purposes – as compared to the general rule 1stDCC § 4:49 and 2ndDCC § 4:47 (identical to the current regulation provided in HCC § 120 (1)). The 2ndDCC § 4:48 follows in this respect a different approach, where the transfer of possession plays no role: according to sub-section (1) the point in time when the right of ownership in a movable is acquired by the purchaser on grounds of public authority decision is the point in time defined in the decision, while in the case of a court decision, pursuant to sub-section (2), the decisive point in time will be the payment of the purchase price. The acquirer must be in good faith also as to what third party rights encumber the object (1stDCC § 4:50 (2), identical 2ndDCC § 4:48 (3)), meaning that if he knows, or ought to have known, about these rights the “original” acquisition is excluded (a situation that should be compared to acquisitive prescription in the Drafts, discussed 13.2. above). The special provision on the acquisition of ownership by the state without paying compensation (as in HCC § 120 (2)) is maintained (1stDCC § 4:51, identical 2ndDCC § 4:49). The regulation contained in the Academic Proposal (AcadPROP §§ 4:49-4:51) is identical to the First Draft.

501

First Draft – Property Law, p 95.

13. Acquisitive prescription (elbirtoklás)

(b)

623

Legislative Proposal

In this field, the Legislative Proposal is identical to the Second Draft, with the concept placing no importance on the transfer of possession (real agreement) (Legislative Proposal §§ 4:52-4:54).502

13.

Acquisitive prescription (elbirtoklás)

The Hungarian term elbirtoklás is more accurately translated into English as “adverse possession” rather than “acquisitive prescription”, but subject to that caveat the term acquisitive prescription is used to represent the process by which possession of the required character for the required time is converted into ownership. Notwithstanding this point of terminology, prior to the entering into force of the Civil Code the old Hungarian private law was also familiar with the term acquisitive prescription (jogszerző elévülés).503

13.1.

The current regulation in the HCC

13.1.1. Acquisitive prescription – main rule Acquisitive prescription may be interpreted as an exception to the principle that property law claims are not subject to prescription (HCC § 115 (1)). The main policy consideration behind the institution of acquisitive prescription is the requirement of legal certainty: it is not in the interests of the legal order to disturb any position which has proved stable and peaceful, and as such by acquisitive prescription possession as a factual position transforms into a stable legal position (ownership) (HCC § 121 (1)). Acquisitive prescription invokes two correlative effects: on behalf of the possessor the acquisition of ownership; and on behalf of the owner the termination of the right of ownership. These two effects operate independently from each-other. Conclusively, by acquisitive prescription a new right of ownership will come into existence,504 entirely independent of the previous right of ownership. Neither the possessor’s good faith nor the legitimacy of his possession is a requirement. Any thing (movable or immovable) may be the subject of acquisitive prescription. There may be restrictions concerning the circumstances under which the movable has 502 503 504

Legislative Proposal – Explanatory Statement – § 4:52, § 4:53, § 4:54, pp 781-783. See KOLOSVÁRY: The Right of Ownership, p 248. This is the prevailing view, see PETRIK, in: Commentary, p 466.

Hungary

624

been acquired. These restrictions are set out in the appropriate provision (HCC § 121 (2)): the person who acquires possession by criminal act or in another violent or fraudulent way may not acquire ownership by acquisitive prescription. The policy behind this exception is that neutrality towards these circumstances could serve as a motivation to acquire through these unsavoury means. Nevertheless, this will not exclude acquisition of ownership by acquisitive prescription of such a rogue’s legal successor if the conditions are otherwise fulfilled. At this point it may be noticed, that to draw the borderline between treacherous behaviour and bad faith is not an easy task.505 Since acquisitive prescription leads to acquisition of ownership ex lege with regard to immovables, the effect of acquisitive prescription is that the legal position now mirrors the factual position: the possessor acquires ownership by acquisitive prescription automatically by operation of law. This may be considered in contrast to the constitutive character of registration in the land registry in the case of acquisition of ownership by transfer (HCC § 117 (3)). General requirements of acquisitive prescription are: – the period of time required has passed (in case of movables ten years), and – possession of the thing as owner (or, in other words, there must be adverse possession). Period of time: the period of time in order to effect acquisition by acquisitive prescription is ten years in the case of movables, to be calculated from the moment of acquisition of possession. Possession as owner: acquisitive prescription becomes effective only if the possessor possessed the thing as if it was his own, meaning that he acted as if he was the owner of the thing. A person is not excluded from possessing a thing as owner by his awareness that the movable is owned by another. Possession as owner is an objective realisation, consisting e.g. in his actions before a public authority, declarations made in front of other persons, behaviour before or towards such persons, bearing any taxes or duties that relate to the thing, etc. Legal persons may also possess as owner.

505

LENKOVICS: Property Law, p 125.

13. Acquisition prescripton (elbirtoklás)

625

Any person – whether natural or legal – having legal capacity may acquire ownership by way of acquisitive prescription, and conversely acquisitive prescription may be effective against legal persons (the state may qualify legal person in this respect).506 While the possessor may be aware that the thing possessed belongs to another person, the decisive factor is how he regards his possession.507 As to how this operates in practice, the consideration of the definitive nature of possession is in fact a similar expectation to that of good faith.508

13.1.2. Succession in acquisitive prescription (considering the time lapsed in the possession of the preceding possessor) In the calculation for length of possession, the possessor may include his predecessor’s period of possession (assuming of course that this predecessor did not acquire ownership, meaning that for movables such a period will be less than ten years). Another prerequisite for the acquisition of ownership by acquisitive prescription is that the period of possession must be one continuous (HCC § 122). The legal successor is considered the person who is the successor in possession, being the person to whom the previous possessor transferred possession such as by way of succession, whether universal or partial, by legal succession in the case of legal persons, etc. Generally, the legal precedessor may be regarded as any person who could have transferred ownership (or, more accurately in this context, possession as owner) to the successor. This rule will imply that if the movable has been transferred and the transaction directed to transfer fails for some reason and the transferor reacquires possession in the movable, the time of possession prior to the failed transfer shall be included when calculating the period of adverse possession. As noted, according to CSS no. 6 the legal successor may only add in to his calculation the period which could be considered possession as owner by his legal predecessor if the predecessor did not acquire ownership. In this situation, the possessor only has possession which must be calculate from the point when he acquired possession, i.e. no reference can be made to the possession of the legal predecessor as that stemmed from the predecessor’s ownership.509

506

507 508 509

It has been possible to acquire ownership in things that are state property through adverse possession since the amendment of the HCC in 1991; LENKOVICS: Property Law, pp 127-128. PETRIK, in: Commentary, p 467. MENYHÁRD: Property Law, p 243. MENYHÁRD: Property Law, p 243.

Hungary

626

13.1.3. Suspension of adverse possession Under HCC § 123 adverse possession, i.e. possession as owner, is potentially suspended if the owner is not able to exercise his entitlements deriving from the right of ownership for an excusable reason. As a result of such suspension, the legal consequences of acquisitive prescription (the annulment and, in correlation, the establishment of the right of ownership) will not become effective until one year has passed from the point in time the legitimate impediment ceases to exist, even if the period necessary for acquisition of ownership by acquisitive prescription was, at the point when the impediment began, shorter than one year. In practical terms, this rule will only come into play if the suspension begins after nine years’ of possession as owner (as an impediment beginning in year five but ceasing to exist in year six will have no effect on the operation of acquisitive prescription after ten years). The idea behind the rule is that there should always be at least one year for an owner to combat the potential loss of ownership. A hypothetical consequence may be that the acquisition of ownership could only become effective after eleven years, in this respect extending the period of adverse possession. Since the policy behind acquisitive prescription is that an owner who does not exercise his right for a long period of time is not considered to merit legal protection, the suspension is regarded as exception from this insofar as it is motivated by an objectively assessed hindrance affecting the ability of the owner to exercise his right of ownership.510 A typical example for suspension is a person who needs to have a legal representative due to a loss of capacity, until the point in time when a legal representative is appointed.511

13.1.4. Instances of suspension when dealing with certain conflicts of interest According to KOLOSVÁRY (with regard to the old Hungarian private law) the period of adverse possession is suspended (and therefore the acquisition of ownership by acquisitive prescription is excluded) for relationships between spouses, parents and children and between persons living in and jointly managing the same household.512 Acquisitive prescription in these cases is usually suspended due to community of property (in the case of marriage – Family Law Code § 27 on the imprescriptability of claims on grounds of marital community of property, with similar rules applying to persons 510 511 512

MENYHÁRD: Property Law, p 246. SÁRKÖZY, in: Commentary for the Practice – Vol. II, p 276. KOLOSVÁRY: The Right of Ownership, p 250.

13. Acquisition prescripton (elbirtoklás)

627

living in the same household pursuant to HCC § 578 / G).513 After termination of the community of property relationship, acquisition of ownership by acquisitive prescription is possible according to the general rules. Special attention is paid thereby to the requirement of possession as owner, focussing on the particular personal relationship implied in the circumstances, especially in relation to the legal title of possession. Another particular instance which requires special consideration in the context of adverse possession as between co-owners of the stake in ownership of another (for example see BH2000 / 245 as referred at 13.1.6. on acquisition of a share of ownership by acquisitive prescription – below). As regards the parent-child relationship, after termination of the joint household (i.e. when certain children reach an age at which they can leave home), the acquisition of ownership by acquisitive prescription by the children (who make use of the immovable which is owned by the parents or other legal guardians) is excluded, because requirement of possession as owner cannot be fulfilled: the children have only been allowed to use the immovable on the grounds of the parents consent (gratuitous use), constituting a legal title (BH1993 / 671). In a case relating to co-ownership following the termination of a marriage and the operation of acquisitive prescription to acquire a stake in ownership, the unawarness of a co-owner of his right of ownership cannot be considered a hindrance for executing his right of ownership and as such is not a ground for suspension; it is clear that the acquisition of ownership by acquisitive prescription of a stake of an ex-spouse is effective (BH1988 / 76).

The period of adverse possession is also suspended where the possessor becomes legal representative (tutor, curator) of the owner until the point in time this relationship between them ceases.514

513

514

See BH2003 / 277 on the priority of application of the provision HCC § 578 / G in in competition with the property law rules on extension and alteration of an existing building using of materials not owned by such building’s owner (HCC § 137 (3)). See BH1998 / 588 on the general requirement that establishes community of property, being: persons living in the same household who act towards the same common objective(s), and they have, at least tacitly, agreed that assets acquired in this way should become owned in common (but note reciprocal gratuitous assistance within the scope of everyday life on grounds of a close relationship does not fall under the scope of application of HCC § 578 / G). KOLOSVÁRY: The Right of Ownership, p 250.

Hungary

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13.1.5. Interruption of adverse possession Continuous possession is one of the prerequisites for the operation of acquisitive prescription, with situations for when interruption takes place being detailed in HCC § 124. Continuous possession is interrupted if the owner requests the return of the movable from the possessor to him in written form or files a claim in court for this purpose.515 Negotiations between the possessor and the owner, being a clear manifestationn of the owner’s intention to get his movable back, also constitute an instance of interruption. Other instances of interruption are events when the owner deals with the movable, including sale, renting, encumbering, etc. (the right of disposition in the sense of HCC § 112). Finally, adverse possession is interrupted if the possessor unintentionally loses possession of the movable and fails to reacquire it within one year or fails to make a request for restitution to court (on grounds of protection of possession, see 2.3. on protection of possession – above). At this point the interruption is strongly connected to the requirement of continuity, but it should be noted that the continuousness, will not be interrupted by the loss of possession as such.516 As a consequence of the interruption the period of adverse possession that has already passed can no longer be taken into consideration; the period by which the acquisition of ownership by acquisitive prescription results is restarted.

13.1.6. Acquisition of a share of ownership by acquisitive prescription Difficulties arise where a co-owner, or indeed co-owners, abstain making use of the benefits of the right of ownership. An agreement between coowners concerning the use of a share in ownership may come into existence expressly or by concludent factum, which constitutes a legal act and thus the acquisition of ownership by acquisitive prescription is excluded in this case. Case law does recognise the possibility of acquiring ownership from a co-owner by acquisitive prescription from a co-owner, but it does so by setting up more severe conditions than would be applicable to constitute possession as owner of an entire thing, in accordance with HCC § 140 (1) and CSS no. 4. Following the aforementioned sources, any use which exceeds the limits of the user’s own undivided (pro indiviso) share in ownership will not lead to acquisition of ownership by acquisitive 515

516

According to the prevailing view, requesting possession protection from the town clerk (public administration channel) is also included in this sense – see SÁRKÖZY, in: Commentary for the Practice – Vol. II, p 277. MENYHÁRD: Property Law, p 246.

13. Acquisition prescripton (elbirtoklás)

629

prescription (BH1996 / 142), and additionally, regarding the element of possession as owner, case law also focusses on the subjective state of mind as to the definitiveness of his possession even though his possession cannot not be interrupted by the other co-owner(s) or otherwise (BH2000 / 245). The approach by which acquisition of a share of ownership by acquisitive prescription is only possible by other co-owners is criticised in literature, for this restriction leads to inappropriate results and excludes, for instance, the acquisition by a third party possessor who has purchased his stake of ownership on the grounds of an invalid contract.517

13.1.7. Legal consequences of acquisitive prescription As acquistion of ownership by acquisitive prescription is a form of original acquisition, any pre-existing rights and encumbrances in the movable will cease to exist. Any persons entitled by any such right or encumbrance may not derive entitlements from the new owner or from his legal predecessor. This approach could be criticised because of the the general applicability of the consequences; it is arguably appropriate to restrict the consequence to those rights and encumbrances of which the acquirer was not aware or, to put this another way, concerning circumstance where he was in good faith.518

13.1.8. Situation of the (previous) owner By acquisitive prescription the previous right of ownership terminates ex lege, which results in the loss of ownership in a (potentially valuable) thing by the previous owner. It is difficult to envisage a situation where the owner may claim damages for the loss of his right of ownership, i.e. on grounds of unjustified enrichment, as the usual term of prescription of claims under the law of obligations claims is shorter than the period needed for acquisition of ownership of a movable by acquisitive prescription, the periods being five years and ten years respectively. Theoretically it may appear imaginable for the previous owner to make a claim for the owner’s enrichment in a situation where the prescription of the personal right has been interrupted repeteadly (e.g. the owner has unsuccessfully requested possession protection from the town clerk on a number of occasions) where the claim is still exercisable even after acquisition of ownership by acquisitive prescription takes place. Claiming damages in a case where the movable has been out of the original owner’s possession for longer than five years without any interruption (i.e. 517 518

MENYHÁRD: Property Law, pp 244-245. MENYHÁRD: Property Law, p 250.

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longer than the period of prescription for a personal right) could only realistically be possible in three party constellations, where one such party has been engaged in some kind of wrongful conduct. This is because non-contractual liability requires a wrongful act or omission attributable to the tortfeasor (wrongdoer), which cannot be reconciled with the requirement of possession as owner that is a prerequisite for acquisitive prescription.

13.2.

Progressing towards the new Civil Code

13.2.1. First Draft, Second Draft, Academic Proposal (a)

General on the concept

The two Drafts differ with regard to the policy on the period in time needed for acquisitive prescription to take effect: the First Draft keeps the current regime, whereas the Second Draft applies a uniform regime to both movables and immovables, the uniform period being ten years (1stDCC § 4:56, identical with 2ndDCC § 4:51). Any other changes in the two Drafts are largely clarifications rather than of technical character. The most significant change is the introduction of provisions on the position and effects of third persons’ rights (encumbrances) with regard to the acquisition of ownership by acquisitive prescription. A further three changes of a technical character are: the explicit provision on the acquisition of ownership by acquisitive prescription of an undivided (pro indiviso) share of ownership (1stDCC § 4:59 (3), identical 2ndDCC § 4:54 (3)); succession to adverse possession (1stDCC § 4:58, identical 2ndDCC § 4:53 (but with a slight supplement, in the form of a sequence of rather technical character); and the introduction of so-called acquisitive prescription on basis of title (1stDCC § 4:57, identical in 2ndDCC § 4:52, however, the condition is supplemented with the need to fulfil the connected payments due to the state – see below). For clarification purposes, the Drafts introduce an explicit provision which states that the existence of a prohibition of alienation or encumbrance will not affect acquisitive prescription (1stDCC § 4:62 (1), identical 2ndDCC § 4:57 (1)). The objective of this clarification is to state clearly the original character of the acquisition effected by acquisitive prescription and that the ownership right is acquired free of encumbrance.519 The Drafts move against the principle of original acquisition of ownership as far as movable property is concerned: third persons’ rights cease to exist when the (previous) ownership right ceases to exist only if the possessor was not aware of them and, if so, such rights were not of a sort 519

MENYHÁRD: Remarks and Proposals, p 18.

13. Acquisition prescripton (elbirtoklás)

631

he ought to have been aware of. Essentially, the person seeking to benefit from acquisitive prescription has to be in good faith about these rights (1stDCC § 4:62 (2), identical 2ndDCC § 4:57 (2)) By this way good faith is introduced to acquisitive prescription, the policy consideration behind this being a third person’s neutral position to the course of acquisitive prescription; unlike the owner, he cannot act against acquisitive prescription, his interests focus on the restricted property right to which he is entitled. The Drafts spell out explicitly that a share in ownership may also be the subject of acquisitive prescription pursuant to the general rules, meaning that third persons – i.e. those other than the co-owners within the scope of their internal relationship – may acquire ownership by acquisitive prescription (1stDCC 4:59 (3), identical 2ndDCC § 4:54 (3)). The Academic Proposal is identical to the First Draft in the field of acquisitive prescription (AcadPROP §§ 4:56-4:62).520

(b)

Special instance of acquisitive prescription

Beside the main rule on acquisitive prescription, the special instance of adverse possession on the basis of a registered title is introduced (1stDCC § 4:57, identical 2ndDCC § 4:52, AcadPROP § 4:57). Although the black letter text does not spell it out explicitly, the scope of application of the provision is limited to immovables. The policy consideration behind this category is to provide a kind of remedy in cases where there is a valid titulus, i.e. a contract for sale of an immovable, but the transfer of ownership – i.e. the entering into the land registry – is not possible because of a formal default of the contract. In Hungarian land law registration has constitutive effect521 (i.e. it effects the transfer of ownership, meaning the traditio element within the modus) but in addition requires a so-called explicit permission (unilateral legal act) to replace the former owner in the land registry (clausula intabulandi), which may be in form of a contractual clause. There may be cases where, despite there being a valid titulus (contract), the clausula intabulandi is lacking. If the clausula intabulandi is missing the Land Registry Departement will deny the acquirer’s request to enter the change in status into the register. The new provision should serve as a remedy to this situation and lead to a clarification and solution concerning the status of ownership. 520 521

MENYHÁRD, in: Expert Proposal, pp 632-636. There are two exceptions where the acquisition of ownership in an immovable is not based onregistration, in these situations any amendment to the land registy is a situation where the land registry is brought into alignment with reality. These situations are: acquisition by succession – the ownership passes ex lege and ipso facto; and acquisition by acquisitive prescription.

Hungary

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13.2.2. Legislative Proposal The Legislative Proposal is largely identical to the Drafts and the Academic Proposal, precisely according with the First Draft. It applies a differentiated treatment with regard to the period effecting acquisition of ownership by acquisitive prescription in movables and immovables (Legislative Proposal §§ 4:56-4:62).522

13.3.

Prescription of the right of ownership and other property rights

One may only speak of the imprescriptability of the right ot ownership while ownership enforceable (i.e. the thing that is subject to the right of ownership exists). As soon as523 the right of ownership becomes unenforceable, the ownership claim will be transformed into an personal claim subject to the general rules of prescription (BH1980 / 479).524 The resulting personal right may be founded on the grounds of non-contractual liability arising out of damage caused another or unjustified enrichment. Claims on arising under these regimes become due when they come into existence.525 The prescription period of the claim arising under the law of obligations runs from the moment the owner becomes aware of the impossibility of handing over the object concerned in natura (BH1986 / 284).

13.3.1. General As a general principle prescription of ownership is excluded by law (HCC § 115 (1)). It should be noticed that it is not the ownership right per se that is referred to, but rather the claims related thereto. However, the policy behind the rule should be examined in accordance with the rules on acquisitive prescription: if the owner does not exercise the entitlements deriving from the ownership right while these entitlements are exercised by another person, such other person may acquire ownership by way of acquisitive prescription and any legal uncertainty will cease to exist. Entitlements relating 522 523

524 525

Legislative Proposal – Explanatory Statement – §§ 4:56-4:62, pp 784-789. As the term of prescription runs from this moment on, the claim becomes due according to HCC § 326 (1). Being 5 years – HCC § 324 (1). HCC § 360 (1) and CSS no 51 concern claims under non-contractual liability arising out of damage caused to another; HCC § 364 concerns claims under unjustified enrichment.

13. Acquisition prescripton (elbirtoklás)

633

to ownership include any claim defined in HCC § 115 (2)-(3), effectively being the per se ownership action (rei vindicatio) and the action directed to possession protection (HCC § 188), together with any other claim directed to ownership protection, being claims connected to ex lege options of change in ownership related to real property due to incorporation of foreign materials (movables) into a piece of land (see 11.3.1.), construction on piece of land owned by another (see 11.3.2.), extension or alteration of an exisiting building (in separate ownership) by use of own materials (movables) (see 11.3.3.) and co-ownership (see 17.).526 The situation is slightly different where there has been construction beyond the limits of an individual’s own premises (HCC §§ 109-111 – within the context of neighbour law); the HCC does not provide ex lege options of change in ownership as a consequence of this occurrences (only options for settlement between the parties are provided), meaning the issue of ownership is not addressed directly. The protection of other proprietary rights like usufruct, beneficial use, servitude, etc., as well as most of the claims under the law of succession (except those under the law of obligations) and the claim on grounds of ownership acquired by acquisitive prescription are classed as ownership claims in the sense of HCC § 115 (1).527

13.3.2. Marital property, life partnership and persons living in the same household Claims related to marital property are classed as ownership claims, where the persons entitled to these claims are the spouses. These claims do not cease to exist even where they have not been enforced against the other spouse after the termination of the cohabitation under marriage. Thus even after the death of the spouse claims are enforceable against the heirs, though the proportional stake in marital property and any non-community property does not constitute part of the legacy assets of the deceased spouse. Patrimonial relationships where persons live in the same household are regulated by the HCC as a form of companionship (HCC § 578 / G): life companions acquire co-ownership of property in a manner proportionate to their respective contributions to acquisitions made in the course of cohabitation (or, if the contribution cannot be ascertained, the law establishes a presumption of equal proportion); work done to the household will be classed as a contribution (HCC § 578 / G (1)). The rule should also be applied for the patrimonial relations of other dependants living in the same 526 527

BENEDEK, in: Commentary, p 1155. KAZAY, in: Commentary for the Practice Vol. II, pp 535-536.

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household (HCC § 578 / G (2)). Thus, cohabitation and joint economic management is recognised by law (in the establishment of co-ownership).528

13.3.3. The situation in the case of irregular deposit (replaceable goods) Generic (replaceable) goods form the subject matter of irregular deposit. With irregular deposit the depositary acquires ownership in the goods deposited, while the depositor obtains a personal right against the depositary under the deposit contract. His property position is thus transformed into a contractual position, which is subject to the general rules of prescription (see 13.3. on prescription of the right of ownership – supra).529

13.3.4. Progressing towards the new Civil Code (a)

First Draft, Second Draft and Academic Proposal

Neither the Drafts nor the Academic Proposal change the current approach. They focus on the right of ownership from the perspective of protection by declaring the right to recovery imprescriptible (1stDCC § 4:42, identical 2ndDCC § 4:40, AcadPROP § 4:42). Of course, the actual corporeal existence of the object and acquisitive prescription may nonetheless set limits on and relativise the imprescriptible character.

(b)

Legislative Proposal

The Legislative Proposal does not change the content of the current approach and declares the recovery claim imprescriptable (Legislative Proposal § 4:46 on the exclusion of prescription of the right of ownership).

528 529

BENEDEK, in: Commentary, p 1155. BENEDEK, in: Commentary, pp 1155-1156.

14. Acquisition of ownership by occupation, finding and separation

14.

Acquisition of ownership by occupation of ownerless things, finding and separation

14.1.

Acqusition of ownership by occupation of ownerless things (gazdátlan dolog elsajátítása)

635

14.1.1. The regulatory regime in the HCC By occupation anybody may acquire ownership in an ownerless thing (HCC § 127), where ownerless means that the thing has never been the property of anybody or the thing has been abandoned by the owner. A thing will only be classed as abandoned if the intention of the owner is directed towards giving up ownership of the thing. Wild animals living outdoors, as well as fish and other useful aquatic animals of running water and lakes cannot be acquired by occupation. According to HCC § 128 (1), unless otherwise provided by statute, these are, as a main rule, owned by the state. Any wild animals dropped or caught in hunting ground become property of the holder of the the hunting licence (HCC § 128 (2)). Fish and other useful aquatic animals fished out become ownership of the holder of the fishing licence (HCC § 128 (3)), unless otherwise provided by statute. On the basis of these rules, ownership in wild animals or fish is acquired by the holder of the respective licence. This means that the holder of the licence may exercise rei vindicatio against the unauthorised hunter or fisher, or if the animal or fish cannot be handed over, he may claim the value on grounds of unjustified enrichment, or compensation on grounds of non contractual liability (with regard to non-contractual liability see EBH 2003 / 848).530 An exception exists in relation to swarms of bees: ownership of bees which have been free for more than two days may be acquired by anybody else by taking possession of the swarm (Introductory Decree I § 22).

14.1.2. Progressing towards the new Civil Code (a)

First Draft, Second Draft and Academic Proposal

The Drafts maintain the current regulation, the changes introduced in the text of articles are largely of a stylistic character (1stDCC § 4:65, identical 2ndDCC § 4:60, AcadPROP § 4:65; but the exception in relation to a swarm of bees being outside for more than two days is dismissed by the Second Draft).

530

MENYHÁRD: Property Law, p 253.

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(b)

Legislative Proposal

The Legislative Proposal follows the concept in the Drafts, mirroring precisely the terminology of the First Draft and Academic Proposal (Legislative Proposal § 4:65 on the acquisition of ownership in ownerless / abandoned things).

14.2.

Finding (találás)

Finding is best approached as a contrast to the occupation of abandoned things. In both abandonment and loss the thing concerned is no longer in the owner’s (or indeed the possessor’s) actual power, but in the case of a thing which has been lost this of power will have been unintentional. As such, the lost thing cannot be the subject of occupation, but if certain conditions are fulfilled finding may also lead to original acquisition of ownership. As a general proposition, the finder does not acquire ownership of a previously lost movable. That said, the law recognises that the failure of the owner (or another entitled person’s) has led to the loss of the movable and works on the assumption that the owner is resigned to its loss and does not wish to take steps to get it back.531 This is why acquisition by finding can occur, provided the process set out below is followed.

14.2.1. The current regulation in the HCC (a)

The main rule

The finder has no obligation to search for the owner, all he must do is respect the instructions set out in the legal provisions (HCC § 129 (1) and Government Decree 18 / 1960532); but if he does in fact know the person that the found movable belongs(the find) to, he is obliged to hand over the find to him. Otherwise the finder is obliged to surrender the find to the mayor’s office and to express whether he would like to become owner of the find or not. The find is kept by the mayor’s office for a period of three months, and if the owner does not contact the mayor’s office in this period the find will be handed over to the finder if this was the finder’s wish. The 531 532

First Draft – Property Law, p 111. 18 / 1960 (IV. 13.) Kormányrendelet a talált dolgok tekintetében követendő eljárásról [Government Decree 18 of 1960 (13 April) on the Procedure to be Followed in the Case of Found Movables].

14. Acquisition of ownership by occupation, finding and separation

637

finder may acquire the ownership of the find a year after the date of finding, unless in the meantime the owner shows up and demands the return of the thing. During this conditional period the owner is entitled to use the find (provided he does not damage or otherwise prejudiceits substance), but he is not entitled to dispose of, encumber or cede the entitlement to use the find.533 Legal literature calls this situation conditional original acquisition of ownership.534 If perfected, the rights of third persons cease to exist by establishment of the new right of ownership. Where the finder fails to fulfil the duties imposed on him by law or the period needed to acquire ownership (title) has not yet passed, the finder is governed by the rules on responsible custody535 (HCC § 196, see 19.2.2. on responsible custody – below). Where the found thing is money (currency), these rules will apply appropriately (BH2003 / 38).536 A different situation arises when a movable is found in places open to the public (premises of public authorities, commercial outlets of enterprises or other buildings, e.g. auditorium in a university) or on a means of public transport (whether local and long distance). Acquisition of ownership by the finder is excluded in such a case, instead the relevant authority or institution may sell the find after keeping it for three months, leaving the owner may with a claim for the delivery of the thing (if applicable) or of the purchase price received within a year (HCC § 129 (2)).537 If the owner does not demand the object within a year and the finder does not acquire ownership of it, the ownership or (in the event of a sale) the purchase price received goes to the state (HCC § 131).

(b)

The finder’s reward

According to HCC § 130, if the thing found is of substantial value and the finder does not acquire the ownership of it, the finder is entitled to a reasonable finder’s reward, provided that he has fulfilled all obligations set out by law for the owner to regain his lost movable. The duty to pay a reasonable reward is interpreted by the legal literature as an indirect way of protection of ownership (in that it encourages people to seek out the owner of a find). Where there is a dispute as to the extent of the finder’s reward, this will be determined by the court.538 533 534 535 536 537 538

PETRIK, in: Commentary, pp 486-488. LENKOVICS: Property Law, p 129. PETRIK, in: Commentary, p 488. MENYHÁRD: Property Law, p 254. LENKOVICS: Property Law, p 129. LENKOVICS: Property Law, p 129.

Hungary

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(c)

Special instance of finding: a thing of high value (treasure)

A thing of high value (treasure) is a special instance of finding. Here the valuable find was previously hidden (perhaps by burying or otherwise concealing the treasure’s location) and the owner of the valuable thing cannot be ascertained. The finder is obliged to deliver such treasure to the state (HCC § 132 (1)). If the state does not accept ownership of the movable, it will become the property of the finder, whereas if the state does accept ownership the finder is entitled to a finder’s reward proportionate to the value of the treasure (HCC § 132 (2)).539 If the find is a museum piece or art relic,540 the state will acquire the ownership of the thing (HCC § 132 (3)), meaning that such a thing will always fall within the category of thing of high value. In contrast to a movable of high value, a museum piece or art relic will always be acquired by the state ex lege and ipso factum.541

14.2.2. Progressing towards the new Civil Code (a)

First Draft, Second Draft and Academic Proposal

As compared to the current regime, the concept in the Drafts and Academic Proposal (1stDCC §§ 4:67-4:77, identical 2ndDCC §§ 4:62-4:72, AcadPROP §§ 4:67-4:77; but compare 2ndDCC § 4:66 which, unlike 1stDCC § 4:71 (2), does not specify the regime applicable for the sale of the find) appears a more complex one, integrating also the rules of procedural character542 to be followed in the case of finding. There are no amendments that affect policy issues. From a systematic point of view, the rights and duties of the person involved, as well as the legal consequences with regard to the right of ownership and encumbrances on the find are presented in a clear manner (see especially 1stDCC §§ 4:70, 4:74 and 4:76, identical 2ndDCC §§ 4:65, 4:69 and 4:71, AcadPROP §§ 4:70, 4:74 and 4:76).

539 540

541 542

LENKOVICS: Property Law, p 130. Museum pieces or art relics fall within the category of cultural goods. § 7 no 4 of the Act on the protection of cultural heritage provides a compact definition on cultural goods, and from this it may be stated that any outstanding and characteristic piece of art or heritage will under this category. According to § 64 d), disputes on the issue of whether an object is characterised as a cultural object or not fall within the competence of National Office of Cultural Heritage (Kulturális Örökségvédelmi Hivatal). PETRIK, in: Commentary, pp 490-492. Currently in the Government Decree no. 18 / 1960 – see the exact reference previous.

14. Acquisition of ownership by occupation, finding and separation

(b)

639

Legislative Proposal

The foundations chosen by the Legislative Proposal differ from the the Drafts (Legislative Proposal §§ 4:47-4:71),543 but the concept is generally identical to the Drafts. In addition to the incorporation of the detailed rules of procedural character, there are substantive changes as compared to the HCC. In contrast to the restriction on acquisition by finding for objects such as museum items and art relics in the HCC, according to Legislative Proposal § 4:67 (2) the finder is entitled to an equitable finder’s reward for any find. A special provision is introduced for people who make a discovery together, as it would lead to an unreasonable result if only the person taking possession of the find is to be regarded as finder. Pursuant to Legislative Proposal § 4:67 (3), any person who discovers the object and attempts to take possession of the find is regarded as a partner in finding.544 The Legislative Proposal also introduces a special provision on found objects that are not viable, i.e. not storable, where the immediate sale proves the only reasonable course of action (e.g. food, farm animals), the price received serves as surrogatum to the claim to surrender held by the owner of the found thing (Legislative Proposal § 4:69 (4)).545

14.3.

Separation (termékek, termények és szaporulat elsajátítása)

14.3.1. The current regulation in the HCC The owner is entitled to use and collect the fruits deriving from the movable. Subsequently, the owner acquires ownership in these by separating, or by separation of the pending fruits, which is characterised as original acquisition. A different situation arises when separating or separation occurs in the context of relationship based on a restricted property right, possession in good faith, or other relationship governed by the law of obligations. Pursuant to the literature, this kind of acquisition is also classed as original acquisition. (Within its regulatory framework, the HCC does not define or apply the categorisation of original or derivative acquisition.) A right of use, including an entitlement to collect fruits, would include usufruct, lease or another contractual agreement. If the person entitled is not in possession of the fruit producing movable, he acquires ownership 543

544 545

Legislative Proposal § 4:67 on the legal effects of finding, § 4:68 on the duties of the finder, § 4:69 on the proceedings of the town clerk, § 4:70 finding in a place open to the public and § 4:71 on treasure. Legislative Proposal – Explanatory Statement – § 4:67, p 793. Legislative Proposal – Explanatory Statement – § 4:69, p 794.

Hungary

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by taking in possession the separated fruits (HCC § 125 (1)).546 It may be that the entitlement to collect the fruits ends before the person who had been so entitled managed to acquire ownership of the fruits. In this case, the person previously entitled may demand the delivery of the products in proportion to his work capped at the extent of his costs not otherwise recoverable (HCC § 125 (2)). (The provision applies to agricultural commodities in the situation when the legal relationship directed to production of crops is terminated prior to the harvest.) One may acquire ownership of fruits deriving from a thing by separating or by collecting fruits already separated (by nature, such as an ripe apple falling from a tree) when there is no legal relationship establishing and entitlement thereto, provided the possessor is in good faith, with this ability to take title continuting until the moment the possessor’s knowledge is tainted (i.e. he is then in bad faith) or a recovery claim is instituted against him (HCC § 125 (3))547 (compare with the regime regulating the owner-possessor-relationship – see 19.2.1. on possession without legal basis).

14.3.2. Progressing towards the new Civil Code (a)

First Draft, Second Draft and Academic Proposal

In general, the Drafts maintain the current regulation as in the HCC. However, in relation to the situation of when the entitlement to collect the fruits ceases to exist before the (formerly) entitled person has had the chance to acquire ownership, the Drafts introduce substantial amendments. The previous approach of in natura compensation is considered inappropriate, owing to the change of circumstances, and as such any dispute should be resolved through the unjustified enrichment regime (1stDCC § 4:63, identical 2ndDCC § 4:58, AcadPROP § 4:63; however 2ndDCC § 4:58 (2) is supplemented by pointing out the provision’s dispositive character, which will apply unless the parties agree otherwise).

(b)

Legislative Proposal

The Legislative Proposal in this field is largely identical to the Drafts, mirroring the Second Draft precisely (Legislative Proposal § 4:63).548

546 547 548

LENKOVICS: Property Law, p 135. LENKOVICS: Property Law, p 135. Legislative Proposal – Explanatory Statement – § 4:63, pp 789-790.

Part IV: Additional issues 15.

Rules on the retention of ownership (tulajdonjog-fenntartás)

15.1.

General

In Hungarian private law a retention of ownership may be applied in connection with a contract for sale at the time it is concluded. Delivery of the thing will not effect the transfer of ownership if the ownership in the thing sold is retained by the seller. A retention of ownership clause is effective if three requirements are fulfilled, as follows: the retention of ownership is agreed at the point in time the contract for sale is concluded; the agreement is in written form; and ownership in the object is retained for no longer than until the point in time the purchase price is paid in full (HCC § 368 (1)). The retention of ownership functions like a suspensive condition on the transfer of ownership, but the effectiveness of the contract for sale – titulus / causa – remains unaffected. Conclusively, the second aspect of the transaction directed to transfer of ownership (the legal effects of delivery) is the subject of a conditio suspensiva. At the point in time when the purchase price agreed is paid in full (or earlier, if a variation on the “full price” retention was used), ownership is transmitted ipso iure to the buyer. The systematic placement of the retention of title concept is within the provisions on the contract for sale as a special contract (a special part of the law of obligations regime). Some remarks (and related arguments) concerning the dogmatic construction of rentention of ownership interacting with the transfer of ownership system: In the context of retention of title, the transfer of ownership consists of two agreements, where the contractual agreement is effective and the effect of the real agreement is the subject of a conditio suspensiva, the condition being fulfilled by the (full) payment of the purchase price. From this aspect, the construction of retention of ownership in Hungarian private law presupposes that the transfer of ownership – as a compound transaction – implies two separate agreements, with the second aspect being classed as necessarily more than a real act.549 549

For a similar conclusion see FABÓK: Retention of ownership and real agreement, p 15.

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15.2.

Legal effects of the retention of ownership

Following the black letter text of the regime, the buyer’s right of disposition will be affected by the establishment of a prohibition of alienation and encumbrance in favour of the seller. Nevertheless, this will not affect the acquisition of ownership by a good faith transferee for value – a donation in this respect may prove ineffective (HCC § 368 (2)). The same principles apply to pledge, where the pledgee in good faith aquires the security right (pledge) regardless of the retention. There is a special provision included on risk: risk passes with the delivery of the thing to the buyer, being a rule designed to overcome the disunity between ownership in a legal sense and ownership in an economic sense.550 It should be noted that the prohibition of alienation and encumbrance imposed on an individual who has never acquired ownership of the thing does, from a dogmatic point of view, appear superfluous and even contradictory; the buyer’s option to dispose of the thing is thus excluded conceptionally. Another point worth noting is that the buyer, even though lacking in title, may insure the thing subject to the retention as he has an insurable interest (EBH2004 / 1122).

15.3.

Progressing towards the new Civil Code

(a)

First Draft and Second Draft

The First Draft and Second Draft provide identical regulatory concepts on the retention of ownership. In addition to some corrections of a linguistic and editorial nature directed to emphasise the consensual character of such a stipulation (i.e. clarifying the retention is not a unilateral act of the seller), the approach in the HCC is maintained (1stDCC § 5:184, identical 2ndDCC § 5:190). No modification of the wording is needed to comply with the EC Directive on late payment 2000 / 35 / EEC. The provision establishing the ex lege prohibition of alienation and encumbrance is considered contradictory and is subsequently not included, while the buyer’s owner-like dispositions are left for the acquisition from a non-owner regime (because the situation concerned does not differ from a situation where a thing is transferred or encumbered by a non-owner; this legislative approach seems dogmatically correct). These rules are considered to provide appropriate protection for third persons’ interests as related to the conclusion of a contract with a non-owner by placing trust in the possessory status that will be apparent. However, concerning the seller’s position, it seems worth considering the 550

ZOLTÁN, in: Commentary, pp 1426-1427.

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need to incorporate a restriction of some sort to reflect that as the economic ownership and legal ownership are separated from each other in the period the retention is effective: the right of disposition – deriving from the right of ownership – remains with the seller and he may abuse this rather formal position (e.g. he may sell or encumber the thing which he has already sold under retention of title).551

(b)

Academic Proposal: retention of ownership concepted as a proprietary security

(i)

General

The Academic Proposal changes the concept substantially, approaching the retention of ownership from a functional perspective. Systematically, the Academic Proposal incorporates the retention of ownership into the area on proprietary securities, being conceptualised as an instance of the establishment of proprietary security (AcadPROP § 4:107 on retention of ownership for security purpose, compare the preceding provision AcadPROP § 4:106 on the transfer of the right of ownership, right, claim for security purposes). Conclusively, the retention of ownership is a property law institution, which is confirmed by the functional position taken by it. (ii)

Functional approach

The functional approach follows the UNCITRAL recommendation providing that the consideration of the purpose of the transaction should be looked at while designing the regulatory framework for that transaction. According to this approach, in the case of retention of ownership – as connected to a contract for sale and financial leasing contract (the lease here having a special financial purchase, discussed below) – the parties must have the same rights and duties as would be the case with a proprietary security. Subsequently, the seller (or, as the case may be, the lessor) may enforce his claim as a person entitled by proprietary security, which he may enforce against third persons (achieving third party effect) only if he entered the retention in the proprietary security registry. The provision on the re-characterisation of the parties’ agreement into a proprietary security agreement (AcadPROP § 4:107 (2)) is strongly connected to the rules on the ranking of proprietary security rights, especially to the rule which provides priority, under certain circumstances, for the unpaid vendor’s claim or for the unpaid lessor’s claim (in case of financial leasing) on grounds of the proprietary security right 551

First Draft – Law of Obligations II, pp 28-29.

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encumbering the object constituting subject of sale or lease. By the purchase or lease the estate of the debtor increases, thus increasing the pool of assets available to other creditors for the satisfaction of claims. As such, this particular rule of priority providing a more favourable position for the claim.552 (iii)

Scope and consequence of re-characterisation

The provision on recharacterisation is only applicable in the case of lease contracts which serve a financial purpose, meaning that the contract is directed to the acquisition of ownership. Subsequently, the provision on re-characterisation does not apply to proper lease agreements, but only to financial lease agreements. For clarification purposes the provision sets up an objective means of distinction: the provision applies inasmuch as the agreement is directed to acquisition of ownership. This may actually imply a number of constructions of leasing (the first being where the lessee acquires the right of ownership at the end of the leasing relationship, the second being where, at the end of the lease, the lessee has a right to acquire it, and also if he uses up (i.e. consumes) the object without having actually acquired ownership in the object formally).553

(c)

Legislative Proposal

The concept in the Legislative Proposal is identical to the regulation in the HCC, with the retention of ownership regulated among the general rules on the sale contract (Legislative Proposal § 5:188). While this may correspond from a substantive point of view, the wording has been amended in order to emphasise – as compared to the HCC – that the retention of ownership is based on the bilateral agreement of the parties and not on the unilateral act of the seller. The Legislative Proposal slightly corrects the prohibition of alienation or encumbrance provision applicable to the purchaser while the retention of ownership is effective, but the correction does not deal with the ineffectiveness of the prohibition as against third persons acquiring in good faith and for value. Such provision is considered to cause discrepancy and in fact to weaken the position of the owner since it recognises that there is the potential for the purchaser to dispose of the object although he is not the owner (Legislative Proposal § 5:188 (2)). The acquisition of ownership by a third person in good faith from a non-owner is entirely left within the competence of property law.554 552 553 554

ISTVÁN GÁRDOS, in: Expert Proposal, p 665. ISTVÁN GÁRDOS, in: Expert Proposal, p 666. Legislative Proposal – Explanatory Statement – § 5:188, pp 1028-1030.

16. Abandonment and destruction

16.

Abandonment and destruction

16.1.

The current regulation in the HCC

645

Ownership ceases to exist where the owner discards the thing with the intention to give up his ownershipof the thing as such (an instance of derelictio). The owner’s entitlement to abandon (derelictio) is listed among the owner’s entitlements deriving from the ownership right (HCC § 112 (1)). The derelictio has absolute effect, meaning that the right of ownership ceases to exist with erga omnes effect – i.e. in relation to everybody – and enables the acquisition of ownership by occupation (taking possession for the first time (or at least the first time since abandonment), being an intentional act). Abandonment is an intentional act and requires full legal capacity. The ownership right also ceases to exist if the movable asset is destroyed.555 Recent theory regards within the systematic of the HCC eight instances of original acquisition, plus the additional instance of good faith acquisition. These are detailed in the introductory paragraph to Part III, being: a public authority decision or auction (HCC § 120); acquisitive prescription (HCC § 121); appropriation of produce and progeny (HCC § 125); appropriation of objects without an owner (HCC § 127); capture of uncontrolled bee swarms (Introductory Decree § 22); acquisition of ownership in game, fish and other useful aquatic animals (HCC § 128); finding (HCC § 129); processing (HCC § 133); and the additional instance of good faith acquisition (HCC § 118).556

16.2.

Progressing towards the new Civil Code

16.2.1. First Draft, Second Draft and Academic Proposal The Drafts and the Academic Proposal maintain the owner’s entitlement to abandon his right of ownership as explicitly listed among the entitlements implied by the right of disposition (1stDCC § 4:37 (1), identical 2ndDCC § 4:35 (1), AcadPROP § 4:37 (1)). There is no option to abandon the right of ownership in immovable property: this is, and remains, excluded (1stDCC § 4:37 (2), identical 2ndDCC § 4:35 (2), AcadPROP § 4:37 (2)).

555

556

LENKOVICS: Property Law, pp 158-159; PETRIK: The Right of Ownership Today, p 42. MENYHÁRD: Property Law, p 232, p 300.

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16.2.2. Legislative Proposal The Legislative Proposal is identical to the Drafts, listing the entitlement to abandon the right of ownership among the entitlements implied by the right of disposition, but there is no option to abandon the right of ownership in immovable property (Legislative Proposal § 4:38 (1)-(2)).

17.

Rules on co-ownership

17.1.

The regulation in the HCC

17.1.1. Definition of co-ownership Hungarian law recognises that more than one person may have the benefit of the right of ownershipin the same thing (HCC § 139 (1)). A share in ownership is a certain proportion focussed on the undivided ownership right in a movable or immovable owned by the co-owner. The share in ownership is to be interpreted in the abstract sense, meaning that the coowners have the same rights and duties deriving from ownership as if there was a single owner: these rights and duties entitle and oblige the co-owners according to their respective shares – abstract proportion – in the ownership right as such. Each co-owner may exercise his rights deriving from the single and unfragmented right of ownership, of which the entire property is subject (condominium pro partibus indivisis). The co-owner’s proportion (share) in the undivided ownership right is determined by: legal act (i.e. an agreement); administrative or court decision; or legal provision. If the certain proportions owned by each of the co-owners cannot be determined, the proportions of the co-owners shall be regarded as equally divided (HCC § 139 (2)). Any co-owner may apply to court to determine the proportion of his share of ownership. Typical instances when co-ownership in movables comes into existence are succession and marital community of property.557

17.1.2. General instances of co-ownership (difference between co-ownership and partnership) As presented above, co-ownership establishes a special community between the owners, which could be regarded the first step towards partnerships, especially as far as certain forms of co-ownership are concerned. The (main) difference between co-ownership and partnership arises in connection with 557

LENKOVICS: Property Law, pp 160-161.

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the issue of representation. In the case of co-ownership the person acting as representative in the name of the “ownership community” as an entity acquires rights and duties for the members, which may be deduced from the rules on representation laid down in connection with “partnership”558 (HCC §§ 568-578 / A), while in the case of a company (e.g. limited liability company or stock-corporation) the representative acting will be attributed to the business as an entity independent from its members.559 Co-ownership may come into existence in two ways: by the agreement of the parties; or by virtue of law. A simple example for the first group is the joint acquisition of ownership by way of transfer, while for the second group the joint acquisition by way of succession, community of property by marriage, life partnership, cohabitation in the same household or the “partnership”560 (on the latter, see above). Immovable property provides the example of the construction partnership (HCC §§ 578 / B-578 / F) and the so-called “condominium owners’ association” – co-ownership of common parts in a block of flats (leaving the individual flats to be owned individually) (HCC § 578 / I, see also Act CXXXIII of 2003 on the Condominium Owner’s Associations561). Other instances that may bring co-ownership into existence include commixture and processing (see 11.2. – above) and integration of movables into an immovable (see 11.3. – above).

17.1.3. Special instances of co-ownership Co-ownership in documents, especially in securities in documentary form, may be a situation faced in day-to-day life. The paper embodying the entitlement is usually in the possession of one person: this person is obliged to appear (where necessary) and deal with the paper security. For example, if there is co-ownership in a stock (a “single” paper security), the share in ownership embodied by the stock in the company will be classed as “one owner”, but as to the internal relationship of the co-owners the general provisions on co-ownership will apply.562

558

559 560 561 562

The rules on “partnership” referred to in the text relate to a form of partnership regulated in the Hungarian Civil Code, in the sense of Gesellschaft des bürgerlichen Rechts (GbR) in the German Civil Code. MENYHÁRD: Property Law, p 367. See footnote 551 for the intended meaning of the term “partnership” in this context. 2003. évi CXXXIII. törvény a társasházakról. LENKOVICS: Property Law, p 175.

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17.1.4. Internal effects of co-ownership Each of the owners is entitled to possess and use the co-owned thing, provided that the possession or use does not violate the rights and legal interest of the other co-owner(s) (HCC § 140 (1)). The entitlement to possess and use is – in principle – undivided, meaning that each of the co-owners is entitled to possess and use the entire property (this legal situation is described in the Commentary as “equivalent and shared decisive exercise of the right”). The co-owners may regulate their internal relations by agreement (e.g. the question of possession, use, exploitation, etc.) explicitly or by implication. An agreement directed to establish the internal relationship constitutes a particular obligation based on the property position (the general rules of the law of obligations will apply) aiming at the peaceful regulation of the co-ownership. Such an agreement does not affect the outward effect of the rights existent by the factum of co-ownership (no third party effect); the result achieved is that the co-owners will exercise their rights according to what they have agreed. Such an agreement cannot be modified by unilateral act, but the court (on request) may have a roled in relation to the principle of clausula rebus sic stantibus (HCC § 241), or if the exercise in the agreed manner would, in a given situation, violate the rights or rightful interests of a co-owner (HCC § 140 (1)). Where the co-owners cannot reach an agreement on possession and use, these issues will be decided by majority vote (HCC § 140 (2)).563 Concerning possession and use, one may distinguish between a decision made individually (being a decision made by any of the co-owners), decisions by majority vote, and decisions by unanimous vote. Every co-owner may decide individually on works necessary in order to keep and preserve the substance of the co-owned thing, but, if possible, the other co-owner(s) should be notified (HCC § 142). Whether the works are to be classed as necessary (i.e. they are arequirement) may be the subject of examination by the court (HCC § 143 (2)).564 If according to the court’s examination the works carried out were not necessary, the co-owner who effected the works is entitled to reimbursement according to the unjustified enrichment regime (HCC § 361). A majority vote decision is required for decisions about possession, use, exploitation and standard expenses. Unanimous decision is required for extraordinary expenses (i.e. improvements that go beyond what is necessary or market practice) (HCC § 144 a)) and when exercising the right of disposition (i.e. any juridical act)565 with regard to the co-owned thing (HCC § 144 b)).566 563 564 565 566

LENKOVICS: Property Law, p 162. PETRIK, in: Commentary, p 516. As defined in HCC § 112. PETRIK, in: Commentary, p 517.

17. Rules on co-ownership

(a)

649

Fruits / benefits of the movable. Costs of maintenance, other expenses and bearing of risk

The co-owners are entitled to the fruits and benefits deriving from the movable according to their respective shares in ownership; fruits or benefits of an indivisible nature will be subject to co-ownership as well. Maintenance and other expenses, as a general rule, are borne in a manner proportional to the shares in ownership. Where repairs are not possible the co-owners bear the risk proportionately to their respective shares of ownership (casum sentit dominus principle) (HCC § 141).567

(b)

Protection of minority interests

The guidelines developed by the Supreme Court in this context have been drafted with the situation of co-ownership of immovables in mind. Nonetheless the provisions shall be regarded to have a general character and apply also to movables. The co-owner(s) in the minority may request reexamination of a decision made by majority vote by the court (HCC § 143 (1)). The court shall have the competence to decide if a majority decision is required by law but no decision can be reached (HCC § 143 (3)). According to CSS no. 7 the court decides in issues of possession, use and exploitation according to the respective shares of the co-owners, their rights and legal interests and on grounds of reasonable economics. The court decides in the same way where the shares in ownership are equal, or there is no majority vote decision for other reasons and one of the co-owners requests the court to make such a decision. Furthermore, CSS no. 8 provides guidelines where the court is called upon to decide on the issues of possession, use and utilisation, allowing the decision to deviate from the proportionality requirement as to the shares in ownership, if equitable, pursuant to the circumstances of the case and the court’s individual social policy considerations. In contrast to the disproportionate distribution of entitlements, the CSS also determines the consequences applicable for compensatory purposes.568

567 568

LENKOVICS: Property Law, p 164. LENKOVICS: Property Law, p 163; PETRIK, in: Commentary, pp 519-523.

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17.1.5. External effects: Rules on transfer of ownership and protection of ownership Each co-owner is entitled to dispose of his share in ownership as he wishes (HCC § 145 (1)), but a right of pre-emption, pre-rent or leasehold the is conferred on the other co-owner(s) by law (HCC § 145 (2)). Where there is a separate right of pre-emption conferred by special legislation, this enjoys priority as compared to the right of pre-emption provided to the other co-owner(s) (HCC § 145 (3)). According to CSS no. 9 the effect of the pre-emption right of the other co-owner(s) is directed against offers made by (external) third persons, meaning that it doesn’t apply in cases where co-owners may reach an agreement with each other. Generally, the coowners are entitled to an equal share of the proceeds of the pre-emption divided among them. Where the offer made concerns the integral share in ownership and one of the co-owners wishes (or indeed several co-owners jointly wish) to make use of the pre-emption right for the the entire thing, he (or they) will be entitled to make the acquisition. If there are different co-owners wishing to make use of their respective rights of pre-emption, the seller will decide autonomously to whom he sells his share in ownership. The pre-emption right by virtue of law trumps a pre-emption right that has been contractually agreed (HCC § 373 (6)). The CSS further states that the co-owner wishing to sell his share in ownership is obliged to notify all other co-owners about the third party’s offer to a complete extent, unless such notification would require exceptional efforts or would cause considerable delay (for example, if where there are a great number of co-owners). In the case of spouses the CSS enables the exercise of the pre-emption right jointly with the non-owning spouse (who, of course, is not entitled to exercise the pre-emption right individually). The notifying co-owner (i.e. the one who is seeking to transfer) must set out a reasonable period of time for the other co-owner(s) to answer.569 From the point of view of formal requirements, in the case of movables the notice may be oral or in written form. Where the co-owner concerned fails to notify the other co-owner(s), the contract concluded with the third party is deemed ineffective in relation to those co-owners who are not notified (relative ineffectiveness); co-owners have a right of pre-emption, meaning that they may request the court establish a contract for sale between themselves and the selling co-owner on the same terms and conditions as the contract concluded with the third party. The pre-emption right arising by operation of law is an entitlement according to the law of obligations, meaning that is also subject to prescription (general term amounting to five years). The right of pre-emption cannot be transferred (unless a legal provision states 569

LENKOVICS: Property Law, pp 167-168.

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otherwise). Nevertheless, it may be transmitted by way of inheritance (succession) jointly with the share in ownership to the heirs.570 The co-owners’ unanimous decision is required in cases which constitute disposition of the integral thing (from the co-owners’ perspective the ownership right is regarded as single) (HCC § 144). The disposition may be directed to transfer ownership, to establish a usufruct, to establish a right of beneficial use, to provide the thing for security purposes or to encumber it in any other way. Should a co-owner refuse to provide the necessary consent, this may be classed as an abuse of right according to HCC § 5 (3) and the court may substitute its judgment for the missing consent, provided the conditions thereto are fulfilled.571 (On the position of co-owners when dealing with issues of ownership or possession protection, see 2.3. on protection of possession – above). With regard to the relationship between the exercising of the right of pre-emption implied by the position as co-owner and the constititutive registration of his right of ownership in land registry (in a case of immovables), his entitlement provided by the right of pre-emption is effective independently of whether his right of ownership has been entered in the registry or not (EBH2002 / 752).

17.1.6. Termination of co-ownership (by way of division in natura or liquidation) The entitlement of any of the co-owners to claim the termination of coownership is considered a basic principle in civil law: any renunciation of this entitlement is deemed null and void according to HCC § 147. Coownership may be terminated according to the co-owners agreement in this issue, but where the co-owners cannot agree unanimously on the manner of termination, co-ownership will be terminated by the court. From a procedural point of view this means that the co-owner wishing to terminate the co-ownership (or a number of co-owners who have reached an agreement) may sue the other co-owners: a termination by the court means that every co-owner has to be involved in the court proceedings. The termination of co-ownership may be realised in three ways: in natura; internal transfer of ownership (meaning the co-owners internal relationship is reorganised); or sale. The court is bound to follow the sequence set out in HCC § 148 (1)(2)), but where mutual agreement of the co-owners on termination can be achieved, the provisions will only be of dispositive character. The first 570 571

ZOLTÁN, in: Commentary, pp 1447-1449. LENKOVICS: Property Law, p 168.

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option is that co-ownership may be terminated (divided) in natura, unless this is not achievable or, if it is achievable, it would result in a noticeable decrease in value or the division would impede the thing’s proper use. Another impediment to division in natura would be a statutory prohibition. The division in natura will be done so as to be proportionate to the respective shares in ownership of the co-owners (HCC § 148 (1)). Termination may also be achieved by transferring ownership in the thing – in whole or in part – to a co-owner (or several co-owners) for value, provided that such termination is reasonable according to the circumstances, and there is a willingness on the part of the co-owner(s) to the acquire ownership (but there is no requirement for an intent to receive in the case of immovables, a transfer can be forced regardless) (HCC § 148 (2)). The co-owner(s) acquiring ownership must pay the purchase price determined by the court. Finally, the court may order the sale of the thing and the division of the purchase price received. If this is done, the co-owners may make use of the right of pre-emption provided by virtue of law (HCC § 148 (3)). The sale is organised according to the rules on enforcement proceedings by way of public authority auction.572 Partial termination (division) of co-ownership is also possible, but the HCC does not expressly legislate for this case. According to the principle of party autonomy the parties may terminate co-ownership by agreement at any time. According to the legal literature, HCC § 147 also implies the entitlement of a co-owner to request partial termination of co-ownership from the court. The court will apply the same guidelines as set out for a case of full termination (HCC § 143 (3)). Partial termination plays more of a role in the case of co-ownership of incorporeal (intangible) assets, than in the case of tangible objects.573 Another apparent requirement is that the time of termination should not be “inappropriate”. The requirement was explicitly recognised by Hungarian private law prior to the enactment of the HCC, where the inappropriate timing served as a defence to the co-owner(s) involved in the court proceedings. An example of an inappropriate time could be in the midst of an economic crisis (e.g. there is no reasonable chance to achieve an appropriate purchase price of the co-owned thing when co-ownership is terminated). Within the systematic of the HCC this kind of problem may be solved by applying the provision concerning “abuse of right” (HCC § 5), where the request of termination at an inappropriate date is regarded as an abuse directed against the rights and legal interests of the other coowner(s).574 It is also possible for co-ownership to be terminated irrespec572 573 574

LENKOVICS: Property Law, p 171. LENKOVICS: Property Law, p 172. LENKOVICS: Property Law, pp 172-173.

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tive of the co-owners’ intention. Such a circumstance is confusion, meaning that the shares of ownership will converge in one party (perhaps as a result of the voluntary acquisitionof the other share(s) in ownership(by sale, barter or gift) or acquisition of the other share(s) by succession, whether legal or on the grounds of inheritance law, etc.). If a co-owner abandons his share of ownership, the remaining share(s) of ownership will be increased in a manner proportionate to those shares. In the event there are two coowners, abandonment by one of them would lead to convergence of all the shares and therefore termination of co-ownership.575

17.2.

Progressing towards the new Civil Code

17.2.1. Frist Draft, Second Draft and Academic Proposal The Drafts and the Academic Proposal (1stDCC §§ 4:86-4:97, 2ndDCC §§ 4:81-4:93, AcadPROP §§ 4:86-4:97) do not change the current regulation on co-ownership, but there are some corrections of a technical (editorial) character introduced in order to achieve a more coherent and transparent regulation framework. The current CSSs in this area have been incorporated where necessary to achieve this end.

(a)

Decision making in relationships implied by co-ownership

The Drafts extend what activities require the unanimous vote of the coowners: assumption of an obligation, including one governed by the law of obligations (i.e. unanimity is not restricted to property (in rem) entitlements such as the hire of the entire object, etc.) will also fall within the scope of this provision (1stDCC § 4:91, identical AcadPROP § 4:91). In this respect the Second Draft follows a slightly different approach, introducing an element of party autonomy as to what needs unanimity (2ndDCC § 4:86 (2)): the requirement of unanimity applies only inasmuch as the parties have not agreed differently, with it being further provided that a statute may dispose for the requirement of a unanimous vote (2ndDCC § 4:86 (3)). The option for judicial review of a decision made by unanimous vote (1stDCC § 4:92 (1)-(3), identical AcadPROP § 4:92 (1)-(3)) is provided, with different provisions according to what issues are at issue: (1) non-conformity with reasonable economics; (2) necessity of a certain works to preserve the substance; and (3) in the event of a lack of decision in issues of possession, use and utilisation. Additionally, the First Draft details what 575

LENKOVICS: Property Law, p 173.

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can be considered by the court while deciding about issues related to the protection of minority interests, i.e. in situations where a decision should be made but no decision is forthcoming (1stDCC § 4:92 (4)). The Second Draft (2ndDCC § 4:87 (1)-(3)) differs slightly inasmuch as it removes the entitlement to request the court to decide on matters where there is no decision; furthermore subsection (3) provides that in business to business relationships the parties may exclude (in writing) the option to request judicial review of decisions made by majority voting.

(b)

The right of pre-emption, pre-rental and pre-beneficial lease

The Drafts integrate in this section the current provisions of CSS no. 9 on the co-owners priority entitlements in the case of disposition by another co-owner (1stDCC § 4:94, identical AcadPROP § 4:94). The Second Draft slightly differs here, by allowing the issue to be governed by the co-owners (2ndDCC § 4:89 (6)). The Drafts abolish the provision which excludes the exercise of the right of pre-emption in the course of the enforcement proceedings, stating that such a restriction contradicts the policy considerations in this field. Therefore the explicit regulation of the co-owners right of pre-emption in the course of the enforcement proceedings seems desirable.576

(c)

Rules on termination of co-ownership

As a control to the right to request the termination of co-ownership declared by 1stDCC § 4:96 (1) (identical 2ndDCC § 4:91 (1), AcadPROP § 4:96 (1)), the First Draft (1stDCC § 4:96 (2), identical AcadPROP § 4:96 (2)) re-introduces an instance of exclusion well known by the pre-HCC law, according to which the court may not dispose for the termination if this would fall at a point in time which is inappropriate. The policy is identical in the Second Draft (2ndDCC § 4:91 (2)), however the wording of the text differs: the termination will not occur if that would significantly damage any of the co-owners’ respective equitable interests. The inclusion of the principle seems desirable in order to cope with potential situations of abuse of right. The wording “inappropriate point in time” provides a suitable special – and more precise – category for the court to deal with the problem. In substance the section incorporates the content of CSS no. 10.577 CSS no.11 is also incorporated in substance, but there are no new policy consid576 577

Civil Law Codification 5 / 2006, p 13. Civil Law Codification 5 / 2006, p 14.

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erations introduced by the Drafts in this section (1stDCC § 4:97, identical AcadPROP § 4:97). The regulation of the same issue in the Second Draft is identical (2ndDCC § 4:92 on the modalities of termination, § 4:93 on the detailed rules on termination), however 2ndDCC § 4:92 subsection (1) declares the priority of party autonomy, and the corresponding subsidiarity of the rules in the Civil Code, in this respect.

17.2.2. Legislative Proposal The Legislative Proposal differs at several points from the Drafts in this field (Legislative Proposal §§ 4:79-4:92), however the concept is mainly identical to the Second Draft.

(a)

Decision making concerning relationships implied by co-ownership

As compared to the Second Draft, which serves as a basis for the text, the Legislative Proposal further specifies and refines the regulation in the area of unanimity: there are strict formal requirements for any agreement (Legislative Proposal § 4:84 (3)) to deviate from the rules on unanimitydetermined by the Civil Code (Legislative Proposal § 4:84 (2)). The rules on judicial review of decisions made by co-owners remain unchanged as compared to the text proposed in the Second Draft (Legislative Proposal § 4:85), including explicit regulation on the issue of petitioning the court in the event of a lack of decision in issues of possession, use and utilization (Legislative Proposal § 4:86).

(b)

Rights of pre-rental, pre-emption and pre-beneficial lease

Except for one issue, the privileges provided for co-owners are regulated in an identical manner to the Second Draft, by incorporating the directives established in CSS no. 9. The Legislative Proposal strengthens a co-owner’s position where there is a conflict with the right of pre-emption provided for another person by special legal provision and, unless otherwise provided by the relevant statute, in this situation to the co-owner’s right of pre-emption is prioritised (Legislative Proposal § 4:88 (5)). In this respect the Legislative Proposal differs from the current regulation (in HCC § 145 (3)), according to which any right of pre-emption provided to another person by special legal provision enjoys priority over the entitlement of a co-owner. Such rights of pre-emption established by special legal provision would include those

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provided for the state for certain elements of cultural heritage declared to be protected, or the rights of local government in relation to immovable property necessary for the realisation of objectives set out in the local construction plan, etc.578 The policy change confirms the strengthening and increased appreciation of the position of private law within the country’s legal system. In contrast to the provision provided in CSS no. 9 – VI, the Legislative Proposal provides the co-owner with the option to exercise the right of pre-emption in the course of judicial enforcement proceedings (Legislative Proposal § 4:88 (6)).579

(c)

Rules on termination of co-ownership

Systematically, the passage regulating the issues related to termination comprises three provisions, as follows: Legislative Proposal § 4:90 on the claim to request the termination of co-ownership; Legislative Proposal § 4:91 on the manners of termination of co-ownership; and Legislative Proposal § 4:92 on the detailed rules on termination of co-ownership. (i)

Claiming the termination of co-ownership as basic entitlement

As a starting point the Legislative Proposal, in an identical manner to the Drafts, declares the basic entitlement of any co-owner to claim the termination of co-ownership b, with any renunciation of this entitlement null and void (Legislative Proposal § 4:90 (1)). Subsection (2) sets limits on this entitlement: if termination would significantly damage the equitable interests of any co-owner, the court shall not order termination (Legislative Proposal § 4:90 (2)). In this respect the Legislative Proposal has incorporated the rule stated by CSS no. 10 – III as a general clause. The definition of the circumstance (on an abstract and normative level) which appears in subsection (2) has to be filled with content by judicial practice, allowing the consideration of the particularities of the certain circumstance of any case.580 (ii)

Governing principles in termination of co-ownership

The Legislative Proposal maintains the current regulation as in the HCC § 148 (1)-(3), with the manner of termination to be applied in the following order of priority: division in natura, internal transfer of share(s) of the co-owned thing; and sale of the co-owned thing (Legislative Proposal 578 579 580

Legislative Proposal – Explanatory Statement – § 4:88, p 804. Legislative Proposal – Explanatory Statement – § 4:88, p 805. Legislative Proposal – Explanatory Statement – § 4:90, p 805.

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657

§ 4:91 (1)-(2)). The order established is compulsory, but the provision as such has dispositive character inasmuch as it only applies if there is no agreement reached by the parties on the termination. In contrast to the current regulation, subsection (3) establishes an exception (identical to the Second Draft): the court may deviate from the order stipulated in subsections (1)-(2) if all the co-owners concerned are business undertakings, but any eventual agreement reached between the parties will also prevail in this case.581 (iii)

Detailed rules on termination of co-ownership

The Legislative Proposal in this section – identical to the Second Draft – incorporates the provisions in CSS no. 10. The rules were designed with immovable property in mind. Among the rules provided in this context, two may play a role in the case of movables. Firstly, when terminating coownership by relinquishing the co-owned object to the other co-owner, the value of the relinquished interest is to be recompensed. In the case of sale by public auction, the court determines a minimum purchase price for the object; the minimum price cannot be modified even in the course of enforcement proceedings (Legislative Proposal § 4:92 (1)).582 Secondly, the restriction stipulated in HCC § 148 (4) is maintained, according to which the court may not apply a manner of termination against which all co-owners protest (Legislative Proposal § 4:92 (5)).583

18.

Rules applying to unspecified goods

18.1.

Transfer of ownership in individualised / specified goods

There are no special provisions on bulk sales in Hungarian private law. With separation from the bulk the separated goods become individualised, meaning that the obligation is “ready” for performance, but as a matter of property law the act of individualisation has no proprietorial effect (see 5.2.1.(a) on obligation defined by genus and quantity – above). Although at this stage there is still no change in ownership, the buyer / creditor (potential owner) may assign his claim (his contractual (personal) entitlement) by way of assignment. By individualisation the risk passes on to the buyer, and subsequently the risk for any case of shrinkage is borne by him.

581 582 583

Legislative Proposal – Explanatory Statement – § 4:91, p 806. Legislative Proposal – Explanatory Statement – § 4:92, p 806. Legislative Proposal – Explanatory Statement – § 4:92, p 807.

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18.2.

Role of specification as related to the floating charge: protection of security interests

The institution of the floating charge is known as a proprietary security sui generis by Hungarian private law, conceived as a sub-category of non-possessory pledge. Problems may arise in relation to the unspecified character of the security, which encumbers goods, rights and claims, the decisive point being the security provider’s right of disposition over these “components” which are subject to constant fluctuation. For ensure the protection of the entitled person’s (creditor) security interest, once his right of satisfaction becomes due, he may individualise and subsequently transform (crystallise) the floating charge into a specified pledge encumbering a specifically determined corporeal object, right or claim. The crystallisation takes place by the creditor’s written statement addressed to the debtor specifying the subjects concerned (HCC § 266 (2)). The option may also exist prior to the right of satisfaction becoming due if there is a decrease in the assets to an extent that endangers the creditor’s security interest (HCC § 266 (4)).584 Assets (incorporeal things) or a certain part of assets may also be subject to a non-possessory pledge, with a claim over a certain part of an asset being able to operate individually from an economical point of view (e.g. unit of a factory, branch of a company) without the requirement to specify the things, rights and claims included. The floating charge comes into existence by entering the security into the proprietary securities registry. The pledge in this case floats over the assets, allowing the assets to remain dynamic and useful to the “pledgor”. The secured creditor may seek satisfaction from the security in two ways: he may seek satisfaction from the assets as a whole or he may transform the floating character of the security into a specified character (establishing a non-possessory pledge on the things specified) by a written statement directed to the debtor; such a change of situation must be entered into the register.585 Concerning the ranking of the security right, the date of registration will be decisive (and not the date of exercise), but this rule of priority may not be used against: a person who acquired a proprietary security right before the thing came into the security assets; a person who has a non-possessory pledge over a thing that does not need to be registered in the non-possessory pledge register (e.g. non-possessory pledge in vessels, see Chapter on Registration below), regardless of when the asset became into the security assets; or a pledge acquired in good faith in the course of business, or a pledge on rights and claims (HCC § 266 (3)). As the very purpose of the security is tied to the economic value of the assets, a decrease in this value to an extent that endangers the 584 585

ZOLTÁN, in: Commentary, p 980. LENKOVICS: Property Law, p 244.

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potential satisfaction of the creditor must be dealt with. In such a situation the person entitled may serve his specification statement before the satisfaction entitlement would ordinarily become due. Furthermore, the security provider is obliged to notify the person entitled about a decrease in value which endangers the interests of the creditor (HCC § 266 (4)). The parties may also agree to confer a right to control the business activity pursued with the assets to the person entitled (HCC § 266 (5)).

19.

Consequences of restitution of the movable to the owner

19.1.

Restitution of the movable with reference to certain constellations

19.1.1. Transfer based on void or avoided contract A transfer based on a void or avoided contract will be treated according to the restitutio in integrum regime586 (HCC § 237 (1)) which leads to the objective restoration of the state which would have existed if the contract itself had never had existed. Here, there is normally no role vindication and the owner-possessor-relationship will not play any role either, the restitution of the movable will take place within the scope of the rules for restitutio in integrum. However, it is theoretically possible that vindication and the owner-possessor-relationship regime may play a part where the person obliged to restore alienates the object concerned after he became aware of the obligation to restore. In this case the contract directed to transfer ownership to a third person will be deemed null and void on the basis of the lack of the right of disposition over the thing on behalf of the transferor at the moment of transfer. This will not exclude the possibility of good faith acquisition by the third party. Subsequently, in addition to the consequences of a successful vindication (HCC § 115 (3)) or judicial protection of possession (HCC § 192) – i.e. the duty to surrender the object – the owner-possessor-relationship regime will apply.

19.1.2. Void or avoided right to use As with any case of invalidity, the pre-existing state will be restored according to the restitutio in integrum regime (HCC § 237 (1)).

586

See for the legal consequences in detail 5.3.2.(c) on the consequences of invalidity.

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19.1.3. Right to use of the movable has ended In a situation where an individual still makes use of a movable after the personal (law of obligations) or property entitlement has ended, such use will occur without a legal basis. Subsequently, the regime on responsible custody (HCC §§ 196-197) in conjunction with the regime on the ownerpossessor-relationship (HCC §§ 193-195) will apply. The duty to surrender imposed on the responsible custodian normally lies on the inter partes relationship between the parties (e.g. mandate contract, deposit, lease, etc.).587

19.1.4. Theft A thief will be classed as an unlawful possessor and the thing stolen is subject to vindication, or protection of possession, and as a consequence the rules of the possession without legal basis regime will apply appropriately. The restriction stipulated in HCC § 193 (2), second sentence will apply, according to which a person who has acquired possession by criminal act may not be entitled to exercise the right of retention while requesting the reimbursement of expenses.

19.1.5. Restitution from a finder The regime on responsible custody (HCC §§ 196-197) will apply in this case588 until the point in time the finder acquires ownership in the find after one year has passed, provided the duties imposed on the finder by law have been complied with (HCC §§ 129-131, see 14.2.1 on the regime on finding above).

19.1.6. Acquisition from a non-owner In this case the regime on possession without legal basis (HCC §§ 193-195) will apply: a possessor acquiring from a non-owner is regarded as an unlawful possessor and subsequently he will be obliged to surrender the movable to the person entitled to possess, who is usually the owner who will exercise his rights through vindication. Concerning the relationship between him and the non-owner, he may demand compensation on grounds of the noncontractual liability arising out of damage caused to another (HCC § 339). 587 588

MENYHÁRD: Property Law, pp 511-512. MENYHÁRD: Property Law, p 256.

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19.1.7. Right to use granted by a person not entitled thereto This case produces the same results as acquisition from a non-owner.

19.1.8. “Garage” cases Where there is a so-called “garage” case (i.e. a thing, invariably a car, has been left with a repairer by the owner to allow repairs to be made), the owner will be entitled to vindicate the car. A lessee or a buyer under a retention of title may be classed as a lawful possessor as well, belonging to the category of sub-possessor, and as such will be entitled to make a claim in the same manner as the owner would. The relationship between the repairer and the owner is governed by the possession without legal basis regime, where the work of the repairer (or at least the materials used, depending on whether the own work output is regarded as an expense) may be treated within the category of expenses. Concerning the relationship between the repairer and the unlawful possessor, the repairer may claim compensation through the law of obligations.

19.2.

The owner-possessor-relationship

19.2.1. Possession without legal basis (HCC §§ 193-195) The purpose of these provisions is to deal with the situation prior to a legal dispute. The possessor, who possesses the thing without having a valid title thereto, is obliged to surrender the thing to the person entitled. As a quid pro quo to the unlawful possessor’s duty to surrender, the unlawful possessor may have two basic entitlements: to claim the reimbursement of expenses incurred in relation to the thing; and to remove any objects installed by him.

(a)

Preliminary remarks: Categories dealt with in this regime

(i)

Expenses

The HCC distinguishes between necessary and useful expenses, where the category of necessary expenses includes costs which serve the maintenance of thing and which the preserve its substance and functionality, provided these are expenses are incurred economically, in the sense that the cost do not exceed the resulting advantage to be expected. Generally, the neces-

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sary costs effected are not directed to change the original state of the thing concerned, they serve to preserve the original state. According to case law, it has been consistently held that necessary expenses may only be reimbursed if the result of the expenditure still persists at the moment the thing is surrendered – i.e. they lead to an economic advantage on behalf of the owner. The category of useful expenses (i.e. improvements) includes those costs addressed to improve the substance and the functionality of the thing, and furthermore to increase the value of the thing. The expenses made constitute an addition to the original state and subsequently also result in additional value.589 The right to removal of things installed through improvement may be exercised provided that the substance of the thing is not damaged. The requirement of not-damaging the substance of the thing has two aspects: firstly the physical status of the thing; and secondly the value of the thing. The physical aspect concerns whether the detachment causes any damage and, if not, whether these changes can be classed as the subject of restoration or not. From the economic aspect, a decisive point may be whether the removal damages the thing to a disproportionate extent. The entitlement to claim reimbursement of expenses may be perceieved as subsidiary to the right of removal, meaning that the unlawful possessor may only claim reimbursement of expenses where he has not exercised his right of removal.590 (ii)

Benefits

“Benefits deriving from the thing” is used as generic term by the HCC to include two sub-categories. The first category includes the products, produce and progeny of a thing (usually natural derivatives), which qualify as an accessory as while they are not separated from the thing (after separation they are classed as an independent thing). The second category includes any other patrimonial advantage deriving from the thing, which may consists in the any payment received in respect of the thing – e.g. rental fee – as consequence of its exploitation, the economic advantage of the thing’s use, the satisfying of a need or a saving made by virtue of the thing. The benefits usually stand in correlation to some work output or expenses, and subsequently the relevant benefits will be determined after off-setting them against such output or expenses.591

589 590 591

PETRIK, in: Commentary, p 695. PETRIK, in: Commentary, p 696. PETRIK, in: Commentary, p 697.

19. Consequences of restitution of the movable to the owner

(iii)

663

Damages

Damages that result from possessing without legal grounds fall into two categorites: firstly, damage incurred by the factum of unlawful possession as such – i.e. as result of the deprivation; and secondly by the act of damaging the property concerned (physical damaging / destruction / deterioration).

(b)

Status of the possessor without legal basis regardless of his status of fide

Connected to the general duty to surrender the thing (HCC § 193 (1)), the possessor without legal basis may withhold the thing until his demands are satisfied (HCC § 193 (2) – first sentence), unless his possession was acquired in an illegal manner (HCC § 193 (2) – second sentence). The possessor without legal basis may claim the reimbursement of his necessary expenses. With the exception of necessary expenses in connection with maintenance, he is entitled to removal (ius tollendi, HCC § 194 (1)) of furnishings and accessories installed by him, but he is obliged to restore the original state of the thing after taking such furnishings and accessories away (HCC § 194 (3)).592

(c)

Status of the possessor without legal basis in good faith

The good faith possessor is entitled to the reimbursement of the useful expenses incurred for the thing, where costs have not been covered by the benefits received from the thing (HCC § 194 (2)), even if these are not classed as an enrichment of the possessor entitled. Regarding benefits deriving from the object, the unlawful possessor is not liable for the benefits obtained for the period prior to legal proceedings being initiated (regardless of whether the protection by channels of public administration – before the town clerk – or judicial protection – before the court – is applicable). Furthermore, if he has acquired the possession non-gratuitously he is not even obliged to surrender any existing benefits (HCC § 195 (1)), though the possessor in good faith acquires ownership in the thing’s benefits by separation (HCC § 125 (3)). However, his status changes from the moment the legal proceedings directed to recovery are initiated and this is communicated to him: the rules of responsible custody (see 19.2.2. on responsible custody – below) will then apply (HCC § 195 (2) – second sentence), according to which he is obliged to surrender all 592

LENKOVICS: Property Law, pp 266-267.

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those benefits which he has collected or to pay the value of the benefits he could have collected, but this may be set off against the expenses incurred. In a situation where he was obviously in bad faith from the moment the legal proceedings directed to recovery were initiated, he will be liable like a possessor in bad faith.593 Concerning damages, the possessor is not liable for the period where possession has not been reclaimed from him. From the moment he became aware of the legal proceedings, he will be liable according to the general rules on non-contractual liability arising out of damage caused to another (HCC §§ 339-344), i.e. if he must act in a manner that can be generally expected in the given situation given. If it is obvious that the possessor was in bad faith, such as from the moment he became aware of the initiation of legal proceedings (i.e. he “must” have had recognised that he has no entitlement to possess the thing), he is liable as possessor in bad faith (HCC § 195 (2)).594

(d)

Status of the possessor without legal basis in bad faith

Concerning expenses the possessor in bad faith may claim reimbursement of his useful expenses according to the rules on unjustified enrichment. Concerning benefits the possessor in bad faith is obliged to surrender the existing benefits and must pay the value of any benefits consumed by him or of those which he failed to collect, and owing to his bad faith the set-off of other claims against this duty is excluded.595 Concerning damages he is liable for all damage that would not have incurred if the thing had been in the possession of the person entitled (HCC § 195 (3)). This establishes a non-fault based liability and as sucheven force majeure, as as external power, may not constitute a ground for exemption from liability. The nonfault based liability regime only applies to physical damage to the property; damage incurred as a result of deprivation of possession will be assessed according to the general rules for non-contractual liability arising out of damage caused to another (fault based).596

593 594 595 596

LENKOVICS: Property Law, p 267. LENKOVICS: Property Law, p 268. PETRIK, in: Commentary, p 698. PETRIK, in: Commentary, p 699.

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19.2.2. Responsible custody Responsible custody (HCC §§ 196-197) is a relatively new institution in Hungarian private law. The institution of responsible custody may be best characterised as a special negotiorum gestio (benevolent intervention in another’s affairs) regime. The policy consideration behind responsible custody is that the basic principle of good morals (HCC § 4 (1)), coupled with the desire to protect ownership, everybody is obliged to protect – as quasibenevolent intervener in another’s affairs – the assets of another person which have come, for whatever reason, under his power. From a functional and systematic point of view, as well as in contrast to the complex notion of possession, the institution is devoted to replace the function of detentio, which was well known by the old Hungarian private law. Responsible custody means that nobody can be unconcerned about the asset of another. Irrespective of how the asset got under the control of a non-entitled person, that person cannot simply disregard it, he is obliged to care about until a certain point in time.597 Typical situations in which responsible custody occurs include keeping the object on grounds of an invalid or terminated legal relationship (e.g. where a hire relationship has ended), as well in the case of a delay in performance on the part of the creditor. The Drafts attempt to abolish this category, but the Legislative Proposal maintains it – see 19.2.4. below.

(a)

Basic definition

Safekeeping is carried out temporarily in the interest of another. The responsible custodian is obliged to provide for the safekeeping of the thing at the cost and risk of the person entitled. He is not entitled to use it. The institution implies the duty to keep the thing safe (on the person with actual possession of the thing) and the duty to take over the thing (on the person entitled). This means the safe keeper is entitled to call up the person entitled to take over the thing as soon as possible by setting out a timeframe suitable to both (see below).

(b)

Status of the responsible custodian

With regard to expenses, the responsible custodian is entitled to reimbursement of expenses incurred in connection with safekeeping of the thing, and may retain the thing until any such expenses have been reimbursed (HCC 597

LENKOVICS: Property Law, pp 268-269.

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§ 196 (1)). Concerning benefits, he is obliged to surrender the existing benefits, as well as to pay the value of any benefits consumed or any benefits which he (irresponsibly) failed to collect, but he may set-off his expense agaist this (HCC § 196 (3)). Two considerations may affect this situation. The duty to reimburse the consumed object’s value is an objective one, whereas an assessment of the compensation for the benefits which have not been collected will be one according to the general regime for noncontractual liability arising out of damage casused to another (fault based). Furthermore the responsible custodian may set-off any of the claims that arise in connection with the safekeeping activity (with this claim not being restricted to expenses connected to the collection of benefits).598 Concerning damages, if the responsible custodian uses the thing, he shall be liable for all damages which would not have incurred had he not used the thing (HCC § 196 (2) – second sentence). Liability here is measured objectively, with the exemption from liability only possible where the damage would have occurred if the thing had not been used by the responsible custodian. If the use of the thing was a permitted one, any liability issues fall to be governed by the general rules for non-contractual liability arising out of damage caused to another (fault based).599 Responsible custody ends when the person entitled takes over the thing. If the person entitled does not take over the thing on notice within a reasonable period of time when requested to do so, and relocation of the thing would involve unreasonable difficulties or would require that the expenses connected thereto be advanced by the responsible custodian, the responsible custodian is allowed to sell or to consume the thing (HCC § 197 (1)). Where the thing concerned is perishable, it should, in any event, be consumed or sold, if possible (HCC § 197 (2)).600 In the event the person entitled does not take over the thing within the timeframe set out, the responsible custodian may place the thing elsewhere, if appropriate. Where the thing is placed in a new location the bearing of risk is imposed on the person entitled, unless the responsible custodian had acted culpably in the thing’s relocation. Where the object is sold or consumed, the price or the value of the thing (as appropriate) is due to the person entitled (HCC § 197 (3)) subject of mutual accounting.601

598 599 600 601

PETRIK, in: Commentary, p 701. PETRIK, in: Commentary, p 701. PETRIK, in: Commentary, p 702. PETRIK, in: Commentary, p 703.

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19.2.3. Costs of restitution The issue of who bears the costs in connection with the restitution of the movable in the event of successful vindication does not seem to be a topic that is assessed directly in literature on Hungarian private law. There is no general approach to be found within the property regime or elsewhere in the HCC to regulate this issue. Therefore, the solution applicable always depends on the certain case: in the case of invalid contract the issue will be dealt within the restoration of the prior state as a legal consequence applied by the court pursuant to HCC § 237 (1);with responsible custody (HCC § 197 (1)) the burden of transportation is imposed on the owner of the thing, with the bearing of the costs to follow consequentially; in the case of acquisition from a non-owner, according to HCC § 118 (2) the owner has the option to re-acquire the object concerned, and as such it may be concluded that he also bears the related costs of transportation. It is worth making a special observation concerning the interference with possession (and indirectly interference with ownership, as the relevant provision serves for the protections of ownership as well): HCC 191 (1) for the restoration of the previous state, while CSS 32 applies for the realisation of the goal of restoration, but this does not provide for any more than the return of the object and leaves the issue of where the return should be made unaddressed. Thus, from the point of view of reasonableness, for instance, if the performance took place by point-to-point carriage the place of return of the goods should be the place of performance, with the costs to be determined as an adjunct to this. However, this approach may only be instructive where there are no additional issues competing, such as liability for damages and whether the costs of transportation will be classed as a component of the damages. Case law proves ambiguous while it defines the category of costs and differentiates between costs and damages.602 For any additional issues CSS 32 provides for the appropriate application of the HCC, meaning the consideration of the possessor’s status of fide while applying the rules on possession without legal basis must be considered.

602

Examples from the rules of non-contractual liability arising out of damage caused to another: there is no obstacle to prevent the victim of a wrong from incurring extra costs related to transportation even where the victim previously acquired a vehicle suitable to mitigate any damages (BH2000 / 292); erecting a sepulchre of simple character is considered by the court to be a cost (BH1984 / 103).

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19.2.4. Progressing towards the new Civil Code (a)

First Draft, Second Draft and Academic Proposal

In the area of the owner-possessor-relationship, the Drafts abolish the category of responsible custody. The former function of this category, such as the unlawful possessor’s duty of care, is attributed to the rules on benevolent intervention in another’s affairs (negotiorum gestio). As a result of this abolition, the category of possession without legal basis has been necessarily expanded by providing for the unlawful possessor’s right to sell and right to consume the thing possessed in certain circumstances. The Drafts maintain the current regulation as in the HCC on the owner-possessor-relationship but, from a systematic point of view, there are also some changes introduced. Title II comprises four categories: 1stDCC § 4:9 on the situation of the possessor without legal basis and his duty to surrender (identical 2ndDCC § 4:8, AcadPROP § 4:9); 1stDCC § 4:10 on the possessor without legal basis’ entitlement to reimbursement and entitlement to removal (identical 2ndDCC § 4:9, AcadPROP § 4:10); 1stDCC § 4:11 on surrendering the benefits deriving from the object and the liability of the possessor without legal basis (identical 2ndDCC § 4:10, AcadPROP § 4:11); and 1stDCC § 4:12 on the possessor without legal basis entitlement to sell or consume the object (identical 2ndDCC § 4:11, AcadPROP § 4:12).

(b)

Legislative Proposal

The Legislative Proposal changes partly the concept in the Drafts inasmuch as the institution of responsible custody is maintained in an identical manner to the current regulation in the HCC. Subsequently, the regulation on the owner-possessor-realtionship consists of two units: possession without legal basis (Legislative Proposal §§ 4:8-4:11); and responsible custody (Legislative Proposal §§ 4:12-4:13). As to the relationship between the rules on possession without legal basis and unjustified enrichment, it may be observed that the rules on possession without legal basis do not create a proper title to use the object or to collect the benefits deriving from it. The possessor without legal basis is obliged to surrender (and to compensate accordingly for) the enrichment he has had through the possession without legal basis to the detriment of the entitled person (according to the rules on unjustified enrichment) (see Legislative Proposal § 4:10). In this respect, the compensation to be paid to the entitled person is the value of the use of the object. The Explanatory Statement makes clear that this rule has

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secondary character in relation to other special regulations, e.g. rules on invalidity of contracts, etc.603 The second unit comprises responsible custody (Legislative Proposal § 4:12 on the notion of responsible custody and § 4:13 on the right and duties in the course of responsible custody), being a special form of benevolent intervention in another’s affairs (negotiorum gestio) in the field of the ownerpossessor-relationship, operating as a subsidiary regime, with the regulation being identical to the current regulation in HCC §§ 196-197.604

603 604

Legislative Proposal – Explanatory Statement – § 4:10, p 746. Legislative Proposal – Explanatory Statement – §§ 4:12-4:13, pp 747-748.

Table of Statutory Provisions Hungarian Civil Code (HCC) HCC § 2 (3) This Act ensures the freedom of all persons to exercise the rights to which they are entitled in accordance with the social function of these rights. HCC § 94 (1) Any object capable of possession can be subject to the right of ownership. HCC § 95 (1) Ownership extends to everything that is permanently joined with a thing in such a way that separation would cause the thing or its separated part to be destroyed or would significantly reduce the thing’s value or usefulness (component part). (2) In the case of doubt, ownership shall also extend to parts that are not component parts but are usually necessary or beneficial for the proper use or maintenance of a thing (equipment). HCC § 98 The owner has the right of possession and is entitled to possession protection. HCC § 99 The owner is entitled to use the thing and to collect the benefits deriving therefrom; the owner bears the risk of damage for which no one is obliged to compensate. HCC § 112 (1) The owner has the right to cede the possession, use or collection of uses of a thing to another, to provide it as security or to otherwise encumber it and to transfer or abandon the ownership right. HCC § 114 (1) If a legal regulation or court decision excludes or restricts the right of disposition, any disposition contrary to this prohibition or restriction is null and void. (2) The right to alienate or encumber property may be restricted or excluded by contract only in the event of the transfer of ownership and only for the purpose of securing the transferor’s or another person’s right in respect of the thing. With regard to immovable property, the right secured by the prohibition must be indicated in the land registry.

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(3) Any disposition contrary to a prohibition of alienation or encumbrance stipulated by contract shall be null and void provided that: (a) the prohibition has been entered in the land registry; (b) the person claiming a right for disposition has otherwise acted in bad faith; or (c) the disposition was not for value. HCC § 115 (1) Ownership claims do not prescribe. (2) Pursuant to the regulations on the protection of possession, an owner may exclude or prevent, including by means of self-help, any and all unlawful intrusion or influence that impedes, restricts, or makes impossible the exercise of his ownership right. (3) An owner may demand the termination of unlawful intrusions or influences and, if the thing is no longer in his possession, to have it returned. HCC § 117 (1) Unless otherwise provided by law, by transfer the right of ownership may only be acquired from the owner. (2) In addition to the contract or other legal titulus directed to the transfer of ownership the surrender of the thing is also necessary. The surrender may take place by the actual surrender of the thing, or in any other way which makes it undisputable that the thing has passed from the transferor’s possession to the acquirer’s possession. HCC § 118 (1) A buyer in good faith acquires ownership of a thing that has been sold in course of commerce, even if the seller was not the owner of the thing. (2) A person who acquires a thing outside of commerce, in good faith and for for value from a person who was entrusted with the thing by its owner, will acquire ownership. However, the owner may re-acquire the thing within one year from the acquisition by reimbursement of the counter-performance. Otherwise the rules on good faith possession without legal basis apply concerning the parties’ legal relationship. HCC § 119 The acquirer of cash or a bearer instrument becomes owner even if the transferor was not the owner. HCC § 120 (1) A person who has acquired a thing on the basis of a public authority decision or auction in good faith becomes the owner thereof without the need to derive title from the previous owner. This provision may not apply to the sale of immovable by auction.

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(2) Where the state acquires ownership on the basis of a court or other public authority decision without indemnification, the state is liable for the duties of the previous owner which where based on a legal rule, court decision, or other public authority decision or a non-gratuitous contract existing at the time of acquisition of ownership towards a person in good faith to the extent of the value of the property. However, the state is liable only if enforcement proceedings directed to other seizable property items of the previous owner have proved unsuccessful. HCC § 121 (1) A person who has continuously had possession of an immovable for fifteen years, or any other thing for ten years, as his own acquires ownership by acquisitive prescription. (2) A person who has taken possession of a thing by committing a crime or in another violent or treacherous way shall not acquire ownership by way acquisitive prescription. HCC § 122 A new possessor is entitled to add to the period of his own possession as owner the period which qualified as a period of possession as owner by his predecessor. HCC § 123 If an owner is not in the position to exercise his ownership rights for a reason that can be justified, acquisitive prescription shall not take place for one year from the termination of the impediment, even if the period of of time required for acquisitive prescription has elapsed or there is less than one year left. HCC § 124 (1) Possession as owner is discontinued, if: (a) the owner orders the possessor in writing to surrender the thing or files a lawsuit to that effect; (b) the owner disposes of the thing (§ 112); or (c) the possessor loses the property against his will and does not acquire it again within one year or does not file a court action within one year to have the thing returned by its new possessor. (2) If possession as owner is discontinued, the time of possession as owner that has elapsed up to that date may no longer be taken into consideration, and the period of possession as owner begins again following the termination of the reason for discontinuance. HCC § 125 (1) A person who has a right in relation to a thing belonging to another which entitles him to take possession of products, produce or progeny, acquires ownership by separation if he has not acquired ownership of such things already. If the person

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entitled does not possess the thing from which the products, produce or progeny originates, he becomes owner by taking possession of such things. (2) If the right of a person which entitles him to acquisition of ownership in a products, produce or progeny ceases to exist before he acquires ownership thereof, such person may demand that the owner delivers the products, produce or progeny primarily in kind, in proportion to his work, and up to the extent of his expenses that cannot be recovered from elsewhere. (3) A possessor in good faith acquires ownership of products, produce or progeny of a thing by separation until the moment he becomes in bad faith or the thing is reclaimed from him before a court or town (city, district or capital) clerk. HCC § 126 The owner of the land will acquire ownership of everything that has become part of the land subsequent to his acquisition of ownership (accessions). This provision will not apply to products, produce and progeny if these belong to another person on the basis of a legal relationship. HCC § 127 If a thing has no owner, anybody may acquire ownership of it by taking it into his possession. HCC § 129 (1) A person who finds a thing that is presumably owned by somebody else and claims ownership thereof shall acquire ownership if: (a) he has done everything prescribed by law in order to return the thing to its rightful owner; and (b) the owner does not come forward to take possession of the thing within one year of the date on which it was found. (2) The finder shall not acquire ownership of objects found in offices, enterprises, or other buildings or rooms open to the public or on the vehicles of a public transportation company. In such a case, the office or company shall be entitled to sell the thing after keeping it for three months; the owner shall be entitled to demand that the thing or its purchase price be delivered within a year of the date on which it was found. HCC § 132 (1) If a person finds a valuable thing which has been hidden by unknown persons or the ownership of which has otherwise been forgotten, he shall be obliged to offer it to the state. (2) If the state does not claim the thing, it shall become the property of the finder; otherwise the finder shall be entitled to a finder’s fee proportionate to the value of the thing.

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(3) If the find described in sub-section (1) is a museum piece or a historical relic, its ownership may be claimed by the state. The rules of procedure related to the finding of such objects and the extent of the finder’s fee shall be determined in specific other legislation. HCC § 136 (1) If a person using another’s material for building on his own land or on land he uses, he will acquire ownership of the material incorporated, but he is obliged to reimburse the value of the material. HCC § 137 (1) If a person constructs on another person’s land without being entitled to do so, ownership of the building shall be acquired by the owner of the land; however, the landowner is obliged to compensate the builder for his enrichment. On request of the landowner, the court may compel the builder to buy the land or – if the land is can be compartmentalised – an appropriate part thereof. (2) The ownership of the land or of the appropriate part thereof may be acquired by the builder if the value of the building considerably exceeds the value of the land or of the appropriate part thereof. On request of the landowner, the court may decide that the builder only acquires the ownership of the building; in this case the builder is entitled to a right of use on the land. (3) If a person builds an extension or new addition or otherwise alters a building belonging to another, or if there already exists a building on the piece of land belonging to another, co-ownership will come into existence, unless otherwise agreed by the parties. The builder’s share of ownership shall be determined on the basis of the value of the new addition in proportion to the total value of the immovable. HCC § 139 (1) Ownership of the same thing, by specific shares, can be claimed by two or more persons. (2) In the event of doubt, the property shares of the co-owners shall be equal. HCC § 140 (1) Each co-owner has the right to possess and use the thing; however, none of them shall exercise this right if it adversely affects the rights and legal interests of the others in connection with the thing. (2) Unless otherwise provided by law, co-owners shall decide by majority vote on issues of possession, use, utilisation and expenses not exceeding standard measures; each co-owner has the right to vote in proportion to his ownership share. HCC § 141 Proceeds from a thing shall be claimed by the co-owners in proportion to their respective ownership shares; costs of maintenance and other expenses related to

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the thing, as well as obligations originating from co-ownership, and any damage to the thing shall be borne by the co-owners in the same proportion. HCC § 143 (1) If a majority decision is required by law and if such decision infringes reasonable economics or substantially violates the rightful interests of the minority, the minority shall be entitled to contest the decision in court. The contest shall not prevent execution of the decision; however, the court shall be entitled to suspend execution on reasonable grounds. (3) If a majority decision is required by law and there is no such decision, the court shall pass a decision on matters related to possession, use or utilisation at the request of either of the co-owners. HCC § 144 A unanimous decision by the co-owners is required concerning: (a) expenses in excess of standard measures; or (b) transferring ownership of the entire thing, surrendering it for usufruct or use, providing it for security purposes, or encumbering it in any other way. HCC § 145 (1) Each of the co-owners may freely dispose of his share of the property. (2) The other co-owner(s) shall have a right of pre-emption to buy, rent or beneficial lease the property share of a co-owner. (3) Unless otherwise provided by statutory provision, a right of pre-emption provided for other persons in specific other legislation shall precede the pre-emption rights of co-owner(s). HCC § 148 (1) Co-owned things shall be divided primarily in kind. (2) Co-owned things, or a part thereof, may be given by court into the ownership of one co-owner or several co-owners in return for the payment of an appropriate consideration if this is justified with regard to the circumstances of the co-owners. This requires the agreement of the co-owner(s) acquiring ownership, unless ownership of part of an immovable is transferred by court order to the co-owner(s) residing on such property and such action does not violate the reasonable interests of any tenant. (3) If co-ownership cannot be otherwise terminated, or division in kind would cause a significant decrease in value or prevent proper use, the co-owned thing shall be sold and the price received shall be appropriately divided among the co-owners. Co-owners shall also have a right of pre-emption in respect of selling in relation to third parties. (4) A mode of termination of co-ownership against which all of the co-owners launch a protest shall not be applied by the court.

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HCC § 187 (1) Possession may be acquired by the person who takes a thing to himself or secures control over a thing in any other way (possessor). (2) The person temporarily losing control of a thing to another person and the person whose land is burdened with an easement is also deemed a possessor. HCC § 188 (1) If a possessor is deprived of his possession without legal basis or is disturbed in his possession (unlawful interference), he shall be entitled to protection of his possession. (2) The possessor is entitled to protection of possession against anybody except a person from whom he acquired possession by unlawful interference. (3) The possessor shall, on the basis of his title, be entitled to protection of possession against the person from whom his possession originates or to whom such possession was temporarily surrendered. HCC § 190 (1) The possessor may use self-help – to the extent necessary for protection of possession – to avert an attack directed against his possession. (2) The possessor shall be allowed to act on his own might and power (self-help) in the interest of reacquiring lost possession only if the time which would expire through the use of other means of protection would frustrate the protection of possession. HCC § 191 (1) The person who is deprived of his possession, or is disturbed in his possession, shall, within one year, be entitled to file a request with the town clerk for the restoration of the original state of possession or for the discontinuance of the disturbance. (3) The town clerk shall restore the original state of possession and prohibit the interferer from continuing in this conduct, unless it is obvious that the person who has requested protection of possession is not entitled to possession or is obliged to tolerate such disturbance. The town clerk may also decide on the issues of benefits, damages and expenses as well. (4) There is no remedy through state administrative channels against the decision of the town clerk; the decision on the issue of possession shall be executed within three days. HCC § 192 (1) The party who considers the decision of the town clerk prejudicial may appeal to the court within fifteen days of receipt of the decision to have the decision overturned. (2) After one year, a possessor shall be entitled to request the restoration of the original state of possession or the discontinuance of the disturbance directly from

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the court. The possessor may also resort directly to the court if the title of possession is also disputed in the case. (3) The court shall decide in lawsuits concerning possession claims on the basis of entitlement for holding possession; entitlement of the party disturbed in peaceful possession shall be presumed. HCC § 193 (1) The person who possesses a thing without legal grounds shall be obliged to surrender the thing to its legitimate possessor. (2) The possessor may refuse to surrender a thing until his demands claimed in connection with possession are satisfied; the provisions on responsible custody shall apply to his legal status. The possessor who has acquired the thing by committing a criminal act or in another violent or treacherous way may not refuse to surrender the thing. HCC § 196 (1) A person who keeps a thing in the interest of another person without being entitled or obliged thereto by a special legal relationship shall provide for the safekeeping of the thing at the expense and risk of the entitled person until such person takes over the thing from him (responsible custody). A responsible custodian may retain the thing until his expenses are reimbursed. HCC § 237 (1) With regard to invalid contracts, the state which existed prior to the conclusion of the contract shall be restored. (2) If the state which existed prior to the conclusion of the contract cannot be restored, the court shall declare the contract valid for the period up to the date of judicial decision. An invalid contract may be declared valid if the cause of invalidity can be abolished – in particular in the case of a usurious contract or in the case of noticeable disproportionality in the contractual obligations of the parties by eliminating the disproportionate advantage. In such cases, it shall be necessary to provide for the return of any performances that might remain without counter-performance. (3) With regard to usurious contracts, the court may cancel reimbursement in full or in part in cases where this would cause serious problems for the party aggrieved even if payment in instalments would be permitted. Nevertheless, the party who caused the detriment shall be obliged to reimburse to the party aggrieved that part of the received performance that is equivalent to the excessive advantage. (4) Based on an application filed by the public prosecutor, the court shall be entitled to award to the state the performance that is due to a party who has: concluded a contract that is contrary to good morals; deceived or unlawfully threatened the other party; or otherwise proceeded fraudulently. In the case of a usurious contract, the performance to be returned to the party who caused the detriment shall be awarded to the state. Allocations due to the state shall usually be awarded in money.

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HCC § 238 (1) If an invalid contract is declared valid, the contracting parties shall be liable for the breach of contract as if the contract had been valid from the very beginning. (2) A person who has, in good faith, believed in the existence of an invalid contract can demand compensation from the parties for damages that originate from the conclusion of the contract. However, if invalidity is attributable to the conduct of one of the parties, the court shall not so oblige the other party. If either of the parties has acted in bad faith towards a third party, such party shall be liable for full compensation for damages to that third party even if invalidity is not attributable to his conduct. The court shall also be entitled to award such indemnification by maintaining the validity of the contract either in part or in full. HCC § 368 (1) The seller shall be entitled to retain ownership only on conclusion of the contract, in writing, until the purchase price is paid in full. (2) The buyer, during the operative period of title retention, shall not alienate and / or encumber the thing. This provision shall not affect the rights acquired by third persons acting in good faith and in return for value. HCC § 472 If the subject of deposit is money or another good of a class that is replaceable and if according to the agreement the depositary is obliged to return an object of the same kind and quantity, the rules on loan shall be applied with the difference that the rules on deposit shall be decisive regarding the place and date of returning and that only counterclaims connected to the deposit can be set-off against the claim of the depositor.

Academic Proposal AcadPROP § 4:45 [The transfer] (1) For acquisition of ownership in a movable the contract or other legal titulus directed to transfer and the transfer of possession is necessary. AcadPROP § 4:46 [Acquisition of ownership from the owner] Unless otherwise provided by law, transfer of ownership may only be effected by the owner. AcadPROP § 4:47 [Acquisition of ownership from non-owner] (1) By transfer, the good faith acquirer for value [non-gratuitous] acquires the right of ownership in a movable even when the transferor is not the owner, unless the owner lost possession of the thing as a direct consequence of a criminal offence.

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Before ownership can be acquired it is necessary for the acquirer to have effective possession of the object. (2) By acquisition of the right of ownership pursuant to subsection (1), rights of third parties encumbering the object created prior to the transfer and with respect to which the party acquiring the right of ownership has been in good faith cease to exist. AcadPROP § 4:106 [Transfer of the right of ownership, right, claim for security purposes] A contract on proprietary security is valid if the agreement with which the security is connected is directed to: (a) transfer the right of ownership, right or claim; or (b) establish an option to purchase. AcadPROP § 4:107 [Retention of ownership for security purposes] (1) It is valid as a proprietary security to retain the right of ownership for the purposes of securing the seller’s claim for purchase price. (2) It is valid as a proprietary security to retain the right of ownership for the purposes of securing the lessor’s claim for rent, provided that: (a) at the end of the lease relationship (without the need to pay a counter-value or any nominal value) the lessee acquires or on grounds of an option to purchase may acquire the right of ownership in the object leased; or (b) the duration of lease corresponds to, or exceeds, the movable’s useful life. (3) The seller or lessor retaining ownership for the purposes of securing his claim should be regarded the beneficiary of the proprietary security, the buyer or lessee being the person obliged by the proprietary security.

Legislative Proposal No T5949 on the Civil Code (as submitted on June 05th, 2008) Legislative Proposal § 4:1 [The possessor] (1) The possessor is the person who keeps the object in his power as his own or according to a legal relationship which entitles him to temporary possession of the object. (2) A possessor who keeps the object in his actual power according to a legal relationship which entitles him to temporary possession (sub-possessor), shall be regarded possessor in addition to the person from whom the person exercising actual power derives his possession (principal-possessor). (3) The person who has temporarily acquired actual power over a thing from another person is also classed as a possessor. (4) The possession in the object is acquired by the person in whose actual power the object reaches.

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Legislative Proposal § 4:2 [Transfer of possession] (1) The transfer of possession takes places on the basis of an agreement directed to that by delivery of the object or of those instruments which enables the exercise of actual power in the thing to occur. (2) The transfer of possession takes place by the agreement between the possessor and the person who acquires possession, if: (a) the party who acquires possession already holds possession of the thing as subpossessor; or (b) the possessor who transfers the thing holds the thing in his possession as subpossessor from that point forward. (3) The transfer of possession takes place when the possessor’s effective power over the object ceases, if the possessor and the party who acquires possession agree to this. (4) If the thing is in the possession of another,605 the transfer of possession will take place when the claim to surrender the object is transferred to the acquirer of possession, if the possessor and the party who acquires possession agree to this. Legislative Proposal § 4:3 [Loss of possession] (1) The possessor loses possession if he gives up the exercise of actual power over the thing definitively or if possession of the thing is acquired by another. (2) The possession will not end when the possessor gives up the exercise of actual power over the object temporarily or if he is hindered in exercising the actual power temporarily. (3) By the death of the possessor or the termination of possession by legal succession, possession of the thing transfers to the heir or legal successor. The situation of possession of the heir or legal successor is determined by the deceased’s or legal predecessor’s title to possess. Legislative Proposal § 4:4 [The possession protection to which the possessor is entitled to] (1) The possessor is entitled to possession protection if he is deprived of his possession without legal basis or is disturbed in his possession without legal basis (unlawful inteference). (2) The possessor is entitled to possession protection against everybody except a person from whom has acquired possession by way unlawful interference. (3) The sub-possessor enjoys possession protection against the principal-possessor according to his title. 605

“Possession of another” relates to a third person exercising possession for the transferor. In the last part of this provision “possessor” means the indirect possessor, while the other references to “possession” also relate to the indirect possession which is first exercised by the transferor (“possessor”) and then transferred to the acquirer of possession (an instance of cessio vindicationis).

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(4) In the case of co-possession each possessor is individually entitled to possession protection and any of the possessors may demand the thing be put into copossession. (5) The co-possessors – on the grounds of their relations inter se – are entitled to possession protection against each other. Legislative Proposal § 4:5 [The self-help the possessor is entitled to] (1) The possessor may act against unlawful interference – up to the extent necessary to protect possession – even by the use of self-help. (2) Self-help can only be resorted to for the recovery of possession if the loss of time which recourse to another instrument of possession protection causes would frustrate the possession protection. Legislative Proposal § 4:6 [Protection of possession provided by public administration channels] (1) The person who is deprived of or disturbed in his possession may request from the town clerk within one year the restoration of the original state of possession or the termination of disturbance. (2) The town clerk shall order the restoration of the original state and prohibit the interferer from further interfering behaviour, unless it proves obvious that the person who has requested possession protection is not entitled to possession or he is obliged to tolerate the disturbance in possession. The town clerk may decide also on the question of benefits, damages and expenses. (3) There is no legal redress against the town clerk’s decision by way of public administration channels. The party who considers the town clerk’s decision prejudicial may, within thirty days of the decision’s delivery to him, request that the court change the decision. (4) The decision taken by the town clerk in the question of possession has to be enforced within three days of its bringing about even if the other counterparty has instituted legal proceedings. (5) The court may suspend the enforcement of the town clerk’s decision if on the grounds of the facts available the change of the decision seems likely. There is no scope to enforce the decision taken in issues of benefits, damages and expenses if legal proceedings in these issues, or in the issue of possession, have been introduced. (6) Unless otherwise provided by the statute, the provisions of the act on general rules of public administration proceedings and services are applicable to the proceedings of the town clerk. Legislative Proposal § 4:7 [The possession lawsuit] (1) The possessor may request restoration of the original state of possession, the termination of any disturbance, or a declaration on the issue of possession from the court after one year has passed, or before one year has passed when the title of possession is also disputed.

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(2) In the possession lawsuit the court will decide on basis of the entitlement to possession. The entitlement of the party disturbed in peaceful possession shall be presumed. Legislative Proposal § 4:8 [The situation of the possessor without legal basis and his duty to surrender] (1) The person who is in possession of the thing without legal basis is obliged to surrender the thing to the person entitled to possession. (2) The possessor without legal basis may withhold the surrender of the thing until his demands in connection with possessing the thing have been satisfied. The possessor without legal basis may not withhold the surrender of the thing where he acquired the thing by way of criminal offence or in another violent or fraudulent manner. (3) The rules on responsible custody are applicable to the legal status of the possessor without legal basis. Legislative Proposal § 4:9 [The entitlement to reimbursement and to removal of the possessor without legal basis] (1) The possessor without legal basis may demand the reimbursement of his founded and useful expenses spent on the thing, except minor costs ordinarily connected to the maintenance of the object, and in case of an immovable he may remove the items of equipment and furniture installed by him. (2) Where the possessor without legal basis is in good faith he may demand reimbursement of his founded and useful expenses which have not been covered by the benefits earned; where he is in bad faith he may demand reimbursement under the unjustified enrichment regime. (3) The possessor without legal basis may exercise his right to removal only without damaging the substance. Legislative Proposal § 4:10 [Surrender of the benefits deriving from the object and liability of the possessor without legal basis] (1) The possessor without legal basis is obliged to surrender any benefits of the object which exist to the owner, or any surrogate thing (or sum of money) replacing the object, unless he acquired possession for value and he was in good faith. (2) Concerning the period where the possession has not been reclaimed from before the town clerk or the court the good faith possessor without legal basis is not obliged to reimburse the value of the benefits consumed or which he failed to collect and is not liable for the damages that may have occurred to the object. Notwithstanding reclaim, the good faith possessor without legal basis has no duty to reimburse the value of benefits consumed or uncollected until the reclamation, and owing to his putative entitlement he is not liable for the damage that may have occurred to the object while he exercised his putative entitlement. (3) The bad faith possessor without legal basis is obliged to pay the value of those benefits which he consumed or he failed to collect and is obliged to compensate on

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the grounds of non-contractual liability arising out of damage caused to another for all the damage to the object which would not have occurred but for his possession. Legislative Proposal § 4:11 [The entitlement of the possessor without legal basis for the alienation of the object and its consumption] (1) If the person entitled does not remove the object upon notification to remove the thing within an appropriate time limit and placing at another place would be coupled with disproportionate difficulty or would require expenses to be incurred, the possessor without legal basis may sell or consume the object. (2) Objects which deteriorate rapidly or objects where any delay would cause a significant decrease in value shall, if possible, be sold or shall be consumed. (3) The amount of money received or the value of the object consumed is due to the entitled person. Legislative Proposal § 4:12 [The notion of responsible custody] The person who keeps the object in the interest of another without being entitled or obliged to do so by vitue of a special legal relationship is obliged to care for the object at the expense and risk of the person entitled for as long as the person entitled does not take over the object. The responsible custodian may retain the object until any claims demanded have been reimbursed. Legislative Proposal § 4:13 [Rights and duties during the responsible custody] (1) While the responsible custody subsists the responsible custodian is not entitled to use the object, unless the use is necessary for the maintenance of the object. If he uses the object despite this prohibition, he will be liable towards the person entitled for any damage which would not have occurred without the use. (2) The responsible custodian is obliged to surrender the existing benefits and – by setting off against his claims deriving from the custody – to reimburse the value of the benefits which he has consumed or failed to collect. (3) Where the person entitled fails to remove the object upon notification to remove the thing and placing at another place would be coupled with disproportionate difficulty or would require expenses to be advanced, the responsible custodian may sell or consume the object. Objects which deteriorate rapidly or objects where any delay to sale would cause significant decrease in value shall, if possible, be sold or shall be consumed. (4) The amount of money received or the value of the object consumed is due to the entitled person. Legislative Proposal § 4:14 [Right of ownership] (1) The owner is entitled to general and exclusive legal dominion over the owned thing; deriving from this he is entitled to exclude anybody else’s illegal intrusion.

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(2) The owner is entitled to possession, use, the collection of benefits and to the right of disposition – unless otherwise provided by statute, on grounds of authority granted by law by court or administrative decision, or contractual clause. Legislative Proposal § 4:15 [Subjects of the right of ownership] (1) Any thing that can be possessed can also be subject to the right of ownership. (2) A thing is regarded as including money, securities, money-market instruments, shares in a limited liability company, natural phenomena which may be utilised like objects and, where a statutory provision so provides, rights having monetary value defined by statute. (3) The rules on the right of ownership may be applied to animals by taking into consideration the statutory provisions setting out the appropriate differences with regard to the nature of animals. Legislative Proposal § 4:16 [Component part] Unless otherwise provided by statue, the right of ownership extends to all that is unified with the object in such a durable way that the decoupling would lead the thing or unified part to perish, or lead its value or usability to diminish. Legislative Proposal § 4:17 [Equipment] The right of ownership will also extend, in case of doubt, to all that is not a component part but is ordinarily needed for the proper use or maintenance of the object, or where the equipment subserves it. Legislative Proposal § 4:22 [Right to possession] The owner is entitled to possession and possession protection. Legislative Proposal § 4:23 [The right of use and the right to collect benefits] The owner is entitled to use and to collect the benefits deriving from the thing, and is obliged to bear the charges connected to the thing and any damage to the object where no-one else can separately be obliged to bear this. Legislative Proposal § 4:24 [General private law limitation concerning the use of the object] While using the object the owner has the duty to abstain from any conduct by which he may cause unnecessary disturbance to others or he may unnecessarily limit others in the exercise of their rights. Legislative Proposal § 4:38 [Content of the right of disposition] (1) The owner has the right: to cede the possession, use or right to collect the benefits to another; to provide the object for security purposes, or to encumber his right of ownership in any other way; to transfer it to another; or to abandon it. The content of the right of disposition may be limited by legal provision. (2) The right of ownership in an immovable cannot be abandoned.

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Legislative Proposal § 4:39 [Creating a prohibition of alienation and encumbrance] (1) The owner may exclude by way of contractual agreement the right to alienate or to encumber the subject of the right of ownership in order to secure a right regarding the thing, which shall be effective against third parties. In the case of immovables it is necessary to enter the right which the prohibition serves to secure into the land registry. (2) In addition to the exclusion of transfer of the right of ownership, unless otherwise provided, the prohibition also applies to encumbrance of the thing. (3) The prohibition established in subsections (1)-(2) (hereinafter: prohibition of alienation and encumbrance) ceases to exist when the right secured by it is terminated. Legislative Proposal § 4:40 [Effect of the prohibition of alienation and encumbrance] (1) A disposition contrary to the prohibition of alienation and encumbrance is null and void, provided that: (a) the prohibition has been entered into the land registry (in relation to an immovable) or other appropriate register; (b) the person establishing a right in reliance on the disposition was in bad faith; or (c) the disposition was gratuitous. (2) If there is a prohibition relating to alienation alone, these rules must be applied to the dispositions contrary to the prohibition of alienation, and if there is a prohibition relating to encumbrance alone, these rules must be applied to dispositions contrary to the prohibition of encumbrance. Legislative Proposal § 4:43 [Exclusion of limitation of ownership] Ownership claims do not prescribe. Legislative Proposal § 4:44 [Protection of the right of ownership] (1) The owner may demand the termination of unlawful interference or intrusion and the surrender of the object from the possessor without legal basis. (2) If the possession of the object has been surrendered illegally by the sub-possessor to a third party, the owner may claim from the third party in the name of the subpossessor to retutn the object to the sub-possessor. If the sub-possessor refuses to accept the object, the owner may demand the the object be surrendered to him. (3) Where an owner has acquired ownership of a thing without physical delivery but by transfer of the claim to surrender the object, the possessor of the object will be entitled to use all objections which he would have as against the claim of surrender of the previous owner [who transferred the claim of surrender] as the basis of a counterclaim against a claim made by the new owner.

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(4) The owner may exclude or avert any unlawful interference or intrusion which hinders, limits or makes impossible the exercise of his right of ownership by selfhelp. Legislative Proposal 4:46 [Acquisition of ownership from the owner] Unless otherwise provided by statue, by transfer the right of ownership may only be acquired from the owner. Legislative Proposal 4:47 [Acquisition of ownership from non-owner] (1) A good faith purchaser buying in the course of commerce acquires the right of ownership in a movable even where the seller is not the owner. (2) The right of ownership will also be acquired outside of the course of commerce by a person who acquires a thing in good faith and for value from a person who has been entrusted with the thing by the owner. However, the owner may re-acquire the thing within one year from the acquisition by reimbursement of the counterperformance. Otherwise the rules on good faith possession without legal basis apply on the parties’ legal relationship. Legislative Proposal § 4:48 [The transfer] (1) For acquisition of the right of ownership in a movable object by transfer the contract or other legal titulus directed to transfer and – unless otherwise provided by statute – the transfer of possession in the object is necessary. (2) For transfer of the right of ownership in an immovable, in addition the contract or other legal titulus directed to transfer, the registration of the change in the details of the owner in the land registry is necessary. Legislative Proposal § 4:49 [Transfer of the right of ownership in dematerialised security] (1) The owner of the dematerialised security shall be regarded – until the contrary is proven – the holder of the security account on which the dematerialised security is recorded. (2) For the transfer of the right of ownership in the dematerialised security there must be a contract or other legal titulus directed to transfer and the debiting of the security account on the grounds of the transfer order instructed by the transferor to the account keeper, furthermore the updating of the security account of the acquirer of the security is necessary. Legislative Proposal § 4:50 [Transfer of registered security issued in documentary form] (1) For transfer of ownership of a security issued as such in documentary form which includes the name of the beneficiary and does not include a condition which requires the person obliged to perform to any person who is presenting the security

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(registered security), direct endorsement or endorsement in blank is necessary in addition to the transfer of possession on grounds of legal titulus directed to the transfer. (2) Direct endorsement is a written statement inserted on the registered security or on the sheet annexed to the registered security signed by the transferor which expresses the intention to transfer the security and appoints the person to whom the security is transferred. (3) Blank endorsement is a written statement inserted on the back of the security or on the sheet annexed to the security signed by the transferor which expresses the intention to transfer the security but does not include the name of the person to whom the security is transferred. The signature of the transferor on the back of the security or on the annexed sheet will also be classed as blank endorsement. (4) Where the security is transferred by way of blank endorsement the possessor of the security: (a) may fill his own name or the name of another person in the blank endorsement; (b) may transfer the security again by blank endorsement or by direct endorsement to another person’s name; or (c) may surrender the security to a third person by filling in the blank endorsement and supplying the security with a new endorsement. (5) If the issuer, on the basis of authority granted by law, by his written statement incorporated into the registered security excludes the possibility of transfer by way of endorsement (negative clause), the security may be transferred by assignment. Legislative Proposal § 4:51 [Acquisition of ownership in money and security] The person to whom money is transferred which is legal tender at that time or security is transferred according to the rules on transfer of securities will become owner even if the transferor was not the owner. Legislative Proposal § 4:56 [Conditions of acquisitive prescription] A person acquires the right of ownership in an object by way of acquisitive prescription if he possesses the object continuously as owner for fifteen years in the case of an immovable or for ten years in the case of other object. Legislative Proposal § 4:57 [Acquisitive prescription on the basis of legal titulus] Acquisitive prescription may become effective after three years have passed if the possession of the thing was acquired by the possessor from the owner by a defective contract on the basis of which he would have been able to claim the unconditional transfer of ownership if the contract had corresponded to the formal requirements defined for the contract, and the possessor fulfilled his counter-performance. Legislative Proposal § 4:58 [Succession to possession as owner] The new owner may add to his period of possession as owner the period of possession of his predecessor which was classed as possession as owner, but if the legal

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predecessor acquired the right of ownership by way of acquisitive prescription, the period of possession as owner may not be so added. Legislative Proposal § 4:59 [Exclusion of acquisitive prescription] (1) A person, who has acquired possession by a criminal act or another violent of treacherous way, will not acquire ownership by way of acquisitive prescription. (…) (3) A share of ownership stake may also be the subject of acquisitive prescription according to the general rules on acquisitive prescription. Legislative Proposal § 4:60 [Suspension of the period of possession as owner] If the owner is not able to exercise his rights as owner for reasons that can be justified, acquisitive prescription does not take place for one year from the termination of the impediment even if the required period for possession as owner has elapsed or there would be less than one year left thereof. Legislative Proposal § 4:61 [Discontinuance in acquisitive prescription] (1) Acqusitive prescription [possession as owner] is discontinued, if: (a) the owner calls upon the possessor in writing to surrender the thing or petitions the court to this effect; (b) the owner disposes of the thing; or (c) the possessor loses possession against his will and does not acquire it again within one year, or does not request from the court within one year to have the object returned by the new possessor of the thing. (2) If acquisitive prescription (possession as owner) is discontinued, the time elapsed in possession as owner up to that date may not be taken into any consideration for acquisitive prescription, and the period of possession as owner begins again following the termination of the reason for discontinuance. Legislative Proposal § 4:62 [The rights encumbering the thing and their effect to acquisitive prescription] (1) The existence of a prohibition of alienation or encumbrance does not exclude the acquisition of ownership by way of acquisitive prescription if the prerequisites of acquisitive prescription are otherwise met. (2) On the acquisition of a right of ownership by way of acquisitive prescription of a movable rights of third parties created prior to the acquisition of possession cease to exist unless the acquirer who acquires by acquisitive prescription was not been in good faith about the existence of the rights of third parties, or if he did become aware of such rights prior to the expiry of the required period of possession as owner. Legislative Proposal § 4:72 [Processing and transformation of the object] (1) Any person who in good faith produces for himself a new object by way of processing or transformation of material owned by another by the choice of the

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material’s owner is obliged to either refund the value of the material or, in return for compensation equal to the value of his work, cede the right of ownership in the new object. (2) If the value of the work significantly exceeds the value of the material processed or transformed, the owner of the material may claim a refund of the material’s value. (3) If the processor or transformer was in bad faith, the right to choose falls to the owner of the material processed or transformed. (4) If the owner of material chooses the right of ownership in the new object, he is only obliged to refund his enrichment [to the processor or transferor]. (5) If the right of ownership in the new object is acquired by the processor or transformer, any encumbrances in favour of third parties cease to exist. If the right of ownership in the new object is acquired by the material’s owner, any existing encumbrances on the material will also encumber the new object. Legislative Proposal § 4:73 [Confusion and commixture of objects] (1) If objects belonging to several persons fuse or merge in a way that they may only be separated by causing disproportionate damage or with disproportionate costs, or indeed they cannot be separated absolutely at all, co-ownership will come into existence. (2) If one of the objects fused or merged is regarded the principal component part in relation to the other parts of the new object formed by fusion or mixture for its value, quality, economic purpose or any other reason, the owner of the principal component part may choose whether to take ownership of the thing created by confusion or commixture while compensating the other owner(s) who contributed materials, or he may cede the principal component part to the other contributing owner(s) in exchange for suitable compensation. (3) The right of choice shall not be conferred on a person who caused the confusion or commixture in bad faith. In such a case the former owner in bad faith may only claim the value of the enrichment [of the other(s)]. (4) If the object created by confusion or commixture becomes subject to co-ownership by operation of law, any rights of third parties that encumber the individual objects which were fused or mixed will encumber the appropriate shares in ownership, replacing the encumbrances over the individual objects concerned. If one of the objects concerned is encumbered by a third party right and the ownership in the object created is acquired by the owner of the other object, the right encumbering the object will cease to exist, unless otherwise provided by a statutory provision. A third party right encumbering an object will pass to the created object as result of the fusion or mixture if the created thing becomes the property of the person who owned the encumbered object.

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Legislative Proposal § 4:74 [Sale of the object processed, transformed, confused or commixed] (1) Where none of the parties demand the right of ownership in the object processed, transformed, confused or commixed, the created object shall be sold and the purchase price received shall be divided among the entitled persons according to their respective shares in ownership. (2) Where a party whose claim for refund is limited to the extent of enrichment, he is entitled, at most, to receive the amount remaining from the purchase price after those entitled to full compensation have been satisfied. Legislative Proposal § 4:78 [Rules applicable to co-ownership] The rules on processing, transformation, confusion, commixture, extension, alteration of an existing building owned by another by using the builder’s materials, incorporation of another’s materials and construction on a piece of land belonging to another will appropriately apply in cases of co-ownership where a co-owner involves a co-owned thing in the performance of such an act.

Table of Literature Monographs ALMÁSI, ANTAL: A dologi jog kézikönyve I. kötet [Handbook of Property Law, Volume I]. Tébe kiadóvállalat, Budapest 1928 (ALMÁSI: Handbook of Property Law Vol. I) BÁRDOS, PÉTER / MENYHÁRD, ATTILA: Kereskedelmi jog [Commercial Law]. HVG-ORAC Lap- és Könyvkiadó Kft., Budapest 2008 (BÁRDOS / MENYHÁRD: Commercial Law) KISFALUDI, ANDRÁS: Az adásvételi szerződés [The Contract for Sale]. KJKKERSZÖV Jogi és Üzleti Kiadó Kft., Budapest 2003 (KISFALUDI: The Contract for Sale) KOLOSVÁRY, BÁLINT: Bevezetés; A dologi jog általános tanai; A birtok és birtokvédelem; A tulajdonjog [Introduction; General Theories on Property Law; Possession and Protection of Possession; The Right of Ownership]. In: KÁROLY SZLADITS (ed.): A magyar magánjog, Ötödik kötet, Dologi jog. Grill Károly Könyvkiadó Vállalata, Budapest 1942, pp1-321 (KOLOSVÁRY: Introduction / The Right of Ownership) LÁBADY, TAMÁS: A magyar magánjog (polgári jog) általános része [The General Part of Hungarian Private (civil) Law]. Dialóg Campus Kiadó, Budapest-Pécs 2002 (LÁBADY: The General Part of Hungarian Private Law) LÁNYI, BERTALAN: Az elidegenítési és terhelési tilalom [Prohibition of Alienation and Encumbrance]. Pesti könyvnyomda-részvénytársulat, Budapest 1899 (LÁNYI: Prohibition of Alienation and Encumbrance) LÁNYI, BERTALAN: A tulajdonjog [The Right of Ownership]. Singer & Wolfner, Budapest 1903 (LÁNYI: The Right of Ownership) MENYHÁRD, ATTILA: Dologi jog [Property Law]. Osiris Kiadó, Budapest 2007 (MENYHÁRD: Property Law) NIZSALOVSZKY, ENDRE: Korlátolt dologi jogok [Restricted Property Rights]. In: KÁROLY SZLADITS (ed.): A magyar magánjog, Ötödik kötet, Dologi jog. Grill Károly Könyvkiadó Vállalata, Budapest 1942, pp321-834 (NIZSALOVSZKY: Restricted Property Rights)

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SZLADITS, KÁROLY: Dologi jog [Property Law]. Grill Károly könyvkiadóvállalata, Budapest 1930 (SZLADITS: Property Law) VÉKÁS, LAJOS: Parega. Dolgozatok az új Polgári Törvénykönyv tervezetéhez [Parega. Works to the Draft of the New Civil Code], HVG-ORAC Lapés Könyvkiadó Kft., Budapest 2008 (VÉKÁS: Works for the Draft Civil Code) ZEHNTBAUER, RICHARD: Einführung in die neuere Geschichte des ungarischen Privatrechts [Introduction to modern history of Hungarian private law], Universitäts-Buchhandlung Otto Gschwend, Freiburg / Schweiz 1916 (ZEHNTBAUER: Introduction to modern history of Hungarian private law)

Treatises ANTALFFY, MIHÁLY: Vétel. Csere. [Sale. Barter]. In: KÁROLY SZLADITS (ed.), A magyar magánjog, Negyedik kötet, Kötelmi jog – Különös rész. Grill Károly Könyvkiadó Vállalata, Budapest 1942, pp197-372 (ANTALLFY: Sale and Barter) EÖRSI, GYULA: A tulajdonátszállás kérdéséről [On the Issue of Transfer of Ownership]. Légrády Testvérek Rt., Budapest 1947 (EÖRSI: Transfer of Ownership) GROSSCHMID, BÉNI: Fejezetek a kötelmi jogunk köréből, I. kötet [Chapters from the Thematics of Our Law of Obligations. Volume I]. Grill Károly könyvkiadóvállalata, Budapest 1932 (GROSSCHMID: Chapters – Law of Obligations, Vol. I.) HARMATHY, ATTILA (ed.): Introduction to Hungarian Law. Kluwer Law International, The Hague London Boston 1998 (Introduction to Hungarian Law) – cited with author KENGYEL, MIKLÓS: Magyar polgári eljárásjog [Hungarian Civil Procedure Law]. Osiris Kiadó, Budapest 2002 (KENGYEL: Hungarian Civil Procedure Law) KISS, GÁBOR / SÁNDOR, ISTVÁN: A szerződések érvénytelensége [Invalidity of Contracts]. HVG-ORAC Lap- és Könyvkiadó Kft., Budapest 2008 (KISS / SÁNDOR: Invalidity of Contracts)

Table of Literature

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LENKOVICS, BARNABÁS: Magyar polgári jog – Dologi jog [Hungarian Civil Law – Property Law]. Eötvös József Könyvkiadó, Budapest 2001 (LENKOVICS: Property Law) PETRIK, FERENC: Tulajdonjogunk ma – A dologi jog mai érvényében [Our Right of Ownership Today – Property Law as Effective Today]. HVG-ORAC Lap- és Könyvkiadó Kft., Budapest 2007 (PETRIK: The Right of Ownership Today) SZLADITS, KÁROLY: A magánjog fogalma, fejlődésmenete és tudománya [Notion, development and science of private law.]. In: KÁROLY SZLADITS (ed.), A magyar magánjog, Első kötet, Általános rész – Személyi jog. Grill Károly Könyvkiadó Vállalata, Budapest 1941, pp5-110. (SZLADITS: Notion, development and science of private law) VÉKÁS, LAJOS: Az Új Polgári Törvénykönyv elméleti előkérdései [Theoretical Preliminary Questions of the New Civil Code]. HVG-ORAC Lap- és Könyvkiadó Kft., Budapest 2001 (VÉKÁS: Preliminary Questions of the New Civil Code) VILÁGHY, MIKLÓS – EÖRSI, GYULA: Magyar polgári jog. Általános rész [Hungarian Civil Law – General Part]. Budapest 1973. (Textbook) (VILÁGHY / EÖRSI: Hungarian Civil Law – General Part) VILÁGHY, MIKLÓS: Magyar polgári jog. Tulajdonjog. [Hungarian Civil Law. Right of Ownership]. Eötvös Lóránd Tudományegyetem, Államés Jogtudományi Kar, Tankönyvkiadó, Budapest 1975. (Textbook) (VILÁGHY: Hungarian Civil Law. Right of Ownership) (VILLÁNYI) FÜRST, LÁSZLÓ: A magánjog szerkezete [The structure of private law], Grill Károly könyvkiadóvállalata, Budapest 1934 (VILLÁNYI: Structure of private law) VILLÁNYI, LÁSZLÓ: A magyar magánjog rövid tankönyve [The Short Textbook of Hungarian Private Law]. Grill Károly Könyvkiadó Vállalata, Budapest 1941. (VILLÁNYI: Textbook – Hungarian Private Law)

Commentaries A POLGÁRI TÖRVÉNYKÖNYV MAGYARÁZATA I-II, Hatodik átdolgozott kiadás [Commentary of the Civil Code I-II, Sixth Revised Edition], GYÖRGY GELLÉRT (ed.). KJK-KERSZÖV Jogi és Üzleti Kiadó Kft., Budapest 2004 (Commentary) – cited with author

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POLGÁRI JOG. KOMMENTÁR A GYAKORLAT SZÁMÁRA I-III, 2. kiadás [Commentary for the Practice Vol. I-III, 2nd Edition], FERENC PETRIK (ed.). HVG-ORAC Lap- és Könyvkiadó Kft., Budapest 2006 (Commentary for the Practice) – cited with author and volume GAZDASÁGI TÖRVÉNYEK KOMMENTÁRJAI: CSŐDJOG – II. átdolgozott és bővített kiadás [Commentaries of the Commercial Statutes: Insolvency Law – II Revised and Enlarged Edition], GÁBOR TÖRÖK (ed.). HVG-ORAC Lap- és Könyvkiadó Kft., Budapest 2007 (Commentary on Insolvency Law) – cited with author

Articles / Studies BECK, ANDRÁS: Absztrakt vagy kauzális dologi jogügylet [Abstract or Causal Real Agreement]. In: Ünnepi dolgozatok Dr. Szladits Károly egyetemi tanár 70. születésnapjára, by László Bartakovics et al. Arany János Irodalmi és Nyomdai Műintézet, Budapest 1941 (BECK: Abstract or Causal Real Agreement) CSIZMAZIA, NORBERT – SÁNDOR, ISTVÁN: A bizalmi (fiduciárius) vagyonkezelés modelljei és a Ptk. reformja [Models of Fiduciary Administrations of Assets and the Reform of the Civil Code]. In: Civil Law Codification 4 / 2002, pp10-29 (CSIZMAZIA – SÁNDOR: Models of Fiduciary Administrations of Assets and Reform of the Civil Code) DEÁK, DÁNIEL: A bizalmi vagyonkezelés jogi kérdéseiről [About the Legal Questions of Fiduciary Administration of Another’s Assets]. In: Gazdaság és Jog 7-8 / 1995, pp14-19 (DEÁK: The Legal Questions of Fiduciary Administration of Another’s Assets) FABÓK, ZOLTÁN: Tulajdonjog-fenntartás és dologi jogügylet [Retention of ownership and real agreement]. In: Civil Law Codification 3 / 2004, pp14-17 (FABÓK: Retention of Ownership and Real Agreement) GÁL, JUDIT – NÉMETH, LÁSZLÓ: Az álképviselő által kötött szerződés megítélésével kapcsolatos vitás kérdések [The Disputed Questions Concerning the Appreciation of a Contract Concluded by the Falsus Procurator]. In: Ítélőtáblai Határozatok [Decisions of the Courts of Appeal] 1 / 2005, pp87-90 (GÁL – NÉMETH: Contracts Concluded by the Falsus Procurator)

Table of Literature

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HARMATHY, ATTILA: Dologi jog – kötelmi jog [Property Law – Law of Obligations]. In: Liber Amicorum Studia L. Vékás dedicata. Budapest 1999, pp119-138 (HARMATHY: Property Law – Law of Obligations) HARMATHY, ATTILA: Hungarian Civil Law at the Turn of the Century. In: Annales Univ. Budapestensis – Tomus 41-42, Budapest 2002, pp39-54 (HARMATHY: Hungarian Civil Law at the Turn of the Century) HARMATHY, ATTILA: Transformation of Hungarian Civil Law (1985-2005). In: András Jakab, Péter Takács, Allan F. Tatham (eds.): The Transformation of the Hungarian Legal Order 1985-2005. Transition to Rule of Law and Accession to the European Union. Kluwer International 2007. pp279-286. – unabriged original version in Hungarian: A polgári jog 1985-2005 között bekövetkezett változásairól. In: A magyar jogrendszer átalakulása 1985 / 1990-2005, I. kötet. Jakab András and Takács Péter (szerk.). Gondolat – ELTE ÁJK, Budapest 2007, pp577-590 (HARMATHY: Transformation of Hungarian Civil Law) HARMATHY, ATTILA: Law of Business in Transition in Hungary. In: Ross Cranston, Jan Ramberg, Jacob Ziegel (eds.), Commercial Law Challenges in the 21st Century. Iustus Förlag, Uppsala 2007, pp123-135 (HARMATHY: Law of Business in Transition in Hungary) KEMENES, BÉLA: A szerződés semmisségének újabb joggyakorlati kérdései [Recent Questions on the Avoidance of Contract in Case Law]. In: Gazdaság és jog 10 / 2001, pp18-22 (KEMENES: Recent Questions on Avoidance) KISFALUDI, ANDRÁS: Fenntartható-e a dologi jog egyediségének az elve? [Is the Principle of Speciality in the Field of Property Law Sustainable?]. In: Civil Law Codification 6 / 2006, pp29-35 (KISFALUDI: Is the Principle of Speciality Sustainable?) MÁDL, FERENC: A tulajdon rehabilitációja [The Rehabilitation of Ownership]. In: Liber Amicorum – Studia A. Harmathy Dedicata. ELTE ÁJK Polgári Jogi Tanszék, Budapest 2003, pp209-226 (MÁDL: The Rehabilitation of Ownership) MENYHÁRD, ATTILA: Észrevételek és javaslatok az új Polgári Törvénykönyv dologi jogi koncepciójának kiegészítéséhez [Remarks and Proposals for Supplementation of the Concept on the Property Law Regime in the New Civil Code]. In: Civil Law Codification 5-6 / 2002, pp17-18 (MENYHÁRD: Remarks and Proposals) MENYHÁRD, ATTILA: Pure Economic Loss in Hungarian Tort Law. In: MAURO BUSSANI (ed.) European Tort Law – Eastern and Western Perspectives. Stämpfli Publishers Ltd, Berne 2007, pp323-337 (MENYHÁRD: Pure Economic Loss)

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PETRIK, FERENC: Dologi ügylet – vagy ügyletegység [Real Agreement – or Unitary Transaction]. In: Civil Law Codification 3 / 2007, pp15-19 (PETRIK: Real Agreement – or Unitary transaction) PORKOLÁB, ERIKA: A lízing a polgári jog rendszerében [The Hire-Purchase Within the Systematic of Private Law]. In: Scire aliquid laus est – Tudományos diákköri dolgozatok 2002, Budapest 2003, pp75-102 (PORKOLÁB: The Hire-Purchase) SZABADOS, ISTVÁN: Zulässigkeit echter fiduziarischer Rechtsgeschäfte nach ungarischem Privatrecht [Admissibility of true fiduciary agreements in Hungarian privat law]. In: Wirtschaft und Recht in Osteuropa, 3 / 2003, pp75-80. (SZABADOS: Admissibility of true fiduciary agreements) SZŐKE, IRÉN: Az elbírtoklás, a használati jogok és a birtokvédelem bírói gyakorlatának elemzése és annak tanulságai [Analysis of Case Law on Acquisitive prescription, Rights of Use and Protection of Possession and the Consequences Drawn Therefrom]. In: Civil Law Codification 3 / 2002, pp3-18 (SZŐKE: Analysis of the Case Law on …) VÉKÁS, LAJOS: Érvénytelen szerződés és jogalap nélküli gazdagodás [Void Contract and Unjustified Enrichment]. In: Magyar Jog [Hungarian Law] 7 / 2003. pp385-400 (VÉKÁS: Void Contract) VÉKÁS, LAJOS: Az új Polgári Törvénykönyv tervezetének néhány elméleti és rendszertani előkérdéséről [Some Theoretical and Systematical Questions Related to the Draft of the New Civil Code]. In: Magyar Jog [Hungarian Law] 7 / 2006, pp385-400. VÉKÁS, LAJOS: Bírálat és jobbító észrevételek az új Ptk. kormányjavaslatához [Criticisms and Improving Remarks to the Government Proposal of the New Civil Code]. In: Magyar Jog [Hungarian Law] 9 / 2008, pp577-590.

Periodicals Recurrently Cited BÍRÓSÁGI HATÁROZATOK [Court Decisions] – A Magyar Köztársaság Legfelsőbb Bíróságának lapja [Periodical edited by the Supreme Court of the Republic of Hungary] – selected decisions of courts, considered the main source when referring to case law – published by HVG-ORAC Lap- és Könyvkiadó Kft. Budapest (ISSN 0520-2167) POLGÁRI JOGI KODIFIKÁCIÓ [Civil Law Codification] – Periodical edited since the preparatory works of the new Civil Code began, serving as a key forum for debate on the codification – published by HVG-ORAC Lap- és Könyvkiadó Kft. Budapest (ISSN 1585-1168) (Civil Law Codification)

Table of Literature

697

Texts Related to the New Civil Code The Conception and the Regulatory Syllabus of the New Civil Code, Book Three – Property Law, as made accessible on the website of the Hungarian Ministry of Justice – downloaded from http: // www.irm.hu / ?mi=1&katid= 193&id= 217&cikkid=3309 (as downloaded at June 30th, 2007) (Concept of the New Civil Code) the First Draft of Book Four on Property Law of May 26th, 2006 (text of articles and explanatory statement), as made accessible for public debate on the website of the Hungarian Ministry of Justice, it has also been published partly in the periodical Civil Law Codification – downloaded from http: // www.irm. hu / download / negyedikdologijog.pdf / negyedikdologijog.pdf, (as downloaded at June 30th, 2007) (First Draft – Property Law) the First Draft of Book Five on the Law of Obligations II of December 31st, 2006 (text of articles and explanatory statement), as made accessible for public debate on the website of the Hungarian Ministry of Justice, – downloaded from http: // www.irm.hu / download / otodik_konyv_ii.pdf / otodik_konyv_ii.pdf (as downloaded at June 30th, 2007) (First Draft – Law of Obligations II) the Second Draft of the Civil Code of October 29th, 2007 (text of articles) as made accessible for public debate on the website of the Hungarian Ministry of Justice, – downloaded from http: // jogalkotas.hu / drupal / node / 1273 (as downloaded at October 31st, 2007) the Explanatory Statement to the Second Draft of the Civil Code, as made accessible for public debate on the website of the Hungarian Ministry of justice, downloaded from http: // www.irm.hu / download / ptk-osszefoglalo_20071029.pdf / ptk-osszefoglalo_20071029.pdf (as downloaded at October 31st, 2007) (Explanatory Statement to the 2ndDCC) the Legislative Proposal no. T / 5949 on the Civil Code, as submitted by the Governement (Ministry of Justice and Law Enforcement) to the Parliament of the Republic of Hungary at 05.06.2008, downloaded from http: // www.parlament.hu / irom38 / 05949 / 05949.pdf (as downloaded at June 9th, 2008) Szakértői Javaslat az új Polgári Törvénykönyv tervezetéhez [Draft of a New Civil Code for Hungary: An Expert Proposal]. LAJOS VÉKÁS (ed.). Complex Kiadó Jogi és Üzleti Tartalomszolgáltató Kft. Budapest 2008. – Table of Contents also available in English (pp1193-1236) and German (pp1237-1281) (Expert Proposal)

698

Hungary

Other Documents A LEGFELSŐBB BÍRÓSÁG CIVILISZTIKAI IRÁNYMUTATÁSAI [Private Law Directives of the Supreme Court]. KJK-KERSZÖV Jogi és Üzleti Kiadó Kft., Budapest 2005 (Private Law Directives) AZ ÚJ POLGÁRI TÖRVÉNYKÖNYV KONCEPCIÓJA ÉS TEMATIKÁJA [The concept and regulatory syllabus of the new Civil code]. In: Magyar Közlöny különszáma [Official Journal – Special Edition] published by Magyar Hivatalos Közlönykiadó, Budapest 2003

Basis for the Translation of Text of Articles in the HCC CompLex HMJ (Hatályos Magyar Jogszabályok – Geltende Ungarische Rechtsnormen – Hungarian Rules of Law in Force) in CD-ROM data device – Hungarian legal provisons as in force, selected provisions available in three languages – published by CompLex Kiadó Jogi és Üzleti Tartalomszolgáltató Kft. Budapest (ISSN 1586-9350)

Table of Abbreviations Note: The list includes the abbreviations repeteadly used in the report. Nevertheless, there are also other abbreviations in the text as used only in context in which they appear. These are indicated in brackets after the term or legal provision concerned. HCC

Hungarian Civil Code (as in force); in Hungarian: Polgári Törvénykönyv 1959. évi IV. törvény a Polgári Törvénykönyvről [Act IV of 1959 on the Civil Code]

1stDCC

First Draft of the Hungarian Civil Code (text prepared by the academic codification committee, in the literature also reffered as Discussion Draft) Second Draft of the Hungarian Civil Code (the First Draft as after the first revision made by the Ministry of Justice)

2ndDCC

Legislative Proposal

Government Legislative Proposal no. T / 5949 on the Civil Code as submitted to the Parliament

AcadPROP

Academic Proposal – the so-called “Expert Proposal” – (March 2008)

BH

Bírósági Határozatok – as abbreviated in Hungarian: “BH” year / number [“Court Decisions” – as published periodically by the Supreme Court]

Capital Market Act

2001. évi CXX. törvény a tőkepiacról [Act CXX of 2001 on Capital Markets] 2006. évi IV. törvény a gazdasági társaságokról [Act IV of 2006 on Business Companies] Code of Civil Procedure; in Hungarian: Polgári perrendtartás; full title: 1952. évi III. törvény a polgári perrendtartásról [Act III of 1952 on the rules of civil procedure]

Companies Act CCP

Hungary

700 CSS

Const.

Civil Senate Statement of the Supreme Court (followed by the appropriate number); in Hungarian: Legfelsőbb Bíróság Polgári Kollégium Állásfoglalás – abbreviation “PK” (followed by the appropriate number) Constitution; full title: 1949. évi XX. törvény a Magyar Köztársaság Alkotmányáról [Act XX of 1949 on the Constitution of the Republic of Hungary]

DUAPL

Decision for Uniform Application of Private Law of the Supreme Court, number / year; in Hungarian: Legfelsőbb Bíróság Polgári jogegységi határozat – abbreviation “PJE” number / year. It is also possible that the Decision concerns both private law and public administration law subjects, as observable in the title of the relevant decision.

EBH

Elvi Bírósági Határozat, year / number [Court decision of precedence: decision of a lower court selected and published within the periodical “Court Decisions” edited by the Supreme Court, in manner that follows the perceived precedence value606]

Gov. Decree on Distance Contracts

17 / 1999. (II. 5.) Kormányrendelet a távollevők között szerződésekről [Government Decree 19 of 1999 (2 February) on Contracts Concluded Between Absent Persons] 213 / 2008. (VIII. 29.) Kormányrendelet az üzleten kívül fogyasztóval kötött szerződésekről [Government Decree 213 of 2008 (29 August) on Contracts Concluded with Consumers Outside of Business Premises]

Gov. Decree on Doorstep Sale

Independent Commercial Agent 606

2000. évi CXVII. törvény az önálló kereskedelmi ügynöki szerződésről [Act CXVII of 2000 on the

The difference between the DUAPL and the EBH is only a formal one: DUAPL is published by the Supreme Court according to regulated proceedings and is classed as binding for the courts pursuant to § 47 (2) Constitution (and additionally § 25 c) of Act LXVI of 1997 on the organisation and administration of courts – 1997. évi LXVI. törvény a bíróságok szervezetéről és igazgatásáról), while the EBH is also binding for the courts on grounds of § 27 (2) of Court Organisation Act (see previous reference).

Table of Abbreviations

701

Contract Act

Independent Commercial Agent Contract]

Introductory Decree

1960. évi 11. törvényerejű rendelet a Polgári Törvénykönyv hatálybalépéséről és végrehajtásásról [Law-Decree 11 of 1960 on the entering into force and application of the Civil Code] 1991. évi XLIX. törvény a csődeljárásról és felszámolási eljárásról [Act XLIX of 1991 on Insolvency and Liquidation Proceedings] 2007. évi CXXXVIII. törvény a befektetési vállalkozásokról és az árutőzsdei szolgáltatókról, valamint az általuk végezhető tevékenységek szabályairól [Act CXXXVIII of 2007 on Investment Ventures and Commodity Exchange Service Providers, as well as on the Rules on the Operations Exercisable by Them]

Insolvency Act

Investment Ventures and Commodity Exchange Service Providers Act

Judicial Enforcement Act

1994. évi LIII. törvény a bírósági végrehajtásról [Act LIII of 1994 on Judicial Enforcement]

Land Register Act

1997. évi CXLI. törvény az ingatlan-nyilvántartásról [Act CXLI of 1997 on the Land Register]

OJ

Official Journal of the Republic of Hungary; in Hungarian: Magyar Közlöny [Hungarian Gazette]

Protection of Cultural Heritage Act Public Administration Proceedings Act

2001. évi LXIV. törvény a kulturális örökség védelméről [Act no LXIV of 2001 on the protection of cultural heritage] 2004. évi CXL. törvény a közigazgatási hatósági eljárás és szolgáltatás általános szabályairól [Act CXL of 2004 on General Rules of Public Administration Authority Proceedings] 2003. évi CXXIX. törvény a közbeszerzésekről [Act CXXIX of 2003 on Public Procurement] Legislative Proposal on the Private Law Code for Hungary of 1928; in Hungarian: Magyarország Magánjogi Törvénykönyvének Törvényjavaslata – abbreviation “Mtj.”

Public Procurement Act PrivLawCodePROP

Warehouse Act

1996. évi XLVIII. törvény a közraktározásról [Act XLVIII of 1996 on Public Warehouse Storage]