National Reports on the Transfer of Movables in Europe: The Netherlands, Switzerland, Czech Rebublic, Slovakia, Malta, Latvia

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National Reports on the Transfer of Movables in Europe

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National Reports on the Transfer of Movables in Europe Volume 6: The Netherlands, Switzerland, Czech Republic, Slovakia, Malta, Latvia

edited by

Wolfgang Faber / Brigitta Lurger Schriften zur Europäischen Rechtswissenschaft / European Legal Studies / Etudes juridiques européennes Band 15 / Volume 15 / Volume 15 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

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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: Susan-Gale Wintermuth 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. Publication of the whole series of national reports is supported by: Bundesministerium für Wissenschaft und Forschung (Vienna); Bundesministerium für Justiz (Vienna); Swiss Institute of Comparative Law (Lausanne); Land Salzburg; Evers-Marcic-Stiftung an der Rechtswissenschaftlichen Fakultät der Universität Salzburg.

ISBN (print) 978-3-86653-137-6 ISBN (eBook) 978-3-86653-923-5 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.0

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Preface This is the sixth and last 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 generally restricted to movable assets and basically leave aside fiduciary transfers, such as transfers for security purposes. After all, they do, however, not only cover mere property law issues, but also much of the related law of obligations, enforcement and insolvency – in a generally accessible language, i.e. English.3 Arthur Salomons’ report on Dutch law is an updated and greatly 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. We also wish to express special thanks to our authors Patrick J Galea, Theis Klauberg and Julija Kolomijceva, who joined the project at a very late stage and helped us to provide information on the 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). Salomons, Transfer of Title Concerning Movables Part IV, National Report: The Netherlands (2006).

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VI

transfer systems in Malta and Latvia, which otherwise would not have been covered. Due to the specific time pressure these authors were faced, these reports are a bit shorter, but the authors managed to provide much more than the most central information. Publishing the whole series of national reports would not be possible without generous support by a number of institutions. Financial support is granted by the Austrian Ministry of Science and Research (Bundesministerium für Wissenschaft und Forschung), 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 Susan-Gale Wintermuth who, again, bestowed great care in linguistically improving all reports and harmonising the terminology used. May 2010 Salzburg and Graz

Wolfgang Faber Brigitta Lurger

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List of Contributors Bénédict Foëx Professor at the University of Geneva Patrick J Galea Practicing Advocate in Malta and Lecturer in civil law and civil procedure at the University of Malta Theis Klauberg Attorney at law with bnt attorneys-at-law, Riga, Latvia; visiting lecturer at Riga Graduate School of Law Julija Kolomijceva Lawyer with bnt attorneys-at-law, Riga, Latvia Sylvain Marchand Professor at the University of Geneva Ivan Petkov Attorney at law, formerly researcher at the University of Trnava Arthur F Salomons Professor of Private Law, Centre for the Study of European Contract Law, University of Amsterdam Luboš Tichý Professor in Law, Head of Centre for Comparative Law, Faculty of Law, Charles University in Prague

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Contents Preface

v

List of Contributors

vii

National Report on the Transfer of Ownership of Movables in The Netherlands Arthur F. Salomons

1

National Report on the Transfer of Movables in Switzerland Bénédict Foëx / Sylvain Marchand

159

National Report on the Transfer of Movables in the Czech Republic Luboš Tichý

255

National Report on the Transfer of Movables in Slovakia Ivan Petkov

351

National Report on the Transfer of Movables in Malta Patrick J. Galea

451

National Report on the Transfer of Movables in Latvia Theis Klauberg / Julija Kolomijceva

547

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National Report on the Transfer of Ownership of Movables in The Netherlands Arthur F. Salomons

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Table of Contents Part I: Basic information on property law 1. Notion of ownership and other property rights 1.1. Sedes materiae 1.2. General basics 1.2.1. Publicity (a) Movables (b) Assignment of claims 1.2.2. Exclusivity 1.2.3. Priority 1.2.4. Droit de suite 1.2.5. Absolutism 1.2.6. Protection of good faith 1.3. Notion of ownership 1.3.1. The right to use the object 1.3.2. The right to revindicate the object 1.3.3. The right to dispose of the object 1.4. Restrictions on ownership 1.4.1. Restrictions regarding the use of the object 1.4.2. Restrictions regarding revindication 1.4.3. Restrictions regarding the right to dispose of the object 1.5. Other property rights in movables 1.6. Protection of ownership and other property rights 1.6.1. Revindication (a) Revindication by a non-owner (b) Revindication from the possessor 1.6.2. Declaratory judgment 1.6.3. Tort (injunction, damages) 1.6.4. Unjustified enrichment 1.7. Transferability of movables

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9 10 12 12 13 14 15 15 15 15 16 17 17 18 18 18 21 22 23 24 24 25 26 27 27 28 30

The Netherlands

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2. Possession 2.1. Possession and detention 2.1.1. The criterion “detaining property for oneself” 2.1.2. Legal capacity required? 2.1.3. Mediate and immediate possession and detention 2.1.4. Possessor (not) in good faith 2.2. Functions of possession 2.2.1. Defensive function 2.2.2. Procedural function 2.2.3. Acquisitive function (a) Occupation (b) Prescription (c) Transfer (d) Fruits 2.2.4. Liability function 2.2.5. Compensation function 2.3. Acquisition of possession 2.3.1. Taking possession (occupatio) 2.3.2. Transfer of possession (a) Corporeal transfer of possession (b) Transfer of possession by bilateral declaration 2.3.3. Succession by general title 2.4. Protection of possession 2.5. Self-help 3. Personal right and proprietary protection 3.1. Introduction 3.2. Proprietary position, financial lessee or buyer, in case of title reservation? 3.3. ‘Vormerkung’ with regard to registered property 3.4. Indirect representation 4. Field of application and definitions 4.1. Field of application 4.2. Definitions

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31 31 32 33 34 36 36 36 36 36 37 37 37 38 38 39 39 39 40 40 41 42 44

45 46 47 47

48 50

Table of Contents

5

Part II: Derivative acquisition 5. Which system of transfer is used? 5.1. Basic characteristics 5.1.1. Unititular concept of the transfer of ownership 5.1.2. The same transfer rules applicable to all kinds of obligations 5.1.3. Basic transfer requirements (a) Valid title (b) Right to dispose (including good faith acquisition and regularization) (c) Delivery 5.2. Categorization of transfer system 5.2.1. Causal or abstract? 5.2.2. Consensual or traditio system? 5.2.3. Requirement of payment? 5.3. Valid obligation 5.3.1. Obligations on which transfer can be based 5.3.2. Defects regarding obligation and effects on transfer (a) Void or annulled titles (b) Obligations that do not constitute valid titles for transfer (c) Termination of a contract 5.4. Delivery 5.4.1. Dogmatic basis 5.4.2. Forms of delivery (a) Movables within the control of the transferor (i) Actual delivery (ii) Fictitious delivery (b) Movables not within the control of the transferor (c) Movable registered objects 5.5. Registration 5.6. Real agreement 5.7. Payment – right of recovery of seller 6. Double selling

52 52 53 53 54 54 59 60 60 61 61 62 62 64 65 67 68 69 69 70 70 70 71 77 77 78 79 81 82

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7. Selling in a chain 7.1. Combined title 7.2. Defects in either of the two relationships 7.3. Acquisition through another (e.g. indirect agency) 8. Insolvency of the transferor or acquirer 8.1. Contracts and bankruptcy 8.2. Actio pauliana (in bankruptcy) 8.3. Insolvency of transferor 8.3.1. Bankruptcy between sale and delivery 8.3.2. Bankruptcy after transfer under suspensive condition 8.3.3. Position of the transferee in case of invalidity of sale 8.4. Insolvency of the transferee 9. Passing of risk and proprietary interests 9.1. Transfer of movables and passing of risk 9.2. Passing of various interests in property

83 85 86

86 87 90 90 92 92 93

95 97

Part III: Original acquisition 10. Accession, confusion and specification 10.1. Terminology: component part and principal movable 10.2. Accession of movables 10.3. Confusion 10.4. Specification 10.5. Accession of movables by land

99 100 101 102 104

11. Good faith acquisition a non domino 11.1. Field of application 11.2. Acquisition for value 11.3. Possession or physical control by transferor required? 11.4. Acquisition of physical control by transferee required? 11.5. Specific requirements regarding transferor? 11.6. Good faith 11.7. Right to buy movable back from a good faith acquirer? 11.8. Acquisition of a movable encumbered with a limited right

106 107 108 109 110 110 112 113 115

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12. Acquisitive prescription of movable property 12.1. Requirements for acquisitive prescription 12.2. “Thief becomes owner”: liberative prescription with acquisitive effect

116 119

13. Other forms of original acquisition 13.1. Finding 13.2. Occupation 13.3. Separation 13.4. Treasures

121 124 124 125

14. Reservation of title 14.1. Ownership or security right? 14.2. For which claims? 14.3. The transferor’s and acquirer’s right to dispose 14.4. Extended reservation of title 14.5. Extinction of title reservation

129 130 130 131 132

Part IV: Varia 15. Unspecified property

134

16. Abandonment

135

17. Community property 17.1. Sedes materiae 17.2. Communities; classification 17.3. Community; the right to dispose

136 137 138

18. Consequences of restitution to the owner 18.1. Entitlement to benefits (‘fruits’) of the movable 18.2. Loss and deterioration of a movable 18.3. Improvements and expenses during possession 18.4. Possessor’s right to retain a movable 18.5. Expenses to obtain restitution

140 141 144 145 146

Table of Literature

149

Table of Abbreviations

157

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Part I: Basic information on property law 1.

Notion of ownership and other property rights

1.1.

Sedes materiae

The rules regarding property law are to be found in Books 3 and 5 of the Burgerlijk Wetboek, both of which were enacted in the year 1992, when the central part of a new Civil Code (in Dutch: Burgerlijk Wetboek, henceforward to be abbreviated as: BW) was enacted.1 The BW (or at least the part that deals with patrimonial law, Book 3-8) is characterized by a hierarchical structure, both between the Books and within each Book, from general to specific (“layered structure”). This explains why the rules on transfer in general are found in Book 3, while ownership is dealt with in Book 5: a transfer applies to all kinds of property (in Dutch: goederen, which comprises both patrimonial rights and corporeal things,2 see art. 3:1 BW), while the notion of ownership is restricted to things (corporeal objects; in German: Sachen; in Dutch: zaken; see for a definition, art. 3:2 BW).3 The rules on limited rights that can only apply to things are also to be found in Book 5 (servitudes, emphyteusis [or long-term lease], the right of superficies and apartment rights), while the limited rights 1

2

3

Book 1 (Law of Persons and Family Law) was introduced in 1970, Book 2 (Legal Persons) in 1976, Book 8 (Law of transport) in 1991, Book 3 (Patrimonial law in general), Book 5 (Real Rights), Book 6 (General part of the law of obligations) and Title 7.1 (Sale and exchange) in 1992, Book 4 (Law of Succession) in 2003. Since 1992, several Titles of Book 7 (Special Contracts) have been introduced, but the project is not yet completed. The Travaux préparatoires (in Dutch: Parlementaire geschiedenis) have been published by Kluwer Publishers in Deventer; We will refer to these by Parl.Gesch., followed by the number of the Book of the BW. The term “things”, albeit somewhat ineloquent, has been deliberately chosen for the translation of the Dutch term “Zaken”; it comes closest to the sense of the Dutch word. It is, however, used herein interchangeably with the terms “movable” and “object”. The Dutch term goederen covers movable and immovable tangible objects (in Dutch: zaken) and personal and real rights that represent a certain monetary value (in Dutch: vermogensrechten). Art. 3:1 BW provides: ‘Property (in Dutch: goederen) is comprised of all things and of all patrimonial rights.’ Art. 3:2 BW: ‘Things’ (zaken)

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that can apply to all property (again: both things and patrimonial rights) are dealt with in Book 3. Book 5 is titled Real Rights, Book 3 Patrimonial Law in General.

1.2.

General basics

Dutch patrimonial law (as is the case in most, if not all, European countries) is subdivided into property law, inheritance law and the law of obligations. The distinction between proprietary rights (rights in rem) and personal rights (obligations, rights in personam) was established by a famous ruling of the Dutch Supreme Court, the Hoge Raad der Nederlanden (henceforward: Hoge Raad, abbreviated as HR) from 1905.4 In this case, the Hoge Raad ruled that contractual obligations with regard to an immovable (in this case the obligation to construct a road on one’s land) do not bind the person to whom the immovable is sold and transferred; after this transfer, the person obliged to perform is the one who has entered into the contract, not the new landowner.5 From 1905 onwards, therefore, Dutch patrimonial law has been characterized by a sharp division between rights in rem with absolute effect (including droit de suite), and personal obligations, which bind only the original parties involved. In later developments the distinction has lost its initial sharpness via the introduction of new exceptions,6 but as a basic rule it still remains valid.7

4 5

6

are corporeal objects susceptible of human control.’ Art. 3:6 BW: ‘Patrimonial rights (vermogensrechten) are those that, either separately or together with another right, are transferable; rights intended to procure a material benefit for their holder; or rights acquired in exchange for actual or expected material benefit.’ See J.C. van der Steur, Grenzen van rechtsobjecten. Een onderzoek naar de grenzen van objecten van eigendomsrechten en intellectuele eigendomsrechten. Serie Recht en Praktijk 124 (Thesis; Kluwer: Deventer 2003) and Th. F. de Jong, De structuur van het goederenrecht. Over het afschaffen van het begrip van de onlichamelijke zaak, het onderscheid tussen rechten en hun voorwerpen en een opening in het systeem (Thesis; Groningen 2006). HR 3-3-1905, W. 1905, no. 8191 (Blaauboer-Berlips). As the new landowner is not obliged to perform, and the former landowner is no longer able to perform, the original performance (to construct a road) will be converted into an obligation to pay damages. The most noteworthy of these is to be found in art. 6:252 BW, which rules that a contract may stipulate that the obligation of one of the parties to tolerate or not to do something in respect to his registered property will be transferred to the persons who will acquire the property by way of particular title, and that the stipulation may also bind those who will acquire a right to use the property from the title-holder. For

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7

A further characteristic of Dutch property law is its adherence to the principle of a numerus clausus of property rights.8 The numerus clausus rule can be found in art. 3:81 § 1 BW (note the words “recognized by law”):9 A person who is entitled to an independent and transferable right, may, within the limits of that right, establish the limited rights recognized by law. He may also transfer his right subject to such a limited right, provided that he respects the rules pertaining to both the transfer of such property and the establishment of such a limited right.

We will return to this provision below (in § 1.3 under c and § 1.4.3). Nevertheless, its importance should not be exaggerated. Even if it – correctly – provides that Dutch property law does not acknowledge absolute rights other than ownership and the limited rights that have found their way into the BW, the Dutch patrimonial law enacted in 1992 is characterized by a fundamental openness:10 there is room for (the acknowledgement of rights in) new legal concepts as long as they meet two criteria: they have to fit into the system of law and be in keeping with the rights that are recognized by law. In this light, Dutch property law should not be described as ‘closed’ but as ‘half open’.11 Besides the numerus clausus rule, there are several other general principles of Dutch property law. We will distinguish six of them (publicity, exclusivity, priority, droit de suite, absolutism, protection of good faith).

7

8

9

10

11

this stipulation to have effect, a deed must be drawn up, by a notary, of the contract between the parties, followed by its entry in the public registers. See E.B. Rank-Berenschot, Over de scheidslijn tussen goederen- en verbintenissenrecht (Thesis; Kluwer: Deventer 1992) for a thorough analysis of the distinction. See on the scope and importance of this principle in Dutch property law, above all, the recent, lengthy Phd-thesis by T.H.D. Struycken, De numerus clausus in het goederenrecht. Serie Onderneming en Recht 37 (Thesis; Kluwer: Deventer 2007). See for a translation to English and French of the Dutch Civil Code of 1992, P.P.C. Haanappel and E. MacKaay, Nieuw Nederlands Burgerlijk Wetboek. Het vermogensrecht (Kluwer law and Taxation Publishers: Deventer, Boston 1990). This view was introduced by the authoritative W. Snijders, until 1998 vice president of the Dutch Supreme Court and until 1995 Government Commissioner appointed to complete the new Burgerlijk Wetboek. See in particular W. Snijders, De openheid van het vermogensrecht. Van syndicaatszekerheden, domeinnamen en nieuwe contractsvormen, in: Onderneming en 10 jaar nieuw Burgerlijk Recht (Kluwer: Deventer 2002), p. 27-58.

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1.2.1. Publicity Of vital importance is the principle of publicity.12 As property rights have absolute effect (see below), they must be “noticeable”. The importance of publicity is best demonstrated in the provisions regarding transfer of movables (one could even say that for most categories of property). The requirement of publicity focuses not on the question whether one owns a certain object, but on the question whether one has acquired the object. The only exception is registered property, of which third persons can at any time find out not only by whom and to whom the object was transferred in the past, but also who is the present owner of the object. It should be noted, however, that an entry in the public registers is not correct ipso facto; it may turn out at a later stage that a transfer published in the public registers in the right manner was invalid after all, e.g. because of annulment of the title of transfer. Publicity concerning transfer will be dealt with below in greater detail, when the different forms of transfer are described. Two examples may suffice here:

(a)

Movables

Movables are to be delivered by giving possession thereof to the acquirer (art. 3:90 § 1 BW). This can be done sine manu13 (art. 3:115 under a-c; constitutum possessorium, brevi manu, longa manu), but when the alienator and acquirer choose delivery through constitutum possessorium, they have to take into account that our legislator has “discriminated” against this form of delivery in two ways: (i) A delivery by constitutum possessorium can only be performed by a possessor, not by a detentor. This follows from the fact that art. 3:115 BW speaks of “transfer” of possession; only a possessor is capable of a transfer of possession, whereas a detentor can only give possession (see art. 90 § 1 BW). The rule can also be deduced from art. 3:111 BW: A person who has begun detention for another pursuant to a juridical relationship continues to do so under the same title, so long as no change is apparent 12

13

See H.J. Snijders and E.B. Rank-Berenschot, Goederenrecht. Studiereeks burgerlijk recht 2 (4th ed., Kluwer: Deventer 2007) (henceforward referred to as: Snijders / Rank-Berenschot, Goederenrecht), nos. 80 and 81. See W.H.M. Reehuis and A.H.T. Heisterkamp, Mr. A. Pitlo. Het Nederlands burgerlijk recht 3. Goederenrecht (12th ed., Kluwer: Deventer 2006) (henceforward referred to as: Pitlo / Reehuis, Heisterkamp, Goederenrecht), nos. 226-242.

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in his title that results either from an act by the person for whom he holds or from the latter’s right having been contested.

This provision is an adaptation of the well-known maxim sibi causam possessionis mutare potest (Dig. 41.V.2.1). (ii) Art. 3:90 § 2 BW provides: Delivery of a thing that remains in the hands of the alienator has no effect with respect to a third person who has a prior right to the thing, until the time when the thing has come into the hands of the acquirer, unless the third person has consented to the alienation.

The effect of this provision is that delivery by constitutum possessorium (obviously: by a possessor, as a detentor cannot deliver by constitutum possessorium at all) does not have any effect on the owner, other title-holders (with a limited property right like usufruct) and creditors with preferential debts, as long as the object has not yet come into the hands of the acquirer. These two rules combined (artt. 3:111 and 3:90 § 2 BW) have the purpose and effect of distinguishing delivery by constitutum possessorium, exactly because this form of delivery lacks publicity. To put it differently: with regard to movables, Dutch property law favours publicized transfer over nonpublicized transfer. It does not, however, prohibit non-publicized transfer: it acknowledges that delivery by constitutum possessorium cannot be missed for economic reasons. For the same reason, in 2004 the possibility of assigning claims without notification to the debtor was introduced; see below.

(b)

Assignment of claims

Assignment of claims14 also requires some form of publicity, as follows from art. 3:94 § 1 BW: In cases other than those provided in the preceding article, rights to be exercised against one or more specifically determined persons are delivered by means of a deed intended for that purpose and notice thereof given by the alienator or acquirer to those persons.

Notification of the debtor is an essential element of the assignment: the transfer does not take effect until the notification is performed. This requirement, however, is controversial, and in October 2004 (because of the unexpected advance of factoring and securitization) a new 14

Pitlo / Reehuis, Heisterkamp, Goederenrecht, no. 255-290.

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(third) paragraph has been added to art. 3:94 BW in which an alternative form of assignment is laid down. This new form of assignment (labelled ‘silent assignment’ in Dutch literature) does not require notification in order to have proprietary effect: both an authentic deed and a registered deed under private writing suffice to make the assignee the titleholder of the claim. However, the silent assignment cannot be invoked against the debtor of the claim until notification has taken place. This is not the place to elaborate on this development in detail.15 For our present purpose it is important to note that the introduction of ‘silent assignment’ (as an alternative to ‘public assignment’) implies a concession to the principle of publicity for the benefit of those involved in the new financial instrument of securitization. See the principle of publicity also below, § 5.4.1.

1.2.2. Exclusivity Property rights are characterized by exclusivity,16 as can be demonstrated by the provision regarding the right of the owner to use his property (art. 5:1 § 2 BW): To the exclusion of everybody else, the owner is free to use the thing provided that this use not be in violation of the rights of others and that it respect the limitations based upon statutory rules and rules of unwritten law.

The principle of exclusivity is expressed with the words “to the exclusion of everybody else”. Most authors hold that exclusivity is not so much a characteristic of ownership, but of all proprietary rights.17 15

16 17

See on this development, both in the Netherlands and in several other European countries, A.F. Salomons, Deformalisation of Assignment Law and the position of the debtor in European Property Law, European Review of Private Law 5-2007 [639657] (also published in: Pro forma? Essays on the role of Formal Rules and Formal Requirements in Private Law. Bundel Amsterdams Instituut voor Privaatrecht 3 (A.F. Salomons and G.J.P. de Vries eds.; Boom Juridische uitgevers: The Hague 2006), 275-291). Snijders / Rank-Berenschot, Goederenrecht, nos. 34-35. Author’s comment: I have challenged this view with regard to security rights (pledge and hypothec), which in my opinion should not be considered as exclusive rights; see A.F. Salomons, Exclusiviteit van eigendom: hoeveel solidariteit kan van een eigenaar verwacht worden?, in: Privaatrecht tussen autonomie en solidariteit. Bundel Amsterdams Instituut voor Privaatrecht 1 (M.W. Hesselink, C.E. du Perron and A.F. Salomons eds.; Boom Juridische uitgevers: The Hague 2003), p. 241-260.

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1.2.3. Priority In case of a collision between two property rights the issue is decided by the principle of priority; the oldest property rightis stronger than the younger one (droit de preference; prior tempore, potior iure). The principle of priority can be regarded as a consequence of the nemo-plus rule.18

1.2.4. Droit de suite Property rights are characterized by the notion of droit de suite: the titleholder is allowed to follow (suivre) and claim his property from whoever holds that property without any title to it (e.g. a lease contract or a right of usufruct). The same applies, mutatis mutandis, to the person entitled to a limited right. Of course, priority and droit de suite are closely connected and both principles are faced with the same limitations and exceptions.

1.2.5. Absolutism Yet another way of describing the same phenomenon is found in the principle of absolutism: property rights have absolute effect (from the Latin absolutus: dissolved, detached) and can be invoked against whomever is in possession of the object.

1.2.6. Protection of good faith The last three principles (priority, droit de suite, absolutism) are subject to important exceptions. The principal exception is the protection of good faith,19 which in itself can be regarded as a principle. The Dutch civil code contains a well-elaborated set of provisions regarding this third party protection. The most important provisions – which will be dealt with below in greater detail – are art. 3:86 BW (movables), art. 3:88 BW (immovables and claims), art. 7:42 (movables, in case a seller exercises his right of recovery) and art. 3:36 BW (general protection of the third party acting in good faith). At this point, it suffices to say that this principle, protecting the acquirer who did not know or ought to have known that the acquired object was 18

19

Nemo plus iuris ad alium transferre potest, quam ipse haberet (Dig. 50.17.54, Ulpianus) (no one is able to transer more rights than he himself owns). Pitlo / Reehuis, Heisterkamp, Goederenrecht, nos. 153-156.

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encumbered with the proprietary right of someone else, is closely connected to the principle of publicity: there is no need and room for the protection of someone who was able to learn of the proprietary right of another for the reason that that right was “published” in the prescribed form. Cf. in this context art. 3:11 BW: Where good faith of a person is required to produce a juridical effect, such person is not acting in good faith if he knew the facts or the law to which his good faith must relate or if, in the given circumstances, he should have known them. Impossibility to inquire does not prevent the person, who had good reasons to be in doubt, from being considered as someone who should have known the facts or the law.

1.3.

Notion of ownership

As stated above, in Dutch property law only corporeal objects can be the object of ownership. This follows from the definition of ownership in art. 5:1 § 1 BW: Ownership is the most comprehensive right that a person can have in a thing

and the definition of things in art. 3:2 BW: Things are corporeal objects susceptible of human control.

Furthermore, we see that only objects susceptible to human control can be owned. Water in the sea and the air around us cannot be the object of ownership, until it is put in, e.g., a jar or a bottle. With regard to the rights connected to ownership, the Dutch legislator has rejected the (modern, primarily Anglo-American but rooted in common law), “bundle of rights” theory in favour of the (ancient, continental) view that the notion of ownership is indefinite and, therefore, it is impossible to enumerate all rights (powers, in Dutch: bevoegdheden) of the owner. Nevertheless, the three most important rights connected to ownership have indeed been enumerated in the BW: the right to use the object, the right to revindicate it, and the right to dispose of it:

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1.3.1. The right to use the object The right to use the object (as well as the limitations to this right) is to be found in art. 5:1 § 2 BW: To the exclusion of everybody else, the owner is free to use the thing provided that this use not be in violation of the rights of others and that it respect the limitations based upon statutory rules and rules of unwritten law.

1.3.2. The right to revindicate the object The right to revindicate the object is to be found in art. 5:2 BW:20 The owner of a thing is entitled to revindicate it from any person who detains it without right.

This right ends, of course, as soon as the object is acquired by another person, e.g. by prescription21 or by acquisition by a third-acquirer in good faith.22

20

21

22

See P.C. van Es, De actio negatoria. Een studie naar de rechtsvorderlijke zijde van het eigendomsrecht (Thesis; Leiden 2005), who argues that next to the revindication of art. 5:2 BW a separate legal action is available to the owner against infringements on his exclusive right to use his property, a so-called modern actio negatoria comparable to the action of § 1004 (1) BGB in German law. Art. 3:99 § 1 BW: Rights in movables that are not registered property and rights under documents payable to bearer and order are acquired by a possessor in good faith by uninterrupted possession for three years; other property is acquired by uninterrupted possession for ten years. The possessor in bad faith is also entitled to acquisition through presciption, as follows from art. 3:105 § 1 BW: A person who possesses property at the time of the completion of the prescription of the right of action to terminate possession, acquires the property even if his possession was not in good faith. As the revindication is prescribed in 20 years (see art. 3:306 BW), the thief of a movable object becomes the owner of his loot in 20 years time. It goes without saying that this new provision, seemingly without precedent in other countries, is rather controversial among Dutch scholars. Below (in § 2.1.4, § 2.2.3.b, § 12 (especially § 12.2) and § 13.4), we will deal with this in more detail. See for movables, art. 3:86 BW; for immovables and claims, art. 3:88 BW (see below, § 5.1.3).

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1.3.3. The right to dispose of the object The right to dispose of the object (better: of his right with regard to the object) is, in principle,23 the exclusive right of the owner. This, however, is not explicitly laid down in the BW. Cf. art. 3:81 § 1, first sentence: A person who is entitled to an independent and transferable right, may, within the limits of that right, establish the limited rights recognized by law.

This provision states that the title-holder of an object is entitled to establish limited rights, but not to transfer the object entirely. Relevant in this context is art. 3:83 BW, which mentions the transferability of ownership (without indicating who is entitled to such a transfer): Ownership, limited rights and debts are transferable, unless this is precluded by law or by the nature of the right.

Transferability does not necessarily imply the right to dispose of the object, as transferability relates to the object, whereas the right to dispose thereof relates to the title-holder. We will return to this provision below, in § 1.4.3.

1.4.

Restrictions on ownership

The right of ownership is in itself not limited or restricted. This can be explained by the fact that ownership is regarded as an indefinite right: there are no limitations, until the owner starts exercising the rights that stem from his right. Therefore, we have to focus on the restrictions attached to the various rights of the owner, that is: restrictions regarding the use of the thing (§ 1.4.1), regarding the right of revindication (§ 1.4.2), and regarding the right to dispose of the thing (§ 1.4.3).

1.4.1. Restrictions regarding the use of the object As we have seen, art. 5:1 § 2 BW provides that the owner is, to the exclusion of everybody else, free to use the thing provided that this use not be in violation of the rights of others and that it respect the limitations based upon statutory rules and rules of unwritten law. 23

We will not elaborate on the well-known exceptions of bankruptcy and attachment here.

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In this provision, the right of the owner to use the thing is limited in three ways: (a) The owner is obliged to respect the rights of others. This refers in the first place to the situation that the owner himself has established a limited right (e.g. usufruct or pledge) or a personal right (e.g. lease) on the object of his ownership.24 Furthermore, the owner is not entitled to interfere with other rights or hinder their title-holders: a landowner should take the interests of neighbouring landowners into consideration and “may not cause nuisance to owners of other properties to a degree or in a fashion that is unlawful”; see art. 5:37 BW. This provision is not relevant to the situation in which the thing is transferred by the detentor to a third person and the latter is protected on the basis of his good faith; if the object were a movable (e.g. a bike) sold by its lessee, the acquirer in good faith would be protected by art. 3:86 § 1 BW (assuming that the requirements of this provision are met). This protection is “real”, which means that the acquirer of the bike becomes the owner instead of the former owner (the lessor). This implies that the former owner is no longer entitled to use or to revindicate the bike. (b) The owner is obliged to respect the limitations based upon statutory rules. This refers both to provisions within the Burgerlijk Wetboek (e.g. the aforementioned art. 5:37 BW, the prohibition of hindrance), and to provisions enacted by the national legislator outside the Burgerlijk Wetboek. Furthermore, the rule encompasses provisions in “lower legislation”, e.g. municipal or provincial ordinances. The relevant provisions usually deal with – that is, limit – the free use of objects, whether it be by the owner or not. It must be stressed that, while ordinances may limit the free use of a thing by its owner, it has been left to the courts to decide whether ordinances may provide rules that award the right to use a thing to someone other than the owner (violation of the principle of exclusivity). Ordinances cannot take away the right of the owner to use his thing altogether, nor can they limit in any way the right of the owner to dispose of his thing.25 24

25

This relates to the right of revindication: when, for example, a bike has been leased by the owner to a lessee for the period of six months and this period has not yet expired, the owner is obliged to honour this: he is not entitled to use the bike himself, if this would violate the rights of the lessee (as will almost certainly be the case), and he is not entitled to revindicate the bike (this follows from the provision that revindication is only allowed from persons who detain the thing of an owner without right; see below). See on this subject R. Meijer, Het eerste van vijf; de exclusiviteit van Eigendom, in: Liber Amicorum NBW. Opstellen aangeboden aan mr.drs. B.C. de Die (Gouda Quint: Arnhem, Kluwer: Deventer, W.E.J. Tjeenk Willink: Zwolle 1991), p. 73-78, A.F.

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(c) Finally, the owner is obliged to respect the limitations based upon rules of unwritten law. In the first place, this refers to art. 6:162 BW, the general provision on tort law, stating that a person who commits an unlawful act toward another, which can be imputed to him, must repair the damage the other person suffers as a consequence thereof (§ 1) and that the violation of a rule of unwritten law pertaining to proper social conduct is deemed to be unlawful (§ 2). Secondly, it refers to art. 3:13 BW, the ‘prohibition of abuse of right’, stating that the holder of a right may not exercise it to the extent that it is abused (§ 1), and that instances of abuse of right are the exercise of a right with the sole intention of harming another or for a purpose other than that for which it was granted; or the exercise of a right where its holder could not reasonably have decided to exercise it, given the disproportion between the interest to exercise the right and the harm caused thereby (§ 2): this provision, too, presupposes numerous rules of unwritten law pertaining to proper conduct towards others. Thirdly, it applies to practice (customary law). An example can be found in art. 5:42 § 1 BW: 1. Unless the owner has consented, or the adjacent land is a public road or public water, trees, shrubs or hedges must not be within such distance from the boundary of the property of another person as determined in paragraph 2. 2. Unless a shorter distance is permitted pursuant to an ordinance or local usage, the distance referred to in paragraph 1, for trees, is two metres from the middle of the base of the tree, and half a metre for shrubs and hedges.

It follows that a landowner may be obliged to tolerate the presence of trees within a distance of less than two metres from the boundary of his property when local usage permits this shorter distance. Finally, it applies to unwritten rules of public law. This is at once clear from art. 3:14 BW, stating that a right a person has pursuant to private law, may not be exercised contrary to the written or unwritten rules of public law. Does the provision that the owner must respect rules of unwritten law have independent significance? Yes and no. One could maintain that the provision is superfluous, next to the articles 6:162, 3:13 and 3:14 BW. Salomons, Exclusiviteit van eigendom: hoeveel solidariteit kan van een eigenaar verwacht worden?, in: Privaatrecht tussen autonomie en solidariteit. Bundel Amsterdams Instituut voor Privaatrecht 1 (M.W. Hesselink et al. eds.; Boom Juridische uitgevers: The Hague 2003), p. 241-260, and Parl.Gesch. Boek 5 (Inv. Boek 3, 5 en 6) (Kluwer: Deventer 1990), p. 1004.

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Nevertheless, the legislator deemed it useful to enumerate the restrictions, stemming from these articles, to stress that the right of ownership does not furnish a valid defence against claims based upon unlawful action, abuse of right or exercise of a right contrary to public law.

1.4.2. Restrictions regarding revindication The owner’s right of revindication is restricted in several ways: – When the owner brings a revindicatory action against a possessor (detentor pro se), the owner will have to prove that the possessor is not the owner; see art. 3:119 § 1 BW. – A revindicatory action cannot be commenced against someone who is entitled to use the thing or otherwise is entitled to detain the thing on the basis of a personal or real right. – When the owner has lost possession of the thing through theft or loss, he runs the risk that this has caused the loss of his ownership as a result of protection of the acquirer in good faith (art. 3:86 BW) or because the finder has fulfilled all the legal obligations and has acquired the ownership of the lost thing (after one year, on the basis of art. 5:5 BW). – When the finder has not acquired the ownership of the lost thing (e.g. because the loss occurred less than one year before the revindication), he may, nevertheless, be entitled to a reward (art. 5:10 § 2 BW). He does not have a right of retention of the lost thing, however. See on the acquisition of a movable by its finder below, § 13.1. – When the revindicatory action is commenced against a possessor in good faith, art. 3:120 BW enumerates several restrictions, strengthened by a right of retention (§ 3): 1. Separated natural fruits and civil fruits that have become exigible belong to the possessor in good faith. 2. The title-holder of property who claims it from a possessor in good faith or has recovered it from him is obliged to reimburse him for the costs expended on the property, as well as for the damages for which, by virtue of the rules of Title 3 of Book 6, the possessor might be liable toward third persons by reason of his possession; this obligation ceases to the extent that the possessor has been indemnified by the fruits of the property and the other benefits he has drawn from it. The judge may reduce the reimbursement due if full reimbursement would result in an inequitable advantage of the possessor over the title-holder. 3. As long as a possessor in good faith has not received the reimbursement due to him, he has the right to suspend restitution of the property.

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4. The provisions of this article also apply to a person who believes and could believe that he has lawfully acquired possession, although he knows that the acts necessary for delivery of the right have not taken place.

A possessor who is not in good faith is obliged to restore to the owner the separated natural fruits and the civil fruits that have become exigible, without prejudice to his liability for the damage suffered by the owner and in addition to the restitution of the thing. He may claim against the owner the reimbursement of the costs that he has expended on the thing or that he has made to produce the fruits only to the extent that his claim can be based on the rules regarding unjustified enrichment (art. 3:121 BW). See on this in more detail below, § 1.6.1.b, § 2.2.3.d, § 9.2 and especially § 18.1 and § 18.3.

1.4.3. Restrictions regarding the right to dispose of the object With regard to the right of the owner to dispose of the thing one has to distinguish between the right to transfer the thing (better: to transfer the ownership of the thing) and the right to establish limited rights like a pledge or usufruct. The former – the right to transfer the thing – is (indirectly) dealt with in art. 3:83 BW. Ownership, limited rights and debts are transferable, unless this is precluded by law or by the nature of the right, while the transferability of debts can also be excluded by agreement between the creditor and the debtor. Other rights are not transferable except if so provided by law. Obviously, transferability is not to be confused with the right to transfer: the former is a quality of the object, the latter a quality of the title-holder. But it goes without saying – and has not even been laid down in the code – that the right to transfer an object belongs exclusively to the owner (cases of execution by pledgee or mortgagee, bankruptcy and seizure excluded), so the limitations of transferability and the limitations of the right to transfer concur.26 The latter – the right to establish a limited right in the thing – belongs to the person “who is entitled to an independent and transferable right” (art. 3:81 § 1 BW). This implies a first restriction: when the object is not independent or not transferable, no limited right can be established. Two more restrictions are to be found in § 1 of the same article: 26

Property belonging to the public domain is intended for direct use by the public, but is nevertheless susceptible to private law ownership and does not have to be owned by the public autorities; see likewise G.A. van der Veen, Openbare zaken. Betekenis van het aloude publiek domein na vestiging van het primaat van het publiekrecht (Thesis; W.E.J. Tjeenk Willink: Zwolle 1997).

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– An established limited right must be “within the limits” of the right on which it is established. This refers to the nemo plus rule. When one has established a servitude on his land, e.g. permitting his neighbour to pass over the land, and after that he grants a right of usufruct on that land to someone else, the latter is bound by the provisions of the servitude, as the owner is not entitled to transfer rights he does not have. – The limited right has to be “recognized by law”. This is the enactment of the numerus clausus rule, the status of which under present Dutch law has been described above, § 1.2.

1.5.

Other property rights in movables

The Burgerlijk Wetboek acknowledges, besides ownership, four proprietary rights in movables: – Usufruct (in Dutch: vruchtgebruik):27 gives a right to use property belonging to another and to enjoy the fruits thereof (art. 3:201 BW). – Right of use and right of habitation (in Dutch: recht van gebruik en recht van bewoning).28 These two rights are more or less variations on usufruct, which is acknowledged by the fact that, with some exceptions, the rules regarding usufruct apply mutatis mutandis to the right of use and the right of habitation (art. 3:226 § 1 BW). The crucial exception is to be found in § 4 of the same article: a person having the right of use or the right of habitation cannot alienate or encumber it; nor can he allow the thing to be used or the dwelling to be inhabited by another person.29 – Hypothec (in Dutch: hypotheek):30 is a limited right, established upon registered property, intended to provide recourse against the property subjected thereto for a claim for the payment of a sum of money, with preference over other creditors. Where it has been established upon other property, it is a pledge (see art. 3:227 BW).

27

28 29

30

See Pitlo / Reehuis, Heisterkamp, Goederenrecht, nos. 678-705, and W.M. Kleijn, Vruchtgebruik. Monografieën Nieuw BW B-10 (Kluwer: Deventer 1990). Pitlo / Reehuis, Heisterkamp, Goederenrecht, nos. 703-705. Only tangible things are susceptible to the rights of use and habitation. Therefore, these rights ought to have been placed in Book 5 BW (Real Rights). Because of the close connection with usufruct, however, it has found its way into Book 3 BW, annexed to Title 8 (Usufruct). Author’s comment: I prefer the term hypothec over mortgage. See on hypothec in Dutch property law Pitlo/Reehuis, Heisterkamp, Goederenrecht, nos. 837-912, and W. Heuff, Hypotheek. Monografieën Nieuw BW B-12b (2nd ed.; Kluwer: Deventer 1993).

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– Pledge (in Dutch: pandrecht):31 the same as a hypothec (see above), but established on property other than registered property. It should be mentioned that the so-called floating charge, stemming from English security law (in equity), holds no place in Dutch law. None of these rights is restricted to movables, and most of them are not even restricted to things:32 a right of usufruct is also possible on all other property (art. 3:201 BW), the rights of use and habitation are also possible on immovable thing (art. 3:226 BW), a right of pledge is also possible on rights payable to bearer or order, on the usufruct of such a thing or right, or on claims (in short: on all non-registered property, see art. 3:227 § 1 BW), and a hypothec is possible on all registered property susceptible of transfer (art. 3:228 BW in conjunction with art. 3:260 BW). The numerus clausus rule does not preclude the creation of new proprietary rights by special laws (i.e. outside the civil code). Indeed, this has been done in the past, for example the proprietary right of one’s own grave.33 This, however, is an exception to the rule: property law constitutes a system that is laid down in the civil code.

1.6.

Protection of ownership and other property rights

Several types of action are available to the owner and other title-holders against possible infringements of their rights. We will distinguish between the action of revindication, the action to obtain a declaratory judgement, a tort action, and an action arising from unjustified enrichment.

1.6.1. Revindication The principal action for the owner is the revindication (art. 5:2 BW): The owner of a thing is entitled to revindicate it from any person who detains it without right. 31

32

33

See Pitlo / Reehuis, Heisterkamp, Goederenrecht, Section 14 § 3 and 4, and F. Molenaar, Pandrecht. Monografieën Nieuw BW B-12a (2nd ed.; Kluwer: Deventer 1991). The Burgerlijk Wetboek contains four other proprietary rights, all of them restricted to things and therefore dealt with in Book 5 BW (Real Rights): Servitutes, Emphyteusis, the Right of Superficies and Apartment rights. This right was created in the Wet op de lijkbezorging (Funeral and Cremation Act), enacted in the year 1869 (Staatsblad 1869, 65). See Asser-Mijnssen-De Haan, Goederenrecht 3-I (14th ed.; Kluwer: Deventer 2001), no. 39, and J. van der Haar, Lijkbezorgingsrecht (Thesis; Samsom: Alphen aan den Rijn 1964).

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The revindication enables the owner (and the other title-holders to whom the action is also available; see below) to recover his property in its current condition. It can be instituted both against the person who is in actual possession of the property (either as immediate possessor or as immediate detentor) and against the person (the mediate possessor or mediate detentor) who possesses or detains the property that is detained for him by another (see art. 3:107 BW). Example: owner A of a bike can revindicate it both from thief B and from person C to whom B has rented the bike. This action against the mediate possessor or mediate detentor will not succeed, however, when the latter is not in a position to instruct the detentor to return the property.34 The revindication also fails when the defendant is entitled to detain the property on the basis of a legal relationship with the owner. This is the case when owner A has leased a thing or has granted the usufruct of the thing to B: for the duration of these relationships, revindication by A from B is precluded. The limitation period for revindication is 20 years (art. 3:306 BW; before 1992 this was 30 years).

(a)

Revindication by a non-owner

The action is also available for the emphyteutic holder, the superficiary and the usufructuary, which are on a par with the owner.35 Indirectly, the possessor of a thing is also entitled to revindicate property on the basis of loss or disturbance: this follows from art. 3:125 § 1 BW: He who has acquired possession of property can, on the basis of a subsequent loss of or disturbance in the possession, institute the same actions against third persons to recover the property and to remove the disturbance as the title-holder of the property. Nevertheless, these actions must be instituted within the year following the loss or disturbance.

This short-lived revindication by the possessor will not succeed against every one, as § 2 provides that

34

35

See the judicial decisions of Hof (= Court of Appeal) Amsterdam d.d. 25 June 1947, NJ 1947, 579 and Hof Amsterdam 26 June 1947, NJ 1947, 580. Asser-Van Dam-Mijnssen-Van Velten 3-II, Goederenrecht. Zakelijke rechten (14th ed.; Kluwer: Deventer 2002), § 115.

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(…) the action is rejected if the defendant has a better right than the plaintiff to the detention of the property or if he has performed the disturbing acts pursuant to a better right, unless the defendant has taken possession from the plaintiff or has disturbed his possession in a violent or surreptitious manner.

This means that the action will succeed against those who have no rights to the property whatsoever and against those who have obtained their possession at the expense of the former possessor: to the latter category belong the thief, the incompetent detentor, and the person who has acquired the thing from someone who was not entitled to dispose of the thing.36 After the expiry of one year since the loss or disturbance, this course of action is no longer available to the possessor, but this does not preclude him from bringing an action on the basis of a tort claim; art. 3:125 § 3 BW.

(b)

Revindication from the possessor

In the case of revindication from a possessor in good faith (as mentioned above § 1.4.2), art. 3:120 BW provides that the owner is obliged to reimburse him for the costs expended on the property, as well as for the damages for which the possessor might be liable toward third persons by reason of his possession. This obligation is offset to the extent that the possessor has been indemnified by the fruits of the property and the other benefits he has drawn from it. The judge may reduce the reimbursement due if full reimbursement would result in an inequitable advantage for the possessor over the titleholder. As long as a possessor in good faith has not received the reimbursement due to him, he has the right to suspend restitution of the property. In the case of revindication from a possessor not in good faith (for this term, see below, § 2.1.4), the latter is entitled to the reimbursement of the costs he has expended on the revindicated object only to the extent that his claim can be based on the rules regarding unjustified enrichment (art. 3:121 BW). The above does also apply (mutatis mutandis) in situations in which property is revindicated from a detentor: in the event that a third person claims property as the title-holder from somebody who detains it for another person, articles 3:120 and 3:121 BW37 apply to that detentor, due regard being had to the juridical relationship between him and the other person; see art. 3:124 BW. 36

37

A.S. Hartkamp, Compendium van het vermogensrecht volgens het nieuwe Burgerlijk Wetboek (6th ed.; Kluwer: Deventer 2005), no. 119. As well as art. 3:122 and 3:123 BW, which have not been dealt with here; see below, § 18.3.

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1.6.2. Declaratory judgment Secondly, the owner and other proprietary title-holders are entitled to request a judge give a declaratory judgement, either detailing that one’s own claimed proprietary right exists (is valid), or that the claimed right, or claim of the counter-party, does not exist (is invalid). The right to request such a judgement stems from art. 3:302 BW: The judge renders a declaratory judgment on a juridical relationship upon the demand of the person directly concerned.

This course of action is especially useful when combined with a request for an injunction and a penalty in case of non-compliance (see below).

1.6.3. Tort (injunction, damages) The owner (and other title-holders) can take legal action on the basis of tort (art. 6:162 BW) to obtain an injunction from the judge, for example forbidding the defendant to disturb the plaintiff in the free and exclusive use of his property. Such an injunction is helpful to the owner in the case of nuisance, hindrance, obstruction, malicious damage to his property, or even when someone else exercises one’s authority. The injunction serves to prevent the recurrence of these events and therefore protects against future unlawful acts. It is even possible to obtain an injunction before any interference with one’s property has actually taken place: the basis of this kind of injunction is that the defendant is legally obliged to refrain from the tort he is about to commit.38 Usually, an injunction is combined with the imposition of a penalty in case of noncompliance. The owner can also sue for damages. In principle these damages are awarded in the form of a sum of money, but “the judge may award reparation in a form other than the payment of a sum of money” (art. 6:103 BW): an order to pay damages by way of restitutio in integrum or in natura is a possibility. In some cases it is possible for the judge to award damages while refusing to grant an injunction: see art. 6:168 § 1 BW:

38

This was also the case before 1992, the year in which the new civil code was enacted; see HR 18-8-1944, NJ 1944 / 45, 598. For the current law see Parl. Gesch. Boek 6, p. 613, and Asser-Hartkamp, Verbintenissenrecht. Verbintenis uit de wet 4-III (12th ed.; Kluwer: Deventer 2006), no. 118.

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The judge may reject an action to obtain an order prohibiting unlawful conduct on the ground that such conduct should be tolerated for reasons of important societal interests. The victim retains his right to reparation for damage according to this title.

The textbook example is the case in which someone living next to an airport requests an injunction against future nuisance on the basis that the airport violates current regulations on noise nuisance. The closure of the airport would lead to mass unemployment and severe economic damage, so it would be socially undesirable to grant the injunction, but this does not deprive the airport’s neighbour of his right to receive damages in the form of the payment of an amount of money.

1.6.4. Unjustified enrichment In contrast to the former civil code (in force between 1838 and 1992) the present code acknowledges the action arising from unjustified enrichment; art. 6:212 BW. There are four conditions:39 – enrichment of the defendant; – impoverishment of the plaintiff; – a causal relationship between the enrichment and impoverishment; and – the enrichment has to be unjustified. When these conditions have been met, the plaintiff is entitled to the payment of damages “to the extent this is reasonable” (art. 6:212 § 1 BW). The extent of the liability has to be assessed as from the moment of the enrichment (ex tunc), not the moment of the summons or the day of the court’s judgement (ex nunc). In recent years, there has been some debate on the legal character of the action of unjustified enrichment. Two extremes can be discerned in this debate: (a) The action is intended to “fine-tune” the provisions of the code, and therefore its principal function is to supplement;40 39

40

See A.R Bloembergen, C.C. Van Dam, Jac. Hijma, W.A.M. van Schendel and W.L. Valk, Rechtshandeling en overeenkomst. Studiereeks burgerlijk recht 3 (5th ed.; Kluwer: Deventer 2007), no. 80, and W.H. van Boom and M.H. Wissink, Aspecten van ongerechtvaardigde verrijking. Preadviezen, uitgebracht voor de Vereniging voor Burgerlijk recht (Kluwer: Deventer 2002). See especially W. Snijders, Ongerechtvaardigde verrijking en het betalingsverkeer. Studiekring ‘Prof. Mr. J. Offerhaus’; nieuwe reeks, no. 7 (Kluwer: Deventer 2001).

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(b) The action constitutes an exception to the provisions of the code, based on equity: its principal function is to correct wherever equity so demands.41 These two approaches seem more or less diametrically opposed to one another,42 but the controversy does not seem to have much practical impact; both sides refer approvingly to the many cases in which the Hoge Raad has sustained claims on the basis of unjustified enrichment since 1992. On one aspect consensus has been reached: the principle of subsidiarity does not apply with regard to the action arising from unjustified enrichment. This implies that the owner is free to decide whether to litigate on the basis of unjustified enrichment or to commence legal proceedings on another basis (tort, revindication etc.). In the context of property law, the action arising from unjustified enrichment is especially important in cases of accession, when a thing becomes a “component part” (see art. 3:4 BW) of another thing (the “principal thing”; art. 5:14 § 3 BW) belonging to someone else.43 Even though the implications of accession – loss of ownership on the part of the owner of the component part and simultaneous acquisition by the owner of the principal thing – are based on legal provisions, they are to be considered unjustified. One could say that art. 5:14 / 20 BW causes enrichment / impoverishment without justifying them, and therefore they do not preclude an action arising from unjustified enrichment. There are also provisions that both cause and justify enrichment and impoverishment (for example, the aforementioned art. 3:120 § 1 BW, which assigns natural and civil fruits to the possessor in good faith. See, on this subject, art. 5:14 BW (accession of a movable to a movable) and art. 5:20 BW (accession of a movable to an immovable), to be dealt with below, § 10. 41

42

43

See especially A.S. Hartkamp, Ongerechtvaardigde verrijking naast overeenkomst en onrechtmatige daad, Weekblad voor Privaatrecht, Notariaat en Registratie 64416442 (2001). See A.F. Salomons, Verrijking, billijkheid en verdelende gerechtigheid, Weekblad voor Privaatrecht, Notariaat en Registratie 6467 (2001), p. 993-995. Recently, Snijders restated his opposition to the view that equity underlies the action arising from unjustified enrichment, but he added that the prohibition on unjustified enrichment can be regarded a ‘guiding principle’ for determining what equity or a reasonable interpretation of the law entails. In his opinion, guiding principles like this one offer more grip and are therefore more important than general references to equity and fairness (see W. Snijders, Ongerechtvaardigde verrijking: bestuursrecht, gemeenschapsrecht en rechtsherstel, Weekblad voor Privaatrecht, Notariaat en Registratie 6739 (2008), p. 65-73, at 65). See F.H.J. Mijnssen, Goederenrechtelijke aspecten van ongerechtvaardigde verrijking, Weekblad voor privaatrecht, notariaat en registratie 6657 (2006), p. 174-180.

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1.7.

Transferability of movables

As has been said before (§ 1.3 and 1.4.3), the transferability of things or limited rights cannot be excluded contractually: ownership and limited rights are transferable, unless this is precluded by law or by the nature of the right (art. 3:83 § 1 BW). The same goes for claims, but the transferability thereof can also be excluded by agreement between creditor and debtor (§ 2).44 An example of an object made non-transferable by law is the bottom of the territorial sea and of the Waddenzee: according to art. 5:25, ownership of these seabeds belongs to the State. An example of an object that is non-transferable by the nature thereof is a dependent right (e.g. pledge, servitude or hypothec); such a right is related to another right in such a fashion that it cannot exist independently thereof (art. 3:7 BW), and therefore cannot be transferred separately either. If the owner of a thing would contractually exclude or limit the transferability, this could have no effect erga omnes. If he would, for example, have transferred a painting to someone else under the condition that it would not be transferred again within ten years, this clause would have no proprietary effect: the acquirer would be free to transfer the painting to a third person immediately, even if the latter knew of the existence of the clause.45 The clause would, nevertheless, have effect inter partes: the acquirer would be liable contractually to the former owner for violating the stipulation to keep the painting for ten years.46

44

45 46

See F.E.J. Beekhoven van den Boezem, Onoverdraagbaarheid van vorderingen krachtens partijbeding (Thesis; Groningen 2003). In HR 17-1-2003, NJ 2004, 281 (Oryx-Van Eesteren), the Hoge Raad decided that when the parties to a contract have excluded the possibility to transfer the contractual claim ex art. 3:83 lid 2 BW, the result of this is not that the creditor is not entitled to transfer the claim, but rather that the clause has the effect that the claim itself is non-transferable. This implies that it is not relevant whether a possible assignee was aware of the clause in which transfer was excluded: as the claim was not susceptible to transfer, the assignee cannot succesfully invoke the rule on good faith acquisition. This applies mutatis mutandis to clauses in which the parties have excluded the possibility to pledge the claim. See Snijders / Rank-Berenschot, Goederenrecht, no 105. Ibid., no. 108.

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2.

Possession

2.1.

Possession and detention

Possession (in Dutch: bezit) – together with detention regulated in Book 3 Title 5 BW – is defined in art. 3:107 BW as “the fact of detaining property for oneself”. In this definition it is expressed that possession is to be regarded as a species of the genus detention (in Dutch: houderschap): possession is the kind of detention exercised for oneself (pro se). In this respect, detention refers to a factual situation: exercising power over an object. Detention is not defined in the code, but may be inferred from the travaux préparatoires. From the fact that detention is not defined it follows that possession lacks a meaningful definition, too. This is no coincidence: the legislator expressed the wish “that the judge, in applying the new provisions on possession, would let himself be guided by the practical function of possession and not by dogmatic considerations.”47

Next to possession, there is another kind of detention, which is not exercised for oneself, but for someone else. The person who detains an object for someone else is called a detentor (in Dutch: houder). There is some risk of confusion here, as the notion of detentor is reserved for the person detaining for someone else, while the notion of detention has a wider meaning: it can be applied to both the detentor and the possessor. All property is susceptible to possession and detention: both tangible property (in Dutch: zaken) and rights (in Dutch: vermogensrechten). This follows from the definition in art. 3:107 § 1 BW, but can also be inferred from the fact that these subjects are regulated in Book 3 BW.

2.1.1. The criterion “detaining property for oneself” To be in possession implies having animus rem sibi habendi. Nevertheless, the focus of the law is not on the animus itself, but on the behaviour of the possessor, or, to be more precise: on the combination of common opinion and the facts as they appear, with a corrective role for the legal provisions. Compare art. 3:108 BW:

47

Parl.Gesch. Boek 3, p. 424.

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Whether somebody detains property and whether he does so for himself or for another, is determined according to common opinion, taking into account the following rules48 and, otherwise, the facts as they appear.

The legislator has stressed49 that the words “detaining for himself” are not to be read as: “detaining as its title-holder”.50 It provided several arguments for this: (a) The words might suggest that the possessor had to be the titleholder; (b) Otherwise, it might be inferred that the possessor had to be not the title-holder (“as if he were the title-holder”); (c) It could also be maintained that a lessee detains the thing pursuant to the lease contract “as the title-holder”. The essential question is the following: in what relationship to, or under what legal presumption towards, others does the person concerned detain the property? Against this background, the use of the criterion “for himself” prevents the aforementioned uncertainties. For example, it can no longer be maintained that a lessee detains “for himself” as he detains pursuant to his relationship with the lessor.51

2.1.2. Legal capacity required? The question whether legal capacity is required to detain for oneself and therefore to be the possessor, receives no attention in the Dutch literature on either possession or legal capacity. The correct answer seems to be that possession in itself does not require legal capacity: Dutch law accepts neither the subjective theory of Von Savigny (focussing on animus) nor the purely objective theory of Von Jhering (focussing on corpus). 48 49 50

51

This refers to articles 3:109-117 BW. Parl. Gesch. Boek 3, p. 427. As was mentioned above, the notion of possession applies to all property (corporeal objects and rights), and therefore is placed in Book 3 BW. In this respect, there is an important difference with ownership, which is reserved to things and is placed in Book 5 BW. Important in this context is art. 3:111 BW, which makes it impossible for the detentor like a lessee to change the title of his possession by turning himself into a possessor without informing his counter-party: A person who has begun detention for another pursuant to a juridical relationship continues to do so under the same title, so long as no change is apparent in his title that results either from an act by the person for whom he holds or from the latter’s right having been contested. This provision is discussed in § 1.2.1, § 2.3 and § 5.4.2 sub A2.

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To determine whether possession occurs, one has to look at the circumstances which ordinarily indicate the will to detain for oneself.52 In doing so, common opinion is decisive (art. 3:108 BW), while the internal will is irrelevant (as has been said above: one has to focus on “the facts as they appear”). This implies that legal capacity is not required for being a possessor. However, this is irrelevant for the equally important question whether legal capacity is required for becoming a possessor. When this involves a legal act, legal capacity is clearly required. Most Dutch authors accept Von Savigny’s view that delivery implies a dingliches Vertrag (in Dutch: zakelijke overeenkomst), and this can be considered ius constitutum (even though there exists a noisy minority of authors who deny the need for a dingliches Vertrag); see below, § 5.6. As delivery of movables is effected by the transfer of possession (art. 3:90 BW), the latter has to be considered a legal act,53 which requires legal capacity on the part of both parties involved. Therefore, a person lacking legal capacity cannot become a possessor of a movable by way of transfer.

2.1.3. Mediate and immediate possession and detention Like German law, the BW distinguishes between the person who is in actual physical control and the person who exercises control through another person physically holding the asset (the detentor). The former is called the immediate possessor, the latter the mediate possessor; see art. 3:107 §§ 2 and 3 BW: 2. A person who possesses property that is not detained for him by another has immediate possession. 3. A person who possesses property that is detained for him by another has mediate possession.

The same distinction is made with regard to detention; see art. 3:107 § 4 BW: 4. Mutatis mutandis detention is mediate or immediate.

It has been pointed out in Dutch legal literature that there are many borderline cases. For example: when one appoints a caretaker to look after one’s 52

53

See A.C. van Schaick, Rechtsgevolgen en functies van bezit en houderschap. Monografieën Nieuw BW A-14 (Kluwer: Deventer 2003), p. 12. See likewise J.A.J. Peter, Levering van roerende zaken (Thesis; Kluwer: Deventer 2007).

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country house, does that imply that one becomes the immediate possessor?54 Whatever the answer, the question is not all that important.

2.1.4. Possessor (not) in good faith Another distinction between different types of possessors is between the possessor in good faith and the possessor not in good faith. The former is (more or less) defined in art. 3:118 § 1 BW: A possessor who believes himself to be the title-holder and is reasonably justified in that belief, is a possessor in good faith.

Someone who does not meet these requirements is a possessor “not in good faith” – a separate definition is lacking in the code.55 In a general context, art. 3:11 BW provides what the requirement of good faith entails: Where good faith of a person is required to produce a juridical effect, such person is not acting in good faith if he knew the facts or the law to which his good faith must relate or if, in the given circumstances, he should have known them. Impossibility to inquire does not prevent the person, who had good reasons to be in doubt, from being considered someone who should have known the facts or the law.

For practical purposes the distinction will not be elaborated upon here; it should be dealt with in a context in which the distinction is relevant (see e.g. above, § 1.4.2, on the revindication by a possessor in good faith / not in good faith). Distinctions between different forms of possession based on the intention of the involved persons (the German distinction between Eigenbesitz and Fremdbesitz), or on the social dependence of the person physically holding the asset, from the possessor (the German Besitzdiener), have not 54

55

See H.C.F. Schoordijk, Vermogensrecht in het algemeen. Naar Boek 3 van het nieuwe B.W. (titel 1 t / m 5, titel 11) (Kluwer: Deventer 1986), p. 355. The Burgerlijk Wetboek does not use the term “possessor in bad faith”, but prefers “possessor who is not in good faith” (in Dutch: bezitter niet te goeder trouw). See Snijders / Rank-Berenschot, Goederenrecht, no. 88, on the existence of a “no man’s land” between good and bad faith: he who did not know, but ought to have known is not in good faith, but is not in bad faith either, in view of the negative connotations of the latter term; bad faith is linked to actual knowledge. The term “bad faith” is not lacking in the Burgerlijk Wetboek altogether: in Book 6 BW, there are several provisions (art. 6:205-207 and 6:274 BW) on the “recipient in bad faith.”

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been adopted in the BW. The obvious reason for this is the conviction of the Dutch legislator that the notions ‘possession’ and ‘detention’ do not deserve too much attention, while, until 1992, they were given more attention than their practical importance warranted. As to the intensity of the relationship between the person (possessor) and the object: once possession has been acquired, it continues until it is evident that he abandons the property or another acquires possession of it (art. 3:117 § 1 and 2 BW). This implies that the possessor does not have to perform any actions to demonstrate that he wants to keep the object in his possession; his actions are only relevant for assessing whether he has evidently abandoned the property of transferred possession to someone else. It can also be concluded that the requirements for obtaining possession are stricter than for keeping it. This can also be inferred from art. 3:113 BW, which provides that possession of property is taken by acquiring actual control of it, but in the case that the property is in the possession of another, isolated acts of control are insufficient for taking possession (art. 3:113 BW). This is relevant to a recent debate on the question whether the thief who hides his loot for twenty years in order to be in a position to invoke the rule of art. 3:105 BW qualifies. This rule awards ownership to the person who possesses property at the time of the completion of the prescription of the right of action to terminate possession (20 years), even if his possession was not in good faith (see below, § 2.2.3 sub B, § 12.1 and especially § 12.2). According to some, the thief would not qualify for application of art. 3:105 BW in view of the fact that he did not openly posses the loot for twenty years (this is not explicitly required in the civil code, but is regarded as an implicit requirement for acquisitive prescription). Others have criticized this opinion by pointing at the fact that art. 3:113 BW explicitly provides that, once possession has been acquired, this possession in principle continues without any further requirements as to the behaviour of the possessor. As art. 3:105 BW merely requires possession at the time of the completion of the prescription of the right of action to terminate possession, without any additional requirements, it seems that the fact that the thief hid his loot for the entire prescription period cannot preclude acquisition on the basis of this provision.56

56

The first position is taken by A.C. van Schaick, Dief wordt vaak geen eigenaar, Weekblad voor Privaatrecht, Notariaat en Registratie 6617 (2005), p. 289-290, the latter by A.F. Salomons, Dief wordt doorgaans wel bezitter, Weekblad voor Privaatrecht, Notariaat en Registratie 6639 (2005), 803-806 (with reaction by Van Schaick). See also J.E. Jansen, Reactie op “Dief wordt vaak geen eigenaar” van mr. A.C. van Schaick, Weekblad voor privaatrecht, notariaat en registratie 6639 (2005), p. 801-802.

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2.2.

Functions of possession

Dutch doctrine distinguishes between the following functions of possession:57

2.2.1. Defensive function This function refers to the protection of possession, which is based on the fact that the person performing acts of possession is usually also the titleholder. This in itself is considered sufficient reason to protect the possessor in his possession; see art. 3:125 BW, on which see above, § 1.6.1a, and below, § 2.4.

2.2.2. Procedural function The possessor is presumed to be the title-holder – this means that proof of the opposite is permitted. This is enacted in art. 3:119 § 1 BW. The procedural function is related to the aforementioned defensive function, and can even be considered a consequence thereof: both in and outside court the possessor is to be protected on the basis of his possession itself.58

2.2.3. Acquisitive function Possession serves as an acquisitive instrument in several ways:

(a)

Occupation

Ownership of a res nullius is acquired by taking possession thereof, according to art. 5:4 BW. See below, § 13.2 and § 16.

57 58

See Pitlo / Reehuis, Heisterkamp, Goederenrecht, no. 355. The presumption of art. 3:119 § 1 BW is set aside in the second paragraph in respect to registered property, where it is established that another party or his predecessor was the title-holder at any time and the possessor could not invoke subsequent acquisition by particular title requiring entry in the registers.

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Prescription

See art. 3:99 § 1 BW: Rights in movable things which are not registered property and rights under documents payable to bearer and order are acquired by a possessor in good faith by uninterrupted possession for three years; other property is acquired by uninterrupted possession for ten years.

The possessor not in good faith is also entitled to prescription. This follows from art. 3:105 BW: A person, who possesses property at the time of the completion of the prescription of the right of action to terminate possession, acquires the property even if his possession was not in good faith.

As revindication is subject to a limitation period of 20 years (art. 3:306 BW), thieves become owners of their loot 20 years after the theft. The wisdom behind the provision of art. 3:105 has been contested by some, who fear that criminals may be induced to steal priceless objects of art, for example Rembrandt’s Night Watch, in order to hide them for 20 years, after which they are fully entitled to sell them as owners. See below, § 12.2.

(c)

Transfer

Delivery of the ownership of movables is effected by transfer of possession (art 3:90 § 1 BW). The same applies to rights payable to bearer and order (see art. 3:93 BW). We will deal with this subject in more detail elsewhere; especially § 2.3.2 sub A and § 5.4.2 sub A.

(d)

Fruits

Separated natural fruits and civil fruits that have become exigible belong to the possessor in good faith (art. 3:120 § 1 BW). This does not apply to the possessor who is not in good faith: he is obliged to restore to the title-holder the separated natural fruits and the civil fruits that have become exigible (art. 3:121 § 1 BW). See below, § 9.2, § 13.3 and § 18.1.

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2.2.4. Liability function For several categories of objects, being its possessor involves liability for any damage the object may cause. This applies to: – The possessor of a movable thing which is known to constitute a special danger for persons or things if it does not meet the standards which, in the given circumstances, may be set for such a thing, unless there would have been no liability if the possessor would have known the danger at the time when it arose (art. 6:173 BW);59 – The possessor of a structure that does not meet the standards that, in the given circumstances, may be set for it, and thereby constitutes a danger for persons or things, unless there would have been no liability if the possessor would have known the danger at the time when it arose. In the case of emphyteusis, the liability rests upon the possessor of the right of emphyteusis. In the case of public roads, it rests upon the public authority in charge of the proper maintenance of the roads; in the case of conduits, it rests upon the person managing them, except to the extent that the conduit is located in a building or work and serves to supply or drain that building or work (art. 6:174 BW);60 – The possessor of an animal, unless there would have been no liability if the possessor would have had control over the behaviour of the animal that caused the damage (art. 6:179 BW).61 Art. 6:181 BW adds to this: where the things, structures or animals referred to in articles 6:173, 6:174, and 6:179 BW are used to carry on a business, the liability rests upon the person carrying on this business, unless a structure is involved and the origin of the damage is not related to the carrying on of the business.

2.2.5. Compensation function Even in cases where the possessor is obliged to hand over the thing to the owner (e.g. in the case of revindication), the possessor is not left emptyhanded: according to art. 3:121 BW, he is entitled to the reimbursement of the costs expended on the property, as well as for damages for which the possessor might be liable toward third persons by reason of his possession; this obligation ceases to the extent that the possessor has been indemnified 59

60 61

See Asser-Hartkamp 4-III, Verbintenissenrecht; de verbintenis uit de wet, nos. 168185. Ibid., nos. 186-192. Ibid., nos. 193-200.

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by the fruits of the property and the other benefits he has drawn from it. The judge may reduce the reimbursement due if full reimbursement would result in an inequitable advantage for the possessor over the title-holder. The possessor not in good faith is entitled to reimbursement of the costs he expended on the property or which he has made to produce the fruits only to the extent that his claim can be based on the rules regarding unjustified enrichment; art. 3:121 BW. See above, § 1.4.2 and § 1.6.1, and especially below, § 18.

2.3.

Acquisition of possession

In art. 3:112 BW, three forms of acquisition of possession are distinguished: by taking possession, by transfer of possession and by succession by general title.

2.3.1. Taking possession (occupatio) A person takes possession of property by acquiring actual control of it (art. 3:113 § 1 BW). Taking possession is possible with regard to both things and patrimonial rights. The control of the property should be exercised in such a manner that it is made manifest that the former possessor is no longer in that position; the common opinion has to be the guideline here. If the property is in the possession of another, isolated acts of control are insufficient for taking possession (art. 3:113 § 2 BW). The acts that could indicate taking possession of immovable property are usually performed periodically (non-permanently). Nevertheless, it is necessary that these acts, vis-à-vis the property, are performed with (according to common opinion) a degree of permanency (stability).62

2.3.2. Transfer of possession Possession can be transferred either corporeally or by a bilateral declaration without material acts; the former is provided in art. 3:114 BW, the latter in art. 3:115 BW.

62

Asser-Mijnssen-De Haan, Goederenrecht 3-I, no. 186.

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(a)

Corporeal transfer of possession

Art. 3:114 BW provides: A possessor transfers his possession by enabling the acquirer to exercise such control over the property as he himself was able to exercise over it.

The most obvious way of providing possession in this manner is by handing over the object (traditio vera) or any other act that gives direct possession over the object, such as the handing over of keys (traditio symbolica). Transfer of possession (in Dutch: bezit overdragen) can only be performed by someone who is the possessor himself. A detentor cannot transfer possession simply because he does not have possession himself. Nevertheless, the BW acknowledges that a detentor can give possession (in Dutch: bezit verschaffen), notwithstanding the fact that he lacks possession himself. See art. 3:90 BW, which states that the delivery of a movable thing that is unregistered property and under the control of the alienator is made by giving possession to the acquirer; in this manner it is indicated that the delivery may be performed by both a possessor and a detentor.

(b)

Transfer of possession by bilateral declaration

Art. 3:115 BW (traditio ficta)63 acknowledges three forms of transfer of possession effected by mere agreement (bilateral declaration constituting a legal act): – traditio constitutum possessorium (art. 3:115 under a BW): the alienator possesses the thing and henceforth detains it for the acquirer by virtue of a stipulation made at the time of delivery. Traditio constitutum possessorium cannot be performed by a detentor: this follows both from the opening words of art. 3:115 BW (the article deals with transfer of possession, but see below) and from art. 3:111 BW (a person who has begun detention for another pursuant to a juridical relationship continues to do so under the same title, so long as no change is apparent in his title resulting either from an act by the person for whom he holds or from the latter’s right having been contested). The scope of traditio constitutum possessorium is diminished even further by art. 3:90 § 2 BW: Delivery of a thing that remains in the hands of the alienator has no effect with respect to a third person who has a prior right to the thing, until the time when the thing has come into the hands of the acquirer, unless the third person has consented to the 63

See L.P.W. van Vliet, Transfer of movables in German, French, English and Dutch law (Thesis; Ars Aequi Libri: Nijmegen 2000), passim.

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alienation. The effect of articles 3:90 § 2 BW and 3:11 BW combined is that constitutum possessorium is considered an “inferior form” of traditio (which is explained and justified by the lack of publicity of constitutum possessorium). – traditio brevi manu (art. 3:115 under b BW): the acquirer was the detentor of the thing for the alienator. This form of delivery may also be exercised by a detentor.64 – traditio longa manu (art. 3:115 under c BW): a third party detained the thing for the alienator and detains it for the recipient after the delivery. In this event possession does not pass until the third party has acknowledged the delivery or has been notified thereof by the alienator or acquirer. Traditio longa manu by a detentor has been acknowledged by the Hoge Raad.65 Not included in the BW, but acknowledged by the Hoge Raad, is the traditio sine manu.66 This term is used to indicate the traditio (a mixture between constitutum possessorium and brevi manu) between two people who before and after the transfer exercise shared control over the transferred object. This is the case when a thing is transferred between husband and wife, for example. See more detail on transfer of possession below, § 5.4 (and in particular § 5.4.2).

2.3.3. Succession by general title Article 3:116 BW provides that the possession and detention of the successor by general title is of the same quality and subject to the same defects as that of his predecessor. Succession by general title occurs through inheritance, fusion of patrimonies (in case of marriage) and through succession to the patrimony of a legal person which has ceased to exist (art. 3:80 § 2 BW). The purpose of art. 3:116 BW is to establish that the nature and quality of possession and detention are not influenced by the fact that they pass 64

65

66

It is common opinion that traditio brevi manu may also be performed by a detentor (in which case the provision is to be applied analogously). In that case, possession is not transferred, but given. The opening words of art. 3:115 BW suggest (apparently incorrectly for traditio brevi manu and, as we will see below, longa manu) that traditio by bilateral agreement can only be performed by a possessor. HR 1-5-1987, NJ 1988, 852 (IBM). See also HR 18-9-1987, NJ 1988, 983 (Berg / De Bary). See HR 18-2-1966, NJ 1967, 109 (Goubitz / Klinger) and HR 7-3-1975, NJ 1976, 190 (Lutgens / Karsmakers).

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to someone else in the case of inheritance, fusion of patrimonies, or succession to the patrimony of a legal person; when the predecessor was not in good faith, the successor is ipso iure neither, even if, in reality, he was in good faith. The importance of this provision manifests itself in particular in the case of prescription; see art. 3:102 § 1 BW: A person who succeeds to the possession of another by general title continues an already running prescription.

This means that even the successor not in good faith continues the already running prescription, as long as the predecessor was in good faith. This differs from prescription in case of acquisition of possession otherwise than by general title: in that case the successor has to be in good faith himself (see art. 3:102 § 2 BW).

2.4.

Protection of possession

The Burgerlijk Wetboek awards the possessor real protection in art. 3:125 BW (more or less after the example of the ancient Actio Publiciana), which reads as follows: 1. He who has acquired possession of property can, on the basis of a subsequent loss of or disturbance in the possession, institute the same actions against third persons to recover the property and to remove the disturbance as the titleholder of the property. Nevertheless, these actions must be instituted within the year following the loss or disturbance. 2. The action is rejected if the defendant has a better right than the plaintiff to the detention of the property or if he has performed the disturbing acts pursuant to a better right, unless the defendant has taken possession from the plaintiff or has disturbed his possession in a violent or surreptitious manner. 3. Nothing in this article deprives the possessor, even after the expiry of the year referred to in the first paragraph, or the detentor of the possibility, should there be grounds, to institute an action on the basis of an unlawful act.

The purpose of the provision is to give protection to the possessor against those who have an inferior right to the property. Protection is given to any possessor; whether or not he is in good faith is irrelevant. The possessor can (within a year following the loss or disturbance) institute the same actions as the title-holder (see § 1). In the first place, this refers to the revindication (art. 5:2 BW), which is especially valuable when the defendant has been declared bankrupt. Other actions to terminate an

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unlawful situation qualify also (for example, the denial of a pretended limited right67), as well as accessory actions like requesting an injunction under forfeiture of a penalty. The second paragraph states that the possessor cannot institute the action against a defendant who has a better right to the property. This refers in the first place to the title-holder, but applies also to the detentor (for example, the renter who is entitled to continued use of the property) and to the (former) possessor of the property who was the victim of theft. The Hoge Raad has applied this provision analogously to the right of retention.68 The retentor who loses control of the thing69 is entitled to reclaim it under the same conditions as an owner, according to art. 3:295 BW. Now the Hoge Raad has ruled that the – former70 – retentor is not entitled to reclaim the thing when it has come under the control of the owner. Justification for this decision was found in the analogous rule of art. 3:125 § 2 BW (quoted above in § 1.6.1a). There is an important exception to the rule that the possessor is not entitled to reclaim the property against someone with a superior right: to prevent him from taking the law into his own hands, the action is allowed against someone who has acted unlawfully (“in a violent or surreptitious manner”). This implies that the owner should not ‘steal’ his own property from a possessor who is unwilling to hand it to him voluntarily: in reaction, the possessor would be entitled to institute an action to recover it, even if that would re-establish the deadlock between owner and possessor.71 The importance of the third paragraph of art. 3:125 BW lies in the fact that it stresses that the possessor who is the victim of interference, hindrance, theft etc. is not obliged to use the actions of art. 3:125 § 1 BW: he can opt for an action based on tort. This applies not only to the situa67 68 69

70

71

See Hartkamp, Compendium, no. 119. HR 20-9-2002, NJ 2004, 171 (Van der Wal / Duinstra). This would not entail the termination of his right of retention, as this only occurs “in the event that the thing comes under the control of the debtor or the title-holder”; art. 3:294 BW). In a case like this, the right of retention is terminated as soon as the thing has come under the control of the owner (see previous footnote), but this is not decisive in itself: regaining control of the thing via art. 3:295 BW could be regarded as cause for a revival of the right of retention. In the case referred to above (HR 20-9-2002, NJ 2004, 171, in which the Hoge Raad decided that the action of the retentor under art. 3:295 BW cannot be used against the owner) the Procurator General (A.S. Hartkamp) proposed to accept an exception similar to that mentioned in art. 3:125 § 2 BW for the situation in which the owner had acted unlawfully against the possessor. The Hoge Raad, however, did not comment on this suggestion (as it was not relevant to the case at hand).

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tion in which the period of one year, mentioned in art. 3:125 § 1 BW, has passed, but also before that.72 Obviously, this course is not to be preferred above the action in rem of art. 3:125 BW against someone who is bankrupt. In summary proceedings, on the other hand, the tort-based action has the advantage of a speedy outcome.73

2.5.

Self-help

The BW does not explicitly entitle the possessor to defend himself against dispossession or interference with his possession by any other means than instituting an action. This should not be taken to mean that self-help against these kinds of occurrences is always off-limits. In Dutch private law, general provisions on self-help are absent, but specific provisions granting the right of eigenrichting to certain persons are not; see art. 5:44 BW74 and art. 7:206 § 3 BW.75 The scope of self-help by the (former) possessor is, nevertheless, very limited, as can be gathered from the following. The permissibility of self-help is, obviously, closely linked to the lawfulness of the methods used. The person whose bike is stolen is not entitled to use force against the thief to persuade the latter to abandon the bike.76 But if the thief parks the bike unlocked in front of a store, the owner is not overstepping the boundaries of the law if he openly seizes this opportunity to recapture possession of his bike; the authority to do so can be found in the right to use his property to the exclusion of everybody else; art. 5:1 § 1 BW.77 The same conclusion can be drawn from art. 3:125 § 2 BW, which 72 73

74

75

76

77

See Pitlo / Reehuis, Heisterkamp, Goederenrecht, no. 401 ff. See W. Schenk and J.H. Blaauw, Het kort geding, B. bijzonder deel (6th ed.; Kluwer: Deventer 2000), p. 91 ff. Art. 5:44 § 1 BW provides that an owner of land may, in his own right, cut and appropriate plants that hang over his property and belong to a neighbour in the case that the latter, despite a warning from the aforementioned owner of the land, fails to remove the overhanging plants. Similarly, a person may cut and appropriate roots to the extent that they extend upon his land from another’s property (§ 2). Entitling the lessee to make repairs in the case the lessor is neglecting his duty to correct a defect; the lessee may recover the costs, to the extent that these were reasonable, from the lessor, if so desired by deducting them from the rent. The example is taken from Mr. A. Pitlo, Het systeem van het Nederlandse privaatrecht naar het Nieuwe Burgerlijk Wetboek (10th ed. edited by P.H.M. Gerver, H. Sorgdrager and R.H. Stutterheim; Arnhem 1990), 214. The authority for his action cannot be found in the right of the owner to revindicate his property from any person who detains it without right (art. 5:2 BW): this right refers to the institution of a legal action. As was already said in § 1.3, P.C. van Es

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was discussed above in § 2.4: in case the owner takes possession from a thief, the thief cannot institute an action78 against him, unless the owner took possession from him “in a violent or surreptitious manner”. This provision clearly indicates that the legislator is in principle opposed to self-help: even the owner who is confronted with theft of his property is not entitled to repetitiously regain possession: the thief may in that case institute a proprietary action against him “to recover the property and to remove the disturbance” (art. 3:125 § 1 BW). The Hoge Raad has decided that the fact that someone has used selfhelp does not prevent him from going to court in the same dispute at a later stage.79 This decision merely indicates that the use of self-help does not lead to the forfeiture of the right to institute a lawsuit later on, but does not enable us to draw conclusions on the permissibility of self-help. The fact that possession was acquired through self-help may be relevant in another context as well: according to the leading Handbook on Dutch property law (with reference to case law of lower courts) the person who acquired possession through self-help is not entitled to invoke the presumption of ownership that is attached to possession (art. 3:119 § 1 BW).80

3.

Personal right and proprietary protection

3.1.

Introduction

This section deals with the question whether the various rights to hold or to acquire a movable are always obligatory rights or can also equally be rights in rem. The starting point should be that Dutch patrimonial law has, as said above in § 1.2, from HR 3-3-190581 onwards, maintained a fairly sharp

78

79 80 81

has argued recently in his De actio negatoria – Een studie naar de rechtsvorderlijke zijde van het eigendomsrecht (Thesis; Leiden 2005) that a separate legal action is available to the owner against infringements on his exclusive right to use his property. He can institute the same actions against third persons to recover the property and to remove the disturbance as the title-holder of the property; art. 3:125 § 1 BW. So even the proprietary action of the owner, the revindication (art. 5:2 BW), is available for the dispossessed possessor. This action must be instituted within a year after the loss of possession or disturbance, but after that the possibility remains, should there be grounds, to institute an action on the basis of an unlawful act (see art. 3:125 §§ 1 and 3 BW). HR 18 December 1992, NJ 1993, 152. Asser-Mijnssen-De Haan, Goederenrecht 3-I, no. 234. W. 1905, no. 8191.

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distinction between rights in rem and rights in personam. The distinction has lost some of its sharpness in recent decades, but the distinction also characterizes the new Burgerlijk Wetboek of 1992. Justification for this is found in the importance attached in Dutch property law (old and new) to the principle of publicity: ‘drittwirkung’ of rights requires (and presupposes) that the acquisition and existence of that right is knowable. See above, § 1.2.1 and below, § 5.4.1.

3.2.

Proprietary position, financial lessee or buyer, in case of title reservation?

Against this background it is understandable that common opinion is not prepared to award a right in rem to the (financial) lessee. Not all authors share this view, however: in his Ph.D. thesis on leasing, J.J. van Hees argued in 1997 that the position of the lessee has to be qualified as a proprietary claim on the object of the financial lease:82 both the lessor and the lessee should in this view be regarded as owners. Van Hees maintains that his view is supported by other kinds of “relative ownership” in Dutch law: in case of seizure (art. 453a Wetboek van Burgerlijke Rechtsvordering = Code of Civil Procedure), the actio pauliana (art. 3:45 BW and art. 42 Faillissementswet = Bankruptcy Act) and constitutum possessorium (art. 3:90 § 2 BW): in all these instances, the acquirer of an object is to be regarded as its owner, except against certain stakeholders (creditors, third persons with a prior right etc.). By others83 it has been pointed out, however, that in all these cases of “relative ownership”, there is always only one owner in each relationship: so the acquirer in case of transfer constitutum possessorium is considered to be the owner with regard to third persons, but with regard to persons with a prior right he is not. In this view it is impossible that both lessor and lessee are considered to be owners simultaneously. Just as most Dutch legal scholars are not prepared to award the financial lessee a proprietary position, they likewise refuse to regard the acquirer in case of transfer under suspensive condition (see art. 3:91 BW) as more than a mere detentor. In case of reservation of title (art. 3:92 BW) ownership is not transferred until the buyer performs his obligation: before that, the buyer has no right in rem on his purchase. 82

83

J.J. van Hees, Leasing. Serie Onderneming en Recht 8 (Thesis; W.E.J. Tjeenk Willink: Zwolle 1997), p. 108-111 and passim. See especially J.E. Fesevur in his review of Van Hees’ thesis in RM Themis 2000 / 4, p.144-148. See also the review of the same thesis by A.F. Salomons in Weekblad voor Privaatrecht, Notariaat en Registratie 6414 (2000), p. 598-602.

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‘Vormerkung’ with regard to registered property

An important exception to the rule that in the case of transfer, ownership changes hands at the moment of delivery and not before, has recently (September 1, 2003) been introduced in the Burgerlijk Wetboek with regard to registered property (especially houses); this should be mentioned here even though movables are our main concern. In case of a sale of registered property, the sale can be entered in the public register: this entry safeguards the buyer against events like transfer, seizure, lease of the property, it being put under administration, and even against the bankruptcy of the seller. However, the entry of the sale should within six months be followed by the delivery of the property (thereby finalizing the transfer of ownership); otherwise the protection of the entry in the public registers loses force with retroactive effect. See art. 7: 3 §§ 1-4 BW. With regard to other property no changes have been introduced. Therefore, there is no proprietary effect connected to options to buy, to sales on approval, to preliminary agreements to later conclude a contract (Vorvertrag), or to the right to repurchase.84

3.4.

Indirect representation

Finally, proprietary protection is given to the principal in case of acquisition through an agent; see art. 3:110 BW: Where there exists a legal relationship between two persons to the effect that what one of them will acquire in a specified manner will be detained by him for the other, the former detains for the latter what has been acquired by him in the performance of the legal relationship.

This provision, the enactment of which in 1992 ended a long debate, implies the acceptance of the so-called “direct doctrine” or “doctrine of direct acquisition”. It means that the principal automatically becomes the possessor of the property his agent acquires for him. With regard to movables, this has the effect that the principal also acquires ownership, as the delivery 84

We leave aside the provisions on repurchase agreements, which have been introduced by the implementation of the Collateral Directive of June 6, 2002 (2002 / 47 / EG) (see art. 7:51-56 BW), as these relate to cash or financial instruments only. See L.F.A. Steffens, De Europese richtlijn Financiëlezekerheidsovereenkomst en de implementatie in de Nederlandse wetgeving, Tijdschrift voor handelsrecht 2 (2005), p. 56-66.

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of movables is effected by the transfer of possession (art. 3:90 § 1 BW). In 1996, the Hoge Raad stated that the direct doctrine, the validity of which the Hoge Raad explicitly founded on art. 3:110 BW, is only applicable to goods that are delivered through the transfer of possession.85 This is not to say, however, that art. 3:110 BW itself is reserved for goods that are delivered in that way. We can conclude that for the application of art. 3:110 BW there are (no more than) two requirements: – the legal relationship between the two persons should have the effect that what one of them will acquire will be detained by him for the other; and – the acquisition has to take place in the performance of that legal relationship. Furthermore, the scope of art. 3:110 BW is not at all restricted to agency: it also covers acquisitions on behalf of another in cases of lease (by the lessee), loan (by the borrower), encumbered right (e.g. by the pledge-holder) etc. The legal relationship underlying the acquisition does not have to be created by contract: management of the affairs of another, for example, may create a similar legal relationship. Another example: the detentor of a thing creates out of that a new thing under orders of the owner of the original thing: that owner acquires ownership of the new thing pursuant to art. 5:16 BW, whereas art. 3:110 BW attributes to him the possession of the new thing.86 See on this subject also below, § 7.3.

4.

Field of application and definitions

4.1.

Field of application

Transfer of property in general is dealt with in art. 3:84 BW: this provision (which says that a transfer requires delivery pursuant to a valid title by the person who has the right to dispose of the property) applies to all property (that is: both things and patrimonial rights, art. 3:1 BW). In articles 3:89-97 BW (with the exception of art. 3:92 and 3:92a BW) the various forms of delivery are enumerated; see the following table:

85 86

HR 23-9-1994, NJ 1996, 461 (Kas-Associatie / Drying). Hartkamp, Compendium, no. 111. See for other examples Losbladige vermogensrecht, annotation 8 on art. 3:110 BW (J.D.A. den Tonkelaar).

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Article

Object of delivery

Form of delivery

Art. 3:89

Immovable things and other registered property

Notarial deed intended for that purpose drawn up between the parties, followed by its entry in the public registers provided for that purpose. Either the acquirer or the alienator may have the deed registered

Art. 3:90

Movable things that are unregistered property and under the control of the alienator

Giving possession of the thing to the acquirer

Art. 3:91

Things referred to in the preceding article delivered in the performance of an obligation to transfer under suspensive condition

Giving the acquirer control over the thing

Art. 3:93

Rights payable to bearer, the instrument for which is under the control of the alienator

Delivery of the document in the manner and with the effects specified in articles 90, 91, and 92

Rights payable to order under the control of the alienator

The same as above, provided that the document is also endorsed

Art. 3:94

Other rights to be exercised against one or more specifically determined persons

Either by a deed intended for that purpose and notice thereof given by the alienator or acquirer to those persons, or by an authentic deed or a registered deed under private writing without notification thereof to those persons

Art. 3:95

In cases other than those provided for in articles 89-94

A deed intended for that purpose

Art. 3:96

Delivery of a share in property

Delivery is made analogously to the delivery of that property and has analogous effects

Art. 3:97

Future property

(Delivery is made analogously to the delivery of that property)

Art. 3:90 BW applies to movable things that are unregistered property and under the control of the alienator. Movable registered property (certain categories of aircraft and ships) is delivered in the manner specified in art. 3:89 BW (notarial deed and entry in public registers, see above). Movable things that are not under the control of the alienator are delivered in the manner specified in art. 3:95 BW: a deed intended for that purpose. One category of property not dealt with in Book 3 BW is the registered (inscribed) share. Such a share in a corporation is delivered by a deed, ex-

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ecuted by a notary practising in the Netherlands, intended for that purpose and drawn up between the parties (art. 2:86 § 1 BW87). The same applies to a registered share in a private company with limited liability (art. 2:196 § 1 BW). The articles mentioned specifically list the prescribed contents of the notarial deed (the title of transfer, number and kind of shares involved, information on the legal form and location of the legal persons involved, etc.). Intellectual property rights are not included in the Burgerlijk Wetboek (yet), but are dealt with in separate laws. These laws specify the manner in which these rights are delivered (art. 3:84 BW on transfer in general is applicable). Art. 2 § 2 Auteurswet (Copyright Law) provides that a copyright is delivered by a deed intended for that purpose. A patent right is delivered by a bilateral deed, which may be entered in the Patent Registry of the Patent Board, art. 65 Rijksoctrooiwet (Patent Law). Transfer of a trademark is possible, provided that it is established in written form (see art. 11 Beneluxwet op de merken (Benelux Trade Mark Act) and art. 13 Beneluxwet inzake tekeningen en modellen (Benelux Drawings and Designs Act)). Finally, plant breeders’ rights are delivered by a deed (art. 48 Zaaizaad en Plantgoedwet (Seeds and Planting Materials Act)). Entry of trademarks and plant breeders’ rights in public registers is possible and advisable as it has effect against third persons.

4.2.

Definitions

Article 3:3 BW gives a definition of movable and immovable: 1. Immovables are land, unextracted minerals, plants attached to land, buildings and works durably united with land, either directly or through incorporation into other buildings or works. 2. All things which are not immovable, are movable.

Even though the article does not state this expressis verbis, the distinction between movable and immovable only applies to things (corporeal objects), not to patrimonial rights.88 The distinction between tangible (in Dutch: lichamelijke) and intangible (onlichamelijke) property, which was made in the previous civil code, is

87 88

Book 2 of the Burgerlijk Wetboek relates to legal persons. See Asser-Mijnssen-De Haan, Goederenrecht 3-I, no. 83.

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not maintained in the code of 1992.89 Obviously, things (art. 3:2 BW) are tangible and patrimonial rights (art. 3:6 BW) are intangible. There is not much debate on the status of money in property law, even though this is far from clear and the subject is an important one. Coins are certainly to be considered movable things, and therefore they are delivered by giving the possession of them by the alienator to the acquirer. The status of bank notes is more difficult: on the one hand, they can be considered as rights to be exercised against the European Central Bank, but, on the other, this does not explain why no claim against the ECB remains available to the dispossessed owner when the bank notes are lost (e.g. through fire). Another problem of the notion of ownership with regard to bank notes is the fact that the bearer usually does not specify them, whilst specification is required for ownership.90 The suggestion has been made by Houtappel – so far, without success – to add a second paragraph to art. 3:1 BW, stating that property that serves as general tender, is money.91 No less complex is the status of electricity, due to its dualistic nature. The Dutch Supreme Court has ruled in a criminal case that electricity is susceptible to theft.92 Several authors have warned, however, that this does not imply that in private law electricity has to be acknowledged as a corporeal object (a thing) and as susceptible to ownership, as is the case in Swiss and Italian law and reportedly also in Austrian and French law. Consensus has not yet been achieved, even though most authors agree that the issue is not an important one.93 The status of gas does not provide similar difficulties. Gas is to be considered a thing, as long as it is contained in a tank, a bottle or a similar device (because only corporeals susceptible to human control are “things”: art. 3:2 BW).

89

90 91

92 93

On this see Th.F. de Jong, De structuur van het goederenrecht. Over het afschaffen van het begrip van de onlichamelijke zaak, het onderscheid tussen rechten en hun voorwerpen en een opening in het systeem (Thesis Groningen; 2006). See Snijders / Rank-Berenschot, Goederenrecht, no. 33. J.C. Houtappel, Geld of vordering in het Nederlands privaatrecht (Thesis Amsterdam; 1996), p. 95. See also A.H.E.M. Wellink et al., De rol van geld in het privaatrecht: symposium over geld en recht. Ars Notariatus 127 (M.H. Bregstein Stichting and Stichting tot Bevordering der Notariële Wetenschap; Kluwer: Deventer 2004). HR 23-3-1921, NJ 1921, 564, W. 10728. See Asser-Mijnssen-De Haan, Goederenrecht 3-I, no 57. See also M.B.M. Loos, De energieleveringsovereenkomst. Algemene voorwaarden voor de levering van energie aan consumenten (Thesis; Kluwer; Deventer 1998), p. 51-59. Loos himself advocates the view that electricity is a thing and therefore susceptible to ownership.

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Part II: Derivative acquisition 5.

Which system of transfer is used?

5.1.

Basic characteristics

5.1.1. Unititular concept of the transfer of ownership Dutch property law adheres to the principle of unititular (uniform) ownership transfer. This means that all rights and powers connected with ownership – such as the right to dispose of the property, the right to revindicate (provided the property is a thing), the protection against the insolvency of the transferor (separatism), the right to enjoy the fruits of the property etc. – pass to the acquirer at one moment in time. Therefore, fragmentation of ownership in the sense that the transferor is the owner for some purposes while the transferee is the owner for others, is excluded: simultaneous ownership by different persons with regard to one object (other than joint ownership thereof) would be detrimental to legal certainty. However, the notion of relative ownership is not alien to Dutch property law. For example: annulment of a transfer, by a creditor of the transferor on the basis of the actio pauliana,94 has the consequence that the transfer has no effect with regard to the creditor, but is nonetheless valid as far as everyone else is concerned. It is customary to label the acquirer the relative owner: to the creditor, the alienator is still owner, but to the rest of the world, the acquirer is. A similar phenomenon is to be seen in the law of seizure and in the effects of traditio constitutum possessorium (application of art. 3:90 § 2, discussed above in § 2.3.2 sub B).

94

See art. 3:45 BW: If a debtor, in the performance of a juridical act to which he is not obligated, knew or ought to have known that his act would adversely affect the recourses of one or several of his creditors against his patrimony, the act may be annulled; any creditor whose resourses have been adversely affected by the juridical act may invoke this ground for annulment, irrespective of whether his claim has arisen before or after the act. See on this article below, § 8.2.

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5.1.2. The same transfer rules applicable to all kinds of obligations The general provision on transfer of property – art. 3:84 § 1 BW – determines that the transfer requires delivery pursuant to a valid title by the person who has the right to dispose of the property. All kinds of legal acts can function as ‘valid title’: the obligation to transfer ownership pursuant to a sales contract or a donation (which in Dutch law is also a contract; art. 7:175 § 1 BW), an obligation to pay damages or to correct unjustified enrichment, an obligation to pay or give something under a court order, etc. The notion ‘title’ is commonly understood to mean: a legal relationship (or legal ground, legal fact) that underlies a transfer and serves as justification for that transfer.95

5.1.3. Basic transfer requirements Firstly, the asset involved should be transferable. Art. 3:83 § 1 BW provides that [o]wnership, limited rights and debts are transferable, unless this is precluded by law or by the nature of the right.

This means that all assets are in principle transferable and that this transferability cannot be excluded by agreement.96 The underlying thought is that the free movement of assets should not be restricted.97 As said above, art. 3:84 § 1 BW provides that the transfer of property requires delivery pursuant to a valid title by the person who has the right to dispose of the property. In sum, Dutch law requires for a valid transfer: (a) a valid title, (b) the right to dispose thereof, and (c) delivery. Those are constitutive requirements, meaning that the transfer is not valid if one

95

96

97

This definition was introduced in 1974 by A.S. Hartkamp in Het begrip leveringstitel, Weekblad voor Privaatrecht, Notariaat en Registratie 5267 / 5268. See AsserMijnssen-De Haan, Goederenrecht 3-I, nos. 277 ff.; Pitlo / Reehuis, Heisterkamp, Goederenrecht, no. 113 ff., S.E. Bartels, De receptie van het titelbegrip bij Hartkamp, Groningen opmerkingen en mededelingen XIX (2003), p. 47-61. See below, § 5.3. The law makes an exception for debts. The second paragraph of art. 3:83 BW provides: Transferability of debts can also be excluded by agreement between creditor and debtor. See Parl. Gesch. Boek 3, p. 314; Asser-Mijnssen-De Haan, Goederenrecht 3-I, nos. 251-255.

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of those requirements is not met, unless a provision for the protection of third parties could successfully be invoked.98

(a)

Valid title

As was said in § 5.1.2: the ‘title’ of a transfer is the legal relationship which underlies and justifies the transfer. The kind of obligations on which a transfer of ownership can be based, and the consequences of a defective title for the transfer of ownership, will be dealt with in § 5.3.1 and § 5.3.2 respectively.

(b)

Right to dispose (including good faith acquisition and regularization)

‘To dispose’ is to perform an act with respect to an asset, by which the asset is alienated (transferred to a new owner) or is encumbered with a limited right.99 It was generally agreed that the right to dispose cannot be separated from the right of the title-holder: the right to dispose cannot be transferred independently, and neither can it be taken away or limited contractually.100 This point of view is no longer undisputed however. We can leave this matter, which is largely of an academic nature, aside here; for present purposes it suffices to take the traditional view as correct.101 The principal rule is that the owner is entitled to dispose. This right to dispose belongs in principle exclusively to him.102 However, the owner may give permission to another person to dispose of his asset. An example 98

99

100 101

Pitlo / Reehuis, Heisterkamp, Goederenrecht, nos. 100-101. Another possibility is that a legal condition for the validity of the transfer is fulfilled only afterwards and the transfer is subsequently regularized ex art. 3:58 BW (see below, sub B). Pitlo/Reehuis, Heisterkamp, Goederenrecht, no. 135. Van Vliet writes that the right to dispose may be based on ownership, a legal act or the law (Transfer of movables, p. 155). One could object that the right to dispose attached to ownership also has a statutory basis, as does the right to dispose acquired by a legal act. Furthermore, even in the case where a non-owner is entitled to dispose of property it may be that, in disposing of the property, he is not exercising a right of his own, but the right of the owner. Pitlo / Reehuis, Heisterkamp, Goederenrecht, nos. 137-138 and 968. The traditional view was challenged by L. Groefsema, Bevoegd beschikken over andersmans recht (Thesis, Kluwer: Deventer 1993). See for an overview of current opinion S.E. Bartels, De titel van overdracht in driepartijenverhoudingen (Thesis; Boom Juridische uitgever: The Hague 2004), p. 58-59.

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is indirect agency. If the owner orders an undisclosed commercial agent to sell and transfer an asset, the legal act of sale and transfer will be made in the agent’s name. By ordering the transaction the owner gives the agent the right to deliver the asset, but in doing so the agent is not using any right to dispose of his own: it is the right to dispose of the principal that the agent exercises. Another example is the sale and delivery of goods delivered under a retention of title clause. If there is a practical need for the buyer to resell the goods before full payment of the price, the seller, who is still the owner, may give permission to the buyer to sell and transfer his goods. The seller’s permission enables the buyer to dispose of the seller’s goods,103 but – again – in doing so the buyer does not dispose of the goods himself: he merely exercises the right to dispose belonging to the seller. Furthermore, the right to dispose can stem from a statutory provision assigning that right to a non-owner. An example is art. 68 Faillissementswet, providing that the trustee in bankruptcy (in Dutch: faillissementscurator) is responsible for the management and the settlement (in Dutch: het beheer en de vereffening) of the bankrupt’s estate. This empowers him to dispose of the insolvent’s assets.104 Complementary to this provision is art. 23 Faillissementswet, which provides that the debtor loses the power to dispose and manage his assets when he is declared insolvent. Another example is to be found in art. 3:248 BW, which gives the pledgee the right to dispose of the pledged assets, provided that all requirements for execution are fulfilled.105 We will not address the question whether the trustee in bankruptcy and the pledgee have a right of their own to dispose of property of the owner (the bankrupt or the pledgor), or whether they are merely entitled to exercise the right of the owner to dispose of property.106 As a valid transfer needs to be performed by someone who has the right to dispose, pursuant to art. 3:84 BW, a transfer of an object by someone who is 102

102 103 104

105 106

Pitlo / Reehuis, Heisterkamp, Goederenrecht, no. 137 Van Vliet, Transfer of movables, p. 155-156. Art. 23 Bankruptcy Act provides that the debtor loses the privilege to dispose of his assets when he is declared insolvent. Van Vliet, Transfer of movables, p. 155. It is no coincidence – as noticed by J.B. Huizink, Insolventie (5th ed.; Kluwer: Deventer 2005) – that art. 23 Faillissementswet entails the loss of the bankrupt’s power to dispose of and manage his property, whereas art. 35 entrusts the trustee with the tasks of managing and settling the estate; the power to dispose is not mentioned here. This may be taken as an indication that the trustee does not have any right to dispose himself but is merely entitled (e.g. in art. 101 Faillissementswet) to exercise the right to dispose of the bankrupt’s property.

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not entitled to dispose thereof is void. Nevertheless, such a transfer could be valid if the acquirer of the property could successfully invoke one of the provisions for the protection of third parties: art. 3:24-26, 36, 86 and 88 BW. Article 3:86 BW protects the acquirer in good faith of a movable that was under the control of the transferor, in case that transferor lacks the right to dispose. Art. 3:86 § 1 BW provides: Although an alienator lacks the right to dispose of the property, a transfer pursuant to articles 90, 91 or 93 of a movable thing, unregistered property, or a right payable to bearer or order is valid, if the transfer is not by gratuitous title and if the acquirer is in good faith.

But the law makes an exception in the case of theft. The third paragraph of art. 3:86 BW provides: Nevertheless, the owner of a movable thing, who has lost its possession through theft, may revindicate it during a period of three years from the day of theft, unless (i) the thing has been acquired by a natural person, not acting in the exercise of a profession or business, from an alienator whose business it is to deal with the public in similar things, otherwise than at a public sale, on business premises destined for that purpose, being an immovable structure or part thereof with the land belonging thereto, and provided that the alienator be in the ordinary exercise of his business, or (ii) money or documents payable to bearer or order are involved.

A further condition for the protection of art. 3:86 BW is to be found in art. 3:87 § 1 BW: An acquirer, who is asked within three years from his acquisition to identify the alienator, must, without delay, provide all information which is necessary to trace that person or which he could have considered as being sufficient for that purpose at the time of his acquisition. If he does not comply with this obligation, he may not invoke the protection which articles 86 and 86a afford to an acquirer in good faith.

This so-called wegwijsplicht (duty to show the way) does not apply to money (art. 3:87 § 2 BW). Art. 3:88 § 1 BW is the complement of art. 3:86 BW for registered property and claims, and according to some authors is also applicable to movables which were not under the control of the transferor at the time of the transfer and therefore have been transferred by deed pursuant to art. 3:95 BW. Its scope is more limited, however, because of the extra con-

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ditions for its application (but note that neither the condition of transfer for value nor the ‘duty to show the way’ applies in the context of art. 3:88 BW). Art. 3:88 § 1 BW provides: Although an alienator lacks the right to dispose of the property, the transfer of registered property, a nominative right107 or other property to which article 86 does not apply, is valid if the acquirer is in good faith and if the lack of the right to dispose results from the invalidity of a previous transfer, which itself did not result from the lack of the right to dispose of the alienator at the time.

Articles 3:24, 25 and 26 BW protect the acquirer of registered objects in good faith against the incompleteness or incorrectness of public registers. Art. 3:24 § 1 BW provides that if, at the time of registration of a juridical act to acquire a right to registered property by particular title, a fact which is also susceptible of entry in the registers was not entered in reference to that registered property, this fact cannot be opposed to the acquirer, unless he knew it.

However, this does not apply to (art. 3:24 § 2 BW): (a) facts which according to their nature are susceptible of entry in a register of civil status, a matrimonial property register or a successions register, even if the fact cannot be registered in a given instance because the law of the Netherlands does not apply to it, (b) placement under and termination of curatorship, entered in the register of curatorship, (c) judgments entered in the bankruptcy register or in the register of receivership, (d) acceptance and rejection of a succession, (e) prescription.

Neither does the first paragraph of art. 3:24 BW apply to (art. 3:24 § 3 BW): successions and testamentary dispositions which were not registered at the moment of the registration of the juridical act, but which were thereafter entered in the registers within three months of the death of the deceased (whether a testator or not). 107

Nominative rights (in Dutch: rechten op naam) are e.g. claims, debts, intellectual and industrial property rights. Cf. Art. 3:94 BW on assignment, which has a smaller scope, as it applies only to rights to be exercised against one or more specifically determined persons.

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Art. 3:25 BW provides that if, at the time of registration of a juridical act to acquire a right to registered property by particular title, a fact pertaining to that registered property was entered in the registers pursuant to an authentic deed in which this fact was authenticated by a civil servant, the inaccuracy of this fact cannot be invoked against the acquirer, unless he knew or could have known of the possibility thereof by consulting the registers.

In addition, art. 3:26 BW provides that if, at the time of registration of a juridical act to acquire a right to registered property by particular title, an inaccurate fact pertaining to that registered property was entered in the registers, the inaccuracy of this fact cannot be invoked against the acquirer by a person who could reasonably have ensured the conformity of the registers with the reality, unless the acquirer knew the inaccuracy or could have known of the possibility thereof by consulting the registers.

Art. 3:36 BW, the most indefinite provision on third party protection in the Burgerlijk Wetboek, protects a third party who acted in good faith based on the existence of a legal relation alleged by another, which in fact never came into existence, or meanwhile has been changed or annulled. The legal act, which the third party performed as a result of the alleged legal relation, could not be opposed against this party. Art. 3:36 BW provides that a third person who under the circumstances reasonably bases an assumption as to the creation, existence or extinction of a juridical relationship on a declaration or conduct of another, and has acted reasonably on the basis of the accuracy of that assumption, cannot have invoked against him the inaccuracy of that assumption by the other person.

If, for example, A and B draw up a deed for tax purposes, which states that A owes € 1000 to B whereas in reality he owes only € 500, and B persuades C to buy his claim against A, showing C the deed, C will be under the false impression that he receives a claim worth € 1000. As A, by drawing up the deed, is to blame for the incorrect assumption of C with regard to the true value of the claim, he is, as regards C, not entitled to hide behind the verbatim text of the deed: A will have to pay € 1000 to C (but of course B is contractually liable for this towards A and must compensate A for the € 500 the latter had to pay to C without being indebted therefore to B). In case a movable is delivered by someone who is not entitled to dispose thereof, the transferee will not acquire ownership unless he successfully invokes one of the provisions on bona fide acquisition just mentioned. But

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it is also possible that the transferor obtains the right to dispose of the movable at a later time, e.g. by buying or inheriting it after the transfer. In such a case, the invalid transfer can be regularized (in Dutch: bekrachtiging or convalescentie).108 See art. 3:58 § 1 BW: Where a legal condition for the validity of a juridical act is fulfilled only after its execution, but all directly interested parties who could have invoked this defect have regarded the act as valid during the period between the act and the fulfilment of the legal condition, the juridical act will thereby have been regularized.

This regularization provision offers a solution for transfers, the invalidity if which was caused by lack of right to dispose, by an imperfect delivery, or by invalidity of the title (causa). If, however, the title was void because of incapacity of the transferor at the time of the transfer, this cannot be regularized in the event that this person is subsequently capacitated (art. 3:58 § 2 BW). Regularization has retroactive effect: the transaction is deemed to have been valid from the moment of its conclusion.109 However, it is quite possible that someone has acquired a right in the asset during the interval between that conclusion and the regularization. Suppose that B gives a painting to C in the year 2006, but C does not acquire ownership because B was not entitled to dispose of the painting, which he had borrowed from A. If A would at some later date be prepared to transfer the painting to B, C could acquire ownership after all, by virtue of regularization. But if it turns out that A had by then established a right of pledge on the painting for X, the limited right of the latter would be unaffected by the regularization; according to art. 3:58 § 3 BW, [r]ights that have been acquired by third parties in the interim need not be a bar to regularization, provided that these rights are respected.110

(c)

Delivery

Delivery (in Dutch: levering) is the legal act by which the obligation to transfer (the title) is actually carried out. The delivery brings about the transfer of the property involved if all other conditions for a valid trans108

109 110

See Geert Harm Potjewijd, Beschikkingsbevoegdheid, bekrachtiging en convalescentie: een romanistische studie (Thesis; Kluwer: Deventer 1998). Parl. Gesch. Boek 3, p. 250. See for a similar example Snijders / Rank-Berenschot, Goederenrecht, no. 406.

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fer are met. In short, delivery is the legal act, transfer is the legal consequence.111 The concept of delivery is regarded as consisting of two elements: (1) an agreement in which the transferor and the transferee express their common intention to transfer the asset involved (the transferor declares that he will transfer ownership of the asset and the acquirer declares that he will accept ownership thereof), and (2) an act by which the transferor and the transferee manifest their common intention to transfer.112 The first element could be qualified as a real agreement (in Dutch: goederenrechtelijke overeenkomst)113 and is elaborated in § 5.7. For the second element, see § 5.4.2.

5.2.

Categorization of transfer system

5.2.1. Causal or abstract? Under the old civil code of 1838 it was disputed whether the Dutch transfer system was abstract or causal.114 Not until 1950 did the Hoge Raad decide the question explicitly in favour of the causal system.115 The new 1992 civil code codified this choice in art. 3:84 § 1 BW by unequivocally requiring that a transfer must be based on a valid title.116 Accordingly, delivery without a valid title (e.g. after annulment) does not bring about a transfer of the asset involved.117 111

112 113 114

115

116

117

Parl. Gesch. Boek 3, p. 308; Asser-Mijnssen-De Haan, Goederenrecht 3-I, no. 206; Pitlo / Reehuis, Heisterkamp, Goederenrecht, p. 69. Asser-Mijnssen-De Haan, Goederenrecht 3-I, nos. 203-205. Ibid., no. 206. Ibid., no. 238. See also J.H. Dondorp and E.J.H. Schrage, Levering krachtens geldige titel: enige grepen uit de geschiedenis van de vereisten voor eigendomsoverdracht (VU uitgeverij; Amsterdam 1991) and A.F. Salomons, 2014 tot 1950. De geschiedenis tot 1950 van de vertrouwensbescherming bij overdracht van roerende zaken door een beschikkingsonbevoegde (Thesis; Kluwer: Deventer 1997), Chapter IX § 1. HR 5-5-1950, NJ 1951, 1 (Damhof / Staat der Nederlanden). Earlier, in HR 9-2-1939, NJ 1939, 865 (Woldijk-Nijman), the Hoge Raad had rendered a similar decision, but this dealt with assignment of claims only. Asser-Mijnssen-De Haan, Goederenrecht 3-I, p. 207-209; Van Vliet, Transfer of movables, p. 196-199. For the transfer of emission rights, no valid title is required according to art. 16:42 Wet Milieubeheer (Environmental Management Act), enacted on January 1st, 2005. This choice of the legislator in favour of the abstract system was justified by the argument that acquirers of emission rights have to be sure that they can use them

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5.2.2. Consensual or traditio system? The entering into a sales contract, which obliges the seller to transfer an asset to the buyer, does not bring about the transfer of the asset, as would be the case under French law. The parties need to perform a further legal act in order to finalize the transfer. The obligation to transfer needs to be carried out by means of the actual delivery of the asset. Upon delivery the acquirer is acknowledged as the (new) owner of the asset.118 Thus, Dutch law has a traditio system.119

5.2.3. Requirement of payment? Under Dutch law payment is not required for the acquisition by a transfer based upon a sales contract. A sales contract brings about two obligations: one for the seller to transfer (the ownership of) the asset concerned120 and another for the buyer to pay the price agreed upon.121 Those are separate, although not completely independent, obligations. The seller transfers the asset to the buyer based upon an existing obligation to transfer, which is a valid title for transfer. Thus, the buyer acquires the asset, even if he has not yet fulfilled his obligation to pay. If the buyer does not pay, the seller could terminate the sales contract (see for the consequences of termination, § 5.3.2 sub C). However, termination gives the seller no more than a personal claim against the buyer to return (by retro-transfer) the asset involved. But the law provides some other ways in which the seller could procure that the ownership returns to him by operation of law in case of non-payment, or that the ownership is not transferred to the buyer until he actually pays. Firstly, the seller could exercise the ‘right of recovery’ (in Dutch: recht van reclame), which gives proprietary effect to a written termination of a contract by a seller (art. 7:39 BW; see § 5.3.2 sub C and § 5.7). Furthermore, the seller could stipulate a resolutive condition of non-payment of the agreed

118 119 120

121

(see Memorie van Toelichting (Explanatory memorandum to the Act) 2003-2004, TK 29 565, no. 3, p. 75-76). Critical of this choice is M.H. Koster, Handel in emissierechten: het causale stelsel uitgesloten?, Weekblad voor Privaatrecht, Notariaat en Registratie 6617 (2005), p. 301-305. Pitlo / Reehuis, Heisterkamp, Goederenrecht, nos. 111-112. Van Vliet, Transfer of movables, p. 133. Art. 7:9 § 1 BW provides: The seller is obliged to transfer the ownership of the thing sold and to deliver it with its accessories. (…). Art. 7:26 § 1 BW provides: The buyer is obliged to pay the price.

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price (see § 5.3.2) or enter the contract under a reservation of title clause. Art. 3:92 § 1 BW provides: Where a contract is intended to reserve to one party the ownership of a thing that is placed under the control of the other party, until a performance owed by the latter has been made, the former is presumed to obligate himself to the transfer of the thing to the latter under a suspensive condition of that performance.

Obviously, the transferor is entitled to suspend the execution of his obligation to deliver in case the transferee does not pay the price, assuming that the transferee was obliged to perform before the transferor had to perform, or both of them had to perform simultaneously, and the transferor has good reason to fear that the transferee will not in fact pay. This follows from art. 6:262-263 BW (the enactment of the so-called exceptio non adimpleti contractus).

5.3.

Valid obligation

5.3.1. Obligations on which transfer can be based Beforehand, a short outline of the place of acquisition through transfer in the system of acquisition in general may be helpful. Art. 3:80 § 1 BW provides that ‘property is acquired by general and by particular title’. Acquisition by general title is acquisition by which a whole patrimony or a proportional part thereof, passes to another.122 “Property is acquired by general title through inheritance,123 fusion of patrimonies,124 or succession to the patrimony of a legal person, which has ceased to exist”125 (art. 3:80 § 2 BW). In the case of acquisition by general title the acquirer continues the position of the alienator, i.e., the acquirer is bound by the personal rights and obligations that previously belonged to the patrimony of the alienator.126 Acquisition by particular title is the acquisition of one or more particular assets previously belonging to someone else.127 According to art. 3:80 § 3 BW, 122 123 124 125 126 127

Asser-Mijnssen-De Haan, Goederenrecht 3-I, no. 193. Art. 4:182 in conjunction with art. 3:80 § 2 BW. Art. 1:93 and 1:94 BW. Art. 2:309 in conjunction with 3:80 § 2 BW. Asser-Mijnssen-De Haan, Goederenrecht 3-I, no. 193. Ibid.

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[p]roperty is acquired by particular title by transfer, prescription, expropriation and in any other manner of acquisition of rights provided by law according to their kind.128

In the case of acquisition by particular title the acquirer generally does not have to respect the personal obligations of the transferor with respect to the object. However, Dutch law recognizes the exception of the qualitative obligation (in Dutch: kwalitatieve verplichting), which is a contractual stipulation pertaining to registered property; this ensures – provided a notarial deed is drawn up of the contract between the parties, followed by its entry in the public registers – the devolution of certain personal obligations to tolerate or refrain from certain actions by persons who subsequently acquire that property by particular title, or who subsequently acquire a personal or residual right in that property (art. 6:252 § 1 BW129). Moreover, the law obliges the transferee to respect certain personal obligations. For example, the acquirer has to respect tenancy agreements (art. 7:226 BW, the enactment of the famous principle emptio non tollit locatum), and (farmland) lease agreements (art. 34 Farm Lease Act (Pachtwet)).130 The acquisition by particular title by transfer could be the result of a diversity of obligations. Usually the obligation to transfer will arise from a synallagmatic (obligatory) contract, such as sale, barter or partnership, or from a contract by gratuitous title like a gift (in Dutch: schenking; see art. 7:175 ff. BW). The obligation to transfer could also stem from a unilateral legal act, such as a legacy (art. 4:117-129 BW). Furthermore, the obligation could stem from the law:131 for example, the obligation to contribute all gifts, received from the deceased, to the estate (art. 4:229 BW), the obligation to return by transfer after undue payment

128

129

130 131

A form of derivative acquisition by particular title of a movable, not explicitly mentioned by art. 3:80 § 3 BW, occurs when a thing is delivered on a resolutive condition. Where delivery is made in the performance of a conditional obligation, the right so acquired is subject to the same condition as the obligation (art. 3:84 § 4 BW). Thus, the asset is transferred to the acquirer in the case of a delivery on a resolutive condition. But the moment when the condition is fulfilled, the conditional right returns to the transferor. This is a derivative acquisition of the right as it belonged to the person to whom it was delivered on the resolutive condition. See on this qualitative obligation N.C. van Oostrom-Streep, De kwalitatieve verplichting (Thesis; Boom Juridische uitgevers: The Hague 2006). Asser-Mijnssen-De Haan, Goederenrecht 3-I, p. 155. HR 17-11-1967, NJ 1968, 42 (Pos / Van den Bosch).

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of a thing,132 or the obligation to undo the performances that have already been made at the time of the fulfilment of a resolutory condition.133 A very important statutory obligation to transfer is found in art. 6:271 BW: The setting aside of a contract liberates the parties from the obligations affected by it. To the extent that these obligations have already been performed, the legal ground for this performance remains intact, but an obligation arises for the parties to undo the prestations they have already received.

A tort (unlawful act) is another important example of a legal obligation that functions as a valid title for transfer (i.e. the transfer of a thing by way of the payment of damages).134 The same applies to the obligation to pay damages in case of unjustified enrichment (art. 6:212 BW). It is debated, however, whether the payment should be regarded as damages, but this does not need to concern us here. Finally, the obligation to transfer could arise from a more complex legal relation, i.e., two of more successive obligatory contracts, the so-called ABC contracts.135 See, for this subject below, Section 7.

5.3.2. Defects regarding obligation and effects on transfer The validity of the transfer and the validity of the real agreement effectuating it depend upon the validity of the underlying contract (doctrine of causality), witness the requirement of ‘delivery pursuant to a valid title’ (art. 3:84 § 1 BW). The legal act underlying the title could be void or annulled, or in case the legal act underlying the title is a contract, this contract could be terminated.

132

133

134 135

Art. 6:203 § 1 BW: A person who has given property to another without legal ground is entitled to reclaim it from the recipient as having been paid unduly. Art. 6:24 § 1 BW: After fulfilment of a resolutory condition, the creditor must undo what has already been performed, unless the content or the necessary implication of the juridical act produces a different result. See HR 18-6-1971, NJ 1971, 408. Example: A sells his house to B, B sells the same house to C, under the understanding that A will deliver the house directly to C on the basis of the combined title AB-BC. See Pitlo / Reehuis, Heisterkamp, Goederenrecht, no. 113 and S.E. Bartels, De titel van overdracht in driepartijenverhoudingen (Thesis; Boom Juridische uitgevers: The Hague 2004).

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Void or annulled titles

The title could prove to be void from the beginning. The title could also be annulled prior to delivery or after delivery has taken place. As annulment “has retroactive effect to the time the juridical act was executed” (art. 3:53 § 1 BW), the annulled title is considered to be void from the beginning. Legal acts are void in the following cases: – The legal act has not been performed in the prescribed form (unless the law produces a different result); art. 3:39 BW. – The legal act is by its content or necessary implication contrary to good morals or public order; art. 3:40 § 1 BW. – The legal act constitutes a violation of an imperative statutory provision (unless the provision is intended solely for the protection of one of the parties to a multilateral juridical act, in which case the act may only be annulled provided that the necessary implication of the provision does not produce a different result; art. 3:40 § 2 BW. Statutory provisions that do not purport to invalidate juridical acts that are contrary to them are not affected by this rule; see art. 3:40 § 3 BW. – The legal act was performed by an incapable person and was unilateral, provided it is not addressed to one or more specifically determined persons; see art. 3:32 BW. Legal acts are annullable in the following cases (the enumeration is not complete): – The legal act was performed by a person who lacked legal capacity (art. 3:32 BW, see above), – The legal act was performed by someone whose mental faculties are permanently or temporarily impaired, provided it is unilateral and not addressed to one or more specifically determined persons; see art. 3:34 BW, – The legal act was entered into as a result of a threat, fraud or abuse of circumstances; see art. 3:44 BW, – The legal act was entered into as a result of an error (mistake); see art. 6:228 BW,136 136

The German concept of Irrtum über die Zahlungsfähigkeit (error concerning the solvency of the other party) is not known to Dutch law. Error concerning the person of the other party in general, however, is recognized and even placed on an equal footing with other kinds of errors (examples of error concerning the person: mistaken identity, error concerning the religion, the morality, the profession, the abilities etc. of the other party). Author’s comment: I have not been able to find any court decision in which a contract was annulled because one of the parties had incorrect ideas about the solvency of the other party. The possibility to annul a contract on that

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– The legal act (contract) was in furtherance of an already existing juridical relationship between the parties: the act can in principle be annulled if this relationship does not exist; see art. 6:229 BW, – The legal act was harmful to the creditors of the alienator (actio pauliana); see art. 3:45-48 BW and art. 42 Faillissementswet (Bankruptcy Act). In the case of a void title or a title annulled prior to or after delivery, the transfer is (in the latter case in hindsight) based upon an invalid title. Consequently, the transfer is invalid and the transferor is still the owner of the asset, provided he was the owner to begin with.137 This effect is the essence (and the raison d’être) of the principle of causality. However, art. 3:53 § 2 BW provides that [t]he judge may, if so demanded, refuse to give effect to an annulment in whole or in part, if the juridical act has already produced effects that can only be undone with difficulty. He may order that a party who is prejudiced by his decision be compensated by a party who unjustly benefits from it.

The Travaux Préparatoires of the Burgerlijk Wetboek indicate that this power of the judge is not to be used except for exceptional cases.138 Moreover, in the case of abuse of circumstances and influence of error the judge has the power to adapt – instead of nullify – the contract under special circumstances. Art. 3:54 § 2 BW provides that instead of pronouncing the annulment for abuse of circumstances, the judge may, upon the demand of one of the parties, modify the effects of the juridical act to remove this prejudice.

See art. 6:230 § 2 BW for a similar power of the judge in the cases meant in art. 3:228-229 BW (see above: contracts entered into as a result of error or contracts in furtherance of an already existing juridical relationship between the parties in case this relationship does not exist). In instances where the judge uses this power to modify the effects of the contract, a valid title for transfer remains. Furthermore, the transferor and

137

138

basis would, in my opinion, be an unjustified infringement on the paritas creditorum, and would furthermore be at odds with the possibility to exercise the right of recovery (art. 7:39 BW, see below § 5.7) or to stipulate another security instrument like a reservation of title, which is nothing other than a safeguard against the insolvency of the other party. The retroactive effect of annulment is irrelevant if the alienator was, for example, a thief. Parl. Gesch. Boek 3, p. 239.

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the transferee are entitled to confirm the validity of the void or avoidable transfer (art. 3:58 BW).

(b)

Obligations that do not constitute valid titles for transfer

Article 3:84 § 3 BW mentions two kinds of obligations that do not provide a valid title for transfer: A juridical act that is intended to transfer property for purposes of security or that does not have the purpose of bringing the property into the patrimony of the acquirer after transfer, does not constitute a valid title for transfer of that property.

The purpose of the provision – usually referred to as the prohibition on fiduciary transfer (in Dutch: fiduciaverbod) – is to guarantee the restricted system of absolute rights by preventing ownership or another right from being divided into absolute rights other than those recognized by law. The provision has been widely debated (most authors recommend its removal from the BW) and in 1995 the Hoge Raad chose to adopt a restricted interpretation of its purpose.139 Art. 3:85 BW mentions two other obligations that do not provide a valid title for transfer. However, by operation of law those obligations are converted into obligations that do provide a valid title for transfer. Art. 3:85 § 1 BW provides that [a]n obligation which is intended to transfer property for a certain specific period is deemed to be an obligation to establish a usufruct upon the property during that specific period.140

And the second paragraph of this article provides that [a]n obligation that is intended to transfer property under a suspensive term is deemed to be an obligation to transfer the property immediately, and establishes 139

140

Asser-Mijnssen-De Haan, Goederenrecht 3-I, no. 241. See HR 19-5-1995, NJ 1996, 116 (Mr. Keereweer q.q.-Sogelease) and HR 18-11-2005, NJ 2006, 151 (BTL / Van Summeren). See also S. de Groot, Fiduciary Transfer and Ownership, in: Rules for the Transfer of Movables. A Candidate for European Harmonisation or National Reforms? Schriften zur Europäischen Rechtswissenschaft 6 (Wolfgang Faber and Brigitta Lurger, eds.; Sellier european law publishers: Munich 2008), p. 161-173. See W.J. Zwalve, Simplex et perpetuum: beschouwingen over eigendom en tijd (Boom Juridische uitgevers: The Hague 2006).

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simultaneously a usufruct upon the property in favour of the alienator during the relevant period.

The latter provision could be criticized as an infringement on the autonomy of the parties, as the alienator intended to give up his ownership but the law forces him to maintain ownership on behalf of the other party, who, contrary to his wishes, does not receive ownership but (merely) the right of usufruct.141

(c)

Termination of a contract

The termination of a contract does not have retroactive effect (art. 6:269 BW). Neither does the termination of the contract return the ownership of the asset to the transferor by operation of law. This is because the termination of the contract does not affect the validity of the title as it existed at the moment of the transfer. The termination of the contract brings about a new obligation – which forms a statutory title – for the acquirer to return (retro-transfer) the asset to the transferor (art. 6:271 BW). Thus, the original alienator merely has a personal claim against the acquirer of the asset, the weakness of which manifests itself if the acquirer is declared bankrupt before the performance of the obligation to retro-transfer the property. The situation is different in the case of the fulfilment of a resolutive condition of a contract. Like termination, the fulfilment of a resolutive condition does not have retroactive force (art. 3:38 § 2 BW). But, as said before, where delivery is made in the performance of a conditional obligation, the right so acquired is subject to the same condition as the obligation (art. 3:84 § 4 BW). Thus, the conditional right returns to the transferor by operation of law at the moment when the condition is fulfilled. The same applies to the assertion of the right of recovery by the seller of a movable (art. 7:39 BW): ownership returns to the seller automatically, but without retroactive force. If the buyer has already transferred the property for value to a third acquirer in good faith before the seller asserted his right of revindication, the third acquirer is protected by art. 7:42 BW (note that this transfer was made by someone who was entitled to dispose of the property, as the subsequent revindication has no retroactive effect; the protection of art. 3:86 BW is therefore not applicable).

141

See on art. 3:85 BW Pitlo / Reehuis, Heisterkamp, Goederenrecht, no. 128 and Snijders / Rank-Berenschot, Goederenrecht, no. 433.

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Delivery

5.4.1. Dogmatic basis In the new Burgerlijk Wetboek of 1992, the principle of publicity is maintained as a cornerstone of property law, in which legal certainty is crucial in view of the drittwirkung of absolute rights. Above, in § 1.2.1, two examples are given of provisions in the field of transfer where the importance which the Dutch legislator still attaches to the principle is visible: transfer of movables requires the transfer of possession and assignment of claims requires notice thereof to the debtor (however: since October 2004 another form of assignment has been introduced, in which a claim may be transferred without notice to the debtor. The principle of publicity is not abandoned here, however, for this kind of assignment has to be performed by an authentic deed or a registered deed under private writing). Obviously, the principle of publicity is frequently under pressure, especially due to the rise of (relatively) new instruments in the field of finance and security: fiduciary transfer, financial leasing, factoring, securitization etc.: examples of phenomena in which outsiders cannot tell who owns the objects with which they are confronted.142 Publicity has, so far, not been sacrificed altogether, even though the legislator is not averse to facilitating the new instruments (witness the just mentioned introduction of ‘silent assignment’ for the benefit of factoring and securitization; see above, § 1.2.1). The Europeanization of Dutch law plays a role too: in the implementation legislation concerning the Collateral Directive of the EU the prohibition on fiduciary transfer (art. 3:84 § 3 BW) has been excluded for repossessions (see above, § 3.4). Principles are always balanced against other principles. Many provisions of property law are the result of a compromise between publicity and the need to favour and promote undisturbed trade. Therefore, it is not possible to assess the ‘effectiveness’ of the rules that require publicity: the ultimate goal of the legislator is not publicity in itself, but the simultaneous advancement of the various principles at stake to establish some kind of optimum.

142

In the first two examples, there is a separation of legal ownership and economic ownership. Factoring and securitization are both characterized by the fact that the person collecting payment, from the debtors of the claims involved, is not the eventual beneficiary of the payment (in the case of securitization it is customary for the originator to maintain responsibility, as the servicing agent, to collect the payments of the claims).

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5.4.2. Forms of delivery As said, the concept of delivery is regarded as consisting of two elements: (1) the real agreement and (2) the act by which the transferor and the transferee manifest their common intention to transfer. The law prescribes certain formalities for the manifestation of the common intention to transfer. Art. 3:39 BW provides that “unless otherwise provided by law, legal acts, that are not performed in the required form, are void”. Thus, if those formalities are not observed, the delivery is void. Consequently, the transfer is void as well (art. 3:84 § 1 BW). The formalities required for a transfer vary according to the kind of asset to be transferred. The formalities required for the transfer of movables differ with respect to (a) movables that are under the control of the transferor, (b) movables that are not under the control of the transferor and (c) movables that are registered objects.143

(a)

Movables within the control of the transferor

Article 3:90 § 1 BW provides that ‘delivery required for the transfer of movables that are unregistered property and that are under the control of the alienator is made by providing possession of the thing to the acquirer’. The article applies only where the transferor has power over the thing. The term ‘power’ in this article means direct possession (actual physical power) as well as indirect possession (power through a detentor). There are different ways in which possession may be provided (see also above, § 2.3).

(i)

Actual delivery

Art. 3:114 BW provides that [a] possessor transfers his possession by enabling the acquirer to exercise such control over the property as he himself was able to exercise over it.

The easiest way to provide possession is the handing over of the object, e.g. a bicycle can be delivered by handing over the bicycle. But possession can also be provided by any other act that gives direct possession over the ob143

Certain ships and aircraft. See on the transfer of securities M. Haentjens, Harmonisation of Securities Law. Custody and Transfer of Securities in European Private Law. Private law in European Context Series 11 (Thesis; Kluwer Law International: Alphen aan den Rijn 2007).

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ject according to common opinion. Such an act could be the handing over of objects, which in turn gives direct possession over the object, e.g. the bicycle could also be delivered by handing over the keys of the bicycle lock (traditio symbolica). Or such an act could be the permission of the transferor to the transferee to take possession of the object, e.g. the bicycle could be delivered by taking the bicycle out of the bicycle-rack.144 Any other act (than the handing over of the object) should not be regarded as a separate kind of fictitious delivery (see below, sub A2): if it gives the acquirer direct control over the object in question, it is actual delivery. Whether somebody detains property and whether he does so for himself or for another, is determined according to common opinion, taking into account the following rules and, otherwise, the facts as they appear (art. 3:108 BW). See also the following decision:145 a building contractor left a building site, which was subsequently taken over by the contracting authority, which, as agreed upon between them, took possession of the building material left behind by the building contractor: according to the Hoge Raad, this procedure constituted delivery of the building material by actual delivery.

(ii)

Fictitious delivery

Article 3:115 BW provides that bilateral declaration without material acts is sufficient for the transfer of possession: (a) where the alienator possesses the thing and henceforth detains it for the acquirer by virtue of a stipulation made at the time of delivery; (b) where the acquirer was detentor of the thing for the alienator; (c) where a third party detained the thing for the alienator and detains it for the recipient after the transfer. In the last event possession does not pass until the third party has acknowledged the transfer or has been notified of it by the alienator or acquirer.

In short, art. 3:115 BW defines the constitutum possessorium (a), the traditio brevi manu (b) and the traditio longa manu (c). Constitutum possessorium (art. 3:115 (aa) BW) is defined as the form of delivery where the transferor is the possessor of the thing and the parties agree that the transferor will henceforth hold the thing for the transferee 144

145

Pitlo / Reehuis, Heisterkamp, Heisterkamp, Goederenrecht, no. 225. See HR 11 January 1952, NJ 1952, 77. Hoge Raad 8 June 1973, NJ 1974, 346.

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as a detentor. As the object remains in the hands of the transferor, a delivery constitutum possessorium is ‘invisible’ to third parties. Because of this infringement of the principle of publicity the effect of such a delivery is restricted. This is effected in two provisions: art. 3:90 § 2 BW (with regard to delivery constitutum possessorium by a possessor) and art. 3:111 BW (with regard to delivery constitutum possessorium by a detentor): – Art. 3:90 § 2 BW provides that delivery of a thing which remains in the hands of the alienator has no effect with respect to a third person who has a prior right to the thing, until the time when the thing has come into the hands of the acquirer, unless the third person has consented to the alienation. – Art. 3:111 BW provides that a person who has begun detention for another pursuant to a juridical relationship continues to do so under the same title, so long as no change is apparent in his title that results either from an act by the person for whom he holds or from the latter’s right having been contested. Consequently, a detentor of an asset cannot, in principle, turn or convert his detention into possession, nor can he turn his detention for a certain person into detention for another.146 Both provisions are based on the argument that a transferee who does not insist on acquiring actual power over the object involved, does not deserve the normal third party protection against the transferor lacking the privilege to dispose, as long as he leaves the object involved in the hands of the transferor.147 The difference between the two provisions is that art. 3:90 § 2 BW nullifies the delivery constitutum possessorium only as against third parties having a prior right in the object, whereas art. 3:111 BW nullifies the transfer of possession entirely. Delivery constituto possessorio is not only used in cases where the delivered object has to remain in the hands of the deliverer (as in the case when A sells a car to B, parties want to perform the delivery immediately, but the car itself still has to be made ready for use by A before B can acquire actual possession148). It also serves as a common method of delivery in cases where future movables are transferred.149 146

147 148

The rule that a detentor cannot turn himself into a detentor for a third person has been clearly expressed in HR 22-5-1953, NJ 1954, 189 (Sio / De Jong), HR 29-9-1961, NJ 1962, 14 (Smallingerland / Picus) and HR 8-6-1973, NJ 1974, 346 (Nationaal Grondbezit / Kamphuis). See Van Vliet, Transfer of movables, p. 146. Van Vliet, Transfer of movables, p. 145. See Parl. Gesch. Boek 3, p. 384-385. Of course, the transferor has to hand over the delivered object on a later date, agreed upon by the parties. But he has recourse to the right of retention in case the transferee would not fulfil his obligations. If e.g. it was agreed that the latter would pay the purchase price before the property would actually be handed over, the transferor is

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Suppose A sells a car to B that does not yet belong to A (maybe it still has to be manufactured, or maybe it already exists but has not yet been acquired by A); delivery to B through constitutum possessorium is not yet possible, as A does not have possession. But they can agree that possession is to shift to B as soon as it is acquired by A: this is called delivery through ‘anticipated constitutum possessorium’. At the moment the car is acquired by A, both possession and ownership pass to B ipso iure, without any additional acts having to be performed by either A or B. It should be noted that there is an alternative method of delivering future movables: delivery by means of a deed intended for that purpose. See art. 3:95 BW, which is meant for the delivery of movables not under the control of the transferor, for which reason delivery through transfer of possession is no option. See further on art. 3:95 BW below, § 5.4.2 sub B. This form of delivery is in particular intended for cases when the owner of a stolen object wants to transfer the ownership thereof, e.g. to his insurance company, but is unable to do this through transfer of possession. In the case of traditio brevi manu (art. 3:115 (a) BW) the asset to be delivered is already held by the transferee. Thus, whereas a traditio constitutum possessorium turns the possessor (transferor) into a detentor, delivery brevi manu turns the detentor (transferee) into a possessor. This would occur when A sells a movable on approval to B and B decides to keep it, informing A that he wants to finalize the sale; delivery by mere agreement takes the place of actual delivery, as A had already handed over the movable to B in order for B to be able to try it. This form of delivery is open to non-possessors as well (contrary to the delivery by constitutum possessorium). Suppose A loans a painting to museum B, and at a later date B loans it to museum C. The latter museum informs B of its desire to buy the painting, and B agrees (forgetting that the painting was not in her property). B and C will most probably choose delivery by mere agreement, i.e. brevi manu, as the paining was already in the hands of C. This would give possession of the painting to C, even though B never had possession of the painting. We will return to this complicated matter shortly.150 149

149

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allowed to suspend the performance of his obligation to surrender the property to the transferee until payment of the debt by the latter; see art. 3:290 j° art. 6:262 BW. See on transfer of future goods, and in particular the aspect of time (do delivery and transfer have to coincide?), J.H.M. van Swaaij, Beschikken en rechtsovergang. De temporele dimensie van de overdracht: levering van toekomstige goederen, levering onder eigendomsvoorbehoud en levering onder voorbehoud van eigendomsherkrijging (Thesis; Boom Juridische uitgevers: The Hague 2000). See Hoge Raad 25 September 1953, NJ 1954, 190, and Pitlo / Reehuis, Heisterkamp, Goederenrecht, no. 237.

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Traditio brevi manu is also possible in the case of a non-contractual delivery obligation. Suppose B is obliged to re-deliver a movable to A, from whom he has bought it but who has subsequently terminated the sales contract on the basis of non-performance by B. A and B may choose whichever delivery method they deem suitable. In case the movable is (still or already) in the hands of A (either because A had delivered it through constitutum possessorium to B or because B had brought the thing back to A for repairs), retro-delivery brevi manu would be easiest. The traditio longa manu151 (art. 3:115 (a) BW) is a form of delivery that covers the situation in which the asset to be transferred is in the custody of a third person. The third party does not have to agree with the change in possession. To be valid the traditio longa manu must either be acknowledged by the third party or notice must be given to him by the alienator or acquirer. As notification suffices, the third party is unable to block the transfer of possession. Without, or even against, his will his detention for the transferor will be converted into detention for the acquirer. However, he will retain all contractual rights he had against the transferor. The notification is ‘form free’, which means that it can be made in any form (see art. 3:37 BW): in writing, by telephone, through e-mail etc. As to its content: the notification would be to the effect that the detentor is henceforward not to detain for the transferor but for the transferee.152 Obviously, the notification has to be clear about the exact object to which it refers, as well as the identity of the transferee (even though the notification can be given by the latter as well as by the transferor). As always, the delivery is not accomplished – and therefore possession and ownership do not pass – until all formalities required for the delivery are completed. This implies that traditio longa manu is only fulfilled when parties have agreed upon transfer of possession and notification thereof is given to the detentor. Notification and transfer therefore coincide, as the other formality, the “bilateral declaration without material acts” purporting to transfer of possession, logically has to have been performed before the notification.153 Although a detentor cannot deliver by way of constitutum possessorium (due to the prohibition of interversion of art. 3:111 BW), he is able to 151

152 153

NB: The modern use that Dutch law makes of the term traditio longa manu does not correspond with the term’s original meaning; Van Vliet, Transfer of movables, p. 142-143. See Pitlo / Reehuis, Heisterkamp, Goederenrecht, no. 238. Unlike some other legal systems, Dutch law has no alternative for this kind of delivery. In particular, assignment is not an option for movable things, as this form of delivery is reserved for “rights to be exercised against one or more specifically determined persons” (see art. 3:94 BW).

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deliver by way of traditio brevi manu or traditio longa manu. A detentor does not have the power to dispose (with the exception of, e.g., the agent and the pledgee, see above), but this defect could be rectified by art. 3:86 BW, which protects the transferee in good faith against a transferor’s lack of privilege to dispose of movables that were under the control of the transferor.154 Neither does the detentor possess the thing. Therefore, he is not able to transfer possession to the acquirer. However, art. 3:90 § 1 BW does not require the ‘transferor’ to transfer possession, but merely to provide (give) possession. This covers all instances of transfer of possession, and includes cases in which a detentor provides another with the actual power over a thing. In the latter case the transferee will ‘originally’ acquire possession of the thing, as a result of occupation. Therefore, it is said that the acquirer has been provided with the possession of the thing, although there has been no transfer of possession. Thus, a factual handing over of the object by a detentor is sufficient to meet the requirement of art. 3:90 § 1 BW. Strictly speaking, fictitious delivery (as meant in art. 3:114 BW) is not available to a detentor, because it is a form of transferring possession. However, a detentor may provide possession in a way comparable to traditio brevi manu or traditio longa manu as long as it gives the acquirer the power over the thing required by art. 3:90 § 1 BW. Providing possession in a way comparable to constitutum possessorium is not sufficient, because in that case the actual power remains with the transferor.155 Sometimes a fourth form of fictitious delivery is recognized: traditio sine manu. The term, which is not mentioned in the Burgerlijk Wetboek, is used to indicate the delivery between two people living together, married or unmarried. If a husband makes a gift of furniture to his wife, any physical act of moving the furniture is unnecessary. Art. 3:114 BW does not fit this situation, for the husband does not provide his wife with the power he previously had over the furniture. His physical power over the things remains intact and his wife already had the same physical power before the transfer of possession.156 See above, § 2.3. The agreement mentioned in art. 3:115 BW is not the real agreement, but rather the agreement on the transfer of possession. The requirement of providing possession should be distinguished from the legal act of transfer, the real agreement, whether the provision of possession takes place by way of actual of fictitious delivery. The transfer of possession – actual or fictitious – needs an agreement. But this agreement relates solely to the transfer of possession and it is therefore not to be confused with the real 154 155 156

See § 5.1.3 sub B. Van Vliet, Transfer of movables, p. 147. Ibid., p. 143-144.

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agreement, which is an agreement about the transfer of ownership rather than possession.157 A special form of transfer is the transfer through the delivery of documents in which ownership of goods is ‘embodied’: bills of lading, warehouse warrants etc. Documents like these are made in the form of bearer documents or order documents. See, on the delivery of these documents, art. 3:93 BW: Delivery required for the transfer of a right payable to bearer, the instrument of which is under the control of the alienator, is made by delivery of the document in the manner and with the effects as specified in articles 90, 91, and 92. The same applies to the transfer of a right payable to order which is under the control of the alienator, provided that the document is also endorsed.

In the document, the carrier or depositary declares that he will deliver the (movable) goods concerned to the bearer or order of the documents. In this way, transfer of possession is effected through the transfer of the documents, and thereby also the transfer of ownership (art. 3:90 § 1 BW).158 See, on warehouse warrants, art. 7:607 BW (in the Title on Deposit); and on bills of lading, art. 8:399 and 8:916 BW (Book 8 is titled Traffic and Transport). Other forms of documents of title, recognized in Book 8 BW, are the Delivery order (document issued by the carrier after the withdrawal of the bill of lading, which entitles the bearer of the document to the delivery of the goods mentioned in the bill of lading; art. 8:482) and the CT document (art. 8:44 ff.). These documents still have to exist in paper form; electronic bills of lading etc. have not yet found their way into the Burgerlijk Wetboek. The benefits of the introduction of electronic equivalents of paper documents are widely acknowledged, but there is not yet consensus on the way to deal with the practical implications of a possible abolishment of the ‘requirement of paper.’159

157 158

159

Ibid., p. 137. See Snijders / Rank-Berenschot, Goederenrecht, no. 243, and especially A.J. van der Lely, Levering van roerende zaken door middel van een zakenrechtelijk waardepapier (Thesis; Kluwer: Deventer 1996). See e.g. A.M. Brakel, Electronic Bills of Lading, Over een elektronisch van het papieren cognossement, Tijdschrift Vervoer & Recht (2000), 129 ff. and G.J. van der Ziel, Naar de afschaffing van het papieren cognossement, een case studie, in: R.E. van Esch, J.W. Winter & G.J. van der Ziel (eds.), Afscheid van papier, handelsrecht en moderne technologie, Preadvies van de Vereeniging ‘Handelsrecht’ (Deventer: W.E.J. Tjeenk Willink: 2001), 19 ff.

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In all the provisions just mentioned, the ‘technique’ is the same: the delivery of the document before the delivery of the goods mentioned therein counts as the delivery of these goods. This implies that the transfer of the goods by delivery of the goods themselves (instead of the document) remains a possibility if the document has not (yet) reached the addressee.160

(b)

Movables not within the control of the transferor

Article 3:90 § 1 BW requires the transferor to provide the acquirer with possession of the thing for the transfer of a movable. All forms of delivery involve a transfer of possession, and accordingly a derivative acquisition of possession. But when the thing is not within the power of the owner, for example as a result of theft, the owner cannot provide possession. However, there is a practical need to be able to transfer ownership in these instances, especially to the insurance company (insurance policies usually make payments in the case of theft conditional upon the transfer of the ownership of the stolen object). Therefore, art. 3:95 BW enables the owner to transfer ownership by drawing up a deed. This deed contains the mutual will to transfer the ownership of the thing, that is, the real agreement.161 Art. 3:95 BW provides: In cases other than those provided for in articles 89-94 and without prejudice to articles 96 and 98, property is delivered by a deed intended for that purpose.

(c)

Movable registered objects

Pursuant to art. 3:89 § 4 BW, movable registered objects are delivered in the same manner as immovables (the provisions of § 1-3 apply mutatis mutandis). This means that a notarial deed intended for that purpose has to be drawn up between the parties, followed by its entry in the public registers provided for that purpose. This applies to registered sea vessels and river crafts (art. 8:199 § 1 and art. 8:790 § 1 BW), registered aircrafts (art. 8:1306 § 1 BW) and any encumbered rights on these things (hypothec, usufruct etc.).

160

161

Nevertheless, if a bill of lading has been issued only the rightful bearer is entitled to demand delivery of the goods vis-à-vis the carrier (art. 8:940 BW). Van Vliet, Transfer of movables, p. 140.

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5.5.

Registration

There are only two categories of movables for which transfer is effected (constitutively) through registration: certain ships (registered sea vessels and river craft, art. 8:199 § 1 and art. 8:790 § 1 BW), and certain aircraft (registered aircraft, art. 8:1306 § 1 BW): see above, § 5.4.2 sub C.162 They constitute movable registered property (Registered property is property the transfer or creation of which requires entry in the public registers provided for that purpose; art. 3:10 BW). The public registers, in which the transfer of ownership (and encumbrance with hypothec) of registered ships and aircraft has to be published, are the same registers as those in which transactions with regard to immovable property are published; see art. 8:191 and art 8:1300 sub d BW j° art. 3:16 ff. BW. The public service responsible for maintaining the public register for private law transactions is combined with the service that is responsible for public law registration (including the drawing up of a system of maps), the so-called Kadaster. Together, they form the Dienst voor het kadaster en de openbare registers (Service for the Kadaster and public registers), usually merely called Kadaster. Detailed rules on its functioning are given in a specific law, the Kadasterwet of 3 June, 1989.163 Motor vehicles are not registered property, even though the transfer of vehicles is registered:164 when one buys a car (or motorcycle), one must transfer the vehicle registration certificate into one’s own name. This registration is not constitutive, however: the transfer of ownership is effectuated independently of compliance with the registration requirement. With regard to goods that qualify as registered property, there is only one way of delivering them: the way prescribed by art. 3:89 § 1 BW: a notarial deed intended for that purpose and drawn up between the parties, followed by its entry in the public registers (see § 4 of the same article). It is not allowed to use one of the other forms of transfer by delivery, for the obvious reason that this would result in a violation of the publicity principle and would undermine legal certainty. There is no exception to this for 162

163 164

We will not pay any attention to the Convention on International Interests in Mobile Equipment (Cape Town, 16 November 2001), as The Netherlands is no party to this Convention (yet). See e.g. B.P. Honnebier, The Convention of Cape Town on International Interests in Mobile Equipment: The Solution of Specific European Property Law Problems, European Review of Private Law 10-2002, p. 377-395 and A.F. Salomons, Should we Ratify the Convention on International Interest in Mobile Equipment and the Air Equipment Protocol? Some Remarks from a Dutch Point of View, European Review of Private Law 1-2004, p. 67-74. Staatsblad 1989, no. 186. By the Government Road Transport Agency (Rijksdienst voor het wegverkeer).

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movable registered property: once a ship or aircraft is registered (in Dutch: teboekgesteld), it is registered property (see the articles 8:199 § 1, 8:790 § 1 and 8:1306 § 1 BW) and therefore governed by the provision of art. 3:89 BW, which acknowledges no other delivery method besides notarial deed entered into the public registers.

5.6.

Real agreement

The concept of a real agreement is not undisputed in Dutch law. Whereas the different formalities required for the transfer of assets are clearly laid down in the civil code, the real agreement is neither mentioned in the old nor in the new civil code. Especially with respect to the delivery of nonregistered movables by actually handing them over, the opinions differ on the meaning of (and the practical need for) the real agreement.165 Some authors maintain that the transfer of possession is not a legal, but rather a factual act, and that therefore no place is left for a real agreement. Others argue that even delivery by actual handing over implies a transfer of possession (legal act), which accordingly implies a real agreement.166 Be that as it may, the concept of a real agreement is acknowledged by a majority of Dutch legal authors.167 They argue that the requirement 165

166 167

See on this Drobnig: “In the Netherlands, the validity of the transfer and therefore also of the ‘real agreement’ accompanying it, depends upon the validity of the underlying contract. This ‘causal’ nature of the ‘real’ agreement is also unanimously accepted in Dutch literature.” U. Drobnig, Transfer of Property, in: A.S. Hartkamp et al., Towards a European Civil Code (3rd fully revised and expanded ed.; Ars Aequi Libri: Nijmegen 2004), p. 725-740, at 736. In the second edition of Towards a European Civil Code, of 1998, p. 507, Drobnig wrote that the Dutch controversy about the ‘real’ agreement is purely conceptual, without practical relevance, except where the Civil Code expressly provides for it, but this remark did not return in the third edition. P.C. Slangen, Hoofdstukken Goederenrecht (3rd ed.; The Hague 2002), p. 24-25. See for a survey Asser-Mijnssen-De Haan, Goederenrecht 3-I, p. 167. The central question of the recent Phd-thesis of J.A.J. Peter, Levering van roerende zaken (Thesis; Kluwer: Deventer 2007) is whether in Dutch property law the transfer of movables is characterized by the conclusion of a real agreement and, if so, what function the real agreement has. Her main conclusion is that the real agreement is indeed the nucleus of the transfer of movables via art. 3:90 BW. The remainder of the book is dedicated to an analysis of the consequences of this conclusion for the delivery of future goods, delivery in case of indirect agency, delivery in case of title retention and confirmation (regularization) of delivery in case a legal condition for the validity thereof was fulfilled only after its execution.

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of a real agreement is implied by the fact that the transfer of property is not brought about by the obligatory agreement, but by a separate legal act (delivery).168 Besides, the Travaux Préparatoires indicate that the law starts from the concept of a real agreement169 and the Hoge Raad has recognized the real agreement170 as an element of delivery in several decisions.171 In order to be effective the real agreement should relate to specific property. This follows from art. 3:84 § 2 BW, which provides that “the title must describe the property in a sufficiently precise manner.” The unfortunate term ‘title’ in this paragraph does not refer to the obligation to transfer, but to the real agreement (the execution of the obligation to transfer).172 According to art. 6:227 BW ‘the obligations that parties assume must be determinable’. An obligation is ‘determinable’ as indicated in art. 6:227 BW if criteria – if necessary even subjective criteria – are available for determining the subject matter of the obligation.173 This is broader than ‘sufficiently precise’ within the meaning of art. 3:84 § 2 BW174, which means that objective criteria could be found, if necessary subsequently, for determining which object is to be, or has been, transferred.175 Therefore, the term ‘title’ in art. 3:84 § 2 BW refers to the moment when the obligation to transfer, stemming from the title, will be effectuated, i.e. the moment of delivery.176 Besides, this follows from the ‘principle of individualization’. Ownership of unascertained goods cannot exist and as a consequence generic goods 168 169

170

171

172

173 174 175

176

Asser-Mijnssen-De Haan, Goederenrecht 3-I, p. 166. Parl. Gesch. Boek 3, p. 380; Parl. Gesch. Boek 6, p. 837; Parl. Gesch. Boek 3 (Inv. 3, 5 and 6), p. 1250. N.B.: Under the previous Dutch civil code the real agreement was called zakelijke overeenkomst. Under the new Dutch civil code it is referred to as goederenrechtelijke overeenkomst, as transfer (and therefore the real agreement) relates to all goods, not just things (zaken). HR 7-6-1946, NJ 1946, 465; HR 29-9-1961, NJ 1962, 14; HR 18-2-1966, NJ 1967, 109; HR 24-5-1968, NJ 1969, 72; HR 8-3-1972, NJ 1973, 482; HR 8-6-1973, NJ 1974, 346; HR 27-4-1979, NJ 1981, 139; HR 1-2-1980, NJ 1981, 140; HR 7-5-1982, NJ 1983, 241. Asser-Mijnssen-De Haan, Goederenrecht 3-I, p. 174-175; O.K. Brahn and W.H.M. Reehuis, Overdracht, Monografieën Nieuw BW B-6a (3rd ed.; Kluwer: 1997), p. 4243. Brahn / Reehuis, Overdracht, p. 41, referring to Parl. Gesch. Boek 6, p. 895-896. Brahn / Reehuis, Overdracht, p. 41-43. Ibid., p. 41-43; HR 20-6-1997, NJ 1998, 362; HR 19-9-1997, NJ 1998, 698; HR 19-12-1997, NJ 1998, 690. Asser-Mijnssen-De Haan, Goederenrecht 3-I, p. 174-175; Brahn / Reehuis, Overdracht, p. 42-43.

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cannot be transferred unless it is known exactly which individual assets are to pass to the acquirer. If an obligation exists for the transfer of a certain number of generic goods, which will be specified later on, the appropriation of those goods must take place in the real agreement. The real agreement has the role of specifying the property and thus of complying with the principle of specificity. An invalidity, which affects the real agreement, only prevents the purported performance of the transferor’s obligation to transfer the property to the transferee. But the obligation to transfer itself is not affected. The transferor remains obliged to transfer and must make a new attempt to transfer the property or else he will be burdened with the consequences of his non-performance. This, of course, is the main argument of the ‘adversaries of the real agreement’: the annulment of a delivery (e.g. on the basis of a threat, art. 3:44 BW) is futile because it merely postpones the delivery: eventually, the obligation to deliver will have to be performed.

5.7.

Payment – right of recovery of seller

As has been said above (§ 5.2), Dutch law does not recognize a requirement of payment for the acquisition by transfer based upon a sales contract. This means that there is no implied reservation of title, as is the case in Belgium. However, in the interests of salesmen, art. 7:39 BW grants the seller the right to reclaim unpaid goods (right of revindication or, less confusingly: right of recovery, in Dutch: recht van reclame). See art. 7:39 § 1 BW: The seller of a movable thing (not registered property) that has been delivered to the buyer is entitled, in case the price has not been paid and thereby the conditions for termination ex article 265 Book 6 have been fulfilled, to reclaim the thing by a written declaration addressed to the buyer. By this declaration the sale is terminated (dissolved) and the right of the buyer or his legal successor ends (…).

The importance of the right of recovery lies in its proprietary effect: ownership returns automatically to the seller, whereas the regular termination of the contract would merely create a personal obligation for the buyer to transfer the thing back to the seller (art. 6:271 BW). In its legal (proprietary) effects, the right of recovery is comparable to the transfer under a resolutory condition (see above, § 5.3.1): both lead to an automatic return of title but without retrospective effect. The term of forfeiture of this special right is specified in art. 7:44 BW: the right or recovery ends when both six weeks have passed since payment became due and 60 days have passed since the day on which the thing

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was stored by the buyer or someone on his behalf. Usually, therefore, the right ends 60 days after actual delivery. Unless the thing has remained in the hands of the buyer, third persons who in the meantime have acquired a right in the thing are protected by art. 7:42 BW, provided they have acquired their right for value, and they did not reasonably expect that the seller would exercise his right of recovery.

6.

Double selling

When A sells the same asset first to B and afterwards also to C, both B and C are entitled to delivery. For this situation art. 3:298 BW gives priority (with exceptions) to B’s claim: Unless the law, the nature of their rights, or the requirements of reasonableness and equity177 produce a different result, where two or more creditors pursue conflicting rights to delivery in respect to one and the same property, the oldest right to delivery has preference in their mutual relationship.

This provision is only relevant if seller A does not perform voluntarily. If, however, A does deliver of his own accord, either to B or to C, art. 3:298 BW has no role to play. B (assuming A had delivered to him) or C (idem) will acquire ownership, as the last requirement for transfer has been fulfilled by the delivery. Good faith is not required. Under certain circumstances the other party will be entitled to hold him liable: this will be the case if the buying of the thing constituted an unlawful act, because he knew that it had already been sold to someone else. The possibility of an order to transfer the thing to the other party was recognized by the Hoge Raad in 1967.178 Even if the acquirer did not know at the time of the sale that the seller had already sold the object to someone else, but he learned about that fact before the delivery, he can under special circumstances be successfully accused of an unlawful act.179

177

178 179

Example: B has bought a house for reasons of speculation, without the intention to live in the house himself, while C has bought the same house in a desperate need for a place to live. In that case, C’s right of delivery would have preference over the right of B because of the requirements of reasonableness and equity (See W. Snijders, Botsende rechten op levering van eenzelfde goed, in: Recht door zee, Liber Amicorum H. Schadee (W.E.J. Tjeenk Willink: Zwolle 1980), p. 185-192). HR 17-11-1967, NJ 1968, 42 (Pos / Van den Bosch). See HR 8-12-1989, NJ 1990, 217.

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With regard to future movable goods, there is not only the problem of double selling but also of double delivery180 (double delivery is not possible for existing movables that are under the control of the transferor, as delivery is performed here by transfer of possession, which cannot be repeated after the first delivery). Concerning the double delivery of future goods, art. 3:97 § 2 BW provides the following: Delivery in advance of future property has no effect against a person who has acquired the property in advance as a result of an earlier delivery. In the case of a movable thing, the delivery has effect against this person from the time the thing has come into the hands of the acquirer.

In the second sentence, the subordination of the delivery constitutum possessorium (see art. 3:111 and 3:90 § 2 BW, discussed in § 2.3 and 5.4.2 sub A) and the importance of the principle of publication are yet again expressed: whoever succeeds in acquiring direct physical control of the thing will prevail. If that is the person to whom the thing was delivered last, (B), there is a further problem. The delivery through which he obtained control of the thing has effect against the other party (A), but that does not imply that he automatically becomes the owner: the seller was no longer entitled to transfer the thing to B, as A had already acquired ownership. In other words, the seller no longer had the right to dispose of the thing. Therefore B will also be in need of protection against the fact that the alienator was not entitled to dispose of the thing: this protection will be awarded to him if he is in good faith (meaning that he did not know nor ought to have known that A had already acquired ownership) and his acquisition was not gratuitous (see art. 3:86 § 1 BW).

7.

Selling in a chain

7.1.

Combined title

As said above, in § 5.1.2 and 5.1.3, the title required for a valid transfer (art. 3:84 § 1 BW), is defined as ‘the legal relationship that underlies and justifies the transfer’. The express purpose of this definition, introduced by A.S. Hartkamp in 1974, is to cover cases like the one in which A sells to B and B sells to C, after which A delivers directly to C. Transactions of this

180

With the exception of registered property and property which cannot be the subject matter of a contract, future property may be delivered in advance; art. 3:97 § 1BW.

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type are called ABC contracts, and the underlying title is considered to be a ‘combined title’ (samengestelde titel).181, 182 In the following situations a combined title is present:183 – ABC contracts: A sells to B and B sells to C, after which A delivers directly to C (mentioned above); – Indirect agency: A transfers a movable to B, who acts as an indirect agent (middellijke vertegenwoordiger) for C and accepts the movable on behalf of C (see art. 3:110 BW and below); – Assignment: A sells to B and B sells to C, after which A delivers to C after assignment by B to C of his right to delivery by A; – Third Party Clause: A delivers to C after C has accepted a Third Party Clause in the contract A-B to that effect; – Takeover of a debt: A delivers to C after A has taken over B’s obligation to C; – Takeover of a contract: B transfers to C his position as the buyer in the sales contract A-B. Suppose B and C had agreed upon a reservation of title clause in their sales contract, but delivery is performed not by B but by A, who had sold the movable previously to B. In that case, the delivery A-C would result in transfer of possession from A to B (pursuant to art. 3:110 BW, see § 3.4, § 7.3 and § 8.3.1) and the giving of control (pursuant to art. 3:91, see § 13 and § 13.3) from B to C. So the delivery A-C would result in acquisition of mediate possession by B and of immediate detention for B by C.184 Furthermore, B is the owner until the condition for acquisition by C is fulfilled.

181

182

183

184

See Asser-Mijnssen-De Haan, Goederenrecht 3-I, no. 239, S.E. Bartels, De titel van overdracht in driepartijenverhoudingen (Thesis; Boom Juridische uitgevers: The Hague 2004) and A.S. Hartkamp, De samengestelde overdrachtstitel en zijn manco’s, Weekblad voor Privaatrecht, Notariaat en Registratie 6596 (2004), p. 849-856. In all these cases it seems that the ‘real agreement’ in the delivery A-C is concluded between A and C, and that B is not a party to that agreement. However, the matter has drawn hardly any attention from Dutch scholars, so it is not possible to construe a common opinion. See Hartkamp, De samengestelde overdrachtstitel, Weekblad voor Privaatrecht, Notariaat en Registratie 6596 (2004), p. 850. See Bartels, De titel van overdracht in driepartijenverhoudingen, p. 64.

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Defects in either of the two relationships

In the Civil Code of 1992, no attention is given to the consequences of defects in either the relationship A-B or the relationship B-C.185 In cases in which the relationship A-B is defective, protection of C is possible by analogous application of articles 3:86 and 3:88 BW: these provisions protect the bona fide purchaser who acquires a non domino (art. 3:86 applies to non-registered movables, art. 3:88 to immovables and other registered property and claims). Both rules are not directly applicable, because there is no separate transfer B-C, but analogous application seems appropriate.186 In cases where there is a defect in the relationship B-C, protection of A is possible ex art. 6:34 BW: A debtor who has paid a person who was not entitled to receive payment, can invoke his release by payment against the person to whom the payment should have been made, if he had reasonable grounds to believe that the recipient of the payment was entitled to the performance as creditor or that payment was to be made to him for another reason.

After A has delivered to C (as B had instructed him to do so), A is discharged from his obligations, despite the defect in the relationship B-C. But what about the ownership of the property? In the end, the property should belong to B, as the relationship between him and C was defective and C therefore ought to return the property to B. This can be achieved by allowing B to claim the property from C on the basis of art. 6:36 and / or art. 6:212 BW. Art. 6:36 BW provides that the person who in reality is entitled to payment has recourse against a person who has received payment without having a right thereto.187 Art. 6:212 provides that a person who has been unjustifiably enriched at the expense of another must, to the 185

186

187

This is the same for Dutch and for Austrian law (both causal traditio systems): doctrine is responsible for the acknowledgement of the combined title. Reportedly, in Austrian law, C is protected against a defect in the relationship A-B (by § 367 ABGB), but there is no protection for A if there is a defect in the relationship B-C (according to Bartels and Hartkamp). See in favour of this solution especially Hartkamp, De samengestelde overdrachtstitel, Weekblad voor Privaatrecht, Notariaat en Registratie 6596 (2004), p. 852. This only applies in cases referred to in articles 6:34 BW (quoted above) and art. 6:35 BW (§ 1: Where payment made by a third person fulfils, with respect to that person, the requirements of either of the paragraphs of the preceding article, the third person can invoke the releasing force of that payment in his favour. § 2: The debtor can invoke the releasing force of that payment in his own favour if, through his own payment, he would also with respect to himself have complied with those requirements.

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extent that this is reasonable, make reparation for the damage suffered by that other person up to the amount of his enrichment.188 If both relationships (A-B and B-C) are defective simultaneously, the property will have to return to A. C is not protected by (the analogous application of) the above-mentioned provisions, due to his lack of good faith, and B would have no recourse to art. 6:212 BW against C (or A) because there would be no unjustified enrichment of C (or A) at the expense of B. There would not even be a valid combined title, as both constituent titles are invalid. A would still be owner.

7.3.

Acquisition through another (e.g. indirect agency)

In art. 3:110 BW, a special rule is given for acquisition through someone else (e.g. an indirect agent). The provision has been quoted and discussed above, in § 3.4, to which reference is made. In short, art. 3:110 BW provides that C (the principal in an agency setting) automatically becomes the possessor of the property that B (the agent of C) acquires on his behalf from A. With regard to movables, this has the effect that the principal acquires ownership, as the delivery of movables is effected by the transfer of possession (art. 3:90 § 1 BW). In other words: ownership is directly transferred from A to C (with the effect that a possible bankruptcy of B is not an obstacle).

8.

Insolvency of the transferor or acquirer

8.1.

Contracts and bankruptcy

In principle, a bankruptcy order does not influence existing contracts or the rights and obligations they entail, unless a legal exception exists. The Faillissementswet (Bankruptcy Act) contains several such exceptions: articles 35b (on gifts), 37 (see below), 38 (on forward transactions), 38a (on instalment buying), 39 (on lease contracts) and 40 Faillissementswet (on labour contracts). Art. 37 Faillissementswet deals with the situation in which a synallagmatic contract has not, or only partially, been fulfilled by both the debtor and the other party at the time of the bankruptcy order. The trustee in 188

See again Hartkamp, De samengestelde overdrachtstitel, Weekblad voor Privaatrecht, Notariaat en Registratie 6596 (2004), p. 853. Hartkamp does not discuss the complication that, for the application of art. 6:212 BW, it is required that the enrichment of C was at the expense of B. When the relationship A-B was gratuitous, this is not the situation, and so art. 6:212 BW offers no solution in such a case.

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bankruptcy is to declare within a reasonable period, granted to him in written form by the other party, whether he is prepared to fulfil the agreement. If the trustee declares that he is prepared to fulfil the agreement, he is obliged to furnish security along with that declaration (art. 37 § 2 Faillissementswet). If, on the other hand, the trustee does not do so in time, or he declares that he is not prepared to fulfil the agreement, he loses the right to demand the fulfilment of the contract by the other party (art. 37 § 1 Faillissementswet). The other party is then entitled to dissolve the contract and claim damages: he may come in as a creditor in bankruptcy with this ordinary debt (art. 37a Faillissementswet). In this way, the claim is treated as if it had arisen before the bankruptcy order,189 which is justified by the fact that it has taken the place of the one that had indeed arisen by then). Recently, the Hoge Raad has decided in a widely debated arrest190 that synallagmatic contracts indeed maintain their validity after the bankruptcy of one of the parties, but that this fact does not mean that the creditor can exercise his rights stemming from that contract after the bankruptcy of the debtor; that would be an unacceptable violation of the principle of paritas creditorum. In other words, the trustee in bankruptcy cannot be forced to perform the obligations of the bankrupt (he is “entitled to non-performance”); the same goes, in particular, in cases where the bankrupt was contractually obliged to permit the use of one of his assets (in casu a house) by the other party. For another outcome a statutory exception is needed like the ones mentioned above.

8.2.

Actio pauliana (in bankruptcy)

Dutch law acknowledges the so-called actio pauliana both inside (invoked by the trustee) and outside (invoked by individual creditors) bankruptcy settings. The ‘pauliana outside bankruptcy’ has been mentioned above, in § 3.2 and § 5.3.2 sub A. Below, will only be discussed the ‘bankruptcy pauliana.’191 189

190 191

See art. 24 Bankruptcy Act: the bankrupt’s estate is not obliged to meet the obligations of the debtor that have arisen after the bankruptcy order, unless (and as far as) it has profitted from them. HR 3-11-2006, NJ 2007, 155 (Nebula). A.M.J. van Buchem-Spapens and Th.A. Pouw, Faillissement, surseance van betaling en schuldsanering. Monografieën Privaatrecht 2 (Kluwer: Deventer 2004), Ch. V (p. 4149). See also A.F. Salomons, Dutch case note; Hof van cassatie van België / Cour de cassaton de Belgique, 31 January 2002 – The effect of annulment in bankruptcy as against a third party acquirer in good faith, European Review of Private Law 6-2004, p. 804-809 (the following survey is largely taken from this case note).

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If a Dutch trustee in bankruptcy decides to annul192 one of the bankrupt’s legal acts on the basis of its paulianic nature (that is: detrimental to the interests of his other creditors), then he has to so state and, if necessary, prove that the following four conditions have been fulfilled (art. 42 § 1 and 2 Faillissementswet = Bankruptcy Act): 1. The legal act was non-obligatory,193 meaning that there was no (legal or contractual) duty to perform this act. Annulment is impossible in case of an obligatory performance of a legal act, unless either the other party knew that bankruptcy had already been filed or the debtor and creditor had the joint intention to favour this creditor above the other creditors (art. 47 Faillissementswet).194 2. The interests of the creditors have been harmed;195 the size of the bankrupt’s estate must have been diminished.196 192

193

194

195 196

This sanction differs from that in, e.g., Belgium: in Dutch law Paulianic legal acts are avoidable, while in Belgian law they are non-invokable against the estate of the bankrupt. As far as can be seen, this difference is not very important: in either case it is (in the Netherlands de iure, in Belgium de facto) up to the trustee to decide whether to take the Paulianic nature of the legal act into account, or to let matters rest. In Dutch: onverplichte rechtshandeling. In case of giving in payment – performing in another way than was due – this condition is fulfilled: a legal act like this has to be considered non-obligatory, as the debtor is not obliged to make this kind of performance, notwithstanding the fact that he is entitled to perform in this manner if he has the permission of the creditor (see art. 6:45 BW). Art. 6:45 BW indicates that giving in payment has to be considered the performance of the original obligation, and not as novation (substitution of one debt for another). Novation would require the waiving of the original claim by the creditor. See on this A.S. Hartkamp, C. Asser’s Handleiding tot de beoefening van het Nederlands burgerlijk recht. Verbintenissenrecht. De verbintentis in het algemeen 4-I (12th ed.; kluwer: Deventer 2004), no. 625. This is established case law and communis opinio among the authors. For case law see especially HR 18-12-1992, NJ 1993, 169 (Kin Emmerig q.q.) and HR 20-11-1998, NJ 1999, 611 (Verkerk / Tiethoff q.q.). With regard to the legal literature, for the sake of brevity reference is made only to F.M.J. Verstijlen, Het onverplichtheidsvereiste bij de (faillissements)Pauliana, Tijdschrift voor Insolventierecht 1999 / 6, p. 127-131, with further references. Knowledge of the prejudice to the interests of the other creditors is not sufficient here: intention is required. See HR 24-3-1995, NJ 1995, 628 and HR 20-11-1998, NJ 1999, 611. In Dutch: benadeling van schuldeisers. See HR 19-10-2001, NJ 2001, 654. This has to be determined, not as of the moment the legal act was performed, but as of the moment the trustee invokes the Actio Pauliana or – in case of legal proceedings – as of the moment when the judge decides. HR 22-3-1991, NJ 1992, 214 (Loeffen q.q.-Mees en Hope II): the fact that

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3. The debtor knew or ought to have known that the creditors’ interests would be harmed.197 4. In the case of a legal act other than by gratuitous title, the other party knew or ought to have known that harm to the creditors’ interests would occur. Whether these last two conditions have been fulfilled is difficult to prove. For that reason, art. 43 Faillissementswet determines that knowledge of the prejudice is assumed on the side of both the debtor and the other party in the case of a legal act mentioned in the article, performed within a year before the bankruptcy order, provided that the debtor had not before that period committed himself to perform the legal act. Furthermore, knowledge of prejudice is assumed on the side of the debtor in the case of a legal act by gratuitous title, performed within a year before the bankruptcy order; art. 45 Faillissementswet. This complex set of rules can be summarized as follows: the trustee is entitled to annul a legal act if he so states and, if necessary, proves that the act was non-obligatory, causing prejudice to the creditors, and of which the debtor (and in case of a legal act other than for gratuitous title also the other party) knew or ought to have known would cause this prejudice. In the cases specified in articles 43 and 45 Faillissementswet knowledge of the fact that the legal act causes prejudice is assumed. Annulment of an exigible debt is possible only if it is proven that the receiver knew that bankruptcy proceedings against the payer were instituted or that the payer and receiver had conspired in order to favour the latter above the other creditors. The third-acquirer in good faith is protected against the annulment by the trustee pursuant to art. 51 § 2 Faillissementswet, which reads as follows: Rights, acquired by third persons in good faith and under onerous title, are respected. There is to be no reclaiming from a third person, who has acquired in good faith and by gratuitous title, in so far as he proves that he had not benefited from the legal act at the moment of the bankruptcy order.

This provision is a lex specialis for third party protection in the context of the actio pauliana in bankruptcy. So the general provision on the protection of the acquirer in good faith and under onerous title of a movable thing (art. 3:86 BW) does not apply here. This is relevant for the position of the acquirer by gratuitous title: he is not entitled to invoke art. 3:86 BW (which does not protect the acquirer by gratuitous title at all), but the protection of art. 51 § 2 Faillissementswet

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creditors are merely excluded from some benefit does not imply that their interests have been harmed. In Dutch: wetenschap van benadeling.

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is available to him, provided that he is able to prove that he did not benefit from the legal act. Art. 3:45 § 5 BW contains an almost identical rule for the actio pauliana in a non-bankruptcy setting; in that case, too, the annulment does not have effect against a third acquirer in good faith and by gratuitous title, in so far as he proves not to have benefited. There is only a difference with regard to the moment at which the presence or absence of benefit has to be determined: for the ‘bankruptcy pauliana’, this is the moment of the bankruptcy order, for the ‘ordinary’ pauliana the moment when the acquired object is reclaimed.

8.3.

Insolvency of transferor

8.3.1. Bankruptcy between sale and delivery If a transferor is declared bankrupt after the title of transfer (e.g. a sales contract) has come into being but before delivery has taken place, the acquirer is not ‘protected’ against the general creditors of the transferor: Art. 35 Faillissementswet determines that a delivery can no longer be performed if not all of the acts, required for a delivery by the debtor, have taken place on the day of the bankruptcy.198 The principle behind art. 35 Faillissementswet is that the bankrupt’s estate should remain intact for the benefit of the creditors who are entitled to recover their claims from that estate.199 Obviously, art. 35 Faillissementswet is a mandatory rule of law, as it aims to protect other parties. As a consequence of art. 35 Faillissementswet the would-be transferee is not in a strong position: he has a personal right to delivery, which counts as an ordinary debt (in Dutch: concurrente vordering), to be presented to the trustee in bankruptcy for the creditors’ meeting. If the delivery takes place after the bankruptcy order, but before the order is published,200 the transferee has recourse to the protection of the

198

199

See on assignment HR 14-7-2000, NJ 2001, 685 (Lagero): if the assignor had made and signed the deed of assignment before he was declared bankrupt, but the debtor of the claim had not yet been notified, the assignment cannot be completed afterwards by performing the notification at a later date: the claim remains part of the bankrupt’s estate and if the trustee in bankruptcy wishes the assignment to proceed, he has to make a new deed of assignment, followed by notification (see art. 3:94 BW; the introduction of silent assignment had not yet taken place in 2000). Van Buchem-Spapens / Pouw, Faillissement, surseance van betaling en schuldsanering, p. 29.

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bona fide acquirer a non domino of art. 3:86 BW,201 provided that it is established that he was indeed in good faith. After the publication, those who have acquired from the bankrupt are considered to have known the fact that the transferor lacked the right to dispose: art. 35 § 3 Faillissementswet. This provision does not apply to registered property: the acquirer of such property is not protected on the basis of his good faith when the delivery was completed before the publication of art. 14 Faillissementswet, as long as the bankruptcy was entered in the Bankruptcy Register; see art. 3:24 § 2 under c BW.202 With regard to future goods:203 if the debtor has delivered future goods in advance of his bankruptcy and the goods are acquired204 by him after he was declared bankrupt, then the transfer has no effect: the goods form part of the bankrupt’s estate: see art. 35 § 2 Faillissementswet. If an indirect agent is declared bankrupt before the delivery of a movable, acquired for the principal, the latter is protected by the special provision of art. 3:110 BW. This provision has been discussed above in § 3.4, 7.1 and especially § 7.3. In short, the principal acquires ownership ipso facto, despite the bankruptcy of the agent. As art. 35 Faillissementswet is mandatory, direct deviation is not possible. Nevertheless, it is possible to regulate by contract what the effects of a declaration of bankruptcy of either of the parties will be on the contract. Take, for example, a loan: usually a loan contract stipulates the immediate exigibility of the remaining debt in the case of the bankruptcy of the borrower. This is relevant to the amount of the claim to be allowed by the trustee in bankruptcy.205 200

200

201 202

203

204

205

Pursuant to art. 14 § 3 Faillissementswet publication is required in the Netherlands Government Gazette (Nederlandsche Staatscourant). Recently, the extra requirement of publication in “one or more newspapers” was abolished. The same applies to the protection of art. 3:238 BW for a pledge. See Van Buchem-Spapens / Pouw, Faillissement, surseance van betaling en schuldsanering, p. 33. Van Buchem-Spapens / Pouw, Faillissement, surseance van betaling en schuldsanering, p. 24. The extensive and complex case law on the assignment of future claims can be left aside here, as our subject is the transfer of movables. Property acquired by the bankrupt at the result of inheritance is part of the bankrupt’s estate (art. 20 Faillissementswet). The trustee in bankrupcy is entitled to decide whether an inherinance is accepted or renounced; art. 41 Faillissementswet; see Van Buchem-Spapens / Pouw, Faillissement, surseance van betaling en schuldsanering, p. 25. Van Buchem-Spapens / Pouw, Faillissement, surseance van betaling en schuldsanering, p. 39.

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8.3.2. Bankruptcy after transfer under suspensive condition In the case of transfer under a suspensive condition, the bankruptcy of the transferor before the fulfilment of the condition does not obstruct the acquisition by the transferee. This follows from art. 3:84 § 4 BW: Where delivery is made in the performance of a conditional obligation, the right so acquired is subject to the same condition as the obligation.

This means that the delivery under suspensive condition has led to the acquisition of a ‘conditional right’:206 whether the acquirer will eventually receive ownership depends only on the fulfilment of the condition: the fact that the transferor by that time has lost the right to dispose is irrelevant.207 The fulfilment of the condition has no retroactive effect (art. 3:38 § 2 BW), so ownership passes from the transferor to the transferee at a stage when the bankruptcy of the former has already been declared.

8.3.3. Position of the transferee in case of invalidity of sale If a sales contract is terminated (dissolved) after delivery to the transferee, the latter is obliged to undo the performance he has already received, and the same applies to the seller (art. 6:271 BW208). This means that the buyer is obliged to retro-deliver the acquired property to the seller. If the seller has been declared bankrupt, the buyer is entitled to suspend this obligation, as he can reasonably expect that he will not (or not immediately) obtain restitution of the price he has paid. This right of suspension (art. 6:52 / 262 BW), which implies a right of retention (art. 3:290 BW), can also be invoked against the creditors of the seller (art. 6:53 BW), which includes the trustee himself.209 206

207 208

209

It should be mentioned in passing here that some authors reject the notion of ‘owner under suspensive condition’, because it suggests that the acquirer already is, in a way, the owner, whereas in reality he is not. See above, § 3.2, and N.E.D. Faber, Overdracht van voorwaardelijke eigendom, in: N.E.D. Faber, C.J.H. Jansen and N.S.G.J. Vermunt (eds.) Fiduciaire verhoudingen. « Libellus amicorum Prof.mr. S.C.J.J. Kortmann ». Serie Onderneming en Recht 41 (Kluwer: Deventer 2007), p. 33-58. See Pitlo / Reehuis, Heisterkamp, Goederenrecht, no. 125. Art. 6:271 BW: The dissolution of a contract liberates the parties from the obligations affected by it. To the extent that these obligations have already been performed, the legal ground for this performance remains intact, but an obligation arises for the parties to undo the prestations that they have already received. See Parl.Gesch. Boek 6, p. 211. See also art. 60 Faillissementswet.

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The picture is different in the case of an annulment of the sales contract: annulment has both proprietary and retroactive effect, in other words: the ownership returns to the seller as if it had never been transferred (art. 3:53 BW). The buyer is left with the possession of the property. If he is to be regarded as possessor in good faith, he has a right of retention, but only for the obligation of the seller to reimburse him for the costs expended on the property, as well as for the damages for which the possessor might be liable toward third persons by reason of his possession; see art. 3:120 BW, discussed above (§ 1.4.2 and 1.6.1), and below, Section 18, on the consequences of restitution of the movable to the owner.

8.4.

Insolvency of the transferee

In a delivery system like the Dutch BW, the position of the seller in the case of the bankruptcy of the buyer is primarily determined by whether or not delivery has already taken place: if it has, ownership has passed to the buyer and the seller is – unless some special protective provision is available, see below – left with a mere personal claim if payment by the buyer is still due. The most important exception to this general rule is to be found in the law of sales: the seller is equipped with the proprietary protection of art. 7:39 (right of recovery), which was discussed above in § 5.3.2 sub C and quoted in § 5.7. In short: in case of non-payment by the buyer, the seller is entitled to dissolve the sales contract by means of a written notice, as a consequence of which ownership returns to the seller ipso facto without retroactive effect. Pursuant to art. 7:44 BW, this right of recovery ends when both six weeks have passed since payment became due and 60 days have passed since the day on which the thing was stored by the buyer or someone on his behalf. In contrast to this protection of the seller is a rather generous protection of third persons who have acquired rights on the sold property in good faith before the right of recovery was exercised; art. 7:42 BW. If the title of transfer is annulled after delivery to the transferee – either by the transferor, the transferee or a third party (e.g. the trustee in bankruptcy) – the transferor regains ownership (annulment has retroactive effect; see above, § 8.3) and is entitled to revindicate210 the property from the transferee, whether the latter has been declared bankrupt or not. If the annulment takes place before delivery, the transferor is liberated from the 210

This revindication of the owner of a thing (art. 5:2 BW) is not to be confused with the just mentioned right of revindication (in Dutch: reclamerecht) of the seller of a movable thing (art. 7:39 BW). One of the important differences is that the revindication of art. 5:2 is subject to a limitation period of 20 years, whereas the right of revindication of art. 7:39 expires in a couple of weeks.

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obligation to transfer ownership to the transferee and therefore to deliver the thing to him. The bankruptcy of the transferee is therefore without any consequence.211 Again, the termination (dissolution) of the contract from which the title of transfer stems – because of the non-performance of either transferor or transferee – presents a different picture, because of the fact that termination has no proprietary effect. If delivery has preceded the termination, ownership remains with the transferee, who is merely obliged to redeliver the thing to the transferor (art. 6:271 BW). If the transferee is bankrupt, the thing forms part of the bankrupt’s estate and the trustee is free to proceed towards execution; the personal claim of the transferor to undo the transfer is not an obstacle to this. If delivery has not taken place at the moment when the contract is terminated, the situation is, from a proprietary viewpoint, similar to that of the annulment of the contract before delivery: the transferor is still the owner of the property and is liberated from the obligation to deliver it to the transferee, so that the bankruptcy of the latter is without consequence. It case of traditio by constitutum possessorium, ownership passes to the transferee before the thing is actually handed over to him. In that case, annulment leads to a return of ownership to the transferor (theoretically, possession is still in the hands of the transferee, but due to the fact that the transferor now starts to possess the thing for himself once again, one can discern that he “contests” the right of the transferee; this leads, pursuant to art. 3:111 BW, to a return of possession to the transferor; see above, § 1.2.1, 2.3 and 5.4.2.a). Termination does not have this effect, so that the bankruptcy of the transferee still leaves the latter with the ownership of the property, even though this is still in the hands of the transferee. Obviously, the latter is entitled to suspend his obligation to hand it over to the transferee, as he has the personal right of art. 6:271 BW to the retro-delivery of the property by the transferee.212 211

212

Unless the judge makes use of the exception under art. 3:53 § 2 BW, the judge may, if so demanded, refuse to give effect to an annulment in whole or in part, if the juridical act has already produced effects that can only be undone with difficulty. He may order that a party who is prejudiced by his decision be compensated by a party who unjustly benefits from it. With regard to movables, delivery is effected by the giving of possession (art. 3:90 § 1 BW, see above, § 1.2.1, 5.4.2.a and passim), that is: enabling the acquirer to exercise control over the property (art. 3:114 BW). If delivery is made through a middleman (a carrier), it depends on the contractual setting whether possession passes at the moment the property is presented by the transferor to the middleman or at the moment it is presented by the middleman to the transferee: it is decisive under whose instructions the middleman operates (who has engaged the middleman?). If it is the

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In case property is transferred under resolutive condition (e.g. a title reservation), the acquirer receives ownership, which is to end ipso facto by the fulfilment of the condition; see art. 3:84 § 4 BW (quoted above in § 8.3.2). This also applies if that fulfilment of the condition (in the case of title reservation usually payment by the transferee) takes place after the latter is declared bankrupt: ownership of the acquired thing leaves the bankrupt’s estate and returns to the transferor. An exception to the above has to be made for cases in which the transferee has acquired ownership by accession, specification or confusion of goods previously transferred to him (see below, Section 10). This is the case when he processes the acquired goods in the manufacture of new goods. These forms of original acquisition imply that the ownership of the goods, which had been transferred to him, ceases to exist; this renders the return of ownership (in the case of annulment) or the coming into existence of a claim for retro-delivery (in the case of termination) of the transferred goods impossible. The transferor is left with a claim arising from the contract or from unjustified enrichment. The bankruptcy of the transferee is irrelevant: the original acquisition occurs due to the manufacture itself, irrespective of any (lack of) entitlement on the part of the manufacturer.

9.

Passing of risk and proprietary interests

9.1.

Transfer of movables and passing of risk

With regard to the passing of risk, the Burgerlijk Wetboek provides rules only in the context of sales contracts (Book 7 Title 1 BW). Art. 7:10 § 1 and § 4 BW read as follows: 1. The thing is at the risk of the buyer as of the delivery, even if ownership has not been transferred. As a consequence, the purchase price remains owed irrespective of the loss or deterioration of the thing by a cause that cannot be imputed to the seller. 4. Where, after delivery, the thing has remained at the risk of the seller, the seller is also responsible for the thing’s loss or deterioration by the act of the buyer. However, as of the time when the buyer must reasonably foresee that he must give the thing back, he is obliged to look after the safekeeping of the thing as a prudent debtor (…). transferor under whose instructions the middleman operates, the former is in a position to instruct the middleman to abort the delivery if he learns that the transferee is probably not going to fulfil his obligations. It seems that this would result in a similar situation as stoppage in transitu (a legal concept that in itself is alien to Dutch law).

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The notion of delivery (in Dutch: aflevering, not to be confused with levering, even though both words have to be translated as “delivery”) in art. 7:10 § 1 BW refers to art. 7:9 § 2 BW, in which delivery (aflevering) is defined as follows: Delivery is understood to mean putting the buyer into possession of the thing.

Art. 7:10 § 1 BW is in accordance with art. 69 CISG and art. 97 LUVI. By following these regimes, the Roman Law principle of periculum est emptoris has been abandoned. The French system, in which the risk passes to the buyer at the moment ownership is transferred, has the disadvantage that it does not place the risk in the hands of the person who has actual control of the thing (in the consensual French system even less so than in the Dutch delivery system): the person who has control of the thing is the obvious person to burden with the obligation to care for the preservation of the thing.213 Art. 7:10 BW is non-mandatory. In the case of a consumer sale,214 however, there may be no derogation to the detriment of the buyer. Furthermore, art. 7:11 BW provides: If, in a consumer sale, the seller or a carrier designated by him delivers the thing to the buyer, the thing is only at the risk of the buyer as of that time, even if it had already been delivered in the sense of article 9.

It should be prevented that the buyer could postpone the passing of the risk by not cooperating in the delivery. Therefore, art. 7:10 § 2 BW determines that the risk also passes in the case of creditor’s default: The same [as provided in art. 7:10 § 1 BW, quoted above, A.F.S.] applies as of the time when the buyer is in default of performing an act by which he must cooperate in the delivery. In the case of sale of things determined as to kind, the default of the buyer does not transfer the risk to him until the seller has specified the thing destined for the performance of the contract and has notified the buyer thereof. 213

214

See Jac. Hijma, C. Asser’s Handleiding tot de beoefening van het Nederlands burgerlijk recht. Bijzondere overeenkomsten. Koop en ruil 5-I (5th ed.; W.E.J. Tjeenk Willink: Zwolle 1994), no. 509. Compare art. 6:27 BW: A person who is obliged to deliver a thing, certain and determinate, must care for it until delivered in the manner in which a prudent debtor would do so in the circumstances. A consumer sale means the sale of a movable thing entered into by a seller acting in the course of a business or profession, and by a buyer who is a natural person not acting in the course of a business or profession; art. 7:5 § 1 BW.

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If, on the other hand, the seller would be late in delivering (debtor’s default), this would only result in the postponement of the passing of the risk, as this would have passed earlier had he performed on time.

9.2.

Passing of various interests in property

With regard to the passing of the right to dispose of the property and the right to exercise the remedies of ownership: these interests pass (in principle) at the moment when ownership passes, and therefore usually upon delivery. Under certain circumstances it is possible to transfer the right to dispose before the passing of ownership takes place. The most obvious example is the sales contract in which a reservation of title is stipulated, combined with a clause that entitles the buyer to dispose of the property before the fulfilment of the condition that ends the ownership of the seller (normally: payment by the buyer).215 That the right of revindication passes with the ownership of the thing concerned, is clear from the words of art. 5:2 BW: revindication is awarded to “the owner of a thing”. Nevertheless, in several cases a remedy similar to that of the owner is awarded to non-owners. See for example, art. 3:295 BW, which provides that a creditor who loses control of the thing can reclaim it under the same conditions as an owner in order to re-establish his right of retention (see above, § 2.4). Another example is art. 3:125 BW, which entitles the person who has acquired possession of property to institute, on the basis of a subsequent loss of or disturbance in the possession, the same actions against third persons to recover the property and to remove the disturbance as the title-holder of the property; see above, § 1.6.1a and § 2.4-2.5. With regard to the right to the fruits of the property, the basic rule is that fruits belong to the owner of the thing from which the fruits are separated; see art. 5:1 § 3 BW: Without prejudice to the rights of others, the owner of the thing becomes owner of the fruits once separated.216

215

216

See on the subject of disposing of the property of someone else in general, L. Groefsema, Bevoegd beschikken over andermans recht (thesis; Kluwer: Deventer 1993), and my remarks with regard to the debate in Dutch literature on the issue above, § 5.1.3 sub B. This rule should be read in combination with art. 5:17 BW, which attributes fruits to the usufructuary, the leaseholder etc.: The person who, pursuant to his right of enjoyment of a thing, is entitled to its fruits, acquires the ownership thereof upon their

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However, when the thing is not in the hands of the owner, but with a possessor in good faith, the latter is entitled to the fruits (art. 3:120 § 1 BW): Separated natural fruits and civil fruits that have become exigible belong to the possessor in good faith.

In that case, the acquisition of the possession is decisive and therefore the moment of the delivery equally so. See more detail on fruits below, § 13.3 and § 18.1.

separation. When the property is not encumbered with such a right of enjoyment, the owner of the thing himself is entitled to the fruits (upon their separation).

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Part III: Original acquisition 10.

Accession, confusion and specification

10.1.

Terminology: component part and principal movable

Art. 3:4 § 1 BW provides that any thing that, according to common opinion, forms a part of a thing is a component part of that thing. For example: a key is, according to common opinion, a component part of the lock and a keyboard is regarded as component part of a computer. Furthermore, a thing that is attached to a principal thing in such a manner that it cannot be separated therefrom, without substantial damage being done to either, becomes a component part of that thing, pursuant to § 2 of art. 3:4 BW. Component parts do not have an independent proprietary existence; their legal status depends on the legal status of the principal thing. This implies that the owner of a thing to which another thing becomes a component part acquires the ownership of that part. This is provided for in art. 5:14 BW (accession of movables), art. 5:15 BW (confusion), 5:16 BW (specification), and 5:20 BW (accession of movables by immovables).217 These provisions will be discussed in detail below. Art. 5:14 BW provides that a thing is deemed to be a principal thing where its value considerably exceeds that of the other thing, or where, according to common opinion, it is considered as such. In an illuminating case, the Hoge Raad has decided that a machine does not become a component part of the building by the mere fact that it plays an important role in the production process of the factory in that building: what matters is common opinion about the relationship between the building and the machine: is the building in its construction especially equipped for the machine and does the building (as a factory building in general) have to be regarded as unfinished as long as the machine is missing?218 So the relation between the things themselves is crucial, not their function or role. An elevator is a good example of a machine that, according to this 217

218

See especially J.E. Wichers, Natrekking, vermenging en zaaksvorming. Opmerkingen bij de algemene regeling voor roerende zaken in het Burgerlijk Wetboek. Serie Recht en Praktijk 121 (Thesis; Kluwer: Deventer 2002). See HR 27-11-1992, NJ 1993, 317 (Zaaimachine) and Pitlo / Reehuis, Heisterkamp, Goederenrecht, no. 12.

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rule, would be a component part of the building if they were constructed to be joined together: the building would have to be regarded as unfinished without its elevator. Before discussing the rules on accession, confusion and specification in detail, some remarks that apply to either of them should be made. Property law rules are mandatory, unless it is expressly stated that the parties may agree otherwise. In the case of accession, confusion and specification no such exception is given, so they are entirely mandatory.219 This is not surprising, as they deal with attribution of ownership and so have effect erga omnes. Even though this acquisition of ownership cannot be prevented by the parties concerned, the consequences of this acquisition are mitigated by the fact that the party who benefits from this acquisition can be obliged to pay damages on the basis of unjustified enrichment. See art. 6:212 BW: A person who has been unjustifiably enriched at the expense of another, to the extent this is reasonable, must make reparation for the damage suffered by that other person up to the amount of his enrichment.

In principle, the entire value of the acquisition must be paid, but in the case that this would lead to unfair consequences (“to the extent this is reasonable”) a reduction takes place.220 Accession, confusion and specification have proprietary consequences because property law has to accept the fact that a new object has come into being, the ownership of which needs to be regulated. This in itself explains why good faith on the part of the acquirer is not required, nor is legal capacity.

10.2.

Accession of movables

The first paragraph of art. 5:14 BW provides: The ownership of a movable thing that becomes a component part of another movable thing, which itself is to be regarded as the principal thing, passes to the owner of the principal thing. 219

220

See accordingly Wichers, Natrekking, vermenging en zaaksvorming: opmerkingen bij de algemene regeling voor roerende zaken in het burgerlijk wetboek, p. 27 ff. (§ 1.6.2), who describes the discussion on this topic before the present civil code was enacted in 1992. See in particular F.H.J. Mijnssen, Goederenrechtelijke aspecten van ongerechtvaardigde verrijking, Weekblad voor privaatrecht, notariaat en registratie 6657 (2006), p. 174-180.

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This rule implies that no accession (in Dutch: natrekking) occurs when neither of the things involved is to be regarded as the principal thing or component part. If, for example, two more or less equal movables are combined to constitute a new thing (e.g. two short plastic tubes are glued together to form a longer tube) the process cannot be called accession, and the basic rule of art. 5:14 § 1 BW does not apply. The process does have proprietary effect, however, if the constituent parts of the new thing had different owners. This effect is specified in § 2 of art. 5:14 BW: the owners become its co-owners, each for a share proportionate to the value of the thing: If none of the things can be regarded as the principal thing, and if they belong to different owners, these owners become co-owners of the new thing, each for a share proportionate to the value of the thing.

It follows that the two constituent parts do not have to be entirely equal or have exactly the same value for this provision to apply, but, if the value of one of them considerably exceeds that of the other, that one would be deemed to be the principal thing (art. 5:14 § 3 BW, discussed above in § 10.1) and its owner would acquire ownership of the new thing. As long as neither thing has a value that considerably exceeds that of the other thing(s), and common opinion does not regard either thing as the principal part, no accession occurs and ownership of the new thing is shared proportionately to the value of the constituent things.

10.3.

Confusion

According to art. 5:15 BW, the preceding article on accession (art. 5:14 BW) applies mutatis mutandis where movables belonging to different owners are amalgamated (mixed, blended) so as to form a single thing. This refers to the process of confusion (in Dutch: vermenging): the commingling of substances or objects that cannot be individualized amongst themselves: a dash of milk is poured into a cup of tea, two gasses are joined in a gas tank, two loads of potatoes are stored together in a potato silo etc. Whether or not a chemical reaction occurs, is irrelevant, but the process should not involve any creative work, as the process would then count as specification (art. 5:16 BW).221 Article 5:15 applies only if one of the constituent things is a component part and another the principal thing (according to the criteria of art. 3:4 BW) and the constituent things belonged to different owners. If, for example, a sugar cube belonging to A is thrown into B’s coffee, B would become 221

See Pitlo / Reehuis, Heisterkamp, Goederenrecht, no. 514.

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the owner of the new thing ‘tea-with-sugar’ (the cup of tea would be the principal thing, according to both the criteria of art. 3:4 BW, common opinion, and the different values). If two similar things are commingled (e.g. two loads of flour), there will be no principal thing according to common opinion, so the different values of the two loads will be decisive: if the value (here this is the same as: quantity) of one load considerably exceeds that of the other, then there is a principal thing and a component part, and therefore confusion occurs. Confusion has to be distinguished from the phenomenon called ‘improper confusion’ (in Dutch: oneigenlijke vermenging): the process by which things that can be individualized become mixed-up. This occurs when cars, animals, machinery with registration numbers, stock, numbered bank notes etc. are mingled.222 Confusion does not occur in these cases, so the mingling has no proprietary effect. The only legal effect the process may have is that the owners of the different objects are not able to prove which things are theirs, and so they will not succeed in revindicating their belongings. This problem does not belong to the realm of property law, but to that of the law of evidence. The leading case in this field is HR 12-1-1068, NJ 1968, 274 (Teixeira de Mattos): different owners had deposited four depositary receipts for shares with a bank, which went bankrupt. In the bankrupt’s estate only four depositary receipts were found, but in the past the receipts had been part of a constantly changing stock portfolio and their numbers had not been noted. The depositors were not entitled to revindicate the four receipts as they were unable to prove that these four receipts were the same receipts they had deposited.223

10.4.

Specification

As in the case of accession and confusion, through specification (in Dutch: zaaksvorming) a new thing is created. In this case, the creative process is crucial: it has to be an essentially new thing: the “design” has to be so important that the value of the new thing is, for a large part, made up by it.224 Examples are the creation of a valuable work of art out of a couple of 222 223

224

The examples are given by Pitlo / Reehuis, Heisterkamp, Goederenrecht no. 516. This problem no longer occurs due to the arrival of book-entry securities, which are characterized by giro-transfer: see Pitlo / Reehuis, Heisterkamp, Goederenrecht no. 516, Snijders / Rank-Berenschot, Goederenrecht, no. 171, and Haentjens, Harmonisation of Securities Law. Custody and Transfer of Securities in European Private Law, Chapter 7. Parl. Gesch Boek 5., p. 109.

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pipes of limited value by a sculptor or of a culinary masterpiece out of some ordinary ingredients by a chef. Because of the emphasis on the creative element in the coming into existence of the new thing (in this context sometimes called a novum), the proprietary consequences differ from those of accession or confusion. The basic rule, however, is the same; see art. 5:16 § 1 BW: If a person creates a new thing out of one or more movable things, this thing is owned by the owner of the original things. The two preceding articles apply mutatis mutandis where these things belonged to different owners.

In principle, therefore, the creator acquires the ownership of the new thing only if he was the owner of the original things. If he was not, the new thing is acquired by the owner of the original things, and if there were different owners one has to differentiate: if a principal thing and component part can be distinguished, the owner of the principal thing becomes the owner of the newly created thing, otherwise the original owners acquire co-ownership proportionate to the value of their thing. Paragraph 2 provides an exception when the specification took place for the specificator himself: he acquires ownership of the new thing, whether or not he was the owner of the original things, provided the costs of creation225 justify this outcome. Art. 5:16 § 2 BW provides the following: If a person creates a thing for himself, or has such a thing so created in whole or in part out of one or more movable things not belonging to him, he becomes owner of the new thing, unless the costs of creation are so low as not to justify this result.

Obviously, this is a very important provision: industrial manufacturing, for example, involves specification on a massive scale. The effect of the provision is that reservation of title is not a useful security instrument in the transfer of raw materials or semi-finished products: if the acquirer uses them in a way that constitutes specification, all previous proprietary rights established in them expire due to the original acquisition by the specificator.226

225

226

Costs of labour included. The Hoge Raad decided (in HR 5-10-1990, NJ 1992, 226 (Breda / St. Antonius)) that for the question who acquires ownership by the specification, the limited value of the used materials compared to the labour costs is in principle irrelevant. See especially O.K. Brahn, Toelevering van voorwerpen onder eigendomsvoorbehoud bij industriële fabricage volgens huidig en komend recht (Kluwer: Deventer 1984).

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For the application of art. 5:16 § 2 BW, it is irrelevant whether the specificator creates the new thing himself or has someone else do so for him. This is only logical: the owner of a factory will not perform the specification himself, but will leave if to the factory workers to perform the actual manufacturing. The process, however, takes place on his behalf (and according to the designs he has ordered to be drawn up). According to the third paragraph, the first two paragraphs apply mutatis mutandis to the transformation of materials into a new material or to the cultivation of plants. An example of ‘transformation of materials’ is the processing of raw petroleum into petrol and other products of which the combined value is many times greater than that of the original petroleum.227 Similar examples can be given for the manufacturing processes in the pharmaceutical industry. The cultivation of plants out of seeds, seedlings or cuttings is also considered specification.228 A case law example is to be found in HR 5-12-1986, NJ 1987, 745 (Gescheurde orchideeën) on the tearing in two of orchids. The cultivation of orchids is performed by separating them into two parts, each of which is a new orchid. The Hoge Raad acknowledged that this process implied specification of new plants: the tearing is an irreversible process by which new plants come into being with their own separate lives and with, according to common opinion, their own identities, different from the identity of the original plant. This implies that the reservation of title with regard to the original plants expired.

10.5.

Accession of movables by land

Article 3:3 BW defines as immovable: land, unextracted minerals, plants attached to land, buildings and works durably united with land – either directly or through incorporation with other buildings or works. Pursuant to the second paragraph of the article, all things that are not immovable, are movable. The counterpart of this provision with regard to ownership is to be found in art. 5:20 § 1 under e BW: To the extent not otherwise provided for by law, ownership of land comprises: (a) the surface; (b) the layers of soil under the surface; (c) subsoil water that has surfaced by means of a spring, well or pump;

227 228

Parl. gesch. Boek 5, p. 109. Ibid., p. 110.

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(d) water that is on the land and not in direct connection with water on the land of another person; (e) buildings and works durably united with the land, either directly or through incorporation with other buildings or works, to the extent that they are not component parts of an immovable thing of another person; and (f) plants united with the land.

From this provision we can conclude that buildings and works durably united with the land have to be seen as component parts of the land. From that moment on, they are dependent parts of the immovable with which they are united. Whether or not an object is durably united with the ground is an issue that is frequently taken to court. In the so-called Portacabin case,229 the Hoge Raad ruled that an object is immovable, provided it is, with regard to its nature and layout, intended to be durably united with the ground. If this is the case it does not matter whether it is technically possible to move the object easily or not. In determining whether the object is meant to be durably united with the ground, it is necessary to look at the knowable intentions of the constructor of the object or the person who has commissioned it. The important Portacabin ruling has been much discussed since 1997, and many new cases have found their way to court (regarding harbour cranes, sea containers, tombstones230, etc.). Criticism of the ruling focuses on the fact that the Portacabin criterion (an object is immovable if it is intended to be durably united with the ground) leaves no room for common opinion (except to determine the occurrence of ‘durability’ and ‘to unite’), as the Hoge Raad explicitly stated. The occurrence of the vertical accession of art. 5:20 § 1 under e BW can be prevented by the establishment of a right of superficies (art 5:101 BW). This enables the superficiary to own or to acquire buildings, works or plantings in, on or above an immovable thing belonging to another. 229 230

HR 31-10-1997, NJ 1998, 97 (Ontvanger / Rabobank). HR 25-10-2002, NJ 2003, 241 (St. Barbara / Aartsbisdom Utrecht, Grafsteenarrest). Tombstones are durably united with the cemetery, so (purusant to the Portacabin criterion), the owner of the cemetery is the owner of the tombstones therein. This is not altered by: the fact that common opinion awards ownership of a tombstone to the relatives who have ordered and placed the stone; the fact that most tombstones do not have a foundation and graves are cleared away after a couple of decades; the fact that most cemeteries prefer to leave the ownership with the relatives (if only to avoid liability for possible damage caused by the tombstones), as is usually expressed in the general terms and conditions, used in their contracts.

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Accession is also prevented when a legal exception has been made, as is expressed in the opening words of art. 5:20 § 1 BW. In the past, this was done with regard to telecom cables in the Telecommunicatiewet (Statute on Telecommunication): the Telecom company retains the ownership of the cables it has laid in the land belonging to others. In 2003, the Hoge Raad decided in a (tax) case involving similar cables that a cable network is an immovable object (again: pursuant to the Portacabin criterion), even though the process of burying cables into the ground does not lead to accession due to the legal exception to the rule of art. 5:20 § 1BW in the Telecommunicatiewet.231 Recently, art. 5:20 BW was extended with a second paragraph, in which a general exclusion of vertical accession is given for networks.232 Art. 5:20 § 2 BW, which was put into force in February 2007, reads as follows: Contrary to paragraph 1, the ownership of a network consisting of one or more cables or wires, intended for the transportation of solid, liquid or gaseous substances of energy or of information, that is or will be constructed in, on or above another’s land, belongs to the authorized constructor of that network or his legal successor.

This is a very important amendment of the law (thanks to pressure from Parliament on a reluctant Government), not wholly uncontroversial, intended to safeguard the interests of energy suppliers, telecom companies, cable TV companies etcetera who ran the risk of losing the value of their – usually very large – investments through vertical accession. The amendment precludes this accession and maintains the proprietary integrity of the network, making it possible to transfer or to encumber it with a limited right for the person who had constructed it, provided he was authorized to do so, either on the basis of public law (e.g. a license or a statutory provision) or on the basis of permission by the owner of the land (e.g. contractual or on the basis of a limited right like emphyteusis, art. 5:85 BW).

11.

Good faith acquisition a non domino

In this section, only the protection of the acquirer a non domino of a movable thing, unregistered property, provided in art. 3:86 BW, will be dis-

231 232

HR 6-6-2003, BR 2003 / 9 (CAI). This made the provision in the Telecommunicatiewet awarding ownership to the Telecommunication Companies of the cables they have placed superfluous, and so it was abolished.

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cussed.233 (See above for the system of third-party protection in Dutch property law in general, § 5.1.3 sub B.) Art. 3:86 BW provides: 1. Although an alienator lacks the right to dispose of the property, a transfer pursuant to articles 90, 91 or 93 of a movable thing, unregistered property, or a right payable to bearer or order is valid, if the transfer is not by gratuitous title and if the acquirer is in good faith. 2. Where property mentioned in paragraph 1, having been transferred other than by gratuitous title and according to articles 90, 91 or 93, is encumbered with a limited right, of which the acquirer does not know nor ought to have known at the time of the transfer, this right is extinguished; in the case of a transfer according to article 91, the extinction is subject to the same suspensive condition as the delivery. 3. Nevertheless, the owner of a movable thing, who has lost its possession through theft, may revindicate it during a period of three years from the day of theft, unless (a) the thing has been acquired by a natural person, not acting in the exercise of a profession or business, from an alienator whose business it is to deal with the public in similar things, otherwise than at a public sale, on business premises destined for that purpose, being an immovable structure or part thereof with the land belonging thereto, and provided that the alienator be in the ordinary exercise of his business; or (b) money or documents payable to bearer or order are involved. 4. Articles 316, 318 and 319 regarding the interruption of the prescription of a right of action apply mutatis mutandis to the period referred to in the preceding paragraph.

11.1.

Field of application

Art. 3:86 BW applies whenever a movable thing, unregistered property, is transferred by someone who lacks the right to dispose thereof. This includes cases in which the alienator was never the owner and cases in which the alienator’s right to dispose was annulled retroactively. 233

The subsidiary protection that art. 3:88 BW may provide, discussed above in § 5.1.3, will not receive any attention here. See for an overview of the different systems of protection of bona fide acquirers of movables within Europe (and remarks on a possible harmonization in this field), A.F. Salomons, How to draft new rules on the bona fide acquisition of movables for Europe? Some remarks on method and content, in: Rules for the Transfer of Movables. A Candidate for European Harmonisation or National Reforms? Schriften zur Europäischen Rechtswissenschaft 6 (Wolfgang Faber and Brigitta Lurger eds.; Sellier european law publishers: Munich 2008), p.141-154.

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Cases in which the right of the alienator was terminated without retroactive effect (through the fulfilment of a resolutive condition or through the exercise of the right of recovery under art. 7:39 BW) are not covered by art. 3:86 BW, as the acquirer did not acquire from someone who lacked the right to dispose at the time of the transfer: that right was terminated at a later stage. The bona fide purchase of registered property and claims (as well as for other property to which art. 3:86 BW does not apply) is covered by art. 3:88 BW; see above, § 5.1.3 sub B for the conditions (rather different from those found in art. 3:86 BW) under which its protection can be invoked. For several negotiable instruments there are separate provisions: e.g. for bills of exchange art. 115 K, for promissory notes art. 176 K, for cheques art. 198 K. For warehouse warrants (in Dutch: ceel234) a separate provision is lacking, so art. 3:86 is applicable here. For works of art (cultural objects in the sense of article 1 under 1 of Directive No. 93 / 7 / EEC of the Council of the European Communities of 15 March 1993 on the return of cultural objects unlawfully removed from the territory of a Member State (OJEC 1993 L 74) and objects that are protected under the Cultural Heritage Preservation Act (Wet tot behoud van cultuurbezit)) special rules are formulated in art. 3:86a BW.235

11.2.

Acquisition for value

For two reasons, art. 3:86 BW protects only in cases of acquisition for value. The first reason is fairness: compared to someone who has made a counterperformance, it is less difficult for the donee to have to give up the thing he has acquired a non domino. The fairness argument only applies if the owner of the thing had himself acquired it for value, but the law does not make an exception for cases in which the thing is revindicated by an owner who had acquired it by gratuitous title. The second reason art. 3:86 BW requires acquisition for value lies in the fact that the provision is considered to entail protection of business and trade (in Dutch: verkeersbescherming): in this field, the principle of do ut des is considered an essential characteristic.236 234 235

Art. 7:607 BW. In short, the rules amount to a limitation of the protection of the bona fide acquirer of these works of art, but under certain circumstances the judge is entitled to award the possessor an equitable remuneration. See A.F. Salomons, Richtlijn 93 / 7 / EEG betreffende de teruggave van cultuurgoederen die op onrechtmatige wijze buiten het grondgebied van een lidstaat zijn gebracht, in: De invloed van het Europese recht op het Nederlandse privaatrecht. Serie Onderneming en Recht 42-II (A.S. Hartkamp, C.H. Sieburg en L.A.D. Keus eds.; Kluwer: Deventer 2007), p. 153-177, at 175.

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The line between acquisition for value and gratuitous acquisition237 is not a sharp one. A merely symbolical counter-performance is not sufficient, but, on the other hand, it is not required that the counter-performance has more or less the same value as the acquired object. If the price was e.g. 50 % of the value, this could not be called gratuitous either.238 To be entitled to the protection of art. 3:86 BW, it is not required that the price has already been paid: it is sufficient that the transferor is entitled to a counter-performance. 236

11.3.

Possession or physical control by transferor required?

Article 3:86 BW is essentially the codification of the case law of the Hoge Raad since 1950. In that year, the Hoge Raad ruled239 that the acquirer a non domino in good faith is entitled to protection against the fact that the transferor lacks the right to dispose, but not against the absence of a valid title or the absence of (valid) delivery. This ruling (as well as subsequent rulings in which the 1950 decision was confirmed and elaborated) was and is regarded as the acceptance of the ‘legitimation doctrine’ (in Dutch: legitimatieleer) of the Amsterdam law professor Paul Scholten. The basis of this doctrine is that the acquirer a non domino of a movable is entitled to protection because he has relied upon the de facto power of the transferor: that ‘real possession’ (in Dutch: reëel bezit) legitimizes the transferor as the owner. The physical control of the transferor is therefore a crucial element of the legitimation doctrine, and some authors assume that the absence of physical control is an obstacle to the protection of the acquirer a non domino.240 This has not been laid down in the new code of 1992, however, and there is no recent case law on this question ei-

236

237

238 239 240

See on this subject further A.F. Salomons, De pijlers onder de vertrouwensbescherming van artikel 3:86 Nieuw BW, Ars Aequi 40 (1991) 10, p. 114-123. Gratuitous acquisition (in Dutch: verkrijging om niet) is usually a gift, but this is not necessarily so. E.g. when a possessor acquires ownership because the owner waives his right: this acquisition is also gratuitous but is not a gift; see Snijders / RankBerenschot, Goederenrecht, p. 297. See Pitlo / Reehuis, Heisterkamp, Goederenrecht, p. 132. HR 10-5-1950, NJ 1951, 1 (Damhof / Staat der Nederlanden). See, for example, O.K. Brahn, Ons allernieuwste 2014, Weekblad voor Privaatrecht, Notariaat en Registratie 5739 (1985), p. 333-342, at 341. See for a discussion and further references A.F. Salomons, Inpassen of aanpassen? Vermogensrecht voor het digitale tijdperk, Weekblad voor Privaatrecht, Notariaat en Registratie 6427 (2000), p. 901-907.

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ther.241 Most authors therefore assume that the physical control of the transferor is not required.242

11.4.

Acquisition of physical control by transferee required?

When a movable is delivered by constitutum possessorium, this delivery is without effect with respect to the person who has a prior right to the thing until the time when the thing has come into the hands of the acquirer, unless the third person has consented to the alienation; see art. 3:90 § 2 BW. This implies that the acquirer a non domino is not saved from revindication by the dispossessed owner as long as he leaves the thing in the hands of the transferor or someone on his behalf: the delivery has no effect towards the owner, which implies that the transfer is invalid with respect to the owner: art. 3:86 BW protects against the absence of the right to dispose, but not against the absence of a valid title or the absence of a valid delivery (see above, § 11.3). The effect and ratio of art. 3:90 § 2 BW has been discussed in more detail above, see § 1.2.1, 2.3, 4.1.1 and 5.4.2 sub A.

11.5.

Specific requirements regarding transferor?

A distinction has to be made between the acquisition of a stolen thing and the acquisition of a thing that has not been stolen (lost movables are included in this category in view of the fact that the owner usually, at least to some extent, is to blame for the loss, but not for the theft). If a non-stolen thing is transferred, it is not relevant in which way the transferor was enabled to deliver the thing to the acquirer who invokes 241

242

The most recent decision of the Hoge Raad on this issue is more than 50 years old: in HR 29-2-1952, NJ 1953, 58 (Drukpersarrest), the Hoge Raad decided that the acquirer should have relied on physical control by the transferor. See Schut-Rodenburg, Bescherming van de verkrijger van roerende zaken (1986), p. 80-82, W.G. Huijgen, Vuistpand en vruchtgebruik: onzekere (zekerheids)rechten, Weekblad voor Privaatrecht, Notariaat en Registratie 6181 (1995), p. 323-325 and Weekblad voor Privaatrecht, Notariaat en Registratie 6199 (1995), p. 720-722, and A.F. Salomons, Inpassen of aanpassen? Vermogensrecht voor het digitale tijdperk, p. 905 (arguing that retaining the doctrine that physical control by the transferor is required is unwise in view of the rise of e-commerce: when someone buys via the internet, he does not rely upon any real possession of the transferor, because he is not a witness to that possession). For a recent elaboration see A.F. Salomons, How to draft new rules on the bona fide acquisition of movables for Europe? p. 151-154.

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art. 3:86 BW; usually embezzlement by a detentor, but it may also be that the transferor had acquired the thing from the owner but at a later stage the title of his transfer was annulled (which leads to a return of ownership with retroactive effect, but not to a return of possession). Another possibility is that the thing had been lost by the owner and was found by the transferor; in that case it depends on his behaviour whether he is to be regarded as a possessor or as a detentor. In any case: in these instances there are no specific requirements regarding the transferor. This is different if the thing was stolen. In that case, the additional requirements of art. 3:86 § 3 under a BW have to be met.243 These requirements are as follows: 1. With regard to the transferee: – the thing has been acquired by a natural person; and – this acquirer was not acting in the exercise of a profession or business; 2. With regard to the transferor: – he has acquired from an alienator whose business it is to deal with the public in similar things; – otherwise than at a public sale; and – the alienator was in the ordinary exercise of his business. 3. With regard to the place of the transaction or, as the case may be, the place where the business of the transferor is established: – on business premises destined for that purpose, being an immovable structure or part thereof with the land belonging thereto. It follows from these requirements that acquisition at a public auction or at a market is excluded. The legislator has tried to balance the need to fight crime (to discourage theft by hampering the trade in stolen goods) against the need to protect those who are dependent on the acquisition of used goods. The outcome of this is to be found in art. 3:86 § 3 under a BW: protection of the buyer of a stolen movable is possible if he is a consumer, the seller a professional, and the purchase took place in a location where the buyer did not 243

This is also the case when the theft was due to gross negligence; see HR 18-1-1991, NJ 1992, 667 (Centraal Beheer / Gritter): the owner of a valuable car had left this car unattended for several weeks in the car park of an international airport, which was entirely open to the public, while all car registration papers where left in the car. Despite his carelessness, the owner had not lost the right to revindicate the car when it was stolen and transferred to a third person (who was obviously not entitled to invoke the protection of the acquirer a non domino of (the forerunner of) art. 3:86 BW). The decision was affirmed in HR 17-5-1991, NJ 1992, 668 (Martinistad-Zomerhuis).

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have to be aware of the presence of stolen goods. See on the criteria for this protection, HR 14-11-1997, NJ 1998, 147 (Gestolen caravan).244

11.6.

Good faith

The acquirer has – at the moment of the acquisition – to be in good faith with regard to the right of the transferor to dispose of the thing. If the issue is taken to court, the acquirer has to state the circumstances which justify that he took the transferor for being entitled to dispose and which rule out that he had had reason to be doubtful in this respect. If these circumstances validate an appeal to good faith, the burden of proof of the incorrectness of the buyer’s statements rests on the dispossessed owner.245 Pursuant to art. 3:11 BW, the acquirer is not acting in good faith if he knew the facts or the law to which his good faith must relate or if, in the given circumstances, he should have known them.

This implies a duty to inquire into the right of the transferor to dispose, under penalty of not being entitled to invoke art. 3:86 BW, even if it was not possible to start an inquiry (art. 3:11 BW last sentence): Impossibility to inquire does not prevent the person, who had good reasons to be in doubt, from being considered as someone who should have known the facts or the law.

As we have just seen, whether or not the acquirer should have known that the transferor was not entitled to dispose is dependent upon the circumstances. Therefore, it is not possible to give a general answer to the question whether only actual knowledge and gross negligence or even slight negligence exclude good faith: when someone buys a car at a market known to be a place where stolen and embezzled cars are frequently traded, a very 244

245

This case concerned the sale of a stolen caravan. All requirements for the protection of the buyer were met, except for one: there was no immovable structure in which the seller conducted his business. The Hoge Raad decided that the buyer could nevertheless invoke art. 3:86 § 3 under a BW: in this case protection was in accordance with the considerations that had led the legislator to enact the provision in the first place, as a movable trailer was at hand on the premises of the seller and, looking like an immovable structure, served as his sales-office. See on this case A.F. Salomons, Plaats voor derdenbescherming?, Weekblad voor Privaatrecht, Notariaat en Registratie 6298 (1998), p. 46-48. Parl.Gesch. Boek 3, p. 1214.

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thorough inquiry into the right of the transferor is expected. On the other hand, in the case of the purchase of a second-hand book of little value in an antiquarian bookshop with an excellent reputation, no such far-reaching inquiries are required. In case law, the duty to inquire is elaborated primarily in the context of car sales. An additional rule is found in art. 3:87 § 1 BW:246 An acquirer, who is asked within three years from his acquisition to identify the alienator, must, without delay, provide all information that is necessary to trace that person or that he could have considered as being sufficient for that purpose at the time of his acquisition. If he does not comply with this obligation, he may not invoke the protection that articles 86 and 86a afford to an acquirer in good faith.

This entails a duty – ending three years after the acquisition – of the acquirer to give the original owner any information needed to trace the transferor. This is in addition to the duty to inquire under art. 3:11 BW. If the acquirer refuses or is unable to give the required information, he is not entitled to invoke art. 3:86 BW. As in the case of art. 3:11 BW, the scope of the duty of art. 3:87 BW depends upon the circumstances: when someone buys a valuable object from a salesman at the door, it is not sufficient merely to rely upon the name and address stated by the salesman, but in the case of a purchase at a regular market the information acquired about the seller may be less detailed.247 See on the wegwijsplicht (“duty to show the way”), art. 3:87 BW; also above, § 5.1.3 sub B.

11.7.

Right to buy movable back from a good faith acquirer?

When art. 3:86 BW applies, i.e. when its protection is awarded, the transferee becomes the owner. This means that the provision functions not merely as a safeguard, a defence against the revindication of the dispossessed owner, but has “real” effect: ownership is transferred despite the absence of the right to dispose on the part of the “second hand” (the transferor). The authors on the subject are divided on the question whether art. 3:86 BW (as well as the other provisions that award proprietary third party protection, like art. 3:88 BW and art. 7:42 BW) has ipso jure effect or its protection should be invoked in order to be awarded. In the latter case, the acquirer a non domino is free to choose whether or not he wants

246 247

The second paragraph excludes money from the scope of this rule. See Parl.Gesch. Boek 3, p. 344-346.

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to be protected (at the expense of the former owner), in the former case he becomes the owner, whether he likes it or not. The verbatim text of art. 3:86 BW indicates that the legislator was of the opinion that the protection should work ipso jure, but the authors who reject this view and favour a system in which third party protection is a competence argue that it is not up to the legislator to decide on dogmatic issues like this. The latter view seems to be prevailing.248 A solid argument against this view is that acquisitive prescription (see below, § 12) also works ipso facto, and should even be applied by the judge ex officio; as protection of the acquirer a non domino and acquisition via prescription are related topics (the former has even been called an ‘immediate prescription’ or prescription instantanée249), this is an argument to apply a similar protection system.250 The system described here was enacted in the new Burgerlijk Wetboek of 1992. In the decades in which work on the code was in progress (the commission to draft a new civil code was awarded in 1947) many different drafts on this issue circulated before the final text of art. 3:86 BW was adopted. In the original draft a right was included for the dispossessed owner to buy the movable back from the acquirer a non domino. The first sentence of the first paragraph of the draft-article stated that the acquisition a non domino for value is valid in the case of good faith. The draft-article added:251 He who, pursuant to the provision of the first sentence of the first paragraph, has lost his right is entitled within three years afterwards to demand the transfer of the thing by the owner, against remuneration of the damage that the owner suffers by the restitution of the thing. The owner is entitled to set a reasonable term for the demand of restitution.

This repurchase right (in Dutch: terugkooprecht) was not included in the final draft. One of the reasons was that it would probably lead to more court cases than the system that was finally chosen. Furthermore, the legislator preferred a system that was not too different from current law (to enhance support for the implementation of the new code).

248

249 250

251

See e.g. Asser-Mijnssen-De Haan, Goederenrecht 3-I no. 306 and B.W.M. NieskensIsphording and A.E.M. van der Putt-Lauwers, Derdenbescherming. Monografieën Nieuw BW A-22 (3rd ed.; Kluwer: Deventer 2002) § 1.6. See A.F. Salomons, 2014 tot 1950, p. 85. See Parl.Gesch. Boek 3, p. 415-416. See for a defence of the view that art. 3:86 BW works ipso facto further, A.F. Salomons, Recht voor verstrooiden, in: J.L.P. Cahenbundel (Gouda Quint: Deventer 1997), p. 301-312, at 310. See Parl.Gesch. Boek 3, p. 321 ff.

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11.8.

115

Acquisition of a movable encumbered with a limited right

The problem that arises when someone acquirers a movable, unaware of the fact that it is encumbered with a right of pledge or usufruct of a third person, is solved in the second paragraph of art. 3:86 BW: Where property mentioned in paragraph 1, having been transferred other than by gratuitous title and according to articles 90, 91 or 93, is encumbered with a limited right of which the acquirer does not know nor ought to have known at the time of the transfer, this right is extinguished; in the case of a transfer according to article 91, the extinction is subject to the same suspensive condition as the delivery.

It is irrelevant whether the transfer was performed by someone who was entitled to dispose of it or by someone who was not: in the latter case there is a concurrence of the protection of § 1 (against the dispossessed owner) and that of § 2 (against the pledgeholder or usufructuary).

12.

Acquisitive prescription of movable property

The institution of acquisitive prescription is, ultimately, based on the public interest: after a certain amount of time in which the actual situation (A detains an object for himself) differs from the legal situation (the object is owned by B), the interests of the community at large require, in view of legal certainty, that both situations are reconciled again: possessor A acquires the object, B loses his ownership. This implies that the interests of the original owner are sacrificed to the general interest, but a – sometimes entirely theoretical – justification for this is found in the fact that he had not used the time period in which he had lost possession of the thing to revindicate it from the possessor. This in itself is an argument for long prescription periods, whereas public interest would be best served by relatively short prescription periods. The rules on prescription, therefore, are the result of a balancing of conflicting interests: those of the original owner and his legal successors on the one hand and those of the public on the other.252 A rather controversial form of acquisitive prescription is found in art. 3:105 BW, to be discussed below in § 12.2, which benefits even the possessor not in good faith (e.g. a thief). This form of prescription in particular indicates that acquisitive prescription owes its existence to the public inter-

252

See e.g. Pitlo / Reehuis, Heisterkamp, Goederenrecht, no. 329.

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est and not, at least not primarily, to the interests of the possessor, as those of a possessor not in good faith obviously carry little weight.

12.1.

Requirements for acquisitive prescription

To qualify for acquisitive prescription pursuant to art. 3:99 BW, uninterrupted possession is required during: – 3 years in the case of movable things that are not registered property and rights under documents payable to bearer and order (stolen objects are not excluded); – 10 years for other property.253 The three year prescription does not apply to Dutch movable cultural property,254 pursuant to the second paragraph of art. 3:99 BW. This does not mean that Dutch cultural property cannot be acquired through prescription altogether: there is no similar exclusion of art. 3:105 BW.255 The prescription starts with the commencement of the day following the beginning of the possession (art. 3:101 BW). The term of acquisition is complete when the last day of the prescribed period has elapsed. According to art. 3:102 BW, a person who succeeds to the possession of another by general title continues an already running prescription, even if he is not in good faith (as the acquirer under general title continues the possession with the same quality and subject to the same defects as that of the predecessors; art. 3:116 BW). If someone has acquired possession from another person otherwise than by general title, the continuation of a running prescription requires that the possessor be in good faith (art. 3:102 § 2). If the predecessor was not in good faith but the acquirer is, a new prescription period commences at the moment when possession is given to the acquirer. 253

254

255

See also Parl.Gesch. Boek 3, p. 425: prescription is possible for every patrimonial right that is not entirely personal. To be more precise: to movables that, pursuant to the Wet tot behoud van cultuurbezit (Cultural Heritage Preservation Act), have been designated as protected objects, or which form part of a public collection or an inventory list as referred to in Article 14a, paragraph 2, of that Act, provided that possession has commenced after that designation or during the time they formed part of that collection or inventory. Art. 3:99 § 2 BW was incorporated in the civil code as part of the implementation of Directive 93 / 7on the return of cultural objects. See the following footnote, and Pitlo / Reehuis, Heisterkamp, Goederenrecht, no. 342a. See A.F. Salomons, Richtlijn 93 / 7 / EEG betreffende de teruggave van cultuurgoederen die op onrechtmatige wijze buiten het grondgebied van een lidstaat zijn gebracht, p. 175.

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Prescription requires possession in good faith.256 Whether someone is a possessor has to be determined, according to common opinion, taking into account the rules of art. 3:109-117 BW, and, otherwise, the facts as they appear. (See for an elaboration of this provision of art. 3:108, BW above, § 2.1.) The possessor is in good faith if he believes himself to be the titleholder and is reasonably justified in that belief. Once a possessor is in good faith, he is considered to remain so. Good faith is presumed; absence of good faith must be proven (art. 3:118 § 1-3 BW). In art. 3:105 BW another form of prescription is found, for which good faith is not required (see below, § 12.2). There are no qualifications as to the form of possession. In particular, indirect possession is not excluded. This means that even in the case of a delivery constituto possessorio the transferee is entitled to acquisitive prescription, even though this transfer is not ‘public’: legal certainty does not seem to be at stake. Some have argued, for this reason, that it should be accepted that art. 3:99 § 1 BW does not apply to possession that was acquired constituto possessorio.257 The new civil code does not explicitly prescribe that the possession be public, unequivocal and continuous, as the previous civil code did. In the opinion of the legislator, these requirements are incorporated – as far as they have right to exist – in the notion of having possession.258 This means that once it has been established that possession was acquired, it is not possible to challenge the acquisition of ownership by a possessor, who acquired it on the basis of acquisitive prescription, on the ground that his possession was not public, unequivocal or continuous. This challenges the correctness of the view that art. 3:99 § 1 BW does not apply to possession acquired constituto possessorio. As we have seen, art. 3:99 § 1 BW requires that the possession be uninterrupted. The possessor does not have to prove that his possession was continuous; possession that has begun continues until it is evident that the possessor abandoned the property or when another acquires possession of it (irrespective of how this occurred: by taking possession, by transfer of 256

257 258

For prescription of a succession, possession during a certain period is insufficient. Art. 3:100 BW provides: A person who has taken possession of a succession cannot acquire that succession by prescription, nor the property belonging to it, to the detriment of the title-holder until after the latter’s action to claim that succession has been prescribed. See in particular Snijders / Rank-Berenschot, Goederenrecht, no. 251. See Parl.Gesch. Boek 3, p. 408. See also A.C. van Schaick, Rechtsgevolgen en functies van bezit en houderschap. Monografieën Nieuw BW A-14 (Kluwer: Deventer 2003), p. 19, according to whom the requirements still apply, but – more generally – to the notion of possession itself (the rights and benefits attached to possession arise only if the possession is free of ‘objective possession flaws’).

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possession, or by succession) (art. 3:117 BW). Interruption or extension of prescription of the right of action to terminate possession interrupts or extends acquisitive prescription accordingly (art. 3:104 BW). Involuntary loss of property does not interrupt prescription, provided that possession is recovered within a year or an action is instituted within a year that leads to such recovery (art. 3:103 BW). Interruption of prescription is caused: – by the institution of an action or by any other act of judicial recourse instituted in the required form by the person entitled to do so (art. 3:316 § 1 BW);259 – by an act to obtain a binding opinion, provided that the other party is expeditiously notified of it and that a binding opinion actually results (art. 3:316 § 3 BW);260 – With regard to a right of action to claim performance of an obligation: by a written warning or by a written communication in which the creditor unequivocally reserves his right to performance (art. 3:317 § 1 BW); – With regard to other rights of action: by a written warning followed within six months by an act of interruption as described in art. 3:316 BW (art. 3:317 § 2 BW); – With regard to the right of action as against the person who acknowledges the right: by acknowledgment of the right whose protection is served by a right of action (art. 3:318 BW). According to art. 3:321 BW, there is cause for extension of prescription: (a) Between spouses not separated from bed and board; (b) Between a legal representative and the incapable person whom he represents; (c) Between an administrator and the beneficiary for whom he administers with respect to claims concerning the administration; (d) Between legal persons and their directors; (e) Between a succession accepted under the benefit of inventory and an heir; (f) Between the creditor and a debtor who deliberately hides the existence of the debt or its exigibility.

259

260

Where an action that has been instituted is not upheld, prescription is not interrupted, unless, within six months after the final judgment or other termination of the case, a new action is instituted and is as yet upheld. Where an act of judicial recourse is withdrawn, prescription is not interrupted (art. 3:316 § 2 BW). Where this is not the case, art. 3:316 § 2 BW (see previous footnote) applies mutatis mutandis.

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The possessor who acquires ownership by virtue of acquisitive prescription is not liable for unjustified enrichment (nor for tort): the enrichment caused by the prescription provisions is justified by the fact that the legislator, after balancing the conflicting interests, has authorized the shift of property from the owner to the possessor. This is even the case if the acquisition of possession had been gratuitous. In this respect, the prescription provisions differ from those on accession, confusion and specification: acquisition of ownership through one of these facts does not qualify as “justified enrichment”, as the legislator did not have the intention to authorize any shift of property here: the legislator merely had to attribute ownership with regard to a newly created object.261 In the case of acquisitive prescription of a movable encumbered with a limited right, that limited right will continue to exist if the acquirer had possessed the movable while observing that right: otherwise he would acquire more than he had possessed. In the case the acquirer was not aware of the limited right, he will acquire the movable unencumbered (unless the prescription was interrupted). According to the legislator, the unencumbered acquisition can be regarded as the acquisition of separate property.262

12.2.

“Thief becomes owner”: liberative prescription with acquisitive effect

Unlike German law, Dutch law is not familiar with the phenomenon of limitations on the right of ownership (Verjährung des Eigentums). However, art. 3:105 BW provides a form of prescription, the effects of which bear similarities to limitation of ownership. Art. 3:105 § 1 BW reads as follows: A person who possesses property at the time of the completion of the prescription of the right of action to terminate possession, acquires the property even if his possession was not in good faith.

This provision has already been mentioned above, in § 2.2 under 3.2 and passim. Its effect is commonly referred to by the slogan “thief becomes

261

262

See J. Spier, T. Hartlief, G.E. van Maanen and R.D. Vriesendorp, Verbintenissen uit de wet en schadevergoeding. Studiereeks burgerlijk recht 5 (2nd edition; Kluwer: Deventer 2000), no. 316. Parl.Gesch. Boek 3, p. 417. See Pitlo / Reehuis, Heisterkamp, Goederenrecht, no. 349.

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owner”: a thief who succeeds in hiding his loot for 20 years263 acquires ownership and can no longer be held accountable (neither in civil nor in penal law).264 The hiding of the loot may constitute a separate unlawful act, but this does not help the former owner as the right of action to end the unlawful hiding of the loot is prescribed simultaneously with the prescription of the revindication.265 The same applies mutatis mutandis to the prescription of the right of action to terminate the possession of the thief on the basis of the fact that he is not the title-holder of the property. See art. 3:314 BW: 1. The prescription period of a right of action to terminate an unlawful situation begins to run at the beginning of the day following the one on which the immediate termination of that situation can be claimed. 2. The prescription period of a right of action to terminate the possession of a non-title-holder begins to run at the beginning of the day following the one on which the non-title-holder has become possessor or on which the immediate termination of the situation of which his possession forms the continuation could be claimed.

The acquisition of art. 3:105 BW takes place on behalf of the actual possessor, irrespective of how long his own possession has lasted and irrespective of whether his possession was interrupted or not. If the property was

263

264

265

See art. 3:306 BW: Unless otherwise provided by law, the prescription period for rights of action is 20 years. See for a discussion on the merits of art. 3:105 BW, e.g. C.J.H. Brunner, Dief wordt eigenaar, in: Quod Licet (KLeijn-bundel) (Kluwer: Deventer 1992), p. 45-53.; R.J.Q. Klomp, Dieven met geduld. Over verkrijgende verjaring te kwader trouw, in: Tijd en onzekerheid. BW-krant Jaarboek 16 (Kluwer: Deventer 2000), p. 59-73, and P. Neleman, Thieves’ paradise revisited, in: Brunner-bundel (Kluwer: Deventer 1994), p. 293-302. There has been some debate – already mentioned above, § 2.1.4 – on the question whether a thief who hides his loot, in order to acquire ownership after 20 years, would be in a position to benefit from art. 3:105 BW: according to doctrine, prescription requires “public possession” (which was required explicitly in the old civil), and if that would also apply here, the hiding thief would not qualify. This is the view of A.C. van Schaick, Dief wordt vaak geen eigenaar, Weekblad voor Privaatrecht, Notariaat en Registratie 6617 (2005), p. 289-290. See for a different view A.F. Salomons, Dief wordt doorgaans wel bezitter, Weekblad voor Privaatrecht, Notariaat en Registratie 6639 (2005), p. 803-806. See also J.E. Jansen, Reactie op “Dief wordt vaak geen eigenaar” van mr. A.C. van Schaick, Weekblad voor privaatrecht, notariaat en registratie 6639 (2005), p. 801-802.

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encumbered with a limited right, this right remains valid until the right of action of the title-holder of that limited right is prescribed.266 The latter rule not only applies in the case of acquisition via art. 3:105 BW, but is valid in all cases where a title-holder is confronted with a limited right and the right of action of the holder of that limited right is prescribed: this fact causes the limited right to be extinguished, pursuant to art. 3:106 BW, even if the title-holder was aware of the existence of the limited right: To the extent that the exercise of a limited right is prevented by a situation incompatible with the right, that right is extinguished by the prescription of the right of action of the holder of the limited right against the holder of the principal right to terminate that situation.

This general provision has taken the place of the non usus-rules, which were to be found in the former civil code: the limited rights of usufruct and servitude prescribed in the case they were not used for a period of 30 years; art. 854 and 754 BW-1838.267

13.

Other forms of original acquisition

13.1.

Finding

The finder268 of a vacant269 movable thing acquires ownership thereof after one year, provided he has complied with a set of requirements and the thing is still in his control or in the control of the Municipality (art. 5:6 § 1 BW).270 266

267 268

269 270

See Parl.Gesch. Boek 3, p. 417, and Pitlo / Reehuis, Heisterkamp, Goederenrecht, no. 349 i.f. See Pitlo / Reehuis, Heisterkamp, Goederenrecht, no. 607. The ‘honest finder’, who complies with the requirements enumerated in the Burgerlijk Wetboek, is no more than detentor of the thing, and would therefore never qualify for acquisitive prescription. The ‘dishonest finder’ is someone who takes possession of a vacant thing he knows not to be his and who does not comply with the legal requirements. The latter person qualifies as possessor in bad faith, who is not entitled to the acquisitive prescription of art. 3:99 BW, but who can nevertheless, despite his lack of good faith, acquire ownership after 20 years via art. 3:105 BW. See for art. 3:105 BW above, § 12.2. In other words: unattended, ‘ownerless’ (in Dutch: onbeheerd). Art. 5:11 BW adds the rule that if the finder who has become owner of the thing deposited with a Municipality does not, within one month from his acquisition,

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If the finder has voluntarily deposited the thing with a Municipality and it is one of the non-valuable things designated by or pursuant to a regulation, the finder does not acquire ownership: the burgomaster may, three months after the deposit, sell the thing on behalf of the Municipality, transfer it to a third person by gratuitous title or destroy it (§ 2). The same applies in other cases, but then after one year (§ 3). However, these rules do not apply where the owner or another person entitled to receive the thing has presented himself for that purpose to the depositary before the expiry of the applicable term or, in the cases provided for in § 2 and 3, on a date thereafter when the Municipality can still reasonably put the thing at his disposal. The requirements with which the finder has to comply are enumerated in art. 5:5 § 1 BW: He who finds and takes control of a vacant thing is obliged: (a) to declare the discovery to the civil servant so designated, unless he has forthwith, after the discovery, given notice of it to the person whom he considers to be the owner or to be entitled to receive the thing; (b) if the discovery has been made in a dwelling, building or means of transportation, to communicate it promptly to the person inhabiting the dwelling or the person using or exploiting the building or means of transportation, or to the person who, on the latter’s behalf, supervises it, unless he has forthwith after the discovery given notice of it to the person whom he could consider as owner or as entitled to receive the thing; and (c) to deposit the thing with the Municipality demanding it.

The finder is at all times entitled to deposit the thing with any Municipality. If he does not do so, he is obliged to ensure the conservation and the maintenance of the thing (art. 5:5 § 3 BW). By giving the thing without delay to the inhabitant of the dwelling, to the person using or exploiting the space where the discovery has been made, or to the person who on the latter’s behalf supervises such space, the finder can transmit his juridical position to such inhabitant, user or person exploiting, including all obligations attached thereto, but there is no right to a reward (art. 5:7 BW). This refers to art. 5:10 § 2, where it is said that the finder who has complied with the obligations incumbent upon him is entitled, according to the circumstances, to a reasonable reward. This reward (in Dutch: vindersloon) is not a fixed sum (e.g. a percentage of the value of the thing) but a ‘reasonable’ amount to be determined by the apply to the Municipality to take delivery of the thing, the burgomaster is entitled to sell it on behalf of the Municipality, to transfer it to a third person by gratuitous title, or to destroy it.

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court, taking into account circumstances like the effort made by the finder and the care he has taken.271 The Municipality is not entitled to vindersloon. As we have seen above in § 14.2, the finder is not awarded a right of retention in the lost thing to ensure payment of the reward. Articles 5:8 and 5:9 BW give a couple of specific provisions with regard to the duties of the Municipality after deposit of the thing by the finder: – If the thing is susceptible of loss or rapid deterioration, or if the Municipality can no longer be required to keep it because of disproportionately high costs or other prejudice, the burgomaster is entitled to sell it. In this and in the following two cases, the proceeds take the place of the thing; – If the thing does not lend itself to being sold, the burgomaster is entitled to transfer its ownership to a third person by gratuitous title or to destroy it; – If the thing found is an animal, the burgomaster is entitled, two weeks after it has been taken into custody, to transfer its ownership to a third person, if possible against the payment of a purchase price. Otherwise, the burgomaster is entitled to have the animal destroyed. The period of two weeks need not be observed if the costs of keeping the animal during that time are disproportionately high or if destruction is required for medical reasons; – Where the thing deposited with the Municipality consists of a sum of money, the Municipality is only obliged to pay an equal amount to the person who can claim it; this obligation ceases once the burgomaster would have been entitled to sell it on behalf of the Municipality.272 With regard to the person claiming the thing from the Municipality, or from the finder who has complied with the abovementioned requirements, art. 5:10 § 1 BW provides that he must reimburse the costs of keeping and maintening, and of locating the owner or other person entitled to receive the thing. Furthermore, the Municipality or finder is entitled to suspend the return of the thing until this obligation has been performed. If the person who revindicates the thing has not paid the costs owed within a month from the time they have been indicated to him, he is deemed to have abandoned his right to the thing.273

271

272

273

This applies also to the ‘professional finder’, who tracks down lost objects in order to receive the vindersloon; see Hoge Raad 25-10-1996, NJ 1998, 16. The latter exception refers to the provisions of art. 5:6 § 2-3 and 11 BW, authorizing the burgomaster to sell the thing after a certain period of time has passed. See on the provisions on finding Pitlo / Reehuis, Heisterkamp, Goederenrecht, no. 500-504.

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13.2.

Occupation

Ownership of movables can be acquired by means of occupation (in Dutch: occupatie or toeëigening). See art. 5:4 BW: A person who takes possession of a movable thing that does not belong to anybody acquires ownership thereof.

It has to be emphasized that occupation is a means of acquiring possession (see also, art. 3:113 § 1 BW: A person takes possession of property by acquiring actual control of it, see above, § 2.2.3 sub A). Only in case the property concerned is a movable thing which does not belong to anybody (in other words: the thing is a res nullius274) the occupation is accompanied by acquisition of ownership. A res nullius is either a thing that has never had an owner or a res derelicta. With regard to the latter category, art. 5:18 BW provides the following (also see below, § 16): The owner who abandons possession of a moveable thing, with the intent of divesting himself of ownership, loses ownership of it.

A special category is animals that have lived in captivity but have gained their freedom without being recaptured. Art. 5:19 BW provides: 1. The owner of domesticated animals loses ownership of them where they have become wild after having escaped from his custody. 2. The owner of other animals loses ownership of them where they gain freedom and the owner does not forthwith attempt to recapture them or stops his attempts to do so.

In both cases, the animals become res nullius and therefore susceptible to acquisition by others via occupation.275

13.3.

Separation

Who is entitled to the fruits276 of a thing? In principle, the owner of the thing, see art. 5: 1 § 3 BW:

274

275

An immovable can never be a res nullius pursuant to art. 5:24 BW: immovables that have no other owner belong to the State. See Snijders / Rank-Berenschot, Goederenrecht no. 206 and 261-262.

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Without prejudice to the rights of others, the owner of the thing becomes owner of the fruits once separated.276

An important category of these “rights of others” are rights of enjoyment, such as the personal right of lease and the proprietary rights of usufruct, emphyteusis and superficies. With regard to these rights of enjoyment, art. 5:17 BW provides the following: The person who, pursuant to his right of enjoyment of a thing, is entitled to its fruits acquires the ownership thereof upon their separation.

However, art. 5:17 BW is of limited importance, as for most of these rights there are separate provisions with regards to fruits. See, e.g. for usufruct, the lex specialis of art. 3:216 BW:277 The usufructuary is entitled to all fruits that become separated or exigible during the usufruct. At the time of establishment of the usufruct, it may be specified what, in relation to the usufruct, must be considered as fruits.

Furthermore, there is a general exception in art. 3:120 § 3 BW, attributing separated natural fruits (as well as civil fruits that have become exigible) to the possessor in good faith. See below, § 18.1.

13.4.

Treasures

A final form of original acquisition to be mentioned here is discovery of a treasure (in Dutch: schatvinding). This constitutes a special form of finding. A treasure is, according to art. 5:13 § 2 BW: a thing of value that has remained hidden for such a long time that, as consequence, the owner can no longer be located.

In this definition we recognize the ancient vetus depositio requirement. The thing in which the treasure was hidden may be both movable (e.g. behind 276

277

This refers to natural fruits only, defined in art. 3:9 § 1 BW as things that, according to common opinion, are considered to be fruits of other things. Next to this, there is also the category of civil fruits, but these are not things but rights (to be exact: rights that, according to common opinion, are considered to be fruits of property; art. 3:9 § 2 BW), and therefore not susceptible to ownership. There are also leges specialis for instalment buying and for lease: see Snijders / RankBerenschot, Goederenrecht, no. 292.

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the double bottom of a cupboard) and immovable (the proverbial treasure buried in land). Ownership of the treasure goes to the discoverer, but he has to share it with the owner of the thing in which it is found; art. 5:13 § 1 BW: A treasure belongs, in equal shares, to the person discovering it and to the owner of the immovable or movable thing in which it is found.

Another difference with regular finding is that the acquisition takes place immediately, whereas the finder has to wait for one year after declaring and communicating the discovery, pursuant to art. 5:5-6 BW. This is not surprising, as the owner (if any) can no longer be located and therefore it is improbable that the owner will come forward to claim the treasure. Nevertheless, the discoverer of the treasure is obliged to declare his discovery according to art. 5:5 § 1 sub a BW; this is required to safeguard possible interests of others: it may be unclear whether the thing qualifies as a treasure, where the thing was discovered (i.e. within a movable or immovable of the discoverer himself or of another), or who the discoverer was. If no declaration has been made, or if it is uncertain to whom the thing belongs, the Municipality may demand, as is the case for found objects (see art. 5:5 § 1 sub c BW and above, § 13.1), that the thing be deposited with it until such time as it has been determined who the person entitled to the thing is.

Thus is provided in art. 5:13 § 3 BW.278 Separate provisions on the ownership of archaeological findings can be found in the Monumentenwet 1988 (Monuments and Historic Buildings Act 1988). As its name indicates, part of this Act is dedicated to historic buildings, but another part to movable monuments, defined in art. 1-1 sub 1 Monumentenwet as things, manufactured at least 50 years ago and of general interest due to their beauty, their importance for science, or their cultural and historic value. A thing like that may also be a treasure, but it is not per se. The provisions on movable monuments have been altered recently,279 in order to implement the European Convention on the Protection of the 278

279

Parl.Gesch. Boek 5 (Inv. 3, 5 en 6) (Deventer 1990), p. 1020, and H.A.G. Fikkers, Wie een leeuw op straat vindt, moet deze niet thuis kunnen houden, in: Tot persistit! H.J. Snijders-bundel (Gouda Quint: Arnhem 1992), p. 133-146, at 146. Wet op de archeologische monumentenzorg (Act on the Preservation of Archeological Monuments) of 21 December 2006, Staatsblad 2007, 42. Entry into force was on 1 September 2007; see Staatsblad 293. See on this Act in detail A.F. Salomons, Nieuwe

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Archaeological Heritage (revised), better known as the Treaty of Valletta 1992 (Malta).280 A new Chapter V, entitled Protection of Archaeological Monuments, was inserted in the Monumentenwet, mostly related to issues of public law (on Spatial Planning etc.), but several provisions deal with property law. Art. 50 Monumentenwet provides that movable monuments, discovered in the course of an excavation, of which no-one can prove to be the owner, are within the ownership of the Province in which they were discovered or of the Municipality (provided that Municipality has a archaeological depot). With regard to finds outside the territory of any Municipality, the State acquires ownership (this relates especially to wrecked ships). This implies that the person who makes the discovery in the course of an excavation does not acquire ownership (in the case of a regular finding, he acquires full ownership after one year; in case of the discovery of a treasure, he acquires joint ownership immediately). However, if the same thing is discovered by accident (not in the course of an excavation), the provisions of the Monumentenwet do not apply, whereas those of the code do, so in that case it has to be decided whether we are dealing with finding, with occupation, or with the discovery of a treasure.281 Whichever is the case, ownership can also be acquired via the provisions on acquisitive prescription (art. 3:99 and 3:105 BW, see above). If the discoverer of the movable monument in the course of an excavation does not receive anything, the position of the landowner in whose land the thing was excavated is no more rosy; the enactment of the Act on the Preservation of Archaeological Monuments has been accompanied by the abolishment of art. 43 lid 3 Monumentenwet, which provided that this person was entitled to receive from the owner of the movable monument a compensation amounting to half of the value of that monument. This resembled the right of the owner of the thing in which a treasure is found to half of the ownership of that treasure; in this case, however, the entire ownership of the movable monument was attributed to the authorities while the landowner merely had a pecuniary claim. The compensation had to be paid by the owner of the excavated thing. Now his compensation is abolished too, for several reasons: the compensation is potentially a heavy

280 281

regels omtrent de eigendom van roerende monumenten ingevolge de Wet op de Archeologische Monumentenzorg. Over archeologische bodemvondsten, schatvinding, toe-eigening, verkrijgende verjaring en de positie van de grondeigenaar, Weekblad voor Privaatrecht, notariaat en registratie 6718 (2007), p. 613-620. Convention of 16 January 1992, European Treaties Series, no 143. The person who accidentally (not in the course of an excavation) discovers a thing he knows, or reasonably has to presume, to be a monument, is obliged to report that thing to the Minister as soon as possible (art. 53 § 1 Monumentenwet (new)).

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burden on the authorities, especially Provinces and Municipalities; it is not easy to determine the value of objects for which there is no genuine market; and archaeological heritage ‘belongs to us all’.282 With regard to that last argument it may be important to repeat that, despite that common heritage, archaeological objects and other movable monuments are susceptible to private ownership and therefore, even if ownership was acquired by a public entity like a Municipality at the time of the excavation, also susceptible to acquisitive prescription, even for the possessor not in good faith (art. 3:105 BW). The provisions on finding, discovery of treasures, occupation and discovery of movable monuments are summarized in the following table. Object

Law

Ownership

Compensation?

Declaration or communication?

Movable monument

artt. 50 ff. Monumentenwet

At excavation: Municipality, Province or State. Accidental discoveries: BW-provisions

No compensation for landowner

Declaration to Minister

Vacant thing

art. 5:5 ff. BW

Finder acquires ownership after 1 year, unless owner reports in time

Reasonable reward finder if owner reports in time

Declaration at Municipality, communication art. 5:5 § 1

Treasure

art. 5:13 BW

Discoverer and owner of thing in which treasure is found joint-owners

n.a.

Declaration at Municipality

Res nullius

art. 5:4 BW

Immediate acquisition of ownership by occupation of possession

n.a.

n.a. (unless thing may also be movable monument)

282

See for an evaluation of these arguments A.F. Salomons, Nieuwe regels omtrent de eigendom van roerende monumenten ingevolge de Wet op de Archeologische Monumentenzorg, § 6.

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14. Reservation of title

14.

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Reservation of title

A reservation of title (in Dutch: eigendomsvoorbehoud) is a stipulation in the title of transfer of a movable thing to the effect that ownership of that thing, despite delivery thereof, is reserved by the transferor, until performance by the acquirer.283 When such a stipulation is included in a contract, the transferor is presumed to obligate himself to the transfer of the thing to the acquirer under a suspensive condition of performance; art. 3:92 BW.284 The delivery of a movable thing, which is unregistered property and which is under the control of the alienator in the performance of an obligation to transfer under suspensive condition, is accomplished by giving the acquirer control over the thing; art. 3:91 BW. The proprietary consequence of a transfer under such a condition is found in art. 3:84 § 4: Where delivery is made in the performance of a conditional obligation, the right so acquired is subject to the same condition as the obligation (see above, § 5.3.2 sub C and § 8.3.2). This implies that the transition of ownership is postponed until the fulfilment of the condition.

14.1.

Ownership or security right?

As long as the performance by the acquirer remains unfulfilled, ownership remains with the transferor. This retained ownership is susceptible to transfer to another person (see HR 28-4-1989, NJ 1990, 252 (Puinbreekinstallatie)). That the retained right really is ownership, and not merely a security right like a pledge, is also shown by the fact that it is not a dependent right (see art. 3:7 BW) nor an accessory right (see art. 6:142-144 BW),285 and by the fact that there are no formal requirements like a written document or registration to make the title reservation effective in relation to third parties. In the case of non-performance on the part of the buyer, the seller is not obliged to levy execution and take recourse, as a pledge-holder or a mortgagee would be: the prohibition on appropriation (art. 3:235 BW) applies to a pledge or hypothec, but not to reservation of title.

283

284

285

See E.B. Rank-Berenschot, note 1 ad art. 3:92 BW in: J.H. Nieuwenhuis, C.J.J.M. Stolker and W.L. Valk (eds.), Burgerlijk Wetboek: de tekst van de boeken 1, 2, 3, 4, 5, 6, 7 en 8 van het BW voorzien van commentaar (7th ed.; Kluwer: Deventer 2007). Art. 3:92 BW entails no more than a legal presumption: other constructions to the effect of a reservation of title may also be valid. Parl.Gesch. Boek 3, p. 1241-1242.

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On the other hand, the reservation of title is regarded and treated as a right that predominantly serves as a security right by the treasury. When the tax authorities exercise their right of seizure (in Dutch: fiscal bodemrecht), they spare the property rights of third parties, provided that these are considered “real property” rights (in Dutch: reële eigendom). Things which have been given to the taxpayer on loan, in custody or in operational lease are considered real property of the lender, the depositor and the lessor respectively, but this does not apply in the case of reservation of title, instalment buying or financial lease. In other words, the seller would have to tolerate that the treasury seizes and levies execution on the goods that were transferred under title reservation. In this, a security right feature manifests itself, and therefore one has to conclude that the title reservation has a hybrid nature: it is both ownership and a security right.286

14.2.

For which claims?

Pursuant to art. 3:92 § 2 BW, a reservation of title may only be validly stipulated with respect to: – claims concerning the counter-performance for things delivered or to be delivered by the alienator to the acquirer pursuant to a contract; – claims for work performed or to be performed pursuant to such a contract for the benefit of the acquirer; – claims for failure to perform such contracts. To the extent that a condition is void upon this ground, it is held to be unwritten. This implies that the contract in itself remains valid, and only the stipulation is disregarded.

14.3.

The transferor’s and acquirer’s right to dispose

If the transferor who stipulated a reservation of title lacked the right to dispose of the thing, the acquirer is in need of the protection that art. 3:86 BW awards to the bona fide acquirer a non domino (see above, Section 11). In order to be entitled to that protection, he has to be in good faith at the moment of delivery, i.e. the moment he was given control over the thing (BW art. 3:91). It is not required that his good faith continues until the fulfilment of the suspensive condition.287 286 287

Snijders / Rank-Berenschot, Goederenrecht, no. 498. See Pitlo / Reehuis, Heisterkamp, Goederenrecht, p. 680.

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If the acquirer transfers the thing to a third person before the condition is fulfilled (i.e. before his performance for the first transferor, usually payment of the purchase price), he is disposing of the property of the transferor, or at least trying to do so: whether the second transfer is valid or not depends on the answer to the question whether he had the right to dispose of the property. This would be the case if the first transferor had explicitly conferred upon him this right contractually (geclausuleerd eigendomsvoorbehoud). Another possibility is that it can be deduced from the contract between the first transferor and the acquirer that the latter was entitled to dispose of the detained property; nevertheless it is not sufficient that the property was destined to be resold.288 If neither is the case, this acquirer, too, needs the protection of the bona fide acquirer a non domino. The mere fact that he might have realised that the thing was ‘encumbered’ with a reservation of title is insufficient to consider him an acquirer in bad faith: as long a he had reason to believe that the transferor had the right to transfer the thing, regardless of any reservation of title, he will count as an acquirer in good faith. This will for example be the case when a normal business transaction is concluded and the acquirer had no reason to expect the exercise of the reservation of title. A similar rule applies when a movable thing is reclaimed by the seller of a movable thing under his right of recovery (in Dutch: reclamerecht) and the thing has already been resold: the third acquirer is protected by art. 7:42 BW, provided he acquired the thing for value and he could not reasonably expect that the seller would exercise his right of revindication. The solution is also in accordance with established case law.289 See above, § 5.7.

14.4.

Extended reservation of title

As we have seen, art. 3:92 § 2 BW enables the stipulation of a reservation of title for certain claims other than the counter-prestation for the transferred

288

289

This was decided in HR 14-2-1992, NJ 1993, 623 (Love-Love) concerning the sale of the hull of a ship that was transferred under reservation of title by a shipbuilder to another shipbuilder, who was to finish the ship and market it. The mere fact that the ship was destined to be resold to a customer did not imply that the second shipbuilder was entitled to dispose of it before completing his performance owed to the first shipbuilder. See HR 6-1-1961, NJ 1962, 19 (Seneca / Forum), HR 12-6-1970, NJ 1971, 203 (Philippens / Omsa) and HR 29-6-1979, NJ 1980, 133 (Hoogovens / Matex): mere knowledge of the existence of a reservation of title does not imply the absence of good faith.

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thing itself; this implies that a horizontal extension of the reservation of title is allowed (at least for the claims mentioned in § 2).290 Vertical extension of the reservation of title, however, is not possible; there is no room to stipulate that the reservation of title also applies to things other than the things that were delivered. This implies that the reservation of title ends when these things are used in a production process and cease to exist due to accession, confusion or specification: it is common opinion that the mandatory legal provisions on original acquisition (art. 5:14-16 BW, see Section 10) cannot be thwarted by way of contract.291 An alternative could be the stipulation of a silent pledge in advance with regard to the things that the acquirer will produce (but it may well be that the acquirer had at an earlier stage pledged all his present and future goods in advance to his bank, and in that case the pledge of the seller is subordinated to that of the bank).

14.5.

Extinction of title reservation

The most important ways in which the reserved ownership would end (i.e. pass to the acquirer), are the following:292 – The acquirer performs his obligation, which implies the fulfilment of the suspensive condition and ipso facto transition of ownership to the acquirer. Pursuant to art. 3:92 § 3 BW, the condition is deemed to be fulfilled when the alienator receives satisfaction otherwise than by performance of the counter-prestation, when the acquirer is relieved of his obligation to perform pursuant to art. 6:60 BW,293 and when the prescription of the right of action in respect to the counter-prestation has been completed. In the absence of a stipulation to the contrary, the same applies in the event of the abandonment of the right to the counter-prestation. – The acquirer transfers the thing to a third party (assuming he had the right to dispose thereof, see above). – The acquirer delivers the thing to a third party despite the fact that he lacks the right to dispose thereof, but the third party successfully 290 291

292

293

See Snijders / Rank-Berenschot, Goederenrecht, no. 490. See Pitlo / Reehuis, Heisterkamp, Goederenrecht, p. 683-694 and Snijders / RankBerenschot, Goederenrecht, no. 500. See Snijders / Rank-Berenschot, Goederenrecht, no. 500 and Pitlo / Reehuis, Heisterkamp, Goederenrecht, p. 687-688. Art. 6:60 BW: Where the creditor is in default, the judge may discharge the debtor, upon his demand, from his obligation, with or without conditions to be determined by the judge.

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invokes the protection of the bona fide acquirer a non domino (art. 3:86 BW). – The thing ceases to exist due to accession, confusion or specification and the applicable rule does not award ownership or co-ownership to the transferor (see art. 5:14-16 BW and above, Section 10). – The thing is lost etc. In that case, no substitution of property takes place, even though such a substitution does take place in the case of a pledge or hypothec; see art. 3:229 BW: [t]he right of pledge or hypothec entails an ipso facto right of pledge upon all claims for compensation that take the place of the pledged or hypothecated property, including claims resulting from its depreciation. This applies to insurance payments, claims by reason of overdistribution, unlawful acts, decrease in value of the thing, expropriation etc. The claim with respect to the payment of the purchase price does not constitute a claim for compensation as meant in art. 3:229 BW.294

294

See W.G. Huijgen, note 1 ad art. 3:229 BW in: J.H. Nieuwenhuis, C.J.J.M. Stolker and W.L. Valk (eds.), Burgerlijk Wetboek: de tekst van de boeken 1, 2, 3, 4, 5, 6, 7 en 8 van het BW voorzien van commentaar (7th ed.; Kluwer: Deventer 2007).

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Part IV: Varia 15.

Unspecified property

The principle of individualization (already mentioned above, in § 5.6) entails that property that has not been individualized is not susceptible to possession, detention or ownership.295 This implies that one cannot own a part (“100 litres” or “one quarter”) of a undivided whole (oil tank, shipload etc.), notwithstanding the fact that it is possible to have a personal right to the delivery of such a part. Generally speaking, it is not possible to own things that are only specified by kind or quantity: only after they are individualized do they become susceptible to ownership. The same principle is manifested in the rule of art. 3:84 § 2 BW, that in the title the property to be transferred must be described in a sufficiently precise manner.

The Hoge Raad has interpreted this rule so (see above, § 5.6), that the individualization must have taken place at the latest at the moment of delivery (i.e. the conclusion of the real agreement), and not, as the text of the provision suggests, at the time of the coming into existence of the title of transfer (usually the conclusion of the obligatory agreement).296 In other words: when buying bread in a bakery, at the time of the sale the description “one whole loaf of wheat bread” is sufficient, but at the time of the delivery it must be established which of the loaves of whole wheat bread present in the store is going to be transferred. With regard to movables,297 the law of property recognizes no provisions that derogate from the system described above. If, for example, a thing that belongs to A is placed in the midst of other, similar things belonging to B, A would not lose his right of ownership on his thing, but, on the other 295 296 297

See Snijders / Rank-Berenschot, Goederenrecht, nos. 80, 157 and 161. See HR 14-10-1994, NJ 1995, 447 (Spaarbank Rivierenland). The last decade has seen a great deal of case law on the question which role the principle of indivudialization plays in the assignment of claims: to what extent is a detailed description of the claims required in the deed of assignment (art. 3:94 BW). The Hoge Raad decided in HR 14-10-1994, NJ 1994, 447 (Spaarbank Rivierenland) that it is not necessary to enumerate details like the name of the debtor, the amount of the claim,

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hand, he would not be entitled to revindicate it because he is unable to prove which thing is his. This problem of individualisation, therefore, does not belong to the field of property law, but to that of the law of evidence; see above, § 10.3, on ‘improper confusion’. The above-mentioned does not preclude partial termination of a sales contract with proportional reduction of the delivery obligation of the seller. If, for example, A were to sell four cows to B for € 4.000,00 and B would pay only € 2.000,00, half the purchase price agreed upon, A would be entitled to partially terminate the sale. Such a partial termination results in a qualitative or quantitative proportional reduction of the reciprocal obligations (see art. 6:265 j° 270 BW). In this case, the partial termination would have the effect that A would henceforward be obliged to deliver two instead of four cows to B. All this is, however, outside the realm of property law, as termination of a contract does not have any proprietary effect: it merely obliges the buyer to retro-deliver the goods already delivered by the seller (art. 6:271 BW; see above, § 5.3.1, § 5.3.2 sub C, § 8.3.3 and § 8.4). Until this obligation is fulfilled, the buyer is the owner of the goods concerned. Therefore, the issue of specification is not involved here.

16.

Abandonment

It follows from art. 5:18 BW that abandonment of a movable thing is possible:

invoice number, client number etc. It suffices that the deed contains such details that, if necessary afterwards and with the help of the deed it can be determined which claims were meant. The deed, may, for example, refer to a computer list on which details with regard to the assigned claims are specified. Registration of this computer list is not required. This was confirmed in HR 16-6-1995, NJ 1996, 508 (Ontvanger/Rabobank IJmuiden), HR 20-6-1997, NJ 1998, 362 (Wagemakers q.q./Rabobank Roosendaal), and in HR 19-9-1997, NJ 1998, 689 (Verhagen q.q./IBN II). In HR 20-9-2002, NJ 2004, 182 (Mulder-Rabobank), the Hoge Raad decided that the use of a so-called catch-all clause (“all claims belonging to the pledgor”) is also sufficient, in which case a reference to a computer list is superfluous; henceforward, this has become standard practice. The Hoge Raad obviously deems these decisions not to be in conflict with the requirement that “on the title the property to be transferred must be described in a sufficiently precise manner” under art. 3:84 § 2 BW, even though a description of the claims may take place after the assignment, i.e. at the moment the computer list is drawn up. See on this subject e.g. Pitlo/Reehuis, Heisterkamp, Goederenrecht, no. 261.

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The owner who abandons possession of a movable thing, with the intent of divesting himself of ownership, loses ownership of it.

This implies that ridding oneself of possession will only lead to loss of ownership if that is the purpose of the act. The owner who hides an object (e.g. a treasure), or loses it, does not lose possession and ownership. The same applies even when an object is left behind unattended by the owner, unless it is ascertained that the owner had the intention of divesting himself of his ownership.298 By abandoning possession with the intent of divesting himself of his ownership, the owner of the thing transforms that thing into a res nullius, susceptible to acquisition of ownership through occupation of possession (see art. 5:4 BW, discussed above, § 2.2.3 sub A and especially § 13.2). Abandonment and occupation are exact opposites. In contrast to movable things, ownership of immovable things cannot be given up. This was decided by the Hoge Raad in its arrest of 11 March 1966299 and was adopted in the new Burgerlijk Wetboek of 1992 (by means of leaving out an equivalent of art. 5:18 BW for immovables). To be sure: it is possible to give up limited rights in immovables, as follows from art. 3:81 § 2 sub c BW and from art. 3:98 BW, but the same does not apply to the right of ownership thereof. The rationale behind this is that immovable things that have no other owner belong to the State (art. 5:24 BW): if giving up ownership of immovable things were possible, one could force those things upon the State, including all charges and obligations attached thereto,300 and this was considered undesirable.

17.

Community property

17.1.

Sedes materiae

Title 3.7 BW, called “community” (in Dutch: gemeenschap), regulates the proprietary relationship between the partners (in Dutch: deelgenoten301) in 298

299

300 301

See Asser-Van Dam-Mijnssen-Van Velten 3-II, Goederenrecht. Zakelijke rechten, no. 110. See also A.A.J. Smelt, Goederen met negatieve waarde in het Nederlandse vermogensrecht (Thesis Utrecht; 2006), in particular Chapter 3 (but focused on property with a negative value). NJ 1966, 330. See Asser-Van Dam-Mijnssen-Van Velten 3-II, Goederenrecht. Zakelijke rechten, no. 111. Ibidem. The notion of co-ownership is reserved to the community with regard to things, i.e. corporeal objects susceptible to human control.

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a community. The obligatory relationship between the partners is provided for elsewhere in the Burgerlijk Wetboek and can be left aside here. Title 3.7 of the third Book of the Burgerlijk Wetboek is divided into three sections. The first section (art. 3:166-188 BW) provides general provisions, the second (art. 3: 189-194 BW) provides for some special communities, and the third (art. 3:195-200 BW) regulates void and annullable partitions. An important limitation on the scope of Title 3.7 is found in art. 3:189 § 1 BW: The provisions of this title do not apply to a marital community, a partnership, a commercial partnership or a shipping partnership, as long as they have not been dissolved; they do not apply either to the community of a building divided into apartment rights, provided the division has not been terminated.

Nevertheless, pursuant to the second paragraph of art. 3:189 BW, the provisions of section 3.7.2 (entitled “Some Special Communities”), as well as the provisions of the first section, to the extent that this section does not deviate therefrom, apply to the community of a succession, to a dissolved marital community, partnership, commercial partnership or shipping partnership, and to the community of a building the division of which into apartment rights has been terminated. From the above it may be deduced that Title 3.7 BW applies primarily to communities that are susceptible to division (commonly referred to as “simple communities”, in Dutch: eenvoudige gemeenschappen) and not for “active” communities, which are meant to continue (the “special communities“, bijzondere gemeenschappen, of section 3.7.2 BW).302

17.2.

Communities; classification

A classification of the various communities can be accomplished by several criteria:303 – subject (e.g. marriage or business); – applicable law: this refers to the following distinction (art. 3:189 BW):

302

303

See Pitlo / Reehuis, Heisterkamp, Goederenrecht, no. 411 and Snijders / Rank-Berenschot, Goederenrecht, nos. 213-214. This survey is primarily derived from Snijders / Rank-Berenschot, Goederenrecht, nos. 214-215 and Jac. Hijma and M.M. Olthof, Compendium van het Nederlands vermogensrecht (8th ed.; Kluwer: Deventer 2002), no. 197.

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‘special’ communities; ‘simple’ communities, which occur in two forms: community of one item of property (e.g. a common wall); community comprising several items of property.304

– origin: Act of formation (e.g. contract, as in the case of a partnership contract, in Dutch: maatschapscontract); Last will and testament (see art. 4:921 BW); The law itself (e.g. in the case of accession or specification, if there are no principal thing and component parts, the owners of the original things are the co-owners of the new thing; art. 3:15-16 BW).

As has been said above, the provisions of section 3.7.1 apply in principle to all of these communities, but an exception is made for those communities that are meant to continue: these are governed by their own rules (e.g. for the not yet dissolved marital community articles 1:93 ff. BW).

17.3.

Community; the right to dispose305

Only the partners acting together are entitled to dispose of a good of the community. There is an exception to this rule, if one of the partners is entitled to dispose of the property: – because he has the authorization of the court to do so (art. 3:174 BW); – because the rules regulating their relationship entitle him to perform the management of the property, and the transfer of the common good could be regarded as such (art. 3:170 § 2 BW); – because the transfer constitutes an act for the purpose of ordinary maintenance or preservation of common property or, generally, as an act that cannot be postponed; these acts may be performed by any one of the partners, if necessary independently of the others (art. 3:170 § 1 BW). With regard to the right to dispose of shares, one has to distinguish between:

304

305

The occurance of the latter kind of community is the result either of a connection among the items of property, e.g. a flock of sheep, or of a legal relationship among the partners; otherwise, there is a separate community with regard to each individual piece of property; see Hijma / Olthof, Compendium, no. 197. See especially Hijma / Olthof, Compendium, no. 199 and Hartkamp, Compendium, nos. 145-146.

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– The right to dispose of an undivided share in a separate item of property of the community.306 A further distinction has to be made with regard to: ‘simple community’; each of the partners is entitled to dispose, unless the juridical relationship between the partners produces a different result (art. 3:175 § 1 BW);307 ‘special community’: the partner may not separately dispose of his share in property belonging to the community (art. 3:190 § 1 and 2 BW).308

– The right to dispose of an undivided share in the totality of the community. Unless the juridical relationship between the partners produces a different result, each of the partners is separately entitled. With regard to the ‘simple’ community, this can be deduced from art. 3:175 § 1 BW,309 with regard to the ‘special’ community, see art. 3:191 § 1 BW.310 306

307

308

309

310

Delivery of a share in property is made analogously to delivery of that property and has analogous effects; art. 3:96 BW. Therefore, the delivery of a share in a movable is performed by the giving of possession of the share (art. 3:96 j° 3:90 BW). When the transferor lacks the right to dispose of the share, the acquirer has recourse to the protection of the bone fide acquirer a non domino of art. 3:86 BW (because the delivery of the share in the property has “analogous effects” of the delivery of that property): see on the complications of the transfer of co-ownership of a movable through the giving of co-possession, HR 28-4-1989, NJ 1990, 252 (Puinbreekinstallatie). See also Pitlo / Reehuis, Heisterkamp, Goederenrecht, no. 295. § 3 adds: Creditors may seize and execute against the share of a partner in common property. After seizure and execution against a share, limitations on the power to dispose of the share cannot be invoked among the acquirer of such a share and the remaining partners. And his creditors may not seize and execute against such a share, without the consent of the other partners. Nevertheless, a partner can establish a right of pledge or of hypothec upon such a share, even without the consent of the other partners. Unless the other partners consent, the pledgee and the hypothecary creditor may not proceed to the sale of the property as long as it belongs to the community. The difference between the simple and the special community in this respect is easily explained: the latter form of community is meant for continued existence, whereas the simple community is (already) susceptible to division; see Snijders / Rank-Berenschot, Goederenrecht p. 175. Each partner is entitled to dispose of his share in separate goods of the simple community, which may consist of several goods: this implies that he may also dispose of his share in the entire community. See e.g. Hartkamp, Compendium, no. 146. This provision adds that the creditors of a partner can seize and execute against such a share.

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18.

Consequences of restitution to the owner

18.1.

Entitlement to benefits (‘fruits’) of the movable

The basic distinction made in this respect in Dutch property law is between possession in good faith and possession not in good faith (the Burgerlijk Wetboek does not use the notion “possession in bad faith”). Cf. art. 3:120 BW for the possessor in good faith:311 1. Separated natural fruits and civil fruits that have become exigible belong to the possessor in good faith. 2. The title-holder of property who claims it from a possessor in good faith or has recovered it from him is obliged to reimburse him for the costs expended on the property, as well as for the damages for which, by virtue of the rules of Title 3 of Book 6, the possessor might be liable toward third persons by reason of his possession; this obligation ceases to the extent that the possessor has been indemnified by the fruits of the property and the other benefits which he has drawn from it. The judge may reduce the reimbursement due if full reimbursement would result in an inequitable advantage of the possessor over the title-holder. 3. As long as a possessor in good faith has not received the reimbursement due to him, he has the right to suspend restitution of the property. 4. The provisions of this article also apply to a person who believes and could believe that he has lawfully acquired possession, although he knows that the acts necessary for delivery of the right have not taken place.

For the possessor not in good faith, art. 3:121 BW provides the following: 1. Without prejudice to his liability by virtue of the rules of Title 3 of Book 6312 for the damage suffered by the title-holder and in addition to the restitution of the property, a possessor who is not in good faith is obliged to restore to the title-holder the separated natural fruits and the civil fruits that have become exigible. 2. He may claim against the title-holder reimbursement of the costs that he has expended on the property or that he has made to produce the fruits only to the extent that his claim can be based on the rules regarding unjust enrichment. 3. The provisions of this article also apply to the possessor in good faith from the moment the title-holder invokes his right against him. 311

312

See above, § 2.1.4, for the meaning and function of “(possession in) good faith” (and for the absence of the notion “possession in bad faith”). See for the notion of (natural and civil) fruits above, § 13.3. This title deals with unlawful acts.

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Comparing these two provisions shows that the possessor in good faith is entitled to all separated natural fruits and civil fruits that have become exigible, whereas the possessor not in good faith has to restore these to the title-holder. The value of the fruits is taken into account when determining the amount to be reimbursed by the titleholder to the possessor in good faith for the costs expended on the property and for the damages for which the possessor is liable towards third persons by reason of his possession. As there is no similar claim for reimbursement on behalf of the possessor not in good faith, other than a claim based upon unjustified enrichment, and he is not entitled to fruits anyway, a similar provision is lacking for him. Only the possessor in good faith has the right to suspend restitution of the property (in other words: exercise the right of retention of art. 3:290 BW) until being reimbursed by the title-holder (this means that even if the possessor not in good faith is entitled to damages for unjustified enrichment of the title-holder, he cannot retain the property to safeguard this claim). After the moment the title-holder invokes his right against the possessor in good faith, the latter is no longer protected by the provisions of art. 3:120 BW; henceforward, the provisions of art. 3:121 apply to him, as if he were a possessor not in good faith (which, technically, he is not, due to the rule mala fides superveniens non nocet, codified in art. 3:118 § 2 BW). Pursuant to art. 6:275 BW, the rules of art. 3:120 and 3:121 BW, regarding the restitution of fruits and the compensation for costs and damage, apply mutatis mutandis in the case of the setting aside of a synallagmatic contract to the obligation to undo the prestations they have already received. This provision was necessary because the creditor of that obligation is not the owner of the object (as the setting aside of a contract does not have proprietary effect: the acquirer is obliged to transfer ownership of the object back to the original transferor).

18.2.

Loss and deterioration of a movable

Is the possessor liable vis-à-vis the owner for the loss or deterioration of the movable? The answer to this question does not only depend on the cause of the loss or deterioration, but also on the good or bad faith of the possessor. In any case, the legal basis for liability of the possessor towards the owner is tort law. Pursuant to art. 6:162 § 2 BW, the violation of a (subjective) right is deemed to be unlawful (except where there is a ground of justification). Committing such an unlawful act toward another leads to an obligation to repair the damage that the other person suffers as a consequence thereof, provided the act can be imputed to the person who commits it (art. 6:162

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§ 1 BW). It is debated whether that person can be held liable for the violation of a right, e.g. damaging the property of another, if he did not act negligently (careless, in Dutch: onzorgvuldig): does the act of damaging ipso facto lead to liability or should this be reserved for cases of culpable behaviour? In the leading Dutch Handbook on Tort law, the following system with regard to liability for the violation of the subjective right of another is defended: a distinction must be made between two groups of acts: – the first group concerns acts to which the titleholder is exclusively entitled and acts that hamper the use of the thing or the exercise of his right by the titleholder. Examples are the transfer or theft of a thing of another, the closing off of the premises of another, the use of a trademark without permission, the seizure of a thing, the conducting of a house search, etc.313 – the second group concerns acts that cause physical damage (property damage) or injury. In the context of the first group of acts, the ‘violation’ relates to the unlawfulness of the act itself; in the context of the second, to the consequences of the act. The aforementioned Handbook argues that only with regard to the first group of acts, the ‘violation’ is unlawful even if there were no culpable behaviour. In other words: an act is unlawful for the violation of a right if that act itself, irrespective of its consequences, constitutes the violation of the subjective right (so: theft, seizure etc.). In other cases, the act does not lead to liability unless it was the result of culpable behavior; property damage and injury are unlawful only if in violation of a statutory duty or a rule of unwritten law pertaining to proper social conduct.314 Even though this view is not generally accepted, we will use it here (which may be justified by the fact that most Dutch authors reject the idea that each violation of the subjective right of another should ipso facto lead to liability).315 All this implies that property damage only leads to liability of the possessor if he is in not in good faith (i.e. if he is not someone who be313

314

315

All examples taken from Asser-Hartkamp 4-III, Verbintenissenrecht; de verbintenis uit de wet, no. 36. Ibidem. The view, accepted by Hartkamp, was put forward earlier by C.H. Sieburgh, Wat is rechtsinbreuk?, Nederlands Juristenblad 4-1997, p. 628-635. See for a survey of the various views C.A. Streefkerk, De onrechtmatigheid van de rechtsinbreuk, in: BW-krant Jaarboek 1996 (Gouda Quint: Deventer 1996), p. 6786, and J. Spier et al. (eds.), Verbintenis uit de wet en schadevergoeding. Studiereeks burgerlijk recht 5 (4th ed.; Kluwer: Deventer 2006), nos. 32-41.

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lieves himself to be the owner and is reasonably justified in that belief, cf. art. 3:118 § 1 BW): only culpable behaviour is unlawful for this kind of act,316 and the possessor in good faith does not act culpable towards the owner as he assumes and is reasonably justified to assume to be the owner himself. The same must apply to loss of the movable, assuming that the act of losing the thing belongs to the ‘second group’ (i.e. acts for which the ‘violation’ relates to the unlawfulness of the consequences of the act, in this case: depriving the owner of any further use of the thing).317 An exception occurs after proceedings for restitution have been initiated or the owner has demanded return of his thing in another way: from that moment on, the possessor in good faith must take into account that he may be ordered to relinquish the property. This may be inferred from art. 3:121 BW, the first paragraph of which warns the possessor not in good faith about tort lliability for the damage suffered by the owner, and the third paragraph of which provides that the provisions of the article also apply to the possessor in good faith from the moment the owner invokes his right against him: this proves that good faith in itself does not protect against tort liability. The provisions on the setting aside of synallagmatic contracts contain another indication of this; art. 6:273 BW provides: As of the time that a party, who has received a prestation, must reasonably foresee the possibility that the contract will be set aside, he is obliged to ensure, as a prudent debtor, that the undoing of the prestation, owed as a result of the setting aside of the contract, will be possible (…).

This provision does not apply directly to the case in which someone is asked to return a thing to its owner, due to the fact that setting aside does not have proprietary effect: in this case, the duty of care rests upon the owner / possessor who has to take into account the possibility that he may be obliged to return the received thing to the other party, who until that return is not yet the owner. No tort liability exists if the act of the possessor was not unlawful. This implies that the presence of a ground for justification frees the possessor from liability. Examples are force majeure, self-defence, the fact that the possessor was managing the affairs of the owner (art. 6:198 BW) etc.318 316

317

318

Art. 6:162 § 1 BW requires for liability for an unlawful act that the act can be imputed to the person who commits it. See below. The same conclusion is drawn by Van Schaick, Rechtsgevolgen en functies van bezit en houderschap, no. 33, with the addition that the possessor in good faith cannot be held liable on the basis of unjustified enrichtment either, e.g. for the use of the property, as such a claim would be contrary to the legal system. See J. Spier et al. (eds.), Verbintenis uit de wet en schadevergoeding, no. 18.

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Furthermore, as was already said, liability requires that the act can be imputed to the author thereof. Art. 6:162 § 3 BW provides that an unlawful act can be imputed to its author if it results from his fault or from a cause for which he is answerable according to law or common opinion. So there are cases in which the author of the act did not act culpably but is successfully held liable nevertheless.

18.3.

Improvements and expenses during possession

As we have seen above in § 18.1, the basic distinction is – again – between possession in good faith and possession not in good faith. For the possessor in good faith, art. 3:120 § 2 BW provides that he is entitled to reimbursement of the costs expended on the property, as well as for the damages he himself might be liable for towards third persons by reason of his possession. This obligation ceases to the extent that the possessor has been indemnified by the fruits of the property and the other benefits that he has drawn from it. A further reduction is possible if full reimbursement would result in an inequitable advantage of the possessor over the owner. The possessor not in good faith, on the other hand, is entitled to reimbursement of his costs only to the extent that his claim can be based on the rules regarding unjustified enrichment. The ‘costs’ to which art. 3:120-121 BW refers are the costs that have really been made at the expense of the possessor.319 Under the regimen of the old civil code, a distinction was made between impensae necessariae, utiles et voluptuosae, i.e. costs for preservation, useful costs and costs for embellishment: this distinction has not returned in the Burgerlijk Wetboek of 1992. All costs can be claimed, even if they did not enrich the owner, but in the case of costs that did not lead to a direct increase of the value of the thing, the court may mitigate the reimbursement.320 In two cases, a smaller or no reimbursement at all is due, the first by an act of the owner, the second by an act of the possessor: 1. Whether the possessor is in good faith or not, the owner can free himself from the reimbursements due by virtue of the articles 3:120 and 121 BW by transferring the property to the possessor, who is obliged to cooperate; art. 3:122 BW (in other words, the owner has the so-called right to abandon).321 319 320

321

See HR 7 oktober 1994, NJ 1995, 62. See Schoordijk, Vermogensrecht in het algemeen naar Boek 3 van het nieuwe B.W., p. 390, and Parl.Gesch. Boek 3, p. 450. Art. 3:122 BW is criticized by Van Schaick, Rechtsgevolgen en functies van bezit en houderschap, no. 35.

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2. Both the possessor in good faith and the possessor in bad faith have the so-called ius tollendi. Art. 3:123 BW provides the following: Where the possessor of a thing has made changes or additions to it, he has the right to remove them instead of claiming the reimbursement to which he is entitled by virtue of articles 120 and 121, provided that he restores the thing to its original condition.

18.4.

Possessor’s right to retain a movable

Only the possessor in good faith is entitled to suspend restitution of the movable as long as he has not received the reimbursement due to him; art. 3:120 § 3 BW, quoted above in § 18.1. This right to suspend restitution qualifies as an example of the right of retention, defined in art. 3:290 BW as the power that a creditor has, in the cases provided for by law, to suspend the performance of an obligation to surrender a thing to his debtor until payment of the debt.

The importance thereof is that the provisions on the right of retention (art. 3:290-295 BW) apply to the possessor in good faith. The most important of these are, applied to the possessor seeking reimbursement for his costs: – The possessor can invoke his right of retention against third persons having acquired a right to the thing after his claim has arisen and the thing has come under his control (art. 3:291 § 1 BW). – The possessor can take recourse for his claim against the thing with preference over all persons against whom the right of retention can be invoked. (art. 3:292 BW). – The right of retention is terminated in the event that the thing comes under the control of the owner, unless the possessor regains it pursuant to the same juridical relationship (art. 3:294 BW). – The possessor who loses control of the thing can reclaim it under the same conditions as an owner (art. 3:295 BW). It is difficult to answer the question whether the right of retention has the nature of a ius in rem or of merely an obligatory right. It seems best not to call it a right at all: it is above all the power (in Dutch: bevoegdheid) to suspend restitution, and therefore refers primarily to an authority (privilege). This power can be used – in contractual settings – against the other party, whether the latter has a right in rem in the property or not. But the power can also be used against others, with whom the retentor is not in

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any contractual relationship. The basic distinction here is whether the other person has an anterior or a posterior right; see art. 3:291 BW, which is quoted in full: 1. The creditor can also invoke the right of retention against third persons having acquired a right to the thing after the creditor’s claim has arisen and the thing has come under his control. 2. He can also invoke the right of retention against third persons with a prior right, if his claim results from a contract that the debtor had the power to enter into in respect to the thing, or if the creditor had no reason to doubt such power.

The restrictions contained in this provision indicate that the right of retention cannot be adequately described as a ius in rem. Another characteristic of a right of rem is the so-called droit de suite: the right is ‘attached’ to the thing and ‘follows’ it after the thing has come into other hands. Again, this does not apply to the right of retention: as soon as the thing comes under the control of the owner, the right of retention is lost, even though it can be regained (see above). However, if another person takes control of the thing (e.g. a thief), the right of retention is not lost and the thing can be reclaimed by the retentor under the same conditions as an owner (art. 3:295 BW); in this respect, the right of retention does resemble a right in rem. Finally, the right of retention has an accessory nature: it fits the description in art. 3:7 BW of a dependent right, as it is related to another right (the possessor’s right of reimbursement) in such a fashion that it cannot exist independently thereof. On the other hand, pursuant to art. 3:82 BW, dependent rights follow the right to which they are connected, and this does not apply to the right of retention. Neither does the right of retention qualify as an accessory right (cf. art. 6:142 BW): if the possessor were to assign his claim, the assignee would not acquire the right of retention.322 In this respect, too, the sui generis nature of the right of retention manifests itself.

18.5.

Expenses to obtain restitution

The purpose of revindication (art. 5:1 BW) is restitution of the movable and not payment of damages.323 Therefore, the owner cannot seek reim322 323

See Snijders / Rank-Berenschot, Goederenrecht, no. 724. See Asser-Van Dam-Mijnssen-Van Velten 3-II, Goederenrecht. Zakelijke rechten, no. 118 and A.R. Bloembergen, Schadevergoeding: algemeen, deel 1. Monografieën Nieuw BW B-34 (2nd ed. revised by S.D. Lindenbergh; Kluwer: Deventer 2001), no. 3.

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bursement for his expenses on the basis of his right of revindication; he must institute a separate tort action. As has been said before, such an action cannot be instituted successfully against the possessor in good faith, or at least until the owner invokes his right against him (cf. art. 3:121 § 3 BW). The consequence of this is that in this case the owner has to bear the expenses of the restitution himself. This is not the case if the owner confronts a possessor not in good faith. Art. 3:121 § 1 BW mentions explicitly that the possessor not in good faith (as well as the owner in good faith after the moment the owner has invoked his right against him) may be held liable “for the damage suffered by the owner”. This may include the damage resulting from the efforts to obtain restitution of the thing (e.g. the costs made to trace the property, the costs to make a revindicatory attachment, the costs of the bailiff’s notification etc.), in accordance with the rules on legal obligations to repair damage; Section 10, Title 1, Book 6 BW (articles 6:95-110 BW).

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Table of Abbreviations art.

article

BGB BR BW

Bürgerliches Gesetzbuch (German civil code) Bouwrecht Burgerlijk Wetboek (civil code)

cf.

compare

Dig.

Digestae

e.g. ed. eds. et al. EU

for example edition or editor editors and others European Union

ff. Fw

and the following pages Faillissementswet (Insolvency Act)

HR

Hoge Raad (Dutch Supreme Court)

i.e. Ibid. i.f.

that is to say Ibidem in fine

n.a. NBW NJ no(s).

not applicable Nieuw Burgerlijk Wetboek (new civil code) Nederlandse Jurisprudentie number(s)

p. Parl.Gesch.

page(s) Parlementaire Geschiedenis

W.

Weekblad van het regt

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National Report on the Transfer of Movables in Switzerland Bénédict Foëx Sylvain Marchand

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Table of Contents Part I: Basic information on property law 1. Notions of ownership and property existing in Switzerland 1.1. General basics 1.1.1. Characteristics of rights in rem 1.1.2. General principles 1.1.3. Sedes materiae 1.2. Notion of ownership; definition and restrictions 1.3. Other property rights in movables 1.4. Protection of property rights 1.4.1. Actions protecting ownership and other rights in rem 1.4.2. Further remedies 1.5. Transferability of movables; accessories 2. Possession 2.1. Notion and forms of possession 2.1.1. Notion 2.1.2. Elements 2.1.3. Detention 2.1.4. Forms of possession 2.1.5. “Agent in possession” 2.1.6. Particulars 2.1.7. Role of these distinctions 2.1.8. Intensity of the relationship between a possessor and the object 2.1.9. Possession of rights 2.2. Functions of possession 2.3. Acquisition of possession 2.3.1. Originary and derivative acquisition 2.3.2. Forms of derivative acquisition 2.4. Possessory actions 2.4.1. Introduction 2.4.2. Time limitations 2.4.3. Summary proceedings 2.4.4. Aim of the actions 2.4.5. Actions based on a “better right” to possession

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172 172 172 173 173 174 174 175 175 176 176 177 177 177 179 179 179 180 180 180

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2.5.

Self-help 2.5.1. Forms of self-help 2.5.2. Requirements

181 181 181

3. Rights to hold, use or acquire a movable

182

4. Field of application and definitions 4.1. Field of application 4.2. Definitions

183 184

Part II: Transfer of ownership from the owner to the transferee (derivative acquisition) 5. System of transfer 5.1. Basic characteristics; overview 5.1.1. Moment of transfer 5.1.2. Cause of the transfer of ownership and “real agreement” 5.1.3. Retention of title 5.2. General issues 5.2.1. Identification of goods for the purpose of passing of risks 5.2.2. Identification of goods for the purpose of transferring possession 5.2.3. Modalities of identification 5.2.4. Relation between party autonomy and transfer of possession 5.2.5. Postponing the time of transfer 5.3. Cause of the transfer 5.3.1. Admissible cause 5.3.2. Void contract, avoided contract 5.3.3. Terminated contract in case of non-payment or defective products 5.3.4. Trusts and similar 5.4. Traditio: delivery and delivery equivalents 5.4.1. Purpose of the delivery requirement 5.4.2. Physical delivery of movables 5.4.3. Delivery of means to take control of movables 5.4.4. Open transfer of possession 5.4.5. Marking the goods 5.4.6. Transfer of documents

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5.5.

5.6. 5.7.

5.8.

5.9.

163

5.4.7. Carriage of goods by an independent carrier 5.4.8. Brevi manu traditio 5.4.9. Constitutum possessorium 5.4.10. Movables under the control of third parties Registration 5.5.1. Principle 5.5.2. Ships 5.5.3. Aircrafts Consensual system Real agreement 5.7.1. Concept of real agreement 5.7.2. Special rules on the real agreement 5.7.3. Purpose of the concept Payment 5.8.1. Principle 5.8.2. Discussion and relation to insolvency law Right to dispose 5.9.1. Persons having the right to dispose of movables 5.9.2. Transferor without the right to dispose 5.9.3. Ratification by owner

195 196 196 197 198 198 198 199 199 199 199 200 200 201 201 201 201 201 202 202

6. Double selling 6.1. Passing of ownership 6.2. Good or bad faith 6.3. Dispute between buyers 6.4. Insolvency of one of the buyers

203 203 203 204

7. Selling in a chain 7.1. Real agreement 7.2. Ownership 7.3. Retention of title 7.4. Invalidity

204 204 205 205

8. Transfer or acquisition by means of indirect representation 8.1. Transfer of ownership 8.2. Legal assignment of claims 8.3. Bankruptcy of the intermediary person

206 206 207

9. Insolvency 9.1. General issues; effect of bankruptcy on contracts 9.2. Insolvency of the transferor 9.3. Insolvency of the transferee 9.4. Right of stoppage in transit

207 209 209 210

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10. Relation to rules on transfer of risk 10.1. General principles 10.2. Passing of risk in case of transferor’s default in delivery or transferee’s default in acceptance

211 211

Part III: “Original” acquisition – no direct transfer of ownership from an owner to transferee 11. Acquisition by accession, commixture or processing 11.1. Accession of movables 11.1.1. Notion of accession 11.1.2. Person acquiring ownership through accession 11.1.3. Role of good faith and bad faith 11.1.4. Movable becoming an integral part of an immovable 11.2. Commixture, confusion 11.2.1. In general 11.2.2. Goods of the same kind 11.2.3. Role of good faith 11.3. Specification, processing 11.3.1. In general 11.3.2. Role of good faith 11.4. Further general aspects 11.4.1. End of co-ownership 11.4.2. Rights of third parties 11.4.3. Role of legal capacity 12. Rules of good faith acquisition 12.1. Field of application 12.1.1. In general 12.1.2. Particulars 12.1.3. Specific rules for certain types of movables 12.2. Good faith acquisition only for value? 12.3. Possession of the transferor 12.3.1. In general 12.3.2. Dogmatic background 12.3.3. Forms of possession 12.4. Possession by the acquirer 12.5. Specific requirements concerning the circumstances of the transfer

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12.5.1. In general 12.5.2. Public auction 12.6. Requirements regarding the way the original jowner “lost” the movable 12.6.1. Entrustment 12.6.2. Null and void contract 12.7. Good faith 12.7.1. Object and standard of good faith 12.7.2. Time when good faith is required 12.7.3. Burden of proof 12.8. Lost and stolen movables 12.9. Right to buy back 12.10. Good faith acquisition free of encumbrances 12.11. Same rules if the good faith acquirer is a consumer?

222 222 223 223 223 223 223 224 224 224 225 225 226

13. “Acquisitive” prescription of movables 13.1. Functions of acquisitive prescription 13.2. Requirements of acquisitive prescription 13.2.1. Movables concerned 13.2.2. Acquirer’s possession 13.2.3. Title 13.2.4. Role of good faith 13.2.5. Prescription periods 13.2.6. Consequences 13.3. Prescription of ownership

226 226 226 226 227 227 228 228 229 230

14. Other forms of originary acquisition

230

Part IV: Additional questions 15. Which are the rules on reservation of title? 15.1. Requirements 15.2. Effects 15.3. Default of the transferee 15.4. Title reservation and debt collection proceedings 15.5. Extension of the reservation of title

232 232 233 234 234

16. Abandonment and further ways to lose ownership 16.1. Abandonment 16.2. Further ways to lose ownership

235 235

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17. “Co-ownership” 17.1. Forms of co-ownership 17.2. Transfer of co-ownership (stricto sensu) 17.3. Separation and termination

235 236 236

18. Particular issues as to unspecified goods 18.1. Transfer of shares in an identified bulk 18.2. Floating charge

237 238

19. Consequences of restitution of the movable to the owner 19.1. Entitlement to benefits (“fruits”) of the movable 19.1.1. Restitution under Sect. 938-940 SCC 19.1.2. Restitution after the right to use the movable has ended 19.1.3. Restitution in case the contract is void, avoided, or terminated 19.2. Loss and deterioration of the movable 19.2.1. Restitution under Sect. 938-940 SCC 19.2.2. Restitution after the right to use the movable has ended 19.2.3. Restitution in case the contract is void, avoided, or terminated 19.3. Reimbursement for improvements and expenses 19.3.1. Restitution under Sect. 938-940 SCC 19.3.2. Restitution after the right to use the movable has ended 19.3.3. Restitution in case the contract is void, avoided, or terminated 19.4. Possessor’s right to retain the movable 19.4.1. Restitution under Sect. 938-940 SCC 19.4.2. Restitution by a legitimate possessor 19.5. Who bears the expenses of the restitution of the movable to the owner? 19.5.1. Restitution under Sect. 938-940 SCC 19.5.2. Restitution by a legitimate possessor

239 239 240 240 241 241 241 242 243 243 244 245 245 245 246 246 246 247

Table of Literature

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Table of Abbreviations

253

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Part I: Basic information on property law 1.

Notions of ownership and property existing in Switzerland

1.1.

General basics

1.1.1. Characteristics of rights in rem It is generally accepted that under Swiss law, two characteristics distinguish rights in rem in comparison with obligations. The right in rem provides its beneficiary a direct control over it (be it a movable, an immovable, etc.), whereas obligations are directed against the debtor and provide the creditor at most an indirect control over the thing. Secondly, rights in rem are “absolute” rights, i.e. they exist and are enforceable erga omnes, while obligations are deemed to be “relative” rights, in the sense that they exist only between two persons or among a group of persons.1

1.1.2. General principles Swiss property law is governed by a numerus clausus of rights in rem.2 The four main categories are: ownership (individual ownership, co-ownership, etc.), servitudes (usufruct, building right, etc.), security rights (mortgages, pledges, etc.) and land charges. Several other general principles govern the Swiss system of property law.3 The main ones are: – the publicity principle, according to which rights in rem must be rendered public through an appropriate means of publicity (land register for immovables, possession in the case of movables); – the principle of specialty, which provides that a right in rem can only exist in a specified object (as opposed, for instance, to a number of objects or to an object that does not exist yet); 1 2

3

See for instance Steinauer, no. 12 et seq.; Schmid / Hürlimann-Kaup, no. 15 et seq. See for instance Steinauer, no. 120 et seq.; Schmid / Hürlimann-Kaup, no. 71 et seq. See Steinauer, no. 124 et seq.; Meier-Hayoz, Systematischer Teil, no. 57 et seq.

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– the principle requiring an underlying causa, according to which the transfer of a right in rem or the creation of such a right depends on the valid-

ity of the contract (sale contract, pledge agreement, etc.) or other act on which it is based; – the priority (first in time) principle, which provides that, in case more than one right in rem (other than property) exist simultaneously in the same object, the right created earlier has priority over the ones whose existence is more recent; – the principle of accession, according to which the parts of an object share the legal status of such object as long as they are united to it.

1.1.3. Sedes materiae The rules on property law are located in the Swiss civil code (SCC),4 which was adopted in 1907 but entered into force on January 1, 1912. These rules form the fourth part of the SCC. These Sections 641-977 SCC are supplemented by various (Federal and cantonal5) legislation, such as a Federal law on rural land,6 a Federal law on the acquisition of immovable property by persons abroad,7 a Federal Ordinance on the land register,8 a Federal law on the aircraft register (LAR),9 etc.

1.2.

Notion of ownership; definition and restrictions

Ownership is the most extensive right in rem under Swiss law. It provides its beneficiary an exclusive and in principle unlimited dominion over its object, and comprises all advantages, interests and benefits that can be derived from it.10 This being said, ownership is subject to numerous legal restrictions (especially in the field of immovable property), resulting from federal public

4 5

6 7

8 9 10

Swiss civil code, of December 10, 1907. Switzerland is composed of 26 Cantons who retain important legislative powers, mainly in the field of public law. Federal law on rural land, of October 4th, 1991; SCFL no. 211.412.11. Federal law on the acquisition of immovable property by persons abroad, of December 16, 1983; SCFL no. 211.412.41. Federal ordinance on the land register, of February 22, 1910; SCFL no. 211.432.1. Federal law on the aircrafts register (LAR), of October 7, 1959. Steinauer, no. 1002 et seq.; Meier-Hayoz, Systematischer Teil, no. 306.

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law, federal private law, cantonal public law and (to a limited extent) cantonal private law. The right of ownership comprises the right to use the object, the right to dispose of it (by alienating it, by creating limited rights in rem over it, by destroying it, by consuming it, etc.), the right to enjoy it (by collecting its fruits, etc.) and the right to possess it. This right is protected by various actions11 and is enforceable against third parties, for instance in the insolvency proceedings of a third-party holder. Like every other right, ownership is subject to the general duty to act in good faith while exercising the right, grounded on Sect. 2.1 SCC. Moreover, the law imposes various obligations on the owner, mainly in the field of immovable property.

1.3.

Other property rights in movables

Movables can be the object of the following limited rights in rem: – usufruct (Sect. 745 et seq. SCC) – pledge (Sect. 884 and 886 et seq. SCC) – mortgage (limited to livestock and several other specific items such as aircrafts; Sect. 885 SCC and additional legislation) – right of retention (Sect. 895 et seq. SCC) – pawn (Sect. 907 et seq. SCC) It should be noted that a pledge can also be created over receivables and other rights, as well as securities (Sect. 899 et seq. SCC).

1.4.

Protection of property rights

1.4.1. Actions protecting ownership and other rights in rem Ownership is protected by the following legal actions under Swiss law:12 – action for recovery (rei vindicatio), Sect. 641.2 SCC. It belongs to the owner who does not have possession (or only has indirect possession) of an object, and is brought against the direct possessor13 of such an object. Restitution is ordered by the judge, provided that the claimant is the owner and that the defendant does not have a right to remain in possession of the object. There is no time-limit to bring this action. 11 12 13

See infra, 1.4. See Steinauer, no. 1015 et seq.; Schmid / Hürlimann-Kaup, no. 659 et seq. See infra, 2.1.4.

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– action against disturbance (actio negatoria), Sect. 641.2 SCC. This action may be brought by the owner against the person who disturbs the ownership of the claimant. In order for the action to be granted, the alleged disturbance must be unlawful (in the sense that a disturbance that is authorized either by law or by the owner is not unlawful) and must be either present or imminent. Aim of the action is either to stop the disturbance or to prevent imminent disturbance from happening. There is no time-limit to bring this action. – action to ascertain the ownership. This action is not grounded on the Swiss civil code but on case law: the courts recognize that an owner whose ownership is contested or uncertain may in principle bring action against the third party who contests his property or who otherwise renders uncertain the owner’s right.14 The actions for recovery and against disturbance belong to the area of property law. The action to ascertain the ownership has a more general character, as such actions to lift uncertainties pertaining to a right may be brought by the beneficiary of any right. In addition. Swiss law offers various additional and specific actions protecting rights in rem such as, for instance, the actio confessoria (action protecting the beneficiary of a servitude against the person who disturbs the enjoyment of the servitude; Sect. 737.1 SCC).

1.4.2. Further remedies Ownership and other rights in rem are protected by several other actions, such as an action for tort (Sect. 41 et seq. of the Swiss Code of obligations;15 SCO) and an action for unjustified enrichment (Sect. 62 et seq. SCO). There are also specific actions based on inheritance law (Sect. 598 et seq. SCC) and on debt collecting and bankruptcy law (Sect. 106 et seq. and 242 of the Federal law on debt collecting and bankruptcy;16 SDCB). In addition, specific actions inure to the possessor (Sect. 927 and 928 SCC), or to the possessor of a movable (Sect. 934 and 936 SCC); in the case of immovables, specific actions based on the land register system inure to the holder of a right in rem (Sect. 937.1 and 975 SCC). The actions for tort and for unjustified enrichment do not follow the right in rem; they are a remedy compensating a financial loss and constitute 14 15

16

See for instance ATF 84 III 16. Federal law completing the Swiss civil code (5th part: Law of obligations), of March 30, 1911. Federal law on debt collection and bankruptcy proceedings, of April 11, 1889.

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only indirectly a protection of rights in rem. The action provided by Sect. 598 et seq. SCC inures to the heir and does not follow the right in rem. Actions based on possession do not follow the right in rem either, as they aim to protect possession as such. On the other hand, actions based on the land register system (Sect. 937.1 and 975 SCC) and on debt collection and bankruptcy law (Sect. 106 et seq. and 242 SDCB) follow in principle the right in rem. Some actions aim to ensure recovery (Sect. 598, 641, 927, 934, 936 and 937.1 SCC, Sect. 106 and 242 SDCB) while some others aim at stopping disturbances, or at preventing imminent disturbances (Sect. 641.2, 928 and 937.1 SCC). A third group allows financial compensation (Sect. 41 and 62 SCO), while the action based on Sect. 975 SCC concerns the registering or de-registering of rights in the land register. The action to ascertain ownership and in some cases the action based on Sect. 937.1 SCC aim to ascertain the existence of the right in rem.

1.5.

Transferability of movables; accessories

The main limitations or restrictions concerning the transferability of movables under Swiss law are the following. Movables belonging to the various state entities (Federal government and its agencies, cantonal governments and their agencies, municipalities) are deemed to be “public things” (res publicae) and are subject to public law if they are used by the state entity in order to accomplish its tasks (furniture, computers, weapons used by the armed forces, etc.). As such, they are in principle not transferable.17 In addition, Federal law limits the commerce of certain things that, as such, are subject to private law (for instance, drugs,18 cultural property,19 human organs,20 etc.). Last, according to Sect. 6.2 SCC, Cantons may – by adopting cantonal public law – limit or prohibit the commerce in certain movables. They have done so, for instance, to protect rare plants.21 17

18

19

20

21

See for instance Meier-Hayoz, Systematischer Teil, no. 198 et seq.; Rey, no. 183 et seq. Federal law on narcotics and psychoactive drugs, of October 3, 1951; SCFL no. 812.121. See for instance Sect. 724.1bis SCC and the Federal law on the international transfer of cultural property (LITCP), of June 20, 2003. See Sect. 7 of the Federal law on organ, organic tissue and cell transplantation, of October 8, 2004; SCFL no. 810.21. See Steinauer, no. 75a; Rey, no. 195.

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The agreement to limit the transferability of a movable only produces contractual (inter partes) effects (privity of contract). However, certain contractual agreements over immovables (such as preemption rights, for instance) may be registered with the land register, thus gaining preference over rights acquired thereafter on the immovable (Sect. 959.2 SCC). Accessories are governed by Sect. 644 and 645 SCC, which do not limit nor prohibit the transferability of such assets. Sect. 644.1 SCC merely provides that when the owner of an immovable or a movable disposes of his asset, he is deemed to dispose of its accessories as well, unless otherwise agreed by the parties. In other words, Sect. 644.1 SCC constitutes a legal presumption that the disposing of movable includes the disposing of its accessories.22

2.

Possession

2.1.

Notion and forms of possession

2.1.1. Notion Section 919.1 SCC provides that the person who has the effective control over an object is its possessor. Possession is a de facto relationship; a person having effective control over an object is its possessor even if he has no right over the object or no right to possess the object.

2.1.2. Elements It is usually accepted that, under Swiss law, possession is composed of two elements: a factual control and the intent to exercise such control.23 It is also accepted that these requirements are not stringent. On the one hand, the control need not be physical and can result from the circumstances (such as, for instance, the behaviour of the possessor, who asserts that the object remains in his sphere of influence even though it is in the hands of a third party).24 And, the intent to possess need not be intense or very specific: a general intent to possess is sufficient;25 such intent to possess does not require legal capacity, only capacity to consent (Sect. 16 SCC).26 22 23 24 25 26

Steinauer, no. 1103; Schmid / Hürlimann-Kaup, no. 707 et seq. See for instance Steinauer, no. 178 et seq.; Schmid / Hürlimann-Kaup, no. 96 et seq. Steinauer, no. 181 et seq. Steinauer, no. 188; Stark, no 28 ad Sect. 919 SCC. Steinauer, no. 189.

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It should be noted, however, that in some specific cases, possession exists notwithstanding the fact that one or both of its elements are lacking.27 For instance, Sect. 560.2 CC provides that a heir is in possession of the assets that were in the possession of the deceased; this is so even if the heir has no control (yet) over the estate and is perhaps even unaware of the decease (thus lacking also the intent to possess).

2.1.3. Detention In Swiss law, “detention” is a term used in the area of civil liability (e.g.: liability for the detention of a motor vehicle).

2.1.4. Forms of possession The following forms of possession are recognized under Swiss law: – direct possession and indirect possession: the direct possessor possesses the asset without an intermediary, whereas the indirect possessor possesses it through an intermediary, the direct possessor;28 for instance, a lessor typically has indirect possession of the leased object, while the lessee normally enjoys direct possession over it; – originary possession and derivative possession: according to Sect. 920.2 SCC, those who possess as owners are originary possessors, the other ones have derivative possession. It is not necessary for the possessor to actually be the owner of an object to be its originary possessor; it suffices that he behaves as such, for instance by lending the object to a third party.29 E.g.: a thief has (as a rule of thumb) immediate possession of the stolen item; if he leases the item to a third party, the latter becomes its derivative and direct possessor, while the thief retains the indirect and originary possession; – co-possession and common possession: two persons can be jointly possessors of the same object. If each of them can exercise his possession individually (for instance, they both have the keys to operate the car they possess jointly), they are deemed to be co-possessors;30 if neither of them can exercise possession individually (each of them has one of the two necessary keys), they are deemed to be common possessors;31 27 28 29 30 31

See Steinauer, no. 199 et seq.; Schmid / Hürlimann-Kaup, no. 100 et seq. Steinauer, no. 214; Schmid / Hürlimann-Kaup, no. 112 et seq. Steinauer, no. 221a; Schmid / Hürlimann-Kaup, no. 109 et seq. Steinauer, no. 229; Schmid / Hürlimann-Kaup, no. 116 et seq. Steinauer, no. 232 et seq.; Schmid / Hürlimann-Kaup, no. 117a.

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– legitimate possession and illegitimate possession: possession is called legitimate when the possessor has a right to possess the asset; illegitimate is the possession of the possessor who has no such right to possess the asset.32

2.1.5. “Agent in possession” Swiss law also recognizes the notion of “agent in possession” (or “servant in possession”): this is the situation of a person having material control over a thing, but who exercises such control in a subordinate way, according to the instructions and on behalf of another person, the possessor.33 The agent in possession is not a possessor.

2.1.6. Particulars An employee typically is an “agent in possession”, and not a possessor of the items entrusted to him by his employer.34 A lessee has in principle direct and derivative possession of the e.g. leased car (the lessor being its indirect and originary possessor).35 If the lessee sub-leases the car, he retains indirect possession and is an originary possessor in his relation with the sub-lessee. A custodian is a derivative and direct possessor or an “agent in possession”, depending on the extent of leeway he enjoys in exercising the material control over the object. A garage keeper would typically be considered a direct and derivative possessor (the other party being an originary and indirect possessor), as he can make independent decisions concerning the car while it is under his control (where to park it, how to repair it, etc.). Family members allowed to use movable property are either (derivative and direct) possessors of such movable (in which case they enjoy co-possession with the family member who is its owner and who enjoys originary and direct possession) or “agent in possession”, depending on the degree of independence allowed to them by the possessor while exercising control over the movable. The pledgee enjoys direct and derivative possession over the pledged asset, while the pledgor is their originary and indirect possessor.

32 33 34 35

Steinauer, no. 238. Steinauer, no. 203; Stark, no 34 et seq. ad Sect. 919 SCC. Steinauer, no. 205; Stark no. 35 and no. 46 ad Sect. 919 SCC. Steinauer, no. 219.

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2.1.7. Role of these distinctions These distinctions play a role in the application of the rules concerning the transfer of possession (as, for instance, a derivative possessor is not in a position to transfer an originary possession), concerning the protection of possession (such protection not being granted to the “agent in possession”, who may however, according to most authors, exercise the right to self-help on behalf of the possessor),36 concerning the liability linked with possession (such liability being imposed on the illegitimate possessor),37 and concerning the acquisition by prescription (acquisition of ownership by prescription requiring that the acquirer possess the object as owner, and not as derivative possessor).38

2.1.8. Intensity of the relationship between a possessor and the object Swiss law does not require a particular degree of intensity of the relationship between a possessor and the object being possessed. In particular, the requirements for acquiring possession are in this respect not stricter than the ones for keeping it. The following qualifications may be added: – physical control is not necessary to transfer possession or to maintain possession, but it is usually required in the case of unilateral acquisitions of possession (e.g.: theft, acquisition of a res nullius, etc.); – Sect. 921 SCC provides that possession is not lost when its exercise is impeded or interrupted for reasons that are of a temporary nature; in other words, possession may be maintained even when physical control is lost, provided this interruption is due to temporary reasons. The person who hangs a coat in a public wardrobe remains its possessor; it results from the circumstances that the coat is not abandoned and this ‘loose’ physical control is sufficient to maintain the possession.39 Swiss law does not require “complete capture”. However, a degree of physical control is necessary; it is accepted that possession of a wild animal is acquired when it is caught in a pitfall, in a net, or when it is being brought back by the hunter’s dog.40 36 37 38 39 40

See infra, footnote no. 74. Sect. 938-940 SCC. Steinauer, no. 2111b; Rey, no. 1999 et seq. Steinauer, no. 180. Scherrer, no. 27 ad Sect. 718-719 SCC.

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The transfer need not be “complete”. Swiss law recognizes various forms of transfer of possession that operate without transfer of physical control, such as longa manu traditio41 and constitutum possessorium.42

2.1.9. Possession of rights According to Sect. 919.2 SCC, effective exercise of servitudes and land charges establishes the possession of such rights. In other words, Swiss law recognizes the concept of possession of rights, but restricts such possession to servitudes and land charges.43

2.2.

Functions of possession

Possession is a de facto relationship, to which the law attaches legal consequences. It is the means of publicity over movables: it renders public the rights in rem over movables. The other main functions of possession are to produce:44 – a protective effect, possession being protected as such by the Swiss civil code through specific legal actions as well as through a right to self-help (Sect. 926-929 SCC); – a legitimation effect, in the sense that the possessor of a movable is entitled to (rebuttable) presumptions (of the existence of his right, etc.; Sect. 930-932 SCC); – a defensive effect, in the sense that the former possessor is entitled to two specific legal actions (Sect. 934 and 936 SCC); – a translative effect, in the sense that the transfer of possession is (in principle) a requirement of the transfer of ownership over a movable (Sect. 714.1 SCC) and of the creation of a right in rem over a movable (Sect. 746.1, 884.3, 900.1, 901.1 and 909 SCC); – a protective effect in favour of a bona fide acquirer of a right in rem over a movable, since upon certain conditions the bona fide acquirer is protected in his acquisition, even though the alienor had no authority to effect the transfer – provided the alienor was in possession of a movable entrusted to him or was in possession of a movable whose previous possessor had been dispossessed against his will more than five 41 42 43

44

Sect. 922.2 SCC; see infra, 2.3.2. Sect. 924.1 SCC; see infra, 2.3.2. Steinauer, no. 193 et seq. Some authors propose to extend the possession of rights to claims as well as to intellectual property rights; see for instance Stark, no. 69 et seq. ad Sect. 919 SCC. See for instance Hinderling, p. 406 et seq.

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years (30 years in the case of cultural property) before the alienation (Sect. 933, 934, 935, 714.2 and 884.2 SCC); – a generative effect, as possession, when it is illegitimate, is a source of liability for the possessor (Sect. 938-940 SCC); – last, possession is a requirement of various forms of acquisition of rights in rem, such as occupation (Sect. 658 and 718 SCC) and acquisition by prescription (Sect. 661, 662, 728 and 941 SCC).

2.3.

Acquisition of possession

2.3.1. Originary and derivative acquisition Swiss law recognizes two main forms of acquisition of possession: originary acquisition (where possession is acquired unilaterally, without the intervention of the previous possessor), and derivative acquisition (where possession is transferred by the previous possessor to the acquirer).45 Originary acquisition of possession is not governed by a specific provision of the law; it is generally accepted that possession is acquired when the acquirer asserts direct physical control over the object, with the intent to become its possessor.46

2.3.2. Forms of derivative acquisition Swiss law recognizes the following forms of transfer of possession (derivative acquisition): – transfer by delivery, where the object whose possession is to be transferred is delivered to the transferee or where the means to exert control over it (keys, etc.) are delivered to the transferee (Sect. 922.1 SCC);47 – transfer of open possession (longa manu traditio), where possession of an object that is freely accessible (e.g.: a horse in a field) is transferred by mere agreement between the parties (without actually handing over the object) (Sect. 922.2 SCC);48 – delegation of possession, where the transferor transfers to the acquirer his indirect possession of an object that is in the direct possession of a third party (e.g.: the car whose possession is transferred is being repaired in a workshop) (Sect. 924 SCC);49 45 46 47 48

Steinauer, no. 241; Schmid / Hürlimann-Kaup, no. 127 et seq. Steinauer, no. 243 et seq.; Schmid / Hürlimann-Kaup, no. 133 et seq. See Steinauer, no. 251 et seq.; Schmid / Hürlimann-Kaup, no. 143 et seq. See Steinauer, no. 264 et seq.; Schmid / Hürlimann-Kaup, no. 151 et seq.

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– constitutum possessorium, where the transferor transfers indirect and originary possession to the transferee while retaining the direct possession of the movable and becoming its derivative possessor (e.g.: a soloist who sells and transfers the possession of his musical instrument to a bank, while agreeing with the bank that he will be allowed to continue to play the instrument by virtue of a lease or other agreement) (Sect. 924.1 SCC);50 – brevi manu traditio, where the transferee is already in possession of the movable, being its derivative (and direct, in principle) possessor, and the originary (and indirect) possessor transfers his possession to the transferee (e.g.: the lender of a book agrees with the borrower that the latter will not return the book and may keep it as its new owner); this form of transfer is not governed by the Swiss civil code, being considered self-evident;51 – transfer by delivery of documents of title to goods (which have been entrusted to a carrier or deposited with a warehouseman), where the delivery of such documents is deemed to transfer possession of the goods themselves (Sect. 925 SCC). 49

With the exception of the first and last forms of transfers just mentioned (transfer by delivery, transfer by delivery of documents of title), these forms of transfer do not involve the delivery of the movable whose possession is being transferred; such delivery is replaced by an agreement between the parties, which requires legal capacity.52 Moreover, it should be noted that, according to Sect. 717.1 SCC, if, in order to transfer ownership of a movable, the parties transfer its possession by means of a constitutum possessorium, the transfer of title will not be enforceable against third parties, if the transferor’s and the transferee’s intention was to prejudice such third parties or to circumvent the specific requirements concerning the creation of a pledge.53 In other words, the transfer of ownership of a movable by means of a constitutum possessorium, although valid, is unenforceable against third parties if such intent is underlying. Last, one should point out that Sect. 884.3 SCC provides that a pledge is not validly created if the pledgor retains exclusive (direct) possession of the movable. Accordingly, a transfer of possession by constitutum possessorium (where the pledgor would keep direct possession over the pledged item) is for instance not sufficient to create a pledge over a movable.54 49 50 51 52 53

See Steinauer, no. 271 et seq.; Schmid / Hürlimann-Kaup, no. 163 et seq. See Steinauer, no. 281 et seq.; Schmid / Hürlimann-Kaup, no. 178 et seq. See Steinauer, no. 288 et seq.; Schmid / Hürlimann-Kaup, no. 158 et seq. See Steinauer, no. 269; Schmid / Hürlimann-Kaup, no. 155. See Sect. 884.3 SCC, commented in the next paragraph.

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Possessory actions54

2.4.1. Introduction The Swiss civil code provides the possessor a right to self-help55 as well as two specific legal actions protecting possession as such (“possessory” actions); in addition, Sect. 934 and 936 SCC provide two actions for the former possessor, based on his “better right” to possession.56 The two possessory actions are: – the action in case of unlawful usurpation (Sect. 927 SCC), which may be brought by the former possessor (be he a legitimate or illegitimate possessor, and whether his possession was direct or indirect, originary or derivative) against the author of the usurpation57 (as well as, according to some authors, against the universal successor of such author and his singular successor in bad faith);58 – the action against unlawful disturbance (Sect. 928 SCC), which may be brought by the possessor (be he a legitimate or illegitimate possessor, and whether his possession is direct or indirect, originary or derivative), against the author of the disturbance to the possession.59

2.4.2. Time limitations Both possessory actions are subject to time limitations: they must be brought “immediately” after the claimant has become aware of the usurpation (or of the disturbance) and of the identity of the author, and in any case no later than one year after the date of the usurpation or of the disturbance (Sect. 929 SCC). The actions being of a possessory nature, they involve no examination of the material legal situation; the authority of the judicial decisions rendered is limited to the possessory issues.60 As an exception, Sect. 927.2 SCC provides that restitution will not be ordered if the defendant can immediately prove he is the beneficiary of a better right to the movable.

54

55 56 57 58 59 60

See for example: Bauer, no. 74 ad Sect. 884 SCC; Schmid / Hürlimann-Kaup, no. 189. See infra, 2.5. See infra, 2.4. Steinauer, no. 339 et seq.; Schmid / Hürlimann-Kaup, no. 233 et seq. See for instance Steinauer, no. 341a; Stark no. 4 et seq. ad Sect. 927 SCC. Steinauer, no. 362 et seq.; Schmid / Hürlimann-Kaup, no. 239 et seq. Steinauer, no. 360 and no. 378.

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2.4.3. Summary proceedings The law of civil proceeding is left to the Cantons; most of them submit the possessory actions to the rules governing summary proceedings.61

2.4.4. Aim of the actions The aim of the action in case of unlawful usurpation is the recovery of the possession of the usurped item and the payment of damages; the aim of the action against disturbance is to stop the disturbance (or to prevent imminent disturbance), as well as to obtain the payment of damages.

2.4.5. Actions based on a “better right” to possession The Swiss civil code provides two specific legal actions to the former possessor of a movable, based on the assumption that he has a “better right” to possession than the present possessor (whether he actually is the beneficiary of a right to possess the movable at stake or not): – the action of the former possessor whose movable has been stolen or lost or who has otherwise been dispossessed of it against his will, who may claim recovery against the present possessor (be he in good faith or in bad faith) and who will prevail unless the present possessor can establish that he is the beneficiary of a “better right” (the movable was previously stolen, etc.);62 this action may be brought within five years of the dispossession63 (30 years in case the movable is cultural property);64 – the action of the former possessor of a movable against the acquirer in bad faith, which may be brought at any time;65 restitution will be ordered unless the defendant establishes he is the beneficiary of a “better right” or unless he establishes that the claimant is himself an acquirer in bad faith.66

61 62 63 64

65 66

Steinauer, no. 359 and no. 378; Stark, Vorbemerkungen Besitzesschutz, no. 106. Sect. 934 SCC. See Steinauer, no. 457 et seq. Sect. 934.1 SCC. Sect. 934.1bis SCC, which provides that the action must however be brought within a year after the owner becomes aware of the location of the movable and of the identity of its possessor. Sect. 936.1 SCC. Steinauer, no. 475 et seq.; Schmid/Hürlimann-Kaup, no. 313 et seq. Sect. 936.2 SCC.

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Self-help

2.5.1. Forms of self-help Sect. 926 SCC grants two forms of self-help to the possessor: – a right of self-defense, to prevent an unlawful usurpation or an unlawful disturbance (Sect. 926.1 SCC);67 – a right of immediate recovery, in case the possessor is being dispossessed (or has just been dispossessed) by force or secretly (Sect. 926.2 SCC).68

2.5.2. Requirements Both forms of self-help constitute extrajudicial protection of the possession, granted to the possessor in order to enhance public tranquility;69 in other words, they may be exercised without prior recourse to the public authorities. On the other hand, they must be exercised without recourse to force that is not justified by the circumstances (Sect. 926.3 SCC). They are subject to the requirement that the usurpation or the disturbance be unlawful (in the sense that their perpetration is not authorized either by law or by the possessor).70 In addition, the right of recovery must be exercised immediately, that is, by expelling the trespasser right away or (in case of a movable and as Sect. 926.2 SCC states) by taking the movable back from the perpetrator caught in flagrante delicto or stopped in his flight. The requirement that the dispossession be by force or secret is interpreted rather loosely in the literature.71 These rights of self-help may be exercised by the possessor, be he a legitimate or illegitimate possessor, and whether his possession is direct or indirect, originary or derivative;72 most authors consider that the “agent in possession”73 may also exercise these rights on behalf of the possessor.74

67 68 69 70 71 72 73 74

See Steinauer, no. 316 et seq. and no. 331 et seq. See Steinauer, no. 316 et seq. and no. 334 et seq. Steinauer, no. 313; Stark, Vorbemerkungen Besitzesschutz, no. 2. Steinauer, no. 326; Schmid / Hürlimann-Kaup, no. 220. See for instance Steinauer, no. 336; Stark, no. 13 et seq. ad Sect. 926 SCC. Steinauer, no. 318 et seq. See supra, 2.1.5. See for instance Steinauer, no. 206 and no. 318a; Stark, Vorbemerkungen ad Sect. 926-929 SCC, no. 87; Hinderling, p. 422; etc.

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The rights of self-help are directed against the perpetrator.75 These rights of self-help are based on a specific provision of the Swiss civil code, Sect. 926 SCC, which is part of the rules of the code devoted to possession (Sect. 919-941 SCC).

3.

Rights to hold, use or acquire a movable

Apart from ownership, Swiss law recognizes only two categories of rights in rem over movables: the usufruct (see Sect. 745.1 SCC) and various forms of security interests (pledge, pawn, mortgage, etc.).76 Other rights over a movable (such as preemption rights, for instance) provide only an obligatory right to their beneficiary. The lease of a movable is not a right in rem under Swiss law. It is governed by Sect. 253 et seq. SCO and provides solely a personal (or relative) right to the lessee. It does not make a difference whether the leased property was acquired for value or not by the lessor. Sect. 256.1 SCO provides that the lessor must deliver the leased item to the lessee; the law does not require however that the lessee obtain physical control of the object (although this would normally be the case), as the lessee may for instance himself sublease to a third party the item leased to him.77 The lessee enjoys various protections based on the contract.78 These protections are of a personal nature and enforceable only inter partes; however, the law provides a specific protection to the lessee in Sect. 261 SCO. This provides that if the lessor transfers title (to the leased item) or loses his title (thereto) in bankruptcy or other debt collection proceedings, the lessor is replaced by operation of law by the acquirer as a party to the lease agreement. As far as can be determined, the issue whether the movable is kept in his own interest by the lessee is moot under Swiss law; it should be noted however that if the lessee ceases to accept that he only has derivative possession of the leased item, the originary possession of the lessor extinguishes.79 The right of pre-emption, option to buy, etc., also provide only a personal right to their beneficiary.

75

76 77 78 79

Steinauer, no. 319. Some restrictions apply when the perpetrator is himself a possessor of the object in dispute, see Steinauer, no. 329 et seq. See supra, 1.3. See Sect. 262 SCO. See Sect. 259a et seq. SCO. See Steinauer, no. 224.

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Under Swiss law, the buyer under reservation of title is the beneficiary of a personal right towards the transferor, who remains the owner of the movable until complete performance by the acquirer.80 Indirect representation does not provide ownership to the principal of the movable acquired by the agent. It is the agent who becomes the owner of the item so acquired: the principal acquires ownership only when the agent in his turn transfers the title to him.81 However, if the seller is unaware that his contracting party is an indirect agent and if the identity of the purchaser is indifferent to him, then the principal acquires ownership directly from the seller.82

4.

Field of application and definitions

4.1.

Field of application

The rules of the Swiss civil code on the transfer of movables apply to movables in the sense of Sect. 713 SCC, i.e. objects that can be moved from one location to another as well as energy83 that has been stored in a device. They do not govern the transfer of immovables,84 of claims85 or of intellectual property rights.86 They apply to a limited extent to the transfer of company shares or other negotiable instruments.87 In addition, it should be noted that ad hoc registers are kept for aircrafts88 and ships,89 with the consequence that these movables are not subject to Sect. 713 et seq. SCC, but follow a specific regimen similar to the one concerning immovables.90

80 81 82 83 84 85 86

87 88 89 90

See Steinauer, no. 2046. See also Rey, no. 1739 et seq. See for instance von Planta, no. 2 ad Sect. 434 SCO. See von Planta, no. 3 ad Sect. 434 SCO. Literally: “forces of nature that do not constitute immovable property”. See Sect. 656 et seq. SCC. See Sect. 164 et seq. SCO. See for instance Sect. 33 of the Federal law on patents, of June 25, 1954; SCFL no. 232.14. See for instance Sect. 683 et seq. and 967 et seq. SCO; Steinauer, no. 1983 et seq. Federal law on the aircrafts register, mentioned supra, footnote no. 9. Federal law on the ships register (LSR), of September 28, 1923. Steinauer, no. 1980 et seq.

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4.2.

Definitions

Movables are defined in Sect. 713.1 SCC as objects that can be moved from one location to another as well as energy. This definition includes electricity, if it is stored; it also includes liquids and gases, if they are contained in a movable. Money in the form of banknotes and coins is also included in the definition of movables. According to Sect. 641a.1 SCC, animals are not objects. Sect. 641a.2 SCC provides however that rules governing objects apply to animals, save where special provisions have been enacted for animals. In other words, animals are not movables; but the provisions governing the movables may be applied to them, in supplement to certain specific rules governing animals provided by the Swiss civil code (inter alia Sect. 641a, 651a, 720a, 722.1bis, 722.1ter and 728.1bis SCC). Movables that are cultural property are governed by specific rules (Sect. 724, 728.1ter and 934.1bis SCC91), in addition to the ordinary provisions applying to movables (Sect. 713 et seq. SCC). Aircrafts and ships for which ad hoc registers are kept are not governed by Sect. 713 et seq. SCC, but by specific rules.92 They follow (although they are movables) a specific regimen similar to the one concerning immovables.93 Intangibles are considered movables in the sense of Sect. 713 SCC, only if they are represented by a negotiable instrument. Negotiable instruments form a special category of movable property. Although they are movables in the sense of Sect. 713 SCC, they are subject to specific provisions94 that leave little room for the application of the ordinary rules governing movable property.95

91

92 93 94 95

See also the Federal law on the international transfer of cultural property (LITCP). See footnotes no. 88 and no. 89. See footnotes no. 88 and no. 89. See for instance Sect. 965 et seq. SCO. Steinauer, no. 1983 et seq.

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Part II: Transfer of ownership from the owner to the transferee (derivative acquisition) 5.

System of transfer

5.1.

Basic characteristics; overview

5.1.1. Moment of transfer The various aspects linked to the right of ownership pass to the transferee in one single moment in time depending on the following cases: – Where the transfer is based on a contract or on a unilateral promise: ownership passes upon transfer of possession.96 – Where the transfer is based on the law of successions: ownership passes upon death of the de cujus to the community of legal or instituted heirs.97 Ownership passes upon transfer of possession in case of legacy,98 as the beneficiary of the legacy has only a claim against the legal or instituted heirs. – Where the transfer is based on changes in matrimonial statutes, merger or transformation of companies, ownership passes at the moment of the change, irrespective of the transfer of possession.99 – Where the transfer is based on auction sales (be it execution auction sales or optional auctions sales), ownership passes upon fall of the hammer.100

96 97 98 99 100

Sect. 714.1 SCC; ATF 93 II 373; Rey, no. 1688. Steinauer, no. 263. Sect. 484 and 562 SCC. Steinauer, no. 2007. Sect. 235 SCO.

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5.1.2. Cause of the transfer of ownership and “real agreement” The transfer of ownership of movables is causal101 (i.e. based on a valid contract or another cause) and requires (subject to the above mentioned exceptions) a transfer of possession.102 The transfer of possession is to be based on valid consent of the parties to transfer the ownership, respectively to acquire the ownership.103 This valid consent is considered a “real agreement”. The Swiss literature makes a distinction between the cause of the transfer, the “real agreement”, and the transfer of possession itself.104 This conception is however controversial. According to some authors, the “real agreement” is a mere aspect of the transfer of possession,105 or even considered unnecessary.106

5.1.3. Retention of title As a rule, payment is not a condition to the transfer of ownership. The parties to the contract may however agree on a retention of title, whereby the transferor retains ownership of the movable until full payment. A retention of title agreement is to be registered in a special register at the domicile of the acquiring party.107 In the absence of such a registration, the retention of title has no effect on the passing of ownership.108 The fact that the transferee disposes of the movable prior to the registration of an agreed retention of title clause may however be considered a criminal offence.109

5.2.

General issues

5.2.1. Identification of goods for the purpose of passing of risks Where the contract deals with an obligation to transfer generic goods, identification of goods is expressly required for the passing of risks.110 Switzer101 102 103 104 105 106 107 108 109 110

ATF 78 II 207; ATF 84 III 141; ATF 96 II 145; Rey, no. 1735. Sect. 714.1 SCC; ATF 93 II 373. ATF 85 II 97; Steinauer, no. 2014; Rey, no. 1705. Steinauer, no. 2014; Foëx, p. 159; Tuor / Schnyder / Schmid / Rumo-Jungo, p. 997. Haab / Simonius, no. 40 ad Sect. 714 SCC. Isolated opinion: Piotet, p. 17 et seq. Sect. 715 SCC. ATF 110 II 173. ATF 106 IV 254. Sect. 185.2 SCO.

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land is also party to the CISG.111 Under the CISG, identification of goods whether by marking on the goods, by shipping documents, or by notice given to the buyer, is a condition for the passing of risks.112

5.2.2. Identification of goods for the purpose of transferring possession Identification of goods is also an implied condition for the passing of ownership, since the passing of ownership is based on a transfer of possession, and the transfer of possession cannot take place so long as the goods are not identified. According to the principle of speciality, property rights are in reference to determined goods.113 This principle of Swiss law would also exclude a transfer of ownership prior to identification of goods for the purpose of performance of a contract on generic goods.

5.2.3. Modalities of identification The transferor (obligor) has the right to identify the goods to be transferred, except if otherwise agreed by the parties. This agreement can be expressed or implied.114 In the context of a sale, the seller has the unilateral right to select the goods. Buyer’s approval is not a condition for a valid identification of goods.115 All and any criterions of description of the generic goods used by the parties are to be met for the selected goods,116 and the transferor (obligor) cannot select goods below average qualities.117 In the event the selected goods do not meet the criteria agreed by the parties, then the obligee can avail itself of the rules of Swiss law dealing with non-performance.118 In the event the selected goods are below average quality, then the obligee can avail itself of the rules of Swiss law dealing with defective products.119 111

112 113 114 115 116 117 118

United Nations convention on contracts for the international sale of goods of April 11, 1980. Sect. 67.2 and 69.3 CISG. ATF 112 II 406; Steinauer, no. 139; Rey, no. 333. See also above, 1.1.2. Sect. 71 SCO. ATF 84 II 158. ATF 121 III 453. Sect. 71.2 SCO. ATF 121 III 453. By contrast, under the CISG, the buyer may rely on the rules dealing with defective products (Sect. 35 CISG).

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5.2.4.119 Relation between party autonomy and transfer of possession The principle of party autonomy is a central idea for the rules on transfer of ownership in the sense that the transfer is causal and the cause is usually an agreement between the parties. However, the Swiss system is not consensual, and the mere agreement between the parties would not suffice for the passing of ownership, if transfer of possession does not take place.120 With respect to the cause of the transfer, the basic principle of Swiss law is the freedom of contract.121 By contrast, the modalities of a transfer of possession are provided by statutory laws.122

5.2.5. Postponing the time of transfer As a rule, ownership passes upon transfer of possession. The parties can postpone the time of transfer of ownership to a latter time by: – A retention of title clause, provided this clause is registered in a special register at the transferee’s domicile.123 The condition that a retention of title clause be registered in a special register at the transferee’s domicile is required in order to protect third parties from an apparent transfer of ownership that would not correspond to the agreement made by the parties.124 – A condition precedent, whereby the cause of the transfer (the contract) does not enter into force prior to the occurrence of a certain condition. In that case, the transfer of ownership does not take place prior to the occurrence of the condition.125 As long as the condition is pending, the obligor is not allowed to do anything to impair the proper fulfilment of his obligation, and the beneficiary of the conditional obligation is entitled to ask for protective measures to be ordered by the courts, in case his rights are jeopardised.126 The possession of the movable can be transferred to the transferee prior to the occurrence of the condition. In that case, however, the transferee does not acquire ownership over the goods as long as the condition has not taken place and is to return the movable if the condition does not take place. If the movable was deliv119 120 121 122 123 124 125 126

Sect. 197.2 SCO Sect. 714.1 SCC. Sect. 19 SCO. Below, 5.4. Sect. 715 SCC. ATF 93 III 96; ATF 96 II 161. Sect. 151.2 SCO. Sect. 152.1 and 152.2 SCO.

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ered to the obligee before the occurrence of the condition, the obligee is entitled to keep any benefit he enjoyed in the meantime should the condition be fulfilled. By contrast, he must restore what he has gained if the condition does not occur.127 Restitution of benefits takes place on the basis of the Swiss rules on unjustified enrichment.128

5.3.

Cause of the transfer

5.3.1. Admissible cause All contracts whereby a party agrees to transfer ownership to the other party is admissible as a valid cause of transfer.129 There is no limitation with respect to the admissible type of contracts, provided however the contract remains within the general limits of contractual freedom (i.e. the content of the contract is legal, the contract does not contravene bonos mores, and the performance of the contract is not impossible).130 Donations / gifts are treated like other contracts with respect to transfer of title.131 Unilateral promises (such as a public offer of prizes or rewards)132 are recognized as a valid cause for a transfer of ownership, and such transfer is not subject to specific rules. The transfer of possession is however to be accepted by the transferee (“real agreement”). The cause of the transfer of ownership may be a court order. Even in this case, the transfer of ownership takes place upon transfer of possession.133 There is an exception to this principle with respect to court decisions dealing with sharing of common ownership, which takes place upon final judgement.134

5.3.2. Void contract, avoided contract The ownership of the movable does not pass to the transferee in situations where the cause of the transfer is:

127 128 129 130 131 132 133 134

Sect. 153 SCO. ATF 129 III 264. Steinauer, no. 2010; Rey, no. 1689. Sect. 20 SCO. ATF 86 II 221; ATF 85 II 97. Sect. 8 SCO. Zobl, no. 29 ad Sect. 729 SCC. Steinauer, no. 2125.

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– A void contract. Contracts that refer to impossibility, have illegal consent, or violate bonos mores, are void.135 – A contract concluded by a party who had no capacity to enter into the contract, unless the legal representative of this party ratifies said contract.136 – An avoided contract. A contract can be avoided in case of mistake, deception, duress, or overreaching. The avoidance of contract has a retroactive effect (ex tunc).137 However, with respect to long term contracts having been partially performed by the parties, avoidance without retroactive effect (ex nunc) can be ordered by the court if restitution is not practicable.138 – A terminated contract, if a party to the contract became insolvent and was not able to secure the performance of the contract.139 In that case, movables delivered on the basis of the contract are to be returned.140 The legal nature of the transferor’s right to have the movable returned (based on contract or on ownership) is controversial under Swiss law.141 However, the better position is that rules dealing with terminated contracts in case of non-payment or defective products142 should apply by analogy.

5.3.3. Terminated contract in case of non-payment or defective products Termination of contract in case of non payment (debtor’s default)143 or delivery of defective products144 does not impair the transfer of ownership to the transferee. The transferor is entitled to have the delivered movable returned, but this right is of contractual nature.145 Practically speaking, it means that the right of the transferor to claim restitution of the movable is time barred ten years after termination. The ten-year statute of limitation is the ordinary statute of limitation for contractual claims under Swiss law.146 135 136 137 138 139 140 141 142 143 144 145

Sect. 20 SCO; ATF 74 II 62; ATF 83 II 284. Sect. 19 SCO; ATF 117 II 18. ATF 83 II 18. ATF 129 III 320. Sect. 83 SCO. ATF 114 II 152. Schraner, no. 51 ad Sect. 83 SCO. Below, 5.3.3. Sect. 107 SCO. Sect. 205 and 368 SCO. ATF 126 III 119; ATF 123 III 16; ATF 114 II 152; Thévenoz, no. 36 ad Sect. 107 SCO and no. 6 ad Sect. 109 SCO; Venturi, no. 9 ad Sect. 205 SCO.

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In addition, the transferor does not benefit from legal protection linked to ownership as long as the movable is not returned to him. A condition subsequent (or “resolutive condition”) has no retroactive effect, except as otherwise agreed by the parties.147 While this case has never been decided by the Swiss courts, it is generally considered that an agreed retroactive effect of the condition means that the ownership over the delivered goods returns to the transferor upon occurrence of the condition.148 This point of view seems, however, to be in contradiction to the rule dealing with retention of title clauses.149 It would not be acceptable that transfer of ownership of the movable be subject to the condition subsequent that the price be paid, while this condition subsequent would not be registered in the Swiss register of retention of title as provided for by Sect. 715 SCC. Therefore, the better position is that the transferor would only have a contractual right to the return of the movable, as is the case where the contract is terminated due to the debtor’s default150 or a defective product.151 146

5.3.4. Trusts and similar The purpose of the contract whereby the ownership was transferred has no influence on the above mentioned principles. The fact that the ownership of the goods was transferred in a fiduciary capacity for administration purposes or for security purposes is not relevant with respect to the passing of ownership.152 The Swiss Supreme Court has however recently modified its position on this issue with respect to the right of the transferor’s creditors to obtain attachment of the movable held by the transferee in a fiduciary capacity. While this right was traditionally denied on the basis that the transferor was no longer the legal owner of the goods,153 the attachment of a movable held by a third party in a fiduciary capacity is now accepted by the Swiss Supreme Court where the transferor is the beneficial owner of the goods.154 146 147 148 149 150 151 152 153 154

Sect. 127 SCO. Sect. 154.2 SCO. Pichonnaz, no. 24 ad Sect. 154 SCO. Sect. 715 SCC. Sect. 109 SCO. Sect. 208 SCO. ATF 85 II 97; ATF 107 III 103. ATF 107 III 103. ATF 126 III 95.

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5.4.

Traditio: delivery and delivery equivalents

5.4.1. Purpose of the delivery requirement The link between transfer of ownership and transfer of possession is due to the assumption that the possessor of a movable is also its owner.155 Third parties may rely on this assumption. Even in situations where the possessor of a movable is not its owner, third parties relying in good faith on the assumption based on possession are protected by law.156 The acquiring party is in good faith if he did not know and could not have known that the transferor had no right to dispose of the movable.157 The acquiring party cannot rely on the assumption that the possessor of the movable has the right to dispose of this movable in a situation where the price for the movable is exceptionally low.158 Admissible forms of transfer of possession are provided by law and cannot be otherwise created by agreement between the parties. While physical delivery is the most current form of transfer of possession, other forms of delivery are not considered subsidiary to physical delivery, but an alternative solution available to the parties.

5.4.2. Physical delivery of movables Physical delivery means that transferee takes possession of the movable.159 The transfer of possession is to be based on the valid consent of the transferor and transferee, respectively, to accept the transfer of ownership (real agreement).160 The valid consent of both parties to transfer the possession is to be distinguished from the cause of the transfer. Even in a case where the parties agree that the ownership of a movable is to be transferred to the acquiring party (for example in a sales contract), the transfer of possession is not valid if the acquiring party steals or otherwise takes possession of the object of the sale without seller’s consent. The real agreement is a legal act, which involves the capacity of both parties. Should the transfer of possession be obtained by duress or deception, then the real contract can be avoided.161 155 156 157 158 159 160 161

Sect. 930 SCC. Sect. 714.2 and 933 to 936 SCC. ATF 85 II 580. ATF 69 II 110; ATF 107 II 41. Steinauer no. 253; Rey, no. 1716. ATF 85 II 97. Steinauer no. 255a.

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The transfer of possession itself (as being distinct from the real agreement) is a material act.162 It is however sometimes considered that the distinction between the real agreement and the transfer of possession is artificial.163

5.4.3. Delivery of means to take control of movables Transfer of possession of the movable can take place through handing over certain means or instruments to take physical control over the movable, such as a key,164 provided however the change of control is apparent.165 The following rules apply: – The delivery of means to take control over the movable is not subsidiary to other forms of delivery, but is an alternative solution available to the parties. – Handing over of items that only symbolize the movable would not suffice for the purpose of transferring the possession.166 – The transfer of possession takes place when the transferee has obtained physical control of the instruments. – It has been decided by the Swiss Supreme Court that in the case there is more than one instrument to take physical control over the goods (for example two keys), the transfer of possession does not take place validly in so long as the transferor keeps one of the instruments (e.g. the transferor holds back the second key).167 Taking into consideration the alternative ways of transferring the possession admitted under Swiss law, this decision seems disputable (since the transferor may have kept a key for a purpose other than remaining owner of the movable). However, depending on the circumstances, the fact that the transferor did not transfer all the keys may be construed as establishing his intent not to transfer the ownership. In that case, the ownership would not be validly transferred due to the lack of a real agreement. – There is no Swiss case law dealing with codes to give access to the goods. In our opinion, the fact the transferor keeps knowledge of the code would not prevent possession from passing to the transferee, provided however the transferee is able to change the code at its convenience.

162 163 164 165 166 167

Steinauer, no. 2018. Haab / Simonius, no. 40 ad Sect. 714 SCC. Sect. 922.1 SCC; ATF 80 II 235; ATF 89 II 314; Rey, no. 1717. ATF 44 II 398. Steinauer, no. 254. ATF 80 II 235.

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5.4.4. Open transfer of possession Open transfer of possession (longa manu traditio) is admitted. Open transfer of possession can take place where access to the movable is free, i.e. public, or where a group of persons have access to the movable. In that case, the mere agreement between the transferor and the transferee on the transfer of possession is sufficient for the purpose of transferring the possession.168

5.4.5. Marking the goods Marking the object or affixing a sign on it would not suffice for the purpose of transferring the possession so long as the transferor keeps exclusive control over the goods (i.e. in a situation where an open transfer of possession169 is not possible).

5.4.6. Transfer of documents Transfer of ownership over goods may also take place through transfer of documents representing the goods, such as a bill of lading.170 Such document is usually issued by a carrier, in accordance with the international conventions dealing with carriage. A document representing the goods within the meaning of Sect. 925 SCC can also be issued by a warehouseman in the context of a contract of bailment, provided however this warehouseman has received from the competent authorities the permission to issue negotiable warehouse receipts.171 In the absence of such permission, the document is still valid, but the warehouseman is to pay a fine.172 Documents representing the goods are to be drafted in accordance with SCO article 1153, and to contain the indications listed in this provision. Should these indications be missing, then the document would not be admissible for the purpose of transferring ownership over the goods.173 Electronic documents are not yet admitted under Swiss law. A copy of the document can be issued by the carrier or the warehouseman for the purpose of constituting a pledge over the goods. The document 168 169 170

171 172 173

Sect. 922.2 SCC; ATF 132 III 155. Above, 5.4.4. Sect. 925 SCC. This possibility is also provided for in the Federal law on maritime navigation: Sect. 16 LMN; ATF 122 III 73. Sect. 482 SCO. Sect. 1155.2 SCO. Sect. 1154 SCO; ATF 109 II 144.

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is to bear the indication “warrant”, and the issuance of a warrant is to be mentioned on the other documents representing the goods.174 In case of conflict between a good faith acquirer of the document and a good faith acquirer of the goods, the good faith acquirer of the goods is protected by the law in priority over the good faith acquirer of the document.175 When the document is transferred to a bank for the purpose of a documentary credit, the ownership of the goods does not pass to the bank except when otherwise agreed by the parties. The ownership of the goods passes from the seller to the acquiring party upon transfer of the document by the bank to this acquiring party.176 The bank would however have a retention right over the documents177 in the event the buyer’s account with the bank is not sufficient for the purpose of covering the price to be paid.

5.4.7. Carriage of goods by an independent carrier The transfer of ownership is based on the transfer of possession, provided however that the transfer of possession is based on a valid cause. In a situation where the goods are to be carried by an independent carrier, the key issue is whether the transferor or the transferee has concluded the contract with the carrier. Usually, the carrier is an agent of the transferor (sender): the transferor enters into the contract with the carrier. As a consequence, the transfer of possession to the acquiring party takes place upon delivery of the goods to this acquiring party by the carrier.178 Transfer of the ownership over the goods takes place at this moment, provided this transfer is based on a valid cause. In the event the carrier is an agent of the acquiring party (as it may be the case in a FOB contract), then the transfer of possession (and consequently the transfer of ownership) takes place upon delivery of the goods by the transferor to the carrier selected by the acquiring party.179 In situations where the goods are sold during the carriage, then the seller may instruct the carrier to possess the goods on behalf of the buyer. In that case, transfer of possession from seller to buyer takes place by way of delegation.180 174 175 176 177 178 179 180

Sect. 1154.2 SCO; Sect. 902.2 SCC. Sect. 925.2 SCC. ATF 122 III 73. Sect. 895 SCC. ATF 93 II 373. Sect. 923 SCC. Steinauer, no. 258. Sect. 924.2 SCC; see below 5.4.10, movable under the control of a third party.

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5.4.8. Brevi manu traditio Transfer of possession by brevi manu traditio, i.e. mere agreement between the parties while the movable is already in possession of the transferee, is admitted under Swiss law.181 In that case, the transfer of possession takes place upon agreement between the parties. Should this agreement be subject to a condition precedent, then the transfer of possession takes place upon occurrence of the condition.182 The transfer of possession through brevi manu traditio leads to a transfer of ownership provided this transfer is based on a valid cause. Usually, this cause is a contract. It can be another cause, such as the obligation to return the goods in a situation where the contract is terminated.

5.4.9. Constitutum possessorium Transfer of possession by constitutum possessorium, i.e. mere agreement between the parties while the movable remains in direct possession of the transferor – even after the transfer, is admitted under Swiss law.183 This agreement is valid provided the transferor remains possessor of the movable in a particular capacity, e.g. a contract or a limited right over the movable.184 The transfer of possession by constitutum possessorium suffices for the purpose of transferring the ownership over the movable, provided this transfer of possession is based on a valid cause. Good faith third parties are protected by the provisions of Sect. 717 SCC: a transfer of ownership by way of constitutum possessorium cannot be opposed against them if this form of transfer was chosen by the transferor or the transferee for the purpose of deceiving them, or to circumvent the specific requirements concerning the creation of a pledge.185 Inter partes, the transfer of ownership remains valid,186 but good faith third parties can for

181 182 183 184 185

186

SJ 2006, 265; Steinauer, no. 288. SJ 2006, 265. Sect. 924.2 SCC. ATF 70 II 199; ATF 77 II 127; Stark, no. 28 ad Sect. 924 SCC. Creation of a pledge over movables is subject to the condition that the debtor has no physical control over the movables during the period of validity of the pledge: Sect. 884.3 SCC; ATF 119 II 236. A transfer of ownership for security purposes would violate this principle, if this transfer of ownership is based on a constitutum possessorium (at least if the choice of this structure by the parties is fraudulent): ATF 88 II 73. ATF 70 II 199.

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example obtain a seizure of the movable in the context of debt collections proceeding against the transferor.187 It is admitted that a constitutum possessorium can take place while the transferor is not yet in possession of the movable. In that case, the transfer of ownership to the transferee takes place as soon as the transferor acquires direct physical control over the movable.188 In a situation where the ownership over the goods passes to the transferee, but the transferor retains direct physical control (possession) of the movable in a particular capacity, then the transferor would benefit from a right of retention of the movable for any claim in relation with the movable.189

5.4.10. Movables under the control of third parties Transfer of possession by delegation, i.e. by mere agreement between the parties while the movable is under the control of a third party, is admitted under Swiss law,190 unless the ownership of the transferor is disputed by this third party.191 Such transfer of possession suffices for the purpose of transferring ownership over the movable, provided however this transfer of possession is based on a valid cause. A notice is to be served on the third party, whereby the third party is instructed to hold the movable for the transferee. This notice is formally to be served by the transferor, but it is admitted that this notice can be served by the transferee on behalf of the transferor.192 Consent by the third party is not required. The transfer of possession is valid upon agreement between the transferor and the transferee, irrespective of the notice to the third party.193 However, so long as the third party was not served the notice, he still holds the movable on account of the transferor and may validly return the movable to the transferor.194 The third party in possession may oppose against the transferee all remedies he had against the transferor for refusing to return the movable.195 In 187 188 189 190 191 192 193 194

195

ATF 73 III 142. ATF 84 II 253; Stark, no. 46 ad Sect. 924 SCC. Sect. 895 SCC. Sect. 924.1 SCC; ATF 112 II 444. ATF 132 III 155; Rey, no. 1730. ATF 72 II 351; Steinauer, no. 277. Steinauer, no. 276; Rey, no. 1730. Sect. 924.2 SCC; ATF 121 III 85; RFJ 2003 244 / 250; ATF 112 II 406; ATF 93 II 461. Sect. 924.3 SCC.

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particular, the right of retention that the third party could oppose against the transferor remains valid against the transferee. In spite of the clear wording of Sect. 924.3 SCC, the question of whether the contract between the transferor and the third party can be opposed against the transferee is disputed (as such consequence would contradict the principle of privity of contracts).196

5.5.

Registration

5.5.1. Principle Transfer of ownership in movables by registration is limited to ships and aircrafts.

5.5.2. Ships The Swiss register of ships is organized in conformity with a Federal statute dated September 29, 1923.197 The register is kept by cantonal authorities, designated by the Federal government.198 Abstracts of the register can be delivered to third parties provided however they have a legitimate interest in obtaining such abstract.199 The act of registration is of constitutive nature and ownership over the ship takes place upon registration.200 Contracts for the transfer of ownership over a ship are subject to formal requirements.201 Ownership over the ship can however be acquired by succession, court order, expropriation or execution auction prior to the registration. In these cases, the registration is of declarative nature.202 The acquiring party is however to be registered in order to be able to dispose of the ship.

196 197

198 199 200 201 202

Stark, no. 37 ad Sect. 924 SCC; Steinauer, no. 280 a; Rey, no. 1731a. Federal law on the ships register (LSR). On the types of ships to be registered, see the guidelines published in RNRF 1996 p. 341 et seq. and RNRF 1997 p. 411 et seq. Sect. 1 of the Federal ordinance on the ships register (LSR), of June 16, 1986. Sect. 28 LSR, Sect. 970 SCC. Sect. 26.2 and 31 LSR. Sect. 32 LSR. Sect. 31.2 LSR.

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5.5.3. Aircrafts The register of the aircrafts is organised in conformity with a Federal statute dated October 7, 1959.203 The register is kept by the federal office of civil aviation.204 Abstracts of the register can be delivered to third parties.205 The act of registration is of constitutive nature for any acquisition of the aircraft by contract.206 Transfer of ownership over the aircraft takes place upon registration.207 Contracts for the transfer of ownership over an aircraft are subject to formal requirements.208

5.6.

Consensual system

The Swiss legal system for the passing of ownership is not a consensual system in the sense that the contract is not sufficient for the purpose of transferring the ownership.209

5.7.

Real agreement

5.7.1. Concept of real agreement The transfer of possession is a condition of the transfer of ownership over movables under Swiss law. This is not a sufficient condition: a valid cause and a real agreement are also required. The transfer of ownership is to be based on the consent of the transferor to transfer the ownership, and on the consent of the transferee to receive the ownership.210 This exchange of consent is known as the “real agreement”, to be distinguished from the cause of the transfer. As mentioned above, there is some dispute in the Swiss literature with respect to whether this real agreement is a specific condition for a transfer of ownership.211 This condition is denied by some authors, at least in so far as this condition would be an autonomous condition, to be distinguished 203 204 205 206 207 208 209 210 211

Federal law on the aircrafts register (LAR). Sect. 3 LAR. Sect. 13 LAR. Sect. 23 LAR. Sect. 14 LAR. Sect. 23.2 LAR. Rey, no. 1691. ATF 85 II 97. Steinauer, no. 2014a; Rey, no. 1699 et seq.

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from the passing of possession itself.212 This dispute is however very theoretical, since it is generally admitted that there is an implied “real agreement” where the parties agree to transfer of possession on the basis of a valid cause.

5.7.2. Special rules on the real agreement The real agreement is subject to no formal requirements. It can result from the circumstances or be implied by the parties. The real agreement is considered to be concluded at the time of delivery, and is to be distinguished from the contract that is the cause of the transfer.213 The real agreement is a bilateral act, in the sense that it results out of the consent by the transferor to transfer the ownership, and the consent of the transferee to acquire such ownership.214 The real agreement is not valid, and this invalidity would impair the transfer of ownership, if: – The transferor is not the legitimate owner of the movable, or has no capacity to dispose of the movable (as can be the case if the owner is bankrupted, or if the movable were seized in the context of debt collection proceedings against the owner).215 – One of the parties is not a competent person (i.e. this party is not able to understand the consequences of his acts). – The agreement is avoided because of fraud, deception, mistake or duress.216

5.7.3. Purpose of the concept The concept of real agreement is considered useful for the purpose of explaining the mechanism of retention of title (being considered a conditional real agreement217) and the concept that the transfer of possession is not valid if the transferor has no capacity to dispose of the movable.218

212

213 214 215 216 217 218

Haab / Simonius, no. 40 ad Sect. 714 SCC; see also the isolated opinion of Piotet (p. 17 et seq.) whereby the real agreement would not be a condition at all. ATF 85 II 97. Steinauer, no. 2013 and no. 255; Rey, no. 1705. Steinauer, no. 2016. Stark, no. 81 and no. 91 ad Sect 922 SCC. ATF 58 II 347, Leemann, no. 5 et seq. ad Sect. 715 SCC. Steinauer, no. 2014a.

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Payment

5.8.1. Principle Payment is not a condition to the transfer of ownership, except when the parties agree to a retention of title provision. Even in this case, the retention of title provision is only enforceable if duly registered.219

5.8.2. Discussion and relation to insolvency law There is no discussion in Switzerland about whether payment should be considered a condition of the transfer of ownership. In some very limited cases, the seller may claim return of unpaid goods in case of bankruptcy of the buyer.220 This rule is considered an exception. The general principle that the passing of ownership is subject to the condition that the price be paid would be considered in contradiction to the principle of equality between creditors in case of bankruptcy. As a general principle, a contractual provision whereby the seller is entitled to terminate the contract and claim return of the goods in case of buyer’s bankruptcy is null and void.221

5.9.

Right to dispose

5.9.1. Persons having the right to dispose of movables Not only the owner has the right to dispose of the movable: bankruptcy administrations,222 debt enforcement offices,223 liquidators in the context of a composition agreement,224 official estate administrator,225 or executors of a succession226 have also such a right and may validly transfer ownership over movables belonging to the owner.

219 220 221 222 223 224 225 226

Sect. 715 SCC. Sect. 203 SDCB. Sect. 212 SDCB. Sect. 204 SDCB. Sect. 96 SDCB. Sect. 319 SDCB. Sect. 595 SCC. Sect. 518 SCC.

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5.9.2. Transferor without the right to dispose In the event the transferor has no right to dispose of the movable, then the real agreement is void and there is no transfer of ownership over the movable. The principle “nemo plus juris ad alium transferre potest quam ipse habet” (No one can transfer more than he has) applies under Swiss law.227 The fact that the transferor acquires this right at a latter stage would not be sufficient for a valid transfer of ownership to the transferee, unless the real agreement was subject to an express or implied condition precedent. There is an exception to these principles in case the owner of a movable was deprived of his right to dispose in the context of debt collection proceedings.228 In that case, it is considered that a transfer of ownership by the owner could not be opposed against the creditors,229 the protection of a good faith acquirer being however reserved.230

5.9.3. Ratification by owner The owner can ratify the acts of a person lacking the right to dispose of the goods.231 In that case, the transfer of ownership would take place upon transfer of possession, the real agreement between the person lacking the right to dispose the goods and the transferee being considered validly concluded on behalf of the owner, as a consequence of the ratification. Should the owner intend to change the terms and conditions of the real agreement (for example with respect to the entry into force of the real agreement and, as a consequence, the date of the transfer of ownership), then the transferee is to confirm his approval of the new terms and conditions. Should it not be the case, the transferee would not be bound 227 228 229

230

231

Steinauer, no. 2015. Sect. 96 and 204 SDCB. ATF 113 III 34; Gilliéron, no. 24 ad Sect. 96 SDCB and no. 13 ad Sect. 204 SDCB. The question of whether the transfer of ownership by the owner to a third party, while in contradiction with the seizure of the movable, is null and void, or only without effect for the creditors is disputed. It is however generally considered that the effect of an insolvency measure is limited to the relationship between the debtor and the creditors taking part in the proceedings: Marchand, p. 74; Gilliéron, no. 24 ad Sect. 96 SDCB and no. 13 ad Sect. 204 SDCB. Sect. 96 par. 2 SDCB. The same principle applies in the context of bankruptcy proceedings with respect to immovable properties (ATF 115 III 111). The protection of a good faith acquirer of a movable in the context of bankruptcy proceedings remains disputed (Marchand, p. 121). Sect. 38 SCO.

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by the amended real agreement and the transfer of ownership would not take place validly.

6.

Double selling

6.1.

Passing of ownership

In case A, the owner of a movable sells it to B, and afterwards to C; neither B nor C acquires ownership by entering into the contract: rather, the transfer of possession, based on the intent of the parties to respectively transfer and acquire possession, is necessary for transferring ownership.232 As a consequence, B or C would acquire ownership upon delivery of the movable or upon transfer of possession in another way. In the event the movable is delivered to B, ownership of the movable passes to B, and C may claim compensation against A on the basis of a breach of contract.

6.2.

Good or bad faith

Good or bad faith of the acquiring party does not play any role. An exception to this principle is however provided in Sect.152.3 SCO. If owner A sells the movable to buyer B and the sale contract is subject to a condition precedent, then the sale of the movable to third party C is null and void. However, C is protected by law if he was in good faith, i.e. he had no knowledge of the conditional sale between A and B.233

6.3.

Dispute between buyers

In the situation of a double sale, a dispute may arise between buyers, prior to delivery of the movable to either one of them, over which of the buyers has a preferential right to delivery. In that case, one of the buyers may request seizure of the movable, in the context of provisional measures.234 Consequently, the court must decide whether the movable should be delivered to B or to C. It is considered that the movable is to be delivered to the buyer who had concluded the sales contract first in time with the seller.235 232 233 234 235

Sect. 714.1 SCC. Pichonnaz, no. 31 ad Sect. 152 SCO; Sect. 933 SCC. SJ 1962 p. 15; SJ 1972, p. 230; Engel, p. 27. Engel, p. 27; Becker, no. 11 ad Vorb. art. 32-40; Oser / Schönenberger, no. 6 ad Sect. 97 SCO; ATF 87 I 479.

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6.4.

Insolvency of one of the buyers

In the event the movable is delivered by seller A to B, one of the two buyers in the example above, and B files bankruptcy, then the seller may claim payment of the price according to the Swiss rules on debt collection proceedings. The second buyer, C, has no right against B (or against his bankruptcy estate). He may claim compensation against seller A.

7.

Selling in a chain

7.1.

Real agreement

If A sells to B and B to C, and A delivers the movable directly to C, then the “real agreement” (agreement to transfer, respectively to receive the possession of the movable) is an agreement between B and C, A being the agent of B for the purpose of transferring the possession to C.

7.2.

Ownership

In the situation described above, ownership is directly transferred from A to C. B does not acquire ownership, as the possession of the movable was never transferred to him. In particular, neither A nor C ever owned the movable on behalf of B. The situation may be different however if the movable was under the control of a third party, as for example a carrier.236 In such a case, the carrier may have received a notice from A to hold the movable on B’s account, and then a notice from B to hold the movable on C’s account. Consequently, B received ownership of the movable during the intermediary period when the carrier held the movable on his behalf, since possession was transferred to B by delegation.237 Another situation would be that A (the original owner) keeps the movable for a special cause (for example a lease agreement) after having sold the movable to B. In that case, ownership may pass to B by constitutum possessorium.238 If, at a later stage, B instructs A to deliver the movable to the hands of C, then C may acquire ownership in his turn.

236 237 238

On this situation, see Sect. 68 CISG. See above 5.4.10. See above 5.4.9.

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Retention of title

In a selling in a chain situation, if the intermediary party never received ownership of the movable, then a retention of title clause in the contract with the final buyer would not be valid (since the intermediary party cannot retain title that he never had). By contrast, in a situation where the intermediary party acquired ownership by delegation of possession or constitutum possessorium, a retention of title clause in the contract with the final buyer would be theoretically possible. However, the condition that a retention of title clause is to be registered in order to be enforceable against third parties239 would cause such circumstance to be unlikely to happen under Swiss law.

7.4.

Invalidity

If A sells to B and B to C, and A delivers the movable directly to C, and if the contract between A and B is null and void, then A claims restitution of the movable from buyer C, as the original seller A would still be the legitimate owner of the movable. The final buyer C may in his turn claim compensation from the intermediary person B, on the basis of the rules of Swiss law dealing with third party claims in sales contracts (warranty with regard to title transferred).240 The final buyer C would not be protected by the rules of Swiss law dealing with good faith acquirers of ownership, since the intermediary person B was never been in possession of the movable.241 If the contract between the intermediary buyer B and the final buyer C is null and void, then the intermediary buyer B may claim for restitution of the movable from the last buyer only in a situation where the intermediary buyer received ownership of the movable. Should this not be the case, then the intermediary buyer B may only sue the final buyer C for unjustified enrichment.

239 240 241

Sect. 715 SCC. Sect. 192 et seq. SCO. Sect. 933 SCC.

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8.

Transfer or acquisition by means of indirect representation

8.1.

Transfer of ownership

In the situation where party X acquires a movable from B, but in a fiduciary capacity, i.e. in X’s own name but on the account of another person A, ownership passes from B to X as party to the acquisition contract. Passing of ownership from X to A requires another transfer of possession from X to A.242

8.2.

Legal assignment of claims

Where the intermediary person X, acting in a fiduciary capacity, has acquired legal claims against a third person, such claims pass to principal A as soon as principal A has fulfilled all his obligations arising out of the mandate.243 There is no other condition to this legal assignment of claims except payment of the intermediary, including his fees and reimbursement of all his costs and expenses.244 If the intermediary assumed obligations in the proper performance of the fiduciary contract, the principal is also to release the intermediary from these obligations.245 The question of whether the principal may benefit from this legal assignment of claims in a situation where the parties to the fiduciary contract agreed that the intermediary person was to be the owner of all movables acquired on the principal’s account, until termination of the fiduciary agreement, remains unresolved in Swiss case law.246 Bankruptcy of the intermediary would not prevent this legal assignment of claims in favour of the principal. In case the intermediary person is declared bankrupt, the assigned claims are not part of the bankruptcy estate.247

242 243 244 245 246 247

Engel, p. 410; ATF 100 II 200. Sect. 401.1 SCO. Sect. 402 SCO. Sect. 402 in fine SCO. ATF 117 II 429: the Swiss Supreme Court refused to decide this issue. ATF 102 II 103.

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Bankruptcy of the intermediary person

In case the intermediary person is declared bankrupt, the movables acquired in the performance of the fiduciary contract belong to the bankruptcy estate (to the exception of claims legally transferred to the principal). The principal may however claim that the movable, acquired by the intermediary person on his account, be returned to him.248 This claim is not based on ownership (since the principal is not the legitimate owner of the movable), but on a special right in the bankruptcy. This right to claim movables is limited in three ways: – There is no right to claim movables that were not acquired by the intermediary person in the performance of the fiduciary contract, but transferred by the principal to the intermediary person.249 There is an exception to this principle in case the intermediary person is a bank. In that case, the clients of the bank would benefit from a right to claim the movables held in a fiduciary capacity by the bank irrespective of whether the movables were acquired by the bank or transferred by the client to the bank.250 – In case of payment made by a third party to the intermediary person, this payment is to be individualized – as being owned on the principal’s account – by this intermediary person. Practically speaking, it means that the intermediary person is to have a separate account for assets owned for the principal.251 – Retention rights remain unaffected.252 Practically speaking, it means that the bankruptcy estate may refuse to return the movable so long as claims from the intermediary person against the principal remain unpaid.

9.

Insolvency

9.1.

General issues; effect of bankruptcy on contracts

The bankruptcy administrator may either terminate or confirm a not yet fulfilled contract between the bankrupt and a third party. In the event the bankruptcy administrator confirms the contract, the other party to the

248 249 250 251 252

Sect. 401.3 SCO. ATF 117 II 429. Swiss federal statute on Banks, of November 8, 1934 (SCFL 952.0), Sect. 37d. ATF 127 III 273. Sect. 401.3 in fine SCO.

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contract may demand that security be furnished.253 If the performance of the contract by the bankruptcy administrator is not secured, the other party to the contract can terminate the contract.254 As exceptions to these general principles, some contracts are automatically terminated in case a party to the contract is declared bankrupt. This is for example the case for mandate contracts,255 insurance contracts in case of bankruptcy of the insurer,256 or joint venture contracts.257 There is no distinction between contracts for generic or specific goods for the purpose of these principles of Swiss law. A contract or transaction made by a bankrupt debtor prior to bankruptcy can be avoided by the bankruptcy administrator, or by an individual creditor on the basis of an assignment of a claim made by the bankruptcy administrator, in the following cases: – Gifts, voluntary settlement, and transactions equivalent to gifts that took place within a period of one year prior to the debtor being declared bankrupted.258 – Granting of collateral for existing obligations, settlement of a debt of money by a manner other than normal means of payment, and payment of unmatured debts that took place within a period of one year prior to the debtor being declared bankrupted, provided however that the debtor was already insolvent during this period, and that the recipient was aware of this insolvency.259 – Transactions carried out by the debtor with the intention, apparent to the other party, of disadvantaging all of, or certain of, his creditors, that took place within a period of five years prior to the debtor being declared bankrupted.260 In the event the beneficiary of the transaction does not hold the movable any longer (i.e. he has transferred ownership of the movable to an acquiring party), the bankruptcy administrator or an individual creditor may file the avoidance action against the acquiring party only in case the acquiring party was in bad faith when acquiring the movable.261

253 254 255 256 257 258 259 260 261

Sect. 211.2 SDCB. Sect. 83.2 SCO. Sect. 405 SCO. Sect. 37.1 LIC. Sect. 545.1.3 SCO. Sect. 286 SDCB. Sect. 287 SDCB. Sect. 288 SDCB. Sect. 290 SDCB; ATF 65 III 142; RJN 1982 293.

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9. Insolvency

9.2.

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Insolvency of the transferor

The transferee is not protected against the transferor’s general creditors from the moment of the conclusion of the contract. To the contrary, the transferor’s general creditors may request that the movable to be delivered to the transferee be seized, or attached. In case the transferor is declared bankrupt, the movable to be delivered to the transferee becomes part of the bankruptcy estate. In all these cases, the transferee has no right over the movable. He may only claim compensation against the transferor for non-delivery of the movable (or file such a claim in the transferor’s bankruptcy proceedings). By contrast, upon delivery of the movable, ownership passes to the transferee. As a consequence, upon delivery, the transferee is protected against claims by the transferor’s general creditors (except in case of an avoidance action filed by the bankruptcy administrator as described above). The parties cannot deviate from these rules. It is expressly provided by the Swiss statute on bankruptcy that a seller who transferred the object of the sale to the purchaser prior to the opening of the bankruptcy proceedings may not withdraw from the contract and reclaim the object, even if he expressly reserved the right to do so.262 As a general rule, the contract cannot provide for special claims in case one of the parties is declared bankrupt.263 If the contract is invalid but the goods have already been delivered to the transferee, then ownership did not pass to the transferee (as a valid cause is lacking). As a consequence, the transferor is still the legitimate owner of the goods, which may be seized, attached, or integrated into the bankruptcy estate, upon request of the transferor’s general creditors. The transferee may however benefit from a retention right, allowing him not to return the movable so long as the price paid for the movable is not reimbursed.264

9.3.

Insolvency of the transferee

In case of insolvency of the transferee, the transferor may refuse to deliver the movable if the payment of the price is not properly secured. In the absence of such security, the transferor may withdraw from the contract.265

262 263 264 265

Sect. 212 SDCB. Staehelin, p. 378; Jeandin, p. 94. Sect. 895 SCC and Sect. 82 SCO; ATF 113 II 450. Sect. 83 SCO and Sect. 211.2 SDCB.

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In case the contract is null and void as a consequence of an illegality, impossibility, violation of bonos mores, or rescinded in case of mistake, deception or duress, the transferor remains owner of the movable (since ownership did not pass to the transferee due to the lack of valid cause); he may claim for restitution on the basis of his ownership. In case the contract is terminated as a consequence of the transferee’s default in the payment of the price,266 the transferee is to return the movable to the transferor. This obligation is, however, of a contractual nature only.267 Consequently, the general creditors of the transferee may obtain seizure or attachment of the movable in their favour, and there is no specific protection for the transferor, until the movable is returned to him. In case of an avoidance action filed by the bankruptcy administrator of the transferee’s estate, or by a creditor of the transferee, the transferor may be ordered to reimburse payment made by the transferee. Consequently, the transferor has a right to request that the movable be returned to him.268 If the movable is no longer held by the transferee, then the transferor has only a financial claim against the transferee.

9.4.

Right of stoppage in transit

If the movable is to be carried and the carriage contract is subject to Swiss law, then the sender, as long as the movable is still in the hands of the carrier, is entitled to recover the freight against compensation of the carrier, except: – If a waybill has been issued by the transferor and delivered by the carrier to the consignee, – If the transferor cannot return the receipt delivered by the carrier, – If the carrier has sent the consignee (transferee) a written notice that the freight has arrived, or – If the consignee (transferee) has requested delivery after the arrival of the freight at its destination.269 These provisions of Swiss law are subsidiary to provisions of international conventions dealing with carriage of goods.270 The right of stoppage is contractual in nature and has no effect on the transfer of ownership, i.e. transfer of ownership takes place upon delivery 266 267 268 269 270

Sect. 107 SCO. ATF 61 II 255; ATF 114 II 52; ATF 126 III 119. Sect. 291 SDCB. Sect. 443 SCO. For example: Sect. 13 CMR. See Marchand, FJS 164, p. 17 et seq.

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of the movable by the carrier to the transferee, except if the carrier was an agent of the transferee (but in that case the transferor is not the sender), or if a document representing the goods was delivered to the transferee (but in that case, the transferor would have no right of stoppage).

10.

Relation to rules on transfer of risk

10.1.

General principles

The transfer of risk is a concept that is not linked to the transfer of ownership.271 Under Swiss internal law,272 the transfer of risk takes place upon conclusion of the contract if the sold goods were specific goods.273 If the sold goods were generic goods, the transfer of risk takes place upon delivery to the carrier, upon delivery by the carrier to the transferee, or upon the moment that the goods are at transferee’s disposal, depending on the delivery obligations of the transferor as agreed by the parties.274

10.2.

Passing of risk in case of transferor’s default in delivery or transferee’s default in acceptance

In case of transferor’s default in the delivery, transferor bears all risks until delivery.275 In case of transferee’s default in acceptance, transferee bears all risks from the date delivery was offered to him.276 These principles apply to the transfer of risks (i.e. the liability of the transferor in case of loss or damage to the goods) but do not interfere with the passing of ownership.277

271 272 273 274 275 276 277

Schönle, no. 18 ad Sect. 185 SCO. On international sales, see Sect. 66 et seq. CISG. Sect. 185.1 SCO. Sect. 185.2 SCO. Sect. 103 SCO. Loertscher, no. 13 ad Sect. 92 SCO. Schönle, no. 18 ad Sect. 185 SCO.

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Part III: “Original” acquisition – no direct transfer of ownership from an owner to transferee 11.

Acquisition by accession, commixture or processing

11.1.

Accession of movables

11.1.1. Notion of accession The Swiss civil code does not define the concept of “accession”. In Sect. 642.2, it provides that integral parts of an object are parts that constitute an essential element of it according to local custom and that cannot be separated without destroying, deteriorating or alterating it. It is usually accepted that it does not matter whether such destruction, deterioration or alteration affects the object itself (as the wording of the law suggests) or the integral parts.278 The “main part” is called an object or a “complex thing” i.e.: an object that is composed of various parts that are not considered to be separate objects in and of themselves by the law279 and that, therefore, do not have an independent existence as far as rights in rem are concerned. Some parts are deemed to be integral parts even if the requirements of Sect. 642.2 SCC are not met: this is the case of natural fruits (Sect. 643.3 SCC), as well as of structures, other built objects, plants and springs (Sect. 667.2 SCC).

11.1.2. Person acquiring ownership through accession According to Sect. 642.1 SCC, the owner of an object is also the owner of its integral parts. This is true even if the integral part has been attached to the object against the will of its owner (or of the owner of the object).280 Depending on the circumstances, the (former) owner of the part – who has lost his property by virtue of accession – is entitled to a ius tollendi (right of 278 279 280

Steinauer, no. 1053; Rey, no. 436. Steinauer, no. 109. Steinauer, no. 1062; see also Rey, no. 453.

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removal) or to a claim for damage (for breach of contract or for unlawful act) or for unjustified enrichment.281

11.1.3. Role of good faith and bad faith Good faith is not required to acquire ownership by accession. Acquisition of ownership by accession takes place even if the part is attached to the object unlawfully, or if such attaching is the result of the intervention of nature and not of a person.282 Bad faith plays a limited role,283 such as in the case of accession with land property (Sect. 672.2 and 672.3 SCC).

11.1.4. Movable becoming an integral part of an immovable A movable becomes an integral part of an immovable when the requirements of Sect. 642.2 SCC284 are met, if it becomes part of a construction or of another built object (Sect. 667.2 SCC), or if it is a plant that has been planted in the ground (Sect. 667.2 SCC). The owner of the immovable acquires the ownership of such integral parts.

11.2.

Commixture, confusion

11.2.1. In general Commixture and confusion are governed by Sect. 727 SCC. This provision does not define commixture and confusion as such, but Sect. 727.1 SCC provides that there is commixture (or confusion) when objects belonging to different owners are joined (or mixed, in the case of confusion) together so as to produce a new object and they cannot be separated without substantial deterioration, or only at prohibitive cost and labour.285 281 282 283

284 285

See Steinauer, no. 1068 et seq.; Rey, no. 449. Steinauer, no. 1062; see also Rey, no. 453. Sect. 939 SCC recognizes a – limited – ius tollendi (right of removal) to the illegitimate possessor (on this notion, see above 2.1.4.) who attaches a thing to the thing he possesses illegitimately only if he is an illegitimate possessor in good faith, but leading authors consider that the illegitimate possessor in bad faith should also benefit from such a right (see for instance Steinauer, no. 522a; see also infra, 19.3.1.). See 11.1 above. See also Steinauer, no. 2118 et seq.; Rey, no. 1927 et seq.

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Sect. 727.1 SCC provides that the owners of the original parts acquire joint ownership (i.e., co-ownership in the sense of Sect. 646 et seq. SCC) of the new objects produced by commixture or confusion.286 Their shares in the joint ownership are determined by the respective value of the part they owned before commixture or confusion;287 in case these values cannot be established, the shares are deemed to be equal (Sect. 646.2 SCC). However, Sect. 727.2 SCC provides that if one of the commixed (or commingled) objects is of a subsidiary nature compared to the other object with which it has been commingled (or comixed), then the new object belongs to the owner of the main object; e.g.: if perfume oil belonging to a party is blended with appropriate liquids, belonging to another party, in order to produce marketable perfume, the owner of the perfume oil becomes the sole owner of the perfume. Sect. 727.3 SCC expressly reserves claims for damages (based on breach of contract or on unlawful act) and for unjustified enrichment.288

11.2.2. Goods of the same kind Sect. 727 SCC is not applicable if goods of the same kind are mixed together, as no new object will result from such mixing. It is usually accepted however that in such case, the owners of the objects of the same kind acquire joint ownership (“co-ownership”; Sect. 646 et seq. SCC) of the objects that have been mixed together, with the proviso that in case money (banknotes and coins) belonging to different parties is mixed, the person having performed such commixture acquires sole ownership of the banknotes and coins (if they cannot be identified).289

11.2.3. Role of good faith Good faith is not required to acquire joint ownership (or, as the case may be, sole ownership) of the commingled or commixed movables. Bad faith is not required for the relevant claims for damages or unjustified enrichment to be brought.

286

287 288 289

It is usually accepted that Sect. 727.1 SCC is mandatory law; see for instance Zobl, no. 64 ad Sect. 727 SCC. Steinauer, no. 2119a; Zobl, no. 57 ad Sect. 727 SCC. See Steinauer, no. 2119f; Rey, no. 1973 et seq. See Steinauer, no. 2121 et seq.

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11.3.

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Specification, processing

11.3.1. In general Specification is governed by Sect. 726 SCC. There is specification when a person processes or transforms a matter that belongs to a third party and thus produces a new object (Sect. 726.1 SCC).290 The person having processed or transformed the matter acquires ownership of the new object if the value of his labour is higher than that of the material;291 conversely, if the value of the matter is higher, the owner of the latter acquires ownership of the new object (Sect. 726.1 SCC). Sect. 726.3 SCC expressly reserves claims for damages (based on breach of contract or on unlawful act) and for unjustified enrichment.292 It should be noted however: – that if the person having performed the specification was not in good faith, the judge may at the request of the other party grant the ownership of the new object to such party even though the value of the labour is higher than that of the material (Sect. 726.2 SCC); – that Sect. 726 SCC is not applicable if the person performing the specification does so as employee of the owner of the material.293 The processor is the person who performs the specification. However, as has just been noted, Sect. 726 SCC is not applicable if the specification is performed pursuant to a work contract.

11.3.2. Role of good faith Good faith is not required to acquire ownership. However, Sect. 726.2 SCC provides that if the processor was not in good faith, the judge may grant the ownership of the new object (acquired by the processor by virtue of Sect. 726.1 SCC) to the (former) owner of the matter even though its value was lower than that of the labour. In other words, a thief would acquire ownership of a new object created by processing stolen materials, if the value

290 291

292 293

See also Steinauer, no. 2104 et seq.; Rey, no. 1943. It is usually accepted that Sect. 726.1 SCC is a mandatory rule. See for instance: Schwander, no. 6 ad Sect. 726 SCC; Rey, no. 1898 and no. 1910. See however Liver, p. 374. See Steinauer, no. 2105c et seq.; Rey, no. 1918 et seq. Steinauer, no. 2104c; Rey, no. 1912.

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of his labour is higher than the value of the materials (Sect. 726.1 SCC); however, the (former) owner of the materials may ask the competent judge to award such ownership to him, invoking the bad faith of the thief (Sect. 726.2 SCC). Bad faith is not required for the relevant claims for damages or unjustified enrichment to be brought.294

11.4.

Further general aspects

11.4.1. End of co-ownership Each co-owner can request the termination of the co-ownership, unless the co-owners have previously agreed not to do so (for a maximum period of 30 years) or if the object in co-ownership is dedicated to a long-standing purpose.295 Sect. 650.2 SCC (which provides that the parties may renounce the dissolution of co-ownership for a period of 30 years) is a mandatory rule. If the parties cannot agree to terminate their co-ownership, each coowner can request that the judge end such co-ownership.296

11.4.2. Rights of third parties It is usually accepted that specification, accession, confusion and commixture render ineffective a reservation of title concerning the object that ceases to exist as such, as a consequence of such specification, commixture or accession.297 However, leading authors consider that if commixture or confusion take place, reservation of title extends by subrogation to the share in the joint ownership and – in case the new object belongs solely to

294

295 296 297

Some authors propose to apply Sect. 672 SCC per analogiam if the owner of the matter acquires ownership of the new thing, with the consequence that the processor is entitled to compensation representing the full increase in value of the thing, if he acted in good faith, and to compensation limited to the minimal increase in value for the owner, if the possessor was not in good faith; see for instance: Steinauer, no. 2105f; Liver, p. 376. Sect. 650.1 and 650.2 SCC. Sect. 651 SCC. See Meier-Hayoz, no. 51 ad Sect. 642 SCC (accession); Steinauer, no. 2060 (specification, commixture).

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the owner of the main object before commingling – to the new object itself (if such main object was the object of the reservation of title).298 Third parties’ rights in rem also cease to exist with the disappearance of the object as a consequence of specification, commixture or accession.299 Again, leading authors consider that, in the case of commixture or confusion, the rights in rem extend by subrogation to a share in the joint ownership and – in case the new object belongs solely to the owner of the main movable before commingling – in the new movable itself (if such main object was the object of the rights in rem previously).300 Claims for damages (based on breach of contract or on unlawful act) and for unjustified enrichment are expressly reserved by Sect. 726.3 and 727.3 SCC.301 These remedies also apply in case of accession;302 these remedies also inure to the beneficiary of a limited right in rem who is losing his right as a consequence of accession, specification or commixture. Under certain circumstances, a ius tollendi (right of removal) is granted to the party losing his property.303

11.4.3. Role of legal capacity Legal capacity is not required. Accession304 as well as commixture and confusion305 can be the result of an event of nature and do not require human intervention. Specification is deemed to be a “factual act”,306 which produces its consequences even if the processor lacks legal capacity or even lacks capacity to consent.

298

299

300 301 302 303

304 305 306

See for instance Steinauer, no. 2119c; Rey, no. 1972; Zobl, no. 60 ad Sect. 727 SCC. See Steinauer, no. 1067a (accession) and no. 2105a (specification); Rey, no. 447 (accession) and 1914 (specification). See for instance Steinauer, no. 2119c; Rey, no. 1967 and no. 1971. See above, 11.3.1. and 11.2.1. See for instance Steinauer, no. 1070; Rey, no 449. See Sect. 753.2 (usufruct) and 939.2 (illegitimate possessor in good faith) SCC as well as Sect. 65.2 (unjustified enrichment and 422 (negotiorum gestio) SCO. See also Sect. 671 (accession with land property) SCC. See above, 11.1.1. See Steinauer, no. 2118c; Rey, no. 1930 et seq. See Steinauer, no. 2104d; Rey, no. 1902. This is also the case of commixture and confusion when they are the result of a person’s activity, see Steinauer, no. 2118c; Rey, no. 1930.

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12.

Rules of good faith acquisition

12.1.

Field of application

12.1.1. In general Good faith acquisition of a movable is governed by Sect. 714.2, 933, 934 and 935 SCC. They provide: – that the good faith acquirer of a movable that was entrusted to the alienor is immediately protected (Sect. 714.2 and 933 SCC); – that the good faith acquirer of a movable that was stolen or lost (or whose possessor was otherwise dispossessed against his will) is protected if a certain period of time (in principle: five years) has elapsed since the theft, loss or other dispossession (Sect. 714.2 and 934 SCC); – that the good faith acquirer of money (banknotes and coins) and of negotiable instruments to the bearer is immediately protected, whether these items have been entrusted to the alienor or have been stolen, lost or whether their possessor was otherwise dispossessed of them against his will (Sect. 714.2 and 935 SCC).

12.1.2. Particulars If seller B was never the owner of the movable, a good faith acquirer C is protected, if the movable was entrusted to B, or if it was stolen from owner A more than five years earlier (or 30 years in case of cultural property), or if the movable (whether entrusted or stolen) is money or a negotiable instrument to the bearer. If the seller’s right (to dispose) was avoided with retroactive effect prior to the transfer to the bona fide acquirer, the latter is protected, as the movable will (in principle) be deemed to have been entrusted to the seller. If the seller’s (B) contract with his supplier (S) was terminated or avoided with an ex nunc effect, the situation depends on the type of contract concluded by B and S and on the relationship between the bona fide acquirer and S. In any case, termination or avoidance with ex nunc effect does not automatically retransfer the ownership to the party terminating or avoiding the contract. In the case of a double sale (B sells and transfers the possession of a movable to C and afterwards sells it also to D), B is the owner of the movable when it is transferred to the acquirer C, who therefore becomes the new owner of the movable. If direct possession of the movable has been transferred to the first acquirer C, B has retained at most only indirect (and derivative) posses-

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sion. Possession will be transferred to D by B by means of a delegation of possession;307 in such a case, the acquirer is deemed to be in good faith only if such transfer of indirect possession did not prevent the acquirer from being aware of circumstances that would have destroyed his good faith.308 If indirect possession only has been transferred (by means of a constitutum possessorium)309 to the first acquirer C, D is protected if he is in good faith as the movable is entrusted to B; if the requirements of Sect. 717.1 SCC are met,310 D need not be in good faith, as the ownership acquired by the first acquirer under these circumstances is not enforceable against third parties.

12.1.3. Specific rules for certain types of movables The bona fide acquirer of stolen or lost movables is protected only if five years have elapsed since the movable was stolen or lost (Sect. 714.2 and 934.1 SCC). He is protected immediately if the stolen or lost movable is money or a negotiable instrument to the bearer (Sect. 714.2 and 935 SCC). The bona fide acquirer of an order negotiable instrument is protected if the specific requirements of Sect. 1006 SCO are met. Sect. 714.2 and 933-935 SCC are not applicable to registered aircrafts or ships. The bona fide acquirer of such items is protected by other provisions.311 The bona fide acquirer of a negotiable instrument to the bearer is protected immediately, whether the instrument was entrusted to the alienor or whether it was stolen, lost, or whether the possessor was otherwise dispossessed against his will (Sect. 935 SCC). Sect. 714.2, 933 and 934 SCC are applicable to works of art. However, if a work of art is deemed to be cultural property (in the sense of Sect. 2 of the Federal law on the international transfer of cultural property312) and has been stolen or lost (or whose owner has been otherwise dispossessed against his will), the bona fide acquirer will be protected only if a period of thirty years has lapsed since the day the owner was dispossessed313 or if (within

307 308 309 310 311

312 313

See above, 2.3.2. and 5.4.10. See for instance Stark, no. 87 ad Sect. 933 SCC. See above, 2.3.2. and 5.4.9. See above, the text corresponding to footnote no. 53. See Sect. 16.1 of the Federal law on the aircrafts register (supra, footnote no. 9) and Sect. 28 of the Federal law on the ships register (supra, footnote no. 89). See supra, footnote no. 19. Sect. 934.1bis SCC.

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this timeframe) one year has passed since the owner has become aware of the location of the movable and of the identity of its possessor.314 No specific provisions govern the bona fide acquisition of bulks under Swiss law. Requirements of a bona fide acquisition must be met for each item; if the requirements are not met for one item, protection will not be granted for the acquisition of such item, even though the conditions are met (and bona fide acquisition is granted) for the other items.

12.2.

Good faith acquisition only for value?

Sect. 714.2, 933, 934 and 935 SCC do not make a distinction based upon whether acquisition was for value or not. However, some authors consider – contrary to the dominant opinion315 – that a gift contract for goods that do not belong to the donator is invalid, thus hampering the bona fide acquisition of a movable, which would be given by the alienor.316 Protection of the bona fide acquirer is based – at least in part – on the publicity principle:317 possession renders public rights in rem over movables; the person relying in good faith on this means of publicity, on this apparent existence of a right, must be protected (whether the acquisition is for value or not being irrelevant).318 In addition, protection of the bona fide acquirer can be explained, inter alia, by the need to protect the security of transactions.319 The protection of the gratuitous bona fide acquisition is not compensated by a claim for unjustified enrichment against the bona fide acquirer: his enrichment would not be considered “unjustified”, as it is based on the law (Sect. 714.2, 933, 934 and 935 SCC). Claims of the former owner against the alienor (based for instance on the liability of the alienor as an illegitimate possessor320) are reserved.

314 315

316

317 318

319 320

Cf. Steinauer, no. 467; Rey, no. 2116c. See for instance: Steinauer, no. 441; Stark, no. 33 ad Vorbemerkungen Rechtsschutz Art. 930-937. See for instance: Thévenoz, Trusts, p. 265; Foëx, The Hague Trust Convention, p. 33. See supra, 1.1.2. See for instance: Steinauer, no. 418; Stark, no. 34 ad Vorbemerkungen Rechtsschutz Art. 930-937. For a critical view, see for instance: Guisan, p. 69. See Steinauer, no. 419. Sect. 938-940 SCC.

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Possession of the transferor

12.3.1. In general Possession by the transferor is required for the protection of the bona fide acquirer of a movable that has been entrusted to the transferor (Sect. 714.2 and 933 SCC).321

12.3.2. Dogmatic background The alienor, being possessor, has the appearance of a right to possess the movable; the person relying in good faith on this apparent existence of such a right is to be protected. Even more so in the case of movables that have been entrusted to the transferor, the (former) owner of the movable bears a responsibility in this appearance, since he entrusted the movable to the transferor. In the case of movables that have been lost, stolen or whose possessor has been dispossessed against his will (Sect. 934 SCC), and in the case of money and negotiable instruments to the bearer (Sect. 935 SCC), the protection of the bona fide acquirer rests more on the need to protect the security of transactions.

12.3.3. Forms of possession In the case of Sect. 933 SCC, the transferor must be in possession of a movable that has been entrusted to him, i.e. its possession must have been transferred to the transferor by the owner (or by the person to whom the owner entrusted the movable).322

12.4.

Possession by the acquirer

Transfer of possession to the acquirer is necessary, in compliance with the publicity principle.323

321 322 323

Steinauer, no. 431; Stark, no. 24 and no. 36 ad Sect. 933 SCC. See Steinauer, no. 425 et seq.; Stark, no. 24 et seq. ad Sect. 933 SCC. See supra, 1.1.2.

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In principle, all forms of transfer of possession324 can be used by the parties.325 However, the form chosen by parties may have an influence on the good faith of the acquirer.326 For example, if the parties resort to a delegation of possession,327 the acquirer will be deemed to be in good faith only if such transfer of indirect possession did not prevent him from being aware of circumstances that would have destroyed his good faith;328 the same principle will apply if possession is transferred to the acquirer by means of a constitutum possessorium:329 the acquirer will not be allowed to take advantage of the fact that, since the movable was not delivered to him, some circumstances or peculiarities of the movable, which would have hampered his good faith, did not come to his attention.330

12.5.

Specific requirements concerning the circumstances of the transfer

12.5.1. In general Swiss law does not subject the protection of the bona fide acquirer to such specific requirements. The circumstances of the transfer are taken into account in weighing the acquirer’s good faith.331 They also play a role in the application of Sect. 934.2 SCC, i.e. when ascertaining whether the bona fide acquirer is entitled to reimbursement of the price he paid when the (stolen, etc.) movable he acquired is reclaimed from him by its owner (the relevant time period provided in Sect. 934 SCC having not elapsed yet).332

12.5.2. Public auction Acquisition in a public auction plays a role in the application of Sect. 934.2 SCC.333

324 325 326 327 328 329 330 331 332 333

See supra, 2.3.2. and 5.4. Steinauer, no. 443; Stark, no. 81 et seq. ad Sect. 933 SCC. See Steinauer, no. 443a; Stark, no. 81 ad Sect. 933 SCC. On this form of transfer of possession, see supra, 2.3.2. and 5.4.10. See for instance Stark, no. 87 ad Sect. 933 SCC; Steinauer, no. 443a; Guisan, p. 78. On this form of transfer of possession, see supra, 2.3.2. and 5.4.9. See Stark, no. 85 ad Sect. 933 SCC; Guisan, p. 74. Infra, 12.7. Infra, 12.9. Infra, 12.9.

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Requirements regarding the way the original jowner “lost” the movable

12.6.1. Entrustment Entrustment of the movable to the transferor is a requirement of Sect. 933 SCC, not of Sect. 934 and 935 SCC.334

12.6.2. Null and void contract If the owner sells a movable to an acquirer and if this contract is null and void, the movable is deemed to be entrusted to such “acquirer”.335 Therefore if such “acquirer” in his turn transfers (sells, etc.) the movable to a third party, the latter acquires property of the movable if he is in good faith (Sect. 933 SCC). However, if the owner of the movable does not have the capacity to consent, then not only is the sales contract with the acquirer null and void (Sect. 18 SCC), but the movable will not be deemed to be entrusted to the “acquirer”;336 in this case, a good faith acquisition by a third party is possible only if the requirements of Sect. 934 (or 935) SCC are met.

12.7.

Good faith

12.7.1. Object and standard of good faith The bona fide acquirer is protected if he believes that the transferor is the owner of the movable or has the right to dispose of it.337 Actual knowledge that the transferor is neither the owner of the movable nor entitled to transfer the latter is tantamount to bad faith; an acquirer with such knowledge is therefore not protected. In addition, according to Sect. 3.2 SCC, a bona fide person who has failed to show the diligence required by the circumstances cannot invoke his good faith. For example, the acquirer of a used car sold at a remarkably low price, who ignores that the car is stolen, is technically in good faith (since he does not have positive knowledge of the fact the car is stolen);

334 335 336 337

See supra, 12.1 and 12.3. Steinauer, no. 430; Stark, no. 24 ad Sect. 933 SCC. Stark, no. 28 ad Sect. 933 SCC. Steinauer, no. 432; Stark, no. 55 et seq. ad Sect. 933 SCC.

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however, he will be prevented from invoking his good faith (and therefore will not benefit from a bona fide acquisition) if it can be established he did not show the diligence required by the circumstances (the low price should have driven him to request satisfactory explanations from the seller or to abstain from purchasing the price). According to the Swiss Federal Tribunal, acquirers must be particularly circumspect when acquiring secondhand items, especially used cars and antiquities.338

12.7.2. Time when good faith is required Good faith must exist at the moment of the acquisition, that is in principle at the moment possession is being transferred to the acquirer.339 In case the bona fide acquisition is based on Sect. 934 SCC (stolen movables, etc.), the acquirer must in addition remain in good faith until the relevant time period (five years since the dispossession for “ordinary” movables, 30 years in the case of cultural property) has lapsed.340

12.7.3. Burden of proof According to Sect. 3.1 SCC, good faith is presumed, where the law provides that the existence or the effect of a right depends on such good faith. The bona fide acquirer can invoke such (rebuttable) presumption.

12.8.

Lost and stolen movables

As stated above,341 the bona fide acquirer of a movable that was stolen or lost (or whose possessor was otherwise dispossessed against his will) is protected if a certain period of time (30 years for cultural property, five years for other movables [except for money and negotiable instruments to the bearer, which are governed by Sect. 935 SCC])342 has elapsed since the theft, loss or other dispossession (Sect. 714.2 and 934 SCC).

338 339 340 341 342

See for instance ATF 131 III 418/422. See also Steinauer, no. 434 and the citations. Stark, no. 79 ad Sect. 933 SCC see also: Steinauer, no. 432. Steinauer, no. 2071a; Stark, no. 29 ad Sect. 934 SCC. Supra, 12.1. See supra, 12.1.

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There are no specific legal definitions of stolen or lost movables. It is usually accepted that a movable that has not been entrusted, within the meaning of Sect. 933 SCC, is subject to Sect. 934 SCC.343

12.9.

Right to buy back

Swiss law does not provide a right of the original owner to buy back the movable from the good faith acquirer. Conversely, the bona fide acquirer is not entitled to require from the original owner that he buys back the movable from him. On the other hand, it should be noted that Sect. 934.2 SCC provides that when the former possessor successfully reclaims a movable that has been stolen or lost, or of which he has been otherwise dispossessed, the bona fide acquirer (who must return the movable, the time periods provided by Sect. 934.1 and 934.1bis SCC not having lapsed) is entitled to claim reimbursement of the price he paid, provided he purchased the movable on a market from a merchant dealing movables of the same kind, or at a public auction.

12.10. Good faith acquisition free of encumbrances In the case of a bona fide acquisition, rights in rem (pledge, usufruct, etc.) which encumbered the movable extinguish if the acquirer ignores their existence in good faith.344 It should be noted however that the acquirer will normally not ignore in good faith the existence of such rights: the movable will in principle be in direct possession345 of the holder of such rights in rem, who will therefore be in a position to draw the attention of the acquirer to the fact that the movable is encumbered. If possession is transferred to the acquirer by delegation of possession,346 Sect. 924.3 SCC provides that the direct possessor may enforce his right in rem against the person to whom possession is transferred by means of a delegation possession; and this is true even if the acquirer is in good faith.347

343 344 345 346 347

See Steinauer, no. 462; Stark, no. 2 ad Sect. 934 SCC. See Steinauer, no. 449; Stark, no. 63a and 89 ad Sect. 933 SCC. Supra, 2.1.4. Supra, 2.3.2 and 5.4.10. See for instance: Stark, no. 89 ad Sect. 933 SCC and no. 41 ad Sect. 924 SCC.

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12.11. Same rules if the good faith acquirer is a consumer? The foregoing also applies if the good faith acquirer is a consumer.

13.

“Acquisitive” prescription of movables

Acquisitive prescription (adverse possession) is governed by Sect. 661-663 SCC in the case of immovables, and by Sect. 728 SCC in the case of movables; these provisions are completed by Sect. 941 SCC, which allows the possessor fulfilling the requirements of adverse possession to add to his own possession period that of his predecessor, if the latter’s was also fulfilling such requirements.

13.1.

Functions of acquisitive prescription

It is usually accepted that acquisitive prescription is justified by the need to protect the security of transactions348 as well as legal certainty.349 This institution is not criticized by leading authors.

13.2.

Requirements of acquisitive prescription

13.2.1. Movables concerned Sect. 728 SCC governs acquisitive prescription of most movables, including negotiable instruments to the bearer or to the order. Sect. 728 SCC also applies to cultural property, but Sect. 728.1ter SCC requires the fulfillment of a longer time limit, i.e. 30 years (instead of the five years required by Sect. 728.1 SCC). In the case of domesticated animals, which are not kept as investment or for commercial purposes, the time period is two months (Sect. 728.1bis SCC). Sect. 728 SCC is also applicable to stolen movables, when the requirements of Sect. 934 and 714.2 SCC are not met (i.e.: a stolen item is transferred to a bona fide acquirer under an invalid sales contract; the acquirer does not become the owner under Sect. 934 SCC for lack of a causa;350

348 349 350

See for instance Steinauer, no. 1577. Laim, no. 5 ad Sect. 661-663 SCC. Steinauer, no. 2071a. See however Stark, no, 34a ad Sect. 934 (who holds the view that acquisition under Sect. 934 SCC does not require a valid causa).

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however, if [and when] such acquisition meets the requirements of Sect. 728 SCC, the acquirer will acquire ownership of the stolen movable). On the other hand, Sect. 728 SCC does not apply to movables not governed by private law, or to aircrafts and ships registered in ad hoc registries, or to energy.351 In addition, Sect. 724 provides that ownerless natural curiosities and antiquities of scientific interest become the property of the Canton where the immovable, in which they are found, is located and that they cannot be acquired by adverse possession or in good faith. Lastly, it should be noted that as long as the action for recovery of inheritance (Sect. 598 SCC) is not time-barred, the acquisition by prescription of movables belonging to the estate is not opposable against the heirs.

13.2.2. Acquirer’s possession The acquirer must possess the movable with the intent to possess it as its owner (Sect. 728.1 SCC). The law does not require that he be the sole possessor: he may be the indirect possessor, provided his possession is originary.352 It is usually accepted that a (rebuttable) presumption of the intent to possess as the owner can be derived from Sect. 930.1 SCC (which provides that the possessor of a movable is presumed to be its owner).353 In addition, the origin of the possession must be peaceful: the acquirer by prescription must have acquired his possession neither by violence, nor secretly, nor under equivocal circumstances. Moreover, his possession must remain unchallenged and uninterrupted (Sect. 728.1 SCC). Sect. 728.2 SCC provides that the involuntary loss of possession does not interrupt the prescription if the possessor repossesses the movable within one year (or by means of a legal action brought within one year).

13.2.3. Title Per definition under Swiss law, no title is required in order to acquire ownership by prescription. Typically, the acquirer will invoke Sect. 728 SCC precisely if he has no title, for instance because it is discovered that the contract that was to convey ownership to him is invalid. This being said, Sect. 728 SCC does not even require a “putative” title:354 for instance, a heir who ignores that a movable found in the estate of the deceased does not belong to

351 352 353

Steinauer, no. 2111a; Zobl, no. 20 ad Sect. 728 SCC; Rey, no. 1990 et seq. Steinauer, no. 2111b; Rey, no. 2000. See Steinauer, no. 2111b; Schwander, no. 4 ad Sect. 728 SCC.

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him may acquire ownership by prescription;355 this would also be the case for a person who believes to acquire an ownerless movable by means of occupation (Sect. 718 SCC),356 where in fact the movable has an owner.357 354

13.2.4. Role of good faith Sect. 728.1 SCC requires that the person acquiring ownership of a movable by prescription be in good faith. Such good faith must exist not only at the time possession is acquired, but also during the entire duration of the prescription period. To be in good faith, the acquirer must excusably ignore the legal reasons or factual circumstances that prevent him from being the owner.358 The acquirer must believe that he is the owner of the movable and that he does not infringe on the rights of another person.359 It has been ruled that when the circumstances are difficult to assess, the acquirer whose assessment is incorrect is still in good faith, if his view is arguably plausible.360 According to Sect. 3.1 SCC, good faith is presumed where the law provides that the existence or the effect of a right depends on such good faith. The acquirer by prescription can invoke such (rebuttable) presumption. However, Sect. 3.2 SCC provides that a bona fide person who has failed to show the diligence required by the circumstances cannot invoke his good faith; such would for instance be the case of an acquirer who does not clarify the situation when the movable is being reclaimed by a third party during the time period of the prescription.361

13.2.5. Prescription periods The prescription period according Sect. 728.1 SCC is five years. The period is 30 years if the movable is a piece of cultural property (Sect. 728.1ter SCC)

354

355 356 357 358 359 360 361

Steinauer, no. 2111b, who remarks that the presence of such a “putative” title helps the acquirer in proving he is in good faith and possesses the movable as its owner; see also Rey, no. 1981; Liver, p. 391. Zobl, no. 6 ad Sect. 728 SCC; Rey, no. 1988. See below, 14. Zobl, no. 7 ad Sect. 728 SCC; Liver, p. 390. Steinauer, no. 2111d; Zobl, no. 36 et seq. ad Sect. 728 SCC. Schwander, no. 7 ad Sect. 728 SCC. ATF 94 II 297; see also Steinauer, no. 2111d. See also Steinauer, no. 2111d.

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and two months in the case of domesticated animals, which are not kept as investment or for commercial purposes (Sect. 728.1bis SCC). Sect. 941 SCC enables the possessor fulfilling the requirements of adverse possession to add to his own possession period that of his predecessor, if the latter was also fulfilling such requirements. In addition, Sect. 728.3 SCC provides that the computation, interruption and suspension of the time periods are governed by the provisions on time limitations of claims; specifically, Sect. 132 and 134-139 SCO are applicable.362 In other words, the prescription period does not start to run (or is suspended), if the acquirer and the owner are tied by a particular personal relationship363 or as long as it is impossible to bring the case in front of a Swiss court.364 Moreover, the prescription period is interrupted if the acquirer acknowledges the owner as such or if the owner initiates proceedings against the acquirer in order to regain the movable;365 involuntary loss of possession for a period exceeding one year366 and loss of good faith367 also interrupt the prescription period. When the cause of such an interruption ceases to exist, a new prescription period runs anew.368

13.2.6. Consequences When the requirements of Sect. 728 SCC are fulfilled, the acquirer becomes the owner of the movable. The former owner loses his ownership, and the other rights in rem that encumbered the movable are extinguished if the acquirer ignored in good faith their existence.369

362 363

364 365

366

367 368

369

Steinauer, no. 2111f; Zobl, no. 47 et seq. ad Sect. 728 SCC. Such as the relationship existing between spouses, between a parent and a child, between an employer and an employee, etc. Sect. 134 SCO and Sect. 728.3 SCC. See Zobl, no. 47 et seq. ad Sect. 728 SCC; Rey, no. 2011. Sect. 134.1.5 SCO and Sect. 728.3 SCC. See Zobl, no. 47 ad Sect. 728 SCC. Sect. 135 SCO and Sect. 728.3 SCC. See Zobl, no. 52 et seq. ad Sect. 728 SCC; Rey, no. 2009. Sect. 728.2 SCC (which provides that an involuntary loss of possession does not interrupt the prescription period, provided the acquirer repossesses the movable [or brings legal action to regain it] within one year); see Zobl, no. 51 ad Sect. 728 SCC; Rey, no. 2008. Zobl, no. 55 ad Sect. 728 SCC. Sect. 137.1 SCO and Sect. 728.3 SCC. Zobl, no. 56 ad Sect. 728 SCC; Rey, no. 2010. Steinauer, no. 2112; Zobl, no. 62 et seq. ad Sect. 728 SCC.

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The owner who loses ownership due to adverse possession by a third party is not entitled to claim compensation for tort or for unjustified enrichment.370

13.3.

Prescription of ownership

The right of ownership is not subject to extinctive prescription under Swiss law. There are a few exceptions to that rule. For instance, the duration of the right to built servitude is in principle limited to 100 years (Sect. 779l SCC); the beneficiary of such a servitude is the owner of the building built in compliance with his servitude (Sect. 779 and 675 SCC), but such ownership is limited to 100 years. More generally, it can be considered that the duration of ownership is (potentially) limited when a third party is in the course of acquiring such ownership by virtue of the accomplishment of a time period (acquisition by prescription [Sect. 728, 661 and 662 SCC],371 bona fide acquisition of a stolen movable [Sect. 934 SCC],372 or acquisition of a lost movable by its finder [Sect. 722 SCC]).373

14.

Other forms of originary acquisition

In addition to accession, commixture, confusion, specification, bona fide acquisition and adverse possession, Swiss law recognizes the following forms of originary acquisition: – occupation (Sect. 718 SCC), where ownership of an ownerless movable (other than a movable falling under the provisos of Sect. 723 and 724 SCC) is acquired by direct possession with the intent of becoming its owner; – acquisition by the finder (Sect. 720-722 SCC), where the finder of a movable that has been lost becomes its owner five years after finding it (Sect. 722.1 SCC) – or two months after finding it in the case of an animal kept as a pet and not as an investment or for commercial purposes (Sect. 722.1bis SCC) – and provided he has complied with his

370

371 372 373

Steinauer, no. 2112; Schwander, no. 12 ad Sect. 728 SCC. Both authors seem to accept that some exceptions may apply, citing Huwiler, p. 99 et seq. See furthermore Rey, no. 2015 et seq. See above, 13. See above, 12.1.3. See below, 14.

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–

–

–

– – –

374

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duties as finder (Sect. 720-721), and that the owner has not been found during the relevant time period;374 treasure trove (Sect. 723 SCC), where a precious movable (other than the movables falling under the proviso of Sect. 724 SCC) is found and it seems certain – at the time of discovery – that such movable is ownerless and has been hidden or buried for a long time, the movable becoming the property of the owner of the movable, or the immovable, in which it is found (the third party finder, if any, being entitled to a reward not exceeding half of the movable’s value); acquisition of movables presenting a scientific interest (Sect. 724 SCC), where ownerless natural curiosities and antiquities of scientific interest become the property of the Canton where the immovable in which they are found is located, the finder – as well as the owner of the immovable, if the object found is a precious movable within the meaning of Sect. 723.1 SCC – being entitled to a reward not exceeding the value of the movable of scientific interest; acquisition by the effect of a judicial decision (Sect. 665.1 CC per analogiam), where for instance the owner refuses to comply with his obligations resulting form a sales contract and the judge awards the ownership to the buyer; expropriation of property; acquisition of ownership through forced sale at the conclusion of debt collection proceedings; acquisition of a swarm of bees by the owner of a beehive, if such swarm flies into his beehive already occupied by other bees (Sect. 725.2 SCC).

According to Sect. 725.1 SCC, Sect. 720-722 SCC also apply to movables that are brought by water, wind, an avalanche, by another natural force or fortuitously into the control of a third party, as well as to animals straying on his property.

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Part IV: Additional questions 15.

Which are the rules on reservation of title?

15.1.

Requirements

Reservation of title is governed by Sect. 715 SCC. Transferor and transferee may agree on a reservation of title, unless the object to be transferred is an immovable (Sect. 217.2 SCO), a head of livestock (Sect. 715.2 SCC), a registered aircraft or a registered ship.375 It is usually admitted – although not universally376 – that the parties may agree on a reservation of title only in relation to a contract whose aim is to transfer ownership against consideration (sales contract, barter contract, work contract, but not a donation contract, for instance).377 Unless it is inserted into a sales contract involving consumer credit,378 the reservation of title agreement is not subject to a form requirement. However, according to Sect. 715.1 SCC, a reservation of title is effective only if it has been registered with the ad hoc register kept by the debt collection office of the present domicile of the transferee.

15.2.

Effects

The effect of registration is that ownership of the movable will remain with the transferor until the transferee has complied with his obligations (payment of the sales price, etc.);379 until then, the transferor does not acquire ownership and, if possession has been transferred to him, the mov-

375 376 377 378

379

Steinauer, no. 2032. See Foëx, Les nouvelles fonctions, p. 463. See Steinauer, no. 2033. See also Rey, no. 1737. Sect. 9 et seq. of the Federal Law on consumer credit, of March 23, 2001 (SCFL no. 221.214.1). The agreement must in this case be in writing. Steinauer, no. 2046. For some authors, however, the reservation of title does not prevent the passing of ownership to the transferee: according to their views, the transferee acquires conditional ownership, which returns to the transferor if the transferee does not comply with his obligations (see for instance Liver, p. 341).

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able is deemed to be entrusted to him380 within the meaning of Sect. 933 SCC.381 Third parties are not deemed to have knowledge of a reservation of title duly registered. In other words, a reservation of title duly registered does not prevent a third party from being bona fide and from acquiring ownership by virtue of Sect. 714.2 and 933 SCC, if the acquirer under title reservation transfers the movable to him;382 however, the Swiss Federal Tribunal has held that professional used car dealers must search the registry before buying a used car, lest they be prevented from invoking their good faith (for want of showing the diligence required by the circumstances; Sect. 3.2 SCC).383 If no registration is effected and possession is transferred to the alienee, the latter becomes the owner of the movable notwithstanding the reservation of title;384 if the reservation of title is registered at a later stage, ownership is retransferred to the transferor, although without retroactive effect (i.e.: ex nunc).385

15.3.

Default of the transferee

If the transferee does not comply with his obligations, the transferor, whose retention of title has been duly registered, may either avoid the contract (Sect. 107 SCO) and claim recovery of the movable (being his property, Sect. 641.2 SCC),386 as well as compensation for the related damage (while reimbursing the amount paid by the transferee, as the case may be), or he may initiate debt collection proceedings to obtainment payment of the contractual amount still owed to him, as well as the related damage. If he chooses this second option, the transferor will in principle be deemed to renounce the title retention.387

380 381 382

383 384 385 386 387

Steinauer, no. 2047; Stark, no. 24 ad Sect. 933 SCC. See supra, 12.1. Steinauer, no. 2047 and no. 2044; Schwander, no. 6 ad Sect. 715 SCC; Rey, no. 1746a. ATF 113 II 397 / 400. Steinauer, no. 2041; Schmid / Hürlimann-Kaup, no. 1108; Rey, no 1746a. Steinauer, no. 2039; Schmid / Hürlimann-Kaup, no. 1106. See supra, 1.4.1. Steinauer, no. 2051, who criticizes this solution.

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15.4.

Title reservation and debt collection proceedings

If the movable transferred under a duly registered reservation of title is seized by the acquirer’s creditors in the course of debt collection proceedings, the transferor will in principle be deemed to have a security interest in the movable, which will therefore be realized to reimburse him, any surplus being allotted to the acquirer’s other creditors.388 If such acquirer under duly registered reservation of title files bankruptcy, the creditors will be entitled to enter the contract between the transferor and the transferee(Sect. 211.2 SDCB), in which case the transferor is paid and the movable becomes part of the bankruptcy estate; if the creditors do not enter the contract, the transferor is allowed to opt between reclaiming the movable (and reimbursing the amount he may have received from the transferee) or abandoning the property and filing in the bankruptcy proceedings his claim for the amount still due to him.389 If the transferor files for bankruptcy, the creditors may exercise the rights of the transferor deriving from the reservation of title agreement and from the movable’s ownership.

15.5.

Extension of the reservation of title

As pointed out above,390 specification, accession, commixture and confusion render ineffective a reservation of title concerning the object that ceases to exist as such, as a consequence of such specification, commixture or accession. Leading authors dispute this conclusion as far as commixture and confusion are concerned;391 however, they fail to explain how the reservation of title can extend by subrogation to the share in the joint ownership (or to the new object) resulting from such commixture or confusion.392 Reservation of title agreements secure the payment of the compensation for the movable;393 they cannot be extended to cover other claims of the transferor or to cover the proceeds of a resale by the transferee.394

388 389 390 391 392 393 394

Steinauer, no. 2056 et seq.; Schmid / Hürlimann-Kaup, no. 1117. Steinauer, no. 2051a. See supra, 11.4.2. See supra, 11.4.2. See Foëx, Les nouvelles fonctions, p. 467. ATF 102 III 150. ATF 102 III 150; Steinauer, no. 2027. Contra: Rey, no. 1758.

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16. Abandonment and further ways to lose ownership

16.

Abandonment and further ways to lose ownership

16.1.

Abandonment

235

Under Swiss law, the owner of a movable may relinquish his ownership: it suffices that he abandon his possession of the movable with the intent to renounce his ownership (Sect. 729 SCC). Such abandonment of ownership requires legal capacity of the relinquisher.395 It does not affect the rights in rem and the personal rights encumbering the movable.396

16.2.

Further ways to lose ownership

The following alternative ways to lose ownership may be mentioned (apart from the cases where ownership is lost as a result of ownership acquisition by a third party):397 – destruction of the movable; – consumption of the movable; – loss of ownership of a captured animal, if the animal escapes and the owner does not make immediate and continuous searches to recapture it (Sect. 719.1 SCC); – loss of ownership of a tame animal, when the animal returns to its untamed state (Sect. 719.2 SCC).

17.

“Co-ownership”

17.1.

Forms of co-ownership

Swiss law recognizes two forms of co-ownership: – co-ownership (stricto sensu) (Sect. 646-651a SCC), where each co-owner is the beneficiary of a share in the (movable or immovable) property, which he can alienate or give as security (by pledging the share or hypothecating it as the case may be) and which can be seized by his creditors (Sect. 646.3 SCC); – co-ownership of a multiple-unit land property (Sect. 712a-712t SCC), where each co-owner is the beneficiary of a share in the (immovable) property, which he can dispose of individually, and to which the exclu-

395 396 397

Steinauer, no. 2130; Rey, no. 2024. Steinauer, no. 2132a; Rey, no. 2026. See Steinauer, no. 2132b. See also Zobl, no. 19 et seq. ad Sect. 729 SCC.

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sive right to use and to equip a unit (apartment or commercial premises) in the building is attached (Sect. 712a.1 SCC). Swiss law recognizes a third form of property owned simultaneously by more than one person: common ownership (Sect. 652-654a SCC), where the owners in common are bound by a pre-existing community (based on contract or on a legal provision; Sect. 652 SCC) and where the rights regarding the (movable or immovable) property can only be exercised by common decision (save where otherwise provided by the rules governing their community; Sect. 653.2 SCC).

17.2.

Transfer of co-ownership (stricto sensu)

Each co-owner can alienate his share individually (Sect. 646.3 SCC); however, in the case of co-ownership of an immovable, the other coowners have a pre-emption right against the alienee, if he (the alienee) is not already himself a co-owner of the immovable at stake (Sect. 682.1 SCC). If the co-owners intend to alienate the actual movable or immovable that they hold in co-ownership, a unanimous decision is required (unless they have unanimously agreed otherwise; Sect. 648.2 SCC).

17.3.

Separation and termination

Sections 650-651a SCC govern the termination of co-ownership. As pointed out above,398 each co-owner can request the termination of the co-ownership, unless the co-owners have previously agreed not to do so (for a maximum period of 30 years) or if the movable in co-ownership is dedicated to a long-standing purpose (or if the co-ownership is a co-ownership of a multiple-unit land property) (Sect. 650.1 and 650.2 SCC). Sect. 650.3 SCC adds that termination of co-ownership cannot be requested at an inappropriate time. If the parties cannot agree, each co-owner can request the judge to terminate the co-ownership. According to Sect. 651.1 SCC, dissolution of co-ownership takes place either by dividing in kind, by dividing the proceeds of the movable’s sale (by private sale or by auction), or by letting one or more co-owners buy out the other co-owners. Sect. 651.1 SCC provides that if the co-owners cannot agree on the way to dissolve the co-ownership, the judge should order a dividing in kind, unless such dividing in kind would diminish notably 398

See supra, 11.4.1.

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the value of the movable (in which case he should order the sale by auction, open either only to the co-owners or to the public). However, if the co-ownership of a domesticated animal (which is not kept as investment or for commercial purposes) is at stake, the judge should award individual ownership of the animal to the co-owner who represents the best solution for the animal from the point of view of the protection of the animal (Sect. 651a.1 SCC).

18.

Particular issues as to unspecified goods

18.1.

Transfer of shares in an identified bulk

There are no specific provisions in Swiss law governing the transfer of shares deposited in bulk. A draft law on intermediated securities is pending in front of the Swiss parliament, together with the proposal to ratify the Hague Convention on the law applicable to certain rights in respect of securities held with an intermediary.399 In the meantime, the legal regimen applicable to the ownership of shares deposited in bulk results from the application per analogiam of Sect. 727 SCC and 484 SCO, as well as from the various agreements between the interested parties. In short, the shares of a “same kind”, which are deposited in bulk, are deemed to be in co-ownership of the shareholders – each shareholder having a share in the ownership corresponding (in proportion) to the number of shares he holds. This co-ownership differs from the co-ownership of Sect. 646 et seq. SCC (which are otherwise applicable). Since the shareholders do not really form a community and since each co-owner can depart from the co-ownership by requesting at any time that a number of shares corresponding to his share in the bulk be handed over to him (without terminating and dissolving the co-ownership; Sect. 484.2 SCO).400 The transfer of shares thus deposited in bulk is subject to the ordinary rules governing the transfer of a share in a co-ownership: in addition to the underlying causa, a real agreement and the transfer of possession are necessary. Typically, the bank will buy the shares sold by its client (possession being transferred by brevi manu traditio);401 the bank will then sell the shares to a third party acquirer (possession being transferred by constitutum

399 400

401

FF 2006 p. 8817 et seq. See for instance: Zobl, no. 94a et seq. ad Sect. 727 SCC; Foëx, Transfert et engagement, p. 58 et seq. See supra, 2.3.2. and 5.4.8.

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possessorium402 if the acquirer is a client of the bank and by delegation of possession403 if this is not the case).404

18.2.

Floating charge

Swiss property law is governed by a numerus clausus,405 which does not include floating charges. Consequently, a floating charge cannot be validly created under Swiss substantive law. On the other hand, it is possible to create a pledge on goods deposited in a warehouse (or securities deposited in a bank account), provided the pledgee retains exclusive control over the warehouse (on the account). This does not prevent the parties from agreeing that the pledgor will be granted access to the warehouse (to the account) and will be allowed to remove goods (securities) (which will no longer be subject to the pledge) and to replace them with other goods (securities) (which will be pledged henceforth).406

19.

Consequences of restitution of the movable to the owner

Sections 938-940 SCC govern the rights and liability of the illegitimate possessor;407 the regimen differs whether the illegitimate possessor is in good faith (Sect. 938 and 939 SCC) or in bad faith (Sect. 940 SCC), with the proviso that both regimens may apply successively, for instance if the bona fide possessor learns that he has no right to possess the (movable or immovable) property (mala fides superveniens nocet).408 Sections 938-940 SCC are applicable when restitution takes place, based on Sect. 641.2, 927, 934 or 936 SCC,409 or when the law otherwise declares them applicable.410 They do not govern the situations where the possessor was the holder of a right in rem or of a personal right that ceased 402 403 404 405 406

407 408 409 410

See supra, 2.3.2. and 5.4.9. See supra, 2.3.2. and 5.4.10. See for instance Foëx, Transfert et engagement, p. 62 et seq. See supra, 1.1.2. See for instance: Zobl, Das Fahrnispfand, no. 393 et seq. ad Sect. 884 SCC; Bauer, no. 35 ad Sect. 884 SCC. On the notion of illegitimate possession, see above, 2.1.4. See Steinauer, no. 501; Stark, Vorbemerkungen Verantwortlichkeit, no. 7. Steinauer, no. 497; Schmid / Hürlimann-Kaup, no. 338. Steinauer, no. 497; Schmid / Hürlimann-Kaup, no. 340. See for instance Sect. 560.3 SCC.

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to exist: restitution is then governed by specific rules concerning the (real or personal) right at stake411 or by the general rules of the SCO. Sections 938-940 SCC would govern most of the situations envisioned by the section of the questionnaire provided by the editors that specifically deals with the issues of the consequences of restitution of the movable to the owner. For instance, restitution by a person who has stolen or found a movable412 would typically fall under Sect. 940 SCC; whereas restitution by a transferee, where the underlying contract is null and void, or by the acquirer of a stolen movable, would fall under Sect. 938-939 or 940 SCC depending on whether the possessor can be considered in good faith or not. The same can be said of the restitution of a movable acquired from a non-owner or of the restitution of a movable in case of a right to use granted by a non-owner (provided there were no bona fide acquisition). When Sect. 938-940 SCC are applicable, they take precedence over the rules governing liability for unlawful acts (Sect. 41 et seq. SCO), the rules concerning unjustified enrichment (Sect. 62 et seq. SCO), as well as over the rules governing the conduct of business without mandate (Sect. 419 et seq. SCO).413

19.1.

Entitlement to benefits (“fruits”) of the movable

19.1.1. Restitution under Sect. 938-940 SCC Sect. 938.1 SCC provides that the illegitimate possessor, who has exercised the right he presumed in good faith he was the beneficiary of (“putative right”), is not liable to the person to whom he must return the movable. The bona fide illegitimate possessor is therefore not liable for the (civil and natural) fruits he collected (if such collection was covered by the right he thought to be the holder of). On the other hand, Sect. 940 SCC provides that the illegitimate possessor in bad faith must compensate the owner for all damage resulting from his undue possession, including the (natural and civil) fruits he collected or neglected to collect. The liability of the mala fide is therefore not limited to fruits he collected, but extends to (natural and civil) fruits he could have collected414 had he acted reasonably. It should be added, however, that Sect. 940.3 SCC provides that the possessor is liable only for the damage 411 412 413 414

Steinauer, no. 498; Schmid / Hürlimann-Kaup, no. 341. See Steinauer, no. 2094a. See however Liver, p. 355. Steinauer, no. 496; Schmid / Hürlimann-Kaup, no. 336. Stark, no. 22 ad Sect. 940.

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for which he is at fault as long as he does not know to whom he should return the movable. The question whether the owner needs to reimburse the possessor for the fructification expenses (seeds, raw materials, etc.) will be dealt with below.415

19.1.2. Restitution after the right to use the movable has ended In a situation where the right to use the movable included the right to collect the benefits from the movable,416 then benefits are not to be returned upon termination of this right. The owner would however be entitled to compensation for the benefits collected by the possessor in bad faith after the contract or the right in rem has expired, on the basis of Sect. 423.3 SCO. A provision of an usufructuary lease, whereby the usufructuary lessee undertakes in advance to pay an indemnity for the benefits resulting from the movable during the period of validity of the lease, would be null and void.417 By contrast, in a situation where the right to use the movable did not include the right to perceive the benefits from the movable,418 then the benefits are to be returned to the owner together with the movable upon termination of this right. While no Swiss court decision dealing with this specific issue can be found, we are of the opinion that, in such a case, the person having collected the benefits form the movable would be deemed to have conducted the owner’s business without mandate within the meaning of Sect. 419 et seq. SCO. As a consequence, in spite of the fact that the conduct of the business was not in the principal’s interest, the latter may nevertheless appropriate for himself the benefits resulting from the other person’s acts.419

19.1.3. Restitution in case the contract is void, avoided, or terminated In case the contract is void or avoided ex tunc (with retroactive effect), then the general rules dealing with restitution of the movable to the legitimate owner (Restitution under Sect. 938-940 SCC) apply. 415 416

417 418

419

Infra, 19.3.1. For example where this right is a usufruct (Sect. 756 SCC) or a usufructuary lease (Sect. 275 SCO). Sect. 299.4 SCO. For example where this right is a pledge over the movable, or an ordinary lease agreement. Sect. 423.1 SCO. See however Sect. 890 SCC in the case of a pledge.

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If the contract is terminated because of the debtor’s default, or because the movable is defective, then the transferor may reclaim the movable delivered on the basis of the contract.420 In that case, however, the transferor’s claim is of contractual nature only (i.e. in spite of the contract termination, the transferee is still the owner of the movable, but he has a contractual duty to return it to the transferor).421 The contractual obligation to return the movable includes a contractual obligation to return the benefits and fruits resulting from the movable that were collected by the transferee. This is expressly provided in Sect. 208.1 SCO (termination in case the movable is defective). This rule applies by analogy to the obligation to return the movable in case of termination of the contract because of the debtor’s default.422

19.2.

Loss and deterioration of the movable

19.2.1. Restitution under Sect. 938-940 SCC Section 938.2 SCC provides that the bona fide illegitimate possessor is not liable for the loss of the movable or for its deterioration. In other words, the illegitimate possessor will need to compensate such loss or deterioration if such compensation would be owed according to the rules governing his putative right.423 It results from Sect. 940.1 SCC that the illegitimate possessor in bad faith is liable in case of loss or deterioration,424 again with the proviso that he is only liable for the damage for which he is at fault, as long as he does not know to whom he should return the movable (Sect. 940.3 SCC).

19.2.2. Restitution after the right to use the movable has ended In a situation where a party was the legitimate possessor of the movable, on the basis of a contractual right or of a right in rem, then Sect. 938-940 SCC do not apply. Special provisions of Swiss law would deal with loss and deterioration of the movable, depending on the nature of this right:

420 421 422 423 424

Sect. 109.1 SCO and Sect. 208 SCO. ATF 114 II 152. Thévenoz, no. 12 ad Sect. 109 SCO. Steinauer, no. 508; Stark, no. 5 ad Sect. 938 SCC. Steinauer, no. 519 et seq.; Stark, no. 5 ad Sect. 940 SCC.

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– Usufruct: the owner would be entitled to claim damages on the basis of Sect. 752 SCC. The beneficiary of the usufruct is however released from this liability if he proves that the loss or deterioration took place without any fault on his side. The owner’s claim for compensation is time barred after one year from restitution of the movable.425 – Pledge: the owner would be entitled to claim damage on the basis of Sect. 890 SCC. The pledgor is however released from his liability if he proves that the loss or deterioration took place without any fault on his side. – Contract. Damage to a movable belonging to a third party is a tort that would cause the damaging party to be liable in tort vis-à-vis the owner of the movable.426 In addition to this general rule, the contractual liability of the owner may be based on specific provisions, depending on the type of contract. In the context of a lease agreement, the lessee would assume a contractual liability on the basis of Sect. 267 SCO, provided however the lessor has examined the condition of the movable upon return and immediately notified defects to the lessee.427 If the lessor fails to do so, he forfeits his claim except with regard to defects not recognizable by an examination according to customary practice.428

19.2.3. Restitution in case the contract is void, avoided, or terminated In case the contract is void or avoided ex tunc (with retroactive effect), then the general rules dealing with restitution of the movable to the legitimate owner (restitution under Sect. 938-940 SCC) apply. If the contract is terminated because of the debtor’s default, or because the sold movable is defective, then the transferor may reclaim the movable delivered on the basis of the contract.429 In case of loss due to deterioration, the situation is as follows: – Termination in case of defective product. If the product was lost or deteriorated prior to the termination, due to the defect, then the buyer is only to return the remaining part of the movable.430 If the movable was destroyed due to the fault of the buyer, termination is not allowed.431 425 426 427 428 429 430 431

Sect. 754 SCC. Sect. 41 SCO. Sect. 267a.1 SCO. Sect. 267a.2 SCO. Sect. 109.1 SCO and Sect. 208 SCO. Sect. 207.2 SCO. Sect. 207.3 SCO.

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If the movable is lost or deteriorated after termination, but prior to its restitution, then Seq. 890 SCC (loss or deterioration of pledged property) is to apply by analogy.432 – Termination in case of debtor’s default. The question of whether, under Swiss law, the party to return the movable is only liable in case of fault or has to indemnify the other party irrespective of his fault, is disputed.433 In our opinion, the provisions of Seq. 890 SCC (indemnification only in case of fault) are to be applied by analogy, as was decided by the Swiss Supreme Court in the context of the obligation to return defective products.

19.3.

Reimbursement for improvements and expenses

19.3.1. Restitution under Sect. 938-940 SCC According to Sect. 939.1 SCC, the bona fide illegitimate possessor can claim reimbursement of the “necessary” expenditures and of the “useful” expenditures he made for the movable he illegitimately possessed. He cannot claim for reimbursement of other expenditures (so called “sumptuary” expenditures; impensae voluptuariae), but is entitled to remove (ius tollendi) the items he has attached to the movable, provided such separation can intervene without damage (and provided the owner does not offer to indemnify him). It should be noted however that Sect. 939.3 SCC provides that the value of the fruits collected by the possessor (as well as of the other benefits he derived from the property, such as the use of the car he possessed illegitimately)434 is to be deducted from what is owed to him on account of his expenditures. Expenditures are here defined as expenses voluntarily made in favour of a movable owned by a third party, such as expenses made to maintain, repair or preserve the movable.435 They may include the payment of insurance fees or of taxes concerning the movable, of mortgage interests,436 or of expenses made for the production of natural fruits (seeds) that the possessor could not harvest before he returned the movable. The law does not specify how to distinguish “necessary”, “useful” and “other” expenditures. Guidance in this respect is to be found in Sect. 647c, 647d and 647e SCC,

432 433 434 435 436

ATF 109 II 26. Thévenoz, no. 7 and no. 8 ad Sect. 109 SCO, with references. Steinauer, no. 511a; Stark, no. 16 ad Sect. 939 SCC. Steinauer, no. 509; Stark, no. 3 ad Sect. 939 SCC. Steinauer, no. 509; Stark, no. 3 ad Sect. 939 SCC.

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which define “necessary”, “useful” and “sumptuary” works in the field of co-ownership.437 Sect. 940.2 SCC provides that the mala fide illegitimate possessor is entitled to reimbursement only of the necessary expenditures, with the additional requirement that the owner would also have had to incur such expense. For example, the mala fide possessor is not entitled to claim for the reimbursement of the (necessary) reparation of the brakes of a car, if the intent of the owner was to jettison this vehicle and buy a new one. Some authors consider that Sect. 939.2 SCC is applicable per analogiam to “useful” and “sumptuary” expenditures made by the mala fide possessor,438 who would therefore be entitled to a ius tollendi (right of removal), provided the separation can intervene without damage (and provided the owner does not offer to indemnify him).

19.3.2. Restitution after the right to use the movable has ended In a situation where a party was the legitimate possessor of the movable, on the basis of a contractual right or of a right in rem, then Sect. 938-940 SCC do not apply. The right of the legitimate possessor to claim reimbursement or expenses would be based on the rules dealing with the conduct of business without mandate: – The conducting of business was done in the interest of the principal (owner). The principal (owner) is to reimburse the possessor for all expenses that were necessary or useful and reasonable under the circumstances.439 The possessor is entitled to such compensation even if the intended result is not achieved, provided due care was exercised.440 For unnecessary, useless or unreasonable expenses, the possessor is only entitled to remove the items he has attached to the movable, provided such separation can intervene without damage (and provided the owner does not offer to indemnify him).441 – The conducting of business was not done in the interest of the principal (owner). The principal (owner) is only to indemnify the possessor to the extent that he will benefit from the expenses or improvement made by the possessor.442

437 438 439 440 441 442

See Steinauer, no. 510; Schmid / Hürlimann-Kaup, no. 353. Steinauer, no. 522a; Hinderling, p. 517. Contra: Stark, no. 31 ad Sect. 940 SCC. Sect. 422.1 SCO. Sect. 422.2 SCO. Sect. 422.3 SCO. Sect. 423.2 SCO.

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The application of the rules dealing with the conduct of business without mandate is confirmed by Sect.753 SCC. This provision, which applies to usufructs, expressly mentions that the beneficiary of the usufruct is entitled to claim for indemnity in case of improvement or expenses on the basis of the rules dealing with the conduct of business without mandate.

19.3.3. Restitution in case the contract is void, avoided, or terminated In case the contract is void or avoided ex tunc (with retroactive effect), then the general rules dealing with restitution of the movable to the legitimate owner (restitution under Sect. 938-940 SCC) apply. If the contract is terminated because of the debtor’s default, or because the sold movable is defective, then the transferor may reclaim the movable delivered on the basis of the contract.443 The party to return the movable may request indemnification for improvement and expenses on the basis of Sect. 65 SCO.444 The right to reimbursement is limited to necessary and useful expenditures. As regards other expenditures, the party to return the movable may claim no reimbursement, but may remove whatever he has added prior to returning the movable, to the extent that such removal is possible without damaging the movable itself.

19.4.

Possessor’s right to retain the movable

19.4.1. Restitution under Sect. 938-940 SCC According to Sect. 939.1 SCC, the bona fide illegitimate possessor is entitled to retain the asset as long as the “necessary” expenditures and the “useful” expenditures have not been reimbursed to him. Such right to retain is not a right in rem and is in particular not a retention right (as provided for instance by Sect. 895 SCC); it does not allow the possessor to retain the asset in case his claim for indemnification is not satisfied by the owner.445 Section 940 SCC provides no right to retain the movable by an illegitimate possessor in bad faith. However, several authors favour a per analogiam application of Sect. 939.1 SCC in this case, thus allowing the mala fide possessor to retain the movable until reimbursement of the “nec443 444 445

Sect. 109.1 SCO and Sect. 208 SCO. Thévenoz, no. 12 ad Sect. 109 SCO. Steinauer, no. 512; Stark, no. 26 ad Sect. 939 SCC.

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essary” expenditures (within the meaning of Sect. 940.2 SCC) has intervened.446

19.4.2. Restitution by a legitimate possessor In a situation were a legitimate possessor is to return the movable, because the right to possess it comes to an end, or because the contract is terminated in case of the debtor’s default or in case of a defective product, then the legitimate possessor may benefit from the provisions of Sect. 895 SCC. According to these provisions, a creditor has a retention right over a movable in its possession for the purpose of securing a claim against the owner of the movable, provided this claim is in relation to the movable.447 This retention right is constitutive of a pledge over the movable. In the event a payment is due to the legitimate possessor in exchange for the movable (as for example in a situation where the seller is to return the price and the buyer to return the sold object), then both parties may also benefit from the provisions of Sect. 82 SCO:448 the party claiming performance, by the other party of a contractual obligation, is to tender performance of his own counter-obligation vis-à-vis this party.

19.5.

Who bears the expenses of the restitution of the movable to the owner?

19.5.1. Restitution under Sect. 938-940 SCC Sections 938-940 SCC do not contain a rule on who has to bear the cost of the movable’s restitution. It seems clear, however, that the illegitimate possessor, having no right to possess the asset, must return it to its owner at his own expense (whether he be a bona fide or a mala fide possessor).

446

447

448

See Stark, no. 33 ad Sect. 940 SCC; Steinauer, no. 522. Contra: Hinderling, p. 516 et seq. A right of retention of the buyer having to return the defective product for the purpose of securing his right to be reimbursed the price already paid by the seller was for example admitted by a Swiss State Court: Rep. 1983 99. Termination in case of debtor’s default: ATF 114 II 152; termination in case of defective product: ATF 109 II 26.

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19.5.2. Restitution by a legitimate possessor Even where Sect. 938-940 SCC do not apply because the possessor was not an illegitimate possessor, then the general principle is that the person who is under the duty to return the movable is to bear the costs of the restitution. In the event a sales contract was terminated because the sold movable was defective, then the buyer is only to put the movable at seller’s disposal. It is thereafter up to the seller to take delivery of the movable at its own expense.449 It is likewise considered in the context of the CISG that in case of contract avoidance, the party to pay compensation to the other is also to bear the costs of the products’ restitution.450

449 450

Tercier, no. 848; ATF 109 II 26. Tallon in Bianca / Bonell, no. 2.6 ad Sect. 81 CISG.

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Table of Literature T. Bauer, in ZGB II. Basler Kommentar (H. Honsell, N.P. Vogt and T. Geiser, eds.), 3rd ed., Basle 2007 H. Becker, Obligationenrecht. Allgemeine Bestimmungen, Berner Kommentar, vol. VI.1, 2nd ed., Berne 1941 P. Engel, Traité des obligations en droit suisse, 2nd ed., Berne 1997 B. Foëx, Le numerus clausus des droits réels en matière mobilière, thesis, Geneva 1987 B. Foëx, Les nouvelles fonctions de la propriété. Rapport suisse, in La propriété – Journées vietnamiennes, Paris 2006, p. 461 et seq. (cited as: Les nouvelles fonctions) B. Foëx, The Hague Trust Convention and Switzerland: a few remarks concerning movable property, in Das Haager Trust-Übereinkommen und die Schweiz (A. R. Markus, A. Kellerhals and C. Jametti Greiner, eds.), Zurich 2003, p. 31 et seq. (cited as: The Hague Trust Convention) B. Foëx, Transfert et engagement des valeurs mobilières “intermédiées” en droit suisse, in Journée 2003 de droit bancaire et financier (L. Thévenoz and C. Bovet, eds.), Zurich 2004, p. 55 et seq. (cited as: Transfert et engagement) P.-R. Gilliéron, Commentaire de la loi fédérale sur la poursuite pour dettes et la faillite, vol. II, Lausanne 2000 P.-R. Gilliéron, Commentaire de la loi fédérale sur la poursuite pour dettes et la faillite, vol. III, Lausanne 2001 F. Guisan, La protection de l’acquéreur de bonne foi en matière mobilière, thesis, Lausanne, 1970 R. Haab / A. Simonius, in R. Haab / A. Simonius / W. Scherrer / D. Zobl, Das Eigentum, Zürcher Kommentar, vol. IV.1, 2nd ed., Zurich 1977 H. Hinderling, Der Besitz, in Schweizerisches Privatrecht V / 1, Basle 1977, p. 403 et seq. B. Huwiler, Zum Bericherungsanspruch gegen den Fahrniseigentümer kraft Ersitzung: eine rechtsvergleichende Fallstudie, in Berner Festgabe zum schweizerischen Juristentag 1988, Berne 1988, p. 99 et seq.

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N. Jeandin, Les effets de la faillite sur le contrat de durée, in Le contrat dans tous ses états (F. Bellanger, F. Chaix, C. Chappuis and A. Héritier Lachat, eds), Berne 2004, p. 71 et seq. H. Laim, in ZGB II. Basler Kommentar (H. Honsell, N.P. Vogt and T. Geiser, eds.), 3rd ed., Basle 2007 H. Leemann, Das Eigentum, Berner Kommentar, vol. IV.1, 2nd ed., Berne 1920 P. Liver, Das Eigentum, in Schweizerisches Privatrecht V / 1, Basle 1977, p. 1 et seq. D. Loertscher, in Code des obligations I. Commentaire romand (L. Thévenoz and F. Werro, eds.), Geneva 2003 S. Marchand, Poursuite pour dettes et faillites, Du Palais de justice à la salle des ventes, Collection Quid Juris, Geneva 2008 S. Marchand, Le contrat de transport de marchandises en droit suisse, Fiches Juridiques Suisses, no. 164, Geneva 1999 (cited as: FJS 164). A. Meier-Hayoz, Das Eigentum, Berner Kommentar, vol. IV.1.1, 5th ed., Berne 1981 H. Oser / W. Schönenberger, Das Obligationenrecht. Erster Halbband: Art. 1-183, Zürcher Kommentar, vol. VI.1, 2nd ed., Zurich 1936 P. Pichonnaz, in Code des obligations I. Commentaire romand (L. Thévenoz and F. Werro, eds.), Geneva 2003 P. Piotet, Transfert de propriété, expectatives réelles et substitutions fidéicommissaires, Berne 1992 A. von Planta, in Code des obligations I. Commentaire romand (L. Thévenoz and F. Werro, eds.), Geneva 2003 H. Rey, Die Grundlagen des Sachenrechts und das Eigentum, 3rd ed., Berne 2007 W. Scherrer, in R. Haab / A. Simonius / W. Scherrer / D. Zobl, Das Eigentum, Zürcher Kommentar, vol. IV.1, 2nd ed., Zurich 1977 J. Schmid / B. Hürlimann-Kaup, Sachenrecht, 3rd ed., Zurich 2009 H. Schönle, Kauf und Schenkung. Erste Lieferung, Zürcher Kommentar, vol. V.2.a, 3rd ed., Zurich 1993 M. Schraner, Die Erfüllung der Obligationen, Zürcher Kommentar, vol. V.1.e, 3rd ed., Zurich 1999 I. Schwander, in ZGB II. Basler Kommentar (H. Honsell, N.P. Vogt and T. Geiser, eds.), 3rd ed., Basle 2007 D. Staehelin, Vertragsklauseln für den Insolvenzfall, in AJP 2004 p. 363 et seq. E.W. Stark, Der Besitz, Berner Kommentar, vol. IV.3.1, 3rd ed., Berne 2001 P.-H. Steinauer, Les droits réels, vol. I, 4th ed., Berne 2007 P.-H. Steinauer, Les droits réels, vol. II, 3rd ed., Berne 2002

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D. Tallon in C.M. Bianca / M.J. Bonell, Commentary on the international sales law: the 1980 Vienna Sales Convention, Milan 1987 P. Tercier, Les contrats spéciaux, 4th ed., Zurich 2009 L. Thévenoz, in Code des obligations I. Commentaire romand (L. Thévenoz and F. Werro, eds.), Geneva 2003 L. Thévenoz, Trusts in Switzerland: Ratification of The Hague Convention on Trusts and Codification of Fiduciary Transfers, Zurich 2001 (cited as: Trusts) P. Tuor / B. Schnyder / J. Schmid / A. Rumo-Jungo, Das schweizerische Zivilgesetzbuch, 13th ed., Zurich 2009 S. Venturi, in Code des obligations I. Commentaire romand (L. Thévenoz and F. Werro, eds.), Geneva 2003 D. Zobl, Das Fahrnispfand, Berner Kommentar, vol. IV.2.5.1, 2nd ed., Berne 1982 (cited as: Das Fahrnispfand) D. Zobl, in R. Haab / A. Simonius / W. Scherrer / D. Zobl, Das Eigentum, Zürcher Kommentar, vol. IV.1, 2nd ed., Zurich 1977

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Table of Abbreviations ATF

Arrêt du Tribunal fédéral (Judgements of the Swiss Federal Tribunal) (available online at the following website: http: // www.bger.ch)

CISG

United Nations convention on contracts for the international sale of goods of April 11, 1980; SCFL no. 0.221.211.1 Convention on the Contract for the International Carriage of Goods by Road, of May 19, 1956; SCFL no. 0.741.611

CMR

et seq.

et sequentes

LAR

Federal law on the aircraft register, of October 7, 1959; SCFL no. 748.217.1 Federal law on the insurance contract, of April 2, 1908; SCFL 221.229.1 Federal law on the international transfer of cultural property, of June 20, 2003; SCFL no. 444.1 Federal law on maritime navigation, of September 23, 1953; SCFL 747.30 Federal law on the ships register, of September 28, 1923; SCFL no. 747.1

LIC LITCP LMN LSR

PJA

Pratique juridique actuelle (Lachen)

Rep RNRF

Repertorio di Giurisprudenza patria (Bellinzone) Revue suisse du notariat et du registre foncier (Wädenswil)

SCC SCFL

Swiss civil code, of December 10, 1907; SCFL no. 210 Systematic collection of Federal legislation (available online at the following website: http: // www.admin.ch / ch / f / rs / rs.html) Federal law completing the Swiss civil code (5th part: Law of obligations), of March 30, 1911; SCFL no. 220 Federal law on debt collection and bankruptcy proceedings, of April 11, 1889; SCFL no. 281.1 Section Semaine Judiciaire (Geneva)

SCO SDCB Sect. SJ

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National Report on the Transfer of Movables in the Czech Republic Luboš Tichý

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Table of Contents Introduction

262

Part I: Basic information on property law 1. Ownership and other property rights 1.1. General basics 1.1.1. Development and current state of law 1.1.2. Characteristics of property rights (rights in rem) in contrast to obligations 1.1.3. General principles of property law 1.2. Notion of ownership 1.2.1. Definition and extent of the ownership right 1.2.2. State or public ownership 1.2.3. Limitations of ownership 1.3. Other property rights 2. Possession 2.1. Notion and categories of possession 2.1.1. Notion of possession 2.1.2. Categories of possession 2.1.3. Possession in good faith 2.1.4. Draft Civil Code 2.2. Functions of possession 2.3. Detention 2.4. Acquisition of possession 2.5. Protection of ownership, possession and detention 2.5.1. Public law protection 2.5.2. Court protection (a) Injunction (actio negatoria) (b) Legal action for the release of a thing (revindication) (c) Damages and restitution 2.6. Self-help 2.7. Protection of possession

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263 263 268 269 269 270 271 271 273

273 273 274 275 277 277 278 278 279 279 280 280 281 282 283 283

Czech Republic

258

2.8. Protection of detention 2.9. Commentary 2.10. Draft

284 284 286

3. Rights to use and to acquire (rights quasi in rem)

287

4. Scope of rules of transfer of movables, relevant definitions 4.1. Things 4.2. Things in the Draft Civil Code

288 290

Part II: Derivative acquisition 5. System of transfer of ownership 5.1. Basic characteristics and general overview 5.2. Unitary transfer 5.3. Causal traditio system 5.4. Suitable types of obligations 5.5. Defects affecting the transfer of ownership 5.5.1. Acquisition by a bona fide acquirer 5.5.2. Lack of personal capacity 5.5.3. Defects of a party’s will: coercion 5.5.4. Mistake – relative invalidity 5.5.5. Rescission (withdrawal) 5.5.6. Condition precedent and resolutive condition 5.5.7. Consequences of unjustified enrichment 5.6. Delivery 5.6.1. Physical delivery 5.6.2. Exceptions to general means (a) Mail order selling (b) Self-service selling (c) § 443 Commercial Code (d) § 445 Commercial Code (e) Traditio brevi manu (f) Constitutum possessorium (g) Traditio symbolica / longa manu 5.7. Transfer by registration 5.7.1. Ships (a) Maritime register (b) Register of inland ships

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291 292 293 295 297 297 298 298 299 300 301 302 303 303 304 304 304 304 304 305 305 305 305 306 306 306

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5.7.2. Aircrafts 5.7.3. Financial instruments (securities) 5.7.4. Cars 5.7.5. Pledge on movables and securities 5.8. Acquisition through a legal act 5.9. Real agreements and hidden reservations 5.10. Draft Civil Code 5.11. Commentary

307 307 307 307 308 308 308 309

6. Double sales

309

7. Selling in a chain 7.1. Contracts under the Civil Code 7.2. Contracts under the Commercial Code

311 313

8. Acquisition of ownership by indirect representation 8.1. Lack of general rules 8.2. Commission contract under the Commercial Code

313 314

9. Consequences of insolvency 9.1. General 9.1.1. Types of insolvency proceedings 9.1.2. Consequences of the commencement of the bankruptcy proceedings and the action Pauliana 9.2. Insolvency of the transferee (buyer) and the transferor (seller) 9.2.1. When the obligations of both parties have not been discharged in full 9.2.2. Insolvency of the transferee (buyer) 9.2.3. Insolvency of the transferor (seller) 10. Passing of risk 10.1. General principles

314 314 315 317 317 318 318

319

Part III: Original acquisition 11. Acquisition by combination, commingling, processing and other ways 11.1. Notion 11.2. Creation out of own material

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11.3. Processing 11.4. Combination, commingling 11.5. Accruals 12. Good faith acquisition 12.1. Field of application 12.2. Quality of good faith 13. Acquisitive prescription 13.1. Acquisitive prescription of movable property 13.2. Purpose 13.3. Requirements 13.3.1. Introduction 13.3.2. Duration of possession, suspension and interruption 13.3.3. Change in possessors 14. Draft Civil Code 14.1. Appropriation and accrual 14.2. Finds 14.3. Other forms 14.4. Commentary

323 324 324

325 326

327 327 328 328 328 329

329 330 331 331

Part IV: Additional issues 15. Reservation of ownership

332

16. Abandonment and loss of ownership

333

17. Co-ownership 17.1. Common ownership 17.2. Joint ownership

334 335

18. Transfer of an “enterprise” as an unspecified “set” of assets

337

19. Bulk sales and floating charges

338

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20. Restitution 20.1. Legal framework 20.2. Remedies 20.3. Examples of application 20.4. Entitlement to benefits 20.5. Loss and deterioration of the movable 20.6. Reimbursement for improvement or expenses 20.6.1. Generally 20.6.2. Possessor’s right to retain the movable 20.6.3. Expenses of the restitution 20.7. Commentary

338 338 339 340 341 341 341 343 344 344

Table of Literature

345

Table of Abbreviations

349

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Introduction A few comments must be made to explain the structure and style of this report. Most reports in this series follow a recommended structure. The departure from the recommended structure here is relatively slight. However, it follows carefully the purpose of the contribution, i.e. that the legal situation be precisely described so that the relevant national law arrangement may be comprehensible to a reader who is a complete outsider to the system. Additionally, despite the fact that the expression of certain legal categories is, to a relative degree, the same or very similar among various jurisdictions, it may need clarification with regard to Czech law and we have, therefore, attempted to do so. For example, as the reader will see, the current state of the law is a type of hybrid of the Austrian and the socialist understanding of rights in rem. Above all, the brevity of the legal arrangement typical for Czech communist law means that a reader may often have doubts about whether he has correctly grasped the meaning of the Czech law. Therefore, we insert the following § (1.1.1.), which briefly describes the development preceding the current state of the law. It is clear that a description of the current state of the law must necessarily be, in a certain sense, an interpretation thereof. We shall try to provide a description reflecting the current state of affairs as faithfully, as objectively, as possible. Our own opinions, or other subjective explanations, are limited to short commentaries, which are always placed after each part. To provide additional information, we also detail, where absolutely necessary, the likely form of any forthcoming law – so far as it may be contained in the February 2009 draft Civil Code (hereafter “Draft”).

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Part I: Basic information on property law 1.

Ownership and other property rights

1.1.

General basics

1.1.1. Development and current state of law Until 31 December 1950, the Austrian ABGB formally applied in the Czech Republic. However, during the period following 1945, and particularly after the communist take-over of 25 February 1948, its application was formal and practically restricted. This came about primarily as a result of the process of confiscation and nationalization.1 During the pre-war period, the main principles of private law did not differ from Austrian law. The case law of the Supreme Court of the Czechoslovak Republic was recognized also in Austria, notwithstanding the fact that in certain matters it marginally differed from Austrian case law. On 1 January 1951, the Civil Code of 1950 (Civil Code / 1950) came into effect.2 This was the first communist codification in the field of private law. Its aim was to formally enshrine the factual changes that had taken place and that were being contemplated. A fundamental upheaval took place at this time in the field of ownership relations and, thus, the changes made by the Civil Code / 1950 were most significant precisely in the field of rights in rem. These fundamental changes, particularly in the field of ownership, occurred while retaining some basic formal principles. In particular, the 1

2

See Decree of the president of the Republic, particularly Decree No. 5, of May 5, 1945 on the annulment of certain acts concerning property during the time of suppression and on national administration of estates of Germans, Hungarians, traitors and collaborators, and certain organisations and institutions, Decree No. 12 / 1945 Coll. of June 21, 1945 on confiscation and speedy distribution of agriculture property of Germans, Hungarians, as well as traitors and enemies of the Czech and Slovak nations, Decree No. 108 / 1945 Coll. of October 25,1945 on confiscation of the estate of the enemies and on the Fund of national reconstruction and Decree No. 100 / 1945 Coll. of October 24, 1945 on nationalisation of the mines and certain industrial undertakings. See Civil Code of October 25, 1950, No. 141 / 1950 Coll. and its § 570.

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new legal arrangement took over most of the traditional soviet institutions unknown in the ABGB3 or in Roman law. All the greater then was the conflict between the law on protection of rights civil rights are protected by law) and the actual state of affairs. The “source of knowledge” for the creation and application of law became Marxist doctrine and even the articles of J.V. Stalin.4 Accordingly, ownership was a class matter and cannot be understood juristically as a collective subjective ownership right, but must be seen as a social and economical assumption on the basis of which ownership rights were created both in the objective and subjective senses.5 If class relations change in society, the form of ownership also changes.6 Ownership evolves on the basis of the development of means of production in society and the evolution of societal production relations. Ownership during this time was constantly in a state of rapid evolution and this entailed continual evolutionary transformations of the form of ownership. However, soviet law presented an unattainable goal.7 The basic form of ownership was socialist ownership, which was based on the assumption of state power being taken over by the working proletariat.8 The communist coryphaeus Viktor Knapp considered the cornerstones of the arrangement of ownership relations to be the leadership role of the Czech Communist Party, alliance with the USSR, the building of the people’s democratic state apparatus, the unified economic plan, nationalization, and confiscation.9 The foundation of all this was socialist ownership, which divided into state socialist ownership, as the highest form of ownership, and socialist cooperative ownership. In addition, there also existed personal ownership and private ownership, i.e. forms in decline.10 In contrast to the constitution, the Civil Code / 1950 omitted communal ownership, which, it is said, it did not recognize.11 There was also a change in the understanding of ownership. A different formal interpretation was now given to certain legal institutions that were 3

4

5 6 7 8 9 10 11

Civil Code / 1950 repealed ABGB as of January 1, 1951 except §§ 1151-1164, and many other laws that were based on it. See Knapp V., Vlastnictví v lidové demokracii (Property rights in the people’s democracy), Praha 1952. See Knapp V., op.cit. in Fn. 4, 9. See Knapp V., op.cit. in Fn. 4, 10. See Knapp V., op.cit. in Fn. 4, 10. See Knapp V., op.cit. in Fn. 4, 66. See Knapp V., op.cit. in Fn. 4, 165. See Knapp V., op.cit. in Fn. 4, 381-389. See Knapp V., op.cit. in Fn. 4, 389. Knapp regards capitalistic private ownership and the private ownership of small producers as one of those kinds of ownerships which disappear.

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taken over word-for-word, such as “disposing with a thing”,12 “demanding a thing from a person who unlawfully retains it”, and “resisting unauthorized interference”. These institutions now took on a different meaning from that in bourgeois society.13 Likewise, other institutions, although of a traditional character, were conceived of, and in particular interpreted – if used at all – in a different manner. Possession was provided in an entirely new way, which contrasted with the prior concept. As regards the other traditional institutions characteristic for the ABGB, the communist Civil Code / 1950 above all omitted the principle of superficies solo cedit (see § 155) and the intabulation principle,14 whereas application for registration (in land ownership and other registers) was purely a matter of record and had no constitutive function (see § 112). Civil law came to recognize significant changes in the field of acquisition of ownership itself. Most importantly, it omitted the principle of traditio and thereby overcame the “dogma relating to ownership rights and modus acquirendi domini”. An ownership right was transferred under the agreement itself (§ 111). The two-phase method of transfer was rejected as a dogma which had become a “pitiful, shabby fiction.”15 Ownership of individually determined things was transferred, as a matter of principle, under the transfer agreement itself. In order to simplify and expedite economic relations, a transfer of ownership right to individually determined things became effective primarily dependent on the will of the parties involved.16 In the case of things determined by type, their surrender was required for the transfer of ownership right (§ 11 par. 2). The Civil Code / 1950 recognized further methods of acquisition of an ownership right, including acquisitive prescription, appropriation, finding, increase, and processing, although it did not deem them of substantial relevance.17 Many of these traditional institutions were directly condemned or proscribed by doctrine. The construction of occupation did not withstand scrutiny.18 In the case of certain institutions there was even a comical simplification. For example, in the event of dereliction, things that did not belong to anyone became the property, not of an individual, but of the 12

13 14

15 16 17 18

It is acknowleged that the term “thing” is somewhat ineloquent in English and not widely used as a legal term in English-speaking legal systems. However we use it here because it is the best translation of the Czech term “věc”. See Knapp V., op.cit. in Fn. 4, 211. “Intabulation principle” means that the registration of the title in the land register is constitutive for the legal acquisition of that title. See Knapp V., op.cit. in Fn. 4, 399. See Knapp V., op.cit. in Fn. 4, 400. See Knapp V., op.cit. in Fn. 4, 403. See Knapp V., op.cit. in Fn. 4, 402.

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working collective.19 Processing and other methods (mixing, etc.) were assumed obvious by the Civil Code / 1950, which therefore did not provide for them.20 As regards protection of ownership, the mainstream doctrine at that time considered the criminal law protection of socialist state ownership relevant.21 Even though no fundamental change later occurred in political relations, in 1964 a new Civil Code (Civil Code / 1964) was adopted which, after 1 April 1964, took the place of the codex from 1950, which was repealed in full. The Civil Code / 1964 destroyed any remaining classic institutions that had been formally still in existence as part of the traditional conception of private law in the Civil Code / 1950, removing from civil law such institutions as possession, detention, building right, prescription, encumbrances, easements and others. These legal categories, into which “the new politico-economical content of civil-law relations had to be accommodated, grossly violated it”.22 From the perspective of the ideologues of the communist regime, the Civil Code / 1950 was a “retarding element”.23 In contrast, the Civil Code / 1964 “was based on the socialist reality, which consisted of the affiliated classes of labourers and cooperative farmers together with the working intelligentsia. The capitalist class had been liquidated along with its private ownership of the means of production.”24 Ownership rights, and the acquisition and forfeiture thereof, were provided for only in eight provisions of the Civil Code / 1964, as the codex provided only for so-called personal ownership. In contrast, state socialist ownership was provided for in a special norm – the Economic Code, and private ownership was mentioned only in the interim provisions of the Civil Code / 1964. Only there was there mention of lien, pledge rights, and easements, which could no longer arise, although the legislator had to deal with the issue of their continued existence. In addition to the above described categories, which were now not continued into the codex, the Civil Code / 1964 also did not recognize other grounds for acquisition ownership, i.e. the institution of mixture by processing, of appropriating a found thing, or of appropriating a thing which has been abandoned. At one point, however, a fundamental change was made. In regard to the manner of passage of ownership of an item of movable property, the 19 20 21 22

23 24

See Knapp V., op.cit. in Fn. 4, 402. See Knapp V., op.cit. in Fn. 4, 398. See Knapp V., op.cit. in Fn. 4, 404 et seq. See Kratochvíl Z., in: Kratochvíl et al., Nové občanské právo (New civil law), Praha 1965, 8. See op.cit. in Fn. 22, 8. See Zdobinský S., in: op.cit. in Fn. 22, 191.

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legislator abandoned the contractual principle and returned to the twostage method of acquiring ownership and, therefore, to the institutions of agreement and traditio, titulus and modus. It therefore assumed a construction that Knapp described as a dogma that had become a “pitiful, shabby fiction”.25 The rationale for this fundamental change was given in a single sentence, which laconically stated that this provision was removed and replaced by a new one that better accorded with the views of the citizens.26 Further development, however, even though under a relatively very strict communist government, forced certain conciliations to be made. Thus, in 1983, the institutions of mortgage and easement were reintroduced, along with acquisitive prescription.27 A fundamental change occurred under the so-called grand amendment of the Civil Code,28 under which certain fundamental institutions were returned to the civil-law codification. However, the drawbacks of the original 1964 conception could not have been essentially overcome, and so the ensuing arrangement suffered from both the conflicted nature of the Civil Code itself and the lack of a clear and, above all, complete arrangement. A range of property law issues were provided for outside the Civil Code (e.g. in the Labour Code), and case law still in use was undermined by a perversely simplified understanding of the law. Therefore a decision was made to draft a new codification. The first attempt at a new codification was made in 1995, although this failed shortly after.29 In 2001 it was decided to create a new Civil Code, the first draft of which was submitted. If relevant, we reflect this text in the parts below.30 In May 2005 the first draft of the new Civil Code for the Czech Republic (Draft) was published, which in its third part (book) provides for property law: this part will be briefly compared to the current law (Civil Code) since the Draft is still the subject of public discussion. After public debate, the Draft was considerably amended and eventually submitted to the Cabinet in February 2009. In many senses the Draft exceeds the limits of the existing concept, primarily in its attempt to provide a comprehensive arrangement. The difference is primarily in the scope of the arrangement. Rights in rem are 25 26 27 28 29

30

See Knapp V., op.cit. in Fn. 4, 399. See Mikeš J., in: op.cit. in Fn. 22, 210. See Act No. 131 / 1982 Coll. See Act No. 509 / 1991 Coll. See Draft of the main concept of the Civil Code (prepared by F. Zoulík), Právní praxe 1995, No. 5-6, 253-378. See e.g. Eliáš K., Zuklínová M., Principy a východiska nového kodexu soukromého práva (Principles and Background of the new Code of Private Law), Praha 2001, 7, 8 and the Draft in the wording as of February 2009.

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provided for in 60 paragraphs, of which pledge rights (liens) and retention rights themselves take up 29 paragraphs; the residue covers ownership and possession rights themselves. This situation is all the more serious since the law sets forth institutions that have been unknown for a long time, and since rights in rem are made the subject of a mandatory arrangement so that, in contrast to the fields of obligational relations, it is not possible to create new types or classes of these rights.

1.1.2. Characteristics of property rights (rights in rem) in contrast to obligations Rights in rem (in Czech: věcná práva, a plural form, in contrast to legal German / Austrian usage) present a conceptual term, which was incorporated into Czech law from the Austrian ABGB. At the current time, rights in rem are understood in the systematic categorizations of the civil law as one of the five basic parts of the new codex (general part, property law, family law, law of successions and law of obligations). As a rule, along with the law of obligations, they form a pair of categories. The difference between a basic right in rem and an ownership right, on one side, and an obligatory right, on the other, is grounded in the field of economy.31 A right in rem endows the entitled party with so-called direct or unmediated lawful control over the thing.32 Whereas the obligatory rights refer to relationships between persons, the rights in rem reflect this aspect merely secondarily. A right-in-rem holder may utilize the right independently of bilateral relations with other persons. The term “rights in rem” has never had a precisely bounded definition. Its definitive features include: (a) The absoluteness of the right, which means that rights in rem are rights with absolute effect in regard to all who are obligated not to interfere with the holder in the exercise of his right to the thing.33 (b) The subject (in the meaning of the secondary subject of rights in rem) is a corporeal thing.34 (c) The existence, origination and transfer of rights in rem must be cognizable to third persons. This applies especially to real property, where 31

32 33 34

See Knapp V., Knappová M., Švestka J., in: Knappová, Švestka, Občanské právo hmotné (Civil Law), 3rd edition, vol. 1, Praha 2002, 260 (Further cited as Knapp V. et al.). Knapp V. et al., op.cit. in Fn. 31, 259. See Knapp V. et al., op.cit. in Fn. 31, 260. See Knapp V. et al., op.cit. in Fn. 31, 260.

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a special register (the real estate cadaster) functions for this purpose (publicity).35 (d) The types of rights in rem are limited in number (numerus clausus). New types of rights in rem cannot be established on the basis of a contract; the autonomy of will is restricted at this point. The definition of a pledge right or lien does not fit fully within these defining features, which only shows the lack of clarity in the definition of the scope of rights in rem; the subject of a pledge right or lien may be even a receivable or some other property value, such as, for example, a commercial ownership interest in a commercial entity, a security, or intellectual property.36

1.1.3. General principles of property law Apart from their exclusivity (see 1.1.2. supra), which follows the basic principle of legal certainty, property rights have other typical features mirroring this principle and limiting party autonomy. The right in rem must almost always be linked with a specific thing (principle of speciality).37 Particularly with regard to immovables, third persons are protected by publicity of property rights (principle of publicity).

1.2.

Notion of ownership

Ownership is defined as the right to control a thing, which involves the right to hold, use, and enjoy the thing, and to dispose38 of it, all on the basis of the owner’s own power and independently from the power of anybody else.39 Some particular implications follow from the “absolute” character of ownership. The first one is the owner’s right to claim the surrender of his thing from a person who withholds it unlawfully. This right can be met in various forms depending on the context. For example, in bankruptcy and execution proceedings, we talk about (tierce) opposition claims or, in other 35 36

37 38

39

See op.cit. in Fn. 31, 262. See Krčmář, Právo občanské, Práva věcná (Civil Law, Property Rights) Praha 1934, 297 f., Knapp et al., op.cit. in Fn. 31, 260. See Knapp et al., op.cit. in Fn. 31, 261. The term “dispose” is used in the sense of “to deal with as one’s own”, and not in the more limited since “to give, sell or transfer”. See Knapp V. et al., op.cit. in Fn. 31, 271.

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words, the right to exclude property from the bankruptcy estate (or from the execution). The owner has further the right of protection (see 2.7. infra) from unlawful interference (in the form of injunctions). According to Czech doctrine, the basic feature of ownership is elasticity.40 The concept of elasticity implies the possibility to trim down the content of ownership to the most limited extent, the so called “nuda proprietas”. For example, the owner of a thing, who has lent it, is the “bare” owner without the possibility to utilize particular rights of ownership. However, after termination of the borrowing, the ownership will renew to the full extent. The same principles apply also to other limitations of ownership and, after all, to all other rights in rem.

1.2.1. Definition and extent of the ownership right The Civil Code specifies particular component rights that belong to the owner, namely the right “to hold the subject of ownership, use it, enjoy its fruits and profits, and dispose of it”41 (including its alienation, i.e. its transfer to another person). The owner may also damage or destroy the thing. The enumeration is not exhaustive.42 The right to possess the thing is the broadest component of the concept of ownership and, at the same time, it is a presupposition for other rights flowing from ownership. The right to use the thing (ius utendi) consists in utilizing the qualities of the property. The owner may transfer this right (as well as the right of possession) to another person. The owner may even not use the thing, which is also a form of exercise of the right to use the property. Further, the owner has the right to enjoyment of the thing, i.e. to take fruits and other profits of the thing. It is a matter of course that this right is conceivable only in connection with things that render fruits or other profits. Profits may be natural (fruits) or legal (interest). Finally, the owner has the right to freely dispose of the thing within the law. In contrast to other components of the ownership right, this right may be exercised by juridical acts, as well as by factual behaviour.43

40 41 42 43

See Knapp V. et al., op.cit. in Fn. 31, 269. See § 123 of the Cicil Code. See Knapp V. et al., op.cit. in Fn. 31, 283. See in Fn. 31, 267.

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1.2.2. State or public ownership An important role is assumed by Act No. 219 / 2000 Coll. on property of the Czech Republic and its functions. The state acts by means of its organizational units. These units include mainly the ministries and administrative authorities. The state uses the property in order to carry out its functions and / or in connection with the performance of these functions, and to carry out activities beneficial for the public and / or for business purposes.

1.2.3. Limitations of ownership Limitation of ownership means legal restrictions on the exercise of the right of ownership; trespassing beyond these restrictions makes exercise of ownership unlawful.44 Ownership limitations can be classified as “intrinsic” and “extrinsic”: intrinsic are the limitations that follow from the very nature of the ownership and can be deduced from the general principle that “ownership obliges”; extrinsic limitations result – depending on particular situations – from the will of either the owner or third persons, and their origin may be in private or in public law. The content of ownership limitations usually consists in the owner’s duty to refrain from certain activities and, exceptionally, even in a positive obligation to do something (adopt some measures). The primary limitation of ownership is the duty not to interfere with the ownership of others. This follows from § 3 of the Civil Code,45 which establishes a general duty not to interfere with the exercise of other persons’ rights and not to exercise rights in conflict with good morals. The provision constitutes the so-called “legal peace”. A general limitation of ownership, as well as of other rights in rem, follows also from § 415 of the Civil Code46 on prevention of the incurrence of damage. An important ownership limitation is represented by the prohibition of emissions. “Emissions” means the exercise of ownership that wrongfully interferes with a third person’s ownership, or with other rights in rem, to such an extent that it is – under given conditions – unreasonable. The Civil Code (§ 127 par. 1) stipulates that the owner shall refrain from everything that would cause annoyance to an unreasonable extent to another person or 44 45

46

See in Fn. 31, 274. See § 3 par. 1: The exercise of rights and performance of duties arising from civil relationships may not, without legal grounds, interfere with the rights and justified interests of others and may not be inconsistent with morality. See § 415: Everybody is obliged to behave in such a way that no damage (injury) to health, property, nature or the environment occurs.

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seriously jeopardize exercise of his or her rights. The prohibition of emissions applies only to substantial annoyance or jeopardy, whereas the requirement “to an unreasonable extent” must be assessed objectively with regard to the particular case. These limitations especially concern ownership of real property, i.e. such activities as construction or other work on land or buildings. Some limitations may be also imposed by public authorities, e.g. a duty to fence a plot of land. A statutory limitation of real property ownership for the purposes of maintenance of neighbouring land (building) or passage to a neighbouring plot of land is called the “statutory encumbrance”. Another limitation of ownership is provided in § 128 par. 1 of the Civil Code and consists in the duty of the owner to allow use of the thing in case of an emergency or urgent public interest (provided that the purpose cannot be attained otherwise), for the period and to the extent that the use is necessary, and for compensation. The ownership may be also affected by expropriation or other restrictions imposed by public authority. These are possible only on the basis of law, in the public interest, where the purpose cannot be attained otherwise, exclusively for attaining this purpose, and for compensation (Civil Code, § 128 par. 2). Ownership is a right protected by the Constitution and by the Charter of Fundamental Rights and Freedoms47 (which is a part of the Constitution). Limitations, including expropriation, may be imposed solely on the basis of the law for compensation. Employing the argument a minorem ad maius, it can be deduced that in the same way (i.e. under the law and for compensation) it is also possible to limit ownership as to the dispositional freedom resulting thereof. According to the Charter of Fundamental Rights and Freedoms, everybody is entitled to own property. However, the Charter also stipulates property that is regarded necessary for securing the needs of the entire society, development of the national economy and the public interest, and therefore can be owned only by the state, municipalities or designated legal persons (Art. 11 par. 1). It also determines that certain things can be only in the ownership of citizens or legal persons seated within the Czech Republic (Art. 11 par. 2). The Charter further stipulates obligations of the owner (“ownership obliges”) (Art. 11 par. 3). Ownership may not be used to the detriment of the rights of other persons and may not be used contrary to the general interests protected by the law. Exercise of ownership shall not harm human health, wildlife, or the living environment – beyond the level determined by the law. 47

See Ústava České republiky (Constitution of the Czech Republic), constitutional act No. 1/1993 Coll., and Listina základních práv a svobod (Charter of the Fundamental Rights and Freedoms), Decision of the Czech National Council No. 2/1993 Coll.

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The transfer of movables with consequences for third parties is subject to the principle of publicity, i.e. the transfer must be registered in a public register, such as the register maintained by the Notarial Chamber of the Czech Republic or, for example, the ship or aircraft registers (see, under 5.6 infra). Contractual limitations on transfers of ownership agreed between the owner and a third party cannot be effective in regard to third persons if the limitation has not been published by means of being entered into the public register. If not published, the limitation does not go beyond the obligatory relationship or the obligation between the parties to the agreement.

1.3.

Other property rights

Even under the current law, rights in rem do not constitute a homogenous group, but comprise two classes. Although both meet the above-mentioned criteria of rights in rem, they are significantly different from one another. The two classes are: a) ownership rights, amongst which is included the institution of possession, and b) rights in rem in property of others, in particular the right of pledge (§§ 152-174 of the Civil Code) and the retention right (§§ 173-180 of the Civil Code).48

2.

Possession

2.1.

Notion and categories of possession

2.1.1. Notion of possession Czech doctrine deems possession one of the most debatable institutions of civil law.49 Its peculiarity consists in the fact that it involves a factual state incompatible with the legal state, although it is protected by law in the interest of safeguarding its last peaceful state.50 A possessor of a thing (or right) is a person who treats the thing as his own or exercises a right for himself (§ 129 par. 1 of the Civil Code). According to the Czech doctrine, possession requires physical control over the thing and the intention to keep the thing like the possessor’s own property. 48

49 50

§ 151n par. 1, first sentence argumentum a contrario. It should be noted here that servitudes (easements) can be established only in immovables (§ 151n of the Civil Code). See Knappová M., Držba (Possession), Právo a zákonnost, 1992, 587, 579. See Knapp V., Quieta non movere, Právní praxe 1993, 265 et seq.

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If the possessor is in good faith, possessing the thing or right as though it belongs to him, he is the lawful possessor. If the possessor is aware of the fact that he is not the owner and nonetheless deals with (disposes of) of the thing as if it were his own, he is an unlawful possessor. If a thing is possessed by a non-owner, the owner retains only bare possession (bare ownership right – nuda proprietas). The law distinguishes between possession of a thing and possession of a right. Possession is based on the assumption that the possessor must keep the thing in his actual power, i.e. that he factually controls the thing, and must furthermore have the will to dispose of the thing as his own.51

2.1.2. Categories of possession This concept would generally encompass both an actual possessor and, for example, a tenant who exercises the right to use the thing. Nevertheless, the prevailing opinion is that possession requires both the intention to possess (animus possidendi) and de facto control of the thing (corpus possessionis). Whether these requirements are fulfilled is to be assessed with regard to both general experience and the concrete situation.52 However, this opinion would at the same time permit a detentor, who in fact may be just a tenant, to also be the lawful possessor even though he controls a thing in another’s name.53 A person who possesses a thing via another person (a detentor) is undoubtedly also the possessor.54 An employee, proxy, etc., who possesses a thing for the possessor will have the status of a detentor – (in German Besitzmittler). However, the Civil Code does not recognize such terms, but this does not mean that they should not be taken into consideration.55 All the categories of persons who have been named, as well as employees, administrators and family or household members, have the status of a detentor, i.e. of a person who “holds” a thing for the possessor and not in his or her own name and usually not even in his or her own interest. Here we must repeat that especially in the case of a tenant – the concept applies only on the assumption that the possessor and the detentor have not agreed on a different arrangement. 51

52

53 54 55

See in Fn. 31, 293. The Civil Code recognizes also a possession of right consisting in lasting or reoccurring performance (§ 129 par. 2 of the Civil Code). See Spáčil J., in: Švestka J. et al. (eds.), Občanský zákoník, Komentář (Civil Code, Commentary), vol. I, 2nd ed., Praha 2009, 735 and R Cdo 728 / 2000. Knapp V. et al., op.cit in Fn. 31, 225 et seq. See Spáčil J., op.cit. in Fn. 52, 735. See under 2.3.

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Possession is provided for in the Civil Code only in two fragmentary and imperfect provisions (§§ 130 and 131).56 Neither from these provisions nor from the case law is it possible to deduce whether the scope of the relationship of the possessor to the possessed thing, at the moment of acquisition of the possession and during the possession, must be the same, or whether it can vary. We assume that the scope of the possession does not change during the course of the possession. The only distinction the Civil Code makes in this context is that of “lawful” and “unlawful” possession based on the existence of good faith.57 Paradoxically, the term “lawful possession” was introduced into law by the Civil Code / 1950.58 However, this meant negation of the principles on which the law of possession was based in the ABGB, also with regard to its substantial content.

2.1.3. Possession in good faith In doctrine and case law there is a consensus that the assessment whether a possessor is in good faith or not must be made objectively and not merely from the subjective perspective of the affected person. It must also be taken into consideration whether the possessor, exercising an ordinary degree of

56

57 58

See § 130 (1): The person who, taking into account all circumstances, is in good faith that a certain thing or right belongs to him is considered its lawful possessor. In case of doubt, the person shall be considered a lawful (rightful) possessor. (2) Unless the law provides for otherwise, the lawful possessor has the same rights as the owner, including in particular the right to the fruits and profits yielded by the thing during the period of his lawful possession. (3) The lawful possessor has against the owner a claim for reimbursement of the costs which the possessor reasonably incurred on the thing during the time of lawful possession, to an extent corresponding to the appreciation of the thing at the day of its return. However, the customary costs of maintenance and operation shall not be refunded. § 131: (1) The unlawful possessor is obliged to surrender the thing to the owner together with its fruits and yields and to compensate him for any damage caused by the unlawful possession. He may deduct the costs which were necessarily incurred on maintenance and operation of the thing. (2) The unlawful possessor may sever from the thing that part of it which he appreciated at his own expense, where this can be done without impairing the substance of the thing. See Knapp V. et al., op.cit. in Fn. 31, 293. See § 145 of the Civil Code / 1950.

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caution, did have or could have had reasonable doubts during the period of possession that such thing or right belonged to him. Good faith terminates as and when the possessor becomes aware of facts that, from an objective point of view, must have triggered doubts that the thing rightfully belonged to him.59 Lawful possession cannot be based on a mistake (error) of the possessor that he could have avoided by exercising an ordinary degree of caution. Should possession be established on the basis of an error, the error must be excusable. Excusable errors are usually errors of fact; errors of law are excusable only in exceptional cases. Errors of law consist in ignorance or incomplete knowledge of a generally binding legal regulation or an incorrect assessment of legal consequences of legal facts. In exceptional cases, there may be situations where the possessor will be in good faith even if his conviction is based on an error of law.60 However, a mere ignorance of a certain provision of law is not excusable. A mistake caused by a state authority, however, is excusable, unless it is proven that the possessor must have been aware of it, since the mistake is based on the trust of citizens in the state and the bodies thereof. A person who seized possession on the basis of a mere oral agreement may not be the lawful possessor of real property.61 The law on surrender of a thing by a possessor and unjust enrichment now partially overlap, and this duplicity brings about problems that are difficult to overcome. The provisions of § 130 par. 2,62 under which the lawful possessor has the right to fruits and benefits from a possessed thing for the duration of his lawful possession, and § 458 par. 2 of the Civil Code, according to which the proceeds from a possessed thing must be surrendered along with the subject of unjust enrichment if the person who obtained such enrichment did not act in good faith, identically provide for acquisition of benefits and proceeds; if a person is not obliged to surrender fruits, it can be assumed that he acquires ownership thereof, despite that the law does not expressly declare it. This conflict can be resolved if we regard §§ 130 and 131 as special provisions to § 458, so that § 458 will not be applied to relations arising in connection with actions for surrender of things. From the fact that a lawful possessor has a right to the fruits and benefits, it can be deduced that he acquires ownership of such fruits and benefits and is not obliged to surrender them or provide the owner with compensation for them. As soon as natural fruits are separated, they belong to the lawful possessor, even if not consumed. If they are consumed, the lawful possessor

59 60 61 62

See Knapp V. et al., op.cit. in Fn. 31, 289, 290. See R 22 Cdo 417 / 98. See Spáčil J., op.cit. in Fn. 52, 740. See Spáčil J., op.cit. in Fn. 52, 743-745.

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need not provide the owner with compensation for them.63 Legal fruits also belong to the lawful possessor. The lawful possessor is entitled to the legal fruits, even when not collected during the period of lawful possession.64

2.1.4. Draft Civil Code Possession is provided for in a traditional manner, i.e. the Draft contains a definition of acquisition of possession (§ 930), the consequences of loss of possession (§ 948), protection of possession (§ 942-944), and new institutions such as joint possession (§ 949). What is important to note in the Draft is that only intent, and not a physical control, is required to acquire possession. Possession comes into existence when the possessor assumes a thing by exercising his or her power or by the thing’s transfer. Distinction is made between fair and unfair possession and between lawful and unlawful possession; possession is deemed fair and lawful (§ 861). A lawful possessor has the same rights as the owner (§ 863). Contrary to the current treatment, protection of possession is specific and differs from the protection afforded to owners. Possessors may file negatory actions and restitution actions. The possessor is further entitled to exercise his powers, the scope of which remains unchanged.

2.2.

Functions of possession

The function of possession is undoubtedly above all to legalize the situation where legalization is required for a person who has no ownership, but who nevertheless possesses a thing as his own. A second function comprises, and also is a component of, the transfer of an ownership right, both in connection with the handing over of a thing and in connection with acquisitive prescription. As the possessor has the same rights as the owner, he has special remedies against any interference with his possession. This is the expression of a function of protection: to keep the peace.65

63 64 65

See Spáčil J., op.cit. in Fn. 52, 522 and R 22 Cdo 837 / 98. See Spáčil J., op.cit. in Fn. 52, 744. See Knapp V., Quieta non movere, in Fn. 50 passim.

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2.3.

Detention

Detention means that an authorized person deals with a thing belonging to a third person, i.e. with the knowledge that he is not the owner of the thing. In contrast to a possessor, wherein both components of his status (control and intention) must be present, for a detentor, only control is required, i.e. a situation where he has the thing in his power or de facto control, but he lacks the intention to possess. Detentors may be authorized or unauthorized. Detentors are authorized if they exercise control over things within the framework and deadlines stipulated by the thing’s owner. If the detentor breaches these restrictions, he becomes an unauthorized detentor. Detention may transform into possession if the detentor starts to dispose of the thing as if it were his own.66 It must be seen that detention, which corresponds in Czech law to the position of a tenant, is not expressly provided for. The position of a detentor is considered only in doctrine. It ensues from this that if we recognize the numerus clausus of rights in rem, then the position of the tenant may be only an obligational-law relationship. Naturally, the matter also has another side. If we consider detentor and detention in themselves institutions, this means we also attribute to the detentor certain rights and obligations. This, however, is actually a question only of theory and so we can hardly maintain the paradoxical idea that there exists a right in rem that is not provided for explicitly in law and that therefore the principle of numerus clausus in the field of rights in rem does not apply in the Czech legal system. It bears repeating that a lease is considered to be a legal obligational relationship and a lease agreement is an obligational agreement. We can therefore hardly answer the individual questions in this section. Naturally, this also applies to tenants of real property.

2.4.

Acquisition of possession

Acquisition of possession is not separately provided by the Civil Code. It is assumed that it is possible to acquire possession based on a legal title or simply by obtaining actual power over the thing. Otherwise, acquisition of ownership includes acquisition of possession and, therefore, we will deal with the issue in chapter III infra.

66

See Knappová M., op.cit. in Fn. 49, 580.

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Protection of ownership, possession and detention

The Czech Civil Code protects ownership and possession in three various ways, distinguishing protection by state administration (§ 5),67 by the courts (petitory), and by self-help (§ 6).68

2.5.1. Public law protection Under the predominant opinion, this is not a protection of a right but a protection of the peace.69 This protection may be provided by the relevant state administration authority – the municipal office. Protection under § 5 Civil Code will be provided only if disruption of the peace is apparent; this means that peace had existed and that it was apparently disrupted. The protection is immediate and temporary. Proceedings on this type of protection fall under administrative proceedings, wherein the state administration authority does not address legal issues, i.e. whether peace was disrupted lawfully or unlawfully. The competent authority is the municipal office in whose jurisdiction the right was violated (§ 11 of the Act No. 102 / 1992 Coll.). The possession is protected whether or not it is lawful or unlawful; what matters is a quiet possession. The question then arises what possession can be considered as quiet. The resolution can be found by taking into consideration its duration and origin (modality of its creation), because a possession violently taken by the possessor can transform into quiet possession generally later than possession obtained as a consequence of a transfer of the item.70 The decision of the municipal office has only a preliminary character and a following divergent decision of the court is not excluded. The appeal against the municipal office decision before the administrative court is possible. Violation of the possession is a precondition of any injunctive action. This violation is an act that afflicts this possession without authorization.

67

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§ 5: Where an obvious breach of peace occurs, protection may be sought at the competent state administrative authority. As an interim remedy, the administrative authority may prohibit the breach (interference), or order restoration to the previous condition. The right to seek protection from a court is not thereby affected. § 6: If a person is imminently threatened with an unlawful interference with his right, the person so threatened may himself avert such violation in an appropriate manner. See Knapp V., Quieta non movere, cit. in Fn. 50, 265 et seq. See Spáčil J., Ochrana vlastnictví a držby v občanském zákoníku (Protection of Ownership and Possession in the Cicil Code), 2nd ed., Praha 2005, 233.

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2.5.2. Court protection There exist two specific tools: legal action for the release of a thing (rei vindicatio), and the injunction (action negatoria). The law explicitly extends this protection in favour of the owner and the possessor (§ 126 par. 2).71 Apart from this, damages and restitution may be sought.

(a)

Injunction (actio negatoria)

Injunctions may be filed by the owner or any co-owner against a person who violates the ownership title or right, in a way other than by seizing the owner’s thing without authorization. Actions for emissions (§ 127 par. 1)72 represent a special case of negatory actions. Unauthorized violation contested by the legal action does not have to exist continuously.73 If the violations consist of permanent, repeated actions, these actions may be deemed to form a single, continuous action. Negatory actions may be further filed to request that the defendant solely restrict his actions to one clearly detailed violation. Negatory actions may accumulate with actions for protection against impeding damage – actions for measures to avert damage (§ 417 par. 2).74 However, according to the case law, protection is not justified and en71

72

73 74

§ 126: (1) The owner has the right to protection against anyone who unlawfully interferes with his right of ownership; he may in particular claim surrender of a thing owned by him from any person withholding it unlawfully. (2) The person who is entitled to hold a certain thing enjoys a similar right to such protection. § 127 par. 1: The owner of a thing must abstain from anything that would cause annoyance to an unreasonable extent to another person or seriously endanger the latter’s exercise of his rights. The owner may not, therefore, endanger his neighbour’s buildings (structures) or plot of land by making alterations to his own plot of land or to any building (structures) erected on such land without having taken adequate measures in respect of proper reinforcement of his building(s) or other appropriate measures in respect of his plot of land; he may not vex his neighbours to an unreasonable extent by noise, dust, ashes, smoke, gases, fumes, odours, solid or liquid waste, light, shadows, and vibrations, and he may not let breeding animals enter adjacent land. Furthermore, he may not, inconsiderately or in an inappropriate season, remove tree roots from his soil or cut tree branches that overhang his plot of land. See Spáčil J., op.cit. in Fn. 52, 720. See § 417 par. 2: “If the threat is serious, the person threatened has the right to demand at a court that it orders suitable and comensurate precautions to avert the impending damage.”

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croachment is not unauthorized if the violating actions allegedly consist of mere threats.75 In addition to traditional defences, the defendant may claim that he encroaches the ownership title or right on the grounds of another right in rem or right to fulfilment of obligation.

(b)

Legal action for the release of a thing (revindication)

Revindication is a legal action whereby the owner of a thing claims protection against a person who seizes the thing without authorization. The legal action may be filed by the owner or by any co-owner of the thing. It is yet to be resolved whether the action may be filed by a co-owner against another co-owner.76 The person who seizes the thing without authorization is the defendant. Both a possessor and a detentor may be a defendant. However, if the defendant lost his possession or detention of the thing, the revindication claim extinguishes. If the defendant lost or destroyed the thing, the owner loses the opportunity to claim the thing successfully; instead, the owner may only claim damages. The situation is different with legal actions against “fictitious possessors”, i.e. persons who pretend possession to mislead the owner and conceal the true possessor. Only things that can be distinguished from other things of the same type, i.e. also substitutable things that can be individualized, may be claimed.77 The case law contains a disputable question whether the defendant may defend on the basis that he acquired the thing duly from its legal predecessor at a time when this predecessor was the thing’s owner. This concerns a situation wherein ownership is transferred to another person and then the previous owner who transferred the ownership withdraws from the agreement. The transferor thus ceases to be the owner ex tunc. This issue is questionable, although the good faith of the final transferee is decisive in this respect.78 On the other hand, the Supreme Court came to the opposite conclusion in decision R 44 / 2000. Under this decision, the transferee acting in good faith did not become the owner.79 Another specific issue is that of several legal reasons for revindication. This concerns a competition of legal actions for the release of a thing, un75 76 77 78

79

See R 22 Cdo 2162 / 99. See Spáčil J., op.cit. in Fn. 52, 691 and R 2 Cdon 1794 / 96. See also Spáčil J., op.cit. in Fn. 52, 692. This opinion finds support in the decision of the Czech Supreme Court 20 Cdo 1186/98, and in the decision of the Constitutional Court II. ÚS 77/2000. See also Spáčil J., op.cit. in Fn. 52, 696.

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der general regulations on the protection of ownership, on one hand, and under special regulations in restitution laws, on the other hand. Under a decision of the Supreme Court that was confirmed by a judgment of the Constitutional Court, the authorized person who enjoys protection under special restitution laws may not claim protection under general regulations, including in the form of ownership title determination.80

(c)

Damages and restitution

In case of violation of ownership rights, it is possible to seek (petitory) protection through a lawsuit for damages. Under the general provision of the Civil Code (§ 420) a right to damages presupposes existence of a detriment caused by unlawful conduct of another person and existence of fault of this person, i.e. in our case it means a violation of an absolute right (i.e. the ownership). However, these claims do not occur frequently in practice. They are in fact of an obligational nature, which nevertheless are grounded in an absolute right, i.e. ownership. The protection of the ownership can be also based on unjustified enrichment. It especially concerns the unjustified use of a thing. It is a socalled “usufruct condictio”. The use (enjoyment) has to be viewed lato sensu. It must be unjustified, i.e. it must contradict an existing right. In this case, the owner has a claim to physical restitution of his property and is entitled to claim the value of the unjustified use of the thing, which represents monetary compensation (damages) if the thing cannot be restored. The question of a time limitation (statute of limitations) for this kind of protection has been disregarded so far. There is no explicit legal provision concerning this question. There are no published cases. Doctrinal suggestions are rare, but the tendency is clear.81 It is recognized that the owner can claim (cumulatively) both recovery of physical control and damages. Under the general rule of tort liability, a claim for damages requires an unlawful act (interfering with the ownership right) and fault. Based on the rules on unjustified enrichment (§ 451f), the owner is entitled to claim the enrichment caused by the unjustified use. The use must contradict the exclusive right of the owner. The owner may claim physical restitution of the property; however, if this is impossible, he may claim a monetary compensation. If the enriched party acted in good faith, he shall pay the market value. In the case of bad faith, he has to reverse all benefits obtained (§ 458 par. 2).

80 81

See R Cdo 1222 / 2001. Spáčil J., op.cit. in Fn. 70, 235.

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Self-help

A person whose right is immediately threatened or violated may seek selfhelp protection in extraordinary cases. Self-help is not an obligation and one who has not used such protection suffers no legal detriment. The provision of § 6 of the Civil Code does not restrict self-help protection to the protection of ownership titles; it may be sought by anyone who faces an immediate encroachment of his right or title, including ownership titles. Self-help82 is legal if the threat is immediate and the self help is proportionate to the threat. An interference of a right or title is deemed immediate if the right or title is to be immediately encroached, or if it has been encroached already. It is deemed proportionate if it does not cause injury in excess of the injury that is threatening or coming into existence. Self-help protection against an authorized intervention is ruled out.83 However, much more restrictive opinions exist. According to these restrictive voices, proportionate self-help protection may be sought only when help from the public authorities cannot be effectively obtained.84 These voices also say that proportionate self-help protection may be sought solely by persons facing the threat.

2.7.

Protection of possession

The law grants a lawful possessor the same rights as an owner – in particular, as the law states in § 130 par. 2,85 he also has a right to fruits and benefits for the duration of his lawful possession. A possessor may therefore seek both an injunction and revindication. He indubitably has an entitlement to protection pursuant to § 417.86 It is clear that the right to protection itself is held not only by a possessor, but also by a detentor (see § 126 par. 287 – a similar right of protection also belongs to a person who is entitled to have a thing on his person). The example given of a revindication suit (see § 126 par. 1, first sentence) means that in the same way as the existence of a negatory suit is deduced, a possessor has the possibility of a suit called an actio publiciana. In the light of the above-mentioned § 126 par. 2 and § 130 par. 2, it is clear that a possessor also has the right to take self-help actions. The fact 82 83 84 85 86 87

See Eliáš K., op.cit in Fn. 52, 580. See Knapp V. et al., op.cit. in Fn. 31, 219, 220. See Eliáš K., op.cit. in Fn. 52, 99. See Fn. 56. See Spáčil J., op.cit. in Fn. 52, 700. See Fn. 71.

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that § 126 par. 2 mentions “analogous rights”, changes nothing in the essence of such rights. The provisions should be merely adapted by appropriate interpretation of the position of the possession and the possessor. The possessor may seek preliminary protection from state an administration authority as described above in the case of the owner. Petitory protection is represented by an action of lawful possessor. This legal action serves, in the first place, the owner who cannot prove his ownership or, in the second place, when the proof of his ownership would be unreasonably cumbersome. Conditions for the claim of a lawful possessor differ from those a lawful owner in two ways. The possessor’s claim is the action resulting from a better right. For this reason it is impossible to exert it against the owner, or even against another lawful possessor.

2.8.

Protection of detention

Although there are some reservations, it is predominantly believed that the detentor may enjoy under Czech civil law, in addition to proportionate self-help protection and public protection, court protection through legal actions analogous to ownership actions. Authorized detentors may thus file actions for the release of a thing or negatory actions.88

2.9.

Commentary

The development of civil law in the Czech Republic in the last 50 years is an extraordinary example of a change in the legal order, legal conscience, and values, and at the same time a remarkable testimony of the controversy between law and societal conscience. The 1950 Civil Code lags behind the fundamental changes in values and behind the conscience of the society by preserving old forms of the ABGB. Although, outside its regime, private ownership and the terms of ownership rights and rights in rem were turned on their heads, the Civil Code retained some traditional institutions dating back as far as to Roman law. This contradiction was rationalized by the existence of lower classes and thus the necessity of formal respect of ownership. However, such a situation did not really exist anymore due to the expropriations and confiscations that took place in the five years before this formal statutory change. Within this relatively formal and traditional concept, the abandonment of the traditio principle, and thus the two-stage regime of transfer of owner88

See Knapp V. et al., op.cit. in Fn. 31, 316.

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ship by agreement, seems striking. The reason behind this revolutionary move remains a mystery, with the rhetoric that the current provisions were a mangy construct convincing no one. The important thing is that institutions such as possession, prescription and lien, as well as the classic forms of protection of ownership (possession and detention) survived – at least formally. The revolutionary changes implemented in the politics and ideology were reflected in the law only after 1964, though in relatively an “innovative manner” that does not have any parallel in other European socialistic laws, save for the civil code of the German Democratic Republic from 1975. The Civil Code from 1964 omitted all the classic and traditional institutions of rights in rem, such as possession, prescription, detention, etc. By the development of the ownership right itself, a total pulverization thereof occurs, which had been commenced by the Civil Code of 1950 anyway. By the effective abolition of private ownership, the fundamental principles of the ownership right and the rights in rem, as a whole, were abnegated. The return to the principle of acquisition of ownership by contract, and thus the restoration of the two-stage regime, including the traditio principle, survives this communist destruction of the law of rights in rem in a similar fashion as did abandonment of the principle of “translational effect” of the underlying obligation (i.e. the principle that the contract itself transfers the property) in 1950. However, in the case of an original acquisition, the fundamental institutions of the more traditional European legal culture, based on the Roman tradition, are basically repudiated. The current situation is affected mainly by the following substantial factors: 1. Continuing formalism in law. Neither judicature nor doctrine has been able to disengage itself from the layers of a positivistic, even formalistic, approach to the law. As a consequence, neither has been able to overcome the basic contradictions between theory and practice: neither has been able to interpret the fundamental institutions of the law regarding rights in rem (property law), although they exist in the positive law, or both still formulate such with a warp of the communist law. 2. The disputes between old and new: The positive-law regulation is marked by a compromise that is prima facially contradictory. The compromise consists in the incorporation of two expressed irreconcilable concepts. The positive regulation is a silent witness of inconsistent legislation. New ideas have been “engrafted” on an old text, yet they do not stand on the old “ground”. Thus, a weird conglomerate is often created, the interpretation of which is possible only using the teleological method. It is noteworthy that even a relatively modern text introduced after the revolutionary transformations of 1989 is interpreted in line with the old approaches.

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3. Undeveloped law of rights: In comparison to other national legal cultures, including those that have been newly developing after liberation from the communist self, the Czech law of rights in rem seems to be relatively undeveloped. It suffers from the above-mentioned conflict of contradictory principles, the dispute over which is not decided with sufficient clarity. This is because neither the judicature nor the doctrine has a sufficient background of ideas and, no doubt, also because of the remaining culture of the formalistic approach to the law. It is noteworthy that both judicature and doctrine draw mainly from sources older than 60 years (often older than 100 years), without following, in this case, the Austrian developments. Noteworthy examples of deductions based on the above-mentioned contradictions include interpretations of the protection of detention and possession, interpretations of bona fide in acquisition of ownership, and the problems regarding the protection competition. (a) No doubt § 126 par. 289 allows protection of possession and detention in the same manner or analogically to the protection of the right of ownership itself. Yet, the doctrine provides just a very hesitant opinion on the issue and the judicature neglects these problems totally. (b) In the case law, a verdict of the Supreme Court still has importance, according to which verdict a person who acquired a thing from a seller, but who eventually forfeited this ownership with respect to invalidity of the purchase agreement between the seller and the original owner, is not protected – not even based on bona fide. This approach is just a consequence of the continuous disparagement of ownership and an insufficient respect for the protection of an owner. Also, the persisting “extraneousness” of the category of bona fide plays a role and judicature, as a consequence of the lack of the doctrine’s fundamental opinions, still does not know what to do with it. (c) The case law does not allow for the possibility of concurrence of protective instruments based on different legal bases of protection. Thus, it rules out the possibility of the general protection as a concurrent or additional base, compared to a special protection under the acts on restitution.

2.10.

Draft

The Draft provides for possession in §§ 901-923; ownership is provided for in §§ 924 through 1077, with §§ 1078 and 1228 providing for so called jura in re 89

See Knappová M., op.cit. in Fn 49. 580.

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aliena, restrictions on ownership rights, fences, necessary roads, dispossession and restriction on, and protection of, ownership rights (Division 1). Acquisition of ownership rights is provided for in §§ 956 through 1017: regulated issues include appropriations and discoveries of hidden things, rescue of another party’s things, natural accruals, artificial accruals, buildings, mixed increases and prescription, transfer of ownership rights, namely transfers of ownership rights to movables, securities, real estate, and acquisition of ownership rights under a public authority decision. Sections 1018 through 1077 provide for co-ownership; §§ 1078 and 1228 provide for rights in rem in things of other persons, including, e.g. the right to build, easements and pledge rights.

3.

Rights to use and to acquire (rights quasi in rem)

Certain rights to use and to acquire are at the borderline between property rights and obligations. The lease contract is classified unambiguously as an obligational contract. The lessee acquires a right that consists in using or utilizing the leased thing.90 However, despite the fact that in theory a lease has a purely obligational nature, it is obvious that the lessee has also several rights against third persons. The lessee is protected against unlawful third-party interferences. His position is that of detentor (see 2.3. supra). The lessee has the right to benefit from the leased thing, although he is aware that he is not the owner. In relation to the subject of the lease, he knowingly exercises merely a power derived from the owner’s original power – to the extent allowed by the owner.91 On the condition of compliance with the owner’s determination of the time, and of other components of the lease, the lessee is a rightful detentor of the subject of the lease. It should be noted that the concept of a lease agreement in the Civil Code reveals also in-rem qualities. The lessor (of real property) has a security interest in movable property situated on the leased premises, which belongs to the lessee or other persons who live with the lessee, to secure the rent (§ 672). The lessee, as a detentor, has at his disposal similar means of protection as a possessor. This results from the fact that, according to the Czech approach, the lessee, as a detentor, “possesses” the lease-right and thus has the status of possessor. The lessee enjoys direct protection in court as he is entitled to use actio publiciana (possessory action). Also in this respect, the lessee’s rights are in principle identical with those of a possessor. So, the lessee can claim physical control over the leased thing (revindica90 91

See § 665 of the Civil Code and Hulmák M., op.cit. in Fn. 52, 1894. See in Fn. 31, 294.

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tion), has the cease-and-desist remedies concerning interferences with the leased thing (actio negatoria), and definitely is also entitled to claim damages against third persons who unlawfully interfere with his right. However, these in-rem instruments are not used frequently in practice. They are rarely dealt with in literature and the theory probably does not attach importance to them. The problems of interferences with lessee’s rights are, as a matter of fact, solved within the framework of the lease contract as an obligational question. In this sense, the lessee does not intervene directly against the disturber, but turns to the lessor whose duty is inter alia to maintain the subject of the lease in a condition fit for the agreed use. Even the damage incurred as a consequence of the third party interferences can be claimed against the lessor. A similar position is that of the bailee, in case of a contract of bailment (§§ 747 et seq.), who takes over a movable thing from the bailor and assumes an obligation to take proper care of it. Even a provider of services related to things of his customers is in the position of a detentor, with corresponding obligations of protection of the entrusted things. This can be deduced e.g. from § 433, according to which the accommodation provider is liable for damage caused to things that have been brought onto the accommodation premises. Also, this is generally applicable to a purchaser who concludes a purchase contract with the reservation of ownership.

4.

Scope of rules of transfer of movables, relevant definitions

4.1.

Things

Czech law does not define the term “things”. In theory, things are defined as corporeal objects (res corporales) that can be controlled and used, i.e. that serve the needs of people. Both features must be present simultaneously, and whether they meet such criteria is assessed using an objective measure. A thing may also consist of several corporeal things, i.e. a collective thing (universitas rerum), which may be the subject of, amongst other things, a pledge (§ 153 par. 1). In this case, a collection of things, a collection of proprietary rights, and in particular of receivables and obligations, gives rise to another term – property. At other times, however, property is understood to be a collection of things and proprietary rights, and not proprietary obligations (e.g. inter alia §§ 175d, 175m of the Civil Procedure Code).92 Things, in this sense, previously did not include enterprises, i.e. a collection of tangible as well 92

Občanský soudní řád (Code on Civil Procedure), No. 99 / 1963 Coll.

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as personal and intangible components of business (§ 5 par. 1 of the Commercial Code). Nowadays, however, this is not the case. The amendment of the Commercial Code in 2000 also qualifies an enterprise as a collective thing.93 The regime applying to securities was a matter of dispute. Securities were considered things in view of their tangible underlying basis. However, this ceased to apply with the creation of dematerialized or book-entry securities. The protracted disputes were resolved by Act No. 362 / 2000 Coll. (§ 1 par. 2), under which securities are governed by the legal regime of movable property. The fundamental classification of things is their division into immovables (which are not the subject of our consideration) and movables. Movable property can also be divided into fungible and infungible things (goods). The division of things into fungible and infungible practically coincides with the division into things determined by type (generically) and individually (specifically). The former are things that are determined by features of their type, according to number, measure or weight. Specifically determined things are individualized by features, which mean that they cannot be substituted by other things. Things are further divided into consumable and non-consumable things, even when the enjoyment thereof gradually wears them out and often exhausts them entirely.94 The term “things” is furthermore divided into things that are in real terms divisible and those that are indivisible, where in the latter case they lose their use upon the last real division.95 The Civil Code does not define movables. It is possible to define them directly as comprising items that are not real property (immovables), which is defined as land and buildings connected with the ground by a fixed foundation (§ 119 par. 2).96 Accessories to a thing are things that belong to the main thing and, at all times, to the owner thereof, by whom they are determined to be permanently used with the main thing. Accessories are therefore characterized by the fact that one thing is the main thing and the other thing is “ancillary”, i.e. an accessory. Accessories must belong to the owner of the main thing and must be determined for permanent use therewith (§ 121 par. 1). Accessories may be separated from the main thing, although the things may be technically connected. The common fate of the main thing and the accessories thereto during transfer of ownership has not yet been clarified. 93 94 95 96

See Knapp et al., op.cit. in Fn. 31, 227. See Švestka J., op.cit. in Fn. 31, 649 et seq. See Knapp V. et al., op.cit. in Fn. 31, 232. § 119 par. 2: Immovables (real estate) are plots of land and buildings (structures) connected to the land by a solid foundation.

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A long prevailing opinion97 assumes that during contractual transfer it is necessary to duly identify the accessories to a thing in addition to the main thing itself; otherwise, such a contract is supposedly invalid on the grounds of indefiniteness or, as the case may be, incomprehensible. Such practice was only confirmed later by a decision of the Supreme Court of the Czech Republic98, although it was subsequently amended by a verdict of the same court99 under which accessories share the fate of the main thing, without consideration to whether the parties to the contract directly identified such accessories or merely stated that the thing is transferred with all accessories thereto, or even omitted to mention the accessories at all in the contract. However, this decision is not accepted without reservation in view of another decision100 under which accessories must be explicitly included in the expression of the contracting parties in regard to the scope of accessories. The parts of a thing (as opposed to the accessories) comprise everything that pertains to the thing by its nature and cannot be separated from it without thereby in some way impairing it (§ 120). In contrast to accessories, a part of a thing is not an independent thing in the legal sense. The parts of a thing therefore comprise everything that pertains to the thing by its nature and cannot be separated from it without thereby impairing the thing as whole.101

4.2.

Things in the Draft Civil Code

In the Draft Civil Code, a distinction is introduced between tangible and intangible, and movable and immovable things. At the same time, it is permissible for a collective thing to include both tangible and intangible things (see § 470 of the Draft).

97 98 99 100 101

See R 7 / 1987. See R 2 / 1997. See R 18 Cdo 133 / 2001. See R 31 Cdo 2772 / 2000. See Knapp V. et al., op.cit. in Fn. 31, 234.

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Part II: Derivative acquisition 5.

System of transfer of ownership

5.1.

Basic characteristics and general overview

According to Czech doctrine,102 acquisition of an ownership right means a person becomes the owner of a specific thing and holder of a subjective ownership right, wherein the thing had another owner and another holder before, or there was no owner at all. The law in force does not know so-called things with no master (res nullius), i.e. things that do not belong to anyone. As the law in force does not know this term, the only case of so-called original acquisition (when there was no previous owner at all) is the case of a thing newly created, i.e. a produced thing, in particular. Also, the Czech law distinguishes between acquisition of ownership among living persons and in the event of death. In the latter case, acquisition of ownership is possible through inheritance only, as deed of donation for the case of death is invalid (§ 628 par. 3). As to the origin of ownership, we distinguish between derivative acquisition and original acquisition. The derivative ownership means that the owner of the thing derives its ownership right from the ownership right of its legal predecessor, i.e. it becomes an owner of the thing as a consequence of the fact that the existing owner transfers ownership to it. In such event, we talk about a transfer of the ownership right or, to put it differently, about acquisition of an ownership right by virtue of the preceding owner’s will.103 There is a special type of derivative acquisition of ownership, where a thing was in the ownership of someone else, yet it passed to the possession of the acquirer in a manner other than transfer.104 In such event we talk about passage of ownership right. For example, this happens in the event

102 103 104

See Fn. 31, 294. See Knapp V. et al., op.cit. in Fn. 31, 296. See the discussion mentioned by Spáčil (op.cit. in Fn. 52, 750 et seq.), which did not succeed to reach a satisfactory result.

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of acquisition of an ownership right based on a public auction.105 However, recently this has been disputed and judicature inclines to the concept that this is also a transfer of the ownership right.

5.2.

Unitary transfer

Basically, the acquisition of ownership in a derivative manner is regulated by the uniform concept of a two-stage transfer. The general principle that applies to both the transfer of movables and immovables is the so called two-stage procedure of transferring the ownership right (titulus et modus). At the first stage the agreement (contract) is made (titulus – causa), i.e. the obligation between the transferor and transferee arises, this being the duty and obligation to transfer the ownership right to the transferee. However, by entering into a valid agreement (contract), the transfer of the ownership right is not finalized. It is finalized at the end of the second stage (modus), which is – in the case of movables – traditio (delivery, handing over); and in the case of immovables, registration of the ownership right and title in the appropriate land register. Basic “traditio principle”, applicable for movables, is governed by § 133 of the Civil Code.106 Accordingly, in Czech jurisdiction there applies the “causal concept” requiring for transfer of movables a valid contract, on one hand, and “traditio”, on the other. This, however, does not apply without reservation. There are several exceptions. There is a unitary concept of transfer of ownership. This concept applies primarily to the main aspects of the transfer of ownership, but also, in principle, to all types of obligations where the transfer of ownership may 105

106

See Knapp V., O příklepu a také o právní filozofii (On the auction and also on legal philosophy), Právní rozhledy 229; Müller Z., Musí být dražba smlouvou?(Is the auction an agreement?), Právní rozhledy 2001, 599; idem, Pojetí dražby ve světle soudní judikatury (The concept of the auction in the light of the case law), Správní právo 2002, 345; Eliáš K., Znovu o aukcích (Again about auctions), Právní rozhledy 1995, 106; Havel B., Nad jedním zákonem aneb peripetie kolem dražby (About one act or difficulties of the auction), Právní rozhledy 2001, 432; Spáčil J., Poznámka k nabytí vlastnictví k věcem vydraženým při prodeji ve veřejné dražbě (Comments on acquirement of the ownership of the movables purchased during a public auction), Právní rozhledy 1995, 140; idem, Právní povaha dražby podle zák. č. 427/1990 Sb. a její hodnocení v odborné literatuře a judikatuře obchodního kolegia Nejvyššího soudu ČR (Legal nature of the auction pursuant to the act No. 427/1990 Coll. and its assessment in the doctrine and case law of the Supreme court), Právní rozhledy 1997, 28; idem, Ještě jednou o dražbě (Again on the auction), Právní rozhledy 1997, 372. See Fn. 107 infra.

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be involved. Some types of agreements are governed by specific provisions. Nevertheless, distinction must be made, in principle, between the field governed by the Civil Code, on the one hand, and the field governed by the Commercial Code, on the other.

5.3.

Causal traditio system

The causal traditio system requires a valid obligation. The fundamental regulation is contained in the part of the Civil Code governing rights in rem, i.e. the ownership right (§ 133).107 As transfer is made upon a contract, further regulation of the passage of ownership is also included in the law of securities. This includes the Civil Code – in the case of purchase agreement (§ 590),108 but also in the case of selling in a (retail) shop, which is a special remnant of the communist law conforming also to the European concept of consumer protection (§ 614).109 As the purchase agreement is also regulated in the Commercial Code, transfer of ownership rights is regulated also on this level, namely in §§ 443 et seq. of the Commercial Code.110 Rights in rem or, as the case may be, 107

108

109

110

§ 133: Where a movable thing is transferred on the basis of a contract, ownership (title) to such thing is acquired by the hand-over of the thing, unless other statutory provisions regulate otherwise or unless the parties have agreed differently. § 590: Unless it is agreed otherwise, the risk of accidental destruction or accidental impairment of the object of sale and its profits (fruits) shall pass to the buyer at the time when he acquires ownership title to such object. If the buyer acquires ownership title to the object of the sale before it is delivered to him, the seller shall have the duties of a bailee (custodian) until the object is delivered to the buyer. § 614 par. 3: “Ownership title to a thing shall pass to the buyer when he takes over the thing purchased. In the case of distance sale (when ordered goods are sent as consigments), ownership title to the thing being bought shall pass to the buyer when he takes over the thing at the place specified for its delivery. In the case of self-service sale (in supermarkets) the transfer of ownership title to the buyer of a chosen thing shall occur at the moment he pays the price of the chosen goods”. § 443: (1) The buyer acquires ownership title to the goods as soon as the delivered goods are handed over to him. (2) Prior to taking delivery of the goods, the buyer acquires ownership title to the goods in transit when he acquires the right to dispose of the consignment. § 444: The parties can agree in writing that the buyer will acquire ownership title to the goods prior to the time specified in § 443, provided that the contract concerns goods identified individually or identified by type and which, at the time of transfer of the ownership title, are adequately marked so as to be distinquishable from other goods, in a manner agreed on between the parties or communicated to the buyer without undue delay.

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transfer of ownership, are also provided for in laws other than the Civil Code. This applies to, in particular, ownership of rights embedded in securities or, as the case may be, ownership of securities. According to the Civil Code / 1950 (§ 111 par. 2), traditio was required for the transfer of ownership to generic things (as opposed to the transfer of individually specified things). The Civil Code / 1964 dismissed such a concept, and both individual and generic things fell under a single regime – transfer by handing-over (traditio). This concept allegedly better met the interest of the working people.111 There is relatively broad party autonomy in the transfer of movables. This is expressly indicated in some provisions of the Civil Code (see § 133 par. 1), which state: “if a movable is transferred under an agreement, ownership is acquired when the movable is handed-over, unless a legal regulation stipulates or the parties agree otherwise”. The provision “legal regulation” has been mentioned in the section on purchase agreements (see 5.6. infra), e.g. in particular provisions on sale in a shop. However, such regulations are not restrictive to a great degree. Similarly, § 444 of the Commercial Code provides for the possibility to determine the time for the transfer of ownership by agreement of the parties in some cases. If a means of consensual transfer has been chosen by the parties to the contract of sale under the Commercial Code and generic goods are to be transferred, the ownership title cannot pass from transferor onto transferee before the individualization of these goods takes place.112 This rule comes directly from § 444113 of the Commercial Code, in accordance with which the parties can agree in writing that the buyer will acquire ownership title to the goods prior to the time of their handing-over, provided that the contract concerns goods identified individually or identified by type and which, at the time of transfer of the ownership title, are adequately marked so as to be distinguishable from other goods, in a manner agreed on between the parties or communicated to the buyer without undue delay. Thus, as for the nature of the “act of identification”, it can

111 112 113

§ 445: The parties may agree in writing that the buyer will acquire ownership title to the goods later than specified in § 443. Unless such a reservation of ownership title indicates otherwise, it is presumed that the buyer is to acquire ownership title to goods when he has paid the selling price in full. § 446: The buyer acquires ownership title even if the seller is not the owner of the sold goods, unless at the time when the buyer was to acquire ownership title to the goods, he knew or ought to have known or could have known that the seller was neither the owner nor authorized to dispose of the goods for the purpose of selling them. See the reasoning to the Civil Code 1964. See Fn. 110. See Fn. 110.

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be undertaken either as a unilateral act of transferor (however there is an additional requirement of subsequent notification to the transferee without undue delay) or under agreement of the parties. With regard to the moment of passing of risk in relation to individualization of generic goods, the analogous rule shall apply as in the case of passing ownership and, thus, the risk cannot pass from transferor onto transferee before the individualization of the goods. Specifically, the risk of damage to goods cannot pass onto a buyer who has not received the goods, unless the goods are clearly marked and differentiated for the purpose of the contract (mainly by marking the goods, by the shipping documents, or by a specification sent to the buyer).114 So, the requirement of individualization comes directly from the law and, furthermore, the Commercial Code exemplifies several ways of individualization (§ 458). Apart from this, the parties are not restricted in choosing any other way in their agreement. The goods must be also adequately separated and distinguished from other goods of the same type at the time of the transfer of the risk of damage, if the parties agreed that the risk of damage to goods should pass prior to the time of their handing-over. As can be seen, the general rule of individualization, in case of generic goods, is very abstract and the party autonomy principle plays an important role. All this clearly indicates that parties are basically free to agree on additional forms of transfer at their discretion, to determine the moment when the transfer shall be effected, to condition the transfer on fulfilment of special conditions, to establish a constitutum possessorium, etc. There is no doubt that the contractual provisions must comply with the fundamental principles of private law, such as good morals. This approach is not here being criticized and it seems it could not be amended in a substantial manner without being detrimental to both the parties and the legal relationships, under usual circumstances.

5.4.

Suitable types of obligations

The Civil Code stipulates a set of legal facts upon which ownership may be acquired. However, the enumeration is incomplete as it refers also to legal facts stipulated by other regulations. Ownership of a thing may be acquired by a contract of purchase, a donative or other contract, by inheritance, by decisions of public authorities, or on the basis of other facts (§ 132 par. 1).115 114 115

See Plíva S., in: Pelikánová J., Obchodní právo, vol. 2, 2nd ed., Praha 1998, 259, 261. See § 132 par. 1: Ownership of a thing may be acquired by a contract of purchase, a donative contract or some other contract, by inheritance, by decision of a state authority (agency), or on the basis of other facts laid down by law.

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In addition, the Civil Code rules a whole range of other contracts according to which title may be acquired, such as contract for work.116 Although the basic provision of § 132 par. 1117 mentions purchase agreements and donative contracts only, the passage can be applied to any other contract leading to transfer of an ownership right. Typically, this is the case of a contract for work. However, regulations of contracts not listed in § 132 par. 1 do not include special provisions on passage of ownership. Unless the parties stipulate otherwise or, as the case may be, regulate this matter in a separate contract, the general provision of § 133118 shall apply. Thus, there are certain fundamental rules regarding the transfer of ownership: (a) It is a causal transfer. The contracts are based on a causal principle and not on the principle of abstraction. The basis of contractual transfer consists in a legal reason (iustus titulus).119 This is also the first of the two stages of the transfer. Unless the parties stipulate otherwise, a contract constitutes a legal reason for the transfer. The contract has an obligational meaning and not a transferral (translational) effect. It binds the alienor in the sense that acquisition of the thing is to be passed to the acquirer by virtue of another act consisting in a manner of transfer of ownership, which is recognized by the law and through which he is obliged to transfer the ownership. (b) Transfer is not a separate agreement; it is a two-stage process and happens by traditio only. In addition to a legal reason, there must be a manner for acquiring the ownership (modus acquirendi dominii). In this case, whether the subject is movable or immovable is not determinative, nor is the question of who, at the time of acquiring title, had the object in his possession. As regards the acquisition by decisions of public authorities court decisions and decisions of administrative authorities are relevant. The ownership is transferred (“is acquired”) on the day stated in that decision. If the day is not stated there, the acquisition happens on the day when the decision comes into legal effect.120 The act of delivery is – as to the transfer of ownership – irrelevant. Examples can be a) the case of so called illegal building, which is the case where someone erects a building on someone else’s plot of land without having any right to do so. Based on the action filed by the owner of the land the court may rule 116 117 118 119 120

See Part III on original acquisition, infra. See Fn. 115. See Fn. 107. See op.cit. in Fn. 31, 297 f. See § 132 par. 2 of the Civil Code.

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that the owner of the building has to remove it at his own expense.121 When somebody in good faith processes somebody else’s thing, the shares of both persons are equal and they fail to agree as to who becomes owner, the court shall rule on this.122 When somebody processes somebody else’s thing, although he knows that he is not its owner, the court may ruleupon the petition of the owner – who shall be the owner.123 If – in the case o termination of co-ownership – no agreement among the co owners as to who shall be the exclusive owner is reached the court has to decide.124 If there is no agreement on settlement of matrimonial property the court shall rule.125 In theory the ownership can be acquired by operation of law. In this way nationalization happened. The owner became the state. This was the case of the “socialization” period after 1945. After 1989 certain number of laws has been passed based on which the property has been transferred from the state in favour of cities, towns and districts.126 As to the inheritance, there are two general principles which are relevant for the transfer of ownership from the bequeathor (descendent): principle of universal succession and delational principle. The first one means that the heirs enter the whole decedent’s property as such, including its rights and debts. The second one means the transfer occurs by the fact of decedent’s death directly. The heirs do not need to accept their heritage. As a consequence of this principle everybody who can inherit according to the law are co-owners of immovables included in the heritage until the termination of the inheritance court proceedings.

5.5.

Defects affecting the transfer of ownership

5.5.1. Acquisition by a bona fide acquirer This situation is not regulated by the general rules of the Civil Code. Following the principle nemo plus iuris transfere potest quam ipse habet, the prevailing opinion in the jurisprudence is that even a bona fide acquirer

121 122 123 124 125 126

See § 135c par. 1 of the Civil Code. See § 135b par. 1 of the Civil Code. See § 135b par. 2 of the Civil Code. See § 142 par. 1 of the Civil Code. See § 142 par. 1 of the Civil Code. See the Act. No. 219 / 2000 Coll., on property of the Czech Republic and its functions.

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cannot become owner if the transferor was not owner and, therefore, was not able to transfer ownership.127 The Commercial Code holds quite the opposite position and contains explicit provisions on acquisition from a non-owner in § 446 (dealing with sales contracts). It presupposes an ordinary acquisition by the buyer even if the seller is not the owner of the goods, unless the buyer was not a bona fide acquirer, meaning he knew or ought to have known that the seller was neither the owner nor authorized to sell them. The key issue is the difference between the bona fide standard in the Civil Code, particularly for a consumer,128 and in the Commercial Code. In the Commercial Code, an acquirer acquires and retains the ownership if he did not know nor could not have known, at the moment he was supposed to acquire the ownership right, that the seller was not the owner.

5.5.2. Lack of personal capacity If a contracting party is a person without competence to do juridical acts, such contract is absolutely invalid: the title has never been transferred on the transferee, since “a juridical act is null and void if the person who undertook it lacked the legal capacity”.129 Also the contract is absolutely invalid, if it is entered into by a person acting under a mental disorder which “renders that person incapable of engaging in such act in law”.130

5.5.3. Defects of a party’s will: coercion Any juridical act must be made of free will and in earnest, in a definitive and intelligible manner, otherwise the juridical act is absolutely invalid.131 127

128 129 130

See Knapp V., op.cit. in Fn. 31, 301. See e.g. Spáčil J., op.cit. in Fn. 52, 759. The solution of a case where, after a sale agreement is executed, the title of the transferor turns out to be void, as the previous transferor claimed succesfully avoidance, could be very questionable. The situation both in doctrine and case law is not clear (see Spáčil J., op.cit. in Fn. 52, 767; Švestka J., op.cit. in Fn. 52, 419 et seq. and R 22 Cdo 1186 / 98 on the one side and R 44 / 2000 with opposite view on the other side. The Constitutional court ruled – R II.ÚS 77 / 2000 – that, when the ownership has been acquired once in good faith it cannot be invalidated later, even if the previous title has been invalidated). See Škárová M., Commenting on § 616, op.cit. in Fn. 52, 1088. § 38 par. 1 of the Civil Code. See § 38 par. 2 of the Civil Code.

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A person is not acting according to his or her own free will if the behaviour is a result of coercion – either of direct physical violence or emotional coercion, especially unlawful threats. Here, the will of the actor is replaced by the will of the coercer. A threat means that the person exposed to it is, as a result of the matter and intensity of the threat, forced to act through the evocation of fear. In such a case, any contract is concluded according to the dictate of the coercer (who in many instances is the other side of the contract), whereas such a contract would never have been agreed upon absent such fear. A threat is unlawful if the specific action, in order to coerce the other party, is an action that may not legally be taken to enforce the right in question. The actions of a person who insists on the conclusion of a contract with the argumentation that there is no other way of solving his/her financial difficulties, or who insists on settling an existing debt with partial payment, are not unlawful threats.132 In the case of a coerced contract, a transfer of ownership never takes place. The contract is absolutely invalid (effect ex tunc). 131

5.5.4. Mistake – relative invalidity Free will is lacking if a mistake (error) is based on an erroneous fact being decisive for conclusion of the contract. A juridical act is also invalid if undertaken (mistakenly) by a party on the basis of an erroneous fact that is decisive for making the act in question, if the other party to the juridical act either mistakenly induced such error or should have been aware of the mistake. An act in law, a juridical act, is also rendered invalid if such mistake (error) was intentionally induced by the other party. However, an error in motive does not invalidate the act concerned, nor does an essential error caused by negligence, carelessness or deliberate intent. If it was caused deliberately it is not relevant if it is an essential or non-essential error. The Civil Code addresses this error of free will only with relative invalidity. It means that, for example, a contract transferring title to a movable asset is considered legally enforceable until such time as an action is lodged, by the affected contracting party, seeking to have the contract declared null. The relative invalidity of a legal transaction does not arise by operation of law.133 Rather, a relatively invalid juridical act has the same legal 131 132 133

See § 37 par. 1 of the Civil Code See Švestka J., op.cit. in Fn. 52, 336 and 33 Odo 1416/2005. See § 40a of the Civil Code: Where the cause of invalidity of an juridical act concerns the cause pursuant of the provisions of §§ 49a, 55, 140, 145 par. 2, 479, 589,

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consequences as if it were valid, unless – and until – the relative invalidity is invoked. Specifically, the relative invalidity takes effect when the unilateral declaration, expressed by the party to the contract who is claiming the invalidity, is received by the other party to the legal transaction. The relative invalidity then arises ex tunc, i.e. the contract is deemed invalid from the time of its conclusion. The right to invoke the relative invalidity is lost, however, if such juridical act is subsequently approved, if the reason for the invalidity has subsequently ceased to exist, or if it is not invoked by the entitled party. The party who caused the invalidity may not claim it – only the affected party.134 Aside from resulting in the invalidity of the transfer of title ex tunc, this also results in the exchanged values (e.g. delivered movable assets and accepted purchase price) being considered unjustified enrichment.

5.5.5. Rescission (withdrawal) The unilateral rescission of a contract is possible only under exceptional circumstances and only if expressly allowed by law, or if such a withdrawal is agreed upon by the parties to the contract.135 Legal grounds for rescission are generally stated in § 49 of the Civil Code, and apply to cases in which a party has agreed to a contract under duress or under conspicuously unfavourable conditions.136 Rescission from a contract is a unilateral legal act declared vis-á-vis the other party to the contract. Its effectiveness requires neither the consent of the addressee nor a decision of the court. As a result of the rescission, the agreement is deemed non-existent with effect ex tunc, i.e. the agreement is treated as if it were never concluded. If any performances had already been performed before the contract was rescinded, they will be reversed under the principle of unjust enrichment. In the following, a couple of principles will be discussed in relation to immovable property. These principles also apply, however, to the transfer of movables by registration (sub. 5.7.) and may also apply to movables by way of analogy. The question of the effects of rescission became controversial in cases where, based on the contract, the buyer’s right of ownership over immov-

134 135 136

701 par. 1, 775 and 852b par. 2 and 3, the juridical act shall be deemed valid, unless the person who is affected by such act claims the invalidity of the act concerned. See § 40a of the Civil Code. § 48 par. 1 of the Civil Code (see Fn. 138). The withdrawal from a contract also concerns cases of consumer contracts as a result of European directives (§§ 53, 56, 57 a 613, 623 and 852 of the Civil Code).

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able property was entered into the land registry and, after the entry into the register, the seller rescinded the sales agreement. Currently, the relatively controversial practice prevails according to which the lawful legal title, on the basis of which the buyer gained the right of ownership over the immovable, ceases to exist with an effective rescission of the sales agreement, and the status quo ante is restored. A subsequent entry of the restored ownership rights into the land registry has only a declaratory effect. However, if the acquirer has in turn transferred the property rights to a third person, after which his transferor withdraws from the initial contract, more problems arise. According to the prevailing opinion in practice and doctrine, the ownership rights of the initial transferor, who rescinded the contract, are not restored. It should be noted that a different legal situation would arise if the property rights to the real estate had never been transferred to the initial owner (transferor). In this case, a contract regarding their transfer would be absolutely invalid according to § 39 of the Civil Code. This opinion is based on the assumption that the withdrawal from a contract can only have effects for the parties to such a contract, and does not affect third parties.137 Law on contract rescission included in the Civil Code (see § 48)138 does not relate to commercial relationships. Special arrangements of contract rescission within the particular contract types in the Civil Code take precedence over the mentioned general rules. In contrast, in commercial relationships the rescission takes effect at the moment of rescission (ex nunc, § 341 of the Commercial Code). The rules on contract rescission in the Commercial Code are non-mandatory, which means that it is up to the contracting parties to modify the possibility and manner of rescission, respectively, if they exclude rescission of the contract at all.

5.5.6. Condition precedent and resolutive condition The Civil Code enables the parties to condition the legal consequences of a legal act, e.g. a contract transferring ownership of movables. The creation, modification or extinguishment of a right or duty (obligation) may be made 137

138

See 22 Cdo 1186/2000 a J. Švestka op.cit. in Fn. 52, 422; see also chapters 6 (Double sales) and 7 (Selling in a chain). See § 48 of the Civil Code (1) A contracting party may withdraw from (repudiate) a contract only as this Code so provides, or if the parties have so agreed. (2) Such withdrawal (rescission) renders the contract null and void from its inception, unless some statutory provisions regulate otherwise, or unless the contracting parties have agreed differently.

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dependent on fulfilment of a certain condition. This agreed condition must be possible, otherwise it shall not be taken into consideration. The law differentiates between two types of conditions: the suspensive and the resolutive ones. A condition precedent (suspensive condition) means that the legal effects of an agreement only set in upon the fulfilment of the condition. Up to the moment of fulfilment, or non-fulfilment, a state of uncertainty exists. The contract is valid and binding, but not yet effective. With regard to the transfer of real estate, the condition precedent has to be fulfilled prior to the decision regarding the registration.139 Concerning the resolutive condition, some distinctions must be made. In general, a resolutive condition pursuant to § 36 par. 2 CC has retroactive effect. However, a resolutive condition for purchase agreements under § 610 CC becomes effective ex nunc, i.e. from the time of termination of the agreement.140 The retroactive effects in this context mean that the ownership has never passed and the acquirer becomes obliged to release the thing from his unlawful possession.141

5.5.7. Consequences of unjustified enrichment Legal acts are invalid if they lack a requisite that the law demands under the sanction of invalidity. Legal consequences of defective legal acts are either invalidity or impossibility of the legal act, or a right to unilateral avoidance of (withdrawal from) the contract. There is a principle in the Civil Code that invalid legal acts are invalid absolutely, unless the law declares them relatively invalid. Absolute invalidity arises directly ex lege; courts take it into consideration ex officio; the invalid legal act cannot be cured by subsequent approval of the parties (ratification or confirmation) or extinction of the reason for invalidity. Absolute invalidity takes effect ex tunc in the case of an absolutely invalid contract for transfer of ownership: the transfer has actually never happened, as if the contract has not been signed. Invalidity of a contract, similarly as invalidity of any other legal act, results in the right to claim surrender of the unjustified enrichment, i.e. of every consideration provided according to the contract. This corresponds to the practice of the courts: if a purchase contract is invalid for any reason, every party is obliged to return to the other everything that was provided to it according to the contract – and this does not depend on the buyer’s 139 140 141

See J. Švestka, op.cit. in previous Fn. 52, 424. See Škárová M.,Pokorný M., Salač J., op.cit. in Fn. 52, 1757. See §§ 451 and 457 CC and further observations supra chapter 4.4.

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good faith. However, the parties may, of course, conclude a new valid replacement contract if they so desire. The invalidity means that the ownership was never transferred to the transferee and the transferee has only a factual control over the thing (possession) without titulus as the titulus is absolutely invalid. In principle, all legal defects of the contract cause invalidity from the beginning (ex tunc).142 Defects of a contract can be classified into deficiencies of personal requisites (defects of the will, violation, contravention or circumvention of the law or good morals), and special grounds of invalidity provided in the Civil Code (defects of performance, etc.).143 There is no difference compared to the avoidance of a contract in this sense.

5.6.

Delivery

5.6.1. Physical delivery Delivery is an act by which the transfer is carried out and the intention of the parties is completed. In law, this is expressed by the term “take-over”, which is preceded by the “hand-over” of the thing by the transferor. These are paired terms; they both constitute an institution called traditio. This term, although it implies a hand-over, yet no doubt also includes the takeover as well.

142

143

See § 39: An act in law shall be invalid (null and void) if its content or purpose contradicts or circumvents the law, or if such act contravenes good morals. See § 616 par. 3: Where the thing being taken over by the buyer is not in conformity with the contract of sale (hereafter “non-conformity with the contract of sale”), the buyer is entitled to have the thing restored to a condition corresponding to the contract of sale free of charge and without delay by the seller, and this is to be done according to the buyer’s requirement either by replacement (exchange) of the thing concerned or by its repair; where this procedure is not feasible, the buyer may require an appropriate price reduction or avoid (repudiate, withdraw from) the contract. However, this shall not be the case if the buyer was aware of non-conformity of the goods with the contract of sale before taking if over, or if the buyer himself caused such non-conformity with the contract of sale.

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5.6.2. Exceptions to general means (a)

Mail order selling

A certain modification consists in the transfer of ownership within mail order selling. Here the ownership is transferred to the purchaser at the place of delivery determined by the order (§ 614 par. 3, sentence one).144

(b)

Self-service selling

In the case of self-service selling, meaning the customer selects the goods himself, the ownership of the purchased goods is transferred as of the moment of payment of the price for the selected goods. Thus, it is a certain modification of the ownership right (§ 614 par. 3, sentence three).145

(c)

§ 443 Commercial Code

When the contract is between merchants, the ownership right is transferred prior to the hand-over of the thing and as of the moment when the purchaser acquires the entitlement to dispose of the shipment containing the goods (§ 443 par. 2 of the Commercial Code).146

(d)

§ 445 Commercial Code

The provisions on transfer of the ownership right, in both the Civil Code and the Commercial Code, are of a non-mandatory character and the parties may depart from them in a manner often anticipated by the legal regulation itself (see e.g. exclusion of ownership in § 445 of the Commercial Code) or in traditional manners. 144

145

146

See § 614 par. 3, first sentence of the Civil Code: Ownership title to a thing shall pass to the buyer when he takes over the thing purchased. See § 614 par. 3, third sentence of the Civil Code: In the case of a self-service sale (in supermarkets), the transfer of ownership title to the buyer of a chosen thing shall occur at the moment he pays the price of the chosen goods; until that moment the buyer may return the goods he has selected to their original place. The Commercial Code regulates contractual obligations between parties who are merchants (or entrepreneurs), provided that the origin of the obligations between and among them clearly indicates that the obligations are related to their business activities, taking all the relevant circumstances into account (§ 443).

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Traditio brevi manu

Ownership is transferred in this situation when the acquirer already has the thing in his possession, based on other legal grounds, and agrees with the owner that from now on he is to possess the thing as an owner.147

(f)

Constitutum possessorium

This method means that the seller retains the thing, which is in his possession, based on other legal grounds, e.g. the seller remains in possession as a tenant.

(g)

Traditio symbolica / longa manu

This means that the transferor hands-over the thing to the acquirer in a symbolic manner only.148 By reference to the practice under the ABGB, it has been admitted in cases where the physical delivery is impossible, or nearly impossible. Symbolic delivery applies primarily in the case of intangibles149 and in the case of groups of assets. However, a legal provision (like § 427 ABGB) does not exist in Czech law. Nonetheless, a tendency in this direction is underlined by clear case law, and eventually also by the doctrine. Ownership and possession can be transferred by declaration or even by signs.150

5.7.

Transfer by registration

Certain kinds of movable things fall under a special regime of transparency. For security and other reasons, the ownership of them is officially evidenced – registered and through the register made accessible to the public; generally speaking, this regime covers two categories of things: a) means of transport and b) securities (see 5.7.5. infra). A special regime of public registration has been developed for the pledge on movables. A pledge on a set of things and a pledge on movables, if not 147

148 149 150

This solution as well as the other two admits explicity the prevailing opinion in the scholarship, and above all the most influental texbook, see Knapp V., et al., op.cit. in Fn. 31, 298. See previous footnote, 299. See op.cit. in Fn. 31, 299. R13 C 949.

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transferred to the pledge creditor or to the custody of a third party, arise upon entry into the register administered by the Notarial Chamber of the Czech Republic.151

5.7.1. Ships There are two regimes (systems) of registration depending on the “orientation” of the vessel: maritime register and inland register.

(a)

Maritime register

Pursuant to the Maritime Act,152 the maritime register kept and administered by the Ministry of Transport is a publicly accessible database where the data on vessels, their owners and operators shall be entered. An entry into the register can also be carried out upon a decision of the Ministry. As of the date of the entry into the register, the right to bear the flag of the Czech Republic comes into existence. Among others, the entries shall include identification of the owner of the maritime vessel, existence of a pledge on the vessel, and other facts that can limit the disposal of the vessel. Although it is not explicitly mentioned, the entry of the name of the owner or the pledgee does not have a constitutive effect. This conclusion can be clearly drawn based on the wording of the Maritime Act, the Decree on the Maritime Register,153 and the purpose of these laws.

(b)

Register of inland ships

As evidence of the capacity of a vessel [for inland transport], a special document shall be issued and an entry into the register shall be made. This occurs by an act of the Office for Inland Navigation.154 Similarly as in the case of maritime vessels, the entry does not have a constitutive effect as to the ownership of the vessel.

151 152 153

154

See § 158 par. 1 of the Civil Code. Zákon o námořní plavbě (Maritime Act) No. 61 / 2000 Coll. Decree of the Ministry of transport of the Czech Republic o námořním rejstříku a dokladech námořních plavidel (on maritime register and the documents of maritime vessels) No. 278 / 2000 Coll. § 14 of the Act No. 114 / 1995 Coll., on Inland Navigation.

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5.7.2. Aircrafts The entry into an aircraft register is evidence of the capacity of an aircraft to be a part of the air navigation. Among others, data on the owner of the aircraft, as well as of existence of a pledge, shall be recorded in the aircraft register administered by the Office for Civil Aviation.155 The entries have only evidentiary character.

5.7.3. Financial instruments (securities) It is the substance of book-entry securities that they are recorded in a public register; the public register is administered by the Securities Centre in Prague; (however, a decentralization and privatization of registration of securities is being prepared).156 Entries of the owners of the securities have constitutive effect.

5.7.4. Cars Similarly as to aircraft and vessels, cars are also subject to registration,157 however without any constitutive effect for the transfer of ownership.

5.7.5. Pledge on movables and securities Both the Civil Code and the Securities Act registrations have constitutive effect for the existence of, and any change of, the rights of pledge (liens).158

155 156

157 158

§ 4 of the Act No. 49 / 1997 Coll., on Civil Aviation. § 42 of the Act No. 591 / 1992 Coll., on Securities; and Tichý L., Secured Transaction Involving Movables in Czech Law: Selected Issues, in: Basedow / Hopt / Kötz, Festschrift für Ulrich Drobnig, Tübingen 1998, 683-712. § 18 of the Act No. 1456 / 2005 Coll., on Transport on the Roads. See § 158 of the Civil Code and Tichý L., Das tschechische Pfandrecht, seine Entwicklung, Probleme und ihre Lösung, in: Ogieglo / Popiolek / Szpunar, Ksiesga pamiatkowa, M., Pazdan, Katovice 2005, 452-476, Liška P., Několik poznámek k rejstříku zástav, ADN 2001, 99.

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5.8.

Acquisition through a legal act

Acquisition of ownership upon a legal act includes, but is not limited to, acquisition of ownership upon a decision of a state authority. This includes a decision of an administrative authority on expropriation or a court’s decision enjoining ownership regarding construction built on another person’s land without authorization. It also includes a decision on cancellation of co-ownership and settlement of common assets. Unless stated in the decision otherwise, ownership is acquired as of the moment the legal act comes into effect.

5.9.

Real agreements and hidden reservations

The “take-over” of a thing includes not only taking delivery of the actual thing itself, but also the accessories thereto, without which it is impossible to dispose of the thing. For example, the sale of a car includes a take-over of the keys and certificate of roadworthiness.159 Sometimes another fact might also be required as a part of the take-over, e.g. the acquirer as a detentor represents that from now on he is to dispose of the thing as his own – traditio brevi manu.160 In Czech law, no real contract confirming the transfer of ownership is required apart from the transfer agreement itself. Unless the parties agree otherwise, the ownership is transferred irrespective of (full) payment of the purchase price. In other words, there is no implied reservation of ownership.

5.10.

Draft Civil Code

The Draft presumes a further substantial change in the regime of the derived acquisition of ownership. For specific goods, the Draft goes back to the concept of the Civil Code of 1950, i.e. to the consensual agreement or transfer, as the case may be. Pursuant to § 1031 par. 1: the individual things are transferred by the agreement itself. It is noteworthy that the preamble to the bill uses the same rhetoric as Knapp when he states that “the surviving dogma of the title and mode of acquisition of ownership right occurring during the late Middle Ages as a consequence of mere notions of the Roman law is being overcome”.161 159 160 161

See Knapp V. et al., op.cit. in Fn. 31, 298. See Kanda A., op cit. in Fn. 31, 2nd volume, 176-178. See Knapp V., op.cit. in Fn. 4, 399.

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Commentary

Unlike the case of immovables, there is only limited attention paid to the transfer of movables. This may be the reason no problems seemingly exist. Therefore, the approach to this subject in the Draft is rather irritating, if it is attempting – after 40 years – to change the main philosophy of transfer from one based on traditio to one based on contract. Again, this turning point has not been well reasoned by the drafters of the Draft (similarly as was the case with the codifications in 1950 and 1964). In fact, substantial reasoning underlying this change is missing totally. One can only wonder whether this can again be the same ideology that influenced the previous changes in Civil Code / 1950 and Civil Code / 1964. The lack of any deviation from the earlier code regarding the moment of transfer of ownership is also a problematic issue. Even if the constitutum possessorium, traditio brevi manu, etc. are mentioned by jurisprudence, these phenomena (categories) have not been analyzed by the drafters of the Draft and maybe therefore are not regulated by statute. The role of good faith in both the process of transfer and in the validation of the transfer represents another problem: Czech law acknowledges a two-fold solution – one in the Civil Code and another in the Commercial Code – each based on an opposite approach. The first one protects the bona fide transferee, the other one prefers the transferor and fair commercial order. Neither Code allows any exception. This clear and, at the same time, reckless approach does not seem to be an ideal resolution. The Draft changes this system to a consensual one and traditio will be thus unnecessary to complete a transfer. However, the reasons behind the change have not been presented with much conviction. Traditio is understood as an actual act or as reality that is not a juridical act. There is no doubt that delivery or acceptance is often deemed the delivery of a thing with accessories, and sometimes of accessories only (keys and documents to an automobile). In the Czech Republic, there are no cases of special, additional or supportive acceptance of things.

6.

Double sales

If a person alienates a movable thing in favour of two or more entities, the ownership is acquired by the entity to which the thing was handed-over earlier or, as the case may be, by which it was earlier taken-over.162 The bona

162

See Spáčil J., op.cit. in Fn. 52, 767.

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fide person damaged by such double or multiple alienations is entitled to compensation under the general provisions on liability for damage.163 Good faith relates to the authorization to dispose of the thing. The standard for good faith is objective (with respect to all the circumstances)164 and must exist at the time of completion of the transfer. However, if good faith was lacking prior to transfer, it is lacking at the time of transfer. The obligation to claim and prove ownership is on the person claiming the ownership right, i.e. the burden of proof. If good faith was lacking at the time the acquirer obtained the thing, the acquirer never becomes an owner, as the contract is invalid from the beginning and thus neither a valid traditio, nor a transfer of the ownership right occurred.165 The situation in which the thing is now in the possession of the purchaser or a putative acquirer is considered an unauthorized possession of the thing (or detention) with all the consequences. The legal basis of the entitlement to compensation for damage or loss of the thing is included in a specific regulation on rights in rem (§ 131). The unlawful possessor shall release the thing to the owner, including all the fruits and benefits thereof, and shall also compensate for the damage caused by the unlawful possession.

7.

Selling in a chain

If the parties agree that A shall not transfer the thing to B, rather he shall transfer the thing directly to C, then it is a valid acquisition of ownership by C, if, once again, the parties agreed to such a transfer the ownership. In the situation of A selling a movable asset to B and B subsequently to C, and A being asked to deliver the object directly to C, it is possible to conclude that the contract for sale between A – B follows a consensual principle, namely the transfer of the ownership right to B, and did not require a delivery of the transferred thing; rather B simultaneously becomes an owner at the moment of conclusion of such an agreement. Any other conclusion appears to be unacceptable because, if the situation were different, B would not be able to transfer an ownership right to a thing to C lawfully, because he would not be entitled to dispose of the thing due to a non-existent ownership right to it. In other words, B has to become the owner, without the thing being physically delivered to him even for a moment, to be able to transfer the ownership right to the thing onto C, obliging the nemo plus iuris regulation. 163 164 165

See op.cit. in Fn. 52, 770. See Spáčil J., op.cit. in Fn. 52, 739 et seq. See Spáčil J., op.cit. in Fn. 52, 759 and R 22C do 298 / 2001.

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An agreement between parties A – B about the delivery of a thing to C, does not have any influence on the occurrence of B’s ownership right to the delivered thing. The ownership right to a thing may be transferred from B to C, e.g. either at the moment of concluding the agreement with B, or by default at the moment of delivering the transferred thing to the acquirer C. The fact that A delivered the thing to C in the name of B is irrelevant to the moment of transfer of ownership right to C. Of course, with such a construction, our starting point is the basic assumption that the contracts for sale concluded between A – B and B – C are valid. If there was a reservation of title agreed between B and C, by transferring a thing from A to the acquirer C, the ownership right does not transfer to him, but remains with the seller B until the complete payment of the purchase price. Until then, C is only a detentor of the alienated thing based on an agreement for its use for a certain purpose, until the time when he becomes the owner of the thing. As to the other case, the rule is that no one may acquire from another person a right that his predecessor did not have, as no one may transfer to another person more rights than he has himself (nemo ad alienum plus iuris transferre potest, quam ipse habet).166 Ownership will not be transferred; both contracts are invalid from the very beginning. The invalidity has a retroactive effect. If C has the thing in his possession, he is obliged to return it to A. This principle is not applicable to inheritances according to Civil Code § 486. It says that a person who has acquired an inheritance bona fide from a fake heir, to whom the inheritance had been certified, is protected as if he has acquired it from a legitimate heir. Two other exceptions to this principle are a transfer based on public auction and an acquisition from the property of an estate in bankruptcy proceedings.167 Even if the acquirer acts in good faith, ownership will not pass to the acquirer if the ownership is acquired from a person who is not the owner (see 7.2. infra). Thus, the acquirer becomes a mere authorized possessor with the opportunity to acquire the ownership right by acquisitive prescription (§ 134). Nevertheless, this rule is not provided in the law, which is a major flaw of the Civil Code.

7.1.

Contracts under the Civil Code

If the contracts for sale between A – B – C are invalid ab initio (meaning retrospectively invalid), there is a return to the state prior to the time the 166 167

See Knapp V. et al., op.cit. in Fn. 31, 300. See also supra 5.3.1. and Knapp V. et al., op.cit. in Fn. 31, 301.

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agreements were concluded. A direct consequence of such an absolute invalidity of agreements between A – B and B – C is that the owner of the thing remains A. Another consequence is the occurrence of obligations based on unjust enrichment, i.e. A – B and C are obliged to mutually return performances that were gained based on the void agreements. The legal effects of an avoidance of a contract represent a subject matter of long debate. The prevailing opinion generally says the avoidance has retroactively both obligational and in rem effects.168 In the doctrine, an opinion prevails saying that this avoidance causes only obligational effects. There is a strong opinion169 mainly in case law that applied the position that the avoidance had both effects in situations where the buyer avoided the contract by which he transferred an immovable to B after B “validly” transferred it to C. This applied even taking into consideration that C had absolutely acted in good faith inter alia and, in particular, had relied upon the public register of immovables. In this case, pursuant to the Supreme Court, the legal title (ownership) of the buyer B became retroactively extinct by the avoidance. As a consequence of it, the previous state was restored even in a situation where buyer B had transferred to the third person the ownership before the avoidance occurred. The main argument for such a result is the retroactivity of the avoidance, which establishes the state ex ante: based on this doctrine, as the buyer B never became owner, he was not able to transfer a right he never possessed. The fact of good faith on the side of C was irrelevant. This doctrine differs not only from the Austrian tradition (ABGB §§ 366 and 367), but also from the Civil Code / 1950, which stipulated that in the case of a transfer of a movable, it is impossible to claim ownership against a bona fide possessor if he acquired it for value from a merchant or somebody who holds it as a custodian for the buyer. In these cases a good faith acquirer acquires the ownership. However an opposite opinion prevails: it creates a fifth exception from the above-mentioned principle and represents an important turning point in this respect. It is based on the principle of legal certainty and protection of good faith of a fair acquirer, which otherwise as a consequence of the decision of the Supreme court would be undermined; a bona fide acquirer would be under the constant threat that he could lose his right anytime. It is the transferor who has to secure his in rem title. In day to day practice, the usual case will be the situation where the buyer does not pay the purchase price. The repudiation is a phenomenon applied between the contracting parties and cannot adversely influence the position of a bona fide third 168 169

See Švestka J., op.cit. in Fn. 52, 422 et seq; Spáčil J., op.cit. in Fn. 52, 767, 770. R 44 / 2000.

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party who acquired the ownership; in this case the repudiation does not have any effect.170

7.2.

Contracts under the Commercial Code

The consequences of absolute avoidance mentioned above (see 5.5.2. and 5.5.3. supra), apply both in civil and commercial law relations, with the exception that the Commercial Code provides for a good faith acquirer. Under these circumstances, C remains the owner of the thing, regardless of the delivery to him. The delivery of the thing itself is irrelevant.

8.

Acquisition of ownership by indirect representation

8.1.

Lack of general rules

The Czech Civil Code provides for two types of agreements: the agreement on the procurement of a thing and the agreement on the procurement of a sale of a thing (§§ 733 through 735, §§ 737 through 741). This is a remnant of the communist approach, apparent also from the provisions themselves: namely, the regulations do not feature a single provision on the transfer of an ownership right. In these cases of indirect representation (“substitution”), the agent (indirect representative) carries out his own will in the interest of a third person (the principal), in his own name and on account of the principal. As a consequence, the rights resulting from the contract concluded by the agent are acquired by the agent, and obligations resulting from the contract are assumed by the agent who, according to an agreement with the represented person, is obliged to transfer any acquired rights to the represented person. The clearest example of an indirect representation is the representation based on a “commission agreement”. Only fragmental hints seem to assert that ownership does not pass from the principal to the agent, who is in the position of a detentor acting as a seller on behalf of the principal171 and who is obliged to take care of the relevant thing so as to prevent its loss, destruction or damage.

170 171

Decision of the Constitutional Court 77 / 2000. See op.cit. in Fn. 52, 905.

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8.2.

Commission contract under the Commercial Code

Under § 583 par. 1 of the Commercial Code,172 the principal under a commission contract has an ownership right in the movable things delivered to his commission agent for sale, until acquired by a third person. An ownership right to movable things acquired by the commission agent for the principal is acquired by the principal upon delivery of the movables to the commission agent. In the case of “commission to sell”, the ownership right does not pass to intermediary X. On the contrary, it remains with transferor A until the moment of transferee B acquiring it (i.e. the moment of delivery of a transferred movable). Thus, the transfer of the ownership right is carried out by intermediary X from person A to person B, as the acquirer. In the case of “commission to buy”, the moment of transfer of ownership right to the acquirer, is conditioned by the delivery of the thing to intermediary X. It is therefore obvious that commission merchant X (intermediary) does not, even for a moment, become the owner of the thing and the ownership right passes directly from transferor A to transferee B.

9.

Consequences of insolvency

9.1.

General

9.1.1. Types of insolvency proceedings The Czech Act on insolvency (No 182 / 2006 Coll.) in force as of January 1, 2008) provides for three types of judicial proceedings on insolvency: bankruptcy proceedings (§§ 244-315), reorganisation (§§ 316-364) and discharge from debts (§§ 389-418) (dealing only with consumers). Bankruptcy proceedings lead to universal liquidation (distribution) of all assets of the debtor. Reorganization is an alternative to bankruptcy proceedings as it enables the debtor to continue his business activity without liquidation. A discharge from debts proceeding is an alternative to the reorganization and oriented to the assets of a consumer who is insolvent, or finds himself under the threat of insolvency. This act on insolvency replaced the Act on bankruptcy No. 328 / 1991 Coll. and due to its short period of time of being in force, there is very limited experience with it and only very brief comments on it.

172

Commission contracts are regulated in §§ 577-590 of the Commercial Code.

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9.1.2. Consequences of the commencement of the bankruptcy proceedings and the action Pauliana By declaration of bankruptcy, the insolvency administrator acquires the right to dispose of the insolvency estate. The insolvency trustee, who has different duties, is especially charged with exercise of the debtor’s rights and discharge of the debtor’s obligations related to the insolvency estate (Insolvency Act, § 246(1)). The term “insolvency estate” shall be understood as assets reserved for satisfaction of the debtor’s creditors (Insolvency Act, § 2(e)). The insolvency estate consists of assets that belonged to the debtor on the day of initiation of the insolvency proceeding and assets acquired by the debtor during the insolvency proceeding, provided that the debtor filed the insolvency petition himself (Insolvency Act, § 205(1)). However, if the insolvency petition is filed by a creditor, the insolvency estate is composed of assets that belonged to the debtor at the time the court issued the preliminary injunction by which the debtor was (partially or entirely) prohibited from disposing of his assets, of assets that belonged to the debtor at the time of the issuance of the decision on insolvency, and of assets acquired by the debtor during the proceedings (Insolvency Act, § 205). Concerning the transfer of ownership, § 253 of the Insolvency Act plays a major role. If a transfer agreement has been fully performed, either by the debtor (bankrupt) or by the other party at the moment of declaration of the bankruptcy, the insolvency administrator is entitled to fulfil the agreement and to seek fulfilment from the other party, but he may also withdraw from the agreement (Insolvency Act, § 253(1)). A general rule of the Civil Code § 48(2) applies to withdrawals from agreements by the insolvency administrator, according to which the agreement is rescinded from its inception upon the withdrawal, i.e. the situation has the same effect as if the agreement had never existed. Legal relations revert to the time prior to conclusion of the agreement. The important point here is that the contractual partner of the debtor has the right to claim damages incurred thereby, by submitting the claim to the insolvency proceeding; the claim is considered to be a claim against the insolvency estate. Further, it shall be noted that the debtor’s contractual partner may not claim return of partial performance rendered prior to the decision on insolvency on the grounds that he did not receive counter-performance from the debtor (Insolvency Act, § 253(1)(4)(5)). Czech law does not make any distinction based on whether the performance is specified generically or individually. Even in Czech law, there exists an instrument that resembles the so called actio Pauliana. The concept is embodied in the mechanism of con-

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testation of juridical acts of the debtor. The law provides for four modes of this remedy. The principle of equal treatment of creditors is the basis for remedies sought by the insolvency administrator, or by a single creditor, to contest various juridical acts of the debtor before the opening of the insolvency proceedings. The aim of these remedies is to declare a transaction of debtor, which was carried out to the detriment of creditors, ineffective in order to put the creditors in a position as if the “detrimental” transaction had not occurred. Ineffectiveness must be distinguished from invalidity (avoidance). Avoidance always has a retroactive effect: ownership reverts to the transferor. Ineffectiveness means that the successfully contested transaction (declared ineffective by the court) is without any legal effect in relation to the creditors (§ 235 par. 2 of the Insolvency Act). In the first place, the debtor’s legal acts can be contested by the insolvency administrator, who can file an “action of contest” against persons who are then obliged to surrender to the insolvency estate any consideration the debtor had given based on the ineffective legal acts. The action is dealt with in a so-called adversary proceeding. The insolvency administrator is obliged to file the action of contest if the creditors’ committee so resolves. The right to file the action extinguishes if not filed within one year from the day when the effects of the decision on insolvency occurred (Insolvency Act, § 239(1)(2)(3)). Further, it is possible to contest legal acts taken without a reasonable counter-performance. Legal acts are regarded without reasonable counterperformance if the debtor undertook to render performance without consideration or in exchange for a counter-performance whose usual price is substantially lower than the usual price of performance that the debtor undertook to render. However, these rules apply only if the legal act was taken by the debtor while insolvent or if the legal act resulted in the debtor’s insolvency. Another group of contestable legal acts are acts taken during the last three years preceding the initiation of the insolvency proceeding for the benefit of a person affiliated with the debtor or forming a concern (holding) with the debtor and which can be qualified as a preferential legal act. A preferential legal act is defined as an act resulting in greater satisfaction of any creditor than that the creditor would otherwise receive in bankruptcy, at the expense of other creditors. Examples can be legal acts resulting in repayment of debt before maturity or an amendment or replacement of an obligation to the detriment of the debtor (Insolvency Act, § 241). Finally, contestation can be exercised as to acts by which the debtor intentionally hinders the satisfaction of a creditor, provided such intent is known or should have been know by the other party, with regard to all cir-

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cumstances. The hindrance can be contested if it occurred within the last five years preceding the initiation of the insolvency proceeding (Insolvency Act, § 242). As a result of a successful contestation, the contested legal act is ineffective. It is invalidity ex nunc. If a creditor achieved a decision on ineffectiveness of a legal act and the decision entered into legal force prior to the legal force of the decision on insolvency, he may seek the consideration from this ineffective act up to the total amount of his claim against the debtor. The creditor is not obliged to pass this consideration to the insolvency estate, as it is not a part thereof (Insolvency Act, § 243). The transferor is protected especially by the help of moratorium. A decision on insolvency cannot be issued during moratorium (Insolvency Act, § 120). Although the creditors may accede to the proceeding and submit their claims to the court, effects of these acts occur only after termination of the moratorium. It is a matter of course that no difference is made between generically and individually identified things (performance) in these situations. The contract can be terminated by withdrawal for identical reasons as specified above in case of the transferee’s insolvency. The contract extinguishes ex tunc. So, the withdrawal produces a retroactive effect.

9.2.

Insolvency of the transferee (buyer) and the transferor (seller)

9.2.1. When the obligations of both parties have not been discharged in full These situations are expressly addressed by the provisions of § 253 of the Insolvency Act. The act envisages that, if an agreement on mutual performance (“synallagmatic” contracts on which we are focused only), is not fully discharged by both parties as of the declaration of bankruptcy, the insolvency administrator may discharge the agreement instead of the debtor and demand that the other party discharge his obligation; or he may repudiate the contract. Such an act has the legal consequences of avoidance of the agreement with a retroactive effect (see 5.5.5. supra). However, if the insolvency administrator does not announce that he will discharge the contract within 15 days from the declaration of bankruptcy, the administrator shall be deemed to be withdrawing from the agreement. The other contracting party is not allowed to withdraw until then. But the other party and the administrator may agree otherwise. If the other party is obliged to render performance first, he may refuse to perform until mutual performance occurs or is secured. If the administrator repudiates the contract, the other contracting party may seek compensation by submitting his claim against the property of the

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estate. The other contracting party can not seek the return of his partial performance rendered prior to the declaration of bankruptcy on the grounds that he did not received counter-performance from the debtor.

9.2.2. Insolvency of the transferee (buyer) If the buyer has paid the price before he was declared bankrupt, the seller has to perform in favour of the estate. If the seller has performed in full, but the buyer (bankrupt transferee) has not paid the price, then the transferor is entitled to the dividend of the payment. The seller who transferred the ownership by constitutum possessorium may not withhold the physical delivery, as the goods stored with him became part of the property of the estate. Because of retroactive effect of an avoidance and repudiation (see 5. supra), the transferor is deemed to be the owner and can revindicate the asset (goods, things). If the transferee, prior to the declaration of bankruptcy, took over the asset without acquiring the ownership thereto, the seller (transferor) is not entitled to revindication of it, provided that the administrator has fulfilled his obligations stemming from the purchase contract without undue delay upon sellers demand (§ 261 par. 2 of the Insolvency Act).

9.2.3. Insolvency of the transferor (seller) If the buyer acquired the ownership prior to when the seller was declared bankrupt, then the transferee is well protected against the claims of transferor’s creditors. In the case where the buyer paid the purchase price, but the seller (prior to the commencement of the bankruptcy proceedings) did not transferred the ownership, the buyer will have a claim for the transfer. If the transferor sold the thing with a reservation of ownership prior to the declaration of bankruptcy and delivered the thing in question to the buyer, then the buyer may vindicate (demand return of) the thing (§ 260 par. 1 of the Insolvency Act).

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10.

Passing of risk

10.1.

General principles

The Civil Code features passage of risk in its marginal provisions. There is no general rule.173 In the case of a sales agreement, the risk of accidental destruction or impairment of the goods and their profits passes to the buyer at the time he acquires ownership to such goods. However, if the buyer acquires ownership before the goods are delivered to him, the seller is in the position of a custodian (§ 590).174 The parties can agree otherwise. On the other hand, the Commercial Code has a good, well-developed concept. Here it is necessary to distinguish between the passage of risk (liability) of damage to the thing and the transfer of the ownership right, despite the fact that in a number of cases they may coincide. Under the Commercial Code, the risk of damage is passed from the seller to the purchaser independently of passage of the ownership right. Therefore, it is possible that the purchaser is liable for damage to the goods, although he does not own them yet; and on the other hand, a purchaser that is an owner of goods, might not be liable for damage thereto. Damage means a loss of the goods or destruction, injury or loss of value of the goods, regardless of the causes thereof and regardless of whether the damage was caused culpably or not. The damage might also be an accidental damage or damage caused by a third person. The mandatory regulation contained in § 459 of the Commercial Code allows an alternative arrangement on transfer of the risk of damage to the goods in two cases only. The first case involves the situation where the object of delivery consists in goods specified one by one. The second case represents the situation where, though the goods are specified individually, at the time of transfer of the risk the goods are sufficiently separated and distinguished from other goods of the same sort. Apart from that, there is no party autonomy.175 Therefore, it is clear that in the latter case the goods must always be individualized to a certain extent. The moment of transfer regulated by the law distinguishes several cases: (a) The purchaser takes delivery of the goods from the seller; (b) The purchaser takes delivery of the goods from a person different from the seller; (c) The seller is obliged to deliver the goods to a carrier; and (d) At the moment of conclusion of the contract the goods are in transit. 173 174 175

See Škárová M., op.cit. in Fn. 52, 1730. See Škárová M., op.cit. in Fn. 52, 1730. § 459 falls within the scope of § 263 providing for mandatory provisions of the Commercial Code.

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Under the Commercial Code, there is also a general rule that the risk is transferred to the purchaser at the moment the purchaser takes delivery of the goods from the seller, if done timely. However, if the purchaser fails to take delivery of the goods in a timely manner, the risk is transferred at the time the seller enables the purchaser to take delivery of the goods and the purchaser breaches the contract by failing to take the goods over. The precondition is that the purchaser has to be informed of the availability of the goods. If the purchaser is entitled to refuse the goods, the risk of damage is not transferred. In the case of a take-over of the goods from a person different from the seller, the risk is passed at the time determined for delivery of the goods. Nonetheless, the purchaser must be enabled to take delivery of the goods and he must also be aware of this possibility. In the case of delivery of goods to a carrier, there are two alternatives.176 The first is that under the contract, the seller is obliged to dispatch the goods and hand them over to the carrier in a determined place for the purpose of transport to the purchaser. In that case, the risk is passed to the purchaser at the time the goods are handed over to the carrier at that certain place. In the second alternative, the risk is transferred in connection with the seller’s obligation to dispatch the goods, even though the seller is not obliged to hand-over the goods to the carrier in a certain place. In such a situation, the risk is transferred at the moment of hand-over of the goods to the first carrier for the purpose of transport to the place of destination. If the goods are being transported, the risk is transferred retrospectively to the time of delivery of the goods to the first carrier. This does not apply if, in conclusion of the contract, the seller knew or was supposed to know that damage to the goods has already occurred. The purchaser is protected here by the virtue of the fact that the seller intentionally sold damaged goods for full value.177 The Commercial Code differentiates among a couple of cases. There are some general provisions, on the one hand, and rules for special cases, on the other. In general, the risk of damage to goods passes to the buyer at the time when he takes over the goods from the seller, assuming he does so timely. If the seller does not do so timely, the risk passes when the seller makes it possible for him to dispose of the goods and the buyer breaches the contract by not taking over such goods. The seller has to know about the opportunity of disposing of the goods. The risk does not pass to the seller if he has the right to refuse the goods. If the buyer is to take over the goods from a person other than the seller, the risk of damage to the goods passes to the buyer at the time set for deliv-

176 177

See Plíva S., op.cit. in Fn. 114, 260. See op.cit. in previous footnote, 262.

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ery of the goods, provided that, at this time, the buyer has an opportunity to dispose of the goods and knows about it. If the seller has an obligation to hand over the goods to a carrier, one has to differentiate between two cases. The first is the situation that, under the contract, the seller is to hand over the goods to a carrier at a certain place for transportation to the buyer. In this case the risk of damage to the goods passes to the buyer when and where the goods are handed over to the carrier. In the second case it depends on the obligation of the seller to dispatch the goods, an obligation stipulated by the contract of sale. But the seller is not bound to hand over the goods to the carrier at a certain place. The risk to the goods passes to the buyer when the goods are handed over to the first carrier for transportation to the place of destination. If the goods are in transit when the contract of sale is concluded, the risk passes retroactively to the time when the goods were delivered to the first carrier. So the fact that the seller has the documents that make it possible for him to dispose of goods in transitu has no influence on the transfer of the risk of damage to the goods. The parties can agree in writing that the buyer will acquires ownership to the goods prior to the time specified in the Commercial Code (§ 443), or later than legally specified. If not otherwise agreed, the buyer acquires ownership title to the goods as soon as the delivered goods are handed over to him. Prior to taking delivery of the goods, the buyer acquires ownership title to the goods in transitu and it is at the moment when he acquires the right to dispose of them.

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Part III: Original acquisition 11.

Acquisition by combination, commingling, processing and other ways

11.1.

Notion

Original acquisition of ownership encompasses several, but in many ways dissimilar, means of acquiring ownership. These are acquisitive prescription, which is not actually entirely an original means of acquiring ownership; creation and production of things; processing of things; acquisition of ownership by increment; and acquisition of ownership of things lost, abandoned or hidden. Neither legislation, nor case law, nor the jurisprudence distinguishes among the individual kinds (forms) of original acquisition (conjunction, commictio, confusio).178 The reason for this may consist in not only underdevelopment of the Czech dogmatic, but also in negligence on the part of the legislator. Yet, there is clearly real life confusion about when the unification of some things into one should be distinguished from combination or commingling of several things. In the first case, unification, the elements of various things are not being mixed together, whereas in the two other situations, combination and commingling, the parts (elements) are being mixed together. By the way, even the Austrian legislator was not absolutely precise and logical on this point.179 Be that as it may, the original acquisition through processing should be regarded mutatis mutandis within the regime of the processing that has, evidently, a generic meaning in the Civil Code (§ 135b). Although there is no court ruling, the new owner acquires in principle the ownership of the whole to the same extent it existed in the predecessor, meaning with all encumbrances including pledges. Good faith is a requirement of acquisition of ownership regardless of the circumstance and whether or not the transfer was for value or gratuitously. The bona fide requirement is a strict rule, which cannot be modified by any 178 179

See Knapp V. et al., op.cit. in Fn. 31, 303 et seq. See the heading, where the words “processing” and “commixture” are inserted, whereas in § 414, the ABGB also deals with the words “commingling” and “confusion” on the same level.

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means (including under the regime of unjust enrichment). Physical control is also a necessary condition of acquisition of a movable. Whether this condition is met in an individual case depends on the concrete situation judged by objective criteria.180 On the other hand, in case of acquisition of an immovable (land), the physical control (e.g. the presence of the owner at the field) is hardly imaginable. Apart from good faith, no other prerequisites, like business policy and like, are required. Good faith is a legitimate expectation of a certain legal state. Its existence is assessed based on objective criteria with regard to a concrete situation.181 The requirement is that it exists at the time of the transfer (traditio).182 Seemingly, the circumstance that the good faith is weakened after the ownership has been acquired does not affect the transfer itself. It does not have any “retroactive effect”. The question of any negligence is judged based on objective and subjective criteria, which fulfils the vague notion “reflection of all (relevant) circumstances”.183

11.2.

Creation out of own material

If a person creates or produces a new thing from his own materials, he becomes the owner of such new thing upon completing the creation / production thereof. The key question, whether the thing in question is new, has to be resolved according the relevant opinion in the business intercourse. One of the important factors should be the increase in the value of the new thing.184

11.3.

Processing

Processing (specification) may be performed in two ways (§ 135b). Primarily, this involves the combination of another’s materials with the one’s own materials (or thing), or using exclusively another’s materials for the manufacture of one’s own thing. The key issue for the question of ownership of something so made is the existence of good faith. If the processor acted in good faith believing that

180 181 182 183 184

Knapp V. et al., op.cit. in Fn. 31, 288. See Spáčil J., op.cit. in Fn. 52, 739 and R Cdo 61/2001. See Knapp V. et al., op.cit. in Fn. 31, 289 et seq. See Knapp V., op.cit. in Fn. 31, 289. See Knapp V., et al., op.cit. in Fn. 31, 303; Spáčil J., op.cit. in Fn. 52, 789.

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he had the right to utilize the thing, although in reality he did not, his right to the previously existing thing shall extinguish and a new ownership right shall be created to the thing newly created by processing. The owner is the person whose share in the new thing is the greater, where “share” means a share in the value of the thing created by processing. Meanwhile, consideration must be given not only to the value of the processed things, but also the value of the work invested by the processor.185 The new owner is obligated to return to the other the value of that by which he devalued his property, although this will be neither compensation for damage nor payment of the price of the entire thing. If their shares are equal and the parties fail to reach an agreement, the court shall decide.

11.4.

Combination, commingling

If the processor is aware that he is combining or commingling186 another’s materials or, as the case may be, such fact should have been known to him, he shall not acquire an ownership right to the materials used for processing or to the new thing. The owner of the materials or thing shall become the owner thereof and may seek their return or the restoration of the prior state. Procedure is the same both in the case of processing another’s materials and mixing another’s thing with one’s own thing, or in the case or mixing or combining in some other inseparable manner or fusing two or more things of various owners. These cases must be distinguished from situations where the parties have agreed on the acquisition of ownership of a thing produced from foreign material (§§ 644 et seq.).187

11.5.

Accruals

Accruals are regulated by a single sentence in the provision of § 135a. As such, the Czech law does not distinguish types of accruals. The claim associated with accrual, therefore, probably follows from the regulation regarding unjust enrichment. Accrual means the incremental increases of things such as fruits of the earth, the produce of land, and the offspring of animals. The term does not include, for example, buildings, since the land and the buildings thereon are independent things (the principle of superficies solo cedit does not apply).188 185 186 187

See Spáčil J., op.cit. in Fn. 52, 790. See the clarification of these terms supra under 11.1. i.e. special provisions of contract for a work in the Civil Code.

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Accruals include the yields from money, securities, etc. (fructus civiles), in particular interest on savings, share dividends, etc. The owner of the thing becomes the owner of the separate fruits there from as independent things upon their separation. In the case of civil fruits, it is necessary to make a distinction according to the type thereof. For interest on savings, it is the maturity date; in the case of interest on a debt and the payment of dividends, an obligational claim to payment of the yield (interest) arises. Ownership begins only upon the receipt thereof, since only then such fruits are separated from the property of the prior owner. Accrual separated from a thing during a period of lawful possession belongs to the lawful possessor, not, however, to an unlawful possessor or a mere detentor. Any accrual, even if it is separated (severed) from the principal thing, belongs to the owner (§ 135a). An unjust possessor may separate from the thing the value of any accrual, at his expense, unless this is impossible without deterioration of the basis of the thing (§ 131 par. 2).189 The possessor is not entitled to retain the thing as security for compensation, etc. (see 20.6.3. infra). 188

12.

Good faith acquisition

12.1.

Field of application

Czech civil law does not define “good faith acquisition” – or even good faith itself. According to the Civil Code, it is not possible to acquire ownership of a transferred thing from a transferor if he lacks the right of disposition regarding the transferred thing, as a consequence of the principle “nemo plus iuris transfere potest quam ipse habet”. The absence of the right of disposition of the thing on the side of the transferor, therefore, always results in an absolute invalidation of such contract. In the case of a ‘contract for sale’ in commercial relations (§§ 409 et seq. of the Commercial Code), the buyer can acquire the ownership right even if the seller is not the owner of the goods being sold under the contract.190 The rule cited above does not specify the cases covered by it. It is clear from the mere legal wording “the seller is not the owner”, that it is not relevant for what reason B does not have an ownership right to the transferred thing; that is, whether B was never the owner, whether B’s right to dispose had been avoided or terminated with a retroactive or ex nunc effect, or whether it was the case of a double sale. 188 189 190

See Spáčil J., op.cit. in Fn. 52, 785 See Spáčil J., op.cit. in Fn. 52, 749. See § 446 of the Commercial Code, quoted in Fn. 110.

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The rule of good faith acquisition shall apply to “goods being sold under contract” (pursuant to § 446), which implies that the Commercial Code does not require any other characteristic of the goods (e.g. as in the case of dealing with stolen goods, lost goods, negotiable instruments, or even money). The decisive criterion is then the seller’s lack of right of disposal for whatever reason. That means that this rule of good faith acquisition shall always apply in those commercial relations based upon contract for sale.

12.2.

Quality of good faith

Regarding the object of good faith of C, in the transaction A to B to C, the rule cited in 12.1. above is conceived with respect to C’s knowledge that B is not the owner of the thing (i.e. C knew that B was not the owner when he acquired it), which directly affects A’s burden of proof. In order for A to be successful in rei vindicatio proceedings, he has to demonstrate that C, at the time of his acquisition of the ownership right to the thing, knew that B was not its owner and therefore B was not entitled to dispose of the thing. There is no rule of a presumption of the acquirer’s good faith; rather, in cases of doubt, the rule is the statutory presumption of a possessor’s good faith, namely that it is supposed in cases of doubt, that the possession is lawful (§ 130 par. 1 of the Civil Code). The good faith inquiry here should only be whether C was ignorant of the fact that B was not the owner of the transferred thing. This is because, according to the opinions of several authors, good faith does not apply to only the knowledge that B was not the owner of the thing. For example, C could have known that A was not the owner, but at the same time he could have assumed in good faith that B was entitled to dispose of the thing or the goods. Good faith is a mental state. In assessing it, the relevant circumstances and concrete situation play a role based on objective criterion. One has to take into consideration whether the possessor, in the course of required ordinary care, could have doubts whether the thing belongs to him or not – even after the conclusion of the contract.191 “Knowledge” in both cases is required at a time when the buyer is set to acquire the ownership right. When this is exactly depends on the agreement of the contracting parties. When they fail to agree in this respect, it is the moment of delivery of the thing (traditio) to the acquirer C. As for the standard of good faith, only actual knowledge about B not being the owner of a thing excludes good faith. Good faith has nothing to do with the question of the acquisition for value. Similarly, the question whether the affected thing was of a generic or 191

R 15 / 1991 and Spáčil J., op.cit. in Fn. 52, 738-743.

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specific nature is irrelevant. The standing of the transferor is also irrelevant: it does not matter whether he is a professional or a consumer.

13.

Acquisitive prescription

13.1.

Acquisitive prescription of movable property

All types of things and rights that are objects of ownership can be the subject (object) of acquisitive prescription. Even when the ownership is evidenced in a public register, no special rules for acquisitive prescription apply. However, it is clear that in these situations one can hardly think of acquisitive prescription. Only a negligible category of things is, as an exception, not subject to acquisitive prescription. This category includes things that can be, by operation of law, only in the ownership of certain privileged persons, typically in the ownership of the state or of legal persons appointed by state.192 Possession must precede the acquisition through prescription. Ownership is not capable of prescription in terms of a statute of limitation.193

13.2.

Purpose

The purpose of prescription is to harmonize the long-term actual situation with the legal situation. This enables acquisition of ownership by a possessor who has been controlling the thing bona fide for a long term believing he is the owner thereof; in this case, good faith is, based on the valid regulation, given “with respect to all the circumstances of the thing”. Also, the prescription protects the owner who has found himself with the burden of proof regarding the existence of his rights. In other words, the purpose of acquisitive prescription is the protection of the bona fide possessor, who has been controlling the thing in the good faith belief that he is the owner. It contributes to the state of legal certainly and peacefulness. It protects the owner who finds he is lacking evidence with regard to the existence of his rights.194 It removes the hardship resulting from the rules of civil procedure regarding evidence.195

192 193

194 195

See § 125 par. 2 and Knapp et al., op.cit. in Fn. 31, 302. See § 100 par. 2: “All property rights may be barred by statute (meaning subject to prescription – note by the author) except the right of ownership”. See Spáčil J., op.cit. in Fn. 52, 775. See Spáčil J., op.cit. in Fn. 52, 776.

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13.3.

Requirements

13.3.1. Introduction The concept of acquisitive prescription has not been the target of any substantial criticism. The non-existence of acquisitive prescription, or at least its lack of use, has its roots in the communist regime, which as a consequence of an entirely different understanding of law and society, fully suppressed this traditional form.196 Possession and acquisitive prescription require the possessor’s intention to possess and to possess in his name.197 On this point the possession relating to acquisitive prescription differs from mere detention. On the other hand, no further prerequisites are required, for instance peaceful, regular, public possession. In case of possession by more than one person, good faith is required by all of them.198 The first condition of acquisitive prescription however is lawful possession. A lawful possessor shall be bona fide in regard to all relevant circumstances relating to whether the thing belongs to him as an owner. A mere detention is not sufficient to achieve the acquisitive prescription of the ownership. The possessor becomes owner of the thing if he holds it for at least three years for movable things, and at least ten years for immovables. The possession has to be uninterrupted. But this does not mean physical uninterrupted possession for the entire time is necessary. What is significant is that during this time another person has not taken possession of the thing in question. The time for the acquisitive prescription is suspended by interruption of the possession.

13.3.2. Duration of possession, suspension and interruption The lawful possessor becomes an owner of the thing if he has possessed the thing continuously for a period of three years (10 years for immovables) – § 134 par. 1. An ownership right is acquired by prescription as a result of long-standing, uninterrupted possession by a person who is not the owner of the thing (§ 134 par. 2). For acquisitive prescription purposes, the prescription period may include periods prior to 1 January 1992 when prescription was not possible, 196 197

198

See the backgrounds in the Chapter I. supra. Spáčil speaks of the conviction of the possessor (see Spáčil J., op.cit. in Fn. 52, 738, commenting § 130 on possession). See Spáčil J., op.cit. in Fn. 52, 776 and R Cdon 231 / 96.

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provided that prescription conditions were met at least as of 1 January 1992.199 If the acquisitive prescription is accomplished, no claim based on unjust enrichment is possible. In other words, the acquisition through prescription does not result in any unjust enrichment. The rightful possessor – owner – is by no means obliged to compensate his predecessor.

13.3.3. Change in possessors Acquisition of an ownership right by prescription is not a means of original acquisition, since the ownership right to the thing belonged to some other person. On the other hand, it is not a transfer of the ownership right, with prescription having nothing in common with transfer or any of its formal requirements or components. In case of a change in the person of the possessor, one has to determine whether the new possessor is a bona fide possessor. The prescription time starts running in principle from the beginning of the possession; however if the conditions set forth by law (Civil Code) are met, the new possessor can also add the period of time during which the thing was located with and possessed by his predecessor.200 If the predecessor was not a bona fide possessor, this approach is not allowed (§ 134 par. 2).201 Prescription may apply solely to things as wholes; not to parts thereof. Ownership rights to a thing that may not be the object of an ownership right, or that may be owned only by the state or legal entities specified by law (§ 125 par. 2), may not be acquired by prescription. To acquire the ownership right, the acquirer must be, in principle, the authorized possessor of the thing during the entire prescription period. Legal successors of authorized possessors may acquire ownership by prescription if they are authorized possessors of the relevant thing themselves. Ownership is acquired simply upon the elapse of the prescription period.

14.

Draft Civil Code

14.1.

Appropriation and accrual

A thing that does not belong to anyone can be acquired by appropriation and any person may become an owner (§ 982). A specific regulation is

199 200 201

See Spáčil J., op.cit. in Fn. 52, 776. See Knapp V., et al., op.cit. in Fn. 31, 302. See Spáčil J., op.cit. in Fn. 52, 777.

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proposed with respect to animals. It distinguishes a tame animal, a wild animal, and a captured wild animal. A tame animal that is not chased and that has not returned to its owner within a reasonable period of time, while no one prevents it from doing so, becomes an animal without a master, and an owner of private land where the animal dwells may appropriate the animal. If the animal dwells on a public estate, then any person may appropriate it (§ 984 par. 1). The period of six weeks is considered a reasonable period of time for an animal to return (§ 984 par. 2). Therefore, it is possible to presume that the ownership is passed and that the person keeping the animal becomes the owner (or, as the case may be, the person on whose estate the animal dwells) after six weeks from the beginning of the “voluntary” dwelling at the new owner. A wild animal is basically an animal that does not belong to any person, i.e. it is an animal without a master (§ 983 par. 1).

14.2.

Finds

An abandoned thing may not be considered a lost thing (§ 988). There is a duty to return a lost thing to the person who has lost it or to the owner thereof, against payment of necessary costs and a finder’s reward (§ 989 par. 1). Otherwise, if it is not possible to say to whom the thing should be returned, it is a duty of the finder to announce the finding without any undue delay to the municipality, unless the thing is of an insignificant value (§ 989 par. 2). Subsequently, the municipality shall return the thing to the person who lost the thing or to the owner, if such person requests the thing to be returned to him within one year from the announcement of the finding. The finder’s reward shall be one tenth of the value of the find (§ 989 par. 2). If no one claims the thing within such period of one year, the finder may use the thing or the yield there from as a true possessor (§ 994 par. 1). After three years from announcement of the finding, the finder shall acquire the ownership right to the thing or the yield gained there from; until that time he shall be considered a true possessor (§ 994 par. 3). If the finder declares that he does not wish to acquire the thing found, its right shall pass to the municipality, which may use the thing or sell it and use the yield therefrom. The municipality then becomes entitled to pay a reward to the finder (§ 996). The same applies to the finding of a hidden thing as applies to the finding of a lost thing (§ 999). Unless an agreement is reached between the owner of the land and the finder, the hidden thing belongs to the owner of the land who will pay the finder half of the value of the thing found (§ 1000 par. 2).

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Other forms

Under the Draft, accruals can be natural or artificial (§§ 1003 and 1010). A natural accrual of a movable thing belongs to the owner (§ 1008). An artificial accrual can occur by processing and mixing (§§ 1010-1017). A new thing created by processing of movable things belonging to a number of owners belongs to such person among them who contributed the most to the value of the result, either by material or by work (§ 1010 par. 1). It is left to the discretion of the owner of the thing, which the processor has now processed into a new thing, whether he shall appropriate the new thing and compensate the others for what they have lost and / or whether he shall keep the compensation (§ 1011 par. 1). If it is not possible to determine a single owner of the new thing, the thing shall belong to the co-ownership of the owners of the things that have been processed (§ 1012 par. 1). If a thing of another person is used for a modification of another thing only, it shall belong to the owner of the thing that has been repaired (or modified) and such person shall compensate the owner of the processed thing for the value of the used thing of the other person (§ 1013).

14.4.

Commentary

Although the legislator made some attempts at amendments, the current provisions are insufficient. This is mainly due to the fragmentation and incompleteness of relevant provisions, and the failure to address even some fundamental issues. For instance, the law does not tackle the key issues of representation and agency agreements, i.e. the transfer of title to things. Other key moments also remain to be addressed: e.g. double acquisition, acquisition in chain or acquisition by representation. The legislator further failed to resolve the fundamental issue of the transfer of ownership to real estate in the case of bankruptcy.

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Part IV: Additional issues 15.

Reservation of ownership

The basic regulation on reservation of ownership is contained in § 601 of the Civil Code. Reservation of ownership is very briefly mentioned also in the Commercial Code.202 Although the contract of sale may be informal, the agreement of reservation of title must be in writing, otherwise it is invalid. The delivery of goods by the buyer at the conclusion of a contract of sale with reservation of title does not establish ownership of the buyer, but the goods are delivered to the buyer for an agreed purpose until the agreed price is fully paid. If e.g. the buyer sold such goods, despite not having paid the full agreed price, he causes the seller damage, which corresponds to the entire amount of the price of the delivered goods and not only to the unpaid balance of the price. If the buyer fails to fulfil the obligation to pay the purchase price, the seller shall have all the tools of protection belonging to the owner of a thing. The statute concerning the protection of ownership does not object to the seller making a claim for his right to the payment of the purchase price. Therefore, the nature of this obligation suggests that the right of choice between the protection offered to the owner and the right to the payment of purchase price is with the seller. However, he cannot claim both rights successfully at the same time. A consequence of the reservation of ownership may also be that, until the transfer of ownership to the buyer, the thing cannot be subject to redress or listed in a bankruptcy estate, which is often a peculiarly important consequence. In the case of insolvency proceedings against the buyer, the seller, as an owner of a thing, can file a legal action to exclude the thing from the estate register. Reservation of ownership means the postponement of the moment of acquisition of ownership title to goods otherwise than as provided in the 202

§ 601: If ownership title to a thing that has been sold is to pass to the buyer only after payment of the price, this reservation (proviso or condition) must be agreed in writing. Unless the contract implies otherwise, the risk of accidental destruction or accidental impairment of the thing shall pass to the buyer when he takes delivery of the thing.

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Commercial Code, i.e. at the moment of the hand-over or the take-over (§ 443 par. 1 of the Commercial Code). If the parties arrange for this reservation, the purchaser will not acquire ownership before he fully pays the purchase price. Such a clause requires a written form, otherwise it does not have any effect, including against a third party. If the buyer does not meet his obligation to pay the price, the seller has the right of retention (§ 560).203 The movable can not be seized “automatically” i.e. without a court order. In a bankruptcy proceeding, it shall be, upon the request of the seller, excluded from the bankrupt’s estate.204 Czech law does not know extended reservation of title. No protection can be granted to a creditor under this regime.205

16.

Abandonment and loss of ownership

(a) A lost thing is a thing whose owner lost the effective possibility to exercise ownership rights thereto; however, the owner does not cease to be the owner of the thing. (b) An abandoned thing is a thing that was forfeited by the owner by means of a unilateral legal action in which the owner expresses his will to abandon the thing. As a result of abandonment (dereliction), the right of the current owner ceases to exist and the ownership right of the state comes into existence. The discovery of lost and abandoned things is relevant. If there is doubt whether a thing is a lost or an abandoned thing, § 135 par. 1 and 2 shall apply as if the thing were lost but not abandoned.206 Acquisition of ownership of a lost thing is preconditioned by its discovery. The finder who detains the thing shall release the thing to its owner; if he does not know who owns the thing but knows who lost it, he shall return the thing to the person who lost the thing, even if it is not the thing’s owner. If the finder does not know and cannot find out who owns the thing or who lost the thing, he shall surrender the thing to a governmental authority. The finder is entitled to a compensation of necessary costs and 203 204

205

206

See Škárová M., op.cit. in Fn. 52. 1650. See Kozel R., Problémy konkurzního řízení a jejich řešení (Problems of bankruptcy proceedings and their solution – Arguments presented here are also applicable under the current Bankruptcy Act.) 260 et seq. See Tichý L., opuštění věci podle ustanovení § 453 odst. 2 občanského zákoníku (Abandonment of a thing pursuant to § 453 par. 2 of the Civil Code), Bulletin advokacie 1985, 229. See Spáčil J., op.cit. in Fn. 52, 780.

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expenses and to a reward in the amount of 10 % of the price of the thing discovered.207 Undoubtedly, an owner may abandon a movable thing. The abandonment may be regulated or it may be subject to regulation with respect to hygiene or the living environment.

17.

Co-ownership

Under the Czech law there are two forms of co-ownership: apportioned (common) ownership and matrimonial (joint) ownership of property. Co-ownership in general is so-called “ideal” since the scope of the share does not equal a concrete portion (part) of the whole thing; rather each co-owner is owner of the whole thing. The share is the expression of the scope (extent) to which the co-owners participate in the rights and obligations resulting from their co-ownership. No special rules applicable to the transfer of ownership among the co-owners or towards the third persons exist.208 The co-owner can, upon agreement, transfer his share. The remaining co-owners have a pre-emptive right, unless the transfer occurs between close persons (mainly relatives).209 The legal consequences arising from juridical acts of the co-owners concerning the common thing bind all the co-owners jointly and severally. On the management of the co-ownership, the co-owners decide by majority vote based on the size of their shares. If there is no agreement or decision reached, the court has to rule upon a petition: in case of an important change of the common thing, the outvoted co-owners may ask the court to rule on this issue.210 The co-ownership can be terminated by an agreement concluded by co-owners, or by a court decision (§§ 141, 142)

17.1.

Common ownership

Common ownership is apportioned ownership. If a real division of the object, according to the level of co-ownership shares and the possibility of expedient use of the object, is not possible, a court may order an adequate substitute for one or more of the co-owners. The court will take its expedient use into account. It can also order its sale and the sale proceeds to be divided among the co-owners according to their shares (§ 142 par. 1 of the Civil Code). 207 208 209 210

See Act No. 102 / 1992 Coll., § 13. See Králík M., op.cit. in Fn. 52, 879 et seq. See § 140 of the Civil Code. See § 139 par. 2 and Králík M., op.cit. in Fn. 52, 848.

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Joint ownership

Joint ownership relates to ownership by a married couple. Things acquired by each of the spouses before the marriage do not belong in the joint ownership, even if they are used by both of them. They remain exclusively owned by the spouse who acquired them. If spouses have acquired a thing together based on an agreement before the marriage, then it falls under common ownership. In the case of things acquired in exchange for things having been in exclusive ownership of one of the spouses or from the profit thereof, the case law establishes that these things continue to be in the exclusive ownership of the spouse who owned the alienated thing – the problem is merely about transformation of the same possession. If, however, any asset subject to joint ownership is used to acquire a new thing, then the entire new thing will fall under joint ownership.211 It is different when it comes to yields, uses and additions of a thing that is in sole ownership of a spouse. The legal practice has taken an unambiguous stance on this: they will belong to the joint ownership of the spouses, no matter whether the thing itself is in the sole ownership of one of the spouses or in joint ownership.212 The Civil Code excludes certain things from joint ownership, even if one of the spouses acquired them in the course of the marriage. Inherited things do not belong in joint ownership. If only one of the spouses is subject to inheritance, he will acquire the inheritance by sole ownership. If both of the spouses were subject to inheritance, the acquired inheritance will fall under their co-ownership.213 Furthermore, things such as gifts do not fall under joint ownership and it does not matter whether the gift was presented to one of the spouses or to both. In the case of only one of the spouses being the receiver of a gift, it will belong to his or her sole ownership. If both of the spouses received the gift together, it will fall under their co-ownership. In some cases, doubts may arise as whether one or both of the spouses were presented with the gift (mainly in the case of wedding gifts). In such cases, the intention of the giver will be decisive in the sense of whether he was intending the gift for only one of the spouses or both. In most cases, the intention will be judged by circumstances under which the gift214 was presented. The relation between the donor and donee at the same time needs to be considered. To judge the donee as being only one of the spouses, or both together, based 211 212 213 214

Dvořák J., Jehlička O., op.cit. in Fn. 52, 962. Dvořák J., Jehlička O., op.cit. in Fn. 52, 966. Dvořák J., Jehlička O., op.cit. in Fn. 52, 963. Dvořák J., Jehlička O., op.cit. in Fn. 52, 963.

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on the nature of the thing is not a correct approach. Rather, the intention of the donor is conclusive. The question of gifts between the spouses needs to be addressed here. The legal practice rejects the position that one of the spouses can donate a thing from joint ownership to the ownership of other spouse alone. Rather, the legal practice has concluded that the nature of joint ownership itself prevents one of the spouses, who is not the sole owner of a thing, from donating a common thing to the other spouse, who is also a joint owner of the thing. Things intended for personal use or things used in the execution of a job of one of the spouses, do not belong in joint ownership of the spouses. The legal relation of joint owners to third parties is regulated according to the disposal acts of spouses. Usual and common things may be dealt with by either of the spouses. As to other things, the consent of both the spouses is needed, otherwise the legal act would be invalid. The law does not specify which things are considered usual and which are other things. This needs to be assessed in every case individually. In concordance with legal practice, it is important to take the nature of a thing into account, mainly its value, as well as the purpose for which it is going to be used. Therefore the case law considers casual things to be shopping for groceries, casual clothing, or objects for their children’s personal use in a proportionate measure as long as the cost is covered by joint means, fuel costs and general repairs in a household, etc. On the contrary, a donation of an immovable to a third party without a legal reason, or a donation of a significant sum, is not considered a usual thing. It is important to stress that the law requires the consent of the other spouse and not a common act of both of the spouses when dealing with other, not usual things. The form of this consent is not specifically prescribed, therefore a conclusive consent is enough. The legal act regarding a thing other than a usual thing, carried out by one of the spouses without the consent of the other, is invalid. The Civil Code sanctions this absence of consent with relative invalidity. That means that the offended spouse (the one without whose consent the legal act was carried out) has the possibility to call for the invalidity of the legal act during, but subject to, the general statutorily barred period. If he / she does not enforce this right in the given period, the legal act will result in a valid legal act. The Civil Code deals specifically with the question of an individual debt of one of the spouses, which arose in the course of marriage. With regard to the joint ownership nature of property of the spouses, the law allows the claim of the creditor at the execution of a judgment to be settled from the property of the joint ownership. However, the execution of a judgment cannot be carried out by a deduction from wages of the spouse who is not a debtor.

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18. Transfer of an “enterprise” as an unspecified “set” of assets

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Transfer of an “enterprise” as an unspecified “set” of assets

An example of a transfer of an ownership right to unspecified goods (e.g. movable objects) is the transfer of a group of things under a “contract of sale of an enterprise”, pursuant to §§ 476 et seq. of the Commercial Code. It is of relevance to this report that the object of the contract of sale of an enterprise is not individual things, individual rights, or other individual assets, but rather the enterprise as a whole, defined in § 5 of the Commercial Code as a set of tangible, as well as personal and intangible components of business. It is necessary to include things (e.g. buildings, machines and equipment, raw materials, goods, vehicles, etc.) in the tangible category.215 In other words, the object of the contract is not an enterprise as a “thing” in its legal meaning (an enterprise cannot be listed in any category stated in statute § 118 of Civil Code), but an enterprise as a complex set of things, rights and other assets used for its operation. As concerns the demand for identification of individual things belonging to the set of things, which were transferred on the basis of the contract of sale of the enterprise, the professional practice accepts that things used in running a company do not have to be individualized in the contract and that it is enough to mark the company being sold distinctly enough. According to this opinion, the concrete specification of things (as well as rights and other assets) used in the operation of the enterprise, which are transferred to the buyer, is not a condition of the validity of the contract. It is clear that some of the components of the enterprise cannot be individually marked (e.g. raw material, goods, etc.). It is advised, however, in the interest of peace of the contracting parties, that the object of the sale is marked distinctly enough. The specification of things, rights and other assets used in the operation of the enterprise is usually an attachment to the contract. According to the circumstances of the case, the bases of accounting may be used or possibly cited.216 On the day the contract is effective, by law all the rights and obligations concerning the enterprise pass to the buyer, without consideration of the legal reason for their creation, contents, payment, etc. This is mainly the case of a transfer of ownership right for things belonging to the seller and used in the enterprise’s operation. In these relations, the buyer enters the role previously occupied by the seller, without any further written agreements. 215

216

See Plíva S., in: Štenglová J., Plíva S., Tomsa M. (eds.), Obchodní zákoník, Komentář (Commercial Code, Commentary), 12th ed., Praha 2009, 1048. See Plíva S., op.cit. in Fn. 215, 1052.

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19.

Bulk sales and floating charges

There are no statutory provisions under Czech law, according to which a buyer acquires co-ownership of the bulk by prepaying for a quantity of fungible goods included by the bulk. However, the parties can achieve this effect by agreement. The share of the bulk shall equal the proportion of the quantity of purchased goods in relation to the quantity contained in the whole bulk. Czech law does not recognize the so called floating charge, meaning a registered security right in the whole of the assets.

20.

Restitution

20.1.

Legal framework

In the situation of a transfer based on a void contract, invalid right of use, unjust use based on expired contract, etc., rules of unjust (unjustified) enrichment apply. Unjust enrichment is defined as a material benefit achieved i.e. by performance without legal cause (purpose) or on the basis of a void juridical act (§ 451 par. 2). Everybody who has been unjustly enriched must return whatever he acquired (§ 451 par. 2). The unjust enrichment must be returned to the person who suffered a detriment as a result of its acquisition (§ 456). These general rules are specified by a (superfluous) provision, that in case of a void contract each of the parties is obliged to return to the other everything that either of them obtained pursuant to such contract (§ 457).217

20.2.

Remedies

A so called ownership claim based on § 126 has also been admitted. In other words, based on the allegation of a violation of property rights, the owner can use the “direct” protection and claim the restitution of the thing (object) regardless of the previous obligatory relationship based on the (invalid, avoided) contract or the unjustified enrichment relationship.218 217 218

Also see Škárová M., op.cit. in Fn. 52, 1344. See e.g. Spáčil J., Vztah vlastnické žaloby na vydání věci k žalobám z některých jiných právních vztahů (Comparison of the claim on reivindication to other kinds of claims), PrFo 2005. It must be, however, underlined that the court practice varies. Some courts do not accept this “parallel” approach in acknowledging as a rule only the obligatory claim as opposed the claim in rem.

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The difference between unjust enrichment and ownership claim is of relevance: (a) All property rights may become precluded except the right of ownership (§ 100 par. 2). The claim of restitution resulting from unjust enrichment becomes precluded in two years after the date the claimant became aware of the unjust enrichment and the enriched person (§ 107 par. 1).219 (b) Under the regime of a revindication (in rem) claim, also the fruits (proceeds) must be surrendered (restituted), regardless of the existence of a bona fide possessor. In case of restitution within the unjust enrichment claim, the fruits must be surrendered only if the person unjustly enriched acted mala fide (§ 458 par. 2 arg. e contrario).220 (c) The unlawful possessor has no right of reimbursement of any expenses necessary for maintenance incurred with respect to the thing returned, whereas in the case of restitution of unjust enrichment the owner has to compensate the necessary maintenance costs of the possessor in connection with the possession of the thing.221

20.3.

Examples of application

1. In case of a “classical” invalidity of the juridical act by which property rights have been “transferred”, also the direct ownership claim can be applied. Since the “absolute” invalidity takes place having a retroactive effect, which presupposes the situation as if there were no juridical act, the conditions for the revindication (in rem) protection are met. The possessor, who, in this situation does not follow the call for surrender, equals the wrongdoer who infringes another’s ownership without the previous existence of an obligatory relationship.222 2. Where there previously existed a right to use the goods as between the possessor and the owner of the goods (i.e. there was a legal relationship based on a lawful juridical act), but this right of use has now ended, only restitution of unjust enrichment should take place (“the legal ground ceased to exist” – § 451 par. 2 in fine).223 3. Where goods were stolen, the owner may recover them from the possessor by means of revindication. Theft means “direct” violation (infringement) of the ownership. There is no performance which presupposes 219 220 221 222 223

Švestka J., op.cit. in Fn. 52, 609-611. Škárová M., op.cit. in Fn. 52, 1351. See § 458 par. 3 Civil Code and Škárová M., op.cit. in Fn. 52, 1352. See §§ 126 and 458 and the Comments of J. Spáčil in Fn. 52 on § 126, 690 f. See also the comments on § 451, Škárová M., op.cit. in Fn. 52, 1324 et seq.

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existence of a legal relationship as clearly opposed to a criminal act. Having said that, the restitution of unjust enrichment can hardly be admitted.224 4. Recovery of the goods may also be claimed in situations where three parties are involved; in particular where a non-owner has purported to transfer the goods to an “acquirer”, provided that no good faith acquisition takes place; or where a right of use has been granted by the non-owner. Third-party situations should not be impacted by whether the contract was gratuitous or not. In principle the “parallel” approach (like under 1., 2. supra) should be applied.225 5. In garage cases – i.e. where a non-owner contracts with a garage-owner to repair the goods, but refuses to pay for the work and leaves the goods at the garage – the revindication claim of the (real) owner against the garage owner should be admitted. He has then redress based on unjust enrichment against the thief.

20.4.

Entitlement to benefits

As mentioned above (see 3.2.3.), the law (as opposed to the jurisprudence) does not distinguish between different categories of benefits. It does not even acknowledge this term (fruits), which is covered by the more generic term “accruals” in § 135a. As indicated above in case of revindication (claim in rem), all fruits (accruals) have to be returned. In applying the unjust enrichment approach, the bona fide possessor is entitled to all proceeds, which includes any fruits.226 The Czech Civil Code does not acknowledge any other criteria relevant with respect to entitlement of fruits. Everything that was acquired as unjust enrichment must be returned. If return is not feasible, monetary compensation must be provided (§ 458 par. 1). The implication of this rule is that there is no defence in favour of the possessor. In other words, the provision of § 458 par. 1 introduced a very clear, strict regime of responsibility of the possessor. No matter what reason from which the failure of natural restitution results, the possessor is obliged to perform.227

224 225 226 227

See Spáčil J., in Fn. 52, 744. See op.cit. in preceding footnote, 738-743. See § 458 par. 2 of the Civil Code a contrario. See Škárová M., op.cit. in Fn. 52, 1350.

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Loss and deterioration of the movable

The consequence described above applies even if the loss, deterioration, etc. of the thing to be returned is the result of an act of God or of a third party. A minority opinion admits that also a claim for damages could be plausible.228 Compensation should represent the market value. However, one must distinguish between a good faith possessor and a bad faith possessor. The unlawful (bad faith) possessor is obliged to compensate the owner for any damage caused by unlawful possession.229 For liability for the damage to occur, the fault is not needed, even though it does exist in most cases.230 As far as the scope and manner of compensation of restitution of such damage is concerned, the general statutes of the Civil Code on liability for damage are employed.231 As opposed to a bad faith possessor, the liability for a loss or eventual deterioration of the movable is not regulated in the case of a good faith possessor, which is accounted for principally by the statutory principle provided by the Civil Code that, unless otherwise provided by law, the lawful possessor has the same rights as the owner.232 The good-faith possessor has thus all the rights constituting the ownership right. If, in causal relation to the execution of his quasi ownership rights (destruction of a thing), the good faith possessor allows loss, deterioration or even destruction of a thing, the original owner cannot claim damages. The stated case lacks one requirement of tort liability, namely an unlawful act.

20.6.

Reimbursement for improvement or expenses

20.6.1. Generally Under Czech law, the issue of improvements made to, or expenses incurred for, goods owned by another person, is covered by two sets of rules. On the one hand, such situations are subject to the rules on unjustified enrichment; on the other hand, provisions on property law apply. Unjustified enrichment. Regarding unjustified enrichment law, there is merely one court decision published on compensation for improvement. The court ruled233 that the compensation (for improvement of an immov228 229 230 231 232 233

See Škárová M., in: op.cit. in Fn. 52, 1351. See § 131 par. 1 of the Civil Code. See § 131 par. 2 of the Civil Code. See § 420f of the Civil Code. See § 130 par. 2 of the Civil Code. See R 26 / 1975, dealing with §§ 457 and 458 of the Civil Code.

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able) equals the difference between the value of the thing before and after the investment has been made, as opposed to the amount of money invested. There is no opinion (either in case law or jurisprudence) as to the definition of improvement, which is the basis (“trigger”) for any compensation available. However, based on the rule in § 458 par. 3, which states that a person who returns unjustified enrichment has the right to be compensated for necessary expenses incurred in respect of the object returned, one may conclude that there is no legal basis for any claim for compensation beyond the level of necessary expenses, which excludes any “improvement” in a narrow sense (as opposed to “necessary expenses”). Necessary expense means the useful costs that were directly (necessarily) linked to the required due care.234 One can conclude that in assessing this, objective criteria shall be applied.235 The claim for compensation is justified regardless of whether the possessor acted in good faith (see the wording of § 458 par. 3 as compared to § 458 par. 2, where – in case of the surrender of the proceeds – good faith is required). Property law. Under property law rules, the good faith possessor has a claim for reimbursement of the costs against the owner, which the possessor reasonably incurred on the thing during the time of a lawful possession, to an extent corresponding to the appreciation of the thing on the day of its return, with one exception: customary costs (expenses) of maintenance and operation shall not be refunded.236 “Customary costs of maintenance” are costs that keep the thing in a state fit for proper use and functioning according to its purpose, provided these costs do not depreciate the thing in any way.237 The costs that the good faith possessor incurred for appreciation of the possessed thing are estimated by comparing the state of the thing at the moment of acquiring lawful possession of it and the state of the thing on the day of its delivery to the owner. It is important to emphasize that the comparison of the states does not mean the delivery of all the costs, but only costs to the extent of the possessed and delivered thing. It is also appropriate to indicate the similarity of the claim of possessor vis-á-vis the owner with the claim of ex unjust enrichment. These are, however, individual and mutually unrelated claims regulated by individual statutes of the Civil Code. Apart from its assumptions, the difference in statutory regulation of these claims manifests itself e.g. in the length of the prescription period, when the possessor’s entitlement to costs reimburse234 235 236 237

See R12 / 1989; Škárová M., op.cit. in Fn. 52, 1351 f. See Škárová M., op.cit. in Fn. 52, 1352. See § 130 par. 2 of the Civil Code (quoted in Fn. 56 above). See § 130 par. 3 of the Civil Code (quoted in Fn. 56 above).

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ment is barred by statute under the general three-year prescription period, whilst the prescription period of costs ex unjust enrichment is regulated by the Civil Code in § 107 as “particular” periods. The unlawful possessor may, pursuant to § 131 par. 1, deduct the costs (expenses), which were “necessarily” incurred in connection with the maintenance and operation of the thing from the amount of compensation for any damage caused by unlawful possession. The result of the cited statutory provision is that the bad faith possessor is entitled to deduct the stated costs only in the case where damage was incurred by the owner due to the unlawful possession. In contrast, if damage was not incurred by the owner in this manner, the unlawful possessor is not entitled to reimbursement of these costs. On the other hand, the unlawful possessor may also sever that part of the thing that he appreciated at his own expense, if this can be done without impairing the substance of the thing.

20.6.2. Possessor’s right to retain the movable The possessor is not entitled to retain the thing, provided the owner meets the requirements for surrender or compensation stipulated by the Civil Code. In other words, once the conditions for in rem protection or redress based on unjust enrichment are fulfilled, there is no defence of the possessor. Good faith (if any) is irrelevant in this respect. The possessor may refuse to render his performance (to return the movable) until the reciprocal performance is rendered or secured, if owner’s performance is put at risk by circumstances which occurred with the owner and were not known prior to the decision or the agreement between owner and possessor on surrender of the unjust enrichment. This is the result of the interpretation of a general rule on performance of debt in the Civil Code.238 In the case of retaining a movable by the possessor to secure his pecuniary claim for reimbursement of costs, which the possessor reasonably incurred on the movable thing during the time of lawful possession, vis-á-vis the owner, the Civil Code does not govern a particular right of pledge for the possessor. Under property law it is possible to apply to this stated case the general statutes on right of lien, such as the right in rem to an alien thing pursuant to §§ 151s ff, since it is a case of retaining a movable asset to secure a pecuniary claim (receivables). The possessor as a creditor in this case has the right to secure his outstanding debt by retaining a debtor’s (owner’s) thing, which will be held in his factual power until it is fully paid. According to §§ 151s et seq., he is however not allowed to arbitrarily retain the thing or craftily sequestered it. 238

See Škárová M., op.cit. in Fn. 52, 1344.

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20.6.3. Expenses of the restitution Under § 121 par. 3, the expenses associated with a claim are ancillary to this claim and belong to its owner. If the owner is successful as to the principal claim he can also claim compensation for the expenses. The Civil Code does not regulate the matter of restitution of expenses in connection with the restitution of a movable to the owner. (This is mainly a question of who bears these expenses). In principle it can only come down to two scenarios: either a voluntary or an involuntary restitution of a movable between the owner and possessor may take place. The question of “lawfulness of possession” or the “good faith of the possessor” is irrelevant, even though it is not entirely insignificant, mainly in the case of a decision of a court when the parties did not come to an agreement or in the case of involuntary restitution of things to the owner. If it was a case of voluntary restitution, under the principle of “party autonomy” or “freedom of contact”, it is above all upon the agreement of both parties (owner – possessor) who shall bear the costs of restitution of a movable to the owner, or whether they shall bear the costs together and in what ratio, etc. If no agreement is reached, upon the request of one of them, the decision will be made by court, bearing in mind all the circumstances of the specific case. In this case, a voluntary restitution of things based on an effectual decision of court is not considered a voluntary restitution. In case of an involuntary restitution (after a valid conclusion of the restitution proceedings), the objects shall be returned upon a valid or possibly an enforceable decision of the court, which places a duty on the possessor to “surrender” the thing to the owner. We are of an opinion that the judicial dictum placing such a duty implies an obligation to bear all the costs related to the fulfilling of this obligation (whether it is voluntary or involuntary). Another interpretation would appear unreasonable and contra bonos mores.

20.7.

Commentary

The current legal framework is very concise for covering a very comprehensive field, and perhaps too concise. Moreover, neither the case law nor the jurisprudence is able to fill the gaps left by such a concise treatment. Hence, a certain number of practical questions remain herein unanswered, or they are “resolved” through the author’s speculations. Unfortunately enough, the Draft, particularly in questions of co-ownership and unjust enrichment, does not offer better solutions.

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Table of Literature Adam J., Nabytí vlastnického práva od nevlastníka, PPr 1997, No. 4, 241 Baudyš P., Odstoupení od smlouvy, kterou byly převedeny nemovitosti, ADN, 1997, 103 et seq Baudyš P., K vydání nemovitosti nabyté z titulu bezdůvodného obohacení, ADN 1998, No. 3, 62 Baudyš P., Titulus a modus, Bulletin Advokacie, 2003, 7 et seq Baudyš P., Intabulační princip, PR 2006, 104 an Baudyš P., K převodu vlastnického práva k nemovitosti, in: J. Švestka, J. Dvořák, L. Tichý (eds.), Sborník statí z diskusních fór nad občanským zákoníkem, Praha 2008, 70 Čapek K., Občanský zákoník, poznámky, 3. vydání, Praha 1956 Čermák K., Držba a průmyslová práva, Bulletin advokacie 1999, No. 10, 15 Eliáš K., Znovu o aukcích, PR 1995, 106 Eliáš K., Zuklínová M., Principy a východiska nového kodexu soukromého práva, Praha 2001 Eliáš K., Vlastnické právo. Paradigmata českého pojetí pod zkušebním kamenem kontinentální právní kultury, PR 2005, 807 Faber W., Zur Übereignung nach dem tschechischen Entwurf eines Zivilgesetzbuches von 2005, Anmerkungen aus rechtsvergleichender Sicht, in: J. Švestka, J. Dvořák, L. Tichý (eds.), Tagungsband der Diskussionsforen zum bürgerlichen Gesetzbuch, Praha 2008, 40 Faber W., Kritische Anmerkungen zu den Bestimmungen über den originären Eigentumserwerb im tschechischen Entwurf eines Zivilgesetzbuches von 2005, J. Švestka, J. Dvořák, L. Tichý (eds.), Tagungsband der Diskussionsforen zum bürgerlichen Gesetzbuch, Praha 2008, 110 Havlan P., Poznámky k pojmu vlastnictví, Časopis pro právní vědu a praxi, 1997, No. 1, 27 Havlan P., Majetek státu v platné právní úpravě, Praha 2003 Hedrlín A., Převod nemovitosti na základě kupní smlouvy, PR 1998, 2, 59 Chalupa L., Žaloba na určení, vydání nebo vyklizení, PRá 2001, No. 4, 18 Chalupa L., Zánik vlastnictví nemovitosti opuštěním, PRá 2001, No. 5, 14

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Czech Republic

346

Jindřich M., Převod vlastnictví z pohledu notáře, in: J. Švestka, J. Dvořák, L. Tichý (eds.), Sborník statí z diskusních fór nad občanským zákoníkem, Praha 2008, 76 Kindl M., Varvařovský P., Problémy vzniku více vlastnických práv k téže věci, Právník 1996, No. 10-11, 925 Knappová M., Držba, právo a zákonnost, 10, 579 Knapp V., Quieta non movere (§ 5 Obč.zák.), Právní praxe 1993, 265 Knapp V., Vlastnictví v lidové demokracii, Praha 1952 Knapp V., Luby Š., Československé občanské právo, svazek 1, Praha 1974 Knapp V., O převodu vlastnictví smlouvou, ADN 1995, No. 3, 50 Knappová M., Držba, Právo a zákonnost 1992, 587 Knappová M., Švestka J., Občanské právo hmotné (Private law), 3. vydání, Praha 2002 Kopáč L., Zákoník mezinárodního obchodu – Komentář, Praha 1984 Kopáč L., Švestka J., Nad některými otázkami odstoupení od smlouvy podle obchodního zákoníku, PR 1995, 402 et seq Kozel R., Problémy konkurzního řízení a jejich řešení, Praha 2003 Kratochvíl Z., et al., Nové občanské právo, Praha 1965 Krčmář J., Právo občanské, Práva věcná, Praha 1934 Luby Š., Nadobudnutie opustienej věci do vlastnictví štátu, Socialistické súdnictvo, 1975, No. 6, 39 Mikeš J., Švestka J., Odstoupení od smlouvy ve vztahu ke kupní smlouvě o převodu nemovitosti, PR 2000, 283 et seq Mikeš J., Švestka J., Úvaha nad převodem vlastnického práva, PR 2005, 389 et seq Mikeš J., Švestka J., Význam odstoupení od smlouvy o převodu nemovitosti pro vlastnictví třetí osoby, PR 2007, 9 et seq Mruzek K., Některé určovací žaloby vlastnické, PPr 1996, 72 Mruzek K., Opuštění věci a jeho právní následky, Správní právo 1996, 268 Pelikánová I., Problém převodu a přechodu práv, PR 2001, 141 Petr B., Vydržení v českém právu, Praha 2002 Petr B., Originární nabytí vlastnictví, J. Švestka, J. Dvořák, L. Tichý (eds.), Sborník statí z diskusních fór nad občanským zákoníkem, Praha 2008, 141 Rouček Fr., Sedláček J., Komentář k československému obecnému zákoníku občanskému díl 2., Praha 1935

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Table of Literature

347

Spáčil J., O vyklizovací žalobě, Bulletin advokacie, 1984, No. II, 125 Spáčil J., Převod vlastnického práva tradicí a věcná smlouva, časopis pro právní vědu a praxi, 1993, 93 et seq Spáčil J., Držba a její ochrana v občanském zákoníku PPr 1995 No. 5, 266 Spáčil J., Ještě jednou o dražbě, PR 1997, No. 7, 372 Spáčil J., Může oprávněný držitel převést vlastnictví k věci? PR 2000, 395 Spáčil J., Neznalost zákona, právní omyl a oprávněná držba, PR 2000, 189 Spáčil J., Sousedské právo, ADN 2001, No. 5-6, 101 Spáčil J., Oprávněná držba a vydržení v nejnovější judikatuře Nejvyššího soudu, Bulletin advokacie 2003, 47 Spáčil J., K vydržení obecního majetku státem PR 2003, No. 1, 27 Spáčil J., Negatorní žaloba, ADN 2003, No. 4, 73 Spáčil J., Majetek obcí a krajů v platné právní úpravě, Praha 2004 Spáčil J., Ochrana vlastnictví a držby v občanském zákoníku, 2nd ed., Praha 2005 Spáčil J., Základní otázky vlastnické žaloby na vydání věci, Právní rozhledy 2005, 575 Spáčil J., Odstoupení od smlouvy a vlastnické právo třetí osoby, PR 2006, 18 et seq Štenglová J., Plíva S., Tomsa M. (eds.), Obchodní zákoník, Komentář (Commercial Code, Commentary), 12th ed., Praha 2009 Švestka J. et al. (eds.), Občanský zákoník, Komentář (Civil Code, Commentary), 2 volumes, 2nd ed., Praha 2009 Tichý L., K problematice vlastnické ochrany reivindikační žalobou, Bulletin advokacie 1984, No. 1, 21 Tichý L., Opuštění věci podle ustanovení § 453 odst.2, občanského zákoníku, Bulletin advokacie 1985, 229 Tichý L., Protection and Transfer of Possession, in: W. Faber, B. Lurger (eds.), Rules for Transfer of Movables, Mnichov 2008, 255

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Table of Abbreviations ABGB (Allgemeines Bürgerliches Gesetzbuch)

Austrian Civil Code, adopted 1811, still in force in Austria, in the Czechoslovak Republic repealed as of January 1,1951

ADN

Ad notam – legal journal

Civil Code

Act No. 40 / 1964 Coll, current law, many time amended, mainly after 1990 Act No. 141 / 1950 Coll. Act. No. 40 / 1964 Coll entered into effect as of April 1, 1964, in the original wording

Civil Code / 1950 Civil Code / 1964

Draft Civil Code

Draft of the (new) Civil Code for the Czech Republic, firstly published in May 2005, submitted to the Cabinet in February 2009

PP PR PRá

Právní praxe (Legal practice) – legal journal Právní rozhledy (Law review) – legal journal Právní rádce (Legal advisor) – legal journal

R

Decision of a court of the Czech Republic, in the rule of the Supreme court of the Czech Republic

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National Report on the Transfer of Movables in Slovakia Ivan Petkov

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Table of Contents

Introduction and background A. The history before 1950

359

B. The Civil Code from 1950

360

C. The Civil Code from 1964

361

Part I: Basic information on property law 1. Notion of ownership and types of property rights 1.1. General basics 1.1.1. Sedis materiae 1.1.2. Main characteristics of rights in rem in contrast to obligations 1.1.3. The numerus clausus of property rights 1.2. Notion of ownership 1.2.1. Definition and scope of ownership 1.2.2. Restrictions on ownership (a) Legal restrictions (i) Legal duty not to interfere (ii) Prohibition on damaging human health, nature, cultural monuments and the environment (iii) Using property without the owner’s consent (iv) Restriction on ownership ad hoc (b) Restriction by authority statements (c) Restriction created by owner’s legal act 1.3. Other property rights 1.3.1. The right of pledge 1.3.2. The right of lien 1.3.3. The right of pre-emption 1.3.4. Real burdens (easements, servitudes)

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363 363 364 364 365 365 367 368 368

368 369 369 370 370 370 371 373 373 373

Slovakia

354

1.4.

1.5.

Protection of property rights 1.4.1. Protection of ownership (a) General means of protection (b) Special means of judicial protection – “ownership actions” (c) Another means of judicial protection 1.4.2. Protection of other property rights 1.4.3. Another means of protection (a) Claim for damages (b) Particular procedural remedy – injunction (c) Insolvency Transferability of movable property 1.5.1. General 1.5.2. Restrictions on transferability based on agreements 1.5.3. Separate transferability of accessories

2. Possession 2.1. Notion of possession 2.2. Functions and forms of possession 2.3. Protection of possession 2.3.1. General remedies for protection of possession 2.3.2. Special judicial remedies for protection of possession 2.3.3. Self-help 3. Field of application and definitions 3.1. Notion of “property” 3.2. Classification of the objects of property rights

374 374 374 375 376 376 378 378 379 379 380 380 381 381

383 384 386 386 387 387

388 389

Part II: Derivative acquisition 4. Basic characteristics of the “transfer system” 4.1. “Generic goods” and identification 4.1.1. Generic goods 4.1.2. Individualisation of generic property and identification

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392 392 393

Table of Contents

355

5. Elements of transfer required by law 5.1. Right to dispose 5.2. Delivery of possession and its forms and equivalents 5.3. Registration

394 395 398

6. Disposition and underlying obligations 6.1. Requirement of a valid obligation to transfer ownership 6.1.1. Different forms of defects affecting transfer of ownership 6.1.2. Conditional contracts 7. Rules for double or multiple selling 7.1. Both A – B and A – C are governed by civil-law 7.2. A – B is governed by civil law and A – C by commercial law

399 401 403

404 405

8. Rules for “selling in a chain” 8.1. General rules for valid contracts 8.2. Rules when contracts fail 8.2.1. Civil law relation between A – B – C 8.2.2. Commercial law relation A – B – C

407 408 408 408

9. Transfer by means of indirect representation

408

10. Consequences of insolvency of transferor or transferee 10.1. General issues 10.1.1. Actio Pauliana 10.2. Insolvency of transferor 10.3. Insolvency of transferee

409 412 413 414

11. Passing of ownership and passing of risk

415

Part III: Original acquisition 12. Acquisition by accession, commixture, specification 12.1. Accession of movables 12.2. Commixture and confusion 12.3. Specification (processing)

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419 419 419 419

Slovakia

356

13. Rules of good faith acquisition 13.1. Field of application 13.2. Quality of good faith 14. Acquisitive prescription of movables 14.1. Functions and requirements of acquisitive prescription 14.2. The period of acquisitive prescription 14.2.1. General 14.2.2. Specific rules on suspension and renewal of the period (a) Suspension in case of judicial or similar proceedings (b) Running of period between statutory representatives and minors and between husband and wife (c) Termination in the running of prescription period 14.3. Consequences of acquisitive prescription 14.4. Prescription of ownership 15. Other forms of original acquisition 15.1. Finding of lost, abandoned or hidden property 15.1.1. Lost property 15.1.2. Hidden property 15.2. Acquisition of natural fruits (separation)

421 423

425 427 427 427 427

428 429 429 430 431 431 431 432 433

Part IV: Additional questions 16. Rules on reservation of title

434

17. Abandonment

435

18. Transfer rules for co-ownership 18.1. Common ownership 18.2. Joint ownership

437 439

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Table of Contents

357

19. Further rules applying to unspecified goods 19.1. General aspects 19.2. Transfer of an “enterprise” as an unspecified “set” of various assets 19.3. Identification of an “enterprise” to be transferred

441 442 443

20. Consequences of restitution of the movable to the owner 20.1. Entitlement to benefits (“fruits”) of the movable 20.2. Loss and deterioration of the movable 20.3. Reimbursement for improvements and expenses 20.4. Possessor’s right to retain a movable 20.5. Expenses for the restitution of a movable to the owner

444 444 445 446 447

Table of Literature

448

Table of Abbreviations

449

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Introduction and background A.

The history before 1950

Historically, the main source of private law in Slovakia, from about the 6th century to 1950, was customary law. Later in Hungary, which Slovakia became a part of after the demise of the Great Moravian Empire in the 10th century, the original Slavic customary law came under a strong influence of Germanic, canonical and mainly Roman private law; Roman private law had the biggest influence on Hungarian customary law in the 12th to 16th centuries, although it was never generally received into it. Later on, particularly after the Austro-Hungarian union under Habsburg rule starting in 1526, private law in Hungary became influenced by Austrian law. Even in the period of Bach’s absolutism, Austrian law was briefly, but fully, implemented. These influences gave rise to several attempts to codify the existing customary law. The most important was the work of a significant Hungarian lawyer from Vrbovce, Štefan Verböczy, possibly of Slovak origin, in the year 1514: the “Opus tripartitum iuris consuetudinarii inclyti Regni Hungariae partiumque adnexarum” (“Tripartitum”). It is written in Latin with a high number of foreign terms, including many words of Slovak origin. Despite efforts to codify customary law in Hungary using the Tripartitum, it was not enacted and never became a code. However, the Tripartitum did not mean the end of the period of customary law in Hungary; rather an unwritten customary law was later transformed into written customary law. Apart from customary law serving as the main source of private law, other laws did exist and there were significant efforts to put these together into a codex, of which the most famous and respected was the codex published in 1696 under the name of Corpus Iuris Hungarici. Its author, the Slovak Martin Svätojánsky / Szent-Iványi / , was a native of Liptovský Sv. Ján and a professor at Trnava University. Tripartitum became part of it and this code (codex) was incorporated into the customary law system. As a consequence of revolutions in 1848, the basic principles of feudal private law came to an end in Hungary, which also caused the whole private law based on the Tripartitum and Corpus Iuris Hungarici to come to an end. This vacum iuris was to be filled by a new civil code, but due to the victory of Bach’s absolutist regime, it was Austrian private law that filled the vacuum, i.e. the General Austrian Civil Code (ABGB) of 1811 and

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other Austrian private law statutes. However the 1860s saw the renewal of Hungarian customary law. After the collapse of the Austro-Hungarian Empire, Slovakia became part of the Czechoslovak Republic by the will of the Slovak people. Code No. 11 / 1918 Coll. was received as the current civil law, valid in the Czech Republic and in Slovakia; the General Austrian Civil Code of 1811 remained valid in the Czech Republic and Slovakia retained the original Hungarian customary law and other civil regulations adopted in Hungary. This legal dualism of civil law remained in effect until 1950, until the publishing of the first Czechoslovak Civil Code.

B.

The Civil Code from 1950

With the adoption of a new Civil Code No. 141 / 1950, which came into effect on 1 January 1950, this historical period of dualism of the General Austrian Civil Code in the Czech Republic and Hungarian customary law in Slovakia came to an end. After 30 years of the existence of a Czechoslovak state, a unified codex of civil law was created that was in effect in the whole of Czechoslovakia. The new contents of civil regulation were most apparent in the area of property rights, mainly the right of ownership: the general and unified notion of ownership was abandoned, as was the division of ownership rights into certain types and forms, namely the socialist common ownership, personal ownership, and private ownership. All property was exclusively owned by the state. Only that property designated for personal use by an individual and acquired from sources secured mainly by the individual’s labour could belong to personal ownership. The Civil Code presumed that the property necessary for the personal use of an individual was transferred from the socialist common ownership to personal ownership. However the extent of personal ownership was limited, e.g. a small family house could not have more than five rooms of no more than 120 m2 in total etc. If an individual owned property exceeding these prescribed limits, that “extra property” was considered as belonging to his / her “private ownership”. The Civil Code thus strictly distinguished between the terms “personal ownership” and “private ownership”. The intention of the state was to gradually restrict and then to abolish private ownership all together.

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Introduction and background

C.

361

The Civil Code from 1964

The Civil Code from 1964 had a “narrow concept” limiting itself to regulation of relationships concerning settlement of personal needs of citizens. This, along with its content, method of regulation, systems used, the nature of its numerous statutes, notions, and terminology, all contributed to a general degradation of civil law and to the restriction of its function in practise. It also differed from foreign civil codes with its peculiar terminology, which resulted in this Czechoslovak regulation being completely incomprehensible to the rest of the world.1 This Civil Code did not recognize traditional civil-law notions and terms, such as law of obligation, property law, possession, acquisitive prescription, lease, borrowing, and others. A partial remedy of these shortcomings occurred 19 years later with the adoption of a larger amendment in 1983.2 However, this amendment did not remedy all the flaws in civil regulation, which flaws were constantly highlighted by theory and legal practise. Once again, the notion of possession in connection with its protection, as well as acquisitive prescription, was re-introduced in a considerably limited and deformed way. New social, economic and political conditions and changes, which took place after November 1989, required a significant reconstruction of the whole legal system, including private law. At this time preparatory legislative work was under way for the new Civil Code. However, due to time constraints, not all of the Civil Code from 1964 was withdrawn and replaced by a completely new one as had been planned; rather the old Civil Code was amended considerably by Act No. 509 / 1991 Coll., in effect from 1 January 1992.3 The basic regulation of private law adopted in Czechoslovakia in 1991 in the form of an amended civil and commercial code was considered a temporary solution by the jurisprudence, the practise and the legislative representatives, which was to be replaced within a short time by an adequate re-codification of private law. The need and necessity of the re-codification of private law was acknowledged from the very beginning and is still being acknowledged.4 To date, the expected re-codification of private law has not happened yet. Another problematic area was the adoption of the Commercial Code in 1991, which was created without correspondence to the amended Civil 1

2 3 4

It is important to stress here that this codex is applicable and in effect, although in a considerably altered state, until today. Act No. 131 / 1982 Coll. in effect from 1st April 1983. Lazar, J. et al.: Občianske právo hmotné, zväzok 1. Bratislava, 2006, p. 43-66. Ibid, p. 65.

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Slovakia

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Code. The Commercial Code is an exceptionally large legislative work with a very uncommon content, in which general civil regulations often occur, which is rarely found in other similar foreign commercial codices. As a consequence, several institutions and statutes in the Commercial Code are not in concordance with the relevant statutes in the amended Civil Code. It is not unusual that some institutions, mainly in the area of contract law and law of obligations, are regulated twice. Such duplication is e.g. in the case of a contract for sale, contract for work, means of claims security and many other cases. There is hardly any reason for both the Civil Code and the Commercial Code to regulate the matters of statute-barred periods, preclusion, conditions of contract conclusion, withdrawal from contract, matters of legal liability and others, differently. Apart from the fact that the basic private regulation is non-transparent and unsystematic, the private law does not contain any consistent or interconnected contractual system. This is the reason there are significant problems, difficulties in interpretation and application in practise, all of which also contribute to the inconsistency of some parts of this report. Many rules applicable in the area of commercial relations are paradoxically more precisely regulated in the Commercial Code than in the basic regulation of general private law.

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Part I: Basic information on property law 1.

Notion of ownership and types of property rights

1.1.

General basics

1.1.1. Sedis materiae The basic source of legislation governing rights in rem in movables within the Slovak Republic is the Civil Code (Act No. 40 / 1964, as amended and herein under referred to as “Civil Code” or “CC”), which was adopted on 26 February 1964 by the then Federal Assembly of the Czechoslovak Socialist Republic. It took effect on 1 April 1964. However, the original wording of the Civil Code was amended several times due to significant changes in the political and social systems, as well as due to a transition from a centrally planned (command) economy to a market economy. As of today it has been amended 38 times, the most significant and most extensive amendments being Act No. 131 / 1982 and Act No. 509 / 1991). The Civil Code is a basis for the whole property law system: it sets forth the definition and character of property rights (ownership and the other restricted property rights – in rem, possession), the rules of acquisition, creation, transfer, modification, the entitlements arising out of these rights and their exercise, as well as protection against infringements by third persons. The Civil Code also contains the legal regulation of the general, as well as the individual, parts, of contract law whose institutions (mainly so-called alienation contracts such as contracts for sale, barter contracts and donation contracts) are directly connected to the establishment and disposal of property rights. It is necessary to mention here another special source of private law in the area of commercial relations, which is the Commercial Code (Act No. 513 / 1991 as amended, hereinafter at times referred to as the “ComC”). As will become clear in this report, many transfer rules for movable assets or goods are paradoxically regulated in much more detail in the Commercial Code than in the Civil Code, which may be due to their specific nature, chief among which are the statutory regulations of the contract of purchase in the area of commercial relations. It was necessary in several places in this report to deal with model situations specifically according to the civil-law regulation and subsequently

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according to commercial-law regulation (sometimes with grave differences in the consequences). Even though according to Sec. 1 para (2) of ComC there is a subsidiary relation between the code of general private law in the Civil Code and the Commercial Code – as individual private law, for the purpose of this report, the rules of commercial-law regulation often served to support interpretation of the very general rules of the Civil Code. Furthermore in the field of public law there are procedural rules applicable to the transfer of movables, which are mainly from the Civil Procedure Code – Act No 99 / 1963 Coll. as amended, Bankruptcy Act No 7 / 2005 Coll., Bailiffs’ Code – Act No 233 / 1995 Coll., Act No 568 / 2007 Coll. on Voluntary Auctions, etc.)

1.1.2. Main characteristics of rights in rem in contrast to obligations Institutional regulation of rights in rem in the Slovak legislation, in its very essence, reflects the historical development of such rights in continental Europe on the basis of principles enshrined in Roman law, and consequently in the context of extensive European codifications of private law, mainly in Germany and Austria. The essence of rights in rem, in contrast to obligations, may be seen in the legal status of a beneficiary whose legal dominion over his object is exclusive. Everyone must respect these exclusive rights and everyone is eligible for protection of such exclusive rights vis á vis third parties. Rights in rem are absolute rights, and as such they may be invoked erga omnes. On the other hand, obligations do not guarantee any direct dominion over the object by the beneficiary, but rather envisage the existence of a legal link between the object and a particular person through whom this right may be exercised. This dominion over the object may be provided for only in co-operation with other entities who are a party to the relative obligation. In other words, obligations as a part of a relative legal relationship operate only inter partes.

1.1.3. The numerus clausus of property rights In principle, freedom of contract applies in the sphere of obligations. As far as rights in rem are concerned, the parties have the discretion and may freely decide whether they will establish rights in rem by contract; however, their choice of type of contract is limited by the numerus clausus principle. In Slovak law the system of rights in rem, as a sub-system of property rights, is relatively stable and may be divided into two groups inspired by the

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1. Notion of ownership and types of property rights

365

systematic classification of rights in rem in the Roman jurisprudence: ius proprietas (ownership right and possession5, if the possessor is a person other than the owner); and, iura in re aliena (pledge, easement, lien, pre-emption right, provided that it was agreed as such in a supplementary covenant in case of the contract for sale).

1.2.

Notion of ownership

1.2.1. Definition and scope of ownership Legal rules applicable in the Slovak Republic are not consistent in drawing a distinction between the terms “ownership” (dominium, proprietas) and “ownership right” (ius proprietas). In the relevant provisions of the Civil Code (Part Two – Rights in Rem, First Chapter – Ownership Right) that govern and regulate the ownership of movables and immovables, the terms “ownership right” and “ownership” have the same meaning. Therefore, the term “ownership” can be found in individual provisions very frequently [see Sec. 123 “…subject of his ownership …”; Sec. 125 “…law prescribes which property may be solely the subject of the state ownership …”; Sec. 132(1) “ownership of the property may be acquired …”; Sec. 135(1) “shall become the subject of the state ownership …”], whereas the term “ownership right” is rather an exception [see Sec. 126 “…eligibility for protection against anyone who intrudes onto and infringes the ownership right …”; Sec. 128(2) “… (…) there may be restrictions imposed on the ownership right in public interest …”]. However, there is a difference between the terms “ownership” and “ownership right” in light of legal theory based on the scientific knowledge that the term “ownership” represents an economic category and relation, whereas the term “ownership right” is a legal relation or category. However, both terms are used interchangeably in the applicable Slovak legal rules as well as in peer-reviewed legal literature, where they always specify a legal form of ownership.6 5

6

Legal quality of the possession is in dispute, because the actual control of the property does not clearly indicate who the owner of the property really is. Even though legal rules provide that the possessor has the powers analogous to the ownership right, including the means of protection, possession itself seems to be a certain condition existing between the possessor and the property in their mutual relation, rather than the subjective right, even though legal rules provide that the possessor in consequence of the existence of such conditions has certain subjective rights. Lazar, J.: Základy občianskeho práva hmotného, Volume 1, Second Edition. Bratislava 2004, p. 208.

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Nonetheless, a fine distinction must be drawn between, on one hand, the terms “ownership or ownership right” and, on the other hand, the term “right of ownership or right to own the property”, which is guaranteed and protected under the Slovak Constitution [see Article 20 of the Slovak Constitution, and Article 11 (1) of the Human Rights Act – Constitutional Act No. 23 / 1991]. In addition to the guarantee of the right of ownership, the Constitution also enshrines the so-called “social function of the ownership right” according to which the ownership is not only a right, but also an obligation. Speaking in constitutional terms, this limitation is expressed in the formulation “the ownership is binding” [Article 20(3) of the Slovak Constitution]. Based on this principle, the owner (when promoting his individual ownership interests) must also respect the interests of others, mainly in matters of public interest. By exercising his ownership right the owner may not harm human health, nature, cultural heritage or the environment. The ownership right is defined directly in Sec. 123 of the Civil Code, which specifies the content of the ownership right by stipulation of “interests linked to the right of ownership”. The ownership or subjective ownership right is defined by law as the owner’s legal right to possess, use, and enjoy the subject of his ownership, as well as the fruits, yields and benefits derived there from, and his legal right to dispose of the same (uti, frui, possidere, disponere) within the limits of law. In addition, there is also the owner’s eligibility for protection against any unauthorised intrusion into, and infringement of, his ownership right, as laid down in Sec. 126 of the Civil Code. Ius possidendi lies with the owner of the property and represents the existence of actual dominion over the property that is the subject of his ownership. At the same time the right to possess the property is a basis and precondition for other constituents of the ownership right. It is simply unthinkable that the owner might dispose of the property, use the same and enjoy fruits, yields and benefits derived there from without having de facto control of, and dominion over, it. On the other hand, a distinction must be drawn between ius possidendi and the right of possession, which lies with a person other than the owner. In this case there is no ius possidendi, which is an immanent constituent part of the ownership right, but it is rather a specific legal relation of the “possession” governed and regulated separately in Sec. 129 et seq. of the Civil Code. Ius utendi enables the owner not only to use the property, i.e. to appropriate its fruits, but also not to use or let any third person use the property (including fruits, yields and benefits derived there from), change the nature of the property, or as a result of its use consume the same if it may be consumed by its nature.

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Ius fruendi may exist only with respect to either the appropriation of fructus naturales (e.g. fruit belonging to the garden owner) or fructus civiles (e.g. interest accrued on the deposit account). Ius disponendi enables the owner of the property to exchange it for anything else, i.e. to convey the ownership of the property to a third party. However, a distinction must be drawn between ius disponendi and other rights of disposition, e.g. whereby the use of the utility value of the property is left to a third party (in a form of a lease, leasing, etc.). These cases are also regarded as the exercise of ius disponendi, however, there is no change in the owner as a result thereof.

The concept of the ownership right is, to a certain extent, a limited subjective right widely governed and regulated by applicable Slovak legal rules, first of all the Slovak Constitution. This limitation results from the definition of the ownership right in Sec. 123, which reads that the owner is “within the limits of law authorised to …”. This provision operates as lex specialis in relation to the general clause contained in Sec. 3 (1) of the Civil Code, under which the exercise of rights (i.e. including but not limited to the ownership right), and fulfilment of duties and obligations arising out of civil relations may not, without any legal cause, interfere with the rights and legitimate interests of others, and may not be contrary to good morals.

1.2.2. Restrictions on ownership Coming from a general conception of “right, abuse, prohibition” in Slovak private law, it is possible to reason terminologically that the restriction of the ownership law is above all the restriction of its enforcement, or, in other words, the legal boundary of its enforcement whereby upon trespassing this limit the enforcement becomes prohibited or it becomes a prohibited act. According to its nature, the limitations of ownership law are (a) internal (immanent or notional), i.e. those that stem directly from the notion of ownership and which can be, after all, deduced from the general rule of “an ownership binds”, (b) external (ad hoc), i.e. those not stemming from the nature of ownership, but which are adopted by the owner himself or which are imposed upon him or her by a court or an administrative state authority, or in a special case, by the law. From the point of view of the creation of individual restrictions, there are restrictions that are (1) legal [either civil or statutory], (2) imposed on the owner by execution of a court or by an administrative authority, (3) created by a legal act. The restriction of ownership lies in the duty of the owner not to act on something (omittere) or to bear something (pati), and only exceptionally in the duty to act on something.

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(a)

Legal restrictions

(i)

Legal duty not to interfere

The general immanent duty of the owner not to interfere with someone’s ownership by the exercise of his own ownership right (part of a wider obligation neminem laedere) is not explicitly expressed in the Civil Code. Albeit, it does exist and it is de lege lata expressed in certain general and specific provisions of the Civil Code. It is mainly Sec. 3 (1) of CC according to which the exercise of rights and performance of duties (obligations) arising from a civil relationship may not, without legal grounds, interfere with the rights and justified interests of others, and may not be inconsistent with morality. Further, Sec. 126 of CC guarantees the owner legal protection against everyone who interferes illegally with his ownership right; § 415 and 417 – the rules that everyone has to act in a way as not to harm anyone’s health or property, nature or the environment – and the latter offers preventive protection (self-help or protection provided by court of law) to everyone under a threat of damage.

(ii)

Prohibition on damaging human health, nature, cultural monuments and the environment

By exercising ownership, no harm must be done to human health, nature, cultural monuments or the environment – beyond limits set by law.7 This is a significant legal rule established directly in the Constitution of the Slovak Republic. Although this legal rule does not directly contain any sanction in its internal structure,8 there is no doubt it is normative. That means it is directly applicable and that other individual civil sanctions may be used to enforce this legal rule. Such enforcement might take the form of denying to an owner the right to exercise what would otherwise be a lawful act of ownership, or the imposition of a duty to compensate for inflicted damage.

7 8

See Article 20 Sec. 3 in fine, of Constitution of Slovak Republic. An ordinary legal rule in Slovak law has the following internal structure: (a) hypothesis – (b) consequence – (c) sanction; if (a) then must (b), if not (b) then must (c). In our case “c” is missing in the wording of the legal rule.

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Using property without the owner’s consent § 128 (1) CC. In case of either emergency or urgent public interest, where the purpose cannot be otherwise attained, the owner of property is obliged to allow use of it to the extent necessary and for the necessary period of time and for compensation (…)

The cited legal rule imposes a duty on the owner to bear the use of his property without his consent under certain circumstances. This is allowed only temporarily and proportionately to the need, if the purpose cannot be reached by any other means, and then only in two cases: a “state of necessity” (i.e. an emergency situation) or an exigent public interest. A state of necessity is to be understood as a state of need, which will be judged in a specific case by the court according to its free deliberation. It will look upon the significance of the purpose for which the property was used, as well as upon the reality of whether using of the property was really required. The right to use somebody else’s property according to the Civil Code belongs to one who is in a state of need, however the use of property is not excluded to other persons (e.g. when a person in a state of need cannot use it on their own, due to an injury). The second case, i.e. a state of urgent public interest, the property can be used by anyone. For this temporary use of somebody else’s property, a substitute belongs to the owner due to this temporary inability to use his or her own property during this time (which can last a long time if it is necessary to achieve the aim). If not otherwise agreed, the substitute is provided in pecuniary reimbursement. The limit on this “adequate substitute” will evidently be the price of the damaged property at the time of its use. It is possible to deduce, from the construction of Sec. 128 (1) of CC, that the substitute is provided by the person who benefited from the use of the property, in the situation when someone else used it to benefit another person.9

(iv)

Restriction on ownership ad hoc

The ad hoc restriction of ownership is mainly the rare case of statutory pledge and of a real burden arising ex lege. However, the listed restrictions are in principle limited to immovable assets (land, flats, building), as well as various other ownership restrictions on the basis of some of the special laws (e.g. Electrification Act no. 79 / 1957 Coll. as amended).

9

Knapp, V. et al.: Občanské právo hmotné, Volume I. Praha, 1995, 1997, p. 214.

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(b)

Restriction by authority statements

The most serious case of a forced restriction on an ownership right is expropriation. § 128 (2) CC. Property may be expropriated, or ownership may be restricted in the public interest, where the purpose cannot otherwise be attained, but only on the basis of law, solely for the said public purpose, and for compensation.

In the sense of this rule, it is possible to completely deprive an owner of the ownership right, or to temporarily or permanently restrict him in the exercise of his ownership right. However, it is only possible whilst fulfilling all statutory conditions. Nonetheless, it is only approached when the aim of expropriation cannot be reached by any other means, e.g. by an agreement (rule of subsidiarity). The effect of the order of the court or of an administrative body can occur only with effects ex nunc. Specific rules state how the substitute for dispossessed property is measured. If a substitute is provided in money, its amount is determined by an expert judgement according to the market price of the property in the moment of dispossession.

(c)

Restriction created by owner’s legal act

An owner can restrict his ownership right voluntarily by his own legal act (e.g. by an agreement establishing a pledge, a lease agreement, etc.) These restrictions of ownership right are of a completely different character from the ones listed above, because in this case it is about a voluntary restriction of ownership right by one’s own act or realisation. This can occur not only as a legal act of the owner, but as well by his legal predecessor or anyone else entitled to it. For example, this is the case when acquiring property encumbered with pledge, such as an inheritance from a testator who, during his life, encumbered this property by a legal act inter vivos.

1.3.

Other property rights

Types of rights in rem constituting a separate sub-system of property rights have (as discussed in 1.3.1.) become relatively stable throughout history, and at present such sub-system is divided following the Roman model into two groups of “restricted rights in rem”: (1) iura in re propria represented by the most comprehensive right in rem – ownership right and possession (possesio), and

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(2) iure in re aliena represented by pledge, real burden (easement)10, lien, statutory pre-emption right11 and contractual pre-emption right,12 if agreed by contractual parties as a right in rem. A contractual pre-emption right may take the form of an obligation or right in rem, whereas a statutory pre-emption right always takes a form of the right in rem. Some other authors partially include into this group of restricted property rights also the “lease right”.13 Some of the restricted property rights mentioned above are only applicable to immovables (burdens on real property, e.g. an easement). De lege lata the only other property right applicable to movables, apart from ownership, are the pledge, lien and statutory pre-emption right or contractual pre-emption right when its form is taken as a right in rem.

1.3.1. The right of pledge The current statutory regulation of the right of pledge in the Slovak Republic is the result of a fundamental reform of this institution by the amendment of the Civil Code by Act No. 526 / 2002 in effect from 1 January 2004. It is an integrated act for the whole area of private law. A special provision of the right of pledge for the area of commercial relations stated in Sec. 299 of the Commercial Code was completely cancelled by the Act cited above, although special statutory provisions regarding the relation between the right of pledge and shares in a company14 and the possibility to establish a pledge of shares, whose convertibility is limited, have remained specially covered in this legal regulation.15 The basis for the reform of the right of pledge was the need for it to be created quickly, simply and for the costs to be as low as possible when establishing and creating it; furthermore there was a need to establish a so-called “non-possessory” pledge, which would enable the pledgor to continue using the encumbered object, or to use it to settle the reserved outstanding claim; furthermore the need for an existing system of registering the right of pledge available to everyone [Notarial Central Pledge Register (Notársky centrálny register záložných práv) managed by the Chamber of Notaries of the 10 11

12 13 14 15

Easements may only be attached to immovables. E.g. statutory pre-emption right of the co-owner in common co-ownership under Sec. 140 of the Civil Code. E.g. pre-emption right established in secondary covenants in the contract for sale. Knapp, V. Et al.: Občanské právo hmotné, Volume I. Praha, 1995, 1997, p. 199. Sec. 117a of ComC. Sec. 156 para (10) of ComC.

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Slovak Republic (Notárska komora Slovenskej republiky)], so as to enable the advancement of any property of a natural person or legal entity and for the right of pledge to enable the pledgee to be satisfied by the pledge as soon as possible. The notion and function of the right of pledge has not changed with the reform. The reservation of claims and its accessories has remained a significant property law tool. The right of pledge serves to secure a claim and its accessories in a way that when the claim is not properly settled on time, the pledgee is entitled to settle a claim or to call for the settlement of a claim by means of the encumbered property – the object of the pledge. Therefore the pledge fulfils a securing and settling function. As a consequence of the “right in rem character” of the right of pledge, the transfer or passing of an encumbered property16 to another is done by the rule of the pledge being a reserve in relation to the acquirer. Therefore, the acquirer is subject to all the rights and duties of the pledgor, including the duty to bear the enforcement of the right of pledge.17 This rule not only applies when the contractual parties agree that the pledgor is allowed to transfer the encumbered property, or part thereof, without being encumbered by the right of pledge, but also in the following two cases specified by the Civil Code. (a) If the pledgor transferred the pledge in the ordinary course of business whilst acting on the object of business: the reason behind this rule, or this exception to the general rule, is to protect the acquirer and his certainty that he is acquiring a property not encumbered by the right of pledge; (b) If at the time of transfer of the pledge and whilst taking due care, the acquirer was in good faith that he was acquiring property not encumbered by the right of pledge: if it is a case of a right of pledge registered in the Notarial Central Pledge Register (Notársky centrálny register záložných práv), then the refutable presumption of the pledge acquirer not being in good faith is valid. An acquirer has a chance of refuting the assumption by evidence to the contrary. In principle, no consent of a pledgee is required for the free disposal of the pledge by the pledgor unless agreed in the pledge contract otherwise. The free disposal of the pledge is only possible up until the pledgee informs the pledgor of the commencement of a right of pledge, specifically of its exercise and of the means of exercising it (e.g. direct sale, sale in auction etc.) 16

17

A pledge can be a property, right, claim (receivable), other asset of value (subject of intellectual, industrial property, i.e. trade marks, patent etc.), flat and other premises, as well as “set” of property, rights or other assets of value, enterprise, its part or other bulk property. [Sec. 151d para (1) of CC]. Sec. 151h para (2) of CC.

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in writing.18 From this moment on the pledgor is not allowed to transfer encumbered property (pledge) without the pledgee’s consent.

1.3.2. The right of lien Apart from the right of pledge, lien is another form in the iura in re aliena category that fills the securing function. A creditor has the right to secure his outstanding debt by retaining a debtor’s property, which will be held in his factual power until it is fully paid. If he had no right of lien in relation to the property, he would have to hand the property over to the debtor. Only a tangible asset can be the object of the right of lien. On the basis of the right of lien, the creditor has a priority right to the profit of the retained property before other creditors, even pledge creditors.19 A special case is the right of lien on tangibles found in a rented immovable securing it.

1.3.3. The right of pre-emption The right of pre-emption can also have an easement character, provided the easement was agreed on between the buyer and the seller as part of a secondary arrangement to a purchase agreement. At that point, the right of pre-emption is effective for the legal successor of the buyer. The contract needs to be in written form and the right of pre-emption is acquired by registering it in the Land Register (Kataster nehnuteľností). The contractual right of pre-emption can therefore be established as an obligation right or as a property right (right in rem). On the contrary, the statutory pre-emption right belonging to co-owners in relation to common property, as an object of their common co-ownership (see 140 of CC), is always established as a property right in rem.

1.3.4. Real burdens (easements, servitudes) Slovakian law did not recognize the institution of “real burden” until 1950. It was mentioned for the first time in the Civil Code of 1950 (Act No. 142 / 1950 Coll.) and it consolidated the then-existing institutions of servitudes and real burdens. In legal language, the phrase “real burden” is mainly used to denote the material relationship or a group of relationships that allows the authorised subject (in order to achieve a more perfect and 18 19

Lazar, J. et al. Občianske právo hmotné, Volume 1. Bratislava, 2006, p. 492. Sec. 151u of Civil Code.

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effective use of the property or to achieve better satisfaction of an individual’s needs) to make use of a certain repetitive or lasting realisation of the “use value” of immovable property.20 Therefore we speak of legal relations that, on one hand, enable the subject who is different from the owner to realise the use value of property; on the other hand, these legal relations restrict the owner of property in the realisation of his partial ownership right, being ius utendi, at the same time. Real burdens and their regulation apply strictly to immovables therefore it is not of importance to deal with them in more details in this report. However it has been mentioned here for the completion of the list of iura in re aliena.

1.4.

Protection of property rights

1.4.1. Protection of ownership (a)

General means of protection

Legal protection of subjective rights is guaranteed mainly by the Slovak Constitution. The basic principle of this protection, i.e. a ban on the denial of justice, the so-called denegatio iustitiae, is expressed in Article 46 of the Slovak Constitution. Constitutional guarantee of the protection of subjective rights is, at the level of civil relations, linked to Sec. 4 of the Civil Code under which any person may demand that the competent authority afford such person protection from anyone who endangers or violates his right. Unless the Code provides otherwise, such authority shall be a court. This means that any person whose right is endangered or infringed may seek protection of his right at the respective court, unless a situation under Sec. 6 of the Civil Code is involved (self-help). Another general tool that contributes to the protection of all subjective rights is the so-called interim administrative protection or protection against an obvious breach of peace under Sec. 5 of Civil Code. This is also an exception to the general principle that the protection of subjective rights is afforded first of all by a court of law (see Sec. 4 of the Civil Code). Where an obvious breach of peace occurs, protection may be sought at the competent state administrative authority. As an interim remedy, the administrative authority may prohibit the breach (interference) or order restoration to the previous condition. The right to seek protection from a court is not thereby affected. 20

Bradáč, A., Fiala, J., Hába, J., Hallerová, A., Skála, M., Vitulová, N.: Věcná břemena od A do Z. Linde, Praha, 2002, p. 8.

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Another exception to the principle laid down in Sec. 4 of the Civil Code is the possibility of self-help protection of subjective rights subject to the statutory requirements laid down in Sec. 6 of the Civil Code. Selfhelp may be applied only in case of imminent danger of unauthorised and unlawful interference. This unauthorised and unlawful interference can only be averted by the entity facing such danger, and this entity may do so only in an adequate and reasonable manner. Self-help cannot be applied to restore the property to the original condition existing before the interference. Self-help cannot be applied to defend against the unauthorised and unlawful interference that already existed for some time, because in such case there is no imminent danger of unauthorised and unlawful inference. The requirement of adequacy shall be deemed to have been met only if the manner of averting imminent danger was proportionate to the nature and circumstances of the interference.

(b)

Special means of judicial protection – “ownership actions”

In addition to general tools of protection of all subjective rights arising out of civil relations (self-help under Sec. 6 of the Civil Code, interim administrative protection under Sec. 5 of the Civil Code), the Civil Code also provides two special types of judicial protection of the ownership right. These two actions in rem concern an ownership that was known also in Roman law, namely “action on the claim for the ownership of a specific property, by which an owner enforces the title to his property” (rei vindicatio), and the so-called “negation action” (actio negatoria), the substantive prerequisites of which are governed and regulated in Sec. 126 para. (1) of the Civil Code. From the legislative point of view, the substantive prerequisite of rei vindicatio is as follows: “The owner may enforce the title to his property and claim a certain property from any possessor who does not have a right of retention over it.” The substantive prerequisite of actio negatoria is as follows: “The owner shall be eligible for protection against anyone who unlawfully interferes with his ownership right”. Similar eligibility for protection (i.e. similar actions) is under Sec. 126 para (2) of the Civil Code available also to those persons who may have the property in their possession. This will most probably apply to the detentor (custodian, pledgee with whom the property is deposited as a pledge, lessee, borrower, etc.) but also and mainly to the authorised possessor. Protection extending to the detentor also applies to the owner of the property. Both above-mentioned actions are actions for performance. Actions concerning the ownership may also include a declaratory action, being a procedural action seeking the determination of ownership under Sec. 80 item c) of the Civil Procedure Code. This action may be brought if no

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other action concerning the ownership can be brought. Moreover, if the party wishes to bring this action, it must prove that there are exigent circumstances that demand this type of action, otherwise the party cannot be successful in pleading its case before a court of law. Declaratory action may be brought with a view to protecting possession, in a narrower sense, or detention, and also with a view to protecting other rights in rem, because by bringing a declaratory action in accordance with the above-mentioned provision of the Civil Procedure Code, the party may seek a court ruling that there exists or does not exist any legal relation (ownership, possession, detention, pledge, lien, etc.) or right (ownership right, security interest, right to use, etc.), if there is any exigent circumstance.

(c)

Another means of judicial protection

In addition to the above-mentioned legal tools of judicial protection of property rights, protection may be sought also in the case of any loss or damage to the property or the party may seek restitution or recompense of a legally unjustifiable benefit obtained by the defendant (unjust enrichment) e.g. by using the property without a legal title. The plaintiff may do so under Part Six of the Civil Code, which governs and regulates liability for loss or damage, and unjust enrichment. If seen within the overall context of the Civil Code, Part Six is between Part Two (Property Rights) and Part Seven (Inheritance), whereas Part Three, Part Four and Part Five have been repealed. Therefore in general any person is liable for loss or damage that he caused by breaching a legal obligation (duty) and any person who, to the detriment of somebody else, is unduly enriched must return what he has acquired. Sec. 451(2) of the Civil Code defines what constitutes unjust enrichment. Unjust enrichment means material benefit acquired by performance of an act for which there was no legal reason, by performance of an act based on a void legal act, or by performance based on legal grounds that did not occur, as well as a material benefit acquired from dishonest resources.

1.4.2. Protection of other property rights Regarding the protection of other property rights, apart from the ownership right, the Civil Code does not provide any individual means of their protection. However, it offers eligible persons protection for limited property rights to an alien property, either using general means for the protection of civil relations against everyone who endangers or violates his or her rights (a general court protection, Sec. 4 of Civil Code; interim administrative

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protection, Sec. 5 of Civil Code; and self-help, Sec. 6 of Civil Code); or, on the other hand, by recognizing analogous rights owners possess towards a good faith possessor of the property. A “good faith possession” is protected by law, thus such possession is often identified with the so-called “protected possession”. However, according to some authors, a detentor is not protected, i.e. someone who possesses an object, but is not treating it as his own.21 According to the author of this report, it is only partially possible to agree with this statement, because the object of possession can be property, as well as a right: § 130 (1) CC. The person who, taking into account all circumstances, is in good faith that certain property or right belongs to him, is considered its lawful possessor. In case of doubt, the person shall be considered to be a lawful possessor.

If we say that one entitled to a restricted property right to alien property is the possessor of this right (e.g. based on a valid contract with the owner, such as a right to park a motor vehicle on neighbour’s land), it is beyond any doubt that one so entitled is the good faith possessor of his own right. He is convinced that this right was created for and belongs to him, even though he is only a detentor of the land, which he “possess” for its true owner. If we clearly distinguish between “detention of the object” and “possession of a limited property right to the object”, we can conclude that the detentor of the property is protected equally as the owner, provided that he is entitled or is a possessor in good faith of the property right to the object. As an example, we purposefully mentioned the case of an entitlement arising from a real burden, although this only concerns immovable property, because there is support for the stated opinion that there is protection for the “holder” in existing judicature: “(…) A person entitled to the use of a flat, based on the right concerning a real burden, is the holder of this right in effect of Sec. 129 (2) of Civil Code, and therefore, as a holder in due course has the same rights as the owner (Sec. 130 (2 of Civil Code).”22 The user of the flat is, as one entitled by a real burden, the detentor of the flat and the court had also awarded him protection, albeit for a different reason – on the basis of entitlement and good faith – to possess this right, corresponding with a real burden. The above-mentioned examples concern immovables, but the principle is valid by analogy to the case of movables, since they also can be the object of property rights other than the ownership right (i.e. pledge, lien, in rem pre-emption right). The right to protection of possession, in the case of entitlement or legitimacy (which implies good faith), is valid for all property 21 22

Plank, K. et al. Občianske právo s vysvetlivkami. Iura Edition, Bratislava, p. 182. R 54 / 1993.

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rights, as well as for obligation rights that allow for permanent or repeated exercise. This suggests a contrario, that the possession of a right is not possible where the law allows for a one-off exercise (e.g. a pre-emption right).23

1.4.3. Another means of protection Apart from the above-mentioned general and specific instruments of protection of the ownership right (also termed the “material ownership suits”), Slovak law offers the owner of property, and the possessor in good faith (since the lawful possessor has the same rights as the owner),24 other instruments of legal protection, mainly in non-contractual obligation law (liability for damage, unjust enrichment), or in individual, mainly procedural regulations (Civil Procedure Code, Bailiffs’ Code, The Bankruptcy Act etc.)

(a)

Claim for damages

A claim for damages may be made by an aggrieved party,25 and restitution for unjust enrichment may be sought by the party who suffered due to the unjust enrichment of another.26 Holders of such rights must prove in court their alleged standing to sue in rem arising under substantive law, otherwise they they cannot prevail in court’. Such standing to sue may result from the right in rem to the property to which the loss or damage was caused, or that was used without any legal title. Simply said, the owner of the property seeking compensation for loss or damage caused to his property must prove that he is the owner of such property. If, however, the claim were assigned to a third party other than the owner of the property, a liability claim in respect of the property may be made by such third party. However, such third-party standing to sue will not result from the existence of his right in rem, but from another legal title, being the claim assignment agreement. However, stricto sensu, this liability claim to be made by this third party depends on the existence of the assignor’s right in rem.

23 24 25 26

Fiala, J., Holub, M., Bičovský, J.: Občanský zákonník. Linde, Prague 2006, p. 225. Sec. 130 para (2) of CC. Sec. 420 et seq of CC. Sec. 451 et seq of CC.

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Particular procedural remedy – injunction

A procedural rule under the Civil Procedure Code enables the party exercising his constitutional right to judicial protection, and who proves the existence of imminent threat of loss or damage, to seek a procedural remedy in the form of injunction. This may be granted by a court of law before or during trial. The court may grant the injunction before the commencement of the proceeding, if the parties must be temporarily required to do or refrain from doing a particular act, or if there is any concern that the enforcement of judgement might be at risk. Sec. 76(1) of the Civil Procedure Code provides for several types of injunctions (such list is not intended to be exhaustive). The court may inter alia command the party not to dispose of certain property or rights (not to transfer the ownership right and title to the property, not to encumber the property, etc.), or it may command a party to do a particular act, to refrain from doing a particular act, or to suffer some act (e.g. to refrain from any interference in the ownership right or any other right in rem, etc.).

(c)

Insolvency

Complying with legal presumptions in the case of insolvency proceedings, a bankruptcy debtor’s property becomes a “bankruptcy estate”. A bankruptcy estate is the property subject to insolvency proceedings, consisting mainly of property belonging to the debtor at the time of commencement of the insolvency proceedings, property that he acquired during the proceedings, and property securing the debtor’s obligations.27 An administrator of the bankruptcy estate prepares a “bankruptcy estate register” (súpis majetku podstát), which is a document entitling the administrator to convert the listed property into pecuniary equivalent. The register is created by the administrator according to the list of property provided by the bankruptcy debtor, information from the bankruptcy debtor and other persons, as well as his own findings and investigation.28 The administrator prepares a list of the general estate or separate estate property. The inclusion of property on this list is disputable, mainly when the property is in the hands of a third party or the third party claims a right to it that would exclude its inclusion in the register. In the case of a disputable entry, the administrator notes the reasons for a disputable entry and lists the person on behalf of whom the disput27 28

Sec. 67 of The Bankruptcy Act. Sec. 76 para (1) of The Bankruptcy Act.

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able entry testifies. The administrator then notifies the person on behalf of whom he made the entry, that he or she may state the reasons and present evidence that would exclude the property from the register, within 30 days of the delivery of the notice. If, on the basis of the stated reasons and presented evidence, the administrator finds that the notified person has a right to have the property excluded from the register (mainly in the case of ownership right), the administrator will speedily eliminate the property entered into the register; otherwise, he will speedily notify the person again of a legal action against him or her at the court of law. The real owner of property in the hands of some one else who is subject to insolvency proceedings may file an “action for exclusion” against the administrator of the bankruptcy estate at the appropriate court, by which he seeks determination that the property is in his ownership and, therefore, should be excluded from the bankruptcy estate.29 The basic assumption for his success, in this “exclusion court proceedings”, is the existence of his right of ownership to the property entered in the estate register and proof of such in the law suit. An analogous situation may occur in the case of insolvency of a thirdparty holder and an execution process may be started against that third-party holder. The owner of such property subject to execution (which has started due only to the fact that the property was with the holder), has the right to demand the exclusion of the property from execution due to an existence of a right to the property, which does not allow execution (such a right is, again, mainly an ownership right).30

1.5.

Transferability of movable property

1.5.1. General The Civil Code in connection with limiting transferability of certain property in Sec. 125(2) reads as follows: § 125 (2) CC. A separate act shall provide which property may only be the object of state ownership or the object of ownership of designated legal entities.

This operates as lex specialis to the Constitution of the Slovak Republic31 and in general authorises Parliament to adopt a piece of legislation specifying which other property (in addition to natural resources, underground 29 30 31

Sec. 78 of Bankruptcy Act. Sec. 55 para (1) of The Code of Execution Procedure. See Article 20 para (2) of the Constitution of the Slovak Republic.

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water, natural healing springs, natural watercourses and caves32) is necessary to satisfy needs of the society, facilitate national economic development, promote public interest and, therefore, may be owned only by the state, municipalities or selected legal entities. Under this Article of the Slovak Constitution, the law may also specify that certain property may only be owned by citizens or legal entities residing or seated in the Slovak Republic. No special pieces of legislation, to which the above-mentioned legal rules refer, have been adopted so far. Therefore at present (under legal rules applicable in the Slovak Republic) there is no statutory limitation on transferability of any movables.

1.5.2. Restrictions on transferability based on agreements In the event of any agreement between the owner and the other party that would contractually limit transferability of the subject-matter of the agreement (which is possible in accordance with the principle of disposition autonomy and freedom of contract), this contractual obligation operates only inter partes. If the ownership of such property were transferred to a third party – despite the existing contractual obligation “not to transfer”, such default on this obligation would not invalidate the transfer in relation to the third party. To the contrary, the transfer would be valid and the aggrieved party would be entitled at most to the compensation of loss or damage under Sec. 420 et seq. of the Civil Code; or, the other party could possibly seek any other sanctions or penalties under relevant provisions contained in the original agreement with the owner of the property that was not supposed to be transferred.

1.5.3. Separate transferability of accessories In addition to the principal property,33 which constitutes a separate subject of civil relations, the Civil Code defines “[component] part” and “accessory” of the principal property. Any object that pertains to the principal property by its nature and cannot be separated from it without depreciating the value of the principal property is an integral (component) part of such property.34 A component part of the property may exist separately, unless 32 33

34

See Article 4 of the Constitution of the Slovak Republic. The Civil Code does not provide legal definition of the property. In its Sec. 119 para (1) it only divides property into movables and immovables, and subsequently in Subp. (2) it specifies immovables, being lands and buildings erected on fixed foundation. Sec. 120 para (1) of the Civil Code.

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it is connected with the principal property, or it may only be a part, which has no purpose or function without the principal property, therefore as such it has no utility value. If the component part of the property can exist separately, it may also be a separate subject of civil legal relations, until it is joined to the principal property. After such connection, the legal regime of the component part depends on the legal regime of the principal property, and any legal acts relating to the principal property and legal effect thereon shall, without any further specification, also apply to the component part.35 A component part is subject to the same legal regime as the principal property, even if as a consequence of being joined with the principal property an object that used to exist separately now becomes a part of the principal property.36 Component parts of the principal property shall pass to the new transferee of the principal property even if they are not expressly mentioned in the contract that governs and regulates the transfer of the principal property.37 “Appurtenances” to property means accessories that belong to the owner of the principal property and are designated by him to be used permanently together with it. In such case, both the principal property and its accessories constitute a separate subject of civil relations. Some civil law theoreticians hold the opinion that, for this reason in general, legal acts relating only to the accessories do not relate to the principal property, but on the other hand, legal acts relating to the principal property relate to its accessories.38 Others urge that due to the separate existence and individual nature of accessories, without any further expression of will, legal acts related to the principal property shall not apply to accessories. If the legal act relating to the principal property is to take effect also in relation to its accessories, accessories must also become the subject of this legal act. Otherwise it may not be assumed that, as a result of the legal act (e.g. under a contract for sale), the ownership of accessories is also transferred. Omission of accessories in the contract may absolutely invalidate the contract as a whole, if the accessories were supposed to be transferred but the transfer did not take place because of uncertainty surrounding this part of the legal action.39 As laid down in the applicable judicature, the accessories may be transferred to the new transferee concurrently with the principal property or 35

36 37 38

39

Plank, K. et al.: Občianke právo s vysvetlivkami, Volume 1. Bratislava 1996, 1997, p. 154. See R 4 / 1992. See R 7 / 1987. Lazar, J.: Základy občianskeho práva, Volume 1, Second Edition. Bratislava 2004, p. 170. Plank, K. et al: Občianske právo s vysvetlivkami. Bratislava, 1996, 1997.

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independently of this transfer; however, the accessories do not always automatically pass to the transferee of the principal property.40

2.

Possession

2.1.

Notion of possession

The term “possession” has two meanings. On one hand, it is a partial right of the owner due to the nature of the ownership right – ius possidendi: the holder of this right is the owner himself. On the other hand, possession may be viewed as a separate relationship distinct from ownership, in which case the property is possessed by a person other than the owner. In this sense the institution of “possession”, as a separate civil relation, is governed and regulated separately in Sec. 129 through 131 of the Civil Code. In the text below, we only deal with “possession” meaning the possessor is always an entity other than the owner. “Possession” is not defined in the Slovak legal rules. However, features and characteristics of the notion of possession may be derived directly from Sec. 129 of the Civil Code: “The possessor of property is the person who treats the property as his own or exercises such right for himself.” Such definition of possession is based on the Roman understanding of the institution of “possession” – possesio; it presupposes concurrent existence of the actual dominion over the property (corpus possesionis) and intent to have the property as one’s own (animus rem sibi habendi). Only if these two prerequisites are met (corpore and animo) cumulatively, one may use the term “possession”. Under legal rules applicable in the Slovak Republic a distinction must be drawn between “possession” and “detention”. One feature shared by both possession and detention is corpus possesionis. The basic difference, however, is in the presence of animus possesionis. Whereas in the case of possession, the existence of animus rem sibi habendi is a must, in the case of detention animus is absent. Unlike the possessor, the detentor does not treat and dispose of the property as his own; rather he treats and disposes of the property as somebody else’s property. Detentor will thus be a lessee, borrower, custodian, etc. Both cases, possession and detention, mean that the possessor and the detentor are holding the property in their actual power (i.e. having the apparent control thereof – corpus possesionis). Depending on the way in which the actual power was acquired, by the objective right in an approbated or reprobated way, it may thus be a lawful or unlawful detention or possession. In the case of “possession” the elements of the second constituent 40

See R 7 / 1987.

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part – animus – may be accomplished either in accordance or contrary to law. Accordingly, the possessor of the property is in this sense also a thief who purloined the property from the owner, or the buyer who acquired the property from the original owner under an invalid agreement, because both these entities have the property in their actual power and have the intent to hold the property as their own, i.e. each of them treats and disposes of the property as if it were his own. “Possessor” is thus only an entity other than the owner having the apparent control of the property,41 with which he deals as if it were his own property.42 The entity that holds the property in his actual power who, however, does not treat and dispose of the same as if it were his own property, will always be a “detentor” (employee, lessee, custodian, family member, household member, etc.). The subjects of the possession may be objects (movables and immovables), but also rights that admit lasting or recurring performance.43 The holder of the right is thus the person who exercises the right for himself as if he had such right, even though he does not have such right. The right that admits only one-off performance cannot be the subject of the possession (e.g. pre-emption rights, rights arising under a statement of work, etc.).

2.2.

Functions and forms of possession

In Slovak civil law, “possession” is defined and regulated very briefly (only in Sec. 129 through 131 of the Civil Code), and to a great extent rather generally. However, the difference between “possession” and “detention” directly or indirectly flows from these provisions. In relation to the functions of possession, there is also another significant consequence of these provisions, that being an important distinction between good-faith and bad-faith possession. With regard to the criterion of good faith and bad faith, there is thus a lawful possessor who treats and disposes of the property as his own and therefore (having regard to all circumstances) believes in good faith that the property belongs to him;44 and an unlawful possessor, who is not pro41

42

43

The possessor may have actual control over the property directly or indirectly (through a third party). The Civil Code does not draw a distinction between the above-mentioned situations. Similarly, the Civil Code does not draw a distinction between the situations when the entity not only wishes and intends to dispose of the property as his own, but it treats and disposes of the same as his own, or in fact has animus, but his right to use is exercised by a third party (e.g. lessee – detentor), etc. Sec. 129 para (2) of the CC.

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tected because he treats and disposes of the property as his own, but not in good faith that the property belongs to him;45 and a detentor, who treats and disposes of the property, but in no case as his own.46 As far as the legal status of lawful possessor is concerned, what is of relevance is the statutory principle that unless otherwise provided by law, the lawful possessor has the same rights as the owner.47 Only a good-faith possessor thus has mainly all the rights and powers constituting the ownership right (uti, frui, possidere, disponere). As far as protection is concerned, he may claim and refer to all general terms, conditions and means of protection, as well as special terms, conditions and means that he may successfully invoke against anyone, except the owner (mainly actions concerning ownership (see 1.4 above). Only the lawful possessor may acquire the ownership of the property by prescription. Good-faith nature of the possession is one of the substantive prerequisites of prescription.48 If the property is reverted and surrendered to the owner, or in general to a person who proved to have a better title to the property (in the case of good-faith possession, it may only be the ownership right and title to the property), the following may happen depending on whether the possession is lawful or unlawful. It is by nature of the possession that the possessor during his lawful possession kept using the property as his own, truly believing that the property belongs to him and, therefore, could have incurred costs in connection with that property (e.g. customary maintenance costs, costs of appreciation, etc.). The Civil Code deals with this relationship between the good-faith possessor 44

44

45

46 47 48

It is necessary to outline here the rule contained in Sec. 130 para (1) of CC in fine: ‘In doubts the possession shall be considered as lawful’. E.g. mere fact that an owner has instituted legal proceedings against the possessor (e.g. rei vindicatio) does not necessarily indicate that the possession shall be considered as unlawful. The ‘lawfulness’ of possession is a subjective category as it is closely connected to the possessor’s belief that the object of his possession really belongs to him. His awareness of initiated legal proceedings of an owner does not automatically mean that the possessor lost this belief. However it definitely weakens his position in that way that it puts a doubt on his belief. The possessor shall be anyway considered as lawful until it is beyond any doubt proven that he know that the object of his possession does not belong to him. That can be a moment when he has been displayed a document of title e.g. purchase contract during the court hearing. Unlawful possessor (e.g. a thief) has – despite good faith – the right to a certain form of protection, being the right to protection of peaceful condition under Sec. 5 of the Civil Code. Fiala, J., Holub, M., Bičovský, J.: Občanský zákonník. Linde, Prague 2006, p. 180. Sec. 130 (2) of the Civil Code. Sec. 135 of the Civil Code.

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and the owner to whom the property reverted, in such a way that the goodfaith possessor shall return the property itself, but retains fruits, yields and benefits derived there from, because he acquired the ownership of such fruits, yields and benefits.49 On the other hand, the lawful possessor has against the owner a claim for reimbursement of the costs, which the possessor reasonably incurred during the time of lawful possession to an extent corresponding to the appreciation of the property on the day of its return. However the customary costs of maintenance and operation shall not be refunded.50 An unlawful possessor does not have any rights enjoyed by the owner. He may not acquire the ownership title to the property by means of acquisitive prescription (usucapio). Out of the above-mentioned available forms of protection, he could only claim the right to protection of the latest peaceful status, under Sec. 5 of the Civil Code. The unlawful possessor is obliged to return and surrender the property to the owner together with its fruits, yields and benefits, and to compensate him for any damage caused by the unlawful possession. He may deduct the costs that were necessarily incurred in connection with the maintenance and operation of the property. On the other hand, the unlawful possessor may also sever from the property any part of it that he appreciated at his own expense, where this can be done without impairing the substance of the property.51

2.3.

Protection of possession

2.3.1. General remedies for protection of possession Sec. 4 of the Civil Code provides protection in general to any person, including a lawful possessor, against anyone who endangers or violates his right or state of possession, and rights arising thereof. A possessor may demand that the competent authority, being most often court of law, afford him protection from such a danger or violation. This means that any possessor whose right is endangered or infringed may seek protection of his right at the respective court, unless a situation under Sec. 6 of the Civil Code is involved (self-help). Another general tool that contributes to the protection of all subjective rights, including protection of possession, is the so-called “interim administrative protection or protection against an obvious breach of peace”. Where an obvious breach of peace occurs, protection may be sought at the competent state administrative authority. In consequence, when an 49 50 51

Sec. 130 para (2) of the CC. Sec. 130 para (3) of the CC. Sec. 131 para (1), (2) of the CC.

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obvious breach of peace of possession occurs, as an interim remedy, the administrative authority may prohibit the interference or order restoration to the previous condition. The right to seek protection from a court is not thereby in any way affected.

2.3.2. Special judicial remedies for protection of possession The Civil Code provides, per analogiam (under Sec. 126 para. (2) of the Civil Code) for the lawful possessor, in a wider sense (encompassing a lawful detentor as well), a judicial protection within property law by means of two actions: Quasi rei vindicatio and the so-called “negatorian action” quasi actio negatoria, substantive prerequisites of which are governed and regulated in Sec. 126 para (1) of the Civil Code. Applying per analogiam rules for protection of ownership rights to protection of lawful possession, the substantive prerequisite of quasi rei vindicatio is that only a lawful possessor (also detentor) may claim certain property from another (“weaker”) possessor who does not have a right of retention over it (unlawful possessor). The analogous substantive prerequisite of quasi actio negatoria is that only a lawful possessor (also detentor) shall be eligible for protection against one who unlawfully interferes with his factual possession. These analogous rules for judicial protection of possession will be most often applied to cases of a lawful detentor’s protection (custodian, pledgee with whom the property is deposited as a pledge, lessee, borrower, etc.) Both actions (quasi rei vindicatio and quasi actio negatoria) are, equally as ownership actions, the actions for performances. Declaratory action according to Sec. 80 (c) of Civil Procedure Code may also be brought with a view to protecting possession or detention, because by bringing a declaratory action in accordance with this provision of the Civil Procedure Code, the party may seek a court ruling that there exists or does not exist any legal relation (also lawful possession, detention, etc.) or right (e.g. right of use of the detentor in case of lease contract, etc.), if there are exigent circumstances. The possessor who wishes to bring this type of “action for determination”, however, must prove that there are exigent circumstances that demand this type of action, otherwise he cannot be successful in pleading his case before a court of law.

2.3.3. Self-help A lawful possessor has the possibility of self-help protection in defence of his peaceful possession of property according to the statutory requirements laid down in Sec. 6 of the Civil Code. Self-help may be applied only in

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case of imminent danger of unauthorised and unlawful interference to this possession. This unauthorised and unlawful interference can only be averted by the entity facing such danger, being in this case the possessor, and he may do so only in an adequate and reasonable manner. Self-help cannot be applied to restore the subject of possession to the original condition existing before the interference and to defend against the unauthorised and unlawful interference to the possession that existed for some time, because in such case there is no imminent danger of unauthorised and unlawful inference. The requirement of adequacy shall be deemed to have been met only if the manner of averting imminent danger was proportionate to the nature and circumstances of the interference. This ruling for self-help is common for a whole scale of subjective rights within civil law relations.

3.

Field of application and definitions

3.1.

Notion of “property”

The object of civil law relations are “objects” or “things”52 in the sense of rem (vec) and, if its nature so admits, also rights or other property values.53 The Civil Code does not define the term “rem”. Its current interpretation is based on its historical interpretation. The Civil Code adopted in 1950, which was in effect in the former Czechoslovak Republic until 31 March 1964 (on 1 April 1964 the Civil Code No. 40 / 1964, which is still valid and effective, took effect), in Sec. 23 defined rem as “controllable tangible objects and natural powers that satisfy human needs”. Criminal-law judicature also inclines to such definition of the term “rem”.54 Usefulness and a controllability of the objects are cumulative prerequisites that must be complied with concurrently. Therefore, the property cannot be e.g. electricity produced as a result of lightning. Compliance with both prerequisites, usefulness and controllability, must be objectively viewed in each particular case, i.e. it must be determined whether the property can be controlled, based on the current state of human knowledge and possibilities, and whether it serves to satisfy human needs. The current Civil Code does not specify property in the sense of “rem” in detail [except for Sec. 119 para (2) under which property is movable 52

53 54

The term “property” is hereafter used rather than “thing”, where practicable, since “thing” is rather an unusual legal academic term in English – despite the fact “thing” may be a more direct translation of “vec”. Sec. 118 para (1) of the Civil Code. See R 25 / 1957.

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or immovable (real estate)]. Immovables are plots of land and buildings (constructions) connected to the land by a solid foundation. Such specification obviously means that all controllable tangibles (or controllable natural forces) that serve to satisfy human needs, and which at the same time are not plots of land55 or buildings (constructions) connected to the land by solid foundation, shall be viewed as “movables”. One can only by interpretation arrive at a conclusion that any property not meeting the criterion of an immovable shall be deemed to be a movable. Within the meaning of this definition, movables may also be animals, liquids, gas, electricity, money (of course, provided that the above-mentioned prerequisites are complied with cumulatively).

3.2.

Classification of the objects of property rights

In this context, the classification of objects of property rights according to several criteria is of significant relevance. However, it must be stressed that this classification of property is, in Slovak law, only addressed by legal theory: the Civil Code only makes a distinction between “movables” and “immovables” (Sec. 119 of CC), and among “object”, a “constituent part of the object”, and “accessory” (Sec. 120, 121 of CC). Classification of property into movables and immovables is of principal importance with regard to the acquisition of the ownership right and title to such property, especially in the case of transferring the ownership right to the property under an agreement or contract (for more information see Part II). As far as the individual nature of property is concerned, the civil legal theory divides objects of property rights into exchangeable and nonexchangeable. Exchangeable objects may be replaced by the same number of objects of the same kind. The most important exchangeable property (movable property) is money. Non-exchangeable property cannot be replaced. Classification of objects of property rights into objects defined generically (a whole class of similar objects) and objects defined specifically (individually) overlaps the classification of exchangeable and non-exchangeable property, and is of relevance mainly in the event of discharge of obligations or in the event of determining contractual types of loans and borrowings. Property defined generically is the property designated by its class features, number, measure or weight. Other objects are designated by unique features, which identify them and unequivocally distinguish them from other property.

55

Sec. 3 of Act No. 162 / 1995 (Land Registration Act) – legal definition of a plot of land.

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Classification of objects based on the criterion of whether they are divisible or indivisible is also of legal relevance. Division of divisible objects does not result in any change in the purpose for which the divisible objects is to be used. However, division of an indivisible object usually results in it ceasing to exist and causes its absolute uselessness. Classification based on this criterion is of relevance mainly in connection with cancellation and distribution of common co-ownership and joint co-ownership, because one possible way to distribute such common property after its cancellation is its real division. The same applies to the case of succession (inheritance).56 Classification based on other criteria is of no significant relevance in the context of this report therefore it will not be dealt with. The object of civil law relations may also be a right, provided that its nature so allows. For this reason the most frequent subject of civil relations is a claim (e.g. account receivable). It may be assigned, pledged, secured, set-off, etc. In addition, and again if its nature so allows, the object of civil law relations may also be another property value, such as a logo, know-how, information, databases, algorithms, as well as immaterial objects classified as intellectual property (inventions, design, new varieties, etc.). These objects are governed and regulated under separate legal rules that apply to intellectual property; special rules also apply to the transfer of these assets (if any). For the sake of completeness, the objects of civil law relations are also so-called “individual’s personality traits and his / her displays of personal nature” (e.g. individual’s life, health, privacy, civic honour, dignity, image, audio or video record, letters and other papers of personal nature).57 Finally, the rules on the “transfer of movables” shall apply only to tangible movable property, as described above.

56

57

Lazar, J.: Základy občianskeho práva hmotného, Volume 1, Second Edition. Bratislava 2004, p. 168-169. See “Protection of Personality” in Sec 11-16 of Civil Code.

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Part II: Derivative acquisition 4.

Basic characteristics of the “transfer system”

There are various ways and various legal facts and circumstances that may give rise to the acquisition of an ownership right and title to movables by entities involved in civil law relations. That is why the way of acquisition of the ownership right will be classified by several criteria. In the context of this report, the most important seems to be the classification that includes original acquisition, derivative acquisition, and acquisition by transfer. Criteria for these classifications are similar, but criteria for the third, acquisition by transfer, should be grouped separately. Original acquisition means the owner does not derive his ownership right from a transferor. This classification mainly includes acquisitive prescription, commixture, specification. Derivative acquisition is when the transferee derives his ownership right from the transferor and includes the acquisition of the ownership right under a contract, or by inheritance. Acquisition by transfer is acquisition of the ownership right based on the declaration of will and intent of the transferor under a contract, but the transmission is based on other legal facts and circumstances (decision of a governmental agency, by operation of law and also by inheritance). These differences are of relevance, because e.g. creation of any new property accounts for the original acquisition of the ownership right, but it cannot be included in ways to acquire the ownership right by transfer or transmission. Likewise, inheritance accounts for the derivative acquisition, but it is at the same time the transmission of the ownership right. A general principle that also applies to the transfer of movables and immovables is the so-called two-stage procedure of transferring the ownership right (titulus and modus). At the first stage, the agreement is made (titulus), i.e. the obligation between the transferor and transferee arises, that being the duty and obligation to transfer the ownership right to the transferee. However, by entering into a valid agreement, the transfer of the ownership right is not finalised. It is finalised at the end of the second stage (modus), which is, in the case of movables, the traditio (delivery, handing-over), and in the case of immovables, registration of the ownership right and title in the appropriate land register. The basic “traditio principle” applicable to movables is governed and regulated by the Civil Code as follows:

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§ 133 (1) CC. When movable property is transferred on the basis of contract, ownership (title) to such property is acquired by the handing-over of the property, unless statutory provisions regulate otherwise or unless the parties have agreed differently.

As a result of this statute, there applies the “causal concept” principle, requiring a valid contract, on one hand, and the “traditio system” of transfer of movables, requiring a handing-over, on the other hand. This, however, does not apply without reservation, there are several exceptions.

4.1.

“Generic goods” and identification

4.1.1. Generic goods It needs to be again stressed at this point that the Civil Code only makes a distinction between movables and immovables (Sec. 119 of CC), and between the terms “object”, “constituent part of the object”, and “accessory” (Sec. 120, 121 of CC) (see 3.1 and 3.2, above); hence any additional classification of property is more an outcome of legal theory than applicable legal rules. The term “generic goods” is in some ways the opposite of “objects that are determined individually”. The term “generic goods” is recognised mainly in contract law within the Civil Code or even more precisely within the Commercial Code. The Civil Code does not provide any legal definition of “generic goods”, even though a similar notion with the same legal meaning – “goods specified according to their kind” – is explicitly contained therein, albeit rarely (Sec. 609 – as a subject of a re-purchase right, Sec. 657 – as subject of loan contract and finally Sec. 833, as a subject of co-ownership in case of contract of association). One could say that in all these statutes, the term “generic goods” is applied, but not closely defined. An exception is made in the case of a loan contract, provided that “the creditor lends to the debtor goods specified according their kind, in particular money.” However this “example” is the only closely defining descriptive attached to the term “generic goods” in civil-law regulation. An analogous situation with respect to “any definition” of generic goods can be found in the field of commercial-law regulation. One could conclude that when making a distinction between individually specified property and generic property, common sense is to be of use. Classification of property into generically defined property (a whole class of similar objects) and specifically defined property (individually), according to some authors, overlaps the classification of property as either exchangeable or non-exchangeable, and is of relevance mainly in the event of discharge of obligations or determining contractual types of loans and borrow-

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ings. Property defined generically is designated by class features, number, measure or weight. Other objects are designated by unique features that identify them and unequivocally distinguish them from other objects.58

4.1.2. Individualisation of generic property and identification The significance of the above classification of property (see 4.1.1), along with the relevance of the moment and manner of individualising the generic goods, is mainly in relation to transfer of ownership title to such goods and to passing of a risk. Especially when the consensual principle is chosen by contractual parties, in the case of a contract of sale in accordance with the Commercial Code, and when the subject of transfer is generic goods, the ownership title cannot pass from transferor to transferee before the individualisation of these goods at the time of transfer of the ownership title. This rule comes directly from Sec. 444 of ComC in accordance with which the parties can agree in writing that the buyer will acquire ownership title to the goods prior to the time of their handing-over, provided that the contract concerns goods identified individually or identified by type and which, at the time of transfer of the ownership title, are adequately marked so as to be distinguishable from other goods in a manner agreed on between the parties or communicated to the buyer without undue delay. Thus, as for the nature of the actual “act of identification”, it can be undertaken either as a unilateral act of the transferor (however there is an additional requirement of subsequent notification to the transferee without undue delay), or it could be undertaken by agreement of both parties. With regard to the moment of passing of risk in relation to individualisation of generic goods, the analogous rule shall apply as in the case of passing the ownership title and, thus, “risk” cannot pass from transferor to transferee before the individualisation of the goods. The risk of damage to goods then cannot pass to a buyer who has not received the goods, whilst the goods are not clearly marked and differentiated for the purpose of the contract, which may occur mainly by marking the goods or the shipping documents or specifying them in the report sent to the buyer, or marking otherwise.59 The requirement of individualisation then comes directly from the statute and the Commercial Code provides several ways of individualisation. Apart from these ways of individualisation regulated by Commercial Code Sec. 458, the contract parties are not restricted in choosing any other way in their agreement. The goods must be also adequately set aside and identi58 59

Lazar, J.: Občianske právo hmotné, Volume 1. Bratislava, 2006, p. 181. Sec. 458 of ComC.

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fied from other goods of the same type at the time of the transfer of the risk of damage, if the contract parties agreed that this risk shall pass prior to the time of their handing-over.60 The general ruling of individualisation in case of so-called generic goods is very abstract and thus the party autonomy principle mainly shall play an important role when it comes to the form of identification to take place.

5.

Elements of transfer required by law

5.1.

Right to dispose

As far as the transfer of the ownership right is concerned, in general the Roman law principle nemo plus iuris ad alium transfere potest quam ipse habet (no one can give what he does not have or pass better title than he has) applies. Simply speaking it means that the transferee can acquire an ownership right only to the extent it was possessed by the original owner. However, there are two exceptions laid down in the Civil Code to this principle. The first exemption is the bona fide acquisition of the property from an illegitimate heir to whom the inheritance was confirmed.61 The second exemption applies when the pledgee exercises his pledge in such a way that he, as non-owner, sells the pledge in the manner specified in the pledge agreement, where by operation of law he acts on behalf of the pledgor – owner.62 At the level of private law, there is one more quite broadly outlined exception in the case of a business relationship established under a contract for sale that was entered into in accordance with Sec. 409 et seq. of the Commercial Code. In the case of this legal relationship, if the seller is not the owner of the goods being sold under the contract, the buyer shall nonetheless acquire the ownership right unless, at the time when the buyer was to acquire the ownership right, the buyer knew that the seller was not the owner and thus not authorised to sell them.63 The bona-fide buyer thus becomes the owner despite the fact that at the time of the purchase the seller was not the owner of the goods. This exception to the principle nemo plus iuris shall not apply only in the case of an absence of bona fides on the part of the buyer at the time he was to acquire the ownership right.64 However, it needs to be stressed that 60 61 62 63 64

Sec. 459 of ComC. Sec. 486 of the Civil Code. See Sec. 151m para (1) and (6) of the Civil Code. Sec. 446 of the Commercial Code. Ovečková, O. et al.: Obchodný zákonník – Komentár (Commentary). Bratislava 2005, p. 266.

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this applies to the contract for sale in a business relationship that was established in accordance with the Commercial Code. In the case of any transfer of the ownership right under a contract for sale entered into in accordance with the Civil Code, this exception does not apply and the acquisition of the ownership right from the non-owner is not possible.

5.2.

Delivery of possession and its forms and equivalents

Traditio (delivery) may take several forms; however, the Civil Code does not give even an exemplified summary of how property can be handed-over. In practice, the principle “from hand to hand” applies (e.g. the seller hands the property to the buyer directly in the shop), as does handing-over accessories that enable actual control (e.g. car keys65 through a third party obliged to deliver the consignment), and handing-over in the so-called “short hand” manner – traditio brevi manu (e.g. the car borrower decides to buy the car after he has borrowed it and has actual control of it – detention, the same as in the case of a leased property). The transfer of the ownership right may be finalised in a form other than the handing-over of the property, if so provided by operation of law or if the parties mutually agree. The ownership right may be acquired at the moment of entering into the agreement (contract) (consensual system), i.e. before the hand-over of the property or some time after the hand-over. The parties to the contract may agree upon a reservation of acquisition of the ownership of the property (in writing in the contract) until the day of full payment of the purchase price (Sec. 601 of the Civil Code).66 In such a case, the agreement shall be deemed to have been made validly and the property shall be deemed to have been validly handed-over, but the transfer of the ownership right itself shall take place upon payment of the purchase price in full. Another example of when the hand-over (traditio) does not constitute, without something further, the effective transfer of the ownership right and when, conversely, traditio actually takes place before entering into the agreement (titulus), is self-service shopping, namely when the customer buys goods in a self-service shop (e.g. using supermarket trolleys). In such a case the goods, by placement in the trolley, are taken-over before the legal title to such goods is acquired, such title being the act of entering into the agreement that occurs upon payment of the full purchase price at the cashier’s desk. This is the moment when the transfer of the ownership 65 66

See R 17 / 1986. Lazar, J. et al.: Základy občianskeho práva homtného, Volume 1, Bratislava 2004, p. 235-236.

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right is finalised and when the ownership right and title to the goods are actually transferred to the transferee – buyer.67 We would also like to mention the transfer of the ownership right to the goods in the case of business relations governed and regulated by the Commercial Code as a special private legal rule. The traditional traditio system mainly applies here, as in the case of the Civil Code (lex generalis in the sphere of private law). The buyer shall acquire the ownership right to the goods as soon as the goods are handed-over to him.68 Having regard to the fact that the actual delivery of the goods does not necessarily mean the hand-over that the law prescribes for the effective transfer of the ownership right, the following may happen: the seller directly hands the property over to the buyer or to his representative at the same place and at the same time, i.e. delivery shall take place inter praesentes. Supply of the goods69 and actual handing-over thereof is a single act. Upon the realization of this act, the transfer of the ownership right to the buyer shall take effect. The situation is slightly different if the goods are handed-over between absent parties to the contract of sale, e.g. if the goods are handed-over to the first shipper who is supposed to deliver the goods to the buyer, if the contract for sale specifies that the goods are to be sent by the seller. At this moment the seller only fulfils his duty and obligation to deliver the goods, however, the ownership is not transferred yet. The ownership will be transferred upon actual hand-over of the goods by the shipper to the buyer. In the case of delivery of the goods between “absent parties”, there are therefore two acts: supply of the goods in the form of their hand-over to the first shipper, and the actual hand-over of the goods by the shipper to the buyer. In this context the question arises whether the transfer of the ownership right takes effect if the buyer, as the consignee, refuses to take delivery of the goods from the shipper (freight, courier). We tend to believe that the hand-over of the goods by the shipper presupposes receipt thereof by the consignee. Without such take-over by the buyer the goods cannot be deemed to have been handed-over. Only upon the take-over of the goods is the act of delivering the goods and, therefore, the transfer of the ownership right to such goods finalised.70 There is an exception to this principle, being the possibility to acquire the ownership right and title to the goods even before the delivery thereof. The buyer may acquire title to the goods to be shipped to the buyer and therefore before the hand-over when he acquires entitlement to dispose 67 68 69 70

Sec. 614 para (3) of the Civil Code. Sec. 443 para (1) of the Commercial Code. Sec. 412 para (2), (3) of the Commercial Code. Ovečková, O. et al.: Obchodný zákonník – Komentár (Commentary). Bratislava 2005, p. 267.

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of the consignment.71 The Commercial Code, however, does not contain any examples of such an “entitlement”. In accordance with commercial law theory, this occurs mainly when the buyer acquires documentation that authorizes the buyer to control the goods.72 Such right to dispose of the goods (consignment) may result from a bill of lading, river bill of lading, etc.73 It is relevant to mention also the eventual existence of a consignee’s “statutory guarantee” for the settlement of all payable receivables arising from the contract for carriage of the goods concluded between the seller, as the consignor, and the freight forwarder. However, the consignee becomes the guarantor only upon acceptance of the consignment and, concurrently, knowledge of these unsettled due receivables.74 It means basically that if the consignor has not paid the freight costs, assuming he is obliged to do so, the freight forwarder is allowed to claim settlement of his payable receivables from the consignee. The carrier’s position is even strengthen by having a particular “statutory right of lien” to the consignment’75 until the moment of the full payment of all due receivables arising from the carriage of the goods from the seller to the buyer. The parties may in writing also agree that the buyer shall take title to the goods prior to the time referred to in Sec. 443 para. (1) and (2) of ComC, and at the time of transfer of title (ownership rights), provided that the contract concerns individually determined goods or goods determined according to kind and that such goods shall be sufficiently marked to be differentiated from other goods in the manner agreed upon by the parties or in the manner notified – without undue delay – to the buyer.76 Neither in the civil law nor in the commercial law does the traditio (delivery) system apply without reservation in the case of rights and titles, rather there are some exceptions that modify this traditio system by consent. In this context, an important role is played by the party autonomy principle, which is expressed mainly by the use of ius dispositivum in the regulation of transfers of movables. The parties may always agree upon a different moment when the transfer of the ownership right and title takes place, as allowed by the Civil Code or by the Commercial Code promoting mainly the traditio concept principle.

71 72

73 74 75

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Sec. 443 para (2) of the Commercial Code. Ovečková, O. et al.: Obchodný zákonník – Komentár (Commentary). Bratislava 2005, p. 267. Ibid, p. 267. Sec. 627 of the CommC. Sec. 628 of the CommC; the general rules of the right of lien shall be applied on regulation of this consignor’s right. For general ‘right of lien’ please see p. 22. Sec. 444 of the CommC.

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Legal regulation of the transfer of movables in Slovak law is very general; that is why a great latitude is left for an agreement between contracting parties, if it is the case of the moment of transfer of title and also of the form of delivery equivalents, regardless the civil or commercial character of the relations. The principle of publicity in favour of third-party protection does not play a very important role with respect to transfer of movables. On the other side, it is much more obvious in legal regulation of transfer of immovables – real estate property.

5.3.

Registration

As discussed (see 4, above.), a general principle of the “two-stage procedure” of transferring the ownership right (titulus and modus) applies to the transfer of movables and immovables. In the first stage, the contract is made (titulus), and in the second stage, the transfer is finalised by modus, which in the case of movables is traditio (handing-over) and in the case of immovables is registration of the ownership right and title in the appropriate land register (kataster nehnuteľností). Registration in general regarding different types of assets is a legal fact giving rise to various legal effects. In Slovak law these legal effects are: finalising of contractual transfer of ownership title to immovables on the basis of registration in a land register (kataster nehnuteľností); transfer of some types of assets of value belonging to intellectual property law regulation (mostly “industrial and commercial rights of intellectual property” as rights of patent, design, trade mark etc.), which takes affect erga omnes only on the basis of registration in the registers established by statute.77 A special group of assets subject to registration in a particular register are the so-called “registered negotiable securities”. The contractual transfer of these securities is finalised only by means of registration in the Central Securities Depositary (Centrálny depozitár cenných papierov) established by the Securities and Investment Services Act No 566 / 2001 Coll. The same legal consequence results from the registration of a share transfer in a capital company, made in the Commercial Register (Obchodný register) pursuant the applicable statutes of Commercial Code and the Commercial Register Act No 530 / 2003 Coll., as amended. With regard to movables and their registration,78 it is of relevance that registration in the Notarial Central Pledge Register (Notársky centrálny 77

78

The Trade Marks Act No 55 / 1997 Coll as amended, The Patent Act No 435 / 2001 Coll. as amended. It is not the case of “registration of movable” when interpreted literally but mere registration of “right attached to movable”, in this case right of pledge.

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register záložných práv) managed by the Chamber of Notaries of the Slovak Republic has constitutive legal effects in relation to creation of right of pledge, where the subject of pledge is a movable asset. These legal effects of the right of pledge registration can be, in some cases, taken as a combination of registration in the Central Pledge Register and in other particular registers. This is the case of the registration of a so-called “set” of property rights and other assets of value, enterprise or its part, etc. The registration in the Notarial Central Pledge Register results in creation of a right of pledge only of the entire “set of assets” as a whole. For creation of a right of pledge to individual parts of this “set of assets” (e.g. patents, trade marks, immovables), if required by applicable law, registration in a specific register is also required. The principle of material publicity applies to registration in all particular registers. Registration in the Notarial Central Pledge Register (Notársky centrálny register záložných práv) makes use of the formal publicity principle. As a consequence, the entries in this register do not have an authentic nature but only an informative one against third persons.79 In this context it should be briefly mentioned that, with respect to particular movables, there are rules of registration in the field of public law (administrative law) as well. These rules regard mostly various types of vehicles (cars, motorcycles, long vehicles, etc.) This kind of registration also causes legal affect, but not in the field of private property law. The function of registration of a vehicle, of its holder or even of its owner, is mostly determined by the public necessity of simple and quick identification of the subject liable for its operation.

6.

Disposition and underlying obligations

6.1.

Requirement of a valid obligation to transfer ownership

The Civil Code sets forth a list of legal facts upon which title may be acquired. It is an open list as it refers to other legal facts ruled by individual regulations. Ownership (“vlastníctvo”) of property may be acquired by a contract of purchase, a donative or some other contract, by inheritance, by decisions of a state authority, or on the basis of other facts laid down by law. The most typical alienation contracts, according to which title is acquired, are contracts of sale, barter, and donation.80 Except for these contracts, the Civil Code sets forth a whole range of other contracts according to which 79 80

Lazar, J. et al.: Občianske právo hmotné. Bratislava, 2006, p. 511. Donative contract – donation is pursuant to Slovak applicable laws bilateral legal act – bilateral contract. Donation is treated as other contracts with respect to the rules regarding transfer of title.

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subjects may acquire title. To this belongs, first of all, contracts for labour whereby a new object is made,81 agreements of co-owners upon termination of co-ownership and mutual settlement,82 and agreement of heirs upon settlement of the inheritance.83 Eventually, it is possible to acquire title also on the basis of an innominate contract,84 one not specifically regulated by law, on the condition that it does not violate the content or the aim of the law. In these cases, the contractual transfer of title of a movable is ruled by the general regulations explained in part 5.1 of this report. Individual rules regarding transfer are valid in case of other ways of derivative acquisition of title, and this is mainly by decision of state authorities or by inheritance. In the case of acquiring title according to decisions of state authorities, decisions of court and administrative authorities85 come into focus. In this case, it is not a question of determining the object of the contract – if it is a movable or immovable, nor is it crucial to determine who, at the time of acquiring title, had the object in his or her possession. The actual act of delivering (traditio) in this case also has no legal consequence in relation to the transfer of title. The basic rule regarding transfer of title by decision of a state authority is simply that ownership title is acquired on the day stated in that decision; if the day is not stated, then on the day when the decision takes effect: the transfer of title to the transferee happens without anything else. Examples of such transfers include court decisions defining the owner to newly produced property in case of processing (see 12.3, below), or the decision of a state administrative authority regarding expropriation.86 Individual rules regarding transfer of title apply also in case of inheritance. The Civil Code’s basis in case of inheritance regulation is the principle of universal succession, i.e. an heir enters the possessive legal relationship of the testator in its entirety, including rights and duties. Except for the principle of universal succession, the principle that heirs acquire inheritances (including both active and passive property rights) ipso iure directly by the fact of the testator’s death is applied in Slovak hereditary law. There is no need for the heir to act, e.g. accept the inheritance. The principle of acquiring the inheritance at the moment of the testator’s death will be applied.87 It results in the fact that, until the moment of legitimate 81 82 83 84 85 86 87

Sec. 631 et seq of Civil Code. Sec. 141 of Civil Code. Sec. 482 para (1) of Civil Code. Sec. 51 of Civil Code. Sec. 132 para (2) of Civil Code. Sec. 128 para (2) of Civil Code. It is so-called additional principle (adičný princíp) as opposite of so-called delacional principle (delačný princíp). Additional principle requires for acquiring of inheritance (property) a legal act of an heir being an acceptance of inheritance; in delacional

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termination of the inheritance procedure by the court (acquiring an inheritance is obligatorily connected with the decision of the court about the inheritance), everybody who can inherit according to the law is a co-owner of the movables included in the decedent’s estate. In reality, it means that from the testator’s death until the legitimate termination of the inheritance procedure, every heir, unless he or she has renounced the inheritance,88 is lawfully in possession of inherited property and obliged in the legal acts related thereto against third parties. This principle has further consequences, namely that the court decision in an inheritance procedure and any later acts (inheritance agreement, denial of heritage) have retroactive effect (ex tunc effect) ad diem of the testator’s death. If the heirs within the terminated inheritance procedure agree (e.g. in the form of inheritance agreement) that a concrete movable asset (e.g. the car that was in the possession of the testator) will be in the exclusive ownership of one of the heirs, he or she is the owner of this possession ex tunc ad diem of testator’s death.

6.1.1. Different forms of defects affecting transfer of ownership Legal acts are not valid if they lack the propriety law demands. Legal consequences of faulty legal acts are the possible nullity of the legal act or unilateral withdrawal from the contract. There is a principle in the Civil Code that null legal acts are null absolutely unless the law declares them to be only relatively null. Absolute nullity arises directly ex lege; the courts have held that such an absolute nullity cannot be modified by a further approval (ratification or rehabilitation) and cannot be reversed by removal of the cause of the nullity. Furthermore, absolute nullity has an ex tunc effect, i.e. the transfer of title did not happen, as if the contract had not been signed. The nullity of a contract, or of any generally null legal act, results in the right to claim unjustified enrichment, i.e. the return of all property that was transferred according to the contract. The practice of the courts is the same, e.g. if the contract of sale in business would be for any reason null, then all contract parties are obliged to return all property that was given to them according to the contract. It does not depend on the buyer’s good faith, but is exclusively a question of validity of the legal act. However, it is possible that the parties sign immediately a new valid contract of sale in business.89

88

89

principle it not required as there is a legal presumtion that a heir acquires inheritence at the moment of the testator’s death. Compare Lazar, J. et al.: Základy občianskeho práva homtného, Volume 1, Bratislava 2004, p. 362. See R 2 / 1978.

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In the case of good faith, the absolutely null contract is considered iusta causa possesionis and the possessor may then acquire ownership title to the movable object of the contract by acquisitive prescription – upon fulfilment of its requirements pursuant to applicable provisions of Civil Code. If one party to a contract is without the legal competence to do legal acts, the contract is absolutely null and the title has never been transferred to the transferee. Similarly, a person acting with mental handicap is unable to do the legal act.90 Any a legal act must be of one’s free will, in earnest, and in a definite and intelligible manner, otherwise the act is null and void.91 Lack of free will means acting under forbidden duress from another party to the contract or even from a third party forcing one party to enter into the contract with the other party. Theory of civil law distinguishes physical duress (vis absoluta) and mental duress (vis compulsiva). If it came to the signing of a contract according to which a title should be transferred under the impact of physical or mental duress, such contract would be marked by sanction of absolute nullity: it would have never come to transfer title. Free will is lacking also in the case of a mistake based on a false or insufficient idea about the legal consequences that will result from the legal act. A legal act is null if undertaken mistakenly by a party on the basis of an erroneous fact being decisive for performance of the act in question and if the other party to whom the legal act was addressed either induced such error or had to be aware of it. A legal act is also rendered null if such error was induced by the said party deliberately. However, an error in motive does not invalidate the legal act concerned.92 Such an essential error may be caused by negligence, carelessness or deliberately. If it was caused deliberately, it is not relevant if it was an essential or non-essential error. The Civil Code sanctions errors of free will only with relative nullity.93 It means that, for example, a contract of transfer of title to a movable asset is considered to be legally binding until the moment when the affected party claims nullity due to having been misled by an error. Contrary to absolute nullity, relative nullity is not directly laid down by law, but it is based on the rebuttal presumption that a legal act is valid. A relatively null legal act causes legal consequences as if it were valid, until it is declared null and deprived of these consequences. It can be deprived of these consequences either by the court or other state authority, or by 90 91 92 93

Sec. 38 para (1), (2) of Civil Code. Sec. 37 para 1 of Civil Code. Sec. 49a of Civil Code. Sec. 40a of Civil Code which contains the rigorous list of those provisions of Civil Code comprising nullity of legal acts considered as relative nullity.

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the fact that it is considered null by the parties in a bilateral agreement, i.e. when the party against whom the second party is claiming nullity acknowledges its nullity. According to a second opinion, declared mainly by the courts,94 relative nullity of a legal act can come into existence by unilateral enforcement, namely at the moment the party who acted in error and who now wants to claim nullity comes to the second party and claims nullity. However, in both cases the nullity arises ex tunc.95 In relation to transfer of title according to a contract of sale, the same rule in case of “reaching of relative nullity” is applied as in the case of absolute nullity, i.e. the contract (titulus) is cancelled ex tunc, which also results in nullity of all transfers and any delivered movable asset and accepted purchase price being unjustified enrichment. Following the Slovak Civil Code, the same rules regarding the legal consequences of total or relative nullity of a contract are applied also in the case of unilateral contract repudiation. The repudiation of a contract renders the contract null from its inception, unless some statutory provisions regulate otherwise or unless the contracting parties have agreed differently.96 The Civil Code constitutes the given rule (extinguishment ex tunc of a contract) in this case only sparingly. Legal regulation on contract repudiation in the Civil Code (see Sec. 48, 49, 497) does not relate to commercial relationships. Special regulation of contract repudiation of particular contract types in the Civil Code is mentioned prior to the general regulations. The most relevant difference between contract repudiation in the Civil Code, where repudiation causes extinguishment of a contract ex tunc and contract repudiation in commercial relationships is at the moment of the repudiation itself (ex nunc). All regulations on contract repudiation in the Commercial Code are subject to party autonomy whereby the parties may agree on a possibility and manner of repudiation or totally exclude repudiation.

6.1.2. Conditional contracts The Civil Code makes it possible to condition the rise of the legal consequences of a contract transferring ownership of movables. The creation, modification, or extinguishment of a right or duty may be made dependent on fulfilment of a certain condition. This agreed condition must be possible, otherwise it shall not be taken into consideration. The law directly differ94 95

96

R 50 / 1985, R 45 / 1986. Knapp,V., Knappová, M., Švestka, J., Dvořák, J., Macková, A., Mikeš, J., Radvanová, P.: Občanské právo hmotné, svazek 1. CODEX, Praha 1997, p. 110, 111. Sec. 48 para (2) of Civil Code.

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entiates between two types of conditions, being the suspensive condition and the resolutive condition. A condition is suspensive if a certain legal act becomes effective upon fulfilment of this condition. A condition is resolutive if its fulfilment brings about the annulment of an already existing right or duty (obligation).97 It is evident that in case of a suspensive condition, there is a certain level of uncertainty between contracting parties whether legal effects of a contract will ever occur, as they are dependent on the condition fulfilment; in case of a resolutive condition, contracting parties are unsure whether legal effects, which already took effect, will remain in existence. In the first case, provided that the condition is fulfilled, legal effects will take effect ex nunc; in the second case, by the fulfilment of the condition, effects of the legal act will pass ex nunc, i.e. as of the time of the fulfilment of the condition.

7.

Rules for double or multiple selling

1. This deals with the situation where A sells the same asset to B and afterwards also to C (or to further buyers D, E etc.). This situation needs to be analysed mainly with respect to whether these double or multiple transfers were made in realization of civil-law or commercial-law relations between A – B and A – C, since the consequences of these actions will be different in both cases. Good faith acquisition can only be considered in a commercial-law relationship (Sec. 446 of ComC). In principle, the relationship between A – C is decisive, assuming that the transfer between A – B came before the transfer between B – C. The key question is whether there is a need to apply the Commercial Code, as “lex specialis” relative to the Civil Code, to the transfer between A – C. Whether the relationship between A – B is civil-law or commercial-law is not decisive in relation to C.

7.1.

Both A – B and A – C are governed by civil-law

As discussed above regarding ownership right and its acquisition (see Part II), in general the Roman law principle nemo plus iuris ad alium transfere potest quam ipse habet applies. It means that B or C can acquire the ownership right but only to the same extent as A. There are a couple of exceptions to this principle mentioned in the Civil Code; however, these are not of relevance at this point.98 If a valid right of 97 98

Sec. 36 para (1), (2) of Civil Code. See part 5. of this report for more details.

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ownership transfer between A – B took place on the basis of a contract of sale, A could not subsequently transfer the same ownership right validly to C, as at the moment of concluding the contract for sale with C he was not its owner. The contract for sale between A – C, according to statute Sec. 39 of CC, is then absolutely null ex tunc, because it is a legal act, whose content contradicts the law. If C paid A the purchase price for the object of sale, then A is obligated to return the purchase price ex unjust enrichment. Equally, if C was handed the object of purchase, he is obliged to return it to either A or B, depending on which one has the ownership right to the property. If, reversely, A sold the property to B, based for some reason on an absolutely invalid contract, and then subsequently sold the same property to buyer C but this time based upon a valid contract, then C would become the owner of the property even though this transfer was preceded by another, albeit invalid act of law. As regards the role played by the delivery of the object (traditio) in the case of double or multiple selling, the answer to the question of ownership depends on the contractual obligation in each individual case. If the contracting parties agreed on a consensual principle, the matter of physically transferring the property is irrelevant in relation to the contract’s validity or nullity. If, on the other hand, a traditio principle was agreed (or there was nothing to the contrary agreed upon)99 and A did not transfer the object or its equivalent (keys, documents, other means), then the second phase of the transfer (modus) did not occur (even though the first phase was concluded lawfully) and the transfer of the ownership right to B did not occur. Based on the contract, B has a legal right to the object of sale and can sue A “for fulfilment or performance”. However, if A subsequently sold the same object to buyer C, then C would acquire ownership lawfully. In this case, B has the right only to claim reimbursement for damage, according to the general statute Sec. 420 (1) of CC; or, if a withdrawal from the contract occurred, B has a right to claim unjustified enrichment, which mainly seeks return of the paid purchase price.

7.2.

A – B is governed by civil law and A – C by commercial law

At the level of private law, there is one more quite broadly outlined exception to the principle “nemo plus iuris (…)” or “nemo dat quod non habet”. This is the case of a business relationship under a contract for sale that was established in accordance with Sec. 409 et seq. of the Commercial Code. 99

The rule is that an ownership right to a movable is acquired on the basis of a contract by disposing of it, if the contracting parties have not agreed otherwise, or if a regulation does not says otherwise. [§ 133 (1) of CC].

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In the case of a business relationship between A – C, the buyer being C, he shall acquire the ownership right even if A is not the owner of the goods unless, at the time when C was supposed to acquire the ownership right, C knew that A was not the owner and, thus, not entitled to sell them.100 Otherwise, if C was in good faith he thus becomes the owner, despite the fact that at the time of the sale A was not the owner of the goods because he had already sold them to another purchaser.101 It is possible to assume that good faith on the part of C not only applies to the belief that A is the owner of the property, but alternatively to the belief that A is entitled to dispose the property (e.g. as a commission agent).102 Thus, if we assume that C was in good faith when he acquired the property, we must ask what will happen to the ownership right of B to the same property. The buyer B, even before C, acquired ownership of the same property lawfully; however, this was not based on rules of good faith, but on a valid contract (titulus) and a possible subsequent handing-over and receiving of the property (modus). Commercial Code Sec. 446 provides a protection for the buyer in good faith and concedes that this buyer acquires ownership of the goods also in the case of the seller not being the owner, which is apparent case of A in relation to C as a new owner. However, the responsibility of seller A towards the original owner B (since A sold his property or goods without his knowledge) remains untouched. It will mainly be the case of liability for damage caused by an illegal sale of goods. Property rights (mainly the most comprehensive right in rem – the ownership right of B) attached to the sold goods and is untouched by this transfer. It will be a case of a legal defect in the goods (namely the title) and buyer C in relation to A has a claim ex liability for such defect (see Sec. 422 et seq. of ComC) at his disposal. According to the author’s opinion, the decisive factor in the relationship between B and C is who physically possesses the goods sold twice by seller A. If the goods are in the factual power of B, then C, even though he has the same right of ownership to the goods as B, cannot successfully claim the surrender of the goods based upon an ownership action of rei vindicatio, because B is not retaining the goods unlawfully; to the contrary, he is realising his partial ownership right ius possidendi.

100 101 102

Sec. 446 of the Commercial Code. For more details see Part II of this report. Lazar, J. et al.: Občianske právo hmotné. Volume 1. Bratislava, 2006, p. 426.

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Rules for “selling in a chain”

This chapter deals with situations wherein A sells to B and B to C; then, A delivers the goods directly to C.

8.1.

General rules for valid contracts

The Slovak laws do not regulate “selling in a chain” or its consequences by any special rules. Therefore, according to the author’s opinion, it is necessary to apply rules for the valid transfer of ownership based on “alienation contracts” (e.g. sale, donation) in general. Again, it is necessary to point out the duplication of legal regulations in the civil and commercial law, indicating a detailed analysis in the case of double / multiple selling. In principle, the consequences are the same, especially when discussing the nullity of contracts of transfer and the consequent mutual claims among them, in the case of selling in a chain, i.e. between A – B – C, etc. From the situation of A selling goods to B and B subsequently to C, and A being asked to deliver the goods directly to C, it is possible to conclude that the contract for sale concluded between A – B follows a consensual principle, since the transfer of an ownership right to B does not require a delivery of the transferred property. Buyer B shall simultaneously become an owner at the moment of conclusion of such an agreement. Another conclusion appears to be unacceptable because, if the situation were different, B would not be able to lawfully transfer an ownership right to C, because he would not be entitled to dispose of the property due to a non-existent ownership right to it. In other words, B has to become the owner, without the property being physically delivered to him even for a moment, to be able to transfer the ownership right onto C, obliging the nemo plus iuris regulation. An agreement inter partes A – B about the delivery of property to C does not have any influence on the occurrence of B’s ownership right to the delivered property. The ownership right to property may transfer from B to C, e.g. either at the moment of concluding the agreement with B or by default at the moment of delivering the transferred property to acquirer C. The fact that A delivered the property to C in the name of B is irrelevant to the moment of transfer of the ownership right to C. Of course, with such a construction, our starting point is the basic assumption that the contracts for sale concluded between A –B and B – C are valid. If there was a reservation of title agreed between B and C, by transferring property through A to the acquirer C, the ownership right does not transfer to him, but remains with seller B until the complete payment of the purchase price. Until then, C is only a

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detentor of property based on an agreement for its use for a certain purpose, meaning until the time when he becomes the owner of the property.

8.2.

Rules when contracts fail

8.2.1. Civil law relation between A – B – C If we assume that the contracts for sale between A – B – C are absolutely null, they are lawfully cancelled ex tunc, which de facto means a return to the state of “the agreements not being concluded”. A direct consequence of an absolute invalidity of agreements between A – B and B – C is that the owner of the property is A, to the full extent, since he was the first “link in the chain”. Another consequence is the occurrence of obligations ex unjust enrichment, i.e. A – B and C are obliged to mutually redeliver “performances” that were delivered among themselves based the invalid agreements.

8.2.2. Commercial law relation A – B – C The consequences mentioned above (see 8.2.1.) in cases of absolute nullity of agreements between A – B and B – C in civil relationships are analogous to the case of commercial-law relationships, with the exception that the Commercial Code allows good faith acquisitions (see sec. 446 of ComC). In certain circumstances, as in the invalidity of all agreements, the owner of the goods will be C; however this would be a case of good faith acquisition. The delivery of the goods themselves is not relevant to the ownership right of C.

9.

Transfer by means of indirect representation

This deals with situations wherein party X transfers a movable in his or her own name, but on account of or in the interest of another person A. The Slovak Civil Code, in the third chapter called “Representation”, regulates only direct representation. Indirect representation, found in some contracts, is regulated outside of this chapter (e.g. contract for arranging the sale of a property pursuant to Sec. 737 et seq. of CC, agency contract pursuant to Sec. 774 et seq. of CC). In the case of such an indirect representation (“substitution”), the representative exercises his own expression of will in the interest of a third person and in his own name; as a consequence, the rights and obligations are acquired by an indirect representative who, according to an agreement with the represented person, is obliged to transfer acquired rights to the

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represented person.103 The clearest example of an indirect representation is representation based on a “commission agreement”. Sec. 577 ComC. A commission agreement requires the commission agent to set up a certain business matter in his own name for the principal, and the principal undertakes to pay him remuneration.

“Setting up a certain business” is e.g. buying or selling goods or some other asset. Accordingly, X is a commission agent and person A is the principal (committer) on whose account X acquires a movable asset in his own name. Therefore, in principle, legal acts of X do not create any rights or obligations of A concerning his relationship to third parties. These persons are in relation to X and not to A. As concerns the transfer of ownership right to movable property, the Commercial Code distinguishes between two situations: a “commission to sell” (if commission agent X was delivered property for sale) and a “commission to buy” (if X acquired a movable asset for A.) Sec. 583 (1) ComC. The principal has an ownership right to movable property delivered to the commission agent for sale, unless acquired by a third person. An ownership right to movable property acquired for the principal is acquired by the principal on delivery to the commission agent.

In the case of “commission to sell”, the ownership right does not pass to intermediary X. On the contrary, it remains with transferor A until the moment of transferee B acquiring it (i.e. the moment of delivery of a transferred movable). Thus, the transfer of ownership right is carried out by intermediary X from person A to person B as the acquirer. In the case of “commission to buy”, the moment of transfer of ownership right to the acquirer is conditioned by the delivery of the property to intermediary X. It is therefore obvious that the intermediary commission agent X does not even for a moment become the owner of a property and the ownership right passes directly from transferor A to transferee B.

10.

Consequences of insolvency of transferor or transferee

10.1.

General issues

As of the moment of commencement of bankruptcy (insolvency) proceedings, the right of the bankruptcy debtor to dispose of his property (ius dis103

Lazar, J. et al.: Občianske právo hmotné. Volume 1. Bratislava, 2006, p. 160.

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ponendi), as well as the permission to act in all other matters concerning his property, passes to a bankruptcy administrator. Thus, the bankruptcy debtor loses his rights concerning his property to the extent the property has been transferred to the bankruptcy estate. If, despite the insolvency proceedings, the debtor disposes of property in the estate, it will not be considered a null, voidable or ineffective disposal of the property, but rather it will be considered a non-existent disposal, which does not hold any consequences and, thus, the transfer of the ownership right to this property will not have passed to the acquirer. The ius disponendi that have passed from the bankruptcy debtor to the bankruptcy administrator are carried out in the name of and on account of the bankruptcy debtor by the bankruptcy administrator. It is an analogous form of a statutorily mandatory relationship. Only those rights of disposal that concern property in the bankruptcy estate, transfer to the bankruptcy administrator from the bankruptcy debtor. Therefore, the rights of disposal regarding property not subject to the bankruptcy estate, despite belonging to the bankruptcy debtor,104 continue to remain with the bankruptcy debtor throughout the insolvency proceedings. By termination of the insolvency proceedings, the bankruptcy debtor regains his rights of disposal, which he lost in the insolvency proceedings, in full measure. The legal acts taken during the proceedings, however, remain valid and effective.105 The fact that the rights of disposal regarding the property in the bankruptcy estate have transferred from bankruptcy debtor to the bankruptcy administrator does not mean that the bankruptcy debtor could not carry out any legal acts. The bankruptcy debtor keeps his rights of disposal regarding property that is not subject to the bankruptcy estate (e.g. property excluded from execution). Also, the ability of the bankruptcy debtor to incur liabilities (concluding contracts, carrying out unilateral legal acts, etc.) is not restricted during the bankruptcy proceedings in the sense that the legal acts binding the bankruptcy debtor are null or voidable. These legal acts remain still valid, but if they have been contested by bankruptcy creditors, they became ineffective, but only towards the bankruptcy creditors, and only when they reduce the property affected by bankruptcy proceedings, i.e. the bankruptcy estate. Towards these bankruptcy creditors, the contested legal act has no legal effect. This means that, upon their claim, all pecuniary assets transferred on the basis of these legal acts must be returned to the bankruptcy estate by the transferee.106 However, if ownership title to property, rights or other property values belonging to 104 105 106

Sec. 72 of Bankruptcy Act. Sec. 102 (4) of Bankruptcy Act. Sec. 63 para (2) of Bancruptcy Act.

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bankruptcy estate have passed from bankruptcy debtor to transferee upon successfully contested legal act, as this ownership title remains to transferee. This ineffectiveness then mean that on the basis of a contested legal act, bankruptcy creditors are entitled to claim from the transferee a pecuniary compensation for transferred ownership title to property, rights or other property values, or their returning to the bankruptcy estate if possible.107 During the insolvency proceedings, the bankruptcy debtor is not entitled to receive the fulfilment of his claims and his debtors are obliged to settle these claims with the bankruptcy administrator, not the bankruptcy debtor. If, despite this, a debtor of the bankruptcy debtor settled a claim not with the bankruptcy administrator, but with the bankruptcy debtor, or other person entitled to receive the fulfilment in the bankruptcy debtor’s name during insolvency proceedings, the obligation would not cease, but would continue until the fulfilment is (also) settled with the bankruptcy administrator. For the bankruptcy debtor to effectively refuse a gift or inheritance, which he is to acquire during the proceedings, he needs the consent of the administrator. Without consent, the denial of a gift or inheritance by the debtor is ineffective towards his creditors. Regarding contracts of mutual performance that the bankruptcy debtor concluded before commencement of the insolvency proceedings: (1) If bankruptcy debtor had already fulfilled such a contract, but the other contracting party had not by the time of the order of insolvency proceedings, or had only partly fulfilled (this applies to contracts in which the debtor acts as the creditor), the administrator has a choice to withdraw from the contract or request its fulfilment:108 he can only withdraw from the contract to the extent of unfulfilled obligations of the other party. It is therefore forbidden for the administrator, as a result of the proceedings, to be able to withdraw from mutually fulfilled obligations. (2) If the other party had fulfilled such a contract, but the debtor had not or had only partly fulfilled it by the time of the insolvency proceedings (this applies to contracts where the bankruptcy debtor acts as the debtor), the other party is entitled to withdraw from the contract to the extent of unfulfilled obligations of the debtor.109 (3) If, at time of the proceedings neither the debtor nor the other party had fulfilled their obligations (these are contracts where both contracting parties have mutual obligations; i.e. the bankruptcy debtor acts as both the debtor in one obligation and as the creditor in another obligation, 107 108 109

Sec. 63 para (1) of Bankcruptcy Act. Sec. 45 para (1) of Bankruptcy Act. Sec. 45 para (2) of Bankruptcy Act.

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both arising from the same contract), both parties (the debtor and the other contracting party) are offered the option to withdraw from the contract to the extent of yet unfulfilled mutual obligations.110 The claims that arose for the other contracting party from the contract, if concluded with the bankruptcy debtor before the insolvency proceedings regarding the fulfilment offered to the administrator after the proceedings, are a claim against the estate (e.g. if a water company supplies the bankruptcy debtor with water, the payments for water supplied before the insolvency proceedings are exercised in the insolvency proceeding by means of a creditor’s application for registration of these claims, but not the payments for water supplied during the proceeding, because then they are considered to be claims against estate).

10.1.1. Actio Pauliana A legal act regarding the property of the bankruptcy debtor belonging to the bankruptcy estate may be contested in the insolvency proceedings and thus achieve its ineffectiveness against bankruptcy creditors. The right to contest a legal act may be exercised by the bankruptcy administrator and in certain cases by the bankruptcy creditor of the registered claim. The right to contest a legal act can be effectively exercised only when all the conditions required by the Bankruptcy Act are fulfilled. A regulation of “legal acts contest” is also contained in the Civil Code.111 However, for the purpose of the insolvency proceedings, it is a legal regulation whose application is dismissed due to a specific legal regulation contained in the Bankruptcy Act (lex specialis derogat legi generali). The basic difference between a legal regulation of a legal act contest in the Civil Code and the legal regulation of legal act contest in the Bankruptcy Act lies in the fact that, according to the Civil Code, the ineffectiveness of the legal act can only be called for in the case of the creditor who took a “contest action” against the debtor. As opposed to that, the case of calling for ineffectiveness of the legal acts according to the Bankruptcy Act results in ineffectiveness towards all creditors. This is a basic but not the only difference, of course. The ineffectiveness of a legal act does not mean its nullity. The option to contest a legal act is not only a right, but also a duty of the administrator. The administrator is obliged to thoroughly and professionally examine all legal actions of the debtor and contest those legal actions where such a contest can be reasonably expected.112 110 111

Sec. 45 para (3) of Bankcruptcy Act. Sec. 42a et seq of CC.

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Only acts of law reducing the settlement of a registered claim of one of the creditors of the debtor can be contested. It does not necessarily mean the reduction of all the creditors’ registered claims; a reduction of only one of the creditors’ registered claims would be enough.113 In the case of an ineffective legal act, by which some of the debtor’s assets (property, rights, or other property values) were transferred, the return of the transferred assets back into the estate, or a pecuniary reimbursement, can be claimed. The choice is left to the bankruptcy administrator, or to the bankruptcy creditor who had successfully contested a legal act.114 The person, against whom the right to contest a legal act was brought, is only required to return or reimburse to the extent of that which had been transferred to him by the ineffective legal act. Therefore, if a legal successor had not acquired all the assets transferred from the bankruptcy debtor’s property by a predecessor (e.g. perhaps because it was later divided and later only a part of it was transferred), the administrator may only claim the return of the part of the transferred assets from the legal successor that was transferred to him by the ineffective legal act; or only the respective pecuniary reimbursement can be claimed. If the bankruptcy estate was enriched as a result of a transfer based upon an ineffective legal act, the one at whose expense the bankruptcy estate was enriched has the right of return of the enrichment from the estate. A claim ex enrichment can be exercised as a claim against the aggrieved bankruptcy estate (the estate enriched as a result of the ineffective legal act). It is mainly the case of a successful actio Pauliana115 carried out by a bankruptcy creditor or administrator against a transferee who acquired property from the bankruptcy estate and who increases its value in the meantime. Then he has to return it to the bankruptcy estate together with the increase in value. The amount of the increase can be claimed by him against the bankruptcy estate ex enrichment. 112

10.2.

Insolvency of transferor

By applying the above-mentioned (see 10.1 above) general rules on the transfer of ownership of movable property in case of bankruptcy proceedings, the question of this transfer taking place before or after the proceedings is decisive. 112 113 114 115

Sec. 86 para (2) of Bankruptcy Act. Sec. 57 para (4) of Bankruptcy Act. Sec. 63 para (1) of Bankruptcy Act. Sec. 57 of Bankruptcy Act; so-called Actio Pauliana is not a legal term applicable in Slovak jurisdiction however “The Contest Action” is analogous thereto.

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In the first case, when the transfer is before the proceedings, the transferee becomes the owner of the transferred property and the property does not belong to a bankruptcy estate. Plus, if the property is in possession of the transferee, general creditors or the administrator do not have any claim to it that they could bring during the insolvency proceedings. If, after the transfer of ownership right to the transferee, the transferred property is still in the possession of the bankruptcy debtor, and for this reason it is included in the bankruptcy estate, the transferee has the right to claim the exclusion of this property from the estate on the basis that it is not property of the bankruptcy debtor. By what reason the transferred property is still in possession of the transferor (e.g. a retention right in the case of not paying the purchase price or an agreement according to the sale contract) is irrelevant. A different situation would be the case if the transferee acquired the ownership of the property by an agreement or by its hand-over, and not by fulfilment of his obligations properly (by paying the transferor the purchase price) and on time. Then the administrator has the choice of withdrawing from the contract or requesting the payment of the purchase price. If the administrator withdrew from the contract, the transferee would subsequently be obliged to return the property to the administrator of the bankruptcy estate, since the ownership of the property would revert to the bankruptcy debtor. If it comes to an (attempted) quasi transfer of the ownership right to property belonging to a bankruptcy estate, the same rule applies, i.e. with commencement of insolvency proceedings, the debtor lost his right of disposal to property of the bankruptcy estate and, therefore, it is a case of non negotium – a null disposal of property with no legal consequences. A transfer of an ownership right to the transferee shall never occur and had never occurred. However, this rule does not exclude the acquiring of an ownership right to such a property on the basis of the rule of good faith acquisition pursuant to respective provisions of the Commercial Code.116

10.3.

Insolvency of transferee

The ability of the bankruptcy debtor to conclude contracts or carry out unilateral legal acts and thereby acquire property into his possession is, in principle, not limited during insolvency proceedings. The exceptions to this are “binding” legal acts, which decrease the property in insolvency proceedings (the bankruptcy estate). Although these legal acts are valid, they are ineffective towards general creditors of this bankruptcy estate. 116

See Part 8 of this Report.

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However, during the bankruptcy proceedings, the bankruptcy debtor is not eligible to accept fulfilments and, thus, in case of handing-over property otherwise subject to transfer to the bankruptcy debtor, the transferor is instead obliged to hand-over the property to the bankruptcy estate administrator, not the bankruptcy debtor. If, despite this, the transferor handedover the property (fulfilled his obligation) to the bankruptcy debtor, or to another person eligible to accept the fulfilment for the bankruptcy debtor, his obligation would not cease, but rather would continue until he had fulfilled his obligation to the administrator. In this case, the administrator is entitled to request the fulfilment from the transferor by an action for performance, despite the fact that the transferor has already fulfilled his obligations directly to the bankruptcy debtor.

11.

Passing of ownership and passing of risk § 133 (1) CC. When movable property is transferred on the basis of contract, ownership (title) to such property is acquired by the handing-over of the property, unless statutory provisions regulate otherwise or unless the parties have agreed differently. § 590 CC. Unless it is agreed otherwise, the risk of accidental destruction or accidental impairment of the object of sale and its profits (fruits) shall pass to the buyer at the time when he acquires ownership title to such object. If the buyer acquires ownership title to the object of the sale before it is delivered to him, the seller shall have the duties of a bailee (custodian) until the object is delivered to the buyer.

The time of transferring ownership of property does not need be identical with the time of passing the property to an acquirer. According to the above-quoted statutes, along with the transfer of ownership, there is the transfer of the risk of accidental destruction or impairment of the property, including its profits, unless the parties agree otherwise. If, in this case, the buyer acquires the ownership title to the object of the sale before it is delivered to him, the seller retains the duties of a bailee until its delivery.117 That means that the risk of a property’s accidental destruction or impairment, including to the benefits, passes to the acquirer together with the ownership title, under the condition that if the seller, now acting as the bailee, violates some of the specific duties of a bailee (Sec. 751 of CC), he will also be responsible for the damage, unless the damage would have oc-

117

Sec. 747 et seq of CC.

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curred regardless of the violation.118 The danger of accidental destruction or impairment of an object can be passed to the acquirer before he receives the ownership title, including in the case of reservation of title,119 but only if it was not agreed otherwise. The Commercial Code (Sec. 455 to 461) deals in greater detail with the risk of damage to goods. Sec. 455 ComC. The risk of damage to goods (Sec. 368 para 2) is transferred to the buyer at the time of the buyer’s hand-over of the goods, or if not done so in time, then the risk passes to the buyer when the seller allows him / her to handle the goods or when the buyer breaks a contract by failing to receive the goods.

The receiving of goods is the final act of the handing-over, whilst at the same time being the moment that the Commercial Code describes as the passing of the ownership right from a seller to a buyer. It can therefore be said that the risk of damage to goods passes to the buyer – according to these “general rules” – together with the ownership right to the goods. In principle, the risk of damage to goods affects the owner of the goods (res perit domino). If the buyer is in breach of his contractual duty to receive the goods on time, the risk of damage passes onto him at the moment the seller tenders the goods. This regulation (Sec. 455 of ComC) shall also apply in the case of the seller sending his goods to a destination, which was agreed as the place of fulfilling his obligation; only at this place the hand-over, the receiving of the goods and the passing of risk, will take place. However, passing of risk will take place even if the buyer fails to take possession, contrary to his contractual obligation. An exception is the case of the goods being sold by means of “disposition documents” (e.g. dock warrant, bill of lading, consignment note). The risk of damage passes to the buyer at the handing-over of these documents of title, which represent the goods, and the receiving of them by the buyer.120 However, the sale of the goods in this way can occur at the time of them being shipped (i.e. the goods are sold by means of hand-over and receiving of the “documents of title” in the moment when the affected goods are in transit, e.g. loaded in a truck or a ship). 118

119 120

E.g. the bailor allows other person to use the deposited property (object) or he uses it himself etc. Sec. 601 of CC. Ovečková, O.: Obchodný zákonník – Komentár (Commentary), Volume 2. Bratislava 2005, p. 277. It needs to be stressed here that this form of transfer of ownership title being “transfer of disposition documents” is not explicitly governed by ComC neither CC. It is only implied in Sec. 443 para (2) of ComC. See also p. 51 of this Report.

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This particular case calls for a special statute (Sec. 460 of ComC), according to which, if goods are being shipped at the time of concluding an agreement, the risk of damage to the goods passes to the buyer upon surrendering the goods to the first carrier (or forwarding agent). The foundation to this rule lies in the fact that the state of goods is not easily ascertained and, therefore, the moment of passing of the risk occurs before the moment of performing the agreement, which is the hand-over of goods to the first carrier.121 The passing of risk, when receiving goods from another person acting as a seller, is regulated by a special statutory provision, being Sec. 456 of Com C. Sec. 456 ComC. If a buyer is to receive goods from a person other than a seller, the risk of damage to the goods passes to the buyer at the time set for delivery of the goods, provided the buyer was allowed to handle the goods and that he / she knew about this option. If the buyer is allowed to handle the goods, or he / she only finds out about this option later, the risk then passes at the moment of this option or when he / she learns about it.

The case in which this special rule applies is e.g. a situation where a buyer is obliged to check the goods outside of the seller’s factory, such as at a third-party location where the goods are being stored or sequestered, or at the sender’s or carrier’s post-terminal, and the case in which the point of arrival or the port of discharge is the seller’s point of delivery according to the contract of sale.122 In the case of a distant delivery, the risk is actually borne by the buyer, but he does not have to bear it for the whole lap of the shipping. (a) If, according to a contract, the seller is obliged to hand the goods over to a carrier at a designated point to be shipped the buyer, the risk passes to the buyer with the hand-over to a carrier at a designated point. For example, when, according to the contract, a domestic seller is obliged to hand the goods over at Bratislava port to the Danubian shipping company (the carrier) to be shipped to a Romanian buyer, then according to the Commercial Code, the risk passes to the buyer with the hand-over of the goods to the carrier at Bratislava port. On the land section of shipment from the seller’s factory to Bratislava port, the risk of damage to goods is borne by the domestic seller. (b) If the contract of sale includes a seller’s obligation to ship the goods to the buyer, but the seller is not obliged to hand the goods over to a carrier at a designated place, the risk of damage to the goods passes to 121

122

Ovečková, O.: Obchodný zákonník – Komentár (Commentary),Volume 2. Bratislava 2005, p. 280. Ibid, p. 278. Also see Sec. 335 of ComC.

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the buyer at the time the goods are handed over to the first carrier to ship to the point of destination. In this case, the buyer bears the risk throughout the whole lap of the shipping. In both cases, the passing of the risk of damage to goods is not influenced by the fact that the seller handles the papers pertinent to the shipped goods; these papers (e.g. shipping note, bill of lading, way bill) are handed-over to a buyer at the point of destination, usually through the freighter or a bank by paying the purchase price (bill of exchange, letter of credit).123 It is important to specially mention the rule of passing of risk in the case of a generic movable. In this case, the risk of damage to goods cannot pass to a buyer who has not received the goods, whilst the goods are not yet clearly marked and differentiated for the purpose of the contract, which may happen later mainly by marking the goods or the shipping documents or specifying them in the report sent to the buyer.124 This condition cannot be excluded by agreement of the parties to the contract.

123 124

Ibid, p. 279. See Sec. 458, 459 of ComC. Also see Sec. 263 of ComC containing a list of mandatory provisions of ComC by which the contract parties cannot stipulate otherwise.

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Part III: Original acquisition 12.

Acquisition by accession, commixture, specification

12.1.

Accession of movables

Accession relates to ownership acquired to everything additionally connected to the principal property. However, the acquisition of an ownership right by so-called accession is not directly addressed by the Civil Code. Despite the absence of legal regulation of accession, judicial practice had to deal with it, e.g. in the case of reconstruction of a house (immovable) and acquisition of title to the movables in connection with property reconstruction. Unless the owner of the original construction and the builder agreed otherwise, we should assume that the parts added to the original construction come into the ownership of the owner of the original principal construction (main property). Naturally, the builder has a legal claim against the owner of the original construction for the unjustified enrichment, which he / she achieved by construction evaluation.125

12.2.

Commixture and confusion

Similar to processing (see 12.3 below), commixture is when property of different owners is mixed (comixtio) or otherwise combined (confusio). However, the Civil Code does not address these cases. Considering their content and objective, the closest regulated case is ownership acquisition by processing. Therefore, for cases of commixture and confusion, regulations for processing should be applied, following analogiae legis.126

12.3.

Specification (processing)

The Civil Code includes legal regulations on acquiring the ownership right by processing (specification) of foreign material. This regulation does not relate to cases when, by means of a special contract (contract for work), the 125 126

R 29 / 1989. Analogia legis is according to § 853 of Civil Code acceptable.

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contracting parties have agreed on the article being partly or fully produced out of foreign material. The ownership of a property in this case is acquired in a different way (see 4 above.). In case of a special modification (specification), we concern only processing of one or several foreign materials into a new article and the contract does not specify how it is to be regarded. The processor will become the owner depending on whether he / she is in good faith or not. If someone in good faith processes someone else’s material so that it becomes a new article, the person whose share in the article is greater shall become its owner.127 Otherwise, if a person processes someone else’s material, although he is aware that he is not the owner, the owner may demand that such person return the material and restore it to its previous condition. Where it is not feasible and reasonable to restore the material to its previous condition, the court shall decide, taking into account all the circumstances, who shall be the owner of the article and what compensation shall be given to the owner or the person who processed it, if they fail to come to an agreement.128 When the processor is in good faith, which is the first case, the rule is clear. The owner will be the person whose share in the newly produced article is higher. In the case where their shares are equal and the parties fail to come to an agreement, the court shall rule on this matter if a petition is filed by either of them. The new owner however must compensate the other owner in the amount by which the latter’s property is reduced. Should the processor lack good faith about the fact that the processed material belongs to him, the owner of the newly produced article is the original owner (the owner of the processed material) who may apply for delivering of the article and restoring it to its previous state, regardless of his share in the newly created article. However, the processor’s bad faith does not necessarily mean that he can not become the owner of the newly produced article. There are two conditions, both of which must be fulfilled in this case. The first is that a restoration of the processed article to its previous state is not possible or, even though it may be possible, would be economically and functionally purposeless. The second condition is that bad faith processor was stated as the owner by a court decision, taking into consideration all circumstances of the case.

13.

Rules of good faith acquisition

A is the owner of a movable. The movable is “transferred” by non-owner B to the potential “good faith acquirer” C. 127 128

Sec. 135b (1) of Civil Code. Sec. 135b (2) of Civil Code.

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Field of application

The Slovak civil law does not recognize “good faith acquisition” in the case of a transfer of an ownership right based on a contract. According to the Civil Code, it is not in any case possible to acquire ownership from a transferor who lacks the right of disposition regarding the transferred property, as a consequence of the rule “nemo plus iuris […]”. The absence of the right of disposition of the property on the side of transferor therefore always results in an absolute nullity of such a contract and disposition. There are only two exceptions in the sphere of civil law regulation, as stated in 5.1. of this report and they are: (1) A case of good faith acquisition of the property from an illegitimate heir to whom the inheritance was confirmed,129 and this situation is not so much a case of transfer based on a contract, but a passing of title on the basis of a “legal fact / incident” – the death of testator and the results of the inheritance proceedings; and (2) A case of a pledgee exercising his right of pledge in such a way that he / she, as a non-owner, sells the pledge in a manner specified in the pledge agreement, whereas by operation of law he acts on behalf of the pledger – owner.130 “Good faith acquisition” of ownership title in the case of contract transfer is not regulated by the Civil Code at all. Despite the absence of a legal regulation, such an option is available (only) to subjects of commercial relations under “commercial contract law”. In the case of “contract for sale” in business relations (Sec. 409 et seq. of the CommC), the buyer can acquire the ownership right even if the seller is not the owner of the goods being sold under the contract for sale.131 Sec. 446 ComC. The buyer shall acquire the ownership right even if the seller is not the owner of the goods being sold under the contract, unless at the time when the buyer was supposed to acquire the ownership right, the buyer knew that the seller was not the owner and thus was not authorised to dispose of the goods and sell them.

129 130 131

Sec. 486 of the Civil Code. Sec. 151m(1) and (6) of the Civil Code. This is not the case of the civil code regulation of ‘purchase contract’ concluded between subjects of Civil Law relations as natural persons or legal entities when not carrying out any business activity. In the case of Civil Law purchase contract the absence of the right of disposition on the side of seller always, without any exceptions, results in an absolute voidance of such a contract.

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This rule does not specify the cases that should be covered by it. It is clear from the mere legal wording, “the seller is not the owner”, that it is not relevant for what reason B does not have an ownership right to the transferred property; that is, whether B was never the owner or whether B’s right to dispose had been avoided, terminated with a retroactive or ex nunc effect, as well as in the case of double sale. Neither is it relevant whether C as the acquirer has a status of consumer, according to Sec. 54 (3) of Civil Code, since the statutes regarding consumer contracts do not contain any specific regulation of good faith acquisition. For this reason, it is necessary to distinguish whether the contract of “consumer” purchase132 was concluded in accordance with the Civil Code (Sec. 588 et seq.) or the contracting parties have agreed upon governance by the Commercial Code, pursuant to Sec. 262 para (1) of ComC,133 and hence the purchase contract is regulated by the Commercial Code (Sec. 409 et seq.). The principal distinction between these two regulations in this context lies, as discussed (see 7.), in the potentiality of “good faith acquisition”. The rule of good faith acquisition shall apply to “goods being sold under contract” (see cited statute Sec. 446 above), which implies that the Commercial Code does not require any other characteristic of goods (e.g. if it the case of dealing with stolen goods, lost goods, negotiable instruments – or even money). The decisive criterion is the seller’s lack of right of disposal for whatever reason. That means that this rule of good faith acquisition shall always apply in those commercial relations based upon contract for sale (if the requisite of good faith acquisition is fulfilled) when the seller is neither the owner nor a person entitled to dispose of the goods (e.g. seller is a thief or a finder).134 132

133 134

A consumer contract is any contract (and therefore also the contract for sale, concluded either in accordance with the CC or the ComC) without regard for the legal form, which is concluded between the supplier and the consumer. A supplier is a person, who acts under the object of his / her own commercial or other business activity when concluding and fulfilling a consumer contract. A consumer is a person, who does not act under the object of his / her commercial or other business activity when concluding and fulfilling a consumer contract. See footnote 132. Seller can be the non-owner and therefore not allowed to dispose with an object (e.g. a car) also from the reason that he purchased the car from e.g. thief and that within civil-law relations (e.g. purchase contract concluded between two natural persons and not related to any business activity). As in civil law regulation there is not any possibility of good faith acquisition and therefore the buyer in this case (even though he had been in good faith) has never acquired an ownership title to the car. However, if he sold the car later on to e.g. a company limited and they agreed the governance of the purchase contract by Commercial Code [Sec. 262 of ComC:

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423

Quality of good faith

Regarding the good faith of C, the rule cited in 13.1 is conceived with respect to C’s knowledge about B not being the owner of the property (i.e. C knew that B was not the owner), which directly affects the burden of proof, which lies with the original owner A. In order for A to be successful in rei vindicatio proceedings, he / she has to demonstrate that C, at the time of his / her acquisition of ownership right to a property, knew that B was not its owner and, therefore, he / she is not entitled to dispose of the property. There is no rule of presumption of an acquirer’s good faith in cases of doubt under the Commercial Code; however, we are of opinion that it is reasonable to apply per analogiam the statutory presumption of a possessor’s good faith and that it is supposed in cases of doubt that the possession is lawful [Sec. 130 (1)]. The argumentation is based on the following provisions of the Commercial Code and the Civil Code. Sec. 1 (2) ComC. […] If any matters cannot be resolved using these statutes, then they are resolved using the regulations of the civil law. Sec. 853 (1) CC. Civil-law relationships, unless they are specifically regulated either by this Code or another Act, shall be subject to the provisions of this Code that regulate relationships closest to them in their object and purpose.

If we literally interpreted the rule stated in Sec. 446 of Com C, whilst using negation, the object of good faith should only be C’s ignorance of the fact that B is not the owner of the transferred property. However, according to several authors good faith not only applies to the knowledge that B is not the owner of the property, but at the same time to whether he / she could have assumed in good faith that B is entitled to dispose of the property or the goods.135 “Knowledge” in both cases is required at a time when the buyer is set to acquire the ownership right. When this is exactly depends on the agreement of the contracting parties. When they fail to agree in this respect, it is the moment of delivery of the property (traditio) to the acquirer C. As for the standard of good faith, only actual knowledge about B not being the owner of a property excludes good faith.

135

The parties may agree that relationships not explicitly listed in Sec. 261 shall be governed by ComC], this company acquired an ownership title if it had been in good faith at the time of entering into the contract for sale. Lazar, J. et al.: Občianske právo hmotné. Volume 1. Bratislava, 2006, p. 426.

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The practice of the courts regarding “good faith” has until recently concentrated on the cases of good faith of a possessor – prescriptor, in the case of acquisitive prescription. However, these interpretative rules created by courts could be applied again per analogiam to good faith acquisition pursuant to Sec. 446 of ComC.136

14.

Acquisitive prescription of movables

The institution of prescription in the Slovak civil law renewed with Act No. 131 / 1982 Coll. in effect 1 April 1982, which amended the Civil Code. In the period of coming of the Civil Code into effect, 1 April 1964 to 31 March 1982, the Slovak civil law did not “recognize” the institute of prescription, although it was part of Slovak law until 1950 (during the existence of Hungarian customary laws), as well as after the re-enactment of the first Czechoslovak Civil Code in 1950 (it was valid until 31.03.1964, when it was substituted by the current Civil Code).

136

Whether an owner is in good faith has to be judged objectively, whilst bearing in mind all circumstances; it is not enough to focus the evidence only on finding the subjective ideas of the owner (S IV, p. 428). Good faith is the acquirer’s belief that he / she is not acting unlawfully, when e.g. taking possession of a property. Therefore, it is a state of mind, the subject’s inner conviction, which itself cannot be an object of evidence. Such objects may be the realities of the outer world, through which the inner conviction is acted out; thus they are circumstances that allow the acquirer to become convinced of good faith that the property belongs to him / her. (Sec. 132 (1) of CC / (B5 / 86). The holder’s belief that the property belongs to him / her and that he / she handled it as his / her own, must be supported by concrete circumstances, from which we can conclude, that the holder’s conviction was permitted during the whole holding period (R 8 / 91). To fulfil good faith, it is not enough, that the claimed “right” to an immovable was exercised over a long term, without the owner of the immovable preventing it to be exercised, or that it was exercised “for as long as one can remember” by other citizens of a town (village) etc. The acquirer’s faith, that he / she has the right to a real burden, and that he / she is not acting unlawfully must be supported by a reason justifying this conviction and therefore the circumstances testifying the honesty of the acquirement (B 26 / 88). The owner’s claim that a property belongs to him / her and that he / she treated it as his / her own, must be confirmed by specific circumstances, which would allow us to judge, that the owner’s conviction was justified all this time. The circumstances, which may prove the conclusion of the existence of good faith, are as a rule circumstances regarding the legal cause of acquiring a right and which testify the honesty of its acquiring. (C 573).

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14. Acquisitive prescription of movables

14.1.

425

Functions and requirements of acquisitive prescription

Acquisitive prescription (usucapio) is a special way of original acquisition of ownership right, as well as other rights (e.g. easement), whose main function in Slovak law is to offer the possessor a possibility to transform a long-term state of rightful possession into an ownership right and, in that way, remove the state of objective legal insecurity regarding ownership relations. The legal regulation of acquisitive prescription in the Slovak Civil Code follows the legal regulation of the institution of possession. It is very short and contained in the text of only one provision, being Sec. 134 of the Civil Code: § 134 CC. Usucapio (acquisitive prescription) (1) The lawful possessor shall become the owner of the property if he keeps the property in his possession for an uninterrupted period of three years in case of a movable property and ten years in the case of immovable property. (2) However, it is impossible to acquire ownership title to property that cannot be the object of ownership, or to property that can only be owned by the state or legal entities determined by the law. (3) The period during which the legal predecessor held the property in his lawful possession shall also be counted as part of the period of time pursuant to subsection (1). (4) The commencement and duration of the period of time laid down in subsection (1) shall be subject to the provisions on the running of the statute of limitations (limitation period), as appropriate.

To acquire an ownership right by acquisitive prescription can only be achieved by fulfilling the following rules: (a) The possession has to concern an eligible object of acquisitive prescription. Legally this can only be a whole property (not a part of it), or an ideal co-ownership share, as this is a share of the whole property that can be an object of ownership; exception being property as objects of state ownership only, or legally appointed legal entities.137 Therefore, an object of acquisitive prescription can either be tangible or intangible property. (b) The possession has to be rightful.138 Ownership right can only and solely be prescribed by a rightful possessor, i.e. one who justly treats the property as his own and, taking into account all circumstances, possesses the property in good faith.139 A detention only is not sufficient for prescription. Whether the owner is in good faith, considering all circumstances, needs to be evaluated objectively; if it comes to 137 138 139

Sec. 134 para (2) of Civil code. See 2.2. of this Report. Sec. 130 of Civil Code.

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a disagreement, it is not enough to concentrate proof only to detect the possessor’s subjective ideas.140 The claim of the possessor that the property belongs to him, and that he treated it as his own, must be supported by concrete circumstances from which it can be judged that the possessor’s conviction was reasonable throughout the prescription period.141 The eligibility of prescription needs to be studied not only subjectively but also objectively with regard to all circumstances. The decisive factor is whether the possessor, being careful in a normal measure that can be reasonably required with regard to circumstances, should have or could have doubts about whether the property belongs to him.142 For example, the condition of good faith in prescription cannot be considered fulfilled, even though the possessor (usucapient) claims that the property belongs to him, if the truth reveals that the legal predecessor had used the property based on a rental contract, i.e. he was the detentor from the start and in the duration of the prescription period the acquirer had found out. On the contrary, the condition of good faith is fulfilled in the case of, e.g. an earlier buyer using the property at issue continuously during the whole prescription period unaware that the contract of purchase was absolutely invalid and that, based on a later contract of purchase, this property was acquired by somebody else. The earlier buyer’s prescription period was passing properly and after the expiry he gained an ownership right to the property in issue.143 It is clear from this situation, even though the statutory provision does not directly contain it, that the condition of good faith must be present when acquiring possession and all the time until the end of prescription period. In any case, it is not entirely possible to specify whether the prescription is rightful or not. These doubts about permission are solved by the statutory presumption of good faith and that it is supposed in doubtful cases that the possession is lawful.144 The justifiability of this legal presumption stems from the knowledge that proof of the owner’s state of mind is only created indirectly, by a judgment of other proofs, and if in doubt it is better from the procedural point of view to start with the good faith of the owner and to pass the burden of proof on to the person who objects to the legitimacy of the prescription.145 (c) The acquisitive prescription has to be continual throughout the legally designated period. 140 141 142 143 144

See Z IV (p. 428 subsec. 3). See R 8 / 1991. See V 5 / 1989. Compare R 27 / 1999. Sec. 130 para (1) of Civil Code.

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427

The period of acquisitive prescription145

14.2.1. General The prescription period for movable objects is three years and ten years for immovables.146 The passing of this period includes the period of possession in good faith of the legal predecessor of the owner.147 Regarding the passing of prescription periods, it needs to be stressed that the Civil Code does not contain any particular provision that would define suspension, stoppage or non-commencement of the prescription period; therefore, the general statutes applicable for prescription of claims, pursuant to Sec. 134 para (4) of CC, are used. Neither specific rules nor examples are provided by applicable law or the respective judicature. § 134 (4) CC. The commencement and duration of the period of time laid down in subsection (1) shall be subject to the provisions on the running of the statute of limitations (limitation period), as appropriate.

14.2.2. Specific rules on suspension and renewal of the period Specific rules are, mainly by analogous application, Sec. 112 and Sec. 114 of CC on suspension of the limitation period during a judicial or similar proceeding on the creditor’s right and on “non-commencement” and suspension of limitation period’s running between statutory representatives and minors and between husband and wife.

(a)

Suspension in case of judicial or similar proceedings § 112 CC. Where within the limitation period, the creditor asserts his right in court or before another competent authority and duly continues in the initiated proceedings, the limitation period shall not run from the day of asserting such right for the duration of the proceeding […]

An example of this would be if an original owner brought a claim contesting possession of property by somebody and would continue fully in the

145 146 147

Plank, K. et al.: Občianske právo s vysvetlivkami. Iura Edition, Bratislava, p. 182. Sec. 134 (1) of CC. Sec. 134 (3) of CC.

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started process, the prescription period would then not run from the moment when the claim was filed.148 A contrario when the owner, for instance, either dismissed his asserted rei vindicatio claim or has no success, meaning that the lawful possessor – prescriptor prevails. In this situation, it is as though the proceedings have never started. It is presumed that the limitations have never been suspended and were running continuously.149 Thus if a possessor successfully resists a taking of property vis-á-vis an owner, meaning a court rules in a quasi vindicatio proceedings in favour of possessor – prescriptor, it would not be considered a suspension in the continuity.150

(b)

Running of period between statutory representatives and minors and between husband and wife § 114 CC. As to rights between statutory representatives, on the one hand, and minors and other represented persons, on the other hand, the limitation period shall neither start to run nor run, except where interest and recurrent payments are involved. The same shall apply to rights between husband and wife.

In accordance with the above-cited provision, interpreted per analogiam for the case of running acquisitive prescription period between parents or other statutory representatives and minors, this period shall neither start to run nor run. The same suspension of the running of the prescription period or even of its start shall apply for husband and wife (however only for married spouses). The reasoning for the suspension of the commencement of the running prescription period lies in the existence of the relationship between concerned people and, therefore, in the protection of their interests.151 148 149

150 151

Lazar et al.: Občianske právo hmotné, Volume 1. Bratislava, 2006, p. 431. ‘The presumption of continuous possession’ is not explicitly regulated in CC however it comes up per analogiam and through wider interpretation of Sec. 112 of CC. This presumption shall be applied e.g. in case that plaintiff claiming to be an owner does not duly carry on in initiated proceedings against possessor (plaintiff withdraws his claim). This interpretation has been adjudicated for the case of suspension of running of the statute-barred period, which is also applied as appropriate on the cases of running of prescription period pursuant to Sec. 134 para (4) of CC (See R 3 / 2001). Fiala, J., Holub, M., Bičovský, J.: Občanské právo. Linde, Prague 2006, p. 191. Compare Plank, K.: Občanské právo s vysvetlivkami. Iura Edition, Bratislava 1996, 1997, p. 144.

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(c)

429

Termination in the running of prescription period

A termination in the running of the legally prescribed prescription period will occur in case of the possessor discovering that property does not belong to him. From that moment, there will be a loss of good faith and the possessor will become an unlawful possessor, i.e. a possessor not eligible to prescribe the property into his ownership right. If, after stopping the running of prescription period, it comes to a renewal of good faith, the running of the original prescription period will not be renewed, but a new prescription period will run.152

14.3.

Consequences of acquisitive prescription

Judging by the function of an acquisitive prescription, its direct consequence is the acquisition of the ownership of the property, which is the object of prescription, on the date of the prescription period expiry, which, as stated, is three years for movables. There is no need for any additional constitutive or, in the case of movables, declaratory decision of the court or any other body confirming the acquisition of ownership right by the prescriptor (usucapient). That means that, e.g. in the case of a rei vindicatio law suit, the prescriptor would defend himself by prescription objection, which would mean, that the previous owner had lost his ownership right on the day of the expiry of prescription period. In the court, the original owner would act as the plaintiff without active material capacity to sue, which would result in failure in the law suit. A similar situation would occur in the dispute of determining the ownership right, i.e. determining, whether there is an ownership right to a property or not. Similarly, the original owner would be unsuccessful in a possible law suit for the non-contractual liability for damage or in the dispute over an unjustified enrichment. In neither case are the material (substantive) law requirements fulfilled. “Illegality” is absent in the case of non-contractual liability on the acquirer’s side, since the prescription was lawful and fully based on the law. Even though the property of the original owner has reduced as a consequence of prescription, this reduction is not considered to be damage, according to the general statute Sec. 420 of Civil Code, which requires an incurred damage by a “breach of legal obligation”. If the original owner claims unjustified enrichment, he would have to prove not only the existence of one of the legal presumptions (performance of an act for which there was no legal reason, performance of an act based 152

Fiala, J., Holub, M., Bičovský, J.: Civil Code. Linde, Prague 2006, p. 191.

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on a void a legal act, or performance in respect of legal grounds that did not occur),153 but also the non-good faith of the acquirer’s prescription, i.e. that the acquirer knew or should have known about these reasons and therefore could not be a good-faith possessor. For example, he knew that although he has the object of his prescription in his factual power based on a contract of purchase, the seller has legally withdrawn. In such a case, the reason for fulfilling the contract has ceased and an obligation has arisen for the acquirer, as a buyer, to return the object of the prescription as an unjustified enrichment to the original owner. A different situation would be the case if the owner – buyer would never learn about the withdrawal by the seller, e.g. because he lived abroad and throughout the whole prescription period had been using the property as his own. It is clear, that the key notion here is bona fides of the acquirer, which needs to meet further qualities mentioned in 14.1.

14.4.

Prescription of ownership

§ 100 (2) CC. All property rights may become statute-barred with the exception of the right of ownership. The provision of section 105 is not thereby affected. (…) § 105 CC. As regards the entitled (rightful) heir’s right to being tendered his inheritance (Sec. 485), the limitation period starts to run from the day when a decision (ruling) on such inheritance proceedings comes into effect.

On the basis of an applicable legal regulation in the Slovak Republic, all property rights may be statute-barred, with the exceptions according to Sec. 100 para (2), (3) of Civil Code. One such exception is the “non-limitation” of ownership, and this is with the exception of a so-called “entitled” heir claiming ownership vis-á-vis a sham heir.154 The right of the real owner – entitled heir to the tendering of inheritance is statute-barred by the expiry of the limitation period from the day the inheritance proceedings ended and became effective. The right to terminate a common or a joint ownership is not statutebarred, as these rights are regarded as the exercise of the ownership right. However it is possible to lose the ownership right by somebody else acquiring it ipso iure by prescription.155

153 154 155

Sec. 451 para (2) of Civil Code. Sec. 105 in relation with Sec. 485 of CC. Plank, K. et al.: Občianske právo s vysvetlivkami. Iura Edition, Bratislava, p. 114.

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15. Other forms of original acquisition

15.

431

Other forms of original acquisition

Slovak laws do not recognize “res nullius” yet and, accordingly, nor a separate acquisition system vested in appropriating such a property by one who takes possession of it first (occupation).

15.1.

Finding of lost, abandoned or hidden property

Neither does the Civil Code deal with the matter of loss or abandonment by the owner; on the contrary – it only regulates the finding of lost, hidden or abandoned property. In most cases, one cannot detect, by property alone, whether it has been lost or abandoned, unless the finder himself was a witness to its loss or abandonment. In certain circumstances, the situation could be different with hidden property. For example, it could be hidden by the owner on purpose in a place that was hard to find or hardly accessible to anyone but the owner, thus being protected against any form of danger. § 135 CC. (1) A person who finds lost property must return it to the owner. Where its owner is unknown, the finder must hand the property over to the competent state authority. If the owner does not claim the lost property within one year of its delivery to the state authority, ownership title to the property shall devolve upon the state. (2) The finder has the right to reimbursement of his necessary expenses and to a finder’s reward in the amount of ten percent of the value of the property found. Other statutory provisions may vary the entitlement of the person who found or reported the (lost) property. (3) The provisions of subsections (1) and (2) shall apply as appropriate to hidden property, if the owner is unknown, and to property that is abandoned.

15.1.1. Lost property The loss of a property, apart from abandonment of property, that lies in volitional behaviour of the subject is a spontaneous occurrence causing the loss. It does not eo ipso, however, change the ownership subject. More conditions need to be fulfilled. If someone finds property, he is obliged to return it to the owner. If the owner is not known, the finder must hand the property over to a competent

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state authority (public authority body).156 If the owner does not claim the lost property within one year of its delivery to the state authority, ownership title to the property shall devolve upon the state. The owner can prevent the loss of his property by reclaiming it (perhaps at the town or village authority in the area where the loss probably occurred). If the finder does not return the found property to a state authority or to a public administration body, he will become liable ex unjust enrichment, according to Sec. 451 of CC, which contains the legal obligation of the finder to return this unjust enrichment. The finder is also motivated to return or hand the property in by a reimbursement of the necessary expenses and by a finder’s reward of ten percent of the value of the property found.

15.1.2. Hidden property A similar legal system as with lost property is applicable to property hidden (however, only on the assumption, that the owner is not known). The notional sign of the finding of hidden property is that the owner is not known. If, regarding hidden property, the owner was known, it must be returned to him. However, the finder is not obliged to look for the owner of the property. It is not relevant when the property was hidden, whether it was only recently or many centuries ago. In practise, it means property e.g. buried in the ground, built into a wall, etc. With some hidden property, it is not possible to determine whether it was hidden, abandoned or deposited and then forgotten (e.g. property found among others in an abandoned building, etc.) A finding in the sense of this section of the Civil Code would be an archaeological finding. In this case, however, specific statutes burden the finder with specific obligations, which we will not pursue due to the nature of this report. In summary, the finder of hidden property, as well as the finder of a lost property, is obliged to return the found property to a state authority; and if the owner does not claim it within a year, the ownership right passes to the state.

156

The Civil Code does not deal with the question of whether, due to e.g. the character of the found property (escaped animals, food, etc.), the state authority is obliged to take such a property from the finder; or what measures should the finder take, if this authority rejects to take the found property. It does not oblige the finder to keep the property or to take care of it.

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15.2.

433

Acquisition of natural fruits (separation)

§ 135a CC. Any accretion to a property, even if it is severed from the principal object, shall belong to the owner of the property.

The owner of a property is also the owner of its accretions, which is stated directly in the right of ownership (Sec. 123). One of the owner’s partial rights is the right of frui (ius fruendi). The civil law regulation of acquiring the ownership right by accretion stems from the rule that the owner is entitled to the accretions and benefits of fruitful property that come with it; not only when they are not separated but also when the separation from the fruitful main object occurs. They then become an independent object of civil law relations and, thus, of the ownership right too. They have the form either as fructus naturales (animal young, crop on the land, fruit of the trees), or as fructus civiles (interest from financial deposits). However this rule shall apply only to fructus naturales.157 On the basis of a contract, the owner can agree with another person that the accretions of the property will be acquired by the lessee, or the borrower, etc., to whom the object was handed-over to use.

157

Knapp, V. et al.: Občanské právo hmotné, Volume I. Praha, 1995, 1997, p. 234.

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Part IV: Additional questions 16.

Rules on reservation of title

The institution of reservation of title has a securing function for the payment of the purchase price for a movable. The Civil Code enables the contracting parties to come to an agreement that the buyer shall become the owner only after payment of the purchasing price. § 601 CC. Reservation of title If ownership title to property that has been sold is to pass to the buyer only after payment of the price, this reservation must be agreed in writing. Unless the contract implies otherwise, the risk of accidental destruction or accidental impairment of the property shall pass to the buyer when he takes delivery of the property.

Although the contract of sale is informal, the agreement of reservation of title must be agreed in writing or it would be void.158 The delivery of goods by the buyer at the conclusion of a contract of sale with reservation of title, on account of the section of the Civil Code cited above, does not establish the ownership right for the buyer to delivered goods, rather the goods are confined to his care for an agreed purpose until the time of full agreed price payment. If, e.g. a buyer had sold such goods, despite not having paid the full agreed price, he / she causes the seller damage, which according to applicable judicature however does not equal the rest of the unpaid purchase price (if a part of it had been paid before), but rather equals the full extent of the price of the delivered property.159 This can also be considered a criminal offence – fraud, If the buyer fails to fulfil the purchase price obligation, the seller shall own all the tools of protection belonging to the owner of property. The statute concerning the protection of ownership does not object to the seller making a claim for his right to the payment of the purchase price. Therefore, the nature of this obligation suggests that the right of choice between the protection offered to the owner and the right to the payment of the purchase price is with the seller. However, he cannot claim both rights suc158 159

Sec. 40 para (1) of CC. R 2 / 2002.

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cessfully at the same time. A consequence of the reservation of ownership may also be the case that, until the transfer of ownership to the buyer, the property cannot be subject to the execution of ruling, or to being listed in a bankruptcy estate, which is often a peculiarly important consequence. In the case of insolvency proceedings against the buyer, the seller, as an owner of a property, can file a legal action excluding the property from the estate register.

17.

Abandonment

Slovak civil law theory distinguishes between an absolute cessation and a relative cessation of an ownership right. A cessation of an ownership right to certain property, when the ownership right of the same property is acquired by another, is the “relative” ceasing of ownership right. An ownership right can also cease when nobody acquires the ownership of the same property, because the property will cease on its own (it could be consumed or destructed). This is an “absolute” ceasing of ownership right.160 The loss of an ownership right does not have to mean it ceases in every case. For example, the loss of an ownership right by one person, and its simultaneous acquisition by another, does not mean the ownership right ceases, but rather it merely means a change of the person of the owner. That is why cases of relative ceasing of the ownership right are identical to the loss of an ownership right and the notion of ceasing of an ownership right is similar in content to the absolute expiry of an ownership right. Following the terminology used above and using the basis of legal regulation de lege lata in the Civil Code, we can distinguish among cases of loss of ownership right according to the legal facts that initiate it: 1. Loss of ownership right caused by an act of law: a. contractual transfer of ownership right b. abandonment of property 2. Loss of ownership caused by an ‘involuntary’ fact: a. death of the owner b. loss of a property c. expiry of prescription period 3. Loss of ownership right based on a statutory ruling of state authority The only legal “involuntary” fact causing the ceasing of ownership right in the sense of an absolute cessation of ownership right is that which occurs according to an applicable law. 160

Lazar, J.: Základy občianskeho práva hmotného. 1. Zväzok. Iura edition, Bratislava 2000, p. 187.

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“Derelictio”, or the abandonment of property, is a surrender of possession of property (with the effect of losing ownership).161 In Roman law, abandoned property became property of nobody (res nullius) and was therefore eligible to become an object of occupation or possession.162 It was a loss of possession with the effect of loss of ownership right, which was signified by a lack of both elements of the possession; therefore, it was a loss of possession corpore et animo. The animus possidendi loss was evident mainly in the lack of care for a property, in the sense of not taking further interest in it. Taking the current Slovak civil regulation of abandonment of property into account, it is important to see that the consequence of abandonment in Roman law was not only a loss, but the ceasing of an ownership right to it. As a consequence of this act of law, the property became property of nobody – res nullius, thus a potential object of occupation. The ceasing of ownership right to the property as a consequence of a unilateral, legally relevant expression of will – i.e. abandonment – occurred directly after the expression of will, because, and not only because, Roman law recognized the institution of res nullius. However, it is not so in Slovak law and the legal consequence of abandonment is not the ceasing of ownership, but only its loss and its direct acquisition by another subject, which in the sense of Sec. 135 of Civil Code, is the state. In comparison with a loss of property, it is not a spontaneous occurrence, but a unilateral act of law, which has to carry all the characteristics prescribed by law to be considered a valid act of law.163 The Civil Code punishes the failure to observe the legally prescribed form by an absolute invalidity.164 At the same time, the Civil Code does not prescribe any concrete form for abandonment. It is therefore possible to abandon movable property in any way that does not raise a doubt as to the participant’s expression of intent.165 It is not possible to presume animus derelinquendi; however, it has to be de facto expressed. If the reality is not reported by either the owner or his legal successors, this cannot be identified as an expression of will not to be its owner according to applicable laws. The institution of the presumption of abandoning property is not recognized by Slovak laws. The treatment of abandoned property follows adequately Sec. 135 (1) of the Civil Code – last sentence, according to which the abandoned property will revert back to state ownership. Judicature specifies further that abandoned property revert to state ownership at the 161 162 163 164 165

Rebro, K.: Latinské právnické výrazy a výroky. Iura Edition, Bratislava 1995, p. 94. Rebro, K. – Blaho, P.: Rímske právo. Manz, Bratislava 1997, p. 224. R 1 / 1979. Sec. 40 para (1) of Civil Code. Sec. 35 para (1) of Civil Code.

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moment of actual abandonment by its owner, by the abandonment itself. In such cases, the state has the status of owner and can solicit a return by an action against anyone who retains the abandoned property. According to some authors, it is not abandonment when an owner has a certain obligation towards the property, e.g. to tow away the wreck of his vehicle.166

18.

Transfer rules for co-ownership

The Slovak Civil Code distinguishes between two forms of co-ownership regarding a common object (two or more subjects are the bearers of ownership of the same object): common ownership and joint ownership. Joint ownership is only applicable to spouses, whilst amongst others it is common ownership, which can also be formed between spouses. The main difference between the two forms lies in the formulation of the share, which is determined only in a tenancy-in-common co-ownership. In principle, a tenant in common has proprietary rights to the entire object, which are limited by the proprietary rights of the other co-owner of the same object.

18.1.

Common ownership

The matter of common ownership lies in the same property belonging to two or more co-owners and the participation of each of them in the coownership relationship is determined by their individual shares. A share indicates the scale of each co-owner’s rights and duties stemming from the co-ownership of the common object. The individual shares are expressed by a certain fraction, which is the so-called ideal share. A co-ownership share is not to be understood as a real piece of a common property. Therefore, a co-owner of a movable or immovable object cannot transfer a real piece of a common object, accounting for his co-ownership share, to another. The level of co-ownership shares can be determined mainly by an act of law (either bilateral, i.e. an agreement between the co-owners, or unilateral, i.e. testament), a legal enactment, or by a decision of the court. If the level of co-ownership shares is not determined this way, then statutory presumption becomes the rule, whereby all the shares of all the partners are equal. This applies not only to a transfer, but to the passage of ownership to the created object.167 Due to the fact that one or more subjects are the bearers of co-ownership rights and duties in a co-ownership relationship, the Civil Code establishes their rights and duties in a mutual relationship 166 167

Svoboda, J. et al.: Občiansky zákonník. Eurounion, Bratislava 1998, p. 173. Lazar, J. et al.: Občianske právo. Bratislava, 2006, p. 443.

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in the management of the common property, as well as the rights and duties of co-owners in relation to third parties, which are relevant to the whole property and the ability to manage one’s own co-ownership share. The Civil Code designates legal relationship of all co-owners to third parties in relation to the whole property in such a way that the legal acts regarding common property establish solidary rights (sometimes termed “joint and several”) and duties of the co-owners. In the relationship among the co-owners themselves, the ratio of their share size is decisive. The majority principle comes into effect, according to which, in the management of a common property, the decisive factor is the majority’s stance counted according to the size of the shares (not according to the number of coowners). In the case of equal votes, or if the majority of votes was not reached and all the co-owners have not come to an agreement, the court will decide on the proposal of any of the co-owners. The court may make a decision even upon the request of the outvoted co-owners. They have a right to contest a decision of the majority if it effects an important change to the common property.168 The co-owner’s contractual freedom is limited when dealing with a coowner’s share, and a free transfer of a share is allowed only to relatives.169 If one of the co-owners wants to assign their co-ownership share to other persons, first of all they have to offer their share to other co-owners. Therefore, there is a statutory right of pre-emption among the co-owners. If the coowners can not come to an agreement regarding the execution of the right of pre-emption, they have the right to buy a share with the same portion or by ratio according to the size of their shares. However, this regulation only applies to the contractual transfer (including donation), it does not apply to the passing of the share by inheritance.170 The right of pre-emption is subject to a three year statute-barred period. There can be an annulment and settlement of the co-owners on the basis of an agreement among co-owners, which would deal with the whole co-ownership object. If there was no written form of the co-ownership annulment or the mutual settlement (it is only compulsory in the case of an immovable), each of the co-owners is obliged to issue a confirmation about the settlement to the others. If there is be no agreement among the co-owners, the court will decide about the annulment of co-ownership and the settlement for the co-owners, taking into account the size of the shares and the expedient use of the object. If a real division of the object according to the level of co-ownership shares and the possibility of expedient use of the object is not possible, the court will order an adequate substitute to one 168 169 170

Lazar, J. et al.: Občianske právo. Bratislava, 2006, p. 444. See legal definition of notion “blizke osoby” (relatives) in Sec. 116 of CC. Lazar, J. et al.: Občianske právo. Bratislava, 2006, p. 445.

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or more of the co-owners. It will take its expedient use into account. It can also order its sale and the sale proceeds to be divided among the co-owners according to their shares.

18.2.

Joint ownership

The Civil Code regulates the ownership rights of spouses to property acquired during their marriage in the form of joint ownership. Joint ownership is characterised by the spouses not having a quantitatively determined share in the ownership right, rather both spouses are “exclusive” owners of the whole property in 1 / 1 ratio. Therefore, non-sharing is one of the notional signs of this co-ownership. Only spouses and not other people can be the subjects of joint ownership. Co-ownership relationships between persons can only be in the form of a common ownership. When defining the scale of joint ownership, the legislator proposed that property acquired by both spouses needs to belong to the possessing group. In accordance with this notion, the law allows joint ownership only to property acquired by one of the spouses, or both of them, during the marriage. Property acquired as an inheritance or gift does not belong to joint ownership; neither does property for the personal use; the execution of a job of one of the spouses; nor property of one of the spouses who possessed it before marriage, had it confiscated by the state and then returned to him / her during the marriage as the original owner or as a legal successor of the original owner, according to the rules of restitution. Therefore, to determine the scope of joint ownership of spouses, the law looks at three criteria: (a) time when the property was acquired, (b) way in which the property was acquired, (c) purpose for which the property is used.171 (a) Time. When the acquisition of the possession took place is decisive for the creation of joint ownership. The legal amendment is set out so that property acquired by each of the spouses before the marriage does not belong in joint ownership, even if it might be used by both spouses. It remains exclusively / solely owned by the spouse who acquired it. If spouses have acquired property together, based on an agreement before the marriage, then it may fall under the joint ownership. If a doubt arises about the ownership of property acquired in exchange for other property, or from the profit of property in exclusive ownership of one of the spouses, then this issue is clarified by the law practise in the sense that this property continues to be in the sole ownership of one spouse, because it is a case of a transformation of

171

Lazar, J. et al.: Občianske právo. Bratislava, 2006, p. 457.

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the same possession. If, however, any amount of means from the joint ownership is used to acquire the new property, then the whole new property will fall under the joint ownership. It is different when it comes to the yields, uses and additions of the property in sole ownership of one spouse. The legal practise has taken an unambiguous stance on this: they will belong to the joint ownership of the spouses, no matter whether the property itself is in the sole ownership of one of the spouses or in a joint ownership. (b) Way. Considering the way in which property was acquired, the Civil Code excludes certain property from joint ownership, even if one of the spouses acquired it in the course of the marriage. Inherited property does not belong in joint ownership. If only one of the spouses is subject to inheritance, he / she will acquire the inheritance into sole ownership. If both of the spouses were subject to inheritance, the acquired inheritance will fall under their co-ownership. Furthermore, property such as gifts does not fall under joint ownership and it does not matter whether the gift was presented to one of the spouses or to both. In the case of only one of the spouses being the recipient of a gift, it will belong to his / hers sole ownership. If both of the spouses received the gift together, it will fall under their co-ownership. In some cases doubts may arise as whether one or both of the spouses were presented with the gift (mainly in the case of wedding gifts). In such cases, the intention of the giver will be decisive in the sense of whether he was intending the gift for only one of the spouse or both. In most cases, the intention will be judged by circumstances under which the gift was presented. The relationship between the donor and donee needs to be looked upon at the same time. It cannot be right to judge the matter of the donee being only one of the spouses, or both together, based on the nature of the property and, therefore, the intention of the donor is conclusive. The question of presenting a gift between the spouses needs to be addressed here. The legal practise rejects the matter of one of the spouses donating property from the joint ownership to the other spouse. It has come to a conclusion that the nature of joint ownership itself prevents one of the spouses, who is not a sole owner of property, to donate common property to the other spouse, who is also a joint owner of the property. (c) Purpose. In the case of the purpose of property, that property intended for personal use or property used in the execution of a job of one of the spouses, does not belong in joint ownership of the spouses.172

172

Lazar, J. et al.: Občianske právo. Bratislava, 2006, p. 458.

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The legal relationship of joint owners to third parties is regulated according to the disposal acts of spouses. “Usual” matters regarding common property may be dealt with by either of the spouses. In other cases, the consent of both the spouses is needed – otherwise the legal act would be invalid. The law does not specify which matters are considered “usual”. This needs to be assessed in every case individually. In concordance with the legal practise, it is important to take the nature of property into account, mainly its value as well as the purpose it is going to be used for. Therefore the legal practise considers usual things to be shopping for groceries, casual clothing, objects for the personal use of the spouses’ children – as long as the cost is covered by joint means, fuel costs and general repairs in a household, etc. To the contrary, a donation of an immovable to a third party without a legal reason, or a donation of a significant sum, is not considered a usual matter. It is important to stress that the law requires the consent of the other spouse and not a common act of both of the spouses, when dealing with other, not usual things. The form of this consent is not specifically prescribed; therefore, a conclusive consent is enough. The legal act regarding a matter, other than usual, carried out by one of the spouses without the consent of the other, is null. The Civil Code sanctions this absence of consent with relative nullity. That means that the offended spouse (the one without whose consent the legal act was carried out) has the possibility to call for the nullity of the legal act, subject to the general statute-barred period. If he / she does not enforce this authority within the given period, the legal act will result in a valid legal act. The Civil Code deals specifically with the question of an individual debt of one of the spouses that arose in the course of the marriage. With regard to the spouses’ joint ownership, the law allows the claim of the creditor at the execution of a judgement to be settled from the property of the joint ownership. However, the execution of a judgement cannot be carried out by a deduction from wages of the spouse who is not a debtor.

19.

Further rules applying to unspecified goods

19.1.

General aspects

As it has been discussed (see 3.1), Slovak Civil Code does not provide any legal definition of “property” (vec). Nor does it provide any detailed classification of property as civil law objects in its general part – apart from making a distinction between movables and immovables (Sec. 119 of CC) and making a distinction among the terms “principal” property, “constituent” part, and “accessories” (Sec. 120, 121 of CC). However, there is one particular provision, Sec. 151d of CC, which regulates subjects of pledge.

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In this provision the Civil Code explicitly distinguishes among the notions of “object”, “set of objects”, “enterprise (company)” and “bulk of objects”, and provides that “[…] A subject of pledge can be either a set of property, an enterprise or its parts, or other bulk property.” In practise, it is necessary for the application of rules of right of pledge to make a distinction between the notions “set of objects” and “bulk of objects”. Regarding a “set of objects”, one could say that this is when similar objects belong together based upon their nature and common use (e.g. silver set, set of books in library, collection of postage stamps etc.) On the other hand, there is a “bulk of objects” when the objects are different in kind or nature as determined by their use. Pursuant to some authors, the decisive criterion for classification of a group of objects as either “set” or “bulk” could be their location.173 A “bulk of objects” is e.g. the various goods in stores or warehouses, or a collection of various historical objects stored in a museum.

19.2.

Transfer of an “enterprise” as an unspecified “set” of various assets

An example of the transfer of an ownership right to unspecified goods could be the transfer of a group of objects in the case of a “contract of sale of an enterprise” pursuant to Sec. 476 et seq. of ComC. As it comes from the above-cited Sec. 151d of CC, one could say (when literally interpreted) that the enterprise is classified as a bulk of different objects belonging to the enterprise. It must be stressed here that the notion of “the enterprise” also includes other rights and other assets along with movable or immovable assets, which serve for the operation of the enterprise in sale. It is of relevance to the purpose of this report that the object of the contract of sale of an enterprise is not individual property, individual rights or other assets, but the enterprise as a whole, highlighted in Sec. 5 of ComC as a set174 of tangible, as well as personal and intangible, components of business. It is necessary to include property (e.g. buildings, machines and equipment, raw materials, goods, vehicles, etc.) in the tangible components. An object of the contract is not an enterprise as a “rem” in its legal meaning (an enterprise cannot be listed in any category stated in statute Sec. 118 of CC), but an enterprise as a complex set of objects, rights and other assets used for its operation. 173 174

Plank, K. et al.: Občianske právo s vysvetlivkami. Bratislava, 1996, 1997, p. 268a. Pursuant to our opinion notion of “set” used in this case is not appropriate as it seems to be more combination of sets and bulk of various assets, rights and other components of business. However we use only term “set” in further text regarding rules for transfer of enterprise to make it clearer.

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Identification of an “enterprise” to be transferred

As concerns the demand for identification of individual objects belonging to the set of objects transferred on the basis of the contract of sale of an enterprise, the professional practise is that property used in running a company does not have to be individualized in the contract of sale of company, and that it is enough to mark the company being sold distinctly enough. According to this opinion, the concrete specification of property, as well as rights and other assets used in the operation of the enterprise being transferred to the buyer, is not a condition for the validity of the contract for sale of the enterprise.175 It is clear that part of the components of the enterprise is made up at the time of concluding the agreement and cannot be individually marked (raw material, goods, etc.) It is advised, however, in the interest of peace of the contracting parties, that the object of sale is described distinctly enough in the contract of sale of the enterprise. The specification of property, rights and other assets used in the operation of the enterprise is usually an attachment to the contract. According to the circumstances of the case, the bases of accounting may be used or possibly also cited.176 On the day the contract of sale of the enterprise comes into effect, by law all the rights and obligations concerning the enterprise pass to the buyer, regardless of the legal reason for their creation, contents, payment, etc. This is mainly the case of a transfer of the ownership right for property belonging to the seller and used in the enterprises’ operation. In these relationships, the buyer enters the role previously occupied by the seller, without any further written agreements.

20.

Consequences of restitution of the movable to the owner

As already discussed in part 2.2 of this report, if the property is surrendered and reverts to the owner or, in general, to a person who proved to have a stronger title to the property (in the case of good-faith possession it may only be the ownership right and title to the property), the criterion of “lawfulness of possessor” (i.e. whether the possessor is lawful or unlawful) shall become decisive.

175

176

Ovečková, O. et al.: Obchodný zákonník – Komentár (Comentary). Bratislava, 2005, p. 292. Ibid, p. 293.

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20.1.

Entitlement to benefits (“fruits”) of the movable

Fruits resulting from movable property become an independent object of civil law relations and thus of the ownership right, only when separated from the fruitful property. Until this moment they follow “the legal fate” of the principal object as a part of it. According to civil law theory, the benefits of the property may have the form either as fructus naturales (animal young, crop on the land, fruit of the trees), or as fructus civiles (interest from financial deposits).177 The lawful possessor (good faith possessor) keeps using the property as his own, truly believing that the property really belongs to him. Therefore, when it comes to the relationship between him as good-faith possessor and owner to whom the property is to be reverted, the good-faith possessor shall deliver the property itself, but retain the fruits, yields and benefits derived there from because he is entitled to such fruits, yields and benefits to the same extent as the owner.178 The unlawful possessor (bad faith possessor) however does not have any rights enjoyed by the owner. He is liable towards the owner for any detriment caused by the unlawful possession and thus takes responsibility for any devaluation or deterioration of it.179 He is furthermore obliged to surrender the property to the owner together with its fruits, yields and benefits, as he is not entitled thereto. The Civil Code however does not explicitly regulate in any way whether the unlawful possessor has a duty to collect the fruits of the property or not. In this case, it is the author’s opinion that a wider interpretation of the rule shall be applied as the unlawful possessor takes all responsibility for “any detriment” and not only for actual damage of the fruitful property and, furthermore, he has a duty to revert the fruits, yields and benefits. If he has not collected the fruits of the unlawfully possessed property and, therefore, is not able to surrender them along with the property, he is obliged to compensate the owner for them.

20.2.

Loss and deterioration of the movable

In the case of a bad faith possessor, the responsibility for loss or deterioration of a movable is regulated as a liability for damage caused by unlawful possession, under the Civil Code. The unlawful (bad faith) possessor is obliged to compensate the owner for any damage caused by unlawful pos-

177 178 179

Knapp, V. et al.: Občanské právo hmotné, Volume I. Praha, 1995, 1997, p. 234. Sec. 130 para (2) of CC. Sec. 131 para (1) of CC.

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session.180 For the liability for the damage to occur, no culpability is needed, even though it does exist in most cases.181 Therefore, it is a form of objective or strict liability, or liability “without regard for culpability”. As far as the scope and manner of compensation for such damage is concerned, the general statutes of Civil Code about liability for damage are employed.182 As opposed to a bad faith possessor, the liability for a loss or eventual deterioration of the movable is not regulated in the case of a good faith possessor, which is accounted for mainly by the statutory principle provided by the Civil Code: namely, that unless otherwise provided by law, the lawful possessor has the same rights as the owner.183 The good-faith possessor thus has all the main rights and powers constituting the ownership right (uti, frui, possidere, disponere). In causal relation to the execution of his quasi ownership title allowing loss, deterioration or even destruction of property, the original owner cannot successfully claim damages from a good faith possessor. The stated case cannot be subsumed under statutes regarding the general liability for damage, according to Sec. 420 CC et seq., since one of the basic elements of the liability construction according to this statute is “unlawful action”. Two mutually linked moments are decisive for judging a good faith possessor: one is the moment when loss or deterioration has occurred; and the other is the moment when the good faith possessor discovered that he / she is not the owner of the property and, therefore, has become a bad faith possessor not protected by law.

20.3.

Reimbursement for improvements and expenses

The lawful possessor has a claim for reimbursement of costs against the owner, which the possessor reasonably incurred during the time of lawful possession, and to an extent corresponding to the appreciation of the property on the day of its return. However, the customary costs (expenses) of maintenance and operation shall not be refunded.184 “Customary costs of maintenance” are costs that keep the property in a state fit for proper usage and functioning according to its purpose, provided these costs do not depreciate the property in any way.185 On the other hand, the costs that the good faith possessor incurred for appreciation of the possessed property are 180 181 182 183 184 185

Sec. 131 para (2) of CC. Plank, K.: Občianske právo s vysvetlivkami. Bratislava, 1996, 1997, p. 184. Sec. 422 et seq of CC. Sec. 130 para (2) of the Civil Code. Sec. 130 para (3) of the CC. Plank, K.: Občianske právo s vysvetlivkami. Bratislava, 1996, 1997, p. 182.

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estimated by comparing the state of the property at the moment of acquiring lawful possession and the state of the property on the day of its delivery to the owner. It is important to emphasize that the comparison of the states does not mean the delivery of all the costs, but only costs to the extent of the possessed and delivered property.186 It is also appropriate to indicate the similarity of the claim of the possessor, vis-á-vis the owner, with the claim of ex unjust enrichment. These are, however, individual and mutually unrelated claims regulated by individual statutes of the Civil Code. Apart from its assumptions, the difference in statutory regulation of these claims manifests itself e.g. in the length of the statutory-barred period, when the possessor’s entitlement to costs reimbursement is statutorily barred by the “general” three-year statutory-barred period, whilst the statutory-barred period for costs ex unjust enrichment is regulated, by sec. 107 of CC, as a “particular” period. The unlawful possessor may, pursuant to Sec. 131 para (1) of CC, deduct the costs (expenses) that were “necessarily” incurred, in connection with the maintenance and operation of the property, from the amount of compensation for any damage caused by the unlawful possession. The result of the cited statutory provision is that the bad faith possessor is entitled to deduct the stated costs but only to the extent that damage was incurred by the owner due to the unlawful possession. A contrario, if damage was not incurred by the owner in this manner, the unlawful possessor is not entitled to reimbursement of these costs. On the other hand, the unlawful possessor may also sever that part of the property that he appreciated at his own expense, if this can be done without impairing the substance of the property.187

20.4.

Possessor’s right to retain a movable

In the case of retaining a movable by the possessor to secure his pecuniary claim for reimbursement of the costs, which the possessor reasonably incurred on the movable property during the time of lawful possession, visá-vis the owner, the Civil Code does not govern a particular right of lien for the possessor. Under property law, it is possible to apply to this stated case the general statutes on right of lien, such as the right in rem to alien property pursuant to Sec. 151s of CC et seq., since it is a case of retaining a movable asset to secure a pecuniary due claim (receivables). A possessor, as a creditor in this case, has the right to secure his outstanding debt by retaining a debtor’s (owner’s) property, which will be held 186 187

Ibid, p. 183. Sec. 131 para (1), (2) of CC.

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in his factual power until it is fully paid. It is however not allowed to retain property possessed arbitrarily or craftily sequestered.188 If the unlawful (bad faith) possessor is aware that the property does not belong to him / her and that there is no statutory reason (titulus) for his / her possession, it would be a case of “arbitrary possession” of the property, if the possessor retained possession despite his / her bad faith, i.e. arbitrarily, the right to retain the property to secure his / her outstanding receivables no longer belongs to him / her. Thus one could conclude that only the lawful possessor is entitled to retain the owner’s movable to secure due claims for reimbursement of costs, which the possessor reasonably incurred on the property during the time of lawful possession.

20.5.

Expenses for the restitution of a movable to the owner

The Civil Code does not regulate the matter of restitution of expenses in connection with the restitution of a movable to the owner (mainly the question of who bears these expenses). In principle it can only come down to two cases: a voluntary or an involuntary restitution may take place. The question of “lawfulness of possession” or the “good faith of the possessor” is not decisive, even though it is not entirely insignificant, mainly in the case of a decision of a court when the parties could not agree or in the case of involuntary restitution. If it is a case of voluntary restitution, under the principle of “party autonomy” or “freedom of contact”, it is, above all, based upon the agreement of both parties (owner – possessor) concerning who shall bear the costs of restitution of a movable to the owner, or whether they shall bear the costs together and in what ratio, etc. If no agreement is reached, upon the request of one of them, the decision will be made by court, bearing in mind all the circumstances of the specific case. In this case, a voluntary restitution of property based on an effectual decision of court is not considered a voluntary restitution. In case of an involuntary restitution (after a valid conclusion of the restitution proceedings), the objects shall be returned upon a valid or possibly an enforceable decision of the court, which places a duty on the possessor to surrender the property to the owner. We are of an opinion, that the judicial dictum placing such a duty implies an obligation to bear all the costs related to the fulfilling of this obligation (whether it is voluntary or involuntary). Another interpretation would appear unreasonable and contra bonos mores.

188

Sec. 151s of CC et seq.

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Table of Literature Bradáč, A., Fiala, J., Hába, J., Hallerová, A., Skála, M., Vitulová, N.: Věcná břemena od A do Z. Linde, Praha, 2002. Čič, M. et al: Komentár k Ústave Slovenskej republiky (Constitution of Slovak Republic – Commentary). Martin 1997. Fiala, J., Holub, M., Bičovský, J.: Občanský zákonník (Civil Code). Linde, Prague 2006. Knapp, V. et al.: Občanské právo hmotné (Material Civil Law), Volume I. Prague, 1995,1997. Knapp,V., Knappová, M., Švestka, J., Dvořák, J., Macková, A., Mikeš, J., Radvanová, S.: Občanské právo hmotné (Material Civil Law), Volume 1. CODEX, Praha 1997. Lazar, J. et al.: Občianske právo hmotné (Material Civil Law), Volume 1-2. Bratislava, 2004, 2006. Luby, Š.: Dejiny súkromného práva na Slovensku. Iura Edition, Bratislava 2002. Luby, Š.: Základy všeobecného súkromného práva (Basics of General Private Law). Heuréka, Šamorín 2002, 3. edition. Ovečková, O. et al.: Obchodný zákonník – komentár (Commercial Code – Commentary). Iura Edition, Bratislava 2005. Petkov, I.: K právnej povahe vecných bremien (Legal character of Easement). Collection from conference of postgraduates: “Current public law and private law in Slovakia”, Trnava 2005. Petkov, I.: K derelikcii nehnuteľností (Abandonment of immovable property) Acta Facultatis Universitatis Tyrnaviensis Iuridica, Trnava 2004. Plank, K.: et al. Občianske právo s vysvetlivkami (Civil Law with Comments), Volume 1. Iura Edition, Bratislava. Rebro, K. – Blaho, P.: Rímske právo (Roman Law). Manz, Bratislava 1997. Rebro, K.: Latinské právnické výrazy a výroky. Iura Edition, Bratislava 1995. Svoboda, J. et al.: Občiansky zákonník (Civil Code). Eurounion, Bratislava 1998. Štefanovič, M.: Pozemkové právo. Manz, Bratislava, 1997.

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Table of Abbreviations B (No / Year) Bulletin of former The Supreme Court of Czech Republic, currently of High Court of Justice C (No) CC ComC

court decision of Supreme Court of Czech Republic published in The Collection of Supreme Court Decisions Act No 40 / 1964 Coll. Civil Code as amended Act No 513 / 1991 Coll. Commercial Code as amended

R (No / Year) court decisions or declaratory judgments published until a year 1992 published in The Collection of Judicial Decisions and Declaratory Judgements of the unitary or federal Supreme Court of Law and from a year 1993 in The Collection of Judicial Decisions and Declaratory Judgements of the unitary or federal Supreme Court of Law of Slovak Republic S IV

the antology of The Supreme Court containing court decisions and declaratory judgements (volume IV.)

V (No / Year) The Selection of Decisions and Declaratory Judgements Z IV

the antology of declaratory judgements, conclusions and reviews of judicial practise (Nejvyšší soud o občanském soudním řízení v některých věcech pracovněprávních, občanskoprávních a rodinněprávných. Volume IV. Prague, SEVT 1974-1986)

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National Report on the Transfer of Movables in Malta Patrick J. Galea

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Table of Contents Introduction: history and legal system

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Part I: Basic information on property law 1. Ownership 1.1. Definition of ownership 1.2. Movable property 1.2.1. Definitions contained in the Civil Code 1.2.2. Contemporary categories of movables 1.3. Real and personal rights, numerus clausus on property law and patrimony 1.4. Other material property rights linked with movables 1.5. Protection of property rights

461 462 462 463 465 468 469

2. Possession 2.1. The notion of possession 2.2. Functions of possession 2.3. Acquisition of possession 2.4. Protection of possession – possessory actions and self-help

472 474 474 474

3. Rights to hold, use, or to acquire a movable 3.1. Lease 3.2. Promise of sale 3.3. Options to buy or sell 3.4. The right to redeem or repurchase 3.5. Sale with reservation of title

476 476 478 478 479

4. Transfer of movables – field of application and definitions

479

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Part II: Transfer of ownership from the owner to the transferee 5. The system of derivative transfers 5.1. Unitary transfer concept, different modes of transfer 5.2. Basic transfer requirements 5.3. Identification 5.4. Requirement of a valid obligation to transfer ownership 5.5. Physical delivery and traditio 5.5.1. General 5.5.2. Forms of traditio 5.5.3. Other rules relative to delivery 5.5.4. Delivery modes neither mandatory nor exclusive 5.5.5. Electronic delivery and endorsement 5.5.6. Assignment of the right to delivery 5.6. The question of registration 5.6.1. General 5.6.2. Movables to be registered (a) Shares (b) Motor vehicles (c) Ships and vessels (d) Aircraft (e) Financial instruments 5.7. The persectives of the consensual system examined in detail 5.7.1. General 5.7.2. Scope of application of consensual principle 5.7.3. Risk and transfer of ownership 5.7.4. Transfer valid and effective inter partes or erga omnes? 5.7.5. Use of an object while it is still with transferor 5.7.6. Entitlement to fruits 5.7.7. Entitlement to recover the asset if stolen between conclusion of contract and delivery 5.7.8. Special privileges, special hypothecs and droit de suite over particular movables 5.8. Payment 5.9. Right to dispose

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481 482 483 484 486 486 487 488 489 490 491 492 492 493 493 493 494 496 497 499 499 499 500 501 502 503 503 505 505 508

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6. Double sale – transferor selling a particular movable twice

509

7. Selling in a chain with direct delivery

510

8. Indirect representation

510

9. Insolvency 9.1. Pledge 9.2. Insolvency 9.2.1. Bankruptcy of trader 9.2.2. Insolvency of companies 9.2.3. Insolvency of seller / transferor 9.2.4. Insolvency of buyer / transferee 9.2.5. Powers of insolvency administrator

512 513 513 515 516 518 518

Part III: “Original” acquisition – no direct transfer of ownerhip from owner to transferee 10. Occupancy, treasure trove and finding

520

11. Accession, specification and commixture 11.1. Accession 11.2. Specificatio 11.3. Commixture

521 523 524

12. Good faith acquisition

526

13. Acquisitive prescription 13.1. General 13.2. Rules of acquisitive prescription relating to movables 13.3. Suspension vs interruption

527 528 531

14. Abandonment

532

15. Transfer rules in the case of co-ownership

533

16. Floating charge and general hypothec

534

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17. Consequences of restitution of movable to the owner 17.1. Some typical situations 17.1.1. Effect of rescission 17.1.2. Right of use granted by a non-owner 17.1.3. The garage triangle 17.2. Entitlement to benefits and fruits resulting from the movable 17.3. Reimbursement of expenses 17.4. Set-off of fruits against expenses 17.5. Obligations of the possessor relative to condition of the thing to be restored 17.5.1. The possessor in good faith 17.5.2. The possessor in bad faith

536 536 538 539 540 541 542 543 543 544

18. Conclusion

544

Table of Literature

545

Table of Abbreviations

545

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This presentation traces the general features of the legal system of Malta, which finds roots in both civil law and the common law sources. With specific reference to movables, it examines the various categories recognized by the system, methods of transfer, including attention to delivery and acquisitive prescription. The importance of the creation and enforcement of security interests is assessed. The study evaluates the protection of movable property rights and possessory remedies available thereto.

Introduction: history and legal system Malta is a civil law country with extensive common law experience and exposure. The reason for this development is largely historical and reflects successions of dominations that have over the centuries ruled Malta. The first contact with Roman law occurred during the Roman occupation during the Punic Wars c 218 BC. Malta, or “Maleth” or “Melita” as it was then known, was to remain part of the Roman Empire, changing hands from the Western to the Eastern Empire, until 870 AD. After a period of Arab domination, the island was conquered in 1090 AD by Roger the Norman and remained a part of what was then known as the Kingdom of the Two Sicilies, that is to say Naples and Sicily. It was subsequently sold and ransomed during the next four hundred years and passed through the hands of the Swabians, Angevins, Aragonese and Castilians. In 1530, the Habsburg Charles V, Holy Roman Emperor, and King of the Two Sicilies then under the Castilians, granted the island as a noble fief to the Knights Hospitallers of the Order of St John of Jerusalem, subject to the annual tribute of recognition of a falcon to be paid to the Viceroy of Sicily representing the Emperor on all Saints’ Day. This ended four centuries of Malta as an integral part of the Kingdom of the Two Sicilies. The Island remained under the rule of the Knights until they were expelled from Malta by Napoleon. In 1798, after a turbulent two-year French interregnum, the Maltese rose against their French occupants, and requested British protection in 1800, leading to two and one-half centuries of happy association with Britain. The English Language, to this present day, is, along with Maltese, an official language. Malta is today an independent republic, a member of the European Union, the British Commonwealth, and part of the Eurozone. This brief historical tour explains how Roman law,

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through the domination by various continental overlords over the centuries remains to this day the substratum and “jus comune” of the legal system. Malta formed part of the wave of codifications in the 19th century, the civil code being consolidated in 1868: this was modeled largely on the French Code Napoléon with other influences such as the Sicilian, Italian, Louisiana, and Ticino codes. It is significant that this happened during the English colonial experience and was due to the result of the resistance of the Maltese judiciary and legal profession to the introduction of the common law as the private law system. The doctrine of judicial precedent as formal source was never adopted and, as in the civil law systems, jurisprudence retains a fundamental though only formally persuasive authority. Malta does not embrace the common law doctrine of precedent. On the other hand, the breadth of influence of the British period on the legal system is profound and far reaching: the Constitution reflects the “Westminster model”. Public law, administrative law and taxation have their bases and origins on the English experience. Maritime, company and trust law are based on British law and practice. In recent years Malta has developed its presence and reputation as a financial centre with the European Union in the same manner as Dublin and Luxembourg; the introduction of related laws such as investment services and regulatory frameworks look towards the European Union and English sources. It is a fair assessment to state that Malta is among the group of “mixed” jurisdictions, which includes Scotland, the British Channel Islands, Quebec, South Africa and Louisiana. Within the system usufruct, foundations and trusts co-exist. The most recent direct source to be received is the European Union acquis, which is being integrated within the existing structure and will in all likelihood become the most important source, whether direct or indirect, through transposition to the Maltese legal system. The process of European private law studies and initiatives is currently receiving serious attention and will in due course also leave its mark and influence on the system, albeit as a mixed, hybrid system. An aspect relevant in context of this study, is the point that it is only very recently that the small Maltese legal community has taken a trend towards regular publication of legal materials. This was principally due to the size of the market and the limited number of practitioners in the past. Legal academic materials in the past did exist: monographs and studies, particularly, towards the end and turn of the 18th and 19th centuries, appeared in print. Moreover, the use of traditional university notes remained widespread and authoritive in practice, indeed even possibly to this day. However, over the past 20 years, both the number of students and various disciplines of practice have significantly expanded and diversified, leading therefore to wider scope for publication.

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Whereas in the past, teaching and research were carried out principally by practitioners, keeping alive a three-hundred year tradition, studies and publications have started to appear during the past five or ten years, although they remain relatively few reflecting the limitations of size. Moreover, lecturing and research at the University of Malta tended towards being principally practice-orientated, since the law degree was perceived as a professional course designed to produce and form practitioners. A shift of emphasis and direction may be discernable today, with a distinction between a purely academic and research function on the one hand and a practice market-based approach on the other, gradually emerging. The tradition of academics from the sphere of practice may be in the process of shifting towards resident, full-time academics as the core of the law faculty supplemented by part-time practitioners. This particular perspective of the legal system of Malta has to be kept present at all times for a proper understanding of its background. This explains the constant interface and interpolation of the legal system of the mini-state of Malta with foreign sources, producing of course in the end a home-grown legal product. It has to be added, in fairness, that the Maltese judiciary always maintained a keen interest in, and contribution through the jurisprudential sources towards, the academic development of the law.

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Part I: Basic information on property law 1.

Ownership

1.1.

Definition of ownership

In this area, Malta follows the civil law tradition and the Roman-French model. The basis and sedes materiae of this aspect of civil law is to be found in the Malta Civil Code, Chapter 16 of the Laws of Malta,1 hereinafter the “Civil Code”. Ownership is defined as, “the right of enjoying and disposing of things in the most absolute manner, provided no use thereof is made which is prohibited by law.”2

This is the traditional definition of ownership culled directly from the Roman sources and carries the meaning and interpretation given in the history of ownership and property law. Ownership was interpreted as granting significant and almost absolute power to the subject over the thing owned, the only limitation being that no law was violated, being the well-known maxim of jus utendi, fruendi and abutendi. However, in contemporary civil law in Malta, such absolute right has been significantly bridled by urban planning, environment and heritage legislation, including zoning and use of property, and also other concerns relating to bon voisinage, particularly relevant in a small island such as Malta. While it is a fair assessment to state that property and ownership remain a fundamental cornerstone of the legal system of Malta, a tendency of the socialization du droit is evidenced, meaning the tendency of both practitioners and the courts to keep in mind the wider economic and social perspective of the exercise and use of a private, civil law right – that of ownership. For example, a recent judicial pronunciation examined the question as to how far should a neighbour be expected to suffer inconvenience.3 The facts related to the objection by residents to the airconditioners in an 1 2 3

See http: // docs.justice.gov.mt / lom / legislation / english / leg / vol_2 / chapt16.pdf. Art 320 of the Civil Code. Court of Appeal, Alfred and Anna Anastasi vs Lombard Bank Malta plc, 9th January 2009.

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adjoining property. Plaintiffs claimed that, as a consequence of the inconvenience, noise and heat generated by the airconditioners, they were unable during office hours to use certain rooms of their residence. The Court of Appeal held that while a person was bound to minimize inconvenience, a neighbour was obliged to tolerate reasonable inconveniences and suffer what was reasonably tolerable.

1.2.

Movable property

1.2.1. Definitions contained in the Civil Code All things that are subject of private or public ownership are either movable or immovable property. Movables are distinguished in the Civil Code as being movable by nature and movables by regulation of law. For ease of reference and convenience, the definition of movable property is reproduced in full hereunder: Movable property 312. All things, animate or inanimate, which, without any alteration of their substance, can move themselves or be moved from one place to another are movable by nature, even though such things form a collection or a stock-in-trade. Materials deriving from demolition of buildings 313. Materials derived from a building which has been demolished, or gathered for erecting a new building, are movables until they are used in a construction. Ships, etc 314. Ships or other water-craft, baths or other floating structures are also movables. Shares or interests in commercial companies, etc 315. The following things are movables by regulation of law: (a) shares or interests in commercial or industrial companies, even if immovable property is owned by such companies; in which latter case such shares or interests shall be deemed to be movables with respect to each shareholder and only as long as the company lasts; (b) life or perpetual annuities, including capitals for annuities ad formam bullae and debts due for interest on capitals invested in the fund formerly existing under the name of Massa Frumentaria, provided such perpetual annuities, capitals and debts are not subject to entail; (c) generally, all obligations, actions, even if hypothecary, and rights not considered immovable under the provisions of the last preceding sub-title.

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“Movable property or things”, “movable effects” or “movable substance” 316. The words “movable property or things”, “movable effects” or “movable substance” used in any provision of law or in any disposition of man, without any other addition or indication restricting their meaning, shall include both the things which are movable by nature and the things which are generally considered movable by regulation of law. “Movables” 317. (1) The word “movables” used in any provision of law, without any other addition or indication restricting its meaning, shall likewise include both the things which are movable by nature, and the things considered movable by regulation of law. (2) If used in any disposition of man, it shall not, of itself, include money or documents of title to money, jewels, articles of precious metal or things forming the object of a trade; nor shall it include property considered as movable by regulation of law. “Furniture” 318. (1) The word “furniture” comprises all furnishing movables, including the pictures and statues forming part of the furniture of an apartment. (2) It shall not include, however, collection of books, pictures, or statues. “A house with all that it contains” 319. The expression “a house with all that it contains” shall include all movable things, excepting money or documents of title to money, jewels, articles of precious metal intended for the ornamentation of the person or to be worn, things that are accidentally in the house or that belong to third parties and debts due or other rights the titles to which are in the house.

1.2.2. Contemporary categories of movables The above definitions reflect of course the era in which the code was drafted and its Napoleonic model at the time.4 The traditional distinction between public and private ownership, things in commercio and extra commercio, immovables and movables, finds itself in the Civil Code of Malta. The category of movables today extends and includes liquid fungibles such as bank deposits, bonds, shares, financial instruments, categories of intangibles such as trade marks and other intellectual property rights, internet domain names, yachts (although this is included in the term ship) and aircraft. 4

There are broad similarities with the French code even today, see articles 516-536 of the French code civil.

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Rights of occupation in newer forms of ownership, such as timeshare, are not classified or defined, but would in the view of the author most likely be classified as movable rights, even though they may refer inter alia to immovable property. Other examples of res mobiles include insurance policies and proceeds thereof, receivables and collectibles, security interests over movables, and probably also over immovables. A more recent category of movable is data: it has received no formal legislative recognition, although the existence of data as an intangible is clearly acknowledged and given effect. The opinion expressed in this study is that Maltese law will acknowledge and receive data within the system as a res mobilis with proprietary consequences attaching thereto. The civil law of Malta, even though Roman-civilian in nature, with its law of property and obligations being exclusively derived therefrom, has received the law of trust.5 In keeping with the “mixed” nature of the Maltese legal system, foundations as well as trusts are recognized by the system. The law of trusts finds sources in the law of Jersey, a similar island jurisdiction, which like Malta, has experience with both the civil law from its Norman tradition and the English law. Another source is the Hague convention on the law applicable to trusts and their recognition adopted by the Hague conference on private international law in 1984 and which came in force on the 1st January 1992. Generally without however any formal introduction or reception thereof, the Malta law of trusts has taken in various principles derived from English trust law and equity. Full or unqualified reception of English equity, on the other hand, does not appear apparent in the trust law of Malta, but certain rules relating to constructive or protective trusts have origins in the equity tradition. Two points here appear relevant. The first is that the acknowledgement that a trustee holds as owner, or vested in him, property under an obligation to deal with that property for the benefit of the beneficiaries.6 Does this mean that Malta has also accepted a principle of division of ownership, in keeping with its history of absorbing influences from the two legal systems? A study thereof remains beyond the scope of this contribution. The second point, significant for our purpose, is that the interest of a beneficiary under a trust shall be deemed to be movable property, even if the trust includes immovable property.7 This means that the interest of the beneficiary under a trust is added to the category of movable property: it is not material whether the trust is vested with movable or immovable property; the essential point is that the interest of the beneficiary is considered as a res mobilis, independently of the nature and composition of the trust 5 6 7

See http: // docs.justice.gov.mt / lom / legislation / english / leg / vol_7 / chapt331.pdf. Art 3 (1) of the Trusts and Trustees Act. Art 9 (3) of the Trusts and Trustees Act.

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fund and assets. The question here naturally arises whether the right of the beneficiary is a personal right against the trustee or whether, reflecting strands of English equity, the right is a proprietary right, classified as a res mobilis. Again, this extends beyond the present scope. The undersigned, writing from an environment of sea and salinity, will be pardoned for making reference to an ancient category of movables in whose respect there seems to be scanty civil regulation and literature: this category of movables is fish. The contemporary legislation in Malta refers to fisheries conservation and management8 and designation of fishing water and extended maritime jurisdiction.9 Most of the legislation is regulatory and refers to fishing rights, licensing of fishing vessels, designation of allowed fishing zones and territories. The only relevant consideration apparent from the civil law point of view is the regulation of fish vending by public auction of authorized fish.10 The perspective is also to be seen in the perspective of the latest scramble for “grab” of land that is underwater to include the seabed and the continental shelf. There is no formal regulation as to the moment of acquisition of the fish stock, presumably at the moment of catch. All is custom, practice and market based such as trading, exchange or warranties in respect of unacceptable consignments. This is remarkable, considering the ever increasing economic importance of this commercial activity, the stakes and investment involved, the value of fishing rights and the growing depletion of stocks and natural reserves. In line with contemporary environmental concerns, there could be potential for development of the law relating to this category of movables, particularly in view of its economic import.

1.3.

Real and personal rights, numerus clausus on property law and patrimony

The starting point is the distinction between real and personal rights. This is received and accepted in Maltese civil law and corresponds with the commonly accepted notion shared with other civil law jurisdictions. Real rights are rights over immovable property, by definition valid erga omnes, and are generally subject to publicity to enable third parties to have notice of their existence. They also carry a droit de suite, meaning that they remain valid and enforceable not merely between those parties who originally created them, but also if and when the property asset is transferred, 8 9 10

See http: // docs.justice.gov.mt / lom / legislation / english / leg / vol_13 / chapt425.pdf. See http://docs.justice.gov.mt/lom/Legislation/English/Leg/VOL_15/Chapt479.pdf. See http: // docs.justice.gov.mt / lom / Legislation / English / SubLeg / 425 / 02.pdf.

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the rights and obligations created by real rights remain active and valid in whosever hands the property passes. This is contrasted with and distinguished from personal rights which are valid inter partes and lose validity and effect in case of subsequent alienations or transfers. In practice, a difficulty is often encountered in identifying the distinction between a condition valid only between the contracting parties and a real right such as an easement imposed on the property. It is generally held, and such is the traditional view, that the Maltese legal system subscribes to the traditional civil position of numerus clausus of property rights as defined in the Civil Code: this refers to the notion of full ownership, co-ownership and lesser portions of ownership such as usufruct and easements (servitudes). The overarching concept remains full ownership, which is then divided into lesser rights of ownership often leading to a jus in re aliena, meaning a real right over property belonging to a third party, typically for example an easement or servitude of right of passage or of altius non tollendi between neighbouring properties. The Maltese civil law also traditionally embraces the notion of unitary patrimony, subject to the exceptions to be discussed hereunder. Patrimony here means generally the capacity inherent in legal personality to hold assets and liabilities. The consequence thereof is that there is a commixture of all assets and liabilities independently of their nature and basis. This means that assets can be called upon by creditors to make good and satisfy totally unrelated liabilities, by virtue of the unitary notion of patrimony. From this it follows, that saving the laws regulating preferences such as privileges and hypothecs, assets present and future form the guarantee for payment of creditors, and that it is not possible to segregate or separate assets according to their nature or purpose. The legal system of Malta has generally followed the writings of the authoritive French Aubry et Rau in connection with the theory of patrimony Contemporary legislation has introduced three important exceptions to this theory of patrimony: the first is in the case of trustees under the Trusts and Trustees Act, Chapter 33111: one of the characteristics of a trust is that, “the trust property shall constitute a separate fund owned by the trustee, distinct and separate from the personal property of the trustee and from other property held by the trustee under any other trust.”12

11 12

See http: // docs.justice.gov.mt / lom / legislation / english / leg / vol_7 / chapt331.pdf. Art 3(2) of the Trusts and Trustees Act.

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The second exception is that prevailing in terms of the Investment Services Act13 and regulations under the Act14: in the case of assets held by an investment services licence holder (known as a subject person), “such assets shall be deemed to constitute a distinct patrimony, separate from that belonging to the subject person and from that of other customers the assets of whom are also held under the control of the subject person.”

The third exception refers to ships and other vessels in terms of the Malta Merchant Shipping Act.15 In terms of article 37A of this Act, “[s]hips and other vessels constitute a particular class of moveables whereby they form separate and distinct assets within the estate of their owners for the security of actions and claims to which the vessel is subject. In case of bankruptcy of the owner of a ship, all actions and claims, to which the ship may be subject, shall have preference, on the said ship, over all other debts of the estate.”

The conclusion from the above is that the Civil Code reflects the position of numerus clausus of ownership and real rights and the concept of unitary patrimony. This is however the traditional civil law: the system has been sufficiently flexible to accommodate in certain circumstances separate patrimonies. In trust law it has received the tradition derived from English rules of trust law and equity of the distinction between legal and beneficial ownership, falling short of a full assimilation of the equity tradition. This is a typical example of Malta as a civil law jurisdiction with extensive assimilation of English law. The comment here is that one observes a movement towards segregation of assets, in contrast with the traditional position of the unitary conception of patrimony. The pressing and urgent need for such segregation of assets or separate patrimonies comes in context of the need for protection for creditors, lenders and investors. Such separation of patrimonies is identified with asset protection, and easier access to money funding, since such segregation tends towards better protection against insolvency, less risk and cheaper and more efficient funding for investment. Significantly, this is observed as an interesting development and merger of the traditional solid civil law principles with the current, market-driven rules, regulating financial instruments, credit and payment obligations often expressed in such instruments. 13 14

15

See http: // docs.justice.gov.mt / lom / legislation / english / leg / vol_10 / chapt370.pdf. Investment Services Act (Control of Assets) Regulations, http: // docs.justice.gov. mt / lom / legislation / english / leg / vol_7 / chapt331.pdf. See http: // docs.justice.gov.mt / lom / legislation / english / leg / vol_5 / chapt234.pdf.

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1.4.

Other material property rights linked with movables

The distinction between real and personal rights is received and accepted in Maltese civil law: this definition corresponds generally with the commonly accepted notion shared with other civil law jurisdictions. Real rights are associated with immovable property, generally valid erga omnes and having a droit de suite, whereas personal rights are valid inter partes. This means that a real right and obligation is valid and enforceable between the two or other owners of the particular immovable interest in question. If the real right is transferred, the ownership of such real right over immovable property carries with it the respective rights and obligations. Examples of real rights are property easements, such as right of way, or altius non tollendi or height limitations. These remain valid and effective in whomsoever hands the property or associated real right passes. On the other hand, personal rights create rights and obligations between the parties who created them and their personal successors, for example heirs. There are other material property or associated rights related to movables: the Malta Civil Code in the context of usufruct follows the Roman and civil law tradition and is defined at article 328 of the Civil Code as, “the real right to enjoy things of which another has the ownership, subject to the obligation of preserving their substance with regard both to matter and to form.”

The right of usufruct, in practice, beyond immovable property rights extends to various forms of res mobiles, such as bank deposits, bonds and shares in companies. Pledge is an important security right and includes security interests over fungible assets such as bank deposits, bonds, shares, receivables and insurance policies. In the case of life assurance policies and also shares, Maltese law recognizes the right to cause the sale of the asset as well as the jus distrahendi, the right to appropriate the asset subject to rules of fair valuation. It is pertinent in this connection to state that the jurisdiction of the civil courts of Malta also extends in rem over ships and vessels in connection with maritime claims.16 Examples of such claims include questions of ownership or possession of the ship or part thereof, a mortgage over a vessel, damage or injury claims caused by collision of two ships, or death or personal injury of a person, or claims relating to carriage or salvage. The general jurisdiction is personal, that is to say over and against persons; however in this case, maritime jurisdiction in rem is vested over and against a specific res, in this case the object being the vessel: jurisdiction 16

Art 742B of the Code of Organization and Civil Procedure, http: // docs.justice.gov. mt / lom / Legislation / English / Leg / VOL_1 / CHAPT12.pdf.

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here arises against the vessel in rem by nature of the claim and very often by reason of the presence of the vessel within the jurisdiction. In an action in rem, the defendant is not a person, but the defendant is the vessel. The vessel is condemned and the claim is enforced against the vessel or its proceeds. This action traces its origins to the British colonial period, when the civil courts were vested with the jurisdiction of the ViceAdmiralty Courts in maritime matters. In this context, a ship or vessel is regarded as a separate res and this protection extends even to specific jurisdiction over certain claims. Vice-Admiralty jurisdiction has now been absorbed by the ordinary courts, but remains an in rem jurisdiction. The Merchant Shipping Act provides various actions, including an order to prohibit any dealing in a ship or transfer of any share therein for a period not exceeding a year.17 A recent judicial pronouncement of the First Hall of the Civil Court re-examined its in rem jurisdiction and remedies available in maritime claims.18 In this case, the court considered the prohibition order referred to as an alternative to an arrest of the vessel and accepted the alternative remedy of “sister ship arrest” where a link between the debtor and the “sister ship” is established.

1.5.

Protection of property rights

Property remains in the Maltese legal system a cornerstone, not merely of the civil law system, but also as the basis of a widely held assumption that immovable property constitutes a reliable, and possibly the best, type investment, both as to capital growth and as to income, more so in the case of a micro territory such as Malta. Accordingly, a system develops remedies to protect such highly prized and valued assets. The Civil Code, the general principles of the jus commune and the courts have consistently acted to protect property and associated rights. Hereunder is a general overview of such rights and remedies available. The classical distinction between the actiones petitoriae, that is to say those related to property and actiones possessoriae, those related to detention and possession, forms part of the law of property. The general action – a petitoria – to recover an object is the actio reivindicatoria: here plaintiff (actor) has to allege and prove absolute title, the infamous probatio diabolica.19 Since this is not always easy or possible, in practice parties often resort to 17 18

19

Art 37 of the Merchant Shipping Act, Chpt 234. Mr Justice J Zammit Mckeon, Glory Wealth Shiping Pte Ltd, a company registered in Singapore vs Peninsula Enterprise SpA, a company registered in Italy, 11th June 2009. Art 322 (1) of the Civil Code: “322. (1) Save as otherwise provided by law, the owner of a thing has the right to recover it from any possessor.”

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the actio publiciana, alleging better, not absolute, title. This action often arises in practice where two or more parties claim imperfect title, such as for example where both claim possession of a valuable, e.g. an antique or a portion of land, leading to title. A typical instance is where neither party will be able to demonstrate absolute original title, so that would in all likelihood exclude the probatio required in the actio reivindicatoria. One party may however show stronger, more continuous and unchallenged possession, whereas that of the other could be ambiguous: on the basis of this, the first party can show better title, stronger in relative terms, but not absolute. This has been long acknowledged jurisprudentially, although not formally and explicitly part of the Civil Code. Here the exercise undertaken by the courts is to assess factors such as intention, publicity or ambiguity of exercise of possession, length of possession in order to identify which claim for possession and then leading to title is the stronger, even if not absolute. In principle, these actions apply both to immovable and to movable property, although the application in case of immovable property is more widespread. In the case of immovable property, the substantive provisions of the Civil Code on easements (servitudes) in immovable property lead to the exercise of the actio confessoria servitutis, being an action to establish the existence of an easement and to remove any obstacles to its proper exercise. Also admitted is the actio negatoria servitutis being an action to declare and establish the inexistence or invalidity of an easement claimed or alleged. This action is not available where no easement or legal basis of a jus in re aliena is alleged, but where there is an interference with the exercise of ownership. It is generally also open for an owner to institute an action for a declaratory remedy, being a request to the court to declare that another owner or neighbour has no claim over a property. A procedural mechanism also worth mentioning in context is what is known as a jactitation suit,20 which is an action whereby a party vaunting a claim or a right, is ordered by the court to institute within a time period proceedings for such right or claim to be ascertained and declared. In default of institution of such proceedings within the time established by the court, claimant is condemned to perpetual silence. All the other important actiones petitoriae recognized by Roman law and the jus commune, such as the actio familiae erciscundae or actio finium rengundorum, are received by and part of the civil law of Malta. These actions along with the actions related to servitudes and easements do not find specific mention or articles incorporating them formally in the code: they have been long acknowledged and applied by the Courts of Malta, dating back even from the Tribunals of the Order of the Knights of St John, during the period in which the Knights ruled Malta, as part of the jus commune. 20

Arts 403 to 415 of the Code of civil procedure.

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This background of immovable property is important as an introduction to the law of movable property, because in many instances, the civil code departs from the general principles and rules relative to immovable property and then extends the application of such rules to movable property. Accordingly, therefore, in matters of movable property, the general rules of protection refer to the actio reivindicatoria, which applies mutatis mutandis to movable property. Also applicable to deprivation of a movable asset or its use or enjoyment thereof are the general rules relative to damages. The Maltese legal system does recognize the action for unjustified enrichment, but this as an action of last resort generally when the ordinary remedy is, for some reason, unavailable or unexercisable.21 To conclude on the distinction between the actiones petitoriae and the actiones possessoriae, the possessory remedies will be assessed in more detail infra, however possessory actions protect possession as a state of fact, and as a general principle do not confer or regulate any ownership rights. There is no general rule in the legal system of Malta of following or tracing the asset, or recovering its proceeds, as recognized by English Chancery jurisdiction in Equity: the equivalent to tracing recognized by the law of Malta would appear to be a personal action for unjustified enrichment, or even the actio pauliana. On the other hand, the Malta law of trusts, following its Jersey model, does recognize such remedy: it is provided at article 40A that, “[w]ithout prejudice to the personal liability of a trustee, trust property which has been alienated or dealt with in breach of trust, or the property into which it has been converted, may be followed and recovered unless it is in the hands of a bona fide purchaser for value without notice of the breach of trust.”

This means that the law acknowledges both the personal remedy against the trustee for breach of trust, which may have the result of an obligation to restore the fund trust or in civil law language to pay damages to compensate for the trust assets. However, there is also the proprietary remedy that “follows and traces” the asset, even if it has been converted, for example money into an antique or a painting or a luxury car. The proprietary claim, subject to the exception and qualification of good faith and payment for value without notice of breach of trust, will extend to the different category of asset. While this is familiar to English lawyers, it is remarkable that it finds its reception in a civil law system such as Malta. 21

Article 1028A (1) of the Civil Code with an amendment in 2007 codified the position prevailing in the jurisprudence and doctrine on unjustified enrichment – “Whosoever, without a just cause, enriches himself to the detriment of others shall, to the limits of such enrichment, reimburse and compensate any patrimonial loss which such other person may have suffered”.

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Movable corporeal assets are generally transferable within a jurisdiction: whether or not any particular formality is requisite depends on the nature of the asset. This could therefore range from a trade mark, copyright or intellectual property interest, to a motor vehicle, securities that are registered in a central registry (such as bonds and shares traded on the Malta Stock Exchange), shares in companies that are not listed, an interest in an investment fund, and to an interest in a yacht or ship or vessel or aircraft. Other movable assets, such as precious stones or metal, paintings, books or furniture are not registered. Therefore no formality is essential: very often an auctioneer’s or antique dealer’s certificate of acquisition and authenticity is used as evidence of transfer, but not as an essential requisite of transfer. The question whether title derives from the owner alone or whether registration is necessary, not as a matter of record but as an essential requisite based on and flowing from consent, will be examined during the course of this study under various aspects. Where registrability exists, it is possible as a matter of remedy to notify the competent authority involved of the claim and to request a court order prohibiting dealing and transfers in such asset or to order the insertion of the property right or interest in the register.

2.

Possession

2.1.

The notion of possession

It is a fair assessment to state that possession, along with ownership and modes of transfer thereof, obligation and contract, good faith and unjustified enrichment, is among the cornerstones of the Maltese civil law. This is not merely a fundamental philosophical and legal concept on which the architecture of the code is designed, but its practical importance and consequences of possession extend throughout the structure of the code. Possession is defined in article 524 of the Civil Code as, “the detention of a corporeal thing or the enjoyment of a right, the ownership of which may be acquired, and which a person holds or exercises as his own.”

The definition therefore includes possession of both corporeal movables and immovables, as well as quasi possession, that is to say the possession of rights or incorporeals through the exercise of associated rights with such incorporeals. The requirements of possession under Maltese civil law are corpus and animus. The corpus relates to the actual physical exercise of possession. This means that a possessor behaves and exercises his or her rights in the same manner that an actual owner would do, since possession is a mirror of

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ownership. The actual exercise of possession is to be accompanied by the relevant animus, the animus rem sibi habendi. This is implied in the language “which a person holds or exercises as his own.” The implication is, that a person has to exercise possession with the intention to behave as an owner and to possess the object as if it were his own. Therefore, the definition allies both the objective and the subjective tests: the objective test is external and is linked to the behaviour of the possessor, whereas the subjective test refers to the actual intention of the possessor as indeed manifested by external conduct. A person may possess either by actually exercising possession personally, or may possess by means of another person who is called a “holder” or a detentor.22 The person holding has therefore the actual physical custody or detention of the object, but does not possess, does not and cannot have the animus rem sibi habendi: the possessor in this case possesses indirectly through the detentor. The detentor can only start possessing with the requisite intention through what is known as an interversio possessionis23: in this case, the basis on which they hold changes, either through a reason flowing from a third party or by opposing the right of the owner. What is relevant here is the causa detentionis, since this could change either through some act coming from a third party, or, if the detentor were to behave in a way asserting the rights of possessor and the animus rem sibi habendi vis a vis the possessor. There exists a presumption that a person in all cases possesses in his own name and by virtue of a title of ownership. This does not apply if it be established that a person commenced possession in the name of others, in which case a rebuttable presumption arises that a person always held the object in the name of others. Actual possession and proof of former possession raise a presumption of possession during the intervening period. Actual possession however does not in itself raise a presumption of former possession, unless the possessor shows title, in which event a rebuttable presumption arises of possession since acquisition of title.24 Examples of possession and detention are the lessor-lessee situation, depositary, custodian and usufructuary. A Lessor possess through the lessee who has actual control and detention. The situation of the depositary and the custodian is that they hold as detentors and it is the actual owner who possesses through them. Likewise, the usufructuary possesses for the person in whom the bare ownership (nuda proprietas) is vested. An employee who uses a company car is likewise a mere holder as would be, in principle, a household member using an asset: in this latter case how22 23 24

Art 524 (2) of the Civil Code. Art 2119 of the Civil Code. Art 525-528 of the Civil Code.

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ever, in practice, situations may arise where it could be possible to allege tacit consent to actual possession with animus rem sibi habendi, although this would then be a question of fact.

2.2.

Functions of possession

The functions and effects of possession are fourfold: 1. Protection of the social order: possideo quia possideo and the possessory remedies. 2. The regulating of useful possession – possession valable pour la prescription. 3. The regulation of relations between the owner and the possessor in good or bath faith. 4. A general principle, though not unqualified, that in matter of movables by nature, possession in good faith shall produce the same effects as title – here, as defined, possession vaut titre.

2.3.

Acquisition of possession

Maltese law does recognize the adprehensio possessionis, the moment of taking or vesting of possession. This assumption of possession is a question of fact and is proved or established as evidence: however, as to delivery, constitutum possessorium is acknowledged, whereby a holder is acknowledged as the new possessor or sometimes the new owner vested in possession by virtue of ownership. The relevant rule founds the taking of possession on the moment that a possessor starts to exercise possession in a manner that is continuous, uninterrupted, peaceable, open and unequivocal. These characteristics of possession are the requirements in general of acquisitive prescription, together with the passage of time as required by law.25 Also relevant here are the presumptions of possession referred to above, since these can point towards the moment when possession commences or is deemed to have commenced.

2.4.

Protection of possession – possessory actions and self-help

The bases of protection of possession are the possessory actions: the two most important actions are the actio manutentionis and the actio spolii. 25

Art 2107 of the Civil Code.

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The actio manutentionis26 is available to a person who, being in possession of whatever kind of an immovable or a universitas of movables, is disturbed in his possession. Such possessor, unless possession has been obtained precariously or through violence from defendant, may demand within a year from molestation that the court order the molestation to cease and that plaintiff, that is to say the claimant, be maintained in possession. One significant consideration is that this action is not exercisable when plaintiff has lost possession, but is admitted when, although still in possession, plaintiff has his or her possession challenged or molested: molestations can be either of fact or of law. Factual molestations are those where a third party challenges, by his or her conduct or behaviour, the orderly exercise of possession, “de facto” asserting or threatening the peaceful possession of the actual possessor. An example would be a person consistently passing over the land or property of a third party in such a way as to molest possession, or by threatening to remove and take a collection of books. Molestations of law are those whereby actual possession is challenged on a legal basis. Here, the molestation or threat to possession claims a legal basis. The other relevant point is that it is exercisable in respect of an immovable or a universitas of movables: Maltese Civil law does recognize the universality of movables, being a group of movables united by a particular common use or purpose, such as a collection of pictures, antiques, or music compact discs. The other remedy is the actio spolii:27 this is in practice an action very frequently resorted to and the Courts of Malta are called time and again to apply this action and remedy.28 Its requirements are expressed in the traditional Latin brocard – possidesse spoliatum fuisse infra bimestre deduxisse. The first requirement is possession, of whatever kind, or detention: it matters not that possession is in bad faith or vitiated; it may also be detention of a movable or immovable thing. The next is that the act of spoliation is required, meaning that possession or detention has to be lost through violence or clandestinity. The action has to be commenced within two months and the object is re-enstatement in possession or detention: spoliatus ante omnia restituendum. The jurisprudence has established that the two month term commences from date of act of spoliation and not from dies scientiae of the spoliation.

26 27 28

Art 534 of the Civil Code. Art 535 of the Civil Code. First Hall of the Civil Court, Mr Justice RC Pace, Abela vs Zahra et, 28th February 2002. This is an example that contains extensive references to other decided cases on the actio spolii.

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The law of possession does not generally look favourably upon self-help remedies or mechanisms, since at the basis of possession in the legal system is the maintenance of social and, indeed, public order. However the actio spolii recognizes as a defence the rule that vim vi ripellere licet. This means that it is generally accepted within the limits of reason and proportionality that if possession or detention is threatened by force or violence, then a response is allowed to repel or counter such force. The other point of interest is the jus retentionis, a person having a claim on an object may refuse to surrender the object until paid: this applies both to movables and immovables, for example the carrier exercises the right of retention over goods for payment of freight, or the mechanic over the car for services and supplies.

3.

Rights to hold, use, or to acquire a movable

3.1.

Lease

Lease in Maltese law is a personal right and never a real right or a jus in rem. The obligations of lessor and lessee between themselves remain personal rights even though they may refer to the object leased, whether movable or immovable. The period of lease is immaterial. Maltese law does not acknowledge the quasi in rem protection. However, on the basis of jurisdiction conferred by assets within jurisdiction, the Maltese courts will accept jurisdiction and possess authority to order enforcement over those assets within jurisdiction. Jurisdiction, nevertheless, remains in personam.

3.2.

Promise of sale

This is an enforceable promise to buy and to sell, with consequences according to the drafting and stipulations therein, including deposit or earnest paid on the promise of sale agreement. In principle, such a promise is enforceable between parties. The practical realities often lead to different solutions, such as a seller keeping a deposit by way of preliquidated damages where the buyer does not comply. The mechanism of specific performance however exists whereby an unwilling buyer or seller can be orderd by the court to complete a sale and, if such order is disregarded, completion takes place through a curator. A promise of sale is not therefore a sale that is a separate contract and, in the case of immovables, requires a Notarial Deed, which is a public registered Deed in the Public Registry and Land Registry.

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In principle, a promise of sale is valid only between the parties. However, such promise can also have effects beyond the contracting parties in the sense that the jurisprudence has recognized, on the basis of the actio pauliana, that a full sale can be annulled where it was entered to prejudice or defraud an already existing promise of sale, where, for example, the lure of a higher sale price can be attractive and a motivation to avoid a previous completed promise of sale. An example is a decision of the Court of Appeal that, ruling aside pleadings objections raised by counsel, held that the actio pauliana is exercisable indeed also in the case of a promise of sale agreement.29 In this case, defendants entered into a promise of sale agreement with plaintiffs or claimants for the sale of property by defendant. During the term of the promise of sale agreement, and without any final deed of transfer being entered into between plaintiffs and defendants, defendants transferred the same immovable property to third parties. The Court of Appeal annulled the sale to the second defendants. Therefore, the rule can be formulated thus: a promise of sale, in respect of both movable and immovable property, produces enforceable rights, obligations and effects primarily inter partes, extending to right of specific performance and, in some cases, to the loss of deposit by the buyer. However, the jurisprudence has granted remedies both by prohibitory injunctions or interdicts for the property to be transferred to outside parties or even by annulling a transaction to defraud an honestly and legitimately promise of sale entered into. It remains essentially a personal obligation inter partes and never a right in rem,30 but court orders or registration of formalities with the land register may assist protection of the personal right by notice of a promise of sale. It is in fact possible for a party who has entered into a promise of sale agreement to lodge a caution with the Land Registrar: the effect of such caution is that the Land registrar shall not, without the consent of the cautioner, register any disposition or make any entry on the register for protecting the rights acquired under any dealing by the proprietor with such land or charge until notice on the cautioneras been served by the Registrar.31 Liability in damages of the party violating the personal obligation may also attach.

29 30

31

Court of Appeal, Marco Bongailas vs John Magri et, 15th January 2002. For example, some judgments hold that the promise of sale does not create a jus in re, but a jus ad rem: it is not a real right over the object but a personal right in an object – Court of Appeal, Karmenu Mifsud vs Luigi Cini, vol XXIX.I.218. Art 36 (1) of the Land Registration Act, http: // docs.justice.gov.mt / lom / legislation / english / leg / vol_6 / chapt296.pdf.

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It is material to point out that a promise of sale of immovable property requires the written form, registration with the fiscal authorities and a payment on account of the stamp duty in respect of such transfer. There is no such formal requirement in the case of movables so that, technically, a promise of sale of movables can be effected even verbally. In practice, this never happens since parties invariably reduce to writing a promise of sale even in the case of movables, for example, in the case of a promise of share transfer.

3.3.

Options to buy or sell

These are contracts whereby the obligee undertakes to sell / buy and perform in the event that the option be exercised. The system admits their validity: these often in practice accompany long leases whereby the lessee is granted an option and a right of first refusal to purchase during the period of lease, should the owner decide to sell. The same rules are applicable in the case of financial instruments such as options. The position in option situations is the same as in the case of a promise of sale and, in principle, creates a personal obligation valid between the parties, subject to potential precautionary injunction, specific performance or potential liability in damages.

3.4.

The right to redeem or repurchase

The system also acknowledges the right to redeem or repurchase: this is however limited to the case of immovable property and carries time limitation for exercise, in the sense that a right of redemption cannot be reserved for a period exceeding five years.32 The right of redemption is exercisable both in the case of immovable and movable property: in the case of immovables, it is valid erga omnes, even therefore against the third party in possession, whereas in the case of corporeal movables, if the object has passed into the hands of a third party, the right is personal and not exercisable against the third party acquirer for value in good faith. It is therefore possible to enter into an agreement of repurchase in respect of corporeal movables, but this remains a personal obligation: its exercise is limited, as aforesaid, where the object is transferred to third parties in good faith and therefore difficult to enforce vis a vis third party acquirers in good faith, particularly where there is no central system of registration. A third party acquirer in bad faith would, depending on circumstances, potentially face an actio pauliana or be liable in damages. Good faith in 32

Arts 1441 to 1468 of the Civil Code.

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the case of corporeal movables, as will be discussed later (see 4(a)infra), retains a critical role. Repurchase agreements of financial assets, “repos,” are used in the banking and financial services community. These are contracts principally used for hedging risk whereby a financial asset is transferred for a period of time and the right to repurchase is the security. These are often regulated by their proper law, although Maltese private international law, through for example the Rome convention on contractual obligations, will recognize such obligations and conditions. The right to redeem or repurchase is also exercised in security issues of certain financial assets, which in Malta are also movable assets, with the right of the bond or debenture or equity to be “called”, that is to say repurchased or redeemed, according to and within the terms of the original issue.

3.5.

Sale with reservation of title

This is recognized and acknowledged by Maltese law and is the system improperly, but popularly, known as “Hire-Purchase”. It enjoys widespread use in consumer sales such as domestic goods and motor vehicles. The sales are naturally subject to the European Union Consumer Directives, but provide contractually for a delayed transfer of ownership unless and until a percentage or the entire purchase price is paid. In the case of motor vehicles, the competent authorities provide for a system of registration of delayed ownership so that no transfer of the vehicle may take place without the consent of the owner / creditor.

4. 4.

Field of application and definitions Transfer of movables – field of application and definitions

Different rules apply to transfer of different assets and, therefore, classification thereof and a brief explanation in respect of each is necessary. The discussion will be limited to what is in commercio. (a) Corporeal movables: they are generally transferred by consent. In some cases registration is required, as in the case of motor vehicles. Delivery is not essential although it almost invariably accompanies the agreement, such as the sale of paintings, furniture or books; (b) Vessels, motor yachts and motor vessels: in this case, the formal and substantial requirement is the execution of a bill of sale, the delivery thereof to the Malta Maritime Authority, as the Register of Ships, and the entry in the ship’s register of the annotation of change of ownership;

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(c) Shares in commercial companies: a written instrument, payment of taxes (income, capital gains tax by the vendor, if applicable, and duty on documents by purchaser) and delivery of notice to the Registrar of Companies are required to complete the transfer inter vivos. A procedure of notification and payment of duty on documents also applies in the case of transmission of shares causa mortis; (d) Bonds and securities in companies that are quoted on the stock exchange such as shares and debentures: these also require notification to the Malta Stock Exchange as the Central Securities Register; sales and disposals require the intervention of a licensed stock broker; an interesting category here is investment funds. This is the case where assets – sometimes but not invariably money – belonging to various persons are pooled together with the purpose of being invested by a professional manager and, as a matter of law and good asset protection practice, but not in all cases, held in a separate ring-fenced fund or account by a custodian. The point here is not the separate patrimony discussed in context of the investment service licence holder, but that the segregation of assets may constitute a particular type of movable. This specific category is defined and constituted by the particular purpose of application of the asset, for example, capital growth or income investment, short term speculation or a collection of valuables as an underlying securitization instrument. The specific purpose, which finds roots in the universitas of movables, links together the various separate items, since they are to be applied towards one or more identified investment purposes. Investment funds or assets are held either in a special purpose vehicle, which may be a SICAV or a trust. In the case of mutual funds, each coowner has an interest similar but not identical to that of an undivided share in the common funds. The extent to which the rules of co-ownership apply to mutual funds has not been tried, for example, in the case of a pension fund – the extent of liability of each investor. It nevertheless constitutes an important innovation and possibly a future pointer relative to the development of the law and transfer of movables; (e) Negotiable instruments such as bills of exchange, cheques and promissory notes: these are transferred by endorsement, without any registration. The endorsement of a bill of lading may transfer property of the content of such bill and is accepted in the trade as a change of the consignee; (f) Intellectual property such as patents, trade marks and registered designs: these require that assignment or transfer agreement be entered in writing and recorded in the appropriate register; (g) Energy: there is as yet no particular regime as to energy, although the difficulty of treatment and classification of, say, electricity, gas or oil, is acknowledged by legal practitioners and academics. In context it is appropriate that pursuant to EU accession, the energy market in Malta is in the process of being liberalized and privatized.

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Part II: Transfer of ownership from the owner to the transferee 5.

The system of derivative transfers

5.1.

Unitary transfer concept, different modes of transfer

As a rule, all aspects of ownership pass to the transferee acquirer when ownership is transferred. The unitary notion of ownership therefore allows the transfer at the one and same time of entire ownership so that the transferee acquires the ownership of the thing and all rights associated with it. This, as explained (1.1 supra), includes the right to use, enjoy, dispose of, abandon, enjoy the returns, sell and invest the property. It is the general rule in practice that all aspects of ownership pass together as one unitary right at the same moment. The civil law of Malta however acknowledges also lesser portions of ownership, such as usufruct, use and habitation, easements / servitudes and emphyteusis. Explaining briefly, usufruct is the traditional Roman concept of using and enjoying, “salva rerum substantia”. Bare ownership (nuda proprietas) is ownership without enjoyment. Emphyteusis means a concession of an immovable for the use and enjoyment for a period of time or in perpetuity, as regulated by notarial public deed and the conditions imposed therein against payment of the annual ground rent. The two figures here are, first, the directarius, the party enjoying notional superior ownership, known as the directum dominium, which party as directarius receives the annual ground rent. The other figure is the utilista, the party enjoying the right to develop and enjoy the immovable, also known as the utile dominium and whose powers are in many ways akin to the rights and obligations of an owner as defined and limited by the Deed of Concession. In both cases full ownership is divided: bare-ownership and usufruct together, and directum dominium and utile dominium together in the case of emphyteusis, constitute full ownership. The point illustrated here is that the system also contemplates and allows the transfer of different or lesser portions of ownership: this does not, in the traditional civil law of Malta, in any way impinge upon or disturb the unitary concept of ownership. The reason is that such portions of the same unitary ownership are transferred to different persons. It is of course trite

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law, but has to be stated, nonetheless, that this is different from the concept of split ownership between legal owner being the trustee and beneficiary, as known to English equity in the law of trusts. It is mentioned because trust law as developed above in this section is part of the law of Malta and acknowledges such distinction. The general rule however remains that when ownership is transferred, it is transferred as one unitary concept. The same applies when ownership is transferred through different modes. The Civil Code of Malta, as its French model, is based on different modes of transferring ownership. Therefore the method and cause for transferring ownership may vary from case to case, but the substance of ownership remains one and unvaried: there are no two or more different notions of ownership. There could be different methods of transfer, for example, expropriation of immovable property for a public purpose by government, a payment by datio in solutum, sale, exchange, the vesting of a legacy in a legatee, the transfer to the legitimarius of the reserved portion in an inheritance by the heir, or by the succession by the heir to the decuius. Acquisitive prescription is also a mode of transferring ownership. A claim for damages, if successful, generally creates an obligation for compensation in monetary terms. It may be relevant to add that timeshare and the law thereof constitute an interesting development in context. An example of timeshare of a movable is that of a yacht: there is no acquisition of ownership, rather the acquisition and entitlement to rights of occupation for a number of weeks a year for an agreed number of years. What is novel is that the development, while clearly not a right of ownership, presents an alternative to the classical right of ownership. Whereas ownership is normally perpetual and exclusive, this is clearly not, since the use of the movable is shared with others who are entitled to other weeks. Nor are such weeks in a year perpetual since they extend only over a number of years, as contractually agreed. On the other hand, there are rights akin to ownership since the rights of occupation may be transferred inter vivos or causa mortis and even offered as security. This is stated for completeness of the assessement of the unitary concept of ownership in the law of Malta.

5.2.

Basic transfer requirements

The basic rule underlying transfer requirements is consensual: it is generally consent that perfects the contract substantially, subject to particular or special rules, and also those rules relative to formality. The essential rule is that upon consent and identification or certainty of the subject matter, ownership and risk pass to the transferee even though there is no delivery.

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Article 994 of the Civil Code states that, “[w]here the subject-matter of a contract is the alienation of the ownership, or of any other right over a certain and determinate thing, such ownership or other right is transferred and acquired in virtue of the consent of the parties, and the thing remains at the risk of the alienee, even though the delivery thereof has not taken place.”

On the other hand, the subsequent article 995 is to the effect that, “[w]here the subject-matter of the contract is an uncertain or indeterminate thing, the creditor does not become the owner of such thing until it has become certain, or the debtor has specified it, and has given notice to the creditor that he has specified it. Until the thing has become certain or has been specified, it remains at the risk of the debtor.”

The language here is clear that unless and until an object has been identified or specified, transfer of ownership will not take place and until identification, risk remains with the alienee / debtor. A sale of movables is subject to the four general requirements of contract within the French tradition, as adopted by Malta, being capacity, consent, object and lawful consideration (causa). In general, delivery in itself is not a requirement for transfer of ownership. There are no contracts within the system where consent without delivery cannot and does not transfer ownership. The same applies in the case of payment. It is of course almost axiomatic, particularly in the case of movables, that delivery in practice invariably takes place simultaneously with payment and with completion of formalities. There is no necessary implied retention of title as a matter of law, although of course prudent sellers take the necessary precautions.

5.3.

Identification

Identification means the moment when the object to be transferred is identified, not merely as to type or specificity, but the actual particular object is singled out. This does not apply in the case of fungibles. It is material to add that in terms of the general requirements of contracts,

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“the subject of an obligation must be a thing determinate, at least as to its species. Moreover, the portion or quantity of the thing may be uncertain, provided it is capable of being ascertained.”33

Therefore, what can be identified is deemed identified. In line with what was stated earlier (see 5,2), here again in context of identification the law of Malta does not generally, and subject to the exception in the special law of trusts, accept the equity concept of “following and tracing” an identified object as a proprietary remedy. The remedy applicable is a personal action for restitution, or unjustified enrichment, or the actio pauliana.

5.4.

Requirement of a valid obligation to transfer ownership

The Malta Civil Code is structured around the various modes of transferring ownership: these are sale, donation, exchange, datio in soluto, inheritance, legacy and legitima portio (the reserved portion). Some are contractual whereas the others relate to inheritance and transfer property by reason of transfer causa mortis. In the case where transfer occurs by virtue of a contract, there are generally today two major sources of contractual law: there are the traditional civil law sources and then the more recently implemented European Union Directives and Regulations related to consumer sales. In line with civil law Europe, Maltese civil law is still attempting to construct its “architecture” with these two different aspects of contract law. The traditional requirements of contract in terms of the Civil Code follow closely its French model: these are capacity, consent, subject matter of the obligation, and cause or consideration of the obligation.34 A detailed treatment is out of the scope of this review: briefly, however, capacity refers to the legal capability of parties for entering into agreement. The general rule is that all parties of majority age, that is to say eighteen years old, and of sound mind are deemed capable of contracting. Minors are protected by what is known as a “contractus claudicans”, generally meaning that it is valid in so far as obligations in favour of minors, but not valid where they have obligated themselves. A procedure under the authority of the Court of Voluntary Jurisdiction exists whereby a person of unsound mind may be debarred totally from contracting (interdiction) or partially debarred (incapacitated). Persons who are legally capable, then, may validly give consent. Three vices of consent exist: these are error, violence and fraud. Error may be of fact or of law, which is only determining when it refers to essential qualities 33 34

Art 983 of the Civil Code. Arts 966-991 of the Civil Code.

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of a person or an object or where a legal consideration was a determining or sole or principal factor or inducement. Violence may be physical or moral and must be such as to produce an impression on a reasonable person and to create in such person the fear of having his person or property unjustly exposed to serious injury. Violence may also be a ground of vice of consent, if practised against spouse, ascendants or descendants of a party. Fraud will vitiate consent if it can be established that the counterparty carried out fraudulent practices and artifices such that without them the other party would not have contracted. The requirement of the object, or subject matter of the obligation, refers to the performance of the contract and is traditionally defined as dare, facere or non facere. The performance cannot be illegal, impossible, contrary to public policy or current morals. The consideration or cause is the raison d’être of the contract, and it is generally but not exclusively the underlying economic cause. A cause is required and contracts without a cause, or with false or unlawful considerations, are vitiated. However, the contract may nonetheless be valid if it be established that a cause did indeed exist. A consideration that is unlawful, contrary to public policy or current morality will fail. Contracts have the force of law between the parties and contracts must be carried out in good faith, and shall be binding not only in regard to the matter therein expressed, but also in regard to any consequence that by equity, custom, or law is incidental to the obligation, according to its nature.35 Maltese law acknowledges the autonomy of the will of the parties, however, like contemporary systems it has received the reality of the contrats d’adesion and also the EU Consumer Directives. These regulate inter alia consumer sales, defective products, and unfair contract terms.36 Other relevant legislation includes door to door selling,37 and timeshare sales.38 Where a contract is annulled, say on the basis of fraud or error, the effect is retroactive and with effect ex tunc: this means that the contract is deemed never to have existed or taken place and this vitiates subsequent effects, even to include transfers to subsequent third parties. Of fundamental importance is the express or implied resolutive condition. This resolutive condition is defined by the Civil Code as, “that which on being accomplished, operates the dissolution of the obligation, and replaces things in the same state as though the obligation had never been 35 36

37

38

Art 993 of the Civil Code. Consumer Affairs Act, http: // docs.justice.gov.mt / lom / legislation / english / leg / vol_10 / chapt378.pdf. Doorstep Selling Act, http: // docs.justice.gov.mt / lom / legislation / english / leg / vol_7 / chapt317.pdf. See http: // docs.justice.gov.mt / lom / Legislation / English / SubLeg / 409 / 02.pdf.

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contracted. Such condition does not suspend the performance of the obligation, but, if the event provided for by the condition happens, the creditor shall be bound to restore that which he may have received.”39

Where the condition is express, then it operates to dissolve the obligation ipso jure and it shall not be lawful for the court to grant time to defendant. Where resolution is not expressly agreed or contemplated, then the court has the power to grant a time for clearing or remedying the default. The resolutive condition is considered implied in all bilateral contracts and in case where the resolutive condition refers to the performance of an obligation, it grants the party entitled to such performance the right to demand, in the event of default, either dissolution of the obligation or performance, if this is possible; in either case, there is the right, where competent, to demand damages.40 All the above are general principles of the system and are applicable in the case of transfer of movables.

5.5.

Physical delivery and traditio

5.5.1. General The purpose of physical delivery is generally linked with the performance of obligations and is specifically and fundamentally linked with the transfer of movables. There is, in some instances under Maltese law, the requirement of publicity: this is in the obvious interest of certainty, stability and third party protection where the transfer of the asset is registerable, such as shares, bonds, financial instruments, intellectual property rights, vessels and aircraft. Delivery is essentially, but not invariably, linked with corporeal movables. Other factors, such as security processes or even securitization of certain movable assets, may sometimes demand delivery to a party with a particular function, such as a custodian in professional investor schemes or in the case of public subscription offerings and trading. The main reason seems to be that the holding or detention of the asset gives control over the disposal thereof. Delivery is in many instances a way of perfecting or completing an obligation.

39 40

Art 1066 of the Civil Code. Arts 1067-1069 of the Civil Code.

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5.5.2. Forms of traditio Delivery is specifically addressed in the Civil Code41, whether movable or immovable, and it would be appropriate to make specific reference to the provisions relative to movables and to the commentary thereon. In the case of immovable property, the rule is that delivery of possession takes place on publication of the Notarial Deed of Sale, saving where there is a judicial sale by auction – where different rules apply. As to movable property, there are various forms of delivery provided and acknowledged. These are the following: (a) The actual handing of the movable property to the buyer: this is the classical and most simple form of traditio, applicable to, say, property like paintings, furniture, and generally corporeal movables where there is no requirement for registration or publicity; (b) In terms of article 1380, delivery of movable property may also take place by the handing-over of the key to the place where the property lies. This is self-explanatory: delivery or handing-over of the key where the movable is situated implies delivery, transfer of possession and acknowledgement of the new acquirer as possessor and owner; (c) Another method contemplated by the same article is the “handing over of documents of title, the delivery of which operates, according to law, the transfer of the property to which the documents refer”. This reflects a situation where title can be transferred by mere delivery of documents of entitlement, such as shares to bearer and, when the possibility still existed since it does no longer under the law of Malta, to bearer accounts: transfer of the share certificate and, in the past, bearer account books amounted to possession and ownership of the certificates or funds held in the bearer accounts; it is relevant to mention the rule commented and developed hereunder – that possession in good faith of corporeal movable objects confers title; (d) If the goods are in possession of a third party, it is recognized and possible under Maltese law to effect the transfer of the movable by causing the buyer to be acknowledged by the persons in whose possession the property exists. This can find application both in the case of physical material possession of corporeal movables and also where the asset is recorded in the register of a third party electronically or as part of a mass of common collective funds’ assets held by such third parties. (e) In some instances, mere consent of the parties is sufficient to transfer delivery. Article 1381 of the Civil Code acknowledges three such possibilities:

41

Arts 1379 to 1407 under the title of sale.

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(i) when the thing sold is already in the possession of the buyer or transferee – the brevi manu traditio; or (ii) when the seller who has reserved to himself the enjoyment of the thing sold acknowledges that he holds the thing on behalf of the buyer – the constitutum posessorium; or (iii) when the transfer of the thing sold cannot be materially or physically effected at the time of the sale. Cases (ii) and (iii) cannot be applied to the prejudice or detriment of third parties: meaning that any purported delivery cannot affect, prejudice or impinge upon rights acquired by third parties in such movables. Good faith at this stage does not appear to be a requirement. (f) The delivery of incorporeal things takes place either by the use that the buyer makes of such things with the consent of the seller, or by handingover the documents of title, in the case of any right the title to which is transferable by endorsement or delivery. This will include also delivery by acknowledging or communicating the access code, as long as this should allow subsequent changes of code to allow exclusive use and then assumption of possession. (g) There is no specific form of delivery in the case of the more contemporary rights, such as entitlement to intellectual property rights, internet domain rights and databases. The code is silent and consensual agreements in practice provide for the entitlement to, and commencement of, exercise of such rights.

5.5.3. Other rules relative to delivery It is appropriate here to refer briefly to various rules relative to delivery as outlined in the Malta Civil Code relative to sale. These are default rules, which apply in the absence of agreement by parties amending or excluding such rules. Expenses of delivery are at the charge of the seller and include those of weighing, counting or measuring the thing where the sale is made by weight, number or measure. On the other hand, these are at the charge of the buyer where the sale is made in bulk and the weighing, counting or measuring has been required by the buyer to ascertain that the quantity delivered is as promised. Carriage, that is to say transportation costs, is, unless otherwise agreed, at the charge of the buyer.42 Parties normally agree on customary clauses related to methods of transportation, such as CIF (Cost, Insurance and Freight), FOB (Free on Board) or Ex Works or Ex Quay. 42

Art 1383 of the Civil Code.

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Delivery is to be made and effected at the place agreed upon, and in default of agreement, at the place where the object was at the time of sale.43 In the event that the seller fails to deliver at the time or place agreed upon, the buyer is entitled either to demand dissolution of the sale or demand that seller delivers, provided that delay is solely attributable to seller. The seller is liable for damages if the buyer has sustained damages or loss arising from non-delivery as agreed. Delivery is required according to sample or quality promised. If delivery offered or effected is not that of the sample or quality promised, the buyer has the option either to reject the goods and demand damages or accept them with a diminution of price according to a valuation by experts. Payment of price and delivery are concurrent conditions: unless time for payment or credit has been allowed, the seller is not bound to deliver unless buyer simultaneously pays the price. Delivery is to be in the condition as at the time when the sale was effected. Where a contract of sale is complete and delivery not yet effected, certain consequences arise as a result of the insolvency actual or apprehended of the buyer: the following rules apply whether or not time for payment has been agreed upon. The seller is not bound to deliver if the buyer has by his own act diminished security for payment or if the buyer’s financial situation has altered or has become insolvent so that the seller is in danger of losing the price. This rule shall apply where the state of insolvency became apparent after the sale and was not known to seller at the time of sale. The seller is bound to deliver, however, if buyer provides adequate security for payment of price. Delivery is to include all accessories and all that is intended for its perpetual use. Moreover, the seller is bound to deliver the full quantity as stipulated between parties.44

5.5.4. Delivery modes neither mandatory nor exclusive The above delivery modes are neither mandatory nor exclusive, and in principle parties are free, as long as they do not thereby violate any mandatory requirement or prohibition of law, to create or agree upon different forms or methods of delivery. Delivery has both factual and legal implications: these satisfy the test of validity as long as new methods can reasonably satisfy the requirements of exclusive use and possession and transmit the consequence that legal delivery has taken place. There are no specific rules on delivery through marking: marking is used generally as identification marks on merchandise for transport, in the 43 44

Arts 1384-1386 of the Civil Code. Arts 1390-1399 of the Civil Code.

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case of container or groupage transport, either on vessels or through road transport. These markings are primarily for identification purposes; however they can also serve as a method of identifying transfer, say, of a group of vehicles loaded and marked and identified. However, the rules have to conform with the general rules of transfer and not specifically with those related to marking and identification. In connection with transfer of merchandise, it is appropriate to remark that Maltese law does allow transfer of ownership where documents represent title itself or entitlement to goods, such as a bill of lading. This document constitutes entitlement to delivery and, according to commercial practice which the commercial law recognizes as an autonomous source of that branch of law, creates a presumption of ownership. A bill of lading is generally an endorsable document; rights and entitlements may be transferred to third parties by signature on the document. In similar circumstances, the issue that often arises in practice is whether such endorsement can be resorted to where this could prejudice third party rights.

5.5.5. Electronic delivery and endorsement The legislation in Malta relative to electronic contracts and commerce is the Electronic Commerce Act45 and subsidiary legislation made under the Act. This transposes generally the European Union Directive on “Electronic Commerce” being Directive 2000 / 31 / EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the internal market. Also transposed is the “Electronic Signatures Directive” meaning Directive 1999 / 93 / EC of the European Parliament and of the Council of 13 December 1999 on a Community framework for electronic signatures.46 The principal law, Chapter 426, provides that a contract will not be denied validity and enforceability because it has been entered into wholly or partly in an electronic form. Moreover, where, under law in Malta, a person is required to record information in writing, that requirement is deemed to have been satisfied if the person records the information in electronic form: provided that such information in electronic form is readily accessible so as to be useable for subsequent reference and it complies with such regulations as may be prescribed. The integrity of a document is deemed to be maintained where there has been an addition consisting of an endorsement.

45 46

See http: // docs.justice.gov.mt / lom / legislation / english / leg / vol_13 / chapt426.pdf. See http: // docs.justice.gov.mt / lom / Legislation / English / SubLeg / 426 / 02.pdf.

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The reasonable conclusion is that a bill of lading can be transmitted electronically and deemed valid: however endorsement may require a physical, not an electronic, signature. This reasoning is based on the statement in the law that endorsement does not prejudice the integrity of a document, tending to therefore imply that whereas transmission can be effected electronically, endorsement is to be effected in a different form, a physical form, as otherwise the statement would appear to be irrelevant in context. Moreover, there is nothing prohibiting electronic endorsement or requiring a specific form where the bill of lading is transmitted in electronic form. Commercial practice has not yet acquired electronic endorsement and therefore the question is to be regarded as open and unsettled The question of en electronic bill of lading was examined in a relatively recent graduation thesis of the Malta University47: the conclusion reached is that, while Malta has the framework in place to adopt the electronic bill of lading, it is not yet introduced into, or has become a part of, commercial practice. The author in her thesis comments that the Malta Maritime Authority, responsible for port administration and the commercial banks, “treat the electronic bill of lading as still only a good idea, as a sort of standing one-one one agreement reserved for the larger banks and some of their huge corporate clients, the general feeling is that the electronic bill still needs further development, but is a product of inevitable future application.”48

It would therefore seem that the dematerialization of the paper bill of lading in favour of the electronic format has not yet happened. An interesting question for future discussion and study would be the extent to which an electronic bill of lading, and the cargo and merchandise it represents, can be pledged or endorsed. In all reasonable likelihood, this would require specific legislation.

5.5.6. Assignment of the right to delivery It is necessary to devote, in this context, some attention to the assignment of the right to delivery or to demand delivery. Article 1469 of the Civil Code provides that, “[t]he assignment or sale of a debt, or of a right or of a cause of action is complete, and the ownership is ipso jure acquired by the assignee as soon as the 47

48

Simona Camilleri, The legal implications of the electronic bill of lading, thesis University of Malta, June 2004. Ibidem at page 133.

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debt, the right or the cause of action, and the price have been agreed upon, and, except in the case of a right transferable by the delivery of the respective document of title, the deed of assignment is made.”

The point being considered here is whether it would be, in principle, possible to assign a right to delivery. The possibility does, in our view, fall within the purview of the article of the Civil Code under review. The other important requirements relative to assignment are to be followed viz: the assignment is to be effected in writing, has to be notified by judicial intimation or acknowledged by the debtor. It is relevant to mention in context that neither assignment nor acknowledgement is necessary in the case of bills of bxchange or other documents of title transferable by endorsement, which include therefore as explained bills of lading.49 The above does not apply in the case of factoring assignments of debts.50

5.6.

The question of registration

5.6.1. General Registration is in many ways an essential formality, to the extent of potentially depriving an acquirer of a right or an interest acquired as a consequence of failure to register properly the right or interest. In some other situations, it may have also fiscal consequences. The question whether, in the case of movables, registration has constitutive or merely declaratory effects does not admit of a response applicable to all types of movable assets without distinction. The reply i0y because some legislations were drafted with specific situations in mind and also because of the English influence in commercial spheres, such as in company law and maritime law. Of relevance are publicity and third party information: the registers indicated hereunder are open to the interested public or to a prospective purchaser. The registration system is also beneficial to lending and credit, or to financial institutions that require certainty of title as one of the factors of security. This also gives rise to a very important consequence, being that a party is deemed to have notice of what is registered and recorded in a public file, since this may be verified. These registers are the Public Registry and Land Registry, the Registry of Companies, the Malta Stock Exchange, the 49 50

Arts 1470 to 1474 of the Civil Code. Art 1481A of the Civil Code.

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Registry of Ships and Seamen and the Register of Aircraft. The first two registers refer to immovable property and therefore not material to our study on movables. In the case of immovable property, registration and publicity vis a vis third parties are elements of fundamental significance and importance. They deserve a brief mention and reference, but are beyond the scope of this study.

5.6.2. Movables to be registered This analysis will now focus briefly on the transfer of various movables that require a process of registration.

(a)

Shares

The Malta Companies Act51 requires, in the case of transfer of shares and debentures, a private writing and payment of duty on documents and transfers52 and possibly income tax on capital gains, where and as appropriate. The transfer is then noted and registered with the Company’s Register of Members and a duly duty-stamped notice delivered to the Registrar of Companies. Similar provisions of registration and publicity of shareholders’ acquisition exist in respect of allotment of fresh share capital. It is material to note that the company is also bound to issue share certificates. A public company as defined in the Companies Act may issue share warrants to bearer, which are transferred by simple delivery and without any registration process. Shares and securities may be pledged in terms of the Companies’ Act.53

(b)

Motor vehicles

Registration of various categories of motor vehicles is required with an authority known as the Malta Transport Authority.54 Material for our purpose here is that, while notification of change of ownership is mandatory, 51 52

53 54

See http: // docs.justice.gov.mt / lom / legislation / english / leg / vol_11 / chapt386.pdf. Duty on Documents and Transfers Act, http: // docs.justice.gov.mt / lom / legislation / english / leg / vol_11 / chapt386.pdf. Arts 118-122 of the Companies Act. See http: // docs.justice.gov.mt / lom / Legislation / English / SubLeg / 65 / 28.pdf.

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registration is not necessary for the transfer of ownership. A sale of a motor vehicle therefore, which is not registered or notified, means that there is a default and violation of the legal requirement to give notice of change of ownership so that the register of the particular vehicle is updated. It does not mean however that ownership does not pass or that the new acquirer may be denied ownership. Registration taxes or dues may be applicable in certain circumstances. The question was considered in a judgement of the First Hall of the Civil Court.55 The facts of the case were, briefly, that parties agreed, in part, on an exchange of motor vehicles with the defendant paying a supplement in cash. The vehicle was stolen from defendant a few days after he took delivery. Plaintiff claimed for the money supplement since defendant refused payment. The court held that under current law no formality was required for transfer, contrasted with the previous legal requirements where a written document was required “ad substantiam et validitatem”. The general principle established in article 1347 of the Civil Code was applied, namely that a sale is complete and perfected between parties, and ownership and risk pass to the buyer as soon as parties agree on price and identity of object. This principle is also valid even where no delivery has taken place. In this case, claimant’s demands were accepted by the court and defendant condemned to pay.

(c)

Ships and vessels

It is clear that the maritime trade historically has been and remains of fundamental importance to Malta and its economy. Malta objectively remains amongst the most important maritime registers both in the European Union and internationally. Not surprisingly, since it was in the past linked to vital interests of the former imperial masters, Malta’s maritime law and practice are essentially British based, within a civil law and procedure context. The civil law distinction between transfers inter vivos and causa mortis is necessary and material here. Article 32 of the Merchant Shipping Act56 provides that, “[a] registered ship or a share therein shall be transferred by a bill of sale. The bill of sale shall contain such description of the ship as it contained in the surveyor’s certificate or some other description sufficient to identify the ship to 55

56

First Hall of the Civil Court, Mr Justice P Sciberras, Cranes and Commercial Limited vs L Micallef, 17th November 2003. See http: // docs.justice.gov.mt / lom / legislation / english / leg / vol_5 / chapt234.pdf.

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the satisfaction of the registrar, and shall be executed by the transferor in the presence of, and attested by, a witness or witnesses.”

This therefore implies that transfer is by virtue and in pursuance of the bill of sale. There are provisions relative to qualifications to own a “Maltese ship” and a procedure in respect of those not qualified to own a Maltese ship. Those qualified to own a Maltese ship are required to produce a declaration of transfer, being a statement of circumstances qualifying and entitling them to own a Maltese ship. On completion of this procedure, in terms of article 34 of the Act: “(1) Every bill of sale for the transfer of a registered ship or of a share therein to a person qualified to own a Maltese ship shall, when duly executed, be produced to the registrar with the declaration of transfer, and the registrar shall, saving any other provision of this Act, thereupon enter in the register the name of the transferee as owner of the ship or share and shall endorse on the bill of sale the fact of that entry having been made, with the day and hour thereof. (2) All such bills of sale shall be entered in the register in the order of their production to the registrar.”

This therefore illustrates the particularity of the transfer requiring a bill of sale and statement of qualification, which however also requires registration: it would be appropriate to state that the transfer would be dangerously incomplete without proper registration and completion with the Registrar General of Shipping and Seamen. Transfer “causa mortis” is regulated first of all by the rules of succession; however this alone is incomplete, a person who by inheritance is qualified to own a Maltese ship shall in terms of article 35 of the Merchant Shipping Act make, sign and produce, “a declaration (in this Act called a “declaration of transmission”) identifying the ship and containing the several statements required by article 33 to be contained in a declaration of transfer, or as near thereto as circumstances permit, and such declaration of transmission shall be accompanied by such evidence of the transmission as would be acceptable by a competent court as proof of such transmission. On receipt of the declaration of transmission so accompanied, the registrar shall enter in the register the name of the person entitled under the transmission as owner of the ship or share the property which has been transmitted and, where there is more than one such person, shall enter the name of all those persons.”

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Where the transferee by inheritance is a person not qualified to own a Maltese ship, the procedure is a court application to the First Hall of the Civil Court, which is to be filed within four weeks of decease or such extended time not exceeding a year that the court may allow, failing which the ship or vessel will loose registry status of Maltese ship. The court is here directed to allow, if it deems appropriate, the sale of the share under such circumstances fit and appropriate in the justice of the case and to direct payment to the person entitled to the proceeds of payment. There are provisions for a different situation relating to a sale by court order.57 The reflection here is that in context of transfer of shares in ships or a ship or vessel, the transfer is a combined process: the bill of sale in case of transfers inter vivos has to comply with the general requirements of contracts and based on consent. However the document is ad validitatem and in itself not sufficient to complete transfer of ownership since this requires delivery and registration. Transfers causa mortis respect the operation of the law, but require also conformity as to qualification of status to own a Maltese ship and relative formality and registration. Where the qualification to own a Maltese ship is satisfied or attained, consequences flow.

(d)

Aircraft

Malta has a developing and lively aircraft register both in terms of training, leisure and international registration. Registration is regulated by a subsidiary legislation order, “The Air Navigation Order”.58 The Minister responsible for civil aviation shall be the authority for the registration of aircraft in Malta and shall cause such registration to be recorded in a register to be kept by the Director of Civil Aviation. There are grounds for disqualification and qualification of registration of an aircraft in Malta. An application for the registration of an aircraft shall be made in writing to the Director of Civil Aviation, and shall include or be accompanied by such particulars and evidence relating to the aircraft and the ownership and chartering thereof, as may be required to determine whether the aircraft may properly be registered. On being satisfied that the aircraft may be so registered, the Minister shall register the aircraft. Relevant and material for the purposes of our investigation and study is that on registration in terms of article 4 (7) of the Air Navigation Order referred to:

57 58

Arts 35-36 of the Civil Code. See http: // docs.justice.gov.mt / lom / legislation / english / subleg / 232 / 05.pdf.

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“The Minister shall furnish to the person in whose name the aircraft is registered (hereinafter in this article referred to as the ‘registered owner’) a certificate of registration which shall include the foregoing particulars and the date of issue of such certificate.”

The order and registration do not transfer ownership as such: this is regulated by the agreement and particular law governing transfer. The Register would appear here to possess declarative status in the sense that it acknowledges a pre-existing situation. Certainly registration as such does not confer ownership, but acknowledges and certifies that in the view of the Registrar and competent authorities, evidence of ownership is forthcoming and provided to the satisfaction of the Director. Registration also fulfils a regulatory function in the sense that it attributes registration of an aircraft in Malta and subjects registered aircraft to the compliance obligations indicated in the order. A defect in ownership will not be cured by registration, since this registration is only evidence that the requisites of registration have been complied with. There is a similar provision related to the transfer of aircraft whereby any person who becomes the owner of an aircraft registered in Malta shall forthwith inform the Minister in writing to that effect. The register is amended or, in appropriate circumstances, cancelled. The provisions of the Merchant Shipping Act in so far as they related to mortgage of, or privilege over, a ship shall apply to aircraft in such a way as they apply to ships with such modifications and adaptations as necessary. In conclusion on aircraft registration, it is pertinent to add that the authorities have announced the intention that Malta accede to and ratify the Unidroit Cape Town Convention on International interests in mobile equipment. This was in fact enacted in June 2010 through the Aircraft Registration Act, 2010 as part of a comprehensive law on aircraft registration.

(e)

Financial instruments

The relevant law is the Financial Markets Act59 and related subsidiary legislation. The principal law provides at article 28 that, “[n]otwithstanding the provision of any other law, the title to and rights in respect of designated financial instruments, the register of which is maintained in a central securities depository, may be created and, or transferred by an entry on the register maintained in a central securities depository and no instrument in writing shall be required for this purpose. Notwithstanding the provisions of 59

See http: // docs.justice.gov.mt / lom / legislation / english / leg / vol_8 / chapt345.pdf.

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any other law, the title to and rights in respect of designated financial instruments, the register of which is maintained in a central securities depository, may be held or evidenced in a dematerialised or uncertificated form.”

The Register constitutes an authentic record of holdings of financial instruments and transactions thereof. It is open to public inspection at reasonable cost. Moreover, it is provided by means of subsidiary legislation that, “the transfer of the ownership of listed financial instruments that are transacted on a regulated market is complete for all purposes of law upon the payment, in full and final settlement, of the consideration where such payment is effected through a payment system approved and authorized by the Central Bank of Malta in accordance with article 36 of the Central Bank of Malta Act60 and the provisions of article 1347 of the Civil Code shall not apply.”61

The conclusion drawn from the above is that registration here seems to be an essential constitutive requisite. This is inferred from the language of article 28 referred to above, which provides that “title … and rights to may be created and, or transferred by an entry in the register.” Moreover, the subsidiary law referred to is clear that the transfer of ownership of listed financial instruments is complete on payment by an approved method of payment, with the exclusion of article 1347 of the Civil Code, already referred to above in context of the judgement cited related to the transfer of motor vehicles. This article provides for the classical consensual method of transfer already referred to above. namely that, “[a] sale is complete between the parties, and, as regards the seller, the property of the thing is transferred to the buyer, as soon as the thing and the price have been agreed upon, although the thing has not yet been delivered nor the price paid; and from that moment the thing itself remains at the risk and for the benefit of the buyer.”

This means that it is the registration and the inscription (no doubt electronic) as documented also by paper print-outs, as appropriate, that now constitutes the moment of creation of transfer. It is also clear that this law 60

61

See http: // docs.justice.gov.mt / lom / legislation / english / leg / vol_5 / chapt204.pdf. It is most likely that the reference is to article 34, which refers to payments systems in accordance with the Treaty of Rome of the 25th March 1957 establishing the European Community and Statute of the European System of Central Banks and of the European Central Bank annexed to the Treaty, and not to article 36. Transfer of Listed Financial Instruments Regulations, http: // docs.justice.gov.mt / lom / Legislation / English / SubLeg / 345 / 08.pdf.

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and regulations prevail over, and override, the general classical consensual provisions of the Civil Code and that payment through an approved method completes conclusively transfer of ownership.

5.7.

The persectives of the consensual system examined in detail

5.7.1. General The Civil Code of Malta has deep roots in the consensual principle. Based on the Napoleonic model, the “fathers” of the French code such as Domat and Pothier, and the subsequent writers such as Troplong, Laurent, BaudryLancantinerie, Aubry et Rau, Planiol et Ripert, to this day to include Carbonnier, Marty et Raynaud, the Mazeaud brothers, Tunc and Chabas are respected and quoted by Maltese courts and practitioners. Beyond this, the traditional natural law and civil law principle of the autonomy of the will of the parties is also a strong all-pervasive factor in the code: this extends to contract, testamentary dispositions and the relationship between subject and object in the law of property. As indicated, this traditional position is today supplemented and complemented by the contemporary standard form contracts and consumer legislation. Therefore, in principle, and at the underlying strata of the system, it is consent which is the basis of a legal act: Malta does not have a formally developed theory of the legal and juridical acts or of the juridical negotium, although naturally the general principles are received and applied routinely. However, consent is among the four contractual requirements and also is the originating basis of a transfer of ownership: formalities may become essential at a subsequent stage. However, the principle remains that consent originates the transfer or the act, whether it is an act inter vivos, causa mortis, or a procedural act such as filing a writ.

5.7.2. Scope of application of consensual principle It will therefore clearly follow that as good faith, possession, and the requirement of consent are all present within the context of transfers of movable, immovable or other assets. The principle is that party autonomy is respected in so far as it does not violate rules of public policy, morality or public order or other mandatory rules. The Civil Code and other laws, for example insurance legislation, provide for or establish clearly defined typologies of contracts. Parties are, within the parameters indicated, free to establish the content of their contractual stipulations.

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5.7.3. Risk and transfer of ownership The traditionally received rule is that risk and ownership-risk pass on identification of the movable object and conditions of transfer and price, in the case of a sale. Delivery is not essential (arts 994, 995 of the Civil Code, see 5.2. supra). The reasons are partly historical, being the options made during the 18th and 19th centuries of the French civil code as the basis and model of the Malta Civil Code. This is also a reflection of the importance attributed, at the time of codification, to the principle of autonomy of the parties and the general subjective, not objective, choices made by the drafters of the Civil Code in Malta. This has been subject to significant and far reaching amendments and modifications to different branches of the transfer of movables. It is nonetheless open for parties to agree otherwise: the Law of Malta will recognize, contractually and consensually, agreements to delay transfer of ownership or even conditional transfers. Conditions are normally left to the contractual freedom of the parties, subject to the well-known limitations. However within this purview it remains open to parties to agree on and stipulate those modalities deemed appropriate. There are in particular two conditions acknowledged and recognized by the Civil Code. These are suspensive and resolutive conditions. A suspensive condition is defined as, “that which makes the existence of the obligation depend upon a future and uncertain event. An obligation under a suspensive condition does not exist before the event happens.”62

A resolutive condition, on the other hand, is one that, if verified, “operates the dissolution of the obligation, and replaces things in the same state as though the obligation had never been contracted. Such condition does not suspend the performance of the obligation, but, if the event provided for by the condition happens, the creditor shall be bound to restore that which he may have received”.

The accomplishment and operation of the resolutive condition has retroactive effect. In context, parties are within the parameters set out above, to structure their agreement in terms of either of these conditions. The sale of future goods may be valid, provided parties agree on a method of identification of the goods. In principle, future things can form the

62

Art 1063 of the Civil Code.

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subject of a contract.63 Under the title of sale, it is provided that where movables are not sold in bulk but by weight, number or measure, the sale is not complete, and property and risk remain with the seller until they are weighed and counted or measured: it is only then that ownership and risk pass to buyer. The position is to the contrary where the sale of movables is in bulk, meaning that they are sold as one and all at the same price irrespective of weight, number and measure. In this event, sale is complete on agreement of objects and price even though the movables or goods are not yet weighed, counted or measured.64 In principle, if ownership passes on agreement on object and price, the buyer should acquire ownership at the moment of conclusion of the agreement. However, in practice, if there is a time period between conclusion of agreement and delivery, buyer could “manage” by acquiring ownership prior to actual delivery. This notwithstanding, there could be difficulties involved here as to risk and possibly insurance: parties would be well-advised here to clarify their position contractually and distinguish between the promise to (a) sell and transfer and (b) sell on actual delivery. Delayed ownership or the pactum cum riservati dominii is not only valid but is widely used in consumer agreements. In both instances contemplated in this paragraph, there is no legislative framework regulating this situation, rather the framework is entirely contractual and to be constructed by parties.

5.7.4. Transfer valid and effective inter partes or erga omnes? In principle, the transfer is valid between the parties and also erga omnes when the movable is acquired for value and in good faith: this is always subject to special requirements relating to particular movables. If any transfer is done to defraud or prejudice creditors of a debtor, then these creditors could challenge or impeach the transfer by the actio pauliana or revocatoria.65 The traditional commercial law also acknowledges the actio revocatoria fallimentaris. 63 64

65

Art 984 of the Civil Code. Arts 1358 to 1351 of the Civil Code. These articles also include rules relative to things that, according to custom, are to be tasted or tried before the purchase and buyer is not bound unless and until approved. The situation is different where the tasting or trial is only necessary to ascertain that the movables or merchandise are of a good or merchantable quality, in which event parties are bound but subject to a suspensive condition. Art 1144 of the Civil Code.

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Saving these and situations of insolvency examined hereunder, once a movable is acquired, the acquirer may validly transfer it to third parties. For a more detailed discussion of erga omnes effects of security interests and transfers in the context of insolvency, see chapter 9 below.

5.7.5. Use of an object while it is still with transferor There is no specific provision regarding the use of an object while it is still with the transferor. Where the general rule applies, namely that ownership and risk pass on identification of object and on agreement of price and conditions thereof, once idenfication and agreement have been reach and ownership has been acquired by the transferee, use by the other party would appear to be inappropriate and a violation of a property right, unless authorized by the transferee. This applies even where the object has not yet been delivered to the transferee. Where, on the other hand, ownership passes on delivery, the transferor is under an obligation to transfer ownership and to deliver according to the conditions agreed: however, subject to these conditions being satisfied when due, there is no unlawful use of the object. It is material here to refer to article 1393 of the Civil Code, which states that “[t]he thing must be delivered in the same state in which it was at the time of the sale.” Any deterioration of the condition through, but not necessarily, use by transferor between agreement and conclusion of sale, on the one hand, and delivery, on the other, is at the risk of the seller or transferor. This applies independently of the moment ownership passes, whether, that is to say, ownership passes on agreement prior to delivery, or ownership passes on delivery. The remedy of unjustified enrichment is known to Maltese law and has been recently re-stated along traditional lines by an amendment to the Civil Code in 2007. The amendment essentially recodified and restated the position taken in traditional judgements in connection with the actio de in rem verso. Article 1028A of the Civil Code defines the action in these terms: “(1) Whosoever, without a just cause, enriches himself to the detriment of others shall, to the limits of such enrichment, reimburse and compensate any patrimonial loss which such other person may have suffered. (2) If the enrichment constituted a determinate object, the recipient is bound to return the object in kind, if such object is still in existence at the time of the claim”.

The action is generally regarded as an action of last resort, meaning that where another action or remedy is available, a person suffering a loss should

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exercise the other action and not the actio de in rem verso, which in such event is not exercisable. In terms of these articles, the action for illegal or improper or unauthorized use between conclusion of contract and delivery would be exercisable, provided that other ordinary remedies are not available to the person entitled to be compensated for a loss. Such an action is based on the general principles of damages. Entitlement to compensation is assessed and determined in accordance with the rules examined in the preceding paragraphs.

5.7.6. Entitlement to fruits From day of sale, all fruits shall belong to the buyer. In the case of a sale under a suspensive condition, all fruits that fall due or are collected before the fulfillment of that condition shall belong to the seller. On the other hand, those fruits that are uncut or unplucked at time of sale belong to the buyer, even though they may have been sold by the seller. In the case of rent of a movable, rent or any portion thereof due in respect of the period between sale or fulfillment of condition is divided in proportion to the period of time between the sale or fulfillment of condition and the relevant time period of rent.66 It would appear that these articles are not mandatory or of public order, meaning that it is open to parties to derogate from their application by contractual exclusion or amendments thereto. In the case of interest bearing instruments, unless parties agree to the contrary, interest due is received and belongs to seller till date of transfer: it is not uncommon in the case of financial instruments for parties to reach an agreement as to a method of division whereby interests are paid periodically, or for the transfer price to include a provision for accruing, but not due, interests, commonly known as “the coupon”. It is the custom that shares are transferred with all entitlements to accrued but not yet declared and paid dividends: this however is invariably a matter of negotiation and agreement on a case by case basis by contracting parties.

5.7.7. Entitlement to recover the asset if stolen between conclusion of contract and delivery There is no specific provision of the law on the point of entitlement to recover a movable asset if stolen between conclusion of contract and delivery. 66

Arts 1393-1396 of the Civil Code.

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Nevertheless prior to addressing a solution, it is appropriate to examine particular and relevant provisions of the Civil Code. Some rules are partly found in Sub Title III-3 of Book Second “Of Things”. Other articles have been placed under the Title of Prescription, being Title XXV of Part II of Book Second of the Civil Code. Book Second is dedicated to the subject “Of Things” and Part II of this Book is entitled “Of the Modes of Acquiring and Transmitting Property and other Rights over or relating to Things”. The principle is that a person who has lost a thing, meaning here a movable object, or has been robbed thereof is entitled to recover the object on indemnifying the possessor. This right of recovery of a lost or stolen object is however time-barred by the lapse of two years where the third party has received the thing in good faith. The explanation of and comments on good faith, made at 5.74 above, apply here to the sale to different parties of the same movable object. Moreover, the person robbed has the right to recover without indemnifying the possessor where the possessor has not obtained the thing in good faith, under an onerous title, from a party who was presumably the owner thereof or a person charged by the owner to dispose of it. Even at risk of repetition, it would be appropriate to re-formulate and comment on this principle. The person who has lost or been robbed of a movable thing has a right to recover such object by indemnifying the actual possessor. There is no obligation to indemnify where the actual possessor was not in good faith: the law does not mention the term “bad faith”, but states “not in good faith”. This is reasonably, although not necessarily, understood as a situation where objectively, not necessarily subjectively, reasonable grounds exist to lead a person of average and reasonable judgment to conclude that the thing was not properly acquired from the owner: among the circumstances indicated are onerous title and therefore for value, and where the owner – or owner apparent or a person authorized by the owner or owner presumed or apparent – disposes of the object. No doubt, this will be an assessment of fact. The point here is that this leads to the same understanding and interpretation given earlier on sale of the same object to various parties It is relevant to conclude this analysis by reference to the principle that a person who has stolen a movable object, or who became a possessor through fraud, or who has received and even bought the object with the knowledge that it had been stolen, or who acquired it by fraud, can never acquire title through acquisitive prescription. Although the language is self-explanatory, the comment here is that the terms of the articles are rather wide and encompassing: even acquisition through sale in bad faith excludes acquisition through acquisitive prescription. One is led to conclude that if in a contract of sale a price is paid, for example

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an antique precious furniture item or painting, and the item is paid for, however also with the knowledge that it was stolen, no amount of time and possession of the object can lead to acquisition through acquisitive prescription.67 Therefore, the person entitled to recover a movable object between contract and delivery, in the light of the above, is only the owner. The reason is that the rights of recovery, again in the light of the above, are granted to the owner and not to the detentor. On the other hand, the detentor would have the possessory remedy of the actio spolii if such an act has occurred, since this action is available in the case of possession of whatever kind or detention of a movable or immovable thing.68

5.7.8. Special privileges, special hypothecs and droit de suite over particular movables Although not directly connected with the subject under examination, it is worth mentioning that Act VIII of 2007 introduced an amendment to the Civil Code creating a special privilege and special hypothecs over certain particular movables: it is understood that the intention was to create the possibility of a registered security interest over industrial plant and machinery above a certain value. A more recent Act XV of 2008, approved in December 2008. also created the possibility of an actio ipotecaria against certain movables. Both laws, although approved by parliament, have not however been brought yet into force.

5.8.

Payment

As discussed above at 5.2., unless credit terms are agreed, payment and delivery are concurrent and the seller is not bound to deliver unless the buyer pays simultaneously. The legal rule remains in corporeal movables, that saving agreement to the contrary, ownership passes on agreement on object and price: payment is technically independent. In practice the situation is fundamentally different. Payment terms are normally the subject of commercial negotiations. Credit terms may be agreed upon, while on the other hand some suppliers will even refuse to ship or deliver unless payment is made in advance. It may also be worth 67

68

The above is the combined reading of articles 559, 2154 and 2155 of the Civil Code. Art 535 of the Civil Code.

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mentioning that in practice a sale without delivery and payment can have little effect; as can a sale without delivery from the point of view of the buyer, unless the buyer has paid in advance. There is no implied reservation of title in Maltese law: this is created contractually. The unpaid seller has a special privilege over the price valid erga omnes. The difficulty is that the effect of the special privilege is only on the disposal price and, in competition proceedings, over the sale of the asset. In this context, the Civil Code provides to the unpaid seller without credit the remedy of taking back the movable if still in possession of the buyer. Article 1439 is to the effect that, “[i]f the sale of a movable was made without any stipulation as to credit, the seller may, in default of payment, take back the thing sold, if it is still in the actual possession of the buyer, or restrain the buyer from reselling the thing, provided the demand for the recovery of the thing be made within fifteen days of the delivery and the thing be in the same condition in which it was at the time of the delivery.”

The criteria are that (i) the sale of the movable has been made without credit, (ii) the movable is still in possession of buyer, (iii) it can be identified, (iv) it is still in the same condition as at moment of sale, and (v) the demand for recovery is made within 15 days from sale. The remedy is for the seller to physically take back the movable thing or to restrain the buyer from selling it. The article does not specifically distinguish between movables by nature and those by regulation of law; however, it would appear that its applicability be to corporeal movables. Nor does the article indicate whether a degree of self-help here is allowed: the basis of the general theory of the Civil Code relative to possession and spoliation would appear to militate against such a remedy. It may be difficult to assess whether the right to take back the movable corporeal object will still remain valid against third-party creditors of the buyer, particularly in the event of insolvency of the buyer. The Malta Civil Code is silent on the question whether this right is valid against third parties. It is clear that the seller will retain a special privilege over the specific movable and therefore preferential ranking over the proceeds thereof if and so far as the movable forms and remains part of the assets of the insolvent buyer or seized by creditors. The solution in the writer’s opinion lies in identifying the moment the sale becomes perfect and irrevocable: at a moment in time, the sale may no longer be reversed or unilaterally terminated by the seller, either because the time limit has lapsed or due to loss of possession or change in condition. When the sale becomes irreversible, then this particular remedy of taking

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back the object in preference to the buyers of the creditor may no longer be available to the seller. It is also suggested that this remedy of recovering the object is only applicable between the seller and buyer and would not be effective against the seller’s or indeed the buyer’s creditors in insolvency, particularly if such movable corporeal object were seized. It is likely that, here again, actual physical possession will win the day if seized and removed by a third-party creditor, saving any personal obligations and actions between seller and buyer and also possibly a special privilege in favour of the unpaid seller, as long as the object is not transferred or sold again. An aspect of payment linked with the application to the resolutive condition, mentioned above at 5.4, was considered by the First Hall of the Civil Court.69 The case related to a demand for dissolution of an agreement of sale of movables, in this case shares in a company, for non-payment of balance of sale price. Reference was here made by the court to the articles and principles in the Civil Code relating to the implied resolutive condition: “A resolutive condition is in all cases implied in bilateral agreements in the event of one of the contracting parties failing to fulfil his engagement: Provided that in any such case, the agreement shall not be dissolved ipso jure, and it shall be lawful for the court, according to circumstances, to grant a reasonable time to the defendant saving any other provision of law relating to contracts of sale … Where the resolutive condition, whether express or implied, relates to any case in which one of the parties fails to fulfil his engagement, the party who is the creditor in the undischarged obligation may, at his option, upon the accomplishment of the condition, either demand the dissolution of the contract, or compel the other party to perform the obligation, if this is possible.”70

The fact that the object of the sale was movable property excluded the operation of article 1438 of the Civil Code, which establishes that in the case of non-payment of sale price for immovable property, seller cannot demand the dissolution of the sale: in this situation, it was different since shares are classified as movable property. The court held that the tacit resolutive condition was applicable in this case, but also brought into operation article 117 of the Commercial Code,71 since it was a commercial obligation, which provided that the coming into effect of the tacit resolutive condition, determined and caused dissolution of the contract. Moreover, the court held that it had no power to grant defendant 69 70 71

Mr Justice RC Pace, A Busietta pro et noe vs PO Gatt pro et noe, 28th October 2003. Arts 1068-1069 of the Civil Code. The term “Commercial Code” as used hereafter refers to the Laws of Malta, Commercial Code, chapter 13.

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time for payment and accordingly ordered dissolution of the sale. This reasoning was endorsed by the Court of Appeal, which acknowledged the in-depth study of the Court of First Instance and confirmed the Judgement.72

5.9.

Right to dispose

The general principle is that, since transfer of ownership is a derivative acquisition, transfer has to flow from the owner and is invalid unless the transfer is effected by the owner, subject to the following. The original owner enjoys a right to claim back the object from the possessor and to challenge claim of ownership of the actual possessor – the classic actio reivindicatoria. The only person entitled to dispose of and consequently transfer by title a movable object is the owner or his validly appointed legal representative. It also follows that, as a consequence of the unitary concept of ownership, the right to dispose, along with other rights and incidences flowing from ownership, passes to the transferee on the passing of ownership. As a general rule, this is at the moment of conclusion of contract, although of course parties remain generally free to stipulate different modalities relating to transfer and payment terms. Often, retention of ownership is used as a guarantee mechanism. As a passing remark, the British practice of an object held by the seller in trust for a buyer until the entire price is paid, or building materials held by a contractor in trust for the owners, is only recently gaining use in Malta. A person acquiring from a non-owner may acquire by acquisitive prescription: this is however subject to the limitations already referred to of acquisition not in good faith from a person who cannot be presumed owner, and subject to the other limitation concerning when the object was stolen or acquired in the knowledge that it was stolen. The above applies to corporeal movable objects: in different scenarios where a movable asset is registered, such as a trade mark, a financial instrument, shares in companies or other movables where a central registry exists, it is difficult to envisage the scenario of a sale by transfer by a person whose name is not on the register. Fraudulent claims to ownership and subsequent transfer are normally regulated by a special law, such as that relating to the registration of trade marks and the community trade mark where the intellectual and proprietary rights in such a mark are owned by a third party and not by the party successfully registering. Different legal rules relative to the right to dispose may apply where there are different capacities, such as where the transferee a non domino inherits the actual owner. Another possibility could be envisaged where the 72

Court of Appeal, 30th May 2008.

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transferee inherits a legacy to the particular object from the actual owner and is therefore entitled to ownership and to be put in formal and technical possession by the heirs. It is also possible that the actual owner ratify an act of “transfer” by a non-owner, but this will be rather a new and fresh transfer since the actual person, not the owner, was unable by virtue of not being owner to effect the transfer. The situation is different where the validly appointed mandate was not authorized, within the terms of his or her authority, to transfer and therefore exceeded the limits of authority. Ratification is valid, but governed by the law of mandate and agency.

6.

Double sale – transferor selling a particular movable twice

The question is clearly explained by Art. 997 of the Civil Code, which establishes that, “[w]here the thing which a person has by successive agreements undertaken to give or deliver to two or more persons is movable by nature, or a document of title payable to bearer, the person to whom the thing is delivered, and who obtains it in good faith, shall have a prior right over the other or others and shall be entitled to retain it, even though his title is subsequent in date.”

This article is first of all limited in scope to movables by nature and to documents representing title, and principally today to share warrants to bearer. There is here an illustration of the principle, to be discussed later at 13.2., that in the case of movables, possession in good faith confers title. This means that the acquirer in good faith to whom the thing has been delivered will have the title over previous acquirers. Good faith here means circumstances that objectively and reasonably lead an acquirer, taking delivery, to conclude that he or she was acquiring title: a person effecting the transfer who presumably appears to be the owner in the circumstances would justify such a reasonable assumption. Payment for fair value is another indication of good faith. The other “acquirers” would have a personal action against the seller for damages following failure to deliver or honour the agreement, but not an action against the acquirer who has title by virtue of this article for the surrender or delivery of movable object by nature. The significance of the principles enunciated in the preceding paragraphs is that, in the instances contemplated, the principle of consent or party autonomy alone no longer remains, in itself, sufficient for the validity of the transfer. This is a significant departure from earlier situations exam-

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ined, which attribute fundamental effects to consent. One witnesses here the critical importance of the taking of possession in good faith, which in the circumstances supersedes consent as the basis of transfer. A rule relative to assignment of debts is worth mentioning here: the general rule is that notice of such assignment is required to be given to the debtor, unless the debtor himself acknowledges the assignment, in which case no notice is necessary. In the event that no notice is given in respect of the first assignment, and the creditor makes a second assignment of the debt to a person who is in good faith and who gives notice to the debtor, such second assignee shall be preferred to the former73.

7.

Selling in a chain with direct delivery

In a similar interface of principles, selling in chain with direct delivery is based on three factors: consent, good faith and possession. That transfer by an owner passes with consent should be clear, even though delivery may take place later. The question to be addressed is the effect of a sale of a movable by a non-owner, particularly if the object is subsequently sold. For example, A sells to B, B subsequently sells to C, who sells to D. If A sells a non domino to B, B may annul the contract, demand refund of sale price and ask for damages. However, in subsequent transfers, acquirers in good faith of a corporeal movable will acquire good and valid title on the basis of the possession vaut titre rule. The point here is that the rule moves away from the consent principle alone to other variable principles, such as good faith and possession. It is to be stated that where formalities of registration are concerned, such as a vehicle, or a vessel or aircraft, the principles indicated in the previous paragraph do not find identical application. The reason is that an examination in the case of each movable is to be undertaken to identify whether registration is constitutive or declaratory: a declaration of acquisition will not necessarily be valid if there is a substantial defect in the transfer, but this is not always the case since in some instances, it is registration and formality that create and constitute title, and on which basis the movable asset is transferred.

8.

Indirect representation

Maltese law does not recognize the concept of representation in the sense normally attributed to the German concept: agency is part of and applies 73

Art 1471 of the Civil Code.

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in so far as not incompatible with the law of mandate.74 The law of commercial agency received the European Union Directive on the matter as part of the transposition of the acquis communautaire prior to Malta’s accession in 2004.75 The situation on indirect representation is not specifically regulated. The European Directive on agency was transposed into the Commercial Code. However, this transposed directive replaced the former provisions of the commercial code, which were based on the French and Italian codes of last century and which distinguished between the figures of the commission agent and the commission merchant. The commission agent acted as a pure agent, could bind the principal within the limits of authority, performed functions of commercial support, marketing and publicity and was remunerated by a commission. The buyer of the goods was at all times aware of the identity of the principal and the agency capacity of the commission agent. On the other hand, the commission merchant acted for an undisclosed principal and often acquired the goods himself. A typical example would be a goods warehouse offering for sale goods from various principals. The distinction in this case is that apart perhaps from the origin as disclosed by trade marks or other marks of origin, the relationship would always be between the commission merchant and the prospective purchaser. The articles on the commission agent and commission merchant agent were abrogated by the more recent legislation reflecting the European Union directive. It is, however, the opinion of the writer that the former provisions could still well be applied as a commercial custom in so far as they were not a consuetudo abrogatoria or not a consuetudo contra legem. This leads us to ask the question as to what happens to the ownership of the goods “handled” by an agent. Of course the natural and allied question is how far such merchandise would be subject to claims of the agent’s creditors. It would appear that this distinction is of considerable use because the particular capacity of the intermediary, whether that is to say a commission agent or commission merchant, qualifies and defines the ownership of the merchandise. A commission agent as a rule never owns the merchandise since these are sold and placed to the customer’s order, although the commission agent may also be liable towards the supplier independently. On the other hand, the commission merchant owns the goods that are subject to all his personal liabilities. In conclusion, the present legislation is based on the concept of mandate and representation, as the classical principal-agent concept. 74

75

Art 49 of the Commercial Code, http: // docs.justice.gov.mt / lom / legislation / english / leg / vol_2 / chapt13.pdf. Arts 70 to 78J of the Commercial Code.

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9.

Insolvency

In context of the effect and validity of transfer of movables, certain questions require investigation. These involve the effects that certain legal situations may have on transfers. The context to be investigated is whether and how far the rules of insolvency have an effect on the rules of consent and transfer. In addition to insolvency issues, this chapter includes a brief review of security interests, such as pledges in general. They are treated here since they are connected with the question whether, and to what extent, transfers are valid erga omnes.

9.1.

Pledge

Pledge and the seller’s creditors in case of insolvency require attention. Pledge of traditional corporeal movables is regulated by the Civil Code.76 This gives the right to sell and dispose of the movable with privileged ranking, as long as the pledgee is and remains in possession of the movable object. The pledge is not subject to registration and does not allow the jus distrahendi: the pledgee may only sell the corporeal movable and get paid, but may not appropriate such movables. The pledge of shares and securities is now a matter for the Companies Act: pledge is to be recorded in writing, notified both to the company and to the Registry of Companies. Subject to fair value agreement or ascertainment and the rights of pre-emption in the case of private companies, the creditor may either sell the shares or acquire them himself or herself. There are also particular rules relative to pledge of receivables: however, this does not appear relevant to our enquiry. It is not clear how far sale or transfer of unregistered movables for value to a third party in good faith would be annullable at the instance of the pledgee creditor. It is more likely that, if the pledgee creditor could ever get to the proceeds, then there would be a priority or a privileged ranking. In the case of a registered pledge on securities, transfers inter vivos are null and void unless consented to by the pledgee, whereas transmissions causa mortis remain valid subject to the pledge and the conditions thereof. A pledge of dividends to be issued by a company will be recognized as valid. A more recent innovation is the introduction of specific regulations relative to the pledge of securities held in a Maltese SICAV (société d’investissement à capital variable):77 this follows generally the pledge of

76

Arts 1964 to 1986 of the Civil Code.

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shares in public or private companies but also includes the possibility to require the SICAV to re-purchase the shares pledged.77

9.2.

Insolvency

Insolvency in general is beyond the scope of this study on transfer of movables, which is necessarily selective in assessing relevant provisions of insolvency.

9.2.1. Bankruptcy of trader Within the titles of the Commercial Code,78 Part III provides the relevant articles and provisions applicable to the bankruptcy of the sole trader. This Part applies to the sole trader and not to commercial companies or partnerships. An insolvent trader may either file a declaration of bankruptcy in the competent court or a creditor may demand a court declaration of bankruptcy. The perspective of the administration of the bankrupt’s estate provides that as from date of the declaration of bankruptcy made by the trader himself or, as the case may be, from the date of the judgment declaring the bankruptcy, the bankrupt is ipso jure dispossessed of the administration of all his property, whether corporeal or incorporeal, and whether relating to his business or not.79 It is therefore provided that every act transferring property, whether corporeal or incorporeal, including any renunciation of any succession whatsoever or of an acquired prescription, and every obligation incurred or other act made by the bankrupt under a gratuitous title for the purpose of defrauding his creditors, shall be null and void as regards the body of creditors, of whatever kind they may be, even though the parties interested may be in good faith. If it can be established in this context that an obligation act or payment made or incurred by the bankrupt under an onerous title, was carried out where the interested counterparty acted fraudulently, such act, obligation or payment is subject to annulment. An interested party shall be deemed to be in fraud, if such party knew either of the bankruptcy or of circumstances 77

78

79

LN 361 of 208, http: // docs.justice.gov.mt / lom / Legislation / English / SubLeg / 386 / 02.pdf. See http: // docs.justice.gov.mt / lom / legislation / english / leg / vol_2 / chapt13.pdf – arts 477 to 540. Art 486 of the Commercial Code.

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giving rise to bankruptcy.80 The context and relevance also relates and extends therefore to transactions of transfer, sale and acquisition of movables made either immediately before or during the course of bankruptcy either by gratuitous title, or even under onerous title where the other party was in fraud, meaning awareness of the bankruptcy situation. This leads to a payment or a transaction being subject to annulment. The Part on bankruptcy in the Commercial Code also contains specific provisions relative to certain rights of recovery.81 Although not specifically stated, it is clear that these rights refer to merchandise and to documents or bills related thereto. The first category of things that may be recovered are bills of exchange and other documents of title yet unpaid, which are found in possession of the bankrupt at the time of the bankruptcy, where such bills or documents of title have been endorsed by the owner for collection for his own account. This refers to a situation where the unpaid bills or documents, in all likelihood issued by the seller or transferor of the goods, have been endorsed by the issuer who is also the seller, so that the issuer / seller can collect any amounts due, or titles, for his account. This is a measure of protection to the issuer of the bills or documents, or owner of goods, who can recover and retain separately from the bankruptcy administration, the goods or bills representing collectibles or amounts due. A similar measure entitles the recovery by the owner or seller of goods delivered to the bankrupt, or to be sold on account of the owner, so long as the same goods exist in whole or in part. The right of recovery extends to the price or part of the price of such goods, if such goods have not been paid in cash or set-off in any concurrent transactions between bankrupt and the buyer. In the present writer’s view, however, the language of the Malta Commercial Code on the right of recovery, just referred to, may not be sufficiently clear. Therefore the extent of application remains to a degree an unresolved question. Goods sold to the bankrupt or forwarded for his account may be recovered, so long as they are in his possession. Nevertheless, such right of recovery may not be maintained in cases where, before their arrival, the goods have been, without fraud, sold on invoices or bills of lading signed by the party forwarding the goods. The party recovering the goods shall be bound to return to the estate the sums received by him or her on account, and all advances made in respect of freight, commission, insurance or other expenses, and must pay what remains due in respect of such charges.

80 81

Art 486 of the Commercial Code. Arts 505-509 of the Commercial Code.

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The code also recognizes the right of a seller who has not delivered the goods to the bankrupt or a third party on behalf of the bankrupt party, to withhold delivery and retain the goods. However in the case where goods may be recovered or, as indicated herein, where a seller is entitled to retain the goods, the curator / s of the bankrupt may, with court authority, pay what was agreed between the bankrupt and the seller, and take the goods.

9.2.2. Insolvency of companies The Companies Act82 regulates companies and commercial partnerships: the Act contains lengthy and detailed provisions about dissolution and winding up of companies beyond the purview and relevance of this examination. What is material for our purpose are the provisions and principles relative to insolvency and the transfer of goods. In context, there are no specific provisions relative to sale and recall of goods as found in the case of bankruptcy of a sole trader. Rather, consequences are established for transactions prior to or during the winding up process. The first rule, in context of the protection of the principle of par condicio creditorum, is that any act constituting a fraudulent preference against creditors is void, or more likely annullable, if this happens within six months prior to the dissolution of a company. Article 303 of the Companies Act provides that, “[e]very privilege, hypothec or other charge, or transfer or other disposal of property or rights, and any payment, execution or other act relating to property or rights made or done by or against a company, and any obligation incurred by the company within six months before the dissolution of the company shall be deemed to be a fraudulent preference against its creditors whether it is of a gratuitous nature or an onerous nature if it constitutes a transaction at an undervalue or if a preference is given, unless the person in whose favour it is made, done or incurred, proves that he did not know and did not have reason to believe that the company was likely to be dissolved by reason of insolvency, and in the event of the company being so dissolved every such fraudulent preference shall be void.”

A transaction at undervalue is defined in detail, as are other consequences of such fraudulent preferences. Our concern is that transfers or disposal of movables in insolvency, where the transferor sells at undervalue or gives preference, constitutes a fraudulent preference to the creditors, which may be challenged and annulled. Such fraudulent preference can be established 82

See http: // docs.justice.gov.mt / lom / legislation / english / leg / vol_11 / chapt386.pdf.

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and proved, unless the other party can successfully prove that the company was likely to be dissolved by reason of insolvency. The defence of fair value in good faith is likely to be material and determining here. Certain transactions, happening within 12 months immediately before deemed date of dissolution or during the dissolution process, are also qualified as offences by the company officers and carry a significant maximum fine and imprisonment.83 An officer may be deemed to have committed such offence if, prior to deemed dissolution as aforesaid, he / she has pledged or disposed of any property of the company that has been obtained on credit and has not been paid for, unless the pledging or disposal was in the ordinary course of the company’s business. This does not afford a direct civil or commercial remedy to the creditor; however, it is a serious sanction and deterrent to inappropriate transfers or pledges of the company’s property: the pledge is a specific indication to movable property, while transfer includes both movable and immovable property. It is worth mentioning that the counterparty, in whose favour the asset is transferred or pledged, may also be deemed an officer and therefore potentially subject to a fine. Fraud committed by officers during the winding up process is also punished as an offence subject to penalties with potential significant fines and imprisonment on the finding of responsibility. This includes the making or causing of any gift or transfer or charge of property of the company, and failure to fully and truly reveal to the liquidator all property, movable and immovable, corporeal or incorporeal, of the company, and how and to whom and for what consideration and when the company disposed of any part thereof, except such part as has been disposed of in the ordinary course of business. This is illustrative of the protection and sanctions applicable in the case of insolvency and applies to transactions also involving movables. Of course, the sources belie their origin: the Commercial Code formed part of the Napoleonic model codification in Malta enacted in 1857. The Companies Act assimilates the common law and adopted English statutes and practice, and more recently the European Union regulations and directives were assimilated. Inevitably their content and method are diverse.

9.2.3. Insolvency of seller / transferor The following are considerations which are relevant in conjunction with the general reflections made on insolvency, and apply specifically to the situations of transferor and transferee.

83

Arts 307-309 of the Companies Act.

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In the event of insolvency of the seller (B) selling movable objects or merchandise to a buyer (C), the unpaid seller (A) of the same objects could exercise an actio revocatoria to challenge the sale. Whether, in situations of insolvency, the special privilege on movables of the seller would be maintained remains unclear, since the law is silent on the matter and the law of bankruptcy is generally against the creation of preferences. However the presumption is that security interests and ranking created prior to insolvency remain valid even after insolvency, if they were created without fraud or intention to create fraudulent preference and were established in the ordinary course of business. On the other hand, the privilege is a guarantee in rem, a real guarantee, and arises ex lege without any particular act of the debtor B. It is worth mentioning that the special privilege of a pledgee is lost if the object is no longer in control of the pledgee, whereas in the case of the unpaid seller, this is not necessarily lost if seller no longer holds the object. In the writer’s experience as a practising lawyer, perhaps the most effective remedy in similar circumstances is actual physical control of the goods, leading to an exercise of the jus retentionis. While, on the other hand, under Maltese law the right to retention generally only gives the right to hold the object in one’s control, it neither gives the automatic right to sell nor the right to acquire, and it creates no preferential ranking. The right of retention remains nevertheless a powerful and often determining mechanism, albeit an unrefined self help version of security. While there is no general theory of identification of the object, in situations of insolvency and actions to impeach transfers or disposables, it is essential that the individuality and the tracing of the object be retained: the term tracing is not of course used in the common law sense, but rather to indicate an evidentiary path of establishing a link with the object. If, on the other hand, there is no link to a particular object, the general rules of ranking on insolvency apply. The conclusion, therefore, would appear to be that the remedy would be the actio revocatoria. How far rules relating to ranking would apply remain inevitably case and context specific. The position of the unpaid creditors of insolvent seller B appears to be different from that of the unpaid seller A to B. Whereas the unpaid seller A could have a claim or a justification based on a special privilege on the movable, as a real security, the position of other general creditors would be based not on the specific asset but on the general principles of guarantees and ranking, e.g. a general hypothec on all assets present and future of insolvent seller B. The rule of the actio revocatoria or the revocatoria fallimentaris would also apply, but ranking would be treated differently from that of the unpaid seller A. The effect of the actions of revocation would be to restore the asset to

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the pool of assets of insolvent B, but that in itself would not necessarily create any preferential ranking since that would be determined by other rules and criteria. The situation is similar if a seller were to ‘sell’ goods unpaid to a buyer who is at the time insolvent, or became subsequently insolvent. There is a limited right of recall in terms of article 1439 of the Civil Code – this has been referred to at 5.8. above, and is discussed and qualified below in the next paragraph. Apart from this limited right, unless seller has reserved the right of ownership over the object until payment, the remedy remaining is the special privilege available to the unpaid seller. Perhaps the most effective remedy, particularly if goods are in transit, is the actual physical recall of the goods, although this cannot be without legal complications if a bill of lading or invoice has been issued by the seller to the buyer, meaning that ownership of the goods could have already passed to the buyer. Any such recall could also be challenged by the creditors of the buyer to form part of their common guarantee on the basis that it violates the pari passu or rules of preference. The basis of this challenge is that, if the sale price were received, it would form part of the common guarantee of the creditors whereas the recall could indirectly serve to avoid the pari passu rule or privileged creditors since, if ownership did not yet pass, the sale is not perfected and the object remains owned by seller.

9.2.4. Insolvency of buyer / transferee The following is to be understood in conjunction with the general reflections on insolvency, and apply specifically to the situations of transferor and transferee. The insolvency of the buyer (transferee) becomes material to the extent that the purchase price is not fully paid. The rules relevant to ranking of the seller by virtue of a special privilege over the movable, and the right of the buyer to take back the object, become relevant. This has been discussed at 5.8. above.

9.2.5. Powers of insolvency administrator There is one additional point on insolvency: namely whether there are rules providing the insolvency administrator with something like a right to choose between upholding (and fulfilling) a contract or terminating it. (Typically such rule exists for contracts which are not fully performed by both of the parties).

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In principle, the powers and duties of an administrator in insolvency are to sell and realize best, or best possible, value for the assets, establish ranking for creditors, and settle the assets in accordance with the ranking established. Those creditors who do not enjoy preference rank pari passu. The Companies Act is generally silent on specific powers of the liquidator. This is therefore accepted to mean that a liquidator or official receiver – the liquidator by default – is vested with all powers necessary to carry out his function. This means that the liquidator is bound to honour existing contracts. Occasions are not unknown where a liquidator continued the business of an industrial concern or plant to honour outstanding commitments on the order book, rather than face the consequences of terminating or not fulfilling outstanding obligations. The remedy of a “company recover procedure” as defined under the companies act, even though not within the scope of this paper, is worth a reference.84 In principle, a liquidator enjoys no right to “pick and choose” which obligations to honour or dishonour. The company is bound by all its former obligations on dissolution and any variation therefore is a commercially negotiated process. One has to bear in mind that dissolution and winding up processes may be supervised by creditors who will, in all likelihood, retain a controlling if not determining influence on the choices and decisions of the liquidator. Instances of such involvement include disposal of assets and, where possible at law, negotiation with creditors or bondholders. The figure of a liquidator, although derived from British company law and practice, is in many ways in the legal system of Malta assimilated to that of an administrator. This is partly due to the civil law substratum and partly due to practice. For example, an administrator is normally regarded as exceeding his limits by compromising or submitting a matter to arbitration, unless expressly authorized by the terms of the mandate.85 A liquidator has normal and ordinary powers to realize and dispose of assets and settle liabilities. However, in the case of extraordinary decisions, a liquidator would be well and prudently advised to seek the appropriate resolutions of shareholders, as the owners of the interest, the creditors and, where necessary, court approval.

84 85

Art 329B of the companies act. Art 1867 (1) of the Civil Code.

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Part III: “Original” acquisition – no direct transfer of ownerhip from owner to transferee 10.

Occupancy, treasure trove and finding

The relevant articles86 introduce Part II of “Book Second” (II) of the Civil Code: this is entitled “Of the modes of acquiring and transmitting property and other rights over or relating to things.” This enunciates and establishes this fundamental architectural pillar and structural leitmotiv of the Malta Civil Code, and reflects the corresponding title in its French code civil model. It is stated that: “Ownership and other rights over things, or relating to things, may be acquired and transmitted by succession, or by virtue of an agreement or by means of prescription.”

This, therefore, acknowledges that the Civil Code is based on the notion of ownership, meaning private ownership, which can be transferred and acquired. The principal modes of transfer of ownership are: first, succession “causa mortis”; second, contract, for example sale, exchange, donation; and third, acquisitive prescription. In addition, in terms of article 560(2) of the Civil Code, “ownership may also be acquired and transmitted by occupancy or by accession.” Occupancy consists in taking possession of a corporeal thing that is not owned by any person but is capable of being owned by a person: such adprehensio possessionis is to be made with the intention of acquiring ownership. Unless the law provides otherwise, the occupant shall acquire the ownership thereof. This provision therefore refers the acquisition of ownership to the rules of acquisitive prescription. Ownership is acquired by the person who actually takes possession. Good faith is not required once the corporeal movable is not already owned by another person. If the movable is already in ownership, then the rules of acquisition of movables already assessed come into operation: in this case, there can be no occupancy since, by definition, the movable object is capable of being owned but is not actually owned. 86

Arts 560-584 of the Civil Code.

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The Civil Code on this matter remains generally basic and rudimentary and refers, harking back to the Roman law sources, to acquisition of animals and swarms of bees! There are other provisions relative to treasure findings, partly – but for all practical effects, largely – superseded by a special law on cultural heritage.87 The term “treasure trove” is used to mean and include any movable thing, even though not precious, which is concealed or buried, and of which no one can prove himself to be the owner. The finder of a movable thing, not being a treasure trove, is bound to restore it to its previous possessor.88 It is significant that delivery is not to any known owner, but to the previous possessor: this is another illustration of the underlying theme of the importance attributed to the possession of a movable. Where in terms of the Civil Code, the former possessor is not known, the object is to be handed to the police who are bound to publish twice the fact that a lost object has been delivered to them. If it is not claimed within a time period, it shall then belong to government. This rule does not apply to things that have been cast or have fallen into the sea, or have been thrown by the sea on the shore. Likewise, it does not apply to plants and herbs that grow on the seashore, or on the seabed, except in so far as the rights over such things are not regulated by special laws. Likewise, fishing for coral or similar objects that are naturally formed or grown on the seabed or the “bottom of the sea” is not allowed, without special permission.89

11.

Accession, specification and commixture

11.1.

Accession

The rules in this title appear to be default rules. Parties are free to deviate from them by consent and accord. It has to be added however that the question has not, to the knowledge and experience of the writer, ever been tested by the courts of jurisprudence. Accession of both movables and immovables is also specifically regulated by the Civil Code. It is defined as, 87

88 89

The Cultural Heritage Act, http: // docs.justice.gov.mt / lom / legislation / english / leg / vol_14 / chapt445.pdf. Art 43 (6): “Every movable object forming part of the cultural heritage discovered in any location within Malta, its territorial waters, and its contiguous zone whether found in authorised or illegal excavations or exploration or accidentally in the course of any work or any other manner shall belong to the State.” Art 564 of the Civil Code. Art 565 ibid.

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“the right whereby the person who has the property of a thing acquires the property of all that the thing produces, or that becomes united to, or incorporated with it, whether naturally or artificially.”90

The articles under the title of “Accession” refer also to “Commixture, Confusion and Specification”. The first rule relates to fruits: natural, civil and industrial fruits belong, by accession, to the owner of the thing that is subject to ane obligation to refund the expenses incurred by third parties for the production or preservation of such fruits. Accession to immovables is mentioned in so far as relevant to movables. Where materials belonging to another are used by an owner for construction or works on an immovable, the owner is bound to pay the cost thereof and, if in bad faith, also damages and interest. The owner of the materials is only entitled to take back such materials that can be separated without causing damage. If a third party in possession utilizes his own materials, the matter is regulated by the provisions of the Civil Code relating to the owner and possessor, and this depends whether the possessor was in good faith or otherwise. Moreover, where a third party has made use of materials belonging to another for construction or works on an immovable, the owner of the materials is not entitled to recover them, but is entitled to an indemnity from the third party and, to the extent unpaid, even from the owner of the immovable. It is peculiar to these rules that the Civil Code contains a rare reference to equity, one of the three found in the Civil Code.91 It is provided that the right of accession to movable things belonging to several owners shall be governed by the principles of natural equity. This is not, of course, a reference to common law equity as developed by the Courts of Chancery, even though some of these principles, along with traditional common law rules, are found elsewhere in the Maltese legal system, but rather is to be understood as the principle of natural reason forming one of the important bases of the civil law tradition and codification. Where two things belonging to different owners have been united in such a manner as to form a whole, but can nonetheless be separated without considerable damage to either of them, each of the owners shall be entitled to demand separation and retain ownership. Where, on the other hand, the 90 91

Art 566 ibid. The other two articles refer to a situation where decisions in a civil partnership may be impeached if contrary to equity (art 1667) and the celebrated article 993 – “Contracts must be carried out in good faith, and shall be binding not only in regard to the matter therein expressed, but also in regard to any consequence which, by equity, custom, or law, is incidental to the obligation, according to its nature”.

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two things cannot be separated without considerable damage, the owner of the principal thing shall be entitled to retain ownership of the thing that forms the principal part, subject to his or her obligation to pay the affected owner the value of the thing united to his or her own. There are two criteria mentioned in the law to define a part as “principal”. The first is by reference to the accessory: if such other accessory part has been united merely for use, adornment or completion of the former, then the other part is deemed as the principal part. The second is that where neither part can be considered accessory, the one that has greater value, or where values are approximately equal, the greater bulk, shall be deemed to be the principal. There is here an important caveat in the sense that if the thing united is much more, or significantly more, precious than the principal thing, and has been made use of without concurrence of the owner, the owner of the precious one has two options: he or she may either appropriate the whole and pay the owner of the principal thing the value thereof (without the value of the precious part united) or demand the separation of the thing united even though such separation may cause damage.

11.2.

Specificatio

This addresses the long discussed question of acquisition of a new thing by making it of materials belonging wholly or partly to another, creating in fact a nova species.92 The Roman law and the Sabinians and Proculians discussion, have somehow also filtered down into the Malta Civil Code. The articles thereof provide that where an artificer, that is to say a skilled or even a creative worker capable of creating or “inventing” an object, has made use of materials not belonging to him for the purpose of producing a thing of a new species, the owner of such materials shall be entitled to the ownership of the thing.93 This applies independently of whether the materials can be restored to their pristine condition, and is subject to the obligation of paying the artificer for the workmanship. Where, in similar situations and for the purpose of creating a thing of a new species, the artificer has made use of materials partly belonging to himself or herself and partly belonging to others, and neither materials have transformed the thing, such thing shall belong in co-ownership where such materials cannot be separated without injury. The respective shares shall be established on the basis of each respective con92

93

WW Buckland, ed P Stein, A text book of Roman Law from Augustus to Justinian (1975) Cambridge University Press 215-216. Arts 577 to 579 of the Civil Code.

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tribution, that is to say, value of each material and price of workmanship. Where, on the other hand, the value of the workmanship is so valuable that it considerably surpasses the value of the materials, the workmanship shall be considered as the principal object and the artificer is entitled to ownership and today probably also ownership of the intellectual property, on paying for the material. In a contract of works or services, the presumption, saving agreement to the contrary, is that it is the party commissioning who owns the material object and also the intellectual property, even though this may have been created by the other party, for example, an architect, a musician, a composer or an artist. The basis is that the party who has given the commission pays for and acquires not merely the materials of the object (e.g. a canvas in the case of a painting or a paper in the case of a composition) but principally the intellectual creation thereof. It has to be added that a discussion of the copyright relationship between the person commissioning a work of intellectual or spiritual creation and an artist extends beyond the scope of this study.

11.3.

Commixture

These rules refer generally to a situation where a mixture of materials belonging to different owners has lead to the creation of a new thing, different from the materials.94 There is no distinction as to the actual materials utilized. Good faith is not mentioned in the Civil Code and, therefore, does not appear to be specifically relevant to commixture; whereas, the general rules on good faith, as far as relevant, apply. Accordingly, where a thing has been formed by a mixture of different materials belonging to different owners, and such materials can be separated without injury, the owner who has not given his consent to the commixture may demand separation thereof. Where the materials cannot be separated, or such separation cannot take place without injury, the thing created becomes common property in proportion to the value of the materials belonging to each party. Where the new thing becomes common property, this entitles each co-owner to demand the judicial sale thereof by auction for common benefit and at common expense. The rules on judicial auction are specifically regulated by the rules on co-ownership under the title of co-ownership generally, in context of immovable property;95 however they are also applicable to situations of co-ownership of movable property. Parties are free to agree on whichever method they deem best either to dispose of the object, or even to partition: this requires common consensus. 94 95

Arts 580 to 584 of the Civil Code. Arts 489 to 523 of the Civil Code.

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In default of common accord, the object, where possible and convenient, can be divided, otherwise it will be sold either by court auction or by any other method of sale which parties may select unanimously, for example, a private auctioneer or dealer in the case of objects of art or precious metals or jewels. A different position emerges where the materials belonging to one owner can be deemed or considered the principal object, or are superior in value to the materials of the other owner or owners. In this event, if the materials cannot be separated, the owner of the principal materials, or those of higher value, is entitled to ownership subject to an obligation to payment to the other owner of the value of materials. In all cases where the owner of the materials employed without his or her consent is entitled to claim ownership, such owner is moreover entitled to demand that either the materials or the same quality or quantity be returned to him, or the value thereof. There are no specific rules in the Malta Civil Code in the case of accession, specification and commixture of materials belonging to a third party under a reservation of title. The opinion of the writer is that the same rules apply by analogy, in the sense that the party who has a right of reserved or delayed transfer of ownership will be regarded as the actual owner. Within the context of the rules of ownership, the principles referred to above apply, saving any different agreement by parties. Maltese law does, as a rule, recognize rights of security in rem over corporeal movables, such as a mortgage over a ship, a special privilege, which may, as outlined before, carry a droit de suite over immovables and particular movables as may be prescribed.96 The relevant point perhaps is that the secured creditor in rem has a preferred claim over the proceeds of the res, and entitlement to demand and cause the sale of the object, without distinction as to ownership entitlement. The other rules apply to the ownership thereof. Therefore, it would appear that the two rules in context can both operate independently and without contradiction. On the other hand, a person making use of materials belonging to others without their consent is liable both in civil damages and may also face where appropriate criminal proceedings. There are no specific rules as to whether acquiring property rights by accession, specificatio or commixture requires legal capacity and the general rules of capacity apply, that is to say, all persons of majority age (18 years in the civil law of Malta) of sound mind are capable of contracting, unless they are under a legal disability to contract, being either incapacity (prohibition from particular contracts) or interdiction (a general prohibition). 96

Amendment to art 2002 of the Civil Code by Act VIII of 2007 introducing a droit de suite of particular movables as the Minister of Justice may from time to time prescribe. The amendment has been approved by the Parliament of Malta but not yet brought into force, as at time of writing.

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12.

Good faith acquisition

Good faith is a cornerstone in the law of acquisitive prescription. In context and by way of background, it would be appropriate to refer briefly to various instances within the Malta Civil Code where good faith is mentioned. An important reference to good faith is in the law of succession where the acceptance of an inheritance shall retroact as from the day of the opening of the succession, saving any right that may have been acquired by third parties in virtue of agreements made in good faith with the apparent heir.97 There is then the celebrated article on execution of contracts: “Contracts must be carried out in good faith, and shall be binding not only in regard to the matter therein expressed, but also in regard to any consequence which, by equity, custom, or law, is incidental to the obligation, according to its nature.”

This article is regarded as the basis of the overarching principle of obligations, that contracts are to be executed in good faith. Another example is under the cluster of articles regulating quasi-contracts, specifically indebiti solutio. It is provided that where a person pays a debt under a mistaken belief that the debt is due by him, there is entitlement to demand restitution. This right of recovery is, however, lost if the creditor has, in consequence of the payment, in good faith, deprived himself of the proof of, or the security attached to the debt, saving the right of the payer against the debtor who in actual fact owes the amount. The principle is developed in the sense that any person who has unduly received the payment of a sum of money, shall, if he was in bad faith, be bound to restore both the capital and the interest thereon as from the day of the payment. Where, however, such person was in good faith, he shall only be bound to restore the capital.98 A final example relates to the content of fiduciary duties and obligations, where a fiduciary is bound to carry out his obligations with utmost good faith and to act honestly in all cases.99 These references are not exhaustive, since there are various others, but are referred to demonstrate and underline once again that good faith is a fundamental pillar of the entire civil law, particularly contracts and obligations. In the case of acquisitive prescription, good faith also plays an essential role. The following paragraphs will illustrate further details. However at a general glance, good faith is relevant for a ten year acquisitive prescription in the case of immovable property, has important effects in the relations 97 98 99

Art 849 of the Civil Code. Art 1022-1023. of the Civil Code. Art 1124A (3) of the Civil Code.

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between possessor and owner as to expense, improvements, fruits and interests. In the case of movables, it plays a critical role in situations as to acquisition of ownership, through the rule that possession vaut titre in the case of corporeal movables possessed in good faith. Also relevant is the rule that the possessor who fraudulently receives an object, or knowing that it was stolen or fraudulently acquired, can never acquire by acquisitive prescription, notwithstanding the lapse any period of time.

13.

Acquisitive prescription

13.1.

General

Acquisitive prescription is recognized by the Civil Code of Malta as being among the modes of acquiring ownership and applies to both immovable and movable property. In line with its original Napoloenic model, both acquisitive and extinctive prescription100 are treated under the same title. Acquisitive prescription is defined as “a mode of acquiring a right by a continuous, uninterrupted, peaceable, open, and unequivocal possession for a time specified by law”, while extinctive prescription is defined as “a mode of releasing oneself from an action, when the creditor has failed to exercise his right for a time specified by law”. The justification of prescription is generally held to be social utility, legal certainty and the necessity to establish a time limit within which situations can either be challenged or in default acquire certainty. On the other hand, prescription is criticized by some as legalizing some form of immoral acquisition and regarded as an “improba constitutio” or even some legalized retention of what does not belong to a person. The requirements of acquisitive prescription are those indicated above and generally correspond to possession that is not only useful for prescription, but which is not vitiated by defects such as clandestinity, violence, acts of tolerance or facultative acts. These cannot be the foundation for the acquisition of possession, reflecting the Roman law situation that possession must have been obtained nec vi, nec clam, nec precario. Nevertheless, once these vices cease, possession can commence. Prescription in the case of immovable property is two-fold: the 30 year prescription operates where a person possesses in the manner indicated 100

Arts 2107 to 2160 of the Civil Code. The French code civil has been amended since its original version and extinctive prescription is treated separately (arts 22192254), while acquisitive prescription is now grouped with possession (arts 2255 to 2279). The Malta Civil Code nevertheless still remains here a replica of the Code Napoléon.

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above. Good faith is not required and prescription will also operate if the possessor is in bad faith. There is another prescription relating to immovable property, the ten year prescription: the requirements are possession for ten years in good faith on the basis of a contract capable of transferring ownership; good faith has to exist not only initially but also throughout the ten year period. Supervening bad faith at any time during the ten years is a bar to this particular prescription. The classical rules of interversio possessionis apply: persons who hold a thing in the name of others, or the heirs of such persons, cannot prescribe in their own favour. Such are tenants, depositaries, usufructuaries, trustees and fiduciaries and, generally, persons who hold the thing not as their own. These may, with the exception of trustees and fiduciaries, nevertheless prescribe if their title is changed by a cause flowing from a third party, or by the opposition they may have made to the right of the owner.

13.2.

Rules of acquisitive prescription relating to movables

The rules relative to acquisitive prescription in the Civil Code generally refer and apply to corporeal movables: the general term is two years accompanied by good faith.101 Acquisitive prescription is excluded if the item has been stolen or not acquired, as seen ante at 5.7.7, in good faith from the apparent owner. This is not stated directly, but is a conclusion derived from the statement at article 2155 that the action for the recovery from a third party of a movable thing that has been lost or stolen, where such action is competent under article 559, is barred by the lapse of two years, if the third party received the thing in good faith. Title at the moment of the adprehensio possessionis is not, in itself, relevant, provided the person acquiring possession is in good faith. The right of action for recovery of the owner, where competent, if the object has been lost or stolen, is barred by the term of two years if the possessor is in good faith. The recovering owner is moreover bound to indemnify the possessor, unless it has not been obtained in good faith. On the other hand, where possession of the corporeal movable commences in bad faith, or by means of fraud, or in the knowledge that it was stolen or fraudulently acquired, acquisitive prescription can never take place. The question to be addressed is whether good faith acquisition of a movable necessarily implies payment for value, payment here being understood as not being necessarily cash. The Civil Code is silent on whether the giving of value is to be involved in any commencement of possession. Value is a clear indication and creates 101

Art 2155 (1) of the Civil Code.

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a strong presumption of good faith. That no value is involved is not necessarily an indication of bad faith, since this is context specific. A donation would of course not raise any presumption, but in this case there is a causa obligationis, being the liberality of the donans. There is a fine line of distinction between creating a presumption of bad faith because no value is given for possession and the statement that circumstances will define whether gratuitous possession of a movable is in bad faith. The proper formulation of the rule will probably be thus: while every assumption or commencement of possession of a movable will require a case by case assessment, that there is no value involved will in many circumstances raise the question whether possession commenced in good faith. The statement that lack of payment will, in many circumstances, also raise a possible presumption of bad faith also appears in order. The moment and method of commencement of possession of a movable may be varied and are linked in general to the method of exercise of a right of ownership. Clandestinity can in circumstances create a presumption of bad faith. There is no requirement that the object be acquired from the business market. However circumstances that point towards an acquisition in an open scenario, such as a public auction, a consumer purchase or from a reputable dealer are all strong indications of good faith. The rules mentioned above apply to all categories of movables, corporeal, incorporeal and intangible. Certain presumptions deriving from the law of possession are relevant here. These apply without distinction both in the case of possession of movable and immovable property. A person is in all cases presumed to possess in his or her name and by virtue of a right of ownership,102 unless it is proved that possession has been commenced in the name of another person. Where, on the other hand, it is proved that possession has commenced in the name of another, the presumption is that possession has always been such, that is to say in the name of another and not in the possessor’s own name.103 Actual possession coupled with evidence of former possession raises a presumption of possession even during the intervening period.104 However actual possession does not in itself raise a presumption of former possession unless the possessor can show title, in which case, possession is presumed from the date of title.105 The Civil Code also recognizes the benefits and effects of possession of different persons: possession continues as of right in the person of a succes102 103 104 105

Art 525 (1) of the Civil Code. Art 525 (2) of the Civil Code. Art 528 of the Civil Code. Art 529 of the Civil Code.

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sor by universal title.106 This refers to the possession of the deceased predecessor in title that is continued by the universal heir, who succeeds causa mortis to the universal rights and obligations of the decuius. In the case of a successor by singular title, whether onerous or gratuitous, for example a purchaser, legatee or donee, possession does not follow as of right but is possible once it is claimed by the acquirer by singular title.107 Good faith, fundamental to acquisitive prescription, is material both to possession and to prescription. This is because the question of good or bad faith qualifies and defines the type of possession and the effects thereof. Good faith is, however, treated under the title of possession, and in terms of article 531(1) is defined as: “A person who, on probable grounds, believes that the thing he possesses is his own, is a possessor in good faith.” On the other hand, the next subarticle provides that “A person who knows or who ought from circumstances to presume that the thing possessed by him belongs to others, is a possessor in bad faith.”

The concept of good faith is therefore a subjective concept based on objective grounds: the personal subjective conviction alone is not sufficient. It has to be based on independent, reasonable external factors that justify such a conclusion. Over the years, the courts have tended to give significantly more importance to the objective factor to determine whether reasonably a party could have been in good faith and, most importantly, whether the affirmation that a party honestly believes to be the owner can be justified on reasonable grounds: the term of the law is “probable” meaning that the circumstances have to lead to a reasonable conclusion, which is significantly more than a possibility, but has to be probable. The corresponding definition of bad faith goes beyond the conviction that a person “knew”: pleading that a person “believed” is not sufficient, since bad faith can be imputed even where a possessor “ought to have known” that the thing possessed is not his own. Here, there is a clearly objective test, meaning that from the circumstances a reasonable person would have or should have reached a conclusion that the thing possessed is not his own. Good faith is presumed and he who alleges bad faith is to prove such bad faith.108

106 107 108

Art 530 (1) of the Civil Code. Art 530 (2) of the Civil Code. Art 532 of the Civil Code.

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531

Suspension vs interruption

Possession may be both suspended or interrupted and there may be factors that prevent prescription from running. Suspension means that at a given moment the prescriptive term no longer elapses or runs. However any time elapsed before is taken into account so that when cause for suspension ceases, the time commences to run from the period already elapsed. In other words, time elapsed before suspension is not lost, but held in abeyance until the prescriptive term will commence to run afresh. A simple even elementary example for the sake of clear communication will illustrate the point: take a period of, say, ten years and prescription is suspended after the fourth year. When, at any future moment, prescription runs again, it will start running from the end of the fourth year so that after another six years, the ten years will be deemed to have elapsed. The case of interruption is different since, in this case, any interruption will cause the ten year term to start running afresh and any prescriptive period acquired is lost. Examples of suspension of extinctive prescription are between spouses, between parents and a child subject to parental authority, or as between a person under tutorship or curatorship and tutor or curator, until either the period of “cura” or “tutela” terminates and accounts are definitely approved, or between the heir and the inheritance entered upon inventory where the heir accepts the inheritance with the benefit of the inventory.109 Perhaps more significant instances of suspension of prescription are in the case of conditional rights, until the condition is fulfilled. Another example of suspension of extinctive prescription is in regard to actions for breach of warranty of peaceful possession when the action is suspended until there is a final judgement ordering eviction; in case of any other action whose exercise is suspended by a time, until such time expires; and in the case of an action for damages, prior to commencement of an action during negotiations between conflicting parties or their insurers. Interruption of prescription can be either natural or civil. This is applicable both in the case of acquisitive and also extinctive prescription. In the first case, it is the assertion of a right that has the effect of interrupting the continuity and uninterrupted quality of any party in whose favour possession and a prescriptive term may be running. In the case of acquisitive prescription, natural interruption takes place where the possessor is deprived of possession for a period exceeding one year whether by the owner or by a third party. Civil interruption is where a judicial act or judicial demand is filed and served on debtor.

109

Art 2123 of the Civil Code.

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Other examples of interruption are acknowledgement by possessor or payment on account. This generally applies in the case of extinctive prescription, for example a debtor asking for time to pay, or protesting that a claim is excessive, or pleading set-off, since here there is a clear acknowledgement of the claim and liability. However, it could also apply to acquisitive prescription, for instance a party admitting that the title of another is stronger or that the other party’s possession leads to acquisition of title. There is generally no obligation of the acquirer by acquisitive prescription to compensate the owner and this applies even when the new acquirer has not paid for the gratuitous transfer. More interesting is the question whether acquisitive prescription of a movable has any effect on limited rights over the object, for example pledge. The general consensus and best understanding in Maltese law is that the case of a pledge of a corporeal moveable requires that the object pledged be detained at all times by the pledgee, so much that the special privilege is lost if this detention or nontechnical possession is lost by the pledgee. It is difficult to envisage how acquisitive prescription can run in favour of a third party when actual detention is in the hands of the pledgee. On the other hand, it is not impossible, although difficult, to envisage a situation where a third party acquires technical possession in the sense that, although the object is detained by the pledgee, the animus requirement is present and the corpus requirement is satisfied by the indirect possession through the pledgee. There are no known decided cases by the courts of Malta on the matter. It would appear, however, that the improbable prescriptive acquisition by the new owner would extinguish the original cause of action or relationship between pledgor and pledgee, since pledge is an accessory to the principal debt, leading to the liberation of the corporeal movable. This position may be different where there is the operation of the recently introduced, but not yet in force, droit de suite over certain movables: here change of ownership would not appear to affect the special privilege created by the constitution of the pledge, since the security would follow the object into the hands of the new acquirer. The position is not, however, free from doubt or contestation.

14.

Abandonment

The concept and legal possibility of abandonment is recognized and acknowledged by the Civil Code and by the general principles, although nowhere formally defined in the Civil Code. It is first of all clearly inferred from the rules and principles of acquisitive prescription since it is clear that acquisitive possession may imply, although not always necessarily, the case

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of abandonment. There are references to abandonment in the context of certain rights of easements over immovable property, inheritance, lease, and tacit renunciation of prescription. The possibility to abandon a corporeal movable exists and is implied in the jus abutendi right of ownership. This is a de facto situation where, with clear and unequivocal intentions, the owner ceases to act as owner and to exercise rights of ownership. It is appropriate to link such cessation of rights of ownership with the requirements of acquisitive prescription, meaning that such renunciation or abandonment of the rights of ownership must also be publicly and unequivocally manifested by the abandoning owner. There is no formal procedure to abandon the ownership of a corporeal movable. It is generally a de facto situation. However, it is prohibited to throw down, drop, leave, or otherwise spill or deposit any litter in any public place, street, sea, or open space to which the public has access, unless such depositing and leaving is lawfully authorized.110 Penalties attach to the violation of this prohibition. Storage of dangerous goods is regulated by special legislation, for example explosives,111 poisonous substances,112 and defining procedures in loading and unloading in ports of hazardous, inflammable, explosive or offensive goods.113 Here again, the rules are supported by penalties for any non-observance thereof.

15.

Transfer rules in the case of co-ownership

As to corporeal movables, there are no specific ad hoc rules. In principle, the general rules as to ownership “pro indiviso” apply. Each party is generally free to make use of the movable, e.g. a vessel, as long as the others are not prohibited from making use thereof. Technically each party is free to alienate and charge his or her undivided share. Therefore the first method, whereby transfer of ownership in an undivided corporeal movable can take place, is by the sale of the undivided 110

111

112

113

Abandonment, Dumping and Disposal of Waste in Streets and Public Places or Areas Regulations. http: // docs.justice.gov.mt / lom / Legislation / English / SubLeg / 435 / 63. pdf. Explosives Ordinance, http: // docs.justice.gov.mt / lom / legislation / english / leg / vol_3 / chapt33.pdf. Medicines Act, http: // docs.justice.gov.mt / lom / legislation / english / leg / vol_14 / chapt458.pdf. Malta Maritime Authority Act, http: // docs.justice.gov.mt / lom / legislation / english / leg / vol_9 / chapt352.pdf.

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quota. The law of co-ownership acknowledges two other possibilities: one is partition and the other is sale by auction, known as licitation, this being a sale by consent or by court auction. The second alone would appear to be applicable, since it is difficult to envisage the partition of a corporeal movable, although this can theoretically be possible. Both these possibilities – partition and licitation – are based on the principle that a co-owner cannot be forced to remain in community and always has the right to ask for the termination of such situation. Other rules of transfer depend on the nature of the movable. Certain fungibles, such as funds in bank accounts, require the consent of the parties involved. In general the underlying rules of civil law are applicable as a basis, together with any special law applicable, such as the transfer or assignment of a trademark or a licence, a financial instrument, a timeshare right or a leasehold. In conclusion on transfer of corporeal movables, there are two points, both procedural issues, which deserve mention. The first relates to the procedural principles that court judgements or awards nec prosent nec nocent tertiis – this is the well known general rule that judgements do not operate to the benefit, or to the prejudice, of third parties – and that any variation or reversal of the judgement only operates vis a vis the party appealing. An exception to this is that any variation concerning an indivisible thing, including therefore also res mobiles corporales where a co-owner was a party, has an effect also on the interest of the other co-owners. This rule is not applicable where any variation to the judgement is obtained on grounds exclusively affecting the party seeking such reversal or variation.114 The other principle refers to the seizure and sale by judicial auction of movable property: the context here is clearly corporeal movables. The rule is that movable property that is possessed, here meaning owned, by the debtor in common is subject to seizure. Therefore the entire movable, even though partly belonging to the debtor, may be seized. However it may not be sold by judicial auction until a partition thereof is made.115

16.

Floating charge and general hypothec

The concept of floating charge is not known to the law of Malta. The general hypothec116 is, however, a similar concept and also effects movables. A hypothec is a security or a guarantee to secure a principal obligation, 114

115 116

Art 238 of the Code of Civil Procedure, http: // docs.justice.gov.mt / lom / Legislation / English / Leg / VOL_1 / CHAPT12.pdf. Art 290 of the Code of Civil Procedure. Art 2011 to 2012 of the Civil Code.

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and enjoys preferential ranking after special privileges in the case of insolvency. The essence of a hypothec is that it does not dispossess the debtor of the asset who may still utilize or enjoy the object hypothecated, as distinct from the case of pledge where there is dispossession. Hypothecs may be general or special: a general hypothec creates a security ranking over all assets without distinction immovable, movable, tangible, corporeal, incorporeal, whereas a special hypothec is specific and particular asset linked, and may or may not enjoy a droit de suite over the asset charged. The security created by a general hypothec extends not only to present assets but also future assets that may come to form part of the debtor’s patrimony. Unless there is identification of an asset by virtue of the guarantee, there is no droit de suite. At the moment however that a creditor commences proceedings on the basis of such general hypothec, any alienation can be revoked. This means that unless and until the charge is identified or “crystallized” vis a vis a particular asset, movable and immovable, it can be transferred, and saving any actio pauliana or recissory action, the creditor has no further interest over the asset. On the other hand, from the moment of identification, there will be “tracing” and recall of the asset by means of an action granted to the creditor. This generally applies to immovables but also includes movables. It however may be subject to a particular regime as well, such as financial instruments listed at the Malta Stock Exchange or ships or vessels where the principles of registration have to interact with other principles relative to ownership or judicial procedings.The point here is that registration has to reflect the prevailing legal position of ownership. The view of this author is that the application of this principle extends to these alternative movables. To illustrate the point further, it may be appropriate to dedicate brief attention to the question of vessels as security, since Malta acknowledges an in rem jurisidiction over vessels, which includes privileges and mortgages – not hypothecs – over a ship or share therein. The mortagee is entitled to take possession of the vessel or to sell it, and proceeds are distributed according to ranking, with the mortgagee enjoying a droit de suite over the vessel or the proceeds thereof, including those arising from collisions or mishap. Moreover, on registration, the rights of any mortgagee shall not be affected by either (a) the creation of any separate privilege or charge on any part, appurtenance or accessory of a ship which may attach by, or (b) the reservation of ownership rights by a seller of any part, appurtenance or accessory, sold to a shipowner under a contract of sale, hire purchase, or any similar contract. It is further provided that all registered mortgages, any special privileges, and all actions and claims to which a vessel in rem

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may be subject shall not be affected by the bankruptcy of the mortgagor or shipowner happening after the date on which the mortgage was created or the special privilege, action or claim arose. This rule applies notwithstanding that the owner at the commencement of the bankruptcy had the ship in his possession, order or disposition, or was the reputed owner thereof: therefore, such mortgage, privilege, action or claim shall have preference, subject to some exceptions, on the said vessel, over all other debts, claims or interests of any other creditor of the bankrupt or of any curator, trustee or receiver.117 On the other hand, notwithstanding this typically common law – or rather equity – mechanism of tracing in the maritime law of Malta, it is possible to have hypothecs to include a ship in the security guarantee; however, there is no droit de suite if the vessel is transferred to third parties.118

17.

Consequences of restitution of movable to the owner

17.1.

Some typical situations

17.1.1. Effect of rescission The first question to be considered is the effect of a contract of transfer that is null or more likely annulled: the point will be viewed from the perspective of the parties involved and from that of third parties. The rules of the Malta Civil Code in connection with rescission of contracts are useful in this context.119 The general principle is that rescission or annulment of a contract operates ex tunc. It is stated at article 1209 of the Civil Code: “(1) The rescission of a contract shall, unless the law provides otherwise, operate so as to restore the parties to the condition in which they were before the contract. (2)Each party shall be bound to restore to the other any thing received or obtained in consequence or by virtue of the contract. (3) With regard to the fruits collected or the interest received up to the date of the demand for rescission, the court may, having regard to the circumstances of the case, direct a set-off of such fruits or interest.

117

118 119

Art 37C of the Merchant Shipping Act, http: // docs.justice.gov.mt / lom / legislation / english / leg / vol_5 / chapt234.pdf. Art 37D of the Merchant Shipping Act. Arts 1209 to 1211 of the Civil Code.

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(4) Where the contract is rescinded on the ground of fraud or violence, the party guilty of such fraud or violence shall also be bound to restore to the other party the fruits which might have been collected, and which, through his fault or negligence, have not been so collected.”

The solutions adopted by the Malta Civil Code in the controversial question whether rescission should operate ex tunc or only ex nunc are clear enough. Rescission operates with retroactive effect and parties are to be put in the situation ante contract with the stiff and stringent requirement on a party of having to return what was received. It is traditional timetested good notarial practice in Malta in deeds of rescission or annulment of a contract for the Notary to insert a statement and condition that “the contract is deemed never to have taken place”. The role of good faith, in the discretion granted to the court to direct according to set of fruits and interests, is apparent. It is a wise measure granting the court flexibility to allow setoff and netting. The articles are interestingly silent as to whether the court retains a discretion to direct a set-off in the case of the restitution of objects received and to be returned where these are not fungibles, such as cash is. It would appear that this discretionary power was not granted to the court and has to be resolved by a reciprocal restitutio in integrum as applicable contractually. The rules relating to interest appear to apply to both corporeal movables and interests arising from their potential use, for example by renting a motor vehicle or chartering a yacht, and naturally also to money or interest-bearing instruments. The role of bad faith and the punitive consequences thereof are again apparent, since in the case of a contract annulled on the basis of fraud or violence, the fruits or interests to be returned include not only those collected but also those that could have been collected but which were not collected through fault or negligence. It would not be inappropriate here to comment that the influence of the French civil code in context of the law of damages is here apparent: the faute and responsabilité, which have found their way into the Malta Civil Code on the title related to damages,120 are the criteria for the obligation to pay or to return failed collection of interests. Rescission also operates against third parties in possession: therefore, in principle, this affects rights acquired by third parties, for example where the title of a party who transferred to a third party is vitiated and the acquirer is faced with a situation where the title of his ayant cause is annulled or rescinded. The question is, therefore, whether the acquirer of the movable

120

Arts 1029 to 1333 of the Civil Code.

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in good faith has a specific remedy or whether the annulment between his transferor and predecessor in title is simply a res inter alios acta. The relevance of good faith would appear to be critical here for two reasons: the first is the principle, referred to in article 558 of the Civil Code, that in the case of movables by nature, excluding a universitas of movables, possession in good faith shall produce title. The other consideration is that the right to revindicate the object, with or without the obligation to pay compensation, as the case may be, is limited in case of theft, loss or where the object was not acquired in good faith from a person apparently the owner or authorized to transfer the corporeal object. This is to be interpreted in conjunction with the two year time limit for recovery of the lost or stolen object where the possessor is in good faith. Therefore it would seem that the possession in good faith of a movable by the owner overrides any defect or rescission in the title of the transferor subject to the time.

17.1.2. Right of use granted by a non-owner Where a non-owner has granted a right of use to a third party without the authorization of the owner, the third party becomes liable to return the object on an action by the owner to rescind the right of use. Moreover, the person granted the right of use will, in the circumstances, probably be liable to pay compensation or interests to the owner from the moment he or she is called upon to return the object. The general principles of warranties for peaceful possession, for example in the case of lease or damages for contractual violation, are normally applicable between the non-owner and the user if the contract were onerous – for the clear and obvious reason that the non-owner-granted use violated the contractual stipulations. If, on the other hand, the contract were gratuitous, responsibility could still attach if the contract were commodatum.121 In this event, the lender cannot take back the thing lent on title of commodatum until expiration of the time agreed upon, or in the absence of agreement, until it has served the purpose for which it was borrowed. Therefore if the thing is successfully claimed, there could be a question of damages, since commodatum is a gratuitous loan for use but creates a title to enable use for the period of agreement. The situation may be different in the case of the contract of precarium,122 which like commodatum is a gratuitous loan for use of a corporeal object with the “only difference that the lender has the power to take back 121 122

Arts 1824 to 1838 of the Civil Code. Arts 1839 to 1841 of the Civil Code.

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the thing when he pleases.” The gratuitous nature of the contract and the fact that there is no security of title for a period of time, or for a specified purpose, but liable to be terminated at the sole discretion of the lender, will avoid the liability of the non dominus lender.

17.1.3. The garage triangle The typical scenario of a creditor exercising a right over an object granted to a third party is the garage scenario: the unpaid mechanic refuses to hand over a car to the person who delivered it to his garage, when the owner claims revindication of the object. This is a not uncommon occurrence in the case of goods, or for instance vessels being manufactured where suppliers of materials or labour are unpaid. The question has to be analyzed from various angles: it is clear that the owner has, in principle, the right to demand and claim back his or her property, always subject to any overriding right vis à vis the user who delivered the object to a third party (the mechanic). On the other hand, the person in whose possession the object is, is entitled to be paid for supplies, labour, services and expenses. There may also be entitlement to a lien, such as a maritime lien. What may be overriding in the circumstances, is the jus retentionis. The nature of such right has been explained above and in the circumstances would appear to give the creditor strength and leverage to hold the object in possession until payment. On the other hand, unless there is a specific legislation such as maritime lien or the privilege of the carrier over the goods transported, the relationship remains a personal relationship between the creditor (the mechanic) and the debtor (the person who delivered the object). The purely legal position entitles, therefore, the creditor to exercise the right of retention, which will in all likelihood defeat the owner’s claim because the creditor has a valid and legally acknowledged causa detentionis. The exent of the jura in rem of the creditor depends on the nature of the object and the relationship with the debtor. It may be worthwhile in context repeating that the jus retentionis does not in itself confer a jus distrahendi, but simply a justification, recognized by the law, not to release the object held until payment is received. How far the party exercising the right of retention is burdened with the obligations of a depositor is beyond the scope of, and not material to, this study.

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17.2.

Entitlement to benefits and fruits resulting from the movable

The definition of fruits in the Malta Civil Code is found appropriately under the title of usufruct.123 Natural or industrial fruits are those hanging from branches or the result of cultivation or agricultural industry. Civil fruits refer to those deriving from property rent, ground rent in emphyteusis and alienation fines thereof or annuities. These definitions reflect the rural nature of 19th century Malta when the Civil Code was drafted. Fruits today include interests on deposits, dividends, profits generally from commercial activity, return on capital, investment funds or financial instruments. The applicable rules relating to fruits hanging on trees, or agricultural, are normally related to maturity, while those relating to civil and investment fruits are based on an accrual dietim basis, applicable by analogy mutatis mutandis to the nature of the civil fruit or investment interest. Good faith or bad faith has a crucial role in determining the question of entitlement to fruits or interests.124 A possessor in good faith acquires the fruits of the thing possessed and this includes fruits deriving from an inheritance. The obligation to account for and return any such accrued returns, commences from the moment the possessor in good faith has been served with a judicial intimation putting him or her on notice that possession is or may be vitiated. Thenceforth, the possessor is bound to return not merely all fruits or interest that were collected but also those that could have been collected through the diligence of a bonus paterfamilias. These are provisions reminiscent of a more agricultural 19th century society, indicating that the possessor is not accountable for the price of unplucked or uncut fruits, which price was received before the demand for return of fruits was made and received, even if the fruits are still on the ground or on the tree branches. On the other hand, a possessor in bad faith is bound to restore not only those fruits actually received but also those that could have been collected through ordinary diligence of a bonus paterfamilias from the moment of occupation. The difference in treatment and effects between the good faith and bad faith possessor is clear. The principles herein outlined, clearly originating in a rural society, also apply to contemporary assets bearing fruits or interests.

123 124

Arts 334 to 338 of the Civil Code. Arts 540 and 541 of the Civil Code.

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541

Reimbursement of expenses

The Malta Civil Code has received and embraces the Roman distinction as to depensae necessariae, utiles and voluptuosae.125 These are accorded treatment according to whether the possessor is in good or bad faith, another indication of the central role good faith plays in the Maltese civil law system. Necessary expenses are those without which the thing would have perished or deteriorated and include routine maintenance works and ordinary and extraordinary repairs. Useful expenses are those which ameliorate the thing by making it more convenient, or capable of yielding more fruit, but the omission of which is not prejudicial to the thing: these are improvements which typically enhance the value of a property but fall short of decorative improvements – depending on the nature of the property and, of course, on one’s standard increased access and mobility, such as lifts, and change of quality of doors and windows. A swimming pool would also probably qualify as a useful expense since it increases sale price and rent potential of a property. Decorative expenses are those which serve only to adorn the thing, without rendering it more convenient or capable of yielding more fruit, and which if omitted would not cause the thing to deteriorate. These are normally associated with extravaganzas. As if to illustrate the difficulty of classifying and distinguishing sometimes between useful and decorative improvements, the articles of the Civil Code provide that decorative expenses may, however, in certain cases, be considered as useful expenses, regard being had to the condition of the owner or to the existence of particular circumstances that may afford the owner an immediate opportunity of deriving profit from such expenses. This further underscores the difficulty of interpreting a 19th century code with varying trends, developments and fashions in property: any assessment will necessarily reflect the moment in time and context in which the assessment is made. Perceptions of need, utility and sumptuousness vary and they are constantly changing. A possessor in good faith may demand from the owner the reimbursement of the necessary expenses whether their effect continues or not. As regards useful expenses, the owner is bound either to refund the possessor the cost of the work and materials, or at the option of owner, to pay to possessor a sum corresponding to the enhanced value of the thing.126 The owner, towards a possessor in bad faith, has the same obligations as vis à vis a possessor in good faith in connection with necessary and useful expenses and useful expenses that cannot be removed, provided the possessor in bad faith has not obtained the object or movable by theft or an offence.127 125 126

Arts 542 to 545 of the Civil Code. Art 542 of the Civil Code.

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The owner has an option, as to useful expenses that were utilized to effect improvements that can be removed, either to retain such ameliorations or to compel the possessor to remove them. If the owner demands removal of such ameliorations, the possessor shall remove them at his or her own expense without any right to compensation or indemnity and shall moreover be bound to make good to the owner any damage suffered during the removal process. Where the owner elects to retain such useful enhancements, an option exists in favour of the owner either to refund the possessor the cost thereof or pay a sum corresponding to the increase in value of the object.128 The position relative to reimbursement of decorative expenses is that the possessor, whether in good or in bad faith, is only entitled to take back the adornments in kind, provided that the possessor can show that such adornments are still useful or advantageous and do not damage the property. The owner however has the option to retain such adornments and pay the possessor a sum corresponding to the profit that could be made by the removal of such adornments.129 A person who has obtained possession of the thing through theft or any offence, other than a minor contravention, is treated significantly differently. There is no entitlement to compensation for any improvements or expenses nor any right to remove the objects. The owner may require that such ameliorations be removed by the possessor who has acquired through theft or offence, with costs and responsibility for any damage caused by such possessor.130 127

17.4.

Set-off of fruits against expenses

The question here assessed is, whether and how far, set-off of fruits or interests due by the possessor to the owner is allowed against any entitlement to compensation.131 The code differentiates between necessary expenses and disbursements in respect of other types of improvements. The possessor, whether in good or bad faith, is always entitled to set off any necessary expenses, or those necessary for the production or preserving of the thing possessed, against any obligation to refund or account for fruits and interest. The possessor in good faith is allowed to compensate interests due by him or her against his or her right to compensation for improvements: 127 128 129 130 131

Art 543 (1) of the Civil Code. Art 543 (2) to (4) of the Civil Code. Art 544 of the Civil Code. Art 547 of the Civil Code. Arts 548 to 550 of the Civil Code.

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if the good faith possessor opts to set-off interests against his or her claim for ameliorations, he or she has to account not merely for the fruits due from date of judicial demand but also for fruits or interests that could have been collected during the five years immediately preceding the demand. This represents a variation on the theme that the possessor in good faith is only bound to account for and return accrued fruits from date of judicial demand: the setoff claim of improvements against interests due to the owner triggers an obligation to account for five years’ arrears of fruits and those, after the judicial demand, that could have been collected through ordinary diligence. This general rule suffers an exception in the case where the possessor is entitled to remove the ameliorations or be compensated. The possessor, whether in good or bad faith in this specific case, is not bound to return or account for any fruits or interests unless the owner agrees to pay interest on the ameliorations. This provision is applicable to useful expenses that can be removed, and to decorative expenses. Moreover, and again this applies to any type of possession, a right of retention exists in favour of the possessor where there is entitlement to recover expenses or disbursements.

17.5.

Obligations of the possessor relative to condition of the thing to be restored

The rules here relate to the obligations of the possessor vis à vis the owner in connection with the condition of the thing in case of alienation or transfer of the thing possessed. There is here, even more than in the case of expenses, fruits and interests and setoff obligations and entitlement, a marked distinction between a possessor in good faith and in bad faith.

17.5.1. The possessor in good faith A possessor in good faith, including possession of an inheritance or of a universitas rerum, is bound to make good such damage as, by his own act or otherwise, even before the judicial demand of the owner, may have been caused to the thing, but only to the extent of the benefit that he has derived from such damage. This includes a situation where the possession refers to an inheritance or a portion thereof: the possessor who has made any alienation thereof is bound to restore to the extent of the benefit derived from such transfer. Benefit is derived inthree instances: the first is where the benefit or subject thereof is found to exist separately at the time of the filing of proceedings. This is by analogy a form of tracing and claiming of the asset. The next is

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where the benefit derived by the possessor has been intermixed with the estate and assets of the possessor and the value thereof thereby enhanced. The third category contemplated is where the possessor has used and consumed such benefit and in the process made savings to his own estate. It is noted that the possessor may at any time at his option retain in kind any benefit or investment made from the proceeds of such property alienated on paying to the owner the value of the object disposed of or the value at the time proceedings are commenced whichever is the greater.132 As another measure of indication of the favourable and gentle treatment afforded to the possessor in good faith is the rule that such possessor, including possession in good faith of an inheritance, is not bound to restore or account for the value of things given, lost or destroyed without profit.

17.5.2. The possessor in bad faith There is a vast breadth of difference in the treatment of the possessor in bad faith.133 Such possessor in bad faith is in all cases bound to restore all the things that he has wrongfully occupied. Moreover, where the objects are no longer in his or her possession, whether voluntarily or through fault or negligence, the possessor in bad faith is either obliged to restore, at the option of the owner, the greater in value between any profit derived therefrom, or the value of the object at the time of commencement of proceedings, even if the bad faith possessor has not derived any profit. The possessor in bad faith is also answerable for damages or deterioration caused voluntarily or through fortuitous event, unless it can be established that such loss would have equally happened if the object were in possession of the owner.

18.

Conclusion

The emerging landscape bears witness to the evolving nature of Maltese private law: steeped in the Roman-Napoleonic tradition, it has successfully received and adapted to various influences from the common law and equity and is now rapidly assimilating the European Union sources. The next challenge to the system is the reception of the culture, studies and movement of European private law. Driven by market influences, since markets drive the law, the above is testament to the striking characteristic of the resilient yet adaptable and flexible nature of the mixed legal system of the small Mediterranean state of Malta. 132 133

Art 551 to 556 of the Civil Code. Art 551 to 556 of the Civil Code.

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Table of Literature Buckland, WW, ed Stein, P, A text book of Roman Law from Augustus to Justinian, Cambridge University Press 1975 Camilleri, Simona, The legal implications of the electronic bill of lading, thesis University of Malta, June 2004

Table of Abbreviations Art, Arts

Article, Articles

ed e.g.

edited by, editor exempli gratia (for example)

ibid

ibidem

LN

Legal Notice

SICAV

Societé d’Investissement A Capital Variable

vol vs

volume versus

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National Report on the Transfer of Movables in Latvia Theis Klauberg Julija Kolomijceva

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Table of Contents Part I: General information on property law 1. Ownership and other property rights 1.1. General basics 1.2. Ownership 1.2.1. Notion of ownership 1.2.2. Restrictions on ownership 1.3. Other property rights in movables 1.4. Protection of property rights 1.5. Transferability of movable assets

551 552 552 553 554 556 558

2. Possession 2.1. Concept of possession 2.2. Acquisition of possession 2.3. Protection of possession

558 560 561

3. Field of application and definitions

562

Part II: Transfer ownership 4. Derivative transfer of ownership 4.1. Transfer requirements in general; different contracts for transfer of ownership 4.2. Requirements of a valid obligation to transfer ownership 4.3. “Traditio”: delivery and delivery equivalents 4.4. Registration 4.5. Real agreement 4.6. Payment 4.7. Right to dispose

563 565 567 568 568 569 570

5. Multiple selling

570

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550

6. Transfer or acquisition by means of indirect representation

571

7. Consequences of insolvency

572

Part III: Original acquisition 8. Acquisition by joining and processing

573

9. Good faith acquisition

575

10. Acquisitive prescription of movables

579

11. Other forms of original acquisition: finding, appropriation and catching of animals

581

Table of Literature

585

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Part I: General information on property law 1.

Ownership and other property rights

1.1.

General basics

The principles and main regulatory framework of rights in rem are laid down in the Civil Code of Latvia, which dates from 28 January 1937.1 The Latvian Civil Code has similarities to the civil law codifications of Switzerland and Germany, but its rules were not applied for the most part when the Soviet legal system was forcibly imposed in Latvia, until its re-inactment in 19901991.2 The provisions concerning rights in rem are part of the general civil law framework and form the third part of the Civil Code (S. 841-1400). It is subdivided into seven chapters, each of which regulates different aspects of rights in rem: the various classes of things or property, possession, ownership, servitudes, real charges, pledge rights, and the right of pre-emption. The legal framework regulating rights in rem addresses legal relations with tangible and intangible objects, or indeed among these objects themselves, whereas the law on obligations is concerned with actions or the conduct of persons. Furthermore, rights in rem are of an absolute character,3 i.e. by their very nature they have effect towards any other persons. Any other person is obliged to refrain from actions or conduct that may impair or affect the scope of rights in rem connected to an object of the respective rightholder. Personal rights on the other hand are of a relative character and, therefore, have effect only in relation to certain other persons. Recent research conducted on behalf of the Ministry of Justice suggests that legal practice sometimes fails to follow this clear distinction between rights in rem and obligations, in particular in regard to objects belonging to 1

2

3

The English language translations of certain sections cited in this article are based on Tulkošanas un terminoloģijas centrs, The Civil Law of Latvia, 2001. For an overview on the background and history of the Latvian Civil Code: P Schwartz, Das Lettische Zivilgesetzbuch vom 28. Januar 1937 und seine Entstehungsgeschichte, 2008; A Loeber in T Klauberg (editor), Lettlands Zivilgesetzbuch Deutsch-Lettische Textausgabe 2006, 36. В. И. Синайский, Основы Гражданского права в связи с частью III свода узаконений, действующих в Латвии и Эстонии 1926 p 6; A Grūtups, E Kalniņš, Civillikuma komentāri, Trešā daļa, Lietu tiesības, 2002, 16.

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other persons. Following the recommendations in its research report, the Civil Code will be amended, including certain provisions with regard to rights in rem. The legal framework concerning rights in rem follows a strict numerus clausus of rights.4 Additional kinds of rights in rem or property outside those mentioned in the Civil Code may not be created, and other general principles of property law outside this system do not exist. In addition to the rules on property law regarding movables to be found in Sections 841 et seq. of the Civil Code, certain aspects are laid down in special laws outside the Civil Code, e.g. involving the transfer of property in motor vehicles and vessels.

1.2.

Ownership

1.2.1. Notion of ownership Section 927 of the Civil Code defines ownership as the full right of control over things and objects, i.e., the right of possession and use, to obtain all possible benefit from it, dispose of it and, in accordance with prescribed procedures, claim its return from any third person by way of an ownership action. Ownership gives full right of control over an object to the owner himself alone, insofar as it is not provided that this right is subject to specific restrictions, S. 1036 Civil Code. The subject-matter of ownership may be anything that is not specifically withdrawn from circulation by law, S. 929 Civil Code. “Things5”, in the sense of objects of property, may be tangible or intangible, according to S. 841 Civil Code, whereby intangible things consist of various personal rights, rights in rem, and rights regarding obligations, insofar as such rights are constituent parts of the principal object of property. Tangible things may be either movables or immovables, depending on whether they may or may not be moved without external damage from one location to another, S. 842 Civil Code. Although the Civil Code does not create a general distinction between movables and immovables, certain provisions regulate specific aspects that are applicable only to one or the other.6 4

5

6

В. И. Синайский, Основы Гражданского права в связи с частью III свода узаконений, действующих в Латвии и Эстонии, 1926, 6. It is recognized that “thing” is not an oft used legal term in English and is, indeed, somewhat ineloquent; however, it best translates the Latvian legal term lieta. P Schwartz, Das Lettische Zivilgesetzbuch vom 28. Januar 1937 und seine Entstehungsgeschichte, 2008, 209.

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Whether intangible things may be the object of ownership in the scope of S. 927 Civil Code is subject to some debate among Latvian scholars. Based on S. 1050 Civil Code, which prescribes the conditions for ownership actions, but with regard to tangible objects of property only, it is submitted by some scholars that ownership may in general only apply to tangible objects. Against this view it is rightly claimed7 that also intangible things may be owned, in particular based on the provisions on possession, which clearly allow intangible objects to be the subject of rights, S. 875, 891-895 Civil Code. Although the relevant section on ownership, S. 927 Civil Code, does not expressly mention intangible objects, ownership in intangible goods is not prohibited,8 and the legal framework requires such ownership, e.g. expressly in connection with the copyright over which ownership may extend, S. 2 Copyright Law:9 Although copyright may not be the subject of an ownership action, it has a scope corresponding to that of movable things; it therefore constitutes a special category of ownership rights.10

1.2.2. Restrictions on ownership As rights in rem are absolute rights, owners may prohibit all others from affecting their property, as well as from using or exploiting it, even if no losses are caused to the owners themselves thereby, S. 1039 Civil Code. However, ownership is subject to certain restrictions, as spelt out in the laws. Three kinds of restrictions on ownership are provided in the Civil Code: – Restrictions that relate to ownership in all its scope, S. 1067-1075 Civil Code; – Restrictions on the right to alienate ownership, S. 1076-1081 Civil Code; – Restrictions on the right of use regarding ownership, S. 1082-1129 Civil Code. In addition, the Latvian legal framework also includes servitudes, which in regard to certain objects or things restrict ownership rights regarding it, with respect to utilisation, for the benefit of a certain person or a certain parcel of land, S. 1130 Civil Code. Finally, provisions regulating pledge 7

8 9 10

Ministry of Justice, Pētījums par Civillikuma Lietu tiesību daļas (ceturtās, piektās, sestās un septītās nodaļas) modernizācijas nepieciešamību (TM pētījumi), 2008, 21-22. J Rozenfelds, Lietu tiesības, 2000, 57. 6.4.2000. likums “Autortiesību likums” (“LV”, 148 / 150 (2059 / 2061), 27.4.2000). J Rozenfelds, Intelektuālais īpašums, 2004, 9.

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rights are provided for in the Civil Code, the Commercial Pledge Law,11 and other laws. Two kinds of servitudes are foreseen: – Real servitudes, which require two immovable properties, of which one is encumbered for the benefit of the other, S. 1141 Civil Code; – Personal servitudes, which limit the ownership or the right of use in respect to a property to a certain extent, in the form of a usufructuary right; all kinds of property may be subject to usufruct, S. 1191 Civil Code, therefore immovable, movable, tangible and intangible, consumable or inconsumable property.12 The rightholder of usufruct is entitled to receive benefits from, to use, and to acquire fruits from the property of another person. – Servitudes therefore limit some of the rights connected to ownership, whereby this involves two alternatives: either the owner is not entitled to the right of use at all, or the owner and the holder of the servitude right share the exercise of the right of use.13 The most far-reaching restriction of ownership is by way of expropriation. Expropriation of property for public purposes is allowed only in exceptional cases on the basis of a specific law and in return for fair compensation, S. 105 Constitution.14 Such specific law currently exists only with regard to immovable property.15 Property of persons guilty of certain crimes may also be confiscated, S. 42 Criminal Code,16 as well as illegally acquired property, S. 355-360, 626-631 Criminal Procedure Code.17

1.3.

Other property rights in movables

Apart from the right of ownership, Latvian property law recognises servitudes (which have already been dealt with above (see 1.2.2.) and the right of pledge. Pledge rights are intended to provide security for a creditor, whose claim the pledged property secures, so that the creditor is able to receive from the property payment for such claim, S. 1278 Civil Code. As pledges 11 12

13

14 15

16 17

21.10.1998. likums “Komercķīlas likums” (“LV”, 337 / 338 (1398 / 1399), 11.11.1998). G Višņakova, K Balodis, Latvijas Republikas Civillikuma komentārs. Lietas. Valdījums. Tiesības uz svešu lietu, 1998, 105. G Višņakova, K Balodis, Latvijas Republikas Civillikuma komentārs. Lietas. Valdījums. Tiesības uz svešu lietu, 1998, 64. 15.2.1922. likums “Latvijas Republikas Satversme” (“LV”, 43, 1.7.1993). 15.9.1992. likums “Par nekustamā īpašuma piespiedu atsavināšanu valsts vai sabiedriskajām vajadzībām” (Ziņotājs, 39, 15.10.1992). 17.6.1998. likums “Krimināllikums” (“LV”, 199 / 200 (1260 / 1261), 8.7.1998). 21.4.2005. likums “Kriminālprocesa likums” (“LV”, 74 (3232), 11.05.2005).

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are rights in rem and thus of absolute character, they may be enforced not only against the debtor, but also against such person who has acquired the property from the debtor after the pledge has been established.18 As an ancillary right, a pledge right is in regard to its effect dependent on the effect of the claim. If the claim is restricted, only a restricted action may be brought with respect to the pledge right, S. 1283 Civil Code. With regard to movables, Latvian law provides for several kinds of pledge rights: the possessory pledge, S. 1340-1361 Civil Code and S. 401 Commercial Code,19 the usufructuary pledge, S. 1362-1366 Civil Code, the commercial pledge regulated by the Commercial Pledge Law, as well as other registered pledge rights over seagoing vessels, called ship mortgages, regulated in the Regulation on Sea Law,20 and the pledge of securities in public circulation regulated in the Financial Instrument Market law.21 The subject-matter of these pledge rights may be all movable property regarding which alienation is not specifically prohibited, not only already existing, but also future, tangible and intangible objects and things, S. 1294 Civil Code. By establishing a pledge right over an object or thing, the right of ownership remains. A pledgor may exercise all the rights of an owner to his pledged property, including the right to bring actions regarding ownership, S. 1315, 1316 Civil Code. Any movable property subject to commercial pledge may still be possessed and used by the owner, as long as it is not voluntarily transferred to the possession and use of the pledge, S. 1315 Civil Code, S. 24 Commercial Pledge Law. A possessory pledge is established by the delivery of movable property by a debtor into the possession of the pledgee, S. 1340 Civil Code. In principle, the pledgee is not allowed to use the property pledged to him unless he has been specifically permitted to do so, S. 1348 Civil Code. During the time while pledged property is in the hands of the pledgee, he is required to take care of it as would a careful proprietor, S. 1347 Civil Code. A property subject to a usufructuary pledge is also delivered into the possession of a pledgee, and the pledgee is both entitled and obliged to reap fruits and income from it, S. 1362 Civil Code. Pledgees are however not allowed to retain the reaped fruits and income for their benefit, but are required to sell them and credit the proceeds therefrom to payment of the respective claim, firstly the interest and then the principal; those fruits and income that were not reaped due to negligence are also credited. 18

19 20 21

G Višņakova, K Balodis, Latvijas Republikas Civillikuma komentārs. Lietas. Valdījums. Tiesības uz svešu lietu, 1998, 158. 21.12.2000. likums “Komerclikums” (“LV”, 473 / 476 (2384 / 2387), 29.12.2000). 29.5.2003. likums “Jūras kodekss” (“LV”, 91 (2856), 18.06.2003). 20.11.2003. likums “Finanšu instrumentu tirgus likums” (“LV”, 175 (2940), 11.12.2003).

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Of particular importance in commercial practice is the commercial pledge right,22 a registered pledge which may be established over tangible and intangible movable property, including a sum of properties, enterprises, company shares, and other objects, S. 3 Commercial Pledge Law. The commercial pledge is registered in a public register. Other than the possessory pledge, the pledgor of a commercial pledge may continue to possess and use the pledged property, S. 24 Commercial Pledge Law. In the event that a debtor within the time provided for in the respective agreement has not satisfied the pledgee, the pledgee may resort to the pledged property for satisfaction, and for this purpose take all necessary steps for its sale through auction, S. 1319 Civil Code. In the event that a commercial pledge is established, the pledgee may take possession of the pledged property and sell it, S. 36 Commercial Pledge Law. With regard to certain persons who are professional participants in commercial trade, called merchants, specific possessory pledges are furthermore provided for in the Commercial Code: the possessory pledge right of the commission agent, S. 428 Commercial Code, of the forwarder, S. 446 Commercial Code, and of the merchant dealing with storage of movable properties, called a keeper, S. 457 Commercial Code. Other than the commercial pledge, these pledge rights for certain merchants do not require any specific agreement or registration, but are valid on the merit of statutory rules.23 Such merchant pledgee whose claim has not been satisfied by the debtor within the specified time is entitled to sell the property at the expense of the debtor, informing the debtor thereof in advance and taking into account the provisions of the Civil Code regarding the sale at an auction.

1.4.

Protection of property rights

In order to protect one’s property and ownership rights, Latvian law provides for several legal remedies: – A right to prohibit others from affecting one’s property, as well as from using or exploiting it, even if no losses are caused to the owners themselves thereby (corresponds to the German negatorischer Anspruch gegen Eigentumsstörungen), S. 1039 Civil Code; – A right of protection of existing possession, whereby in the event that a possessor may furnish proof that there has been an interference and an22

23

T Klauberg in P Derleder / K-O Knops / H G Bamberger, Handbuch zum deutschen und europäischen Bankrecht, 2009, 2567. K Balodis, Jaunais komercdarījumu regulējums un tā piemērošana. Komerclikuma D daļa, kas stāsies spēkā 2010.gada 1.janvārī, Jurista Vārds, Nr. 21 (574) 26.5.2009.

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other has obtained possession, protection may be claimed from a court, as well as compensation for losses caused through interference with the possession (Unterlassungsanspruch gegen Besitzstörungen), S. 915 Civil Code; – The ownership action, whereby owners may bring an action against any person who is illegally retaining their property, with the objective to have the ownership rights declared and reinstated and physical control of the property restored to its owner (Eigentumsherausgabeanspruch), S. 1044 Civil Code; – The claim to fulfil the duty to compensate for losses due to unlawful damage of property, whereby everyone has the duty to compensate for losses he has caused through his acts or failure to act, also in connection with the damaging of property (Entschädigungsklage), S. 1779, 2354 Civil Code; – The claim arising from unjust enrichment (Anspruch wegen ungerechtfertigter Bereicherung), S. 2369 Civil Code. Several of these claims may apply to a given case and the relation between them has thus to be determined. Therefore, an owner may raise both the claim to prohibit another from affecting one’s property (S. 1039 Civil Code) as well as the right to protection of one’s possession (S. 915 Civil Code).24 However, the statute of limitation with regard to the right to claim protection of one’s possession is shorter. The courts recognize that an ownership action (S. 1044 Civil Code) may be raised only against such person, who, when illegally retaining the property, at the same time disputes the rightful claim of the owner. The claim to prohibit others from affecting one’s property, S. 1039 Civil Code, may however also be put forward effectively in cases, where another person retains such property, which he, albeit illegally, has received on an effectively legal basis.25 The ownership action (S. 1044 Civil Code) is no absolute claim, its scope and limitations follow from S. 1065 Civil Code, which stipulates that such action may not be brought, if the owner has, in good faith, entrusted movable property to another person, delivering it pursuant to a lending contract, bailment, pledge, or otherwise, and such person has given possession thereof to some third person.26 In this case, there may be allowed only an action in personam against the person to whom the owner has entrusted his property, but not against a third person who is a possessor in good faith of the property. 24 25 26

A Grūtups, E Kalniņš, Civillikuma komentāri. Trešā daļa. Lietu tiesības. 2002, 184. A Grūtups, E Kalniņš, Civillikuma komentāri. Trešā daļa. Lietu tiesības. 2002, 184. See section 9 on good faith acquisition.

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1.5.

Transferability of movable assets

The subject-matter of ownership may be anything that is not specifically withdrawn from circulation by law, S. 929 Civil Code. Movable assets that are withdrawn from circulation include: – Public property, which is owned by the state or a municipality and is designated for public use; – Administrative property, owned by the institutions of public administration, which may not be sold or rented out; – Property designated for religious or similar purposes; – Objects of cultural and historical heritage, cultural monuments; – Property protected by certain environmental law provisions; – Property, where the use and circulation of which requires certain permits, e.g. firearms; – Property, where possession and circulation is prohibited, e.g. nuclear arms.27

2.

Possession

2.1.

Concept of possession

Pursuant to Latvian law, possession (valdījums) is defined as the actual control over property in conformity with property rights therein, S. 876 Civil Code. The defining criterion is the intention to act as an owner of the property. Persons under whose control property actually is, but who acknowledge another person as the owner thereof, are deemed, even though having the right to hold it under their control, not the lawful possessor of the property, but only the holder (turētājs) and a substitute for the owner in possession. In this sense a lessee or a tenant, S. 2130 Civil Code, a borrower, S. 1950 Civil Code, as well as a bailee, S. 1971 Civil Code, are merely holders, but not possessors of property. Even though they exercise control over the property, no manifestation of the intent to act with the property similarly as would an owner exists. Such intent to act with the property similarly as would an owner may also be expressed by a person who is not the owner. A possessor who is no owner may become an owner by way of certain processes foreseen by law, including by acquisitive prescription, S. 998, 1031 Civil Code.28

27

28

A Grūtups, E Kalniņš, Civillikuma komentāri. Trešā daļa. Lietu tiesības. 2002, 3235. See section 10 below.

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The Latvian Civil Code makes a distinction between acquisition of possession in good faith and acquisition in bad faith. Possessors in good faith are those who are convinced that no other person has a greater right to possess the property than they, but possessors in bad faith are those who know that they do not have the right to possess the property or that some other person has a greater right in this respect than they, S. 910 Civil Code. This distinction is relevant in particular with regard to the liability of a possessor who is not an owner. Possessors, who have acquired possession in bad faith are generally subject to higher liability, as well as a lower responsibility threshold in cases of unintentional loss or damage of the disputed property, S. 1054 Civil Code. In addition, the amount of fruits received from property to be returned to the owner depends on whether the possessor had acquired possession in good or bad faith, S. 1056 Civil Code. Finally, good faith is required in connection with the acquisition of property through prescription, S. 1013 Civil Code, and purchase from a non-owner.29 In ownership actions, from the time when an action is brought against a defendant, the defendant is presumed a possessor in bad faith, even if he has until then been in possession in good faith, so that he is not liable only for his prior acts or failures to act, but remains liable for his later bad faith conduct, S. 1053 Civil Code. If the defendant has been a possessor in bad faith, he is required to return to the plaintiff not only all the fruits that he has received from the property, but also those the plaintiff himself could have received, had he been in possession of the property. If the defendant has been in possession of the property in good faith, he is only required to return such fruits as he has received prior to an action being brought against him, and also only in such amount as he has not yet consumed during the period prior to the bringing of the action; but he is obliged to return in full fruits received after an action is brought, S. 1056 Civil Code. If the defendant is in possession in bad faith, he is also liable for unintentional destruction or damage to the disputed property and its appurtenances, provided that the same would not also have occurred to the property had it been previously delivered to the owner, S. 1054 Civil Code. The status of possessor in good faith is also relevant with regard to a claim for ownership of the fruits of the property, S. 959 Civil Code,30 for

29 30

See sections 9 and 10, respectively. S. 959 Civil Code: A possessor in good faith of another person’s property shall acquire its fruits at the time of separation of the fruits from the principal property, irrespective of the procedure by which they have been separated and who, except for the owner, has separated them.

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reimbursement of useful expenditures, S. 867 Civil Code,31 and in connection with the recovery of property,32 S. 1048 Civil Code.

2.2.

Acquisition of possession

For the acquisition of possession of tangible property it is required to assume control of it, i.e. to perform such physical action as to acquire possession and subject such property to one’s physical control so that he alone may, at his discretion, affect it; but secondly, that there be associated with the assumption of control the intention to retain the property as one’s own, S. 879 Civil Code. Direct physical contact with the property is not required, S. 881 Civil Code. Possession may also be acquired through a substitute, S. 887 Civil Code. Possession may firstly be acquired by physical act, S. 883 Civil Code, – when a person who wishes to acquire possession of the property, receives it in his hands; – when it comes to be within the person’s traps or nets; – when the person places a guard over it; – when, at the order of the acquirer, it is transferred to another person, who is his substitute; – when it is carried to premises occupied by the acquirer;

31

32

S. 867 Civil Code: Useful expenditures shall be reimbursed to persons who have, in good faith, administered the property of another as if it were their own. If they have not yet received reimbursement, but have received income from this property, the expenditures may be set off against the income to be returned to the owner. These expenditures shall be reimbursed only to the extent that they have increased the value of the property. However, if the increase exceeds the amount of the expenditure itself, only these expenditures may be recovered. If the amount of the reimbursable useful expenditures is not commensurate with the means of the persons for whose property they are made, or if the payment of the reimbursement will place too large a burden on such persons, they may not be compelled to reimburse them; but, in such case, the opposing party may remove from the property of the other person all the improvements done to it, to the extent possible without the property being damaged. Persons who, without acting in good faith, incur necessary expenditures in regard to the property of another person, may not request that these be reimbursed, but may remove their improvements, if that is advantageous to them and if it can be done without the principal property being damaged. A Grūtups, E Kalniņš, Civillikuma komantāri. Trešā daļa. Lietu tiesības. 2002, 228; K Balodis, Ievads Civiltiesībās, 2007, 139.

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– when the acquirer has been given the keys to premises in which the property is located; or – when the acquirer put a notice on property that is no longer in the possession of another. Latvian courts acknowledge, that this list laid down in S. 883 Civil Code is not exhaustive.33 Therefore, possession in a motor vehicle may be acquired by handing over the keys or technical papers. In addition, possession may be acquired by way of a symbolic act, in particular pursuant to delivery. The delivery of goods stored in a warehouse, and stocks of goods, may be accomplished not only by enumerating, measuring and weighing the goods, but also by the delivery of keys, accounts, bills of lading, trademarks, etc., if together therewith the transferor expresses the intention to transfer their ownership, and the recipient to acquire it. Goods or any other property with the mark of the acquirer thereon are deemed to have been delivered and to have passed into the ownership of the acquirer, so long as the contrary has not been proven, S. 990 Civil Code.

2.3.

Protection of possession

The Civil Code prescribes that every possession is protected by law, S. 912 Civil Code. This guarantee extends also to mere holders of property, S. 876 Civil Code. The possessor or the holder is entitled to claim protection of existing possession (physical control) and renewal of possession that has been taken away, independently of whether the possession is legal or illegal, in good faith or in bad faith, S. 911 Civil Code. Latvian scholars are of the opinion that such claim for protection of existing possession, or renewal of possession lost, requires a lower threshold to argue and enforce than an ownership action (S. 1044-1066 Civil Code).34 According to S. 913 Civil Code every person may protect his possession from any restriction or interference, even by force, provided that it is used without delay and within the limits permitted by law for self-defence. Selfhelp is permitted only in exceptional circumstances, when its purpose is to prevent an attempt to illegally alter existing relations, but even in such case, only within the necessary limits of self-defence, S. 1733 Civil Code. 33

34

S Cakuls, Par valdījumu un tā iegūšanu, Jurista Vārds, Nr. 23 (256) 19.11.2002; G Višņakova, K Balodis, Latvijas Republikas Civillikuma komentārs. Lietas. Valdījums. Tiesības uz svešu lietu, 1998, 38. G Višņakova, K Balodis, Latvijas Republikas Civillikuma komentārs. Lietas. Valdījums. Tiesības uz svešu lietu, 1998, 52; A Grūtups., E Kalniņš, Civillikuma komentāri. Trešā daļa. Lietu tiesības. Īpašums. 2002, 218.

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The scope of the criterion of necessary limits is disputed among Latvian scholars. Some have claimed that Latvian law does not foresee any limits to the scope permitted in the course of self-help,35 whereas it is suggested that an accurate interpretation of the law would have to take into account the scope and limits set by the principles of self-defence under criminal law.36

3.

Field of application and definitions

Tangible property is considered to be movable property, if it may be moved without external damage from one location to another; whereby a railway, with all its appurtenances, is classified as immovable property; but ships are classified as movable property, S. 842 Civil Code. With regard to certain objects and property, the transfer of ownership requires formal registration. It is submitted by Latvian scholars that with regard to aeroplanes and mechanical vehicles, the actual transfer of physical possession results in the transfer of ownership, and that the acquirer is under the obligation to perform the respective registration.37 Rights applicable to immovable property may be made applicable by law or private volition also to movable property and vice versa, S. 843 Civil Code. Latvian courts have yet to rule on the question whether such private agreement would also be valid towards third parties. Movable property also includes personal rights and intangible rights, e.g. copyright. In the event that intangible property is treated as a constituent part or appurtenance (S. 850 Civil Code) of tangible property, then it assumes the characteristics of the latter and in accordance therewith, it is considered either movable or immovable, having regard to the class of tangible property to which it belongs, S. 846 Civil Code.

35

36

37

K Torgāns, Latvijas Republikas Civillikuma komentāri. Saistību tiesības, 1999, 243. G Višņakova, K. Balodis, Latvijas Republikas Civillikuma komentārs. Lietas. Valdījums. Tiesības uz svešu lietu, 1998, 52. G Višņakova,K Balodis, Latvijas Republikas Civillikuma komentārs. Lietas. Valdījums. Tiesības uz svešu lietu. 1998, 11; K Torgāns, Saistību tiesības, II daļa, Mācību grāmata, 2008, 24.

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Part II: Transfer ownership 4.

Derivative transfer of ownership

4.1.

Transfer requirements in general; different contracts for transfer of ownership

Latvian law follows a principle of unitary transfer of ownership. Thereby all rights within the scope of ownership are transferred at the same time to the transferee. Transfer of ownership requires that the transferor has the right or authority to transfer the ownership (the principle nemo dat quod non habet), to alienate the property, in the meaning of a real transaction (or real agreement), and to deliver such property to the transferee, S. 987 Civil Code.38 Latvian civil law doctrine therefore follows the principle of traditio for the transfer of ownership.39 The Civil Code distinguishes in accordance with the principle of division of legal transaction between the obligatory transaction (in German Verpflichtungsgeschäft) and the real transaction (in German Verfügungsgeschäft). To conclude validly an obligatory transaction does not in itself suffice for the transfer of ownership (e.g. for the purchase contract S. 2021 Civil Code40), and the respective obligatory transaction remains valid also if the real transaction is rendered invalid, S. 1077 Civil Code.41 However, Latvian law does not follow the German abstract concept 38

39

40

41

S. 987 Civil Code: The alienation of property by its owner is not of itself sufficient for the right of ownership in the property to pass to its acquirer, if another mandatory provision is not complied with, namely, the delivery of such property to the new acquirer. Upon delivery, the new acquirer acquires the rights of ownership in the property to the same extent as they belonged to the transferor of the property. A Grūtups, E Kalniņš, Civillikuma komentāri. Trešā daļa. Lietu tiesības. Īpašums. 2002, 111. S. 2021 Civil Code: Mutual rights for both parties to claim performance of the contract, as well as compensation for losses arise from a purchase contract. S. 1077 Civil Code: Alienation carried out in contravention of a lawful prohibition is invalid, except for special exceptions set out in regard to certain cases.

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of transfer of ownership (Abstraktionsprinzip), since to conclude a valid real agreement does initially require a valid obligatory transaction, S. 989 Civil Code.42 Transfer of ownership under Latvian law therefore follows a causal instead of an abstract concept.43 The provisions on certain types of contracts foresee specific provisions in this regard. In purchase contracts, the purchaser is in principle required to pay the purchase price in order to obtain ownership. The seller is not required to deliver the property before receiving the payment, S. 2033 Civil Code. Unless so agreed, the purchaser does not obtain ownership before payment, S. 2034 Civil Code. The seller may however agree on the transaction being subject to a deferred condition, whereby ownership passes to the acquirer only after the condition has come into effect, S. 997 Civil Code. Pursuant to a barter contract for tangible property, it is each contract party’s responsibility to ensure that ownership in the transferred property passes to the other party. However, ownership rights pass to the recipient of the property at the moment of delivery, regardless of whether or not the recipient has fulfilled his counter-duty, S. 2094 Civil Code. In the case of a maintenance contract, one party provides the other party with some financial benefit, whether in cash or in kind, for which the other party is obliged to provide maintenance to the first-mentioned party during the life of the first-mentioned party, unless otherwise agreed regarding the duration of such duty, S. 2096 Civil Code. In the event that the contract is breached by the provider of maintenance, the recipient of maintenance or his successor in interest may reclaim the transferred financial benefit and is not required to return the value of the maintenance received, S. 2105 Civil Code. In other cases of termination of the contract, the provider of maintenance is required to return the financial benefit received to the recipient of maintenance or to his successor in interest, while he may recover everything he has transferred to the recipient of maintenance above the statutory rate of interest.

42

43

A relevant lawful transaction does not become invalid due to the alienation not being valid. Such transaction, provided that the acquirer did not know of the prohibition regarding alienation, is valid to the extent it is compatible with the prohibition regarding alienation. S. 989 Civil Code: In order for the delivery to be valid, a legal basis is required therefor as is actually intended to transfer ownership, and the legal transaction upon which the passing of ownership is based must not be prohibited by law. P Schwartz, Das Lettische Zivilgesetzbuch vom 28. Januar 1937 und seine Entstehungsgeschichte 2008, 210.

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Also a supply contract may be the legal basis for the transfer of ownership. Pursuant to a supply agreement, the supplier undertakes to deliver to the customer a particular object of property for a certain price, S. 2107 Civil Code. After the respective object of property has been delivered, the legal relationship between the contracting parties is determined in compliance with the statutory provisions of the Civil Code regarding purchase contracts, S. 2109 Civil Code. Furthermore, a gift may be the legal basis for the transfer of ownership. A gift, S. 1912-1933 Civil Code, is a legal transaction whereby one person grants ownership in valuable property to another person through generosity only and without remuneration. In the case of the gift of tangible property, ownership passes to the recipient with its delivery, S. 1917 Civil Code.44

4.2.

Requirements of a valid obligation to transfer ownership

According to the Latvian Civil Code, the transfer of ownership is based on the causal principle. Specifically, S. 987 Civil Code provides that the alienation, in the meaning of a real transaction, of property by its owner is not of itself sufficient for the right of ownership in the property to pass to its acquirer, if in addition to this, the delivery of such property to the new acquirer is not effected. In order for the delivery to be valid, a respective legal basis is required as well as the actual intention to transfer ownership; additionally, the legal transaction upon which the passing of ownership is based must not be contrary to law, S. 989 Civil Code. Ownership may be acquired through a legal transaction, alienation, resolution of a court of law, or by law. Such respective legal transactions include contracts of purchase, barter, maintenance, and supply.45 According to S. 1593 Civil Code, the alienator, in every alienation contract for consideration, such as purchase, barter, distribution of testamentary estate and joint property, pledge and settlement, remains liable that the property is not replevined, that it has no hidden defects, and that it possesses all the good qualities that are warranted and presumed. Ownership may also be acquired through testament and gift. Through resolution by a court of law, acquisition of ownership is recognized, if the owner has lodged a possessory claim. Ownership created by operation of law includes common ownership of spouses in marriage and through prescription.46 Everything acquired during the marriage by the

44 45 46

K Torgāns, Saistību tiesības, II daļa, Mācību grāmata. 2008, 22-67. See section 4.1. above. J Rozenfelds, Lietu tiesības. 2000, 134.

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spouses together, or by one of them, but from the resources of both spouses, or with the assistance of the actions of the other spouse, is the joint property of both spouses, S. 89 Civil Code. According to Latvian civil law, a defective obligation results in the ownership not having been passed at all. In this context, the different roles of a person as owner (īpašnieks) and possessor (valdītājs) are relevant. The possessor (the transferee who failed to acquire) must return the goods to the owner (the transferor), and the possessor will be treated differently with regard to a number of aspects, depending on whether he or she acted in good faith or in bad faith.47 Section 988 Civil Code makes clear that both parties must possess the legal capacity and the intention to transfer the ownership.48 Therefore, only a person who has the right to alienate the property being transferred, in his own or in the name of another person,49 and together therewith has an intention to transfer the property to the ownership of another, may deliver it. The acquirer requires the capacity and the intention to acquire ownership of the property for himself or for another person. Section 1409 Civil Code prescribes that lawful transactions made by persons with the capacity to act while they are unconscious or in a state of mental incompetence are void. The delivery of property, which has been effected without a legal basis, has no legal consequences, S. 989 Civil Code. Upon delivery of an object of property, the new acquirer acquires the rights of ownership in the property to the same extent as they belonged to the transferor of the property,50 S. 987 Civil Code, therefore in such case no ownership rights are transferred. However, an invalid transfer does not result in the underlying contract becoming invalid. Such transaction, provided that the acquirer did not know of the prohibition regarding alienation, is valid to the extent that it is compatible with the prohibition regarding transfer, S. 1077 Civil Code. In the event that the transaction is invalid, the delivery will not become effective, and the ownership rights remain with the previous owner, S. 989 Civil Code. The same outcome results from such a transaction being voidable and being declared invalid by a court of law.

47

48

49 50

See the different rules for possessors in good faith and possessors in bad faith in section 2.1. above. A Grūtups, E Kalniņš, Civillikuma komentāri. Trešā daļa. Lietu tiesības. Īpašums. 2002, 114. See also section 4.7. below. See also section 4.7. below.

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In the event of mistake, the Civil Code prescribes that delivery effected under mistake regarding the deliverable property itself51 or the ownership rights of the transferor to such52 do not establish the passing of ownership. If some other mistake has occurred, ownership shall still be considered to have passed, but return of the transferred object may be claimed through an action in personam, S. 996 Civil Code. In purchase transactions, the consequences of a failure to make payment depend on the contract provisions. It may be prescribed that the seller may keep ownership to the sold property either by keeping this right while full payment of the purchase price has not been received, or by having the ownership rights revert back if the purchaser does not pay, S. 2069 Civil Code.

4.3.

“Traditio”: delivery and delivery equivalents

Latvian legal doctrine favours the system based on traditio in the transfer of ownership, as principally enabling any person to determine the rightful owner of property. Property should in general be in the possession of the owner. The traditio system aims to protect third parties and the civil legal system in general.53 The available forms of delivery resemble the forms in which possession may be acquired.54 Namely, possession may be acquired by physical or symbolic acts. The parties may also create new forms of delivery. The delivery of possession of movable property takes place pursuant to the provisions on acquiring possession, S. 878-895 Civil Code. The parties must act with the intent to transfer ownership.55 Where property is already in the possession of the acquirer thereof, an appropriate notification from the previous owner suffices as a real agreement,56 in order that the property 51

52

53 54 55 56

This covers situations where, for instance a contract for sale has been concluded without being affected by any error, but then the goods actually delivered are, by mistake, other goods to which the contract does not relate (e.g. the contract is for a certain clock A, but by mistake, clock B is handed over, which looks very much the same). This addresses situations where someone buys goods from a non-owner, mistakenly believing that the seller is the owner. Here, the principle nemo dat quod non habet (or nemo plus iuris transferre potest quam ipse habet) applies. Under certain additional prerequisites, good faith acquisition is possible; see section 8 below. A Grūtups, E Kalniņš, Civillikuma komentāri. Trešā daļa. Lietu tiesības. 2002, 111. See section 2 above. A Grūtups, E Kalniņš, Civillikuma komentāri. Trešā daļa. Lietu tiesības. 2002, 116. See also sections 4.1. above and 4.5. below as to the requirement of a real agreement.

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passes into the ownership of the acquirer, S. 991 Civil Code. This is the case e.g. where by way of a rental contract property is already in the possession of the purchaser. A formal, repeated, delivery is not required, because only the legal basis of possession, not the relation to the property, is subject to alteration.57 Whether a constitutum possessorium – i.e. an agreement pursuant to which the transferor exercises possession for the transferee without carrying out any change in physical control – as a suitable form of “delivery” is rarely discussed in the context of transfer of property in Latvia. There are, however, indications that the concept is, or has traditionally been, acknowledged in principle. In recent times, the concept is discussed rather in the context of pledge.58 With the introduction of the commercial pledge, it is claimed that the constitutum possessorium is no longer required.59 The Ministry of Justice suggests, with regard to pledge, to expressly exclude this legal construct.60 Some Latvian scholars however suggest that in principle the constitutum possessorium is a possible construct under Latvian law.61

4.4.

Registration

Latvian scholars concur that ownership of movable property that is subject to registration requirements (airplanes, mechanical vehicles) passes upon delivery. The duty to effect the registration has therefore only a declaratory, not a constitutive, function. Legal practice with regard to this issue, on the other hand, is less clear.62

4.5.

Real agreement

The Latvian civil law system prescribes the real agreement, which is the agreement forming the basis of the transfer of ownership. However, particular provisions for such agreement are not provided. Rather, the real agreement is subject to the general provisions on obligations. 57 58

59 60

61 62

A Grūtups, E Kalniņš, Civillikuma komentāri. Trešā daļa. Lietu tiesības. 2002, 118. J Rozenfelds, Lietu tiesības, 2000, 208-209; K Višņakova, K Balodis, Latvijas Republikas Civillikuma komentārs. Lietas. Valdījums. Tiesības uz svešu lietu, 1998, 207-209. S Cakuls, Par valdījumu un tā iegūšanu, Jurista Vārds, Nr. 23 (256) 19.11.2002. Cabinet of Ministers, Koncepcijas projekts par Civillikuma lietu tiesību daļas modernizāciju (informatīvā daļa), 2010. J Rozenfelds, Lietu tiesības, 2000, 123. High Court of Latvia, SKC-300 23 April 2003.

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The agreement is valid when the contracting parties have reached complete agreement regarding the essential elements with the purpose of mutually binding each other, S. 1533 Civil Code. The essential elements of a transaction are everything necessary to its concept and without which the intended transaction itself is impossible, S. 1470 Civil Code. Delivery is required for the agreement to be valid. Delivery may take place at the same time as the conclusion of the obligatory contract, or later by way of declaration of the former owner, if the property is already in the possession of the acquirer. The intent of the owner to alienate a property may be expressed in various ways, expressly or implied. Express intent may be expressed in words, orally or in writing, or by signs that have the meaning of words, S. 1428 Civil Code. The signing of a deed is considered to be consent to such deed, regardless of whether it applies to the signatory or to a third person, if the contents of such were known to the signatory and if he has a personal interest in, and the right to object to, the lawful transaction to which the deed applies, S. 1431 Civil Code.

4.6.

Payment

The issue, whether payment must be made in order to acquire ownership, may be approached from different angles. With regard to purchase contracts, this means that the purchaser is in principle required to pay the purchase price in order to obtain ownership, which must be done immediately upon delivery of the property, unless the contract has been concluded on a credit basis or specific terms have been set for payments. The seller is not required to deliver the property before receiving the payment, S. 2033 Civil Code. Prior to the payment, the purchaser does not obtain ownership, unless the seller has extended the payment. Such extension of payment is regarded as implicitly agreed, if the seller delivers the property to the purchaser without any reservations, S. 2034 Civil Code. The seller is however entitled to conclude the transaction subject to a deferred condition, whereby ownership passes to the acquirer only after the condition has come into effect, S. 997 Civil Code. In particular with regard to a purchase contract, the seller may keep the ownership to the sold property until full payment of the purchase price has been received; or the purchase contract may foresee that ownership rights revert back to the seller if the purchaser does not pay in full, S. 2069.63 However, in the 63

S. 2069 Civil Code: A seller may keep the ownership rights to the sold property either by keeping this right while full payment of the purchase price has not been received, or by having

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event that the seller has prolonged the payment terms expressly or implied by his conduct, and the property has been delivered, ownership transfer is considered to have occurred.64

4.7.

Right to dispose

The owner may transfer ownership in an object of property personally, based on the right to dispose inherent in the right of ownership, or through a representative. Representation may be direct (where the representative acts in the principal’s name) or indirect (where acting in the representative’s name). In both cases, the person so authorized (representative), transfers the ownership rights in the scope determined by the authorization agreement, and the owner undertakes to recognize the activity of the authorized person as binding upon him, S. 2289 Civil Code. If the representative exceeds the scope of the authority granted to him, then the other contracting party shall make his claims only against that representative, unless the principal confirms the contract at a later time, S. 1518 Civil Code.

5.

Multiple selling

Where a valid sale has been concluded with an acquirer, and the owner then transfers the ownership to the “sold” property to a third party, the following rule applies: if both parties, or even only the second purchaser, knew that it was not permitted to alienate the property that was sold, then the contract is void. However, if only the seller had knowledge thereof, then the contract remains in effect and the seller must compensate the second purchaser for losses. Finally, if neither party had knowledge thereof, then the contract shall be void, S. 2006 Civil Code.

64

the ownership rights revert back if the purchaser does not pay. If doubts should arise regarding the intent of the contracting parties, then it shall be assumed that it has been contracted for the ownership rights to be retained by the seller so long as full purchase price has not been received. K Torgāns, Saistību tiesības, II daļa, Mācību grāmata 2008, 22-23.

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6. Transfer or acquisition by means of indirect representation

6.

571

Transfer or acquisition by means of indirect representation

Provisions for commission contracts outside the commercial sphere are provided for in S. 2321-2324 Civil Code. A commission contract is understood to mean a contract by which one party entrusts to the other movable property in order that it be sold at a certain price, upon the condition that the recipient (the commission agent) shall, after a certain period of time or, if no time has been specified, pursuant to the requirement of the owner, either pay the price referred to or return the property, S. 2321 Civil Code. Such contract may only be concluded with regard to movable property.65 The right of ownership in regard to the property, after it has been delivered to the recipient for the sale thereof, remains with the owner, on whom the risk of loss therefore also falls, provided that the recipient has not expressly assumed it, S. 2322 Civil Code. The commissioner is therefore the holder of the property.66 If a person acts as an agent for an undisclosed principal, i.e., enters into a contract on behalf of the principal, but not in his name, the contract is valid, both in regard to duties and rights, only pertaining to the contracting party, but it is valid in regard to the principal only when the contract is specially transferred to him, S. 1516 Civil Code. However, the inclusion of a chapter regulating commercial transactions into the Commercial Code from 1 January 2010 introduced the contract of commercial commission, S. 415-429 Commercial Code. The provisions on commercial commission are applicable, if at least one of the parties is a person who professionally engages in commerce (merchant), therefore rendering the respective activities commercial activities within the meaning of the Commercial Code, S. 389 Commercial Code. Accordingly, sale and purchase of goods in his own name is only one of the functions of the commercial commissioner, and the regulative framework resembles closely that of the commercial agent. The latter however does not conclude contracts in his own name. Where commercial commission is used to acquire assets, the commercial commissioner receives the ownership rights to the goods, which however are to be transferred to the principal by way of cession, S. 424 Commercial Code. Such transfer of rights (cession) is particularly important in cases where the commissioner becomes insolvent.67

65 66

67

K Torgāns, Saistību tiesības, II daļa, Mācību grāmata. 2008, 207. K Torgāns, Latvijas Republikas Civillikuma komentāri. Saistību tiesības, 1999, 602. K Balodis, Jaunais komercdarījumu regulējums un tā piemērošana. Komerclikuma D daļa, kas stāsies spēkā 2010.gada 1.janvārī, Jurista Vārds no.21 (574) 26.5.2009.

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7.

Consequences of insolvency

The Latvian Insolvency Law68 complies with the system of transfer of ownership of the Civil Code, which is based on the causal concept of acquisition of ownership. A contract creating an obligation to transfer ownership remains valid if the other party later happens to become insolvent, the administrator in insolvency is however under the obligation to submit a claim to declare the transaction void, S. 92 and 93 Insolvency Law. Transactions, which have been concluded during the one month before the moment of factual insolvency, are void, S. 92 Insolvency Law. The administrator is under an obligation to evaluate all transactions of the enterprise and determine, according to his discretion, whether any transactions have resulted in any adverse effect on the enterprise. This duty concerns all transactions that have been concluded after the undertaking was factually insolvency, but also all transactions during the five years before this moment, if such transaction had an adverse effect on the enterprise and the contracting party was aware, or should have been aware when acting diligently, of such adverse effect, S. 92 Insolvency Law.

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01.11.2007. likums “Maksātnespējas likums”, “LV”, 188 (3764), 22.11.2007.

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Part III: Original acquisition 8.

Acquisition by joining and processing

The acquisition of ownership (also termed augmentation) by way of joining or processing movable property of another is regulated in S. 980-983 Civil Code. A definition of what constitutes joining or processing is however not provided in the Civil Code, but was developed in Latvian legal doctrine. Joining is therefore understood as mixing together of separate objects of property or things, and processing (also termed specification) describes the creation of a new object of property or thing by using material objects belonging to another person.69 In connection to augmentation by joining movable property, the different objects of property subject to the process of joining must initially belong to different persons and the result of this process is the creation of a new object of property. In order to determine the owner of the new object of property, the subjective relation or intent of the person who conducted the process of joining is relevant, in particular whether he acted in good faith or bad faith. Furthermore, also relevant is whether the objects of property so joined together may at all be separated and be returned to their original physical status. If there is no special arrangement between the participants of the said process of joining, then the new property created through such process is the joint property of all of them, held in undivided shares that correspond to the value of each separate, joined property, S. 980 Civil Code. If items of movable property belonging to two owners are joined by one of them without the knowledge and intent of the other, and it is possible to again separate them and restore them to their former form, the person at fault is obliged to bear respective costs, and ownership rights do not change, S. 981 Civil Code. The determination of good faith or bad faith in the conduct of the participants is first and foremost relevant with regard to the issue of liability for the damage caused by the augmentation. If materials of another person have been processed without the consent of the owner, and the joining and processing is done in bad faith, the owner of the property joined or processed may claim the new property as his own – without a duty to compensate for the materials of others put into the new property, or for the 69

A Grūtups, E Kalniņš, Civillikuma komentāri. Trešā daļa. Lietu tiesības. 2002, 108.

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work done. Alternatively, the owner of the property joined or processed may leave ownership to the party at fault and claim payment of an amount equivalent to the highest price existing for his property from the day it was taken until the day such compensation was adjudged and, in addition thereto, claim compensation for all losses, S. 982 Civil Code. If the joining of property to the property of another person has been done in good faith and carried out without artistic or skilled work, ownership of the property thereby created is accrued by the person who has created it, provided that their own materials added thereto are manifestly more valuable than those of the other person. But at the choice of the owner of the materials, they are then obliged to either return an equal amount of materials of the same kind and quality, or pay such price for these materials as was the highest regarding them at the time when the joining took place, and, in addition, to compensate the owner of the materials regarding losses occasioned to such owner, S. 983 Civil Code. In the event that the a process involves artistic or skilled work, the augmentation takes place by way of processing the property (S. 985 Civil Code, below).70 However, where processing was carried out in bad faith, the rules for joining apply. In the case of good faith, the value of the material involved is taken into account. If the materials of the joiner are not evidently more valuable, the person whose rights are affected may either leave the new property with the person who has processed it for compensation (S. 983 Civil Code) or keep it himself. In the latter case, the person who did the joining has the right to claim for the normal value of the materials he has joined to the extent the materials of the other have actually been improved thereby, S. 984 Civil Code. If, through artistic or skilful processing in good faith of materials of another, something new has been created, such that the materials used in the composition thereof have lost their former form and acquired a new one, then, irrespective of whether the materials of the other person can or cannot be separated from it, such new thing becomes the property of the processor, but subject to the duty to provide compensation (on the basis of S. 983 Civil Code) to the owner of such other person’s materials, S. 985 Civil Code. Where a person has joined or processed materials belonging to several persons, the provisions of S. 980-985 Civil Code cited above also apply. When the participants have the right, they may choose to either keep the new thing or in place thereof to receive compensation for the materials. The issue shall be decided by a majority vote in proportion to the amount of the materials each of them owns or, if this is not possible, by drawing lots, S. 986 Civil Code. 70

A Grūtups, E Kalniņš, Civillikuma komentāri. Trešā daļa. Lietu tiesības. 2002, 109.

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9. Good faith acquisition

9.

575

Good faith acquisition

The general rule on acquisition of ownership in good faith is provided in S. 1065 Civil Code. Thereby an ownership action may not be brought if the owner has, in good faith, entrusted a movable object of property to another person, delivered it pursuant to a lending contract, bailment, pledge or otherwise, and such person has given possession thereof to some third person. In this case, there may be allowed only an action in personam against the person to whom the owner has entrusted his property, but not against a third person who is a possessor in good faith of the property. A more specific application of this principle is provided for in connection with the legal framework regarding purchase contracts. According to S. 2010 Civil Code, when the property of another person has been sold without the knowledge and consent of its owner and both parties had knowledge thereof, then the contract is void. If, on the contrary, the purchaser did not know that the seller did not have the right to alienate the property, then the purchaser may claim compensation for losses. Finally, if only the purchaser had knowledge thereof, then the seller is under no duty towards the purchaser. Exceptions to this provision are the cases provided for in S. 1065 Civil Code, where the sale of another person’s property is valid and its owner may have recourse only against the seller. The concept of acquisition in good faith is based on the principle whereby a person who possesses property is presumed to be its owner. Latvian scholars concur that the functioning and development of the civil legal framework, as well as the protection of ownership in general, depend on this legal approach.71 As mentioned (see 1.4 supra), according to S. 1065 Civil Code, an ownership action may not be brought if the owner has, in good faith, entrusted a movable object of property to another person. The transactions mentioned in S. 1065 Civil Code, such as lending, bailment, and pledge contracts, are examples. Some Latvian scholars suggest that rent is excluded from this provision, since no element of trust exists, but this opinion is disputed.72 Other scholars claim that S. 1065 Civil Code is furthermore not applicable, if a contractual transaction has an element of trust, but also if it involves a mistake in substance, S. 1445 Civil Code, fraud, S. 1459 Civil Code, or duress, S. 1463 Civil Code.

71

72

L Leja, Par labticīga ieguvēja aizsardzību, prettiesiski atsavinot līzinga objektu, Jurista Vārds Nr. 5 (12) 10.02.2004. A Grūtups, E Kalniņš, Civillikuma komentāri. Trešā daļa. Lietu tiesības. 2002, 224; Р Буковский, Cводъ гражданский узаконений губерний Прибалтийских, сост. 1, 1914, 392.

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For application of S. 1065 Civil Code, the transaction with an acquirer in good faith shall be aimed at the transfer of ownership, and the object of property must be delivered. The object of property may not be subject to exclusion from circulation in civil law transactions or to a prohibition of alienation. The owner must have entrusted the object of property to the other person without duress, and the acquirer must act in good faith, both during the negotiations and when actually concluding the contract. In this context it must be taken into account that Latvian civil law separates two legal terms with regard to third person possessors, who acquired from the person to whom the owner entrusted the property: that of possessor73 in good faith (labticīgs valdītājs) and that of acquirer in good faith (labticīgs ieguvējs). The difference is relevant for the legal consequences. If a person is qualified as an acquirer in good faith, an owner may only bring an in personam action against the person with whom he has entrusted the property. He can not bring such action against the acquirer in good faith.74 The possessor in good faith must return the property to the owner, but he is compensated with the fruits of the property. In the event that such fruits amount to less than the useful and necessary expenditures with regard to the property, the possessor in good faith is entitled to a respecttive compensation. With regard to the consequences of the status of possessor in good faith concerning claims for ownership of the fruits of the property, reimbursement of useful expenditures, in connection with the recovery of property (see above Chapter 2.1.), the Latvian Civil Code does not follow the principle of absolute vindication, but the property must be returned to the owner in a number of cases. The reasoning for this is as follows: According to S. 1003 Civil Code, ownership through prescription may not be acquired for property obtained by criminal means, not by the committer of the criminal offence, nor by a third person whose rights are obtained by alienation thereof from the committer. This restriction regarding acquisitive prescription terminates only after such property is returned to the control of its owner. Latvian scholars explain that although this provision is part of the legal regulation on acquisition of ownership through acquisitive prescription, it is to be considered a universal concept: if ownership cannot be acquired through acquisitive prescription, then ownership may not be acquired at all.75 The Latvian Penal Code provides two cases where property is entrusted to another person. According to S. 177 Penal Code, fraud may be penalized if a person obtains property owned by another person through wilful 73 74 75

See 2.1 supra. J Rozenfelds, Lietu tiesības. 2002, 48. A Grūtups, E Kalniņš, Civillikuma komentāri. Trešā daļa. Lietu tiesības. 2002, 244.

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9. Good faith acquisition

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misrepresentation or abuse of confidence. An abuse of confidence is defined as such conduct where a person, with the intent to obtain property owned by another person, takes advantage of contractual relations or other legal relations based on mutual trust.76 Section 179 of the Penal Code prescribes that anyone may be penalized who illegally obtains property owned by another person, if such property was entrusted to him or he was responsible for it. Latvian criminalists suggest that the property must have been delivered into the possession of the respective person. In practice, a large number of cases concern contracts of bailment or authorization.77 Currently, the relation between the civil law delict, wherein property entrusted under a contractual relation is transferred, and a misdemeanour under criminal law, is not clearly defined. This results in difficulties with regard to the scope of application of S. 1056 Civil Code in practice.78 In Latvian legal practice the acquisition of ownership in good faith is often not dealt with in regard to the provisions on the sale of property belonging to another person, S. 2010 Civil Code, but instead based on the provisions regarding the sale of property, the alienation of which is prohibited.79 If property that has been delivered for the purpose of being processed or transported, is sold, pledged, or in general alienated by the processor or the carrier, the owner may bring an ownership action, paying the person who is holding the property the sum contracted for its processing or carriage, S. 1066 Civil Code. Another specific regulation concerns the acquisition in good faith of bearer paper as security. If the holder loses such paper, or it is destroyed, he may request the court to summon its holder; and if no one comes forward by the expiration of the designated time period, and there are no other obstacles, he may claim for the lost paper to be acknowledged as destroyed and to be replaced by a new one, or else, if the date of payment is already past due, to demand payment. An ownership action against the new holder who has responded to a summons shall be allowed only if he has obtained the paper in bad faith, which must be proven; a holder in good faith shall not be obliged to surrender it. 76 77 78

79

V Liholaja, Noziedzīgu nodarījumu kvalifikācija: Likums.Teorija. Prakse. 2003, 326. U Krastiņš, Krimināltiesības. Vispārīgā un sevišķā daļa. 1999, 223. For the differing views among scholars see: L Leja, par labticīgā ieguvēja aizsardzību, prettiesiski atsavinot līzinga objektu. Jurista Vārds, 2004 no. 5, 12; Justice Ministry, Pētījums par Civillikuma Lietu tiesību daļas (ceturtās, piektās, sestās un septītās nodaļas) modernizācijas nepieciešamību (TM pētījumi), 2008, 25; Decision of the High Court, no. SKC – 47 / 2005, Latvijas Republikas Augstākās tiesas Senāta Civillietu departamenta spriedumi un lēmumi. 2005. 2006, 87-90. Justice Ministry, Pētījums par Civillikuma Lietu tiesību daļas (ceturtās, piektās, sestās un septītās nodaļas) modernizācijas nepieciešamību (TM pētījumi), 2008, 26.

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The acquirer in good faith obtains ownership, even if the alienator was not an owner at all. In the case of a double sale of the same property, the rule on acquisition in good faith principally applies, but with a qualification. Priority is given to the one to whom the property has been delivered, but if neither of the two purchasers as yet has possession of it, the priority goes to the one who first entered into a purchase contract. The other purchaser may claim compensation for losses incurred, S. 2031 Civil Code. The rule on the acquisition of ownership in good faith applies only to tangible, non-fungible property.80 With regard to fungible property, normally only the kind is taken into consideration and not the form, nor the separate property itself, so that, when delivering or returning it, a person must observe only that it is of a specific kind, quality and quantity, S. 844 Civil Code. Fungible property may therefore not be acquired by way of good faith. The Commercial Code prescribes specific rules for the acquisition of ownership in the course of commerce. Thereby such commercial party may acquire property in good faith also, even if he is aware that the alienator has no ownership rights. What is important is that the acquirer believes that the alienator is entitled may transfer the property. Such belief may not be the result of gross negligence on the side of the acquirer, and no ownership may be acquired in property which has been obtained by criminal means or duress. In the event of such commercial good faith acquisition, all other rights pertaining to the property, including a pledge right, are void, unless the acquirer was aware of such right or was not aware due to gross negligence, S. 401 Commercial Code. Imperative precondition for the acquisition of ownership by way of good faith is the delivery of holdership (turējums) or the factual possession of the property. Such delivery may also take place in a symbolic manner. The issue of the scope of good faith has thus far not been discussed among Latvian scholars. The Civil Code nonetheless prescribes that when an acquirer errs with regard to the ownership rights of the alienator, such error is deemed to be a mistake in fact. A mistake in fact however does not harm the acquirer, as long as the mistake has not occurred due to his own negligence, S. 1442 Civil Code. According to S. 918 Civil Code, every possession shall be deemed legal and in good faith, so long as it is not proven otherwise. Bad faith on the side of the holder or possessor must be established by the party, which claims it.81

80

81

A Grūtups, E Kalniņš, Civillikuma komantāri. Trešā daļa. Lietu tiesības. 2002, 229; J Rozenfelds, Lietu tiesības. 2002, 142. K Višņakova, K Balodis, Latvijas Republikas Civillikuma komentārs. Lietas. Valdījums. Tiesības uz svešu lietu, 1998, 55-56.

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10. Acquisitive prescription of movables

10.

579

Acquisitive prescription of movables

Acquisition of ownership of property by way of acquisitive prescription is regulated in detail in S. 998-1031 Civil Code. Ownership of property may be acquired, if the acquirer has possessed it as his or her own for the period prescribed by law, and other applicable conditions of law are complied with, S. 998 Civil Code. The function of the concept of acquisitive prescription is to serve the reliability of the legal system and its application.82 It also decreases the number of court cases to determine ownership through claims.83 The rules on acquisitive prescription correct such shortcomings, which have prevented the direct and immediate transfer of ownership.84 The Civil Code prescribes six preconditions for the acquisition of ownership through acquisitive prescription: subject-matter that may be acquired through acquisitive prescription, a legal basis, good faith on the part of the possessor, uninterrupted possession, the elapse of the prescribed period, and that the owner of the property be legally able to exercise his right to the property, S. 999 Civil Code. Ownership through acquisitive prescription may not be acquired of subject-matter that cannot be privately owned and is excluded from civil circulation, S. 1000, 929 Civil Code. Property, things, or interests that the law absolutely prohibits the alienation of, may not be acquired through acquisitive prescription, S. 1001 Civil Code. Also subject matter obtained by way of crime is excluded, S. 1003 Civil Code. According to S. 1005 Civil Code, where several legal grounds for the acquisition of ownership compete with one another, e.g. through good faith as well as through acquisitive prescription, prescription itself also becomes inapplicable, S. 1005 Civil Code. A legal basis is required in order for possession to confer ownership of property through acquisitive prescription, such right as would itself be capable of conferring ownership rights, but which, due to particular impediments in the relevant case, did not, S. 1006 Civil Code. An exclusive list of such legal bases is provided by the Civil Code, which includes: 1. all actions and all changes in circumstances that in themselves are primary forms of acquisition of ownership – appropriation and augmentation included therein; 2. all legal transactions, interpreting this to mean unilateral expressions of intent, as well as agreements whose objective is to give ownership to another person;

82 83 84

V Sinaiskis, Latvijas Civiltiesību apskats. Lietu tiesības. Saistību tiesības, 1996, 62. A Grūtups, E Kalniņš, Civillikuma komentāri. Trešā daļa. Lietu tiesības. 2002, 136. F Kronradi, A Valters, Civillikumi ar paskaidrojumiem. Lietu tiesības, 1935, 125.

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3. intestate succession, on the basis of which heirs may, through acquisitive prescription, also acquire the property of another person that has come within the inheritance devolving upon such heirs; and 4. judgements of a court that have come into legal effect and according to which the acquirer is recognised as having ownership rights, S. 1007 Civil Code. Legal transactions that are the basis for possession must in themselves be valid and formulated in such form as is prescribed for such transactions, S. 1009 Civil Code. The Civil Code excludes for legal reasons cases in which the property has been delivered to a person for holdership (turējums). Such cases include credit, borrowing, pledge, rent, and others, S. 1008 Civil Code. In order to acquire property through acquisitive prescription, the property must be possessed in good faith, i.e., not knowing of impediments that do not allow acquiring ownership of it. A mistake by a possessor may relate only to facts; a mistake of law does not affect good faith. If a possessor, while an impediment exists, has good cause to doubt the legality of his or her possession, he or she shall no longer be recognised as a possessor in good faith, S. 1013 Civil Code. In order to acquire ownership through acquisitive prescription, the acquirer must, during the entire period prescribed by law, continuously and without interruption, possess the acquirable object and act with it as would an owner, S. 1018 Civil Code. Possession required for acquisitive prescription is considered interrupted when the possessor himself renounces it, is dispossessed of it, or loses it in some other way; also, when persons, against whom the prescriptive period runs, in some manner use, during the prescriptive period, with the knowledge of the acquirer, their ownership rights, or if the acquirer himself, in some manner, recognises such rights; and when the acquirer, as a result of a court summons or a protest raised by the owner, becomes a possessor in bad faith, S. 1019 Civil Code. The prescriptive period is calculated from the day when the person who acquires the property through acquisitive prescription commences possession of it, and is recognised as having elapsed, when the last day of the term as stipulated by law has arrived; in addition, missing hours or minutes are not required to be taken into account. In calculating the prescriptive period, the extra day of a leap year need not be taken into account, S. 1022 Civil Code. Prescription for the acquisition of movable property is considered completed after the elapse of one year, S. 1023 Civil Code. If there are legal impediments to the exercise, by the owner against whom a prescriptive period is running, of his rights in regard to such property, then during the time such impediments exist, the prescriptive period ceases to run, S. 1025 Civil Code. The same applies to certain persons for

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11. Other forms of original acquisition

581

whom legal impediments exist, such as minors, while they are under guardianship, including in relation to their independent property; a spouse during marriage as against the other spouse – in relation to property that, on the basis of law or a marriage contract, is under the administration of the other spouse; the mentally ill, while they are under trusteeship; and soldiers, if they are on active duty, then during the entire time thereof; and persons who are absent, while they are absent. Persons basing the acquisition of their ownership upon acquisitive prescription must prove their possession, and the continuance thereof, during all of the required period. However, if such persons prove the commencement of their possession and the continuation thereof, when the prescriptive period elapses, it is presumed that their possession has continued without interruption during the interim as well, S. 1030 Civil Code. Where a dispute arises, the person who has acquired ownership on the basis of a prescriptive period, must prove the legal basis of his or her possession; if they have proved such, then they are also presumed to be a possessor in good faith, so long as the contrary is not proven. It is not required that the legal basis of acquisition be proven documentarily in every case; other methods of proof shall also be admissible, S. 1031 Civil Code.

11.

Other forms of original acquisition: finding, appropriation and catching of animals

Acquisition of ownership by way of finding of property is regulated in detail in S. 940-954 Civil Code. Ownership of movable property, where the property has previously not been owned by anyone, accrues to those who find and take control thereof, S. 940 Civil Code. Ownership of movable property, where the former owner has relinquished the property through express declaration or abandonment, accrues to the finder thereof, S. 941 Civil Code. Property that the owner, compelled by external circumstances, releases from his or her control shall not be considered to be abandoned, S. 942 Civil Code. Property shall be deemed lost, where persons who have lost it do not know where to search for it, from whom to claim it, or by what procedure they can regain possession of it, S. 943 Civil Code. Finders of lost property, provided they know the person who has lost it, shall return it to the latter, receiving from him or her an appropriate finder’s fee (regulated in S. 948 Civil Code). Notification of the finding of property that constitutes military equipment shall be given to the nearest military authority, S. 944 Civil Code. If a finder of property does not know who has lost it, he or she shall report his or her find to the nearest police station within one week from the day of finding it, S. 945 Civil Code.

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If found property is such as may deteriorate or decrease in value if kept for an extended period, the police shall, without delay, sell it at auction and keep the money received in order to give it to the person who lost the property, S. 946 Civil Code. If, pursuant to advertisement by the police, owners of found property or persons who have lost it respond and prove their right to it, the property itself or the money received from it shall be given to them, after receiving from them or deducting expenses incurred for maintaining the property and for advertising, as well as the finder’s fee due the finder, S. 947 Civil Code. If a finder, upon handing over the property or notifying the police of the find, has claimed a finder’s fee, such fee shall be determined by a court in its discretion, but shall not exceed one-third of the value of the found property after deduction of expenses, unless the person who lost the property has publicly offered a greater sum, or voluntarily reached an agreement with the finder, S. 948 Civil Code. If the owner does not respond within six months of the date of the advertisement by the police, ownership of found property or money received from the sale thereof accrues to finders, with the proviso that storage and other expenses shall be imposed on them, S. 949 Civil Code. The provisions regarding found property (S. 944-949 Civil Code) also apply to property saved from destruction, S. 950 Civil Code. If property found buried in the ground, immured or in any other way hidden, is such as may not, however, be considered to be concealed property, the same provisions apply as regarding found property. If an owner proves that he or she knew the place where found property was hidden, he or she does not have a duty to pay a finder’s fee, S. 951 Civil Code. Concealed property means all valuable property buried in the earth, immured or in any other way concealed, whose owner due to the length of time elapsed is no longer able to be known. Ownership of concealed property discovered on one’s own land or on ownerless land accrues to the finder, S. 952 Civil Code. It is prohibited to search for concealed property on the land of another person. Those who act contrary to this provision shall not acquire any of, or anything from, the concealed property they have found, and all such property shall belong to the person who owns the land. Those who accidentally find concealed property on the land of another person shall acquire half thereof, but the other half accrues to the owner of the land, S. 953 Civil Code. Where money or other valuable property for which an owner is unable to be ascertained, is found in movable property that is not buried, immured or concealed in some other way, the provisions of Sections 952 and 953 do not apply, and the provisions regarding finding hidden property apply, S. 954 Civil Code.

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11. Other forms of original acquisition

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Acquisition of ownership by appropriation is also provided for in the Civil Code. Ownership may be acquired by appropriation only of ownerless property and only in those cases where the taking of control over the property is directly associated with the intention to acquire ownership of it, S. 930 Civil Code. The subject of appropriation may be ownerless live things, especially wild animals, and inanimate movable objects that do not yet belong to anyone, or which have been abandoned, lost or hidden by their owner, as well as concealed property, S. 931 Civil Code. Finally, the acquisition of ownership by way of catching of animals is regulated in S. 932-939 of the Civil Code. Thereby, animals which are still naturally in the wild become the property of those who catch or kill them insofar as the law does not provide otherwise. The wounding of an animal, without control of it first having been obtained, does not constitute appropriation, S. 932 Civil Code. A captured wild animal, if it escapes to the wild anew, shall be considered an ownerless animal again, but only in those cases where it disappears totally from the view of its pursuing owner or, even though the owner is still able to see it, the animal is so far away that it is not possible to pursue it. Wild animals that are caught and locked up in cages, fishing traps, and like receptacles from which they are unable to escape, can not be the subject of appropriation. Wild animals that, after their capture, have been tamed and have become accustomed to certain places, even though they roam free, shall remain owned by the person who caught them as long as they do not lose their habit of returning home, S. 933 Civil Code. Domestic animals shall not be considered ownerless animals even if they run away or become lost The appropriator of such animals does not acquire a right of ownership in regard to them; the same also applies in regard to tamed wild animals, S. 934 Civil Code. Acquisition of the right of ownership of a caught or killed wild animal does not depend on whether it has been caught or killed on one’s own land or on the land of another. A landowner has the right to prohibit the catching or hunting of animals by any other person within the boundaries of the land belonging to him or her and, if the prohibition is not complied with, claim compensation from a trespasser, S. 935 Civil Code. The right of ownership of a colony of bees living in the wild belongs to the owner of the land on which the colony is found, S. 936 Civil Code. The owner of the bees also has the right to follow his or her swarm on to the land of another person, moreover he or she shall compensate the owner of the land for any damage caused. The owner of a flying swarm loses the right of ownership if the owner does not pursue it and within 24 hours after the swarm has landed declare his or her ownership rights to the person who has been the recipient of the swarm or who manages the land on which the swarm has landed, S. 937 Civil Code. If a swarm settles in another person’s

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bee-hive in which there are bees, the owner of the swarm loses his or her rights to it, S. 938 Civil Code. The right to bring an action regarding ownership rights to a flying swarm is extinguished through prescription after one month, calculated from the day of swarming, S. 939 Civil Code.

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Table of Literature K Balodis, Latvijas Republikas Civillikuma komentārs. Lietas. Valdījums. Tiesības uz svešu lietu, 1998 K Balodis, Ievads Civiltiesībās, 2007 K Balodis, Jaunais komercdarījumu regulējums un tā piemērošana. Komerclikuma D daļa, kas stāsies spēkā 2010.gada 1.janvārī, Jurista Vārds, Nr. 21 (574) 26.5.2009 Р Буковский, Cводъ гражданский узаконений губерний Прибалтийских, сост. 1, 1914 Cabinet of Ministers, Koncepcijas projekts par Civillikuma lietu tiesību daļas modernizāciju (informatīvā daļa), 2010 S Cakuls, Par valdījumu un tā iegūšanu, Jurista Vārds, Nr. 23 (256) 19.11.2002 A Grūtups, E Kalniņš, Civillikuma komentāri, Trešā daļa, Lietu tiesības, 2002 T Klauberg in P Derleder / K-O Knops / H G Bamberger, Handbuch zum deutschen und europäischen Bankrecht, 2009 F Kronradi, A Valters, Civillikumi ar paskaidrojumiem. Lietu tiesības, 1935 U Krastiņš, Krimināltiesības. Vispārīgā un sevišķā daļa. 1999 L Leja, Par labticīga ieguvēja aizsardzību, prettiesiski atsavinot līzinga objektu, Jurista Vārds, Nr. 5 (12) 10.02.2004 V Liholaja, Noziedzīgu nodarījumu kvalifikācija: Likums.Teorija. Prakse. 2003 A Loeber in T Klauberg (editor), Lettlands Zivilgesetzbuch Deutsch-Lettische Textausgabe 2006, 36 Ministry of Justice, Pētījums par Civillikuma Lietu tiesību daļas (ceturtās, piektās, sestās un septītās nodaļas) modernizācijas nepieciešamību (TM pētījumi), 2008 J Rozenfelds, Lietu tiesības, 2000 J Rozenfelds, Intelektuālais īpašums, 2004 P Schwartz, Das Lettische Zivilgesetzbuch vom 28. Januar 1937 und seine Entstehungsgeschichte, 2008 В. И. Синайский, Основы Гражданского права в связи с частью III свода узаконений, действующих в Латвии и Эстонии 1926

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V Sinaiskis, Latvijas Civiltiesību apskats. Lietu tiesības. Saistību tiesības, 1996 K Torgāns, Latvijas Republikas Civillikuma komentāri. Saistību tiesības, 1999 K Torgāns, Saistību tiesības, II daļa, Mācību grāmata, 2008 Tulkošanas un terminoloģijas centrs, The Civil Law of Latvia, 2001 G Višņakova, K Balodis, Latvijas Republikas Civillikuma komentārs. Lietas. Valdījums. Tiesības uz svešu lietu, 1998

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Schriften zur Europäischen Rechtswissenschaft / European Legal Studies / Etudes juridiques européenes

Band / Volume 1: Andreas Fötschl, Hilfeleistungsabreden und contrat d‘assistance. Eine rechtsvergleichende Untersuchung zum französischen, deutschen, österreichischen und englischen Recht. 2005. ISBN 978-3-935808-56-9 Band / Volume 2: Hanna Sivesand, The Buyer‘s Remedies For Non-Conforming Goods. Should there be Free Choice or are Restrictions Necessary? 2005. ISBN 978-3-935808-75-0 Band / Volume 3: Christoph Jeloschek, Examination and Notification Duties in Consumer Sales Law. How far should we go in protecting the consumer? 2006. ISBN 978-3-935808-88-0 Band / Volume 4: Matthias Ruffert, The Transformation of Administrative Law in Europe – La mutation du droit administratif en Europe. 2007. ISBN 978-3-935808-91-0 Band / Volume 5: Olha Cherednychenko, Fundamental Rights, Contract Law and the Protection of the Weaker Party. 2007. ISBN 978-3-86653-043-0 Band / Volume 6: Wolfgang Faber / Brigitta Lurger (Eds.), Rules for the Transfer of Movables. A Candidate for European Harmonisation or National Reforms? 2008. ISBN 978-3-86653-060-7 Band / Volume 7: Wolfgang Faber / Brigitta Lurger (Eds.), National Reports on the Transfer of Movables in Europe. Volume 1: Austria, Estonia, Italy, Slovenia. 2008. ISBN 978-3-86653-073-7 Band / Volume 8: Odavia Bueno Díaz, Franchising in European Contract Law. 2008. ISBN 978-3-86653-075-1

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Band / Volume 9: Paraskevi Paparseniou, Griechisches Verbrauchervertragsrecht. Eine Untersuchung vor dem Hintergrund des Gemeinschaftsprivatrechts. 2008. ISBN 978-3-86653-049-2 Band / Volume 10: Carsten Stölting, Vertragsergänzung und implied terms. Eine rechtsvergleichende Untersuchung des deutschen und englischen Rechts. 2009. ISBN 978-3-86653-093-5 Band / Volume 11: Wolfgang Faber / Brigitta Lurger (Eds.), National Reports on the Transfer of Movables in Europe. Volume 2: England and Wales, Ireland, Scotland, Cyprus. 2009. ISBN 978-3-86653-096-6 Band / Volume 12: Wolfgang Faber / Brigitta Lurger (Eds.), National Reports on the Transfer of Movables in Europe. Volume 3: Germany, Greece, Lithuania, Hungary. 2011. ISBN 978-3-86653-101-7 Band / Volume 13: Wolfgang Faber / Brigitta Lurger (Eds.), National Reports on the Transfer of Movables in Europe. Volume 4: France, Belgium, Bulgaria, Poland, Portugal. 2011. ISBN 978-3-86653-118-5 Band / Volume 14: Wolfgang Faber / Brigitta Lurger (Eds.), National Reports on the Transfer of Movables in Europe. Volume 5: Sweden, Norway and Denmark, Finland, Spain. 2011. ISBN 978-3-86653-136-9 Band / Volume 15: Wolfgang Faber / Brigitta Lurger (Eds.), National Reports on the Transfer of Movables in Europe. Volume 6: The Netherlands, Switzerland, Czech Republic, Slovakia, Malta, Latvia. 2011. ISBN 978-3-86653-137-6

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