National Reports on the Transfer of Movables in Europe: Volume 5: Sweden, Norway and Denmark, Finland, Spain

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National Reports on the Transfer of Movables in Europe

© sellier. european law publishers www.sellier.de

© sellier. european law publishers www.sellier.de

National Reports on the Transfer of Movables in Europe Volume 5: Sweden, Norway and Denmark, Finland, Spain

edited by

Wolfgang Faber / Brigitta Lurger Schriften zur Europäischen Rechtswissenschaft / European Legal Studies / Etudes juridiques européennes Band 14 / Volume 14 / Volume 14 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: Pádraic McCannon 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) 978-3-86653-136-9 ISBN (eBook) 978-3-86653-909-9 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.

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Preface This is the fifth volume of a series of national reports on basic issues concerning the acquisition and loss of ‘ownership’ of movable assets. After having read the reports on the Nordic countries contained in this volume, it will become apparent to the reader that there is indeed a valid reason for using quotation marks when referring to ‘ownership’ in this preface. A ‘transfer of ownership’ concept is not used in these legal systems. Scandinavian lawyers consider it to hide the real problems rather than solving them. Instead, the Nordic legal systems apply a ‘functional approach’. The last report of this volume, a detailed piece on Spanish law, will offer a contrast to this from a traditional civil law perspective. Readers will also see that Norway and Denmark are dealt with jointly in one report. This is due to the fact that it was not possible for the editors to find a Danish author within the given time frame. We are therefore grateful to Jan-Ove Færstad from Bergen University for solving this problem by writing a double report covering both Norway and Denmark. The full series covers 28 European legal systems, distributed over six volumes 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 nonowner, 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. However, ultimately they do not only cover issues exclusive to property law, but 1

2

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’.

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also much of the related law of obligations, enforcement and insolvency – in a generally accessible language, i.e. English.3 Publishing the whole series of national reports would not be possible without generous support from a number of institutions. Financial support was provided by the Austrian Federal Ministry of Science and Research (Bundesministerium für Wissenschaft und Forschung), the Austrian Federal Ministry of Justice (Bundesministerium für Justiz), the Swiss Institute of Comparative Law (Lausanne), the state of Salzburg (Land Salzburg) and the Evers-Marcic-Stiftung an der Rechtswissenschaftlichen Fakultät der Universität Salzburg. Both the reports themselves and their linguistic revision was financed by the Austrian Science Fund (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 and, particularly, Mr Pádraic McCannon, LL.B. (Ling. Germ., Dub.), now at the University of Osnabrück, who carried out the linguistic revision of all reports in this volume with great care and diligence. April 2010 Salzburg and Graz

3

Wolfgang Faber Brigitta Lurger

The concept of these reports is further described in the preface to the first volume of the series: Faber / Lurger (eds.), National Reports on the Transfer of Movables in Europe – Volume I: Austria, Estonia, Italy, Slovenia (2008).

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List of Contributors Carlos M Díez Soto Chair of Civil Law, Technical University of Cartagena (UPCT), Spain Jan-Ove Færstad Doctoral student, University of Bergen, Norway Isabel González Pacanowksa Chair of Civil Law, Faculty of Law, University of Murcia, Spain Miki Kuusinen Legal Counsel / CEO, North – Law Firm, Helsinki Finland; Doctoral student, researcher and lecturer, Faculty of Law (Private Law Department), University of Helsinki Martin Lilja Project assistant and doctoral student, University of Salzburg, Austria

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Contents Preface

v

List of Contributors

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National Report on the Transfer of Movables in Sweden Martin Lilja

1

National Report on the Transfer of Movables in Norway and Denmark Jan-Ove Færstad / Martin Lilja

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National Report on the Transfer of Movables in Finland Miki Kuusinen

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National Report on the Transfer of Movables in Spain Isabel V. González Pacanowska / Carlos Manuel Díez Soto

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National Report on the Transfer of Movables in Sweden Martin Lilja

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Table of Contents

Part 1: Property law in general 1. General 1.1. Introduction 1.2. Scandinavian legal co-operation 1.3. Constitutional guarantee of the right of ownership 1.4. The concept of “ownership” and the “functional” approach in Scandinavia 1.4.1. Introduction 1.4.2. A closer look at the functional approach 1.4.3. How “functional” is the functional approach? Some remarks 1.5. Historical development 1.6. General principles of property law 1.7. Protection of “ownership” 1.8. Limitations on transferability by statute, contract or will 1.8.1. Introduction 1.8.2. Statutory obligations and prohibitions 1.8.3. Other limitations of transferability 1.9. Transferability of accessories

9 10 12 13 13 16 23 27 31 34 35 35 35 38 39

2. Possession 2.1. Categories of possession 2.2. Object of possession (corporeal assets and rights) 2.3. Functions of possession and legal presumptions 2.4. Acquisition of possession 2.5. Protection of possession 2.5.1. Criminal law principles, including self-help 2.5.2. Protection under the Enforcement Act

40 41 41 42 42 42 43

3. Scope of the rules on the transfer of movables and relevant definitions 3.1. “Static” and “dynamic” property law etc. 3.2. Movable and immovable property 3.3. Rights in rem and personal rights

44 45 46

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Part II: Derivative acquisition 4. Derivative acquisition under a functional approach 4.1. Introduction and overview 4.2. Identification and substitution 4.3. The underlying obligation to transfer, effects of defects in the formation of contract or in performance 4.3.1. Introduction 4.3.2. The conflict situation between the seller and the buyer’s creditors where there is a defect in the contract (a) Invalidity (b) Termination and avoidance of contracts 4.3.3. The conflict situation between the seller and a sub-buyer (later transferee) where there is a defect in the first contract of sale 4.3.4. Resolutive and suspensive conditions and terms 4.4. The transferee’s protection against the transferor’s general creditors 4.4.1. Introduction 4.4.2. The general rule: protection from the time of delivery or specific registration (a) Starting point: priority upon registration (b) Some arguments underlying the tradition principle – a critical analysis (c) Priority through physical delivery (d) Priority through symbolic delivery (e) Priority through delivery of documents (f) Priority through brevi manu tradition (g) Priority where property is in the hands of a third party (h) Priority in the case of transport (i) Priority through marking (j) Effects of other kinds of registration (k) No constitutum possessorium accepted 4.4.3. Specific rule for consumer sales: protection as of conclusion of the contract 4.4.4. Enforced auctions: protection as of conclusion of the contract

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49 49 52 52

52 52 54

55 56 57 57 58 60 61 68 70 72 74 74 75 76 76 77 81 81

Table of Contents

4.5.

5

The transferor’s protection against the transferee’s general creditors 4.5.1. Introduction 4.5.2. Protection in general 4.5.3. Transferor’s protection by stoppage in transit 4.5.4. The role of payment 4.5.5. No concept of a “real agreement”

5. Transfer of goods by an agent 5.1. Indirect representation – introduction 5.2. The commission agent acting in violation of the agreement with the principal 5.3. Protection in the event of insolvency 5.3.1. The protection of the third party in the event of the commission agent’s insolvency 5.3.2. The protection of the third party in the event of the principal’s insolvency (a) The rules as in force in Sweden (b) A few remarks on the protection of a third party buyer 5.3.3. The protection of the commission agent in the event of the principal’s insolvency 5.3.4. The protection of the principal in the event of the commission agent’s insolvency 5.3.5. The protection of the commission agent / principal in the event of the third party’s insolvency 5.4. Direct representation 5.4.1. General 5.4.2. Commercial agency (handelsagentur) 5.5. Consignment

82 82 83 84 86 86

87 89 90 91 91 91 92 94 95 96 97 97 98 99

6. Double disposals

100

7. Selling in Chain 7.1. Transfer of ownership in selling in a chain 7.2. Invalidity of contracts in the chain 7.3. Transfer by means of indirect representation

102 103 103

8. Consequences of insolvency (miscellaneous issues) 8.1. Actio Pauliana 104 8.1.1. Introduction 104 8.1.2. Applying the general rule of avoidance by creditors 106

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8.2.

8.1.3. Applying the objective rules of avoidance by creditors Insolvency and non-executed contracts 8.2.1. Bankruptcy proceedings 8.2.2. Reorganization proceedings

107 108 108 110

9. Passing of risk 9.1. Introduction 9.2. Passing of risk by physical control 9.3. Other requirements for the passing of risk

111 112 113

10. Right to fruits and benefits in relation to transfer of goods

113

11. Passing of “ownership” of unsolicited goods

114

Part III: Original acquisition 12. Acquisition by production, combination and commingling 12.1. Introduction 12.2. Legal sources and party autonomy 12.3. Relation to non-contractual liability for damage and unjustified enrichment 12.4. Production 12.4.1. Proprietary consequences of production (a) Production without consent of the owner of the materials (b) Production under a contract 12.4.2. Compensation 12.5. Combination and Commingling 12.5.1. Proprietary consequences 12.5.2. Compensation 12.6. Division of co-ownership 13. Good faith acquisition 13.1. General 13.1.1. Background 13.1.2. Overview 13.2. Functional approach 13.3. Standard of acquirer’s good faith 13.4. Onward transfer

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117 118 118 119 119 119 119 120 121 121 121 122

122 122 124 125 126 127

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13.5. 13.6. 13.7. 13.8. 13.9.

Acquisition for value or gratuitous acquisition Circumstances of the acquisition of possession Good faith acquisition of cultural objects “Regular market” rules Right of the original owner to buy back the goods from the bona fide transferee and the action of rei vindicatio 13.10. The property is encumbered by a security right 13.11. Good faith acquisition by other acts 14. Acquisitive prescription and limitation of ownership 14.1. Introduction, including limitation of ownership 14.2. General rules on acquisitive prescription 14.3. Involuntary loss of possession during the acquisition period 14.4. Presumption of continuous possession 14.5. Extension and renewal of the period 14.6. Successive possession 14.7. Effects of acquisition by continuous possession and claims under rules on unjustified enrichment and non-contractual liability for damage 15. Occupation, abandonment and finding of lost property 15.1. Occupation 15.2. Abandonment 15.3. Finding of lost property

128 128 129 129

130 132 132

134 135 138 139 140 141

142

143 143 145

Part IV: Additional issues 16. Unjustified enrichment 17. Retention of title 17.1. Introduction 17.2. The rules providing for the transferor’s protection in the event of the transferee’s insolvency 17.3. The transferee’s protection in the event of the transferor’s insolvency 18. Co-ownership

147

151 152 156 157

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19. Specific rules on unspecified goods 19.1. Transfer of goods forming part of a bulk 19.2. Floating charges 19.2.1. Introduction 19.2.2. Some remarks in relation to earlier statutes on floating charges 19.2.3. The rules in force today 20. Consequential questions of restitution of the goods to the “owner” 20.1. Entitlement to fruits and benefits during the period of possession 20.2. Deterioration, loss or consumption of the movable during the period of possession 20.3. Improvements and expenses during the period of possession 20.3.1. Possessor’s right to remove parts added 20.3.2. Reimbursement of expenses 20.3.3. A possessor’s right to retain the goods of the owner (a) Introduction (b) Right of retention in Sweden (c) Right of retention where disposal of the goods has been made without the owner’s consent

159 161 161 162 163

169 172 173 173 174 175 175 177

180

21. Concluding remarks

182

Table of Literature

185

Table of Abbreviations

191

Table of Statutory Provisions

193

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Part 1: Property law in general 1.

General

1.1.

Introduction

Contrary to many other jurisdictions, there is no comprehensive civil code or property law legislation dealing with matters of property law in Sweden. The last complete law revision stems from the Act of 17341 but only very limited parts of this law remain applicable in Sweden and Finland. The law of property is partly based on provisions in different statutes and partly by court decisions. The contribution of legal scholars has played and indeed still plays an important role in the development of the law of property. Sources of law are legislative acts, preparatory works, legal practice, customary law, doctrine and, to some extent, general legal principles. The law’s legislative history is the most important tool in interpreting the law of Sweden.2 The Supreme Court decisions are not, as in some other countries, legally binding for the lower courts, but they are generally followed by the lower instances.3

*

1 2

3

This report has been written by Martin Lilja, doctoral candidate in the field of argumentation analysis of property law and research assistant at the Department of Private Law, Salzburg University, Austria. Dr. Wolfgang Faber, also at the Department of Private Law in Salzburg, has provided a lot of comments and suggestions in how to improve this text. Dr. Claes Martinson at the University of Göteborg, Sweden, has been, as always, of great help, and indeed not only in the course of writing this report; many thoughts have been “borrowed” from him. Sveriges rikes lag 1734. See Strömholm, Rätt, rättskällor och rättstillämpning, (for instance) 311 ff., 358 ff., stating that preparatory works “should” be considered; one “should not neglect them without special reason”, Tapani Klami, Föreläsningar over juridikens metodlära2, 83, with reference to Peczenik. When the law – and the law’s legislative history – is old, the importance of court decisions generally increases at the expense of legislative acts and preparatory works. Stare decisis, the doctrine that holdings of the court have binding precedential effect, does not apply in the Swedish legal system. The judiciary in Sweden is independent but should decide in a predictable and justified manner.

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Acts and ordinances have been published in the Swedish Code of Statutes since 1925.4 The statutes are cumulated in annual volumes. The full text of the Swedish Code of statutes is available at the database of the Swedish Parliament.5 The database provides texts of government bills,6 committee reports,7 proposals from members of parliament8 and minutes of debates.9 Reports of cases from the Supreme Court are published in the journal Nytt Juridiskt Arkiv (NJA): Avd 1.10 The English translations of the titles to the statutes mentioned in this report are taken from the Ministry Publication Series, when a translation has been available.11 Some important provisions are translated into English and are attached in an annex to this report. Apart from the literature referred to in this report, there is one contribution, in English, worth mentioning: Martinson, Transfer of title concerning movables part III (ed. Rainer), published 2006 (Peter Lang). The attempt in this report is to state the law as of 1 January 2010.

1.2.

Scandinavian legal co-operation

The Scandinavian12 countries have a common legal tradition and a history of extensive co-operation in many legal and administrative matters.13 The Scandinavian countries share their history to a large extent, and are closely related by language and culture. Therefore, Scandinavian law reflects vivid traditions in legislative, administrative, and jurisprudential matters.

4

5 6 7 8 9 10

11 12

13

Svensk författningssamling (SFS). In this report, the SFS-number will be mentioned the first time a code or statute is mentioned. See www.riksdagen.se Propositioner. Utskottsbetänkanden. Motioner. Protokoll. Cases are also published electronically on the web site of the Supreme Court: www. hogstadomstolen.se. Case law from the Supreme Court, the Appeal Courts, the Supreme Administrative Court, the Administrative Courts of Appeal and specialized courts are all published electronically and free of charge from the National Court Administration, which can be found at: www.lagrummet.se. Ds 2001:7. In this report, “Scandinavia” includes not only Sweden, Denmark and Norway, but also Finland. For a historical overview, see Hellner, Unification of Law in Scandinavia, (1968) 16 Am. J. Comp. L., 88-106.

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Many of the statutory acts have been developed by co-operation between the relevant countries and are very similar to each other; as with the Contract Law Act,14 the Sale of Goods Act,15 the (earlier) Law of Commission,16 the Bill of Exchange Act17 and several consumer protection acts. There have been various organs for co-operation; one of the main being the Nordic Council,18 which is an organization for co-operation between the Scandinavian governments. An important consequence of the similarities between the Scandinavian legal systems is that it is possible to use non-national legal sources when deciding a matter in Swedish law, which is an important consequence considering how many unsolved questions there are in the area of property law – questions that are neither answered by legal acts, preparatory works, court practice, conduct nor legal scholars. These questions are open for arguments by the relevant parties. When arguing, analogies (to the existing fragmented statutes) play an important role19 and lawyers try to fit their argumentation and decisions into a coherent system, using norms and arguments.20 In this report, Scandinavian sources will be used to fill some gaps in Swedish law: when an issue is not discussed in Swedish sources, other Scandinavian sources and their argumentation may be mentioned. This does not mean that a Swedish judge will necessarily follow the solutions suggested or decided in the other Scandinavian countries, but depending on the actual situation, such solutions can be used as an argument to put forward when arguing for a certain preferred solution. Nonetheless, it is of course the argument used to support a certain standpoint that is the important factor and what perhaps can be used in Sweden – not whether the source is of a certain “weight”. Even if the Scandinavian legal systems share a lot, there are important differences between them. For instance, to provide protection from the seller’s insolvency, the main rule in Finland21 and Denmark22 is that the buyer 14 15 16 17 18 19 20

21 22

Avtalslagen. Köplagen (1990:931). Kommissionslagen (1914:45). Växellagen (1932:130). Nordiska Rådet. See, for example, the development of the mandatory tradition principle, 4.4.2.(a). The arguments are, of course, often restricted in the sense that lawyers can not completly confront a problem with a free open mind – but are restricted by existing legal norms. Tepora, Inledning till grunderna för sakrätten, 263. See von Eyben, Danish Property Law in Dahl et al. (eds.), Danish Law in a European Perspective2, 226; Elmer / Skovby, Ejendomsretten 14, 35.

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is protected from the time the contract is concluded (consensual system), whereas delivery from the seller to the buyer is a mandatory requirement for this in Sweden.23 Norway serves as an example in between: the buyer is protected from the time the contract is concluded if the seller keeps the goods in the interest of the buyer.24 Most other situations need delivery for the buyer to gain protection from the seller’s creditors. Interestingly, most of the law concerning this example is judge-made, but there are also many examples where the Scandinavian legislators have not followed each others’ examples either.

1.3.

Constitutional guarantee of the right of ownership

There is no express provision that grants the right of ownership to property but there is a provision on property in the constitution.25 In the chapter on fundamental freedoms and rights, it is stated that every citizen’s property is assured in the sense that no one can be forced to forego one’s property unless it is necessary for the common good. Concerning land and buildings the same provision also includes restrictions of their use. If property is needed for the common good it has to be expropriated,26 and the right-holder has to receive some compensation for the loss. The provision is likely to change slightly in the near future: among other things, full compensation in the case of expropriation is to be more explicitly stated.27 It is possible to argue that this constitutional provision leads to the conclusion that the owner can use his or her property as he or she wishes, if nothing else follows from law or agreements that the owner has concluded with others. However, when it comes to private law it is not seen as an important question to address. Private and public law has been held apart and the tradition is not to derive private law conclusions from conceptions or superstructures at a constitutional level.

23 24

25 26

27

For more on this, see 4.4.2. Lilleholt, Alminnelig formuerett, in Lilleholt (ed.), Knophs oversikt over norges rett12, 199. The Instrument of Government (Regeringsformen (1974:152)), Chapter 2, art. 18. Legislation that allows such interference exists in the Expropriation Act (Expropriationslagen (1972:719)), but also in other legislation, such as the Planning and Building Act (Plan- och bygglagen (1987:10)). Prop. 2009 / 10:80, 163 ff.; Nergerlius, Hur påverkas svensk äganderättsdebatt av Europadomstolens praxis?, in Åhman (ed.), Äganderätten – dess omfattningar och begränsningar, 91 f.

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1.4.

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The concept of “ownership” and the “functional” approach in Scandinavia

1.4.1. Introduction Legal rules for the transfer of movable property can be systematized in a number of ways. The national approaches in this area are traditionally divided into “consensual” and “delivery” systems; the transfer may be “causal” or “abstract”. A legal system may accept the concept of a “real agreement” as a separate juridical act or not. A principle of separation, in the sense of distinguishing an underlying obligation to transfer (e.g. under a contract of sale) from a separate agreement on the transfer of a proprietary right as such, will have no meaning at all in Sweden, since there is no difference between the obligation to transfer and the right: a “real agreement” (a declaration or agreement separate from the underlying obligation which is necessary to affect the transfer of ownership) has no function whatsoever within the Scandinavian legal systems. In fact, descriptions of these kinds are quite hard to understand from a Scandinavian perspective. The European legal systems provide a further, at least equally fundamental, distinction: whether a country applies a “unitary” or a “functional” transfer approach. When it comes to the question of the transfer of movable property, continental European legal systems28 provide for rules defining one specific moment in time for the transfer of ownership, a “unitary” transfer approach. Such approach means that in principle, most aspects or effects linked to the right of “ownership” pass from the transferor to the transferee at one single moment in time, which is determined by the relevant rules. Upon this moment in time, “ownership” passes from the transferor to the transferee with all its consequences,29 including, for instance, the transferee’s protection against the transferor’s general creditors, the right to dispose of the property, the right to use, physically alter or even destroy the item, and rights to protect the property against third parties, which may be property 28

29

Like Germany, Austria, the Netherlands, Spain and, with regard to their fundamental starting point, also countries like France, Belgium, Italy and Portugal. As far as transfer in the context of the sale of goods is concerned, England, Ireland and Scotland may be also added with regard to the practical results achieved based on the relevant Sale of Goods Act. This description is somewhat simplified: unitary approach systems also partially provide “functional effects” in additional rules of law, see Faber, Scepticism about the functional approach from a unitary perspective, in Faber / Lurger (eds.), Rules for a transfer of movables – A candidate for European harmonisation or national reforms?, 104 ff.

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law remedies (like the rei vindicatio) or personal rights (such as tort claims or unjustified enrichment based claims). This can be characterized as a “unitary approach” for the transfer of ownership.30 Although slight differentiations in style or theoretical explanation of this approach are to be found, it is predominant in most European countries, irrespective of whether they may be grouped under the Common Law or the Continental systems. Nevertheless, it must be noted that party autonomy and freedom of contract do, to a certain degree, confer the possibility of deviating from this general “rule”. Although there is usually a numerus clausus principle with respect to rights in rem, which prohibits the creation of new rights in rem by the parties to a contract, it is still possible to make use of the existing institutions so as to achieve in practice a “splitting” of the various powers, rights and duties arising out of the right of ownership. This may be the case e.g. where a transferor retains a right of usufruct on the property transferred to the contractual counterparty: in that case there is a clear separation between the right of ownership as a whole and the benefits that one can derive from it. In general terms, the unitary notion of transfer of ownership does not necessarily have the same content in all legal systems where it applies: in some cases, it has a broader scope, incorporating several aspects, like for instance, passing of risk, while in others its extent is more restricted.31 Under a “functional” approach, on the other hand, there is no such single moment that is decisive in all relations. Rather, different aspects, or different conflict situations, are dealt with separately, and on their own merits. In the functional system applied in Scandinavia there does not exist any set of rules defining one particular moment in time at which “ownership” passes from the transferor to the transferee in a sense comparable to “unitary” legal systems, i.e. linking, if not every aspect, at least many aspects, of a transfer of “ownership” to that certain point in time. The question of when “ownership” passes to another person is simply not posed. Instead, different typical conflict situations are identified (such as: a buyer’s protection against the seller’s creditors in the latter’s insolvency; an unpaid seller’s protection against the buyer’s creditors; a buyer’s protection against another buyer to whom the seller sold the same goods a second time) and each of these conflicts is solved separately, the rules deciding one conflict 30

31

For a more exhaustive explanation, see Faber, Skepticism about the Functional approach from a Unitary perspective in Faber / Lurger (eds.), Rules for the transfer of movables – A candidate for European harmonisation or national reforms?, 97 ff. For an enumeration of instances where the unitary approach could be said to be mitigated in Austria, but generally applicable in some other unitary systems, see Faber, National report on the transfer of movables in Austria in Faber / Lurger (eds.), National reports on the transfer of movables in Europe, volume 1, 73 ff.

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situation not necessarily being identical to the rules deciding another type of conflict. For instance, for one type of conflict, the conclusion of the contract, or identification of the goods may be decisive, whereas for another type it could be delivery. The claims of two persons are solved by deciding who should be given priority over the other instead of who should be regarded “the owner”, by a weighing of the interests considered to be relevant in the particular situation. Whoever wins the conflict may very well lose a conflict against someone else: the solution provided does not say anything about the possibility of others to gain priority. One decision or solution between two claims does not solve any questions in relation to other parties.32 The person who has priority is said to have a better right (“better” in relation to the other party). Much is left open and unsolved – open for the parties’ argumentation on the matter – and the approach is perhaps best described as rather open for a free weighing of interests.33 However, this does not mean that norms and normative arguments are less important than in any other systems. The property law rules in these legal systems are based on fragmented legislation and court practice. None of these countries has a comprehensive civil code dealing with property law; however, they have different acts regulating some different aspects of these fields of law, generated when practical problems have occurred. As said, terms such as “abstract” or “causal” are not used within these legal systems of transfer of movables and nor is the concept of a “real agreement” – these terms have no relevance in the system. One will rather say that a contract that is void or has been avoided has no effect in terms of providing priority over the other party and the other party’s creditors. As long as there is some sort of obligation or agreement between two parties, rights to movable property can be transferred; it makes no difference whether the obligation is based on a contract of sale, a contract of hire, a gift or some other form of agreement, though some forms of transfer cannot give rise to good faith acquisition.34 Movables can also be transferred on a distribution of a deceased’s estate. Of all the aspects connected with “ownership”, the issue of the transferee’s protection against the transferor’s 32

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In the US, most of the questions are solved based on the concept just described, in statutory provisions, see Article 2 UCC for sale of goods. In the unitary systems this work has (preliminary) been done in codifications and in the preparatory material and discussions preceding these codifications. The legislator has already weighed the (at that particular moment) relevant arguments against each other. In the case of Austria regarding the relevant provisions in this report, this weighing was mostly done in the early 19th century. See, for instance, the Norwegian Good Faith Acquisition Act, section 1.

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general creditors is evidently considered the most important one from a Scandinavian viewpoint. The Swedish legal system is peculiar in so far as, with regard to the buyer’s protection against the seller’s general creditors, delivery is a mandatory requirement (the moment of “perfection”) that cannot be altered by a constitutum possessorium or comparable agreement. The underlying rationale as well as the concrete shape of this delivery requirement are discussed in more detail in chapter 4.4.2. There are some exceptions to this general rule, namely where a special (but scarcely used in practice) registration system is applied, or for consumer sales within the scope of the Consumer Sales Act35 and for compulsory auctions.

1.4.2. A closer look at the functional approach As we have seen, Scandinavian legal systems36 approach the whole issue of a transfer of “ownership” under an entirely different view than a “unitary” system. The question of when “ownership” is transferred is considered irrelevant in the Scandinavian countries and is simply not posed. “It will be clear … that the “ownership” inserted between the conditioning facts and the conditioned consequences is in reality a meaningless word – a word without any semantic references whatever, serving solely as a tool of presentation.”37

Different acts at different stages in the process of transferring property from the transferor to the transferee will, separately or cumulatively, provide certain legal implications for the parties at different times. For example, under Swedish law:38 – the signing of the contract will give the buyer a claim against the seller. – as a general rule, the transfer of possession of the goods gives the transferee protection against the transferor’s creditors.

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Section 49. US law employs the same approach. The term “functional approach” is commonly used in Scandinavia. American terminology differs, although the main ideas converge. Frequently used terms in this respect are “step by step performance” (Offical comment 1 on Section 2-401 UCC) or “narrow issue approach” as opposed to “title approach” or “lump concept” (i.e. unitary approach), Stone, Uniform Commercial Code6, 46 f. Ross, Tû-tû, (1956-1957) 70 Harv. L. Rev. 812-825, at 820. These are the main rules. Specific rules are dealt with later in this report.

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– risk usually follows the transfer of possession. However, the risk passes over earlier if the failure to take possession of the goods as agreed is due to a circumstance on the buyer’s side. – by way of contractual agreement between the parties, e.g. by inserting a retention of title clause into the contract, the definite effect of the acquisition can be postponed to a later time than delivery, so that the seller enjoys protection against the buyer’s general creditors until the buyer has paid the full price. While the Scandinavian countries have in common that all of them apply some kind of “functional” approach, the rules on single transfer effects are not identical in these countries (see for instance above, 1.2.). The functional approach is crucial to understanding how lawyers in Scandinavia think when dealing with problems in property law. It also seems that this way of thinking or dealing with separate conflict situations is almost unknown to property lawyers in the continental European legal systems that follow a unitary approach.39 There appears to be hardly any debate in literature, particularly not in the German40 speaking countries.41 39

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However, it does not seem to be completely unknown in the European Common Law systems, see, for instance, Curwen, Title to sue in conversion, 2004 Conv. 317 ff. The movements of (American and Scandinavian) legal realism seem to be well known to those active in the disciplines of legal philosophy and legal theory in general. Having said that, the practical impacts of these movements on property law are almost never debated. The irrelevance of the question “who owns” is nevertheless reflected in Stadler, Gestaltungsfreiheit und Verkehrsschutz durch Abstraktion, 320 ff. On this matter, see Faber, Scepticism about the Functional approach from a Unitary perspective in Faber / Lurger (eds.), Rules for the transfer of movables – A candidate for European harmonization or national reforms?, 97 ff. Scandinavian legal scholars, on the other hand, have a “clear” picture of the unitary approach: when Scandinavians are confronted with unitary solutions in internal discussions about how to solve specific legal problems they often start the presentation of the approaches explaining the functional approach as being opposite to the unitary approach (and mutually exluding each other). This may be due to the fact that the “functional” is sometimes explained by explaining the “unitary”, see, for example, Andreasson, En funktionell syn på rättigheter och juridisk argumentation – utifrån exemplet upphovsrättshavarens ställning i konkurs, SvJT 2006, 437 at 443 and Martinson, Funktionalismen och bättre rätt till fast egendom, SvJT 2008, 669 at 671. The aim of Scandinavian legal writers is most likely to distance themselves (as much as it is possible) from the formalistic unitary approach, which is seen by many as something negative. Thus, “the dirtiest of all the dirty words” is after all begriffsjurisprudenz, see Bengtsson, On fragmentation in private law, 36 Scandina-

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Generally, one may say that the outcome – the solutions to the actual cases at hand – might not in fact be that different; it is more an issue of how the vian Stud. L. 37 1992 at 42. Scandinavian scholars also tend to be rather proud of this approach in property law, with countless examples of such. One example is perhaps (and where the very title is sufficient to indicate this): Martinson, How Swedish lawyers think about “ownership” and “transfer of ownership” – Are we just peculiar or actually ahead?, published in Faber / Lurger (eds.), Rules for the transfer of movables – A candidate for European harmonisation or national reforms? (see, for instance, page 83 where it is explained that the evolution of Swedish law has brought us to no longer use “Harry Potter logic”, which is deemed silly – if someone thought otherwise. Nevertheless, to be fair, Martinson also explicitly states that his intention is not to claim that the functional approach would be in some way superior). Despite this intention, his contribution is interpreted the opposite way: “Martinson disavows the role of the missionary, but the disavowal is unconvincing: he seems to be saying that the Swedish approach is best”, see Gretton, Publication review, 2009 Edin. L.R. 169 at 170. There are further examples of Scandinavians claiming that their approach would be superior. As reported by an Austrian member, Scandinavian lawyers in the Study Group on a European Civil Code remarked, for instance, that linking practical consequences to a “transfer of ownership” concept would be seen as “hocus-pocus law” in Scandinavia, and that this would mean taking “a step backwards for 100 years”, or, “in case people [i.e. the Scandinavians; author’s addition] want to be polite: 50 years”, see Faber, Scepticism about the functional approach, in Faber / Lurger (eds.), Rules for the transfer of movables (quoted above) 99, footnote 10. See also Håstad, Inför en europeisk sakrätt – några principfrågor, JT 2002 / 03, 745 at 753 f, especially footnote 42 (where he declares us even ahead of our American functional colleagues). Another positive and commonly used way of describing the Scandinavian approach is a “realistic” or “real problem” approach (to mention but a few terms), and since the unitary approach is necessarily something opposite, it also immediately has the consequence that the practice of lawyers in these countries, is to solve no real problems (or to use unreal solutions to real problems). The commonly used presentation technique of the unitary approach in Scandinavia, with many non-explained negative words, is often portrayed very negatively and in a ridiculed fashion, similar to suppression techniques, which certainly does not benefit the mutual understanding between the approaches (or, to quote Gretton, mentioned above: “Not all gaps are bridgeable”). Regarding one (but there are many) ridiculous description of the unitary approach, see (for instance) Ross, Tû-tû, (1956-1957) 70 Harv. L. Rev. 812 (which at the same time, one must admit, is hilarious). That the descriptions of the functional approach also have a tone of superiority does not make it any better. One functional supporter seems to claim that lawyers following a unitary approach are not even capable of independent thinking: “The unitary concept has – despite the obvious fallacies that it is built on – a strong power of [one’s] thoughts”, see Brækhus, Omsetning och kreditt

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lawyers of the two approaches come to the solution and particularly, where and in what end a Scandinavian or Continental European lawyer starts his or her analysis.42 “While the unitary lawyers are discussing superstructure, the Scandinavians are waiting for the discussion to come to what we call the ‘real problems’. This [we wait for] without understanding that the unitary lawyers are in fact engaged in a kind of problem solving, but on an abstract level. Thus, we have a hard time to be heard as our starting point is placed at the other end of the discussions. As soon as the Scandinavians try to start at their end, the unitary lawyers return to the matter at their abstract level.”43

“Transfer of ownership”44 is certainly never the question. When and under what circumstances legal consequences occur, certainly is. “… there is obviously nothing that “passes over” from the seller to the buyer. What needs to be done is to determine the time of entry of certain legal consequences which arise in connection with the transfer. If one finds that under current law protection

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3 og 4, 6 (repeated by Martinson, at 670, 677, in the article mentioned first in this footnote). A less critical scholar should be mentioned in this respect: in his thesis, Göransson concludes that a unitary legal system like Germany is in fact flexible in a way that is not possible in the Swedish legal environment (p. 123). His opinion is that it can scarcely be seen as a weakness to regulate the “transfer of ownership”, as long as the legal system adapts appropriate exceptions, see Göransson, Traditionsprincipen, 422 f. Nonetheless, the approaches are not mutually exclusive. Claiming the opposite is simply a false dichotomy (a logical fallacy). The approaches share a broad middle ground (see, for instance, fn 29). As indicated in the beginning, the way the Scandinavians look upon unitary solutions are mostly found in discussions in how to solve legal problems within Scandinavia – in their legal culture and in their legal context (and not necessarily directed towards an unitary audience – and considering how many insults that are put forward, this is perhaps fortunate), but indirectly (and sometimes directly) this implies a negative attitude towards using unitary solutions also outside Scandinavia. Lawyers in the unitary systems are said to be still “… educated in the structure of the civil code. They have to learn to ‘look things up’ in the code. This is their starting point in a line of reasoning …”, see Vranken, Exploring the jurist’s frame of mind, 33. Martinson, Ejendomsrettens overgang – Norden kontra verden (not yet published). This, and other translations, are my own. It is sometimes stated that the “concept of ownership” has nothing to do with how property law conflicts are solved in Sweden. The true meaning of that is rather that the concept of transfer of ownership has no function within the Scandinavian systems.

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against the creditors of the seller arises only by traditio, one can express it so that the ownership thus is passed from the seller to the buyer at this time. However, this later finding is of course relatively uninteresting.”45

To structure the discussions of when certain legal consequences occur, some typical conflict situations are usually mentioned – but there are of course an unspecified large number of possible conflict situations that may occur. The most important one, on which most emphasis is laid in property law literature, is the transferee’s protection against the transferor’s creditors in the case of the latter’s insolvency. To obtain the legal consequence of protection for an ordinary buyer against a seller’s creditors, the buyer usually needs to take delivery or fulfill one of the delivery equivalents. Up until this time, a pre-paying buyer is not secured against the insolvency of the transferor. This principle is old and subject to criticism, but for the time being, no attempts seem to have been made to change the rule.46 Another conflict situation is the other way around, namely the transferor’s protection against the transferee’s general creditors, which is a less problematic situation, especially since a transferor usually can protect him- or herself by inserting a retention of title clause into the contract, and by that defer the effect of the full acquisition until full payment has been made. Two other generally described conflict situations are the cases of double sale and good faith acquisition. Generally speaking, they are solved by applying the same rules; priority as to time decides the case of double sale, but if a later acquirer has taken possession in good faith, this acquirer has a better right to the property. The same goes for good faith acquisition: if an acquirer in good faith has taken possession, he or she will gain a better right to the property (with the exception of stolen property). Going back to the basis of the description of the functional approach, which is characteristic for Scandinavia, the aim of this approach is to solve property law conflicts by a weighing of the interests considered to be relevant in the particular situation, i.e. to solve conflict situations by a balance of interests.47 The functional model is thereby perceived to have a 45 46

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Hessler, Allmän sakrätt, 18. However, such a change was advocated by Supreme Court Justice Håstad (speaking for the five judges in the case) in an opinion added to a recent case, see NJA 2008 s. 684 and chapter 4.4.2.(b); Kriström, En återgång till avtalsprincipen? Replik på Dag Mattssons artikel i Svensk Juristtidning nr 3 / 05, SvJT 2005 s. 1112; Millqvist, Traditionsprincipen på tillbakagång, JT 2008 / 09, 115. This is the ideal situation. However, when analysing arguments in property law it is quite clear that arguments are often put forward on fairly different “levels”, meaning that the counter argument raised by the proponent of the contrary view often does not attack the first argument itself, sorting out its weaknesses step by step, but adds

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high potential of creating balanced situations well adjusted to the specific case at hand. It is also believed to be a model that to a high degree allows the legal practitioners not only to see to the interests of the parties in the dispute at hand, but also to take other relevant interests into consideration (such as “public” interests like the free flow of commerce, or legal certainty and predictability of judicial decisions). Another effect is that the interests at hand are more visible (“more”, in relation to the unitary approach) and it is more possible to follow, confront or indeed agree with the arguments motivating the weighing of different interests. The process is, so to say, more open (again, “more”, in relation to the unitary approach). The functional approach can, rightly or wrongly, be criticized for a lack of predictability, i.e. that the decisions are unforeseeable. Other not uncommon reactions of not having a civil code and balancing interests relevant in the particular situation are that this approach is insufficient, not thought through, incomprehensible and unstructured. For those who are used to a code dealing with the majority of matters, the Scandinavian legal systems are of course, relatively speaking, unstructured. The fact that the approach also removes concepts that the unitary discussion is based upon, may make all this – at first sight – incomprehensible.48 Generally speaking, one may perhaps also say that the approach of balancing interests is not “perfect” in the sense that every conflict situation necessarily discusses every aspect of the transfer: “all” relevant questions are not always discussed. For instance, in the discussion of good faith acquisition and the protection of the acquirer against the original owner, the discussion is heavily focused on whether and under what circumstances the acquirer, or the original owner, should be protected at all. For this matter there are examinations of the transferor’s possession of the movable, the transferee’s good faith, etc. Other questions, like, for instance, the question dealing with the problem of when the acquirer is to be protected, are usually not posed. Whether the transferee should have the goods in his or her possession is usually the first and only examination of this issue. As one court decision states, a term such as possession can have many different

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a new issue to the discussion before the previous one has been resolved – which makes it hard or impossible to weigh the arguments against each other and thus leaves both parties believing their arguments are superior. Often argumentations are also almost incomplete or the substantial argument is hidden behind superficial statements. See further chapter 1.4.3. and one example of a court addition in chapter 4.4.2.(b). However, the (rare) misunderstanding that Scandinavians do not have ownership to things – and that we therefore should be linked to communism – is as ignorant as it is wrong.

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meanings, even if the term is used twice or more times in the same section of an act.49 It will become obvious when reading the report that answering questions about Swedish property law from a questionnaire designed by unitary lawyers (no offence) is a task that is simply not possible to complete: there are too many questions that have never been dealt with by the courts or discussed in legal literature, whereas the same questions may be resolved in the Continental legal systems in detail. Some of these questions may probably never be “resolved” in Sweden, simply because they will probably never even occur.50 On the other hand, when the property law system is so “open” as it is in Scandinavia – with only fragmented legislation, the questions are perhaps just too many to deal with every single time and in every single book of property law. Nevertheless, it must be said, for the reason of communicative simplicity the words “owner” and “ownership” are used anyway in daily life as well as in legal acts and discussions. However, when such terms are used in legal communication, they are used in a non-technical sense, i.e. without the concept of comprehensive “ownership rights” being connected to the word. Rather, the term “ownership” is another word or synonymous for “priority” meaning that one person is considered to have a better position in relation to another person in a specific respect. It is thereby often used to express the result of the assessment (not as an explanation or motivation to a certain preferred solution). The general description of “ownership” does not differ that much from the continental approach of ownership. Ownership is the most complete right one can have in relation to an object. The right of ownership is defined negatively: the owner may use his or her property as he or she wishes as long as no restrictions follow from law or agreements that the owner has concluded.51 Since the owner can conclude agreements with others, restricting him or her from using the property, and since laws can change, the owner’s powers towards the object are elastic. From this it follows that ownership does not have a specific meaning, but can change in time. Ownership is not a concept from which certain rights are derived. To state that someone is the owner has no exact legal implications: one may very well do without this word, it is an unnecessary detour, a word used to simplify communication and certainly only means that one person has a better right, in some or every aspect, to the object than another, or any 49

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See the Supreme Court decision of December 22, 2009, T-3390-07 (not yet published in NJA). For more on this, see chapter 2.1. See, for instance, the situations in chapter 14.5. The future will tell if that is a correct assumption. Håstad, Sakrätt avseende lös egendom6. 23.

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other person, depending on agreements he or she may have concluded or legal restrictions that are imposed for this type of property. There is certainly no real definition of the functional approach and a definition is also not necessary. It is a word as good as any other. The important point is the explanation of the characteristic of the approach – i.e. that it is a certain way of handling problems of conflicting claims for the same property. What has been said so far is a general description that most property lawyers will probably agree upon; however, it is just one description, not the description. There are of course always different opinions available: another description of the functional approach has recently been put forward, where “functionalism” is (in short) meant more as an approach of not trying to solve legal problems by customary law (by looking backwards), but by taking into account and formulating the best solutions to the real problems:52 the arguments explaining the approach thereby seem to focus on the result rather than the technique. The “functional” approach, or functionalism, as something opposed to the European development of a Draft Common Frame of Reference is thereby considered a paradox. The reason for the paradox is said to be that the functional concept is as empty as any other concept (like, for instance, the “unitary concept”). This reasoning seems to be rather focused on the labeling of the functional approach, and the question should perhaps rather not be about what label a certain approach has; there is certainly nothing substantial (which automatically follows) with the word functional. One may of course substitute “functional” with any other word or label, and the approach used in Scandinavia would be just the same. However, uniform labeling has the advantage of simplifying communication,53 and the aforementioned article seems to be striving towards a description that is somewhat new to (other) Scandinavian legal scholars.

1.4.3. How “functional” is the functional approach? Some remarks The qualities of the functional approach are largely dependent on the argumentation of the participants in legal discourse. Some remarks and examples will therefore be made here regarding the quality of the argumentation. As indicated earlier, there are reasons to be critical or at least sceptical towards juridical argumentation in Scandinavia. The reality does not corre52

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Samuelsson, Om harmoniseringen av den europeiska privaträtten och funktionalismens funktionalitet, Europarättslig tidskrift 2008, 63. It also has the advantage that one does not need to reinvent the wheel – over and over again.

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spond to the rethoric ideal version: the functional approach may therefore be said to often (but not always) be rather empty. The approach requires a high standard of analysis, weighing of interests seems to be a perfect goal for juridical discourse – but it is not an easy task. Often reasonable arguments are put forward for fundamentally different solutions, but the problem within academic discourse is the fact that these arguments are put forward on fairly different “levels”,54 which makes it difficult (or impossible) to weigh them against each other. For example, it is argued that consumers, who have bought and already paid for the goods, but temporarily leave these goods with the seller, should be protected from losing “their” goods against the seller’s creditors in the case of the latter’s insolvency, because such risks are simply not known to many concumers.55 On the other hand, it may be argued that protecting the buyer of specified goods as of the conclusion of the contract undermines the general insolvency law principle of equal treatment of all creditors, and that there is no compelling reason why a buyer of specified goods should be preferred as against buyers of generic goods, service providers, tort victims or maintenance creditors, whose claims will be satisfied by a small dividend in the case of the debtor’s insolvency.56 Another – classic – example can be taken from the discussion of good faith acquisition from a non-owner: one of the main arguments in favor of a rule protecting an acquirer in good faith against the original owner of the item is the protection of commerce in general, minimizing transaction costs by reducing the need for investigations into the seller’s entitlement, and thus benefiting the economic standard on a macro-economic level.57 On the other hand, an owner’s right is also considered to be worthy of protection, which is generally agreed to be a fundamental principle established even at a constitutional level in many countries.58 All these arguments may be valid and reasonable and may have considerable strength. In the current property law discourse, such arguments are 54

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Since they may deal with different interests, e.g. coherency within the legal system, predictability, free flow of commerce etc. See, for instance, prop. 2001 / 02:134, 71 ff. Based on this argument (amongst others), the Swedish legislator introduced a special provision into the Swedish Consumer Sales Act, providing for the consumer’s protection against the seller’s creditors from the time of the conclusion of the contract (provided that the goods are specified), which abolishes the general strict delivery requirement for consumer sales. See more on this in chapter 4.4.3. See, for instance, Håstad, The importance of tradition, 12 f. Håstad, however, subsequently changed his view, see chapter 4.4.2.(b) sub (ii). SOU 2000:56, 102. See also chapter 1.3.

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however – perhaps due to a lack of time and space – rather “shots” against each other on completely different “levels”, meaning that the counterargument raised by the proponent of the contrary view59 often does not attack the first argument itself, sorting out its weaknesses step by step, but adds a new issue to the discussion before the previous one has been resolved. Whether, e.g., in the conflict between the original owner and an acquirer from a non-owner, the principle of protecting ownership or the argument of increasing economic welfare by protecting commerce shall prevail, can not be decided on a mere “logical” basis (by saying one argument is right and the other is wrong). Taking a decision will involve a choice to be made according to personal, political or other preferences or interests (which is, in itself, not of a “scientific” nature), i.e. a value-based decision. Whenever one makes such choice, the choice should be transparant and explained: something that is rarely done in legal debate. Before making such choices, each of these arguments could be analysed on its own level: for instance, on the level of promoting economic welfare, one could deal with counterarguments addressing the assumption of reducing transaction costs, questioning the economic effects of good faith acquisition rules etc. Nevertheless, without making the discussion more structured, each participant still has the impresson, in the end, that his or her arguments have not been falsified (and therefore should be convincing and support the claim). Also, it can be observed that argumentation partly remains incomplete60 and, therefore, is hard to criticize substantively. For instance, some arguments imply facts, but these facts are not (or not sufficiently) proven empirically.61 The economic argument supporting good faith acquisition, as 59

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Or, in the case of a monological argumentation, where a single author or speaker (or entity) puts forward arguments for and against a particular conclusion. On this matter, see the analysis of an addition to a Supreme Court judgement in 4.4.2.(b). The argumentation may be incomplete because it does not analyse all possible situations; for instance, the main property law book on movables in Sweden (as well as most property law presentations / discussions within Sweden) only takes two possible solutions into account when discussing the buyer’s protection against the seller’s creditors. The two solutions are a mandatory delivery rule, or protection as of the conclusion of the contract, see Håstad, Sakrätt avseende lös egendom6, 205 ff. The debate could be enriched, for instance, by discussing a non-mandatory delivery approach (i.e. where parties can deviate from statutory default rules by agreement) or a rule selecting the moment of (part or full) payment as decisive for the buyer’s protection. For one (of many) examples see Persson, Förbehållsklausuler, 89, where she claims that, following the widespread use of purchase by installments contracts with a retention of title clause, there have been economical and social benefits for the whole

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reflected above, may serve as an example: do we really have sufficient empirical surveys that prove the extent to which good faith acquisition rules influence the behavior of market participants and how much transaction costs are saved?62 Another example is the classic argument that the tradition principle prevents sham transacations – which certainly is not proven in any way. Also, arguments may be incomplete because they do not reveal to what extent they apply: often arguments are formulated in a general way but apply only to a confined scope of constellations.63 The arguments put forward are not broken down addressing the specific issue – but remain on a general level (making the argument inapplicable, or impossible to value, on a specific sub-level).64 This leads to a further general problem of argumentation, namely nontransparancy of argumentation. It is often stated that one party “is” or “appears to be, or not to be, more worthy of protection”65 or “should be protected”66 as compared to another party (without clearly saying why), or that something – like protection of the buyer upon conclusion of the contract in the event of the seller’s insolvency – is “in the interests of the parties” (often without saying in what respect, or why this solution should be in the interests of both parties). Such phrases are sometimes used rhetorically or in order to abbreviate lengthy explanations (which would overload the communication) and which the proponent may consider to be self-

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of society. This is not an insignificantly small claim she is putting forward and one has to wonder how it is even possible to prove. See Salomons, How to draft new rules on bona fide acquisition of movables in Europe? in Faber / Lurger (eds.), Rules for the transfer of movables – A candidate for European harmonisation or national reforms?, 145 f. Comprehensive law & economics studies of bona fide acquisition seem to focus on an Anglo-American context and / or stolen works of art, but appear to be lacking within a European context; cf. Salomons, ibid., with further references. See also Vranken, Exploring the jurist’s frame of mind, 36 ff., especially 46 f. Examples will be countless. One of which has already been mentioned: the problem of granting undue privileges to a buyer of specified goods as compared to other creditors in the event of the seller’s insolvency arises only where the buyer has already paid (where he has not, or has paid only partially, insolvency law rules provide for an exchange of performances at the choice of the administrator in bankruptcy). Also the argument about protecting consumers is incomplete: the need to protect consumers is valid only where the buyer has actually already paid (unless there are good reasons to protect consumer’s good bargains). See also chapter 1.6. Is the argument applicable to all transferees? To all consumers concluding a contract? To consumers having paid fully? To consumers having paid part of the price? Etc. See, for instance, Millqvist, Sakrättens grunder, 94. See argument 3 in the analysis of the courts addition in 4.4.2.(b).

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evident.67 Nonetheless, as long as the substantial arguments hidden by such phrases are not shown explicitly, the statement itself remains superficial – but may even be hard to criticize substantively (because it does not exhibit its full extent). The list of such statements may be lengthy.68 Apparently, they could often be reversed easily and used for the opposite claim. All arguments claiming that a solution is “fair” or “justified” (or similar) without substantial arguments backing up this statement (and explaining why it is fair, so that these arguments can be analyzed) are also superficial. Without supporting arguments, they are only personal opinions without any substance. The argumentation techniques of the participants of legal discourse in the functional countries cannot be summarized fully here. The intention is just to show that there are reasons to at least be sceptical as to how functional the functional approach really is, from one angle, namely, the quality of argumentation. This is tied in with the analysis of the arguments in a court decision laid out in chapter 4.4.2.(b).

1.5.

Historical development

In order to understand the functional approach to the Scandinavian concept of ownership it is necessary to briefly analyse the historical development of the Scandinavian legal systems in this respect. The legal developments in Scandinavia were minimally affected by Roman law. The influence of Roman law only occurred indirectly by virtue of the relationships the Scandinavian countries established with neighbouring Germany.69 Stimulated by a sense of common historical and cultural heritage, the Scandinavian countries started to co-operate intensively with each other in the field of legislation, especially at the end of the 19th century.70 This co-operation was characterized by the fact of taking into consideration the commercial interests involved and therefore of also paying attention to mercantile practice. Such a co-operation produced its effects not only in the field of commercial law but also in the field of property law.

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69 70

It may also be due to the fact that the proponent is unaware of the arguments supporting these claims, or, in the worst case, because he or she knows that they are troublesome and wants to conceal them. A certain solution is said to be “very natural” and the opposite solution would be “offensive”, see Walin, Separationsrätt, 163. Zweigert / Kötz, An Introduction to Comparative Law3, 277. Hellner, Unification of law in Scandinavia, [1968] 16 Am. J. Comp. L. 88 ff.

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Scandinavian scholars started to criticize the Roman notion of ownership and in particular the idea that by virtue of the transfer of “ownership” the transferee acquired a full status of an “owner” in relation to everyone at a fixed specific time. In this regard, scholars maintained that the traditional notion of ownership was only a theoretical construction, which did not pay sufficient attention to the reality. The Danish professor Carl Torp was a fiery supporter of such a criticism. He introduced this idea for the first time in his book on Danish property law,71 but it was only in 1902 during the convention of the Nordic lawyers72 that his words suggested a new approach to the definition of ownership. In his presentation at the convention, Torp underlined that the word “ownership” implied different problems, which should be handled separately. In Torp’s opinion, ownership denotes a different number of legal facts to which different legal consequences should be reconnected.73 Consequently, a clear and precise definition of ownership is considered impossible if one is to take into account different interests for different legal consequences. This form of relativism of the transfer of ownership found it difficult to gain acceptance immediately. Hagerup, focusing on the uncertainty in the enforcement of the law, called the idea “practically dangerous” and “fundamentally unsustainable”.74 However, as early as 1909 the Supreme Court of Norway emphasized these new ideas by underlining that the rules on protection may not be the same in each and every case. It was stated that the rules governing protec-

71 72 73

74

Torp, Dansk tingsrett (København 1892), 324. Det Tiende Nordiske Juristmøde, 1902. “… Man har derved enten overset, at de Interesser, som her krydses, ere af ganske forskellig Art, og at derfor de Fordringer, der muligvis maa stilles af Hensyn til Kreditorerne (Kredithensyn) ingenlunde behøve at falde sammen med dem, der eventuelt stilles af hensyn til andre Erhververe af Tingen (Omsætningshensyn), og at det navnlig paa ingen maade er givet, at de i disse forskellige Hensyn grundede Krav alle virke med samme Vægt overfor de modstaaende Interesser, der bunde i Parternes Trang til størst mulig Dispositionsfrihed – eller man er gaaet ud fra, at disse forskellige Fordringer ikke samtidig kunne honoreres …”, Torp, Det Tiende Nordiske Juristmøde 1902, Annex IV, 7 f. “Praktisk farligt” and “principielt uholdbart”. He then continued: “… Det gør paa mig samme Indtryk, som det Ihering et Sted beskriver, naar han om en nyere Teori, der for resten ikke har noget med dette Spørgsmaal at gøre, siger, at han faar en Følelse, som naar han en Morgen kommer ind i sin Dagligstue og finder alle Møbler på Ende. Det kan efter min Mening kun lede til Usikkerhed i Retsanvendelsen at ville erstatte et sikkert og givet traditionelt Begreb med en Række meget diskutable og tildels meget svævende legislative Betragtninger …”, Hagerup, Det Tiende Nordiske Juristmøde 1902, Forhandlingerne, 169.

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tion from the seller’s creditors may be different from the rules regarding transfer of movables to other later buyers.75 Torp, on the one hand, continued to be criticized,76 but during the 20th century other scholars joined his view; among them Fredrik Vinding Kruse in Denmark,77 Sjur Lindebrække in Norway,78 and Östen Undén in Sweden. The latter, for instance, stated that “the legal concept of ownership contains neither a social program nor a natural law idea. Since, from the Government authorities’ examination of what society’s and the individuals’ interests predict, legal rules on the extension or limitation of ownership have emerged, the law adjusts the concept accordingly. Thus, ownership is a relative concept and a ‘functional concept’. It is based on applicable legal rules and is used as a formula or a denotation-unit”.79 Although it is undeniable that Torp made the breakthrough in the new approach to the notion of ownership, the Uppsala School (in Sweden), the most influential exponents of which were Vilhelm Lundstedt, Axel Hägerström, Karl Olivecrona, and Alf Ross, contributed more widely to the conceptual critique of the notion of ownership.80 These scholars criticized the attitude of modern jurisprudence to use the concept of rights as being an element which corresponds to an empirical fact. For instance, they underlined that the legal idea associated with property and ownership has nothing to do with reality. An ownership right is not directly observable and testable in reality, but as soon as one tries to determine the empirical facts on which property rights should be based and to which the state should grant protection, one cannot escape the conceptual difficulties. According to Hägerström, what one can see is the result of a juridical act and, in the case of property, the protection of one’s own possession granted by 75

76

77 78 79

80

Rt. 1909 s. 734. See on this case: Brækhus / Hærem, Norsk tingsrett, 503 f. For Sweden, the first case where the functional view seems to have been applied is 1925, see NJA 1925 s. 80. Björne, Den konstruktiva riktningen, Den nordiska rättsvetenskapens historia, Del III, 252 f. See, for instance, Vinding Kruse, Ejendomsretten 23, 786 ff. Lindebræke, Eiendomsrett og konkursbeslag, 19. Undén, Svensk sakrätt I, 85 (quoted from the first edition), which was the only comprehensive book on property law between 1927 and 1973. In the US, a somewhat similar development took place at the beginning of the 20th century. A key player in this movement was Professor Karl Llewellyn, who happened to become one of the (or the) main draftsman of the Uniform Commercial Code, see, with regard to the transfer of propery in movables, Llewellyn, Through title to contract and a bit beyond, 15 N.Y.U.L.Q. Rev. 159 (1938); idem, Across sales and horseback, 52 Harv. L. Rev. 725 (1939); idem, The first struggle to unhorse sales, 52 Harv. L. Rev. 873 (1939).

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the state-sanctioned power of coercion once one has concretely lost possession of the thing.81 In Germany, the Historische Rechtsschule, and especially von Jhering, defined the right of ownership as a legally protected interest. According to Scandinavian scholars, such a definition was flawed. In this regard, Lundstedt underlines that, if it is true that the ownership right is a legally protected interest, such protection should exist in the same moment when the owner is exploiting or using the thing. By contrast, such protection exists only ex post by virtue of the procedural claim granted to the owner by the state. The idea that the right to ownership gives to a person a full power over a thing is just a fiction, a myth. An ownership right engenders only a feeling of power. Rights, in fact, cannot be referred to as empirical facts, but are devices to which particular effects in the world of facts correspond. They are devices by virtue of which the state’s power can maintain order among consociates.82 Therefore, the authority over or the ownership title to a thing and its limits are the consequence of this mechanism created by the state’s power in order to guarantee social order. In this regard, Olivercrona considers superfluous the effort made by continental lawyers to create a link between the ownership right and the thing. In fact, he underlines that expressions like “this is my property” or “this is not my property” do not refer to an empirical link between one’s own property right and the thing over which one exercises one’s own power of control, but refer to the psychological connection between the above-mentioned statements, the behavior that a person can adopt in relation to the thing, and the consequences that follow from the adoption of certain behavior.83 The consequences of this critique of the continental notion of ownership led to the abandonment of a theoretical and comprehensive definition of the concept itself. However, it is a matter of fact that, nowadays, the word “ownership” is part both of legal jargon (for the reason of communicative simplicity) and of everyday language in the Scandinavian countries, but it is cleansed of every potential conceptual implication. The concept of ownership is therefore divided into its constituent elements and Scandinavian lawyers prefer to deal with them as if each single element was an aspect of a small coherent legal system, which takes into 81

82

83

Alexander, Comparing two legal realisms – American and Scandinavian, 50 Am. J. Comp. L. 131 at 151. Alexander, Comparing two legal realisms – American and Scandinavian, 50 Am. J. Comp. L. 131 at 155. Alexander, Comparing two legal realisms – American and Scandinavian, 50 Am. J. Comp. L. 131 at 159; Olivecrona, The legal theories of Axel Hägerström and Vilhelm Lundstedt, (1959) 3 Scandinavian Stud. L. 125 at 144.

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account empirical evidence and does not depend on a priori defined concepts. Retrospectively, one may say that for quite some time, it was an important feature of Scandinavian scientific legal debate to criticize the arguments and reasoning which were considered unsustainable on logical or philosophical grounds. Whatever one thinks of the criticism – the critics had the advantage that their criticism directed attention to methodological issues. However, the debate lost momentum with time. Part of the reason, as Hellner explains it, is that the criticism lost its effect because the criticized authors “survived” their critics and could continue their arguments and ignore the criticism.84 Lundstedt, for example, criticized Karlgren’s reference to “bonus pater familias” when determining the standard of “culpa” in tort law – but Karlgren continued to refer to this figure long after Lundstedt’s death – without even mentioning the criticism he endured.

1.6.

General principles of property law

There is no specific list of “principles” governing Swedish property law, but there are general principles mentioned rather often in property law discussions.85 However, these principles in property law are seldom without their exceptions. Nevertheless: “The existence of rules derogating from the principles does, however, not prevent the principles from providing guidance when applicable regulations do not exist”.86 84

85

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Hellner, Skenargument i rättsvetenskapen, in Rosén (ed.), Rationalitet och empiri i rättsvetenskapen, 53. See, for instance, NJA 2009 s. 41, where a large number of principles are mentioned to justify the argumentation. In addition, the court also requested clarification regarding another principle; see the addition to the judgement by Supreme Court Justice Håstad. Rules that derogate from the principles should not, according to Lindskog, be used for decisions based on analogy; see the addition by Supreme Court Justice Lindskog in NJA 2009 s. 41. Regarding the statement that principles should guide when applicable regulations do not exist: the question should perhaps rather be whether there are reasons to make another exception. In order to assess whether another exception is legitimate, “a reference to the general rule [author’s addition: the “principle”] has no value”, see Hellner, Skenargument i rättsvetenskapen in Rosén (ed.), Rationalitet och empiri i rättsvetenskapen, 57 f. A genereralization (i.e. “principle”) that disregards possible exceptions is incorrect reasoning (a fallacy). The more exceptions a generalization already has, the weaker it (obviously) is – and the more reasons there are to examine whether there should be another exception.

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One could perhaps also say that principles are used as short cuts in the argumentation strings, as something that is not to be questioned or that is already settled, although they only have weak binding force.87 It is rather common to refer to “general property / contractual law principles” etc. Under a pragmatic functional approach a principle can never be stronger than the arguments supporting it in any case: it is the argument behind the principle that is important and what gives weight to the arguer’s standpoint. On the other hand, legal principles are no more than interests already weighed against each other, thus meaning that carefully balanced interests may result in a “principle”. Nevertheless, some frequently mentioned “principles” should be mentioned. One is found in the laws of bankruptcy stating that all creditors have equal rights to the debtor’s assets: the equality principle.88 However, this principle has quite a few exceptions (that will be discussed mainly in the insolvency chapter). The principle of specificity89 is one of the principles governing the transfer of property, requiring that a right in rem can only relate to a specified, identified object, this being of particular relevance in the sale of generic goods, since specific goods are always identifiable. The other side of this principle is confusion or mixture where movables lose their specific nature and / or their nature as separate legal objects.90 It is a commonly used description to say that the principle of specificity separates obligations from rights in rem: where goods are not identified, they can only be the object of an obligation.91 Exceptions to the specificity principle also exist: where rights in rem have continued to exist in surrogate property.92 The tradition principle93 governs the conditions prescribed to gain protection from the seller’s creditors. It provides that possession of the goods needs to be transferred or, at least, the seller’s power of factual disposal over the goods has to be cut off.94 Within the scope of this rule, there was, ac-

87 88

89 90 91 92 93 94

Tepora, Inledning till grunderna för sakrätten, 11. Likhetsprincipen or Likabehandlingsprincipen, see, for instance, Zetterström, Sakrättens fyra huvudfall2, 88 and the Rights of Priority Act (Förmånsrättslagen (1970:979)), section 18. Specialitetsprincipen. See chapter 12. Håstad, Sakrätt avseende lös egendom6, 152 ff. See chapter 4.2. Traditionsprincipen. See further 4.4.2.

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cordingly, little need to discuss the exact features of identification of generic goods much further. This changed when an exception to the requirement of tradition was introduced in 2002, namely for goods bought by a consumer from a business.95 Consumers are now protected from the conclusion of the contract if the goods have been individualized. The publicity principle96 states that changes of ownership and transfers of mortgages shall be made public and become visible externally, either by tradition, by inclusion in a register or other equivalent means. When someone has validly acquired goods in good faith according to the rules in the Good Faith Acquisition of Personal Property Act, the former owner can re-acquire the property by paying the good faith acquirer for it.97 According to the satisfaction principle,98 the former owner should pay the acquirers the costs of acquiring the goods, plus costs for any improvements. The competing principle is the value principle,99 according to which the price for buying the goods back should be equal to the value of the goods on the market.100 The principle of extinction101 means that the person acquiring goods in good faith owns a better right to the property and that the former owner’s right lapses. The principle of vindication102 has the effect that the original owner’s right survives and he or she can retrieve the goods from the (good faith or bad faith) acquirer. Both of these principles are applied in Swedish law governing good faith acquisition. The principle of pactum commissorium means that an agreement in terms of which the creditor will be entitled, upon default of the debtor, to acquire “ownership” of mortgaged property is not allowed under Swedish law. Any clause with this purpose and effect, irrespective of its wording, will also be invalid.103 These principles will be further examined throughout this report, where it appears necessary and in the respective context.

95 96 97 98 99 100 101 102

103

The Consumer Sales Act (Konsumentköplagen (1990:932)), section 49. Publicitetsprincipen. Section 5. Vederlagsprincipen. Värdeprincipen. See, for instance, Millqvist, Sakrättens grunder3, 57. Extinktionsprincipen. Vindikationsprincipen or Priority principle (Prioritetsprincipen), see Hessler, Allmän sakrätt, 76, 78. The Contract Law Act (Avtalslagen), section 37.

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1.7.

Protection of “ownership”

The protection of “ownership” is not treated as a matter of property law, but mostly as an issue pertaining to criminal law, non-contractual liability, etc., and the protection of “ownership” is in fact the same as the protection of possession.104 This must be seen in conjunction with the fact that the legal system in question does not provide specific property law actions. Punishment under criminal law is imposed even if the interferer had a better right to the asset.105 Therefore, a lessor cannot recover by force the leased asset from the lessee after the lease has expired, even if the lessor has a better right to the goods. The person in physical control may use force to defend control without further repercussions.106 In any case, an owner may always sue a thief in order to have the stolen goods returned and may even sue a person claiming ownership of them; the sole prerequisite is the existence of sufficient procedural “interest”. A person may simply request the court to oblige the defendant to hand over a thing or pay damages. For revindication, in particular, there are summary proceedings before the enforcement authority.107 In any case, the verdict must be enforceable by the competent authority,108 which means that in principle the defendant cannot be obliged to undertake certain types of performance, e.g., to work. The court may also order someone to abstain from an act of interference under penalty of fine. The court may also order, in an expeditious procedure, an interlocutory injunction so as to prevent a person from interfering with another’s rights.109 The rules relevant to those remedies are to be found in procedural and civil litigation law.110

104 105 106 107

108 109

110

See further on protection of possession in chapter 2.5. The Penal Code, chapter 8, section 9. The Penal Code, chapter 24. Handräckning; see the Enforcement Act (Lag (1990:746) om betalningsföreläggande och handräckning). The Enforcement Service, Kronofogdemyndigheten. Code of Judicial Procedure (Rättegångsbalken (1942:740)), chapter 15, sections 2-3. Code of Judicial Procedure, chapter 13, 15 and 17; Special Enforcement Act (Lag (1990:746) om betalningsföreläggande och handräckning).

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Limitations on transferability by statute, contract or will

1.8.1. Introduction The guiding principle in contract law is, not surprisingly, that every legal person has a right to conclude agreements and has the subsequent obligation to honor the agreement concluded. In Sweden, these general contract law principles are codified in the Contract Act111 regarding contracts and other legal acts on property and commercial matters. The act provides for provisions on conclusion of agreements with the point that an offer of contract and acceptance of such offer is binding on the party making the offer or answer. However, this fundamental freedom of contract also bears several exceptions. Some of these exceptions that render juridical acts invalid are provided for in the Contract Act, such as contracts or contractual terms that under certain circumstances are entered into in violation of good faith112 or are deemed to be unfair,113 which specifically state that a consumer’s inferior status is to be taken into account. Limitations of transferability are one issue to be discussed in this context. Limitations to transfer can be seen in many situations; the limitations can be self-imposed by contract or the choice of a transferor or by will. A limitation of transferability can naturally also be the result of statute law or general principles where it is in the interest of society to forbid or limit certain practices. Limitations can also be imposed regarding certain kinds of movables, so that the goods are prohibited from being sold at all (accept under certain regulated circumstances, as with some kinds of medicine, drugs or weapons) or the limitations may – as in the case of the Competition Act – actually force a transferor to transfer to a transferee that he or she would not choose him- or herself. There are numerous possible situations where the transferability is somehow limited and only a brief description and some examples can be given here.

1.8.2. Statutory obligations and prohibitions As regards freedom of contract, there may be both a statutory obligation to enter into an agreement114 and transfer goods as well as a prohibition115 111 112 113 114 115

Lagen om avtal och andra rättshandlingar på förmögenhetsrättens område (Avtalslagen). Section 33. Section 36. Kontraheringstvång. Kontraheringsförbud.

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against entering into agreements with certain content or under certain circumstances. An obligation usually exists in situations where the provider of a product, service or other utility has a monopoly on business (e.g. alcohol, postal delivery) or is carrying on this business with specific authorization from the relevant authority (concession, such as with taxi services); in these cases the businesses have no free choice regarding their contractual parties. Equal treatment is another interest that has led to some provisions on the limitation of the choice of contractual party: the penal code116 prohibits in this sense unlawful discrimination for businesses to provide different conditions for a contractual party because of this person’s race, color, national or ethnical origin or religious belief. In addition, the Consumer Insurance Act117 provides that an insurance company is not allowed to refuse a consumer taking out insurance that the company normally provides to the public; and so forth. Another motive for the duty to conclude agreements is to promote competition and thus ultimately benefit consumer interests. For the purposes of increased competition, a duty to sell has been imposed on producers of, so to speak, “attractive” goods when the producers themselves have wanted to decide who they want to use as resellers.118 For promoting the same interest, counteracting the abuse of a dominant position is similar to the situation of monopoly and can have the effect of not being able to choose the contractual party as well as other contractual implications for business.119 A prohibition can be provided in the case where it is in the general interest of society that a certain agreement is not concluded. Violation of the prohibition can involve some form of official legal sanction as punishment, such as a fee or penalty or nullity of the agreement. This applies in particular where an authority must give permission for the acquisition of certain property; such as with the acquisition of rental apartment buildings.120 Where the permission to transfer is refused, a transfer already made or subsequently made is void.121 116 117

118

119 120

Chapter 16, section 9. Konsumentförsäkringslag (1980:38), section 9 (with an exception in the second paragraph). Competition Act (Konkurrenslag (2008:579)), chapter 3, section 1; Adlercreutz, Avtalsrätt 112, 107. Competition Act, chapter 2, section 7. Lag (1975:1132) om förvärv av hyresfastighet m.m., designed to prevent speculative acquisitions at the expense of tenants. The Land Acquisition Act (Jordförvärvslag (1979:230)) has the same purpose. See also the Pre-emption Act (Förköpslag (1967:868)).

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121

Another statutory limitation is found in the Competition Act, which regulates invalid contracts or terms of contracts.122 The consequences of the nullity are unclear and not regulated by the act. However, an agreement violating these limitations cannot be enforced, at least not in the parts that become invalid (if the whole agreement is not deemed invalid).123 Prohibition to transfer is also provided for when a debtor is bankrupt: after a decision on bankruptcy has been taken by the court, the debtor cannot (as a general rule) dispose of the property belonging to the bankruptcy estate.124 There is also no right to transfer or dispose of the goods in any way regarding goods that have been distrained for execution proceedings125 or are subject to sequestration (i.e. where a court or the Enforcement Service keeps the goods under its control until a case has been settled).126 Another example of a statutory limitation to transfer can be found in family law. A spouse may not, without the other spouse’s consent, dispose of property that belongs to both of them in common.127 Another situation occurs when the content of the agreement is contrary to mandatory applicable law (e.g. consumer protection acts): that often means that the mandatory legislative provisions take the place of the contract. The agreement is thereby still valid, but with a different content than the one agreed.128 However, in some situations where a contract is invalid because its content is contrary to law or morality, the effect will be that the goods are not transferable. This may be the case with a contract whereby a party undertakes something that involves a criminal act or something that is manifestly contrary to accepted moral standards or morality (pactum turpe). However, no general rule is found in any act, and such cases are referred to the courts to determine each and every case.129 Swedish courts occupy a relatively pragmatic attitude to such agreements.130 They 121 122 123 124

125 126 127 128

129 130

Adlercreutz, Avtalsrätt 112, 108. See also Hultmark / Ramberg, Avtalsrätten, 15. Chapter 2, section 6. Adlercreutz, Avtalsrätt 112, 289. Bankruptcy Act (Konkurslagen (1987:672)), chapter 3, section 1; Rodhe, Handbok i sakrätt, 244 f. Utsökningsbalken (1981:774), chapter 4, section 29. Utsökningsbalken, chapter 16, section 14; Rodhe, Handbok i sakrätt, 242, 302 ff. Marriage Code (Äktenskapsbalken (1987:230)), chapter 7, section 5. See, for instance, Consumer Sales Act, section 3 and Consumer Credit Act, (Konsumentkreditlagen (1992:830)), section 4. Adlercreutz, Avtalsrätt 112, 287. Swedish law’s pragmatic attitude is shown by one case (NJA 1989 s. 768) in which the participants of a private poker game for money (in a way that is illegal in Sweden, see sections 3, 9, Lotteries Act, Lotterilagen (1994:1000)) had invested 1000 SEK each and handed the money over to the organizer who was supposed to give the

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are not treated as non-existent. The effect cannot be enforced by legal means and such invalidity shall be dealt with ex officio, but to the extent that where performance already occurred, return of the performance and other settlement issues should be taken up by the court. A gambling debt and other similar debts are not enforceable by legal means under customary law, but on the other hand, repayment cannot be required when the debt is paid.131

1.8.3. Other limitations of transferability An obligation (or a self-imposed prohibition not to contract) can also be based on an agreement, and from that it follows that it is then no real limitation on freedom of contract. On the contrary, the existence of such agreement is rather an expression of a contractual freedom; a freedom to conclude agreements with such content.132 Such agreements can also limit to whom a transfer can be made; for instance, when someone wants to transfer company shares and this specific company regulates that such transfer must first be offered to other shareholders (duty of pre-emption). Other limitations concern prohibitions to transfer stipulated when a gift is made or goods are transferred by testament. Both refer to the ability of an owner to impose various restrictions on the acquirer’s possibility to dispose of the property. Such prohibitions are usually accepted and lead, as a general rule, to a ban on execution of the goods in question.133 Where someone has received the right to use property, to which ownership, on the testator’s death or later, shall vest in another, the owner cannot transfer or

131 132 133

collected money to the winner when the game was over. However, police stopped the game and the money was taken to be enforced for the organizer’s debts. The Supreme Court held that the gambling money could not be distrained for the organizer’s debts. In the situation when the gambling was interrupted, the organizer must be seen as being required to refund the money to those who invested it. Such recovery may also be enforced by legal means. If claims of this nature are not legally recognized, the court continued, the result would be that the law facilitated those, like the organizer, in making an unjustified profit of the sum of money held by them and that was considered unacceptable. Adlercreutz, Avtalsrätt 112, 287 f. Adlercreutz, Avtalsrätt 112, 107 f. See also ibid., 290 f. Utsökningsbalken, chapter 5, section 5. However, property which the debtor has acquired on credit with a right of retention for the creditor may be seized in execution proceedings notwithstanding that the property may not be transferable.

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otherwise dispose of the property without the user’s consent.134 The right to use itself cannot be transferred.135 A contractual prohibition to transfer goods further (and then ultimately also ban any attempt of execution of the property) in connection with a regular sale usually has no effect against third parties. In any case, as long as the ban has been imposed in the interest of the transferee, there is no effect on third parties: this would render it too easy to withdraw property from the creditors of the transferee. If, on the other hand, the ban has been imposed in the interest of the transferor, there might be cases where the prohibition must be respected by third parties and therefore the property cannot be seized in execution proceedings.136 In any case, the prohibition made in the interest of the transferor should be valid as between the parties: a violation of the prohibition should possibly give the transferor a right to damages.137

1.9.

Transferability of accessories

When a movable has been combined with another movable so that they can no longer be simply separated from each other without significant cost or loss of value (and no part is a dominant part), the owners will become coowners of the whole with a share in relation to the value of their respective contribution.138 Where one of the combined parts qualifies as the dominant part, the other parts may accede to this part in the sense that the owner of the dominant part acquires ownership of the acceding parts. In any case, the right in rem will be lost.139 The consequence is that the attachment is no longer separately transferable. It also has the implication that a retention of title clause can no longer be exercised.140

134 135 136

137 138 139 140

Inheritance Code (Ärvdabalken (1958:637)), chapter 12, especially sections 2, 4, 6. Inheritance Code, chapter 12, section 4. Håstad, Sakrätt avseende lös egendom6, 449 ff. Hessler seems to be more hesitant, see Hessler, Allmän sakrätt, 466 f. Hessler, Allmän sakrätt, 468. Håstad, Sakrätt avseende lös egendom6, 47. See further, chapter 12.5. Regarding movable property that is attached to real estate, see Land Code (Jordabalken (1970:994)), chapter 2, section 5. Retention of title is discussed in chapter 17.

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2.

Possession

2.1.

Categories of possession

There is no general definition of “possession”, “detention” or similar concepts in Swedish law. Depending on the function, factual control over goods is assigned by the law for deciding different kinds of conflicts, an evaluation of the interests involved and the facts of the individual case will determine the degree and manner of control required for achieving these functions. The concept of possession is used in many different legal situations and the concept cannot be attributed to any specific universal meaning. Even within a single statute, or section, possession cannot be assumed to have identical meaning.141 Forms of possession other than the normal case – physical control exercised by the possessor him- or herself – are known, but their level of importance is somewhat low. They mostly serve as secondary instruments helping to interpret the factual situation and thus no binding legal effects are attached to them. Possession by means of another person is often implemented as a simplifying description; namely, in view of the fact that possession is regarded mainly as a way of communicating where the object is situated, the term indirect possession rather responds to this question and denotes where (in whose hands) the object is placed, by the terms “indirect” or “mediate possession”.142 However, it also denotes that a person holds a thing for another person and at the same time acknowledges this fact. In any case, a person need not hold the movable personally but can derive the benefits of being possessor with another person’s help.143 When two or more persons each have independent access to a movable they possess, their possession is characterized as collective possession;144 when the persons only have joint access to the object, possession is designated as joint possession.145 Nevertheless, these concepts are not used in a 141

142 143 144 145

See the Supreme Court decision of December 22, 2009, T-3390-07 (not yet published in NJA), where the court discusses the meaning of possession in section 2, Good Faith Acquisition of Personal Property Act (Godtrosförvärvslagen (1986:796)). Possession is mentioned twice in this section, but that does not necessarily mean that the forms of possession required are identical to each other. See also, chapter 20.3.3.(a) of this report regarding the forms of possession required for a right of retention. Medelbar besittning. Håstad, Sakrätt avseende lös egendom6, 51 f. Sambesittning. Gemensam besittning. As to these forms of possession, see Håstad, Sakrätt avseende lös egendom6, 50.

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uniform manner: in view of their minor practical importance, the legislator has used them in the sense that joint possession also covers collective possession.146 This ambiguity is due to the functional approach that characterizes Swedish law; since it is not deemed crucial to be able to subsume each case under one or the other “label”, the concepts are not viewed as particularly important.

2.2.

Object of possession (corporeal assets and rights)

In Sweden, opinions as to what kinds of assets can be “possessed” vary. Possession as a notion refers to corporeal movables (or immovables) and the term tends to be avoided with respect to mere rights, such as rights to performance of an obligation, but no conclusive opinion can be reached.147 Legal scholars tend to limit the notion to corporeal movables148 taking the view that an extension to rights to performance of obligations would make the definition “empty and meaningless”. Nonetheless, the courts have sometimes expanded the definition to the above mentioned rights.149

2.3.

Functions of possession and legal presumptions

Possession has a signalling function, since the possessor is presumed to be owner of the assets possessed and this regulates the burden of proof: the person claiming to be the rightful owner must prove this before a court, and in the case of a conflict, the burden of proof will regularly be on the person who does not possess the property.150 Moreover, according to the principle of tradition, the transferee will have priority over the transferor’s creditors once the transferee acquires possession; however, the transferee may also gain priority at an earlier stage.151 Possession of the transferor is also required for the valid acquisition of movables in good faith,152 and gratuitous transfers of movables become effective, and are protected from the transferor’s creditors, only from the point in time at which the transferee

146 147 148 149 150

151 152

Utsökningsbalken chapter 4, section 19. Martinson, Kreditsäkerhet i fakturafordringar – en förmögenhetsrättslig studie, 398 f. See, for instance, Homqvist et al., Brottsbalken7, 533 ff. See NJA 1947 s. 8; NJA 1954 s. 464; NJA 1994 s. 480. Håstad, Sakrätt avseende lös egendom6, 51; Utsökningsbalken, chapter 4, sections 18, 19. For more on this, see chapter 4.4.2. Good Faith Acquisition of Personal Property Act, section 2. See chapter 13 below.

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acquires possession of the asset.153 Another function of possession worth mentioning is that the good faith possessor may also be entitled to the fruits and benefits deriving from the property in possession.154 The factual control required for these various functions differs from one rule to another. The control needed for protection from the transferor’s creditors certainly differs from the control which is necessary to make a valid good faith acquisition. Other situations may have certain other rules for the possession required, but it is more easily discussed in their respective conflict situation.

2.4.

Acquisition of possession

There are no rules on how to acquire possession of a movable, since possession is merely a word that indicates who has control over the movable. However, control over a movable can naturally be acquired by numerous acts, with physically laying one’s hands on the goods in question and thereby starting to exercise control over them being the most usual one. One may also have control over the movable if a key or other instruments, such as a document, is handed over, if the instrument is enough and the only way to take physical possession of the goods. If two keys to the same locker are handed over to two different people they will both acquire collective possession of the goods.155 Two or more people may also have different possession of a movable; a borrower, for instance, may acquire immediate possession while the owner of the goods still holds indirect possession of the same goods. Nonetheless, in relation to the owner the immediate possessor is considered to acquire the exclusive possession when the borrowed goods are handed over to him or her.156

2.5.

Protection of possession

2.5.1. Criminal law principles, including self-help The legal regulation of possession is based on the Penal Code, which defines possession in a negative manner, namely by forbidding violation of possession.

153 154 155 156

Gift Act (Lag (1936:83) angående vissa utfästelser om gåva), section 1. Malmström / Agell, Civilrätt17, 86. See chapter 20.1. below. Sambesittning, see Håstad, Sakrätt avseende lös egendom6, 50. For a discussion on this matter, see the case of NJA 1995 s. 392.

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One must distinguish between those cases where a person is protecting his or her physical control over an asset against a current attack, and those where there is an attempt to recover that physical control without state help. In the first case, the person having physical control may protect this by force (within reasonable limits) without running the risk of being punished.157 This right is regarded as a form of self-defence, enabling the protection of both person and property against certain attacks, provided that the relevant person is still in possession of the threatened property. The main rule regarding the attempt to recover physical control is that nobody is allowed to interfere with another’s possession or dispossess the possessor, not even the owner.158 Even if the person interfering has the best right to the asset, where for example someone leases a car to another and the latter refuses to return the car at the agreed time, the former will be punished under the Penal Code for recovering the car by self-help even though he or she is the rightful owner. However, the owner has the right to re-assume possession of stolen goods within a short time limit (probably within 24 hours159). The owner also has the right to re-assume possession from someone suspected of escaping or from a “looter”.160 Possession of mere rights could perhaps also be subject to the same regulation.

2.5.2. Protection under the Enforcement Act In the case of dispossession or other interference with possession, the possessor can resort to the specific remedy provided by the Enforcement Act161 and request either recovery of possession or removal of the interference. The usual means for achieving that will be an injunction sanctioned by a fine and enacted by the executive authority. Establishing interference with possession will usually suffice; the applicant’s underlying material right is not examined.162 However, such an interlocutory injunction will probably not by itself lead to the recovery of possession: possession may be given to the enforcement authority until the final settlement of the dispute. Sanc157 158 159 160

161 162

Penal Code (Brottsbalken (1962:700)), chapter 24, section 1. See Penal Code, chapter 8, section 9; Malmström / Agell, Civilrätt17, 84 f. Dahlström et al., Brott & påföljder, 175. Penal Code, chapter 8, section 9 and Penal Code Promulgation Act (Lag (1964:163) om införande av brottsbalken), section 14, with reference to the rule still applicable in HM The King’s Decree on the Promulgation of the Penal Code (1864:11 s. 101), section 16 p. 6. Lag om betalningsföreläggande och handräckning, especially sections, 4 and 43. Håstad, Supplement 2004 till Sakrätt avseende lös egendom6, 7 and NJA 1999 s. 474.

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tions for interfering with possession or dispossessing another are not restricted to fines, but may well consist in imprisonment; moreover, damages may be awarded to the aggrieved possessor. The remedies under the Enforcement Act can in all probability be used by all categories of possessor. The owner and direct possessor can sue, as well as the owner and indirect possessor and the latter’s direct possessor, against a third party. Finally, it appears plausible that the direct possessor (e.g. a lessee) can invoke the relevant remedies against the indirect possessor (e.g. the lessor), should the latter try to recover the goods before the expiration of the legal relationship upon which the indirect possession relies.163

3.

Scope of the rules on the transfer of movables and relevant definitions

3.1.

“Static” and “dynamic” property law etc.

Acquisition of ownership is theoretically classified into three categories. The first category is original acquisition, which regards property that did not have a previous owner or possessor. Acquisition is, for instance, carried out via occupation of abandoned property. The second category concerns derivative acquisition. With derivative acquisition the property has previously had an owner from whom the transferee is deriving his or her rights: the transferee takes over the rights of the transferor. The typical example is a transfer under a contract of sale. The third category regards extinctive acquisition, which means that the right that the previous owner had ceases to exist, while the acquirer gains a better right to the property. It can concern executive sales or acquisition through good faith acquisition. Property law on movables may also be divided into two rudiments: first, questions regarding possession, powers to use the property and the content of rights that follow from being the owner of the property. This is the “static” part of property law.164 The second part, the “dynamic” part, concerns the passing of risk, entitlement to fruits and benefits, protection of the person with the better right of property in situations where there is a conflict of claims over the same property: priority between two (or more) incompatibly conflicting claims; priority over creditors and priority over third parties are dealt with here. It can also be explained as conflicts that arise as a result of a transfer or a usufruct transfer of a right.165 163

164 165

See section 4 in the above mentioned law; the law speaks about the “applicant’s possession”, regardless of the applicant’s legal status; see also NJA 1999 s. 474. Hessler, Allmän sakrätt, 6 ff. Håstad, Sakrätt avseende lös egendom6, 17 f.

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Nevertheless, if someone claims to be the owner and someone else claims to have the right of a pledge holder, these claims do not necessarily conflict with each other, but if both persons claim to have the full property right, these rights are incompatible. Under Swedish law, such a conflict situation is solved by designating one person as having a better right than the other in the particular conflict situation. The better right to the property between contractual parties is achieved by agreement, while effects towards third parties cannot be achieved by agreement between the two contractual parties: priority in such situations is usually instead achieved by taking possession of the property in question. One may say that the first, “static” part of property law does not generally differ that much between Sweden and many other legal systems. The difference in relation to other legal systems is mainly found in the dynamic part of property law, since solving property law problems within the Swedish system is accomplished without applying the concept of transfer of ownership (see more about this discussion above in chapter 1.4.). The static part is not discussed very much in Swedish literature,166 probably because it is seen as an unproblematic part of property law – it simply does not consist of real problems worth discussing.

3.2.

Movable and immovable property

Movable property is defined in a negative manner: what is not immovable property is movable property.167 Immovable property is the legal term referring to real estate. In the most general sense, the term real property refers to land, including not only the earth but everything of a permanent nature over or under it. All other assets are movable; these comprise not only corporeal things but also receivables and intellectual property rights as well as rights of use under lease contracts, pledges and even mortgages and usufruct in immovables.168 Sweden has only codified the law on immovable property and the relevant statute defines all assets that are immovables.169 Immovable property is, first and foremost, land.170 In addition there are rules on “fastighetstillbehör”, which could be explained as fixtures to land, which are also subject 166

167 168 169 170

Hessler, Allmän sakrätt, for instance, exclusively deals with the dynamic part of the law, see 6 f, 16. But one can find Finnish contributions on the matter, see Zitting, An attempt to analyse the owner’s legal position, 3 Scandinavian Stud. L. 227 1959. Undén, Svensk sakrätt 1, Lös egendom10, 12 ff. Håstad, Sakrätt avseende lös egendom6, 40 ff. Land Code (Jordabalken). Land Code, chapter 1, section 1.

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to the rules of immovable property.171 These are buildings and structures of various kinds. In addition, fixtures and fittings of a building (byggnadstillbehör) are also subject to the rules of immovables: these are fixtures and objects which have been fitted into the building – if they are devoted for permanent use.172 One exception applies in the example where someone is renting an apartment in a building: even if such person has fitted something into the building that normally would be considered “fixtures and fittings to a building”, these are not subject to the rules of immovable property – as long as that property and the building are owned by different persons.173

3.3.

Rights in rem and personal rights

A right in relation to a thing or a right in relation to a specified part of a person’s property (such as in the case of a floating charge174) is a right in rem, which normally means that these rights are protected against claims from third parties on the counterparty’s side. These rights are said not to be subject to limitations, but this dogma is questioned.175 A right against the whole of, or a part of, a person’s property is a personal right (a right to the performance of an obligation). Obligations are subject to a ten year limitation period (three years for claims against a consumer), if the prescription period is not interrupted before the end of the limit.176 There is no formal numerus clausus catalogue in Swedish law. Apart from a right of ownership, there are two major groups of rights usually described.177 First, there are rights to use (nyttjanderätt), such as rent or leasing, but also rights to excavate or to fell timber etc. Secondly there are the security rights, such as pledges, floating charges in all movable property of a business, retention of ownership, retention of possession etc. Another group that may be mentioned – and that does not fall within any of these categories – is a group of rights that may be called “conditional rights”.178 A person may have an optional right; a right in relation to the owner to acquire the property or acquire another right in the property in 171 172 173 174 175

176 177 178

Land Code, chapter 2, section 1. Land Code, chapter 2, section 2. Land Code, chapter 2, section 2. See chapter 19.2. below. Hessler, Allmän sakrätt, 118. Exceptions exist for rights that are extinguished by acquisitive prescription and for a seller’s right to take the goods back when the claim for payment has prescribed. Act on limitation (Preskriptionslag (1981:130)), section 2. Håstad, Sakrätt avseende lös egendom6, 23 ff. Betingelser.

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the future. It may also concern encumbrances that the owner may only use the property in a certain way or refrain from certain means of use, or to prohibit the owner from transferring or pledging the property.179 The main purpose of this report is to present what kind of protection such rights have towards third parties “on the other contracting party’s side”, the dynamic part of property law. This partly concerns competing acquirers of the same property or of the same rights, or the conflict with the counterparty’s creditors who want to use the debtor’s assets to enforce their claims against the debtor. This is the essence of property law as discussed in Sweden. It generally deals with conflicts between parties, each of which has a valid claim. Yet, it is impossible that both (or all) claims are met in full. The claims either relate to the same thing and are therefore inconsistent, or the person who is to perform is insolvent, meaning that the assets are not sufficient to keep everyone satisfied. Historically speaking, property law has been more strictly limited in the way that only a few rights have been found to be rights in rem, and the presentation has been limited to those rights; for movable property these were the right of ownership, the right of pledge and the retention right, and some variants derived from these.180 Apart from these there were no other rights in rem and no others could be created by the parties. Other rights, such as a right to use were left outside the presentation of property law.181 However, legal literature has developed in a way that the literature now is rather focused on third party constellations, which means that rights, such as rights to use, that are not traditionally rights in rem, have been included into the presentation of property law when the whole conflict situation is to be solved. Generally one may say that the position of such rights to use in relation to other rights in rem is uncertain; one old rule, or principle, states that a sale always breaks a right to use.182 However, the principle is equipped with numerous exemptions for immovable property.183 On the other hand, for movable property there is, with few exceptions,184 no legislation or juridical practice on the protection of such rights. Previous reasons for denying a right in rem for such rights to use in relation to movable property are

179 180 181

182 183 184

Hessler, Allmän sakrätt, 26, 54 f; Millqvist, Sakrättens grunder3, 18 f. Millqvist, Sakrättens grunder3, 17. See Undén, Svensk sakrätt 1, Lös egendom10, 6, who speaks about property rights to use without rights in rem. See Håstad, Sakrätt avseende lös egendom6, 431 ff.; Walin, Separationsrätt, 46 f. See, for instance, Land Code, chapter 7, sections 1, 11-14. See, for instance, the Inheritance Code (Ärvdabalken), chapter 12, sections 6, 7 and the Patents Act (Patentlagen (1967:837)), section 101; NJA 1975 s. 528.

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no longer considered as strong as before, and most legal scholars seem to be ready to reconsider the position in Sweden.185 Nevertheless, under a functional approach, classifications of these kinds have little importance: one should not derive legal consequences only from the classification. There must be substantial reasons for the solution. For instance, it has been suggested that when an acquirer’s right prevails over a lessor’s right in the goods, the lessor’s interest should be satisfied by granting him or her a security right in the goods. The lessor’s right will still lose against an acquirer, but he or she will at least have security for the claim of damages.186 In the future the position of such right-holder may get stronger. Two incompatible rights to use are nevertheless solved by applying the time priority principle (as described in chapter 6.).187 One may also conclude that these third party constellations partly concern situations where one or more parties are insolvent, and from this it follows that there is no clear distinction between property law and insolvency law in Sweden. Another part concerns what has already been mentioned, that the claims are incompatible; two or more people are claiming a right towards the very same object. Different acts regulate different types of movable property, but these acts and in what respect they regulate the respective conflict situation are more easily presented in their respective context.

185

186 187

Millqvist, Sakrättens grunder3, 72 f. Previously, such rights had relatively small economic significance, and there was no real problem in denying that these were no rights in rem. Nowadays it is rather common that large economic values are involved and a right in rem is therefore considered more significant, see Håstad, Sakrätt avseende lös egendom6, 435 with further references. Martinson, En struktur över kredit- och exekutionsrätten, 25. Commercial Code (Handelsbalken (1736:01232)), chapter 13, section 2.

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Part II: Derivative acquisition 4.

Derivative acquisition under a functional approach

4.1.

Introduction and overview

One can observe that all “aspects” linked to “ownership” in countries following a unitary approach are not discussed with the same intensity in Swedish law. Rather, some conflict situations are discussed at length, namely and in particular, the buyer’s protection against the seller’s general creditors; and the seller’s protection against the buyer’s creditors. These issues will be discussed in greater detail below. The following discussion starts with some general transfer requirements, such as identification and valid obligation to transfer.

4.2.

Identification and substitution

Where a contract for sale only defines the goods in generic terms (e.g. by number, weight or other measure), the buyer cannot acquire any property rights in the goods before individual items or quantities have been identified so that it is clear to which goods the buyer’s right relates. When it comes to the transfer of goods, identification was previously not an important issue in Sweden in this respect and it is not discussed much in legal literature. This can be explained by the fact that Sweden has, with regard to the buyer’s protection against the seller’s creditors, applied a mandatory delivery rule for a long time. For legal systems that provide rules for transfer of ownership upon conclusion of the contract, this issue is more important since ownership can only be transferred to the transferee when the goods are identified in the contract. If no identification has been made, the transferee cannot relate an ownership right to a specific item. As long as there is no right in rem, there is only a personal claim against the transferor. However, with new rules on protection upon conclusion of the contract for consumer sales, this issue is touched upon in more recent legal

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literature.188 In this regard, the Consumer Sales Act189 – non-exhaustively – mentions identification by physical separation from the seller’s stock, marking or entry in book-keeping documents. The buyer does not need to participate in the separation of the goods, or even be aware of the separation, to achieve protection against the seller’s creditors.190 In legal literature, it has been suggested that where the act of individualization is performed by the seller, and the buyer is not notified of it, the seller should still be allowed to deliver these goods to other customers.191 In some situations identification is also important in determining the passing of risk, namely when the risk passes before transfer of possession. If, for instance, the buyer is delayed in taking delivery at the time agreed, the risk passes before a change of possession.192 However, for the risk to pass the goods must be identifiable: it is not enough for the seller to say that one out of a thousand generic goods (without unique character) has been destroyed and precisely this one is the one that the buyer has bought. The bought item must, according to section 14 of the Sale of Goods Act, be identified either by marking, a notification in a transport document – or in some other way that makes it clear that the particular goods in question are intended to discharge the seller’s obligation to the buyer. In a situation where the seller goes bankrupt and the goods are bought by a consumer, the contract protects the consumer from the seller’s insolvency: a pre-paying buyer will therefore have a right to separate the goods. However, if the goods are destroyed (e.g. the warehouse burns down), the buyer can no longer relate a right in rem to any specific object – but it may happen that the seller receives some compensation for the destroyed goods from his or her insurance company. In such a situation the question arises whether the right to separate can be exercised in relation to the substituted assets (such as the insurance compensation paid to the seller). Substitution (Surrogation) is based on the idea that the objects can change, but the right in rem should remain in order to preserve the value of separation, even if the value is now represented by another object. “Identity” is replaced by “identity connection”, which in turn implies an unbroken “chain of identities”.193

188

189 190 191 192

193

Millqvist, Sakrättens grunder3, 106; Håstad, Supplement 2004 till Sakrätt avseende lös egendom6, 19. Konsumentköplagen, section 49. See Blom et al., Karnov 2006 / 07 (-Persson), 590 note 189. Håstad, Supplement 2004 till Sakrätt avseende lös egendom6, 19. Section 13, 14 Sale of Goods Act. See also sections 50, 51 Sale of Goods Act and chapter 9.3. of this report; Håstad, Den nya köprätten5, 43 f. See, for instance, RH 1986:63 where subrogation was not accepted.

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It is quite common that goods are covered by insurance, which is taken for the benefit of the person who is the owner (or pledgee etc.) and who has an interest that the value of the insured property is not reduced or lost. For this reason a right in rem also exists in insurance compensation that is to be provided instead of the insured property.194 The consumer will thereby have a right to separate the compensation. Another provision on this matter is that substitution is possible when the debtor has sold goods owned by another before bankruptcy. In this case, the “owner” has a right of separation to the proceeds that accrue to the bankruptcy estate after the bankruptcy proceedings have begun.195 In other situations the solution is less clear: for example, where the seller has sold the goods and bought similar goods for the money received. The question must probably be answered on an individual basis.196 However, it seems likely that where the connection between the original and substituted property is simple, a right to separate the latter may be successful.197 One scholar seems to have a more positive view than others on the right of substitution. According to his view, substitution can occur and may be accepted in several stages, but the right may be lost on the way, if one cannot explain how the transformation occurred, or if the property has been commixed with other property in such way that it is impossible to distinguish between them.198 The substituted property must be transferable and have an exchange value, but no other limitations should be applied.199 Substitution has been justified as a way to prevent unjust transfers of economic values, as a substitute to a general rule of unjustified enrichment.200 An objection to the substitution principle is that it can lead to arbitrariness when determining whether a thing has reached the realm of 194

195 196 197 198 199 200

Insurance Contract Act (Försäkringsavtalslagen), chapter 9, section 1; Millqvist, Sakrättens grunder3, 80 ff., who is commentating on an earlier version of the law. Note that the situation discussed by Millqvist is not a clear example of substituted property, but rather of insurance taken in the interest of a third party. However, subrogation may also be used subsidiarily. Bankruptcy Act, chapter 7, section 23. Hessler, Allmän sakrätt, 41. Håstad, Sakrätt avseende lös egendom6, 166; Hessler, Allmän sakrätt, 161. Walin, Separationsrätt, 162 ff., 174 f. Walin, Separationsrätt, 173. Walin, Separationsrätt, 163. Many other arguments have been put forward for and against the right of substitution. One of the more peculiar pro-arguments is that the public may in a range of situations find substitution very natural and would find it offensive if substitution were not recognized, see Walin, Separationsrätt, 164. However, ordinary people certainly have no knowledge of these rules and therefore have, in reality, either no expectations or substantively different expectations.

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another, “but there is, however, no such experience from the many areas of law where this principle is already accepted”.201

4.3.

The underlying obligation to transfer, effects of defects in the formation of contract or in performance

4.3.1. Introduction The following sub-chapters discuss situations where goods have been delivered to the buyer and where something, so to speak, is wrong with the contract. The question arises if the seller in such a situation is protected against the buyer’s creditors when the buyer goes bankrupt and what protection the seller has against a sub-buyer: can the seller claim the goods back from the buyer’s insolvency estate, or a sub-buyer (C), by referring to “something wrong with the contract” between the seller (A) and the buyer (B)?

4.3.2. The conflict situation between the seller and the buyer’s creditors where there is a defect in the contract (a)

Invalidity

The question of whether or not a transfer of “ownership” takes place where the transaction is based on an invalid contract is not discussed in Sweden. What is said is that if certain persons conclude agreements, these agreements are invalid. There are some grounds that are referred to as “strong grounds” for invalidity in Swedish literature.202 First, this concerns certain persons who are deemed to be without legal capacity: minors (under the age of 18),203 or in201

202

203

Walin, Separationsrätt, 165. Substitution is, for instance, allowed according to Marriage Code (Äktenskapsbalken), chapter 7, section 2. “Weak grounds” for invalidity, such as are regulated in the Contracts Act, sections 29-35. See Hessler, Allmän sakrätt, 170 f. See the main rule in the Parental Act, chapter 9, section 1; Adlercreutz, Avtalsrätt 112, 120 f. Minors have, for instance, in principle a right to dispose of their own earnings by the age of 16 (buy, sell and pledge the goods), see Parental Act, chapter 9, section 3. If the minor has his or her own household, he or she may carry out legal transactions associated with the household, chapter 9, section 2a. As a general rule, he or she may also dispose of property that was transferred to him or her with the condition of free disposal, by gift, testament or insurance for the benefit of the minor, see chapter 9, section 3, 4; Malmström / Agell, Civilrätt17, 63.

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capacitated persons.204 If such persons conclude an agreement with another, the counterparty with legal capacity is also not bound to the agreement if he or she is in good faith. However, if the counterparty is aware of the fact that the contract is being concluded with a minor or an incapacitated person, he or she is bound until the minor’s guardian or the incapacitated person’s trustee administrator has been given a chance to ratify the agreement.205 Where such ratification is not made, the goods are to be returned to the transferor.206 If the goods have been merged or mixed, destroyed or consumed or in any other way been disposed of in a way that the right in rem has ceased to exist, the receiver has to pay compensation for the movable. However compensation only has to be given in accordance with the extent that the goods have been of use to him or her.207 In addition, when someone who is declared bankrupt is acting on behalf of the bankruptcy estate, these agreements are invalid as against both parties208 and the goods are to be returned to the bankruptcy estate.209 A contract is also deemed invalid if concluded with a person suffering from a mental illness.210 The goods have to be returned to the transferor, but if the goods are lost for some reason, compensation only has to be given to the extent that the goods have been of use to the person with the mental

204

205

206

207

208

209 210

The legal incapacity of these persons can be limited to some property or all property depending on the individual need. Such persons still have some capacity similar to a minor, see Parental Code, chapter 11, sections 7-10. Parental Act (Föräldrabalken (1949:381)), Chapter 9, section 6 and Chapter 11, section 10. Parental Act, chapter 9, section 7 and chapter 11, section 10 and the Act on the effects of agreements concluded under the influence of a mental disorder (Lag (1924:323) om verkan av avtal, som slutits under påverkan av en psykisk störning). Parental Act, chapter 9, section 7, and chapter 11, section 10; Adlercreutz, Avtalsrätt 112, 238. See Bankruptcy Act (Konkurslagen), chapter 3, sections 1, 2; there are exceptions, for instance when someone concludes an agreement in good faith the day after the bankruptcy proceeding had been published in a certain newspaper. See also Act on Instruments on Debts, section 14, where a good faith acquirer can acquire promissory notes without a time limit. Bankruptcy Act, chapter 3, section 3. These persons cannot always be considered to be without legal capacity, but are mostly treated as such, see Adlercreutz, Avtalsrätten 112, 236. See the Act on the effects of agreements concluded under the influence of a mental disorder (Lag (1924:323) om verkan av avtal, som slutits under påverkan av en psykisk störning). An agreement may also be deemed invalid according to the Contracts Act, section 33. See Adlercreutz, Avtalsrätten 112, 247 ff.

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illness, but a counterparty in good faith also has a right to reasonable compensation for loss suffered.211 A valid good faith acquisition from a minor or an incapacitated person or a person suffering from a mental illness cannot be made, since it is required that the disposal was made from someone who was neither the owner nor had a right to dispose.212 Even if someone is without legal capacity or suffers from a mental illness, they are still owners of the goods. The invalidity of the agreement is given effect against the creditors of the contracting parties. If the seller of goods has made an invalid contract, his or her creditors can claim the invalidity if the seller enters into bankruptcy.213 The inverse is also true, i.e. the seller’s right to reclaim the goods will be valid against the buyer’s creditors if the contract is invalid after delivery of the goods. However, these issues are rather scarcely discussed on a general level.214 The right of separation in B’s bankruptcy is thereby treated the same as if entrusted goods were left in the possession of B. The same result would probably be achieved where the contract between A and B is fictitious.215

(b)

Termination and avoidance of contracts

In general, termination of a contract by the seller or the buyer does not produce any retroactive effect under Swedish law. Therefore, the seller is not protected from the buyer’s creditors before the contract is terminated, since the contract was binding. The main practical example is the termination of a contract by the seller on the grounds of the buyer’s failure to perform the obligation to pay. In this respect, it should be mentioned that the seller, after the buyer has taken possession of the goods, has a right to terminate the contract only if the seller has reserved the right to do so.216 In order to have a right to separate the goods in the event of the buyer’s insolvency, the seller needs to have agreed on a retention of title clause or an equivalent stipulation. However, it is sometimes stated that if termination occurs for another reason than the buyer’s failure to pay, there could

211 212

213 214 215 216

Adlercreutz, Avtalsrätten 112, 248. Good Faith Acquisition of Personal Property Act, section 2. This statute is discussed in more detail in chapter 13 below. Walin, Separationsrätt, 54 ff. Hessler, Allmän sakrätt, 172. Hessler, Allmän sakrätt, 172. See section 54 of the Sale of Goods Act and chapter 17 below.

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be grounds to argue that the seller’s claim for recovery of the goods should have priority over the buyer’s creditors.217 The issue of “proprietary effects” of other grounds for terminating a contract than the buyer’s failure to pay appears to be scarcely discussed in Sweden. An explanation for this is probably the “functional approach” under which a problem will be discussed directly only when it occurs, independently from other issues and dogmatic concepts. For example, where goods have been delivered under a contract of sale and the buyer, before having paid, goes bankrupt and then detects that the goods are so defective that this constitutes a fundamental breach of contract and would give rise to a right to terminate the contract, the question of whether the seller’s right of claiming the return of the goods has priority over the buyer’s creditors will most often not be posed, because the buyer will often simply do nothing (i.e. keep the goods) and the seller must be content with a claim for the purchase price against the insolvent buyer’s estate. In the case of avoidance of a contract on account of mistake, fraud or duress, each party must return the other contracting party’s performance.218 There is hardly any discussion to be found on what follows in this case, but one may assume that avoidance has retroactive effect, meaning that the right to the goods is deemed to have never vested in the transferee. Consequently, the transferee’s creditors will never have any right to the goods. As long as the avoidance is not based on the transferee’s insolvency, the transferor’s claim for return of the goods has priority over the transferee’s creditors (if the goods have not been mixed with the transferee’s goods).

4.3.3. The conflict situation between the seller and a sub-buyer (later transferee) where there is a defect in the first contract of sale This issue is also scarcely discussed in Swedish legal literature, and there may be different ways of arguing for various different solutions. The impact of the invalidity or voidability of the contract between the original owner A and buyer B on the rights of C, who has in the meantime acquired the goods from B would be considered as a separate issue (from the situation above) with different possibilities being arguable.219 However, some of these situations can be seen as unresolved issues, largely depending on the arguments put forward by the parties. 217 218 219

See NJA 1985 s. 178. See NJA 1985 s. 178. Göranson, Ogiltighet i sakrätten, 20 ff.

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The main rule according to the Contract Act is that if the contract is not valid between A and B, A will have the possibility to claim the invalidity of the contract also against a later acquirer, C.220 But a valid good faith acquisition can nevertheless be made according to the rules in the Good Faith Acquisition of Personal Property Act. If, for instance, a minor transfers goods to someone who sells them to a third person, this third person can acquire the goods in good faith.221 If A and B have concluded a fictitious contract – an agreement that was not seriously meant – and B has concluded an agreement with C, C will acquire the right according to the contract with B, provided he or she is in good faith.222 If someone wrongfully claims that he or she represents the owner of the goods, but has no authorization to dispose of the goods, the transfer will not be binding for the purported principal.223 Good faith acquisition is theoretically possible, but since someone buying goods from a claimed representative is required to have seen the letter of authorization, an acquirer cannot be seen as being in good faith if he or she merely relies on the word of the seller.224 Where the seller goes bankrupt and the contract between the seller and the buyer (or beneficial receiver) is void based on the rules on recovery in bankruptcy (actio pauliana), the bankruptcy administrator can, for the benefit of the seller’s creditors, make the same claim against a sub-buyer as he or she could make against the first transferee, provided the sub-buyer was in bad faith regarding the circumstances giving rise to this right to recover.225

4.3.4. Resolutive and suspensive conditions and terms Apart from the practically important issue of transactions under retention of title, the question of a transfer of goods subject to conditions does not seem to have been subject to a more general discussion in Scandinavia. Such conditions are effective in the internal relationship between the parties under the principle of freedom of contract. However, the issue of whether or to what extent such agreements have effects against third parties is rather uncertain.

220 221 222 223 224 225

Hessler, Allmän sakrätt, 170 f. Håstad, Sakrätt avseende lös egendom6, 80 f; Hessler, Allmän sakrätt, 170 f. Contracts Act, section 34; Hessler, Allmän sakrätt, 172. Contracts Act, section 11, paragraph 2. Prop. 1985 / 86:123, 21. The Bankruptcy Act, chapter 4, section 18. See chapter 8.1. below.

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The transferee’s protection against the transferor’s general creditors

4.4.1. Introduction Under a functional approach no attention is paid to who may be the “owner” of the goods; ownership is simply never the issue. The question here is whether there are arguments for giving a buyer – in particular a pre-paying buyer – a right of separation due to the very conclusion of the contract, or if the buyer should be considered an ordinary creditor without priority in the transferor’s insolvency proceedings. A right of separation of the goods can never be allowed because someone is deemed to be the owner of the goods he or she has bought. There must instead be substantial arguments in favor of such a solution. Under a unitary approach the “magic moment” when the buyer is protected usually refers to the moment when the buyer becomes the owner of the goods (owner = o). To become the owner of the goods, he or she must fulfill certain requirements (x). A person fulfilling certain requirements becomes the owner and an owner has (among many things) a right to separate the goods (y). If x = o and o = y, then also x = y. If we re-phrase the question functionally (without this roundabout), we would need to ask ourselves (in this context) what should be required for someone to be protected in the case of the transferor’s insolvency. The issue will thereby be dealt with more directly,226 thus leaving us the possibility to work with other requirements for other legal consequences than the transferee’s protection in the transferor’s insolvency. It also has the immediate consequence that we actually do not need to solve any other questions than the question of what should be required from a transferee to obtain protection against the transferor’s insolvency.227 Imagine the case of where a unitary lawyer – just for a moment, without using the “transfer of ownership concept” – thinks of reasonable preconditions for a transferee to be protected in this situation – and then compares that list of requirements (conditioned legal facts) with the requirements to gain ownership of the goods: if there is a difference between the lists of requirements, then the requirements for obtaining ownership are obviously not suitable for solving this type of conflict situation in an ideal way (or his 226

227

Or, as Martinson phrases it, “[Let us] go straight to the problem!” See Martinson, How Swedish lawyers think about “ownership” and “transfer of ownership” – Are we just peculiar or actually ahead? In Faber / Lurger, Rules for the transfer of movables – A candidate for European harmonization and national reforms?, 72 ff. “Be open to deal with all problems, but only solve the ones that need to be solved!” Again, Martinson, cit., 75 ff.

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or her way) and the requirements for obtaining ownership are not suitable for this specific legal consequence. Or, in other words, the solution is not balanced to the specific case at hand. The aim of the Scandinavian functional approach, on the other hand, is to balance the arguments so that the solutions are suitable to the specific case at hand. Whether the aim is achieved, is another matter.228

4.4.2. The general rule: protection from the time of delivery or specific registration Under Swedish law, delivery (tradition) is important to decide when the transferee is protected against the transferor’s creditors. Delivery is further a decisive feature for the aspect of a seller’s protection against the buyer’s creditors: as long as the seller has not delivered the goods, he or she has a right to withhold performance if the buyer does not pay according to the terms of the contract. By this mechanism, the seller is protected against losing the value of the goods in the case that the buyer becomes insolvent (more on this in chapter 4.5.).229 Delivery is also important, as is the case in all Scandinavian countries, for the rules on the passing of risk and for deciding upon double sale cases. Delivery takes place with the function that the transferee is protected from the seller’s creditors when the transferor has transferred the movable in such a way as to lose the possibility to have control of the goods. Delivery equivalents to be fulfilled by an acquirer in certain situations are either to notify a third party possessor, to provide publicity by marking (as under a special statute on wood and timber) or to take possession by receiving a document or instrument of some kind. The tradition principle is a mandatory requirement established by court decisions230 for obtaining priority over the transferor’s general creditors with three exceptions: first, priority can be achieved by the buyer when the goods are in the hands of the seller if the purchase is registered according to the rules of a special statute.231 The registration process is hardly ever used, and when it is used it rather takes the form of a veiled credit taken 228

229

230 231

Whether the aim is achieved is further discussed mainly in chapter 1.4.3. and chapter 4.4.2.(b). The rules are provided for in the Sale of Goods Act, namely in section 10 (for the case that no credit was granted the buyer) and in section 61 if credit was granted to the buyer and the buyer becomes insolvent. NJA 1912 s. 156 (for security transfers) and 1925 s. 130 (regular sales transfers). Lösöreköplagen (1845:50 s.1)]. This law will be discussed in more detail in chapter 4.4.2.(a).

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out by the “seller” with the registered property being used as security for the “buyer”.232 The property has to be identifiable and registration is also possible for fungible goods that are specified. The second exception regards consumer sales, in place since the reform of the Consumer Sales Act in 2002.233 A consumer buying goods from a professional seller is protected against the seller’s creditors from the conclusion of the contract provided that the goods have been allocated (individualized) for the buyer by separation, marking or specification in the seller’s list. The last exception regards goods bought at an enforced auction.234 Unless these three exceptions apply, delivery is considered to be a mandatory requirement, meaning that the parties cannot effectively agree on a constitutum possessorium (that the seller exercises possession for the buyer) in order to protect the buyer before the goods are actually delivered.235 In fact, Sweden is the only country in Europe with such a mandatory delivery rule. Whereas it was formerly assumed that “tradition” means that the transferor must have lost physical control of the goods, with the transferee having to obtain such physical control, the requirement is nowadays probably understood in the sense that the transferor’s power of factually disposing over the goods must be cut off.236 In an opinion added to a Supreme Court case of 2008, one judge (speaking for the five judges in the case) questioned the need for upholding the principle of tradition, arguing that the reasons which are assumed to underlie this principle do not justify upholding it as a mandatory requirement any longer, also taking into account that Sweden is the only European country sticking to delivery as a mandatory requirement. However, the actual amendment of the law was left to the legislator.237 These requirements to obtain protection will be further examined below. 232

233 234 235 236

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Göransson, Traditionsprincipen, 339 f; since the emergence of this law, most of the transfers will in reality have been security transfers. Since more opportunities have been presented for companies to use various resources in business as security (for instance, floating charges), the law in practice has no relevance other than for individuals (342). See chapter 4.4.3. for a more detailed discussion. See chapter 4.4.4. See chapter 4.4.2.(k). Rådighetsavskärande, see, for instance, NJA s. 1996 s. 52, NJA 1998 s. 379 and NJA 2000 s. 88. See chapter 4.4.2.(b) and (c) below. NJA 2008 s. 684 an opinion added by Supreme Court Justice Håstad; see also earlier writings on this issue: Håstad, JT 2002 / 03, 745 (especially 751 f). For an analysis of this addition, see chapter 4.4.2.(b).

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(a)

Starting point: priority upon registration

In the early 19th century, priority over the transferor’s creditors was already achieved upon concluding the contract (contract principle), whereas creating a pledge valid against the security provider’s creditors required tradition of the movable. Against this background, it seems to have happened that goods were withdrawn from the creditors, partly by different kinds of sham transactions and partly by pretending to transfer goods without transfer of possession where in reality the creation of a security right was intended. Therefore, in 1845 a decree on the sale of goods left in the possession of the seller was issued238 (which was replaced and renamed by a statute in 1977239) which aimed at preventing the withdrawal of goods from a person’s creditors by engaging in sham sale transactions.240 Originally, registration under statute was only used for security transfers241 but not for ordinary sales. Then, by analogy, the rules of registration were extended to ordinary sales242 and, e contrario,243 it was assumed that if the transfer of the goods was not registered, possession of the goods had to be transferred to the buyer to achieve protection against the seller’s creditors. The motivation for the registration requirement (for security transfers) was the same as the later incentive used to initiate a delivery rule for outright transfers. Originally, the main argument was to prevent fictitious (simulated) transactions, so as to minimize the risk of defrauding the transferor’s creditors (for more on the arguments for the tradition principle, see 4.4.2.(b) below). The tradition principle is now said to be no longer dependent on the registration rules. In the meantime, it has an independent character: abolishing the law of registration would not mean that the tradition principle would be abolished.244 The act, Lösöresköplagen (LkL), is applicable to all movable property, apart from buildings on another’s land, usufruct rights in movable and immovable property, share rights and claims.245 However, this does not mean

238 239 240

241 242 243 244 245

Lösöreköpförordningen (1845:50 s.1). Lösöreköplagen, [1845:50 s.1). See Håstad, Sakrätt avseende lös egendom6, 216 f. For more historical details see Göranson, Traditionsprincipen 313 ff. NJA 1912 s. 156. NJA 1925 s. 130. For a presentation of the development see, for instance, SOU 1995:11, 134 f. Millqvist, Sakrättens grunder3, 117. Håstad, Sakrätt avseende lös egendom6, 40 f.

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that the tradition principle is only applicable where LkL is applicable.246 The act is probably not applicable to registered ship or ships under construction247 and it is uncertain whether it is applicable to aircraft.248 Registration has the same effect as if tradition has occurred, but it is not an exception to the tradition principle in the way that protection is achieved by conclusion of the contract, since protection against the transferor’s creditors – if all the requirements are fulfilled – will be achieved only after 30 days.249 Registration has the effect that it creates priority over the transferor’s creditors; nowadays priority is also given over creditors of floating charges.250 The requirements are that the seller establishes evidence of a sale contract in a written certified document in which the goods are identified. The document shall be notified in a local newspaper in the seller’s area of residence together with the seller’s and buyer’s name and profession and stating the day of the sale with information about the purchase price.251

(b)

Some arguments underlying the tradition principle – a critical analysis

(i) The main reason for the mandatory tradition requirement for the buyer’s protection against the seller’s creditors is said to be preventing simulated and subsequently fictitious transactions.252 In light of this reasoning, it has been argued that cutting off the transferor’s power to factually dispose of the goods should be enough to be granted protection from the seller’s creditors, because fictitious transactions are already prevented thereby.253 246 247

248 249 250 251 252

253

See NJA 1987 s. 3; Håstad, Sakrätt avseende lös egendom6, 251. Ships and ship buildings of a certain size (chapter 1, section 2) can be registered and protected from the transferor’s creditors under the Maritime Code (Sjölagen (1994:1009)), chapter 2, section 9. For smaller boats, the registration procedure herein described is applicable; Håstad, Sakrätt avseende lös egendom6, 251. Financial instruments are protected from the transferor’s creditors at the time of registration according to a special statute: Lag (1998:1479) om kontoföring av finansiella instrument, chapter 6, section 2. See more in chapter 4.4.2(j). Håstad, Sakrätt avseende lös egendom6, 251 f. Lösöreköplagen, section 3. See chapter 19.2. Lösöreköplagen, section 1. Håstad, Sakrätt avseende lös egendom6, 212 f; Hessler, Allmän sakrätt, 90 ff.; NJA 1985 s. 159; prop. 2001 / 02:134, 73. Millqvist, Sakrättens grunder3, 107 ff.; see also Johansson, Ändamålsenliga sakrättsmoment, SvJT, 1997, 353 and 365.

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Later, this mandatory delivery rule was additionally justified by further arguments. For example, it is supported by the argument that this approach makes it unnecessary to distinguish between outright sales and (hidden) security transfers (for which a mandatory delivery requirement in analogy to the rules on pledges is accepted), because delivery is necessary in any case: if one, as in most jurisdictions, requires tradition or some other kind of publicity for pledges, but not with outright sales, the question would often arise whether a security transfer is disguised in the form of an outright sale because the parties could, instead of making a pledge agreement, establish a sales agreement with an, explicit or implicit, option to purchase back the goods.254 Disputes involving the interpretation of the contract are avoided when delivery is mandatory for both cases. After some time, the tradition principle, which was originally based on the analogy to the registration provisions became the basis for further statutory provisions (e.g. regarding donations and promissory notes), so that today it is rooted on quite a strong statutory basis – although it is, itself, not laid down in any statutory rule. The tradition requirement has been discussed widely in the past few decades, so that a plain and simple description is hard to provide. Much depends on the circumstances of the individual case. It has, for instance, been decided that a buyer of a caravan cannot leave it on the land of the seller even if the buyer receives a key, takes the caravan on a test drive and starts to use it occasionally.255 On the other hand, in another case,256 the Supreme Court decided that where the owner of a boat had, during the winter, placed it on a piece of land which he had leased from a third person, and then sold the boat and transferred the right to use this piece of land to the buyer, the buyer achieved protection against the seller’s creditors merely by giving notice to the landlord that the right to use concerning the berth on land had been transferred. The fact that the seller could still lay hands on the boat, as any other person could, since the boat was kept on land accessible to the public, was not considered an obstacle for the buyer to obtain priority over the creditors. One description of the reasoning applied here is that the physical cutting off is balanced against other factors minimizing the risks for third parties; for instance, a high level of publicity could balance a looser physical cut-off.257

254 255 256 257

Myrdal, Borgenärsskyddet, 52 ff.; Håstad, Sakrätt avseende lös egendom6, 213 f. NJA 1975 s. 638. NJA 1991 s. 564. Martinson, Kreditsäkerhet i fakturafordringar – en förmögenhetsrättslig studie, 304 ff.

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Many arguments have been put forward over the years,258 and dedicated supporters of the tradition principle have later changed to the opposite side.259 The reasons behind the principle could in fact be questioned: it is surprising to see how the same arguments are used in several countries where this issue is discussed, but how these arguments are valued differently.260 The arguments justifying the principle have varied over time261 and since the principle has generated quite a few pages in legal literature it is hereby simply impossible to deal with all the discussions and arguments put forward. For being such an important principle in the property law of Sweden, these discussions are often (but not always) nothing more than snapshots,262 without exhaustive and coherent lines of pro and contra arguments, where the arguer, so to say, does not fully think his or her argumentation through to the end and where the basis of the arguments – the interests which the chosen position is intended to support – often remains non-transparent. In recent times, the principle has been questioned,263 but not without resistance.264 The discussion led to real effect when a review of the rules for consumer protection in the case of the seller’s insolvency was handed over to the government in 1995,265 which led to an exception from the tradition principle in the Consumer Sales Act.266 Consumers are now protected from the seller’s insolvency by conclusion of the contract. The arguments put forward favoring protection of consumers were based on fairness (that the seller’s creditors should not benefit from both the goods and the payment) 258

259

260

261 262

263

264 265 266

For an exhaustive presentation of arguments, see the thesis of Göransson, Traditionsprincipen, 619 ff. See also, Håstad, Sakrätt avseende lös egendom6, 209 ff.; SOU 1995:11, 145; Myrdal, Borgenärsskyddet, especially 40 ff. Compare the main authority in the area, Håstad, in: The importance of tradition (where his assessment ends up with the recommendation to “stick to tradition”, p. 13), with his newly found pessimism in NJA 2008 s. 684; now followed by Millqvist, Traditionsprincipen på tillbakagång, JT 2008 / 09 nr. 1, 115 at 120. On this matter, see the comments of Göransson, Traditionsprincipen, 621, analysing it further in the following pages. On this matter, see the addition by Håstad in NJA 2008 s. 684. See Millqvist, Traditionsprincipen på tillbakagång, JT 2008 / 09 nr. 1, 115 at 120, where he dismisses the tradition principle in 6 sentences. To mention but a few: NJA 2008 s. 684; Millqvist, Traditionsprincipen på tillbakagång, JT 2008 / 09 nr. 1, 115; Kriström, En återgång till avtalsprincipen? Replik på Dag Mattssons artikel i Svensk Juristtidning nr 3 / 05, SvJT 2005 s. 1112. Mattsson, En återgång till avtalsprincipen?, SvJT, 2005 s. 319. SOU 1995:11. Section 49. See chapter 4.4.3.

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and the general unawareness among the public of the rules that goods paid for are not protected against the seller’s insolvency.267 The abolition of the tradition principle on a general basis was also mentioned as an option in the preparatory works.268 However, the government made the assessment that at that moment there was not sufficient support to consider a general change of the principle. For such a change to be considered, there must be (apart from substantial arguments) also “significant socio-economic” benefits gained by a change. The (earlier) government thereby pointed out the requirement for a change, or which interests must be fulfilled.269 (ii) Another contribution with a suggestion of abolishing the tradition principle has been recently put forward. The proposal was made in an addition to a Supreme Court judgment, written by one of the court justices, Justitierådet Håstad, on behalf of the five judges in the case.270 In this proposal Håstad first presents an exposé of motivations made earlier on the tradition principle and concludes that the purpose underlying the tradition principle is not clear.271 This is followed by a small number of arguments for not272 sticking to the tradition principle (by immediately excluding selected and presumed pro arguments favoring the tradition principle): 267

268 269

270

271

272

Prop. 2001 / 02:134, see especially 74 ff. But no “payment-rule” seems to have been evaluated, protecting the consumer only upon pre-payment. Prop. 2001 / 02:134, 77. On this matter, see Mattsson, En återgång till avtalsprincipen?, SvJT, 2005 s. 319 at 323. NJA 2008 s. 684 with an addition submitted by Supreme Court Justice Håstad. It is actually a rather unusual – although not unique – addition to a Supreme Court decision, that the court turns towards the legislator and encourages a change on a certain point. It is also somewhat difficult to see the purpose of it: there is certainly nothing new coming forward in this addition. This may be due to the fact that certain types of arguments tend to be neglected and are rarely presented in legal proceedings or legal literature; arguments that place the case in a broader perspective and go beyond the individual case at hand. This is what Hellner would call “deceptive argument” (or, it is perhaps better described as “deceptive argumentation technique”). The characteristic is that no argument is put forward for (or in favor of) a different principle: only arguments against a principle or rule. In Håstad’s critical presentation this “other rule or principle” is only scarcely conceivable (but see Håstad, Derivative acquisition of ownership of goods, E.R.P.L. 2009 17(4) 725 at 734 footnote 13). On this argumentation technique, see Hellner, Skenargument i rättsvetenskapen in Rosén (ed.), Rationalitet och empiri i rättsvetenskapen, 55. The technique is a selective frame analysis – a reduction of reality, where everything running counter to this stream of arguments is not counted. There certainly exist arguments supporting the tradition principle (and arguments

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1. The tradition principle cannot assist future creditors in their assessment of the creditworthiness of the debtor. The property could be subject to installment purchase, leasing, commission etc., which disrupt the presumption that the goods in the debtor’s possession are his or her own (and can be used to cover his or her debts). A debtor could also dispose of the property prior to the execution.273 2. The tradition principle is not a good instrument to counteract fictitious and sham transactions.274 (Registration can be used for such (sham) purposes and give protection.275) 3. A possibility for the seller to dispose of the goods twice (i.e. double sales) is not an argument for the tradition principle.276 (That the buyer

273

274

275

276

contra a consensual principle). For other arguments, see, for instance, Håstad, The importance of tradition. The same is true for any principle, like, for instance, the consensual principle. For a different view, see Undén, Svensk sakrätt 1, Lös egendom10, 46 f. The general standpoint, at least since 1956 (see NJA 1956 s. 485), is that the tradition principle prevents fictitious and sham transactions and the general opinion is that it is the tradition principle’s most important function: see Håstad, The importance of tradition, 11; NJA 1980 s. 197; NJA 1986 s. 217, Undén, Svensk sakrätt 1, Lös egendom10, 47; Hessler, Allmän Sakrätt, 90 f, 327, 354; Helander, Kreditsäkerhet i lös egendom, 359 f; Göransson, Traditionsprincipen, 383 ff. The risk is theoretical (or assumed), but it is unclear how big this risk is in reality (no empirical data is available and no attempts to gather such data have been made). The risk of fictitious and sham transactions has also been assumed to be greater for pledges than for transfer of property, and greater for claims than for chattels, see SOU 1995:11, 160 f and Martinson, Kreditsäkerhet i fakturafordringar – en förmögenhetsrättslig studie, 290 f. One should keep in mind that the registration procedure is not a prerequisite for keeping the tradition principle. If there really are risks of fictitious and sham transactions, then these risks should be even greater in a consensual system (where the seller does not have to go through a complicated registration procedure and thereafter wait 30 days). There are different opinions (but few substantial arguments) represented among legal scholars on the risk of double disposals and the relative importance of sticking to the tradition principle (or not). One risk for the creditors of the transferor is that the transferor, by disposing of the goods twice, places himself in indebtedness. This risk is significant and real, with regard to documented risk preferences of the transferor, see Martinson, Kreditsäkerhet i fakturafordringar – en förmögenhetsrättslig studie, 311.

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has taken the risk to leave the goods with the seller should not cause a loss for him or her in the case of the seller’s insolvency.277)278 This leads Håstad to the conclusion that: “The value of the tradition principle lies solely in the context of execution proceedings in its neutralization of predating transactions and other false claims that the movable property was transferred before the execution began.279 The tradition requirement thereby generates significant execution efficiency by which it does not create a need to consider whether and when an actual contract for sale has been concluded, if the movable property is left with the transferor.”280

277

278

279 280

Precisely why a loss should not be caused to the buyer, is never explained, apart from a comment that the registration procedure does not counteract sham transactions either (the registration procedure thereby starts to appear to be the real problem). If one would try to picture this argumentation in a Toulmin scheme for analysis of arguments, the three arguments presented in the text above would be “warrants” supporting the claim that follows (namely: that the tradition principle should be abolished). The warrants are such part of the argumentation that relates facts (“data” in Toulmin’s terminology; here: that the tradition principle’s purpose is unclear) to the claim. Justifications for the warrants (i.e. “backings”) are not really put forward for any of the warrants. There is also no “rebuttal” (without changing the argumentation). Here “rebuttal” means a reason that would render the warrant(s) as not holding true. This would in fact mean that if the facts for the rebuttal hold, then we have a rebutting argument, and hence a counterargument, for the argument based on the warrant. The conclusion is that only the basic elements identified by Toulmin (data, warrant, conclusion) and only the scheme’s simplest form may be needed to diagram this kind of incomplete argumentation (leaving away backings and rebuttals). See Toulmin, The uses of arguments, especially 87 ff. and Besnard / Hunter, Elements of argumentation, especially 3 ff. One advantage of diagramming the argumentation would be to easily visualise how much is left aside: that the conclusion cannot follow only from the warrants provided. Another way is to simply test the tenability of these arguments in the light of counterarguments. On this matter, see an overview in van Eemeren et al., Fundamentals of argumentation theory, 83 ff. For that matter, one has to identify the contra arguments (which has not been done in the addition to the court decision). This appears to be contradictory to argument 2 (first sentence) above. This fits well with the presentation. Not another single pro-argument is put forward. Note: not another single pro-argument for the tradition principle – or for any other principle, for that matter.

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However, as claimed by the court, this value is extinguished by the tradition principle also affecting fair transactions. Where a buyer did not have the opportunity to take possession of the goods immediately, or where the buyer intends to resell the goods directly, or where the seller has to finalize the product for the buyer (author’s addition: e.g. by installing locks and a light to a bicycle), the buyer suffers a loss when he or she has paid for the goods (or made a particularly good deal). With this assessment there appears to be no more need for the tradition principle in Sweden, according to the Supreme Court, continuing with the following arguments: first, the Court states that the laws of execution have evolved since the 19th century – particularly through the rules on the presumptions281 of a better right for the possessor and the general rule on recovery in the Bankruptcy Act282 if the transfer has been to the disadvantage of the seller’s creditors. Secondly, the Court continues, other countries are doing fairly well without the tradition principle. While Sweden has had many disputes as to whether the tradition requirement is met, Norway has only had a few cases in the court of last instance regarding the question of whether the goods have been left with the seller in the seller’s or in the buyer’s interests.283 It seems therefore that the problem of fictitious transactions can be overcome by other means than the tradition principle. The last argument discussed by the Court compares the rule on movable property to the rules on immovables: “Finally, it seems remarkable that the purchase of real property is protected from the creditors of the seller by the agreement, despite the opposite rule for movable property.” “Consequently, there seem to be compelling reasons to abolish the tradition principle”, as the judges summarize the issue.284 Despite this “judicial invitation” to abolish the tradition principle, there appears to be no legislative attempts in that direction (yet). The purpose of this last analysis of the Supreme Court addition (and other shorter comments throughout the report) is to show the reader that also functional lawyers – who proudly praise the need of balancing interests etc. – (sometimes) make analyses that can be scarcely seen as anything 281 282 283

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See Utsökningsbalken, chapter 4, section 18. Chapter 4, section 5. These rules are discussed in chapter 8.1 below. See a short comment about the buyer’s protection in the seller’s insolvency in Norway in chapter 1.2. Just before the (final) conclusion, the following was written: “The literature on the justification of the tradition principle and meaning is extensive”, followed by a number of “authorities” publications. One may wonder why it was placed just before the conclusion (perhaps to strengthen the arguments, to give them some weight?). Not all of these authorities are of the same opinion as the judges in the case, regarding the principle’s future.

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other than superficial. No reader can sincerly say that the court’s analysis has made any progress in the discussion of the principle’s future (or made any progress whatsoever).285 If not even the Supreme Court, regarding one of the most important principles in property law, can make a thorough analysis before jumping to conclusions – one has to start to wonder how much of the functional approach is rhetoric idealism and what is actually real. If we do not have the systematic codification of the unitary approach – and we do not have anything functional (to be proud of) – is there anything left other than fragmented scattered assumptions and opinions fulfilling non-transparent interests? On the other hand, this is not unique for Sweden or Scandinavia and one must admit that Håstad’s arguments are rhetorically very successful: at first glance they appear to be very convincing. His writing has of course also been limited by the scope and purpose of the comment: his point is not just to abolish the principle, but also to encourage an investigation of an alternative. So for that sake, he may actually be excused. Another purpose of this analysis is not to mislead the reader: just because something has been suggested by the Supreme Court does not necessarily mean that the principle is about to be abolished – and if it will be abolished, it will probably not be because of this addition to the decision.286 On the other hand, incomplete argumentation obviously has its place and purpose within the Swedish system as well, so in a report of this kind, one should perhaps not emphasize too much how things should be, but rather what they (sadly) are.

(c)

Priority through physical delivery

The basic requirement for the tradition principle is physical delivery of the goods into the hands of the transferee. In a particular piece of legislation regarding certificates of debt,287 dealing with the transfer of rights in rem by tradition, the requirement of tradition is defined by the document being handed over to the “transferee’s possession” and this was also the prevailing opinion as to tradition in general until the 1980s.288 But regardless of such requirement in statutory law, most scholars today argue that it should be enough that the transferor’s possession is cut off to obtain a right in 285

286 287 288

According to Håstad himself, he has put forward “fairly detailed reasons for and against the tradition recquirement”, see Håstad, Äganderättens övergång i en gemensam europeisk rättsordning, JFT 3-4 / 2009 327 at 336. Court cases are not (always) the alpha and omega of reading and understanding law. As with the Act on Instruments on debts, Skuldebrevslagen (1936:81) section 22. Myrdal, Borgenärsskyddet, 80.

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rem (in the sense of the transferee being protected against the transferor’s creditors). It is said that the legal form of dispossession is achieved when the transferor has concluded an agreement of transfer or pledge so that he or she no longer has a right to dispose of the goods289 while the actual form of dispossession is achieved when the transferor is unable to physically dispose of the item. The shift of the tradition requirement from physical delivery to some form of dispossession of the transferor has taken place and been developed by legal scholars’ contributions and court decisions. In one case290 regarding the creation of a pledge (note that with regard to tradition, sales and pledges are treated in the same way) in cereals in silos, the pledgee’s protection against the pledgor’s creditors was established by the pledgee affixing padlocks to the bottom of the silo, where the cereals were normally removed. The fact that the pledgor alone could empty the silo through the charging door at the silo’s roof did not affect the pledgee’s right in rem, since this would have been an unusual and expensive way of disposing of the content of the silo. The pledgor’s disposal of the content was considered cut off sufficiently by the padlocks at the bottom of the silo. In another case291 where a promissory note was pledged and placed in the custody of a bank, the court made it clear that some form of dispossession should be enough for the transferee to obtain priority. The principle was also repeated in two other cases.292 In the latter of these cases, one of a company’s three authorized signatories had received a letter of floating charge for security for a loan to the company and kept the letter in his private home. The requirement of tradition was satisfied even though he was a representative of the company. The case is interesting since it shows the difficulties one faces when a transfer, for instance, is made between a company and the company’s representatives; cutting off the transferor’s possibility to dispose of the goods is simply not possible in all cases. But the advantage of a pragmatic functional approach is that there is no need for a general principle that can be applied in all cases; it is always possible to discuss nuanced solutions depending on the circumstances.293 There is nevertheless no clear definition of when the transferor’s possession has been cut off. One scholar defines the cutting off concept by dividing it into four sections.294 First, by using the concept one may mean 289 290 291

292 293 294

Myrdal, Borgenärsskyddet, 80, especially note 167. NJA 1956 s. 485. NJA 1996 s. 52. In this particular case the possession of the transferor was however not cut off sufficiently for the transferee to be protected in the transferor’s insolvency. NJA 1998 s. 379 and NJA 2000 s. 88. As the court did in NJA 1995 s. 367. Myrdal, Borgenärsskyddet, chapter 3, especially 210 ff.

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that the transferor’s ability to use the transferred property should be cut off. Secondly, where the transfer relates to a claim, the debtor’s ability to pay with liberating effect to the transferor should be cut off. The concept may, as a third section (similar to the second), relate to a third party’s ability to hand the goods back to the transferor with liberating effect (e.g. where the seller has stored the goods in a warehouse: if the storer can deliver the goods back to the seller without running a risk of becoming liable as against the buyer, there is no sufficient cutting off effect) and lastly, the transferor’s ability to dispose of the property a second time. The conclusion of the scholar in question is that the cutting off concept should primarily focus on the first three of these sections and it is important to note that he presupposes that the main importance of the requirements of achieving protection is to discourage sham and fictitious transactions. This concept of sections has been criticized. One critic argues that the concept of cutting off has a universal meaning and the same applies when used in legal reasoning.295 The fulfillment of the tradition requirement has been handled by the Supreme Court in a number of court cases. For example, in one case296 where the acquirer of a caravan had attached the caravan to his car and took it on a test drive. The caravan was then, as agreed at purchase, returned to the transferor for storage and repair. The short-term possession, combined with the agreed return, was considered by the Supreme Court as insufficient to meet the tradition requirement.297

(d)

Priority through symbolic delivery

The buyer’s protection against the seller’s creditors can also be achieved by handing over other necessary items, such as a key or a code: the important aspect is to remove the seller’s physical control over the property. Generally speaking, any act by which the transferor renders him- or herself unable to make use of the goods without the transferee’s consent is likely to in some way satisfy the tradition principle.298 In literature it is discussed whether, in such a case, all such items have to be handed over where more than one exist. In principle all items must be handed over, but it is argued that where the transferor hides one item,

295

296 297 298

Mellqvist, Recension av Staffan Myrdal, Borgenärsskyddet, Om principerna för skyddet mot överlåtarens och pantsättarens borgenärer, JT 2002 / 2003, 708 ff. NJA 1975 s. 638. Also regarding this case, see chapter 4.4.2.(b) and (k). Undén, Svensk sakrätt 1, Lös egendom10, 48.

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this should not affect the transferee’s protection, or that one document representing the goods should be enough, if several exist.299 There are quite a few rather old court cases where property encumbered by a pledge had been locked in a certain place and where the pledgor and the pledgee both had keys to the lock. In jurisprudence it has been required not only that the pledgor’s power of disposal over the pledged property has been cut off, but also that the pledgee has gained independent access to the pledge.300 In one case,301 for example, a wine stock had been pledged by storing the wine in a compartment with the door locked by two locks. The pledgee received all the keys to one of the locks and the pledgor retained the keys to the other. The situation was complicated by the fact that the locked area was situated in the pledgor’s wine cellar, to which the pledgee had no access. The pledgee had thereby not obtained sufficient independent access to the pledge and the court rejected the pledgee’s pledge right to the goods.302 The pledgee’s possibility to access the goods also seems to have been a prerequisite in a latter case.303 Despite the cases on this matter, in legal literature the majority of scholars nowadays seem to think that it is sufficient if the pledgor’s disposal is cut off by handing over the key or a similar item.304 This also appears to be the stand point in Denmark and Norway.305 Affixing a sign, on the other hand, will probably have little importance, apart from the case of timber, which is regulated in a special statute.306

299 300

301 302 303 304

305

306

Håstad, Sakrätt avseende lös egendom6, 179 f. NJA 1911 s. 104, NJA 1921 s. 364, NJA 1921 s. 370, NJA 1923 s. 626 and 1933 s. 78. NJA 1911 s. 104. Helander, Kreditsäkerhet i lös egendom, 423 f. See the analysis in NJA 1956 s. 485; for a contrary conclusion, see NJA 1930 s. 685. Supported by Helander, Kreditsäkerhet i lös egendom, 414 ff., especially 435 and Håstad, Sakrätt avseende lös egendom6, 289. Hessler does not deal with the specific situation at hand, but his general stand point is that the transferee’s accessibility is not a prerequisite; see, for instance, Hessler, Allmän sakrätt, 241. See also Rodhe, Handbok i sakrätt, 391. For a different opinion, see Undén, Svensk sakrätt 1, Lös egendom10, 192 ff. However, Undén may not always express his personal view on the matter, but merely clarify the law as expressed in court decisions. Vinding Kruse, Ejendomsretten 33, 1632, 1656; Brækhus, Omsetning og kreditt 2 – Pant og annen realsikkerhet, 46 f. See 4.4.2.(i).

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(e)

Priority through delivery of documents

Among the types of what is known as “transport documents” (transportdokument) in Swedish law are the bill of lading,307 the waybill,308 the consignment note, and others.309 Such document will have the legal effect that it entitles the holder of it, and only the holder, to demand delivery of certain goods. The paper is supposed to represent the goods themselves, so to speak, as a symbol for the goods: by disposing of the paper, the goods are disposed of.310 The document also proves to the person in physical control of the goods that the document holder has a right to the goods, if no other contradicting information is available. The buyer’s protection from the seller’s creditors is, in accordance with the tradition principle, achieved when the document has been handed over to the buyer.311 This holds true even if the means of transportation is owned by the seller.312 The goods are to be transported to the holder of the document in return for handing over the document, provided that the goods have arrived at the destination.313 This means that the buyer can transfer the document to another person with effect against his or her creditors.314 It is possible to insert certain conditions into the agreement when creating such a document. These conditions are manifold, the most prevalent being the right to demand delivery upon the production of the document, and the holder’s obligation to show how the document was acquired. Sometimes, these agreements are not intended to regulate the transfer of goods between two parties, but rather to delineate and allocate the right to direct the goods.315 If the contractual conditions stipulate the right to direct the goods, it has been suggested that priority over the other party’s creditors follows the right to direct.316

307 308 309

310

311

312 313 314

315 316

Konossement. Fraktsedel. For an overview of different types of documents, see Walin, Separationsrätt, 28 ff., with the exception that law 1931:110 is no longer valid. Undén, Svensk sakrätt 1, Lös egendom10, 52; Johansson, Stoppningsrätt under godstransport, 279 f. See Act on Instruments on Debt, section 22, applied by analogy; Millqvist, Sakrättens grunder3, 108. Walin, Separationsrätt, 28. Johansson, Stoppningsrätt under godstransport, 280. Walin, Separationsrätt, 28; whether the carrier is notified about the transfer has no relevance. Johansson, Stoppningsrätt under godstransport, 255. Johansson, Stoppningsrätt under godstransport, 458 f.

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The possibility of using different contractual clauses to achieve different effects is seen as an advantage of the pragmatic functional approach. However, where goods are left in the custody of a third party and a document of title representing these goods has been created, the transfer of this document is, in principle, the only possible mode of transferring the goods. However, it must be remembered that Swedish law grants the seller a right of stoppage in transit317 even where documents of title representing the goods, which are in transit, have already been delivered, and even though the buyer is protected from the seller’s creditors by possession of the document, the seller is nevertheless protected from the buyer’s creditors and can prevent the buyer from obtaining possession of the goods.318 By the seller notifying the transporter, it seems that the transporter cannot hand over the goods to the possessor of the document with the effect of discharging his or her duty.319 Nevertheless, the right of stoppage can not be exercised if a third party has acquired the document from the buyer and the acquirer was in good faith.320 In addition, there may exist several documents of title all representing the same goods – this gives rise to the possibility of double sales occurring.321

317 318

319

320

321

See chapter 4.5.3. Sale of Goods Act, section 61; Maritime Code, chapter 13, section 57; Håstad, Den nya köprätten5, 179f; see also a discussion of the situation where no document has been issued in Håstad, Sakrätt avseende lös egendom6, 228 f. Håstad, Sakrätt avseende lös egendom6, 179. The preparatory works to the rules in this matter appear to be contradictory. However, where the transporter hands over the goods to the possessor of the document in contravention of the rules or refuses to extradite the goods even though he or she is obliged to do so, he or she is liable for damages without limitation, see Hellner et al., Speciell avtalsrätt II, Kontraktsrätt, 1 häftet4, 174 (regarding other contractual issues, see 171 ff.). However, the situation is not entirely clear as to the circumstances under which the carrier should not complete the hand-over or is allowed to refuse handing over the goods to the holder of the document. Johansson, Stoppningsrätt under godstransport, 422; Karnov 2006 / 07 [-Herre], 563 note 140. See Maritime Code chapter 13, sections 53 and 56. The first good faith acquirer of a document has a better right to the goods. But if a subsequent good faith acquirer has taken possession of the goods, he or she is not required to give up his or her possession (section 56).

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(f)

Priority through brevi manu tradition

If the buyer is already in possession of the goods when acquiring them, he or she will be protected from the seller’s creditors by the conclusion of the contract.322 The requirement of tradition is then fulfilled beforehand. For consumer sales the same protection is achieved without taking possession of the goods when the goods are specified in some way.323 Protection by conclusion of the contract is also achieved if someone acquires goods that are placed or stored somewhere, and the acquirer also takes over the leased storage; for instance, if someone buys a car parked in a garage and the acquirer also takes over the contract from the seller regarding the garage space.324 In one case325, a sailing boat was acquired, which was placed in one of the local port warehouses. The acquirer also took over the seller’s space in the warehouse; he was recorded as tenant and paid a fee. The Supreme Court held that the agreement was sufficient for protection against the seller’s creditors.

(g)

Priority where property is in the hands of a third party

(i) The question of when a transferee is protected against the transferor’s creditors in a situation where the goods are in the hands of a third party possessor is not explicitly regulated by statute. However, some guidance is taken from the Act on Instruments on Debt (that regulates the requirements for a transfer of non-negotiable claims),326 where a notification (in any form) to the debtor is required for protection against the transferor’s creditors.327 This requirement has, through court decisions and without direct support of law, been stretched to the area where goods are in the hands of a third party.328 Such notification can be used as means of transfer of property in possession of a third party, the notification being able to be made by either party.329 322

323 324 325 326 327 328 329

Håstad, Sakrätt avseende lös egendom6, 221; Undén, Svensk sakrätt 1, Lös egendom10, 50 f; Hessler, Allmän sakrätt, 99. See further chapter 4.4.3. Zetterström, Sakrättens fyra huvudfall2, 72. NJA 1991 s. 564. See also NJA 2007 s. 652. Skuldebrevslagen. Section 31; Håstad, Sakrätt avseende lös egendom6, 230. NJA 1971 s. 66 and NJA 1972 s. 512. Hessler, Allmän sakrätt, 92, 101, 241; Håstad, Sakrätt avseende lös egendom6, 229 ff.; Undén, Svensk sakrätt 1, Lös egendom10, 134 f. One scholar describes the legal situation as uncertain – in the sense that it is uncertain as to how these court decisions

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(ii) Concerning security rights (i.e. pledges) in movable property, a special statute regulates the notice requirement.330 The act and the formal requirements stated are, according to the wording of the act, not applicable to sales transfers.331 A notice can be given by the pledgor who can give notice in any form or by the pledgee who must show written evidence of the security he or she is holding.332 For the creation of a valid lien it is required that the third party is not entitled to release the property to the pledgor. The third party should also bear responsibility in the event the goods are handed over to the wrong person. If the circumstances are such that no responsibility is on the third party, it should not be possible to replace tradition by notice to the third party.333 In general, one may say that, as from the moment of notice (denunciation), the third party is considered to be a representative of the pledgee, and that the third party’s possession of the pledge thus leads to the pledgor’s possession being cut off. In the situation where the third party, on the other hand, appears to be a representative for both parties, this may lead to the lien not being completed according to Swedish law. The solution is uncertain, but it is accepted in Danish law334 that protection may be obtained against the pledgor’s creditors by a third party representing both parties, if the third party is fully acquainted with the reality that he or she is not only representing the pledgor.335

(h)

Priority in the case of transport

There are no specific rules and no clear principles concerning the buyer’s priority over the seller’s creditors when a third party carrier transports the goods. However, based on the above general principle of the goods being cut off from the transferor’s factual disposal, it could be stated that the contractual conditions concerning the right to direct the goods should govern the solution. Accordingly, if the seller has the right to direct the goods to another place than to the buyer, this would be a basis to argue that the

330 331

332 333 334

335

are to be generally interpreted, see Göransson, Traditionsprincipen, 382 f. However, all other scholars appear to be certain in how to interpret these decisions. Lag (1936:88) om pantsättning av lös egendom som innehaves av tredje man. Håstad, Sakrätt avseende lös egendom6, 230 f; Helander, Kreditsäkerhet i lös egendom, 385. Hessler, Allmän sakrätt, 101. Håstad, Sakrätt avseende lös egendom6, 294 f. With a similar Act on Instruments on Debt, see Gældsbrevsloven, nr. 669 af 23 September 1986. See von Eyben, Panterettigheder6, 415.

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buyer should not have priority over the creditors of the seller. On the other hand, it could also be argued that the buyer should receive priority from the moment that the goods are in the possession of the third party carrier if this third party is informed who should get the goods.336

(i)

Priority through marking

Marking of wood and timber is acknowledged as a substitute to tradition or registration to achieve protection from the seller’s creditors even where the goods are left in the seller’s custody.337 The timber must have been clearly marked in a way clearly showing that it belongs to the buyer. It should also be a solid and widespread custom to specify the wood and timber by marking that the goods belong to a buyer.338 The purpose of the law is to protect buyers of unprocessed forest products. It was argued that in such transfers the buyer was largely unable to dispose of the timber immediately and was therefore obliged to leave the goods at the land of the seller.339 From this argument one may draw the conclusion that marking or affixing a sign could have a limited acceptance in other businesses as well, if it becomes a custom within this business area and where this custom is a result of a necessity based on the respective business. Just as in the case of transfer by documents of title the buyer can be protected from the seller’s creditors at the same time as the seller is protected from the buyer’s creditors by applying the rules on stoppage in transit in the Sale of Goods Act.340 The law can thereby be said to illustrate the problem of the transfer of “ownership”, when protection is achieved for both parties at the same time. It is also not precluded that the transferor is considered possessor according to the Sale of Goods Act and in the transferee’s possession in the sense of the act on marking of wood and timber.

(j)

Effects of other kinds of registration

A registration system is provided for certain kinds of larger movables, such as ships. It is unusual in Swedish law to say that such registration has had 336

337 338 339 340

Johansson, Stoppningsrätt under godstransport, 458 f. See also, Hessler, Allmän sakrätt, 211; Undén, Svensk sakrätt 1, Lös egendom10, 124; Göransson, Traditionsprincipen, 616 ff. Lag (1944:302) om köpares rätt till märkt virke. NJA 1980 s. 740. Prop. 1944:201, 18. Section 61; Håstad, Sakrätt avseende lös egendom6, 222.

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“constitutive” or “declaratory” effect. It has no other effect than creating priority over the creditors and other right-holders. For long it was unclear whether the tradition principle (and registration according to the general registration act341) also applied to ships – or if an agreement was enough to be protected from the transferor’s creditors. In many other countries, including Norway, the consensual system applied to these movables and this supposedly gave Swedish shipyards a competitive disadvantage.342 For this reason there is now protection for the transferee who has applied for registration (according to the Maritime Code) of the acquisition for ships or ship buildings larger than 12 x 4 meters.343 From this it follows that the transferee is neither protected by the conclusion of the contract, nor by taking possession of the ship. However, the transferee’s protection does not have priority over concurring pledges in the movable nor over a right of retention. For boats (smaller than ships) the rules on tradition (and registration according to the general act) apply. For aircraft, the situation is uncertain, whether the agreement or tradition is required for the transferee’s protection. Nevertheless, there is no special registration procedure where the transferee can gain protection against the transferor’s creditors.344 A registration system is also applicable for financial instruments.345

(k)

No constitutum possessorium accepted

For the buyer’s protection from the creditors of the seller it is necessary that the seller has been cut off from the (factual) power of disposal of the goods or that the transfer has been registered. The necessity of some kind of delivery in order to be protected against the seller’s creditors also exists in other countries, such as Austria346 and Germany,347 but the difference to Sweden lies in the fact that in all other traditio countries, actual delivery can be replaced by a constitutum possessorium, which means that the parties agree that the seller remains in possession of the goods and keeps them on the behalf of the buyer. If the transferor is in possession of the goods when 341

342 343 344 345 346 347

Lag om handel med lösören, som köparen låter i säljarens vård kvarbliva (Lösöreköplagen). See chapter 4.4.2.(a) above. Håstad, Sakrätt avseende lös egendom6, 250 f. Maritime Code, chapter 2, section 9. Håstad, Sakrätt avseende lös egendom6, 251 f. Lag om kontoföring av finansiella instrument, chapter 6, section 2. Sections 426 and 428 ABGB. Sections 929, 930 BGB.

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concluding the contract, the actual delivery can be replaced by an agreement between the seller and the buyer with the result that the buyer obtains indirect possession of the goods. The agreement may be made expressly or implied from conduct. In this way transfer of possession is maintained as a constructive requirement even though the property actually has not changed its position physically. Nevertheless, this does not mean that the parties have agreed upon an abolition of the requirement of tradition and that the seller thereafter holds the goods as an indirect possessor for the buyer.348 However, in Sweden the tradition349 principle is mandatory350 and the concept of constitutum possessorium cannot be used in Sweden.351 The transferee is not protected even if the transferor does not have any right to use the goods.352 The question of priority should not be solved by referring to certain concocted formulas.353 Doing so is considered to be hiding the “real

348

349

350

351

352 353

Though one scholar seems to think that using the concept of representation would have been a simpler way to solve the problem, see Undén, Svensk sakrätt 1, Lös egendom10, 51. The result certainly appears to be the same. The use of the term “tradition principle” has been criticized for being inappropriate since it (usually) allows the use of constitutum possessorium. The suggestion was to rather use the “publicity principle”, see Myrdal, Borgenärsskyddet, 87 f. This suggestion has had no impact. This does not apply to consumer sales, see section 49 of the Consumer Sales Act and chapter 4.4.3., and to enforced auctions, see chapter 4.4.4. The main rule according to the Act on Instruments on Debt (Skuldebrevslagen) is that a transfer of negotiable instruments is protected against the transferor’s creditors by delivery to the transferee: section 22. There is one exception to this rule in the second paragraph: a transfer is protected against creditors of financial institutions even though the instrument is kept by such institution on behalf of the transferee. The exception has been explained as a rule of constitutum possessorium (but not to motivate the rule based on this concept), see Walin, Separationsrätt, 18, 38. In the preparatory works prior to the exception it was said, among other things, that the relatively low risk of banks going bankrupt and the fact that they are under public supervision motivates the exception to the general tradition principle, cf. prop. 2000 / 01:19, 24 (for the latest change of the section) or NJA II 1936 s. 94. See also Myrdal, Borgenärsskyddet, 226 ff. In addition, one could perhaps also say that the creditors of financial institutions are aware that these institutions are holding instruments separated on behalf of their customers: together with accounting documents of the financial institutions, publicity is thereby achieved. Håstad, Sakrätt avseende lös egendom6, 262. Elmer / Skovby, Ejendomsretten 14, 17.

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problem”354 of the conflict. Claims for the same property should instead be solved by a weighing of interests between the parties. Nonetheless, it could be held that there have not been any serious attempts in the Swedish discussion to weigh the advantages and disadvantages of a dispositive traditio requirement. When the matter is raised today in legal discussions it seems to be considered a principle much too strange for ordinary persons to be able to understand and that the principle would create unnecessary transaction costs. It has been stated that an ordinary person would think such rule would be just ridiculous: that a buyer must not only agree in the contract to buy the goods, but also that the parties agree that the buyer should be given priority in the event of the seller’s bankruptcy. Since this is assumed to be what all parties more or less always would agree upon, a provision for such a clause in the agreement is merely seen as something that would create transaction costs. At the same time it is pointed out that an oral agreement is fully valid in Sweden and that it would be hard to prove that the parties had not agreed on priority. (This line of argumentation is of course overlooking a lot of counter arguments and there have, as mentioned, not yet been any serious attempts to debate these questions in legal writing.355) If, in any case, the parties want to leave the goods in the possession of the seller, for instance, for a sale-and-lease-back agreement where the “buyer” has no interest in taking possession of the goods, they can use registration356 as a means to make the transfer public and for the buyer to gain protection from the seller’s creditors. There are a few cases from the Supreme Court regarding sale-and-leaseback agreements where the parties have not fulfilled the registration requirements. Horses that were transferred back to the seller after one day357 or horses left to a neighbour on behalf of the buyer and transferred back to the seller after a few days358 were not protected from the seller’s creditors. The court emphasized that from the beginning it was intended that possession was to be returned to the seller. This reasoning has been criticized: one scholar states that it would have been better to emphasize that short-term tradition is inadequate in the case of a security transfer.359

354 355

356 357 358 359

For this matter, return to chapter 1.4. Nevertheless, see Håstad, Äganderättens övergång i en gemensam europeisk rättsordning, JFT 3-4 / 2009 327 at 330, 337; Håstad, Derivative acquisition of ownership of goods, E.R.P.L. 2009 17(4) 725 at 735 f. Regarding registration, see chapter 4.4.2.(a). NJA 1925 s. 535. NJA 1934 s. 193. Håstad, Sakrätt avseende lös egendom6, 224 ff.

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This author’s arguments are interesting in order to shed some (more) light on the tradition principle. His position is that the authenticity of the transfer has nothing to do with the fact of whether tradition has occurred or not: the reason for the existence of the tradition principle is to avoid a review of the authenticity of the transfer. The argument (also) centres around another case.360 That case concerned a caravan that was bought and left with the seller for storage and to have some repair done to it. The buyer was registered in the vehicle registration database and he also let some people stay overnight in the caravan a few times. One of the keys to the caravan was handed over to the buyer. Since the seller’s factual disposal was not cut off enough, the buyer never gained protection against the seller’s creditors. The majority of the Supreme Court seems to have incorporated their doubts about the authenticity of the transfer into the assessment of whether tradition had actually taken place.361 However, the minority (2 judges) first focused on whether tradition had taken place before the question of a fictitious transaction was evaluated. In light of the purpose of the tradition principle, the latter assessment seems a better way to deal with the conflict situation. Nevertheless, sale-and-lease-back is not the only type of transaction where the concept of constitutum possessorium might theoretically be used. In all arrangements of a constitutum possessorium the goods stay in the hands of the transferor after being bought by the transferee. The specific purpose, and the intended advantage, of a sale-and-lease-back transaction is that someone can obtain credit secured by goods that the debtor has in his or her possession, without having to hand over the goods until the credit has been paid off (or thereafter). Moreover, the concept of a constitutum possessorium could also theoretically be used to provide a buyer with immediate protection against the seller’s creditors where the goods are ultimately intended to be delivered to the buyer, but for some reason shall be kept by the seller for a certain amount of time. Accordingly, arguments put forward in favor of allowing an effective constitutum possessorium for a sale-and-lease-back transaction under Swedish law are not automatically intended to advocate the concept of constitutum possessorium in general.

360 361

NJA 1975 s. 638. There are more cases where it could be argued that the judges have mixed up the question of authenticity and the question of tradition. In NJA 1972 s. 246 it could be argued that the judges (the first instance’s reasons were upheld by the higher courts) even overlooked the matter of authenticity in choosing the easier way out by saying that the tradition requirement was not fulfilled.

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4.4.3. Specific rule for consumer sales: protection as of conclusion of the contract Since a reform of the Consumer Sales Act362, which entered into force in 2002, a consumer, when buying goods from a professional seller, is protected against the seller’s creditors as of the conclusion of the contract, provided the goods have been allocated (individualized) for the buyer by separation, marking or specification in the seller’s bookkeeping list (if the goods themselves are not already specified and mentioned in the contract). However, it is not necessary that the goods have been physically separated. The provision also covers the situation that the goods are in the possession of a third party. This means that there is no requirement to notify a third party in that situation.363 The reason for changing the law in favor of consumers was, among others, that consumers are seldom aware of the risk into which they would otherwise put themselves by leaving the product with the seller. It was also considered not justifiable that creditors of the seller, at the expense of consumers, would benefit from both the payment for the goods and the goods themselves, while leaving consumers with a (usually) worthless claim against a bankrupt’s estate.364

4.4.4. Enforced auctions: protection as of conclusion of the contract When movable goods are sold in an enforced auction, the buyer obtains protection against the previous owner and his or her creditors through the very acceptance of the buyer’s bid. This rule was established by a court decision.365 In this particular case the goods were bought by the son of the debtor and thereafter borrowed by the debtor from the son. The goods had been taken from the debtor’s premises and returned just after having been bought at a public auction. Nevertheless, tradition is not a requirement to gain protection in the event of an enforced auction. Support for a tradition requirement is to be solely found in an e contrario interpretation of the law of registration, argued the court,366 finding no reason to uphold this requirement in the case of 362 363 364 365 366

Section 49. Prop. 2001 / 02:134, 88. Prop. 2001 / 02:134, 71 ff. NJA 1985 s. 159. If the court meant that the only support that can be found for the tradition principle is an e contrario interpretation of this law – then that is certainly wrong (if not wrong

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enforced sales. In fact, if a requirement on tradition would be upheld in the case of enforced auctions as well, this could lead to unreasonable consequences. It could happen that, among other things, where the auction takes place in a room over which the debtor has power of disposal, the goods for sale may be seized again for claims of other creditors until the buyer actually carries the goods away – which is something that cannot always be done immediately and sometimes will not happen at all, as in the rather practical case that the debtor’s spouse or cohabiting partner buys the goods in order to keep them in the common household. Also, since enforced sales on other premises do not require tradition, it made no sense, in the opinion of the court, to vary the rule only based on where the auction takes place. Fictitious transactions were thought to be already prevented by the public process of the auction. Accordingly, the simple and straightforward rule of protection as of conclusion of the purchase was favored.

4.5.

The transferor’s protection against the transferee’s general creditors

4.5.1. Introduction As mentioned above, there is no specific time when “ownership” is transferred in Scandinavian legal practice. The settled opinion is that this question does not exist. The “ownership” issue is said to be a process with several functions passing from the seller to the buyer at different points in time.367 The question of when “ownership” is transferred is considered irrelevant in these countries. Different acts at different stages within the process of transferring property from the transferor to the transferee will, separately or cumulatively, provide certain legal implications for the parties at different times.

367

at the time of the judgement, then at least now). The tradition principle is a principle independent of the law of registration: abolishing the Act does not mean that the tradition principle dissolves, see Millqvist, Sakrättens grunder3, 117. If the court was referring to the only statute supporting the principle to be applied in this case, then that is correct. However, the justification supporting the conclusion is then heavily isolated. See also comments prior to the case in question: Håstad, Sakrätt avseende lös egendom2, 167 and Walin, Separationsrätt, 22, also regarding tradition as a requirement in the given situation. Since then, the tradition requirement has been softened. See, for instance, Falkanger / Falkanger, Tingsrett6, 71 ff. and chapter 1.4. of this report.

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The Sale of Goods Act is of primary significance for the legal consequences of protecting the transferor in the transferee’s insolvency. The word “protection” may provoke the idea that it is a hundred percent certain and “perfect” security that the transferor has in all these situations, but that is naturally not so. It is worth keeping in mind that the various means of “protection” may ultimately not be much worth after all, regardless of the usage of the word. The strongest protection is held when the transferor has the goods in his or her own possession and no credit has been granted to the transferee. Some other means of protection are slightly weaker depending on a number of circumstances; for instance, retention of title clauses give the transferor a right to take the goods back if the transferee does not pay in accordance with the contract. But if the transferee has mixed the goods that were bought subject to a retention of title clause with the goods of another so that they cannot be identified (i.e. the right in rem is lost), or the goods have been fitted to real property and have become a fitting of a building, or the goods have been sold on,368 or have been stolen (and the goods were not insured), were destroyed or simply became worthless because of usage – than the “protection” is not that much worth after all, in the event of the transferee’s insolvency.

4.5.2. Protection in general The transferor is protected against the transferee’s insolvency creditors in several ways and not just when the goods are left in his or her possession: several of the rules also grant him or her a right where the goods have left his or her premises, and even where the goods are in the possession of the transferee (and indeed even where the goods have been in the possession of the transferee for a very long time). First of all, the Sale of Goods Act provides the seller with a right of retention.369 If no credit has been granted, the transferor does not need to deliver the goods before the transferee has paid the stipulated price. The right to retention not only includes the right to retain the goods as security for payment but pursuant to section 51 it also serves to secure performance of the buyer’s obligation to co-operate with the seller to complete the sale transfer. The right to retention also secures claims for damages where the seller has suffered a loss in relation to the sale, which includes interest if the buyer delays in paying for the goods. 368

369

If the transferor has not permitted the transferee to sell the goods on, the buyer is under a penal obligation not to sell, pawn or otherwise dispose of the movable in a way that the security of the transferor is jeopardized. Section 10.

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When credit has been granted, there is still no necessity for the transferor to deliver if the buyer is insolvent and this was not known to the transferor before conclusion of the contract.370 If the goods have been sent already, the rules on stoppage in transit are applicable (see 4.5.3 below). Where the goods have been forwarded to the transferee or his or her bankruptcy estate after an application for reorganization371 has been made or the buyer is been placed in bankruptcy, the seller can require return of the goods if no payment has been made.372 It is also unproblematic for the transferor to defer the (full) effects of the acquisition to a later time than delivery by contractual agreement by including a retention of title clause into the contract, so that the acquisition is only definitive upon full payment.373 Such clauses are common in sales contracts in Sweden and do not require registration, but it is generally considered that the condition must be agreed upon before delivery or simultaneously with delivery.374

4.5.3. Transferor’s protection by stoppage in transit The question here is up to what stage the transferor can stop the transfer of goods and thereby prevent the goods from becoming a part of the transferee’s property, which is of particular interest if the transferee is or is set to become insolvent. A right of stoppage in transit exists where goods are delivered by an independent carrier and the buyer is insolvent, or where there are strong indications of a risk of non-performance.375 The seller should have the 370 371

372 373 374

375

Sale of Goods Act, section 61. According to the Company Reorganization Act (Lag (1996:764) om företagsrekonstruktion). Sale of Goods Act, section 65. See chapter 17. Håstad, Sakrätt avseende lös egendom6, 185. The rules are provided in Sale of Goods Act, section 54; Consumer Sales Act, section 40; Consumer Credit Act, section 25 and Installment Sales Act (Lag 1978:599 om avbetalningsköp mellan näringsidkare m.fl.), sections 7-8. Sale of Goods Act (Köplagen), section 61. The rules are identical in Finland, described in somewhat more detail in Norway, but are in essence consistent with the rules in Sweden; see the respective Sale of Goods Acts, section 61 and section 7-2 of the Norwegian Creditors Recovery Act (Dekningsloven). The application of the rules in Denmark is somewhat more limited, but by analogy the differences become rather small. Finnish and Norwegian sources are therefore of particular interest if an issue is unresolved in Swedish law and legal literature.

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burden of proving such circumstances and also needs to prove his or her lack of awareness of the insolvency or other relevant facts as mentioned at the time of conclusion of the contract.376 Fairness initially motivated a rule of this kind: it would be unfair if the transferor should be forced to perform his or her part of the agreement despite knowing that the transferee will not be able to perform his or her part,377 but no consistent justification is to be found.378 Transit is deemed to be at an end when the transferee has taken direct possession of the goods shipped.379 The right of stoppage in transit may be exercised even in situations where the buyer may already be considered to be in possession of the goods, namely where they are transported by an independent carrier hired on behalf of the buyer.380 It does not matter whether the carrier is working on behalf of the seller or the buyer.381 In one case, the seller was still entitled to exercise the right of stoppage when the transportation had been achieved by the goods being taken care of by an independent storage company. The right of stoppage was held to end when the buyer gave the storage company instructions on how to deal with the goods.382 This right of stoppage exists even where a document of title has already been delivered to the buyer.383 When exercising the right of stoppage, the transferor is under an obligation to inform the counterpart about the cancelled delivery. In the event of failure to do so, he or she may be liable for damages for losses that the other party may have suffered because of not being informed.384 The right of stoppage is deemed to cease when the transferee secures his or her payment to the transferor.385

376 377 378

379 380 381 382 383

384 385

For Denmark, see Elmer / Skovby, Ejendomsretten 14, 86 ff. Johansson, Stoppningsrätt under godstransport, 94. See, for instance, Almén, Om köp och byte av lös egendom4, § 39, who simply states that he did not want to go into the arguments of the right of stoppage; the buyer’s insolvency is a typical case where the transferor can anticipate that the transferee will not be able to perform and the right of stoppage is therefore one consequence among others following from a breach of contract. Johansson, Stoppningsrätt under godstransport, 134 ff., 200. Håstad, Sakrätt avseende lös egendom6, 228. Håstad, Sakrätt avseende lös egendom6, 179. NJA 1985 s. 879. Håstad, Sakrätt avseende lös egendom6, 179; Johansson, Stoppningsrätt under godstransport, 351. Sale of Goods Act, section 61; Johansson, Stoppningsrätt under godstransport, 182 ff. Sale of Goods Act, section 61; Johansson, Stoppningsrätt under godstransport, 187 ff.

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4.5.4. The role of payment From the aforementioned chapters it follows that payment of the purchase price has no importance regarding the buyer’s protection against the seller’s creditors. Under the general rule, only delivery matters, and in a consumer sale the buyer will be protected as of the conclusion of the contract, irrespective of whether the price has already been paid in whole or in part (although the protection of pre-paying consumers who are unaware of additional legal requirements was one of the main motivations for changing the law to a consensual rule with regard to consumer sales). In the reverse conflict situation of the seller’s protection against the buyer’s creditors, basic legal features such as the right of retention, the right of stoppage in transit, and retention of title, of course do turn upon full payment of the price (or indeed providing security for such payment).

4.5.5. No concept of a “real agreement” As already mentioned above,386 acquisition of ownership based on a division of two separate acts, namely the underlying legal act that obliges the transferor to transfer and the subsequent legal act (the real agreement) that effectuates the transfer, has no place within the Swedish legal system and has not been discussed. Thus, the “real agreement” is in fact a concept not understandable from a Swedish perspective. First, as mentioned above, the established opinion is that this question of transfer of ownership does not exist within the Scandinavian legal systems. The “ownership” issue is said to be a process with several functions passing from the seller to the buyer at different points in time.387 Two parties concluding an agreement either have a valid agreement between them or they do not. If the agreement is not valid for some reason, the normal consequence is that the performance should be returned or compensation should be given instead. The agreement may stipulate the issues that the parties are free to decide upon, such as the right to use or dispose of the movable. The agreement is immediately binding between the parties, but in order to give the acquirer priority over other conflicting rights from third parties, other requirements have to be fulfilled, the most common being change of physical control over the movable. An additional type of agreement is not considered useful for such purposes.

386 387

See chapter 1.4.1. See, for instance, Falkanger / Falkanger, Tingsrett6, 71 ff.

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Transfer of goods by an agent

5.1.

Indirect representation – introduction

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Distribution of goods from a producer to the person who ultimately consumes the product is almost always made over several stages. It is quite common for such trade to be made in the form of a commission agency agreement, in particular when it concerns financial instruments such as shares in companies or durable goods like cars and boats. One of the main reasons for trade to be in the form of commission agency is that the principal has a right to separate the goods supplied to the commission agent (the retailer) for resale. This is particularly important in Sweden because retention of title clauses have no effect against the retailer’s creditors if the purpose of the contract between the seller (e.g. the producer) and the retailer is that the goods will be sold on.388 “Commission agency” means that a commission agent389 acts in his or her own name but on behalf and account of another (the principal390). According to the rules of contract law this arrangement produces a commission agency agreement between the commission agent and the principal and a purchase agreement between the commission agent and the third party. Commission agency can be employed both for selling and for acquiring goods. In the latter case, the commission agent buys the goods from the third party in its own name, but on the principal’s behalf and account. Situations where a commission agent, in his or her own name, concludes a contract on behalf of the principal are regulated in the Act on Commission Agency.391 The act is new from October 2009 and is applicable to all movable property392 and to both permanent and ad hoc commission agency.393 Since much of what constituted the earlier statute is transferred to its successsor, case law and literature is still valid to a large extent. There are no other general statutory provisions on indirect representation available in Sweden. Therefore, commission agency in the sense of the Act on Commission Agency will be used for demonstrating transfers by means of indirect representation in general in the present chapter. The Commission

388 389 390 391

392 393

See prop. 2008 / 09:88, 21 and chapter 17 of this report. Kommissionär. Kommittent. Kommissionslagen (2009:865). In this chapter, references relate to this statute unless otherwise stated. Prop. 2008 / 08:88, 26 ff. Prop. 2008 / 09:88, 30.

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Agency Act expresses to a large extent general property law principles and is therefore of importance also outside its proper scope.394 For the Act on Commission Agency to apply, it is irrelevant how the parties classify the agreement; the goods must be sold on behalf of the principal.395 If the risk of unsold goods is on the “commission agent”, so that the “commission agent” has to pay an agreed amount to the “principal” on a certain day, or pay an agreed amount no matter what price the “commission agent” achieves in the sale, this is not a transfer regulated by the aforementioned act. The same should also be true if the fee for returning the goods to the “principal” is so high that in reality it is more favorable not to return the goods at all.396 The commission agent is not required to inform the buyer that he or she is acting on behalf of the principal and the buyer can only have a claim against the agent, not against the principal.397 However, the principal has, in some cases, a direct claim against the buyer.398 A difference is made between trade commission and other types of commission; for trade commission, the principal has a limited right to step in and proceed against the buyer.399

394 395 396 397

398

399

Prop. 2008 / 09:88, 2. Section 1. Håstad, Sakrätt avseende lös egendom6, 147 f. Section 24; with an exception for consumers, see section 25 and Consumer Sales Act, section 46. A buyer with claims due to non-conformity of goods can apply directly to a business upstream in the distribution chain that has transferred the goods for resale. This requires that the seller is insolvent, has ceased to exist or cannot be traced. The exception was introduced in the former act regarding Factors, Commercial Agents and Commercial Travelers (Kommissionslagen), section 56a. One reason for introducing an exception was that a consumer rarely has the opportunity of knowing that a product has been subject to sale by commission agency, see prop. 1989 / 90:89, 57. Sections 4, 27-30; Hellner / Ramberg, Speciell avtalsrätt 1 – Köprätt2, 389. See chapter 5.3.4. Prop. 2008 / 09:88, 60 f. The reason is that a trade commissioner has an interest to protect his or her clientele and to avoid the situation of the principal and the buyer concluding agreements with each other in the future without the involvement of the commission agent. See also SOU 1988:63, 167.

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The commission agent acting in violation of the agreement with the principal

The commission agent is permitted to conclude agreements contrary to the internal instructions made by the principal, whenever he or she considers it necessary.400 If the commission agent, in his or her own name, concludes agreements violating such internal instructions, these agreements are binding for the principal if the other party is in good faith.401 When a buyer signs an agreement with a commission agent he or she often does not know that the commission agent is acting on behalf of someone else – and under these conditions a buyer cannot be in bad faith in relation to the principal’s interest being neglected. The provision is only aimed at cases where the commission agent has disposed of the goods in violation of the agreement with the principal; the third party may not invoke the provision where his or her acquisition is questioned for other reasons, such as in the case of stolen goods.402 It is also required that the commission agent has sold the goods; gifts and other kinds of transactions are not covered.403 Otherwise, dispositions made by a person lacking authority to dispose have no effect on the principal, probably unless the principal ratifies the act. Whether ratification of a disposition carried out by a person lacking authority produces the same effect as if the person acted with authority does not seem to be discussed in Sweden, but one may assume that the same effects occur; there should probably be no difference between an agreement concluded by ratification and an agreement concluded within the boundaries of the commission agent’s authorization (that does not need to be ratified). Ratification is an approval of the commission agent’s disposition. The moment of ratification of the agreement might be difficult to determine since the aggrieved party usually ratifies by not invoking the nullity of the agreement – ratification may also be made implicitly by conduct – but there are reasons to believe that such ratification has effect from the time of the commission agent’s disposition (ex tunc).404

400

401 402

403

Section 4; Malmström / Agell, Civilrätt17, 143 f (commentating on the earlier statute, sections 7-8). Section 5 regulates the situation where the principal has given instructions regarding the lowest price for sales and the highest price for purchases. Only in rare and exceptional cases may it be permissible for an agent to sell at a lower or buy at a higher price than stipulated by the principal, see SOU 2005:120, 70. Section 26. See section 3 of the Good Faith Acquisition of Personal property Act; prop. 2008 / 09:88, 134. Such dispositions could nevertheless be covered by the rules in the Good Faith Acquisition of Personal Property Act (see chapter 13.).

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5.3.

Protection in the event of insolvency404

In the following subchapters some practically important conflicts between parties involved in a transfer by indirect representation will be examined. Nevertheless, it is not possible to examine all possible conflict situations, just the main ones. One should, however, be able to solve other conflict situations than those mentioned here, by simply separating the conflict situations from each other (as mentioned under 1.4.). To give a short example: if all405 the parties are insolvent and the goods are in the hands of the buyer who has not paid for the goods, the first conflict situation to solve is between the commission agent and the buyer. If no retention of title clause is entered into the contract and the goods have already been delivered to the buyer, the goods stay with the buyer, and no further examination is necessary. Against the buyer, there can only be an unsecured claim. The principal has a right to take over the claims that the commission agent has against the buyer. But if the parties have inserted a retention of title clause into the contract, the commission agent has a right to separate the goods in the buyer’s insolvency. In this case the agent has thereby a better right than the buyer. In the conflict between the principal and the agent, the principal has a right to separate goods in possession of the agent, but the agent has a right of retention for his or her claims against the principal.406 Note that at no stage in examining the conflict situations will it be asked where ownership is situated.407 No matter how many parties are involved in the situation, the solution is to be found by separating the conflict into a two-party constellation and solving each such two-party constellation separately. The solution will tell who has a better right than the other – but not against all other parties. 404

405

406 407

See a short comment in Norwegian literature in Falkanger / Falkanger, Tingsrett6, 604 and Adlercreutz, Avtalsrätt 112, 220. For jurists, assuming the worst case is a mark of true quality: “Something which I consider typical for lawyers is that they belong to the sort of people who have the talent to vividly imagine the most severe outcome possible for future events... Normally, one might well end up in mental care with this characteristic. In legal circles, however, the degree of hypocondria is directly tied to one’s ability as a lawyer – the worse the better.” See Vranken, Exploring the jurist’s frame of mind, 6. See further regarding the right of retention in chapter 20.3.3. Some scholars however do tend to state that, for instance, “ownership is maintained … and therefore a right to separate exists”. See, for instance, Millqvist, Sakrättens grunder3, 92 f. The exact purpose of that is hard to tell, since ownership also for these scholars always seems to be followed by a right to separate – but it might be for pedagogical reasons. See also Millqvist, Sakrättens grunder, 62 ff.

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Between the principal, the commission agent, the third party and their general creditors, five main conflict situations can be seen, which will be examined below.

5.3.1. The protection of the third party in the event of the commission agent’s insolvency A third party buyer is protected in the event of the commission agent’s insolvency from the time the contract is concluded, if the goods are individualized, no matter where the goods are situated,408 even if they are in the hands of the principal (though the goods may rarely be individualized if still in the principal’s possession).409 If the goods are not individualized for the buyer, he or she will have a claim against the commission agent – an unsecured claim that does not usually lead to any significant return from the bankruptcy estate. No claim can be directed at the principal by the buyer.410 The third party may not separate the commission agent’s claims against the principal to obtain goods or money for the performance of the contract.411 If a third party seller has delivered goods to the commission agent without seeking payment in advance, he or she has relied on the commission agent’s ability to pay. If there is a retention of title clause included in the contract, the seller will have the possibility to have the goods returned. Otherwise he or she will have an unsecured claim against the bankruptcy estate of the commission agent.412

5.3.2. The protection of the third party in the event of the principal’s insolvency (a)

The rules as in force in Sweden

There is no rule on this matter in the present or earlier act.413 If a pre-paying buyer has bought goods and the goods are in the possession of the principal and the principal goes bankrupt it does not matter whether the goods are 408 409 410 411

412 413

Section 24; prop. 2008 / 09:88, 130 f. Prop. 2008 / 09:88, 57 f. Prop. 2008 / 09:88, 130. See a comment on this matter in Prop. 2008 / 09:88, 194 f. The issue is also discussed in relation to the earlier version of the law, see Håstad. Sakrätt avseende lös egendom6, 234 ff. See chapter 4.5. on the seller’s protection against the buyer’s general creditors. Prop. 2008 / 09:88:58. Such rule was said to be unnecessary.

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individualized or not; in this situation the buyer is not protected from the principal’s insolvency.414 In order to gain such protection, the goods have to be delivered to the buyer. It may be enough that the principal’s possession is cut off in some other way, for instance by the goods being in the hands of the commission agent.415 By the agreement with the commission agent, the buyer only gains a right against the commission agent, not against the principal.416 Accordingly, where the buyer cannot separate the goods but the commission agent is solvent, the buyer shall have his or her money returned from the latter. In the reverse situation of acquisition by means of an indirect representative, where a third party seller has already delivered the goods and the goods have entered into the principal’s possession, the seller will be left with his or her claim for the purchase price against the other party of his or her contract of sale, i.e. the intermediary (commission agent). A different result could be achieved by contracting for a retention of title clause.417

(b)

A few remarks on the protection of a third party buyer

The rules on sales through a commission agent, as outlined above, lead to some peculiar consequences in the light of the mandatory tradition requirement, governing the protection of the transferee in the transferor’s insolvency in ordinary sales transfers. A third party buyer concluding an agreement with a commission agent may not know that he or she is in fact dealing with an agent – the commission agent, as explained above, concludes the agreement in his or her own name and has no obligation to disclose that he or she is in fact doing so for someone else – but yet, the third party is protected from the agent’s insolvency as of the conclusion of the contract between the agent and third party buyer. Why should a buyer have better protection against the only counterparty he or she knows about

414 415

416 417

Håstad, Sakrätt avseende lös egendom6, 245. This, in principle, does not seem to be supported by Håstad commentating on the earlier version of the act. He states that it is not necessary to solve the situation, since the third party may turn to the solvent commission agent anyway. See Håstad, Sakrätt avseende lös egendom6, 245. However, if many claims are posed against the commission agent, he or she may also become insolvent, and will not be able to perform all claims in full. Håstad states that if the commission agent also becomes insolvent, the third party “should” be able to separate the goods, see Håstad, Sakrätt avseende lös egendom6, 246. Section 24. Cf. chapter 4.5. on the seller’s protection against the buyer’s creditors.

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if this counterparty is in fact a commission agent (and not what he or she appears to be: an independent seller)? This protection upon conclusion of the contract is nevertheless in accordance with the rules applicable to consumers buying from a professional, but not applicable to other buyers. One may perhaps say that a professional buyer probably knows that the agent is in fact an agent – but that can be correct or incorrect depending on the individual case. For example, even if a person was originally assigned to act as an agent, the agent may step into the agreement with the principal (i.e. buy the goods him- or herself) and then conclude agreements with a buyer on his or her own account. In that situation, the third party buyer’s protection will depend on the regular rules, protecting him or her only after delivery. Of course, if there is a sale by a commission agent to a professional buyer and the buyer were not protected (i.e. the mandatory requirement of tradition would apply in the relationship between agent and third party), then the principal (and his or her creditors), not the agent’s creditors would benefit from this, since the principal would be able to separate the goods in the event of the agent’s insolvency (with no possibility for the third party to make claims on the principal) – and that is perhaps not a fair and suitable solution against a pre-paying buyer either. On the other hand, nothing would speak against a rule stating that the buyer could then place his or her claim upstream to the principal (but then we have completed the circle and are back to favoring a buyer who buys goods from an agent instead of buying from a regular seller). In addition, a buyer who buys from a commission agent and knows about this fact, may believe his or her position is stronger than it actually is: he or she is, as stated, protected against the event of the agent’s insolvency, no matter where the goods are situated – but he or she is not, and this may come as a surprise to him or her, protected against the event of the principal’s insolvency if the goods are still in the principal’s possession. If the third party buyer does not know about the agent acting on behalf of another – and he or she knew that the agent is solvent and therefore thought he or she would run no risk in not taking delivery immediately, then it seems rather unfair that he or she should lose the value of the goods because of the principal’s insolvency (just because the goods are in the hands of a person he or she does not know about). One might argue that the buyer’s poor status in the event of the principal’s insolvency may be outweighed by the fact that the buyer can always claim against the commission agent, and if the commission agent has the goods in his or her possession he or she will of course deliver the goods to fulfill the contract with the buyer. Further, if the agent does not have the goods in his or her possession, the buyer shall have a claim for the pre-paid money. However, if many such claims are posed against the agent, he or

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she may also become insolvent (and cannot fulfill the claims against him or her) – and the result will again be that the buyer’s protection in the principal’s insolvency (and now also: the agent’s) is rather peculiar if he or she does not know about the principal’s position. There are also reasons to wonder what consequences this has for the competition between goods sold by a commission agent compared to a regular seller. In addition, there are differences as to the third party buyer’s protection depending on whether the intermediary is acting as a commission agent or a “commercial agent”418 (where the buyer is protected upon delivery only). Since the authority to dispose of commercial agents is not completely clear, there are high demands on a buyer to know what kind of person he or she is actually dealing with (which, as just stated – is not always possible). Nevertheless, somehow it seems that the problems or inconsequent protection that occur are connected to the mandatory delivery requirement that is applied in Sweden. If conclusion of the contract were enough to protect a buyer from the transferor’s creditors in ordinary transfers as well as in transfers involving a commission agent (or any agent, for that matter), there would be no favorable situation for buyers from an agent and there would be no risk to buy from an agent that is in fact concluding a sale on his or her own account. Such a rule should also protect the buyer in the event of the principal’s insolvency and it would make no difference where the goods are situated as long as the goods are individualized for the buyer.

5.3.3. The protection of the commission agent in the event of the principal’s insolvency In order to secure the commission agent’s claims for commission or other remuneration related to the agreement with the principal, the commission agent has a right to retain goods that are in his or her possession, no matter if these are goods he or she received from the principal to sell or goods bought on behalf of the principal – as long as the commission agent has the goods in his or her possession or under sufficient control.419 In addition, a commission agent who has sold goods for the principle has a lien on the claim of the third party, including a right to sell it.420 If a commission agent has not received commission or other remuneration from the principal in time, or if there are strong reasons to believe that 418 419 420

As discussed below, chapter 5.4.2. Section 15. Section 16.

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such compensation will not be submitted, the commission agent is also entitled to secure his or her claim by withholding material and documents belonging to the principal, if he or she has received them in order to fulfill the mission. Documents of extreme importance may not be withheld.421 The commission agent also has a right of stoppage in transit: if he or she has bought goods on the principal’s behalf and sent them to the principal, or goods have been for sale in the commission agent’s possession and are sent back to the principal, the commission agent can prevent the goods being taken over by the principal, even if the principal has received a transport document relating to the goods.422

5.3.4. The protection of the principal in the event of the commission agent’s insolvency Where the issue is a sale by commission agency, a prerequisite for separation in the commission agent’s bankruptcy is that the commission agent truly is selling goods on behalf of the principal and not on his or her own account.423 If the goods have been bought by the commission agent from the principal, there is no right for the principal to separate the goods: after delivery, the goods belong to the commission agent’s bankruptcy estate. Where commission agency is at issue, even though the principal has no obligations to the third party, the rights other than a right to dispose remain in the hands of the principal until they are transferred to the third party.424 This rule regulates the principal’s protection against the agent’s creditors. If the commission agent goes bankrupt, the principal will be able to separate the goods that are to be sold on his or her behalf, as long as he or she has not already been paid for the goods, the goods have not been transferred to a buyer, or where a contract regarding individualized goods has been concluded.425 If a contract with a third party has been concluded, but the goods are not individualized with regard to the contract between the intermediary and the third party, the principal can separate the goods in the event of the commission agent’s bankruptcy as long as the goods are not mixed with the commission agent’s own goods.426 Thus the principal’s right to separate can 421 422 423 424 425

Section 17. See also chapter 20.3.3.(b). Section 18. Prop. 2008 / 09:88, 127. Section 23. Section 24; prop. 2008 / 09:88, 127. Regarding individualized goods, see also chapter 5.3.1. on the third party’s protection in the event of the commission agent’s insolvency.

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be lost if the agent has mixed the principal’s goods with goods of another,427 but if the goods are sold he or she has a right to separate the proceeds or take over the claims that the commission agent has against the buyer.428 The commission agent may also be required to pay damages to the principal as a result of the confusion.429 However, a claim for damages will be an unsecured claim against the commission agent’s bankruptcy estate. In the reverse situation where the commission agent buys goods on behalf of the principal and the goods are already delivered to the commission agent when the latter becomes insolvent, the principal will be able to separate the goods in the same way as with goods that are to be sold on his or her behalf. Where, on the other hand, the goods bought by the commission agent (who is now insolvent) are still in the possession of the third party, there will be no problem on the principal’s side as long as he or she has not made any advance payment to the commission agent; but there will be if such payment has been made. The law does not regulate the situation where the principal has made an advance payment to the commission agent to pay for goods bought on the principal’s behalf; but if the commission agent goes bankrupt before paying for the goods (and therefore fails to receive delivery from the third party seller), the principal has a right to separate the funds, provided the agent has separated them in the manner and within the time specified in the the Fund Accounting Act.430 426

5.3.5. The protection of the commission agent / principal in the event of the third party’s insolvency If a third party buyer becomes insolvent and the goods have been transferred to him or her without full payment being made, the goods can only be separated in the event of the buyer’s insolvency if retention of title has 426

427

428

429 430

The commission agent is obliged to keep the goods separated if the goods themselves are not of an individualized nature, prop. 2008 / 09:88, 100. Prop. 2008 / 09:88, 99 f. This can also lead to criminal charges against the commission agent for illegal disposal (olovligt förfogande), chapter 10, section 4 Penal Code (Brottsbalken), or for embezzlement (förskingring), chapter 10, section 1, unless the principal expressly agreed that the goods can be commingled with other goods or the goods themselves are individualized. Prop. 2008 / 08:88, 99 f and 128 ff. The specifics of goods reserved for the principal are regulated in the Funds Accounting Act (Lagen (1944:181) om redovisningsmedel), which is applicable to fungible goods by analogy (see NJA II 1944 s. 405 and 410). Section 43. Prop. 2008 / 09:88, 129.

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been agreed in the contract between the commission agent and the buyer. If there was no such agreement, the commission agent will be left with an unsecured claim against the buyer. The principal, not being a party to the contract of sale between the commission agent and the third party, will have no direct claim against the third party buyer either. Whether he or she may claim damages from the commission agent must be decided according to the contractual relationship between the principal and the commission agent. The same result will be true if a third party seller goes bankrupt in a situation where the commission agent has made an advance payment for goods bought but not delivered to the commission agent or the principal. The commission agent will only have an unsecured claim against the seller. If the principal has already advanced money to the agent in order to cover the latter’s obligation to pay the price, the principal’s rights against the commission agent will depend on their internal relationship. If no payment has been made to a third party seller or no goods have been delivered to a third party buyer when the third party goes bankrupt, the commission agent can withhold performance. The bankruptcy estate has a right to enter into the agreement and demand that it be fulfilled, but the estate must perform the obligation of the insolvent party.431

5.4.

Direct representation

5.4.1. General Where an agent sells or acquires goods in the principal’s name and on the principal’s behalf (direct representation), the rules for protection against the other party’s insolvency do not differ from the situation where the principal him- or herself would have sold or acquired the goods. If the agent sells or acquires in the name of the principal, the contract will be concluded directly between the principal and the third party buyer or seller, respectively, as long as the agent did not exceed his or her power (i.e. the instructions from the principal), or, if the agent exceeded his or her power; the third party acted in good faith regarding the agent’s power.432 Accordingly, the buyer is protected from the principal’s insolvency when delivery or an equivalent to delivery is performed in relation to the buyer. The principal’s power of disposal must be cut off, which naturally means that it is not enough to transfer the goods to the agent. Note that the 431 432

Sale of Goods Act, section 63. Contracts Act, section 11. See also a special situation in section 18 of that Act and chapter 5.1.1. on ratification.

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opposite rule will apply in the case of a sale by indirect representation.433 It feels natural that a buyer from an indirect agent, where he or she does not know that a principal exists at all, should be protected from the principal’s insolvency where the goods are in the hands of the agent. Here, in the case of a sale by way of direct representation, however, it is logical that it is not enough to deliver from the principal to the agent, given the general rule in Swedish law that protection against the seller’s creditors requires cutting off the seller’s ability to lay hands on the goods. If the agent acquires goods in the name of the principal, the principal will be protected against the seller’s insolvency by delivery either to the agent or the principal; in both cases, the seller’s possibility to factually dispose of the movable is cut off. Concerning the principal’s protection in the event of the agent’s insolvency, the agent needs to keep the goods separated for the principal, or the goods must at least be identifiable, to uphold a right in rem so that the goods can be separated (principle of specificity).

5.4.2. Commercial agency (handelsagentur) Another statute, the Commercial Agency Act,434 regulates the relationship between a commercial agent and the principal, establishing a relationship which is often used in business relationships of an international character where foreign companies employ agents to sell their products in Sweden or export businesses use agents to sell their products abroad.435 There is not much written about this subject in Swedish property law literature, which may be because solutions are to be found from other agent situations depending on the boundaries of the commercial agent’s authorization. Thus, the commercial agent in the sense of the Commercial Agency Act can have a very different scope and independence, which means that the agent can both hold stocks of the principal’s goods and conclude final sales agreements and recover the sales price on the principal’s behalf – or only mediate to convey orders to the principal. The usual situation is nevertheless that the agent raises bids and encourages agreements to be concluded between the principal and third parties. Thus, the agent arranges the sale but has generally no entitlement to conclude contracts on behalf of the principal. That usually means that the agent will not have his or her own inventories and that the goods are sent directly

433 434 435

See above, chapter 5.3.2. Lag (1991:351) om handelsagentur. Prop. 1990 / 91:63, 16.

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from the principal to the third party. Sometimes, however, the agent holds a small stock in order to display goods or cope with fast deliveries. On the other hand, it is also possible that a commercial agent acts in the name of the principal;436 in this case, he or she must have a special authorization to conclude agreements or receive payment on behalf of the principal.437 The commercial agent is therefore less independent than the commission agent. Goods and any money that the agent holds on behalf of the principal must be kept separated unless the parties have agreed that it is not necessary to keep the goods separated (e.g. where the goods may have to be processed).438 If the goods are not separated, they are not protected against the agent’s creditors.439 If the agent were to override the requirement of separation, he or she could be prosecuted for embezzlement or illegal disposal, and be obliged to compensate the principal for his or her loss.440 The agent has a right of retention to secure his or her claim towards the principal and can sell such goods after three months.441 Just as in the situation of a commission agent, the mission ends when either the agent or the principal enter into bankruptcy and the bankruptcy estate has no right to enter into existing agreements.442

5.5.

Consignment

In addition, Swedish law recognizes the legal theory of “konsignation” similar to commission agency, but basically not a form of indirect representation. This appears when A has deposited goods in B’s possession and has granted B the power to conclude agreements for sale regarding these goods with third party buyers, whenever B needs to sell such goods to third parties. This is somehow similar to when an agent is allowed to step into the agreement with the principal.443 436 437

438 439

440 441 442

443

Commercial Agency Act, section 1. Sections 17 and 22. If the agent concludes an agreement without authorization, the principal must notify the third party in order not to be bound by it, section 18 and prop. 1990 / 91:63, 88 f. Commercial Agency Act, Section 6; prop. 1990 / 91:63, 61. The Funds Accounting Act (Redovisningslagen), sets out the terms and conditions of how money should be reserved for the principal, see prop. 1990 / 91:63, 62. Prop. 1990 / 91:63, 61. Commercial Agency Act, Section 15 and 16; prop. 1990 / 91:63, 32 ff. Commercial Agency Act, Section 27; prop. 1990 / 91:63, 109 ff. For the commission agent, see Commission Agency Act, section 36. Håstad, Sakrätt avseende lös egendom6, 149 and 155 ff.

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The purpose here is for A to have a right to separate the goods that are deposited but not yet sold. However, the right for A to separate the goods is probably not possible in Sweden, especially since the parties may not opt out of the substantive rules on gaining protection from the other party’s creditors themselves and it is or can be seen as quite a clear attempt to circumvent the restrictions on a valid retention of title clause.444 It has nevertheless been proposed that A should have a right to separate the goods, if he or she runs a “not insignificant risk of return of the goods” (because the goods cannot be sold by B), but no right to separate would be obtainable otherwise.445 However, it was held that there was no need for such rule, and the proposal was not accepted.446

6.

Double disposals

There is an almost unlimited number of hypothetical situations that can be created in terms of double disposals if you take into account all the different kinds of rights, property, parties etc. Nevertheless, the most common is that someone sells or pledges the same movable twice, or first sells the movable and then pledges it, or vice versa. The rules regarding sales and security rights are quite similar here. The rules for tangibles in double disposals447 correspond to the rules on good faith acquisition,448 with some exceptions. Where goods are sold twice to different buyers, priority is given to the first buyer449 as long as the second buyer has not acquired possession, or the equivalent450, in good

444

445 446 447 448 449

450

Millqvist, Sakrättens grunder3, 92f; Håstad, Sakrätt avseende lös egendom6, 149, 159. This arrangement seems however to be more acceptable in Denmark. It has been analyzed as a special form of sales commission (Vinding Kruse, Ejendomsretten 23, 1211) or as a retention of title arrangement where B has a right to sell the goods further (Elmer / Skovby, Ejendomsretten 14, 152 ff.), allowing A to separate goods in the B’s insolvency. See also Mortensen, Indledning til tingsretten, 287 ff. – On the restrictions regarding the validity of retention of title clauses, see chapter 17 below. Proposed by Kommissionslagskommittén, see Prop. 2008 / 09:88, 191 f, 205. Prop. 2008 / 09:88, 82 f. Tvesala. See chapter 13. Commercial Code, chapter 1, section 5. The rule governs double disposals before a change of possession has occurred. Registration and marking of wood cannot be used as a substitute for transfer. The purpose of these equivalents is only to protect the buyer from the seller’s creditors, see Håstad, Sakrätt avseende lös egendom6, 66, 85; Millqvist, Sakrättens grunder3,

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faith.451 Even where the second buyer is given priority according to principles of good faith acquisition, the first buyer has a right to pay the second buyer what he or she has paid for the goods, with a maximum limit of the market price and can thereby demand that the goods be delivered from the subsequent acquirer.452 This shall be true even if the first buyer has committed him- or herself to pay the seller a higher price (but has yet not paid); though he or she will have to pay the difference to the seller (unless he or she claims a set-off against the claim for damages that arises because of the second sale). The transferor is liable to pay damages to the party who loses the conflict between the competing acquirers.453 There is some controversial discussion on the question of whether a third party possessing the goods for the transferor must also be in good faith regarding the first agreement: the Supreme Court has held that if the transferor (in an ordinary good faith acquisition) has never been the owner, good faith is also required of the third party possessing the goods for the transferor.454 This decision is questioned by at least one legal scholar; where he, in addition, states that in cases of double disposals it seems to follow from the Act on Instruments on Debts that a second buyer will acquire the goods even if the third party is in bad faith.455 The same scholar argues in the direction that the subsequent buyer also should not be required to be in good faith in order to have priority over the first buyer. This standpoint has, however, had no decisive impact so far, so that good faith on the second buyer’s part must still be considered to be required.456 The time priority rule also governs double disposals of financial instruments. Here the time of registration of the instruments is the deciding factor. The second buyer has priority unless he or she “knew or should have known of the earlier transfer”.457 Negotiable claims follow the rules on good faith acquisition. Non-negotiable claims (receivables) and bankbooks (bankböcker) can be acquired via a double sale, but not through good faith acquisition. If the second buyer of a non-negotiable claim is in good faith and gives notice

451

452 453 454 455 456 457

53. However, it may place a second transferee in bad faith regarding earlier transfers. See also chapter 13.6. Undén, Svensk sakrätt 1, Lös egendom10, 117 ff.; Håstad, Sakrätt avseende lös egendom6, 83; Good Faith Acquisition of Personal Property Act, section 2. Good Faith Acquisition of Personal Property Act, section 6. Sale of Goods Act, section 41. NJA 1931 s. 741. Håstad, Sakrätt avseende lös egendom6, 66 f; Section 31, paragraph 2. Håstad, Sakrätt avseende lös egendom6, 83 ff. Lag om kontoföring av finansiella instrument, chapter 6, section 3.

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to the debtor before the first buyer does, he or she will have priority.458 A buyer of a bank book has priority when the book has been transferred to his or her possession in good faith.459 Also a letter of proof for floating charges can be subject to double disposal by the business owner (but cannot be acquired by a good faith acquisition); the first creditor has priority, unless the letter of proof is handed over to a second creditor in good faith of the concurring right460 or a third party in possession of the letter is notified about the second creditor first.461 If someone pledges a movable twice, the solution is that one of them is given priority in the object for his or her claim, while the other also obtains a right in the goods, but only secondary to the person with the better right.462 If the movable is valuable enough to cover both persons’ claims, both will, so to speak, have a security right with different priority in the goods.

7.

Selling in Chain

7.1.

Transfer of ownership in selling in a chain

This chapter deals with situations where A sells to B and B to C, and A delivers the property directly to C. From a “unitary” perspective the question to be raised is whether ownership is directly transferred from A to C or is B said to have obtained ownership for a “logical second”? In a “selling in a chain” constellation, the question whether B acquires for a “logical second” or not is irrelevant for the Swedish functional approach, and has not been discussed. Sales in chain are dealt with as any other sales and conflicts that may appear for rights in the same property are solved by separating the conflict situations and solving them one by one. Such a constellation is seen to involve two separate legal relationships; in principle, there is usually no nexus between A and C at all. Where A delivers the goods directly to C, C will enjoy priority over B’s creditors and B will enjoy priority over A’s creditors, by applying the general rules on priority. If the goods are returned to B from C for some reason, B still has priority over A. 458 459 460

461

462

Act on Instruments on Debt, section 31. Act on Instruments on Debt, section 32. See further chapter 19; Millqvist, sakrättens grunder, 146. See also Martinson, Kreditsäkerhet i fakturafordringar – en förmögenhetsrättslig studie, 440 f. Lagen om pantsättning av lös egendom som innehaves av tredje man; Millqvist, Sakrättens grunder, 147. Håstad, Sakrätt avseende lös egendom6, 89 f; Hessler, Allmän sakrätt, 381 ff.

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Invalidity of contracts in the chain

If the contract between A and B is invalid, C could acquire the goods in good faith; C can also acquire the goods in good faith if the goods are subject to certain limitations, such as a retention of title clause.463 However, in the case of a tangible movable, A does not lose the opportunity to recover the goods, but has the right to buy the movable back from C, paying either the market price or the amount C actually paid for it.464 A should then be able to claim against B for compensation. In addition, if B is declared insolvent and A has not yet been paid, scholars argue that A can ask the trustee in bankruptcy to separate the payment received by B (from C) from the rest of B’s assets.465 If B is still in possession of the goods, C will have an unsecured claim against B’s estate and A will have his or her goods returned from the estate. If the debtor B has in any case sold and delivered the property before the bankruptcy decision by the court and yet not been paid by C, A has a right to demand the payment separated from B’s assets. A is also usually entitled to claim against C directly.466 If the contract between B and C is invalid, this is a matter that does not concern A; the latter has no remedies in such a situation (and should normally have no interest in the relationship between B and C). On the contrary, if A and B have agreed that the effectiveness of the contract between B and C is a condition for the effectiveness of their contract, A should have a remedy against C and can recover the goods, based on the fact that B has acted contrary to the contract with A by entering into an invalid contract with C.

7.3.

Transfer by means of indirect representation

Contrary to what was said above (chapter 7.1), a nexus between A and C is seen when B sells the goods to C on A’s behalf (e.g. agency). In fact, in this case, a better right to the goods can be said to pass directly from A to C. B’s creditors cannot satisfy their own claims either in the goods or in the proceeds in so far as B does not mix A’s goods or the proceeds with B’s own assets.467 463 464 465

466 467

See chapters 13 and 17. Good Faith Acquisition of Personal Property Act, section 6. See especially Walin, Separationsrätt, 162 ff., but also Håstad, Sakrätt avseende lös egendom6, 164 ff. Bankruptcy Act, chapter 7, section 23. Håstad, Sakrätt avseende lös egendom6, 147ff and 234 ff.

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Under a transfer by way of commission agency, the right to the goods is also directly transferred between the seller and the buyer, and the agent does not become “owner” even for a logical second. The right to the goods stays in the hands of the principal until the goods have been sold to the other party.468 If the agent has bought the movable in the interest of the principal, the principal can oppose his or her right against the agent’s creditors.469 More detailed analysis concerning questions of transfer by means of indirect representation is contained in chapter 5.

8.

Consequences of insolvency (miscellaneous issues)

8.1.

Actio Pauliana

8.1.1. Introduction To protect creditors from fraud and fictitious transactions there are rules on recovery provided for in the Bankruptcy Act,470 Chapter 4; they are formally applicable to businesses and private persons.471 Fundamentally, it is the legal act itself and not the property as such that is subject to recovery in bankruptcy.472 Outside bankruptcy the concept of Actio Pauliana is unknown in Scandinavian law,473 which, for instance, means that goods cannot be recovered in execution proceedings initiated against a debtor.474 Recovery in bankruptcy is a legal institution which has emerged as a result of a fear of unfair transactions carried out in order to bypass the consequences of bankruptcy. A debtor may, for example, when his or her financial situation has become so strained that bankruptcy is imminent, carry out acts designed to put him- or herself or some creditor in a better

468 469 470 471 472

473

474

Commission Agency Act, section 23. Section 23. Konkurslagen. Unless otherwise stated, references in this chapter relate to this statute. Mellqvist, Obeståndsrätten2, 61 f. See NJA 1984 s. 816. This appears not to be true in relation to the rules in chapter 4, sections 7-8 and section 9, first paragraph. Here the recovery is of the value as such, see Hägge, Om återvinning av egendom som ökat i marknadsvärde, SvJT 2009 s. 644 at 646. Göransson, Actio Pauliana outside bankruptcy and the Brussels convention, in Law and reality, essays on national and international procedural law in honour of Cornelis Carel Albert Voskuil, 89. If a creditor suspects that certain goods have been disposed of, the creditor can try to put the debtor in bankruptcy and thereby initiate a recovery procedure.

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position in relation to imminent bankruptcy. It may involve the withdrawal of assets from the creditors or favoring some creditors over others. The prevailing principle of bankruptcy is that creditors should bear the loss proportionately; there is thus a principle that ensures that all creditors are treated equally in bankruptcy. In cases where the debtor wants to protect him- or herself, it is not uncommon that he or she gives away goods, or removes property from what could become the bankruptcy estate by transactions on favorable terms for family members or other people closely related to him or her. Due to the relationship of certain persons to the debtor and the transparency of the debtor’s financial situation for these persons, there are adopted rules that go further for persons closely related to the debtor compared to all other persons. Applying the rules on recovery presupposes that the transferee would, under the general rules, already be protected against the transferor’s creditors, and that the transaction can no longer be set aside by other means of private law, such as the rules on avoidance of contracts or illicit profit distribution to shareholders (if that is applicable).475 The general requirements for applying the rules are that there must be bankruptcy or reorganization proceedings, the respective act must at least have been to the disadvantage to the creditors476 and the act must have been made within certain time limits. The time limits for recovery depend on whether the transfer was based on any payment or not, whether it was made to a receiver closely related477 to the transferor or any other person, whether the transferor was 475 476

477

Folkesson, Företaget i ekonomisk kris7, 133. This requirement is only mentioned in chapter 4, section 5, but it is presupposed that these acts must be to the detriment of, at least, one creditor, see Blom et al. (eds.), Karnov 2006 / 07 [-Lennander], 3440, note 74. It is irrelevant whether the funds that were used by the debtor for the payment of a debt were available funds included in the debtor’s property or funds made available by the debtor by taking out other credit, see NJA 1996 s. 271. In this case the debtor took out credit to pay to an unsecured creditor; one unsecured creditor was thereby replaced by another. The fact was that the credit would not have been made available if it were not to be used to pay this particular creditor, and the argument used by the receiver was that the payment thereby was not to the disadvantage of any other creditors. Nevertheless, the Supreme Court (3 judges against 2) treated the use of the credit as a payment using the debtor’s available funds. However, see also NJA 1930 s. 20 (change of creditors can in some special cases be accepted). The definition of closely related persons is found in section 3 which refers to family relations and an economical connection between the parties. Regarding economically closely related persons the section ends with an astonishing conclusion: persons closely related to closely related persons are also closely related within the meaning of the rule.

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or was not insolvent at the time of transfer and whether the act was or was not considered undue as against the creditors. The time limits vary between three months and an indefinite time and are counted from the day of filing for bankruptcy.478 The debtor does not need to be active – it is enough if the debtor passively favors or damages a creditor.479 Recovery proceedings are initiated by the bankruptcy administrator and the creditors have a subsidiary right to initiate them on behalf of the bankruptcy estate where the administrator does not want to call on recovery or reach a conciliation agreement.480 Taxes paid or payment for maintenance according to the Parental or Marriage Codes cannot be recovered.481

8.1.2. Applying the general rule of avoidance by creditors Three requirements or elements have to be fulfilled to apply the general rule of recovery in insolvency.482 The debtor must act in some undue way with the intention of favoring someone or of damaging a creditor.483 Second, this act should contribute to the insolvency. A final requirement is that the receiver must have known that the debtor was or was to become insolvent and of the circumstances that made the transactions undue; the

478

479

480 481

482 483

Chapter 4, section 2. One exception is where the bankruptcy has been preceded by reorganization proceedings. If the application for bankruptcy is submitted to the District Court during such proceedings or three weeks thereafter, the time limits start from when the application for reorganization has been submitted. NJA 1978 s 194. After becoming aware of the insolvency, the debtor continued to let money go straight into a credit account, with the effect that the bank’s credit to the company decreased by the same amount. Even though this was not an active handling of the company’s assets, the money was deemed recoverable. Chapter 4, section 19. Chapter 4, section 1. The motivation was that the State cannot choose their debtors and no debtors want to favor the State. The State also previously had priority in bankruptcy (but this was changed in 2004) and would certainly be protected in their claim against the bankruptcy estate anyway. Even if the priority for taxes was abolished, the ban on recovery of taxes was not, see prop. 2002 / 03:49, 70 ff. Bankruptcy Act (Konkurslagen), section 5. The large amount of a transaction, the fact that the transaction was made shortly before bankruptcy, the transferee’s particularly high degree of bad faith or the fact that the transaction has been of an extraordinary character are circumstances speaking for an undue transaction, see Blom et al. (eds.) Karnov 2006 / 07 [-Lennander], 3442, note 98. See, for example, NJA 1981 s. 562 where the large amount in question was enough to consider the transaction undue.

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receiver’s bad faith should be in relation to the two initial objective requirements mentioned. The general time limit is 5 years, but if the act is directed at someone closely related to the debtor, there is no limit.484 Closely related persons are presumed to be in bad faith.485 It is sufficient that only one creditor’s right is damaged. If the debtor becomes solvent before bankruptcy, there can be no claim for recovery.486

8.1.3. Applying the objective rules of avoidance by creditors In addition to the general rule there are several objective rules. Under these rules there is no need to prove the bad faith of the third party or that the debtor was insolvent or became insolvent by the respective act. Gratuitous transfers487 and other non-business-like transfers can be recovered within 6 months. If the transaction has been carried out within 6 months and one year of the relevant date, the receiver can escape if he or she can show that the debtor evidently had more assets than debts at the time of the gift. The one year limit is extended to 3 years if the recovery claim is directed against someone closely related to the debtor. Some smaller gifts, with no real importance for the creditors are nevertheless also accepted.488 Salaries, pensions and similar benefits can be recovered within a six month limit to the extent that they obviously exceed what could be regarded as reasonable having regard to the work performed, the profitability of the operation and the circumstances in general.489 If the transaction has been carried out within 6 months to one year of the relevant date (or 3 years, if the receiver is closely related), the receiver can escape if he or she can show that the debtor evidently had more assets than debts at the time of the transaction. Concerning payment of debts, if these transactions are not ordinary,490 are made earlier than needed or with an amount that significantly impaired 484

485 486 487

488 489

490

However, the recovery claim can be barred due to the general period of limitation for claims of 10 years, see Act on Limitation (Preskriptionslagen), section 1. See Prop. 1986 / 87:90, 129 ff. Blom et al. (eds.), Karnov 2006 / 07 [-Lennander], 3443, note 105. Chapter 4, section 6. Gratuitous transfers are protected from the transferor’s creditors by traditio, see the Gifts Act (Gåvolagen), section 1. See SOU 1970:75, 141. Chapter 4, section 8. What is recoverable is the excess of these salaries, pensions and benefits. A payment is ordinary if the payment objectively has nothing to do with the debtor’s payment difficulties or impending bankruptcy. See, NJA 2001 s. 474. A payment

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the debtor’s financial position – and made by methods other than the usual payment methods – they can be recovered if made within a 3 month time limit.491 For closely related receivers the limit is 2 years, if the receiver does not show that the debtor was not or did not became insolvent by the transaction. Other objective rules concern division of marital property,492 transfer of funds to a pension fund,493 payments made for a cheque,494 transfer of securities for unsecured debts495 and payments to creditors by execution proceedings.496

8.2.

Insolvency and non-executed contracts

8.2.1. Bankruptcy proceedings In bankruptcy proceedings, the question arises as to how to deal with contracts that both parties have not yet completely fulfilled. The rules on this matter are found mainly in the Bankruptcy Act and the Sale of Goods Act. The commencement of the bankruptcy proceedings has the effect that the debtor loses the permission to act in his or her own name, to legally transfer, pledge or in any other way dispose of the goods.497 Should the debtor act contrary to this main rule, the act will be invalid in relation to the estate. Moreover, the debtor will become personally liable for such actions.498 The rules regarding the right for the bankruptcy estate to enter into agreements are particularly aimed at the situation where the other party has not fulfilled his or her performance when the bankruptcy commences.

491 492 493 494 495 496 497

498

can be ordinary even if it is made in advance, for example to receive a discount, prop. 1975:6, 224 ff. Chapter 4, section 10. Chapter 4, section 7. Chapter 4, section 9. Chapter 4, section 11. Chapter 4, section 12. Chapter 4, section 13. Bankruptcy Act, chapter 3, section 1. With some exceptions in section 2, for instance, where someone in good faith concludes an agreement no later than one day after the notice of bankruptcy was published in a certain newspaper. The bankruptcy estate has the burden to prove such party’s bad faith, Blom et al., Karnov 2006 / 07 [-Lennander], 3438, note 44. The debtor does not even have a personal right to sue regarding property that belongs to the estate, NJA 1978 s. 347 I and II. Håstad, Sakrätt avseende lös egendom6, 98.

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If the other party has already completed his or her part, the estate can simply keep this performance and neglect to fulfill its part. The defendant then has to defend his or her claim in the bankruptcy together with the other creditors. The administrator has the right to decide to terminate contracts and also a right to demand that a contract be fulfilled, if the contract is not of a personal kind, or dependent on the performer’s personal qualities, i.e. where it does not matter if the debtor does not fulfill his or her obligations personally.499 The other party also has a possibility to terminate contracts if it is clear that there will be a fundamental breach of contract, if not fulfilled personally by the debtor.500 It is uncertain whether the parties may agree that no bankruptcy estate shall be entitled to step in in relation to the agreement between them.501 The administrator’s right to step in in this context might be enforceable even where the debtor had agreed to a right to terminate when a party enters into insolvency; this is supported by one scholar502 and would mean that the parties cannot contract out of the Sale of Goods Act in this respect. A more precise description is perhaps that contracts are terminated through the bankruptcy unless the administrator demands that a contract is fulfilled. However, the administrator has to perform the obligation under a contract where the counterpart is protected from the debtor’s insolvency.503 The administrator can also take over partially completed agreements; the goods delivered before and after the commencement of bankruptcy proceedings will be treated differently in the estate.504 The counterparty has the right to terminate the contract if the administrator cannot pay or put up a secured guarantee for the debtor’s obligations.505 Where a seller goes bankrupt and the prepaying buyer has not taken possession of the goods – so that the tradition requirement is not fulfilled and the buyer is not protected from the seller’s insolvency – the administrator will usually terminate the original contract and the buyer has to come to a new agreement with the administrator. Sometimes that can be initiated 499

500 501 502 503 504 505

Sale of Goods Act, section 63; Prop. 1988 / 89:76, 183. If the debtor has concluded an agreement prior to the bankruptcy that all contracts between the parties should be terminated when one of them becomes bankrupt, this agreement is valid as against the bankruptcy estate and the creditors of the estate in relation to financial instruments, see Financial Instruments Trading Act, chapter 5, section 1, paragraph 1. Sale of Goods Act, section 62. Håstad, Den nya köprätten5, 188 f; Prop. 1988 / 89:76, 232 f. Håstad, Sakrätt avseende lös egendom6, 404. For instance, by registration according to Lösöreköplagen (1845:50 s.1). Folkesson, Företaget i ekonomisk kris7, 143 ff. Sale of Goods Act, section 63.

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by the administrator, if, for instance, the sale concerns a special machine that is difficult to sell to another. If, on the other hand, the buyer goes bankrupt and the goods are not delivered, the administrator will naturally terminate the contract and the seller will not deliver the goods. If the goods are already delivered, the seller is required to have a retention of title clause to maintain the possibility of having the goods returned. Otherwise the seller will only have an unsecured dividend claim in the estate. If the other party has already performed but the insolvent party has not, and the contract is void or if it is possible to terminate it on other grounds than the buyer’s failure to perform, the goods will be returned to the seller as long as they are specified. Where the goods are generic, the seller will either have a general claim in the estate, or, if the buyer has bought such goods from several sellers and the goods in question are separated from the buyer’s own goods, a claim out of these separated goods. In some cases where a buyer has mixed the goods with his or her own goods, it has been seen as unreasonable not to give the seller a right in rem and it has therefore been granted.506

8.2.2. Reorganization proceedings If the insolvency proceedings take the form of formal business reorganization proceedings, decided by the court, the debtor does not lose the capacity to decide, but in reality the debtor must follow the decisions and suggestions of the administrator.507 The reorganization proceedings do not create a new legal entity: the debtor continues to run the business in the same legal form as before the reorganization. Contracts are not terminated through the reorganization decision and the Reorganization Act does not offer the company a possibility to terminate unfavorable contracts. In fact, if the counterparty prior to the reorganization proceedings had the right to terminate a contract because of the occurrence or anticipated delay of payment or other performance, the counterparty does not have the right to cancel the contract due to the delay after the decision of reorganization, if within a reasonable time the debtor calls for it to be completed with the administrator’s consent.508 This is important so that the continuing functioning of the company is not compromised. Where there is another basis for terminating the contract, this should still be possible. 506 507 508

Mellqvist, Obeståndsrätten2, 72; Håstad, Sakrätt avseende lös egendom6, 398 ff. Folkesson, Företaget i ekonomisk kris7, 102. Company Reorganization Act (Lag om företagsrekonstruktion), chapter 2, section 20. There is one exception in the Financial Instruments Trading Act, chapter 5, section 1, paragraph 2: an agreement between the debtor and another party to terminate contracts between them if one of them enters into reorganization proceedings is valid against the debtor and the debtor’s creditors. © sellier. european law publishers

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Even though no contracts are terminated, the aim is to negotiate new conditions with the respective party. If a counterparty does not agree upon the terms suggested by the administrator, the debtor will, in practice, not fulfill the contract and the counterparty will have to rely on claiming damages. The dividend to the creditors may be set as low as 25 % if there is a qualified majority of the creditors that accepts the total reorganization plan.509

9.

Passing of risk

9.1.

Introduction

If the passing of risk is explicitly regulated in the contract of sale, this agreement will determine the passing of risk. If no agreement governs the issue, the Sale of Goods Act will apply. The bearing of the risk is mostly linked to delivery of the goods, in the sense of the Sale of Goods Act and Consumer Sale of Goods Act, but there are several exceptions to this rule. However, for consumer sales this is (almost) a strict rule. Here, it is important to determine the point in time when the goods are delivered for the passing of risk, but note that the risk can only pass when it relates to specified goods.510 The passing of risk is not connected to other functions of transfer of property. As said above, the transfer of movables from one party to another has certain different legal implications (the risk of accidental loss, the diminishing or deterioration of the goods being an example) at different stages of the transfer.511 In this way, passing of risk does not give any indication as to when other functions of transfer of property, such as the transferee’s protection in the event of the transferor’s insolvency, is achieved. Each function has to be discussed separately. Due to Scandinavian legal co-operation, the Scandinavian countries have almost identical rules on the passing of the risk of accidental loss or deterioration of the goods. Even the section numbering is the same in the respective Sale of Goods Acts of Norway and Finland. Also, conformity issues are to be settled with regard to the condition of the goods when the risk passes over to the transferee.512 However, this

509 510

511 512

1, paragraph 2: an agreement between the debtor and another party to terminate contracts between them if one of them enters into reorganization proceedings is valid against the debtor and the debtor’s creditors. Folkesson, Företaget i ekonomisk kris7, 106. Sale of Goods Act, Section 14. References to statutory provisions in chapter 9 are to the Sale of Goods Act, unless otherwise stated. See further chapter 1.4. See section 21.

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may create practical problems for the buyer where the contract requires transportation of the goods by an independent carrier. In such a situation, risk passes when the goods are handed over to the carrier and, consequently, non-conformity must exist at that time in order to give the buyer any remedy against the seller. However, it is often impossible to determine when the deterioration actually occurred. It is perhaps self-evident, but in the event that the goods have deteriorated or been destroyed due to some circumstance on the seller’s side (he or she may have improperly packaged the goods), the seller cannot require payment from the buyer on the grounds that the buyer bears the risk.513

9.2.

Passing of risk by physical control

According to the general rule in Section 13(1) Sale of Goods Act, the risk passes to the buyer when delivery of the goods takes place. For these purposes, delivery of the goods is completed when the buyer (or his or her representative) physically takes control of the goods, if the buyer is to collect them from the seller’s place of business.514 Obtaining physical control of the goods by the transferee is also the determining point in time in the case of where the goods are delivered within an area in which the seller usually delivers such goods to customers or where the transportation from the transferor to the transferee is carried out within such locality, regardless of whether the seller transports the goods personally or by means of a third party.515 In addition, if the transferor personally delivers the goods outside of these areas, the passing of physical control also determines the time of delivery.516 The movable is also deemed to be delivered when it is handed over to the first independent carrier (where the scope of transportation does not span one and the same locality or is not carried out to an area where the seller usually delivers the goods).517 If a destination is mentioned in the contract, delivery takes place when the goods reach this destination.518 For consumer sales, the risk only passes to the transferee when the goods come into his or her possession,519 even if the consumer has com513 514

515 516 517 518 519

See, for instance, Prop. 1989 / 90:89, 72. Section 6. If the seller has multiple places of business, one has to interpret the contract and the circumstances in general to establish the particular place of business referred to. See also CISG article 10. Section 7. Section 7. Section 7. Section 7. Consumer Sale of Goods Act (Konsumentköplagen), sections 6 and 8.

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mitted a breach of contract by not collecting the goods in time. One exception applies, nevertheless: if the goods have deteriorated after the time when the buyer is late in taking delivery, and the deterioration is due to the nature of the goods (e.g. food that rots), the buyer bears the risk of deterioration.520

9.3.

Other requirements for the passing of risk

The risk will also pass to the transferee if he or she delays in taking delivery at the time agreed upon in the contract. The failure to take delivery will therefore not postpone the passing of risk if the transferor was ready to deliver at this point in time (mora accipiendi).521 A special provision regulates the passing of risk where the contract concerns a sale with a right to return the goods.522 The transferee will bear the risk from the time of delivery up until return of the goods to the transferor. If the goods are to be collected at the place of a third person, the risk passes when delivery falls due and the buyer receives notice that the goods are ready to be collected.523 Where the goods are already in transit when being sold, the risk passes at the time of conclusion of the contract.524

10.

Right to fruits and benefits in relation to transfer of goods

As said earlier, functions of transfer of property are treated as separated issues, not connected to each other and in particular, not connected to a transfer of “ownership”. The same is therefore true concerning the right to fruits and benefits. The issue of whether the transferor or the transferee has the right to the fruits and benefits originating from the goods is solved by applying certain provisions of the Sale of Goods Act – if these issues are not dealt with in the contract by the parties. The main rule is that the fruits and benefits will follow the contractual agreement as to the delivery of the goods. Yields derived from the movable before the agreed time for delivery belong to the transferor, if there has not been any reason to believe that the yield would be reaped at a later point in time. If, for example, a cow calves at an earlier 520 521 522 523 524

Prop. 1989 / 90:89, 72 f. Section 13. See also section 50, 51 Sale of Goods Act, and article 69 CISG. Section 16 and Consumer Sales Act, section 8. Section 13, the equivalent of article 69 CISG. Section 15, the equivalent of article 68 CISG.

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point than was expected by the parties when concluding the contract, the calf belongs to the buyer. Vice versa, yields produced after delivery will go to the seller, if there was no reason to believe this would happen so late.525 The Swedish Consumer Sale of Goods Act does not contain any specific rule for yields in relation to consumers; accordingly the Sale of Goods Act section 79 applies. There are some special rules concerning specific assets. Dividends and preferential rights that are not due before an agreement for the sale of shares belong to the transferee.526 So too does interest where the sale concerns interest-bearing receivables that are not due at the time of agreed delivery.527

11.

Passing of “ownership” of unsolicited goods

Rules on unsolicited goods aim at regulating and sanctioning an unfair commercial practice with the effect that it becomes so unattractive for businesses that such practice is then terminated. The situation discussed here arises where a business delivers goods or performs services to a consumer without having received an order; hence, the delivery or service is not based on a bilateral contract. Whereas some legal systems treat such goods as an unconditional gift, others grant the business a period of time to recover the goods before the consumer acquires ownership of them. The main contractual principle under Swedish law is, not surprisingly, that an agreement cannot materialize unless the parties agree on the conditions. A person cannot bind another by inaction. Even where the goods are offered in conjunction with a postage-paid envelope for reply, it does not bind the receiver528 and the receiver has no obligation to return the goods. Although such agreements, without prior contract and where the transferee is passive,529 generally cannot be implemented, they may be successful in practice due to the recipient’s ignorance of the legal situation.530 The practice can simply be carried out in such a way that the consumer is given the impression that he or she is liable to pay for the forwarded product. There is no specific legislation as to private law consequences of inertia selling in Sweden. Older case law has ruled that the recipient must pay 525 526 527 528 529 530

Sale of Goods Act, section 79. Section 80. Section 81. Adlercreutz, Avtalsrätt 112, 71 f. Negativ avtalsbindning. In most cases it is considered unfair business practice, but in some cases, the method can, however, be justifiable. In the renewal of a contract, for example an insurance contract or newspaper subscription, it can objectively be in the recipient’s best interests that the contract is extended (however, see MD 2005:34). See, for example, prop. 1970:57 73 f and Adlercreutz, Avtalsrätt 112, 72.

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the price if he or she uses the goods,531 which leads to the assumption that the recipient cannot become owner of the goods without paying for them. The recipient cannot be required, of course, to hold the goods for the seller indefinitely; therefore, the recipient must at least be entitled to inform the supplier that the goods will be sold on the sender’s behalf or thrown away after some fixed time, unless they are collected by the supplier. However, there is no rule giving a better right to the recipient after a certain period of time subsequent to communication or even immediately after receipt, nor does there seem to be any case law on this matter. Consequently, there is no “transfer of property” (or binding agreement) unless the recipient confirms the unsolicited delivery by payment or use of the goods or services. A relevant provision has been discussed at times during the reform work on both the present and the former Marketing Practices Act,532 but a rule has not been included in the act.533 EU Directive 97 / 7 / EC lies at the basis of the rules of many EU countries on inertia selling. Art. 9 of the said Directive, which has not been explicitly transposed into Swedish law, provides that the Member States should take all measures necessary so as to prohibit the supply of goods or services to a consumer without a previous order, if such supply is made together with a demand for payment, and ensure that the consumer does not have to pay any consideration whatsoever in response to such unsolicited goods or services; the consumer’s silence should never be deemed to be consent. The Preamble to the Directive534 confirmed the resolution of the EU to protect consumers from such practices, as had already been expressed in previous documents of the EU organs. This rule was reiterated in the Directive 2005 / 29 / EC on unfair business-to-consumer commercial practices, which explicitly prohibited inertia selling535 and amended the earlier provisions. However, none of these pieces of EU legislation refers to the eventual proprietary consequences of the supply of unsolicited goods or services.

531 532 533

534 535

terests that the contract is extended (however, see MD 2005:34). See, for example, prop. 1970:57 73 f and Adlercreutz, Avtalsrätt 112, 72. NJA 1946 s. 122. See also NJA 1931 s. 412. The present act: Marknadsföringslagen (2008:486). SOU 2007:1, 13, 126 ff. The suggestion was, just as in Denmark, that the consumer should be able to keep the goods without paying for them if a business had delivered the goods without prior contract, with the exception of delivery by mistake. A consumer should also not have to pay for a service he or she had not ordered. Compare the Danish Consumer Contract Act (Forbrugeraftaleloven) section 8: “Where a business enterprise delivers goods to a consumer without his or her prior request, and where this is not due to an error, the consumer may keep the product free of charge”. Para. 5. Annex I, no. 29.

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In the earlier version of the Swedish law536 there was an explicit ban on delivery without prior contract, while in the present version of the act, the ban is made by reference537 to the mentioned Directive 2005 / 29 / EC538 but it is not meant as any major difference and old cases should still be valid. The Consumer Ombudsman has issued a number of bans on companies engaged in sending goods without prior contract over the phone. One case539 concerned a company that sent underwear to people who had either not ordered any or only accepted a free sample. The recipients were asked to pay anyway and were also informed that they had signed a subscription to have continuous supply of underwear and that they must inform the company as soon as possible if they did not want to continue the subscription. The Ombudsman found the procedure to be contrary to section 12 of the earlier law and issued a ban on the procedure with a fine of 200,000 SEK. Another case540 concerned a company offering free samples of various types of dietary supplements and other health food products. In connection with receiving the goods, they were informed that they could contact the company to waive the continued supply. No supporting agreement was evident and the procedure was deemed to be in breach of the Marketing Act. The conclusion is that there are rules in Sweden banning certain unfair business practices, but no rules on the proprietary consequences; whether or under what circumstances the consumer can keep the goods. There are also no general principles or legal doctrine offering a satisfactory answer. However, it seems reasonable that goods of a lesser value can be kept or discarded, if there is no reason to believe they were sent by mistake, and in the case of goods of a greater value the consumer must give the sender a possibility to retrieve the goods.

536

537 538

539 540

Marketing Practices Act (Marknadsföringslag (1995:450)), section 12. The ban represented a codification of the practice of the Market Court; see MD 1973:22 and 1994:4. In another decision a charity organization was deemed to have acted improperly by sending unsolicited Christmas cards. Such a sending of unsolicited cards along with a prayer for monetary contributions was considered improper, even though some elements of deception regarding the legal consequences were not met. Nevertheless, the procedure was considered to put the recipient in a coercive situation where he or she felt morally obliged to pay compensation for the “gift”, see MD 1978:5. From section 4. Paragraphs 21 and 29 of Annex 1 (Commercial practices that are considered unfair in all circumstances) now cover the earlier statutory provision in section 12. See prop. 2007 / 08:115, 103 f. FF 2004:10. FF 2005:28. See also 2004:15 regarding unsolicited fish oil and FF 2006:1 where a free sample of a newspaper was delivered with a bill for a subscription.

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Part III: Original acquisition 12.

Acquisition by production, combination and commingling

12.1.

Introduction

This chapter deals with the legal fate of pieces of movable property that are either transformed into “new goods” by work carried out by a person other than the owner of the original parts (“production”), or movables that are initially owned by different people and then for some reason can no longer be separated from each other (“combination” or “commingling”). Such events may be a result of the intention of one or more of the parties (e.g. someone intentionally attaches tyres to a car, mixes someone’s crude oil with that of another). However, combination and commingling may also happen by accident, for instance, by a natural phenomenon. When it is no longer possible to separate movables originally owned by different persons, the right in rem of at least one of these persons will be affected. The solution will be either to give a sole right to one of the parties in the conflict situation (the original owner of the material, or the person carrying out the work, respectively) or a co-ownership right to both. The distinctions between the definitions of production, combination and commingling are not easy to determine exactly, and no such writing on this subject is to be found in Swedish literature.541 Whereas work, for instance, is certainly the main characteristic of production, work may also be present in a situation of combination. However, since Sweden does not have any rules on this matter, it is probably not of supreme significance to determine which precise situation belongs to one or another category. What may, on the other hand, be important is to determine whether the Sale of Goods Act applies in a certain conflict situation or not. The act is namely applicable where goods are to be produced – apart from the situation where the customer provides a substantial part of the material. If the

541

One Danish legal scholar even finds the distinctions between production, combination and commingling, indistinct, unnecessary and not thought-through, Vinding Kruse, Ejendomsretten 13, 424 f; See also Illum / Carstensen, Dansk tingsrett, 382.

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act applies, the customer can only separate the goods when they have come into his or her possession (tradition principle).542

12.2.

Legal sources and party autonomy

There is no regulation regarding production, combination and commingling in Sweden, but the concepts have been touched upon in legal writing.543 However, the concepts are rather indistinct and very few arguments are put forward for a preferred solution. The question of party autonomy, i.e. whether the respective rules developed in legal writings can effectively be changed by an agreement between the parties involved, is not discussed. Without rules and with indistinct doctrine, it can be assumed that these areas are open for agreement between the parties. The rules in the Co-ownership Act, which are relevant for some questions discussed below, are non-mandatory.

12.3.

Relation to non-contractual liability for damage and unjustified enrichment

In addition to the property law principles discussed in the following, an act falling within the meaning of production, combination or commingling can also trigger liability under the law on non-contractual liability for damage,544 but there are no specific rules granting a right to damages in the case of acquisition by production, combination or commingling. The general rule of responsibility in the law is based on the culpa principle.545 If someone has been negligent, he or she is responsible regardless of being an owner and regardless of whether he or she is seen to have a better right to the goods. Also, the concept of unjustified enrichment has an insignificant role under the Swedish functional approach.546 The question of liability could therefore be said to be solved independently of property law principles.

542 543

544 545 546

See chapter 4.4. on the buyer’s protection against the seller’s general creditors. See, for example, Håstad, Sakrätt avseende lös egendom6, 43 ff.; Millqvist, Sakrättens grunder3, 24 f; Undén, Svensk sakrätt 1, Lös egendom10 85 ff.; Rodhe, Handbok i sakrätt, 197 f. Tort Liability Act (Skadeståndslagen (1972:207)). See Hellner / Johansson, Skadeståndsrätt6. See further, chapter 16.

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Production

12.4.1. Proprietary consequences of production (a)

Production without consent of the owner of the materials

There are no specific rules governing the consequences of production (specification) and it is still unclear how different situations would be handled. When the production has been carried out without the owner’s consent and with the purpose of obtaining the property, the legal proprietary consequences are unclear. It is however considered that even if the production has been carried out in bad faith, the manufacturer can have a better right to the new movable if the new movable is much more valuable than the value of the materials. How much higher the value must be is still unclear and has never been specified in case law547 or doctrine.548 Bad faith is one circumstance for the court to take into account and might affect the requirement of higher value.549 Another circumstance could perhaps be when the manufacturer does not have the time to ask for permission, and the manufacturer has reason to believe that the owner would agree to the relevant work on his or her property.550 Another scholar argues that the better right will probably be given to the one contributing most value to the new movable, and if both contributions are of the same value, co-ownership may be the result.551

(b)

Production under a contract

If, however, the movable is produced under a contract, there might be different outcomes depending on the applicable rules of law. If someone hands over a movable for repair, it is certain that the owner of the movable retains a better right to the improved product, if the person carrying out the repair has moderately improved the product with work and material, and the material owner pays for the improvement. 547 548

549 550

551

However, see NJA 1934, 29. Håstad, Sakrätt avseende lös egendom6, 44 ff.; Undén, Svensk sakrätt 1, Lös egendom10, 85 ff. Undén, Svensk sakrätt 1, Lös egendom10, 85 ff. This argument is found in Norwegian literature; Rådsegn 7 frå Sivillovbokutvalet (Oslo 1963). Consideration could perhaps also be taken of the individual or effectual value for either of the parties. See on this matter, the Norwegian Property Law Act, section 4 and Danish legal scholar, Illum / Carstensen, Dansk tingsrett3, 399 and 403 ff. Millqvist, Sakrättens grunder3, 24.

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If, under a contract, the customer contributes some material and a completely new thing is created by the other party, the work performed being more valuable than the material, the material owner might have a better right to the movable. However, this solution is questional by one scholar where work is of lesser or no importance.552 The difference under Swedish law seems to lie in whether the production should be deemed a sale or a service. According to the Sale of Goods Act,553 this statute applies unless the customer contributes an essential part of the materials. This means that the owner of the materials, if the law is applicable, will not have a better right to the product unless the goods are delivered into his or her possession. If someone, on the other hand, contributes an essential part of the materials, the Sale of Goods Act is not applicable and the owner of the materials retains a better right to the new product, regardless of whether the value of the work is significant and whether the producer has transformed the material into a completely new movable. Nevertheless, Håstad additionally argues that there is legal support for giving the manufacturer a better right even where someone has contributed a significant part of the materials554 but that point is yet to be settled.

12.4.2. Compensation If the manufacturer acquires a better right to the product, the owner of the materials will have a claim for compensation for the value of the materials at the time when they were used.555 Swedish literature does not mention any compensation rules for the case of where the owner of the materials will be given a better right to the movable, but it can be assumed that the manufacturer will have a certain right to compensation.

552 553 554

555

Håstad, Sakrätt avseende lös egendom6, 45 f. Section 2. Håstad, Sakrätt avseende lös egendom6, 45 f. See also Lagen (1975:605) om registering av båtbyggnadsförskott and the Supreme Court case of NJA 1959, 590 regarding tender pigs sold on an installment plan with a clause for a right of retrieval, where the seller was considered to have a better right to the pigs, even at the time of slaughter and even though the buyer had contributed the main part of the pigs’ higher value. The court held that the identity was unchanged. Undén, Svensk sakrätt 1, Lös egendom10, 88.

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Combination and Commingling

12.5.1. Proprietary consequences There are no specific rules for combination and commingling. But since a movable must be identifiable in order to uphold a right in rem, one party’s right to the property may be lost if the movable is mixed or combined with other property. If the movables can be simply separated from each other, without significant costs or loss of value, the owners should remain owners of their respective contributions.556 The Supreme Court held, with a majority of 3 to 2, that when tyres were sold on credit under a clause for a right of retrieval, the car owner acquired a right to the tyres after their attachment to the car, even though separation could be carried out easily.557 It is still unclear whether this will also be the result in a situation where no credit has been given.558 If separation cannot be carried out, a better right to the movable should be allocated to the owner of the main part. If the parts are of approximately equal importance, the owners of the parts will be co-owners of the whole. The co-ownership shares will correspond to the value of each contribution at the time of combination or commingling.559 A rule containing such content has been proposed but has yet not been laid down.560

12.5.2. Compensation There are no specific rules on compensation, but the party losing the right to the movable will have a right to be compensated for the value of the part represented by the time of its use. If a better right to the property is recognized where the owner of the main part acted in bad faith, the bad faith acquirer should compensate the other party for the damage he or she has caused.561

556 557 558 559

560 561

Håstad, Sakrätt avseende lös egendom6, 47. NJA 1960 s 9. See Håstad, Sakrätt avseende lös egendom6, 48 and 187. Undén, Svensk sakrätt 1, Lös egendom10, 88 f; Håstad, Sakrätt avseende lös egendom6, 47. Proposed by Kommissionslagskommittén, SOU 1988:63, 37, 204 f and 274 f. Undén, Sakrätt 1, Lös egendom10, 88.

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12.6.

Division of co-ownership

Where co-ownership emerges as a consequence of applying the rules discussed, such co-ownership may freely be terminated by any of the co-owners by filing an application with the court.562 The court will appoint a trustee administrator563 who will sell the property in a public auction.564

13.

Good faith acquisition

13.1.

General

13.1.1. Background When someone has acquired goods from another who was not entitled to dispose of the property and the acquirer neither realized nor ought to have realized that the other person did not have a right of disposal, one usually says that the acquisition was made in good faith. The conflict between the two parties – the rightful owner and the person acquiring the property in good faith may be resolved by applying one of two principles: the principle of extinction or the principle of vindication. Before 2003, the Swedish Act on Good Faith Acquisition was solely based on the principle of extinction, meaning that the person acquiring in good faith owned a better right to the property and that the former owner’s right lapsed immediately upon the good faith acquisition. The former owner could, however, reacquire the property by redemption. The principle of vindication means, on the other hand, that the original owner’s rights survive and that he or she can have the property returned by the person who acquired the goods in good faith, without paying any redemption price for it. After the latest changes in the law, both of these principles are applied in the act that is in force today. The Swedish good faith acquisition rules have gradually been changed numerous times and stem from the now repealed sections of the 1734 Act.565 During the 1960s several attempts were made within the Scandinavian countries to achieve Scandinavian legal parity on the conditions for good

562

563 564 565

Co-ownership Act (Lag om samäganderätt (1904:48 s 1)), section 6. See also chapter 18. God man. Håstad, Sakrätt avseende lös egendom6, 58 f and Malmström / Agell, Civilrätt17, 88 f. Chapter, 11, section 4 and chapter 12, section 4 Commercial Code; these rules are still applicable in Finland.

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faith acquisition.566 Unity could not be reached, mainly because it was not possible to reach a consensus on what would apply in relation to the possibility of making good faith acquisition of stolen goods. In Denmark, Finland and Norway – in contrast to Sweden –, it was not possible to make a valid good faith acquisition in this case.567 Today there is a uniform approach on this matter. Good faith acquisition of stolen goods is not possible in any of these countries.568 Swedish law was amended in this respect in 2003. Before the law was changed, critics argued that the ability to achieve good faith acquisition of stolen goods conveyed an image to the public that the law facilitated trade in stolen goods. The public thus had the impression that the law did not defeat crime, but rather helped thieves and people to sell stolen goods by providing support for a market for stolen goods. Furthermore, the argument was added that the original owner effectively had to pay ransom to get the property back, unless he or she could prove that the transferee was not in good faith. These conditions communicated a common misconception to the general public that it was easy to make a good faith acquisition.569 The rules for seizure in connection with an investigation570 may have contributed to the misconception of the good faith acquisition rules. When someone was arrested on suspicion of theft and receiving stolen goods, it commonly happened that property that was suspected to be stolen was seized. If the inquiry then failed to secure sufficient evidence for prosecution, the inquiry was closed, while all confiscation was lifted and the property was returned to the person in relation to whom such seizures had been made. This also applied when someone had made a claim on the property. This formulation of the regulatory system may have led the public to believe that the issue of good faith acquisition was settled. However, this was not the case: the seizure termination was only the end result of a coercive 566 567 568

569

570

This led to the suggestions in SOU 1964:14, which were ultimately not accepted. Prop. 2002 / 03:17, 14 See for Finland: Zitting / Rautiala, Lärobok i sakrätt, 277; for Norway: Falkanger / Falkanger, Tingsrett6, 585 f; and for Denmark: Ancient Danish Code 6-17-5. However, the general public still does not seem to know the effect of the new law: six and half years after the law was changed – so that good faith acquisition of stolen goods is no longer possible – a poll of more than 1,000 people conducted by a public opinion institute showed that only 38 % of the population knew that the purchase of stolen goods leads to the effect that the acquirer cannot keep the goods and can only claim against the seller for compensation. 20 % thought that acquirers of stolen goods could keep the goods if they were in good faith and 18 % thought they could claim compensation from the original owner. The rest had simply no idea at all. See Demoskop, 2010-01-12 (published in various newspapers). Code of Judicial Procedure, chapter 27, especially sections 1-8b.

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measure. The question whether an acquisition had occurred can be determined definitively only by a court and not by the police or the prosecutor in connection with the fact that an investigation has been shut down. According to an addition to the Code of Judicial Procedure571 of 2003, an owner can now have the property returned before the case has been settled in court. Where a plaintiff has laid claim to the seized goods and it is obvious that he or she has a better right to them than the person in relation to whom the seizure has been made, the goods can be handed over before the prosecution and the conflict on the better right to the goods have been settled. The principle of extinction is still the main rule in Sweden. Nonetheless, vindication should apply where the original owner has been deprived of the property by an offence involving unlawful dispossession of the property,572 i.e. stolen goods and property comparable thereto. The unlawfulness is not, however, linked to a number of specified offences, which would have the consequence that a court would be obliged in its considerations to determine criminal law in civil law proceedings. It is necessary that the goods have been deprived from the owner by dispossession, i.e. unlawful appropriation or by some kind of qualified force, e.g. irresistible compulsion involving imminent danger (violent coercion). The unlawful appropriation entails possession being taken without the consent of the owner (except when the “consent” was given as a result of violent coercion). However, if the original owner does not claim the return of his or her property within six months of gaining knowledge of the other party’s possession, or from when he or she ought to have gained such knowledge, the possessor acquires the better right to the goods.573 Since there are no rules regarding limitation on ownership to movable property in Swedish law, the amendment of the law also included a section on acquisitive prescription, meaning that in some circumstances the right of vindication will be limited to ten years.574

13.1.2. Overview Apart from the Good Faith Acquisition of Personal Property Act, there are rules on good faith acquisition in the Act on Instruments on Debts575 571 572 573

574 575

Chapter 27, section 24a. Good Faith Acquisition of Personal Property Act, section 3. Good Faith Acquisition of Personal Property Act, section 3 sentence 2. See 13.9. below. See further, chapter 14. Act on Instruments on Debt (Skuldebrevslagen).

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and the Act on the Trading of Financial Instruments.576 The rules in these acts do not differ much from the general Act on Good Faith Acquisition. This will be dealt with separately. In addition, there are also some rules for registered movables, for instance, in the Maritime Code.577 The general law does not apply to good faith acquisition of movables where special regulations exist and analogies from related legislation or the adoption of a general unwritten principle of good faith acquisition have no support.578 The rules for tangibles are found in the Good Faith Acquisition of Personal Property Act. A good faith acquisition is possible even if the seller never has been the owner, and a differentiation is made as to whether the owner lost possession of the property by someone committing certain crimes in breach of possession or where the owner lost possession under other circumstances.579 If the owner’s possession has been interrupted by someone committing certain serious crimes (such as theft or robbery), good faith acquisition is not possible. A conviction of the offender by a court is not required, but the rule is applicable on the condition that the subjective and objective elements for the crime are abstractly fulfilled. The lack of a conviction can be due to the fact that the offender may not be legally charged. If possession has been interrupted by less serious crimes (such as usury), or has been ceded voluntarily, good faith acquisition is still possible if all the requirements for a good faith acquisition are fulfilled.580

13.2.

Functional approach

As stated above (see chapter 1.4.), a conflict between two claims for the same property is solved by deciding who should be given priority over the other without deciding who should be the owner. When priority is given to someone, he or she is said to have a better right to the property (“better” in relation to the other party). If the transferee is said to have a better right than the transferor, that does not necessarily mean that the transferee has a better right in relation to a third party. This means that when a court decides that the acquirer has a better right than the original owner, this does not solve the matter of any other claims against the acquirer. Just as in the other Scandinavian countries, due to the functional approach, the important aspect is whether the transferor seems to have the right to dispose of 576

577 578 579 580

Financial Instruments Trading Act (Lag (1991:980) om handel med finansiella instrument). Maritime Code (Sjölagen), Chapter 2, especially section 10. Håstad, Sakrätt avseende lös egendom6, 77. Good Faith Acquisition of Personal Property Act, section 3. Good Faith Acquisition of Personal Property Act, section 3.

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the movable in the eyes of the transferee, so that what he or she is about to acquire is not in conflict with any earlier right to the movable, not whether the transferor seems to be the “owner” of the property or not.

13.3.

Standard of acquirer’s good faith

Section 2 of the Good Faith Acquisition of Personal Property Act states that an acquirer should be considered as being in good faith only if, considering the kind of tangible, in the circumstances under which the sale took place, and under the circumstances in general, the acquirer most probably did not suspect that the transferor was not entitled to dispose. The transferee has to comply with a “reasonable degree of diligence” regarding the transferor’s right to dispose.581 According to the law, the transferee’s duty of care should be adapted to the nature of the property, the conditions under which the property was offered and the circumstances in general.582 One of the factors to take into account is therefore the nature of the property: the acquirer is required to conduct a more thorough investigation of the transferor’s right if the acquisition concerns movables that are frequently stolen, especially valuable goods, or where it concerns property that is often sold under a reservation of title clause. A buyer of a motor vehicle from a private person has a far-reaching duty to examine whether the transferor has the right to dispose.583 Such a duty is not required if the acquisition occurs in the ordinary course of business.584 Another factor to take into account is the circumstances under which the property was offered: this applies in particular to the time and place of

581 582 583

584

Prop. 1985 / 86:123, 20 f. Section 2. Prop. 1985 / 86:123, 21. See also NJA 1982 s. 312 where a person bought a car from another private person and only relied on the information provided by the seller orally without making any real investigation of his own regarding the car. He also did not receive all the official documents and the price was lower than for cars of the same kind. The buyer was therefore deemed by the court not to have fulfilled his examining duties. The case is from the period before the Act on Good Faith Acquisition of Personal Property, but since the Act has the purpose of making it harder to acquire goods in good faith, cases where the transferee was deemed not to be in good faith are still of interest. On the other hand , court decisions prior to the Act where the party was deemed to be in good faith may not be valuable any longer. Håstad, Sakrätt avseende lös egendom6, 68 f; Millqvist, Sakrättens grunder3, 55; Prop. 1985 / 86:123, 22.

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the transfer or if the transferor is especially young or the price of the goods is exceptionally low.585 A higher standard of care should be imposed on a professional businessman than on an ordinary person.586 Even if it is not stated explicitly, the rules should be similar to Norwegian law with an objective standard downwards, and a subjective standard upwards: the naïve or trustful belief of the acquirer is irrelevant, but if the transferee has actual knowledge regarding the movable or any surrounding circumstances, one can demand a higher standard of care in the acquisition.587 Good faith on the part of the acquirer is required both at the moment of the conclusion of the contract and at the moment of the transfer of possession. If the acquirer is represented by someone else, for instance, an agent, good faith is required for both the acquirer and the agent.588 The burden of proof for the transferee’s actual knowledge that the transferor is not allowed to dispose rests on the legitimate owner, if such knowledge is claimed by the legitimate owner.589 However, the transferee has to prove that there were no circumstances that would have led him or her to even suspect the existence of impediments to the acquisition.590 This means that the main burden is on the transferee, because even if the former owner does not manage to prove that the transferee knew about the circumstances causing the lack of the transferor’s right to dispose, the transferee still bears the obligation to prove that the circumstances of the transfer were such that would lead him or her to have no reason to suspect that the transferor had no right to dispose of the property.591

13.4.

Onward transfer

Where the acquirer has acquired the goods in good faith, thereafter he or she may transfer the goods to another person who knows of the lack of a right to dispose on the part of the first transferor. Once a valid good faith acquisition is made, future bad faith has no relevance: all future transfers are valid regardless of good or bad faith.592 Due to the functional approach,

585 586 587 588 589 590 591 592

Prop. 1985 / 86:123, 22. Millqvist, Sakrättens grunder3, 56; Prop. 1985 / 86:123, 22. Falkanger / Falkanger, Tingsrett6, 589. Prop. 1985 / 86:123, 20. Prop. 1985 / 86:123, 21. Millqvist, Sakrättens grunder3, 54. Millqvist, Sakrättens grunder3, 54; Prop. 1985 / 86:123, 21. Hessler, Allmän sakrätt, 105.

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however, this only relates to potential conflicts between the original owner and subsequent acquirers of the property.

13.5.

Acquisition for value or gratuitous acquisition

An owner’s right can be extinguished by transfer not only for value but also by gift. The issue of gratuitous acquisitions or acquisitions for a very low price will often be practically solved by the original owner’s right to buy back the goods from the good faith acquirer by paying what the latter paid to the transferor (see 13.9. below). However, inheriting property, succession or division of joint property between married persons does not extinguish earlier rights to the property.593 This does not prevent, for example, that an heir or heiress from claiming that the property he or she has inherited has been acquired in good faith by the deceased.594

13.6.

Circumstances of the acquisition of possession

Priority between the two concurrent interests is achieved by transfer of possession to the transferee. It can be achieved by means of notice to a third party, if a third party is in possession of the movable on the transferor’s behalf. Case law has stressed that, if the transferor has never been the owner, the requirement of good faith must also be fulfilled by the third party in possession of the goods.595 In the case of a double sale, good faith of a third party possessor is probably not a requirement.596 Even if registration or marking of wood can be used as a substitute for transfer when it comes to protection from the seller’s creditors, it cannot be used as a means of transfer that extinguishes the rightful owner’s right to the goods.597

593

594 595 596

597

Håstad, Sakrätt avseende lös egendom6, 65; Tiberg, Skuldebrev, växel och check6, 115. Prop. 1985 / 86:123, 19. NJA 1931 s 741; against this opinion: Håstad, Sakrätt avseende lös egendom6, 66 f. The Act on Instruments on Debt, section 31; Håstad, Sakrätt avseende lös egendom6, 67. See further, on double sale, chapter 6. Håstad, Sakrätt avseende lös egendom6, 66.

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129

Good faith acquisition of cultural objects

There is no regulation specially designed for cultural objects. The legislator found it too difficult to define the category of cultural objects.598 A definition would certainly mean that it had to be more precisely explained in other documents outside of the Act – which were not considered suitable for a rule on where “ownership” is to be situated. Such rule would also not include very valuable, non-cultural, property. With these arguments, a special rule was rejected.599 Cultural objects are instead considered to be sufficiently protected by a right of redemption. This right is unlimited in time. One concern in favor of having this right was to give museums and other public bodies a right to have their property returned even if it should emerge after a very long time.600 Cultural objects are also protected by the right of vindication of stolen objects without paying compensation from anyone who has acquired the object, if he or she demands to have the property returned from the possessor within six months of the time when he or she knew or must be assumed to have known about the possession.601

13.8.

“Regular market” rules

In some countries that have rules on the right of recovery without ransom, there are exceptions for purchase in the ordinary course of business, or similar circumstances. Prior to the latest reform of the Act on Good 598

599

600 601

A definition of “cultural object” does, however, exist in Swedish law in chapter 5 of the Heritage Conservation Act (Lag (1988:950) om kulturminnen m.m.), concerning protection against export of certain older cultural objects, and in chapter 6 of the same Act that contains provisions on the return of illegally exported cultural objects. Håstad, Supplement 2004 till Sakrätt avseende lös egendom6, 8 ff and SOU 2000:56, 123 f. Prop. 2002 / 03:17, 25 ff. See above, 13.1. at footnote 573, and chapter 13.9. below (Good Faith Acquisition of Personal Property Act, section 3 sentence 2). Swedish legislation, therefore, complies in these respects with the requirements of the “1995 UNIDROIT Convention on Stolen or Illegally Exported Cultural Objects” with the exception of the duration of the period of time in which a claim for restitution can be made. If an object is considered stolen in one Contracting State, but embezzled under Swedish law, an object can be subject to good faith acquisition or prescription in Sweden. The owner is, nevertheless, entitled to redeem the property for compensation provided that he or she makes his or her claim within six months of knowing about the acquirer’s possession of the object, see (in English) SOU 2005:3, 28 ff.

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Faith Acquisition, it was discussed in Sweden whether there should be a difference between purchases on the regular market and other purchases. On the one hand, buyers should not be required to make overly broad and in-depth studies on the origin of goods. It is often not practicable for an individual buyer in such cases to make thorough checks on the seller’s right to transfer the property. It is obvious that, when the customer asks where and under what circumstances the goods have been purchased, etc., these inquiries in practice culminate in the result that he or she is advised to accept the information the seller provides or that he or she simply does not receive any information on the grounds that this constitutes a trade secret. It was contemplated that the owner’s title to the goods might be extinguished where the owner lost possession of them through certain crimes, provided that the goods were sold on the regular market. However, it was found to be too difficult to define the notion of “regular market” and to implement such a rule without distorting the competition between different business forms, since it would give the regular market an unfair advantage.602 A consumer is protected by some provisions in the Consumer Sales Act in any case: a consumer who has to return the goods to the original owner has a right to terminate the contract with his or her seller and have his or her money back from the seller, or to refrain from paying any outstanding part of the price to the seller. He or she also has a right to damages.603

13.9.

Right of the original owner to buy back the goods from the bona fide transferee and the action of rei vindicatio

Notwithstanding the existence of rules on acquisition in good faith, the owner has a right to demand the return the property from the acquirer in many situations. If the transferee was in bad faith, or if the goods have been stolen or acquired by robbery or by threat of violence from the owner, he or she can demand the return of the property without paying any compensation: the owner’s right is not extinguished. The law distinguishes, as said, between owners who lost possession as a result of someone committing certain crimes in breach of possession (such as theft, robbery or threats of violence) and situations where the owner has ceded physical control of the property in other ways, such as by lease or deceit.604 In the case of such unlawfully dispossessed goods, even though 602 603 604

Prop. 2002 / 03:17, 17 ff. Consumer Sales Act, sections 21a, 22a, 23-32. Good Faith Acquisition of Personal Property Act, section 3.

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the offender is not convicted by a court, good faith acquisition is not automatically possible.605 In the case of minor crimes regarding lost or entrusted goods, the owner’s right to the goods is extinguished immediately via good faith acquisition. In these situations the owner has a right to buy back the goods from the transferee in good faith, in any event. If good faith acquisition occurs, the owner has to exercise the right of redemption within six months from the moment he or she knows or ought to have known that the possessor was in possession of the property.606 The same prescription period applies if there is no valid good faith acquisition due to the property having been stolen or taken by violence or under threat of violence from the owner. In these cases, the legitimate owner has the right to claim the property back from the possessor without being obliged to pay a price in return.607 If the prescription time of six months elapses, the transferee acquires the movable but is still subject to the owner’s general right of redemption (by paying compensation). If the transferee, for some reason, still does not have the property when the claim of vindication is submitted, the legitimate owner is entitled to obtain compensation for the value of the property.608 The right of the owner to recover the unlawfully taken property without payment is subject to the rules on acquisitive prescription, which is possible after a ten-year period of possession. However, a right of redemption, by paying compensation, is also possible in relation to property acquired via acquisitive prescription after ten years.609 A right of redemption does not, however, exist for negotiable instruments in any situation.610 A right of redemption would be rather useless for such instruments, apart from the situation where the price paid by the acquirer for the instrument is less than its value. If the legitimate owner exercises the right of redemption and has to reimburse the bona fide acquirer, he or she can choose to pay the lesser of either the price paid by the bona fide transferee plus potential improvements, or the market price of the goods.611 Inflation should be considered when calculating the amount to be paid.612 If there is acquisition by way of gift, 605 606 607 608 609 610 611

612

Håstad, Supplement 2004 till Sakrätt avseende lös egendom6, 7. Good Faith Acquisition of Personal Property Act, sections 5-6; SOU 2000:56, 128. Good Faith Acquisition of Personal Property Act, section 3. See (in English), SOU 2000:56, 24. Good Faith Acquisition of Personal Property Act, sections 5-7. Malmström / Agell, Civilrätt17, 183; Tiberg, Skuldebrev, växel och check6, 113. In respect of cultural objects, the law is providing a calculation sum that takes into account the enormous increases in value of cultural objects, see prop. 2002 / 03:17 27 f. Good Faith Acquisition of Personal Property Act, section 6.

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the acquirer may claim for reimbursement of the donor’s costs for acquisition and improvements, but only if the donor would have been entitled, in turn, to the same right of compensation, if the rightful owner had made his or her claim against him or her.613 This presupposes that the giver was in such a situation that he or she would have been entitled to compensation him- or herself, if the owner had directed a claim for the property against him or her. The acquirer is thereby placed in the same situation as that in which the donor would have been.

13.10. The property is encumbered by a security right When the transferee acquires a movable encumbered by a security right of a third party, this right is treated in the same way as ownership rights are treated. The right established first prevails in principle. (It is uncertain whether this also applies to rights of use. These rights might be treated differently.614) If the buyer takes possession of the movable in good faith with regard to the non-existence of the previously established limited property right, his or her right is given priority. With regard to pledges, one scholar points out that the Good Faith Acquisition of Personal Property Act is not in fact applicable in these cases, since the person who first grants a pledge to one person is still the owner of the movable in a formal sense when he or she sells it to a good faith acquirer. The aforementioned rules are nevertheless used.615 However, this situation could scarcely occur: a correctly secured right of pledge presupposes handing over the movable to the pledgee. Then, it is rather unlikely that possession is transferred to a later buyer in good faith. In principle, however, if the transferor was in possession of the property and the movable is transferred to a good faith acquirer, the latter acquires the movable free of encumbrances.616

13.11. Good faith acquisition by other acts There are also rules on good faith acquisition in other statutes, though generally the principles are the same. Some details vary, however.

613 614 615 616

Håstad, Sakrätt avseende lös egendom6, 71. Walin, Borgen och tredjemanspant2, 309. Håstad, Sakrätt avseende lös egendom6, 87 f. Håstad, Sakrätt avseende lös egendom6, 87 f.

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A valid good faith acquisition of negotiable promissory notes is, in contrast to tangibles, also possible from a thief. No difference is made regarding how the seller obtained possession of the note: a possessor is presumed to be the proper creditor with the power to transfer the right to the claim.617 The acquisition extinguishes the former owner’s right.618 If the transferee has breached the duty of care, which, according to the circumstances, reasonably should have been exercised, he or she is no longer in good faith.619 For the effect of extinguishing the former owner’s right to occur, however, it is required that the document is handed over to the transferee. Applying the tradition principle in practice means that the claim and the document representing the claim will be acquired substantially under the same principles that apply to tangibles. However, if the document is in the hands of a third party, notification of the third party will suffice and the original owner has no right of redemption.620 Such right would be rather meaningless at any rate. The owner’s right can be extinguished by transfer for value and by gift. Just as with tangibles, transfer by inheritance and division of joint property are excluded.621 Provisions on good faith acquisitions of bills of exchange and cheques are found in special statutes, but such rules follow the rules on negotiable promissory notes.622 For promissory notes, cheques or bills of exchanges that are to be paid to a specific person or to someone to whom he or she transfers the note, cheque or bill of exchange, the acquirer must investigate the chain of transfers in order to carry out a valid good faith acquisition.623 A valid good faith acquisition is not possible for non-negotiable promissory notes624 but such notes can be acquired in good faith by a double sale if the second buyer notifies the debtor before the first buyer does so.625 In addition, there are also certain rules available for registered movables in the Maritime Code,626 for instance, and also rules available for fi617 618

619 620 621 622 623 624

625 626

The Act on Instruments on Debts, section 13. The Act on Instruments on Debts, section 14; Tiberg, Skuldebrev, växel och check6, 112. Act on Instruments on Debts, section 14. Tiberg, Skuldebrev, växel och check6, 112 ff. Tiberg, Skuldebrev, växel och check6, 115. See the Bills of Exchange Act, section 16 and the Cheque Act, section 21. Hessler, Allmän sakrätt, 136 f. Tiberg, Skuldebrev, växel och check6, 90; however, see Håstad, Sakrätt avseende lös egendom6, 76 ff. Act on Instruments on debts, section 31, paragraph 2. Maritime Code (Sjölagen), chapter 2, especially section 10. Good faith acquisition of pledges is regulated in chapter 3, sections 9-10 and of bills of lading in chapter 13, section 56.

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nancial instruments.627 The Good Faith Acquisition Act applies to aircraft, but the rules on their registration in the Aviation Act628 can have effect on the transferee’s good faith regarding the transferor’s right to dispose.629 For commission agents there is one rule stating that if a commission agent concludes agreements without authority, these agreements are binding for the principal if the other party is in good faith.630

14.

Acquisitive prescription and limitation of ownership

14.1.

Introduction, including limitation of ownership

1. For some reason the rightful owner may lose control over the movable. For instance, it may have been stolen from him or her or he or she may simply have lost it – and someone else thereafter possesses the movable. The following section will discuss questions that may arise from the situation where someone is in possession of someone else’s movable for a period of time and whether under certain circumstances and after some time – and after other requirements are fulfilled – the possessor may obtain a better right to the goods at the expense of another. The few provisions that exist on this topic are rather new in Sweden and there are still no case decisions available. Generally speaking, the Swedish legislator intentionally leaves specific questions in property law to be settled by the courts.631 It becomes quite obvious when trying to answer minor specific questions on acquisitive prescription that there is not much information available at all, whereas other legal systems may have detailed answers in this area. In any case, the purpose here is to try to answer some of the questions that may arise or at least not to leave all of them untouched. 2. In Swedish law there are no rules on time limitation of the right to ownership in movable property. Since the latest amendment of the Good 627 628 629 630 631

Lag om kontoföring av finansiella instrument, chapter 6, section 4. Luftfartslag (1957:297), chapter 2. Håstad, Sakrätt avseende lös egendom6, 75. Section 26; see further, chapter 5. See an example on this matter in Prop. 2002 / 03:17, 28, where specific questions on the right of redemption were discussed: “On the whole, regulation of this kind should not be too detailed. The regulation should only include the basic rules. More practical questions are better answered in the judicial practice, such as whether the current property has increased or decreased in value … It is such questions which need not to be governed by the law and which … should be left unregulated and resolved in judicial practice, based on the law and based on general property law principles”.

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Faith Acquisition of Personal Property Act, some transfers (like, for instance, of stolen goods) are not recognized and such goods cannot, therefore, be acquired in good faith. The absence of a rule of time limitation would mean that the person who has stolen the property would maintain his or her right to the property indefinitely. It was found to be unreasonable for those who have bought goods in good faith to be forever in jeopardy of losing it if it should transpire that the goods were in fact stolen. A perpetual right to recover stolen goods without payment in return would mean that such property would be forever considered stolen and thus never be subject to legal transfers, unless the original owner resumed possession of the property in the meantime. Such a constellation was considered to be contrary to the interests of free-flowing commerce, but would also pose the problem that the property could be indefinitely subject to the crime of receiving stolen goods.632 For these reasons a right of vindication ceases in two different situations: there is a rule whereby the right ceases after six months of the rightful owner becoming aware or of the point in time at which he or she ought to be aware of the possession exercised by another person,633 and another rule whereby the right ceases after ten years of possession by another.634

14.2.

General rules on acquisitive prescription

The term “acquisition of ownership by continuous possession” or “acquisitive prescription”635 was only used in relation to immovables before the year 2003 with a ten and twenty year prescription period.636 Today, acquisition of ownership by continuous possession is also possible for movable property, but the relevant rules only apply to goods of which the rightful owner has been deprived through certain serious crimes, where immediate good faith acquisition is not possible.637 This rule is laid down in the Good Faith Acquisition of Personal Property Act: “where the owner has been deprived of the property as a consequence of any person unlawfully taking such property from him or her or forcibly obtaining it through violence against the person or through a threat that entails, or is understood by the 632 633

634 635 636 637

Prop. 2002 / 03:17, 23. Good Faith Acquisition of Personal Property Act, section 3 sentence 2, see 13.9. above. Acquisitive prescription as discussed below. Hävd. See Land Law Code (Jordabalken) chapter 16, section 1. These crimes are regulated in the Criminal Code chapter 8, sections 1-8; see further, chapters 13.1. and 13.19.

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threatened person to entail, a danger constituting duress”,638 the owner loses the right to the object if the movable has been transferred to a good faith acquirer who acquires a better right to the object after ten years of continuous possession.639 Immediate good faith acquisition is not possible in these cases, but after ten years of continuous possession in good faith the acquirer obtains a better right to the movable. The time limit of ten years has been chosen so as to fit the prescription period of obligations that exist as between a buyer (C) and seller (B); a buyer normally has ten years, after concluding the purchase agreement, to bring claims against the seller. This means that a buyer (C), who has to return the goods to the owner (A), will still have the legal possibility of claiming damages from the seller (B).640 Even though acquisitive prescription has taken place after the ten year period has elapsed, the original owner will still have a right of redemption. Theoretically, the right of redemption is unlimited in time.641 One aim of the law was to protect museums and other bodies serving a public interest. A museum should be able to recover the goods even if it reclaims them after a long time and no private natural or legal person should prevail over such a public interest.642 The rightful owner has the right to redeem the goods on paying the good faith acquirer (including the acquirer based on ten years of continuous possession) the sum the latter paid plus whatever costs he or she incurred to improve the goods, or on paying the market price. Inflation should be considered when calculating the redemption sum.643 The rightful owner has to exercise the right of redemption of the object within six months in order not to lose it: the period runs from the point in time at which the owner ought to have known that another person was in possession of the goods.644 It is required that possession is exercised “as owner”.645 The law does not require direct possession (actual physical control), either at the beginning of the period or throughout the required ten years. It is enough if the ownerpossessor has made the necessary arrangements that normally go hand in 638 639 640 641 642 643

644

645

Good Faith Acquisition of Personal Property Act, section 3. Good Faith Acquisition of Personal Property Act, section 4. SOU 2000:56, 122. SOU 2000:56, 128. Prop. 2002 / 03:17, 25 ff. Good Faith Acquisition of Personal Property Act (Godtrosförvärvslagen), sections 5-7. See chapter 13.9. above for more details. Good Faith Acquisition of Personal Property Act, Section 5; Håstad, Supplement 2004 till Sakrätt avseende lös egendom6, 8. Good Faith Acquisition of Personal Property Act, Section 4; “med äganderättsanspråk”.

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hand with owning the object. He or she must use the movable in question in the same way as an owner. The rules on good faith acquisition, which also apply to acquisition by continuous possession, provide that it is sufficient to believe that the transferor is entitled to dispose. Accordingly, there is no specific requirement for good faith in relation to the transferor’s right of ownership. The wording is: “Title shall not vest if, at the time of the acquisition or during the period of possession, he should have suspected that the transferor was not entitled to dispose of the property”.646 Even though it is not required that the transferor must have had the goods in possession at the time of the transfer, a lack of such possession may lead a relevant person to question the possessor’s good faith regarding the transferor’s right to transfer the object.647 If the original owner should claim that the possessor was not in good faith upon acquisition or that the good faith has ceased during the time of possession, it is up to him or her to indicate, under his or her view, the circumstances that have meant that the possessor had reason to suspect that the transferor was not authorized to do so. The original owner also has the burden of proving that the circumstances did in fact exist. Based on the proven facts there will be a subsequent assessment of what the possessor should have suspected.648 There is no bad faith acquisition of a better right to goods. A thief, for instance, can therefore not acquire ownership of the stolen goods. It is not said explicitly but one reason is probably that the law should not provide legal certainty to an acquirer who knows or should know that he or she is not the owner of the movable. A person initially in bad faith can become bona fide where the good faith is based on new information. Under Norwegian law, for instance, a possessor will be able to acquire the movable after ten years of continuous good faith possession, regardless of his or her initial bad faith.649 It seems reasonable that it is the ten years continuous possession in good faith that is the important factor to be fulfilled and not whether the possessor was in good faith at the time of transfer. Nevertheless, the Swedish provision is clear that the possessor has to be in good faith at the time of transfer and it should probably not matter whether the possessor progresses to the status of being in good faith at a later time. It has not been discussed in Sweden, but several possessors should be able to acquire ownership simultaneously by continuous possession and thereafter become co-owners of the movable.650 646 647 648 649 650

Good Faith Acquisition of Personal Property Act, section 4. Prop. 2002 / 03:17, 37. Prop. 2002 / 03:17, 37 f; Millqvist, Sakrättens grunder3, 63. Brækhus / Hærem, Norsk Tingsrett, 589; Rt 1951 s. 135. This is possible in Norway, see Falkanger / Falkanger, Tingsrett6, 290 ff.

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14.3.

Involuntary loss of possession during the acquisition period

One of the requirements to acquire ownership by acquisitive prescription is that the possessor is in possession of the movable for a certain amount of time – and one may then wonder what the consequences are if he or she loses the possession involuntarily for a certain time (e.g. by losing the goods him- or herself, or where the goods are stolen from the possessor) but regains possession thereafter: will this time still be treated as “continuous possession” by the potential acquirer, and if so, under what requirements? There is no regulation in Sweden regarding involuntary loss of possession and it does not seem to have been discussed in any legal literature. The rules on acquisitive prescription for movables have only been in place since 2003 and can only relate to goods transferred after the act entered into force. By their very nature it is not very common to involuntarily lose possession of immovables – for which Sweden has had rules on acquisitive prescription for many years – so no leading writings are to be found there either. However, under a functional approach there is always the possibility to argue for granting the person who lost possession a period within which possession may be recovered. There are rules on this issue and it has been discussed in other Scandinavian countries, such as Denmark and Norway. In Norway the legislator grants this person a period of 2 years to recover possession; during these 2 years the period for acquisition of ownership continues to run in favor of the possessor who lost possession as long as he or she recovers the goods before 2 years have elapsed or has brought an action within this period which later turns out to be successful.651 In Denmark the situation is less certain and the manner of handling this issue is to be found in scholarly legal writing. Loss of possession against the will of the possessor (theft or accidental loss) does not interrupt the period for acquisition of a better right when possession is recovered, with the aid of the police or an honest finder, even where time has passed since the loss of possession.652 It seems that the period for recovery is not fixed, it depends on the discretion of the judge. Another legal scholar states that the importance lies not in the possessor’s possession and use of the movable, but rather the lack of possession or the lack of use by the owner of the movable. He finds the discussion of involuntary loss pointless and unreasonable and the reason for that is that he makes no distinction between the rules for the acquisition of ownership by continuous possession and the rules on the prescription of obligations. In his view, the results would be incompatible if the possessor’s 651 652

Falkanger / Falkanger, Tingsrett6, 300. Hitchcock / Poulsen, Dänemark, in von Bar (ed.), Sachenrecht in Europa I, 42.

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possession were irrelevant for the rules on the prescription of obligations (forældelse), but not so for acquisitive prescription (hævd).653 Involuntary loss can therefore be said to have little or no importance in Denmark. Based on this, there might be room for arguments in Sweden to grant the possessor who has lost possession for a certain period of time the opportunity to recover possession before the period for acquiring by continuous possession is officially considered interrupted. However, the argument that it is not the possessor’s possession and use of the movable that is important, but the lack of possession or the lack of use by the owner should not be applicable in Sweden: possession is an express requirement for acquisitive prescription. Nevertheless, it seems reasonable that a short period of involuntary loss should not interrupt the period of possession if the loss of possession is accidental or against the will of the potential acquirer – especially since it is not necessary for the potential acquirer to actually hold the property. It is sufficient that he or she has taken measures in relation to the property that regularly fall within the owner’s responsibility.654 If the possessor has lost possession by theft and he or she therefore turns to the police, who after a certain time returns the goods into his or her possession, he or she should thereby have been considered as taking measures that one would expect from an owner.

14.4.

Presumption of continuous possession

A point that has not been mentioned in any of the preparatory works or in legal writings is the extent to which a potential acquirer must prove that he or she has been in possession of the goods throughout the ten year period in order to fulfill the requirements for acquiring the goods by continuous possession. However, since the owner is the one who has to prove the possessor’s bad faith at the time of acquisition of possession or at a point in time during the period for the acquisition of ownership by continuous possession,655 one can conclude that the owner also has to prove that the possessor has not been in possession of the goods at all times within the relevant period.

653 654 655

Vinding Kruse, Ejendomsretten I3, 577 ff., 585. Prop. 2002 / 03:17, 37. Prop. 2002 / 03:17, 37.

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14.5.

Extension and renewal of the period

The common topic in this subchapter is whether certain relevant grounds exist for the extension of the qualifying period, which is to be added before acquisition is completed by the possessor; whether, for example, the commencement of judicial proceedings by the original owner constitutes grounds for extension, so that the period does not end while the case is to be settled in court, or whether negotiations, which can last quite long, also have this effect. Theoretically, an extension of the period could occur in the form of a suspension (where the time in which the grounds for suspension persist is not counted towards the period, but the period continues to run after the grounds for suspension have ended) or a postponement of expiry (where the period, in principle, continues to run but cannot end until the grounds for extension persists, or additional time has passed thereafter).656 Nevertheless, renewal (in some countries also referred to as “interruption”) of the period – in the sense that a completely new period begins to run – for the same possessor can never be an issue in Swedish law. For the sake of completeness: theoretically it could be possible that someone buys goods in good faith, sells them to a bad faith acquirer, but keeps possession of the goods (e.g. by renting them) and then later buys them back, still in good faith. If that would ever occur, there would probably be a renewal of the period at the point when the good faith acquirer buys the goods a second time (since he or she has not had possession of the goods “as an owner” during the interim period). 1. Although there is nothing written about an extension of the running period due to judicial proceedings being commenced by the original owner against the current possessor, judicial proceedings should be enough to put the possessor in a position of bad faith, excluding the acquisition of a better right to the goods.657 A rule suspending the period can therefore be said to be useless here. The same should be true of enforcement or arbitration proceedings as well as negotiations between the owner and the possessor. 2. Other grounds for extension of the period, such as in the situation where someone is subject to an incapacity and does not have a representative, extension in the case of an impediment beyond the owner’s control (i.e. war or a natural phenomenon preventing the owner from suing the possessor) etc. are not dealt with in Swedish preparatory works or legal literature. If such cases were to come before the court they would have to be solved on a case by case basis. Considering the fact that the main qualifying 656

657

Cf. von Bar / Clive (eds.), Principles, definitions and model rules of European private law – Draft Common Frame of Reference (DCFR), full edition, III.-7:301 ff. (for the prescription of claims) and VIII.-4:201 ff. (for acquisitive prescription). See a Norwegian writer on this matter in Falkanger / Falkanger, Tingsrett6, 311.

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period is ten years before the possessor acquires the goods by acquisitive prescription, one may perhaps conclude that a court would probably not extend the period if the grounds for extension have not prevented the original owner from enjoying possession for a very long time and especially where the grounds have not prevented him or her from such at the end of the period; but this is only an important issue if this period of prevention is followed by a claim on the property, otherwise questions like this are merely of academic importance. If someone has been prevented from exercising his or her right for a certain number of years in between the ten year period, it is hard to see any justifiable arguments for allowing an extension. The importance is the possessor’s continuous possession in good faith – so that after a fixed time a possessor is not placed in a position where he or she is in jeopardy of losing the goods and to allow him or her to legally transfer the goods – not whether the original owner has had the possibility to exercise a search of the property for the whole period. This ground may, however, have some implications regarding the shorter period of six months running from the time when the original owner knows or ought to know that the goods are possessed by another particular person,658 but this has yet to be decided.

14.6.

Successive possession

It may happen that the goods are transferred to another person during the qualifying period: the possessor may sell the goods, give them away or the goods are inherited by another. Under Swedish law, several transfers can be taken into account for acquisitive prescription as long as all possessors are in good faith.659 Unlike the first acquisition, which must be carried out by transfer, later acquisitions may occur by testamentary or intestate succession, division of marital property or similar acquisitions.660

658

659 660

Good Faith Acquisition of Personal Property Act, section 3 sentence 2, see 13.9. above. Good Faith Acquisition of Personal Property Act, section 4. Good Faith Acquisition of Personal Property Act, section 4 and Prop. 2002 / 03:17, 38; Blom et al., Karnov 2006 / 07 (-Persson), 687 note. 22,

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14.7.

Effects of acquisition by continuous possession and claims under rules on unjustified enrichment and non-contractual liability for damage

1. The effect of the possessor fulfilling the requirements of acquisition by continuous possession is called an acquisition of “ownership”,661 which will, however, primarily be understood as a better right to possess as against the original owner. Claims from others are not solved here. Even though an acquisition of “ownership” has occurred, the original owner still has a right of redemption for an unlimited time.662 2. No scholarly legal writing may be found on the effects of acquisition by continuous possession in relation to limited property rights previously existing in the movable. However, it is recognized in other Scandinavian legal literature that these rights are extinguished if they not exercised during the period.663 3. There is no general rule on the effects of acquisition by continuous possession on hypothetical unjustified enrichment claims the original owner may have had against the possessor (the new “owner”). As discussed in more detail below, unjustified enrichment is a disputed concept seldom used in practice.664 Accordingly, there are no explicit rules on the relationship between acquisition by continuous possession and the unjustified enrichment claims of the former owner. The same goes for the relationship between acquisition by continuous possession and claims under the law of non-contractual liability for damage. As Swedish law only allows for acquisition by continuous possession in good faith, the possessor will not have acted negligently, which would be one of the requirements for a claim from the former owner for damages based on non-contractual liability. The conclusion is that a claim for damages will not be successful.

661 662

663

664

“Äganderätt”, see Good Faith Acquisition of Personal Property Act, section 4. Good Faith Acquisition of Personal Property Act, section 5. See chapter 13.9. above. For Denmark: Vinding Kruse, Ejendomsretten 13, 586 f; for Norway: Brækhus / Hærem, Norsk tingsrett, 595 ff. See chapter 16.

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15.

Occupation, abandonment and finding of lost property

15.1.

Occupation

Occupation is a type of original acquisition where someone can become the owner of a movable665 object by taking possession of it. “Original” acquisition means that the occupant’s rights to the goods are not derived from someone else. Someone may have abandoned goods or the occupation may concern things in the wild, or other ownerless things, such as wood washed ashore. Before occupation, no one has at that particular moment any right to the goods. If someone acquires property that is lost, however, this could be seen as an original as well as an extinctive acquisition.666 On the other hand, occupation has been defined by one legal scholar as a derivate transfer of property (see 15.2). Occupation can also be carried out in relation to plants and wild animals (if entitlement to catch such animals exists), such as berries, cones, mushrooms, flowers and similar things.667 These things are not accessories to the immovable property of the land owner and are not subject to the land owner’s right of ownership.668 If no entitlement to catch wild animals exists, there is no valid occupation, but a third party may acquire the goods in good faith (and good faith will, among others, depend on what animal is concerned and whether it is caught under a time when hunting was allowed). The land owner can, however, have an exclusive right to catch wild animals and become the owner of the animals via occupation.669

15.2.

Abandonment

Anyone having a right to goods can give up, or abandon, his or her right to them. Abandonment is exercised by ceding possession with the intention of giving up the right to the goods. The legal consequence is that this person’s right to the goods is thereby extinguished. If someone has thrown away an object so that no one is the owner of it, the first one taking possession of 665

666

667 668 669

Occupation of land is no longer possible. All land that is not privately owned belongs to the State; see Håstad, Sakrätt avseende lös egendom6, 43. Compare Zitting / Rautiala, Lärobok i sakrätt, 223; Tepora, Inledning till grunderna för sakrätten, 140; Undén, Svensk sakrätt 1, Lös egendom10, 78 f. Penal Code, chapter 12, section 2 e contrario; Holmqvist et al., Brottsbalken7, 651. Undén, Svensk sakrätt 1, Lös egendom10, 73. If the area is fenced in, so that the animals are always in his or her possession, he or she may have already gained ownership of the animals, see Undén, Svensk sakrätt 1, Lös egendom10, 74.

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the goods will gain a right to the object by occupation.670 In many cases the determination of whether someone has abandoned goods by the intention to give up his or her right to the object is unproblematic. Nonetheless, where the intention to abandon is not obvious, the finder must comply with the rules of finding. There appear to be no cases and scholarly writing on this matter is scarce, but Norwegian courts have been rather restrictive in their acceptance of assertions relating to abandonment. The greater the value of the goods, the greater the extent of indications for abandonment that are required.671 The possibility to abandon the right to a thing, so that it thereby becomes ownerless has been questioned by one scholar, but this questioning is not, however, consistent with other legal literature. Lindskog suggests that where an owner forgoes his or her right of ownership by throwing something away, this should be seen as an offer of a transfer free of charge to anyone interested (a derivative transfer).672 One of the reasons that he mentions is that ownership is not just a right, but out of ownership there follows a responsibility from which the owner may not withdraw him- or herself without making sure that someone else steps into the owner’s position. He also mentions a problem that may occur where the bankruptcy estate seeks to recover the goods for the estate for the benefit of the creditors: if the goods are abandoned and are therefore without an owner for a certain period of time and are then subsequently occupied by someone else, no recovery may be possible under the current rules, since the occupant does not derive his or her rights from the former owner. Nevertheless, even if rights to goods can be abandoned, the duties cannot: if someone, for example, is the owner of a grounded tanker, one may not, of course, also declare him- or herself free from the relevant obligations by giving up one’s property rights.673

670 671

672 673

Undén, Svensk sakrätt 1, Lös egendom10, 73. Lilleholt, Alminnelig formuerett, in Lilleholt (ed.), Knophs oversikt over Norges rett, 189; Falkanger / Falkanger, Tingsrett6, 58 f. Lindskog, Festskrift till Sveriges Advokatsamfund 1887-1987, 344 ff. See on this matter: Lilleholt, Alminnelig formuerett, in Lilleholt (ed.), Knophs oversikt over Norges rett, 189.

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145

Finding of lost property

If someone, on the other hand, has lost property, a finder is under a penal obligation674 to notify the owner or, if the owner is unknown, the police.675 The goods will be acquired by the finder if the owner is unknown after three months or if the owner does not retrieve the goods within one month of notification that the goods are in the hands of the authorities.676 However, if the finder decides to acquire the goods, he or she must pay the authorities for taking care of the goods and a fair reward.677 If the finder does not collect the goods within one month or does not pay for their care, the goods will belong to the State. Lost property may, however, be acquired by the finder immediately if the circumstances are such or the goods are of such a kind that no one will ever be able to prove their right to the goods (as with stamps), or where the goods are perishable (as with groceries) or the goods are of an insignificant value, where it would be unreasonable to search for the true owner.678 Regarding promissory notes that are valid so that the amount can be claimed by the holder of this note, it is regulated that if such document has been signed but not given out by the debtor – he or she has, for instance, accidentally lost possession of it – the holder can only gain a right through the document if he or she has acquired it by a transfer.679 In such a case it is therefore not enough if he or she has found the document and complied 674 675

676

677

678 679

Penal Code, chapter 10, sections 4 and 8. Lag (1938:121) om hittegods, section 1. References in this subchapter are to this statute, except where oterwise stated. Special rules apply, for instance, for goods found in trains and train stations: Förordningen (1985:200) om järnvägs befordringsskyldighet, section 8 and for trams, buses and underground transport, see Förordningen 1985:201 om behandling av föremål som upphittats i spårvägs-, tunnelbane- eller busstrafik. See also, for things that are assumed to be more than one hundred years old, Lagen (1942:350) om fornminnen. Section 4. Dogs, however, are always to be acquired by the State, section 4a; prop. 2006 / 07:126, 56. Section 3. If the finder takes care of the goods while the authorities search for the owner, the finder has right of retention for the cost of care towards the owner. Fair reward is usually 10 % of the value of the goods. For securities it may be as low as 1 %, see Blom et al., Karnov 2006 / 07 [-Berg], 2789, note 6. For bicycles and other vehicles, a flat low rate is used, see SOU 2002:70, 120. The purpose is probably that such goods should not be stolen and later “found”. For goods that are only of value to the finder by subsequently engaging in a criminal act, such as with credit cards, no reward should be paid at all. Undén, Svensk sakrätt 1, Lös egendom10, 80 with references to other opinions. Contract Act, section 35.

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with the rules regarding finding; the document will be worthless in relation to him or her (but not in relation to a good faith acquirer). If a valuable document has been lost by the owner of the document and later found by someone else, either the finder or the debtor will benefit from this. In Swedish literature, different opinions seem to be presented as to who should have the advantage in such a situation. One scholar argues that the rules should be to the benefit of the debtor.680 His justification reads: the rules on finding rest on the idea that found objects should come to the use of someone, and it therefore is most appropriate to allow the finder to have the right to the goods, if the rightful owner does not make any claim for them. On the other hand, in the case of promissory notes and other valuable documents, such as bonds, lottery tickets, train tickets etc., there is no risk that these documents will not benefit someone else. For that reason, the finder should not benefit from finding the document and claiming its value.

680

Undén, Svensk sakrätt 1, Lös egendom10, 84 f.

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Part IV: Additional issues 16.

Unjustified enrichment

This report contains several references regarding the question whether and to what extent the concept of unjustified enrichment is accepted in Swedish law. Since a summary on unjustified enrichment cannot be sufficiently explained in a few sentences, this issue is presented separately in this chapter. “Swedish law does not recognize a general principle of compensation for unjustified enrichment, but many laws are intended to prevent such transfer of value.”681

There are no statutory rules on unjustified enrichment in Swedish law and it is a theory that is scarcely ever used. The practical differences between Swedish law and what can be achieved under the concept of unjustified enrichment rules are nevertheless said to be minor.682 Some provisions scattered across the legal system have a similar function to the concept of unjustified enrichment. One rule is to be found in the Commercial Code of 1734.683 If an intermediary acts dishonestly towards the principal and, for instance, uses the principal’s goods for his or her own benefit or lends out the principal’s money, the principal is not bound by what the intermediary does, “unless it is shown to have been of use for him”. There are different interpretations on how to understand this ancient rule and at least three different interpretations have been discussed.684 The most favored solution seems to be that, in such a case, the intermediary’s disposition of the principal’s property will lead to the principal paying compensation to the third party without being bound by the agreement.685 The compensation should 681 682 683

684 685

Walin, Separationsrätt, 163. Hellner, Obehörig vinst, särskilt utanför kontraktsförhållanden, 396. Commercial Code (Handelsbalken), chapter 18, section 3. Many of the rules in the old Commercial Code are obsolete today. This rule is, however, explicitly mentioned in the Contract Law Act (Avtalslagen), section 27, and should therefore still be in force. Hellner, Om obehörig vinst, särskilt utanför kontraktsförhållanden, 325 f. Hellner, Om obehörig vinst, särskilt utanför kontraktsförhållanden, 324 ff and 330. The principal will, nevertheless, be bound by the agreement if he or she knows that

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be based on the enrichment of the principal. If the third party has been negligent (“culpa”), the amount can be adjusted in favor of the principal.686 Another example exists in respect of invalid contracts concluded by a minor whereby the minor is obliged to pay the value of what has been received under the contract to the extent that it has been of use to him or her.687 If a minor has concluded a contract and this contract is cancelled for this reason, the party who concluded the contract with the minor has to return what he or she has received. If the minor is unable to return his or her part, he or she should compensate for the enrichment received. When calculating the enrichment, no objective formula is to be used, but calculation is to be made according to the subjective benefit received by the minor when taking into account the circumstances of the minor in the actual situation. Such benefit should also be defensible for a “diligent” guardian.688 The same applies in the case of agreements that are invalid under the 1924 Act on Agreements Concluded under the Influence of Mental Illness.689 The burden of proof lies on the party claiming that the minor or mentally ill person has benefited from the agreement.690 The concept of unjustified enrichment also seems to lie at the basis of certain provisions in the Bill of Exchange Act691 and the Cheque Act.692

686 687

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the intermediary was acting outside his or her competence and thereafter starts to use or dispose of the goods in a way that implies approval of the agreement. This follows from general rules on contract law. See, for instance, Adlercreutz, Avtalsrätt 112, 72 f. Hellner, Om obehörig vinst, särskilt utanför kontraktsförhållanden, 345. Parental Code (Föräldrabalken), chapter 9, section 7; NJA 1962 s. 481, where the minor had hired a lawyer to represent her without the guardian’s approval: the lawyer was deemed to be of no use to the minor. Good faith of the third party has no relevance, see Blom et al., Karnov 2006 / 07 [-Brattgård], 404 f, notes 283 and 297; Compare chapter 11, especially section 10, for agreements concluded by incapacitated persons. Karlgren, Obehörig vinst och värdeersättning, 63 ff. Lag om verkan av avtal, som slutits under påverkan av en psykisk störning. Blom et al., Karnov 2006 / 07 [-Wiehe], 512 note 5. Bill of Exchange Act (Växellagen), chapter 12, Section 74, is similar to the provision in the Cheque Act (Checklagen (1932:131)). See footnote 692 and NJA 1988 s. 176, where a guarantor was deemed not to have gained from the prescription of the bill of exchange: he was deemed not to have had any economic benefits from the commitment. Cheque Act (Checklagen), chapter. 11, section 57. If the right connected to the cheque has prescribed for some reason, according to this section the cheque holder can bring an action against a cheque debtor benefiting from the prescription, equal

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There are also quite a few Supreme Court decisions regarding timber rights where a rule of unjustified enrichment has been applied.693 However, these decisions are rather old and concern situations that are probably not frequent today. The value of these decisions is therefore rather uncertain. Apart from these cases, in all likelihood there have not been any other decisions where the court has allowed a right of unjustified enrichment without applying a statutory provision.694 Such a right has, however, been discussed in several court decisions.695 Moreover, the concept of unjustified enrichment has been examined by legal doctrine, which, in accordance with the pragmatic Scandinavian functional approach aimed at creating practical solutions, regards it as a formula that hides a lack of rational considerations.696 This severe criticism from the Scandinavian legal realists is another reason for the negative attitude towards the concept.697 A part of that criticism is the argument that there are no reasons to lay down a rule obliging a debtor to repay money based only on the motivation of an unjustified enrichment rule: the reasons behind the rule, or any other such rule, are what may motivate the specific legal consequence, not the rule or concept itself. In a Scandinavian realist’s view, unjustified enrichment is treated as an umbrella notion for all solutions based on mere intuition and it simply forms a general reference to justice and fairness.698 Thus, this concept is considered to best exemplify the flexibility and practical insight of the functional approach and it is deemed to be advantageous that the courts have not elaborated a uniform notion of it, because otherwise it would become too formalistic. Others, however, claim that a concept of unjustified enrichment could be very useful and suggest several instances where it could be used.699 In general, it could be said that, even though the first

693

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to the sum of the cheque; NJA 1987 s. 468, where this specific situation was not at issue. See also NJA 1957 s. 156. See, for example, NJA 1877 s. 375; NJA 1895 s. 411; NJA 1914 s. 290; NJA 1925 s. 184 and NJA 1931 s. 431. For an examination of the court decisions, see Hellner’s thesis in Hellner, Om obehörig vinst, särskilt utanför kontraktsförhållanden, 397 ff. Hellner concluded in his thesis that, up until the time of writing, no other cases were to be found, see Hellner, Om obehörig vinst, särskilt utanför kontraktsförhållanden, 397. NJA 1962 A 55; NJA 1999 s. 575 (concerning condictio indebiti) and NJA 2009 s. 41 (see the addition by Supreme Court Judge Lindskog), to mention a few. Hellner, Om obehörig vinst, särskilt utanför kontraktsförhållanden, 143. On Scandinavian realism, see chapter 1.5. Hellner, Om obehörig vinst, särskilt utanför kontraktsförhållanden, 143. This seems to be the general opinion of Karlgren, see Karlgren, Obehörig vinst och värdeersättning.

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view is the predominant one, the abstractness of the concept has allowed for it to be occasionally used in legal argumentation and to be taken into serious consideration by the courts. In one case involving the right to recourse among various pledgors, the court expressed obiter dicens the view that the concept could be used in order to limit the liability of a pledgor who disposed of the pledge in good faith without reaping any benefit, in respect of the other pledgors’ right to recourse.700 According to those arguing in favor of a more universal concept of unjustified enrichment, for a claim based on unjustified enrichment the enrichment has to be without legal ground and the other party has to suffer some loss.701 If the enrichment is greater than the loss, the compensation will be restricted to the loss.702 The conclusion is that unjustified enrichment has an insignificant role in Swedish law with no independent legal institute of unjustified enrichment. Traces can be found in some statutory provisions and the concept is discussed by legal scholars and considered by courts. The claim is, however, usually unsuccessful. Rules on damages are often a way to solve the same kind of problems.703 It should however also be mentioned that in recent years there has been an increase in the interest of the concept of unjustified enrichment in the Swedish legal discussions. Some researchers now claim that it is useful also in Scandinavian legal thinking. At the Nordic lawyers’ convention in Copenhagen 2008 it was concluded that research was necessary to establish to what extent it might be useful and to outline how to better communicate with other legal cultures when discussing these questions internationally.704

700 701 702

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NJA 2000 s 667; addition by Supreme Court Judge Håstad. Karlgren, Obehörig vinst och värdeersättning, 19 ff. Karlgren, Obehörig vinst och värdeersättning, 41 f. This is just another way of saying that the compensation should not exceed the loss. Justifications by referring to an “enrichment” give the justification a stronger emotional color, and can therefore seem to support the recommended rule, see Hellner, Skenargument i rättsvetenskapen in Rosén (ed.), Rationalitet och empiri i rättsvetenskapen, 55. Hellner, Om obehörig vinst, särskilt utanför kontraktsförhållanden, 395. See also Schultz, Nya argumentationslinjer i förmögenhetsrätten – Obehörig vinst rediviva, SvJT 2009, 946.

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17.

Retention of title

17.1.

Introduction

The use of retention of title705 clauses is a well disputed concept in Sweden. Without the possibility of gaining security via the rules on retention of title, one scholar claim that there would probably not be as much installment credit given to businesses or indeed to consumers. It has also been claimed that, following the spread of purchases by installments, there have been economical and social benefits for the whole of society.706 When a purchase subject to retention of title is made some scholars tend to speak of the seller and the buyer each having a conditional right to the goods, until the goods are fully paid.707 Others deem these arguments to be legal hocus-pocus and conceptual jurisprudence, which has little or no meaning under a Swedish functional approach.708 This has also been said to be synonymous with denying the actual transfer.709 One of the problems with the use of retention of title is that it creates an uncertainty as to who has rights to the goods. Swedish law is therefore said to express two incompatible purposes when it allows protection against – here, the buyer’s – creditors without visibility or publicity:710 normally protection of a security interest is achieved by tradition or registration. Each means gives, or is supposed to give, publicity to the change of rights to the goods. On the other hand, commercial leasing agreements, commission agreements and similar agreements also lack publicity. Some other criticism towards the use of this security arrangement is that it decreases the use of “personal” credits.711 This seems to imply that personal credits are something better than security arrangements in goods,

705

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709 710 711

The rules are provided in the Sale of Goods Act (Köplagen), section 54; the Consumer Sales Act (Konsumentköplagen), section 40; the Consumer Credit Act (Konsumentkreditlagen), section 25 and the Installment Sales Act (Avbetalningsköplagen), sections 7-8. Persson, Förbehållsklausuler, 89. (The assumption has been made without reference to empirical data.) Almén, Om köp och byte4, 150 ff. Hessler, Om äganderättsförbehåll och återtagandeförbehåll i 1966 års lag om vad som är fast egendom. Nordisk gjenklang. Festskrift till Carl Jacob Arnholm, 464. Rune, Rätt till skepp2, 46 f. Sakrättslig giltighet without sakrättsligt moment. See Persson, Förbehållsklausuler, 90. Mentioned by Helander, Kreditsäkerhet i lös egendom, 615 where he seems to not support this argument.

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but the arguments behind this view are unclear. Return of property, which is the consequence of enforcing a retention of title clause against a nonpaying buyer, also means higher transaction costs or even a risk of loss of the value of the goods.712 One may perhaps wonder why a security clause in a contract between two parties, which lacks publicity anyway, should give the seller a right of preference against the buyer’s creditors, while a contract lacking this clause does not give such a right of preference. Almén opines that if a seller, without securing his or her right to the goods, has shown, by leaving the goods in the hands of the buyer, that he or she is satisfied by trusting in the buyer’s ability to pay for the goods as protection for his or her claim, he or she should therefore have no other right to reclaim the goods, if he or she turns out to be mistaken as to the buyer’s ability to pay.713 Such reasoning is said to be based on a deceptive argument only to justify a rule of personal preference.714

17.2.

The rules providing for the transferor’s protection in the event of the transferee’s insolvency

It is, however, accepted today that the parties can defer the effects of the acquisition to a later time than delivery by including a retention of title clause into the contract, so that the acquisition is definitive only on full payment.715 Such clauses are common in sales contracts in Sweden and do not require registration, but it is generally considered that the condition must be agreed upon before delivery or simultaneously with delivery.716 No special form is necessary717 but it should be a clear part of the agreement 712 713 714

715 716 717

Hellner / Ramberg, Speciell avtalsrätt 1, Köprätt2, 120. Almén, Om köp och byte4, 404. Hellner, Skenargument i rättsvetenskapen in Rosén (ed.), Rationalitet och empiri i rättsvetenskapen, 56, with references to French law where the seller has a right to cancel the purchase even after the goods have reached the hands of the buyer. Hellner states that there is no reason why a French seller would show anything different than a Swedish seller when letting the goods reach the hands of the buyer. See also Håstad, who mentions this as a “fiction”, since most sellers do not even think of the possibility that the buyer will become insolvent when they sign the contract; Håstad, Sakrätt avseende lös egendom6, 181. Malmström / Agell, Civilrätt17, 142 and Rodhe, Handbok i sakrätt, 175 f. Håstad, Sakrätt avseende lös egendom6, 185. A retention of title clause could also be implied from conduct between the parties (for a sceptical opinion on this matter, see Helander, Kreditsäkerhet i lös egendom, 627): in NJA 1971 s. 288 a television set was replaced after one month without any

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between the parties. A unilateral declaration after the conclusion of the contract, e.g. a clause in the order confirmation or any other biased declarations in conjunction with the buyer’s passivity will probably not suffice to confer the right to retrieve the goods.718 For consumer sales, the seller must present a written contract including the clause to have the Enforcement Service help to take back the goods on his or her behalf.719 The clause must refer to specific objects and the right to retrieve the goods cannot be used on the basis of the buyer having neglected to pay other debts due to the seller.720 The reason is that consumers should not have to wait to have full disposal over the purchased goods until they have paid all debts to the creditor and that it seems unreasonable that the creditor subsequently obtains collateral for a loan which has previously been submitted without security.721 Nevertheless, it seems that it is possible for the seller to forgo his or her right to retrieve the goods; in other words, the seller may waive his right. Thereafter, the goods may be used to cover other debts that the buyer has towards the seller. The consequence would be that the seller would lose his or her right to separate the goods in the event of the buyer’s insolvency, which would be a particular problem for the seller if the buyer were forced into bankruptcy.722

718 719 720

721 722

changes to the contract. The retention of title clause should therefore not be directly applicable to the exchanged set. However, the parties appeared at the exchange and in the meantime to have assumed that the new set was sold under the same conditions as the one referred to in the contract. The payments were made under the same payment plan. Under those circumstances it was considered that the parties had reached a verbal agreement of sale under the same conditions as in the installment contract, including a retention of title clause until the payment of the set was fully made. The principle of subrogation was not applied in this case. Mentioned in Danish literature, see Andersen / Werlauff, Kreditretten4, 180. Consumer Credit Act (Konsumentkreditlagen), section 30. Håstad, Den nya köprätten5, 293 f regarding kopplingsförbehåll. The issue concerns the identification of each security. In the case NJA 1976 s. 251 someone had sold several waste containers under installment contracts. A certain part of the total installment amount was paid. As the items looked alike it could not be said which of the containers was covered by each installment contract, and which one was paid and which one was not. The court rejected the seller’s right to separate the goods. If the seller had a right to separate any of the containers it would certainly result in the risk that the seller receives a right to separate in contrast to the rule that a right to retrieve goods cannot be used due to the buyer having neglected to pay other debts to the seller. Prop. 1991 / 92:83, 90. NJA 1960 s. 557; Persson, Förbehållsklausuler, 123 ff. This could also lead the seller to instead attempt to force the buyer into bankruptcy immediately.

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The terminology employed in the contract is not important; there is no distinction between clauses providing a “retention of title”, a “right to retrieve the goods” or clauses that simply state the seller’s right to have the property returned if the buyer does not pay.723 However, if the seller has allowed the buyer a right of full disposal of the movable before full payment has been made, the clause is invalid from the beginning.724 The same holds true if the buyer is allowed to change the goods to similar products.725 If the clause does not fulfill these requirements, it can still be valid as between the parties.726 Where the buyer, with the permission of the seller, sells the goods on and implements the existing retention of title clause into that contract, and the first buyer thereafter pays the seller the full price, the first buyer steps into the position of the seller and can separate the goods from the second buyer in the event of the second buyer’s insolvency.727 Although the installment buyer is not allowed to transfer the goods before they are fully paid, property bought under an installment contract with a retention of title clause can be subjected to enforcement proceedings by other creditors of the buyer, and sold in such proceedings, if the purchase price is sufficient to pay the transferor’s claim or if the transferor gives his or her consent to the sale subject to the transferor’s right in the goods, so that the retention of title clause in favor of the transferor is included into the contract with the new acquirer. In such cases, the transferee’s obligation to pay ends and the person who acquires the property assumes the debtor’s obligations under the contract.728 Separation in the event of the buyer’s insolvency is not possible if the goods have become an accessory to immovable property.729 If the goods have been incorporated into other movable property, the result is unclear. In two cases a boat engine became a part of the principal movable asset

723 724

725 726 727

728 729

NJA 1975, 222; Håstad, Sakrätt avseende lös egendom6, 183. Håstad, Sakrätt avseende lös egendom6, 163 and 189. The clause is thereby not “seriously meant” and fortune would determine whether separation would be possible in the event of the buyer’s insolvency, see Zetterström, Sakrättens fyra huvudfall2, 66 and Hessler, Allmän sakrätt, 202. In a, now rather old, Norwegian case, the retention of title clause was, however, still valid when the sale concerned growing trees that were supposed to be cut and labelled by the transferee, see N.R. 1915 s. 281. NJA 1932 s. 103. Rodhe, Handbok i sakrätt, 186. Wallin, Borgen och tredjemanspant2, 188; NJA 1980 s. 219. The court stated that this should at least be possible for goods of substantial value and where the seller has agreed to onward transfer. Utsökningsbalken, chapter 5, section 5 and chapter 9, section 10. The Land Code (Jordabalken), chapter 2, sections 1-2; Persson, Förbehållsklausuler, 34.

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and a right to separate the engine was deemed impossible:730 separating the goods was said to cause unreasonable reduction of their value. In a later case, the court rejected a right to separate a pair of tyres from a car.731 Nevertheless, a right to separate the goods could be valid as against the buyer.732 Whether a retention of title clause is valid against a person acquiring the goods from the buyer is decided according to the rules on good faith acquisition.733 If there is no permission, the buyer is under a penal obligation not to sell, pawn or in some other way dispose of the movable.734 However, generally, his or her position against third parties – for instance, to claim damages against third parties interfering with the goods – should not be changed. The purpose of the clause is simply to provide protection for the transferor in the event of the transferee’s insolvency, not to limit the transferee’s rights to the goods that do not jeopardize the transferor’s right to separate. Regarding substitution of goods, Rodhe questions whether it is possible to retrieve the property after it has been replaced by a substitute.735 This might, on the other hand, be accepted by Hessler.736 Håstad states that the seller in some cases may have the right to take back substituted goods; however, it seems that the right can only exist if the seller has not authorized the exchange of the property and the connection between the goods and the substitute is not complex.737 A special situation is regulated in the 730 731

732

733 734

735 736 737

NJA 1934 s. 234 and NJA 1942 s. 195. NJA 1960 s. 9. Tyres are relatively easy to fit and remove. Nevertheless, the Supreme Court Judge Karlgren expressed a particular type of reasoning regarding the car’s completeness, pointing out the fact that a car without tyres is not complete and a right to separate the tyres should therefore not be accepted. Scholars have different opinions on this matter: Håstad, and perhaps Rodhe, support this opinion (Håstad, Sakrätt avseende lös egendom6, 187 f and Rodhe, Handbok i sakrätt, 189). Another scholar argues that the rules for movables and immovables should be treated the same, meaning that the right to separate would not even be valid in relation to the buyer, see Zetterström, Sakrättens fyra huvudfall2, 65. Undén, Sakrätt 1, Lös egendom10, 106. See further, chapter 13. The buyer could be held responsible for unlawful disposal (olovligt förfogande) according to the Penal Code (Brottsbalken), chapter 10, section 4; Holmqvist et al., Brottsbalken7, 528 ff.; Undén, Sakrätt 1, Lös egendom10, 106. Rodhe, Handbok i sakrätt, 186 f. Hessler, Allmän sakrätt, 161 ff. Håstad, Sakrätt avseende lös egendom6, 165 f, 194. It is not stated, but the reason why substituted goods cannot be separated if the seller has authorized the change could have to do with the rule that if the seller allows the buyer to dispose freely of the goods before full payment, the retention of title clause is invalid. It is therefore a choice based on coherence in the system. The rules would be somewhat incompat-

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Bankruptcy Act where the seller has priority in relation to the proceeds:738 if the debtor has sold another person’s property before the bankruptcy, the owner has a right to separate the payment that accrues to the bankruptcy estate after the business enters into bankruptcy. It has been said to be unfair not to give the owner a right to separate the substitute in these cases and that an opposite rule would unjustifiably benefit the creditors of the buyer.739 Where the seller conveys a credit from a creditor, this has been considered as two different agreements; one between the seller and the buyer, including the retention of title clause, and one between the creditor and the buyer. Since the creditor never can be the owner of the goods, a retention of title clause cannot be made to secure the creditor’s interests.740

17.3.

The transferee’s protection in the event of the transferor’s insolvency

By inserting a retention of title clause into the contract, the transferee’s position in the event of the transferor’s insolvency is not changed. The general rule of the transferee’s protection upon tradition applies.741 In “ownership terms”, the transferee can be said to have a conditional ownership right to the goods, which is dependent on him or her paying for the goods in accordance with the contract. The transferee’s position is safe as long as he or she continues to pay the price and complies with the terms of the contract. Where the transferee has agreed to provide a kind of security for the transferor for payment (the retention of title clause), this does not include putting the transferee at risk as long as he or she duly pays the price. The transferee’s right to acquire the full right to the goods by continuous payment thus has priority over the transferor’s insolvency.

738

739

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741

ible if authorization of substituted goods would be allowed, but the buyer would not be allowed to freely dispose of the goods: substituting the goods is a type of disposal of the seller’s goods. Chapter 7, section 23. See also prop. 1986 / 87:90, 279 with reference to an earlier section (194) of the Bankruptcy Act. Håstad, Sakrätt avseende lös egendom6, 165. Allowing substitution of the goods, on the other hand, is contrary to the principle that all creditors should be treated equally. NJA 1972 s. 451. There is a thin line, but if the creditor takes over the seller’s right according to the agreement with the buyer, the retention of title clause should probably be valid. Hessler, Allmän sakrätt, 244 f; Persson, Förbehållsklausuler, 118 f; NJA 1924 s. 588.

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The transferor’s creditors or the bankruptcy estate of the transferor will thereby have a claim against the transferee. Nothing prevents the bankruptcy administrator from re-negotiating the terms of the contract with the transferee so that the transferee finalizes the payment before the bankruptcy proceedings end, meaning that the transferee pays part of the remaining price in exchange for receiving a better right (or full “ownership”) to the goods, if this is considered a better option than selling the claim against the transferee.

18.

Co-ownership

Co-ownership is regulated by the Co-Ownership Act742 of 1904 stipulating rules for co-ownership created otherwise than by contract between the (subsequent) co-owners, and providing rules for issues that have remained unregulated where co-ownership was created contractually. The purpose of the law is to solve conflicts that may arise after two or more persons have acquired co-ownership, for instance, through inheritance, by gift, joint finding or after the goods have been combined or mixed743 or indeed where the parties have not thought about management of the goods beforehand and therefore have not regulated this in the contract.744 Each co-owner’s right is not limited to some selected part of the goods but relates to a share (andel) in the whole goods.745 The Act mainly deals with the internal relationship between the coowners. The management of the co-owned goods occurs by the participation of all of the co-owners.746 However, if one of them does not agree upon the management of the co-owned goods, this co-owner can request that the

742

743 744

745

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Lag om samäganderätt. Statutary provisions quoted in this chapter are sections of this statute unless otherwise stated. NJA 1994 s. 506. Undén, Svensk sakrätt 1, Lös egendom10, 151f; even spouses may in some certain cases be able to co-own goods, NJA 1930 s. 543. Håstad, Sakrätt avseende lös egendom6, 54. This principle is sometimes also described as a proportion of the value of the goods cf. Undén, Svensk sakrätt 1, Lös egendom10, 152; Millqvist, Sakrättens grunder3, 28. Section 2. “Necessary” and “urgent” measures can, nevertheless, be taken without the consent of all co-owners. This could concern measures that are stipulated by law or decided by an authority, for instance, to pay taxes, or where the goods are in danger of being destroyed. Introducing majority decisions instead of participation of all co-owners was discussed but rejected during the process of enactment of the law, Undén, Svensk sakrätt 1, Lös egendom10, 156 ff.

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court appoint an administrator747 or proceed to dissolve the co-ownership if a disagreement between the co-owners persists. Since a share of co-owned goods is likely to be sold at a loss, each co-owner is entitled to demand the dissolution of the co-ownership.748 Proceeds, expenses or the price (if the goods are sold) are divided according to the co-owners’ respective shares.749 There are no special rules concerning the transfer of a co-ownership share, but each co-owner has the right to transfer or pledge his or her share as he or she wishes.750 However, the mandatory principle for a buyer to achieve protection against the seller’s creditors causes problems when transferring a co-ownership share. The problem arises, for example, where a sole owner transfers shares in his or her property: in one case751 the son of a trotting trainer argued that he took half of a trotting horse in his father’s possession, and that the whole horse therefore could not be used for the father’s debts. The Supreme Court’s reasoning came, not surprisingly, to the conclusion that a change of possession was necessary to gain protection from the seller’s creditors.752 The decisive reason was that, if there were no such requirement, the system would thus be open to transactions where the owner sold a main part of the property and only retained a small portion for his or her own account while he or she continued to hold the goods for his or her own purpose. However, it was indicated that in some cases it might suffice that the buyer takes active joint possession753 to the goods. In another case754 the Supreme Court chose to use the implied option of joint possession. The case concerned a father who handed over one fourteenth of a boat to his son each year in order to avoid gift taxes. When six of these shares had been transferred to the son, the question was whether the whole boat could be used to cover the father’s debts. In the balancing of interests carried out by the Supreme Court – between fighting fictitious transactions and not impeding fair rewards – the latter outweighed the former. The conclusion is that for transfers where the transferor and the transferee have joint possession of the goods, the transferee’s shares in the goods are protected from the transferor’s creditors at the time of agreement. 747 748

749 750 751 752 753 754

God man, who also can be one of the co-owners, section 3. Undén, Svensk sakrätt 1, Lös egendom10, 152. A creditor also has the right to demand the dissolution of the co-ownership in order to be paid for one of the coowners’ debts: the Enforcement Act (Utsökningsbalken), chapter 8, section 8. Undén, Svensk sakrätt 1, Lös egendom10, 152; see also section 15 regarding costs. Section 2, e contrario. NJA 1987 s. 3. Registration with the Swedish association of trotting horses was not enough. Aktiv sambesittning. NJA 1998 s. 545. The case is discussed in Walin, Samäganderätt, 41 ff.

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It is specifically stated that these cases only concern the situation where a sole owner transfers shares in his or her own property. They do not in fact cover the situation where the acquirer did not have possession of the goods before acquiring shares in the goods; however, if the acquirer takes joint possession together with the transferor, that should suffice.755 Where a sole owner transfers the whole property to two or more co-owners, it is naturally a requirement that the goods are removed from the transferor’s possession. Nevertheless, it is yet to be decided how the transfer of existing shares of a co-owner is to be handled. Giving notice to the other share holders is suggested as one possible solution.756

19.

Specific rules on unspecified goods

19.1.

Transfer of goods forming part of a bulk

The idea that a pre-paying buyer of a quantity of fungible (quasi-specified757) goods contained in a specified bulk acquires co-ownership of all the goods contained in the bulk is not known to the Swedish legal system. The Swedish legal system does not provide any rules comparable to the English and Scottish laws on bulk sales.758 In particular, the transfer of “ownership” is always contingent on the ascertainment of the goods so that, in the case of a sale of fungible goods forming part of a bulk, the protection of the buyer in the event of the seller’s insolvency cannot take effect before ascertainment. As long as the particular items in the bulk have not been appropriated, the buyer merely has a personal right to delivery out of the bulk goods with no protection against the seller’s creditors. However, within a functional system as applied in Scandinavia, there could perhaps be a possibility to argue for a co-ownership solution for a certain amount of goods in such cases, provided that the relevant general rule already protects the buyer as of the very conclusion of the contract, as it does in Sweden 755 756 757

758

Håstad, Supplement 2004 till Sakrätt avseende lös egendom6, 22. Mentioned by one scholar, see Millqvist, Sakrättens grunder3, 131. Generic goods are referred to as “quasi-specified” when the seller and the buyer have agreed that the contracted goods are to be taken from a specified source of goods. The seller is not allowed nor under a duty to perform from any other source, see van Vliet, Transfer of movables in German, French, English and Dutch law, 93. Wholly unascertained goods are those that have neither been identified nor had their source of supply designated at the time of the conclusion of contract. On the English and Scottish rules on this matter, see van Vliet, Transfer of movables in German, French, English and Dutch law, 97 ff and the English Sale of Goods Act, sections 20 A, 20 B and 61.

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regarding consumers.759 Some support for this idea can be found, for instance, in the discussion about the principal’s right to separate goods that have been mixed by the intermediary without the principal’s consent and where the principal had no chance of protecting him- or herself from this being done.760 The solution suggested there is a co-ownership right to the goods when the mixture has been made in relation to a limited part of the intermediary’s assets. However, no precise conclusion has been made of how this co-ownership right is to be calculated. In any case, when applying a pragmatic functional approach to the idea of bulk sales, it becomes clear that there probably are solutions that are not far from the rules on bulk sales as applied in England and Scotland. If someone sells 500 liters of oil out of a total bulk of 1,000, the buyer is not protected from the seller’s insolvency before the goods have been individualized, according to the principle of specificity, and delivered to the buyer. The peculiar thing is that it is still possible to sell a co-ownership share in goods contained in a bulk and to thereby gain protection from the seller’s creditors.761 Although there is, unlike in England or Scotland, no statutory provision transforming a sale of a quantity (e.g. 500 liters of oil) into a co-ownership share (a percentage or fraction of the whole goods) by operation of law, this could be brought about by contractual agreement and perhaps, if sufficiently supported by the facts of the individual case, by an interpretation of the parties’ agreement, taking into account the economic and legal aims of their transaction. The share will then correspond to the proportional size, in relation to the whole bulk, of the quantity of goods bought and can decrease or increase depending on shrinkage or increase of the goods. Protection is probably achieved when the goods are transferred into the buyer’s and seller’s joint possession or, if it regards a consumer, upon conclusion of the contract.762 If for some reason two parties wish to achieve such bulk sales rules in Sweden, they could of course agree upon a sale of a share and also agree upon when and under what circumstances the co-owner has a right to take his or her contractual quantity out of the bulk. Such consent to take out a co-owner’s share could also be implied. If the consent is not implied and if the parties have not agreed upon the circumstances under which one co-owner has the right to remove his or her quantity, this would require all the co-owners’ consent.

759

760 761 762

See further, chapter 4.4.3., regarding protection upon conclusion of the contract for consumers. On these rules, see Håstad, Sakrätt avseende lös egendom6, 173 ff. See chapter 18., regarding co-ownership and division of co-ownership. See further, chapter 18., regarding co-ownership.

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Prepayment is one prerequisite for acquiring co-ownership of the goods in bulk under English and Scottish law: the regime is limited to the goods that are paid for and if the buyer has paid for only a part of the goods, his or her co-ownership will be limited to that smaller amount and grow proportionally with each subsequent payment. Again, shares growing with each payment in Sweden are a matter fore the contractual issues that the parties are free to settle themselves, and the parties’ agreement will be considered effective in terms of providing the buyer protection in the event of the seller’s insolvency, provided that the general requirements to be met for gaining such protection are fulfilled.

19.2.

Floating charges

19.2.1. Introduction Some legal systems accept a security right, known as företagshypotek (hereinafter: “floating charge”, which appear to be the most appropriate expression in English terminology) meaning a proprietary security right in (typically) all assets of a company, which is designed to give businesses the possibility to obtain credit by a security right that does not relate to particular individual assets. No delivery of the encumbered property to the creditor is necessary: the security provider can continue to operate within its normal course of business (including the sale of encumbered goods). The background to rules of this kind is that a creditor763 seeks security for the relevant loan while businesses wish to be able to operate normally – and therefore are unable to create a pledge in relation to goods contained in a defined space or to hand over the goods to the creditor – while providing security to the creditor. The solution is to provide such security without indicating a particular asset. For instance, a manufacturing company uses its money to buy raw materials, which are then processed and sold. Instead of money, the company possesses stock and after the sale the goods are replaced by receivables. In this way, the objects or assets shift all the time, and so does the security. The floating charges are thereby an exception to the general rule of property law that a right in rem can only arise and exist in respect to a particular individual asset.

763

A supplier, who normally would not use this kind of security arrangement, could also use a floating charge to secure its claims, but the solution is said to be impractical, where this does not involve a completely dominant supplier; Håstad, Sakrätt avseende lös egendom6, 190.

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19.2.2. Some remarks in relation to earlier statutes on floating charges In Sweden there are new rules on this matter in force since 1 January 2009.764 The reform essentially means a return to the rules in force prior to 1 January 2004,765 with the consequence that earlier case decisions and doctrine may be recycled.766 The difference – in brief – to the previous law, prior to 2009, is that under the previous law the creditor’s right only applied to 55 % of the value, including cash or bank deposits, of the remaining property after creditors of a higher priority had been paid. The previous law also gave a lower priority than before 2004 and could only be used in bankruptcy, not in execution proceedings. The security provided for was therefore quite limited: partly by a lower priority rank and partly by the fact that only 55 % of the value of the remaining goods fell into the hands of these creditors (and 45 % of the value accrued to the creditors of a lower priority). A major aim of the law prior to 2009 was to help viable businesses to implement business reorganization rather than opt for bankruptcy: the reasoning was built upon the idea that an increased community of interests between different creditors would be an incentive for all the creditors to avoid bankruptcy.767 However, due to the negative effect this law was said to have on the ability of corporations to get credit on the capital market, a quick return to the rules prior to 2004 was favored.768 The overall purpose is to make it easier for companies to borrow money.769 In addition, the State’s priority for recovery of pensions and wages was abolished with the new law.770 764

765 766

767

768 769 770

Floating Charges Act (Lag (2008:990) om företagshypotek). References to sections of statutory provisions in chapter 19.2. are to this Act, unless otherwise stated. Lag (1984:649) om företagshypotek. Prop. 2007 / 08:161, 41. The return to the earlier system is not explained by any empirical evidence of failure of the system from 2004. See prop. 2007 / 08:161, 39 f, where the creditors of a floating charge only could apply their security to 55 % of the value – and with a lower priority – they would bear a risk similar to that of non-preferential creditors. In this way, the incentive would strengthen co-operation for a sound corporate reconstruction instead of bankruptcy. Prop. 2007 / 08:161, 33. Prop. 2007 / 08:161, 1. With the result that the State’s interest in placing debtors in bankruptcy decreases as the State’s distribution on bankruptcy generally decreases. Another consequence is that non-privileged creditors shall receive a greater share of the dividends from bankruptcy, as compared to the law of 2004. The State guarantees and is responsible for payment of claims that an employee has against an employer who is subject to insolvency proceedings, such as bankruptcy

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19.2.3. The rules in force today As the rules stand today, the floating charge771 includes the movable property of a business to the extent that the property belongs to business operations. This means that leased property or property purchased by installments with a retention of title clause is not included in the assets covered by floating charges.772 On the other hand, property that is recovered does forms part of the assets covered, regardless of whether the recovery is made in kind or by cash.773 The property is considered as belonging to the business until the transferee has acquired a right in rem and is protected from the seller’s insolvency.774 Floating charges are not tied to a particular asset at a particular time. Instead the property can change over time. The secured claim can be of any kind.775 The charge does not include cash or bank deposits,776 financial instruments intended for general circula

771 772

773 774 775 776

and reorganization (The Wages Guarantee Act (Lönegarantilagen (1992:497)). The State’s distribution may, in addition to salaries and other compensation for work completed, also pay for maintenance and retirement. The amount paid is limited to the amount the employee could submit as a claim with priority in the bankruptcy proceedings. Generally that means priority covering what has been earned three months prior to submission of the bankruptcy application to the district court and one month after the bankruptcy decision. When the State has paid the employee, the State assumes his or her position of preference in the case of reorganization proceedings (Section 28 the Wages Guarantee Act with reference to the Rights of Priority Act (Förmånsrättslagen), sections 12-13). The difference to the law between 2004-2008 is that the State does not assume this position of preference in the case of bankruptcy proceedings. Företagshypotek. Håstad, Sakrätt avseende lös egendom6, 356. The surplus value accruing to the buyer after the goods have been retrieved and re-sold by the seller does, however, form part of the property that is pledged by the floating charge, NJA 1952 s. 195. E.g. if the buyer has paid 80 % of 1,000 Euro when the goods are retrieved by the seller, and the seller sells the goods for 500 Euro, there is a surplus of 300 Euro. This surplus will be attributed to the buyer and covered by the floating charge. Håstad, Sakrätt avseende lös egendom6, 364. See chapter 4.4. on the protection from the seller’s insolvency. Håstad, Sakrätt avseende lös egendom6, 354. That has the consequence that the security can be removed from the holder of the floating charge, for instance, where the business sells off its stock and inventory and turns it into cash. The solution is to either pay off the debts or to let a legal representative take care of the money immediately and place the cash into a client account. See Adlercreutz, Finansieringsformers rättsliga reglering4, Supplement 2008, 6 and NJA 1987 s. 105. The law mentions “cash” (kassamedel), not “hard cash”

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tion777 or property that can be pledged by other means (such as ships and aircrafts) or property that cannot be seized or is exempt from bankruptcy proceedings.778 The security provides special preferential treatment in bankruptcy and foreclosure.779 A register of existing floating charges is kept by the office for companies’ registration.780 The office issues proof of the registered charge that can be either in written or electronic form. The written letter charges the property when the business hands it over to the creditor while the electronic one charges the property when the creditor has been registered as the holder of this right.781 A bankruptcy estate cannot create a new floating charge in the estate or hand over any already existing floating charge in the estate to a new creditor.782 There is no limit for the business to transfer property by registration.783 Priority between charges is decided upon when the charge

777

778

779 780 781

782 783

(kontanter), which means that also cheques, claims towards credit card companies and similar claims are probably excluded from the floating charge, Håstad, Sakrätt avseende lös egendom6, 359. This is linked to the fact that they can easily be pledged separately, see Håstad, Sakrätt avseende lös egendom6, 357. Chapter 2, section 1. Property that cannot be seized or invoked in bankruptcy proceedings are, for instance, the debtor’s beneficium, the Enforcement Code (Utsökningsbalken), chapter 5, sections 1-9. Rights of Priority Act, section 5. Bolagsverket. Section 3. The floating charge can persist even if the written letter would revert to the debtor by mistake; see NJA 1958 s. 422, where the letter had been placed in the wrong safety deposit box by mistake. The Supreme Court found the mistake acceptable. For the contrary position, see NJA 1983 s. 103, where the creditor was knowingly passive for a month without trying to retrieve the letter. The Supreme Court thought that the creditor’s efforts to take back the letter had not been sufficiently significant. Chapter 1, section 4. Such limitation was in force in the law of 1984. Traditio of movable property was a requirement to gain protection from the seller’s creditors when a third party was holding a right of floating charge in the seller’s movable property, if the registration was not made at least thirty days before the floating charge was applied for (see Håstad, Sakrätt avseende lös egendom6, 209; Floating Charges Act (Lag (1984:649) om företagshypotek), chapter 2, section 4). The problem with that was that it seemed to limit competition for financing (in some way): it is said that a company that wishes to finance the production of something that cannot be pledged was restricted to a floating charge, while other businesses have other options if in possession of ships or boats (where pledges are possible). Such a restriction was considered an undue restriction of competition in project financing. See prop. 2007 / 08:161, 42. It

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was created. If several charge are created on the same day, they have equal priority784 unless the applicant stipulates another order of priority.785 The creditor can use his or her security in relation to the company’s complete set of assets, provided that the so-called framework is sufficient. The framework is the secured amount plus an allowance of 15 % plus interest during the execution proceedings.786 The relevant time of calculating the base of the floating charge (i.e. in what part of the property the floating charge holders have a security right) is when the execution is carried out or the bankruptcy occurs. However, if the bankruptcy administrator continues to operate the company because he or she assesses that it is more advantageous to continue than to liquidate the company immediately, the question arises as to how much of the value of the processed goods should be accountable under the charge and how much should be reserved for the non-privileged creditors. The Supreme Court decided in one case787 that the floating charge only covers the goods that were present at the time of the bankruptcy decision. Regarding products not yet finished at that time, the floating charge can therefore cover a percentage of the value of the finished product, calculated according to the relationship between the costs put into the product before the bankruptcy, compared to the total cost.788

784 785 786 787 788

is somewhat unclear what is exactly meant by this. It could, for instance, mean that the aim is to neutralize the conditions between businesses that have and those that do not have the possibility to undertake regular pledges or to increase the competition between creditors, by offering more options for the businesses to obtain credit, or indeed something else. In any event, both explanations are probably true. The registration procedure is used, if ever, not to transfer “ownership” of the goods, but as a disguised credit where the “buyer” is a creditor who has no other interest in the goods than to secure his or her claim; see Malmström / Agell, Civilrätt17, 139 f. Floating Charges Act (Lag (2008:990) om företagshypotek), chapter 3, section 3. Chapter 4, section 13. Chapter 2, section 5. NJA 1982 s. 900. Adelercreutz, Finansieringsformers rättsliga reglering4, Supplement 2008, 7. The floating charge holder should therefore not gain the value of the raw materials at the time of the bankruptcy decision. The floating charge holder will instead gain the value corresponding to the expenses invested in the product before the bankruptcy, multiplied by what the finished product was sold for, divided by the sum of the costs made before and after the bankruptcy. This indicates the growth in value, which is equally in line with the production costs, Håstad, Sakrätt avseende lös egendom6, 369 ff. It may go without saying, but such calculation has proven to be very difficult for the administrators to follow in practice.

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The floating charge has precedence over property distrained where the total property of the debtor does not suffice to satisfy all claims. However, if there is still enough property left to secure the floating charge holder’s right, the floating charge holder will have to endure execution proceedings initiated by other creditors.789 Floating charge holders who have not been paid because of their lower priority in relation to the property subject to floating charges (only) have a right to a dividend together with other unsecured claims. If, on the other hand, a floating charge creditor’s claim is satisfied completely, the floating charge ceases to exist and no charge to the benefit of the owner790 arises, where the claim was originally less than the charge (whereas the opposite applies in the case of real property).791 In other words, in a subsequent bankruptcy, the creditor who is next in line may gain a better position, while the rest of the debtor’s bankruptcy creditors do not receive dividends from the floating charge that no longer secures a debt. Although no charge to the benefit of the owner arises and a subsequent creditor thereby gains a better position, it is considered that the owner can issue the same floating charge letter again to secure another debt where the new creditor takes the priority position of the creditor who was paid for his or her claim. This means that the subsequent creditor is again pushed down to his or her original priority position. From this it also follows that floating charges that are not used for the creditor’s claim cannot be used to enforce the owner’s other debts, since the mortgage is not to the benefit of the owner.792 If a business is transferred and the property transferred is covered by a floating charge, the security right continues to encumber the property, which now belongs to the acquirer.793 The idea is to give the transferee an incentive to pay the purchase price to the floating charge holder instead of the transferor.794 Where a floating charge is created and granted to a creditor shortly before the bankruptcy, this act can be recovered under the Bankruptcy Act.795 Recovery under chapter 4, section 5 of that Act requires that the creditor receiving the letter previously had an unsecured claim or had a less privileged priority position. It also requires that securing the creditor in this way favored him or her in an improper manner, that the debtor was 789 790 791 792 793 794 795

The Enforcement Code (Utmätningsbalken), chapter 8, section 13. Ägarhypotek. See Millqvist, Sakrättens grunder, 146. Regarding real property, see Folkesson, Företaget i ekonomisk kris7, 44. Håstad, Sakrätt avseende lös egendom6, 355. Chapter 2, section 3. Håstad, Sakrätt avseende lös egendom6, 367. See chapter 4, sections 5 and 12.

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insolvent, and that the creditor at least should have been aware of this and the circumstances that made the security inappropriate.796

20.

Consequential questions of restitution of the goods to the “owner”

This chapter deals with questions relating to the situation where the owner uses the right to recover control over his or her movable property from another person, who is, for the purposes of this chapter, referred to as the “possessor”. During possession, the possessor may, for instance, have made improvements to the property, owned by another, and is thereby entitled to compensation for the improvement or other costs. Otherwise the owner would be “enriched” on the account of the possessor – even though, it must be said, arguments based on unjustified enrichment law are seldom used when claiming compensation, and are indeed seldom a successful way to proceed in litigation under Swedish law.797 The opposite situation could also occur: the possessor may be “enriched” by reaping fruits or simply by using the property owned by another. There is a wide range of situations that may potentially fall within the scope of this chapter. A person may be using movable property owned by another without any contractual or legal right to do so. From a Scandinavian perspective, one would probably not confine the discussion to situations where restitution of the goods is made to the “owner” of the property in a strict sense. The right interfered with may also concern a right to rent or lease, where someone is using another’s leased or rented car or apartment. In the latter case, restitution should be made to the “owner” of the right of use, who in this case has a better right to the goods. Looking at some of the situations that can occur, we can distinguish quite a few differences between the situations where restitution to the owner, as opposed to the rightful possessor is in question. If someone buys property in good faith that has been stolen from the owner, the acquirer cannot make a valid good faith acquisition. The result is that the possessor has gained possession of the movable without being liable for a criminal offence, the possession is due to a contractual agreement (with a third party who was not entitled to dispose), but for some other reason the possession is unlawful.798 The same would be true if the possessor obtained possession of the movable while in bad faith of the transferor’s right to the goods when 796 797 798

See further, chapter 8.1., regarding recovery. See further regarding unjustified enrichment in chapter 16. See section 3, Good Faith Acquisition of Personal Property Act and chapter 13 above.

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taking possession, and it concerns goods in relation to which the transferor obtained possession by defrauding the true owner.799 Another constellation involving three parties is where someone hands over goods that do not belong to him or her to another person (e.g. a mechanic) to have them repaired, or where the right of the person handing over the goods is limited by a retention of title clause, for instance, where it is agreed that a car shall be repaired and the customer does not pay for the repair being done. In such cases the question arises as to whether the repairer can retain the goods until payment has been made by the “true owner” of the goods. If someone, on the other hand, takes a bicycle on the street in good faith, believing that it belongs to a friend, from whom he or she is allowed to borrow a bicycle, this possession is not based on a contractual agreement and the possession is (normally) not a criminal offence.800 A movable can of course also be stolen and the possession is thereby a result of a criminal offence and not a contractual agreement. The next step down is where someone is in possession of the goods due to negligent behavior, with or without prior contractual agreement. In the example of the bicycle, the possessor may have negligently assumed the bike belonged to his or her friend or negligently have thought he or she was allowed to use it. This may cause damage liability under tort law, which is based on the culpa principle. Another situation is that a person possesses the goods based on a contractual agreement that has ended (e.g. a contract for the lease of a car) and the possessor continues to use the goods (in this example, the rented car) after the period has expired. The transfer of possession can also be initially based on a valid contract, but later avoided, or void from the beginning if it was concluded by a minor or someone under the influence of a mental illness. In all these situations (and beyond) there is something that is “missing”, so to speak, for the possessor to continue to have a right to possess the goods. This missing link can be of various kinds. Deciding upon cases whose only element of similarity is that the goods are returned from the possessor to the owner involves the application of rules from several different statues and each and every relevant conflict situation cannot be discussed in detail here.

799 800

See section 2, Good Faith Acquisition of Personal Property Act. If someone takes something by mistake while intoxicated, and he or she would have made the same mistake if sober, this, at least, excludes intentional crimes, see Dahlström et al., Brott & Påföljder, 16 ff.

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Entitlement to fruits and benefits during the period of possession

The situation of a possessor obtaining fruits or making use of goods while in possession of goods owned by another is not regulated in any statute and is dealt with scarcely in legal literature. There are no generally formulated rules and the outcome of the conflict between the possessor and the owner or limited right holder will to a large extent be dependent upon the circumstances in each and every case. It has, nevertheless, been discussed in Swedish legal literature whether the concept of unjustified enrichment could be applied to such cases. This has been deemed to be a largely unnecessary concept, since it is rather a problem partly created by the concept of ownership. With the Swedish functional approach, the concept of unjustified enrichment is not necessary to the same extent as in other jurisdictions with a civil law tradition. Among legal scholars there is, however, another, less predominant view, stating that the concept of unjustified enrichment is very useful and that it could be used in a number of situations.801 It could be said that the concept is discussed but is seldom, or scarcely ever, used. Quite apart from unjustified enrichment, a possessor has, under certain conditions, an obligation to return fruits and benefits to a bankruptcy estate, as of the time recovery proceedings were initiated.802 Under such conditions, the possessor should also pay for his or her beneficial use of the movable.803 If recovery is initiated applying the general rule of where bad faith of the recipient is a necessary requirement,804 the possessor may also have to return fruits and benefits from the time he or she obtained possession of the movable.805 E contrario, this means that a possessor in good faith can keep fruits obtained before such action was filed. If someone is declared dead and later turns out to be alive, the property of that person, the owner, should be returned to him or her.806 Up until the time the possessor knows about the person presumed to be deceased’s better right to the property, the fruits and benefits stay with the possessor. Some scholars support a more general rule that what a possessor has obtained in

801 802

803 804 805 806

See further, chapter 16., regarding unjustified enrichment. See Konkurslagen chapter 4, section 15; see also Blom et al. (eds.), Karnov 2006 / 07 [-Lennander], 3446, note 161-162. Blom et al. (eds.), Karnov 2006 / 07 [-Lennander], 3446, note. 162. See chapter 8.1. Bankruptcy Act, chapter 4, section 15; Prop. 1975:6, 244 f. Lag (2005:130) om dödförklaring, section 12; prop. 2004 / 05:88, 29.

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good faith, he or she can keep for him- or herself, by analogously applying the abovementioned rule on those presumed to be deceased.807 It is not necessary that the dispute is finally settled in order to conclude that the possessor’s good faith must have ceased to exist. One scholar mentions that when the possessor has received the summons to appear in court into his or her hands, his or her good faith will have ceased to exist808 – but this must only be seen as an example of when good faith can have ceased to exist: good or bad faith cannot be dependent on such formalistic requirements. It should probably be enough that the possessor hears about the deficiencies of his or her acquisition, by an action in court or in any other way.809 Where a contract has been terminated, the law provides that the buyer is not entitled to keep the benefits and therefore has to return them to the seller and pay a reasonable sum for use of the goods.810 The seller should at the same time pay interest for the payment received. It does not matter which of the parties is responsible for the termination of the contract.811 Apart from having the same solution as in Sweden, when a contract has been terminated, the solution in Norwegian law812 is that the possessor is entitled to obtain benefits stemming from the movable as long as he or she was in non-negligent good faith regarding his or her right to the movable.813 As of the time the owner has brought a claim for the re-vindication of the movable and the possessor’s good faith has, therefore, ceased to exist, the possessor has to compensate the owner for the yields and use from which he or she has benefited; however, he or she may deduct costs. As for the time prior to the bringing of the re-vindication action, the possessor only has to compensate the owner for the profit that does not constitute a yield or use. The possessor is not just free from liability, he or she also has a better right

807

808 809 810

811

812 813

See Hellner, Om obehörig vinst, särskilt utanför kontraktsförhållanden, 265; Undén, Svensk sakrätt 1, Lös egendom10, 69. Undén, Svensk sakrätt 1, Lös egendom10, 69. Tepora, Inledning till grunderna för sakrätten, 83. Sale of Goods Act, section 65; the section has its equivalent in CISG art. 84. The buyer should only pay for the actual fruits gained from the goods, not the fruits he or she could have had from it (compare with unauthorized use of property). Costs he or she incurred should be deducted from that amount, see Blom et al. (eds.), Karnov 2006 / 07 [-Herre], 564 note 262. Blom et al. (eds.), Karnov 2006 / 07 [-Herre], 564 note 261 and Håstad, Den nya köprätten5, 196. According to section 65 of the Norwegian Sale of Goods Act. The Property Law Act, section 15. Falkanger / Falkanger, Tingsrett6, 404 ff.; the discussion centres on immovables but is also applicable to movable property.

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to the fruits.814 The possessor does not need to believe he or she is the owner of the movable: it is sufficient if the good faith is in relation to his or her right to have possession of the movable and that he or she therefore has a right to its fruits. A similar solution is to be found in Denmark, where a possessor in good faith has the right to keep all fruits of the property obtained up to the time of the rei vindicatio.815 Conversely, a possessor has no right to the obtained fruits as of the time he or she qualifies as a possessor in bad faith. A possessor in bad faith is also liable for all fruits he or she failed to obtain.816 These similarities in other Scandinavian jurisdictions could be used as additional support for a comparable solution in Sweden and they could support the argument that has been made to analogously apply the rule on those presumed to be deceased. As an interim result, we can sum up the return of fruits and benefits in contractual sales relationships provided for in the Sale of Goods Act. Outside the scope of this rule there are the rules of bankruptcy and when someone is deemed deceased but turns out to be alive, which of course is a situation that does not arise too often. Other situations are not settled in Swedish law. Nevertheless, a good faith possessor will probably have a good chance of keeping fruits and benefits if he or she gained possession of the movable outside the scope of contractual relations. This also seems to be the position of scholars in the other Scandinavian countries.817 The arguments for this position can, for instance, in short, be that it is important to protect a bona fide possessor and trust and confidence in the market. A possessor in good faith should not have to feel uncertain about the fruits or benefits he or she is reaping or be worried about having to pay compensation for fruits and benefits already consumed, lost or disposed in some way. Unfair compensation claims are thereby avoided, which could otherwise arise if the yield over a long period of time has been ample and has already been consumed. On the other hand, nothing prevents such a claim from being adjusted by the court. An additional argument in favor of a good faith possessor is that the fruits and benefits stemming from the property are yielded as a result of the possessor’s work on the property and it is important that his or her work is rewarded. 814

815

816 817

See Braekhus / Haerem, Norsk tingsrett, 563; the considerations concern the rule prior to the enactment of the Property Law Act. Ancient Danish Code, 5-5-4; the rule is applicable to immovables but is applied to movable property analogously. The possessor is not allowed to keep fruits obtained before the initiation of the rei vindicatio, if the due date would have been subsequent to such initiation, Vinding Kruse, Ejendomsretten 13. 742 ff. For Danish law, see Vinding Kruse, Ejendomsretten 13, 744 and DL 6-15-64. For Finland, see Tepora, Inledning till grunderna för sakrätten, 81 ff.

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On the other hand, the owner may have lost possession of the property by theft and the possessor may have obtained possession in good faith. The possessor may have had the property in his or her possession just a few days before becoming aware that the goods belong to someone else to whom the property has to be returned. During this short possession fruits or other benefits of a high value may be generated (perhaps surprisingly, and therefore not “included” in the price the possessor had to pay for the goods). Perhaps it goes without saying, but an outcome in favor of the possessor is less probable in such a situation. It is clear that no rule – no matter how many exceptions are attached to it – can take into account all possible situations and deliver a result based on a real balancing of interests. The conclusion is therefore that for situations where no provisions are to be found or where the provisions are uncertain, good arguments in favor of a good faith possessor are not hard to find. The same can of course not be said for a bad faith possessor, for whom there is no such need of protection.

20.2.

Deterioration, loss or consumption of the movable during the period of possession

No specific rules are to be found in Swedish law regulating cases where damage or loss occurs during a period of possession of goods “owned” by another. The owner can, however, proceed against the possessor based on the general law on non-contractual liability.818 Liability for damages will be solved based on the culpa principle.819 The person exercising physical control will therefore normally not be liable if the movable subject to restitution is lost or damaged by accident. The question of liability is solved irrespective of property law principles. Good or bad faith bears no significance as such. It is the negligence that grounds liability. The conclusion one can draw from these principles is that a possessor in good faith can scarcely be seen as being negligent and, therefore, will normally not be liable for damages. A possessor in bad faith, on the other hand, must be seen as being negligent, and therefore should have to pay damages to the owner. There are numerous court decisions developing the limited amount of rules contained in the Swedish framework of statute law on non-contractual liability for damage. If the goods have been alienated by an unauthorized sale by the possessor, the damages may well be assessed with reference to

818 819

See Damages Liability Act (Skadeståndslagen). Including intention and negligence, see Hellner / Johansson, Skadeståndsrätt6, 123.

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what the possessor gained from the sale.820 Nonetheless, the primary determinant in calculating damages for the complete loss of a movable is the cost of buying the same type of movable, subject to deductions for age and use. The estimated utility value or selling price is used only in exceptional cases. In cases of partial damage to a movable, the damage is either assessed with reference to the cost of repair, or to the difference in the value of the movable before and after the damage.821

20.3.

Improvements and expenses during the period of possession

The following subchapters deal with issues that may arise where the possessor of goods that are in fact owned by another person, improves these goods (e.g. the possessor repainting the owner’s car), adds parts to these goods (e.g. by installing a new hi-fi system in a car), or makes other kinds of expenses on these goods (e.g. feeds an animal), while being in possession of them. Thereafter, when the goods have to be restored to their owner, the question arises as to which rights the possessor may have in relation to these additions and expenses.

20.3.1. Possessor’s right to remove parts added A possessor will probably have a right to remove movable parts he or she has fixed to the other person’s property as long as no combination has occurred. Sweden does not have specific rules for combination, and the contributions of Swedish scholars in this area are sparse, but it has been said that if the movables can be easily separated from each other, without significant costs or loss of value, each owner should remain the owner of his or her contribution.822 The issue has been discussed in slightly more detail in other Scandinavian legal literature and case law, where it is suggested that the reasonableness of the cost of separation has to be assessed by taking into account the type of movable in each particular case.823 Another argument to consider is whether it is possible for the owner to acquire another

820

821 822 823

Hellner / Johansson, Skadeståndsrätt6, 423; Hellner, Om obehörig vinst, särskilt utanför kontraktsförhållanden, 241 ff.; Karlgren, Obehörig vinst och värdeersättning, 48 f. Hellner / Johansson, Skadeståndsrätt6, 420 ff. Håstad, Sakrätt avseende lös egendom6, 47. For Norway, see Rådsegn 7 frå Sivillovbokutvalet (Oslo 1963) 19 f.

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movable and the owner’s need for the movable.824 In Denmark, it seems as the owner of a movable has a right to demand to have it separated from any other movable, where the movables can be separated without causing a substantial loss of value. Where the possessor was in bad faith as to the right to work on the movable, separation can be demanded even if this will cause a substantial loss of value, provided that the movable produced is a normal piece of merchandise,825 so to speak, and not a work of art.826 Other scholars share this approach, but seem to suggest a slightly stricter rule as to separation where the manufacturer is in bad faith,827 so that in summary there are fewer situations where separation would be possible. The exact outcome in relation to when separation of the movables is allowed, and therefore when a right of the possessor to remove parts added to another owner’s movable is granted, is uncertain for Sweden but it seems reasonable that not only the costs or loss of value are to be taken into account. The owner’s need to have the movable, the possessor’s state of mind, and the type of movable are some circumstances that would probably be taken into account by a pragmatic judge in Sweden.

20.3.2. Reimbursement of expenses There are no rules in Sweden on the matter of reimbursement for expenses incurred during the period of possession, and it is therefore unclear whether a possessor may be reimbursed for such expenses. However, a claim might theoretically be successful on the basis of the rules on unjustified enrichment.828 There are no generally applicable categories of expenses. In some statutes, however, such categories are used. The term “reasonable” (in relation to costs) appears in the Sale of Goods Act829, whereas the term 824

825 826 827 828 829

This argument is used by the Norwegian scholars Braekhus / Haerem, Norsk tingsrett, 549 ff. “En almindelig handelsvare”. Vinding Kruse, Ejendomsretten 13, 443. Illum / Carstensen, Dansk tingsret3, 383 f. See chapter 16. Such expenses must, under certain circumstances, be made by the seller or the buyer according to sections 72 (seller’s duty to preserve the goods) and 73 (buyer’s duty to preserve the goods). In conjunction with these rules, section 75 states that a party who is bound to preserve the goods at the expense of the other party is entitled to reimbursement for “justifiable” expenses incurred through the preservation. These rules will, however, not be dealt with more closely in the present context, because they concern reimbursement of expenses incurred under a statutory (or contractual) obligation to act.

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“necessary” is used in the Commercial Code.830 The Bankruptcy Act, in its chapter on recovery uses the terms “necessary or useful”,831 covering all kinds of expenses where there are no particular reasons against granting the possessor a claim for compensation. In principle, this rule applies equally to possessors in good faith and possessors in bad faith, but a reason opposing the grant of such a right to the possessor may be that a bad faith possessor has incurred expenses that are too burdensome for the estate. These expenses will probably not be reimbursed.832 Outside the scope of application of the Bankruptcy Act, there are some rules giving the possessor a right of retention as long as the possessor has a right of reimbursement. There is no requirement of good faith in the Sale of Goods Act: if the possessor owed a duty to take care of the movable and has had to incur expenses by virtue of this duty, he or she also has a right to retain the movable until the expenses have been reimbursed.833 Further, if there are costs of storage, necessary expenses incurred in relation to the movable during storage or useful expenses incurred with the consent of the person handing over the movable for storage, the storer must have believed in good faith that the person handing over the movable has a right to do so.834 Presumably he or she also has a right against the “true owner” for reimbursement of his or her storage costs, secured by a right of retention. If a movable has been handed over for repair, the possessor (repairer) has a right of reimbursement of his or her expenses, secured by a right of retention if he or she believed in good faith that the person handing over the movable was the owner of it.835 However, in relation to necessary costs there is no good faith requirement.836

20.3.3. A possessor’s right to retain the goods of the owner (a)

Introduction

By a right of retention, a person exercising physical control over goods (here: the possessor), who is in principle obliged to transfer possession of 830 831

832 833 834

835 836

Chapter 11, section 3 and chapter 12, section 8. Konkurslagen, chapter 4, section 15. See chapter 8.1. above for a general discussion of the concept of recovery in bankruptcy proceedings. Blom et al. (eds.), Karnov 2006 / 07 [-Lennander], 3446, note 165. Köplagen, section 75; Karnov 2006 / 07 [-Herre], 568 note 307-308. Commercial Code (Handelsbalken), chapter 12, section 8; Blom et el. (eds.), Karnov 2006 / 07 [-Herre], 499, note 20. Håstad, Sakrätt avseende lös egendom6, 72; NJA 1936 s. 650 and NJA 1948 s. 10. Håstad, Sakrätt avseende lös egendom6, 72 f; NJA 1987 s. 312.

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these goods to another person (here: the owner), shall be allowed to keep the goods in his or her possession until the other party has completed the performance owed to the possessor.837 Typical situations relevant in the present context are where the goods are transferred to a craftsman or a garage, or any other professional for repair, maintenance or storage and the claim for remuneration is not paid by the person handing over the goods. The person claiming a right of retention must fulfill special requirements regarding possession of the goods. As some Scandinavian authors put it, the possessor should have such physical power over the goods to withstand the other person’s attempts to retrieve the goods. Some form of physical possession over the goods is therefore required. The general concept of possession is thereby said not to lend itself so well in terms of retention.838 If the possessor loses possession of the goods against his or her will, the consequence is, however, not that the right is lost.839 As long as the performance has not been completed, the right to retain is not subject to any limitation period, even if the underlying claim can indeed be limited.840 If the owner goes bankrupt, the possessor has priority for his or her claim in the goods retained.841 An important prerequisite for the existence of a retention right with priority in bankruptcy is that there must be a connection between the claim and the property the possessor is withholding,842 and it follows from general principles that a retention right of property cannot be asserted in a greater number or extent than is necessary to ensure the claim in question.843 If, however, there is only one item, and this cannot be separated, and this item is much more valuable than the claim, one may assume that it is still possible to retain this item to secure the claim.

837 838 839 840 841 842

843

Also called the “zug um zug” principle. Zitting / Rautiala, Lärobok i sakrätt – allmän del, 79 f. See further, chapter 2. Tepora, Inledning till grunderna för sakrätten, 89. Tepora, Inledning till grunderna för sakrätten, 90. With some exceptions in the Rights of Priority Act, section 9, paragraph 2. Hessler, Allmän sakrätt, 518 f. The reason is said to be the relative importance to respect, as far as possible, the principle of equal rights to all creditors and precedence for payment shall thereby be given only if there are truly compelling reasons, see NJA 1985 s. 205 (no retention right in raw materials) and prop. 1970:142, 83 f. The demand for a connection between the claim and the property has one exception for commercial agents, see NJA II 1914 s. 223 ff (commenting on an earlier version of the law). Prop. 2008 / 09:88, 116.

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177

Right of retention in Sweden

There are several legal sources giving a possessor the right to retain a movable in Sweden844 and the right can also be established through an agreement.845 However, the terminology used is confusing and the concept cannot be said to have been examined in detail.846 The traditional opinion is that anyone who has a pledge right in the goods is entitled to sell the goods to obtain payment of the secured claim. Those who instead have a right of retention are usually not permitted to sell the goods but may refuse to deliver them to the owner until the owner has paid his or her debt or given security for the debt.847 The Swedish legislator, on the other hand, does not clearly distinguish between these two rights, namely a right of retention and a statutory right of pledge.848 A right to retain may very well include the right to sell the movable.849 The difference should nevertheless not be exaggerated; someone who has a right to retain but no right to sell the goods can, by obtaining an execution decision from the court or the Enforcement Service, thereafter assign the property for seizure on his or her behalf. The end result would be the same, but the procedure without a statutory right to sell it is longer. One may say that the two terms are now so intermingled that it makes no real sense to try to keep them apart.850 What is important is that the feature, or the function, that someone might retain goods for security of a

844

845

846 847 848 849

850

See, for instance, Commercial Code (Handelsbalken) chapter 11, section 3 and chapter 12, section 8; Sale of Goods Act, section 75. The provisions in the Commercial Code are also applicable in Finland, where chapter 12, section 12 is also still valid. Håstad, Sakrätt avseende lös egendom6, 26 f; Undén, Svensk sakrätt 1, Lös egendom10, 233, 241. However, a contractual right to retain might not have the same effects as a retention right granted by law, see Walin, Separationsrätt, 71. There should be no free choice over which claims the right should protect, see Millqvist, Sakrättens grunder3, 174. The secured claim need not be valid, see Zitting / Rautiala, Lärobok i sakrätt – allmän del, 79. Undén, Svensk sakrätt 1, Lös egendom10, 234. Millqvist, Sakrättens grunder3, 172. Legal retentionsrätt and legal handpanträtt. As in, for example, Lagen (1970:980) om retentionsrätt för fordran hos hotellgäst; see also, Millqvist, Sakrättens grunder, 158 ff; Rodhe, Handbok i sakrätt, 443 ff and Håstad, Sakrätt avseende lös egendom6, 350. For a different opinion – the traditional standpoint – that a right of retention is something different than a legal pledge right, with no right to sell the property, see Undén, Svensk sakrätt 1, Lös egendom10, 233 ff.

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claim (with or without a possibility to sell the goods) exists, no matter what anyone chooses to call it. The common opinion seems to be that there is no general right outside the scope of application of the rules in the various statutes.851 Certain possibilities to use the rules analogously exist, especially the two rules in the Commercial Code, but there is no unwritten general rule providing for a right to retain another person’s property.852 It is, however, uncertain to what extent an analogous application is possible and whether the rules can be applied to non-contractual situations. Even if there is no unwritten general rule granting a retention right, there should be – depending on the situation – some possibility to grant that by analogy. In other Scandinavian literature it is, for instance, generally pointed out that in a situation where the owner is incapable of protecting his or her property and someone else incurs expenses in order to prevent serious damage to the property, the possessor has a right of retention until the expenses have been reimbursed.853 Generally, the concept of retention is said to be relatively similar as between the Scandinavian countries.854 As for the abovementioned examples, one provision in the Commercial Code855 gives a borrower a right to retain, where he or she incurred necessary expenses with the owner’s consent. One legal scholar extends this rule’s scope of application also to “useful costs”856 not consented to by the owner.857 Under another provision in the Commercial Code,858 a possessor storing the movable has the right to retain the object pending payment of necessary expenses invested in the movable or storage costs. One scholar suggests that the possessor’s fee and costs other than those qualifying as necessary should give the possessor the same right to retain.859

851

852

853

854 855 856 857 858 859

Håstad, Sakrätt avseende lös egendom6, 27, 350 and Millqvist, Sakrättens grunder3, 173. Millqvist, Sakrättens grunder, 159; Undén, Svensk sakrätt i lös egendom10, 235 and NJA 1985 s. 205. For Denmark, see Vinding Kruse, Ejendomsretten 33, 1683. See also 1686 ff where it is said that a general rule of retention might be applicable depending on the circumstances of each situation. Undén, Svensk sakrätt 1, Lös egendom10, 234. Chapter 11, section 3. Nyttiga kostnader. Undén, Svensk sakrätt 1, Lös egendom10, 236. Chapter 12, section 8. Undén, Svensk sakrätt 1, Lös egendom10, 236.

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Where something has been handed over in order to perform work on the goods or for storage, one statute860 governs the right of every natural or legal person engaged in professional activities to sell the goods that have not been collected.861 The right is extinguished if the owner of the goods goes bankrupt.862 The Sale of Goods Act863 gives a possessor – who can also be the seller or the buyer, where the party is in charge of taking care of the goods on the other party’s account864 – the right to retain up until his or her justifiably865 incurred costs of care have been reimbursed or acceptable security has been provided to the possessor. An agent has the right to retain material, documents etc. in the agent’s possession, belonging to the principal and the claim should be due before the agent can exercise a right of retention.866 The claim must also be connected to the contractual relationship between the agent and the principal. A possessor who retains property from someone who is bankrupt can arrange the sale of property him- or herself, but must pay regard to when and how to sell the property.867 The possessor must also give the bankruptcy administrator a chance to redeem the property.

860 861 862

863 864

865 866

867

Lagen (1985:982) om näringsidkares rätt att sälja saker som inte har avhämtats. See section 1 of the abovenamed statute. See the Bankruptcy Act (Konkurslagen), chapter 1, section 5 and chapter 8, section 7. Section 75. See sections 72-73. The right to retain is connected to the cost the party may have incurred according to these sections: section 72 regulates the seller’s duty of care and section 73 the buyer’s duty of care. Fösvarliga kostnader. Commission Agency Act (Kommissionslagen), section 17; Prop. 2008 / 09:88, 41 ff. Given the typically limited market value of these assets and their relative importance for the principal, a right of retention was not to be associated with any right to sell. If there are strong grounds for believing that the agent’s claim will not be paid by the principal, the agent may exercise his or her right of retention even before payment is due (see Prop 2008 / 09:88, 115). Power of attorney and other documents of extreme importance may not be withheld by the agent (see NJA 1981 s. 1050, where a business accounting document was forwarded to an accountant. The accountant did not have a right of retention to secure her claim). The agent’s right to retain also means that there is a right in goods that have no exchange value, see Undén, Svensk sakrätt 1, Lös egendom10, 243 f and Walin, Separationsrätt, 72. Bankruptcy Act, (Konkurslagen), chapter 8, section 10.

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A finder has a right of retention for the cost of care of the goods.868 In addition, there are other less frequently used rules in different statues.869

(c)

Right of retention where disposal of the goods has been made without the owner’s consent

The question here is whether someone has the right to retain property for a claim that was caused by someone other than the owner. It could, for instance, concern a possessor who has borrowed goods from another that are retained on the basis of a hotel room not having been paid, stolen goods or goods bought by an installment contract that have been handed over to be repaired or where someone has a pledge right over goods that are retained because the pledge holder has not paid the claim (and numerous other situations). This issue is not discussed in very much detail in Swedish literature, but it seems clear that in a situation where there is no contractual agreement at all, as with a finder who has a retention right for costs of maintenance and for the reward, this right of retention can be exercised in relation to anyone, no matter who the owner is (and no matter, one may suppose, whoever lost the goods).870 In one of the provisions of the Commercial Code871 mentioned above, a possessor storing the movable has the right to retain in relation to payments due for such storage. This right is said to exist even where the movable was 868 869

870

871

See Lag om hittegods, section 3. Several of the below mentioned acts refer to the act Lagen om näringsidkares rätt att sälja saker som inte har avhämtats regarding the procedure of selling the goods; Bostadsrättslagen (1991:614) chapter 7, section 16a; the Maritime Code (Sjölagen) chapter 3, section 39, chapter 13, section 20, and chapter 15, section 11; the Act on Road Transport (Vägtransportlagen (1974:610)), sections 20 and 25; Lag (1919:426) om flottning i allmän flottled, chapter 4, section 33 and chapter 5, section 68; Commercial Agency Act (Lag om handelsagentur), sections 15 and 16 (the agent is allowed to sell the goods after 3 months, or, in the case of risk of rapid deterioration, even earlier); the Consumer Services Act (Konsumenttjänstlagen), sections 49 and 50; Järnvägstrafiklagen (1985:192), chapter 1, section 10; Lag (1933:269) om ägofred, sections 52-58. Lag om hittegods, section 3; Undén, Svensk sakrätt 1, Lös egendom10, 242. Undén also mentions the situation where someone illegally hunts for animals with borrowed equipment. For some unknown reason he comes to the conclusion that the person holding this equipment should probably have to give it back to the owner without a right of retaining it until the claims have been paid. Chapter 12, section 8.

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stored without the owner’s consent, where the person storing the movable was in good faith as to the possessor’s right to the movable.872 It is further recognized that if someone repairs goods and is in good faith in believing that the person handing over the property is the owner of the goods, he or she acquires a right of retention also against the owner.873 This makes sense if you allow retention in the case of storing goods, where no value has been added by the storage compared to the situation of where repairs have been carried out that have increased the value of the goods, at least where no bad faith regarding the right of the relevant person to the movable existed before the work began.874 There are two rather old court cases supporting this solution.875 Whether these court decisions should govern the standard of the retainer’s good faith or not, or whether some other standard of good faith should apply, is uncertain. In one of the cases,876 someone had repaired a car belonging to another and was given a right to retain the car as against the owner. As described above,877 under the Act on Good Faith Acquisition, if someone buys a car, a far-reaching duty to examine whether the transferor has the right to dispose of the car applies,878 and a higher standard of care should be imposed on a professional businessman than on an ordinary person.879 The question is therefore if the standard of good faith should be applied analogously to the Act on Good Faith Acquisition. One legal scholar states that this standard of good faith should not be applied, since an unconditional duty to investigate would be very burdensome in relation to the minor limits that may be placed upon the owner due to the right of retention. It is a matter of interpreting the contract, e.g. a contact for sale, as to whether the seller has granted the installment buyer a right to leave the goods with a third party for repair.880 A duty to interpret the contract can not of course be demanded of the repairer, but nothing is said on what kind of investigation, if any, is necessary. Under Norwegian law, it is said that the person retaining the goods has to fulfill the requirements of a good faith acquisition, which would imply the same standard of good 872 873 874

875 876 877 878

879 880

Blom et al. (eds.), Karnov (-Herre) 2006 / 07, 499 note. 20. Håstad, Sakrätt avseende lös egendom6, 73. See a comment on this matter in Blom et al. (eds.), Karnov 2006 / 07 [-Herre], 685 note 18. NJA 1936 s. 650 and NJA 1948 s. 10. NJA 1948 s. 10. Chapter 13.3. Prop. 1985 / 86:123, 21. See also NJA 1982 s. 312 and chapter 13.3., where this court decision is examined. Millqvist, Sakrättens grunder3, 56; Prop. 1985 / 86:123, 22. Håstad, Sakrätt avseende lös egendom6, 73.

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faith.881 Moreover, in Swedish law, if the repair was necessary, the right to retain exists even if the repairer was in bad faith in relation to the possessor’s right to dispose.882 Swedish literature does not seem to go into any greater detail and since the comments mentioned were written before the law forbade good faith acquisition of stolen goods, it may also mean that one cannot acquire a right of retention of stolen goods. Neveretheless, one comment is made after the change of the law on good faith acquisition, but it is uncertain as to how to interpret it. Regarding the right to retain where a hotel guest does not pay and the hotel retains the luggage to secure its claim against the guest, the law explicitly mentions that it is possible to retain the luggage that the guest has carried with him or her.883 A good faith acquisition is said to be required for this right to be invoked against the rightful owner or anyone with a right in the goods, if, for instance, the guest has illegally acquired the goods.884 Since a good faith acquisition is not allowed in relation to stolen goods, it is difficult to know what is actually meant by this. In the conflict situation between a pledge holder and a person retaining the property in the event of the owner’s insolvency, it is clear that the retention right has precedence: if, for instance, a pledge holder with a right to use a car hands over the car to be repaired, the repairer overrides the pledge holder’s right in the property. If the owner has somehow obtained possession of the car and the car is repaired, the solution will depend on the repairer’s good faith regarding the concurring right. If he or she knows about the pledge, the pledge right should have priority over his or her right. If the repairer has no knowledge about the pledge right, his or her right should have priority over the pledge.885

21.

Concluding remarks

A reader of the whole report must by now have understood that there is certainly something different about the Swedish (and Scandinavian) approach to property law. There are no real agreements, no constitutum possessorium, no numerus clausus list of property rights, no civil code, many questions unsolved – and this constant nagging about not using “ownership” as a starting point for solving specific legal problems. Instead, there 881 882 883 884 885

Brækhus, Pant og annen realsikkerhet, 526 f. NJA 1987 s. 312. See Lag om retentionsrätt för fordran hos hotellgäst. Blom et al. (eds.), Karnov 2006 / 07 [-Johansson], 677, note 5. Hessler, Allmän sakrätt, 385.

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are “conflict situations”, “better rights”, “priority” and something about a “functional approach” – but not many of these convenient concepts that make life so easy to be a lawyer. One of the purposes of this report has been to give the reader a glimpse of how a Swedish lawyer in general would deal with problems in property law, and to show that no matter how peculiar we are in Sweden, the solutions are not always that different from other legel systems. The difference lies more in how we formulate the questions that we pose and how we approach the problems. Why would anyone care what 9.3 million Swedes do on their own soil anyway? Well, as a part of the European Union – and with present attempts to unify its laws – it will of course pose difficulties in achieving this unifying goal when the approaches we have are so different from each other. It might sound like a scary thought for some, but if there should be a unification, the unification of laws does not necessarily have to be towards a system that most of the lawyers in Europe recognize: the fact that a legal system is prominent or that its code is ancient and full of “history” should have no substantial bearing when deciding upon the best solution for the Union. Instead, it could and may very well be that the unification of laws will be towards a Scandinavian functional system, or something in between. And for the unitary lawyers to even consider anything different – or for us all to just be able to discuss problems with each other – it would help if those hailing from a unitary system gather the same amount of knowledge about the functional approach as the functional lawyers already have about its unitary counterpart. Nevertheless, the intention of this report is not to convince anyone of the “greatness” of the Scandinavian approaches in property law – but to present a way of thinking that is almost unknown to lawyers outside Scandinavia. It may also help a reader to deal with problems within his or her own system (despite its differences), or provoke the reader to at least question some of the solutions found in (thick) codes and statutes.

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Table of Literature Books and articles Adlercreutz, Axel, Avtalsrätt 1 (Juristförlaget, 12th edition, 2002) Adlercreutz, Axel, Finansieringsformers rättsliga reglering (with supplement of 2008) (Studentlitteratur, 4th edition, 2004) Agell, Anders, Växel, check och materiell fordran (Norstedts Juridik, 1971) Alexander, Gregory S., Comparing the two legal realisms – American and Scandinavian, [2002] 50 Am. J. Comp. L. 131 Almén, Tore, Om köp och byte av lös egendom. Kommentar till lagen den 20 juni 1905 (Norstedt, 4th edition, 1960) Andersen / Werlauff, Kreditretten (Forlaget Thomson, 4th edition, 2005) Andreasson, Jens, En funktionell syn på rättigheter och juridisk argumentation – utifrån exemplet upphovsrättshavarens ställning i konkurs, SvJT 2006 s. 437 von Bar / Clive, Principles, definitions and model rules of European private law – Draft Common Frame of Reference (DCFR), full edition, volume 5 (Sellier, 2009) Bengtsson, Bertil, On fragmentation in private law, 36 Scandinavian Stud. L. 37 (1992) Besnard / Hunter, Elements of argumentation (Mit Press Ltd, 2008) Björne, Lars, Den konstruktiva riktningen, Den nordiska rättsvetenskapens historia, Del III (Institutet för rättshistorisk forskning, 2002) Blom / Eriksson / Hirschfeldt / Ramberg (eds.), Karnov kommentarer 2003 / 04 and 2006 / 07 (Thomson Fakta, 8th edition, 2003; 11th edition, 2006) Brækhus, Sjur, Omsetning og kreditt 2 – pant og annen realsikkerhet (Universitetsforlaget, 2nd edition, 1994) Brækhus, Sjur, Omsetning og kreditt 3 og 4 (Universitetsforlaget, 1998) Brækhus, Sjur, Pant og annen realsikkerhet (Universitetsforlaget, 2nd edition, 1994) Brækhus / Hærem, Norsk tingsrett (Universitetsforlaget, 1964) Curwen, Nicholas, Title to sue in conversion, 2004 Conv. 308 Dahlström / Nilsson / Westerlund, Brott & Påföljder (Brunns Bokförlag, 2001) van Eemeren / Grootendorst / Henkemans, Fundamentals of argumentation theory (Lawrence, 1996)

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Sweden

186 Elmer / Skovby, Ejendomsretten 1 (Jurist- og Økonomforbundets Forlag, 4th edition, 1999) von Eyben, Bo, Danish property law in Dahl et al. (eds.), Danish law in a European perspective (Forlaget Thomson, 2nd edition, 2002) von Eyben, William Edler, Panterettigheder (Akademisk Forlag, 6th edition, 1980)

Faber, Wolfgang, National Report on the Transfer of Movables in Austria in Faber / Lurger (eds.) National Reports on the Transfer of Movables in Europe, vol. 1 (Sellier, 2008) Faber, Wolfgang, Scepticism about the functional approach from a unitary perspective in Faber / Lurger (eds.) Rules for the transfer of movables – A candidate for European harmonisation or national reforms? (Sellier, 2008) Falkanger / Falkanger, Tingsrett (Universitetsforlaget, 6th edition, 2007) Folkesson, Enar, Företaget i ekonomisk kris (Talentum HR, 7th edition, 2009) Gretton, George L., Publication review, 2009 Edin. L.R. 169 Göransson, Ulf, Actio Pauliana outside bankruptcy and the Brussels convention, in Sumampouw / Barnhoorn / Freedberg-Swartzburg / Tromm / Wade (eds.), Law and reality, essays on national and international procedural law in honour of Cornelis Carel Albert Voskuil (Martinus Nijhoff Publishers 1992) Göransson, Ulf, Ogiltighet i sakrätten (Iustus Förlag, 1984) Göransson, Ulf, Traditionsprincipen (Iustus Förlag, 1985) Helander, Bo, Kreditsäkerhet i lös egendom (P.A. Norstedts & Söners Förlag, 1983) Hellner, Jan, Om obehörig vinst särskilt utanför kontraktsförhållanden (Almqvist & Wiksell, 1950) Hellner, Jan, Skenargument i rättsvetenskapen in Rosén (ed.), Rationalitet och empiri i rättsvetenskapen (Juridiska fakulteten vid Stockholms universitet, 1985) Hellner, Jan, Unification of Law in Scandinavia, (1968) 16 Am. J. Comp. L., 88. Hellner / Johansson, Skadeståndsrätt (Norstedts Juridik, 6th edition, 2000) Hellner / Ramberg, Speciell avtalsrätt 1, Köprätt (Juristförlaget, 2nd edition, 1991) Hellner / Hager / Persson, Speciell avtalsrätt II, Kontraktsrätt, 1 häftet (Norstedts Juridik, 4th edition, 2005) Hellner / Hager / Persson, Speciell avtalsrätt II, Kontraktsrätt, 2 häftet (Norstedts Juridik, 4th edition, 2006) Hessler, Henrik, Allmän sakrätt (P.A. Norstedt & Söners förlag, 1973) Hessler, Henrik, Om äganderättsförbehåll och återtagandeförbehåll i 1966 års lag om vad som är fast egendom. Nordisk gjenklang. Festskrift till Carl Jacob Arnholm (1969)

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Table of Literature

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Hitchcock / Poulsen, Dänemark in von Bar (ed.) Sachenrecht in Europa 1 (Universitätsverlag Rasch, 1999) Holmqvist / Leijonhufvud / Träskman / Wennberg, Brottsbalken (Norstedts Juridik, 7th edition, 1998) Hult, Phillips, Lärobok i värdepappersrätt (Norstedts Juridik, 6th edition, 1969) Hultmark / Ramberg, Avtalsrätten (Norstedts Juridik, 1999) Hultmark / Ramberg, Speciell avtalsrätt 1 – Köprätt (Juristförlaget, 2nd edition, 1991) Håstad, Torgny, Den nya köprätten (Iustus Förlag, 5th edition, 2003) Håstad, Torgny, Derivative acquisition of ownership of goods, E.R.P.L. 2009 17(4) 725 Håstad, Torgny, Inför en europeisk sakrätt – några principfrågor, JT, 2002 / 03 nr. 4, s. 745 Håstad, Torgny, Sakrätt avseende lös egendom (Norstedts Juridik, 2nd edition, 1984; 6th edition, 1996) Håstad, Torgny, Supplement 2004 till Sakrätt avseende lös egendom (Norstedts Juridik, 2004) Håstad, Torgny, The importance of tradition (Uppsala University, 1982) Håstad, Torgny, Äganderättens övergång i en gemensam europeisk rättsordning, JFT 3-4 / 2009 327 Hägge, Ulrik, Om återvinning av egendom som ökat i marknadsvärde, SvJT 2009 s. 644 Illum / Carstensen, Dansk tingsrett (Juristforbundet, 3rd edition, 1976) Johansson, Marcus, Ändamålsenliga sakrättsmoment – om rådighet, sken och rådighetssken, SvJT 1997, 343 Johansson, Svante, Stoppningsrätt under godstransport (Norstedts Juridik, 2001) Karlgren, Hjalmar, Obehörig vinst och värdeersättning (Norstedts Juridik, 1982) Kriström, Bengt, En återgång till avtalsprincipen? Replik på Dag Mattssons artikel i Svensk juristtidning nr 3 / 05, SvJT 2005 s. 1112 Lehrberg, Bert, Praktisk juridisk metod (Iustus förlag, 2nd edition, 1993) Lilleholt, Kåre, Alminnelig formuerett in Lilleholt (ed.) Knophs oversikt over Norges rett (Universitetsforlaget, 12th edition, 2004) Lindebrække, Sjur, Eiendomsrett og konkursbeslag (Beyer, 1946) Lindskog / Müllern / Unger (eds.), Festskrift till Sveriges advokatsamfund 1887-1987 – rättsvetenskapliga studier (Norstedts Juridik, 1987) Llewellyn, Karl, Across sales on horseback, 52 Harv. L. Rev. 725 (1939) Llewellyn, Karl, The first struggle to unhorse sales, 52 Harv. L. Rev. 873 (1939) Llewellyn, Karl, Through title to contract and a bit beyond, 15 N.Y.U.L.Q. Rev. 159 (1938)

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Malmström / Agell, Civilrätt (Liber Ekonomi, 17th edition, 2001) Martinson, Claes, Kreditsäkerhet i fakturafordringar – en förmögenhetsrättslig studie (Iustus Förlag, 2002) Martinson, Claes, Ejendomsrettens overgang – Norden kontra verden (Nordiska juristmötets skriftserie 2008 bind II – not yet published) Martinson, Claes, En struktur över kredit- och exekutionsrätten (Juridiska institutionen vid Göteborgs universitet, 2003) Martinson, Claes, Funktionalismen och bättre rätt till fast egendom, SvJT 2008 s. 669 Martinson, Claes, How Swedish lawyers think about “ownership” and “transfer of ownership” – Are we just peculiar or actually ahead? in Faber / Lurger (eds.), Rules for the transfer of movables – A candidate for European harmonisation or national reforms? (Sellier, 2008) Mattsson, Dag, En återgång till avtalsprincipen?, SvJT 2005 s. 319 Millqvist, Göran, Sakrättens grunder (Norstedts Juridik, 1st edition, 2000; 3rd edition, 2003) Millqvist, Göran, Traditionsprincipen på tillbakagång, JT, 2008 / 09 nr. 1 s. 115 Mellqvist, Mikael, Obeståndsrätten (Norstedts Juridik, 2nd edition, 2000) Mellqvist, Mikael, Recension av Staffan Myrdal, Borgenärsskyddet – om principerna för skyddet mot överlåtarens och pantsättarens borgenärer, JT, 2002 / 03 nr. 3 s. 708 Mortensen, Peter, Indledning til tingsretten – tredjemandskonflikter vedrørende løsøre (Forlaget Thomson, 2003) Myrdal, Staffan, Borgenärsskyddet – om principerna för skyddet mot överlåtarens och pantsättarens borgenärer (Norstedts Juridik, 2002) Nergelius, Joakim, Hur påverkas svensk äganderättsdebatt av Europadomstolens praxis? in Åhman (ed.), Äganderätten – dess omfattning och begränsningar (Iustus förlag, 2009) Olivecrona, Karl, The legal theories of Axel Hägerström and Vilhelm Lundstedt, 3 Scandinavian Stud. L. 125 (1959) Persson, Annina H., Förbehållsklausuler (Juridiska fakulteten vid Stockholms universitet, 1998) Rodhe, Knut, Handbok i sakrätt (P.A. Norstedt & Söners förlag, 1985) Ross, Alf, Tû-Tû, (1956-1957) 70 Harv. L. Rev. 812 Rune, Christer, Rätt till skepp (Jure, 2nd edition, 1991)

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Table of Literature

189

Salomons, Arthur F., How to draft new rules on the bona fide acquisition of movables in Europe? in Faber / Lurger (eds.), Rules for the transfer of movables – A candidate for European harmonisation or national reforms? (Sellier, 2008) Samuelsson, Joel, Om harmoniseringen av den europeiska privaträtten och funktionalismens funktionalitet, Europarättslig tidskrift 2009 s. 63 Schultz, Mårten, Nya argumentationslinjer i förmögenhetsrätten – Obehörig vinst rediviva, SvJT 2009 s. 946 Stadler, Astrid, Gestaltungsfreiheit und Verkehrsschutz durch Abstraktion (Mohr Siebeck, 1996) Stone, Bradford, Uniform commercial code (St. Paul, 6th edition, 2005) Strömholm, Stig, Rätt, rättskällor och rättstillämpning – en lärobok i allmän rättslära (Norstedts Juridik, 5th edition, 1996) Tapani Klami, Hannu, Föreläsningar över juridikens metodlära (Iustus förlag, 2nd edition, 1989) Tepora, Jarno, Inledning till grunderna för sakrätten (Forum Iuris, 2009) Tiberg, Hugo, Skuldebrev, växel och check (Norstedts Juridik, 6th edition, 1989) Torp, Carl, Dansk tingsrett (G.E.C Gad, 1892) Toulmin, Stephen E., The uses of argument (Cambridge University Press, 2003) Undén, Östen, Svensk sakrätt 1, Lös egendom (C.W.K. Gleerups Förlag, 1st edition, 1927; Norstedts Juridik, 10th edition, 1995) van Vliet, Lars Peter Wunibald, Transfer of movables in German, English and Dutch law (Ars Aequi Libri, 2000) Vinding Kruse, Frederik, Ejendomsretten 1-3 (Nyt Nordisk Forlag, 3rd edition, 1951) Vranken, Jan B.M., Exploring the jurist’s frame of mind (Kluwer law international, 2006) Walin, Gösta, Borgen och tredjemanspant (Norstedts Juridik, 2nd edition, 1996) Walin, Gösta, Separationsrätt (Norstedts Juridik, 1975) Zetterström, Stefan, Sakrättens fyra huvudfall, (Iustus Förlag, 2nd edition, 2008) Zitting, Simo, An attempt to analyse the owner’s legal position, 3 Scandinavian Stud. L. 227 1959 Zitting / Rautiala, Lärobok i sakrätt (Finlands Juristförbunds Förlag, 1971) Zweigert / Kötz, An introduction to comparative law (Oxford University Press, 3rd edition, 1998)

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Other Det Tiende Nordiske Juristmøde, 1902 Ds 2001:7 Prop. 1944.201 Prop. 1970:57 Prop. 1975:6 Prop. 1985 / 86:123 Prop. 1986 / 87:90 Prop. 1988 / 89:76 Prop. 1989 / 90:89 Prop. 1990 / 91:63 Prop. 1991 / 92:83 Prop. 2000 / 01:19 Prop. 2001 / 02:134 Prop. 2002 / 03:17 Prop. 2002 / 03:49 Prop. 2006 / 07:126 Prop. 2007 / 08:115 Prop. 2007 / 08:161 Prop. 2008 / 09:88 Prop. 2009 / 10:80 Rådsegn 7 frå Sivillovbokutvalet (Oslo 1963) SOU 1964:14 SOU 1970:75 SOU 1988:63 SOU 1995:11 SOU 2000:56 SOU 2002:70 SOU 2005:3 SOU 2005:120 SOU 2007:1

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Table of Abbreviations ABGB Am. J. Comp. L.

Allgemeines bürgerliches Gesetzbuch (Austrian Civil Code) The American Journal of Comparative Law

BGB

Bürgerliches Gesetzbuch (German Civil Code)

CISG CONV

United Nations Convention on Contracts for the International Sale of Goods Conveyancer and Property Lawyer

DL

Danske lov

ed. / eds. Edin. L.R e.g. E.R.P.L. et al. etc.

Editor(s) Edinburgh Law Review exempli gratia (for example) European Review of Private Law et alii, et aliae, et alia et cetera

f. ff. FF fn

(and) the following page (and) the following pages Förbudsföreläggande footnote

Harv. L. Rev.

Harvard Law Review

i.e.

id est (that is)

JFT JT

Tidskrift utgiven av Juridiska Föreningen i Finland Juridisk Tidskrift

MD

Marknadsdomstolen (Swedish Market Court)

NJA N.Y.U.L.Q. Rev.

Nytt Juridiskt Arkiv New York University Law Quaterly Review

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Prop.

Proposition

Rt

Norsk Retstidende

s. Scandinavian Stud. L. SOU SvJT

sida(n) (page) Scandinavian Studies in Law Statens Offentliga Utredningar Svensk Juristtidning

UCC

Uniform Commercial Code

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Table of Statutory Provisions (Unofficial translation)

Consumer Sale of Goods Act (1990:932) Protection from the seller’s creditors Section 49 Purchases under this Act are protected against the seller’s creditors by the agreement. When a purchase does not relate to a specific product, the purchase will not be protected from the seller’s creditors until measures has been taken to separate or label the product, note the product in an accounting document or in any other way show that the product is intended for the buyer.

Good Faith Acquisition of Personal Property Act (1986:796) Good faith acquisition of title Section 2 (1) Where a person has acquired personal property by means of a transfer from any other person who had possession of the property but was neither the owner of the property nor authorized to dispose of it in the manner that has occurred, title to the property shall vest in the acquirer, where such property has come into his possession and he was in good faith. (2) An acquirer shall be deemed to be in good faith only where it is probable that the nature of the property, the circumstances in which it was offered, and the circumstances in general were such that he should not have suspected that the transferor was not entitled to dispose of the property. Section 3 Notwithstanding that the conditions for good faith acquisition in accordance with section 2 are fulfilled, title to the property shall remain vested in the owner where the owner has been deprived of the property as a consequence of any person unlawfully taking such property from him or forcibly obtaining it through violence against the person or through a threat entailing, or understood by the threatened person to entail, a danger constituting duress. However, where the owner fails to demand

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return of the property from the holder within six months of the day on which he became, or must be assumed to have become, aware of the fact that the property was held by the latter, title to the property shall vest in the acquirer. Prescriptive title Section 4 Where any person with a claim in title has held personal property for ten years after acquiring the property through transfer from a person that was neither the owner of the property nor entitled to dispose thereof in the manner that occurred, he shall acquire title to the property by way of prescriptive title. However, title shall not vest if, at the time of the acquisition or during the period of possession, he should have suspected that the transferor was not entitled to dispose of the property. The aforesaid rules shall apply where, following such a transfer, the property is held during a period of ten years under claims in title by several persons consecutively based on transfer or inheritance, testamentary disposition, division of marital property, or any other similar acquisition. The condition regarding good faith shall apply to all holders. Redemption against payment Section 5 (1) Any person who has been divested of title to certain property as a result of the good faith acquisition by another person shall be entitled to redeem the property against payment. (2) Any person wishing to redeem his property shall demand its return from the holder within three months of the day on which he became aware, or must be assumed to have become aware, of the fact that the property was held by the latter. Should he fail to do so, the right to demand return of the property shall be forfeited. Section 6 (1) Payment upon redemption shall correspond to the cost to the owner for the acquisition of and improvement to, the property. Where the owner has acquired the property through gift, inheritance, testamentary disposition or division of marital property, the costs of acquisition and improvements to the property incurred by the party from whom it was acquired shall also be included in the redemption sum. This shall apply, however, only where the party from whom the property was acquired would have been entitled to payment if the demand for return of the property had been made upon him. (2) Changes in the value of money shall be taken into account in determining the redemption sum. The redemption sum shall not exceed the general trade value of the property.

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Sale of Goods Act (1990:931) Freedom of contract Section 3 The provisions of this Act are subject to the terms of the contract between the parties, to any practice which has been established between them and to any other usage which is to be considered binding on the parties. Delivery of the goods Sale of goods to be collected by the buyer Section 6 (1) The goods shall be placed at the buyer’s disposal at the place where the seller had his place of business at the time of the conclusion of the contract or, if the seller did not have a place of business that was linked to the conclusion of the contract, at the seller’s place of residence. If the parties, at the time of the conclusion of the contract, knew that the goods or the stock from which the goods were to be drawn were at a particular place, the goods shall be placed at the buyer’s disposal at that place. (2) The goods are delivered when they have been taken over by the buyer. Sale involving carriage of goods Section 7 (1) If the contract involves the carriage of the goods to the buyer within the same locality or within an area where the seller normally arranges for the carriage of similar goods, the goods are deemed to be delivered when they are handed over to the buyer. (2) If, in cases not falling within paragraph (1), the contract involves carriage of the goods and unless a trade term or other term of the contract stipulates otherwise, the goods are deemed to be delivered when they are handed over to the carrier who has undertaken the carriage of the goods from the place of dispatch. If the seller himself undertakes the carriage of the goods, delivery does not take place until the goods are handed over to the buyer. (3) If the goods have been sold “free at”, “delivered to” or “delivered free at” a particular place, the goods are not to be considered delivered until they have arrived at that place.

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196 Right to withhold the goods

Section 10 (1) Unless the seller has granted the buyer credit or a period of grace for the payment of the price, he is not required to hand over the goods or, by handing over documents or otherwise, to release his control over the goods until the price is paid. (2) If the seller has undertaken to dispatch the goods to a particular place, he may not, by virtue of paragraph (1), refrain from dispatching the goods, but he may prevent the goods or a document relating to the goods from being handed over to the buyer until the price is paid. Risk for the goods Meaning of risk Section 12 If the goods are at the risk of the buyer, he must pay the price even if the goods deteriorate or are destroyed, lost or diminished, provided that the loss or damage is not due to an act or omission of the seller. Passing of risk Section 13 (1) The risk passes to the buyer when delivery of the goods takes place under the contract or section 6 or 7. (2) If, because of an act or omission of the buyer or any other reason attributable to the buyer, the goods are not delivered when delivery is due, the risk passes to the buyer when the seller has fulfilled his obligations with regard to their delivery. (3) If the goods are to be placed at the buyer’s disposal at a place other than the seller’s place of business or residence, the risk passes when delivery is due and the buyer is aware that the goods have been placed at his disposal at that place. Section 14 Notwithstanding the provisions of section 13, the risk does not pass to the buyer until the goods are clearly identified in the contract, whether by markings on the goods, by the transport documents or otherwise.

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Goods in transit Section 15 Where goods are sold in transit, the risk passes to the buyer at the time of the conclusion of the contract unless the circumstances indicate that the buyer has assumed the risk from the time the goods were handed over to the carrier who issued the documents embodying the contract of carriage. Nevertheless, if at the time of the conclusion of the contract the seller knew or ought to have known that the goods had been lost or damaged and did not disclose this to the buyer, the loss or damage is at the risk of the seller. Consequences of delay in delivery Remedies Section 22 If the goods are not delivered or if their delivery is delayed and this is not due to an act or omission of the buyer or any other reason attributable to the buyer, the buyer is entitled, in accordance with sections 23-29 require performance or declare the contract avoided as well as being entitled to claim damages. The buyer may also withhold payment in accordance with section 42. Performance Section 23 (1) The buyer is entitled to follow the contract and to require its performance. The seller is, nevertheless, not obliged to perform the contract if there is an impediment that he cannot overcome or if the performance would require sacrifices that are disproportionate to the buyer’s interest in performance by the seller. (2) If the impediment or disproportion ceases to exist within a reasonable time, the buyer may, nevertheless, require performance of the contract. (3) The buyer loses his right to require performance of the contract if he defers his claim for an unreasonably long time. Section 24 If the seller requests the buyer to make known whether he will, in spite of a delay in delivery, accept performance within a certain period of time or if the seller makes known that he will effect performance within a certain period of time and the buyer fails to respond within a reasonable time after he received the request or notification, the buyer may not declare the contract avoided if the seller performs the contract within the period of time so specified by the seller.

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198 Avoidance

Section 25 (1) The buyer may declare the contract avoided on account of the seller’s delay in delivery if the breach of contract is of substantial importance to the buyer and the seller knew or ought to have known this. (2) If the buyer has fixed an additional period of time for the delivery and the period of time is not unreasonably short, the buyer is also entitled to declare the contract avoided unless the goods are delivered within the additional period of time. (3) During the additional time, the buyer may declare the contract avoided only if the seller makes it known that he will not perform the contract within that time. Section 26 Where the contract is for the supply of goods to be manufactured or acquired specially for the buyer, in accordance with his instructions or wishes, and the seller cannot, without considerable loss, make other use of the goods, the buyer may only declare the contract avoided on account of the seller’s delay in delivery if the buyer’s purpose pursued by the contract has essentially failed because of the delay. Damages Section 27 (1) The buyer is entitled to damages for losses that he suffers because of the seller’s delay in delivery, unless the seller proves that the delay was due to an impediment beyond his control that he could not reasonably be expected to have taken into account at the time of the conclusion of the contract and whose consequences he could not reasonably have avoided or overcome. (2) If the delay is due to a third person whom the seller has engaged to perform the whole or part of the contract, the seller is exempt from liability only if that third person would also be exempt from liability under paragraph (1). The same shall apply if the delay is due to a supplier of the seller or to someone else at a previous level in the chain of supply. (3) Indirect losses specified in section 67 are not recoverable under paragraphs (1) and (2) of this section. (4) The buyer is always entitled to damages, including indirect losses, if the delay or loss is due to negligence attributable to the seller. Section 28 If the seller is unable to perform the contract in a timely manner, he must give the buyer notice of the impediment and its effect on his ability to perform. If the notice is not received by the buyer within a reasonable time after the seller knew or ought

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to have known of the impediment, the buyer is entitled to damages for losses that could have been avoided if he had received the notice in time. Notice of avoidance or claim for damages Section 29 If there is a delay in the delivery of the goods, the buyer is not entitled to declare the contract avoided or to claim damages on account of the delay unless he notifies the seller of the avoidance or of his intention to claim damages within a reasonable time after he learned of the delivery. If the buyer declares the contract avoided, he is, nevertheless, not obliged to give a separate notice of a claim for damages. Claim from a third party Section 41 (1) If the goods are subject to a claim of a third party based on ownership, lien or other property right and the buyer is not, under the contract, bound to accept the goods subject to the restrictions caused by the third-party claim, the provisions on giving notice in sections 32 (1) and 33, on remedy of defect and substitute delivery in sections 34-36, on reduction of price and avoidance in sections 37-39, on damages in section 40 and on the right of the buyer to withhold payment in section 42, apply. The provisions of section 31 shall not restrict the buyer’s right to rely on a lack of conformity due to a third-party claim. (2) The buyer is always entitled to damages for losses incurred because of a thirdparty claim that existed at the time of the conclusion of the contract if he neither knew nor ought to have known of the claim. (3) The buyer is entitled to rely on the remedies provided for third-party claims even where a third party asserts that he has a claim referred to in paragraph (1) and there are reasonable grounds for the claim. Provisions common to breaches of contract by the seller Right to withhold payment Section 42 If the buyer has a claim against the seller on account of a delay in delivery or a defect in the goods, the buyer may withhold payment of the price in an amount corresponding to his claim.

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200 Avoidance in installment contracts

Section 44 (1) If the contract is for delivery of goods by installments and any installment is delayed or defective, the buyer may declare the contract avoided with respect to that installment in accordance with the general provisions of this Act governing avoidance. (2) If the delay or defect gives the buyer reasonable grounds to conclude that a breach entitling him to avoidance will occur in respect of one or more future installments, he may declare the contract avoided for such future installments, provided he does so within a reasonable time. (3) A buyer who declares the contract avoided in respect of any installment may, at the same time, declare it avoided in respect of previous or future installments if, by reason of their interdependence, he would suffer substantial detriment if he had to remain bound by the contract in respect of those installments. Consequences of the buyer’s breach of contract The remedies Section 51 (1) If the buyer fails to pay the price when it is due or to cooperate in the seller’s performance as required in section 50(1), and this is not due to an act or omission of the seller or any other reason attributable to the seller, the seller is, in accordance with sections 52-59, entitled to require payment or other performance of the contract or to declare the contract avoided as well as to claim damages. He may also withhold control over the goods in accordance with section 10 and claim interest in accordance with section 71. (2) If the buyer fails to fulfill his obligation to collect or take over the goods and this is not due to an act or omission of the seller or any other reason attributable to the seller, the provisions of section 55, of section 57(2)-(4) and of section 58 apply. Avoidance of the contract because of delay in payment Section 54 (1) The seller may declare the contract avoided on account of the buyer’s delay in payment where the delay is substantial. (2) If the seller has stipulated an additional period of time for payment and the period of time is not unreasonably short, the seller is also entitled to declare the contract avoided unless the buyer pays the price within the additional period of time. (3) During the additional period of time the seller is entitled to declare the contract avoided only if the buyer makes it known that he will not pay within that time.

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(4) If the goods have been handed over to the buyer, the seller may declare the contract avoided only if he has reserved himself such right in the contract or if the buyer rejects the goods. Avoidance of the contract because of lack of co-operation Section 55 (1) The seller may declare the contract avoided if the buyer fails to cooperate in accordance with section 50(1), and the breach of contract is of substantial significance to the seller and the buyer knew or ought to have known this. Subject to the same conditions, the seller may declare the contract avoided if the buyer is delayed in collecting or taking over the goods and the contract or the circumstances indicate that it is of particular interest to the seller that the goods are removed. (2) The seller is also entitled to declare the contract avoided if he has fixed an additional period of time for performance that is not unreasonably short and the buyer does not, within that period: (1) cooperate in accordance with section 50(1); or (2) collect or take over the goods where the contract or the circumstances indicate that it is of particular interest to the seller that the goods are removed. (3) During the additional period of time the seller is entitled to declare the contract avoided only if the buyer makes it known that he will not perform his obligations within that time. Avoidance in installment contracts Section 56 (1) If the price is to be paid in installments as deliveries of the goods are made and the payment of any installment is delayed, the seller may declare the contract avoided with respect to that installment in accordance with the general provisions of this Act governing avoidance. (2) The seller may also declare the contract avoided in respect of any future installments unless the circumstances indicate that there is no reasonable cause to anticipate a reccurrence of a delay that would constitute a ground for avoidance. Anticipatory breach Right of stoppage Section 61 (1) If, after the conclusion of the contract, the conduct or financial circumstances of a party indicate that there are strong reasons to anticipate that he will fail to perform a substantial part of his obligations, the other party may suspend his performance.

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(2) If the seller has already dispatched the goods before the circumstances referred to in paragraph (1) become evident, he may prevent the handing over of the goods to the buyer. The seller may do so even if the buyer holds a document of carriage relating to the goods. (3) A party who suspends performance or prevents the handing over of the goods must immediately give notice thereof to the other party. If he fails to do so, the other party is entitled to damages for any loss incurred because he did not receive the notice in time. (4) A party who has suspended performance or prevented the handing over of the goods must continue with his performance if the other party provides adequate assurance of his performance. Avoidance Section 62 If it becomes clear that a breach of contract entitling a party to avoidance will take place, that party may declare the contract avoided even prior to the date of performance. Such avoidance is, however, without effect if the other party immediately provides adequate assurance of his performance. Provisions common to avoidance and substitute delivery Effects of avoidance and substitute delivery Section 64 (1) Avoidance of the contract releases the seller from his obligation to hand over the goods and the buyer from his obligation to pay the price and to take delivery. (2) Insofar as the contract has been performed, each party is entitled to claim restitution from the other party of whatever has been received. A party may suspend restitution until the other party fulfils his obligation of restitution and pays any damages and interest that the party may be liable to pay or provides adequate assurance of their payment. (3) If the seller is to deliver substituted goods, the buyer may suspend restitution of the goods he has received until the substitute goods are delivered. Section 65 (1) If the contract is declared avoided, the buyer must account to the seller for any yields he has derived from the goods as well as pay reasonable compensation for any other benefit he may have derived from the goods. (2) If the seller is to refund the price, he shall pay interest on the amount to be refunded from the date on which he received the payment.

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Loss of right to avoidance and substitute delivery Section 66 (1) The buyer is entitled to declare the contract avoided or to demand substitute delivery only if he can make restitution of the goods substantially unchanged and undiminished. (2) Nevertheless, the buyer does not lose his right to declare the contract avoided or to demand substitute delivery if: 1. the goods have deteriorated or diminished because of their inherent properties or some other reason not attributable to the buyer; 2. the goods have deteriorated or diminished due to an act that was necessary in order to examine the conformity of the goods; 3. the goods or part of the goods have been sold in the normal course of business or have been consumed or transformed by the buyer in the course of normal use before he discovered or ought to have discovered the defect due to which he wishes to declare the contract avoided or require substitute delivery. (3) Notwithstanding the provisions of paragraph (1) and (2), the buyer does not lose his right to declare the contract avoided or to require substitute delivery if he reimburses the seller for the loss in the value of the goods resulting from their deterioration or diminishing. The extent of the damages Difference in price Section 68 If the contract has been avoided and if, in a reasonable manner and within a reasonable time after avoidance, the buyer has bought goods in replacement or the seller has resold the goods, the price difference to be compensated shall be calculated on the basis of the difference between the contract price and the price in the substitute transaction. Section 69 If the contract has been avoided but no substitute transaction under section 68 has been made and if there is a current price for the goods, the price difference to be compensated shall be calculated on the basis of the difference between the contract price and the current price at the time of avoidance.

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Section 75 A party who is bound to preserve the goods at the expense of the other party is entitled to reimbursement for justifiable expenses and costs incurred through the preservation. He may retain the goods until the reimbursement is received or an adequate assurance for such is provided. Yield from the goods Section 79 Any yield accruing from the goods before the agreed time of delivery belongs to the seller unless there were reasonable grounds to expect that the yield would accrue later. Any yield accruing from the goods after the agreed time of delivery belongs to the buyer unless there were reasonable grounds to expect that the yield would accrue earlier. Section 81 A sale of an interest-bearing receivable includes any interest that has accrued but has not fallen due for payment at the agreed time of delivery. An amount equal to such interest must be paid by the buyer to the seller in addition to the price, unless the receivable was sold as uncertain.

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National Report on the Transfer of Movables in Norway and Denmark Jan-Ove Færstad with contributions by Martin Lilja

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2. Historical development

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3. A closer look at the functional approach 3.1. Introduction 3.2. Rights related to a movable 3.2.1. ‘Proprietary’ rights 3.2.2. Requirements for transfer 3.3. Opposability to creditors, good faith acquisition, acquisitive prescription and protection 3.4. Protection 3.4.1. General remarks 3.4.2. Claims for recovery 3.4.3. Protection of physical control (a) General (b) Self-protection 4. Possession

215 216 216 217 219 219 219 220 221 221 222 222

Part II: Derivative acquisition 5. No ‘unitary’ notion of ownership 5.1. General remarks 5.2. The different functions of ownership 5.2.1. Introduction 5.2.2. Functions related to the contractual parties (a) Different functions and different steps in general (b) Passing of risk

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5.3.

5.2.3. Functions relating to third parties 5.2.4. Effects of avoidance and termination of contract Consequences of the lack of a ‘unitary’ notion of ownership

6. Selling in chain

230 232 233 234

7. Transfer by means of indirect representation 7.1. The law of commission agency 7.2. Ownership of and rights in the movable when transferred by indirect representation 7.3. Transfer by means of indirect representation in Danish law 7.3.1. The law of commission agency 7.3.2. Credit sale and opposability to creditors 8. Insolvency 8.1. Introduction 8.2. Insolvency of the transferor 8.2.1. Introduction 8.2.2. The basis for a modified principle of ‘traditio’ 8.2.3. A closer look at the principle of ‘traditio’ (a) Transfer of physical control (b) Equivalents to delivery (i) ‘Constitutum possessorium’ (ii) ‘Traditio brevi manu’ (iii) ‘Traditio longa manu’ 8.2.4. Modification of the requirement of ‘traditio’ 8.2.5. Registration 8.2.6. Opposability to the seller’s creditors in Danish law (a) Specific goods (b) Generic goods 8.3. Insolvency of transferee 8.3.1. Introduction 8.3.2. The seller’s right to cease the transaction (a) The buyer collects the movable (b) Transportation 8.3.3. The importance of the seller’s right to cease the transaction 8.3.4. The right of the transferor in bankruptcy proceedings 8.3.5. Insolvency of the transferee in Danish law 8.4. Actio Pauliana

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238 238 238 239 240 240 242 242 243 243 244 245 245 246 246 247 247 248 249 249 250 251 251 252

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Part III: ‘Original’ acquisition 9. Acquisition by commixture, production etc 9.1. Commixture 9.2. Production of goods 9.3. Commixture and production in Danish law 9.3.1. Introduction 9.3.2. Separation 9.3.3. Ownership 10. Double / multiple sale – good faith acquisitions 10.1. Introduction 10.2. Field of application 10.3. The circumstances of the ‘transfer’ 10.4. The requirements for good faith acquisition 10.4.1. General 10.4.2. The seller’s authority (a) Apparent authority in general (b) Invalid contracts 10.4.3. Perfection 10.4.4. Good faith (a) Object of good faith (b) Standard of good faith (c) The time at which good faith is required 10.4.5. Registration 10.5. Stolen goods 10.6. The rightful owner’s claim for recovery 10.7. Good faith acquisition free of encumbrances 10.8. Good faith acquisition in Danish law 10.8.1. Introduction 10.8.2. Double sale (a) Valid and final contract (b) The seller’s authority (c) Perfection (d) Good faith (e) The basis for good faith acquisition in double sale situations 10.8.3. Good faith acquisition (a) ‘Something more’, considerations regarding the transferor’s authorisation (b) Carelessness on the part of the rightful owner (c) The rightful owner’s passivity

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11. ‘Acquisitive’ prescription 11.1. Introduction 11.2. The basis for the rules on acquisitive prescription (‘hevd’) 11.3. A closer look at the requirements of acquisitive prescription 11.3.1. The object of acquisitive prescription 11.3.2. Good faith 11.3.3. Physical control 11.3.4. Prescription period 11.4. The function of acquisitive prescription 11.5. ‘Acquisitive’ prescription in Danish law 11.5.1. Prescription period 11.5.2. Physical control 11.5.3. No good faith required

274 274 275 275 276 276 277 278 278 279 279 280

12. Further modes of original acquisition 12.1. Finding 12.2. Occupation 12.2.1. Introduction 12.2.2. Abandonment 12.2.3. Occupation in Danish law 12.3. Separation

281 282 282 282 283 283

Part IV: Additional issues 13. Sales lien 13.1. Introduction 13.2. Connection to the sales agreement 13.3. The subject-matter of the sale may not be sold to someone else 13.4. Registration 13.5. The effect of a commingling of movables on a sales lien 13.6. The effect of adaptation on a sales lien 13.7. Consequences of a valid sales lien agreement 13.8. Retention of title under Danish law 14. Co-ownership 14.1. Co-ownership and general partnership 14.2. The Co-Ownership Act 14.2.1. The rules on transfer

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(a) Transfer of the movable (b) Transfer of the undivided share 14.2.2. The rules on separation and termination of co-ownership 14.3. Co-ownership under Danish law 14.3.1. Rules on transfer 14.3.2. Rules on termination 15. Specific rules on unspecified goods? 15.1. Sale in bulk 15.2. Floating charges

289 289 289 290 290 290

290 291

16. Restitution of the movable 16.1. Introduction 291 16.2. Entitlement to benefits resulting from the movable 292 16.3. Loss and deterioration of the movable 293 16.3.1. Void contract and termination of contract 293 16.3.2. Other situations 293 16.4. Recompense for improvements and expenses incurred during possession of the movable 294 16.4.1. Termination of a contract 294 16.4.2. Termination of a right to use the movable 294 16.4.3. Theft 294 16.4.4. Restitution of a movable acquired from a non-owner 295 16.4.5. ‘Garage Cases’ 295 16.5. Possessor’s right to retain the movable 295 16.6. Right to remove improvements 296 16.7. Who bears the cost of restitution of the movable to the owner? 296 16.7.1. Void contract and termination of contract 296 16.7.2. Termination of a right to use the movable 296 16.7.3. Restitution of a movable acquired from a non-owner, ‘garage cases’ and theft 297 17. Unsolicited goods 17.1. Norway 17.2. Denmark

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Table of Literature

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Table of Abbreviations

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Part I: Introduction 1.

General remarks

Norwegian and Danish property law are based on fragmented legislation.1 There is no comprehensive code dealing with property law, but rather different laws regulating different aspects of this field.2 Some examples of relevant laws regarding transfer of movables in Norway are: the Sale of Goods Act (Kjøpsloven, lov av 13 mai 1988) and the Consumer Sale of Goods Act (Forbrukerkjøpsloven, lov av 21. juni 2002) which both regulate the relationship between buyer and seller. Issues relating to bankruptcy are dealt with in the Bankruptcy Acts (Konkursloven, lov av 8. juni 1984 nr. 58 and Dekningsloven, lov av 8. juni 1984 nr. 59). The rules contained in these laws will be examined more closely later in this report. Some examples of relevant laws regarding transfer of movables in Demark are: the Sale of Goods Act (Købsloven, lov nr. 237 av 28.03 2003) and the Bankruptcy Act (Konkursloven, lov nr. 118 av 4.2.1997) In the following, I will attempt to explain how the transfer of movables is handled in Norwegian and Danish law. The rules in these countries are mainly based around the same principles and the same theoretical background. To avoid discussing the same subject twice, I will concentrate on Norwegian law, attempting to show where Norwegian and Danish law differ, where relevant. Thus, where no diverging indication is provided, it can 1

2

This report was written by Jan-Ove Færstad, a doctoral candidate at the Faculty of Law, University of Bergen. Professor Dr. Juris Kåre Lilleholt contributed to drafts of chapters 1, 3.2., 3.3., 3.4., 5 and 6 and the main sections of chapter 4 and 7.2. He also provided insightful comments and suggestions, and was of great help during the working process. Furthermore, doctoral candidate Camilla Bernt-Hamre gave valuable comments and suggestions. I would also like to thank Dr. Juris Wolfgang Faber and Martin Lilja, LL.M., both of the University of Salzburg, for helpful suggestions and complementary questions. In particular, Martin Lilja wrote chapters 15 and 17 entirely and sections 8.4. and 16.6. He also contributed to parts of sections 8.3.5., 9.3.1., 9.3.2., 10.8.1., 10.8.3., 11.5.1., 11.5.2., 13.1. and 16.5. Norwegian legislation and preparatory works can be found on the internet at: www. lovdata.no, but there is no official English translation of the legislation. Danish legislation can be found on the internet at: www.retsinformation.dk but this is only provided in Danish, and I can not find any official English translation of Danish legislation.

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be assumed that the rules are mainly equal in both Norway and Denmark. As my background is in Norwegian law, my knowledge of, and access to, Danish law and Danish legal literature is somewhat limited. Any references to Danish law will be, therefore, in no way complete, but I hope they will help to provide an impression of the similarities and differences between Norwegian and Danish property law. This paper is loosely based on a questionnaire prepared by the working group on the transfer of movables in Salzburg and Graz. The structure of the questionnaire and many of the questions are based on a Roman-German system of property law, or rather an Austrian / German system. Rather than answering the questions one by one, this report will start with a general introduction briefly describing some structural differences between the Roman-German system and current Norwegian and Danish law. Subsequent to that, the paper will deal with rules and situations related more directly to the transfer of movables in Norway and Denmark.

2.

Historical development

In the 19th century, the question of when ‘ownership’ was transferred was a central issue in Norwegian and Danish legal literature on property law. Legal scholars sought to establish the exact time of transfer of ‘ownership’, and the general opinion was that, at any given point in time, either A or B was the owner of the movable, and when it was transferred from A to B, B was to be considered ‘owner’ in every respect. This was viewed as a straightforward and simple rule. At the end of the 19th century, some legal scholars began to criticise this theory. At this early stage, the criticism was mainly presented by Danish professor Carl Torp, first in his book ‘Dansk tingsrett’ from 1892,3 and then, from a wider perspective, at the Nordic lawyers’ convention in 1902. The content of his criticism was mainly that the old theory was a theoretical construction that did not pay sufficient attention to reality. Torp argued that the term ‘ownership’ hid a lot of different problems, and that one had to handle those problems separately. At this time the traditional view, inspired by continental Europe, was still prevailing, but the criticism grew ever stronger during the 1920s. It was mainly Danish scholars who fronted this new and more functional view, but their writings were also read by, and discussed among, Norwegian scholars and lawyers. In the 1920s, Danish scholar Fredrik Vinding Kruse sided with Torp, arguing for a more

3

Torp, Carl: ‘Dansk tingsrett’ (København 1892), p. 324.

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functional approach to the subject.4 They were soon supported by other scholars, both in Denmark and Norway.5 The new approach also influenced the courts; even as early as 1909, the Norwegian Supreme Court ruled that the rules on the transfer of movables in regard to the seller’s creditors may be different to the rules on the transfer of movables in regard to other (later) buyers of the movable.6 The theories regarding transfer of ‘ownership’ were heavily discussed in Norwegian and Danish legal literature during the first half of the 20th century. The most important contribution to Norwegian legal literature on this subject was made by scholars Sjur Brækhus and Axel Hærem in their book ‘Norsk tingsrett’, from 1964.7 Here they argued that it was meaningless to discuss the transfer of ownership on a general level. Along the same lines as Torp had argued more than 50 years earlier, they argued that the term ‘ownership’ encapsulated a lot of different problems. In their opinion the transfer of each and every function contained in the term ‘ownership’ could cause its own problems and had to be discussed separately. They even went one step further, arguing that the different functions can be transferred from A to B at different times, each requiring the fulfilment of different requirements.8 Their work has formed much of the basis of the Norwegian, but also the Danish, functional approach to transfer of ‘ownership’ questions.9

3.

A closer look at the functional approach

3.1.

Introduction

‘Ownership’ in Norwegian and Danish law is used as a collective term for several different functions. Based on this fact, there is little or no point in asking on a general level when ownership is transferred. One has to divide 4

5

6 7

8 9

E.g. TfR 1924, pp. 315-436 and 1934, pp. 211-241, UfR 1935, pp. 113-144 and later in his book, Vinding Kruse, Fredrik: ‘Ejendomsretten’ (København 1951), pp. 786-843. E.g. Ross, Alf: ‘Ejendomsret og Ejendomsovergang, med særlig Henblikk paa dansk Retspraksis’ (København 1935) and Norwegian scholar, bank manager and politician, Sjur Lindebrække: Lindebræke, Sjur: ‘Eiendomsrett og konkursbeslag’ (Bergen 1946). Rt 1909, p. 734. This is further discussed in Lindebrække, p. 19. Sjur Brækhus and Axel Hærem: Brækhus, Sjur / Hærem, Axel: ‘Norsk Tingsrett’ (Oslo 1964). Brækhus / Hærem, pp. 381 et seq. See e.g. Mortensen, Peter: ‘Indledning til tingsretten’ (København 2002) p. 70 regarding Danish law and Falkanger, Thor: ‘Tingsrett’ (Oslo 1999), pp. 70 et seq. regarding Norwegian law.

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this question into different questions, each question concerning one of the different functions of ‘ownership’. As described in a Norwegian legal textbook, ‘transfer of ownership is a process where no party can be regarded as “owner” in all relations, as long as the process is in progress’.10 One will mainly find two interesting groups of problems when discussing the concept of ‘transfer of movables’ in Norwegian law. Primarily, it will be of interest to examine the rules on the transfer between the seller and the buyer. The problem of interest is to determine when the different functions are to be transferred from A to B, and this will, for the most part, be an issue dealt with under contract law. The questions of most interest in this connection will concern the passing of risk, the contractual parties’ right to control the movable and the rules on breach of contract. Secondly, it is of interest to discuss when the buyer, B, or his successors or creditors, will have a protected right in the movable, which in Norwegian is called ‘rettsvern’.11 This term is mainly used in reference to the priority of the right over conflicting rights in the movable (‘dynamic protection’), but sometimes also in reference to protection in the form of claims against third persons who damage the movable, a right to compensation in the case of expropriation etc. (‘static protection’). A right that has obtained full ‘rettsvern’ is, to a certain extent, similar to what is called a buyer’s right in rem, but the terms are not completely congruent. This kind of protection could protect B from other acquirers who have acquired the movable in good faith. B will also be protected from the seller’s creditors wanting to satisfy their claims using the movable.

3.2.

Rights related to a movable

3.2.1. ‘Proprietary’ rights A clue to understanding Danish and Norwegian law is to observe that rights are not qualified as ‘proprietary’. There is no closed list of rights that may be regarded as being related to a certain asset. The existence of a right related to a movable is independent of the priority and the protection of the right (see under 3.3.). As there is no category of ‘proprietary’ rights, some important consequences follow:

10 11

Brækhus, Sjur: ‘Omsetning og kreditt 3 og 4’ (Oslo 1998), p. 20. In Danish law one normally uses the term ‘retsbeskyttelse’; on this, see Mortensen, p. 94.

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– A principle of separation, in the sense of distinguishing an underlying obligation to transfer (e.g. a contract of sale) from a separate agreement on the transfer of a proprietary right as such, would have no meaning, as there is no difference between the ‘obligation’ and the right (however, it is of course possible to have an obligation to transfer a right related to a certain movable at a later time, for example by promising to pledge ‘a’ watch). – A principle of abstraction or a ‘causal’ system would be even less meaningful. – An acquirer of a right by contract, etc., who is not in good faith must, as a rule, respect older rights related to the movable, irrespective of the character of these rights.12 – Ordinary rules on ‘patrimonial’ rights apply to transfers and other dispositions of rights related to a certain movable. Normally, the rights may be transferred and general rules on the validity of contracts, representation etc. apply. – Transfer of physical control, registration etc. concern only the issues of priority over (and protection against) good faith acquisition, not the creation or existence of the right.13 – There is no formal numerus clausus catalogue in Norwegian or Danish property law.

3.2.2. Requirements for transfer For a transfer based on a contractual agreement to occur, there has to be some sort of agreement between the parties. This agreement or contract, and the relevant law, will be decisive when it comes to matters regarding

12

13

This means that, as a general rule, if owner A first concludes a lease contract with B and, subsequently, sells the same object to C, who is in bad faith (knows or should know about the existence of the lease contract, B’s right in the movable), lessee B will have priority over C in the sense that C must respect B’s right to use the movable. Furthermore, if owner A first concludes a contract of sale with B and, subsequently, but before delivery to B, concludes a lease contract regarding the same object with C, who is in bad faith regarding B’s right in the movable, buyer B will have priority over C in the sense that B’s right will prevail. See chapter 9 for more on good faith acquisition. This will hold true for different rights in a movable, so that transfer of physical control or registration could be of importance e.g. regarding the priority of the right of a lessee or the priority of a security right. An example of this is the Good Faith Acquisition Act, see chapter 10.2.

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those parties.14 The terms ‘abstract’ and ‘causal’ are not used in the Norwegian and Danish systems of transfer of movables. As long as there is some sort of underlying obligation or agreement, rights in movables can be transferred under Norwegian and Danish law. On a general level it makes no difference whether the obligation is based on a contract of sale, a contract of hire, a gift or some other form of agreement. Movables could also be transferred during the distribution of a deceased’s estate. In some situations though there will be quite significant differences between these different bases, regarding the rules on transfer. This can not be handled on a general basis, but will be discussed where relevant, e.g. in chapter 10.3. The contract will normally become binding when the parties have reached a consensus, and there are few rules regarding the form of contracts. One exception, however, are matrimonial gifts. For such gifts, a written contract is required, and the document has to be registered.15 As a general rule, the contract parties can not, by way of agreement, give the new owner’s right in the movable priority over other conflicting rights. In order to be able to do so, they have to fulfil other requirements, based on the type of movable involved and the kind of protection or right they want to obtain.16 These requirements will be discussed in more detail in the context of the different situations presented in part II and III. Based on this, something like a ‘real agreement’ would be redundant. Either there is an agreement between the parties, or there is not. If there is some kind of contract, this contract has to be interpreted to clarify the kind of obligation and the terms of transfer. However, one does not distinguish between the underlying obligation and the declaration of transfer. As between the contractual parties, this contract, or obligation, to transfer the movable at some point in time will be sufficient to give the buyer (new owner) a right against the seller (current owner) to acquire the movable at a stipulated point in time. The right of both parties to use or dispose of the movable will be interpreted from the contract and the time of delivery will not be decisive in this respect. However, in obtaining protection from third parties, transfer of physical control may be of importance. There is no requirement of consideration for a contract to be valid, nor does the time of payment affect the priority over, or protection against third 14

15

16

Hagstrøm, Viggo and Aarbakke, Magnus: ‘Obligasjonsrett’ (Oslo 2003), p. 42 and for Danish law, von Eyben, W.E. and Vinding Kruse, Anders: ‘Formueretten’ (København 1991), pp. 193-194. Lov om ekteskap av 4. juli 1991 nr. 47 (The Matrimonial Act) § 50 as compared to § 54. E.g. the transfer of physical control as presented in chapter 8.2.3.(a) and the requirements for good faith acquisition in chapter 10.4.

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parties in most cases. However, there may be some cases where this is of importance, like for instance, in establishing whether or not compensation is to be paid.17

3.3.

Opposability to creditors, good faith acquisition, acquisitive prescription and protection

To understand Norwegian and Danish property law, it may be helpful to work with the terms ‘opposability to creditors’, ‘good faith acquisition’, ‘acquisitive prescription’ and ‘protection’ (the terms do not correspond exactly to the common model of analysis in national law, but they may serve comparative purposes). The first three terms concern the loss and acquisition of rights and order of priority between conflicting rights related to the same asset, while ‘protection’ concerns a range of questions such as protection granted by criminal law against interferences etc., protection granted by the law in the form of non-contractual liability for damage, protection granted by procedural law, and so on (‘static protection’). Opposability to creditors, good faith acquisition and acquisitive prescription will be dealt with in detail from chapter 8 onwards.

3.4.

Protection

3.4.1. General remarks Questions concerning protection are mostly not seen as issues of property law in Norway and Denmark, but as questions of criminal law, non-contractual liability law etc. A special remark should be made on ‘actions’. In Denmark and Norway nothing is left (if it ever existed) of the Roman-law-inspired system of property law ‘actions’ (the special rule on the burden of proof being borne by someone claiming an object from the person controlling it may perhaps be seen as a slight remnant of this system). As in other fields of law, there is a distinction between substantive and procedural law. The owner may sue a thief in order to have the stolen object returned, and one may even sue a person claiming to be the owner of one’s thing – both are covered by the general rules on sufficient procedural ‘inter17

One example of the importance of consideration is the Good Faith Acquisition Act, see chapter 10.3. On the other hand, there is no requirement of consideration in order to make an acquisition by acquisitive prescription, see chapter 11.

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est’ (standing). There are also general rules on preliminary procedural steps, for example giving the court the power to order the return of an object or to stop an interference until the conflict is resolved.

3.4.2. Claims for recovery The availability of a substantive claim for having the object returned, be it from a thief or someone else, is seen as being so obvious that it is not even expressed in legislation. Our functional approach focuses on the different rights in the movable rather than on the term ‘ownership’. To bring a claim for recovery in Norwegian law, one needs to prove that one has a better right in the movable than the person currently holding it.18 E.g. a thief will never have any right in the movable, and any lessee, pledgee, or other person with a right in the movable will have a better right.19 As long as one has some sort of right in the movable, one may make a claim for recovery. The question will then be whether one’s right is better than the right of the person currently in physical control of the object. A couple of examples can illustrate this. If a movable is stolen, the ‘owner’ may claim the movable from the thief. However, if the thief is insolvent, could that be of importance regarding the ‘owner’s’ claim? Will the ‘owner’ have a better right in the movable than the thief’s creditors? In Norwegian law, this problem is solved by dekningslova20 § 2-2.21 As long as the thief has no right in the movable, his creditors have no right in it either. The creditors have no better right in the movable than the debtor.22 The same is true if a person, B, hires or leases the movable. Should he go bankrupt, his creditors will have no better right in the movable than B 18 19

20 21

22

See lov nr. 17 av 1969 om hendelelege eigedomshøve § 14. In Norwegian law, this is found to be so obvious that few legal scholars have elaborated on it. However, the issue is mentioned by Kåre Lilleholt in Knoph: ‘Knophs Oversikt over Norges rett’ (Bergen 1998), p. 195. Here, the rules are quite similar to Danish law, the person with the better right in the movable bears the burden of proof, see DL 5-5-3 (directly regarding acquisitive prescription). This is discussed further in von Eyben / Vinding Kruse, p. 29 and mentioned in Elmer, Michael and Skovby; Lise: ‘Ejendomsretten 1’ (København 1999), p. 160 and Mortensen, p. 97. Lov nr. 59 av 1984 (deknl.). No official English translation of Norwegian legislation is in existence. The content of this statutory provision could be summed up somewhat imprecisely as follows: ‘Except as otherwise provided by statute or any other valid provision, the creditors have the right to seek satisfaction using any property which belongs to the debtor at the time of attachment, and which can be sold, leased or otherwise monetised.’ Andenæs, Mads Henry: ‘Konkurs’ (Oslo 1999), p. 104.

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himself. The ‘owner’ may reclaim the movable, set out in the contract, and B’s creditors may only satisfy themselves using B’s contractual (and limited) right in the movable (where such a right has value).23 If one does have a better right, one will obtain the court’s permission to recover the movable. On the other hand, if one does not have a better right than the person currently in physical control of the object in question, one will have no claim for recovery. This would typically be the case if one’s right in the movable has been extinguished by an acquirer in good faith; for more on this, see chapter 10.

3.4.3. Protection of physical control (a)

General

Both in Norwegian and Danish law, physical control over a movable is protected by criminal law. Interfering with property under someone else’s physical control, even if one has the most superior right in it, is punishable under § 395 of the Criminal Code in Norway.24 This means that even if one is the rightful owner of a movable, one could be punished for interfering with someone else’s physical control. E.g. person A has hired a car from person B, and does not give the car back at the agreed time. If B then recovers the car back himself, he could be punished for this interference, even if he had the most superior right in the car. The person who is in physical control may protect this control by force without facing any risk of penalty.25 To be able to do so it is required that the relevant threat be imminent, unlawful, and that the person in physical control does not use more force than is reasonable to avert the threat. In some cases, this right can also be enforced against the rightful owner of the movable.

23 24

25

Andenæs, cit., p. 113. In Danish law, if one has a right in the movable, one may still be punishable under § 294 of the Criminal Code in such cases, and if one does not has no right, the rules in chapters 28 and 29 of the Criminal Code may be applied. The Norwegian Criminal Code, § 48 and the Danish Criminal Code, § 13. In Norwegian and Danish law, this is viewed as a form of self-defence, giving a person the right to protect both oneself and one’s property against any kind of threat, as long as one’s property is still in one’s possession, see e.g. Andenæs, Johs: ‘Alminnelig strafferett’ (Oslo 2004), p. 161.

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(b)

Self-protection

The term ‘selvtekt’, or ‘self-protection’, is used in Norwegian and Danish law in relation to situations where a person with the right in a movable takes possession of a movable without having regard to the fact that another person currently has physical control over that movable.26 This may be the case where the rightful owner recovers his car from a lessee, or where the rightful owner recovers stolen movables from a thief without the help of the police.27 The general rule in both Norwegian and Danish law is that self-protection is not permitted.28 There are some exceptions to this general rule, but it is quite unclear when these can be applied. In both Norwegian and Danish literature it is argued that one has to discuss whether it is reasonable for the person having his right violated to wait for the competent authority, e.g. the courts or the execution and enforcement authorities, to interfere. An important element in this discussion will be whether the violation of the right is apparent or not.29

4.

Possession

In Danish and Norwegian law, there is no general definition of ‘possession’, ‘detention’ or similar terms. There used to be a discussion about a general notion of possession and even the German-inspired word ‘besittelse’ is still widely used, also in legislation.

26

27

28

29

This is somewhat different to the situation mentioned in the previous paragraph. There, the rules on protection of physical control were discussed; here, I discuss the rules on recovering physical control without the aid of the state. This was the situation in the case referred to in Rt 1989, p. 64. A shop was robbed and the owner suspected one of his customers. Even though he told this to the police, they took no further steps of investigation. The owner therefore entered the customer’s house, to find the robbed goods. The Supreme Court ruled that the form of self-protection exercised by the shop owner was illegal. The Danish Criminal Code § 294 and the Danish Code of King Christian V (DL) § 1-1-3. In Norway, this was spelt out earlier in the provisions of the Norwegian Code of King Christian V (NL) § 1-1-3, but this is commonly accepted as so obvious that it no longer has to be stated expressly in legislation, see Ot. prp. nr. 38 from 1911 and Andenæs: ‘Strafferett’, pp. 174-175. Instead, the rules of the Criminal Code are applied as normal. Andenæs: ‘Strafferett’, pp. 175-177 and von Eyben / Vinding Kruse, p. 34.

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Some similar words are found in newer legislation, as ‘sitte med’ (literally ‘sit with’). In other cases, other expressions are used, such as ‘ha ein ting som sin eigen’ (literally ‘have a thing as one’s own’). The different terms may have a common core, but it is impossible to deduce definite conclusions from such a core.30 It is commonly accepted that the relevancy and type of factual control – or lack of control – over a movable has to be established separately for each distinct rule. Some examples of the use and meaning of such terms in Norwegian legislation will be now provided below. An example of the use of the word ‘besittelse’ is § 255 of the Criminal Code, regulating the crime of embezzlement. In such cases it is of importance whether the defendant had the movable in his or her ‘besittelse’ – possession – or not. In this discussion, it is important whether the defendant has had permanent and independent physical control over the movable.31 E.g. a plumber removing some tubing from the building in which he is working may not be convicted of embezzlement (but perhaps theft). On the other hand, a person renting a cabin for some time will, in this relation, be said to be in possession of its household contents and could therefore be convicted of embezzlement.32 The quite similar word ‘sitte med’ is e.g. used in the Mortgage Act33 as a requirement for making a right opposable to the owner’s creditors. In this regard, the element of ‘sitte med’ would be fulfilled if the pledgor has given up physical control over the movable; the kind of physical control the pledgee obtains is not of material significance.34 In such cases, the requirement could be fulfilled e.g. if the pledgee is given one of the two keys necessary to enter the room where the movable is stored, while another person (e.g. the pledgor) retains the other, or by giving notice of the pledge to a third person (e.g. lessee) currently in physical control of the movable.35 As shown, the meaning of the term ‘sitte med’ in this sense is quite different from the meaning of the term ‘besittelse’ used in § 255 of the Criminal Code. The term ‘sitte med’ is e.g. also used in the Good Faith Acquisition Act regarding the seller’s authority. The meaning of the term in this relation is thoroughly described in chapter 10.4.2.

30

31

32 33 34 35

Lilleholt, Kåre: ‘Godtruerverv og kreditorvern’ (Bergen 1999), pp. 142-143 and Brækhus / Hærem, p. 32. Andenæs, Johs: ‘Spesiell strafferett og formuesforbrytelsene’ (Oslo 2008), p. 339 as compared to p. 308-312. Rt. 1949, p. 726 and Andenes: ‘Formuseforbrytelsene’, p. 15. Panteloven, lov av 8.februar 1980 nr. 2 § 3-2 (2). Skoghøy, Jens Edvin A: ‘Panterett’ (Oslo 2008), p. 204-206. Skoghøy, chapter 4.2.4.

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The quite similar term ‘har ein ting som sin eigen’ (literally translated: ‘have a thing as one’s own’) is e.g. used in the Acquisitive Prescription Act § 2 and its meaning is discussed further in chapter 11.3.3. As shown, the underlying reasons for the prerequisites concerning factual control differ from one rule to another: the kind of control needed on the part of the transferor in order for the transferee to make an acquisition in good faith, is something quite different from the factual requirements for an acquisition by acquisitive prescription, and the loss of control on the part of the owner to make a pledge opposable to the owner’s creditors is again something different. The issue of subjective requirements (‘animus’) is dealt with where relevant, such as in the rules on acquisitive prescription, chapter 11.3. and the rules on good faith acquisition, chapter 10.4.

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Part II: Derivative acquisition 5.

No ‘unitary’ notion of ownership

5.1.

General remarks

In Danish and Norwegian law there is no presumption that one and the same person is ‘owner’ in every respect at one and the same point in time. Norwegian and Danish lawyers and legal scholars do not find such a ‘unitary’ concept of ownership useful. This is based on the fact that it is thought that the term ‘transfer of movables’ not only entails one legal problem, but a great number of different legal problems. All of these problems should be then solved in a way that best suits each specific potential conflict. There are different considerations for different conflicts, and the prevailing view in Norwegian and Danish legal doctrine is that it would be impossible to construct a workable general concept of transfer and at the same time pay sufficient attention to all the different considerations.36 This is rather obvious in some areas. It is scarcely conceivable in a modern legal system that a person who is seen as ‘owner’ in private law will also for all purposes be seen as being the ‘owner’ in tax law. However, even within the framework of private law itself, it is fully possible that a right is opposable to creditors but not protected against good faith acquisition, or that a right must be respected by an acquirer in bad faith even if the right is not opposable to creditors. However, this does not lead to some sort of legal panta rei. In everyday language as well as in legislation the term ‘owner’ is of course frequently used, and in normal situations there is no problem identifying the owner of a thing and what that implies. The substantial point is that asking the identity of the owner does not provide any answer to the difficult questions, e.g. where the buyer has paid for the goods but does not obtain control over them where the seller goes bankrupt. According to the Danish and Norwegian view, each such problem should be solved on its own merits, not through an abstract definition of ownership.

36

See Brækhus / Hærem, pp. 376-382 and in Danish legal literature e.g. Elmer and Skovby, pp. 14-15. However, this has not always been the prevailing view. See chapter 2 for a closer look at the historical development.

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Regarding the time of transfer of the different functions of ownership, several different issues may be of importance. In some situations, registration may be of relevance and it may be of importance whether the goods can be identified, but there are no general rules on these issues. As already mentioned, the transfer of each function has to be discussed separately, and only some of these discussion issues, such as registration and identification, may be of importance.37

5.2.

The different functions of ownership

5.2.1. Introduction Based on the preceding general remarks, it may prove interesting to take a closer look at the kinds of functions of ownership that have to be discussed separately in Norwegian and Danish law. It is not necessary to describe these in detail, but a brief overview of some of the main functions should prove useful. In addition, most of these problems will be discussed thoroughly in the next chapters. It may be helpful to divide the different aspects of ownership into two main groups: functions related to the contractual parties and functions related to third parties. Even if a right has passed from e.g. the seller to the buyer, the buyer’s right is not automatically opposable to a third person’s right. These questions have to be discussed separately.

5.2.2. Functions related to the contractual parties (a)

Different functions and different steps in general

Primarily, it is necessary to decide at what specific point in time the contractual parties are bound by the contract. This is mainly regarded as a contract law issue in scholarly legal writing, but in some cases this kind of question is of importance also when it comes to property law. This is especially true in cases of bankruptcy, where this assumes importance when determining the size of the bankruptcy estate. Here, the general rule in Norwegian and Danish law is that a binding contract is concluded when an offer has been accepted by the other

37

This is discussed in relation to different issues in this report. One example of the importance of registration can be found in chapter 10.4.5. Furthermore, identification is e.g. of importance regarding opposability to the seller’s creditors in Danish law, chapter 8.2.6. See also chapter 5.3. on the consequences of such an approach.

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contractual party,38 and an agreement is reached on the most important matters of the contract.39 The contract may be written or oral. This kind of agreement binds both parties, and we do not distinguish between rights in rem and obligatory rights. Next, it is of interest to take a closer look at the time at which the acquirer obtains the right to use and dispose of the movable. When it comes to the right to dispose of the movable (e.g. to give somebody a security right, right of lease or right of use) it is not transferred at a fixed point in time. As a starting point, anyone can enter into a contract with such content, even before a contract giving the right to dispose of the movable has been concluded. The parties are also free to enter into a contract stipulating that the contract will only enter into force when certain conditions have been met. However, it may be unwise to enter into such a contract if one is not quite sure that one’s right will have the highest priority at the time the contract comes into force. If one has entered into such a contract, but is unable to perform, the situation will be subject to the rules on breach of contract. Conflicts regarding third persons who have a right in the movable, will be discussed as an issue of priority later in the report. The right to use the movable should be regulated in the contract. If the interpretation of the contract does not reveal anything on use of the movable, the starting point is that the acquirer can begin to use the movable immediately.40 The Sale of Goods Act § 9 gives the seller a reasonable period of time within which to deliver the goods, if nothing else is stated in the contract. Before physical control of the goods is transferred, the buyer will not be able to use the movable, unless otherwise agreed. However, the seller may use the movable until physical control is transferred. In these cases, he or she must take care not to reduce the value of the movable, otherwise this may result in his or her rendering defective performance. The issue of the right to reap fruits while the movable is still with the transferor should normally be addressed in the contract. If not, the right to reap fruits will normally change hands at the time of the transfer of physical control. Fruits and benefits derived from the movable before the agreed time for delivery shall belong to the seller if there has been no reason to believe that the yield would be reaped at a later time (Sale of Goods Act § 18 in Denmark and § 79 in Norway; also § 11 in the Consumer Sale of Goods Act in Norway). Conversely, yield that accrues after delivery will be also attributed to the seller, if there has been no reason to believe that it would accrue at such a late point (i.e. it was expected by the parties to accrue before this time). This will mainly be a question of contract law: 38 39 40

Hov, pp. 106-111 and in Danish law, Skovby, Lise: ‘Aftalret’ (København 1995), p. 39. For instance, the price and the movable in question, Rt. 1987, p. 1205. Hagstrøm / Aarbakke, p. 207.

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did the transferee get what he ought to under the contract? Based on this, a breach of contract may be committed if, e.g., a seller reaps fruits and thereby makes the movable less valuable for the buyer. Apart from a possible contractual right, the transferee has no right to reap fruits as long as the goods are with the transferor.41 As a general rule, the seller may withhold the movable if the buyer does not pay the price.42 If, however, the seller has already transferred physical control of the movable to the buyer, he or she must have secured the right under the rules on sales liens (see chapter 13), or else he or she may not retain the movable (see chapter 8.3.3.). Further, it is of importance to determine who must pay damages if the movable causes damage in some way. In Norwegian law, this is deemed an issue of tort law, not as a matter of property law. The general rule in Norwegian and Danish tort law is the fault-based liability rule (the culpa-rule),43 and who is ‘owner’ will not be decisive in this regard. The main question here will be whether there has been fault of one of the parties, and as part of this discussion, whether there is sufficient connection between the allegedly liable person, and the actual risk of damage.44 This means that the seller and / or the buyer may be liable at any point in time during the transfer. Regarding the culpa-rule, the important information will not concern the process of transfer, but the performance of the parties involved. In Norwegian and Danish law, liability in damages could also result from the strict liability rule. Norwegian and Danish tort law make it possible to claim damages if an object causes damage, even if there is no fault of the owner or anyone responsible for the object.45 It would be therefore interesting to take a closer look at how the transfer of movables would be of importance regarding this rule. This subject does not appear to be discussed in Danish literature, so the following discussion is based on Norwegian law. 41

42 43

44

45

This is not discussed in detail in Norwegian legal literature, but it is mentioned in Brækhus / Hærem, p. 560. Sale of Goods Act § 10 (1) and the Danish Sale of Goods Act § 14. Nygaard, Nils: ‘Skade og ansvar’, p. 172 and in Danish law e.g. von Eyben / Vinding Kruse, pp. 160-161. Nygaard, p. 182. To ‘own’ or have physical control of the movable may, however, be of importance when discussing this connection, see von Eyben / Vinding Kruse, p. 167. See Rt. 1939, p. 766 and Nygaard, chapter 4 III for a discussion regarding strict liability in Norwegian law. However, Danish law is a bit more reserved than Norwegian law in cases of strict liability. The Danish Supreme Court has accepted such liability in some cases and not accepted it in others; this is discussed further in von Eyben / Isager, p. 134 et seq. The situations in Danish law in which strict liability is not provided for in legislation is somewhat unclear; see von Eyben / Isager, p. 134.

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Normally, the ‘owner’ would be responsible in this situation.46 How does this compare to the description of a functional approach not using the term ‘owner’ as a decisive term? Here, as in every other regard, one has to take a closer look at the argumentation to clarify what is meant by the term ‘owner’. This was discussed by the Norwegian Supreme Court in a case referred to in Rt. 1969, p. 109: a crane was hired by an entrepreneur. It broke down, causing damage to a factory. This raised the question whether the owner, the hirer, or both, if jointly and severally liable, had to pay damages. The Supreme Court decided that as long as the hirer did not have the same kind of long-term responsibility for the maintenance and the taking of preventive actions as the owner, the owner could not be free of liability. In legal theory, this has been used as the basis for a rule stating that in order to be held responsible for damage without fault, one has to have such permanent control of the movable amounting to a natural responsibility for the maintenance and prevention of damage.47 When it comes to the transfer of movables, the time of the transfer of this function has to be considered individually. However, normally one will not have the required responsibility until physical control has been transferred.

(b)

Passing of risk

Another subject related to the transfer of movables is the passing of risk.48 In sales law, the general rule is that the risk passes at the time of delivery, if nothing else is agreed upon or follows from customary rules.49 There are some exceptions to this general rule, but when it comes to consumer sales, this rule is virtually absolute.50 The question will then be, at what specific point in time the movable is delivered in this context? The time of delivery will vary according to the terms of the contract. If the buyer is to pick up the movable e.g. he has agreed to pick up the movable at the seller’s store or office, the movable is delivered, meaning that the risk passes, at the time the movable is physically handed over to the buyer.51 However, if the 46 47 48

49

50 51

Nygaard, p. 256. Nygaard, p. 259. Here, the term ‘risk’ refers to the risk of having to pay compensation, even if the contract is not fulfilled. This differs to the owner’s risk or the risk of having to perform even if performance is made more difficult. For a further reading on the differentiations in Norwegian law, see Hagstrøm / Aarbakke, p. 40. Sale of Goods Act (lov av 13 mai 1988 nr. 27) §§ 3, 13 (1) and the Danish Sale of Goods Act (lov av 28.03.2003 nr. 237) §§ 1, 17. Consumer Sale of Goods Act (lov av 2002 nr. 24) § 14. Sale of Goods Act § 6 and the Danish Sale of Goods Act § 9.

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buyer does not pick up the movable at the agreed time and place, the risk still passes at that agreed time, as long as the delay is attributable to the buyer and the seller was able to hand the movable over at the point in time originally agreed upon (mora accipiendi).52 However, the seller may agree to deliver the movable to the buyer. In such situations, the risk passes when the buyer, or someone acting on his behalf, receives the movable at the agreed place.53 The buyer (or his representative) must actually receive the movables in such a case: it is not sufficient, in order for the risk to pass, that the movable is merely deposited at the agreed place.54 If the movable is to be transported by an independent carrier, to a location beyond that of where the seller normally provides transport, the risk passes at the time the movable is handed over to this carrier.55 In these situations, only the act of physically handing over the movable to the carrier will be sufficient; preparing the movable for transport will not suffice for the risk to pass.56 If a destination is mentioned in the contract, the delivery takes place and the risk passes to the transferee when the goods reach this place.57 As we do not use a ‘unitary’ notion of ownership, the solutions in contract law regarding passing of risk do not always correlate with the passing of the different functions of ownership. The different functions do not pass at the same time, and the time of the passing of risk is not seen to provide any guidelines when trying to establish whether a given function has passed or not. Instead, it is necessary to discuss separately whether a given function passes at the same time as the risk.58

5.2.3. Functions relating to third parties In relation to third parties, the transfer of movables will give rise to various priority-related conflicts as between the acquirer and other persons having 52

53 54 55

56 57 58

Sale of Goods Act § 13 (2) and (3), Consumer Sale of Goods Act § 14 and the Danish Sale of Goods Act § 17 (2), see Hagstrøm: ‘Kjøpsrett’, pp. 126-128. Sale of Goods Act § 7 (1) and the Danish Sale of Goods Act § 11. Hagstrøm: ‘Kjøpsrett’, p. 97. Sale of Goods Act § 7 (2) and the Danish Sale of Goods Act § 10, see Hagstrøm: ‘Kjøpsrett’, pp. 97-98. Hagstrøm: ‘Kjøpsrett’, p. 98, similarly CISG art. 31. Sale of Goods Act §§ 7 and 13 and Danish Sale of Goods Act §§ 17 and 65. This is discussed in Andænes, p. 135. The rules on passing of risk are e.g. of no importance when it comes to establishing the time of transfer in the context of deknl. § 2-2, see chapter 8.

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or acquiring rights relating to the movable. Typically, this would involve some sort of security right, a right to satisfy one’s claims or a right to use the movable. As already mentioned, Norwegian law makes it possible for a person, A, to enter into a contract with a person, B, over the sale of movable X even if A had no right in the movable X at the time of formation of the contract. If A does not obtain any right in the movable, there will be a conflict between B and the rightful owner, S. This conflict is dealt with as an issue concerning priority, where B’s right in the movable is discussed. To obtain the movable, B’s right must have a higher priority than S’s right. Normally B, deriving his right from A, has no right in the movable. However, where B is in good faith, this may be different. This is further discussed in chapter 10. Another question discussed in chapter 10 is the situation where a seller sells a movable to two or more persons. E.g. A sells his car first to S and then, before delivering the car to S, he sells it to B. This raises the question of how an acquirer can protect his or her rights against later acquirers of the movable. If the movable is removed from the seller’s control, the seller no longer appears to be the owner. Normally, this would be enough to prevent a subsequent acquirer from making a good faith acquisition in Norwegian law. Conflicts regarding the aforementioned situations of rights of use and rights to fruits may also be discussed in relation to third party situations. The situation may be that A sells a movable to B, and before delivery, person X uses or removes fruits from the movable. In Norwegian and Danish law, these conflicts are normally viewed as contractual conflicts. The question is whether B gets what he is entitled to under the contract. If he does not, he may bring a claim against the seller. However, these situations may also be solved using the rules of tort law. If B suffers an economic loss due to X’s action, he may bring a claim against X based on the rules of tort.59 So far, only conflicts regarding contractual situations have been discussed. However, creditors might also be third parties in this context; either the buyer’s or the seller’s creditors. A right in a movable is normally no longer opposable against the buyer’s creditors after physical control of the movable has been transferred from the seller to the buyer. This subject is further discussed in chapter 8.3. In order for priority to be obtained over the seller’s creditors, the general rule is that the movable has to be removed from the seller’s control. The most common way to do this is by transferring the physical control of the movable to the acquirer. As long as the seller has control, his or her creditors may satisfy their claims out of the movable, and it will be included in the seller’s bankruptcy estate. More on this in chapter 8.2. 59

Brækhus 3 & 4, p. 17.

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After delivery, the creditors have to bring a claim according to the rules of the Bankruptcy Act in order to be able to set aside a debtor’s preferential transactions, so as to obtain a right in the movable. These rules are described in detail in chapter 8, mainly chapter 8.2.3., regarding the priority over the transferor’s creditors and chapter 8.3.4., regarding the bankruptcy of the transferee.

5.2.4. Effects of avoidance and termination of contract If the seller wishes to terminate a contract after he or she has handed the movable over to the buyer,60 he or she may only do so if there is a valid reservation, see chapter 13 on the sales lien. The rules are a bit different if the contract is void. If a contract is void, both parties shall return what has been received by way of performance under the contract. This will have a retroactive effect; it is deemed that no right has ever been vested in either of the contractual parties.61 As no right has ever been established, the buyer’s creditors have never obtained any right in the movable. This can be illustrated by a short example: A sells a movable to B, but B has acted in a way that makes the contract void. At the time of avoidance of the contract by A, B has gone bankrupt, and the question arises whether A can recover the movable. The answer in Norwegian and Danish law would normally be yes. As long as the avoidance is not based on B’s insolvency, the seller’s claim for restitution has priority over the rights of the buyer’s creditors.62 A contract can be void for a number of reasons, e.g. fraud or duress. However, mistakes regarding the solvency of the other party will not normally enable the avoidance of a contract with retroactive effect; it is a fundamental principle that every contractual party bears the risk of personally assessing the economic situation of his or her counterparty.63 However, this principle must be somewhat qualified. If the mistake regarding the solvency of the other party is based on incorrect information received from the contractual party in question, the it could be argued that the contract is void.64 Furthermore, it is discussed in legal theory whether the contractual parties, based on avtl. § 33, have an obligation to inform each other of their

60 61

62 63 64

See chapter 8.3. Hagstrøm / Aarbakke, p. 672, and Hov, Jo: ‘Avtaleslutning og ugyldighet’ (Oslo 2002), p. 187-190. See Lilleholt, p. 238. Hagstrøm / Aarbakke, p. 141. Avtaleloven, lov av 31.mai 1981 (avtl.), § 33.

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economic situation.65 The rule is not clear in this regard and one has to examine every situation separately, based on the expectation of receiving information in each particular case. The buyer may also terminate the contract after the movable is handed over to him or her, as long as non-conformity is the cause of the fundamental breach of contract. In cases where non-conformity is not the cause of the fundamental breach of contract, both contractual parties shall return what they have received as performance under the contract.66 As long as the buyer’s claim is legitimate, the movable no longer belongs to the buyer,67 and the seller’s right to recover the movable has priority over a creditor’s right.68 The same should also be true if the buyer claims that the contract is void.69

5.3.

Consequences of the lack of a ‘unitary’ notion of ownership

As already mentioned in chapter 3, the rules on the transfer of each of the different functions of ‘ownership’ must be discussed separately. In Norwegian and Danish law, general rules for, or general answers to, questions regarding the transfer of different functions, or different kinds of obligations, cannot be provided. This can be easily illustrated with some examples. A transfer may sometimes be based on a gift, and one could ask whether this will be of importance regarding the different rules on transfer. In Norwegian and Danish law, the answer will be that it is of importance in some situations and of no importance in others. Regarding the discussion on ‘traditio’ in chapter 8.2., it will be of little importance whether the transfer is based on a gift or a sale. On the other hand, the rules on good faith acquisition and sales liens discussed in chapter 10.3. and 13.2. are only applicable as long as the transfer is based on some sort of sale. This will be discussed further in the relevant chapters. Another example is the importance of payment. Regarding good faith acquisition, it is of great importance whether the acquirer has in fact paid for the movable or not, but this may not be of any interest in other situations. Therefore, the importance of the different forms of obligations and considerations will not be discussed at a general level, but only where relevant. 65

66 67 68 69

Hov, p. 266 where he also presents further references to different views in Norwegian legal theory. Sale of Goods Act § 64 (2), see Hagstrøm / Aarbakke, pp. 437-438. Hagstrøm / Aarbakke, p. 447 seems to express this. This is based on deknl. § 2-2, see the discussion on this issue in chapter 8.3. Andenæs, p. 113.

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6.

Selling in chain

If A sells to B, B sells to C and physical control is transferred directly from A to C,70 C’s right is opposable to both A’s creditors and B’s creditors.71 Conversely, under the general rule (protection against the seller’s creditors by virtue of having taken physical control), C is not protected against A’s creditors while A controls the movable.72 As for the opposability of C’s right to B’s creditors, it could be asked whether C has acquired the movable or just B’s claim against A (opposability then being achieved by notifying A). The better view seems to be that C has acquired the movable, but the answer is not quite clear. Concerning the parallel situation of immovables, some confusion has been caused by a decision of the Norwegian Supreme Court in Rt. 1999, p. 247: land was sold by A to B and then by B to C. A was still registered as the owner when B went bankrupt. The court held that C was protected against B’s creditors even without registration. The decision has been heavily criticised in legal literature, and some clarification on this parallel situation was achieved by a new decision of the Norwegian Supreme Court in Rt. 2008, p. 586. If A had no right to dispose (he was not the owner), good faith acquisition is possible at the time of the transfer of physical control. If B was in good faith and C in bad faith, there will be no good faith acquisition, while good faith acquisition is possible where B was in bad faith and C in good faith.73 Invalid contracts do not seem to pose any problems different from the ordinary problems regarding good faith acquisition. This means that if the contract between A and B is invalid, the question will be whether C has made a good faith acquisition. If the contract between B and C is invalid, no good faith acquisition can take place, see chapter 10.4.2. In such situations, the general rule in Norwegian law is that C may not bring any claims against B based on the agreement, and B will therefore keep his rights in the movable. If both agreements (between A and B and then again between B and C) are invalid, neither B nor C will have a right in the movable. Neither of them can bring any claims against A based on the invalid contract, and in addition C cannot bring any claims against B. 70

71 72 73

Problems regarding situations of selling in chain are not discussed specifically in Norwegian and Danish legal literature. The rules presented here are therefore based on the general rules on opposability to creditors and good faith acquisition, presented later in this paper. This is further discussed in chapter 8. See chapter 8 for a further discussion on the general rules. This is based on the general rules presented in chapter 10.

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Transfer by means of indirect representation

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The law of commission agency

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In Norwegian law, the possibility exists for one person to transfer or acquire a movable asset in his or her own name, but for the account of another person. This is regulated by the Commission Agency Act.74 Indirect representation involves at least three persons. Persons A and C are, respectively, the seller and the buyer, with person B being the intermediary, representing either the seller or the buyer.

7.2.

Ownership of and rights in the movable when transferred by indirect representation

It is clear that the principal is the person originally having or finally obtaining all rights in the movable. He is, or is to be, the ‘owner’ of the movable, kml. § 53.75 The representative, B, is given the right to dispose of the movable, which means selling it if he is the representative of the seller, or buying it if he is the representative of the buyer. Other rights are not transferred to the representative; these are transferred directly from A to C. The result of this is that the representative, B, will never have any extensive rights in the movable. He will never have all the rights as an ‘owner’ of the movable, not even for that ‘logical second’ when the movable is sold; he only has a limited right to sell or buy it and, in certain situations, a security right for his claims against the principal (including a right to sell the goods when the claim falls due).76 As already pointed out, the term ownership has no clear and predefined substance in Norwegian law.77 It is only used as a keyword for different rights in a movable. Below, I will therefore use the terms ‘opposability to creditors’ and ‘good faith acquisition’ to describe the interesting functions of ownership and the different situations that can arise in such a context. Where the commission agent, B, holds a movable belonging to the principal, A, with the purpose of selling it, A’s right to the movable is opposable to B’s creditors, kml. § 53 (1). If the movable is sold to C but not paid for when bankruptcy proceedings are opened, A may demand payment directly from C, kml. § 57. 74 75

76 77

Kommisjonsloven, lov av 30.juni 1916 (kml.). Lilleholt, p. 36 and Lassen, Birger Stuevold: ‘Kontraktsrettslig representasjon’ (Oslo 1992), p. 103. §§ 31-36. See chapter 5 for a discussion on the use of the term ‘ownership’.

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Where the commission agent, B, has bought a movable in the interest of the principal, C, C’s right in the movable is opposable against B’s creditors, kml. § 53 (2). The seller, A, has no claim against the principal, C, nor a right to the separation of the money in the case of B’s bankruptcy, even if C has paid B already, kml. § 56. A third party, C, may make a good faith acquisition, even without the transfer of physical control, if the commissioner, B, has disposed of goods belonging to A in a way that is contrary to B’s right in relation to A, kml. §§ 54 and 55. E.g. this may be the case if B enters into a contract with C, agreeing on a lower price than stipulated in the agreement between A and B.

7.3.

Transfer by means of indirect representation in Danish law

7.3.1. The law of commission agency In Danish law, transfer by means of indirect representation is partly regulated by the Commission Agency Act.78 This law regulates the situation where one person transfers or acquires a movable asset in his or her own name, but on account of another person.79 Both the Norwegian and the Danish law on this subject have resulted from Nordic cooperation, and both the laws and rules regulating this topic are virtually the same. I will therefore only briefly present the Danish rules on commission agency. As in the presentation of Norwegian law, I will focus on the terms ‘opposability to creditors’ and ‘good faith acquisition’, and how these situations are handled in Danish law. Where a commission agent, B, holds a movable belonging to the principal, A, with the purpose of selling it, A’s right in the movable is opposable to B’s creditors, just in the same way as it will be in Norwegian law, § 53 (1).80 If the movable is sold to C but has not been paid for when bankruptcy proceedings are opened, A may demand payment directly from C, § 57. The commission agent’s creditors may not seize this money, not even if the commission agent has gone bankrupt, § 61.81 In situations where the commission agent, B, has bought a movable for the account of principal, C, C’s right in the movable is opposable against B’s creditors, § 53 (2). The seller, A, neither has a claim against the principal, C, nor a right to the separation of the money in B’s bankruptcy, even if C has paid B already, kml. § 56. 78 79 80 81

Kommissionsloven 1986-09-15, nr. 636. Kommissionsloven § 4. von Eyben / Vinding Kruse, p. 88. von Eyben / Vinding Kruse, pp. 89-90.

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Furthermore, a third party, C, may acquire a right to the goods if he was in good faith at the time of concluding the contract, even without the transfer of physical control, if commission agent, B, has disposed of goods belonging to A in a way that is contrary to B’s right in relation to A (§ 54 (1) and § 55). The principal can also ratify the agreements the commission agent has concluded without authority, but the question of when such ratification takes effect does not seem to be discussed in Danish literature. However, since the moment of ratification of the agreement might be difficult to determine (ratification may also be executed impliedly through conduct), there are reasons to believe that such ratification has effect from the time of the agent’s disposition.82

7.3.2. Credit sale and opposability to creditors A rather usual way for Danish law to handle a contractor’s need for security regarding payment from the buyer is by using an instrument called ‘konsignation’.83 This instrument shares quite a few similarities with commission agency, but it is neither regulated by the Commission Agency Act, nor by the Credit Sales Act. Basically, it is not a form of indirect representation, it is more like a reservation-of-title agreement, but it is used to achieve more or less the same advantages as commission agency.84 ‘Konsignation’ means that the seller makes a reservation of title, but accepts that the buyer may sell the movable. This reservation of title will not protect the seller from a good faith acquisition, but his right would be opposable against the buyer’s creditors in the case of bankruptcy.85 For such a ‘konsignation’ to be valid, some requirements have been developed in legal theory based on decisions of the Danish Supreme Court. Primarily, the movables in question must be held separately from the rest of the buyer’s goods. Furthermore, the purchase price must be paid when the movables are sold. The buyer has the responsibility to verify that the movables are present at the seller’s premises as long as he has not made any payment to the seller.86

82

83 84 85 86

For a short note on this issue, see Falkanger / Falkanger, p. 604 (a Norwegian source). von Eyben / Vinding Kruse, p. 251. Elmer and Skovby, pp. 153-154. von Eyben / Vinding Kruse, p. 252 and Mortensen, p. 286. Mortensen, pp. 288-289 and Elmer and Skovby, p. 154.

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8.

Insolvency

8.1.

Introduction

If either the transferor or the transferee becomes insolvent, this may have severe consequences for how the transfer develops. With the Norwegian (and Danish) functional approach, the main question is, at what point in the transfer does either the transferor or the transferee get a right that has priority over the other contractual party’s creditors. Below, I will address this question, and attempt to outline how insolvency affects the transfer and how we handle these problems using a functional approach.

8.2.

Insolvency of the transferor

8.2.1. Introduction As previously discussed, Norwegian law recognises a functional approach and does not use the concept ‘transfer of ownership’. Based on this, in Norwegian law it would make no sense to discuss the transfer of physical control or ‘traditio’ in the sense of being a requirement for the ‘transfer of ownership’. Transfer of physical control would be, however, of importance in relation to one of the functions of ownership, namely the question whether the transferor’s creditors have rights attaching to the movable after the acquirer (buyer) has entered into a contract with the transferor for the purpose of acquiring the movable.87 Although the general rule is that some form of ‘traditio’ is necessary for an acquirer to obtain protection against the seller’s creditors in Norway, this has not always been the case in Norwegian law.88, 89 During the 19th and 20th centuries, legal scholars discussed this question intensely, and in absence of any authoritative legal rule, different solutions were put forward.90 Most of this discussion ended when the legal scholars Sjur Brækhus and Axel 87

88

89

90

Regarding some groups of movables, e.g. ships and aeroplanes, it is registration, and not transfer of physical control that will be decisive. This will be discussed in chapter 8.2.5. Berg, Borgar Høgtveit: ‘Rettsvern for lausøyrekjøp – avtale eller overlevering (tradisjon)?’ in ‘Jussens Venner’ 1999, p. 29 seems to be a bit sceptical in relation to such a starting point, but accepts that this is the main opinion in Norwegian legal literature. There are, however, a few exceptions; these will be discussed further in chapter 8.2.3. Brækhus / Hærem, pp. 499-503 with further references.

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Hærem, based on two Supreme Court rulings – Rt. 1909, p. 231 and Rt. 1912, p. 263 – developed a theory on a modified principle of traditio. The core principle of this theory is that the buyer’s right is opposable to the seller’s creditors from the time physical control is transferred, or from the point in time prior to such transfer when the seller made the movable ready for delivery, but still possesses it for the buyer’s benefit. This principle will be discussed in detail in chapter 8.2.3., but first it is expedient to take a closer look at the basis of this principle.

8.2.2. The basis for a modified principle of ‘traditio’ The main reason for the development of a principle of ‘traditio’ in Norwegian law is the importance of transparency, notoriety and publicity.91 A person in danger of going bankrupt will often try his best to avoid that his creditors obtain all of his belongings. The risk of fraudulent conveyance is high in these kinds of situations, and it is therefore important to have rules making this difficult. The easier it is to verify whether or not a transaction was lawful, the more difficult it is to deprive the creditors of their rights. Furthermore, one may distinguish between situations where the movable is paid for in advance, and where it is to be paid for upon delivery. If the latter is the case, it should normally make no difference to the creditors whether they obtain the movable or the money. It would probably be better for the creditors to have the money; a forced sale normally generates less money than a normal sale. There is, however, the possibility that the movable is sold for much less than its actual value. If this is due to an attempt at fraudulent conveyance, the creditors do, of course, have the possibility of making use of the rules on avoidance (setting aside a debtor’s preferential transactions). The need to protect creditors against fraudulent conveyances will be greatest when the buyer has paid in advance – or at least is said to have paid in advance. If this is the case, the seller may already have used the money and the creditor would face the risk of neither obtaining the movable, nor the money. In these kinds of cases, the buyer seems to be in the same position as any other creditor. He has granted the seller a loan, and should not be given a better right than the other creditors.92 This is an argument for looking at the question of creditor protection in the same way as we do at security rights in movables. In order to use a movable as security for a loan, one has to terminate the owner’s control over the movable, see pantl.93 91 92 93

Lilleholt, p. 192. Similarly Lilleholt, p. 193 and Brækhus / Hærem, p. 508. Panteloven, lov av 8.februar 1980 nr. 2.

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§ 3-2 (2).94 One could then ask whether one is more likely to obtain a right of superior protection if one buys the movable, as opposed to obtaining a security right? The general opinion in Norwegian legal theory is that such a differentiation does not make any sense.95 On the other hand, it has been argued that the principle of ‘traditio’ restrains commerce. When advance payment entails a risk, this makes it difficult to enter into contracts regarding capital-intensive activities. This argument has been raised, but has not attained the status of being a decisive factor in Norwegian legal theory.96 If the seller sells the movable to a consumer, the loan element or the risk of fraudulent conveyance is not a dominating feature.97 As the next chapter will show, this is an argument that could be important in the discussion on a modified principle of ‘traditio’.98

8.2.3. A closer look at the principle of ‘traditio’ (a)

Transfer of physical control

As already pointed out, the physical control of the movable does not always have to be transferred in order for the buyer to achieve a right that has priority over the seller’s creditors. In some cases, the buyer may even be protected if the movable is still in the seller’s possession. This modification will be put aside for now, and I will concentrate on the question concerning the transfer of physical control. Later, I will discuss the modification of this principle in Norwegian law more closely. The first question will then be, at what point can one say that physical control of the movable has been transferred? As pointed out earlier, the functional approach implies that this is not necessarily the point in time of the transfer of the other aspects of ownership, e.g. the passing of the risk. 94

95 96 97 98

This is further discussed in Brækhus, Sjur: ‘Pant og annen realsikkerhet’ (Oslo 2005), p. 70 et seq. Pantl. § 3-2 (2) could be, somewhat loosely translated as: ‘Possessory liens acquire legal protection by delivery of the attached property to the lien holder or other person who undertakes to possess the property on behalf of the lien holder, so that the owner himself does not have control thereof. For this purpose, delivery of actually attached property may be replaced with similar effect by delivery of the key to the room in which the property is stored, or similar measures that deprive the owner of control over the property. § 1-4 does not apply’. Lilleholt, p. 193 and Brækhus / Hærem, p. 508. Brækhus / Hærem, p. 507 and Lilleholt, p. 193. Lilleholt, p. 194. Berg, p. 24 argues that a consumer would be protected even before delivery.

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The rules in the Sales of Goods Act should therefore only provide limited guidance.99 Transfer of physical control does refer to a physical action and the movable should normally be handed over to the buyer or his representative so as to obtain a right that has priority over the rights of the seller’s creditors. Typically, this would mean that the buyer would have to obtain all of the keys to a car, or would have to place the new refrigerator on his truck or in his home. One could then ask: would the movable have to be handed over to the buyer, or would it be sufficient to withdraw the movable from the seller’s physical control or power of disposal? Would it be sufficient that the movable is handed over to a third party or placed in a locked room, to which the seller does not have the key? It is argued that the rules should be coherent with the rules on security rights in movables to the greatest possible extent, and in such cases it would be sufficient to remove the seller’s possibility to dispose of the movable.100 In a Supreme Court ruling in Rt. 1988, p. 1327, the latter is found sufficient in the case of gifts, and the general opinion is that the rules should be the same for sales.101 Based on this, in Norwegian law it would be sufficient, in order to obtain protection against the creditors, to remove the seller’s ability to dispose of the movable. This means that the requirement of the transfer of physical control would be fulfilled in Norwegian law, if the seller gives the buyer the key to the room where the movable is stored or in some other way makes it impossible for the seller to dispose of the movable. Another possibility would be to hand over the keys to the movable e.g. a car. For such an alternative to fulfil the requirements, the seller must be effectively denied the possibility to dispose of the movable. If only one key is needed to enter the room where the movable is stored, all copies of this key have to be handed over. If two different keys are needed, it should be permissible for the seller to keep one of the keys. These kinds of issues are, however, not discussed in detail in relation to the question of the priority among conflicting rights in Norwegian legal literature. Such questions are discussed in more detail when it comes to the creation of security rights in movables, and the solution presented here is based on those discussions.102 As long as the requirements are predominantly the same, and the requirement of the transfer of physical control results from the rules on security rights, a discussion regarding security rights will also be of interest in this context.

99 100 101 102

Berg, p. 16. Pantl. § 3-2 (2) and Brækhus 2, p. 70 et seq. Lilleholt, p. 190 and Berg, p. 16. Brækhus 2, p. 70-74.

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If the owner, in a case where a security right is established, retains a second key secretly, this would not necessarily lead to invalidity. This may be qualified a little in our context, but the question at hand is neither clarified, nor even discussed in Norwegian law. As long as it is accepted that the requirements can be fulfilled by handing over keys etc. this would be an alternative way of transferring the physical control of the movable. The contractual parties are free to decide for themselves how the seller’s possibility of disposal should be removed, and there is no prerequisite that ‘normal’ delivery be impossible or impractical. Yet another way to transfer the physical control may be by transferring a bill of lading to the buyer. As long as the transfer of such a document terminates the seller’s physical control of the movable, the acquirer is protected against the seller’s creditors.103 In any case, the buyer’s right obtains priority over the rights of the seller’s creditors from the time physical control of the movable is transferred. If the seller is declared bankrupt, the transfer of physical control must take place prior to the declaration of bankruptcy.

(b)

Equivalents to delivery

(i)

‘Constitutum possessorium’

The next question is whether the seller’s ability to dispose of the movable has to be removed in every case. It may be possible that the seller is interested in retaining possession of the movable, lending it or hiring it out, even though he has sold it. Could it be enough to fulfil the requirement of the transfer of physical control, that the parties agree that the seller is to hold the movable on behalf of the buyer, this being a type of ‘constitutum possessorium’? As a general rule, such an agreement is not accepted in Norwegian or Danish law.104 The reason for this is the great danger of fraud to creditors, where it is possible for the contractual parties to freely agree on such a term so as to obtain a right that has priority over the rights of the seller’s creditors. On the other hand, one could argue that lease back of a movable one has sold should not be forbidden, and it should not harm the buyer where he agrees to such a term.105 This is, in any case, somewhat different to the case of a genuine ‘constitutum possessorium’, and may be therefore accepted. To be accepted, these types of transactions must be carried out in 103 104 105

Lilleholt, p. 190. Lilleholt, p. 194 and Mortensen, p. 186 et seq. Lilleholt, p. 194.

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two steps. First, the requirements for the transfer of physical control must be fulfilled, and secondly, some time has to pass between the delivery and the conclusion of the lease agreement.106 If the seller immediately leases back the movable, the buyer will not obtain protection against the seller’s creditors, but it is not clear how long the seller has to wait to conclude such a lease contract in order to obtain priority.107

(ii)

‘Traditio brevi manu’

The movable will not always be under the seller’s physical control at the time of conclusion of the contract. The movable may also be possessed by the buyer or by a third party. One could then ask how physical control can be transferred in those cases. If the movable is in the possession of the buyer at the time of the transfer, this would be enough to fulfil the requirement. The use of the Roman law instrument of ‘traditio brevi manu’ will fulfil the requirement in Norwegian law, and the physical control is, in these cases, transferred at the time of conclusion of the contract.108 This may be the case e.g. if the buyer has rented the movable for a period of time before deciding to buy it. He will then obtain protection against the seller’s creditors as from the time of the conclusion of the contract.

(iii)

‘Traditio longa manu’

If the movable is physically controlled by a third party at the time of conclusion of the contract, one could ask whether the buyer, in such a case, would have priority over other conflicting right-holders from the very time at which the contract is concluded. This question has not been clarified in Norwegian law, but has been discussed in legal theory. Borgar Berg has argued that Norwegian law uses the Roman law principle of ‘traditio longa manu’ in such cases.109 Based on a comparison with the rules concerning security rights in movables, Lilleholt, however, argues that protection in such cases should not take effect from the time of the conclusion of the contract, but rather from the time when the third party is notified.110 His argument was not elaborated on apart from his reference to the rules on 106 107 108 109 110

Berg, p. 25 and Lilleholt, p. 194. Lilleholt, p. 194. Berg, p. 18. loc. cit. Lilleholt, p. 190.

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security rights, and the law on this subject seems to be a little unclear. The strong connection between the rules on security rights and the rules concerning protection against creditors is, however, in my opinion a weighty argument on which to base a requirement of notification.

8.2.4. Modification of the requirement of ‘traditio’ As already mentioned, there is no pure and unmodified requirement of ‘traditio’ in Norwegian law. Even though the requirement of transferring physical control is the general rule when it comes to obtaining a right with priority over the seller’s creditors, this requirement is modified in those cases where prepayment is not made for the purpose of giving the seller credit. This will typically be the case where the seller is prepared to transfer the physical control, but the buyer asks him to wait. The buyer could e.g. have problems storing the movable, or he may wish to do some more work on it before it is dispatched by the seller. In these cases, it is in the buyer’s interest not to obtain the movable immediately, and there is no obvious similarity to using the movable as a security object. Then the arguments against giving the buyer’s right priority as from the time of the conclusion of the contract would not be particularly strong.111 In many cases, both the seller and the buyer would be interested in e.g. a sale and lease-back transaction. This would, however, not be sufficient to give the buyer protection.112 If the buyer is in a situation where he could obtain protection without the transfer of physical control, this would, in the case of specific goods, mean that the buyer would be protected already from the time the contract was concluded. If the contract concerns generic goods, one more requirement has to be fulfilled. In these cases, the seller’s performance has to be appropriated.113 Only where the identity of the particular movables the seller is to keep for the buyer’s benefit is clear, will the buyer be protected against the seller’s creditors. The modification of the rules regarding protection against creditors, and the exception to the delivery requirement, has not been reviewed by the Supreme Court. Apart from the two previously mentioned rulings, the Supreme Court has not ruled on this subject. The main basis for this modification is legal theory, and above all, the works of the legal scholar Sjur Brækhus. This notwithstanding, the modification is accepted as currently applicable law by most lawyers and legal scholars in Norway.

111 112 113

Lilleholt, pp. 192 and 194, Falkanger, pp. 611-613. Lilleholt, p. 194. Lilleholt, p. 196 and Falkanger, p. 613.

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8.2.5. Registration With certain types of movables, priority may be achieved by registration. This means that instead of a transfer of physical control, a right may be opposable to the seller’s creditors if it is registered before the commencement of bankruptcy proceedings. In Norwegian law, this rule applies to large and valuable movables such as ships and aeroplanes. For a right in a ship to be opposable to the seller’s creditors, should the seller go bankrupt, the right must have been registered at least the day before the commencement of bankruptcy proceedings, sjøloven § 25.114 Regarding ships, the transfer of physical control will be of no importance; rather, the time of registration is decisive. The same rules applies to a right in an aeroplane, luftfartsloven § 31.115 In Danish law, one can find comparable rules regarding the registration of ships, see søloven116 §§ 28-38.

8.2.6. Opposability to the seller’s creditors in Danish law In Danish law, the ‘traditio’-principle is not used in relation to the rules governing the insolvency of the transferor. The Danish rules are based on the same arguments as the respective rules in Norwegian law, but the starting point in Danish law is that the buyer already obtains priority over other conflicting rights at the very time of conclusion of the contract. If the contract is final, clear and settled, the buyer is protected, even if physical control has not yet been transferred.117 Transfer of physical control would help prove that such a contract was concluded, but it is not required. This starting point is, however, modified in such a way that the main differences to Norwegian law are not substantial when one takes a closer look at the solutions. In addition to the existence of a contract, the movable needs to be appropriated to this contract in order for the buyer to obtain protection against the seller’s creditors in Danish law. Here, it is important to distinguish between specific and generic goods.

114 115 116 117

Lov av 24.juni 1994 nr. 34. Lov av 11.juni 1993 nr. 101. Lov nr. 1172 af 19 / 12 / 2003. von Eyben / Vinding Kruse, p. 97.

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(a)

Specific goods

If the contract concerns specific goods, the contract would sufficiently satisfy the requirement of appropriation to the contract. E.g. a designated painting by a famous artist or a second-hand car will usually be properly identified in the contract. In those cases, Danish law protects the buyer against the seller’s creditors from the time of conclusion of the contract.118

(b)

Generic goods

In cases where the contract concerns generic goods, the contract itself will not be sufficient for the buyer to obtain a right that has priority over the right of the seller’s creditors. Here, the movable in question has to be appropriated to the contract, before the buyer can obtain the same protection from the seller’s creditors as he does by concluding a contract of sale of specified goods. Danish legal literature has established further requirements in these cases; the appropriation has to be normal and binding.119 It is not easy to give a general answer on what normal appropriation would be. The answer will depend on what kind of appropriation is usual in the area of business concerned. The question is whether or not the appropriation appears to be ordinary under the specific circumstances of each case.120 Furthermore, the appropriation has to be binding.121 This means that the appropriation is considered to bind the parties in such a way that it would be a breach of contract if the seller does not deliver exactly these goods thereafter.122 Generally, this will be the case if it is agreed in the contract that the seller shall appropriate the movable, but appropriation could also be binding if it is customary in the area of business in question. There may also be other situations where an appropriation is binding, namely if the seller has informed the buyer that he has performed a unilateral act of appropriation, or if the movable has been dispatched to the buyer and the risk has passed to the buyer. One could then ask whether both requirements have to be fulfilled. Would it be enough to perform normal appropriation without it being binding; and would the buyer obtain priority even if a binding appropriation was not considered as having been effected in the relevant circumstances? 118 119 120 121 122

loc. cit. and Mortensen, p. 224. Mortensen, pp. 208-213. von Eyben / Vinding Kruse, p. 98. von Eyben / Vinding Kruse, p. 97. Elmer and Skovby, p. 52.

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There is consensus in Danish legal theory on the fact that the buyer will obtain priority over the seller’s creditors if both of these requirements are met, and that he will not obtain priority if neither of them has been met. However, it has been discussed whether the two requirements are really cumulative. Von Eyben / Vinding Kruse seem to present these two requirements as cumulative,123 but Mortensen argues against this opinion.124 He agrees on the fact that the appropriation has to be binding, but argues that the discussion on whether the appropriation is normal or not, should be left to the rules concerning fraudulent conveyances. On this basis, the current law on this subject is not clear in Danish law. However, it seems that von Eyben / Vinding Kruse expresses the general opinion in deeming the requirements cumulative.

8.3.

Insolvency of transferee

8.3.1. Introduction The general rule in Norwegian bankruptcy law is that every asset belonging to the buyer at the time of bankruptcy will be a part of the bankruptcy estate, deknl. § 2-2.125 This holds true also for movables that are in transit to the debtor; Norwegian law does not automatically protect an unpaid seller against the buyer’s creditors. This means that the seller has no right in the movable from the time the movable is ‘given over’ (literally translated) to the buyer.126 The time of delivery may differ from the time the movable is ‘given over’; these two concepts have quite a different substance in Norwegian law.127 If the buyer goes bankrupt – and the price has not been paid – the seller will only get a share in the bankruptcy estate. However, at the time of the contract being formed, the seller may have established a security right against the other creditors, using the rules on non-possessory security interests (sales liens), amounting to the equivalent of a retention of title. Sales liens are discussed further in chapter 13. A retention of title agreement will be treated as a sales lien. If the rules on sales liens are not used, or the formal requirements are not fulfilled, the seller will only be entitled to a share if he ‘gives over’ the movable to the buyer before he is paid. His right in the movable will only

123 124 125 126 127

von Eyben / Vinding Kruse, pp. 97-98. Mortensen, pp. 221-223. Lov om fordringshavernes dekningsrett av 8. juni 1984 nr. 59 (deknl.). Deknl. § 7-7 (2). See e.g. Andenæs, p. 135.

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have priority over the right of the buyer’s creditors as long as he has not ‘given it over’ to the buyer, deknl. § 7-7 (2). If bankruptcy proceedings have already started, it will only be a question of the movable’s physical location at the time of the commencement of the bankruptcy proceedings. These questions will be handled in chapter 8.3.4. The insolvency of the transferee may cause problems for the transferor even if bankruptcy proceedings have not yet started. If the seller obtains knowledge of any indications of the buyer’s economic problems before the movable is ‘given over’, it would be in his best interests to try to stop the transaction before the movable is delivered. If he manages to do that, his position will, as discussed in chapter 8.3.3., be much better than if the movable has been ‘given over’. One of the main questions in Norwegian bankruptcy law will, therefore, be whether the seller has the right to cease the transfer and, if necessary, terminate the contract, even if the buyer has not yet gone bankrupt. This is discussed below.

8.3.2. The seller’s right to cease the transaction The seller may sometimes ‘give over’ the movable in advance, without getting a security right or sales lien. In these cases, it is of importance in Norwegian law to establish when the seller loses the right to have the movable returned after termination of the contract. As the contract between the buyer and the seller presumes the movable to become one of the buyers’ assets, the real question here is whether the seller can stop the transaction at any point (e.g., by way of stoppage in transit) and thereby prevent the movable from becoming one of the buyer’s belongings, thus possibly becoming subject to the execution lien.128 This is regulated by deknl. § 7-2 and the Sales of Goods Act § 61, and the rules vary with the different means of delivery.129 A decisive requirement for the seller to be allowed to stop the transaction without committing a breach of contract is that the buyer lacks the means to perform his obligations under the contract.130 This requirement is fulfilled if the buyer has temporary economic problems.131 If this require128 129

130

131

Huser, Kristian in ‘Knophs oversikt over Norges rett’, p. 406. The relationship between the two different rules is discussed further in Ot. prp. nr 80 (1986-87), p. 111. Aside from differences in the wording, these rules are quite similar and express the same principle, see Andenæs, p. 132. Deknl. § 7-2: ‘Viser det seg at skyldneren mangler midler til å oppfylle sin del av en gjensidig tyngende avtale i rett tid …’. Andenæs, p. 132.

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ment is fulfilled, it will then be of importance to establish a point in time at which the seller can still cease the transaction.

(a)

The buyer collects the movable

If the buyer is to collect the movable at the seller’s place of address, the movable is ‘given over’ at the time when it is ‘physically’ handed over to the buyer. After this point in time, the seller can no longer stop the transaction.132

(b)

Transportation

If the movable is to be transported133 to the buyer, it is obvious that the seller may stop the transaction as long as he still has physical control of the movable. It is, however, more problematic where a third person is to deliver the movable to the buyer. The wording of deknl. § 7-2 clearly expresses that the movable must be ‘given over’ to the debtor (the buyer) in order to render the seller incapable of ceasing the transaction. The question which then arises is at what specific point is the movable handed over to the actual buyer. Or more precisely, to whom must the movable be handed over so that the seller is rendered incapable of ceasing the transaction? If the movable is physically handed over to the buyer himself, that would of course be adequate; the same is true if the movable is handed over to someone who works for the buyer. Handing the movable over to an independent carrier hired by the buyer would, on the other hand, not be enough to prevent the seller from ceasing the transaction. The relationship between the buyer and the person acting on his behalf must be of a lasting nature.134 However, the movable will not always be ‘given over’ directly to the buyer or one of his representatives. In some cases, the seller deposits the movable at a location agreed upon in advance. A much-discussed subject in Norwegian law is whether the seller loses the possibility to terminate the transaction at the very time he deposits the movable at the agreed location, or if he can stop the transaction as long as the buyer has not retrieved the movable.

132 133

134

Andenæs, pp. 135-136. The transfer of a bill of lading will be of no importance in this situation, see the Sale of Goods Act § 61 (2) and Andenæs, p. 135. Andenæs, p. 133.

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A primary clarification was made by two Supreme Court rulings in the early 1970s.135 In both of these cases, loads of timber were to be delivered at a road-side location, where the buyer was supposed to collect them. The Supreme Court ruled in both cases that as long as the buyer did not have exclusive control over the location where the timber was placed, the movable could not be said to have been handed over, and the seller would be fully entitled to cease the transaction.136 The next question that arose, was one regarding the opposite situation. What would be the rule if the movable was placed at a location over which the buyer – normally – had exclusive control, but where steps were taken to ensure that the buyer could not exercise control over it? Would it be possible to use such an arrangement to circumvent the strict rules on sales liens? This question is discussed in the Supreme Court ruling referred to in Rt. 1997, p. 1438. In this case, the movables were placed at the buyer’s warehouse, but in a locked part of this warehouse (although the lock-up was rather provisional). The buyer was not given the key to this area, and could therefore not exercise control over the movables. The seller and the bank with a security right in the stock argued over whether the seller’s right to cease the transaction still existed in such a situation. The Supreme Court did not resolve this issue at a general level, but ruled that if such an arrangement (that would, in practice, equate to the Danish ‘konsignation’, see chapter 7.3.) should be allowed, strict requirements of publicity and transparency had to be met. Such was not the case here. The fundamental question of whether the seller’s right to cease the transaction can be substantiated within the framework of such an arrangement is not resolved in Norwegian law. However, the strict requirements of notoriety, publicity and transparency accentuated by the Supreme Court seem to leave little room for such an alternative.137

8.3.3. The importance of the seller’s right to cease the transaction If the seller manages to cease the transaction before the movable is ‘given over’ to the buyer, he will be in a position to terminate the contract.138 On the other hand, if the movable has been ‘given over’, the seller may no

135 136 137 138

Rt. 1971, p. 549 and Rt. 1974, p. 879. Andenæs, pp. 134-135. Andenæs, p. 135. The Sale of Goods Act, § 54 (4). This is, of course only true if the contract itself allows him to terminate it. Normally, going bankrupt, or not being able to pay the seller, would be a fundamental breach, giving the seller a right to termination.

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longer terminate the contract, and his right is no longer opposable to the buyer’s creditors. There is also a right for the seller to cease the transaction and to withhold his performance when no credit has been granted to the buyer: if the buyer does not pay, the seller does not need to deliver.139

8.3.4. The right of the transferor in bankruptcy proceedings If the buyer goes bankrupt, the seller may terminate the contract, deknl. § 7-7. The seller’s right in the movable is only opposable to the right of the bankruptcy estate as long as the movable was not ‘given over’ to the buyer at the time of the commencement of bankruptcy proceedings. This must be discussed using the same points of intersection as presented in chapter 8.3.2. If the movable was not ‘given over’ at the time of the commencement of bankruptcy proceedings, the seller’s right will also be opposable to the bankruptcy estate, deknl. § 7-7 (2). On the other hand, if both the buyer and the seller go bankrupt, and the transaction between the buyer and the seller can be set aside, using the rules on the setting aside of debtors’ preferential transactions, the right of the seller’s bankruptcy estate in the movable is opposable to the right of the buyer’s bankruptcy estate.140

8.3.5. Insolvency of the transferee in Danish law The rules regarding the insolvency of the transferee in Danish law are quite similar to the Norwegian rules. As in Norwegian law, the important question is whether the movable has been ‘given over’ (overgivelse) to the transferee or not.141 As long as the movable has not been given over, the seller’s right in the movable will have priority over the rights of the buyer’s creditors. Up until this time the seller has the right to withhold his performance if the buyer does not pay according to the terms of the contract. By this mechanism, the seller is protected against loss of the value of his goods in the case of insolvency of the buyer. This rule is provided for in § 14 Sale of Goods Act (for the case of where no credit is granted to the buyer) and in § 39 (if credit was granted to the buyer and the buyer becomes insolvent). The seller’s right under § 39 is also available when the goods have already 139 140

141

Sale of Goods Act § 10 and Consumer Sale of Goods Act § 9. Huser, Kristian: ‘Gjeldsforhandling og konkurs Bind 3 Omstøtelse’ (Bergen 1992), p. 612. Lov nr. 118 af 4.februar 1997, konkursloven §§ 54 and 60.

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been dispatched (right of cessation in transit). However, the right in § 39 is limited to the extent that it can only be used when the buyer, after conclusion of the contract, goes bankrupt or when insolvency proceedings on a compulsory settlement are opened. Or where the seller has been found not to be able to pay other debts or if the buyer is in a situation where one can assume that he will not be able to pay for the goods on the due date. The seller bears the burden of proving such circumstances; he also needs to prove that he was not aware of the insolvency or other relevant facts as mentioned above at the time of concluding the contract.142 The seller’s protection can, however, also be extended to a later stage where the parties have agreed on a retention of a title clause, see chapter 13.1. The question that arises in Danish law pertains to the point in time at which the movable is deemed to have been ‘given over’. As in Norwegian law, the term ‘given over’ will normally mean that the movable is physically handed over to the buyer.143 In some situations, however, it may be difficult to decide whether the movable has been ‘given over’ or not. Here, the Danish Supreme Court has ruled in quite a similar way to the Norwegian Supreme Court. In a case referred to in U 1972.628 H, the facts were quite similar to those of the two Norwegian cases from 1971 and 1974, involving the sale of timber.144 In this case, the Danish Supreme Court ruled that as long as the buyer had exclusive control over the place where the movables were stored, and thereby had the physical control of the movable, the movable was deemed to have been ‘given over’ to the buyer.

8.4.

Actio Pauliana

The aim of these rules is to treat as ineffective a transfer that has been carried out within a certain period of time before the transferor went bankrupt (in some cases, no time limit is even established). The rules apply to transactions made by the debtor which are disadvantageous to the debtor’s creditors, such as sales for a low price, gifts or other transfers that are to the creditors’ disadvantage. The Norwegian rules on recovery from a bankruptcy estate (Omstøtelse) are provided in chapter 5 Lov om fordringshavernes dekningsrett. The time limit for defining which transactions are subject to recovery varies between three months and ten years. There is one general rule based on the subjective ground of the other party’s (acquirer’s) bad faith (§ 5-9). In this case, the time limit is ten years, meaning that transactions carried out in the 142 143 144

Elmer and Skovby, p. 86 et seq. Elmer and Skovby, p. 111. See chapter 8.3.2.

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past ten years may be unwound. The main rule is that the limit is counted from the day of filing for bankruptcy (§ 1-2). In addition to the general rule, there are several objective rules, all of which providing a longer time limit for dispositions to closely related persons. For example, there are rules on gifts (§ 5-2), on unreasonable salary payments to closely related persons (§ 5-4), on extraordinary payments (§ 5-5) and outlays (§ 5-8). The main consequence is that the asset disposed of must be returned to the estate, if the goods are still in the receiver’s possession and this can be done without unreasonable loss of value. The estate can demand that the other party compensates for his or her enrichment (§ 5-11). If the other party has been in bad faith, the estate can also demand that he or she pays damages for losses due to the disposition. If the receiver’s bad faith has not been of a certain qualified kind – i.e. the other party has only been careless – the obligation to pay damages may be reduced or extinguished (§ 5-12).145 The Danish recovery rules (Omstødelse) are provided for in chapter 8 Konkursloven (Bankruptcy Act). The subjective rule requiring the other party’s bad faith is laid down in § 74. The rule corresponds to the rule in Norway. However, there is no time limit for recovery according to § 74. Recovery is also possible in relation to assets which have been transferred gratuitously. The relevant time limits are two years for gifts to closely related persons and six months for other gifts. In addition, a limit of one year exists for cases where gifts have been made when the debtor was already insolvent or when he became insolvent because of this very transfer (§ 64). Other objective rules differ only slightly to those in Norway. The main rule is that the time limit is counted from the date the application for bankruptcy has been submitted at the district court (§ 1). In deciding whether a transfer has been made within a certain time limit, the decisive moment is when the transferee is protected from the transferor’s creditors, which, in Denmark, is normally at the signing of the contract of sale.146

145 146

Falkanger / Falkanger, p. 679. Elmer and Skovby, p. 26 et seq.

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Part III: ‘Original’ acquisition 9.

Acquisition by commixture, production etc

9.1.

Commixture

In some situations, two or more different movables are mixed together in such a way that they are no longer looked upon as different movables, but as having become one new movable. This may be the case if the previous owners make such a mixture intentionally, but it may also happen accidentally. In the latter case, the general rule in Norwegian law makes the owners of the originally separate movables co-owners of the new movable.147 This holds true, even if the movables could still be identified, as long as it is impossible or uneconomically unreasonable to separate them. However, when is it economically unreasonable to separate the movables? The preparatory legislative work on this issue give some indications on how to answer this question.148 It states that the cost of the separation must be assessed with reference to the type of movable in question. If the original movable is of non-economic value to the owner, greater costs would have to be incurred than if the movable was classed as normal merchandise. The need to retrieve the specific original movable that has been subject to mixture, and the possibility to acquire another such movable so as to satisfy this need, will also be of importance. If the original owners are to be co-owners, their ownership shares will equal the value of their respective contributions to the new movable. The value of their respective original movables is of no importance, it is their contribution to the new movable that is decisive. E.g. if two different pieces of silver of the same weight are melted together, each of the original owners would own 50 % of the new movable, even if the first piece was a wellcrafted piece of jewellery and the other merely a lump of raw silver.149

147 148 149

See ‘Lov om hendelege eigedomshøve av 10.april 1969 nr. 17’ (hendl.) § 2. ‘Rådsegn 7: frå Sivillovbokutvalet’ (Oslo 1963), pp. 19-20. loc. cit.

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In cases of co-ownership, problems are solved by the Co-ownership Act.150 By virtue of this Act, a co-ownership share may be sold,151 or coownership may be dissolved,152 by any of the co-owners. However, co-ownership will not always be the solution. If one of the original movables is clearly the principal movable, the owner of it will become sole owner of the new movable.153 If this is the case, the owner of the other movables will be compensated for the value of his movable, which has contributed to the new movable.154 This means that the new owner should not have to compensate the original value of the movable, only for the value of the movable to him.155 Furthermore, the original owner may bring claims for damages based on the rules of tort law.156 In these cases, it will be of importance to decide what kind of movable the principal movable is. The value of the different movables subject to mixture will, of course, be of importance, but this alone is not decisive. The most important factor will be the different movables’ importance in the mixture. The most valuable movable is often the most important, but this is not always the case. One has to look at the different movables’ characteristics and the way they have changed, in order to reach a final decision.157

9.2.

Production of goods

If someone produces a new movable from an old one, or increases the value of the original movable without changing it into something new, he may acquire ownership of the new or improved movable.158 The requirement to be fulfilled in order for him to acquire ownership is that his work is more significant to the value of the improved movable than the original goods themselves. Furthermore, the manufacturer must not be at fault in beginning work without the original owner’s consent. He must be in good faith regarding his right in the movable, and also his right to work on it.159

150 151 152 153 154 155 156 157 158 159

Lov om sameie av 18. juni 1965 nr. 6 (saml.) More on this in chapter 14. Saml. § 10. Saml. § 15. Hendl. § 3. Hendl. § 5. Rådsegn 7, p. 23. loc. cit. loc. cit. Hendl. § 4. Nordtveit, Ernst in ‘Karnov Norsk kommentert lovsamling’, p. 1299.

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If these requirements are fulfilled, the person in charge of production will become the owner of the movable. This is true even if he has had other people working for him.160 The original owner may claim compensation by virtue of the rules on compensation in hendl. § 5. As already mentioned, he may also claim for damages, if the requirements of tort law are met, see hendl. § 18.

9.3.

Commixture and production in Danish law

9.3.1. Introduction There is no clear distinction between these situations in Danish law. The situations where two movables are mixed and when a new movable is produced from an older one, is discussed as one and the same problem in Danish legal literature: such a division is said to be indistinct and not ‘thought through’, and, in absence of legislation, unnecessary.161 The issue of party autonomy does not seem to be discussed and one may assume that the parties, in absence of regulation, can freely agree on other solutions than the ones suggested in Danish legal writing.

9.3.2. Separation If the resulting mass can be separated without a substantial loss of value, the owner of a movable will be entitled to demand having it separated from any goods with which it is mixed or produced. If however, separation will cause a substantial loss of value, it can only be demanded if the person mixing or producing movables, or using the movable to produce something new, was in bad faith, if the new movable is, so to say, a normal merchandise (‘en almindelig handelsvare’) and not a work of art.162 Other scholars share this approach but seem to suggest a slightly stricter rule against separation where the person producing or mixing the movables was in bad faith – meaning that there are less situations where separation would be possible.163

160 161

162

163

loc. cit. Vinding Kruse, p. 424 et seq. and Illum / Carstensen, p. 382, who state that labour is often a part of the case of combination as well and that such labour has to be taken into account. Commixture is therefore not a distinct case from production. Vinding Kruse, p. 442 et seq. See also the court decision UfR 1914. 793, regarding a person in good faith. Illum / Carstensen, p. 383 et seq.

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9.3.3. Ownership In Danish legal literature, a key issue regarding the question of ownership has been whether a party involved has been in bad faith or not. Vinding Kruse argues that if every party involved has been in good faith, the person making the most decisive performance, being either pure work and / or the addition of materials, will be regarded as the owner.164 In some situations, the most decisive performance may be the work, but the provision of material may also be decisive, e.g. if there is minimal or no work required, or the movables are mixed by the force of nature. However, there is no precise information drawn from case law or legal writing on how to determine where the most decisive performance lies. If all the parties involved are in good faith, and all work and material is of the same importance to the newly produced movable, Vinding Kruse argues that co-ownership should be the result.165 Carstensen argues against this, stating that normally only one of the parties involved will be granted a sole right in the movable.166 He seems to argue that in such situations, the producer or manufacturer of the goods should be the owner, but he does not make this perfectly clear. By using the word ‘[s]ædvanligvis’ or ‘normally’, Carstensen also indicates that co-ownership may be the solution in some situations. The situations to which he is referring are somewhat unclear. Regarding termination of co-ownership, see chapter 14.3. If one of the parties involved is in bad faith, it could be argued that he should never become owner of the goods. However, the solution in Danish law is not quite as simple. Normally, a person in bad faith will not acquire ownership, but if the new movable, resulting from the mixture or production by the person in bad faith, is especially valuable for this very reason, e.g. a canvas and some paint is joined to form a valuable piece of art, the artist will become the rightful owner of the painting.167 Exceptionally, sentimental value for either of the parties can be considered.168 Furthermore, if the movable is produced or mixed in the course of work carried out for another person, e.g. by an apprentice, the employer and not the person doing the work, will be the owner.169 The owner’s right will also be opposable to the creditors of the owner of the movable, see UfR 1933, p. 95 H. A mortgagee’s right in the accessory movable, on the other hand, will not be opposable to the mortgagees of 164 165 166 167 168 169

Vinding Kruse, p. 443, Carstensen, pp. 110-111 could also be understood in this way. Vinding Kruse, p. 444. Carstensen, p. 110. Vinding Kruse, p. 444 and Carstensen, p. 111. Illum / Carstensen, p. 403. Vinding Kruse, p. 445 and Illum / Carstensen, p. 382.

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the principal movable, if the two movables can not be separated without substantial loss, or if the movable constitutes a necessary accessory for such a principal movable.170 The issue of compensation is indeed discussed in Danish legal literature, but there is no consistent understanding of it. Vagn Carstensen has tried to establish some general guidelines.171 He argues that if the manufacturer is regarded as owner despite being in bad faith, he has to pay compensation to the other parties involved, in accordance with the rules of tort law. If the manufacturer is in good faith, he only has to pay for the materials used. If the manufacturer is not regarded as owner because he is in bad faith, Carstensen argues that he can bring no claim. Should the manufacturer be in good faith but still not regarded as owner, he can probably bring a claim on the basis of the other parties’ unjustified enrichment in the form of the manufacturer’s work. According to another view, if the manufacturer is in bad faith he will be liable for damages under tort law, regardless of whether he is considered the owner or not. If the manufacturer has a better right in the object, he will also have to compensate the material owner for the value of the material. If the manufacturer was in good faith, the situation is somewhat unclear. The manufacturer will probably be liable to pay compensation, but the extent and legal basis are uncertain.172

10.

Double / multiple sale – good faith acquisitions

10.1.

Introduction

In Norwegian law, the rules regarding double / multiple sale raise much the same questions as the rules on good faith acquisitions, so these issues will both be discussed here. In Danish law, however, there are some more significant differences, and double / multiple sale and good faith acquisitions in Danish law will be discussed separately below. The starting point in Norwegian law is that nobody can acquire a better right in a movable than the right of the transferor.173 In these cases one would say that Norwegian law uses the Roman law principle of nemo plus iuris ad alium transfere potest quam ipse habet. This starting point is some-

170 171 172 173

Vinding Kruse, p. 442. Carstensen, p. 112. Illum / Carstensen, p. 404 et seq. See also Vinding Kruse, p. 445 et seq. Lilleholt, p. 15.

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what modified by the rules on good faith acquisition. Concerning movables, these rules are found in the Good Faith Acquisition Act.174

10.2.

Field of application

The Good Faith Acquisition Act covers situations in which a person does not have the right to dispose175 of a movable. This may for instance be the case in a double sale, or in other situations where the seller lacks the right to dispose, e.g. he has borrowed the movable or obtained physical control over it in another way. However, the Act does make exceptions for certain situations where the rules on good faith acquisition are not applicable. If the movable in question is stolen, the owner’s right will not be extinguished even if the acquirer is in good faith. On the other hand, if the movable is not stolen, but has been embezzled, good faith acquisition is possible.176 The Good Faith Acquisition Act applies to movables, but the Act is not applicable to ships and aeroplanes subject to registration,177 and also negotiable instruments are not considered as movables in this context. Furthermore, works of art are, in most cases, excepted by § 2 (2).178 The rules on good faith acquisition cannot be applied if the work of art is owned by a public body, or by a private collection open to the public. In these cases, a buyer in good faith would not be able to extinguish the owner’s right in the movable.

10.3.

The circumstances of the ‘transfer’

By virtue of Good Faith Acquisition Act § 1(1), the rules can only be applied in cases where the acquirer has bought the movable, or in some other way paid to acquire it.179 The preparatory works signal that most kinds of transactions where some genuine consideration is paid should be included. 174 175

176 177 178 179

Lov om godtroerverv av løsøre av 2. juni 1978 nr. 37. By ‘dispose’ normally the sale of the movable is meant, but the Good Faith Acquisition Act is also applicable to other contracts e.g. of hire, or security rights. Good Faith Acquisition Act § 2, more on this in chapter 10.5. Good Faith Acquisition Act § 4, more on this in chapter 10.4.5. See also § 5. The Good Faith Acquisition Act § 1(1) could be somewhat loosely summed up thus: ‘If a movable is sold by the person physically controlling the movable, and it is transferred to a transferee in good faith, the transferor’s lack of a right to dispose does not prevent the transferee from acquiring a right in the movable. This also applies to other transfers where compensation is paid, such as transfers of rights to own, use or security rights’.

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Symbolic consideration, however, will not be sufficient. Based on this, the rules on good faith acquisition would not be applicable where the acquirer has inherited the movable. The rules would also not be applicable if the acquirer receives the movable as a gift, or if he receives a gift in the guise of a sale. The basis for this rule seems to be that the acquirer’s need for protection in these cases is a lot smaller than in cases where the acquirer has paid a market price for the movable. Furthermore, there is no need to protect commercial parties in such cases.

10.4.

The requirements for good faith acquisition

10.4.1. General The Good Faith Acquisition Act § 1 (1) establishes four different requirements to be fulfilled before the acquirer can extinguish the owner’s right in the movable. As already mentioned, the transfer has to be based on a valid agreement of sale or some other form of transfer where consideration is paid. Furthermore, the seller, B, must appear to have the authority to dispose of the movable. The buyer, C, must also be in good faith regarding B’s authority and the movable must, in some way, be handed over to him.

10.4.2. The seller’s authority (a)

Apparent authority in general

If the seller does not appear to have the authority to dispose of the movable, no good faith acquisition can take place. Even though the seller, B, does not possess the authority to dispose of the movable, he could appear to have such an authority. Normally, this will be the case, if B has physical control over the movable. Most people would agree on the fact that a person with the physical control over a watch, e.g. the person wearing it on his wrist, has the right to dispose of this watch, namely to sell it. The kind of physical control needed to appear to have sufficient authority differs depending on the type of movable. As already mentioned, if the movable in question is a watch, the normal way of exercising physical control over this watch could be to wear it, keep it at home or, if it is really valuable, deposit it in a safe-deposit box. If the movable in question is a larger machine, it would normally not be worn or kept at home. Usually, it would be kept at a factory, and the rightful owner would be still said to have physical control over it. In general, one could say that the physical control needed to appear to

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be authorised, will be the same kind of physical control a rightful owner normally has. However, the physical control has to be exclusive.180 The next question is at what point does the seller have to appear to be authorised. Does he need to have physical control over the movable at the time of the conclusion of the contract, or will it be sufficient to obtain this kind of control before the movable is delivered? The Good Faith Acquisition Act is not clear on this subject, but in order for the rules to be consistent with the rules on the good faith acquisition of real estate, the most appropriate solution is that the seller does not need to be in physical control of the movable at the time of the contract, as long as he obtains physical control before the time of delivery.181 In Norwegian legal literature, the seller’s physical control is seen as the basis of a set of rules on good faith acquisition. As long as the seller appears to be the rightful owner of a movable, there is some need to protect the buyer who buys the movable, trusting the seller. If the seller did not appear to be the rightful owner, the need to protect the buyer will not be that evident, even though the buyer did indeed believe the seller when he claimed to be the rightful owner. In these cases, one could say that the buyer has a duty to make an investigation himself, and if he does not do so, he should not be protected by the rules on good faith acquisition. For more on this, see chapter 10.4.4. Aside from the situations mentioned in 10.2., it makes no difference how the seller obtained physical control of the movable. In double-sale cases, the situation will normally be that the seller sells the movable one more time, before delivering it to the first buyer. Another possibility may be that the seller has borrowed or hired the movable, or he may have found it on the street. In any of these cases, it would not be important how the seller obtained physical control; the important thing would be that he appears to be the rightful owner.

(b)

Invalid contracts

In some cases, the seller’s lack of a right to dispose is due to the invalidity of the contract between the seller A, and the original (and rightful) owner, H. The Good Faith Acquisition Act does not distinguish between the different reasons for the seller’s lack of a right. As long as the Act is applicable, its rules can be applied. Invalid contracts are mainly looked upon as a question of contract law, and would be of importance to the transfer between H and A. Concerning the subsequent acquirer, B, these rules will be of no 180 181

Brækhus 3 & 4, p. 281. Lilleholt, p. 68, Brækhus 3 & 4, p. 282.

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importance.182 However, the contract between A and the acquirer, B, needs to be valid in order for B to make a good faith acquisition.183

10.4.3. Perfection A further requirement of the Good Faith Acquisition Act is that the movable is physically transferred to the acquirer.184 The purpose of such a requirement is primarily to remove the seller’s authorisation. If the movable is physically transferred to the buyer, one can avoid the seller selling the movable to yet another good faith acquirer.185 Furthermore, such a transfer would give the buyer’s right priority over the rights of the seller’s creditors,186 and even if the rules need not be coherent on this subject, clear and coherent rules would prove beneficial.187 Giving the movable directly to the buyer would be sufficient to fulfil the requirement of perfection. The preparatory legislative work also confirms that physically transferring it to someone receiving the movable on the buyer’s behalf would be sufficient. It would not, however, be sufficient to agree that the seller should retain physical control, but from that point onwards, on the buyer’s behalf. Another way in which to fulfil the requirement of physical transfer is by transferring a bill of lading to the buyer.188 Constitutum possessorium, on the other hand, would not be acceptable.189 Another question is whether it is necessary to physically transfer the movable to the buyer or a representative of the buyer, or if it is sufficient to withdraw the movable from the seller’s sphere of physical control in some other way, and thereby remove his possibility to dispose of the movable. The Act does not seem to accept such a solution, even though it has been discussed in legal literature. An important consideration here would be the coherence with the rules on opposability to creditors. In the latter case, it would be sufficient to remove the movable from the seller’s physical control, and it could be argued that the rules should be as similar as possible to this rule. Furthermore, a subsequent good faith acquisition would be prevented if the seller’s physical control has been removed. Based on these 182 183 184 185 186 187 188 189

Brækhus 3 & 4, p. 238. Brækhus 3 & 4, p. 228. See § 1 of the Good Faith Acquisition Act. Brækhus 3 & 4, p. 286. As discussed in chapter 8.2. Lilleholt, p. 69. Ot. prp. nr. 56 (1976-77), pp. 38-39 and Lilleholt, p. 70. Brækhus 3 & 4, p. 287.

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arguments, Lilleholt argues the removal of the seller’s physical control to be sufficient in order to make a good faith acquisition, even though the movable is not physically transferred to the buyer.190 On the other hand, Brækhus argues that even though such an act would be sufficient both to establish an opposable security right in the movable, and to obtain a right that is opposable against the seller’s creditors, this will not form a sufficient basis for good faith acquisition.191

10.4.4. Good faith A fundamental requirement for good faith acquisition is that the acquirer is in good faith. The buyer, who is unaware of the fact that he buys a movable from someone lacking the right to dispose of it, is in need of protection. If the buyer knows that the seller lacks the right of disposal, he has entered into the agreement with open eyes, and protection from the law is not required.

(a)

Object of good faith

In Norwegian law, the object of good faith is the seller’s right to dispose of the movable. The buyer does not need to believe the seller to be the rightful owner, but he needs to believe that the right he is about to obtain does not conflict with earlier rights in the movable.192 This is partly based on the Norwegian functional approach to property rights. It is not important who the owner is, but whether there are any other rights in the movable that are in conflict with one’s own right. Another reason for such a rule is of a more practical nature: the identity of the owner of the movable is not so important for a buyer. What he really needs to know is whether the person trying to sell it has the right to do so. One could also ask whether good faith has to be based on the seller’s apparent authority. This question has been discussed a little in Norwegian legal literature,193 concerning both movables and immovables. The subject of this discussion is whether the buyer has to examine the seller’s authorisation or if he can just trust the seller’s word. E.g. if the seller of a valuable watch tells the potential buyer that he has left the watch at home, would the buyer then be safe in trusting the seller’s word, or does he, to be in good 190 191 192 193

Lilleholt, p. 69, similar Falkanger, p. 576. Brækhus 3 & 4, p. 287. Brækhus 3 & 4, p. 288. Lilleholt chapter 5.4.2. and Brækhus 3 & 4, p. 293 et seq.

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faith, need to see the watch with his own eyes? Brækhus194 argues that the buyer, or a representative of the buyer, has to ascertain that the seller actually has physical control of the movable. This is, however, as Lilleholt points out,195 a theoretical discussion in Norwegian law when it comes to movables. As already discussed, the movable has to be delivered from the seller to the buyer at some point in the transaction. Such delivery must, in any case, make it possible for the buyer to verify the seller’s authorisation.

(b)

Standard of good faith

If the buyer has actual knowledge of the seller’s lack of the right to dispose of the movable, he would be in bad faith, and could under no circumstances make a good faith acquisition in Norwegian law. In such cases, the protection of contracting parties would not be as important a concern. The Good Faith Acquisition Act § 1 (2) makes it clear that not only does bad faith prevent the acquirer from extinguishing the rightful owner’s right, but also a buyer who is careless in relation to the seller’s right to dispose, would be unable to make a good faith acquisition. The question is then; when is a buyer careless? The Good Faith Acquisition Act § 1 (2) tries to elaborate on this, but the law is not clear. As in every case regarding carelessness, the standard depends on the situation.196 The standard of due care in these cases is based on an objective norm,197 and one has to decide what a normally reasonable person would do. Where such a person has a duty to question the seller’s authority, the buyer is not excused by arguing that he or she was naive or trustful. If the buyer has actual knowledge regarding the circumstances surrounding the movable, or the permissibility of the relevant transfer, one can impose a higher standard of care on him or her. Based on this, the rules on carelessness, which exclude the possibility of good faith acquisition, are said to be an objective standard downwards, but a subjective standard upwards.198 What kind of circumstances have an influence on the standard of due care to be met so as not to be careless in the sense of being in good faith? The type of movable and the type of sale are of primary significanceance. If the movable in question is of a sort not usually sold under the given circumstances, a buyer should proceed with caution.199 E.g. if a person of194 195 196 197 198 199

Brækhus 3 & 4, p. 294. Lilleholt, p. 149. Lilleholt, p. 151 and Brækhus 3 & 4, p. 289. Falkanger, p. 576, Lilleholt, p. 151. Falkanger, p. 576. Lilleholt, p. 151.

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fers a valuable piece of jewellery on the street, it could be careless not to question the seller’s authority to sell the movable. However, if the same piece of jewellery is sold in a jewellery shop, one would be safer in trusting the seller’s authorisation. Furthermore, the price and the reason for the transfer are of importance. The buyer should usually be careful if the price is exceptionally low, or if there are no reasons for the seller to sell the movable in question. He could, under such circumstances, be careless if he does not make further investigations.200 This must be balanced against the buyer’s possibility to investigate the seller’s authorisation more closely. When a person has physical control over a movable, this gives the buyer a strong impression that the seller is the person with the right to dispose of the movable. Based on this, the buyer would only be careless if there is some reason for him to believe closer investigation is necessary. This may be one of the elements already mentioned, but it may also be a characteristic of the movable itself, e.g. if the movable is marked with a name other than the name of the seller. If there is such a basis for the buyer to make further investigations, the buyer should avoid acting carelessly. Primarily, he needs to ask the seller about the characteristic attracting attention. He may ask the seller why he is selling the movable at such a low price, why it is marked with another name, or other relevant questions. If the seller’s answers prove satisfactory, this should normally suffice. One can not demand a closer investigation than called for by the circumstances.201 If an average attentive person would not have accepted the explanation, further investigations should be made.

(c)

The time at which good faith is required

By virtue of the Good Faith Acquisition Act § 1 (1) good faith is required at the time of perfection.202 Accordingly, in order for the acquirer to make a good faith acquisition of a movable, good faith is required at the time of the transfer of physical control. It will not be sufficient for the buyer to be in good faith at the time of the conclusion of the contract, if he learns about the seller’s lack of a right of disposal before the movable is delivered. If, however, the buyer has already obtained physical control over the movable, e.g. he has rented or borrowed it, it will be sufficient to be in good faith at the time of the conclusion of the contract, since there will be no further transfer.203 200 201 202 203

Lilleholt, p. 152. Lilleholt, p. 152. Lilleholt, p. 153. Ot. prp. nr. 56 (1976-77), p. 42.

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Another question is whether it is sufficient to be in good faith at the time of transfer of physical control. The preliminary legislative work discusses the situation where a buyer is in good faith at the time of delivery, but where he discovers the seller’s lack of entitlement before he has paid for the movable.204 It is implied that good faith acquisition should not be possible in such a situation, but such a solution is opposed by legal theory.205 The issue has not been addressed by the Supreme Court, but it seems to be clear that the normal rule would be that the buyer’s good faith at the time of delivery would be sufficient. Only in special situations could a buyer’s subsequently obtained knowledge be of importance.

10.4.5. Registration Good faith acquisition of ships and aeroplanes is not covered by the Good Faith Acquisition Act. In such cases, the time of registration is decisive and the right first to be registered will normally prevail.206 Quite similar rules are to be found in the Danish law regarding ships, see Søloven207 § 28.

10.5.

Stolen goods

As already mentioned, the Good Faith Acquisition Act makes it clear that there can be no good faith acquisition of stolen goods under Norwegian law. Even in situations where the thief can not be punished for the crime, good faith acquisition is excluded, as long as the legal elements of the relevant crime are fulfilled.208 However, the rules on theft and embezzlement differ. If the movable is embezzled, a subsequent acquirer in good faith may extinguish the owner’s right. The preliminary statutory work describes the notions of theft and embezzlement in accordance with their use in criminal

204 205 206

207 208

loc. cit. Lilleholt, p. 154. However, an exception is made if the person registering his right is aware of, or should have been aware of, an older but unregistered right, see luftfartslova §§ 3-26 and 3-27 and for ships, sjølova § 26 and § 27. Lov nr. 1172 af 19 / 12 / 2003. Ot. prp. nr. 56 (1976-77), p. 43. Here, the elements of a crime encompass both the subjective and the objective elements, but it is of no importance whether provisions apply, which establish the criminal liability of a person to be held responsible for his offence. For instance, this can be the case when the thief is too young to be punished.

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law.209 In short, one may say that a theft violates both the physical control over and the owner’s rights in the movable, whereas embezzlement only violates the owner’s rights in the movable. If the movable is lost by the rightful owner, then found by a person who sells it on to another person in good faith, the seller has only taken possession of lost property and good faith acquisition in this situation is not prevented by the Good Faith Acquisition Act § 2.210

10.6.

The rightful owner’s claim for recovery

When the rightful owner obtains enough information to make a claim for recovery, or should have obtained this information, the Good Faith Acquisition Act § 3 (1) states that he has to bring a claim for recovery of the movable without any unnecessary delay.211 If the rules of the Good Faith Acquisition Act are complied with, the rightful owner will have no right to retrieve (vindicate) the movable from the good faith acquirer. In cases where the rules have not been complied with, the Good Faith Acquisition Act § 3 gives the rightful owner a right to claim the movable. In these cases, if the rightful owner is in no way to blame for the seller obtaining physical control over the movable, the buyer has to return the movable. If, however, the owner is to blame, the buyer may claim damages from the original owner. This would be damages for the buyer’s expenses incurred in buying and repairing the movable, but these are limited to the value of the movable at the time of recovery.212

10.7.

Good faith acquisition free of encumbrances

The rules already presented would be the same regardless of whether the lack of a right concerns the right to dispose or whether the movable is encumbered by a property right. To establish a valid and protected pledge over movables, the general rule in Norwegian law is that the movable must be removed from the rightful owner.213 If the owner still has apparent authority, the seller will have no protection against a good faith acquirer, and the rules already presented will come into play.

209 210 211 212 213

loc. cit. loc. cit. See Lilleholt pp. 129 et seq. Good Faith Acquisition Act § 3 (2). Mortgage Act § 3-2.

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10.8.

Good faith acquisition in Danish law

10.8.1. Introduction Traditionally, Danish law has had little room for good faith acquisition. The general rule has been that it is the rightful owner’s right to bring a claim for recovery, and no protection has been granted to the good faith acquirer.214 This has changed to some extent, and examples of good faith acquisition being accepted can be found, both in legislation and court decisions. This has led Danish legal scholars to recognise that no general rules on this issue can be established in Danish law.215 The difference is that today, as one legal scholar expresses it, one can nevertheless ‘indiscriminately’ discuss what the outcome would be, whereas the situation earlier gave little or no room for a good faith acquisition.216 Some general requirements have been set out in legal literature, but in addition it will be necessary to determine whether the basis for good faith acquisition has been fulfilled in each particular case. Good faith acquisition of negotiable instruments is regulated in § 14 Gældsbrevsloven. The rule provides for an extinguishment of the owner’s right if the document is acquired by sale or pledge, the transferor is in possession of the document and transfers it to a good faith acquirer. The transferor’s possession also has to be verified by a coherent line of acquisitions ending with the transferor.217 With regard to goods, there appears to be nothing written on whether acquiring the goods under specifically defined circumstances – e.g. from a professional seller in the ordinary course of his business, or in a public auction – is material. One can therefore assume that none such typical situation has the character of an indispensable requirement in deciding whether a valid good faith acquisition has taken place or not. However, the place of acquisition can naturally affect the acquirer’s good faith. Danish rules do not seem to make a difference upon whether acquisition was for value or not. However, the issue is not widely discussed.218 It is also not certain whether the original owner can buy the movable back where his right is extinguished via a good faith acquisition (see further chapter 10.8.3.). Whereas this is not possible in Norway, it is indeed possible under both Finnish and Swedish rules.

214 215 216 217 218

Elmer and Skovby, p. 162. Elmer and Skovby, p. 163, von Eyben / Vinding Kruse, p. 99 and Mortensen, p. 171. Von Eyben: Formuerettigheder, p. 263. Andersen / Werlauff, p. 76 et seq. Illum / Carstensen, p. 365.

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Where the goods are encumbered by limited proprietary rights of another person and the good faith acquirer takes possession of the goods in good faith with regard to the non-existence of such rights, his rights are given priority over these limited proprietary rights. However, the situation can scarcely occur: a correctly secured right of pledge presupposes handing over the movable to the pledgee.219 If the pledgor somehow (unilaterally) takes repossession of the movable, for instance, by breaking into a locker, and then sells the goods to a buyer in good faith, it is uncertain whether the pledgee has a possibility to recover possession from the good faith acquirer.220

10.8.2. Double sale The starting point in Danish law is the same as in the Norwegian law on double sale; nobody can obtain a better right in a movable than that of the transferor himself. The originally established right in a movable will prevail, based on the principle of prior tempore, potior jure.221 Traditionally, Danish law has solved the problems inherent in a lateracquired right conflicting with an earlier-acquired right by establishing strict requirements, the fulfilment of which underlies the first acquirer’s right. If the first-established right was created by a valid, final and clear agreement, the first right will prevail over any conflicting later right, even against acquirers in good faith, and, therefore, the first acquirer would be entitled to reclaim the movable.222 However, a clear final agreement will no longer be enough to avoid good faith acquisition in Danish law. It has been argued that the acquirer in good faith needs some kind of protection, and that he, in some cases, should be able to acquire a right in the movable.223 If a later acquirer is to extinguish a previous acquirer’s right, a group of general requirements must be fulfilled.224

(a)

Valid and final contract

The primary requirement for good faith acquisition in Danish law, in the context of double sale, is that the latest acquirer’s right was obtained by a valid and final contract. As long as a valid and final contract is required 219 220 221 222 223 224

Elmer and Skovby, p. 193. Illum / Carstensen, pp. 351-352. Elmer and Skovby, p. 193, Mortensen, p. 166. Mortensen, pp. 165-169 and von Eyben / Vinding Kruse pp. 98-99. Mortensen, p. 170, Elmer and Skovby, p. 163 and von Eyben / Vinding Kruse, p. 98. Mortensen, p. 176.

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from the first acquirer, a later acquirer can not extinguish the former’s right without also fulfilling this requirement.225 A valid and final contract between transferor and transferee is also a requirement in Norwegian law, and the requirement in Danish law does not differ much from what has already been presented regarding Norwegian law.

(b)

The seller’s authority

In Norwegian law, a further requirement is that the seller has physical control over the movable. This requirement is not as strict in Danish law. For a good faith acquisition to be effected, the movable must have been transferred by a transferor who appeared to be authorised to make the transfer. However, a person can appear to be authorised even though he does not have physical control.226 When it comes to applying this rule, there seems to be no pronounced difference between Norwegian and Danish law on this issue. As already pointed out, strict physical control is not necessary in Norwegian law either, and as I will discuss later, Danish law requires the seller to be able to provide the movable for the purpose of delivery. To be able to do so, he or she needs to have some sort of control over the movable.

(c)

Perfection

Like Norwegian law, the Danish law on good faith acquisition requires some sort of physical transfer of the movable. The requirements are not as strict as in Norwegian law. It is clear that if the movable is handed over to the buyer, this will fulfil the requirement in the same way as in Norwegian law. It is also agreed in Danish legal literature that direct physical transfer is not necessary, as long as the seller can no longer dispose of the movable.227 As mentioned, this issue is also discussed in Norwegian literature, even though this form of perfection is not commonly accepted there.

(d)

Good faith

As with Norwegian law, the acquirer’s good faith is an absolute requirement for extinguishing an earlier acquirer’s right in the movable. Like under Norwegian law, the Danish acquirer has to be in good faith regarding con225 226 227

Mortensen, p. 176 and pp. 178-179. Elmer and Skovby, p. 170 and Mortensen, p. 184. Elmer and Skovby p. 167 and Mortensen, pp. 186-187.

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flicting earlier rights in the movable. This means that he must believe the transferor to be able to dispose in the way he or she does, without interfering with higher priority rights.228 The standard of good faith is also much the same as in Norwegian law; ordinary carelessness will exclude good faith.229 The carelessness does not have to be gross. The reflections made in chapter 10.4.4. would, therefore, also hold true for Danish law. Good faith is required at the time of the conclusion of the contract as well as at the time of extinguishing the transferor’s right to dispose of the movable.230 The standard depends on the concrete situation: the type of property and under what circumstances the sale is carried out. No real examination has to be carried out if the property is bought in a shop or under similar circumstances.231

(e)

The basis for good faith acquisition in double sale situations

Even if all of these requirements are fulfilled, the acquirer in good faith will not always prevail. The requirements are only a point of departure; in addition, the existence of a basis for good faith acquisition must be verified in each particular case. This is quite different from Norwegian law, where it is sufficient that the requirements set out in the Good Faith Acquisitions Act are fulfilled.

10.8.3. Good faith acquisition Good faith acquisition can not only be effected in double sale situations, but also if the seller, in some other way, lacks the right to dispose of the movable. He or she may have stolen or rented the movable, or in some other way obtained physical control over it. If a good faith acquisition is to take place in these situations, all previously discussed requirements must have been fulfilled. However, this will not be enough; as will be discussed below, there must be ‘something more’. In general, however, the position in Denmark seems to be that stolen goods can be vindicated back to the original owner (see the rule in DL 6-17-5). The rule is explicitly applicable to stolen goods as defined in the Criminal Code (Straffeloven) § 276. However, by analogy other crimes should be perhaps included in the application of the rule.232 Up until recently 228 229 230 231 232

Mortensen, p. 180. Mortensen, p. 180, Elmer and Skovby, p. 171. Mortensen, pp. 180-181 Elmer and Skovby, p. 171. Illum / Carstensen, 363-364, Elmer and Skovby, p. 171 et seq. See Illum / Carstensen, p. 330 et seq., Vinding Kruse, p. 1244 and Elmer and Skovby, p. 191.

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the rule of vindication of stolen goods has been considered as being without exception. The situation today, though, is less certain and there might be a few undefined exceptions.233 There is no time limit for the original owner to vindicate the property. However, if the owner knows about the illegitimate possession without claiming the property within reasonable time, the right may be lost. The reason is that the good faith acquirer should not lose his or her right to claim damages from the transferor.234 There is also a definite time limit via the rules of acquisition of ownership by continuous possession (acquisitive prescription). Upon this issue, see further chapter 11.5.

(a)

‘Something more’, considerations regarding the transferor’s authorisation

A main difference between the Norwegian and Danish rules on good faith acquisitions is the lack of legislation on good faith acquisition of movables in Danish law. The general rule in Danish law provides the rightful owner’s with a right to recovery and, without any legislation on this subject, the requirements of good faith, authorisation and perfection are not enough to make a good faith acquisition in Denmark.235 In addition to these requirements, the extinction of an older right in the movable presupposes the presence of some further circumstances.236 These circumstances will mainly be based on considerations regarding the transferor’s authorisation, and the importance of the different rights involved has to be discussed. In case law, the most important element has been the question of how the transferor can appear to be authorised to dispose of the movable. In the main, two aspects are discussed in legal theory; the rightful owner’s carelessness and the rightful owner’s passiveness.

(b)

Carelessness on the part of the rightful owner

In considering whether to depart from the general rule of recovery, the rightful owner’s carelessness in handling the movable is a matter of great 233 234 235 236

Elmer and Skovby, p. 190 et seq Illum / Carstensen, p. 362 et seq. Mortensen, p. 190. Mortensen, p. 191 and Elmer and Skovby, p. 173. Elmer and Skovby, p. 173 use the imprecise term ‘something more’ (literally translated) to describe the additional and somewhat undefined requirement for good faith acquisition. Von Eyben in Dahl et al. formulates that some ‘special arguments’ must speak in favour of an extinguishment, p. 229.

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interest. If it is the rightful owner’s carelessness that makes the creation of the conflicting right possible, this will be a weighty argument against the possibility of recovery.237 If the rightful owner lends the movable to someone he does not know much about, without having made any investigations, one could argue that it is more important to protect the good faith acquirer than the careless rightful owner. The standard of carelessness would therefore be an important part of the discussion over what kind of interests are most in need of protection. What kind of care is expected from the rightful owner? Not every kind of carelessness will be enough for the rightful owner to risk losing his right to recovery. The general rules provide for a right to recovery, and exceptions from these rules can only be made in special situations.238 It is argued in legal theory that everyday acts, like giving a mechanic the keys to one’s car must be acceptable.239 In one case an artist was deemed careless when, despite his son having had paintings previously stolen from him, let the son have uncontrolled access to the paintings and authority to sell to dealers.240 Another question will then be whether the degree of carelessness can be discussed within the framework of tort law. The prevalent opinion in Danish legal literature seems to be that this is not an acceptable way to approach the subject.241 The balance between the different considerations, e.g. the different parties’ need for protection, would make it necessary for the required standard of care to differ from case to case. To use the considerations known from tort law in such a situation would therefore conceal some important arguments.

(c)

The rightful owner’s passivity

Not only the rightful owner’s carelessness, but also his passivity may be the basis for an exception from the general rule of recovery.242 If the rightful owner knows or ought to know about the transfer, but does not interfere, his right to protection seems to be limited. For such situations, legal literature, based on court decisions, has established a rule stating that if the rightful owner is aware of, or should have been aware of, a later acquirer not know237 238 239 240

241 242

Mortensen, pp. 191-196 and Elmer and Skovby, p. 174. Mortensen, p. 192. loc. cit. U 1975.381 H. See also U 1959.578 Ö and U 1972.746 H. See also von Eyben in Dahl et al., p. 230. Mortensen, p. 193. Mortensen, pp. 197-200 and Elmer and Skovby, p. 178.

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ing that the acquired right in the movable would conflict with his right, he can not remain passive. It is argued that passivity alone will seldom be enough to constitute an exception from the general rule of recovery. However, coupled with careless behaviour on the part of the rightful owner, passivity would be a weighty argument for allowing good faith acquisition to occur in these situations.243

11.

‘Acquisitive’ prescription

11.1.

Introduction

The rightful owner of a movable will not always have physical control over the movable. The reasons for such a lack of physical control can differ; he or she may have lost the movable, it may have been stolen from him, or he may have lent it to another person. However, the person in physical control, B, may believe him- or herself to be the rightful owner, or believe to have a right to use and control the movable. Should the law, in these situations, protect A’s right as an owner, or B’s belief of being the rightful owner or user of the movable? To some extent, B’s belief in being the rightful owner or user is protected under Norwegian law. The rules on this subject are based on different considerations, which will be briefly discussed in 11.2. before presenting the general rules in 11.3.

11.2.

The basis for the rules on acquisitive prescription (‘hevd’)

In a conflict involving acquisitive prescription, mainly two parties will be involved, the rightful owner and the person with physical control over the movable (in Norwegian: ‘hevderen’). There are different issues to be considered regarding these two parties, and the rules on acquisitive prescription have to take into account all of these considerations. The person with physical control over the movable will normally be interested in preserving the status quo. As long as he or she truly believes to have a right to control the movable, he or she requires some sort of protection, and economic compensation will not always be an acceptable solution.244 The preliminary legislative work on the Norwegian Acquisitive

243 244

Mortensen, p. 199. Brækhus / Hærem, p. 572.

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Prescription Act245 also emphasises the need for security, stability and legal certainty in these kinds of situations.246 On the other hand, the rightful owner has a strong interest in recovering his movable. He or she may have lost it, or it may have been stolen from him or her, and even though several years may have passed before he or she gains knowledge of its whereabouts, he or she would like to get it back. Should he or she no longer have the opportunity to recover the movable, he or she would argue this to be an unfair solution. However, the longer the period of time that has passed from the point in time when he or she lost physical control over the movable, the more reasonable it is to deny him or her the possibility to recover. He or she will undoubtedly have accepted the loss after some time, and the need for protection will therefore decrease as time goes by.247 The Norwegian rules on acquisitive prescription are therefore based on a balance between the need for legal certainty for the person with physical control, and an early claim of the rightful owner for recovery of physical control of the movable; if the latter cannot be achieved, the loss must be accepted. The main effect on this basis has been the creation of the requirement of a fixed period of time that is to pass before acquisitive prescription becomes possible, as well as the requirement of the acquirer being in good faith.

11.3.

A closer look at the requirements of acquisitive prescription

11.3.1. The object of acquisitive prescription The Norwegian Acquisitive Prescription Act (hevdsl.) § 1 makes it possible to acquire rights of use or ownership in a movable. Whether the movable is registered or not will be of no general importance, but this could be decisive for the question of the acquirer’s good faith. The rules differ from the rules on good faith acquisition in the sense that they also allow acquisition of stolen goods by acquisitive prescription.248 The way the movable was transferred from the rightful owner’s possession to that of the new acquirer will only be of importance for the question of good faith.

245 246 247 248

Lov om hevd av 9. desember 1966 nr. 1 (hevdsl.). Ot. prp. nr. 30 (1965-1966), pp. 8-9. Brækhus / Hærem, p. 572. With some exceptions regarding cultural monuments and similar movables.

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11.3.2. Good faith First and foremost, the person with physical control over the movable has to be in good faith regarding his rights in the movable, in order to make an acquisition by acquisitive prescription, hevdsl. § 4. In the case of bad faith, the person in physical control does not require legal certainty; he knows he is not the owner of the movable. The rightful owner, on the other hand, would be in need of protection, and in these cases the law protects his right to recover the movable. The wording of the provision reveals that a person in bad faith can not make an acquisition by acquisitive prescription. This means that good faith, to a certain degree, is presumed, and that the rightful owner has to prove that the person in physical control has been in bad faith.249 Good faith needs to relate to the right the person with the physical control argues to have acquired through acquisitive prescription. If he or she argues to have a right to use the movable, he or she must have believed that he was entitled to the use of the movable. In the same way, if he or she argues to be the rightful owner of the movable by virtue of acquisitive prescription, he or she must have believed him- or herself to be the rightful owner.250 This belief must have existed throughout the whole time period, the lapse of which is necessary so as to make an acquisition by acquisitive prescription.251 Furthermore, B must not have been negligent regarding his belief of being entitled to use or own the movable. It would not be acceptable that he ‘turns a blind eye’ to avoid information, the knowledge of which would lead him to question his belief,252 and ignorance would also not be acceptable if a normally reasonable person would have perceived further investigations to be necessary. This means that if B, at an earlier point in time, was in bad faith, it would normally not be accepted that he was in good faith regarding the same fact at a later point in time. This, of course, holds true as long as the person’s good faith is not based on some newer information.253

11.3.3. Physical control Good faith alone is not sufficient for an acquisition by acquisitive prescription. Person B, making the acquisition by acquisitive prescription, must 249 250 251 252 253

See Falkanger, p. 298. Falkanger, p. 297, Brækhus / Hærem, p. 585. 10 years, more on this in chapter 11.3.4. Brækhus / Hærem, p. 584 and Falkanger, p. 297. Brækhus / Hærem, p. 589.

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also be in physical control of the movable for the whole time period necessary for an acquisition by acquisitive prescription.254 The kind of physical control needed is the kind of control a person with the argued right would in fact exercise. This means that if B believes to be the rightful owner, he or she needs to use the movable in the same way as an owner would, and likewise, if he or she believes to have a right to use the movable, he or she must use the movable accordingly.255 In Norwegian legal literature, this is discussed using the keywords intensity, continuity and exclusivity. When it comes to movables, this will seldom be difficult to determine. The Supreme Court rulings on this issue are mostly related to the acquisitive prescription of real estate, and in legal literature it is assumed that it will usually be easy to determine whether a person is using the movable as an owner or not.256 If a person believes to have a right to use the movable, he should use it in the corresponding way. If he believes to be the owner, one must accept that he may have stored the movable with, or lent it to, someone else, just as a rightful owner would normally do. Furthermore, physical control over the movable has to conflict with any other right the person exercising physical control over the movable may have therein. E.g. if B hires the movable and thereby exercises physical control over it, he can not make an acquisition by acquisitive prescription as long as he does not use the movable in any way that is contrary to his right of use derived from the lease contract.257

11.3.4. Prescription period The prescription period for movables in Norwegian law is 10 years, see hevdsl. § 2. The prescription period starts to run on the day the acquirer in good faith starts using the movable, and the prescription period ends on the same day of the same month of the period’s commencement.258 The prescription period in relation to a previous possessor may be taken into account in favour of the present possessor as long as the transfer between the current possessor and his predecessor has a legal basis, see hevdsl. § 3. This means that as long as the current possessor has received the movable based on e.g. an inheritance, a sale or a gift, the period of his predecessor into account may be taken into account. However, e.g. keeping a movable abandoned by someone elsewill not satisfy this requirement. 254 255 256 257 258

Hevdsl. § 2 and § 7. Falkanger, pp. 291-296. Falkanger, p. 294. Brækhus / Hærem, p. 581. Falkanger, p. 296.

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The requirements of physical control and good faith must be fulfilled throughout the whole period, but hevdsl. § 6 (2) opens up the possibility for the prescription period to run even if B loses the movable, as long as he recovers it within two years of its loss, or as long as he brings an action to recover the movable within two years of its loss. There are two ways of interrupting the prescription period. Primarily, it will be interrupted if one of the prescription requirements can no longer be met due to any reason other than B losing the movable. To avoid an acquisitive prescription, it would suffice for the rightful owner to remove the movable from B’s physical control, or to extinguish B’s good faith. Another way of interrupting the prescription period is to bring an action against B, hevdsl. § 6 (1). If the claimant succeeds, the prescription period is interrupted as from the time of serving notice of proceedings.259

11.4.

The function of acquisitive prescription

If the prescription period and the requirements for acquisitive prescription are fulfilled, the acquirer, B, will obtain the same right in the movable as he or she believed to have, in accordance with which he used the movable. This may be the same right as an owner has, or it may be a more limited right to use the movable, depending on the circumstances.260 Furthermore, the acquirer, B, will extinguish other people’s rights in the movable, insofar as these rights are in conflict with B’s right in the movable, and as long as he is not aware of these rights. B’s good faith regarding the existence of the rights is significant here.

11.5.

‘Acquisitive’ prescription in Danish law

The rules on acquisitive prescription in Danish law are quite similar to the rules in Norwegian law. One does, however, find some noticeable differences. The rules in Danish law are to be found in DL 5-5-1-5-5-5, with DL 5-5-1 as the general legal rule, stating that one can make an acquisition of movables by acquisitive prescription under Danish law. There appears to be no requirement of a legal basis for the transfer between the current possessor and his predecessor.

259 260

Brækhus / Hærem, p. 593 and Ot. prp. nr. 30 (1965-66) p. 30. Falkanger, p. 305 and Brækhus / Hærem, p. 593.

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A possessor can acquire ownership of both public and private property by continuous possession.261 There appears to be no scholarly writing on the issue of acquisitive prescription of cultural objects.

11.5.1. Prescription period As opposed to Norwegian law, the prescription period in Danish law does not differ as between movables and immovables. In Danish law, the prescription period is always 20 years, DL 5-5-1, and the effect is that the right to the movable is transferred from the owner to the possessor and that all limited rights are extinguished if these rights are not exercised during the relevant period.262 A possessor may take the period of his predecessor into account.263 The prescription period is interrupted by the bringing of legal actions, or by preventing the acquirer from physically using or controlling the movable.264 If, for some reason, the owner does not succeed in the proceedings, it may still be sufficient to presume the possessor to be in bad faith and perhaps exclude him from obtaining a better right to the movable (see further the discussion of the absence of a clear good faith requirement below, 11.5.3).

11.5.2. Physical control The requirement of physical control under Danish law is almost identical with the requirement one finds in Norwegian law. To make an acquisition by acquisitive prescription, the person making the acquisition must be in physical control of the movable for the whole prescription period. The movable must be used in a way that complies with the disputed right, and this use / physical control must be continuous. Whether continuous possession is to be presumed has yet to be settled. The use must not be based on temporary permission, DL 5-5-1.265 However, one legal scholar, when discussing accidental loss, states that the importance does not lie in the possession of or use by the possessor, but in the lack of possession or lack of use by the owner.266 261 262

263 264 265 266

Vinding Kruse, p. 574. Carstensen, Vagn in ‘Formueretlige emner’ (København 2004) p. 122 and Vinding Kruse, pp. 586 et seq. Carstensen, p. 131. DL 5-5-1, discussed in Carstensen, p. 123. Carstensen, p. 122. Vinding Kruse, pp. 577 et seq. and 585.

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Loss of possession against the will of the possessor (through theft or accidental loss) does not interrupt the period for the acquisition of ownership when possession is recovered by the police or an honest finder, even when some time has passed since the loss of possession.267 It seems that the period for recovery is not fixed; it depends on the discretion of the judge. Vinding Kruse finds the discussion pointless and unreasonable because he makes no distinction between the rules on the prescription of obligations and the rules for the acquisition of ownership by continuous possession. The result would be incompatible if the possessor’s possession was irrelevant for the rules on the prescription of obligations, but not so for acquisitive prescription.268 Involuntary loss can therefore be said to have little or no importance in Denmark. Another important comment is, perhaps, that under Danish law the possessor, B, can vindicate a movable with the aid of the court, from a temporary possessor, C, without B having to be the true owner. Due to the ‘functional approach’, a Danish court would only look upon who, between B and C, has the better right to the object, rather than definitively settling the ownership issue. It is therefore of no use for C to claim that B has no right to the object either.269

11.5.3. No good faith required The most decisive difference between the Norwegian and Danish laws on acquisitive prescription is the different way of looking at good faith. In Norwegian law, good faith is a necessary and important requirement, justifying the way in which the rules interfere with proprietary rights. In Danish law, the rules on acquisitive prescription are meant to protect the person with physical control from having to bear the burden of proof when his right to control the movable is being questioned.270 It is presumed that the person with physical control, at some stage, has been given the right to use and dispose of the movable, but as time passes by, it will be difficult for him to prove this. Instead, the rules on prescription can be used. Earlier, Danish legal literature presumed good faith to be a requirement.271 However, the opinion among legal scholars has changed, and at present the prevalent opinion is that good faith is not required of an acquirer.272 Even though good faith is not required, acquisitive prescription can 267 268 269 270 271 272

Hitchcock / Stein Poulsen in von Bar, p. 42. Vinding Kruse, pp. 577 et seq. and p. 585. Vinding Kruse,pp. 578 et seq. Carstensen, p. 126. E.g. Vinding Kruse and Torp. Carstensen, pp. 123-124 and von Eyben / Vinding Kruse, p. 149.

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not occur in every situation. The requirement is somewhat disputed, but it seems that the prevailing view is that the acquirer must not act dishonestly or illegally.273 One could then ask in what situations a person is not acting dishonestly, but is not yet in good faith. Carstensen274 uses the example of stolen goods. Neither the thief may, of course, acquire the goods by acquisitive prescription, nor the person buying from him, as long as the latter knows the goods to be stolen. On the other hand, if he does not know the goods to be stolen, the buyer may acquire them by acquisitive prescription. Based on this, the differences to Norwegian law on the issue are not very substantial. It seems that some element of good faith is required in both legal systems, but the standard of good faith will differ a little. If one is not in good faith, one will seldom be acting honestly when controlling and using the movable. The need to make investigations, however, seems to be a little weaker in Danish law. Without any evidence to the contrary, a person will normally be said to have acted honestly. Based on this, the counterpart must, as a rule, prove that the acquirer has acted dishonestly or illegally.275

12.

Further modes of original acquisition

12.1.

Finding

A person who finds a movable on the street will not immediately become owner of this movable under Norwegian law. The Norwegian Lost Property Act276 provides that, as a general rule, lost property should be returned to its owner, or if this is not possible, delivered to the police.277 The finder is entitled to have his or her expenses covered and he or she is also entitled to a reward.278 In some situations, the finder may also acquire ownership of the movable. If the movable is of little value, and is not likely to be sold at a profit, the police may return the movable to the finder.279 It is also argued in legal theory that if the movable is of very little value and the rightful owner is almost impossible to find, one could not even be expected to hand the movable over to the police. E.g. a person finding a 1 Euro coin on the 273 274 275 276 277 278 279

Carstensen, pp. 123-124. At p. 124. Vinding Kruse, pp. 549 et seq. and pp. 581 et seq. Lov om hittegods av 29. mai 1953 nr. 3. Lov om hittegods §§ 2 and 4. Lov om hittegods §§ 6 and 9. Lov om hittegods § 7.

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ground, with no indications of its rightful owner, could not be expected to deliver it to the nearest police station. However, if the movable in question is of little economical value, but presumably of great personal value, e.g. personal papers like a private letter, the finder has to give it to its rightful owner or the police.280 Under Danish law, the rules are quite similar. The Danish Lost Property Act281 provides that lost property should be delivered to its owner or to the police if the identity of the owner is not clear. If the rightful owner can not be found within 3 months, the movable is sold and the finder is given 50 % of the profit, with the rest going to the national treasury.

12.2.

Occupation

12.2.1. Introduction Goods not owned by anyone may be freely occupied in Norwegian law.282 The legal problem in these kinds of situations is to determine when a movable is not owned by anyone. Primarily, air and water are not owned by anyone as long as they remain in their natural and free state. However, the moment water from a river is filled into a bottle, it becomes occupied and therefore owned by someone.283 Furthermore, wild fish and wild animals are not owned by anyone. Even though it is possible to occupy them, strict regulations on hunting and fishing reduce this possibility. Movables formerly owned may also become occupied if they have already been abandoned by the former owner. It is therefore pertinent to take a closer look at the rules on abandonment.

12.2.2. Abandonment An owner of a movable may freely abandon his ownership under Norwegian law.284 To abandon ownership, the owner must abandon physical control over the movable, e.g. leave a newspaper on the table as he or she 280 281 282 283 284

Brækhus / Hærem, p. 529 and Falkanger, pp. 61-62. Lov nr. 146 af 23.april 1952, ‘hittegodsloven’. Brækhus / Hærem, p. 527 and Falkanger, p. 61. loc. cit. In the context of property law. Regarding e.g. tort law, abandonment may not be sufficient; it is the right in a movable one can abandon, not the obligations attached to it.

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leaves a café. However, this alone is not sufficient. Such abandonment must also accord with his intentions. Only if the abandonment is intentional, will his rights as an owner be extinguished.285 The intention does not need to be expressed directly towards the occupying acquirer; the Supreme Court has ruled that it will be sufficient that the circumstances give the acquirer a clear indication of such an intention of the original owner.286 The value of the movable will be of importance when deciding whether the movable has been abandoned or not. The discussions in the Supreme Court rulings in Rt. 1924, p. 170 and Rt. 1970, p. 346 show that the more valuable the movable is, the stronger the indications of abandonment have to be, in order to come to the conclusion that the movable has been abandoned.287

12.2.3. Occupation in Danish law The starting point in Danish law is that there is no such thing as goods not owned by anyone. If there is no private owner, the government is regarded as the owner.288 There are a few exceptions to this starting point. As in Norway, wild fish and wild animals are not owned by anyone and may be occupied within the scope of the rules on hunting and fishing. Furthermore, waste may be occupied as long as it is not of greater value or if the previous owner has clearly abandoned his right in the movable. Also nuts, berries, amber and stones can be occupied as long as they are found in natural surroundings and not in someone’s garden or yard.289

12.3.

Separation

Both in Danish and Norwegian law, separation will not normally have any impact on the question of the owner’s identity. If one asset is separated into two different assets, the original owner or person with a right in the original asset obtains the same right in both of the new assets.

285

286 287 288 289

Rt. 1924 p. 170, at p. 171, further discussed in Brækhus / Hærem, p. 623 and Falkanger, p. 61. Rt. 1970 p. 346, at p. 348. Falkanger, p. 62. Von Eyben / Vinding Kruse, p. 152. Von Eyben / Vinding Kruse, pp. 154-157.

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Part IV: Additional issues 13.

Sales lien

13.1.

Introduction

The Norwegian rules on sales liens, pantl. § 3-14 – 3-17 succeeded to earlier rules on reservation of title, but these rules are undoubtedly rules on security rights, and not rules on the reservation of title.290 Sales liens can be implied in every sales contract over movables as long as the buyer is not entitled to resell them to someone else,291 and as long as the movable cannot be registered.292 It is inconsequential whether the buyer is a consumer or tradesman. To establish a sales lien, strict formal requirements must be fulfilled. If these requirements are not fulfilled, the seller will not be afforded protection against the other party’s creditors and the agreement is not valid inter partes.293 The subsequent chapters 13.2. to 13.7. are only relevant for Norwegian law. In Danish law, the buyer and the seller may agree on the retention of title. This will be discussed below at 13.8.

13.2.

Connection to the sales agreement

A primary requirement is that an agreement for a sales lien must be reached. Pantl. § 3-14294 makes it clear that the seller may not make such a reservation without the buyer’s consent.295 Furthermore, the agreement must be 290 291 292 293 294

295

Skoghøy, pp. 111-112. See chapter 13.3. Pantl. §§ 3-14 and 3-15. Skoghøy, p. 115. Pantl. § 3-14 could be summed up like this: ‘In connection with the sale of movable objects a sales lien may by agreement be imposed on the sold objects as security for a) the seller’s claim for the purchase price with the addition of interest or expenses, or b) loans which a third party has granted to the buyer for full or partial payment of claims as mentioned in a), and which the lender paid out directly to the seller’. Skoghøy, p. 114.

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concluded in the context of the sale.296 This means that there must be some sort of actual sale. The rules can not be used to obtain a security right in assets which the buyer already owns,297 and furthermore, the agreement can only encompass the sold object. The rules also imply that the agreement on a sales lien must be reached before the sold object is handed over to the buyer. As is shown in chapters 8.3.3. and 8.3.4., an unsecured seller will be in a much weaker position when the movables have been handed over, and an interest in coherence with these rules requires that the seller should not be able to improve his position after delivery.298

13.3.

The subject-matter of the sale may not be sold to someone else

It has been heavily discussed in Norwegian legal literature whether an agreement for a sales lien can be concluded in relation to movables, which the seller is allowed to or has planned to sell to someone else, before having made full payment to the original seller. However, to a large extent the issue is, settled by pantl. § 3-15 (2) and the so-called ‘GMAC-decision’ of the Supreme Court.299 In this case, a car importer was selling cars to a distributor. The importer had concluded an agreement for a sales lien with the distributor, agreeing upon a right of the distributor to sell the cars before they were paid for, as long as the distributor did not deliver the cars before having paid the importer. The question arose whether this was a valid sales lien agreement. The Supreme Court ruled that as long as the movable is intended to be resold, a sales lien agreement will not be valid.300

13.4.

Registration

If the movable in question is a motor vehicle, e.g. a car, the sales lien agreement must be registered in order for the right to be opposable to the rest of

296 297 298 299 300

Pantl. § 3-14 in Norwegian: ‘[i] forbindelse med salg av løsøre’. Ot prp. nr. 39 (1977-1978), p. 118. Skoghøy, p. 115. Rt. 1992, p.438. The ruling has been criticised for the sources of law used, see Nygaard, Nils: ‘Rettsgrunnlag og standpunkt’ (Bergen 2004), p. 158, and Skoghøy, p. 118, but the solution has been approved by legal theory, loc. cit.

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the buyer’s creditors.301 Such registration will also make the right opposable to later good faith acquirers.302 The registration is endorsed on the vehicle’s licence plates, which makes it fairly easy for anyone to examine whether anyone has a sales lien on a given car. This both makes the arrangement public and fulfils the requirement of notoriety, which is important when it comes to rights in such valuable but common movables.

13.5.

The effect of a commingling of movables on a sales lien

If a sales lien is established on a movable, and this movable is physically mixed with another movable in such a way that separation would involve unreasonable expenses, the sales lien ceases to apply.303 In order to decide whether the expenses are unreasonable or not, one has to consider the value of the movable. If the movable is valuable, one will accept greater expenses than if the movable is not so valuable.304 Furthermore, it is argued in legal theory that the knowledge of the pledgor will be of importance in this context. If the pledgor knows that the movable is to be mixed with another movable, he or she has no need for protection, and it is argued that this may lead to the sales lien ceasing to apply, even if the expenses of separation are not as high as would be normally required.305 These rules have a lot in common with the rules on commixture, presented in chapter 10.

13.6.

The effect of adaptation on a sales lien

If the movable is modified in some way, or the owner has spent a lot of money on improving it, this may also cause the sales lien to cease to apply.306 The basis for this rule is not to allow the pledgee to obtain a security right worth more than the original worth of the subject-matter of the sale.307 The law establishes two alternative requirements before the sales lien will cease to apply. Primarily, a ‘not insignificant’ change in the 301 302 303 304 305 306 307

Pantl. § 3-17 (3). See the Good Faith Acquisition Act § 4 (2). Pantl. § 3-19. Skoghøy, p. 125. loc. cit. Pantl. § 3-20. Skoghøy, p. 120.

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movable’s character would be sufficient. The preparatory legislative work does not concretise this further and it is not clear in Norwegian law how substantive the change in the movable’s character has to be in order for the sales lien to cease to apply.308 Furthermore, the sales lien will cease to apply if the value of the movable increases in a ‘not insignificant’ way. How large this increase in value has to be is not clear, but it must be caused by some sort of modification or improvement. Normal price inflation will not be of any importance.309 In both cases, in order for the sales lien to cease to apply, the increase in value or the change in character must take place after the movable has been delivered to the buyer.310 In legal theory, this is argued to be the time at which the seller can no longer cease the transaction.311

13.7.

Consequences of a valid sales lien agreement

If a valid sales lien agreement is made, this lien works in the same way as a normal security right. The seller’s right will be protected against other creditors as he or she will be the first to establish a security right in the movable. He or she will have the security right with the highest priority. However, a sales lien may be extinguished by the rules on good faith acquisition, presented in chapter 10.

13.8.

Retention of title under Danish law

Under Danish law, seller and buyer may agree on a retention of title at the time of the conclusion of the contract or at the time of the transfer of physical control, as long as the movable is of some value and the agreement is reached in the context of a sale.312 The seller’s right to retrieve the goods is only possible when the buyer delays in paying. The rules are laid down in Sale of Goods Act (Købeloven) § 28 and Credit Contract Act (Kreditaftaloven) §§ 6 and 34 and have the effect that a full acquisition can be postponed to a time after delivery by inserting a retention of title clause (ejendomsforbehold) into the contract. No publicity is needed, apart from vehicles, for which registration is required. In order to be valid against 308 309 310 311 312

Inst. O. nr. 19 1979-1980, pp. 19-20 and Skoghøy, p. 120. Skoghøy, p. 122. Pantl. § 3-20. Skoghøy, p. 123, commixture and production are discussed in chapter 8. See ‘Kreditaftalelov’, lov nr. 398 av 13. juni 1990 § 34, discussed in von Eyben / Vinding Kruse, pp. 248-249.

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the parties’ creditors, the retention of title has to be agreed upon before the movable is handed over to the buyer; it should be a clear part of the agreement between the parties. A unilateral declaration after the conclusion of the contract, e.g. a clause in the order confirmation or any other biased declaration coupled with the buyer’s passivity does not suffice to stipulate the right of taking the goods back. The goods have to be identifiable and must be bought for other purposes than consuming or re-selling. Also, the goods have to be of a certain minimum value. If the buyer is a consumer, a down payment of at least 20 % of the cash price must be made no later than at the time the purchaser obtains possession of the goods.313

14.

Co-ownership

14.1.

Co-ownership and general partnership

The main difference between co-ownership and general partnership under Norwegian law is characterised by the question whether ownership is related to a particular object or to a juridical person. If one owns a predefined part of a movable, e.g. 50 % or 25 %, this is co-ownership, and regulated by the Co-ownership Act.314 On the other hand, if one’s right as an owner does not relate to an undivided share in a movable, the arrangement is regulated by the rules on general partnerships. If the latter is the case, the owner may only dispose of his or her dividend and the net worth of his or her share in the partnership. He or she may not, as an owner, directly dispose of the assets of the partnership. Partnerships are regulated by the rules of company law and are not normally discussed in regard to Norwegian property law.

14.2.

The Co-Ownership Act

The rules in the Co-Ownership Act are non-mandatory, but the rules are normally applied, especially regarding co-ownership of movables of lesser value. As co-ownership is not normally discussed in relation to transfer of movables in Norwegian law, I will only briefly present the relevant rules of the Co-ownership Act.

313

314

Von Eyben in Dahl et al., p. 228 et seq.; Elmer and Skovby, p. 122 et seq.; Mortensen, p. 266 et seq. and Andersen / Werlauff, p. 179 et seq. Lov om sameige av 18. juni 1965 nr. 6 (saml.) § 1.

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14.2.1. The rules on transfer (a)

Transfer of the movable

If the co-owned movable is to be sold, this must be decided unanimously by the co-owners.315 Even if only a part of the movable is to be sold, this would normally require a unanimous decision by the co-owners, but the majority may decide to sell a part of the movable if this does not impede the use of the movable itself.316

(b)

Transfer of the undivided share

The owner of an undivided co-ownership share may freely transfer it.317 However, if the share is sold, or in any other way transferred, the other coowners have a pre-emption right to purchase the share.318 Such a pre-emption right must be exercised within six months of the co-owner obtaining knowledge (or constructive knowledge) of the transfer.319 The pre-emption right cannot, however, be exercised if the share is sold to the previous coowner’s spouse, his or her child or someone with whom he or she has lived together for the past two years.320

14.2.2. The rules on separation and termination of co-ownership Co-ownership, under Norwegian law, may freely be dissolved by any of the co-owners.321 Primarily, the movable is to be divided up between the co-owners proportionally to their shares. If this is not possible, the movable is to be sold, and the profit is to distributed between the co-owners in proportion to their shares, see saml. § 15 (2).322

315 316 317 318 319 320 321 322

Saml. § 4 (3). Saml. § 4 (3). Saml. § 10. Saml. § 11. Lov om løysningsretter av 9.desember 1994 nr. 64 (løysl.), § 12. Løysl. § 8. Saml. § 15. Based on saml. § 1 (1), the co-owners may decide how to perform this sale. If they are unable to agree on this, it will be sold by the execution and enforcement authority and the profit is to be split in the same way as mentioned above.

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14.3.

Co-ownership under Danish law

Unlike in Norwegian law, co-ownership is not directly regulated by Danish law. In Danish legal literature, there are no clear distinctions between co-ownership as a question of property law and the rules on partnership, regulated by company law.323 The lack of such a clear distinction makes it difficult to present an overview of the property law questions regarding transfer of movables without elaborating on company law issues. Only a brief summary will be presented.

14.3.1. Rules on transfer A co-owned movable, regulated by Danish law, may only be transferred by the unanimous decision of all co-owners.324 Furthermore, the co-owners may freely dispose of their undivided shares, and the other co-owners do not have any right of pre-emption to purchase the share.

14.3.2. Rules on termination The starting point in Danish law is that any co-owner may claim for the coownership to be terminated as long as he or she gives the other co-owners reasonable notice, and no decisive reason not to accept termination can be presented.325 Von Eyben elaborates on this, arguing that other ways of dissolving co-ownership must be preferred, and that the rules on termination can only be used as a last resort.

15.

Specific rules on unspecified goods?

15.1.

Sale in bulk

If a buyer has made an advance payment for a certain quantity of fungible goods of a specified class sold in bulk, in some legal systems there are specific statutory provisions according to which the buyer acquires co-ownership of the sum of all the available goods of this class. However, there are no 323

324

325

von Eyben: ‘Formuerettigheder’, pp. 136-139 and Gomard, Bernad: ‘Selskapsretten’ (København 1999), p. 41. Gomard, p. 41; von Eyben: ‘Formuerettigheder’ seems also to express this on p. 140, however, somewhat indirectly. Op. cit., p. 170 and Gomard, p. 42.

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such rules on the transfer of non-identified generic goods forming part of an identified class in Norway or Denmark. However, within a functional system applied in these countries, there could perhaps be a possibility to argue for a co-ownership solution in such cases, provided that the relevant general rule protects the buyer already upon conclusion of the contract (as under Danish law).

15.2.

Floating charges

Some legal systems accept a security right, known as commercial pledge or floating charge, in (typically) all assets of a company, which is designed to give businesses a possibility to obtain credit by a security right which does specify particular individual assets. No delivery of the encumbered property to the creditor is needed; the security provider can continue to operate within its normal course of business (including sale of goods). Such security right is not allowed under Danish law.326 Norwegian law offers no commercial pledge in the sense that all assets of a company can be used as a security. However, businesses can be given as security their storage upon registration and continue to operate within the framework of their regular economic activity; if their regular trade involves the sale of goods, such activity may continue to the usual extent. Nothing is said about the matter of when the goods sold, within the boundaries of regular trade, will be released from the scope of the commercial pledge.327 Outstanding claims can also be given as security after registration, via the rules on factoring.328

16.

Restitution of the movable

16.1.

Introduction

If, for some reason, the movable is to be transferred from the person in physical control, back to the person with the best right in the movable, several different questions will arise. These questions will, to a certain degree, be handled differently from case to case, and below I will discuss these questions separately in relation to the situations of void contracts, termination of the right to use the movable and restitution in the case of theft. 326 327

328

Andersen / Werlauff, p. 119, 239 et seq. with comparisons to other legal systems. Cf. Pantelove §§ 3-11 – 3-13; Andersen / Werlauff, p. 242 and Falkanger / Falkanger, pp. 322, 531 et seq., 627 et seq. See Panteloven § 4-10; Andersen / Werlauff, p. 242 who also mention a possibility of flådepant, a kind of security in ‘rolling materials’.

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16.2.

Entitlement to benefits resulting from the movable

In Norwegian law, one finds a general rule regulating the entitlement to benefits in all situations where someone other than the rightful owner has physical control over the movable.329 This rule states that in situations where the person in physical control was in non-careless good faith regarding his right in the movable and the benefits, he is entitled to retain those benefits. This means that in Norwegian law the different party constellations will not be of any importance. Good faith has to be discussed in each and every case. Regarding void contracts, the party culpable in relation to the void contract will normally be significant. In cases where the person in physical control has a right to use the movable, one must normally look at the agreement to see whether an entitlement to benefits was also granted. Normally, it will be, but this is a question of contract law.330 Regarding termination of contract under the Sale of Goods Act, it is regulated in § 65 that the buyer is not entitled to benefits, and these benefits must be returned to the seller. When evaluate these benefits, deductions are to be made for expenses incurred in their production.331 There are a few rules in Danish law covering fruits obtained and use enjoyed during possession, which arise out of a law from 1683.332 A possessor in good faith has the right to keep all fruits of the property obtained up to the time when the rei vindicatio is brought(DL 5-5-4); the rule is applicable to immovables but is applied to movable property analogously. The decisive criterion is whether the fruits are obtained before the initiation of the rei vindicatio. However, the possessor is not allowed to keep fruits obtained before the initiation of the rei vindicatio, if he obtained them before the due date.333 The possessor also has no right to the fruits obtained from the time he or she is deemed a possessor in bad faith. A possessor in bad faith is also liable for all fruits he or she failed to collect.334

329 330

331 332 333 334

Lov av 10.april 1969 nr. 17 om hendelege eigedomshøve (hendl.), § 15. The rules in Danish law on this subject are quite similar, see von Eyben / Vinding Kruse, p. 159 and DL 5-5-4. Hagstrøm / Aarbakke, p. 434. Lov nr. 11000 af 15 / 04 / 1683. Vinding Kruse, p. 742 et seq. Vinding Kruse, p. 743 et seq.; DL 5-2-89 11 sep. 1839 § 2 and Lov nr. 397, 12 july 1946 § 22.

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16.3.

293

Loss and deterioration of the movable

16.3.1. Void contract and termination of contract If the movable, subject to restitution by reason of a void contract, is lost or deteriorates due to an accident, the person in physical control will normally not be liable.335 There are, however, a few exceptions to such a starting point. Primarily, the person in physical control must not be responsible for the invalid contract;336 secondly, the person in physical control must not have caused the damage by carelessness.337 If a contract has been terminated, but the movable has been lost or deteriorates, the buyer is not liable as long as he or she is not culpable for the loss.338

16.3.2. Other situations In cases where the person in physical control has had a right to use the movable (e.g. by reason of hiring or leasing it), this question will often be addressed in the agreement. If the question has not been addressed, the general rule is that the possessor will not be liable as long as he or she has not been careless. This will hold true for both accidental losses and normal wear and tear.339 In other situations, the possessor’s liability will be determined by applying the rules of tort law. If he in some way has been negligent, he or she will be liable, and in such a context the manner of how he obtained physical control over the movable will be of importance.

335 336 337 338

339

Hov, p. 188. ibid. In these cases, he or she will be responsible according to the rules of tort law. Sale of Goods Act § 66, see Hov, p. 188 and Hagstrøm / Aarbakke, p. 432. For Danish law, Sale of Goods Act § 57, see Gomard, Bernhard: ‘Obligationsret 2’ (København 2003), p. 113, cited below as Gomard: ‘Obligationsret’. This issue is discussed further in Færstad, Jan-Ove: ‘Leieobjektets tilstand i leieperioden’ (Bergen 2005), pp. 35-47 regarding both Norwegian and Danish law.

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16.4.

Recompense for improvements and expenses incurred during possession of the movable

16.4.1. Termination of a contract It is not clear whether the buyer may obtain reimbursement for improvements and expenses incurred during the time period in which he or she had physical control over the movable. The Sale of Goods Act does not contain any rule on this issue; such a claim must therefore be based on the rules on unjustified enrichment. In a Danish case referred to in U 1977, p. 118 H regarding real estate, the buyer had improved the estate before the contract was terminated. This was also the result in a somewhat similar case from Norway, referred to in Rt 1956, p. 1242. Based on this, a claim for reimbursement seems to be accepted, based on the rules on unjustified enrichment.340

16.4.2. Termination of a right to use the movable If the person in physical control is to be able to use the movable, he or she may need to make some improvements and, in that relation, he or she may incur expenses. Normally, the agreement giving the person in physical control a right to use the movable will regulate the question of reimbursement. However, this will not always be the case. In such cases, one has to distinguish between necessary maintenance and other improvements. If the lessee needs to take some maintenance measures in order to be able to use the movable, these can normally be reimbursed.341 On the other hand, if the maintenance measures or improvements are not necessary, the lessee will normally have to bear those expenses himself.342 Maintenance is normally ‘necessary’ in situations where the lessee is not able to use the movable as intended without taking maintenance measures.343

16.4.3. Theft In cases of theft, normally the thief would never be given a right to reimbursement.

340 341 342 343

Hagstrøm / Aarbakke, p. 436. Færstad, pp. 51-54 with further references to Norwegian and Danish literature. Hagstrøm / Aarbakke, p. 436 and Færstad, pp. 54-55. Færstad, pp. 22-23 with further references to Norwegian and Danish literature.

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16.4.4. Restitution of a movable acquired from a non-owner If the movable is recovered from a non-owner, having been unable to make a good faith acquisition, the non-owner’s expenses are of no importance to the rightful owner.344 There is, however, one important exception to this rule. If the non-owner was in good faith, but some other rule prevents a good faith acquisition (e.g. the movable was originally stolen), and the rightful owner is culpable to some degree for the loss of the movable, the non-owner may claim damages.345

16.4.5. ‘Garage Cases’ If someone, without the right to do so, enters into a contract with e.g. a garage owner in order to have a movable repaired, but does not pay the price, the garage owner may bring a claim against the rightful owner, as long as the improvements have increased the movable’s value.346 The question whether there has been an increase in value will be decided at a general level.347

16.5.

Possessor’s right to retain the movable

The general rule in Norwegian law in such cases is that the person in physical control of a movable may retain the movable as long as there is a natural connection between the claim he or she seeks to secure and the reason why he or she has physical control of the movable.348 This right may be exercised even if the claim is directed against someone other than the owner, for example in the so-called ‘Garage Cases’. However, the party in physical control does have to fulfil the requirements for good faith acquisition in order to be able to retain the movable.349 A right to retain under Danish law presupposes that there is a connection between the possessor’s possession of the movable and the demand for payment.350 In contractual situations there are, for example, rights to retain contained in the Sale of Goods Act (Købeloven §§ 36 and 57). In relation to non-contractual situations, the law is less clear. It is said that 344 345 346 347 348 349 350

Lilleholt, p. 117 and, somewhat indirectly, the Good Faith Acquisition Act § 3 nr. 2. The Good Faith Acquisition Act § 3 nr. 2 and Lilleholt, p. 117. Brækhus 2, pp. 584-585. Brækhus 2, p. 584. Brækhus 2, p. 583. Brækhus 2, pp. 526-527. The rules on good faith acquisition are discussed in chapter 10. Mortensen, p. 63 and Vinding Kruse, p. 1684.

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a person who is in, or obtains, possession of a movable and suffers damage from another’s property has a right to retain the property. This general rule might be also applicable in non-contractual situations, depending on the circumstances of each situation.351 In a situation where the owner is incapable of protecting his or her property and someone else incurs expenses in order to prevent serious damage to the property, the possessor has a right to retention until the expenses have been reimbursed.352

16.6.

Right to remove improvements

In Norway and Denmark, the question of a possessor’s right to remove improvements will probably depend on whether combination has occurred. In Norway, the rules on combination apply when two or more movables are combined in such a way that they no longer are viewed as different movables; for example, if it is impossible or too expensive to separate them. See further on this issue in chapter 9.

16.7.

Who bears the cost of restitution of the movable to the owner?

16.7.1. Void contract and termination of contract In the case of a void contract, the person responsible for the voidness will bear the expenses of restitution of the movable to its owner.353 However, if a valid contract has been terminated, the seller will always bear these expenses.354

16.7.2. Termination of a right to use the movable If a right to use the movable has ceased, the bearing of restitution costs will normally be regulated by the contract. One will therefore have to analyse the contract in order to settle this question.

351 352 353

354

Vinding Kruse, pp. 1686 et seq. Vinding Kruse, p. 1683. Hov, p. 191 and for Danish law, Skovby, p. 108 and Gomard: ‘Obligationsret’, p. 195. Hagstrøm / Aarbakke, p. 431 and, somewhat indirectly, the Sale of Goods Act § 64 (2), similarly the Danish Sale of Goods Act § 57, see Gomard: ‘Obligationsret’, p. 113.

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297

16.7.3. Restitution of a movable acquired from a non-owner, ‘garage cases’ and theft Normally, the owner will have to bear the costs related to reclaiming his or her movable.355 This will hold true for every person physically controlling the movable without a right to do so. However, against a thief, there will probably be good reasons for bringing a tort claim to cover these expenses.

17.

Unsolicited goods

Rules on unsolicited goods aim at regulating and sanctioning an unfair commercial practice with the effect that it becomes so unattractive for businesses that such practice is terminated. The situation arises when a business delivers unsolicited goods or performs unsolicited services to a consumer, the transfer or the service not being based on a bilateral contract. Whereas some legal systems treat such goods as an unconditional gift, others grant the business a period time within which to recover the goods before the consumer acquires ownership of them. Both Norway and Denmark regulate this issue to a certain extent. The situation in Norway is less certain, whereas in Denmark several cases have been up for decisions in the Consumer Complaint Board (Forbrugerklagenævnet). Although the decisions of the board are not binding for the businesses, they are generally followed. Whether the consumer may reject the right to the movable and whether the consumer may also acquire, by way of good faith acquisition, a right to the goods where the business did not own the goods and was not authorised to dispose of them does not seem to be discussed in Norway or Denmark. However, since a good faith acquisition in Norway requires payment for the goods, such acquisition will probably not be possible under Norwegian law (see further chapter 10.3.).

17.1.

Norway

In Norway, inertia selling is regulated in the Marketing Practices Act (Markedsføringsloven) § 2a, which provides that it is not permitted to distribute goods, services or other performance accompanied by a claim for payment, unless there is an underlying agreement. The receiver of such performance is not obliged to pay, unless legislation provides otherwise. 355

Lilleholt, p. 118 and Ot. prp. nr. 56 (1976-77), p. 46.

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The issue of whether the consumer may keep the goods or whether he or she acquires ownership of them is not discussed. Nothing was said about it in the preparatory works and there seems to be no case law or legal literature on the subject. Even the general principles do not seem to offer a definite answer. It seems arguable that things of small value may be kept or discarded, if there is no reason to believe they were sent by mistake. Conversely, the sender should at least be given a chance to collect items sent that are of a higher value.

17.2.

Denmark

Under Danish law, the Consumer Contract Act (Forbrugeraftaleloven) provides in § 8 that ‘where a business enterprise delivers goods to a consumer without his prior request, and where this is not due to an error, the consumer may keep the product free of charge’. The rule is understood to mean that the consumer acquires henceforth ownership of the unsolicited goods.356 In one case, settled by the Consumer Complaints Board,357 a publishing house sent to a consumer a package containing recipe cards with a request for payment. The consumer denied having taken out a subscription. The publishing house could only document its claim by the presentation of a pre-printed coupon stating the name and address of the consumer and with a “Yes” sticker labelled on it. This was not considered sufficient documentation for the alleged agreement. The consumer was therefore entitled to dispose of the cards free of charge. In another case, a purchaser of a dictionary consisting of 30 volumes, each volume having been delivered every second month, suddenly also received additional books and related requests for payment from a publishing house. As the agreement did not specify that the consumer would have to cancel the additional books in order not to receive them, the receipt of these further books was considered ‘unsolicited’ and the consumer could keep them.358 The delivery of unsolicited goods with a request for payment or return is also deemed to be in conflict with good market practice and is a punishable infringement of the prohibition of misleading practices under the Marketing Practices Act.359

356

357 358 359

Dahl, p. 49 et seq. as cited in Müller-Helle, Die Zusendung unbestellter Ware, p. 182, footnote 783. 1987 report, p. 10. 1992 report, p. 53. Dahl in Dahl et al., pp. 432 et seq.

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Table of Literature Andenæs: ‘Strafferett’ – Johs. Andenæs: ‘Alminnelig strafferett’ ved Magnus Matningsdal og Georg Fredrik Riber-Mohn (5nd ed., Oslo 2004) Andenæs: ‘Formuesforbrytelsene’ – Johs. Andenæs: ‘Spesiell strafferett og formuesforbrytelsene’ samlet utgave ved Kjell V. Andorsen (Oslo 2008) Andenæs – Mads Henry Andenæs: ‘Konkurs’ (2nd ed., Oslo 1999) Andersen / Werlauff – Lennar Lynge Andersen and Erik Werlauff, Kreditretten (4nd ed., København 2005) Berg – Borgar Høgetveit Berg: ‘Rettsvern for lausøyrekjøp – avtale eller overlevering (tradisjon)?’ in ‘Jussens Venner’ 1999 Brækhus 2 – Sjur Brækhus: ‘Pant og annen realsikkerhet’ ved Borgar Høgetveit Berg (3rd ed., Oslo 2005) Brækhus 3 & 4 – Sjur Brækhus: ‘Omsetning og kreditt 3 og 4’ (Oslo 1998) Brækhus / Hærem – Sjur Brækhus and Axel Hærem: ‘Norsk Tingsrett’ (Oslo 1964) Carstensen – Vagn Carstensen in ‘Formueretlige emner’ (4nd ed., København 2004) Elmer and Skovby – Michael Elmer and Lise Skovby: ‘Ejendomsretten 1’ (4nd ed., København 1999) von Eyben / Vinding Kruse – W.E von Eyben and Anders Vinding Kruse: ‘Formueretten’ (27nd ed., København 1991) von Eyben:Formuerettigheder – W.E von Eyben: ‘Formuerettigheder’ (6th ed., København 1979) von Eyben / Isager – Bo von Eyben and Helle Isager: ‘Lærebog i Erstatningsret’ (6nd, ed., København 2007) von Eyben in Dahl et al. – Bo von Eyben, Danish Property Law, in Dahl et al (eds.), Danish Law in a European Perspective (2nd ed., Copenhagen 2002) Falkanger – Thor Falkanger: ‘Tingsrett’ (5nd ed., Oslo 1999) Falkanger / Falkanger – Thor Falkanger and Aage Thor Falkanger: ‘Tingsrett’, (6nd ed., Oslo 2007) Færstad – Jan-Ove Færstad: ‘Leieobjektets tilstand i leieperioden’ (Bergen 2005) Gomard – Bernad Gomard: ‘Selskapsretten’ (5th ed., København 1999) Gomard: Obligationsret – Bernhard Gomard: ‘Obligationsret 2’ (3nd ed., København 2003)

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300

Hagstrøm / Aarbakke – Viggo Hagstrøm and Magnus Aarbakke: ‘Obligasjonsrett’ (4nd., ed., Oslo 2003) Hagstrøm: Kjøpsrett – Viggo Hagstrøm: ‘Kjøpsrett’ (Oslo 2005) Hitchcock / Stein Poulsen in von Bar – Tanya-Caroline Hitchcock and Malene Stein Poulsen, Dänemark, in Christian von Bar (ed.), Sachenrecht in Europa 1 (Osnabrück 2000) Hov – Jo Hov: ‘Avtaleslutning og ugyldighet’ (3nd, ed., Oslo 2002) Huser – Kristian Huser: ‘Gjeldsforhandling og konkurs Bind 3 Omstøtelse’ (Bergen 1992) Huser in Knoph – Kristian Huser in ‘Knophs oversikt over Norges rett’ (11nd ed., Bergen 1998) Illum / Carstensen – Knud Illum and Vagn Carstensen, Dansk tingsrett (3nd ed., København 1976) Lassen – Birger Stuevold Lassen: ‘Kontraktsrettslig representasjon’ (2nd ed., Oslo 1992) Lindebræke – Sjur Lindebræke: ‘Eiendomsrett og konkursbeslag’ (Bergen 1946) Lilleholt – Kåre Lilleholt: ‘Godtruerverv og kreditorvern’ (3nd ed., Bergen 1999) Lilleholt in Knoph – Kåre Lilleholt in ‘Knophs Oversikt over Norges rett’ (11nd ed., Bergen 1998) Mortensen – Peter Mortensen: ‘Indledning til tingsretten’ (København 2002) Müller-Helle – Adrian Müller-Helle, Die Zusendung unbestellter Ware (Berlin 2005) Nygaard – Nils Nygaard: ‘Skade og ansvar’ (6th ed., Bergen 2007) Nygaard: Rettsgrunnlag og standpunkt – Nils Nygaard: ‘Rettsgrunnlag og standpunkt’ (2nd ed., Bergen 2004) Ross – Alf Ross: ‘Ejendomsrett og ejendomsovergang, med særlig Henblikk paa dansk rettspraksis’ (København 1935) Skoghøy – Jens Edvin A. Skoghøy: ‘Panterett’ (2 nd ed., Oslo 2008) Skovby – Lise Skovby: ‘Aftalret’ (København 1995) Torp – Carl Torp: ‘Dansk Tingsrett’ (København 1892) Vinding Kruse – Fredrik Vinding Kruse: ‘Ejendomsretten’ (3nd, ed., København 1951)

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Table of Abbreviations avtl.

Lov om avslutning av avtaler, om fuldmagt og om ugyldige viljeserklæringer av 31. mai 1918 nr. 4

deknl. DL

Lov om fordringshavernes dekningsrett av 8. juni 1984 nr. 59 (The Norwegian Creditors Recovery Act) Kong Christian den Femtes Danske Lov af 15. april 1683

e.g.

exempli gratia (for example)

hendl. hevdsl.

Lov om hendelege eigedomshøve av 10. april 1969 nr. 17 Lov om hevd av 9. desember 1966 nr. 1 (The Norwegian Acquisitive Prescription Act)

kml.

Lov om kommission, handelsagentur og handelsreisende av 30.juni 1916 nr. 1 (The Commission Agency Act)

loc. cit. løysl.

loco citato Lov om løysingsrettar av 9. desember 1994 nr. 64

NL

Kong Christian den Femtes Norske Lov af 15. april 1687

Ot. prp.

Odelstingsproposisjon

pantl.

Lov om pant av 8. februar 1980 nr. 2 (The Mortgage Act)

Rt

Norsk Retstidende. Oslo

saml.

Lov om sameie av 18. juni 1965 nr. 6 (The Co-ownership Act)

TfR

Tidsskrift for rettsvitenskap. Oslo

UfR

Ugeskrift for Retsvæsen. København

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National Report on the Transfer of Movables in Finland Miki Kuusinen

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Preface This paper1 briefly discusses the topics and questions presented in a questionnaire concerning the transfer of movables issued by the Working Group ‘Transfer of Movables’ headed by Univ.-Prof. Dr. Brigitta Lurger, Universität Graz. It should be noted that the general outline of the text follows that of the original questionnaire, and thus no regard is to be given to the order of the contents as such. The text itself attempts to give a short impression of the laws and in particular of the rules in relation to the subject mentioned above, especially concerning the subjects dealt with in the questionnaire. Nevertheless, one should bear in mind that a great deal of peculiarities and exceptions had to be left aside for self-evident reasons. The intention is to provide basic information for further use and review, a goal which can be best reached by giving reference only to sufficiently representative legal literature and / or Supreme Court rulings where necessary or appropriate. It should be duly noted that the text at hand is for informational purposes only and not for the purpose of providing legal advice and does not constitute such. When reading the Finnish report on the matter, it may be of use to note that some parts of Finnish civil law regarding e.g. transfer of assets, the law of obligations and also general rules and principles of property law derive some parts of their content from a common Scandinavian preparatory work conducted in the early and mid 20th century. Therefore, some congruencies can be found by means of comparison, although the laws and rules are not identical, resulting in different or opposite outcomes in some cases. Another matter that might be worth pointing out is that there are a number of national legal concepts and terms that do not necessarily translate into English without the risk of misunderstanding – caveat lector. Such concepts are naturally quite crucial to the Finnish jurisprudence, hence leaving little or no possibility but to use them accordingly. Therefore, I have tried to indicate such concepts also with Finnish equivalents and phrases.

1

I would like to thank both Dr Jur Janne Kaisto and Dr Jur Professor Jarno Tepora for their reading and commenting of the manuscript in the process of writing this paper. Comments, critique and other correspondence concerning the Finnish report may be addressed via email to [email protected], or by mail to North – Law Office, P.O. Box 1198, FI-00101 Helsinki, Finland; www.pohjoinen.fi.

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Table of Contents Preface

304

A short introduction to the Finnish perspective

309

Part I: Basic information on property law 1. The notion of ownership and other property rights 1.1. General basics 1.1.1. Rights in rem in contrast to obligations and their characteristics 1.1.2. Numerus clausus of property rights principle? 1.1.3. General legal principles of property law 1.1.4. Laws and rules pertaining to property law 1.2. Definition of ownership 1.3. Other property rights 1.4. Protection of property rights 1.5. Transferability of movable assets

311 311 314 316 318 320 323 325 328

2. Possession 2.1. Definition of possession 2.1.1. Requirements of possession 2.1.2. Forms of possession 2.1.3. Degree of possession 2.2. Function of possession 2.3. Acquisition of possession 2.4. Protection of possession and the prohibition of self-help

329 329 332 332 332 333 333

3. Legal status of rights in a movable other than ownership

335

4. Field of application and definitions

338

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Finland

306

Part II: Derivative acquisition and transfer of ownership 5. The system of transfer 5.1. Overview of the system 5.2. Different types of obligations 5.3. Some characteristics and requirements of the transfer system 5.3.1. Principles and theories 5.3.2. Some remarks on issues of causality, abstract and real agreements 5.3.3. General issues 5.4. Delivery (traditio) 5.4.1. Context and background of the tradition principle 5.4.2. Physical tradition 5.4.3. Tradition by handing over an instrument or other equipment 5.4.4. Tradition by marking and fixing a sign etc 5.4.5. Tradition by document of title 5.4.6. Traditio brevi manu 5.4.7. Constitutum possessorium 5.4.8. “Denuntiation” as tradition by way of notification 5.4.9. Registration 5.5. Consensus principle 5.6. Real agreement 5.7. Payment 5.8. Right to dispose

339 341 343 343 345 346 351 351 353 355 356 356 357 358 359 359 360 363 364 364

6. Double selling

364

7. Selling in chain

365

8. Transfer through indirect representation

366

9. Insolvency-related issues

367

10. Passing of risk

369

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Part III: Original acquistion 11. Acquisition by accession, commixture or specification 11.1. Constituents and fittings versus accession of movables 11.2. Commixture, confusion 11.3. Specification, processing

370 372 373

12. Good faith acquisition

373

13. Acquisitive prescription

376

14. Finding

376

Part IV: Additional issues 15. Reservation of title

378

16. Abandonment

380

17. Co-ownership

380

18. Further rules on generic goods

381

19. Restitution of the movable to the owner 19.1. Entitlement to fruits 19.2. Loss and deterioration 19.3. Improvements 19.4. Possessor’s right to retain the movable 19.5. Expenses of restitution

382 384 385 387 387

Table of Literature

389

Table of Abbreviations

391

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A short introduction to the Finnish perspective The forthcoming text illustrates some of the general rules and principles that are at the core of the Finnish law of property as it is perceived today. However, before going deeper into the subject matter itself, perhaps a few general distinctions should be mentioned as well-known as they may be. When speaking of the law of property and its general, i.e. fundamental, principles, we are naturally discussing their objective essence. Thus, the focus of examination takes place in a certain part of the legal system, a branch of law, so to say, called the law of property. Of course one can always use property law’s terminology to refer to the subjective essence of property rights. The Finnish legal system, like most other European legal systems, is founded upon the division between private law and public law. The law of property is naturally seen to belong to the issues of private law, which covers legal relations of and between private persons and applies the legal norms and rules thereof.2 It is rather evident that such a division is nothing but a technical framework that helps the grasp and control of the principal legal concepts and theories. It is not evident from the legal system, and therefore it must also be seen as being the result of systematic legal reasoning and thinking. A fundamental and integral part of the aforementioned systematic framework, which we call the legal system, is made up of the so-called general legal principles (yleiset oikeusperiaatteet),3 that form the basic tools and concepts for analysing and understanding any given field of law, in the notion that each and every field of law has its own distinctive principles. In this paper, the general legal principles of property law are being brought to the stand and scrutinised. The aforementioned general legal principles consist of 1) basic concepts, 2) legal principles, 3) legal theories, and, according to contemporary legal literature 4) legal institutions. The basic concepts form the foundations for analysing the law of property as it is, i.e. the normative laws and rules in concreto. Legal principles, on the other 2

3

See e.g. Kartio, Esineoikeuden perusteet, 2001, p. 1, and references there: Tuori, Oikeusjärjestelmä, 1999, p. 231. See Kaisto, Lainoppi ja oikeusteoria, p. 72 ff. and also definitions presented in Makkonen, Oikeudellisen ratkaisutoiminnan ongelmia, 1981, p. 179.

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hand, more or less constitute the moral normative content of property law. The general legal principles can be seen as a key, which allows a legal scholar or practitioner to understand individual legal norms as a part of the larger system, a legal system. Thus, by applying the basic legal concepts one is able to identify legal problems arising, after which the actual process of determining and analysing the facts and arguments begins.4 The concept of property law itself is twofold; first it stands for the narrower objective definition of legal rules pertaining to rights in rem (narrow definition – esineoikeus), secondly property law can refer to a slightly broader definition of rules pertaining to legal relations of economic value between private persons (broad definition – varallisuusoikeus), which is a rather vast part of private law, where economic / legal interests and relations are regulated. Besides property law, private law is divided into the law of persons and family and inheritance law. Nonetheless, all fields of private law, of course, contain elements of property law.5 The subject matter of this discussion paper which is based on a questionnaire (see the foreword to this report) concerns the transfer of corporeal movables under the Finnish legal system. Most of the questions seem to concern issues that, from a Finnish perspective, fall into the scope of property law in general and especially rights in rem. The aim of this report is to answer those questions as well as possible, but as evident as it may be, it seems worth pointing out that there are also several issues and questions that are more or less irrelevant or for some other reason incomprehensible to a Finnish lawyer. Those questions have been left aside while the main focus has remained on the issues of importance and legal interest from the Finnish perspective. The structure of this text tries to be faithful to the outline presented in the questionnaire for the sake of comparison. Nevertheless, due to reasons stemming from the particularities and typical features of the Finnish legal system, some issues have been dealt with throughout the whole text, like issues relating to insolvency, which are meant to be brought forward in the relevant contexts. However, this is a systematic standpoint and conclusions are not necessarily meant to be drawn from the structure or from other peculiarities, grounded in reasons of efficiency, of this paper. Some issues that are irrelevant for our system have been left aside, as well as some issues having been discussed quite briefly since there are many themes in the questionnaire which seem at least interesting starting points from the perspective of a Finnish lawyer and jurist.

4 5

Tepora, Johdatus esineoikeuteen, 2003, p. 2. Kartio, Esineoikeuden perusteet, 2001, p. 2.

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Part I: Basic information on property law 1.

The notion of ownership and other property rights

1.1.

General basics

1.1.1. Rights in rem in contrast to obligations and their characteristics Private law in Finland has undergone some changes during the 20th century that have affected the way Finnish lawyers nowadays perceive the distinction between rights in rem and obligations. The prevailing conception differs slightly from that of the traditional way of thinking. Formerly, the division of rights in rem and on the other hand to obligations was of great importance, because it was one of the basic cornerstones of civil law, and thus, it greatly affected the legal system itself, among other things. The law of obligations was perceived to concern issues of subjective claims,6 i.e. receivables payable to creditors by debtors, and property law (rights in rem) was perceived to concern nothing but rights in specified objects and assets.7 The aforementioned division was also used as a means of implementing legal reasoning in actual processes of legal conflicts. In those days, indeed even legal effect could have been derived from this conceptual division between obligations and rights in rem, a standpoint, which today has been abandoned almost entirely. The traditional conception of a property right held the notion that the sole object of a right in rem was, and had to be, a physical tangible thing,8 and therefore obligations were perceived as being personal, legal or natural. The issue of the protection of the acquirer against third parties was seen as a more fundamental question along with the ones mentioned here, and thus great importance was given to the actualisation of a right holder’s legal status and protected position. For example, a usufruct reached the legal status of a right in rem at the point where the holder of that right was entirely 6

7 8

For the law of obligations and issues of credit law, see e.g. Aurejärvi – Hemmo, Luottoikeuden perusteet, 2004, chapter I, and Aurejärvi – Hemmo, Velvoiteoikeuden oppikirja, 1998, chapter I. Kartio, 2001, p. 2. Ibidem.

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protected against third parties’ intervention and the holder was able to rely on the stability of his / her right. The holder’s position would have to reach the state of a mature right where the holder is fully protected against later third-party acquirers, or protected against the transferor’s execution creditors. Thus, in the case of a usufruct the holder of such a right would have nothing more than a mere obligation in a situation where the right itself has not matured to its full potential and legal status.9 At present one of the substantial characteristics of a right in rem is actually the right holder’s protected legal status against third parties; thus the holder of a property right enjoys an advantageous position in relation to third parties in cases of conflicting rights. Nevertheless, attention must also be paid to the fact that a similarly protected legal position can be achieved by other means as well, i.e. by applying the law of obligations. The key insight here concerns the nature of rights,10 which is seen as being twofold. To a Finnish legal practitioner and scholar the fundamental question behind the concepts of obligations and rights in rem is actually the protection of the right itself, and especially the question in which relations the right can be and is protected. Thus, the questions of defining the protected relations both inter partes and ultra partes are of great importance and at the heart of the analysis. It must be pointed out that, up to the present day, this division bears less significance being more or less an academic and theoretical question.11 Lawyers today find that categorising rights in this manner is pointless and even misleading. However, at present, as pointed out, all rights irrespective of their classification are seen to have a twofold nature. On the one hand, rights have certain features of obligations, and on the other hand, features of rights in rem. Obligations are usually seen to concern inter partes relations, i.e. relations between the contracting parties A and B. Rights in the sense of rights in rem are understood to concern ultra partes relations, i.e. rights of the right holder in relation to third parties and external entities. Of special interest and concern is the question of the protection of the holder of a right and his / her legal status in relation to ultra partes actors such as the transferor’s successors, creditors in bankruptcy and execution proceedings etc. And this

9 10 11

For definitions of a legal status see e.g. Kaisto, 2005, p. 230. Idem, p. 72. For theoretical considerations see e.g. Kaisto, Sopimusvapaus, laki ja maksusuoja, 2001, and especially for a theoretical perspective see Kaisto, Lainoppi ja oikeusteoria, 2005, pp. 215 ff.

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definition actually contains the core of what is being perceived as property law in the modern Finnish legal tradition.12 Considering the foregoing, obligations and rights in rem can be defined as follows: All such rights that are rights in individual and specific corporeal objects fall into the category of rights in rem (esinekohtainenoikeus). Usually rights in rem have the characteristic of having priority over creditors in execution proceedings etc. Rights in rem are not subject to limitation and thus do not fall under the Statute of Limitations. The category of obligations entails rights in a specified portion of a natural / legal person’s assets, i.e. property, or rights in the whole of person’s assets. In general, obligations and their corresponding claims are rights aiming at the correct fulfilment of the obligation, usually the payment of a certain sum of money to the creditor. Thus, a person is responsible for the fulfilment of the obligation, a promise to make payment, with his / her entire property. Hence, obligations are rights against a person’s whole property and not against a certain, specified part of that property.13 The legal relationship of obligation entails the obligation between debtor and creditor, i.e. the creditor has a claim against the debtor, whereas the debtor is bound to the creditor’s right. Claim and obligation describe the same legal relationship, but from a different angle.14 Generally, all obligations are subject to limitation, thus falling under the so-called Statute of Limitations.15 The time limits are regulated in the aforementioned law, varying from three years to a maximum of ten years (unless agreed otherwise). The aforementioned ten-year limitation period applies to obligations that do not necessarily require legal actions to be taken by the parties, thus constituting the maximum statutory time period for the existence of an obligation. In terms of priority, obligations usually differ from rights in rem by having lesser priority than rights in rem, and also have the same priority as obligations of a similar legal cause. The order of priority in bankruptcy and execution proceedings is regulated by the Act on Order of Priority of Creditors, which states that rights in rem such as pledges etc. have higher priority than those grounded in the law of obligations.16 12

13 14 15 16

For the older and traditional view, its implications and problems see e.g. Zitting – Rautiala, esineoikeuden oppikirja, 1982, pp. 1-4, and Tepora, Juhlajulkaisu Simo Zitting, 1985, pp. 290 ff. See e.g. Aurejärvi – Hemmo, velvoiteoikeuden oppikirja, 1998, p. 3. See Kaisto, Sopimusvapaus, laki ja saantosuoja, 2001, p. 7. Act on Limitation of Debt / Laki velan vanhentumisesta 15.8.2003 / 728. Act on Priority over Creditors / Laki velkojien maksunsaantijärjestyksestä 30.12.1992 / 1578.

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1.1.2. Numerus clausus of property rights principle? Since the legal issues and questions relating to property law and the transfer of movable objects are not specifically regulated, or at least any possible existing legislation is fragmentary and of somewhat old origin, it is no surprise to find that the Finnish legal system has no existing list of property rights or something similar, providing for a numerus clausus of these.17 Traditionally, there has been some discussion amongst legal scholars on the existence of a numerus clausus principle also in Finnish law, but this viewpoint has been generally dismissed.18 At present, the opinion is quite unanimous that the numerus clausus principle is non-existent. The definition of the principle itself draws different opinions. According to some, the numerus clausus principle entails that certain legal effects can be obtained only by means of certain legal acts or certain types of contracts. Others find that numerus clausus refers to the concept itself, meaning that there are no other rights in rem than those provided by legal norms. This definition of the numerus clausus principle (tyyppipakkoperiaate) is the prevailing one today amongst Finnish legal practitioners and scholars.19 For a Finnish lawyer it is more or less a question of categorising property rights in some reasonable and rational manner. The Finnish system can be simplified by saying that there are essentially the following three possible property rights: ownership, pledge (wide definition of various security and collateral agreements) and usufruct rights of varying nature. The catalogue of property rights is affected by many reasons and is of course the result of various socio-economic and societal influences. Also, the list can be seen as politically expedient. New rights emerge such as financial leasing and old rights dating back to the year 1734 have vanished, such as the so-called firm right of possession (vakaa hallintaoikeus) accordingly. The nature of property rights varies according to what the object of the right is, who the holder of the right is and for what purpose the right is created. The most important instrument for the definition and forming of, 17 18

19

Kartio, 2001, p. 8. Kartio, 2001, p. 8, where it is stated that in the Finnish conception, the numerus clausus principle refers to the fact that one cannot create other property rights than those provided by the law itself, i.e. no other binding property rights are applicable; however, this conception has been almost entirely abandoned in the Finnish perspective. Therefore, it is obvious that contracting parties may also create types of property rights other than those already known and regulated by statute and Acts of law. For further reference see Wirilander, Käyttöoikeudesta kiinteistöön silmällä pitäen lailla sääntelemättömiä käyttöoikeuksia, 1980, pp. 5-47. See e.g. Tuomisto, Tyyppipakosta aikaprioriteettiin – näkökohtia esineoikeudellisen sivullissuojan perusteista, 1993.

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by their nature contractual, agreements, and thus various different types of agreements, seems to be more interesting than different types and classifications of property rights. For instance, on closer analysis of financial leasing we can see that, yes, it is a newly developed right, but when expanding the spectrum we also discover that this ‘new’ right is nothing more than a reformation of older, customary legal concepts rearranged to fit the present needs of a modern society. Thus, old institutions can be harnessed to serve modern needs, and at the same time some of the old redundant institutions cease to exist. The actual classification of a property right, i.e. right in rem, is affected by the content and objective of the right. Traditionally, property rights are divided into actual ownership and other rights in rem. There is some discussion of a categorisation of the limited rights in rem and no unanimous conclusion has been reached so far amongst contemporary Finnish legal scholars. The present and prevailing conception of those rights defined as rights in rem are as follows (presented in a recognised legal text book):20 I. Ownership of immovable and movable property (omistusoikeus) II. Limited rights in rem based on legal acts of a right holder in relation to movable / immovable property that is not his / her property (rajoitetut esineoikeudet) 1. Rights of usufruct, severance and expropriation (Käyttö-, irrot tamisja lunastusoikeudet) rights requiring possession – lease – gratuitous right of possession / tenure other rights of use right of severance – right to extract soil resources – logging rights – right to sever a component from an object (building, machine, apparatus etc.) right to redeem an object or part of it 2. Right to the value of an object (Arvo-oikeudet) real security rights – pledge / security right – right of retention / lien – reservation of ownership / title – financial leasing – assignment by way of security (vakuusluovutus) Annuities from real estate (Kiinteistösuoritteet) – traditional life-annuity 20

Kartio, 2001, p. 10.

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It must be pointed out that this presentation is not, in a strict sense, what one would call a classification of property rights, since for example assignment by way of security is not a right itself.21 Usufruct rights consist of rights that in some way or another give the holder of a right the permission to use an object owned by some other person. The second main category consists of rights that entitle its holder to receive payment out of an object itself, e.g. pledge and other collateral arrangements. For instance, the pledgee has the right to receive payment out of the pledged object, which has been transferred as collateral, if the debtor is not willing to make payment in due time.22

1.1.3. General legal principles of property law Since there is no extensive or specific regulation regarding the transfer of movables, or anything comparable to it, the questions arising from the existing framework are mainly handled by various general legal principles23 and fragmentary legislation contained in dozens of different Acts. It is also rather self-evident that there are quite a few legal principles concerning the subject matter. In legal reasoning and problem solving there exist certain definitions of how to apply these principles. First of all principles differ from rules in that a rule requires an either / or end result. Rule: sale breaks lease / rent. Premise: A has sold to C a chattel, which B has previously rented from A, and A is still in possession of the chattel at the time of transfer. Result: B loses in the conflict with party C. However, legal principles, on the other hand, are nothing other than legal interests being weighed up against each other, or in other words, the careful balancing of interests. So it is not a matter of give and take, but more or less a matter of arriving at a satisfactory result by balancing out the relevant interests pursued by the conflicting rights or the like. Principle of publicity (julkisuusperiaate). This principle is understood to be one of the most essential general legal principles. An extensive definition of this principle would mean that basically all property rights would have to be made public by some private or governmental act, so that any person could have access to this information. However, such an arrangement is not deemed necessary. The principle of publicity of property rights

21

22 23

For more on this basic subject, see e.g. Jarno Tepora, Johdatus esineoikeuteen, 2006, p. 16. Kartio, 2001, p. 12. See e.g. Kaisto, Lainoppi ja oikeusteoria, 2005, pp. 72 ff.

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gains most importance in the context of ultra partes legal relations, i.e. relations to third parties.24 When considering legal relations to third parties in property law, there feature a few key elements upon which the publicity and thus the existence of the said rights is founded. The first precondition is that when there are legal effects that affect the legal status of potential third parties, those ultra partes agents must be able to rely on characteristics that are externally evident and thus detectable. In property law such acts that create and establish publicity25 in relation to third parties are, first of all, tradition, i.e. the physical transfer of object (hallinta) and registering / entry into the relevant register (kirjaaminen). Secondly, one can obtain publicity against third parties by giving notice of the transfer (denuntiaatioilmoitus). The tradition principle is closely linked to the abovementioned principle of publicity, and thus is a highly significant general legal principle. One could state that it is the most important principle in relation to transfer of movables since quite a few of the legal effects that are required in order for a transfer to be enforceable are, in one way or another, linked to this principle and its characteristics. In a normal transaction where an object is being transferred from the transferor to the acquirer, three key formalities are to met before the acquirer gains protection against third parties, thus giving full effect to the acquirer’s legal status as an owner. This is since the definition of the principle itself states that tradition of the object is required, i.e. physical transfer from the control of the transferor into the possession of the acquirer. In the Finnish legal system the tradition principle26 has been associated with providing a strengthening impact on the legal status of the owner in certain situations. As an example we can notice that the tradion principle concerns gratuitous transfer and pledging of so-called normal and common things / objects, i.e. movables, and notably in these cases including also securites, bonds and other transferable, negotiable instruments of value. The rule for normal objects is the opposite when we review the case of transfer of ownership by means of contract of sale. In regard to sale, the buyer is protected against third parties according to the consensus, i.e. contractual, principle.27 Contrary to the sale of normal goods, the category of securities and bonds falls within the scope of the tradition principle. 28 24 25 26 27 28

Kartio, 2001, p. 124. See also Zitting – Rautiala, 1982, p. 54 ff. See, on the principle of publicity, e.g. Tepora, 2006, p. 109. Tepora, 2006, p. 57. On the difference see Tepora, 2006, pp. 143 ff. See the Act on Gruituitous transfer (Lahjanlupauslaki 31.7.1947 / 625) 1.2. §. It is also worth noting that effective pledging requires transfer of possession (kauppakaari 10:2), where the pledgee assumes protection upon tradition.

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The principle of priority in time is once again linked to the principles of publicity and tradition. When a transferor commits a so-called double sale, that is, he / she sells the same object to two or more acquirers at the same time; the first acquirer who obtains the physical possession of the object wins in the conflict with competing acquirers, because he / she was in possession first, hence the name ‘time priority principle’. The principle of extinction refers to a situation where the acquirer of an object is being protected against the rightful owner of the object, due to the good faith of the transferee. Also, a number of other formalities have to be met in order for the acquirer to be able to extinguish the rights of the rightful owner, but those will be discussed later in this paper.

1.1.4. Laws and rules pertaining to property law As a basis for discussion, it has been pointed out that there is no actual or primary legislation regulating issues relating to property rights. Therefore, the applicable rules are usually derived from the law of obligations and other sources such as general legal principles etc. The legal issues relating to property law and the transfer of movable objects are not specifically regulated, or at least any possible existing legislation thereon is fragmentary and of somewhat outdated origin. Today, even regulations dating back as far as 1734 are still applicable and in force in some areas of the jurisdiction, and up to recent years a vast part of the law dated back to somewhere between 1860-1898. One clear feature of the Finnish legal system is that there are no large-scale codifications of private law or any of its detailed rules.29 Thus, most issues are regulated separately and fragmentarily. First, a theoretical, and rather self-evident, starting point is the fact that the sui generis supreme source of legal decision-making and argumentation is the law.30 Thus, legal norms regulate the subject matter although secondary sources such as preparatory works, Supreme Court rulings and academic literature may in some cases be applied to legal reasoning. Thus, the written legal regulation and its norms are the most binding source of law, and according to the Act on Legal Proceedings 1:11 §31 no judge may bypass the wording of the law when interpreting it. The largest and most important piece of legislation concerning property law is the Act on Land Law,32 but it only specifically regulates immovable objects, i.e. physical objects affixed to soil and security and mortgage is29 30 31 32

Kartio, 2001, pp. 18 ff. Ibid. Act on Legal Proceedings / Oikeudenkäymiskaari 1:1. Land Code / Maakaari 1995 / 540.

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sues, which are outside the scope of this discussion paper. The following laws, in being the result of recent regulation, fall within the scope of this paper and are of somewhat greater importance in relation to the present subject matter. Trade law: (Kauppakaari) paragraphs, 1:5; 9:5, 8, 10, 12, 13; 10-12 chapter; 13:2, 3; 18:1-10. (Si 401); Enforcement Act of Criminal Law: (A rikoslain voimaanpanosta) 19.12.1889 / 39, 11 §. (Ri 102); Act Concerning Certain Relations of Co-ownership: (L eräistä yhteisomistussuhteista) 25.4.1958 / 180 (Si 621); Promissory Notes Act: (Velkakirjalaki) 31.7.1947 / 622 (Si 406); Act on Floating Charges on Business Entities: (YrityskiinnitysL) 24.8.1984 / 634 (Si 421); Act on Book Entries: (L arvoosuustileistä) 17.5.1991 / 827 (Ra 122); Hire-Purchase Act: (L osamaksukaupasta) 18.2.1966 / 91 (Si 506); Consumer Protection Act: (KuluttajansuojaL) 20.1.1978 / 38, 7 chapter (Yr 501); Bankruptcy Act: (Konkurssilaki) 20.2.2004 / 120, chapter 1, 4 § and chapters 5, 6 and 17 (Pr 506); Act on Priority of Creditors: (L velkojien maksunsaantijärjestyksestä) 30.12.1992 / 1578 (Pr 508); Act on Recovery of Funds from Bankruptcy Estate: (L takaisinsaannista konkurssipesään) 26.4.1991 / 758 (Pr 507). Other relevant Acts are located in the field of general private law and the law of obligations, collateral and sales of movables etc.33 Finnish legis33

L varallisuusoikeudellisista oikeustoimista 13.6.1929 / 228. (Si 402) Kauppalaki 27.3.1987 / 355. (Si 501) L velan vanhentumisesta 15.8.2003 / 728. (Si 415) L holhoustoimesta 1.4.1999 / 442 (Si 121) Avioliittolaki 13.6.1929 / 234, 34-45, 52-58, 66, 86 ja 89 §. (Si 201) Perintökaari 5.2.1965 / 40, 12:1-9, 14:1, 5; 16:1, 2; 17:3, 18:1, 2; 19:13; 23:9-11; 25 luku. (Si 235) L takauksesta ja vierasvelkapanttauksesta 19.3.1999 / 361 (Si 407) Lahjanlupauslaki 31.7.1947 / 625. (Si 510) Osakeyhtiölaki 29.9.1978 / 734, 2:14; 3:5, 9, 11, 13; 5:1; 7:1; 12:7. (Yr 103) Asunto-osakeyhtiölaki 17.5.1991 / 809, 1-3, 19, 45, 54, 55 §. (Yr 109) Löytötavaralaki 26.8.1988 / 778. (Si 512) L arvo-osuusjärjestelmästä 17.5.1991 / 826. (Ra 120) AsuntokauppaL 23.9.1994 / 843. (Si 505) L kiinteistöjen ja vuokrahuoneistojen välityksestä 15.12.2000 / 1074 (Yr 506) L kiinteistönvälitysliikkeistä ja vuokrahuoneistojen välitysliikkeistä 15.12.2000 / 1075 (Yr 206) L asuinhuoneiston vuokrauksesta 5.4.1995 / 481. (Si 417) L liikehuoneiston vuokrauksesta 5.4.1995 / 482. (Si 418) L maakaaren voimaanpanosta 12.4.1995 / 541. (Si 601a) Kaupanvahvistaja.A. 5.12.1996 / 958. (Si 603) MaanvuokraL 10.2.1961 / 82. (Si 629) L lainhuuto – ja kiinnitysrekisteristä 27.3.1987 / 353. (Si 605)

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lation and government bills are available on the internet and most of the parts containing the crucial elements are to be found also, at least partly, to have been translated into English.34

1.2.

Definition of ownership

By definition, the actual concept of ownership itself is presumed to be established irrespective of any express regulation. As has been pointed out, there is no normative notion defining the concept of ownership and its fields of application; such a general provision is non-existent. However, there has been regulation on the concept of co-ownership, although once again lacking a definition of ownership.35 Ownership is nevertheless at the core of modern private law and its institutions, although its principles are supposed to be known irrespective of the existence of any legal norms. Evidently, once again the concept is temporary and thus a transitory idea per se. Socio-economic influences transform and adapt the mere definition and scope of ownership at this very moment. Nowadays, Finnish legal practitioners and legal scholars accept the concept of ownership as it has been adopted from German legal tradition and transformed into Finnish law: ownership is the most comprehensive right to possess and use property and exclude others therefrom. Ownership is thus an exclusive right to possession with the right to transfer

34 35

Varainsiirtoverolaki 29.11.1996 / 931. (Ve 406) Etuostolaki 5.8.1977 / 608. (Si 625) L kiinteän omaisuuden ja erityisten oikeuksien lunastuksesta 29.7.1977 / 603, 1-3 luvut ja 10 luku. (Si 626) KiinteistönmuodostamisL 21.4.1995 / 554, luvut 4 ja 14. (Ym 101) Maankäyttö-ja rakennusL 5.2.1999 / 132, 34 ja 89 § ja 13 luku. (Ym 201) L eräistä naapuruussuhteista 13.2.1920 / 26. (Ym 302) MeriL 15.7.1994 / 167 1, 2 ja 3 luku. (Vi 301) AlusrekisteriL 11.6.1993 / 512. (Vi 313) AluskiinnitysL 29.7.1927 / 211. (Si 424) AutokiinnitysL 15.12.1972 / 810. (Si 423) L kiinnityksestä ilma-aluksiin 15.6.1928 / 211. (Si 425) Rahoitusvakuuslaki 20.1.2004 / 11. (Si 414b) L yrityksen saneerauksesta 25.1.1993 / 47, (Pr 501) L yksityishenkilön velkajärjestelystä 25.1.1993 / 57. (Pr 504) UlosottoL 3.12.1895 / 37, 3:4, 35, 36, 36a; 4, 5 ja 7 luvut. (Pr 601). See www.eduskunta.fi, www.finlex.fi and www.helsinki.fi / privatelaw. See Kartio, 2001, p. 21 and Act on Joint Ownership / YhtOmL.

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possession to others accordingly.36 Unless restrictions are imposed upon an owner by the State, an owner may exercise all powers vested in him / her in relation to the property. An owner has the sole right and power to physically possess, use and dispose of the property.37 Ownership can be defined in any suitable and appropriate way, and in Scandinavian jurisprudence there has been more or less a tendency not to define the notion of ownership in a particularly specific manner. Generally speaking, it seems rather obvious that our legal system avoids a specific definition too, since rights are not tangible real-life entities but rather theoretical instruments. Rights do not exist, so to speak. Therefore, it would be peculiar to give legal effects to the transfer of ‘ownership’ itself. On the contrary, what is of essence is the development of the owner’s legal status to its full extent and effect. Indeed, for a Finnish jurist, the different elements of that legal status are the decisive determinant, and not the mere concept of ownership. As has been pointed out in legal literature, the concept is nothing more than the outcome of appropriate selection. There is no single correct notion that might exclude others. Thus, the notion is a technical device.38 If one seeks to operate without a mere concept of ownership, the reasonable question is what should be used in its place. A Finnish lawyer’s answer to that question would look something like the following. If a European jurist uses the notion of ownership as a starting point for the discussion, for a Finnish colleague it would be natural to start the discussion by referring to the notion of the owner’s legal status, i.e. a legal status granting the full and unrestricted right to control property, and not to the concept of ownership. This would be self-evident since the subject matter here is always divided into smaller fragments for the sake of a more detailed analysis. The Finnish analytical approach, founded by Dr Jur Simo Zitting in the early 1950’s, determines three different key elements in an owner’s fully developed legal status. First, as has been stated, the primary right of the owner is his / her right to control the property, i.e. the right to posses the object in real life without third party prevention or interventions. Accordingly, an owner is also subject to rights and obligations i.e. an owner has the right do with his / her property whatever he / she desires as long it is not expressly forbidden. As a ‘perfect’ right, it can only be defined negatively: one may dispose of it in any way that is not forbidden.39 Thus, the owner’s right to use the object is protected against others. What is of importance 36 37 38 39

Tepora, 2006, p. 70. Kartio, 2001, p. 183. See also Kaisto, 2001, p. 137. Kaisto, 2001, p. 138. See e.g. Finnish Supreme Court KKO 1990:155, according to which the owners had the right to use property in a way that was not forbidden and caused no harm to others.

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from the Finnish perspective is the scrutiny of the dynamic changes in the legal status that occur in the process of transferring legal ownership. In this primary sense of the right of an owner, one can also speak of the static element of the legal status. The second element of an owner’s legal status is the right to dispose of the object, i.e. to transfer it, to pledge the object as security etc. This element, or should we say momentum, of the legal status of an owner can be defined as its dynamic essence. Thirdly, the fully developed legal status as ‘owner’ requires that the possessor of the property is protected against third parties, thus enjoying dynamic protection of the right itself.40 In sum, it can be stated that the most absolute right, and thus bearing the most significance in this respect, is the owner’s right to control the property. This right of control is the core substance of ‘ownership’. Actually, when a Finnish lawyer speaks of the transfer of ownership, what is in reality meant is that he / she refers to the transfer of the right to control property. Therefore, in the Finnish legal framework, the transfer of ownership refers to the transfer of the right to control property with the presumption that control is seen as the factual and definite use of the object. Fundamentally, when others are forbidden to use / intervene in the control of the thing, the owner is not. Furthermore, for an outline of the transfer of ownership, it is crucial to explain how the concept of ownership is defined and agreed upon because, according to the Finnish conception, the transfer of the owner’s right to control property is seen to take place at one specific, given moment in time, affecting all parties involved and their legal statuses. Thus, the full potential of the owner’s legal position develops at a specific and given moment in time. The standpoint from which the transfer is seen as being effected at one given moment entails the assumption that besides the right to control, the notion of ownership also requires the presence of competence to transfer and dynamic protection against third parties.41 When analysing the subject matter of ownership from its static side, i.e. in the sense of all the rights, benefits and privileges ownership entails, it goes without saying, that the object / target of ownership can only be a thing, i.e. an individualised, tangible thing / chattel (esine). One can not own ‘rights’ or should we say, rights can not be objects of ownership in the 40 41

Zitting, Omistajan oikeuksista ja velvollisuuksista, LM 1952, pp. 387-531. As can be grasped from this short presentation, the prevailing Finnish notion of the transfer of ownership as a transfer of the right to control property differs from that of the other European countries in some ways. Although, as evident as it may be, the end result is still somewhat similar no matter what kind of legal conceptualisation is being used in this context. Therefore, the question seems to have more or less the nature of an academic debate and is not a real life outline in the strict sense.

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strict sense. For instance, if the object of ownership is defined only in terms of its quality and quantity, the holder of the right possesses no more than an obligation and not a tangible thing, or one might say that the right holder has a claim to become the owner. Therefore, if an object disappears as a result of commixture, e.g. a barrel of oil is poured into an oil tank already containing a quantity of oil belonging to someone else (liquid substance), the ownership of the barrel of oil is lost.42 The legal status of an owner is rightfully protected from the preventive actions of third parties, a right which is also guaranteed by the Constitution.43 Therefore, as stated, the owner has most of the conceivable rights, with the remark, that those rights, i.e. the elements of the legal status, are protected. Furthermore, when property has ended up in the possession of a non-entitled party, the owner has a vindication claim against such third party. Also, in bankruptcy and execution proceedings the owner is usually protected against execution enforcement if he / she can, in a reliable manner, prove that the object is the property of some person other than the possessor, who is the person affected by the execution proceedings.44

1.3.

Other property rights

As for the other rights in rem, it has already been mentioned that in Finnish jurisprudence there exist three major rights in rem: ownership, security rights and restricted rights in an object other than ownership. Security rights (esinevakuusoikeudet)45 can be subdivided into three parts: first, there is a widely defined notion of pledge (panttioikeus),46 which is the most comprehensive right to receive payment out of the pledged thing that has been transferred as collateral. The pledge is seen as a limited right in property. The traditional perception contained the notion that the object of a pledge could only be a tangible object; hence, collateral in the form of intangible movables was thought of as non-existent, and therefore it was impossible to assess its validity. However, in the present, contemporary view, this notion has been widened substantially. The object of a pledge is not the thing / property that is being transferred as collateral, but 42 43 44 45

46

Kartio, 2001, p. 188. Constitution/Perustuslaki 15 §. See also Jyränki, Uusi perustuslakimme, 2000, p. 278. Ulosottolaki 4 luku / Act on Execution Proceedings, chapter 4. See e.g. Havansi, Esinevakuusoikeudet, 1992 for a detailed reference in the field of security rights. See also, for a theoretical display of security rights and details on assignment by way of security, Kaisto, Pantti tai muu vakuus, 2006. See e.g. Kaisto, Pantti tai muu vakuus, 2006, for a general and theoretical presentation of issues related to collateral.

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the ownership, i.e. the ‘right’, of that property; thus, it is possible to pledge other rights such as claims, receivables or intellectual property rights as collateral.47 The legal status of the recipient of the collateral (pledge) may contain different kinds of elements. First, at the core of a lien is the right to receive something of value, which is obvious given the function of the institution of collateral. However, for instance, an element of a pledge in its function as a deposited security can be perceived to be the right to keep the collateral object in the physical possession of the pledgee and also the pledgee’s right of realisation of the pledged thing. The function of a pledge / collateral, according to the traditional view, is that unless the pledgee receives payment or any other act made a condition, is not fulfilled, the legal status of the pledgee is strengthened. Therefore, in the case of a pledge, the legal status of a pledgee develops to a point, where he / she obtains the right to receive payment out of the value of the security / pledge object. The pledgor’s intention to fulfil the obligation or other engagement is another key element of the traditional view, which associates the function of a pledge with the transfer of property as security to guarantee the payment of a debt. Secondly, there is the right of retention (pidätysoikeus), which is applicable to situations where, for instance, a craftsman or similar person has repaired a household machine for a customer and the latter refuses to pay. In such a case, the contracting party, in this case the craftsman, has the right to receive payment out of the value of the machine which has been handed over to him / her for repair. The element which is traditionally seen to differentiate the right of retention from that of the pledge is the right holder’s right to the realisation of the transferred thing. In the case of the right of retention there is no such right, which is rather inherent in pledge arrangements. What is of essence in the case of the right of retention is the right holder’s possibility and thus right to keep the thing in his / her physical control throughout that time. As examples one may see the Sale of Goods Act 10 § and 51 § on the right not to give up the party’s control over an item / goods. What is common to both abovementioned rights is the right of the holder to receive payment out of the transferred, or in other ways disposed of, object. The pledgee’s legal status could be seen as containing the right to demand payment from the pledgor or third party. In general situations, the pledgee’s right to demand payment is seen as being parallel to a personal, inter partes, liability to make payment.48 Thus, the purpose of the arrange47

48

Especially for intellectual property rights, see Tuominen, Teollisoikeudet vakuutena, 2001. See e.g. Kaisto, 2006, p. 27 for more detail on the issue of the pledge as a legal act.

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ment is that the pledgee receives payment out of the transferred collateral, a settlement, which is equal to the value of the pledgor’s obligation.49 Other rights in rem are the so-called usufruct rights.50 These rights can be seen as being inferior to ownership but still resemble it closely. The difference is that the holder of a usufruct right has the right to use the property in some predetermined fashion as stipulated by a certain legal act, contract, legacy, gift deed etc. As mentioned, usually these rights are mere personal obligations, not having a straight connection to property. See the classification in section 1.1.2 of this discussion paper.

1.4.

Protection of property rights

Given the subject matter of this discussion paper there is little point in introducing the rules and principles of Finnish procedural law and litigation in general in this respect, but nevertheless some characteristics may be worth mentioning. As is the case in modern civilisations, in a case of dispute the parties involved have the possibility to bring the matter before a court of law, for instance when there is a quarrel over the question of who is the rightful owner of a property.51 As in Finnish procedural law in general, also in issues relating to normal private law litigation in areas of property law, there are three standard types of legal actions that can be brought before a civil district court. The three major claim types are: action for a declaratory judgment (vahvistuskanne), action for a constitutive judgement (muotoamiskanne) and an action for performance (suorituskanne).52 To clarify the question in this respect, it should be noted that there are no special kinds of actions in regard to matters of property law. Legal disputes over property law lie in the nature of civil lawsuits that are dealt with in normal civil proceeding before a court of law. Therefore, the question, whether or not special actions exist seems puzzling for a Finnish observer. Traditionally, the legal status of an owner entails the presumption that the owner, i.e. the holder of the right to control property, is also the subject / person who has the possibility to bring claims before a court in matters 49 50 51

52

On the pledge, see e.g. Havansi, Esinevakuusoikeudet, 1992. Tepora, 2006, p. 16-18. For a general presentation see e.g. Havansi, Oikeudenkäynti ja täytäntöönpano, 2002, chapter I. Jokela, Oikeudenkäynti II, 2002, p. 187. For a division into different types of actions see inter alia, Ellilä, Oikeudenkäynti ja täytäntöönpano, 1976, p. 115; Jokela, 1983, pp. 271-271; Lappalainen, Siviiliprosessioikeus I, 1995, pp. 362-363 and Tirkkonen, Siviiliprosessioikeus I, 1976, pp. 382.

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regarding the property in question. In general, the owner has two different kinds of actions that are typical for property law cases. First, there is the owner’s possessory action (omistajan hallintakanne) and, secondly, the owner’s action for an injunction (omistajan kieltokanne).53 So, if we take a look at the elements of ownership, i.e. as we like to call it, the holder’s right to control property (omistajan hallintaoikeus), the question of the protection of such right emerges in a situation where someone, a third party, acts contrary to the obligations arising out of the owner’s rightful legal status. For instance, someone may prevent the owner from using his / her property, and in these cases the ‘owner’ may bring a claim for an injunction against the third party in order to stop such activities. When dissecting the elements of the owner’s legal status, it is evident that in determining who holds the right to control property, i.e. who is the owner, it is also decisive who holds the right to bring actions before a court of law in regard to the property.54 When considering that third parties are prohibited from interfering with the owner’s usage of property, and then someone acts contrary to that prohibition, there may also be consequences that are of the nature of an obligation. Criminal proceedings are also possible in such cases and evidently somewhat probable. If a person incurs damage the person who is responsible has to compensate for it. As stated, this responsibility bears the nature of an obligation, i.e. the person suffering the damage has a claim against the wrongdoer. The same goes for a situation where the person acting contrary to his / her responsibilities has to restore the situation as it was previously. In recent writings this latter type of action (ennallistamiskanne) i.e. a claim for restoring things as they were, can be seen as one of the claims belonging to the sub-category of an owner’s claims. It should be pointed out that in these situations there might exist a responsibility to compensate for damage even if there is no actual damage, for instance if someone has used another person’s car without permission etc. However, generally speaking, one can seek a declaratory judgment before the court, for example, in relation to property law in a situation where there is doubt over the identity of the rightful owner, and the owner may ask the court to declare that he / she is the rightful owner in its ruling. An action for an injunction, on the other hand, aims for a decisive ruling where the court prohibits a third party from doing something, i.e. according to the wording of the ruling someone must refrain from doing something. This would be an injunction to restrain interference with the usage of the object, thus granting protection to rights in rem. This type of action could also be referred to as the seeking of a restraint order. Thirdly, and most 53 54

Jokela, Oikeudenkäynti II, 2002, p. 187. See Zitting – Rautiala, 1982, p. 138.

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importantly (also being the most common action type), we have an action for performance,55 i.e. an action where the plaintiff seeks a ruling in which the respondent is ordered to do something, e.g. ordered to give an item back to someone, or ordered to make a monetary payment etc. The normal ‘property law action’ for vindication, i.e. an action where the acquirer is ordered to give the possession of an object back to its rightful owner, also belongs to this last type of action.56 At the risk of stating the obvious, in a situation where a contracting party has suffered demonstrable damage it is possible to seek damages before a court from the other party, if the prerequisite of wilful or careless conduct of the other party can be demonstrated by the plaintiff. Also, when the owner of an item has experienced damage being done to his / her property due to the intentional or careless acts of a third party, it is possible to seek compensation for that damage by suing the damaging party by using a type of tort claim. As for the institution of unjustified enrichment there is scarcely any literature nor have there been rulings on this matter. It can be stated that the legal institution of unjustified enrichment is known to and also accepted by Finnish legal doctrine and legal literature. It seems that the issue of unjustified enrichment is more fundamentally a matter of the law of obligations and thus considered to be nothing more than an obligation without the features of a right in rem. However, in relation to property law there is one example where it may be argued, in terms of unjustified enrichment, that the party which has suffered damage may be able to get compensation from a third party which has gained a benefit therefrom, lacking a proper causa. These questions can be raised in a situation where the holder of a limited property right has made efforts to benefit the object, and as a result the value of the object has increased but due to some reason the holder must divest himself / herself of the object, thus being left uncompensated for the improvements he / she made to the object. In these situations, the holder of the right usually has the right to get what he / she is rightfully entitled to, i.e. the equivalent value of such expenditure. Thus, it can be stated that in this sort of context there is a resemblance to the legal institution of unjustified enrichment,57 since on many occasions the holder of the right also has the right to receive the profits realised dur55 56

57

Jokela, Oikeudenkäynti II, 2002, p. 187. Legal norms thereon can be found in the Act Regarding Legal Proceedings (oikeudenkäymiskaari / OK chapters I-XXIII). In general, see Jokela, Oikeudenkäynti II, 2002, and Lappalainen, Siviiliprosessioikeus I, 1995 and Lappalainen, Siviiliprosessioikeus II, 2001. For unjustified enrichment and its revindication see e.g. Aurejärvi – Hemmo, 2004, p. 86.

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ing the time of his / her possession. The rule is thus quite clear: the person who incurs costs in favour of the owner is entitled to compensation for his / her expenditure.58 Theoretically, when someone receives some sort of beneficial transfer of value or property, there are grounds for a claim for unjustified enrichment, but the actual interpretation of this principle might be difficult since there is no express regulation of this issue in Finnish law. According to the Supreme Court ruling KKO 1984 II 125, restitution must be made for the unjustifiedly received benefit. In this ruling, the court held that anyyone who has used another’s property is obliged to compensate for the unjustified benefit that is the result of unlawful possession, as well as for the possible profits which the unlawful possessor has derived from e.g. renting the object to a third party.59 One strain of unjustified enrichment is the issue of recovery by a bankruptcy estate through its executors. There are some principles contained in the Act regarding the aforementioned matter that closely resemble the legal principles of unjustified enrichment. However, due to efficiency reasons, those questions must be left to one side in this discussion paper.60

1.5.

Transferability of movable assets

A sophisticated and well-developed society, which functions through the structures of an established and effective exchange and credit economy, requires that movables can be transferred as assets without restrictions. One of the leading and most prestigious legal principles in the modern private law of our system is the free transferability of movable (and immovable) property. In the Finnish system, as a general rule, all assets are freely

58 59

60

Kartio, 2001, p. 181. It is worth pointing out that in a claim contesting the title there is no obligation to return the profit if the possessor of the object was in good faith, i.e. bona fides. On the other hand, according to the rules of unjustified enrichment, a person gaining knowledge of the fact that the transfer was of an unjustified nature, has the right to claim for unjustified enrichment from the acquirer. Here we can see the importance of possession, since it is evident that it is more advantageous to put effort into and incur costs on the object when one possesses it. For further reference see the government bill HE 1990 / 102 and Risto Koulu, Palautus-ja korvausvastuu konkurssitakaisinsaannissa, 1999, p. 237. For issues of unjustified enrichment, see particularly Aurejärvi – Hemmo, velvoiteoikeuden oppikirja, 1998, pp. 235-254.

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transferable, unless otherwise provided by law or agreed by the contracting parties, or legally presumed to have been tacitly agreed.61 The owner’s power to dispose of the property in order to transfer it to a transferee is a fundamental and integral part of the overall scheme of a functioning society. Thus, the owner may make use of beneficial developments, such as an increase in the value of the property by, for instance, selling it or by using it for some other meaningful purpose. All rights are usually freely transferable, as stated above. The ownership of a movable is freely transferable, unless restrictions have been imposed thereupon by legislation.62 As concerns movables, i.e. normal tangible objects and bonds, the parties may agree that the object is not to be transferred to a third party, and such a stipulation will be valid inter partes. If the acquirer breaches the contract and disposes of the object to a third party, the acquirer will also have violated the law and will be liable to pay damages. However, such an agreement is effective against creditors or other successors of the acquiring / reselling party.63

2.

Possession

2.1.

Definition of possession

2.1.1. Requirements of possession Possession is one of the basic principles of property law in general, due to the fact that the physical possession of property, or to be specific, the physical control over a tangible thing is a self-evident outcome that can be observed and noticed accordingly. The possession of property is a legal fact that generates legal effects. Possession can be defined as an effective de facto power of control over a thing (tosiasiallinen valtasuhde esineeseen). On the one hand, possession is seen as a basic concept such as ownership etc., and on the other hand as a characteristic of registration etc.64 When analysing the nature of possession, it is clear that possession itself is not a right. However, for instance, possession which is protected against third parties can be seen as being parallel to a right although it does not

61

62 63 64

Tepora, 2006, p. 101 and Kartio, 2001, p. 242 on the issues of transferability and rights in rem in transition. See also Hemmo – Kaisto, Varallisuusoikeuden alkeet, 2000, pp. 118-121. Tepora, 2006, p. 144. Zitting – Rautiala, 1982, p. 58; and see also Kartio, 2001, p. 142.

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enjoy the status of a right.65 Possession refers to the physical control over an object / thing. It is quite difficult to define what possession is, because the notion of possession, its objective and content varies according to its object. Thus, possession becomes evident in various different ways and an exact definition seems to be difficult to arrive at. For instance, for obvious reasons we can state that the possession of movables differs to a somewhat great extent to that of the possession of immovable property. Therefore, the general context bears significance in this respect. On the other hand, an owner’s possession of a chattel seems a little different to the possession exercised by others, such as persons possessing an object by virtue of having limited right in rem therein. It is even possible that possession of one and the same piece of property is exercised simultaneously by its owner and by a person having a limited right in rem therein. So, as we can see, the matter is somewhat complex and there is no agreement amongst legal scholars on the notion of possession and its binding legal effects. Furthermore, it is possible that two or more persons are at the same time in possession of one and the same piece of property. In these situations, the term joint possession (yhteishallinta) is used. This can take the form of each possessor’s autonomous enjoyment of sole control over the thing, or of an obligation to act jointly when disposing of the thing, i.e. all have to agree to a disposition. For instance, a situation is conceivable where the object is locked away with several locks and each of the possessors holds one key; thus, they can only use the property when all are present. One quite important area of joint possession is property that is possessed by a person who is married. Namely, it is the case that e.g. the property of spouses66 can be disposed of only when the other non-owning spouse gives his / her permission to the owning spouse that he / she may, for example, sell the house jointly inhabited by the couple.67 When considering the issue of the traditional Roman law based concept of animus rem sibi habendi or the intention to hold movables as one’s own, a straightforward analysis of this issue would be that possession does not require an intention to possess something as one’s own. This concept is not used in Scandinavian literature and, therefore, the Scandinavian legal systems do without such claims. In Finnish legal literature there is no discussion of this subject, or at least very little, because it bears little or no significance. What is of importance is the de facto possession of property, which is sufficient to create legal effects. Therefore, the physical control 65 66

67

Zitting – Rautiala, 1982, p. 59. On ownership in marital cases see e.g. Aarnio – Helin, Suomen avioliittooikeus, 1992. See the Marriage Act 38 § (avioliittolaki).

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over property is the determining factor and not the physical proximity, which, on the other hand, can be a way of defining ownership without making any reference to legal effects, i.e. a merely factual definition. However, there is one exception to this matter, namely the issue of abandonment. It is accepted in the Finnish system that when an owner abandons something, he / she loses his / her ownership of it. Such property can be thus newly acquired by way of original acquisition of the property by a prospective new owner. When someone finds lost / abandoned property, it can be kept by the finder, because the person who abandoned the property lacks the intention to possess the object as owner.68 For reasons of clarity, it must pointed out that because possession is seen as a relation of power, i.e. power to control the property; this is not the same as literal physical possession in concreto. The difference is clearer with immovable objects than movables. However, it is not necessary even for movables to be in the immediate proximity of the possessor for them to be in the possession of the holder.69 On the contrary, it is deemed sufficient for the object to be in its normal place of storage and that the holder has control over it, in order for the property to be in ‘possession’. Another possible solution is that the possessor is to be aware of the location of the property, e.g. the thing is still located where its holder has left it etc., in order for the possession to be effective. The requirement of possession was expressed in the Supreme Court ruling KKO 1950 II 213 where a person had left his piano for storage with another person. The court held that the owner had not surrendered the possession of the piano although it was not in his physical control, and thus the owner still had the capacity to bring actions to vindicate the piano because someone else had obtained its physical possession. To sum up the notion of possession, it can be stated that in property law, possession is regarded as a legal fact causing legal effects. Possession creates the presumption of rightful ownership, i.e. when possessing a movable it is expected that the holder also has the right to hold it in his / her possession. Possession is the fact that indicates the holder’s activity, which is beneficial in terms of the continuity of ownership.70

68

69 70

Kartio, 2001, p. 143. The legal norm can be found in löytötavaralaki 1.2 §. Also see KKO 1970 II 35 where the issue of the intention to hold as an owner was dealt with. For a general presentation of possession see e.g. Tepora, 2006, pp. 51 ff. Kartio, 2001, p. 144.

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2.1.2. Forms of possession Forms other than those which the normal context presumes are known to the Finnish legal system, but it seems that these sub-forms are being used as supplementary and secondary instruments to explain the physical situation of possession, thus leaving such other forms of possession without any binding legal effects. One can not derive legal effects as such from the form of possession. It serves, more or less always, merely to clarify the situation, e.g. where the property has been located, by whom, for what, etc. This does not mean that the issues of intermediary possession are not being discussed, on the contrary, but the key focus of those discussions is somewhat different to that of other European legal systems. For other definitions like those of joint possession and mutual possession, see the previous section.

2.1.3. Degree of possession For the degree of possession, the same can be stated as has been stated for the sub-forms of possession. From the intensity of possession or from the intention of the holder/possessor little or nothing can be concluded. What is of importance in the Finnish system is the function of possession, i.e. what is its aim? Possession is a signal, with which legal effects also arise. For instance, the sole possession of an object is protected in many regards and ways, and thus possession demonstrates the holder’s right to what is being possessed. However, it is wrong to draw conclusions from the definitions themselves. In contemporary legal literature, the distinction between direct possession and possession through intermediaries71 is not seen to be a vital subject.72 What is meaningful for a Finnish jurist is the precondition that possession has to always refer to things / objects as they are perceived in property law. It is a clear standpoint that the content of the definition and its prerequisites, i.e. for possession, remarkably resemble each other no matter what sort of conflict of rights or other legal problem is envisaged.

2.2.

Function of possession

As stated before, the definition of possession refers to the power of control and not merely to the physical control over property. Therefore, possession 71 72

See chapter 11. See e.g. Tepora, Johdatus esineoikeuteen, 2006; Kartio, Esineoikeuden perusteet, 2001 and Kaisto, Pantti tai muu vakuus, 2006.

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serves as a signal for others that the possessor is either the rightful owner or is in possession for some other proper cause. Hence, the possessor is usually deemed and presumed to be the owner if there is no other obvious alternative. The actual function of possession appears clearly in the process of transferring property from the transferor to the acquirer.73 Especially in relation to the so-called regular movables and negotiable / promissory notes, i.e. securities, the issue of possession is brought forward because significant legal effects are attached thereto. Possession is of importance when analysing the elements of good faith acquisition and the prerequisites for when, where and why the acquirer of movables is to be protected against third parties or debtors in cases of execution and bankruptcy proceedings. As stated, this conception is most useful in relation to the protection of the rightful owner or holder in various constellations of conflict between the different rights and claims that are laid down in the norms of private law. The requirements of possession are rather universal for all the sub- and main forms of possession and usually possession and the rules governing it refer to tangible assets and not to rights as such.

2.3.

Acquisition of possession

Since possession refers to physical control in terms of the power of control, it is obvious that the acquisition of possession takes place through physical acts of some sort. Either one has possession or not. Constructions such as symbolic possession or others of such kind are of no relevance in this respect. See point 5 for further reference and more detailed clarifications.

2.4.

Protection of possession and the prohibition of self-help

When possession refers to the power of control and not merely to the physical control over property it is evident that possession serves as a signal to others that the possessor is either the rightful owner or is in possession for some other proper cause. Hence, the possessor is usually deemed and assumed to be the owner if there is no other obvious alternative. When possession, as a rule, reflects the holder’s right of ownership, it is clear that possession itself must be protected in various ways. The legal system protects possession, as is the case in all civilised states of Europe. Generally speaking, it is advantageous that the present circumstances are being protected, insofar as there is no other reason to believe that they are not worth 73

For general issues of the transitional stage see e.g. Kartio, 2001, p. 242.

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protecting or entitled to protection. In terms of judicial proceedings, it is a rule that when someone is in possession of a movable, he / she is deemed to be the rightful owner insofar as there are not other reasons to believe that this is not case. The burden of proof lies with the party challenging the present possessor. Thus, a possessor enjoys an advantageous position over other persons claiming the property.74 According to the law, it is prohibited to deprive a rightful holder of property of his / her possession thereof. As a general rule, it is prohibited to retake property from the possessor by means of self-help (itseapu / omankädenapu).75 Only in some expressly regulated situations is it possible to restore the rightful situation by restoring one’s possession of property by self-help, and these situations are regulated in the Act Concerning the Enforcement of the Criminal Code (RVA – rikoslain voimaanpanosta annettu asetus) RVA 12 §. According to this Act, it is forbidden to retake what is one’s own, although one regards it to be one’s property, apart from one exception where it is possible and permitted to retake what is rightfully one’s own property from an unknown person, a criminal or from a person who is expected to escape.76 When speaking of the protection of possession there are no specific rules providing for the ways and means of such protection, but as stated previously, the protection is formulated as a negation expressis verbis: self-help is prohibited but, on the other hand, rightful possession is protected. In a situation where the existence of a material legal right in property is indisputable, it is possible to bring an action in a special and faster type of proceedings. These proceedings, according to the Procedural Code OK 5 chapter, take place in a district court.77 These special summary proceedings makes it possible for a plaintiff to bring an action for restitution of the status quo ante or for revindication, i.e. an action brought by the rightful holder that has the restitution of possession as its aim. Since such issues fall within the scope of these summary proceedings, they can be dealt with substantially faster and the possessor’s rights can therefore be more easily exercised within a bearable period of time.78 The violation of a rightful holder’s possession, and even the possession of a mere factual possessor, as stated, constitutes a criminal offence lead74 75 76

77

See Kartio, 2001, p. 146. Self-protection constitutes a criminal offence in most cases. RVA 12 §. An interesting regulation with smaller significance can be found in the Acts concerning both hunting and fishing. According to these Acts it is possible to take the possession of property in a case of unlawful hunting or fishing; see MetsästysL 81 § and KalastusL 101 §. Also when a dog is found on another person’s land, it is possible to take possession of it according to MetsästysL 53-55 §§. Oikeudenkäymiskaari 1993 / 595.

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ing to conditional imprisonment and supplementary fines accordingly, or merely fines payable in legal tender. Also,78it is possible to claim damages if the unlawful holder has caused damage to the property. It is worth noting that it is for the district court to pass the actual judgment on the issue, and for the execution officers to enforce the judgment. And also, as stated, the interference with of possession is a criminal offence, regulated in the Criminal Code 1990 / 769-28:11 §.79

3.

Legal status of rights in a movable other than ownership

As was stated before, the Finnish division of property rights is twofold. Besides ownership, the category of limited property rights constitutes the other somewhat crucial segment of the system of property rights. The categorisations are in some ways always a little problematic, especially in relation to the actual legal problem-solving process. Drawing conclusions from mere definitions is forbidden, and thus the reasoning must have a different starting point than that of the definitions or categorisations into ownership and limited property rights. Another important point in this respect is the perception that all legal relations, and thus ‘rights’ to specific rights in rem, have two sides or aspects. On the one hand, rights have features of an obligation and, on the other, features of a right in rem. Obligations are usually seen to concern inter partes relations, i.e. relations between the contracting parties. Rights, as in rights in rem, are understood to concern ultra partes relations, i.e. rights of the right holder in relation to third parties. It must be nevertheless pointed out that this so-called traditional division still bears some significance in present day legal reasoning. Some scholars might even argue that all rights are nothing more than obligatory rights since everything comes down to claims between persons who find themselves at different stages in the protection of those rights. It can be concluded that some rights enjoy a different protection to others. 78

79

The plaintiff has the possibility to claim for the institution of such summary proceedings by serving a simplified summons that only states the most urgent causes. With this type of proceedings it is possible to restore possession within a quite short period of time. The plaintiff must also state if, according to his / her perception, the material issue is undisputable and clear. If the respondent objects to the claim, the subsequent proceedings will be treated like a normal civil lawsuit, involving a full court hearing. The respondent must provide adequate reasons for his / her objection, in order to be able to rely on it in full proceedings. See for instance KKO 1950 II 432. For further reference see e.g. Lappi-Seppälä, Rikosoikeus, pp. 629 ff.

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What differentiates these other limited property rights from actual ownership is that the holder of such a right has the possession of a clearly defined right, whereas the owner has all the rights that have not been excluded / prohibited by law or agreement.80 As a good and illuminating example, we can examine the institution of lease. The concept of lease. First of all, it is once again the case that the lease of so-called ‘normal’ movable objects is not regulated by any extensive Act or other regulation, thus leaving the issue in the hands of legal theory and its principles. As one can observe from the previous presentation of the division of property rights in this discussion paper, a lease is a limited right in rem that requires possession, i.e. the object that is being leased must be in the possession of the lessor. A lease is deemed to be a so-called ‘weak’ right in rem. This means that the old rule that sale breaks lease is still applicable. However, this is only true for movable property. Namely, the Supreme Court has held in many cases that a lease contract over movables is not binding on the lessor’s creditors in the event of execution and bankruptcy proceedings, thus rendering the contract void. However, the rule differs in situations where, for instance, a leased flat (legally a share in the housing company, and thus movable property) has been foreclosed in execution proceedings.81 This means that the tenant of a flat is protected against changes in the ownership of the flat itself, and the tenancy of a flat seems to be a rather ‘strong’ right resembling in many aspects a right in rem. Normally, a lease contract over movable property is not protected in ultra partes relationships.82 Although the rule itself, that sale breaks lease, is considered to be valid and applicable in cases of legal conflict, it might be worth pointing out that this is not necessarily always accepted by all legal scholars. For obvious reasons, it can be stated that this rule in some cases leads to quite unfair outcomes. There have been arguments that, in some cases, the rule should be interpreted so as to protect a lessor against ultra partes interferers, provided there is a valid contract with or transfer of possession to the lessee. For example, the lessee would be protected in a situation where the owner has sold, or by other means retransferred, the object. In these situations, the lessee would be protected against the new owner.83 It is rather evident that a lessee, on many occasions, is in need of legal protection in terms of legal rights, and that times have somewhat drastically changed from the days when the rule was enacted. As a question of legal theory, these two colliding 80 81 82 83

On definitions of rights in rem and their differences see e.g. Kaisto, 2005, p. 239 ff. Kaisto, Sopimusvapaus, laki ja maksusuoja, 2001, p. 626. See Act on Flat Renting (huoneenvuokralaki). Tepora, Irtaimen esineen vuokralleottajan sivullissuojasta, JJ Jukka Peltonen, 1999, p. 289.

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rights could be seen as being on equal terms and, thus, as being equal, the lessee would be protected.84However, as stated, the rule itself is still usually considered valid, so this question of law is, in many of its aspects, more or less nebulous when we are eying it in relation to movables. One strong argument on behalf of re-examining the rule is the fact that, according to the present, modern land law, the institution of ownership and the institution of lease are considered as being equally strong and thus are equally protected rights, but as stated, this is only true for immovable property.85 As a basic principle, it can be stated that the leaseholder’s right is not conclusive and binding in relation to ultra partes third persons, i.e. the leaseholder’s right, just like the right of a financial lessee, is not protected as a limited right in rem in the execution proceedings over the lessor’s estate. As an incidental remark it can be concluded that this is a highly unsatisfactory legal position for, should we say, a financial lessee. This is evident due to the fact that in most cases the object of the financial lease is of great economic value to the lessee, i.e. the things that are usually financially leased are valuable in every respect. Now, when the leasing contract terminates before the date of maturity, it seems that the lessee is left in a very poor position, suffering financially from the lost value. This seems even more puzzling when one considers the institution of hire-purchase / reservation of title (osamaksukauppa omistuksenpidätysehdoin) where the legal position of the instalment purchaser is almost as protected as for the one of a normal buyer of a movable object, i.e. in the case of a sale.86 The duration of the lease contract does not affect the legal interpretation of the right and its nature.87 The same goes for remuneration. The lease is a limited right in rem as stated before, being somewhere in between an obligatory right and a right in rem. As the discussion paper solely concerns movables, issues relating to immovable property such as registered units and parcels of land are thus outside the scope of this paper. For recording purposes, it can be stated that there are somewhat different rules and exceptions regarding the transfer of land, which is almost entirely regulated in the Land Law/Land Code (Maakaari 12.4.1995/541), and the leasing of land is regulated in Land Lease Act (maanvuokralaki 29.4.1966/258). As an example one could mention that, for instance, the lessee of land is, in principle, protected against 84

85 86 87

It should be remembered that the rule – sale breaks lease – dates back to 1734 when the old land law, which was applicable up to the year 1996, was enacted. Society has undergone a wall-to-wall change in the context of leases. Tepora, 1999, p. 290. See Kaisto, 2001, p. 640. See also Hire-Purchase Act (osamaksukauppalaki). Although it should be noted that in some cases a prolonged lease, as a right, may enjoy protection against third parties, the rules vary and are a little entangled even nowadays.

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third parties, as long as the particular limited interest has been registered, thus rendering it public and binding on ultra partes relations. It seems adequate to mention at this point, when discussing the protection of limited rights and applicable regulations thereof, that like, for instance, the protection of a lessee of land, which is regulated in second chapter of the land lease Act, there is also other relevant legislation such as the Consumer Protection Act (kuluttajansuojalaki 20.1.1978 / 38); the latter’s chapters 2 and 3 are applicable when an entrepreneur sells / rents etc. a flat or the like to a person who is deemed to be a consumer.

4.

Field of application and definitions

As has been stated repeatedly, there is no actual or specific regulation concerning the transfer of movables in general but, rather, all of the smaller details are fragmentarily regulated in different statutory laws, which are, however, also a basis for the formation of general legal principles and common rules. As in Scandinavia in general, there are specific regulations for certain types of movables, such as shares / negotiable notes,88 shares in limited liability companies,89 limited property rights, machines and vessels, i.e. ships,90 aeroplanes91 and other movables that can be registered such as certain heavy trucks etc.,92 receivables and bank money, and also other financial instruments. A few remarks on the subject of definitions. First, as was stated, movables are defined negatively: everything that is not immovable is movable; thus, everything apart from registered land belongs to the category of movables regardless of its physical form or the like. The conception thus entails that things like animals, gas, liquids, electricity and pieces of money are of the nature of movables. ‘Tangible’ or ‘intangible’ refers to the quality and features of the object in question, and not to a different type of definition with an autonomous / different meaning. The most significant characterisation of and division between movables is, in the Finnish legal tradition, the division between securities (arvopaperit) and so-called ‘normal’ movables (tavanomainen irtain esine), because in some respects these categories are treated differently, as will be explained later in this discussion paper.93 88 89 90

91 92 93

See velkakirjalaki 31.7.1947 / 624. See osakeyhtiölaki 21.7.2006 / 624. See Maritime law (merilaki 1994 / 674) 1:2 paragraph and also aluskiinnityslaki 1927 / 211 and alusrekisterilaki 1993 / 512. See ilmailulaki 1995 / 281 and laki kiinnityksestä ilma-aluksiin 1928 / 211. See tieliikennelaki 1981 / 267. See e.g. Kartio, 2001, p. 82. See also Tepora, 2006, pp. 35 ff and pp. 134 ff.

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Part II: Derivative acquisition and transfer of ownership 5.

The system of transfer

5.1.

Overview of the system

The Finnish analytical framework determines three different key elements in an owner’s legal status. First, as has been stated, the principal right of the owner is his / her right to control the property, i.e. the right to possess the object in real life without third-party preventions or interventions. An owner is subject to rights and obligations accordingly, i.e. an owner has the right to use his / her property according to his / her wishes, as long such use is not explicitly forbidden or restricted by some norm or regulation. The owner may dispose of his / her property in most (conceivable but legal) ways that are not forbidden. Thus, the owner’s right to use the object is protected against others. What is of importance from the Finnish perspective is the scrutiny of the dynamic alterations in the legal status, which are inherent in the process of transferring legal ownership. In the sense of this principal right of the owner, one can also speak of the static element of the legal status.94 Scandinavian legal scholars seem to agree, at least to some extent, that conceptualising derivative acquisitions as a transfer of ownership is somewhat misleading, that is, at least in theoretical questions. It is commonly accepted that there is no unitary concept of the transfer of ownership, but, on the contrary, the process of transferring property from transferor to transferee takes place in different and distinct stages or steps, which separately but also jointly create legal implications. However, it has to be mentioned that in Finland, this conception or way of putting it, is a result of somewhat recent academic literature, dating back no further than a few decades.95 As mentioned, the second element, called the owner’s competence, of the owner’s legal status is the right to dispose of the object, i.e. to transfer it, to pledge the object as security etc. This element of the legal status of an owner can be defined as its dynamic essence. Thirdly, the fully developed legal status of ‘owner’ requires that the possessor of the property is protected 94 95

See e.g. Tepora, 2006, p. 74 ff. See for example Zitting – Rautiala, 1982, p. 245 and Kartio, 2001, p. 216. See also Zitting, Omistajan oikeuksista ja velvollisuuksista, LM 1952, pp. 378-401 and 501-531.

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against third parties, against interference and protection, against execution proceedings, thus enjoying dynamic protection of the right itself.96 This would, for instance, imply that when someone takes possession of a rightful owner’s property, it is the owner who in fact has the sole right to bring an action for the revindication of the property’s possession to him or her. In other words, this static aspect of an owner’s legal status is tied to the right to sue and the standing to sue in such actions. Only a person having the legal status of an owner or equivalent, or any other predecessor in title, has this possibility to bring actions before a court of law of first instance. In the Finnish analytical approach the key elements of a fully developed owner’s legal status are: a) the owner’s right to control and possess,97 b) the owner’s competence and c) the owner’s dynamic protection. Indeed, these are the cornerstones upon which a vast part of legal conflicts is reflected. The increased value of social rights and the so-called sociological private law has put more and more emphasis on different aspects of the parties involved and also their respective rights, and even on the physical and actual identity of the party. Rights and obligations need to be balanced out accordingly in a carefully controlled manner and, therefore, all stages of, for instance, a property transaction, must be examined, not as one unititular concept, but as a sum of smaller fragments of varying value. After all, what is being considered valuable are the material rights and not the formal norms and provisions. To emphasise this, it can be stated that the most significant element in this respect is the owner’s right to control property. This right of control is the core substance of ‘ownership’. Therefore, within the Finnish legal framework, the transfer of ownership refers to the transfer of the right to control property with the presumption that control is seen as the factual and definite usage of the object. Furthermore, for an outline of the transfer of ownership, it is crucial how the concept of ownership is defined and agreed upon (please note that one definition does not necessarily exclude others), because according to the Finnish conception, the transfer of the owner’s right to control property is seen to take place at a given moment in time. Thus, the full potential of the owner’s legal position develops at specific and given moments, increasing gradually, yet reaching its maximum potential at one moment. The standpoint, where the transfer is seen as something developing entails the assumption that along with the right to control, the notion of ownership also requires the presence of the elements of competence and dynamic protection against third parties. One may have one or more of these elements, 96 97

Zitting, Omistajan oikeuksista ja velvollisuuksista, LM 1952, pp. 387-531. The exact Finnish translation or equivalent would be: ‘Omistajan hallintaoikeus’.

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but if one of the three is lacking, or is considered to be void in some way, it can be stated that the holder of the object is not (yet) its owner. Or, at least, has not gained such legal status that his / her position would be fully protected, thus causing the holder to lack the core of ownership. From this one can or might draw the conclusion that, as a general notion, all kinds of obligations are treated in the same way, no matter what the origin of the right is. Some differences, however, do exist between original acquisition and derivative acquisition. As a harsh simplification one could say that it is not meaningful to operate with a framework where one asks the question of who is the owner. However, instead, in the Finnish systematic framework it is seen to be more beneficial in terms of understanding material rights to ask whether or not the holder of a right is protected, in which context and to what extent? That might be the key to understanding the notion of ownership from a Finnish perspective. The abovementioned statement should not be interpreted literally. As an example from recent academic writings98 we could bring forward the notion that although the question of who is to be considered as owner may not be meaningful, it might nevertheless be rather interesting and reasonable from a systematic and pedagogical perspective. However, once again, it has been emphasised that one may not draw conclusions as to the transferee’s possibly protected legal status from the fact of who is owner or thought to be such.

5.2.

Different types of obligations

An acquirer gains the status of an owner through legal acts that vest the legal status of ‘ownership’ in him / her. These legal acts are called acquisitions (saanto).99 Besides ownership, one can also speak of acquiring a lease or a pledge. Acquisitions can be divided into original acquisitions and derivative acquisitions.100 In this chapter, we discuss mainly issues relating to derivative acquisitions which also bear the most significance. The derivative acquisition of ownership is an acquisition where the transferee derives his or her rights directly from the transferor, who, in a way, precedes the transferee in terms of rights. Thus, the validity of the transferee’s acquisition is conditional upon the validity of the transferor’s right. Derivative acquisitions require that there is also, legally speaking, a

98

99 100

Such as the writings and research of Dr Jur Janne Kaisto and Dr Jur Tapani Lohi from the University of Helsinki. Tepora, 2006, p. 102. Kartio, 2001, p. 216. Zitting – Rautiala, 1982, p. 245.

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succession between the parties, i.e. a right or rights is / are being transferred from one party to another.101 Universal succession (yleisseuraanto) implies that all the rights of the predecessor are being transferred to the successor in the state they were in. Inheritance is a type of universal succession; and thus is a merger between business / legal entities. On the other hand, we may speak of a succession in specific rights and obligations (erityisseuraanto) which takes place, for instance, in the case of a sales agreement. The following acquisitions fall into the category of derivative acquisitions: marital division of property, inheritance, testamentary disposition and all acquisitions by way of transfer (luovutussaanto) such as sale, barter and gift. What is characteristic for acquisitions of ownership through transfer is that they take place between living parties (inter partes) through legal acts.102 There has been some discussion that when considering relations where ownership is being passed on in a transfer context, it would be more precise and legally speaking more accurate to speak of transfer by expression of will than of transfer by legal acts.103 Without taking sides on this debate, the former conception bears some plausibility since, after all, when a transfer takes place it is the owner alone who expresses the will to dispose of the property accordingly, which then, in turn, becomes a mutual legal act where seller sells and buyer buys, i.e. a sale. Evidently, there are different rules for different kinds of obligations, and these differ from each other on the basis of the particular obligation’s origin; therefore, different types of obligations are also treated differently in some cases. For instance, the consensus principle, according to which a party is protected after concluding a contract, is somewhat wider when applied in the context of consumer sales in contrast to tradition theory, where a party needs to take physical or another kind of possession of the goods on sale before he / she acquires dynamic protection. However, also in the case of a consumer sale contract, the consumer is protected upon closing the deal, as is generally presumed by contract theory. It is not required to also take possession, as would be the case in a ‘normal’ situation, where two or more equal parties are concluding a contract (outside contract theory cases). In the case of a contractual transfer the applicable rules are somewhat universal. A contract is binding and enforceable upon its conclusion, i.e. after signing the contract document and after the agreed (possible) preconditions

101 102

103

Kartio, 2001, p. 221. See Kartio, 2001, p. 221. For a different definition see e.g. Lohi, Ositus, tasinko ja sivullissuoja, 2003, p. 39, where he, instead, speaks of legal acts (oikeustoimi) expressing intent (tahdonilmaisu). See for instance the writings of Janne Kaisto and Tapani Lohi in general as opposed to the standpoint accepted by e.g. Leena Kartio etc.

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have been fulfilled. However, as is well-known and also presumed, contracts are mutual and thus reciprocal. A gift, as a beneficiary obligation, has different characteristics, since for a gift to become binding on creditors it is required that the gift obligation has been fulfilled,104 meaning that the donee must have received the possession of the object of the gift, i.e. the item has been transferred and handed over to the donee by the donor.105 In the relation between the ‘parties’ it suffices if the promise was made in writing or that the intention to make a gift was intended to be brought to the public knowledge.106 As a general principle, a claim for damages is solely a matter of the law of obligations, which has nothing to do with rights in rem according to Finnish jurisprudence.

5.3.

Some characteristics and requirements of the transfer system

5.3.1. Principles and theories The Scandinavian approach to transferring the rights, which are essential to the legal status of an owner, starts from the assumption, as was depicted above, that transfer of ownership requires a valid and binding contract between the parties. A contract is binding upon its conclusion, at which point the parties will have reached a consensus on the subject matter of the contract, hence the term ‘consensus principle’. In the Finnish legal system, it is also called and described as the ‘contract principle’ (sopimusperiaate), because the parties can achieve a certain legal effect after the contract has been concluded. The contract principle itself is a manifestation of a greater legal principle, which of course is the freedom of contract principle,107 which, again, is closely linked to the principle of binding contracts, i.e. the pacta sunt servanda-principle. Freedom of contract is a self-evident rule in our jurisdic104

105

106 107

See Supreme Court KKO 1967 II 107 (voted / ään.) and KKO II 1983 122. Literature on beneficiary gifts see e.g. Kangas, Lahja, 1993, pp. 86-94. Act on Gratuitous Gifts (lahjanlupauslaki 31.7.1947 / 625) 1-5 §§. Another way for a gift to become enforceable and thus binding in the inter partes relationship, is that the donor announces his / her intention to make a gift in public, so that the public gains knowledge of it. Although, in ultra partes relations, such as in relationships to third parties like debtors and the like, the gift is void unless the donee has the possession of object of the gift. See Act on Gratuitous Gifts 1 §. Kartio, 2001, p. 35.

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tion and a necessary precondition for a fully functioning society.108 When contemplating the issues that are essential to this discussion paper, in order to examine rules pertaining to transfer of movables and therefore derivative acquisitions, a more fundamental question needs to be addressed at this point. Namely, it is the contract principle in relation to the so-called tradition principle (traditioperiaate). It is said that the Finnish system is founded upon the contractual principle. This is linked to the core question that arises in the case of transactions where the transfer of ownership is the desired effect and end result. In relation to the transfer of ownership the fundamental question is when, at what point of time, the transferee is considered as being the owner. To be more specific, at what point has the legal status of the transferee developed to such extent that he / she has assumed the legal status of an owner? This is always the trick question when one is examining a transfer of movables. As mentioned, the contract principle enjoys dominance in this respect, because, as a principal rule, when transferring the ownership of so-called normal movables (that is other than promissory notes or bonds), the transferee is protected against third parties upon concluding the contract of sale. This means that after signing the binding and valid contract, the transferee is protected against subsequent claims brought by execution or bankruptcy creditors and the like against the seller / transferor.109 The rule would be exactly opposite in respect of transferring ownership gratuitously or if one would examine the case of pledging, which usually and in most cases requires a transfer of possession. Thus the contract principle in a case of sale agreement entails that the buyer, in a contract of sale over specific goods assumes dynamic protection against third parties by closing the deal. However, when the transferee is acquiring fungibles (that is generic goods) it is required that the object of purchase has been separated on behalf of the buyer for the buyer to assume protection against third parties. The situation is the opposite when the object of purchase or transfer of ownership is e.g. securities or bonds. This is due to the fact that the bonds need to be transferred to the possession of the acquirer in order to assume dynamic protection in this respect. Thus, in a sale where the object is a bond (negotiable note) the tradition principle is the rule to be applied, as is provided by the Promissory Notes Act 22 §.110

108 109 110

Although some necessary restrictions also do, and need to, exist. Kartio, 2001, p. 157. Contemporary legal literature uses the terms principle and theory parallel in this respect, and therefore some scholars like Tepora use expressions such as sopimusteoria and traditioteoria, i.e. contract theory and tradition theory but, all the same, their contents are similar.

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The previous paragraphs discussed the rules on the sale of movable goods in relation to either contract theory or tradition theory. As has been pointed out, our jurisdiction attaches legal effects of tradition in the form of the physical delivery of an object. These legal effects can be seen as entailing that the buyer’s or acquiring party’s legal status is enhanced in a beneficial way, because he / she is protected against third parties after delivery. Strong indications for this enhancement of the legal status in relation to movables are the previously mentioned gratuitous gifts and also the transfer of collateral in the case of a pledge. According to the Acton Beneficiary Gifts 1.2 §, a promise to give something as gift is not binding on the donor’s debtors until the object of the gift has been transferred to the donee and thus tradition has taken place. This rule also applies when the object of gift is money, movables or bonds. The same goes, as a rule, for the institution of the pledge as a collateral agreement. For a pledge to be binding on the pledgor’s successors, it is required, that the pledgee is in possession of the pledged object. Furthermore, there has to be a valid and binding pledge contract. Thus, a pledge almost always requires tradition.111 After tradition and transfer to the possession of the pledgee has taken place, the legal status of the latter develops to a level where the recipient obtains the right and power to liquidate the property unless payment is made in accordance with the underlying claim. Furthermore, the tradition of a movable pledge object is required in order for the pledgee to obtain an advantageous legal status and priority over other creditors.112 Tradition is thus the key to obtaining the protected position of a secured creditor, i.e. pledgee.113

5.3.2. Some remarks on issues of causality, abstract and real agreements Certain concepts arising from German and Roman legal tradition, such as concepts related to abstract contracts and causality are of no use whatsoever to the Finnish legal system. On the contrary, our notion of transfer of ownership is quite concrete in terms of its legal effect and applicability. A transfer does not necessarily, as a precondition, require a valid contract as a cause for the transfer, as would be the case in a ‘causal’ system. 111 112

113

Code of Sales (kauppakaari 31.12.1734 / 3) paragraph KK 10:2. See Execution Proceedings Act (ulosottolaki 3.12.1895 / 37 paragraph 4:38) and Act on Bankruptcy Proceedings (konkurssilaki 20.2.2004 / 120 paragraph 17:11). See e.g. Tepora, Johdatus esineoikeuteen, 2006, p. 57-60. See also especially Tepora – Kaisto – Hakkola, Esinevakuudet, 2009, as an extensive presentation of modern finnish rules on real scurity and rights in rem.

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The issue of real agreements, on the other hand, is a bit more complex. In the older legal literature there was some discussion over whether or not this concept would be of use to our system. For instance, there were some attempts made to define the acts of making a gift and transferring collateral as so-called real agreements, entailing that a certain predetermined act was the condition for the coming into existence of a valid contract. This meant that the act was of a real nature, i.e. the object has to be transferred before the contract’s validity could be claimed.114 This real act was thus usually tradition. However, nowadays such mode of explanation of these legal phenomena has been abandoned almost entirely, at least outside of legal theory. Gifts and pledges are binding inter partes, regardless of whether or not tradition takes place. The fact that dynamic protection is tied to tradition is a different matter, as can be seen in contemporary literature.115 Regarding the issue of the requirement of payment, it can be clearly concluded that there is no such requirement that would by itself affect the validity of the contract. The obligation stemming from a contract is not connected, and is a different obligation, to the obligation to make payment. Actually, the contract has to be valid in order for the obligation to make payment to be valid, and not vice versa. This is self-evident for a Finnish lawyer.

5.3.3. General issues Specific goods (erityisesine) in property law. As has been mentioned previously, for a right to be a right in rem the object itself has to be clearly identifiable due to the principle of specificity. Rights in rem concern items that are clearly separate from others, meaning that they are individual objects and thus separable from others. These specific goods, such as a car, a painting or a book are the so-called normal movable objects (tavallinen irtain esine), and the other class of specific objects, apart from normal movables, is constituted by negotiable instruments, i.e. promissory notes and bonds (arvopaperit).116 114

115

116

For instance, the Act on Legal Acts (oikeustoimilaki 13.6.1929 / 228) 1.2 § explicitly states that real agreements do not fall into the scope of that act. Kartio, 2001, p. 156. The Finnish definition of real agreement entails that a real agreement is a contract, which requires a real act of delivering something to the other party in order for it to become valid and enforceable. On this matter see e.g. Hemmo, Sopimusoikeus, 2003, pp. 100 and 181. See also Havansi, LM 1969, p. 379413 where it is stated that real agreements are of little or no use in the Finnish legal system. Tepora, 2006, pp. 34 ff.

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Objects in bulk (paljousesine) as we call them, are quite like normal movable objects, but are transferred by weight, number or measure, such as oil, for instance. Such generic goods become transferable objects or movable property after specification and individualisation has taken place, such as when the oil is filled into smaller barrels. For example, if we have a container bearing a bulk of 2000 litres of oil, one cannot speak of a separately transferable quantity of 1000 litres before those 1000 litres have been physically separated from the greater bulk of 2000 litres. Before specification, it is possible that the whole bulk of 2000 litres is owned in fractions, i.e. two parties own the 2000 litres in equal shares (½+½).117 The rules of property law and rights in rem govern goods forming part of a bulk only after this kind of specification and individualisation has taken place. The antithesis of this phenomenon is so-called “confusion”, where movables lose their specific nature and thus also their separate legal status.118 It is worth pointing out that when an originally movable object, such as a barrel of oil, loses its individual character, let us say, for instance, by confusion or commixture, the ownership of that original object is consequently also lost. The division between specific and generic goods used to be more important during the time when the old legal rules of 1734 were still applicable to contracts concerning the sale of movables. The present Sale of Goods Act gives no such significance to this division.119 It has to be noted that the buyer of generic goods is protected against third parties after the goods have been separated and marked on his / her behalf. So the question actually is: when are the goods separated so that the legal effects are binding on the successors of the seller? It is clear that specification is a necessary precondition for the effective protection against third party creditors, given the fact that tradition is not required in these cases.120 As was stated, identification is necessary for ownership to pass to the acquirer. From this, it can also be concluded that when a buyer or seller is in a situation where identification has not taken place, i.e. no right in rem has been created and thus ownership has not been created, he / she is left only with a claim under the law of obligations. As is common knowledge, an obligation in a situation where the other contracting party is bankrupt, is in

117 118 119 120

Tepora, 2006, pp. 32-33. Kartio, 2001, p. 63. See e.g. Sale of Goods Act 34.2 §. See Sale of Goods Act 54.1 § and 55.1 §. See also the rather old, but still useful Supreme Court ruling KKO 1923 t. I 4.

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most cases worth nothing, because it does not enjoy priority over creditors, especially those with a right in rem.121 It could be concluded that specification has some effect on terms that determine when risk is to pass to the other party, but from which we cannot directly draw legal conclusions. Evidently, risk cannot pass before the goods have been specified and / or marked and separated. The same rules as just presented are also applicable to vindication, though inversely, i.e. because ownership has not been transferred, or in other cases the ownership status is unclear, vindication cannot be ordered. It is also clear that individualisation has to be effected in a way that is also discernable to third parties, i.e. creditors or other parties assessing the situation objectively. At this point it might be worthwhile to bear in mind the definition of “movable object”, which has been presented above. Movables are seen as tangible objects in the present context, just like normal movables are also physical objects. Also, components that have been detached from the original object are individual objects. Documents (written on a physical piece of paper) are also objects, as well as certificates, deeds of sale, bonds, shares etc., regardless of the fact that the legal significance of those documents is determined according to the right they represent and not by their physical presence. Considering this, it is evident that the so-called intangibles are not objects in terms of property law. For instance, this category contains claims, a stake in a business entity, inventions etc.;122 thus, these are obligations and claims arising under the law of obligations. Party autonomy or the issue of freedom of contract has been touched on already in the previous part to some extent, but perhaps a small elaboration on this matter is useful here. Party autonomy usually refers to inter partes relations; hence, it should be clear that the contracting parties’ possibilities of influencing ultra partes participants might, in some cases, be more or less restricted. The principle of party autonomy or freedom of contract is regarded as the leading legal principle in the Finnish jurisdiction, although there are restrictions in favour of certain parts of society, as shown by the protection of those with a weaker bargaining power. Also, contractual conflicts can be arbitrated and amended for reasons of equity, as provided by the Act on legal acts 36 §.123 The central elements of party autonomy are: the right to choose a contractual partner, the right to choose the content of the contract, the right to choose the form of the contract and the right to annul the contract. 121

122

123

For issues of bankruptcy in relation to rights in rem see e.g. Kaisto, Velkojasuoja välihenkilön konkurssissa, 2004. The concept of res incorporales (Roman law concept) has been rejected from the beginning in our legal literature. See oikeustoimilaki 36.4 § and kuluttajansuojalaki 4:1.

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However, in property law there are certain restrictions in respect of those central elements, which might be of interest.124 Evidently, the owner has the right to choose with whom to close the deal and upon what terms and conditions etc. Nobody can be obliged to sell his / her property, so the right to choose also has a negative aspect: the right to choose not to conclude an agreement. On the contrary, there might sometimes be an obligation to conclude a contract. In the Finnish legal system, the latter does not usually affect private individuals in their capacity as owners. One can also speak of the right to choose in terms of its positive meaning, i.e. the power to close a deal or contract. The cornerstone of this right to choose is the right to choose one’s contracting party, meaning that individuals may choose to whom to sell property and to whom not to sell such property. The freedom of the form of contract is restricted in some aspects usually in the context of sales of immovable objects, but not in terms of movables. Party autonomy is quite strongly restricted in relation to third parties. One of the fundamental ideas of binding inter partes contract theories is that two contracting parties cannot influence the legal status and position of a third party, i.e. an ultra partes party. It is a common principle of property law as well as of the law of obligations that one cannot dispose of rights in a way that would be also binding on a third party. Such contracts are void against third parties.125 This means that the contracting parties are not allowed, and factually it is not possible, to impose obligations on a party who is not a party to the contract or any other disposition of rights. The legal effects of a binding contract are therefore limited to the contracting parties.126 The question of legal effects having an impact on third parties is quite controversial and there are no specific rules on this matter. Many questions seem to be more or less open to debate, but evidently these issues have drawn more and more attention, especially in modern contract law theory. In terms of property law, the rule according to which parties cannot effectively dispose of an object when such disposal has an impact on third parties is self-evident and beyond dispute. Therefore, the contracting parties are not able to conclude contracts that would limit the rights in rem of third parties, meaning that they cannot limit the rights of successors, other subsequent creditors and the like. The rule is indisputable in property law.127 124 125 126

127

Hemmo, Sopimusoikeus I, pp. 69 ff. Kartio, 2001, p. 52. Although there has been discussion of inter partes relations, according to which it might be possible to conclude a contract where it would benefit an ultra-partes party, who is not a party to the contract. On this matter see e.g. Hemmo, 2003, Sopimusoikeus II, pp. 377-407. Kartio, 2001, p. 53.

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The legal norms regulating the mentioned fields arise partly from legal writing and partly from explicit regulation. Obviously, these norms are not optional, i.e. the parties cannot contract out of them. The fundamental building blocks of the protection of property rights, which are, for instance, the principle of publicity, the protection of good faith acquisitions, the protection of economic interests and safeguarding of social values, establish as a precondition that the parties may not contract in violation of these. The advantageous legal status of a possessor of a right in rem cannot be degraded by a prior contract, but also n.b.: the contracting parties may not make that legal position stronger and more protected than what is provided by the applicable rules on the protection of property rights.128 For the sake of example, let us consider the following: party A agrees to sell a yacht to party B. The parties conclude an inter partes binding contract between them, whereas it is agreed that, should party B decide to sell the boat on after concluding the agreement, party A shall have the right of first refusal, i.e. party B must first offer the object on sale to party A, and only subsequently to third parties. This kind of condition is valid in inter partes relations. If party B then chooses to sell the object to party C, disregarding the condition in the previous contract of sale, and indeed, concludes the contract with C, the condition established between A and B is void in relation to C and, thus, not binding on C. In terms of what we have just discussed, party A and B cannot validly agree for the future that any person wishing to contract with B will be bound by the condition agreed upon between A and B; therefore, such a condition will be void. As a rule, it can also be stated that when contracting parties have the intention of imposing economic risk on third parties, it is required that the latter consent to such imposition. Similarly, for instance, in the law of obligations it is not allowed to change debtors without the prior written consent of the creditor. Furthermore, it should be noted that when a contracting party seeks to secure his / her rights and legal status unilaterally, i.e. without the participation or consent of, for example, creditors, the third party may enjoy some sort of protection in the form of recovery from a bankruptcy’s estate (takaisinsaanti konkurssipesään). According to the said act, it is possible to recover funds and assets from the estate, if the debtor’s acts in question occurred prior to the filing for bankruptcy in a way that corresponds with the act. If a debtor has dissipated property in favour of some other party or in favour of him- / herself it might be possible, in some cases, to recover these assets, but this requires that the debtor has disposed of them through legal acts in a way that has caused losses to be incurred by third party creditors.129 128 129

Ibid. See e.g. Tuomisto, Takaisinsaannista, 1995, pp. 1-4.

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For instance, if a debtor has favoured one creditor at the cost of other creditors prior to the bankruptcy proceedings and the filing of a bankruptcy action, there are certain time limits, ranging from three months to five years, within which it may be possible to recover e.g. legal acts, pledge arrangements and payments that were damaging to other creditors or other parties.130

5.4.

Delivery (traditio)

5.4.1. Context and background of the tradition principle Tradition is a legal institution, which is closely linked to the institution of possession. Together, these legal concepts form the basic structure for analysing the transfer of ownership paradigm. As was stated, possession is one of the basic principles of property law in general, due to the fact that the physical possession of property or to be specific, the physical control over a tangible thing, is the physical manifestation that can be observed by outsiders. The possession of property is a legal fact generating legal effects.131 Alongside tradition it is indeed possession, which has important legal effects in relation to movable property. Especially when possession is defined as an effective de facto power of control over a thing, it is evident that it is closely linked to the issue of tradition, because in most cases tradition takes place by transferring the physical control over an object. On the one hand, possession is seen as a basic concept, such as ownership etc., and on the other hand, it is also essential in relation to certain legal acts such as registration etc.132 As stated before, the definition of possession refers to the power of control and not merely to the physical control of property. Therefore, possession serves as a signal to others that the possessor is either the rightful owner or is in possession for some other proper cause. Hence, the possessor is usually deemed and presumed to be the owner, if there is no other obvious alternative, and thus the possessor also has rightful means for effecting tradition. First, when starting the examination of tradition as a principle we must, to a certain extent, define its content and subject matter. In the Finnish legal system, tradition refers to the transfer of possession from transferor to transferee, which is based on a contract or other mutual legal act between

130

131 132

See Act on Recovery (Takaisinsaantilaki 26.4.1991 / 758) and also what is stated in section 9 – insolvency related issues – on actio pauliana v. recovery rules. Tepora, 2006, pp. 55 ff. Zitting – Rautiala, 1982, p. 58; and see also Kartio, 2001, p. 142.

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two or more parties.133 Transfer of possession perceived in this way actually entails two presumed factors and elements: on the one hand, there is the physical power of control of the owner / transferor, which now ceases to exist, and on the other hand, the physical power of control of the transferee comes into existence simultaneously. Hence, a transfer has taken place.134 There are several reasons why it is the self-evident framework of tradition that bears such great importance in the process of transferring ownership from one party to another. Tradition is a legal fact, which also produces legal effects accordingly. However, the question remains, why is that so? What are the reasons behind this concept and the policies that influence our present conception? One simple answer can be found in the aspect of publicity. Physical transfer of possession demonstrates and represents the value given to publicity itself and, thus, transparency of inter partes relations to outside observers.135 The transfer of possession makes the transfer of ownership visible and manifests it to others, who, at that point, can make assumptions of who is the rightful owner on the basis of who has the possession of the property. In particular, this aspect is of great significance to all kinds of creditors, for they usually have the most urgent need for knowledge of such external factors in order to be able to decide upon whether or not to grant a loan. For a creditor, what is of importance is the debtor’s solvency or lack of it. From the possession of a certain object of value, the creditor may draw the assumption that the debtor possesses the property rightfully and, therefore, is the owner of it, thus having the right to give the possessed item in pledge. The tradition requirement also works in the contrary fashion. Namely, the actual physical or other arrangement, whereby the transferor transfers possession to the transferee, requires positive actions to be taken by the transferor, exhibiting his / her manifest intention and thus deliberate forethought. It is beneficial in terms of the economic transfer system that parties do not participate without making a prior judgement and weighing up the interests involved. From the perspective of the transferor, tradition requires some sort of sacrifice. The transferor no longer has the possibility to use and control the property; therefore, tradition is, in many ways, of great importance to the transferor, which goes without saying.136 A legal act, such as contract of sale, becomes final when possession is transferred. When the transfer of possession results in the transferee’s protection against the successors or creditors of the transferor, the tradition itself also, in a way, benefits the functionality of the system in general, 133 134 135 136

Kartio, 2001, p. 150. Ibid. Tepora, 2006, pp. 55 ff. Ibidem.

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because conflicts of rights that result from double sales and other pro forma and simulated transactions, become less likely. Furthermore, it is seemingly well-founded to protect the person in possession of property, rather than others who are not. This is because the system sees it as adequate to protect the active party who has acquired possession, rather than the inactive party which has remained passive. The transfer of possession by the right holder generally requires protection, which can be also seen as a plausible legal reason for the protection of the acquirer. There is no explicit regulation concerning the de facto transfer of possession or delivery as such. As usual, this institution is depicted by Supreme Court rulings and legal literature. Also, some of the rules of interpretation have been derived from existing legislation; these, when applied, result in varying outcomes, though leading to meaningful conclusions where adherence to the tradition principle results in the publicity of the transfer.137 As can be discerned from what has just been explained here, it is not useful according to the Finnish way of legal thinking to ponder over whether there are different types of tradition. Tradition refers either to physical tradition or to tradition longa manu and traditio brevi manu. The parties may find it difficult to try to construct different forms of tradition or delivery because, as was stated, the parties can not validly agree on a condition that would impose obligations on a third party. This means that there is no point in such an attempt, for it is pointless to do so. Also, since our legal system in most of its areas lacks codification, numerus clausus catalogues and other arrangements of the kind, it is not surprising that no list or catalogue containing such information exists in Finland’s regulations or laws.

5.4.2. Physical tradition Tradition refers to the transfer of possession from transferor to transferee, which is based on a contract or other mutual legal act between two or more parties.138 Transfer of possession perceived in such way actually entails two presumed factors and elements: on the one hand, there is the physical power of control of the owner / transferor, which ceases to exist, and, on the other hand, the physical power of control of the transferee comes into existence simultaneously.139

137 138 139

Tepora, 2006, pp. 55 ff. Kartio, 2001, p. 150. Tepora, 2006, p. 57.

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Arguments against the value of the aforementioned publicity principle may be seen in the following reflections. In a modern society, it is scarcely the case that creditors draw conclusions from what the debtor possesses de facto, that is, what the debtor does in real-life terms so as to have physical control and what the value of those objects may be to creditors. Nowadays, the credit risk inherent in a loan, and the solvency of the debtor and its evaluation is based on other factors and characteristics. Furthermore, the significance of so-called normal movables like collateral etc. has diminished from what it used to be a few decades ago. Therefore, more and more importance is placed on the conceptions and rules pertaining to movable objects, which may be registered in some way in a publicly or privately held register, which makes it is easy for a creditor to seek and find information on previous debts and credit arrangements of a new ‘debt customer’ who seeks an asset-backed loan.140 As for the definition of physical tradition, one must add that what is important here is that the transferor is being, in all respects, stripped from the possession and control of or other power over the transferred object. The transferor has to be entirely deprived of these in order for tradition to take place.141 The power to control usually manifests itself as physical control over an object but the power of control can also, in some cases, be exercised indirectly through dispositions of some sort. Therefore, it is possible for a delivery to take place where the physical location of the object remains the same, i.e. the location does not change, yet the possession is transferred from the transferor to the transferee. What remains in essence is that the transferor must not have any de facto means of disposing of the object after transfer, i.e. the point where the transferee has acquired possession.142 Presumably, this would entail that the object would have to be either in the possession of the transferor or transferee, without the theoretical possibility of the former or the latter being in possession of the object within the period of its transfer. Thus, the presumption that there can be no co-possession by transferor and transferee seems a plausible one. The question whether or not physical tradition requires legal capacity, and the question whether it is possible that the requirement is fulfilled only if the transfer is voluntary, seem a bit strange from the Finnish perspective since there is no requirement for a causa or the like to underlie the contract in order for the latter to be valid. This being so, it is evident that questions like these belong to a different subject matter, falling under the scope of the law of obligations and the laws of guardianship etc. Of course, legal acts in

140 141 142

Tepora, 2006, p. 57. See also Zitting – Rautiala, 1982, for older deliberations. Kartio, 2001, pp. 150 ff and Tepora, 2006, p. 57. Kartio, 2001, p. 151.

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our system also require legal capacity, but questions like these have little significance in relation to possession and tradition.

5.4.3. Tradition by handing over an instrument or other equipment For tradition to take place, it is not necessarily required that the transferor physically transfers the object in question to a different desired location or place so that the transferee subsequently is in the sole possession of that property. Tradition may also take place by the handing over of a certain instrument or other reasonable piece of equipment such as a key etc.143 Let us consider an example where parties A and B are contracting for the sale of a car between each other with the following stipulations: A agrees to transfer the possession of a sports car to B. The car itself is at present stored in a warehouse, which can only be accessed either with the correct keys or, let us say, a PIN code. Party A owns the warehouse. B agrees to the terms of the sales contract, but only if A is formally and practically deprived of the access to the car. In this case, it would be sufficient to effect tradition by handing over to B the keys and the code; however, if either one of these remains with A, tradition could not be effected. A must be completely deprived of any means to exercise possession.144 It would be hard to formulate a rule according to which the recipient bears the risk of tradition not taking place when he / she has taken all necessary precautions. In the previous example, if A were to retain one more key secretly, this would fall into a different framework and would not have an impact on whether or not one can conclude from the objective facts that the transferee has assumed the legal status of a protected right holder, who is protected against third parties. However, as stated, the rules concerning such special cases, which fall outside the so-called normal tradition concept, seem more or less uncertain and are subject to different opinions. These kinds of questions are very seldom discussed in modern and current legal literature. To continue the above example, it is possible that tradition takes place by the handing over of the owner’s car documents and the keys (to the car as well as to any other potential storage facility), as long as the transferor is being deprived of possession and thus disabled from exercising any powers of control over the car. In such a case, tradition takes place when the preconditions set forth here have been fulfilled accordingly. 143 144

Kartio, 2001, p. 158. In general, for different interpretations of issues, in this respect, arising in cases involving movables, see e.g. Zitting, Saantosuoja irtaimisto-oikeudessa, 1956, pp. 7580.

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5.4.4. Tradition by marking and fixing a sign etc When one is dealing with a collision of rights where the fundamental question is whether tradition has taken place and to what extent the transferee is protected and has priority over other creditors, it would seem quite puzzling if the answer was to be determined by factors other than those already mentioned. Therefore, the transferor must be separated and disabled from exercising any legal powers in relation to the transferred object. Should it be the case that such effects could be manifested in some way and produced by affixing a sign or some other kind of symbol or mark on the object, and the object is not to be transferred into the possession of transferee, it might perhaps be possible that tradition still takes place. However, this solution and alternative seems highly open to criticism and varying legal opinions. I find it hard to believe that such clear conditions can be achieved in real life in a way that a transferee would have priority over creditors. It would be all too easy for competing creditors or other successors to contest such a non-existent legal fact.145 Therefore, it is advisable to avoid these kinds of arrangements altogether since they leave too much room for uncertainties and other inconsistencies.

5.4.5. Tradition by document of title Similar to the previous question, the question here is whether or not one can achieve tradition by transferring certain documents that represent the underlying object itself, i.e. as a substitute for the latter. For a Finnish jurist, this concept seems rather strange, although other jurisdictions might have different usages in relation to this issue. Questions like this seem to fall into the scope of the law of obligations and thus the law of contract. Such a transfer of contractual documents, i.e. a specific physical piece of paper / document, in relation to which the parties have agreed that it shall be the only permissible mode of transfer, would leave a competing creditor in a stronger position as regards his / her priority over other creditors, since, as was pointed out, tradition usually requires some sort of publicity to others or the fulfilment of other prerequisites in order to secure the validity of the transaction. It seems that there are scarcely any rules or practices concerning this type of tradition method in the Finnish jurisdiction. Also, it is evident that when one is operating with a system where the goods to be transferred are in the possession of some other party, a third party 145

Affixing a mark on an object resembles the physical act by bailiffs who attach, by virtue of a court order, an object belonging to the debtor, following a court proceeding that has failed and pursuant to which the debtor was obliged to make payment.

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participant that is, there is perhaps too much room for double selling and forgery etc., which would jeopardise, or at least render uncertain, the proper operation of such a system of tradition. However, it should be mentioned that the Finnish system is familiar with foreign institutions such as the consignment note, the bill of lading, the payment order, the documentary credit etc.146

5.4.6. Traditio brevi manu Along with the physical transfer of possession of property, there are other transfer alternatives. Traditio brevi manu or ‘short hand transfer’ (lyhyen käden luovutus)147 refers to a situation where the goods are already in the possession of the acquirer before the agreement is concluded. In such a situation, it is possible that the parties agree to conclude a contract and, upon its conclusion, the transferee is to be considered as being protected against third party creditors. This seems to be a rather well-founded and logical conclusion since, evidently, the goods are no longer in the possession, nor under the physical control, of the transferor, and furthermore, it is conceived that the transferee, in a case like this, possesses the goods on a different legal basis, i.e. causa, than before the contract was concluded; thus, the transferee / acquirer is protected after concluding the agreement. However, what has been said would entail that an inter partes contract is required and that the traditio brevi manu-rule would not apply to other situations where the obligation to transfer ownership does not arise from a contract. Example: A has leased a heavy steel grinder for a trial period of 6 months from party B. After testing the leased machine in A’s business operations, party A decides to buy the machine from lessor B. In this case, after the agreement has been concluded and signed, A, from that point on, possesses the machine as an owner and not as lessee, which is also binding on party B’s successors and creditors.148 There are no established rules on tradition by way of using so-called third party carriers etc. This question once again, just as the one mentioned above, should be considered as falling into the scope of contract law and contractual documentation between the contracting parties, which seems to entail that in rem effects, which are also binding on creditors and the like, are difficult to reach. 146

147 148

For rules governing international trade and contractual relations arising thereunder see Sisula-Tulokas, 1998, Ulkomaankauppaoikeus, pp. 137 ff. Tepora, 2006, pp. 57 and 110. See e.g. Tepora, 2006, p. 58.

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5.4.7. Constitutum possessorium It has been recorded that sometimes laymen have tried to achieve binding effects against third parties by concluding an agreement, according to which the transferor remains in the possession of property. This situation falls into the scope of the so-called constitutum possessorium-type of transfer of possession, which is forbidden in the Finnish legal system, i.e. there is no legal effect of a transfer of possession of this type. A contract, pursuant to which the transferor is to possess the property on behalf of the transferee after the contract has been concluded is not valid. The preconditions for a binding transfer of possession are not fulfilled in this case because the transferor is not being deprived of his / her physical powers to dispose of the object, nor of the possibility to exercise them. This means that constitutum possessorium transfers do not produce any legal effects, because the transfer is not public and thus remains undetectable.149 Example: party A pledges as collateral a car to party B, who is the recipient of the collateral, party A being the provider of the collateral. The parties agree among each other that A shall still have the possession of the car after the agreement has been concluded, although the car itself is the pledged object. If now it so happens that party A is declared bankrupt, the pledge contract is not binding on A’s creditors in bankruptcy, because A has still had the physical possession of the car at the time of the filing for bankruptcy. Due to this fact, A is considered as being the sole owner of the car and, therefore, it can be lawfully seized. If the parties had agreed that the car should remain in a parking garage owned by A, but the only key proving access thereto would, at the time of concluding the pledge contract, be handed to party B, it would be perhaps possible that the mere transfer of the key would suffice in order for the pledge to be binding against third parties, because party A is being deprived of the possibility to access the collateral object.150 Once again, it can be perceived that the transferor must be effectively stripped from all possibilities to access the relevant property, in the sense of both a physical and a legal disposition of the movable thing.

149

150

See also Aurejärvi – Hemmo, 1998, on issues of transfer in light of the law of obligations. See e.g. Tepora, 2006, p. 59. See also Zitting, 1956, p. 75. Also see Kartio, 2001, p. 152 and references there, such as Zitting – Rautiala, 1982, p. 65 etc.

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5.4.8. “Denuntiation” as tradition by way of notification Traditio longa manu or tradition by way of notification (notification = “denuntiation” in Finnish terminology) concerns situations where the transferred object is in the possession of a third party who is possessing the property for the transferor.151 The transfer of possession takes place when after concluding the contract, either of the parties to the contract informs the third party holding the goods. After the giving of such notice, the third party holding the object is understood as possessing the goods for the transferee. The transferee is protected against third party creditors and other successors of the transferor after the denuntiation /notification has been effected properly and in accordance with the contractual stipulations. This does not mean that notification has to be agreed on beforehand. That is not case. The notification system is not governed by any specific expressly applicable regulations152 and the principles governing it have been formulated by legal literature and, according to academic writing, the denuntiation / notification itself is rather informal in terms of form or necessary wording etc. Thus, it is sufficient that the transferee can prove in some evident way that the notification has been given to the third party possessor.153 This naturally concerns specific goods. In the case of fungibles, one might assume that after notification, the transferee is the holder of an obligation (as usually in case of generic goods) instead of a right in rem, which is rather the case when the goods are specific. Example: party A is the owner of a valuable painting which has been delivered to Art Trading House B for, say, the purpose of restoration. During this time (the object being possessed physically by an agent of B), A decides to sell the painting to another art collector, C. After the conclusion of the agreement between A and C, party B is informed thereof and ordered to hold the painting for C. If A is now declared bankrupt, the transfer of possession / ownership by way of denuntiation is binding on A’s creditors, if notification has been effected and the contract is valid, with the relevant period of time being assessed accordingly.

5.4.9. Registration Legal effects can also be achieved by registration, pursuant to which the registered object or right is considered to be known by everyone, thus being binding on third parties. Registration is the cornerstone of the transfer 151 152

153

Tepora, 2006, pp. 57-58. The general rules regarding denuntiation can be found in the Code of Sales (KK) 10:1.2 §. See Tepora, 2006, p. 58.

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of immovable objects in land law, but when speaking of movables, which is the case in the present discussion, registration seems to be more of an exception than a rule. Although it must be pointed out that the possibility of extending the scope of application of registration is under discussion. Registration in the Finnish legal system usually entails the significance and effect of obtaining priority over creditors. In terms of legal effect, it is thus not constitutive but merely declaratory. Rights and obligations arise out of contractual stipulations in most cases and, therefore, the purpose of registration is something else, i.e. to achieve priority over creditors. Considering the topic of this paper, it may be worth pointing out some types of assets of value that have to be registered. Such assets are, among others, immaterial rights (but not necessarily copyrights) and book entries (as a sub-form of physical shares). Shares of public companies listed on the stock exchange fall under the book-entry system. The ownership of such shares is entered in a book-entry account. Registration, in the case of book entries, has the same legal effect as the transfer of possession in the case of physical shares and securities.154 This entails that after the registration of a transfer, such transfer becomes binding on third parties, just as would be the case if a physical document had been handed over. The meaning of registration in these cases is to strengthen the visibility of the right holder’s legal status against third parties. The basic material rule of the Act on Book-Entries 3.3 § provides that the same rules as to the creation and transfer of promissory notes apply to book entries. The entries registered in the book-entry register (maintained by an institution designated in the applicable regulation) have the same purpose as a transfer of possession; it is necessary to register ownership accordingly, and such registered ownership can be the object of rights and restrictions such as those arising from pledges, attachments etc. After such registration, the right, or equivalent, becomes protected against third parties.155

5.5.

Consensus principle

The differentiation and choice that has been made between the tradition principle and consensual principle has already been introduced in previous 154

155

Act on Book-Entries (laki arvo-osuustileistä 17.5.1991 / 827) 3.3 §. The Finnish book-entry system is founded upon the so-called non-possession principle, i.e. no physical documents exist at all. Some other countries, such as Germany, have established a system different from that of the Scandinavian model. In such systems, a designated institution stores the physical securities that are ‘stuck’ in its storage and is also responsible for the clearing of trades. See Tepora, 2006, p. 129.

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sections. See e.g. chapter 5.3.1. However, a number of elaborations and some further detail may be of use at this point. As stated, instead of asking who the owner is or when ownership passes, one should be asking the question of when, at which point, and to what extent the transferee / acquirer is protected against the transferor’s creditors and successors. Therefore, it seems quite obvious that the dogmatic foundation builds on the basic principle of the transferee’s protection. Since this question is of importance during the dynamic process of the transfer, the question, when asked from this perspective, is one of the nature of the creditor-transferee relationship. Bearing in mind the relation with ultra partes creditors / successors, it is also conceivable that questions of party autonomy are not highly important issues when examining rights in rem and their holder’s protection. Party autonomy as a dogmatic starting point falls into the scope of contract law and, thus having a somewhat different context even though, of course, it was stated that some principles of contract law have some (in some circumstances, great) effect on issues of property law. The following notion elucidates what has been depicted in this discussion paper: the Finnish system of transfer is founded partly on tradition and partly on consensual principles, according to the subject matter of the transfer in question. First, one must examine whether the case concerns movable or immovable property, and secondly, if movables are concerned, what type or sort of movables. As stated, different rules apply to different kinds of movables. According to the rule on specific goods, for a right to be a right in rem the object itself has to be clearly identifiable due to the specificity principle. Rights in rem concern items that are capable of being clearly separated from others, meaning that they can be individualised in their current state. These specific goods, such as a car, a painting or a book are the so-called normal movable objects, the other class of specific objects, other than normal movables, being negotiable instruments, i.e. promissory notes and bonds, as was stated in section 5.3.3. On the other hand, generic goods or objects forming part of a bulk, are items that can be measured, counted or weighed, such as oil for instance. These generic goods become tangible objects or movable property after specification and individualisation has occurred, for instance by filling a quantity of oil from a larger bulk into a barrel. The rules of property law and rights in rem are applicable to such goods only after specification and individualisation has occurred. The antithesis of this phenomenon is the socalled confusion (see section 11.2 below), where movables loose their specific physical identity, thus also resulting in the extinction of their legal status.156 156

Kartio, 2001, p. 63.

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It is worth pointing out that when an original movable object like a barrel of oil loses its individual character, let us say, by confusion or commixture, the ownership of that movable object / substance is consequently also lost. It has to be noted that the buyer of generic goods is protected against third parties after the goods have been separated and marked on his / her behalf. So the question is actually: when are the goods separated so that the legal effects are binding on the successors of the seller? It is clear that specification is a necessary precondition for the effective protection against third party creditors, given the fact that tradition is not required in these cases.157 As was stated, identification is necessary for ownership to pass to the acquirer. It can also be concluded that when a buyer or seller is in a situation where identification has not taken place, i.e. no right in rem has been created and, thus, no ownership has passed, he / she is left only with an obligation. The rules and theories concerning res futurae or future goods have not been discussed very widely and are open to criticism in their current state. This, on the other hand, means that the issue has been dealt with to some extent. Since objects need to be individualised and specified before they can be counted as being proper objects of rights in rem, it is regularly presumed that the object itself exists at that point in time. For instance, a pledge can have priority over creditors, if the provider of the collateral has agreed to hand over the pledged item as soon as it has come into existence (e.g. a custom-made thing has been finished etc.) to the recipient of the collateral, and that the agreed item (its description etc.) matches with what was agreed. Furthermore, the pledgor must have the possession of the pledged item when handing it over to the pledgee.158 As a general notion, it seems to be clear that an agreement of sale over a res futurae is possible under certain circumstances, as has been pointed out in recent legal literature.159 Concerning the question of whether one can conclude a contract on the sale of goods that are not yet owned by the ‘transferor’, the obvious but perhaps hasty answer would be that one cannot sell property owned by another person. A situation like the one depicted in the question might refer to some sort of agent or other middle-man (indirect representation constellation) structure, thus falling under the contractual theory. It might be possible to acquire under such a contract, but without ultra partes effect, 157

158

159

See the Sale of Goods Act 54.1 § and 55.1 §. See also the rather old but still useful Supreme Court ruling KKO 1923 t. I 4. See e.g. for pledge-related topics in general, Havansi, 1992, and for res futurae in particular see idem, p. 71. See, Kaisto, 2001, p. 256.

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i.e. the acquisition does not grant the purchaser priority over creditors if the ‘transferor’ or the actual owner / possessor of the goods happens to go bankrupt during that critical period of time (before goods are delivered or the contract becomes binding). Suspensive conditions once again are a matter of contract law. They are prominent in inter partes relations, but difficult questions in relation to them may arise when an ultra partes effect is also sought by their stipulation. If the goods have been separated and marked for the account of the acquirer, it is possible that he / she might obtain dynamic protection from the time of concluding the agreement, depending on the nature of the goods. The question of alternative obligations, opening up the possibility of a choice seems somewhat strange in light of the subject matter. If the transferor enjoys unlimited discretion over what is to be transferred, this may at least be puzzling in light of the specification and publicity principles. For instance, to give a short example from the legal rules on bankruptcy and recovery from the bankruptcy estate:160 if a debtor has made a payment using unconventional means of payment, that is, other than cash money or a money deposit, it is usually the case that the payment can be recovered during a certain time period. E.g. if the debtor has made a large payment shortly before the filing for bankruptcy, by transferring a car (the value of the object being equal to the sum owed to the transferee), that payment is open to recovery. So ex analogia, one might assume that if the creditors have no way of knowing and determining what has been specifically agreed in the contract of sale, or the thing in question has not been disposed of on the account of the acquirer (transferor may choose as he / she pleases), priority over creditors may be easy to achieve with complex contractual documentation stipulating alternative definitions of the subject matter of the sale. However, it has to be duly noted that the issue of recovery and the issue of general priority over creditors are completely separate institutions, and are, therefore, issues having different rules etc. The aforementioned example just serves to reflect the application of plausible reasoning.

5.6.

Real agreement

As stated, there exists no such conception as the real agreement in contemporary Finnish legal doctrine and, therefore, the question seems vague to a lawyer of Finnish origin and legal education.

160

See the Act on Recovery (takaisinsaantilaki).

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5.7.

Payment

Transfer of ownership does not require that there is a payment. A reservation of title can only be achieved if it has been agreed by the parties. In other words, it is possible (of course) to agree that the ownership of a certain movable item is to be transferred by signing and concluding the contract, it thus becoming enforceable, the possession to be transferred according to the agreement, and payment to be made at a later (agreed) point in time. A construction like this would simply mean that the transferor (and subsequently, a creditor) grants a loan (obligation to make payment at a later point in time) to the acquirer (now being the debtor). It has no effect on the issue of the transfer of ownership, unless the parties have agreed that the title is to be reserved until the full purchase price has been paid. 161

5.8.

Right to dispose

According to Finnish legal doctrine, in relation to property law, it is a well-known fact that only the owner has the power (right to dispose of) to transfer ownership. For instance, a commissioner acts on the basis of the power vested in him / her by a mandate or other authorisation so, basically, he / she acts on behalf of someone else; this does not mean that there exists a rule according to which it would be possible to transfer ownership without the prior consent of the owner.162

6.

Double selling

In a situation where A sells the same object twice, first to B and then to C, the dilemma to be solved concerns a collision of two (perhaps equal) rights. A case of double selling entails that there are two or more rights conflicting with each other. One right must yield to the other. Only one party can ‘win’ the conflict. Usually, a conflict like this is solved by applying the so-called priority-in-time rule: if party B wins, he / she is said to enjoy priority in time, i.e. B was in possession of the goods at the time of the second sale, thus B is sometimes called primus because of being first and C secundus for being the later transferee. As a general rule, the Roman formulation ‘prior tempore, potior in jure’ (the first one has a better right in relation to the second one) is applicable in double selling situations because a similar wording can be found in the 161 162

For retention of title, see eg. Tepora, Omistuksenpidätyksestä, 1984. An act like that would constitute embezzlement or a similar criminal offence.

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Code of Sales of 1734 paragraph 1:5,163 where it is stated explicitly that if the same goods have been sold to two persons, the first buyer may keep them. This regulation is applicable to normal movables, that is, movables other than promissory notes and other negotiable instruments.164 Priority may be achieved by concluding the contract. If the double transfer concerns promissory notes, that is, objects other than normal movables, there is no explicit statutory regulation to deal with this matter; nevertheless, this situation is quite similar to one involving normal movables. The first party to get hold of the negotiable instrument is considered to have priority in time and thus ‘wins’ the conflict.165 The second must obtain possession in good faith (at the time of the transfer of possession (n.b. tradition is required) in order to win. Also, in most cases, one must be in good faith (interpreted loosely) also in the case of normal movables, since a party who can be considered as having acted in bad faith, may not derive any benefits therefrom.

7.

Selling in chain

Taking the notion of selling in chain to refer to circumstances, where party A sells goods to B and B, after acquiring ownership, then him- / herself selling on the same goods to party C, would mean for a Finnish lawyer that there are two different and totally separate transactions and, thus, two individual legal relations: A – B and B – C. Since our jurisdiction does not recognise real agreements, this question bears little significance in terms of rights in rem. After party C has acquired and received ownership and possibly the physical possession of the goods, C is entitled to the enjoyment of priority over creditors, both of A and B. Furthermore, the fact that A agrees to deliver directly to C is a matter of another totally different contractual relation. Should party B fall into bankruptcy in the meantime, the transfer of the object by A directly to the control of party C would entail the following legal effects: if party B is deemed to be the owner at the time of the filing for bankruptcy, this would mean that the bankruptcy estate assumes the legal position of party B and, therefore, C must still make payment to B, i.e. the estate has a claim against C, thus C owes an obligation. Also, it is possible that in the illustrated case party A might enjoy a right to claim all excess dividends if the estate is bound by the previous contractual relation between A – B. If the goods are delivered directly to C, this means that 163 164 165

Code of Sales / Kauppakaari 1:5. Kartio, 2001, p. 261. See Kartio, 2001, pp. 294-295 and Promissory Notes Act 14 § ex analogia.

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C assumes priority over the creditors of party B, and in addition, party B assumes priority over the creditors of party A. If the contract in either of the relations is void for some obscure reason, there are various solutions and outcomes, depending on the current situation and possible contractual documentation. First, party A may have a vindication claim against B in the case of nullity, but only if party B has not obtained possession in good faith.166 In certain cases, B might, under certain conditions, acquire ownership by making payment, but usually B is under the obligation to return what was given to him / her on the basis of the void contract. Should the contractual relation B – C be nullified and invalid, there is little party A can do about it, and why should the latter wish to do so? It is quite evident that party A has nothing to do with the relation B – C, unless there is some contractual stipulation thereof in the relation A – B, e.g. a commission agreement etc. In such a case, and possibly in others too, it may well be that according to the prior contract A – B, if relation B – C is invalid, the goods are then deemed to return to party A, but once again, this is a hypothesis.

8.

Transfer through indirect representation

It is possible to acquire ownership by means of indirect representation, but this is also open to debate, since this kind of constellation, in most cases, results in trouble if something unexpected (like bankruptcy) takes place during the time when the goods, or whatever may be the object of transfer, are in the possession of the intermediary. For instance, the transactions on the stock exchange are to be considered as a commission sale agreement: the commissioner (stock broker) acquires the bonds in his / her own name but on behalf and on account of the principal.167 In a normal case, the insolvency of the intermediary would not affect the transfer of the bonds to the buyer if the asset has been separated from the assets of the intermediary. If the assets have been mixed with the assets of the intermediary, there is a serious risk that in the case of insolvency, the principal might lose his / her priority over creditors.168

166

167

168

For good faith acquisition, see the relevant section for more details. For a general presentation of issues related to good faith acquisition, see e.g. Kaisto, Tiesi tai olisi pitänyt tietää, 1998. See Tepora, 2006, pp. 134-135 and the Act on Stock Trading and the Code of Sales, 18th chapter. For more on the issue of intermediaries, see e.g. Kaisto, velkojasuoja välihenkilön konkurssissa, 2003.

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When pondering over bankruptcy-related questions in relation to indirect representation, it is helpful to keep in mind that the actual ownership of the concerned goods does not, in the Finnish legal system, transfer to the representative who acts in his / her own name, but on account of the principal, at any stage of the situation. A relationship of commission,169 for instance, is deemed to be based on indirect representation where the representative performs the legal act in his / her own name, but, as stated, for the account of the principal. As was stated, ownership does not pass to the representative at any stage, therefore the bankruptcy of the said party should not have any influence on the transfer between the principal who actually acquires the item and the transferor, but obviously problems do arise, since it might seem to outside observers that the intermediary is the rightful owner after having acted in his / her own name. Should the principal be able to prove the fact that he / she is the actual and corporeal owner of the goods, he / she might be able, in some cases, to enjoy a right of separation from the representative’s bankruptcy estate. Furthermore, if it is the case that the representative has acted as a middle man through indirect representation, it would not necessarily prevent a direct transfer between the principal and the transferor from taking place.170

9.

Insolvency-related issues

When speaking of property rights as rights in rem in light of Finnish legal doctrine, one usually takes insolvency issues into account as one, at all times and in all relations and aspects, significant aspect of the issue of priority over creditors. This is a fact that can also be noted when reading this brief presentation of the rules regarding the transfer of movables. As was mentioned in the first chapters, the core question can be formulated in such a way that the key to its answer is the determination of the point in time at which the transferee can be considered as being protected against third parties, and here ‘third parties’ usually refers to the successors of the transferor. These successors can be, for instance, the transferor’s creditors in bankruptcy. This would entail that the rules presented so far are also applicable to relations where either of the parties is being ‘replaced’ (loosely interpreted) by the administrator of the bankruptcy estate. As a general rule, after the bankruptcy filing with a district court, the administrator of the bankruptcy estate asserts his / her exclusive right to exercise the rights and fulfil the obligations of the debtor (aim of the bank169 170

See e.g. Kaisto, 2003, for further reference. Hemmo, Sopimusoikeus I, 2003, pp. 454 ff. See also, Rudanko, Arvopaperimarkkinat ja siviilioikeus, pp. 42-52.

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ruptcy proceeding). After that point in time, the debtor no longer has any right to dispose of any of his / her property in any way.171 However, it has to be noted that the debtor does not lose his / her ownership of the said property. Only the power to dispose of it is limited and thus vested in the administrator in all respects. The debtor is regarded as and is, the owner of the property that is now under the control of the administrator. The debtor loses the right to dispose of and control the property.172 The bankruptcy proceedings do not affect the pre-existing contractual relations, and rights and obligations arising therefrom. Bankruptcy as such constitutes no ground for terminating contracts or other equivalent legal relations, and therefore the administrator is not allowed to do so either. If there is any other ground for invalidity or other reason for the termination of the contract, arising from its usual execution, there are standard types of remedies for such kinds of cases. The administrator may sue or bring actions on behalf of the debtor’s bankruptcy estate (i.e. instead of the debtor). If the estate fails to fulfil its contractual obligations, the other contracting party may terminate his / her contract if possible, but only by reason of the normal causes for termination, i.e. bankruptcy as such is not a justification for nonperformance. Also, vice versa, if the other party breaches the contract, it is for the estate to sue for breach of contract.173 As can be deduced from the previous statement, a so-called actio pauliana type of right or concept does not exist in Finnish legal doctrine as such. The actio pauliana claim might be perceived as the paragon of the institution most Europeans now know as the right to recover from a bankruptcy estate. The modern idea of recovery entails that even if there is a legal obligation stipulated by the debtor and that obligation is to be generally valid and binding, thus also on creditors, there is a remedy with which it is possible to reverse acts aimed at prejudicing creditors.174 The issues concerning the insolvency of either of the parties have been attempted to be illustrated throughout the text where necessary and adequate, and will not be individually repeated here. In terms of rules pertaining to recovery itself in Finnish legal doctrine, one finds the basic framework from the Act on Recovery. According to the scope of application laid down in the first paragraph, we can observe that when the property of the debtor has been declared into the bankruptcy estate, it is possible to reverse or revoke certain legal acts with a court decision. In addition, the same rule applies to other actions of the debtor, to

171 172 173 174

Act on Bankruptcy Proceedings (konkurssilaki) 3:1. See, Koulu, Uusi konkurssilaki, 2004, p. 156. Koulu, 2004, p. 166. On recovery-related issues, see Tuomisto, takaisinsaannista.

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arrangements of certain types and to operations that would have the same impact as if they were a legal act as such.175 The Act on Recovery applies to bankruptcy proceedings in general, as a general rule. In certain situations it possible that the Act can apply in respect of execution, reorganisation of business entities and also loan arrangements of private individuals. The basic idea is that certain legal acts of the debtor prior to given facts, such as a declaration of bankruptcy, can be revoked or reversed, and therefore one might think of it as the subsequent modification of legal acts. The Act recognises a general ground for an action to recover in the section 5, which states that a legal act is recovered, if by means of the legal act alone or together with other acts, a creditor has been favoured, or assets have been disposed of beyond the reach of creditors, or debts have been added to the expense of other creditors etc. The prerequisite for a successful claim is that the debtor was insolvent at the time of performing the aforementioned acts or that the acts themselves caused the immediate insolvency. Along with the general rule concerning legal acts as such, there is also certain special provisions concerning reversing gratuitous gifts, payment of moneys, collateral arrangements etc.

10.

Passing of risk

The issue of the passing of risk has been partly discussed in section 5 of this report, due to the fact that the Finnish legal system does not recognise a unitary concept of the passing of ownership. Therefore, this is relates to questions such as whether the consequences of late delivery and creditors’ default of acceptance are irrelevant to the issue of whether the acquirer is protected against successors of the transferor, or whether he / she has priority over creditors. Such matters fall within the scope of contract law and commercial law, as well as the laws on sales, i.e. inter partes relations between the contracting parties, which also entails that issues of the passing of risk do not affect ultra partes relations and thus ius in rem-related issues.

175

See Act on Recovery 1 § and 5 §. See also Tuomisto, Takaisinsaannista, 2002.

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Part III: Original acquistion 11.

Acquisition by accession, commixture or specification

Original acquisition, by definition, differs from derivative acquisition in that in the case of an original acquisition the acquirer of ownership does not derive the right from another person. In cases of original acquisitions, the acquisition of the ownership of property is not dependent on that (ownership) of the previous owner because no such previous ownership exists. The reason for this is seen to be the fact that the subject matter of ownership is property, a physical object, that has not previously had an owner or is ownerless at the time of acquisition, i.e. the object may be a totally new item or thing without a present owner, or an item consisting of different merged objects.176 In the Finnish legal system, three main different types of original acquisition are recognised: a) occupation (valtaus), b) commixture (yhdistäminen) and confusion (sekoittuminen), and c) specification (valmistaminen). Occupation usually refers only to ownerless items (as can be acquired by way of fishing and hunting). However, one should first address the issue of constituents and fittings of movable property, and their importance in the context of accession, these not being regarded as acquisitions as such but as somewhat different matters, as will be described in the following paragraph.177

11.1.

Constituents and fittings versus accession of movables

As mentioned, neither accession nor the legal characterisation of being the constituent / fitting of a principal movable object, refers to an original acquisition as such, but rather to a certain relationship between the primary object and the secondary object, a relationship which is not of a physical nature, but rather of a theoretical legal nature. The characterisation of being the constituent / fitting of a thing indicates the fact that the primary object and the secondary object are in a way interdependent, forming a useful integral whole / entity. The secondary object has the func176 177

Zitting – Rautiala, 1982, p. 246. Kartio, 2001, pp. 216 ff.

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tion of serving the primary object. There must be a certain factual relation and connection between the two objects. The question is of significance when one is determining whether or not the objects are different and thus individual (separable) objects, being subject to differing rules for asserting ownership, or whether it is the case that the component / secondary object belongs to the primary object and, as a result, the owner of the primary object is also the owner of the secondary object. Should it be considered as an acceding movable, ownership may vest in someone else. Actually, it is required that the ownership of the primary and secondary objects is in the hands of one person in order for the accession of constituents and fittings to be possible. When the primary object is sold, the secondary object is also transferred with it, without the necessity for any express contractual stipulation.178 In practical terms, accession refers to a situation where the primary and secondary objects are owned by different persons. The question is then: what justifications are there for allowing the owner of the primary object to claim for the ownership of the secondary object by relying on the fact that the latter has been joined to the primary object? In the case of accession, it is possible that the owner of the secondary object loses his / her ownership to the owner of the primary object. There are no express rules on accession and scarcely any legal literature, so the existing principles and theories might be open to discussion.179 It is possible that the owner of the primary object claims the ownership of the secondary object, which has been joined to / merged with the primary object, if it is impossible to separate the objects without causing serious harm or damage to either of them; in this case, as indicated, the owner of the primary object wins the conflict of rights, whether or not he / she is in good faith (although bad faith, if charactised as fraudulent and malicious, gives rise to a claim for damages). Defining what is primary and what is secondary is a matter of common sense. Furthermore, the question is not solved by determining what is immovable and what is movable, although usually it is the case that the movable accedes to an immovable.

178

179

See e.g. Kartio, 2001, p. 112. The issue of constituents and fittings has been widely discussed since it bears quite some significance for evidentiary reasons. Actually, there are very few preliminary rulings concerning accession, though one may be mentioned here: KKO 1981 II 47, where it was held that if the secondary object could be dismantled from the primary object without causing serious harm or damage to the primary object, accession was not possible; hence, ownership remained with the owner of the secondary object.

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11.2.

Commixture, confusion

Commixture and confusion of objects refers to a situation where movables lose their specific nature and, in that process, also its separate legal nature.180 In a case of commixture, an object loses its specific nature and thus a right in it cannot be regarded as a right in rem, but only as an obligation. The inverse situation involves generic goods, which are items that can be measured, counted or weighed, such as gas for instance. Such generic goods become separate objects or movable property upon specification and individualisation, for example, by abstracting a certain quantity of gas from a gas tank contained on a freight ship and filling it into a smaller tank on a gas transport lorry. The rules of property law and rights in rem are applicable to these goods only after specification and individualisation has taken place. It must again be pointed out that when an original movable object like a barrel of gas loses its individual character, for instance by confusion or commixture (two barrels of gas are merged into one larger barrel), the ownership of each of the two individual barrels of gas has been lost. Commixture takes place when two or more individual objects are merged to one item, as is the case with accession, which could be defined as a subcategory of commixture. Another category might be a type of restricted / limited commixture, i.e. where two or more objects of an accessory nature are merged to one. For instance, two kinds of metals are melted to one liquid mass. In a case like this it is considered that owners of such accessory objects acquire shares of co-ownership in the new object, unlike in the case of accession, where the owner of the accessory object has to give up his or her ownership to the owner of the principal movable.181 Good faith normally bears no significance in this respect. The rules that have been expressed here seem to be somewhat simple but the issue becomes rather difficult when the object of commixture involves, for instance, money (cash money is a tangible item). For instance, in the case of bankruptcy proceedings, if a debtor has commixed money that belongs to a third party with the money of a creditor, and where this has occurred prior to the filing of bankruptcy (the money of the third party and creditor are kept together in the same cash box or safe), it is possible that due to the commixture, the whole sum is to be considered as belonging to the debtor, thus forming part of the bankruptcy estate, its total assets now being distributed among the creditors in bankruptcy.182

180 181 182

Kartio, 2001, p. 63. Kartio, 2001, p. 218. See the writings of Kaisto in this matter. See also KKO 1922 t. II 229, KKO 1993:132.

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Specification, processing

Specification refers to the act of producing something new from existing materials, i.e. the creation of a totally new and individual object that is separable from others and, thus, separately identifiable. The question is then: who is to be the owner? The manufacturer or the provider of the movables / materials? The problem usually arises only if the manufacturer has used property other than his / her own, without the consent of its owner, for his / her own benefit. In such cases, the parties usually agree on a natural division of ownership etc. Once again there are two colliding interests: the owner’s and the manufacturer’s. That is, the value of production conflicts with the value of the right of ownership. In legal literature, a comparison is usually made between these two values, i.e. the value of work and the value of the materials, when deciding upon the proprietary consequences. A classic example would the work of an artist when painting a portrait of someone, the latter providing the raw materials such as canvas, paints and brushes. In such a case, it would seem quite unfair to deprive the manufacturer / painter of the ownership, should a conflict over payment arise, or any other delay or default occur. In such a case, the manufacturer does not necessarily have to be in good faith in order to claim for ownership. A more realistic example might be e.g. a situation where party A manufactures a new thing from materials which have been bought under reservation of title by party B, the latter providing these materials to A for the purpose of manufacture. In legal literature, the most prevalent position is that in these situations the owner / seller also assumes no priority over A’s creditors after specification, resulting in a new object, has taken place.183 In the case of co-ownership, the co-ownership shares will usually be equal, unless otherwise agreed. Furthermore, if the right in rem, i.e. ownership, is lost, once again the losing party in the conflict ends up with a possible claim for compensation, i.e. merely an obligation.

12.

Good faith acquisition

An acquisition giving rise to the question of who has a better right in a thing, also usually raises the issue of which party in such conflict of rights wins and on what grounds. As the question itself implies, one must examine the prerequisites for the protection of the transferee who has acquired the object in good faith. First, let us define the relevant parties by using a helpful sketch of the circumstances: 183

Kartio, 2001, p. 220.

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A

(vindication?)

B (‘possession’)

Whereas party X is the ‘rightful’ owner of the object, party A is the transferor, and party B is the acquirer of ownership, B, in this scenario, possibly being in good faith. This is the basic scenario where the question of who has a better right in the object arises. Basically, the desired result is the protection of legitimate expectations against the principle of publicity and other requirements of tradition etc. This collision of rights usually has two possible outcomes. Either, possessor B may keep the goods and party A loses the collision, or A claims revindication triumphantly against party B. The fundamental question to be noted in this respect is whether there is any ground for the nullity or voidness of contract X – A, with the result that, for example, party A actually had no right to dispose of the object and transfer it to party B, who may have been in good faith, since B had no way of knowing that there was some material defect in the contract X – A.184 The rules on the protection of acquirers stem from a somewhat old regulation dating back to the law of 1734 and its Code of Sales (KK 11:4 & KK 12:4 paragraphs). The norms themselves are still in force as they were formulated almost three hundred years ago, but the theory surrounding them has mostly developed in late 20th century. The wording, loosely translated, states that when someone transfers or pledges a movable item without the consent of its owner, the latter may recover what is rightfully his / hers, and that the owner may vindicate possession without paying any compensation to the transferee, if the transferee is deemed to have been lacking bona fides. If the transferee was in good faith, the owner must pay compensation to the former in order to recover the goods.185 The abovementioned rule concerns normal corporeal movables and is applicable to all situations of the transfer of movables, with the exception where the goods were stolen or robbed from the owner, in which case the owner may recover them without making payment (RVA 11 §). This entails that any good faith transferee must also return the item if the object has been previously stolen etc.186 As stated, a conflict of rights usually arises in the situation where transferor A lacks the power to dispose of the transferred object. Party B, in 184

185 186

Tepora, Johdatus esineoikeuteen, 2006, p. 187 and Kartio, Esineoikeuden perusteet, 2001, p. 267. See Kartio, Esineoikeuden perusteet, 2001, pp. 266-280. See Kartio, 2001, p. 268 and the indices there. After a change of law in 2003, the same rules are now in place in Sweden; see 3 § (Swedish) Good Faith Acquisition Act (Godtrosförvärvslagen).

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the capacity of transferee / acquirer, may enjoy protection against party X in several cases. For instance, if the contract between X and A is invalid or void, or party A has not acquired by way of proper transfer (e.g. A has embezzled the goods from X), or A’s entitlement to dispose is restricted by contract X—A (i.e. by a reservation of title, for instance). There are circumstances under which it is possible that party B is protected in such a case. First, party A must transfer the ownership of the object, claiming to be its owner, secondly A must have the possession of the object at the time of transfer, and thirdly, party B must be in a state of justifiable good faith at the time of acquiring the possession of the object; fourthly, B must actually receive the possession of the object, i.e. tradition must take place in any one of the illustrated modes of tradition. If tradition takes place longa manu, i.e. through denuntiation, it is required that the party who is notified of the transfer be also in justifiable good faith at the time of receiving the notification.187 As mentioned, party A must act as the owner; protection is not granted to party B, if A has acted as a representative or other intermediary. Party B may be able to obtain protection subject to the fulfilment of the previously mentioned prerequisites. Possession gives rise to a presumption of ownership and, thus, the protection of good faith and legitimate expectations is possible when A could have been seen as being the rightful owner. Representation, on the other hand, should alert the acquiring party B into perhaps investigating further etc. In the illustrated relationship, party B as transferee may, for instance, be flanked by a buyer, a recipient of collateral, i.e. a pledgee, who is protected under the same conditions as a regular buyer / transferee (also, a right to retain may enjoy such protection). The definitive criterion is that acquisition takes place by way of transfer, i.e. sales, barters and gifts (gratuitous acquisition) are usually treated in the same way. A good faith acquisition does not give full protection to acquirer B since, in some cases, the owner may have the right to recover the object due to the restrictions of the protection of good faith for criminal law reasons. Should party B enjoy protection against the owner, this does not also necessarily mean that B may keep the item. It means that B is entitled to be compensated accordingly, if obliged to return the item to X. The issue of properly defining the compensation sum payable to B is a different matter. There is no law setting a time limit for party X to claim the object and for recovering it from B. There has been some discussion of this in legal literature, and the present notion entails that the claim should be presented within an adequate and reasonable period of time.188 187 188

Kartio, 2001, p. 272. See also KKO 1966 II 57 where a claim, brought after 14 years had passed, was rejected.

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A special category of movables is money, which has been stated to fall outside the scope of the normal rules on protection. This means that KK 11:4 and 12:4 are not applicable to physical (pieces) of money (as legal tender). X cannot recover cash from B for obvious reasons.189 Also, some special objects are registrable according to various legal rules, but usually the rules are quite the same as in a normal situation. The rules are somewhat different when the question concerns movables other than normal movable objects, for example in the case of negotiable instruments, i.e. promissory notes and other bond documents etc. According to VKL 14 § the protection awarded to the transferee is a bit wider and more easily achievable due to the special nature of negotiable instruments. The rules are almost identical but, for instance, the transferee obtains protection also in cases where A did not act as owner, thus protection is less complicated to obtain. Furthermore, it does not matter whether the paper was stolen from X. Also, X does not have the right to recover the underlying object in the case of negotiable instruments.190

13.

Acquisitive prescription

Acquisitive prescription is only possible in certain circumstances when the subject matter is immovable property, such as units or parcels of land within the meaning of land law or limited rights in land.191 Acquisitive prescription does not, therefore, concern movables, which are the subject matter of this report.

14.

Finding

The Act on Lost Goods192 (löytötavaralaki) provides specific rules as to finding of lost movables. Goods wich are lost (unintentionally) must be returned to their rightful owner or deposited with a government body such as the police (1 §). Under the general rule, if the owner does not reclaim 189 190

191 192

Kartio, 2001, p. 279. The issue of the protection of the good faith acquirer is one of the most researched and debated fields of private law due to its significance in everyday life. The Supreme Court has defined the applicable rules on several occasions and our modern and current legal literature has discussed the topic to a great extent. See, for instance, the various writings of Zitting – Rautiala, Kaisto and Tepora in the matter. See the old land law of 1734, 15:1 §. Löytötavaralaki 26.8.1988 / 778. Provisions quoted in this chapter refer to this statute, unless otherwise stated.

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his or her property, the finder acquires ownership of it three months after the movable was left to the police or after notifying the owner (14 §).193 If the goods were found by the police, customs or other public authorities, ownership is acquired by the State after the same period of time (10 §). However, a finder cannot acquire ownership of bicycles and mopeds. With regard to these types of goods, the finder will instead be compensated with a third of what the goods yield from public auction (17 §). Further, a finder cannot acquire ownership of documents that can be declared invalid, of medicine, keys, identity cards, bank and credit cards, and goods that cannot be acquired without certain permission – if the finder does not have have this permission (18 §). If the finder does not pick up the goods within three months from the time when he or she acquired ownership under the above stated principles, the ownership passes on to the State (20 §).

193

This applies to goods worth more than 20 Euro which obviously have no personal value for the owner (3 §).

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Part IV: Additional issues 15.

Reservation of title

Looking at the categorisation of property rights other than ownership, we can see that the institution of reservation of title belongs to the category of real collateral agreements.194 This category implies that reservation of title is seen as being a collateral arrangement, which has as its aim the retention of ownership, i.e. the formal (publicly visible) owner of the object is the creditor during the duration of the credit agreement, but the physical possession of and the limited right to use and control (not as an owner) property is vested in the debtor. What is typical for a collateral arrangement such as reservation of title, is that the debtor is able to acquire the legal status of an owner by making full payment to the creditor, thus simultaneously resulting in the fulfilment of the retention clause.195 For example, let us consider the following: party A agrees to sell a sailing boat to party B under the condition that A retains title to the boat until the price to be paid has been transferred to A. During this time, B may use and control the property as an owner, but subject to the aforementioned limitation. In the interim, neither of the parties is the holder of the legal status of full owner, because both parties are under reciprocal restrictions. As stated, reservation of title is a means of securing collateral for the transferor / seller. One may speak of so-called payment protection in this case, meaning that by including a reservation of title clause into the contract, the seller assumes a fairly extensively protected legal position. During the period of the contract, the transferee has no power to dispose of the object by selling it. The current legal doctrine and system in Finland protects the seller against third parties and other successors of the buyer / acquirer of property. Reservation of title is, therefore, binding in both inter and ultra partes relations. For example, should the buyer B be declared bankrupt during the time when the reservation of title clause is still operative, party A is protected against the creditors in bankruptcy.196 The construction, which gives reservation of title priority over creditors, is based on a legal analysis of the constructive use of the notion of own194 195 196

See e.g. Kaisto, 2004, pp. 325 ff. See also Tepora, Omistuksenpidätyksestä, 1984. Tepora, 2006, p. 19. Tepora, 2006, p. 146.

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ership itself and the theoretical status of ownership as a protected sphere of rights.197 The assertion of reservation of title allows the seller to establish him- / herself the right subsequently, i.e. reserving the right to terminate the agreement of sale if payment is not made accordingly; thereby, the seller also enjoys protection against third parties.198 Both rights are exercised when, for instance, the buyer breaches the contractual obligations, i.e. does not fulfil the obligation to make payment in due time to the seller. That might be the case in a situation where the buyer has filed for bankruptcy. The Supreme Court KKO held, in its ruling KKO 1994:113, that, in that case, the seller had not proved and demonstrated that a reservation of title clause was agreed upon at the time of concluding the agreement. The fact that the seller had marked the invoices sent to the buyer with a notation that a reservation of title clause was to apply; such stipulations, made after the main contract had already been concluded, which also intended to add clauses to the latter to the effect that the contract was a hire / purchase contract, were to be held invalid, and thus had no effect when determining whether or not the machines belonged to the bankruptcy estate.199 It can be presumed that the seller has priority over the creditors of the buyer, as long as a reservation clause has been included in the original agreement and the agreement on such clause is valid and expressly stated in the document. No subsequent stipulations are therefore allowed in this respect. Also, the clause has to be stipulated before the transfer of possession to the buyer has taken place. Summa summarum: both conditions are to be met in order for the reservation of title to be binding on ultra partes successors.200 However, if the parties have agreed, in spite of the reservation of title clause, that the debtor has the right to commix or confuse, or sell, or the right to dispose of the object during the remaining period of the contract, such a reservation of title clause has no priority over creditors either, therefore rendering it invalid against e.g. the administrator of a bankruptcy estate.201 In a normal situation, the clause is valid in relation to the successors of the buyer, as with ownership in general. Therefore, if someone acquires possession and ownership of the object without knowing of the clause, it 197

198 199 200

201

See, ad argumentum, the Act on Bankruptcy Proceedings 5:6 and the Act on Execution Proceedings 4:9. Tepora, 2006, p. 147. See case KKO 1994:113. Tepora, 2006, p. 147. See also case KKO 1993:45. Also, a third condition must be fulfilled: the clause must be stipulated for the purpose of securing collateral, which has been pointed out several times. Tepora, 2006, 147. See, ad argumentum, the case KKO 1977 I 4.

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is possible that the buyer is protected under the normal rules on good faith acquisition. In the case of tangible movables, the acquirer must have good faith at the time of the transfer of possession and not only at the time of closing the contract.202 A clause stipulating a reservation of title is deemed to be also valid in execution proceedings under the Hire-Purchase Act 18.1 §.203 The new Bankruptcy Act204 5:6 sets forth specifically that the right to recover property and a reservation of title are deemed to be equally valid in relation to the bankruptcy estate, i.e. in such a case the debtor simply has possession of property that belongs to someone else, and thus such property cannot be attached to cover the debts.205

16.

Abandonment

Abandonment is the counterpart of occupation. If the owner abandons property it is considered to be ownerless, and thus it can be occupied accordingly, since, to use a metaphor here, it has no ‘master’ in command of it. By occupying such an abandoned object, the new owner makes an original acquisition of it and becomes its owner. An object abandoned is for finders to keep, keepers so to speak, i.e. it may be kept, if it is clear that it was abandoned. If the goods are lost (unintentionally), they must be returned to their rightful owner or deposited with a government body such as the police.206

17.

Co-ownership

See first the chapter on defining ownership, chapter 1.2. A few short remarks on co-ownership are perhaps useful here. First, the rules concerning co-ownership are mainly quite similar to the rules on ‘normal’ ownership. When two or more parties acquire co-ownership of a tangible movable object, both have a right to a specific share in the property. The Act Concerning certain Co-ownership Issues207 regulates some issues arising in such constellations, although the Act is a secondary norm. Each of the co-own202

203 204 205 206 207

See e.g. the case KKO 1992:13, where it was held to be sufficient that the acquirer was bona fides at the time of the transfer of physical possession. Osamaksukauppalaki 18 § 1 momentti. 2004. Tepora, 2006, 149. See the Act on Lost Goods (löytötavaralaki) 1 § and chapter 14 above. Laki eräistä yhteisomistus suhteista 1958 / 180.

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ers has a separate right to dispose of the object to the other co-owner, and the co-owners may jointly dipose to third persons. The parties may agree on issues that are not otherwise regulated by legislation. As a general rule, the abovementioned law on co-ownership does not apply to ownership in legal persons, i.e. owning shares in a company.208 According to 2 § of the above mentioned regulation, the co-owner’s rights, benefits, fruits and other entitlements are calculated according to the size of his / her co-ownership share. The number of co-owners usually determines the size of the co-ownership share, unless otherwise agreed or provided.209 According to the said Act, a co-owner may dispose of his / her portion individually.210 However, if the sale of the whole object is sought, this requires the participation of all co-owners. Should one of them oppose the sale, it is still possible to dissolve co-ownership by seeking an corresponding court order. Furthermore, it is possible to separate the shares where to do so would not jeopardise the value of the all shares. That is, there is no sense in separating the shares if these have no value after separation. In such a case, the property should and usually is sold by auction.211 Moreover, it is possible that a co-owner disposes individually, without the participation of the others, of the share owned by him / her. Finally, as to compensation, it is evident from the foregoing, that if the owner of a share is in a situation where he / she is forced to sell, he / she is entitled to compensation in the amount of the full market value of the property so ‘lost’.212

18.

Further rules on generic goods

A concept of allowing a buyer of a quantity of generic goods acquire coownership of the whole bulk (like under the “bulk sale” provisions in sections 20A and 20B of the English Sale of Goods Act 1979) is a concept unknown to the Finnish legal system and theory. Ownership of shares is subject to same rules as transferable promissory notes, i.e. negotiable instruments. A number of shares (more than one) do not constitute a bulk or generic mass, since each share can be defined and specified individually.

208

209 210 211 212

Nevertheless, the rules on co-ownership in the Act on Co-ownership apply to individual shares in a business entity, i.e. the shares being normal tangible and corporeal movables. See the Act on Co-ownership 1.2 § (Laki eräistä yhteisomistussuhteista 180 / 1958). Tepora, 2006, p. 82. See KKO 1962-II-7, KKO 1961-II-150, KKO 1984-II-161. Tepora, 2006, p. 82. See the Act on Co-ownership, 1-4, 6, 9, 10 and 11 §.

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As stated, a right in rem can only attach to items that are specified and individual. When speaking of book entries, it might be worth pointing out that book entries are not numbered in the book-entry system, i.e. the shares one owns are not numbered (i.e. do not carry a serial number), as would be the case if the shares were, so to speak, normal physical shares or were registered in a different type of registration system. It is clear that a large ‘number’, i.e. quantity of book entries / shares, can constitute a single (individualised and specified) lot of shares that might be regarded as the potential object of a pledge, i.e. the lot / bulk could be transferred as collateral in its current state. The floating charge213, on the other hand, resembles the institution according to which the title to movable property of a certain business entity is reserved as collateral, after a ‘charge’ has been registered in the official register. A characteristic feature of the system is that all movable property that is involved in the operation of the entrepreneur’s business is under such a reservation. Furthermore, a distinct feature of this institution is that the goods are in transit at all times, and also the fixed and capital assets are within the scope of the charge, meaning that the object of the charge is constantly shifting and changing accordingly. The previously presented general rules also apply to this kind of arrangement, which resembles a floating charge. The requirements are that the object is a business entity and that the charge has to be registered for it to have effect against, and priority over, creditors. The system seems rather scarcely used and has not been researched extensively, thus leaving many things under discussion and open to debate. The rules for transferring property under such circumstances produce quite similar effects to the rules on reservation of title as regards the assumption of priority with respect to e.g. the bona fide acquisition by a third party.

19.

Restitution of the movable to the owner

19.1.

Entitlement to fruits

By definition, the scope of the entitlement to fruits includes everything that is generated by, and accumulated from, the physical object itself during its normal usage. On the one hand, fruits consist of so-called natural fruits, which by definition, refer to natural products generated by the object such as, for instance, the natural growth of timber, plants, crops etc. This cat-

213

See Act on Floating Charges (yrityskiinnityslaki 1984 / 634).

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egory implies that such products etc. have not become accessories or fittings (i.e. part of the object). On the other hand, there are civil fruits, that is, economic profit and interest, such as rent and interest income. Examples of fruits might be, for instance, the following: dividends from shares, the progeny of animals such the puppies of a dog or the foal of a horse, and but also the annual growth of timber wood and the crop yield / harvest. One must differentiate the concept of fruits from the actual capital value of the object, meaning that withdrawals from the property, which end up diminishing the capital value of the property itself, are not benefits, but the reduction of capital. One exception from this are extractions made from the soil of a piece of land, such as the extraction of sand, peat, sod, mould etc. Extractions such as these do, in fact, have an impact on the capital value, a rather evident conclusion, since it is not likely that the surface of the soil will ‘grow back’, so to speak; therefore, the abovementioned substances also only exist in limited quantities.214 As a general rule, it can be stated that the fruits of property are the property of the owner, it thus falling under the power of the owner to dispose of them. It is possible that contracting parties deviate from this rule in e.g. a lease contract, where the profits of a leased object are forwarded to a creditor directly.215 It is very important to remark that in some cases it may be possible for the fruits to belong to the possessor, even in a case where the possession is, at a later point in time, deemed invalid or found to lack a proper cause. Therefore, as a rule, an acquirer, who has obtained property through a valid acquisition and has been in good faith during the transfer of possession and still is in good faith, may in some particular cases be considered to have a better right to the fruits of the object.216 An argumentation such as the one presented here seems reasonable, where the legitimate expectations of the good faith acquirer, that person’s expenditure on the possessed property (deserving compensation), and the possessor’s eager attempts to succeed in entrepreneurship, are considered worth protecting. Sometimes it would result in an unfair situation, if the possessor were to be deprived of the fruits after a long time in possession or where these are of a very high value, such income perhaps having been consumed and spent already. The rule is applicable both to immovable and to movable property.

214 215 216

Tepora, 2006, p. 60. See Kartio, 2001, pp. 169 ff. for the relevant aspects of improvements. Tepora, 2006, pp. 60-61.

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In a ruling of the Supreme Court KKO 1984 II 125, it was held that the possessor loses the right to the fruits at the point in time at which he / she can be said to be no longer in good faith, i.e. the possessor has obtained knowledge of a legal or other fact that might influence some of the rights of the possessor, bringing with it that some other party might have a better right in the property in question.217 For instance, if the possessor has been sued for revindication it is evident that good faith has terminated and, thus, thereafter the ownership of the fruits becomes challengeable. This rule applies to situations where the original relationship (two-party constellations) between party A and party B in some way suffers from a defect or the contract is avoided. In such a case, the rightful owner may have a right to restitution; subsequently, of course, there is no right entitling the possessor to keep the benefits.218 In certain special cases, due to reasons arising from leges speciales on specific, predetermined issues, it may be the case that the possessor has to return the benefits as from the time his / her possession commenced (whether it was rightful or not). Such an obligation arises e.g. when assets are recovered from a bankruptcy estate.219 In such a case, it may be that the possessor has to repay the benefits and compensate for the profit or other benefits enjoyed during the time of his / her possession, should the action for recovery be successful. The obligation to repay may, in some cases, be extended to the point of time at which possession was acquired, but in a normal situation the above rules apply, i.e. as from the time when bona fide possession ceases.

19.2.

Loss and deterioration

If the possessed property is lost, or deteriorates in any other way, during the time of possession, the possessor is regularly under an obligation to pay compensation for any damage. This means that the owner may sue the possessor for damages, as is always the case when someone has caused tortious or contractual damage to another. Good faith / bad faith does not influence the determination of the level of damages awarded; it is rather a matter of applying the normal tort law rules on carelessness and wilful damage etc. Such questions fall beyond the scope of property law and are thus left aside from this discussion paper.

217 218 219

See also another similar case KKO 1987:53. See also Kartio, 2001, p. 172. Tepora, 2006, p. 62. See the Act on Recovery 17.1 § and 5 § (TakSL).

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385

Improvements

Improvements made by the possessor and costs incurred during possession in relation to such improvements can be considered as being important matters. A possessor of property, who has made improvements to the property of another, may have the right to be compensated, though such compensation must not exceed the value of the improvement or any other cost incurred. One may not enrich oneself at the expense of the owner. Under certain circumstances, it is, as stated, possible for the possessor to be awarded compensation. The rules that are applicable are scattered over fragmentary legal acts and most of the principles are derived from formulations made in legal literature, so no actual or specific regulation of the precise matter exists. Costs incurred for the benefit of the object possessed, can be divided into several subcategories: necessary, useful and luxury expenses.220 Necessary expenses are, by definition, costs that are necessary to maintain the property, but not costs that are so-called normal operational costs, i.e. running / fixed costs are not to be indemnified. As a starting point, one must presume that, if the possessor is entitled to enjoy the benefits, it is also fair that he / she should be responsible for covering the fixed costs as well, e.g. of electricity. However, if the expenses are incurred outside of the abovementioned circumstances, for example costs incurred in the repair of a leaking roof etc., what is crucial in this respect is that a diligent and responsibleperson would have also acted in this way under the circumstances, the expenditure thus being necessary, and it therefore being for the owner to compensate the possessor for such expenses and costs where the former revindicates the object in question from the latter. For instance, an owner is responsible for compensating for such expenses as are incurred by the holder of a right to use the property, such as in the case of a lease, e.g. if the lessee has repaired a window in a flat rented by him / her, it is for the owner to compensate him / her for the cost so incurred.221 It is neither required that the possessor possesses the object by virtue of the latter’s acquisition of it, nor that the possessor is in good faith, in order to be entitled to compensation.222 Those prerequisities would not be fulfilled in such a case. Necessary expenses, therefore, have to be compensated.223 Needless to say that this rule always applies to contractual relations in particular, but it is also applicable in other circumstances. 220

221 222 223

In the Code of Inheritance and in the Act on Recovery, expenses / costs are divided into two types: necessary and other expenses. See the Act on Renting Flats 20.2 § and 21.1 §. Kartio, 2006, p. 175. See cases KKO 1995:3 for defining the boundaries of necessary costs.

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Useful expenses, on the other hand, are a somewhat different type of cost. Useful expenses are incurred to improve the property and increase its value. Useful expenses are not the same as necessary expenses. For instance, building a new construction on a piece of land or fencing in an industrial estate could be regarded as examples of incurring useful expenses. These expenses are to be compensated for only to the extent that they increase the value of the object. If the possessor was aware or should have known of the invalidity of the contract or other transfer of ownership, or another fact that might render it void, useful expenses are not to be indemnified to the possessor. A useful expense requires that the object has been improved in some significant manner. The holder of a right to use property is not entitled to the indemnification of useful expenses since there is no transfer of ownership (saanto). Furthermore, good faith is required in order for the possessor to be entitled to compensation, unlike in the case of necessary costs.224 Regarding the determination of the amount of compensation, there are somewhat complex principles. In the case of necessary expenses, the possessor has the right be indemnified for the full costs incurred (i.e. costs minus benefits etc. enjoyed from the possession of the property). The rules are somewhat unclear and open to discussion in the case of useful costs. Give or take, the maximum amount of compensation payable is the sum representing the increase in the value of the owner’s property by reason of the improvement. Furthermore, according to court practice, the possessor can only claim for compensation in the amount of the actual loss suffered (i.e. costs incurred minus benefits enjoyed). Thus, the right to claim compensation is also dependent on the exercise of the right to keep the fruits of the property.225 It is a clear rule that the owner has no obligation to compensate for any amount exceeding the actual loss, i.e. he / she is always obliged to compensate for necessary, and sometimes even for useful, expenses; apart from the latter two types of expenses, no obligation to compensate exists. This means that the so-called luxury / sumptuary expenses are not to be compensated for. Such expenses are the result of costs that only serve the possessor’s individual taste of luxury, e.g. building a swimming pool etc. However, it has to be noted that in most cases the possessor has the right to detach such objects from the owner’s property if possible, without causing any damage or other harm to the latter.226 This would mean that in the case of luxury expenses, there may also be something similar to a ‘ius tollendi’, although, as such, it is not known in Finnish legal doctrine under that name. 224 225 226

Kartio, 2001, p. 177. See the case KKO 1950 II 28. Tepora, 2006, p. 66.

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Possessor’s right to retain the movable

The Finnish legal system is familiar with the conception of a possessor’s right to retain the movable as security for the fulfilment of an obligation of reimbursement or other equivalent payment related to the object, which the possessor is to return to the owner. The right to retain the object is considered to be a collateral arrangement and, thus, an in rem type of right, i.e. a property right in the movable that is owned by someone other than the possessor, the possessor possessing it as collateral for payment.227 What is required is that the possessor is also a creditor, as would be the case where the possessor has a claim for compensation against the owner, and that the cause of the obligation to make payment arises from the object that has been transferred to the possessor in such a case. Also, it is required that the possessor has the physical power of control over the object, meaning that the possessor may prevent others from exercising power over it.228

19.5.

Expenses of restitution

As a general rule, the following can be stated: the party losing the action is obliged to bear the expenses of restoring the lawful status quo ante. For an explanation of other applicable rules on compensation, see above.

227

228

Tepora, 2006, p. 67, where it is argued that in some cases such a right to retain emerges ex lege, that is, without express contractual stipulation. Tepora, 2006, p. 67. See also Zitting – Rautiala, 1982, pp. 85 ff.

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Table of Literature Aarnio, Aulis – Helin, Markku, Suomen avioliittooikeus, 1992 Aurejärvi, Erkki – Hemmo, Mika, Luotto-oikeuden perusteet, 2004 Aurejärvi, Erkki – Hemmo, Mika, Velvoiteoikeuden oppikirja, 1998 Ellilä, Tauno, Oikeudenkäynti ja täytäntöönpano, 1976 Havansi, Erkki, Esinevakuusoikeudet, 1992

Havansi, Erkki, Kirja shop, 1969 Havansi, Erkki, Oikeudenkäynti ja täytäntöönpano, 2002 Hemmo, Mika, Sopimusoikeus I, 1997 Hemmo, Mika, Sopimusoikeus II, 2003 Hemmo, Mika – Kaisto, Janne, Varallisuusoikeuden alkeet, 2000 Jokela, Antti, Oikeudenkäynti II, 2002

Jyränki, Antero, Uusi perustuslakimme, 2000 Kaisto, Janne, Pantti tai muu vakuus, 2006

Kaisto, Janne, Lainoppi ja oikeusteoria, 2005 Kaisto, Janne, Sopimusvapaus, laki ja maksusuoja, 2001 Kaisto, Janne, Tiesi tai olisi pitänyt tietää, 1998 Kaisto, Janne, Velkojasuoja välihenkilön konkurssissa, 2003 Kaisto, Janne, Velkojasuoja välihenkilön konkurssissa, 2004 Kangas, Urpo, Lahja, 1993 Kartio, Leena, Esineoikeuden perusteet, 2001 Koulu, Risto, Palautus-ja korvausvastuu konkurssitakaisinsaannissa, 1999 Koulu, Risto, Uusi konkurssilaki, 2004 Lappalainen, Juha, Siviiliprosessioikeus I, 1995

Lappalainen, Juha, Siviiliprosessioikeus II, 2001 Lappi-Seppälä, Tapio, Rikosoikeus, 1999 Lohi, Tapani, Ositus, tasinko ja sivullissuoja, 2003 Makkonen, Kaarle, Oikeudellisen ratkaisutoiminnan ongelmia, 1981 Rudanko, Matti, Arvopaperimarkkinat ja siviilioikeus, 1998 Sisula-Tulokas, Lena, Ulkomaankauppaoikeus, 1998

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Finland

390 Tepora, Janne, Irtaimen esineen vuokralleottajan sivullissuojasta, 1999

Tepora, Janne, Johdatus esineoikeuteen, 2003 Tepora, Janne, Jarno, Johdatus esineoikeuteen, 2006 Tepora, Janne, Juhlajulkaisu Simo Zitting, 1985 Tirkkonen, Tauno, Siviiliprosessioikeus I, 1976 Tuominen, Markku, Teollisoikeudet vakuutena, 2001 Tuomisto, Jarmo, Takaisinsaannista, 1995 Tuomisto, Jarmo, Tyyppipakosta aikaprioriteettiin – näkökohtia esineoikeudellisen sivullissuojan perusteista, 1993 Tuori, Kaarlo, Oikeusjärjestelmä, 1999 Wirilander, Juhani, Käyttöoikeudesta kiinteistöön silmällä pitäen lailla sääntelemättömiä käyttöoikeuksia, 1980 Zitting, Simo, Omistajan oikeuksista ja velvollisuuksista, 1952

Zitting, Simo, Saantosuoja irtaimisto-oikeudessa, 1956 Zitting, Simo – Rautiala, Matti, esineoikeuden oppikirja, 1982

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Table of Abbreviations A

Asetus (Decree)

ään.

Äänestetty (a voted decision in the Supreme Court)

e.g. etc.

exempli gratia et cetera

ff.

and the following pages

HE

Hallituksen esitys (bill)

i.e.

id est

KK KKO

Kauppakaari (Code of Sales) Korkein Oikeus (The Finnish Supreme Court)

L LM

Laki (Act) Lakimies-aikausijulkaisu (Lakimies – Legal Magazine)

n.b.

nota bene

OK

Oikeudenkäymiskaari (Procedural Code)

p.

page

RVA

Rikoslain Voimaanpanosta Annettu Asetus (Act Concerning the Enforcement of the Criminal Code)

TakSl

Laki takaisinsaannista konkurssipesään (Act on Recovery to a bankruptcy estate)

v. VKL

versus Velkakirjalaki (Promisory Notes Act)

YhtOmL

Laki eräistä yhteisomistussuhteista (Act on Joint Ownership)

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National Report on the Transfer of Movables in Spain Isabel V. González Pacanowska Carlos Manuel Díez Soto

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Table of Contents

Part I: Basic information on property law 1. Property rights 1.1. Sources 1.2. Concept and characteristics of property rights as opposed to credit rights 1.2.1. General 1.2.2. Halfway situations (a) Credit rights with limited real effect (b) Property rights with obligational content (c) Rights whose nature (obligational or real) is subject to discussion 1.3. Concept and classification of things as the object of property rights 1.3.1. Assets, things 1.3.2. Classification of things (a) Movable and immovable things (b) Simple and composite things: universalities (c) Public and private things (d) Fungible and non-fungible things: specific and generic obligations (e) Other classifications of things 1.4. Classification of property rights: creation of non-typical property rights by private autonomy 1.4.1. Typical property rights 1.4.2. Creation of non-typical property rights by private autonomy: “numerus apertus” and “numerus clausus” systems 1.5. Notion of ownership 1.6. Protection of ownership 1.6.1. The action for revindication 1.6.2. The third party action against execution based on ownership 1.6.3. The declaratory action for ownership 1.6.4. The negatory action

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401 403 403 405 405 407 409 409 409 411 412 417 419 421 426 427 427

428 431 437 439 445 448 449

Spain

396

1.7.

1.8.

Restricted rights on movables and protection thereof 1.7.1. Rights of enjoyment: usufruct (a) General regulation (b) Special usufructs 1.7.2. Rights of security: movable securities (a) Ordinary pledge (b) Special kinds of pledge (i) Irregular pledge (ii) Pledge of rights: in particular, pledge of credits (iii) Pledge of negotiable instruments (c) Right of retention (d) Movable hypothec and pledge without transfer of possession 1.7.3. Rights of acquisition (a) Rights of preferential acquisition (b) Option Co-ownership 1.8.1. Concept and regulation 1.8.2. Rights and obligations of the co-owners 1.8.3. Extinction of co-ownership

2. Possession 2.1. Concept and nature of possession & basis of possessory protection 2.2. Elements of possession 2.2.1. Subjects of possession & co-possession 2.2.2. The object of possession: possession of things and possession of rights 2.3. Forms of possession 2.3.1. Natural possession and civil possession 2.3.2. Possession in the capacity of owner and possession in another capacity 2.3.3. Possession in good faith and possession in bad faith 2.3.4. Immediate possession and mediate possession 2.4. Acquisition of possession 2.5. Loss of possession 2.6. Protection of possession 2.6.1. The possessory actions: interdicts 2.6.2. The Publiciana action 2.6.3. Self-protection of possession

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449 449 449 453 457 458 459 460 461 463 464 466 469 469 470 471 471 474 477

480 483 483 486 487 487 488 490 492 493 498 499 499 502 504

Table of Contents

2.7.

397

Functions of possession 2.7.1. Legal presumptions in favour of the possessor 2.7.2. Acquisition of property rights 2.7.3. Liquidation of possessory situations: Consequences of restitution of the asset to the owner (a) Fruits (b) Expenses and improvements (c) Deterioration and loss

3. The Register of Movable Assets

505 505 508

508 509 512 514 515

Part II: Acquisition of property rights: derivative acquisition 4. Basic characteristics of the transfer system 4.1. Modes of acquiring property rights: art. 609 CC 4.2. Derivative acquisitions “inter vivos” 4.2.1. The title and mode system: passing of ownership and passing of risk 4.2.2. Scope of application of the “title and mode” system 4.3. Defects regarding the “valid obligation” and effects on the transfer of ownership 4.3.1. Void and avoidable contracts 4.3.2. Functional or subsequent ineffectiveness of the title: resolutive condition, termination for breach of contract and rescission 4.3.3. Repurchase covenant 4.3.4. “Solutio indebiti” 4.3.5. Fiduciary title 4.4. “Traditio”: Delivery and delivery equivalents 4.4.1. Purposes of the delivery requirement 4.4.2. Forms of tradition (a) Real tradition (b) Documents of title (c) Instrumental traditio (d) Traditio of movables by mere agreement of the parties (e) Other forms of traditio 4.5. Reservation of title

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535 537 537 540 545 546

550 554 556 557 560 560 562 563 566 568 570 572 573

Spain

398

4.6.

4.5.1. Reservation of title in the Sale of Movables by Instalments Act of 1998 4.5.2. Reservation of title in insolvency proceedings Defects and restrictions of the transferor’s right to dispose 4.6.1. Transfer of ownership by sale 4.6.2. Double / multiple selling of the same asset 4.6.3. Sale by someone who is not the owner 4.6.4. Legal and voluntary restrictions of the right of disposal 4.6.5. Transfer or acquisition by means of indirect representation 4.6.6. Selling in chain (a) Situations where ownership is deemed to have passed directly from A to C (b) Situations where ownership passes from A to B and from B to C: a succession of two different contracts of sale. (i) General (ii) Consequences of bankruptcy (iii) Void or avoided contracts (iv) Termination of one of the contractual relationships

5. Effects of the declaration of bankruptcy on the transfer system 5.1. The configuration of the active bankruptcy estate and the third party’s right to separate his or her own assets 5.2. Exercise of the debtor’s patrimonial powers during the bankruptcy proceedings 5.3. The actions for the reintegration of the active estate 5.4. Effects of the declaration of bankruptcy upon the contracts entered into by the debtor 5.5. The restoration of the debtor’s contracts

576 579 580 580 581 583 584 588 590 591

593 593 595 596 597 598

598 600 601 604 614

Part III: Original acquisitions 6. Occupation, finding, treasure trove 6.1. Occupation 6.2. Finding 6.3. Treasure trove

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618 618 620 622

Table of Contents

399

7. Accession, commixture, specification 7.1. Concept, nature, fundament and kinds of accession 7.2. Accession of movables to immovables 7.2.1. Incorporation in one’s own land with another’s materials 7.2.2. Incorporation in another’s land with one’s own materials 7.2.3. Incorporation in another’s land with another’s materials 7.3. Accession of movables to movables 7.3.1. Union or adjunction 7.3.2. Combination, confusion or commixture 7.3.3. Specification 7.4. The question of transfer of ownership in cases of accession

624 624 625

8. Good faith acquisitions 8.1. Sale of goods in public establishments 8.2. Immovable property 8.3. Bearer papers 8.4. Financial instruments recorded in an account register 8.5. Goods entered into the Register of Sale of Movables by Instalments 8.6. The general rule of art. 464 CC

633 634 635 635 636

9. Acquisitive prescription 9.1. Functions and kinds of prescription 9.2. Requirements of prescription 9.2.1. Common requirements: possession “ad usucapionem” and prescription period (a) Possessio ad usucapionem (b) Passage of time 9.2.2. Specific requirements for ordinary prescription: good faith and just title (a) Good faith (b) Title 9.3. Effects of prescription and waiver of consummated prescription

642 642 646

Table of Literature

657

Table of Abbreviations

665

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626 627 630 630 630 632 632 632

636 637

646 646 650 651 651 652 655

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Part I: Basic information on property law* 1.

Property rights

1.1.

Sources

The main source of Spanish civil law is, of course, the Civil Code of 1889, which, from a global point of view, can be considered as belonging to the French Civil Code’s scope of influence. In this regard, the Spanish Civil Code follows the model of its immediate predecessor and main reference, the aborted Civil Code Project of 1851. It is commonly accepted, however, that the Civil Code did not follow the pattern of the Project in some respects, where it was considered better to return to the rules and principles of the Spanish legal tradition, with some of them being related to the original Roman and Germanic influence. It is important to stress that one of the main fields where this recuperation of traditional principles can be perceived is precisely the transfer of property rights system. Rules such as those formulated in arts. 609 and 1095 CC, regarding the tradition system, imply a separation from the pattern of the French Civil Code, which, as is known, is based on a consensual transfer system. As a matter of fact, the main difference between the Spanish and the French Code, from a systematic point of view, lies in the addition in the former, after the Third Book (titled, as in France, De los modos de adquirir la propiedad – “On the various ways how ownership is acquired” –) of a Fourth Book, titled De las obligaciones y contratos (“On obligations and contracts”), the existence of which can be explained by the fact that, unlike in the French system, in Spanish law a contract is not a means of directly acquiring ownership. The Civil Code is not, however, the only legal source of importance on the subject-matter of this report. Important rules regarding the transfer of ownership and other property rights on movable assets can be found, for instance, in the Commercial Code of 1885 (Ccom.),1 in the Sale of Mov-

*

1

The present report has been made with the aid of the Research Project SEJ 200507603 (“Los privilegios crediticios como mecanismo de protección del crédito”), financed by the Spanish Ministry of Education and Science. See, for instance, art. 85 (good faith acquisition of goods in establishments open to the public), arts. 325 et seq. (commercial sale of movable goods), arts. 347 et seq.

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able Assets by Instalments Act,2 in the Retail Trade Act,3 in the Negotiable Papers Law,4 in the statutory provisions regarding intellectual and industrial property,5 and in the regulation on the Register of Movable Assets.6 It should also be stressed from the very beginning that one of the main characters of the Spanish legal system in its current state is the decentralisation of the legislative powers. At first glance, this fact should not have a great influence on the transfer system, as the competence to regulate matters concerning commercial law, civil law, industrial and intellectual property, procedural law, etc. lies with the central State. However, the constitutional provisions regarding the competences that may be assumed by the Autonomous Communities (Comunidades Autónomas) in the issues of civil law reserve a space for the regulation of certain civil matters by those regions which historically had their own civil law. This power has been used by some Autonomous Communities (especially, but not only, Catalonia) to enact a statutory regulation of its own which in some aspects touches upon the subject-matter of this report. That is, for instance, the case of the recently enacted regulation on extinctive prescription,7 and more importantly, the regulation on some modes of acquiring ownership (as accession and occupation),8 of some contracts implying transfer of ownership,9 and of some property rights,10 including those of preferential acquisition, and securities on movables.11 Such regulation has recently been provided by

2 3 4 5

6 7

8

9

10

11

(assignment of non-endorsable credits), arts. 544 et seq. (instruments payable to the bearer), 573 et seq. (transfer of rights on ships), etc. Ley 28 / 1998, de 13 de julio, de Venta a Plazos de Bienes Muebles (LVP). Ley 7 / 1996, de 15 de enero, de Ordenación del Comercio Minorista (LOCM). Ley 19 / 1985, de 16 de julio, Cambiaria y del Cheque (LCC). Ley de Propiedad Intelectual, Texto Refundido aprobado por Real Decreto Legislativo 1 / 1996, de 12 de abril (LPI); Ley 11 / 1986, de 20 de marzo, de Patentes de Invención y Modelos de Utilidad (LPMU) (Regulation passed by RD 2245 / 1986, of 10 October); Ley 17 / 2001, de 7 de diciembre, de Marcas (LM); Ley 20 / 2003, de 7 de julio, de Protección Jurídica del Diseño Industrial (LDI). See infra, I, 3. Ley del Parlamento de Cataluña 29 / 2002, de 30 de diciembre, Primera Ley del Código Civil de Cataluña. Ley del Parlamento de Cataluña 25 / 2001, de 31 de diciembre, de la Accesión y de la Ocupación. Ley del Parlamento de Cataluña 23 / 2001, de 31 de diciembre, de Cesión de Finca o de Edificabilidad a cambio de Construcción Futura. Ley del Parlamento de Cataluña 22 / 2001, de 31 de diciembre, de regulación de los Derechos de Superficie, de Servidumbre y de Adquisición Voluntaria o Preferente. Ley del Parlamento de Cataluña 19 / 2002, de 5 de julio, de Derechos Reales de Garantía.

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403

the Autonomous Community Law that brought the Fifth Book of the Civil Code of Catalonia into force, which pertains to property rights.12

1.2.

Concept and characteristics of property rights as opposed to credit rights

1.2.1. General The concept of “property rights” or “real rights” includes all those subjective rights which have absolute effect and lie in things. The main characteristics of property rights, that substantially set them apart from credit rights, are the following: (a) Property rights grant the title-holder direct and immediate dominion over the thing. Whereas under the law of obligations, the immediate object of the power granted to the creditor is the behaviour of the debtor (the prestation), which may relate to either a thing or a service, the powers arising from a property right (use, enjoyment, disposal, realisation of value) directly relate to the thing itself, without any need – in principle – to rely on the behaviour of any person. (b) Property rights are enforceable erga omnes, meaning that the titleholder may exercise his right against all, not only against a particular subject, as happens in credit rights. (c) Ius persequendi. The title-holder of property rights may exercise the powers attaching to his or her right wherever the thing is, and no matter who its owner or possessor is. The distinction between property rights and credit rights is nowadays accepted by the vast majority of Spanish doctrine. The so-called “obligationist doctrine” intended to lessen the importance of the distinction by pointing out that property rights do not imply a direct power upon things – legal relationships between a person and a thing not being admissible –, but rather place a universal obligation of abstention on all non-title-holders.13 This doctrine is rejected at present, since a creditor’s interest is completely satisfied by the debtor’s performance, whereas the interest protected by property rights is not satisfied by the mere performance of a universal obligation of abstention (which, incidentally, cannot be considered as a true obligation from a technical point of view), but rather focuses on the exercise of the 12

13

Ley del Parlamento de Cataluña 5 / 2006, de 10 de mayo, del Libro Quinto del Código Civil de Cataluña, relativo a derechos reales. On this issue, see PEÑA BERNALDO DE QUIRÓS, M., Derechos reales. Derecho hipotecario, T. I, 4ª ed., Centro de Estudios Registrales, Madrid, 2001, pp. 56-57.

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different powers granted by the property right to the title-holder. As mentioned above, such rights directly relate to the thing itself. Furthermore, there is no reason why the universal duty of respect or abstention may not be applied too to credit rights, the infringement of which by third parties may also result in several legal consequencess (rescission for fraud, extracontractual liability, etc.). A different view on the distinction between credit rights and property rights has been recently defended, according to which, under the regulation arising from the CC, the so-called property rights (usufruct, easements, hypothec, pledge, etc.) cannot be considered as real rights in the traditional sense. These are rather to be considered as contracts designed to grant a preference to the creditor as to the exercise of certain powers over the thing, capable of being enforced against third parties – acquirers or creditors of the preceding owner – only as a result of the fulfilment of certain requirements regarding publicity.14 However, this view may be in fact argued – and, as a matter of fact, it has not been generally followed by doctrine – on the basis of the actual regulation, since both the Civil Code and the Act on Hypothecs15 are clearly founded on the distinction between credit and real rights. From this distinction, there follow several important consequences as to the legal regulation applicable to each of them: (a) The fact that property rights have effect against everyone (erga omnes), and are usually intended to last, results in the necessity to take particular account, when regulating them, of the general interest of trade; it follows therefrom that the legal regulation of property rights is more restrictive of private autonomy.16 (b) Modes of acquisition and transfer: property rights – but not credit rights – may be acquired through acquisitive prescription (arts. 609 and 1930 (1) CC) and through good faith acquisition (arts. 464 CC and 34 LH); credit rights may be transferred by mere consent, whereas 14

15 16

CARRASCO PERERA (Derecho Civil, Madrid, 1996, pp. 251-252), holds that, according to the provisions of the Civil Code regarding pledges, mortgages and other property rights, these are to be considered, essentially, as contracts, and therefore as sources of personal obligations, with the only particularity that the creditor is granted the possibility to exercise his right on the thing belonging to his or her debtor even if it is transferred to a third person – with an additional preference over the other creditors of the same debtor in the case of the security rights –, provided that these contracts have been concluded according to the formal requirements established by law to grant the erga omnes effect of the rights in each case (entry in the register in the case of mortgages, art. 1875 CC; public deed and transfer of possession in the case of deposits for security, arts. 1865 and 1922 (2) CC, etc.). Ley Hipotecaria, Texto Refundido aprobado por Decreto de 8 de febrero de 1946 (LH). See infra (I, 1.4.2) the discussion on the question of numerus clausus of property rights.

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1. Property rights

(c)

(d)

(e)

(f)

405

inter vivos transfer of property rights is subject to the system of traditio (arts. 609 and 1095 CC). Modes of extinction: the regulation of extinctive prescription is different for property rights and actions and for credit rights and actions. Property rights are extinguished by the total loss or destruction of the thing to which they relate, unless the so-called “real subrogation” operates, through which the right is deemed to relate to the asset that replaces the lost thing (see, e.g., arts. 109 and 110 (2) LH and art. 40 of the Insurance Contracts Act17). In contrast, the loss or destruction of the thing does not necessarily extinguish the credit right relating to that thing (art. 1182 CC, a contrario). Publicity: property rights are subject to a specific system of publicity (based mainly on possession and publicity by means of a register) which is not, in principle, applicable to credit rights. Collision of rights: regarding property rights, the preference between rights in the same thing – provided they are not compatible – is granted to the oldest one (prior tempore potior iure). Regarding credit rights relating to the same debtor, the general rule is that of concurrence (par condicio creditorum). Rules of international private law: the rules on conflicts and those regarding the competence of the courts are different for property rights and credit rights (see arts. 10 CC and 52 LEC).

1.2.2. Halfway situations Although the distinction between property rights and credit rights is theoretically clear, in practice it is possible to find situations in which the border is not so neatly drawn: (a)

Credit rights with limited real effect

– The so-called ius ad rem. Some authors have used this expression18 to describe those situations in which the creditor enjoys a certain prefer17

18

Ley 50 / 1980, de 8 de octubre, del Contrato de Seguro (LCS). Real subrogation may also operate in those cases where the thing in which a property right (e.g. a usufruct or a pledge) lies is acquired by a third party in good faith who is not obliged to respect the previous rights: in such cases, the right may subsist lying in those assets that were substituted to the original one. The expression has been taken from the medieval and canon law, where it referrs to the right of those who, having already been appointed for a certain office, had not yet received the possession of the inherent assets.

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ence against third parties as to the acquisition of a property right (ius in re) in a certain thing. An example of this category is the preference granted by art. 1473 CC to the first buyer of a thing, who has not acquired ownership yet, against a second buyer with a more recent title. Another example is the erga omnes preference granted to the title-holders of certain credit rights (e.g. the rights of the creditor arising from a contract subject to a suspensive condition) as a result of their preemptory entry in the Land Register. The practical interest of this dogmatic construction is not very clear, since the cases included therein lack a common nature and effect.19 – The lessee’s right. In certain cases, the right granted to the lessee shows some characteristics which make it seem similar to the nature of property rights. That is the case for lease contracts recorded in the Land Register,20 and of those regulated by the special Acts regarding Lease of Urban and Rural Property,21 where the lessee’s right is protected against the third party acquirer of the tenement or of the land.22 However, the lessee does not have direct power over the thing itself; his or her right 19 20

21

22

Vid. MARTÍNEZ-CARDOS RUIZ, J.L., “El ius ad rem”, in RDP, 1988, pp. 3 et seq. Art. 2 (5) LH, after the reform brought by the 2nd Additional Provision of the Urban Property Lease Act of 1994 (Ley 29 / 1994, de 24 de noviembre, de Arrendamientos Urbanos, LAU), allows the inscription into the Land Registry of “the lease of immovables, and the sublease, assignment and subrogations thereof”. The record of leases under LAU is regulated by RD 297 / 1996, of 23 January. Before this Act, the entry into the Registry of lease contracts on immovables was restricted to those designed to last for more than six years, those where the payment of rents of three or more years had been anticipated, and those where an express covenant of the parties as to the recording of the contract had been included. See arts. 13, 14 and 29 LAU and art. 22 (1) of Rural Lease Contract Acts (Ley 49 / 2003, de 26 de noviembre, de Arrendamientos Rústicos, LAR). After the amendments made by Act 26 / 2005, of 30 November, the latter provides: “[t]he acquirer of the land, even if he or she is a third party protected by art. 34 LH, shall be subrogated in relation to all the rights and obligations of the lessor, and shall be obliged to respect what remains on the minimum duration of the contract, as provided for by art. 12, or that of the tacit extension currently running if he or she is a third party protected by art. 34 LH, whereas in the rest of the cases he or she shall have to respect the entire duration set out in the contract”. About art. 34 LH, see infra, III, 8.2. Apart from these cases, the lessee cannot enforce his right against the acquirer of the tenement; see art. 1571 CC, which gives expression to the ancient rule of “emptio tollit locatum”. Currently, it could be discussed whether or not the exception provided for by art. 1571 (1) in favour of the lessee who has had his or her rights entered into the Land Registry is also applicable in the field of movables, since art. 2

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has an obligatory nature, with the particularity that in such cases the law imposes the capacity of a lessor on the successive acquirers of the thing. Therefore, the lessee’s right remains subject to the regulation of credit rights (e.g. regarding acquisitive prescription or good faith acquisition, which are not applicable to credit rights,23 or extinctive prescription, where the time requirements are different for property rights and credit rights). On the other hand, in lease contracts, as in other contracts (deposit, commodate), one of the parties is granted certain rights of a real nature, but not as a consequence of his or her position in the contract (depositary, borrower, lessee), but as a result of his or her capacity as possessor (art. 446).

(b)

Property rights with obligational content

As a rule, the powers included in the content of a property right can be directly exercised over the thing, without the intermediation of any particular person. In some cases, however, the fact of being title-holder of a property right includes the authority to demand certain behaviour from a particular person who is also the title-holder of another property right in the same thing. In such cases it is possible to speak of credit rights (or obligations) connected to a certain property right; and the expression “propter rem obligations” or “ambulatory obligations”24 is used, meaning that the subject of such obligations is determined by the fact of being title-holder of a right upon the thing, and so the change of the title-holder implies the change of the debtor.25 A distinction can be drawn between:

23

24

25

(2) subpara. (3) of the ORVP generally allows the entry of lease contracts – with or without purchase option – on movables subject to registration. See, however, art. 13 (3) LAU, where a peculiar case of acquisition a non domino of rights by the lessee is formulated. HERNÁNDEZ GIL, F.: “Concepto y naturaleza jurídica de las obligaciones propter rem”, in RDP, 1962, pp. 850 et seq. Some authors have used the expression “property rights in faciendo” referring to the same situation from an active point of view; according to a theory that cannot currently be considered prevalent, these are property rights whose content does not consist of powers directly enforceable in relation to the thing, but of the right to demand perfomance of a certain prestation from another; that could be, for instance, the case provided for by art. 533 CC, regarding easements, and also the case of ground rents (censos). According to FIGA FAURA (”El retracto legal en la compraventa de inmuebles con precio aplazado”, in RDP, 1948, p. 880 et seq.), property rights in faciendo lie directly in the thing, and the passive subject assumes his or her role only through possession, so the abandonment of the thing releases him or her

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– Situations in which different property rights lie in the same thing, thereby creating credit rights and obligations between the different title-holders: e.g. between owner and usufructuary, or between the coowners of a thing (e.g. art. 395 CC and regulation on this provided for in the Horizontal Property Act of 1960). – Situations where the title-holder of a property right can demand from the owner or possessor of a thing certain behaviour in order to render the exercise of the property right possible: e.g. the title-holder of an easement for support rafters on a neighbouring wall can demand from the owner of the latter the necessary repairs in order to keep the wall in good condition. – Situations in which the owner of a thing encumbered by the property right of another is obliged to pay the title-holder of the latter a certain rent on account of the yields – the thing itself operating as security of the performance of such obligation: this is the case of so-called “ground annuities” (censos: arts. 1604 et seq. CC).26 In all these cases actual obligations forming the content of a property right can be found; their regulation may be classed either as that of credit rights or that of property rights, depending on the circumstances. The principle of universal liability of the debtor is applicable, but, in certain cases, the debtor can be released from his obligation before the non-performance occurs, and even in the absence of the creditor’s consent, through the abandonment of the thing or the waiving of the right (e.g. arts. 395, 544, 575, 599 CC), or through its transfer to a third party (who will thereby assume the debtor’s position). In some cases, the creditor may have at his disposal a dual action, both real and personal, to enforce his right (e.g. to demand the annuities already matured on a ground rent, art. 1623 CC).

26

from his or her past and future obligations. In propter rem obligations, on the other hand, the title only indirectly determines the debtor, being an otherwise ordinary obligation; therefore the abandonment of the thing releases the debtor only from his or her future obligations, not from past ones. On this issue generally, see PEÑA, op. cit., I, pp. 73-74; DÍEZ PICAZO, L. / GULLÓN, A., Sistema de Derecho Civil, Ed. Tecnos, Madrid, t. III, 7th ed., Madrid, 2001, pp. 39-40. The Civil Code provides a regulation for three kinds of censos: consignative, reservative, and emphytheutical. None of them is used in practice nowadays.

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(c)

409

Rights whose nature (obligational or real) is subject to discussion

Different rights can be included here, which are granted a certain erga omnes effect by law, but in relation to which it cannot be clearly stated that their title-holder has immediate and direct power over the thing. Therefore, it is discussed whether or not they may be considered as actual property rights: for instance, this is the case for a right of retention (arts. 453 (1), 1730, 1780, 1871, etc. CC), a purchase option recorded in the Land Register (art. 14 RH), or the case of voluntary rights of preferential acquisition (see art. 1510 CC). It would not be pertinent to analyse each of these rights at this juncture; however, this analysis is carried out in other parts of this report.

1.3.

Concept and classification of things as the object of property rights

1.3.1. Assets, things In a broad sense, the concept of bienes (assets) applies to all entities, material or immaterial, capable of satisfying human needs (corporeal things, property rights, credit rights, rights of personality, etc.). In a stricter sense, and in the language of the Civil Code – even though the terminology is not always precise –, the concept of bienes (assets) is often identified with that of cosas (things; arts. 333 et seq.): those entities, material or immaterial, having an independent and unitary existence, and capable of independent patrimonial domination. Things are the immediate subject-matter of property rights; but they can also be the indirect subject-matter of credit rights, as long as the prestation owed by the debtor involves behaving in a certain manner with respect to one or more things. The obligations to pass over are those whose object is the transfer of ownership or of other property rights in a thing, or simply the delivery or restitution thereof (i.e. of its possession or of its enjoyment) without transferring any property right. In such obligations the activity of the debtor has a secondary relevance, since the creditor’s interest is satisfied through the delivery of the thing, regardless of who performs it (which as a rule renders admissible payment made by a third party, art. 1158 CC). The general rules applicable to the obligations to pass over, as well as the specific provisions applicable depending on the specific or generic nature of the things owed, will be dealt with later. The characteristics that define the concept of a “thing” in Spanish law are the following:

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(a) Material or immaterial entities: the concept of a “thing” includes, not only corporeal objects (“things” in a non-technical sense), but also all those which, lacking materiality, are perceptible by human senses or by human intellect (immaterial assets). The inclusion of the latter in the concept of a “thing” does not imply that the full complement of legal provisions on corporeal things can be applied to such things; however, the rules on corporeal assets will be applicable to the extent that the relevant provision can cater for their peculiar nature. The following may be included in the concept of “immaterial assets”: – Natural energy, even energy artificially produced, as long as it is capable of economic use and exploitation. – Ideas and creations of the mind, which not only include literary, artistic and scientific works, but also industrial inventions and other ideas capable of independent economic exploitation (distinctive signs, trade marks, commercial name, etc.). These matters are currently regulated in different special laws: the Patents Act of 1986, the Trade Marks Act of 2001, the Intellectual Property Act of 1996, etc. According to art. 429 CC (2nd sentence), in those cases which are not provided for in the Intellectual Property Act, the general rules established in this Code for ownership will apply. (b) The CC often includes rights (property or credit rights) within the concept of assets; sometimes calling them “incorporeal assets” or “incorporeal rights” (see heading of Book IV, Title IV, Chapter VII, arts. 1526 et seq.), and even the distinction between movable and immovable assets is applicable to them (arts. 334 (10) and 336). From a technical point of view this equivalence does not seem acceptable, because assets and things are the subject-matter in which the right lies, but cannot be identified with it. In any case, the classical debate on the admissibility of rights as the subject-matter of other rights has a rather clear solution in Spanish law, where cases of rights lying in rights are undisputedly admitted: e.g. a usufruct right can lie in a credit right (art. 507 CC); a pledge can be established in a credit right (art. 1868), or in negotiable instruments (art. 1878 (2)); a hypothec can be constituted in other property rights (art. 107 LH), etc. (c) Things must have an independent and unitary existence, which allows them to be the object of subjective rights and of independent legal trade. Individualization or independence of things may result either from their own nature (e.g. an animal), or from human intervention, which may be either material (the liquid or the gas inside a recipient), or merely intellectual (the division between tenements). Likewise, the unity of a thing may be physical (a table) or economic (the furniture of a house, cattle). Both concepts are relative, since an object may be

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considered as a thing in relation to certain effects, and not in relation to others (e.g. the pieces of a car). (d) The Civil Code refers in some cases to future things, i.e. those which do not exist at the moment, but the existence of which can rationally be expected, with a greater or lesser degree of probability (e.g. the crops on a property, a building to be built): see, for instance, art. 635, which prohibits the donation of future things; art. 1271, which allows any other contract on future things; and art. 1911, which states the principle of universal patrimonial liability of the debtor (“The debtor is liable with all his property, present and future, for the fulfilment of his obligations”). (e) Only entities which are capable of independent patrimonial domination may be considered as things (“capable of appropriation”, according to art. 333 CC). In a legal sense, the concept of a “thing” does not suit those entities which cannot be the object of independent patrimonial rights: those, for instance, which are out of human control (the sun or the stars), the so-called res communes omnium (the air or the sea), and those others which, according to the applicable law, customs, or the general principles of law are excluded from trade (rights of personality, parts of the human body, the human corpse, etc.). (f) Related to this question, the category of things extra commercium is used now and then by the Civil Code (e.g., arts. 865, 1271 and 1936), although its exact meaning is not completely clear. Entities that cannot be considered as things in a legal sense, though they are things in a general sense (res communes omnium, the human body, etc.), may be included here; as well as those which, being things in a legal sense, may not be the object of legal transactions between private parties (e.g. things belonging to the public domain). Things that may be owned by somebody, though their trade is prohibited (e.g. the property rights of use and habitation) or restricted in some way (e.g. weapons, drugs, explosives, works of art, etc.), are not deemed to be res extra commercium.

1.3.2. Classification of things There are several classification criteria which may be useful for the subjectmatter of the present report:

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(a)

Movable and immovable things

The distinction between movables and immovables has traditionally been considered as the most relevant classification of assets. The importance of the distinction lies in the different legal rules applicable to rights and legal relationships depending on whether they relate to movable or immovable property (e.g. as to the capacity to dispose, formalities required, acquisitive prescription, publicity by registration, security rights, a non domino acquisitions, etc.). Historically, the distinction was founded upon two kinds of arguments: the greater importance and economic value of immovables (res mobilis, res vilis), and the greater identifiability of these assets, which made embezzlement more difficult and made the organisation of a system of public registration regarding transactions easier. However, in recent decades, both arguments have been subject to a process of revision: the transition from an essentially agrarian economy to a commercial and industrial one determined that the value and economic relevance of certain movables (e.g. a stock of shares or industrial machinery) may be much greater than that of land.27 On the other hand, the identifiability of some movable assets (a car, a ship, an aeroplane) is nowadays quite similar to that of immovables, thus facilitating the creation of a system of public registration which provides the necessary certainty to those legal transactions – including their use as credit securities – which may rest upon such assets.28 Therefore, the terms in which the traditional distinction was formulated have, to a great extent, lost their basis, and that is the reason why Spanish law has extended some aspects of the rules on immovables to certain movable assets: e.g. the possibility to create a hypothec in a ship, based on the fiction that ships take on, to this effect, the status of immovables (Naval Hypothec Act of 1893),29 the regulation of the movable hypothec and pledge without trans27

28

29

Which, among other consequences, explains the special attention paid by the new LEC (Civil Procedure Law) of 2000 to the different aspects of legal proceedings regarding movables; see GARCÍA SOLÉ, F.; GÓMEZ GÁLLIGO, F.J., Derecho de los bienes muebles. Financiación y garantías en la contratación mobiliaria, Colegio de Registradores de la Propiedad y Mercantiles de España, Asociación Nacional de Establecimientos Financieros y de Crédito, Marcial Pons, Ediciones Jurídicas y Sociales, S.A., Madrid-Barcelona, 2002, p. 128. GÓMEZ MATOS, M., El Registro de Bienes Muebles, Ed. Aranzadi, Cizur Menor (Navarra), 2005, p. 45. Ley de Hipoteca Naval of 21 August 1893 (LHN). Art. 1 of this act states: “[a]ccording to the provisions of this act, merchant ships may be the object of hypothecs. In this regard only, such ships shall be considered as immovables, and art. 585 of the Commercial Code shall be deemed to be amended in this sense”. Art. 585 Ccom. states that, unless the contrary is provided, ships shall maintain their nature as movables;

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fer of possession,30 or the Register of Movable Assets.31 That is the reason why certain authors have supported the convenience of going beyond the traditional distinction between movables and immovables, proposing other classification criteria that could nowadays be deemed more relevant from a practical point of view, as could be the distinction between equipment or production assets and consumer assets,32 or – above all – the distinction between assets subject or not subject to registration.33 In fact, one of the most important differences traditionally pointed out between movables and immovables has been the decisive role played by possession with respect to the former as to fundamental aspects of their regulation (proof of ownership, modes of acquisition, double sale, constitution of real securities, legitimation, legal presumptions, etc.); while for immovables the consequences of possession have long coexisted and been in fact superseded by those arising from public registration. However, in recent decades, increasingly complex legislation has been promulgated in order to submit some kinds of movables (especially those with important economic value and capable of identification) to a system of public registration similar in some respects to that established for immovables, thus excluding or at least limiting, the legal effects of possession with respect to such assets. As a consequence, the distinction between assets that are subject to registration and those that are not has already been assumed in some respects by the Spanish legal system, bringing the regulation of those movables capable of registration close to that of immovables; however, it has to be stressed that the assimilation only operates in certain respects – especially regarding the execution of real securities – and not in others.34 In this

30

31 32 33

34

in this sense, see SSTS 16 november 1927, 27 November 1981 (RJ. 4193, 3rd Section), 16 March 1978 (RJ. 1092) and 30 September 1978 (RJ. 2894). Ley de Hipoteca Mobiliaria y Prenda sin Desplazamiento de la Posesión de 16 de diciembre de 1954 (LHMPSD). Created by RD 1828 / 1999, of 3 December. See infra, I, 3. CARRASCO PERERA, A., Derecho Civil, cit., p. 225. See DÍEZ-PICAZO, L., Fundamentos de Derecho Civil Patrimonial, t. III, Las relaciones jurídico-reales. El Registro de la Propiedad. La posesión, 4th ed., Madrid, 1995, p. 300; GARCÍA SOLÉ / GÓMEZ GÁLLIGO, op. cit., p. 20; GÓMEZ MATOS, op. cit., pp. 47 et seq. The last author points out (pp. 49 and 52) that the distinction between registrable and non-registrable assets must not exclude or deprive of any relevance, the distinction existing between movables and immovables, since public registration does not have the same importance across all aspects of the legal system. As MARTÍN OSANTE (“La publicidad registral de los bienes muebles y los terceros”, RGLJ, april-june, 2001, p. 334) puts it, the expression “movables capable of registration”, as used by LEC, does not always have the same meaning; the assimilation of the rules on immovables may be complete in the case of ships and aircrafts,

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regard the rules of the new LEC of 2000 on the enforcement of judicial decisions, including those referring to the seizure and execution of assets, are particularly important. Although LEC provides for the public auction of movables and immovables in different sections (arts. 643 et seq. and arts. 655 et seq.), art. 655 states that the rules regarding immovables shall also apply to those movables subject to a similar system of public registration; the second paragraph of the same article adds, however, that in such cases the rules referring to the auction of movables shall also apply, save the special provisions established in the following articles. Likewise, art. 629 provides for the warranty of the seizure of immovables “and other assets capable of registration” through the judicial order to enter a preemptory notice of seizure in the relevant register, according to the corresponding rules (see also art. 727, referring to the adoption of precautionary measures; and art. 418 (4) RH, as to the recording into the Daily Entry Book (Libro Diario) of the Land Registry); for those movables that are excluded from registration, the rules applicable are those stated by art. 624, which provide for the practice of seizure and deposit of assets.35 When it comes to the execution in natura of judicial decisions regarding the obligation to deliver a certain specific movable asset, art. 701 (1) LEC permits the court to enforce the actual delivery of the thing to the claimant;36 but the second paragraph adds: “[w]here the execution involves movable assets subject to a system of public registration similar to that for immovables, the necessary measures shall be undertaken in order that the corresponding Register adequately reflects the content of the executive title”. Finally,the execution of assets subject to movable hypothec and pledge without transfer of possession is subject to the same rules that provide for the execution of immovables subject to hypothec (arts. 681 et seq. LEC), attributing a decisive role to the certificates issued by the Register of Movables. Arts. 334 to 337 CC develop the classification of movable and immovable assets. In principle, the difference between them lies in the fact that immovable things have a fixed situation in space and cannot be moved

35

36

subject to a similar system of public registration, but for the rest of the identifiable movables, the assimilation only operates in the field of execution and real securities. Other special rules regarding execution on certain kinds of movables (shares, obligations, bonds), whether or not they are subject to official quotation, are contained in art. 635. Art. 701 (1) LEC: “Delivery of a specific movable asset. 1. When the duty to deliver a specific and determined movable asset arises out of the executive title, and the executed debtor does not provide delivery within the time period set for him, the Court shall give possession of the asset to the executor, using the coercive proceedings it deems fit for that purpose, ordering forcible entry and drawing on state forces, should it be necessary.”

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without breakage or damage, while movable things lack a fixed position and therefore may be moved from one place to another without any detriment to their nature. However, Spanish law not only applies this classification to corporeal things, but extends it to all kinds of assets.37 That is why the criteria used to formulate the distinction cannot be restricted to the aforementioned criterium of physicality. The essential content of articles 334 et seq. is usually explained as follows: Immovable property (art. 334): (i) By nature: soil, lands, mines, quarries and marshes, as long as the matter thereof forms part of the bed, and waters either running or stagnant (numbers 1° and 8°).38 (ii) By incorporation: buildings, trees, plants, and generally everything that is attached to an immovable in a fixed manner, in such a way that it cannot be separated therefrom without breaking the material or deterioration of the object (numbers 1°, 2° and 3°).39 (iii) “By destination”: assets which, being movables themselves, are destined to the permanent service of an immovable, though not being fixed to it (ornaments, instruments of exploitation, etc.; numbers 4°, 5°, 6°, 7° and 9°).40 The binding of those assets to the service of the immovable is made through an act by the owner of both assets, which is called “designation” (“afectación”) but they can also be separated (“desafectados”) from their destination and become the object of independent rights and transactions (e.g. as the subject-matter of a hy-

37

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40

Art. 333 CC: “All things which are or may be the object of appropriation are considered either movable property or immovable property”. On this classification, see GÓMEZ MATOS, op. cit., pp. 31 et seq. Also subsoil and air can be mentioned here, since, even though they usually form a unity with soil, they can also be considered as separate assets, and therefore be the object of independent rights (see, e.g. art. 396 CC and arts. 35-36 of the Land Act – Ley 8 / 2007, de 28 de mayo, del Suelo (LS) –, regarding the right of superficies). Construction materials keep their movable nature – and are therefore capable of forming the subject-matter of separate transactions, seizure, etc. –, as long as they are only deposited on the construction site,having not been incorporated into the ground or integrated into the building: SSTS 18 March 1961 (RJ. 960), 3 may 1975 (RJ. 1990) and 27 November 1978 (RJ. 4175). STS 25 February 1991 (RJ. 1596): the fact that the movables – machinery, tools, etc. have been physically fixed to the floor by using masonry or other means does not exclude their classification as immovables by destination, as long as they can be separated without breaking up or seriously deteriorating the thing to which they are fixed. See also STS 24 March 1992 (RJ. 2282).

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pothec in a movable or of a pledge without transfer of possession, of seizure, etc.).41 (iv) By analogy: rights in immovable assets that are subject to the same regulation applicable to immovables: e.g. administrative concessions of public works, and property rights in immovable assets (easements, usufruct, etc.; number 10°), as well as credit rights secured by means of real securities on immovables (e.g. credit rights secured by means of hypotec, arg. ex art. 336, contrario sensu). Movable property (arts. 335 and 336). (i) By nature: things capable of appropriation that are not mentioned in art. 334, which can be transported from one place to another without impairment of the immovable to which they are fixed. (ii) By analogy: immaterial assets (the various forms of appropriable energy, ideas and creations), property rights in movables, and legal actions regarding movables. (iii) By exclusion: other patrimonial rights that cannot be considered immovables, e.g. credit rights, whether incorporated into instruments of title or not (arg. ex art. 33642), even if their object is the passing over of an immovable. Arts. 346 and 347 provide certain constructive rules regarding movables and immovables:

41 42

See infra, I, 1.7.2, (d). Art. 336: “ Annuities or pensions, either for life or hereditary, vested in a person or in a family, can be also considered as movable things, provided they do not imply a real burden on an immovable thing, the same is true for transferable offices, contracts for public services, and bonds and instruments representing mortgage loans”. According to DÍEZ-PICAZO (Fundamentos …, cit., p. 206), “transferable public offices” were historically public offices or administrative positions established by administrative laws, the peculiarity of which lay in the fact that they could be transferred to third parties so that the latter could perform the necessary function or office (e.g. the function of public notary). Their presence in the Code of today is an anachronism. The use of the term “contracts” regarding public services is, according to the same author, a mistake, and must be considered as referring to the credit rights arising out of the contracts; moreover, he does not see any reason to limit the reference to the contracts on public services, since every relationship arising out of a contract is to be considered a movable asset, unless it has the special condition of being immovable. As to the final part of the rule, although a mortgage credit, in itself, must be considered as an immovable asset, it assumes the nature of a movable when incorporated into to bonds or representative titles.

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(i)

The words “movable things or assets”, or “immovable things or assets”, when used in provisions of law or in individual statements, generally include everything which is deemed to be movable or immovable according to the rules set out above(e.g., art. 976 CC). (ii) The word muebles (movable furniture), used alone, includes only movables intended for use and decoration of a dwelling (e.g. art. 1320 CC), unless another meaning arises out of the context. (iii) When a juridical act intended to transfer ownership or possession refers to movable or immovable things, “with all that is found therein”, that does not include ready money, instruments, credits and actions whose titles have been deposited therein, unless the intention to extend the transfer to such assets and rights is clearly expressed.

(b)

Simple and composite things: universalities

The distinction between simple things and composite things lies in the fact that the thing, globally considered, is or is not the result of the material union of different elements or parts which are capable of having an existence of their own. The Spanish doctrine tends to use terminology taken from German law – the usefulness of which, in the context of the Spanish legal system, has often been disputed43 –, to refer to the different elements of composite things: (i) Component parts: these are the essential elements of a thing, which contribute and are integral to its very essence. Although they might be separate from a physical point of view, this may not be so from an economic point of view. Immovables by incorporation (plantations, buildings, etc.),44 and movable things that are combined with them so that they become one thing (art. 375) may be included within this concept. The component parts of a thing cannot generally be the object of independent rights (e.g. they cannot be seized separately, art. 605 (2) LEC),45 and the rights lying in the thing are also included hereunder (e.g. the hypothec is necessarily extended to those movables which have been incorporated to the tenement in such a way that they cannot be separated without causing breakage or deterioration of the object – art. 111 (1) LH – and it may also be extended to 43 44

45

See, for instance, LASARTE, C., Principios de Derecho Civil, I, Madrid, 1992, p. 397. The link between the notion of immovables by incorporation and that of component parts is affirmed by STS 24 March 1992 (RJ. 2282). Referring to immovables by incorporation, STS 30 March 2000 (RJ. 2431) states that they cannot be the object of separate juridical acts, unless such acts relate to future things.

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natural accessions – art. 109 LH –; on the execution of the immovable containing them, see art. 703 LEC). (ii) Belongings: those things which, retaining their individuality, are destined to the permanent service of a principal thing, as a consequence of a decision taken by the owner of both things (act of designation – “afectación”)46, thus establishing between them an objective functional bond, are deemed belongings (e.g. immovables “by destination”; the frame of a picture; the spare wheel of a car). They may be the object of independent rights and juridical acts – including their seizure as independent things47 –, but, in case of doubt, they are deemed to follow the destiny of the principal thing (e.g. the accessories under art. 1097 CC: “[t]he obligation to hand over a specific thing includes the handing over of all its accessories, even where they have not been mentioned”;48 see also art. 883 CC; art. 111 (1) LH, in contrast, requires an express agreement in order to extend the hypothec to the movable assets permanently designated to the tenement, thus facilitating the use of the latter as an independent source of credit from the tenement itself).49 Some of these assets, especially those qualified as immovables by destination (industrial machinery, instruments for agricultural exploitation, or the different elements that make up a mercantile establishment, etc.), are subject to special provisions regarding their status as being the subject-matter of movable securities, and therefore are subject to registration into the Register of Movable Assets under the corresponding norms. Along with individual things – including simple and composite things –, the concept of “universality” is often used to name those groups of things 46

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See STS 3 July 1987 (RJ. 5047), rejecting the authority of the buyer to extend the hypothec created in his immovable property to certain movables bought subject to reservation of title in favour of the seller, since he does not have the right to designate them permanently to the immovable, and therefore they cannot be deemed immovables by destination. SSTS 29 May 1952 (RJ. 1504) and 25 February 1992 (RJ. 1549). STS 25 February 1991 (RJ. 1596) declared that the seizure of machinery did not include the tools that complemented it as accessories, and admitted on this basis the third party action brought with respect to the latter. STS 18 March 1961 (RJ. 960) and STSJ Navarre 28 April 1992 (RJ. 6196). STS 13 December 1982 (RJ. 1988 / 9033) rejected the alleged prescription of the different elements of a right of exploitation on the basis of art. 1955 CC (relating to movable assets) because they were to be deemed immovables by destination. GÓMEZ MATOS (op. cit., p. 301, n. 20) stresses the fact that the distinction between component parts and belongings is not always easy to draw. This may cause

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that, being different in themselves, are taken and considered as one unit in relation to certain effects (a library, cattle – art. 499 CC –, an industrial, commercial or agricultural enterprise,50 or even a hereditary estate).

(c)

Public and private things

According to art. 338 CC, “property falls under either public domain or private ownership”. Things under public dominion or “bienes demaniales” are those which belong to the State and other territorial public entities (municipalities, provinces, Autonomous Communities), and are intended either for public use, for some public service or for the development of the national wealth.51

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significant problems in determining the regulation applicable to a certain case; a typically controversial example is that of the machinery installed in an industrial installation (SSTS 28 May 1954, RJ. 1574, and 4 November 1985, RJ. 5510). The same author recalls an interesting case resolved by STS 27 February 1956 (RJ. 1124), that stated: “an intended designation of the owner, of machinery that is movable by nature, to the industry carried out inside a building or tenement, attributes the status of immovable assets to such machinery. However, where they belong to different owners, the two separately owned elements are not unified because such designation is not one of the modes of acquisition of ownership set out by art. 609 CC, nor is it included in any of the cases of accession causing unification under the provisions contained in Chapter II, Title II of the same Book of the Civil Code. In this way the owner of the machinery does not acquire any undivided share in the tenement as a result of such voluntary designation, nor does the owner of the latter acquire anything in the former. The relevant property of each of them remains fully individual. This case is thus completely different from that of unification, which requires plurality of subject-matter and unity of their owners. This condition is independent of the movable or immovable nature of the object”. See, for instance, STS 26 February 1979 (RJ. 525), where a pharmacy business, including not only the premises where the economic activity takes place and its accessory elements, but also the stock, clientele, right of transfer, etc., are also considered an asset in the sense of art. 333 CC. A distinction may be therefore drawn between: a) things intended for public use (art. 339 (1)), such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character. Also things intended for the public service and belonging to other territorial public entities (municipalities, provinces, Autonomous Communities, art. 344 (1)) are included within this category: provincial roads, city streets, municipal streets, squares, fountains, public waters, promenades, and public works for public service paid for by said entities; b) things belonging to the State and other public entities that, not being

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Things of public dominion assume this status by way of their designation (afectación) to the public use or service, that may be either express or tacit.52 As long as they retain this status, they are not subject to alienation, prescription or seizure (art. 132 (1) CE53), and the public administration has the authority to establish their boundaries and recover their possession by itself.54 Traditionally, domanial assets did not require public registration, but at present their registration in the Land Register is possible (art. 2 (6) LH; arts. 36 et seq. LPAP). The domanial status of a thing may be lost by way of “desafectación”, which may be carried out through a formal act, through the fact of no longer being of public use or service, or even through the fact of not being actually used for those purposes.55 Through “desafectación”, the assets become private, notwithstanding their ownership by the State as patrimonial property (art. 341). “Afectación” is not necessary, and “desafectación” is not possible, when it comes to those assets deemed of public dominion by the Constitution or the law (e.g. art. 132 CE). Property of private ownership includes all property belonging either to private persons or to the State and other public entities, provided it is not intended for public use or service (arts. 340 and 345). Things of private ownership belonging to the State and other public entities are named “patrimonial property”, and are regulated by special rules,56 the CC applying secondarily. In spite of their being of private ownership, the public administration has special powers over them: it has the authority to establish their boundaries and recover their possession, when wrongfully lost, and they cannot be seized; however, they may be the object of transfer, and their ownership may be acquired through acquisitive prescription. Moreover, the State is legally granted ownership of those immovables which are abandoned and have no recognisable owner, as well as of those immovables which are held or possessed, without any title, by entities or particulars; and is, consequently, authorised to revindicate such assets, in accordance with the law.

52 53 54 55 56

for public use, are intended for some public service or for the development of the national wealth (art. 339 (2)). Arts. 65 et seq. LPAP. Constitución Española de 1978 (CE). Arts. 41 (1), 50 and 55 LPAP. See STS 4 June 1991 (RJ. 4413). Ley 33 / 2003, de 3 de noviembre, del Patrimonio de las Administraciones Públicas (LPAP), Real Decreto Legislativo 781 / 1986, de 18 de abril, por el que se aprueba el Texto Refundido de las Disposiciones Legales vigentes en materia de Régimen Local (LRL). The different Autonomous Communities have also passed Acts on their own patrimony.

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Fungible and non-fungible things: specific and generic obligations

Those movable things which, by their nature, are homogeneous, and can be thus replaced, being determined in ordinary trade by their number, measure or weight (grains, copies of a book, model of automobile, objects belonging to a model; and, as the most important example, money), are fungible things. On the other hand, non-fungible things have an individual nature that prevents them from being replaced by another thing, even one of the same kind.57 Art. 337 CC formulates an erroneous definition of fungible and non-fungible things, restricting this distinction only to movables, and confounding it with the distinction between consumable and non-consumable things.58 In other provisions, however, the concept of fungible things is correctly used (e.g. arts. 1196 (2), 1448 and 1452). One of the main consequences of the fungibility of things regards the regulation of contracts relating to them: in general terms, any person who receives a certain amount of fungible things with the obligation to keep them and provide restitution for them, in such a way that the things received get confused with his or her own patrimony, acquires ownership in them and is allowed to dispose of them, subject to the obligation to provide the same amount of things of the same nature and quality to the other party in return.59 A distinction closely related – but not equivalent – to that between fungible and non-fungible things is that existing between specific and generic things. Those things which are determined by their belonging to a class of things are generic things (arts. 875 and 1167 CC; arts. 701 and 702 LEC60); things individually considered in a single case are specific things. This classification is not equivalent to that between fungible and nonfungible things, as the fungibility of a thing depends on its nature (e.g. a bottle of wine is, in principle, always fungible, whereas a tenement is not), while the fact of being generic or specific does not depend on the nature of the thing, but on the manner in which it is considered by the parties in each individual case. It follows that the fungible and generic nature may 57

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GÓMEZ MATOS (op. cit., p. 94) points out that second-hand assets are usually deemed non-fungible things. Art. 337: “Movables are fungible or non-fungible. To the first class belong those movables which cannot be used in a manner appropriate to their nature without their being consumed; to the second class belong all the others”. Regarding bank deposits of money, SSTS 4 December 1975 (RJ. 4361), 10 January 1991 (RJ. 294) and 11 March 1992 (RJ. 2170). Ley 1 / 2000, de 7 de enero, de Enjuiciamiento Civil (LEC), which contains the regulation of civil procedures.

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or may not coincide in relation to the same thing (e.g. a model of car may be sold as a specific thing – in a sale between non-professional persons –, whereas a tenement, which cannot be considered as fungible, may be sold as a generic thing – the sale of one of the houses in a row, or of one of the tenements belonging to an inherited estate). In fact, the specific-generic distinction is more properly applied to obligations (especially to obligations to hand over something) than to things. Specific obligations are those where the debtor’s prestation involves giving a thing that is individually determined; generic obligations are those where the object is determined by a certain measure or quantity of a certain kind, that is, a somewhat wide group of things having certain common characteristics; usually, but not necessarily, generic obligations relate to fungible things. Specific obligations are subject to the following rules (save a covenant to the contrary): (i) Art. 1094 charges the debtor with the accessory duty to keep and preserve the thing he or she is obliged to hand over,61 from the moment such obligation comes into existence. If the thing is lost or deteriorates through the debtor’s fault (art. 1101), he or she shall be obliged to indemnify the damage; 62 art. 1183 presumes fault on the part of the debtor, when the thing is lost or deteriorates while being in his or her possession. In contrast, the risk of loss and deterioration through a fortuitous event is, in principle, borne by the creditor (arts. 1105 and 1182),63 save a covenant to the contrary or the ocurrence of the circumstances enumerated by art. 1096 (3), in which the debtor shall assume such risk until he or she has effected delivery: 64 when the debtor delays in performance (art. 1100), or if he or she promised to deliver the same thing to two or more persons who do not have the same interest (see art. 1473, regarding cases of double sale). Art. 1185 also states that “when the debt of a certain and deter61

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Art. 1094 CC: “Every person obliged to hand over something is also obliged to take care of it with the proper diligence of a good father of his family”. According to art. 1104, this standard of diligence is applicable unless another is established in a particular case by law or by stipulation of the parties, or where it arises from the given circumstances (see, e.g. STS 8 May 1990, RJ. 3692). About the judicial liquidation of such damages, see art. 703 LEC. See infra, II, 4.2.1. The debtor’s responsibility for the loss or deterioration caused by fortuitous event may be considered excluded when it is proved that such circumstances would have affected the thing equally had it been under the creditor’s control: that is the rule established by art. 1896 (2) for the condictio indebiti when the accipiens acted in bad faith.

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(iv)

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minate thing results from a criminal offence, the debtor shall not be exempted from payment, whatever may be the cause for the loss, unless the creditor refuses to accept the thing without justification”. This latter rule can be deemed to have a wider scope, since the creditor’s delay in receiving the thing left at his or her disposal (mora credendi) implies the assumption by him or her of the risk of loss or deterioration by fortuitous event, even in those cases where the risk pertained to the debtor, and allows the latter to become discharged from his or her obligation through the consignment of the thing due (arts. 1176-1181). Art. 1095 grants the creditor the right to receive the fruits produced by the thing from the time the obligation to deliver it has arisen; this rule is only applicable to those obligations having the object of transferring to the creditor a right in the thing that includes the entitlement to obtain the fruits (especially, but not only, ownership in it). Doctrine and jurisprudence tend to explain this rule in connection with the principle according to which, the buyer in a sales contract assumes the periculum as well as the commodum of the thing.65 Art. 1095 (2) formulates the general rule according to which the acquisition of property rights does not take place at the same time as the obligation to hand the thing over arises; it only takes place when such obligation is in fact accomplished through tradition. This is a consequence of the title and mode system established by Spanish law for the contractual acquisition of property rights (see also art. 609).66 Art. 1097 charges the debtor of a specific thing with the obligation to deliver all its accessories (including any accession that may have accrued since the obligation to deliver arose67), even though they may not have been expressly mentioned.68 Art. 1096 (1) gives preference to compulsory execution in specie when it comes to obligations to hand over specific things.69 The procedure

SSTS 6 October 1965 (RJ. 4357) and 6 February 1990 (RJ. 664). See infra, II, 4.2.1., and also I, 1.3.2.(d). See infra, II, 4.2. RDGRN 20 July 1922 and STS 27 February 1950 (RJ. 366 bis). SSTS 13 November 1956 (RJ. 3443), 26 December 1957 (RJ. 3652) and 28 June 1995 (RJ. 5312). The titles and documents of the main thing are included in the obligation to deliver the accessories, in order to provide the acquirer with the proof and allow the public registration of the relevant right, SSTS 23 October 1934 (RJ. 1486) and 26 April 1994 (RJ. 3075). However, the obligation to deliver the accessories does not extend to such accessories that did not exist when the contract was entered into (STS 12 December 1984, RJ. 6058). See SSTS 8 January 1945 (RJ. 8), 14 June 1957 (RJ. 2522) and 2 May 1968 (RJ. 3416).

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to obtain the execution of such obligations is regulated by arts. 701 et seq. LEC, according to which the court shall compel the debtor to perform delivery, fining him or her where necessary. Where coercion proves ineffective, the court shall put the creditor in possession of the assets, using public force if necessary, and effecting the corresponding amendments to the register. Only where it is impossible to impose the execution of the obligation in its original terms (including those cases where the thing is under the legitimate possession of a third party70), shall it be adequate to order substitutive compensation,71 that corresponds to the obligation to indemnify the additional damages caused to the creditor, under art. 1101 CC.72 The category of generic obligations has remarkable relevance nowadays as a consequence of the development of mass production, causing a large part of exchange contracts to relate to things of a certain kind or model; even in the field of contracts relating to services it is frequent that these correspond to basically standardised models, which may allow, at least in some cases, the application of the rules on generic obligations. As long as they retain such nature (i.e. until specification takes place), generic obligations are subject to special rules, different from those established for specific obligations: (i) Medium quality criterion: according to art. 1167, “where the obligation consists in the delivery of an indeterminate or generic thing, the quality and circumstances of which have not been stated, the creditor cannot demand a thing of superior quality, nor can the debtor deliver a thing of inferior quality”. (ii) Exclusion of the risk of subsequent impossibility: according to the general principle underlying arts. 1182 and 1183 CC, the subsequent impossibility of payment in kind for loss or destruction of the relevant thing through no fault of the debtor causes the extinction of the obligation. Nevertheless, in the case of generic obligations (unlike with specific obligations), it is practically impossible that the loss or destruction of the object can occur, as said object is determined by reference to a class of thing that cannot completely perish (genus numquam perit).73 As a consequence, the debtor will always be able – in principle – to perform his or her obligation by delivering the amount 70 71

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SSTS 3 February 1987 (RJ. 676) and 12 March 1997 (RJ. 2490). SSTS 9 April 1959 (RJ. 1545), 9 November 1968 (RJ. 4966) and 29 June 1985 (RJ. 3320). SSTS 25 March 1964 (RJ. 1717) and 2 December 1996 (RJ. 8784). SSTS 27 April 1943 (RJ. 559), 13 June 1944 (RJ. 893), 9 January 1951 (RJ. 581), 23 November 1962 (RJ. 4612) and 28 May 1994 (RJ. 6723).

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agreed upon of the class involved, even if the amount he or she possessed is lost, and even if, in such a case, the performance places a much greater effort for him or her. The possibility of loss or destruction of the object may exist, however, in the so-called “obligations of a limited class”, where a more restricted class of things sharing some special characters or circumstances are delimited within a wider class. (iii) Compulsory execution in specie: art. 1096 (2) states: “if the thing is indeterminate or generic, the creditor may ask that the obligation be complied with at the expense of the debtor”. It can be considered as an adaptation of the general provisions regarding compulsory execution in specie to the peculiar nature of these obligations.74 Art. 702 LEC allows the creditor to demand, if necessary, either the delivery of the things due, or the authorisation to acquire them at the debtor’s cost. (iv) In principle, the rules regarding the accessory obligation of custody (art. 1094) and the allocation of fruits to the creditor (art. 1095) do not apply to generic obligations, as long as specification does not take place. Generic obligations become specific (thus being subject to the general rules previously explained) by virtue of the so-called “specification” or “concentration”, which implies the individualisation, within the class, of the assets with which the debtor has to perform the relevant obligation. The specification may pertain to the creditor, to the debtor, to a third party, or it may be effected through another system; unless the contrary is provided, the corresponding right belongs to the debtor (favor debitoris; and art. 1132 (1), referring to alternative obligations, by analogy). The specification usually coincides with the moment the obligation is performed. However, it may also happen that specification takes place before that time, which has several effects, since from that moment on the debtor is subject to the accessory obligation of custody (art. 1094), and the creditor acquires the right to receive the fruits the thing may produce before it is delivered (art. 1095). However, he or she also assumes the risk of loss or deterioration by fortuitous event.75 An anticipated specification may take place, if it was so provided, by agreement between creditor and debtor, or by a unilateral decision of one of them. If the right to specify was granted to the debtor, it can be assumed that the mere separation of the things with which he or she intends to perform shall not suffice, since the corresponding notification of the creditor is also a requirement. It is also accepted that the debtor is allowed to unilaterally operate the specification should the creditor delay in 74

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LLAMAS POMBO, E., in Jurisprudencia civil comentada. Código Civil, dir. PASQUAU LIAÑO, M., Ed. Comares, Granada, 2000, I, p. 1793. STS 15 April 1947 (RJ. 899).

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receiving the goods offered to him or her, thus assuming the risk of loss by fortuitous event.76 In any case, specification prior to performance requires that the things are properly identified and separated from others pertaining to the same class. In case of obligations of a limited class, an anticipated specification may also take place where through a fortuitous event all the limited class perishes, with the exception of (and thus leaving only) the measure needed for performance.

(e)

Other classifications of things

According to art. 337 (although this article, as mentioned above, uses the terms “fungible” and “non-fungible” erroneously), movable things that cannot be used in a manner appropriate to their nature without their being consumed are consumable;77 all others are non-consumable. The fact that a thing is consumed by its being used must be understood in a legal, not physical, sense: e.g. money is essentially consumable, even though its use does not imply its physical vanishing; bricks are also consumable, as their typical use makes them lose their individuality, even though it does not imply their physical destruction. Although there is some discussion on this, those things which deteriorate gradually, and may even be destructed as a result of their frequent use – such as clothes or furniture, see art. 481 CC – must be deemed, in principle, as non-consumable. A thing can be considered as divisible or indivisible depending on its inherent nature or on a specific legal provision. Things are divisible by their nature when the parts resulting from their division maintain the same nature and economic function, and have a proportional value. Things, the division of which renders them useless for their purpose, or makes them lose a significant part of their value, are indivisible (arts. 401 and 1062). On the other hand, a thing which is divisible by its nature may be indivisible if the law forbids its division for any reason (e.g. a minimum cultivation unit,78 or the limitations established by urban planning). 76 77

STS 2 December 1953 (RJ. 3152). GÓMEZ MATOS, op. cit., p. 94, n. 161, stresses that the category of consumable things has nothing to do with that of “consumer goods or things”, with respect to which special norms have been promulgated in order to protect the legitimate interests of consumers in contractual as well as extracontractual fields: see, among others, General Act for the Protection of Consumers and Users (Real Decreto Legislativo 1 / 2007, of 16 November), and Warranties in the Sale of Consumer Goods Act (Ley 23 / 2003, of 10 July). However, such special rules do not affect the system of transfer of ownership.

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Classification of property rights: creation of non-typical property rights by private autonomy78

1.4.1. Typical property rights The typical property rights – that is, those which have been specifically regulated by law – existing in Spanish law can be classified as follows: (a) Ownership. Ownership is the most comprehensive of property rights, i.e. the one that grants the title-holder total dominion over the thing (powers of use, enjoyment, disposal, etc.), only subject to the limitations established by law or resulting from the existence of other property rights in the same thing. (b) Rights in immaterial assets. As aforesaid, certain creations of the mind can form the subject-matter of rights that, because of their absoluteness and their complete content, have traditionally been considered as particular forms of ownership (intellectual property and industrial property), although, from a technical point of view, they do not have the same status as ownership, the term “ownership” being only used for corporeal assets. (c) Restricted property rights. Restricted property rights are those which, lying in another’s thing, grant the title-holder some powers in it, thereby reducing the normal extent of ownership. Depending on their basis, restricted property rights can be: (a) Legal: restricted rights arising directly from the law, when the prescribed circumstances are present (e.g. the legal usufruct granted to the widow or widower by art. 834 CC, or the legal rights of preferential acquisition granted to the lessee by the LAU and the LAR). (b) Voluntary: restricted rights arising from juridical acts, such as contracts (e.g. constitution of an easement through contract), wills (constitution of a usufruct by the testator), or unilateral acts (constitution of a hypothec by the owner of a tenement; art. 138 LH). In some cases, the constitution of a property right by juridical act can be demanded by a certain person to whom the law grants such authority (e.g. legal servitudes or legal hypothec); in such cases, the expression “legal property rights” is also used, although in a different sense from that mentioned above.

78

The law states that rural tenements must have a minimum surface, and therefore cannot be divided where the resulting plots would have smaller dimensions than that required by law. In Spanish this rule is referred to as unidad mínima de cultivo.

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Depending on their content, restricted property rights may be: (a) Rights of enjoyment: restricted rights that grant the title-holder the power to use, enjoy or obtain any yields from a thing, either directly (rights of usufruct, use, habitation, easement, superficies) or indirectly (ground annuities). (b) Security rights: restricted rights granting the title-holder the authority to enforce the sale of a thing in order to use the price obtained therefrom for payment of an unpaid credit (hypothec, pledge, antichresis). (c) Rights of acquisition: rights which grant the title-holder the power to acquire ownership in a thing, through the payment of its price, either where the present owner decides to alienate it (right of legal redemption), or on the basis of the title-holder’s own decision (right of option). (d) Possession: as will be explained below, in Spanish law possession is primarily a factual state: a lasting situation of power or physical control upon things; but it is a factual state to which law attributes certain legal effects, namely granting the possessor a right (the so-called ius possessionis), to which the term “possession” also applies, and the principal content of which is the right to continue to possess. It is a right the existence of which is directly bound to the conservation of the factual state of possession, and that is independent of the existence of another subjective right (ownership, usufruct, etc.) which justifies the right to possess (the so-called ius possidendi). On these grounds, possession is deemed to be a “temporarily prevalent right”, meaning that the possessor, because of the mere fact of having possession, has the right to have his or her situation protected against anyone (and so, e.g. he or she receives legal protection even if he or she is deprived of possession by the actual owner of the thing, against the will of the former). However, this is merely temporary protection, since it may ultimately have to yield to someone who proves to have a better right (and so, e.g. the same possessor shall be obliged to deliver possession if the owner successfully exercises an action for revindication).

1.4.2. Creation of non-typical property rights by private autonomy: “numerus apertus” and “numerus clausus” systems Apart from typical property rights as those aforementioned, the admissibility of so-called “non-typical or unenumerated property rights” has been long discussed in Spanish doctrine and jurisprudence, that is, the possibility that parties may create, by their own will, property rights different from those expressly provided for by law. The numerus clausus system excludes the creation of new kinds of property rights by private autonomy, and limits the possibilities of modifying

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the content of the types that are recognised by law. This system offers important advantages from the point of view of legal certainty, since it clarifies the content of the rights and simplifies their publicity, which proves especially desirable when it comes to property rights, because of their erga omnes effect. The numerus apertus system, on the other hand, allows private subjects to create certain subjective rights that best befit the satisfaction of their interest. Regarding property rights, in Spanish law there is no rule similar to that in relation to contracts, which establishes the principle of autonomy of will (art. 1255 CC79). Most authors, however,80 as well as the Courts of Justice81 and the General Service of Registers and Notaries (DGRN)82, consider that Spanish law is subject to the numerus apertus system, with certain restrictions. Alongside the application by analogy of art. 1255, an important argument in favour of this point of view may be obtained from arts. 2 (2) LH and 7 RH, which, regarding the registration of property rights 79

80

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Art. 1255 CC: “[t]he contracting parties may establish such stipulations, clauses and conditions as they may deem convenient, provided they are not contrary to law, morals or public order”. Among others, ALBALADEJO GARCÍA, M., Derecho Civil, T. III (Derecho de bienes), 10ª ed. Edit. Edisofer, Madrid 2004, p. 28; PEÑA, op. cit., pp. 65 et seq. A different opinion can be found, among others, in LACRUZ BERDEJO, J.L., et al., Elementos de Derecho Civil, T. III, Vol. 1°. 2ª ed., Edit. Dykinson, Madrid, 2003, pp. 14 et seq. STS 6 July 1988 (RJ. 5557). STS 5 June 1976 (RJ. 2631) concerned the sale of a tenement with the covenant not to use the buildings to be constructed for industrial or trade purposes. Before the exercise of the “confessory action” (designed to obtain the recognition and enforcement of an easement), the court of instance passed judgment for the plaintiff, and the Supreme Court decided to dismiss the appeal. However, see STS 9 November 1965 (RJ. 4987), in which the situation was as follows: the owner of a coffee shop was also the owner of an urban plot of land without any construction in the same street. When he sold the plot, he imposed on the purchaser the burden that no establishment of the same kind would be placed in the buildings to be constructed in the future. On the exercise of the confessory action, both the court of instance and the Supreme Court dismissed it, considering that through the interpretation of the contract only the assumption by the purchaser of a personal obligation could be derived. RRDGRN 1 January 1981, 10 April 1987 (AC, 647 / 1987), and 5 June 1987 (AC, 815 / 1987). In RDGRN 14 May 1984 (RJ. 2588) the numerus apertus doctrine was applied in order to admit the registrability of the right that the owner of two adjoining tenements established in favour of the future title-holders of one of them, in order to ensure that the parking space of the building to be constructed on the latter could extend to a part of the undersoil of the former.

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on immovables, seem to grant a certain scope for the creation of property rights by private parties different from those recognised by law. According to art. 2 (2) LH, “(…) the titles designed to constitute, recognise, transfer, modify or extinguish rights of usufruct, use, habitation, emphyteusis, hypothec, ground annuities, easements and any other property rights shall be entered in the Registers expressed in the previous article”. Developing its content, art. 7 RH adds: “[a]ccording to the provisions of art. 2 of the Act on Hypothecs, not only the titles designed to declare, constitute, recognise, transfer, modify or extinguish ownership or property rights in those paragraphs mentioned shall be subject to registration, but also any other titles whatsoever regarding rights of the same nature, as well as any contract or act with real effect which, lacking a proper name in law, modifies, at once or for the future, any of the powers of ownership on immovable assets or inherent in property rights”. It is generally assumed, however, that the possibility to create new property rights is limited in different ways: (a) Although private parties can create property rights other than those provided by law, they cannot give a real nature to a right which, objectively, does not grant its title-holder direct and immediate power over a thing. (b) The admission by law of a property right created by private autonomy is subject to the existence of a just cause,83 meaning that it must serve an interest worthy of protection from a legal and social point of view. (c) The types of property rights provided for by law have an important degree of flexibility when it comes to the definition of their content by the intention of private parties (see, e.g. arts. 392, 467, 470, 523, etc., and especially art. 594, regarding easements); therefore, it may be quite difficult in practice to create new property rights that do not match the types prescribed by law. The creation of new rights or the modification of the content of typical rights cannot break the limits provided for by mandatory or prohibitive rules: e.g. it is not possible to create credit preferences that are not established by law (arts. 1925 CC and 89 (2) LC), security rights against the prohibition of comissory pacts (arts. 1859 and 1884 CC), or covenants establishing the indivisibility of co-ownership for a period of more than ten years (art. 400 CC). (d) As a rule, it should be held that the rights arising from a pact, as long as they are not typical, do not have a real effect, unless the intention to give them such effect is clearly expressed.84

83 84

DÍEZ-PICAZO, Fundamentos …, cit., III, pp. 125-126. PEÑA, op. cit., I, p. 71.

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As examples of non-typical property rights proposed by the courts and in doctrine, the following may be mentioned, among others: the right of option; the rights of preferential acquisition voluntarily defined as real rights; the power to build new floors on top of a preexisting building that belongs to another, thus acquiring ownership of the new construction (derecho de vuelo o sobreelevación) and the power to build new floors under a preexisting building that belongs to another, thus acquiring ownership of these new parts (derecho de subsuelo o de subedificación), etc. Also, certain agreements intended to grant the creditor a security upon a specific asset (reservation of ownership, restraints from disposal, resolutory condition of non-performance), and even the rights granted to the lessee in financial lease contracts85 have been considered as examples of non-typical property rights, at least as to their effects; such cases will be more specifically dealt with in this report.

1.5.

Notion of ownership

The term propiedad is frequently used in Spanish legal language in a wide sense, referring, generally, to all patrimonial assets and rights (virtually the same use as the English word “property”); that is the meaning the word assumes, e.g. in art. 33 CE, which recognises and grants private property, or in the Criminal Code,86 where offences against property are expressed. In a more strict and technical sense, propiedad or dominio have the meaning of “ownership”, that is, a real right granting the title-holder total dominion over a specific corporeal thing, inclusive, in principle, of all possible powers over it (use, enjoyment, disposal, etc.), with the only restrictions resulting either from the law itself, or from the existence of a restraint of disposal or of other restricted property rights on the same thing. Ownership is, therefore, the most comprehensive of property rights. Art. 348 CC includes a legal concept of ownership: “[o]wnership is the right to enjoy and dispose of a thing, without any limitations other than those established by law. The owner also has a right of action against the holder and possessor of the thing in order to revindicate it”. This definition has been widely criticised, especially from two points of view: from a technical point of view, some authors hold that ownership should not be defined as a simple addition of powers (use, enjoyment, disposal, possession, reivindication), since those elements are not exclusive to ownership, nor is the absence of them incompatible with the preservation of the right itself; furthermore, it is stressed that the rights mentioned by art. 348 do 85 86

RDGRN 26 October 1998 (RJ. 8157). Ley Orgánica 10 / 1995, de 23 de noviembre, del Código Penal (CP).

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not exhaust the owner’s powers. From a political point of view, some consider that the norm expresses an antisocial idea of an absolute power upon the thing (following the line of the French Civil Code, where art. 544 provides that “ownership is the right to enjoy and dispose of things in the most absolute manner, provided they are not used in a way prohibited by statutes or regulations”). However, such censures do not seem completely reasonable.87 By mentioning the rights of enjoyment, disposal and revindication, any possibility to act that may be granted over a thing is implicitly included; more specifically, the formulation used implies the attribution to the owner of both the use value and the change value of things (unlike other property rights, which only grant their title-holders any one of them alternatively), together with the possibility of bringing a legal action for the protection of his or her right. On the other hand, regardless of the legislator’s ideology in 1889,88 the definition of art. 348 appears to provide a framework capable of being applied differently at any point in history; thus, what could be interpreted as an absolute conception of property under a liberal ideology, only susceptible to being restricted in a negative sense, must be nowadays understood in a more flexible manner, in conformity with the social function that ownership has to acchieve at present; e.g. the increasingly frequent imposition to the owner of positive obligations can be considered a manifestation of the legal restrictions mentioned by art. 348, and accordingly to art. 33 (2) of the Spanish Constitution of 1978 (CE). It has to be remembered that even the original text of the CC admitted the possibility of expropriation and established different restrictions of ownership in order to protect the common good (legal easements, regulation of neighbourhood relationships, etc.). This tendency has gradually been intensified during the 20th century through increasingly wider legislation on expropriation, urban and rural property, etc., finally reaching a 87 88

DÍEZ-PICAZO / GULLÓN, Sistema …, cit., III, pp. 139-140. It is true that the absolute conception of ownership, under the influence of the French Code, manifests itself in different aspects of the Spanish Civil Code, although in 1889 that conception no longer had a revolutionary sense and appeared rather as a conservative instrument for the benefit of the bourgeoisie, consolidated as the prevailing social class during the 19th century. The conservative tendency is clear in different principles and rules intended to preserve the absolute content of ownership even against the consequences of socially and economically useful activities: the principle superficies solo cedit (arts. 358 and 359), the attribution to the owner of works and plantations made by a third person, even in good faith, upon his land (save the reimbursement of expenses, arts. 359-361), or the limitation of the rights granted to the possessor in good faith, to the usufructuary and to the lessee (arts. 453, 487 and 1573) in relation to improvements made in another’s thing.

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turning point under the Spanish Constitution of 1978, which recognises the constitutional right to personal property. However, the right to personal property is not recognised as a fundamental right, which implies that it may be regulated through ordinary laws, whereas fundamental rights may only be regulated through “Leyes Orgánicas”. This also implies that the violation of such right may only provide the basis for an application before the ordinary Courts, whereas the violation of fundamental rights may also be the basis for an application before the Constitutional Court. The Constitution also states (art. 53) that the right to personal property may only be regulated through a formal Law of Parliament, and demands that such law respects its essential content, and, finally, establishes that the social function of property shall delimit its content, according to the laws permitting expropriation on the basis of public utility and social interest (art. 33 CE89). The social function of ownership implies, not only a restriction of the owner’s powers, but also the imposition upon him or her of a certain way to exercise his or her right (obligations to preserve, to build, to cultivate, to improve lands, to lease, etc.), depending on the nature and on the social and economic significance of the assets in which it lies, thus providing the grounds for a diversification of the types of property, which is one of the main characteristics of ownership in our present legal system.90 The characteristics usually attributed to ownership are the following: (a) First of all, ownership is a subjective right; in a way, it could be said that it is the prototype of subjective rights. The – more philosophical than legal – theories which considered ownership to be, not a right, but a social function – that is, a scope of power granted to a subject upon a thing in order to use it for the benefit of the whole community –, are nowadays obsolete. Ownership is an actual subjective right granted to its title-holder in order to satisfy his or her own interest, provided these are considered to be worthy of legal protection; this does not oppose the assertion that ownership has to fulfil a social function, which, in turn, justifies the delimitation and configuration of its content by law for the benefit of the common good. (b) It is a real right, since it grants its title-holder a direct and immediate power over the thing, with effects against all. (c) Within the category of real rights, the main characteristic of ownership is its comprehensiveness: as long as it is not encumbered, ownership holds all powers, applications and possibilities of the thing which 89

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See further limitations in arts. 45, 46 and 47 CE, regarding protection of environment, of historical, cultural and artistic legacy, and of the correct use of urban land; see also art. 128 (1) CE, stating that “all the wealth of the country, under its different forms and regardless of its title-holder, is subordinate to the general interest”. STC 37 / 1987, of 26 March.

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are not prohibited by law, without any exception, including not only those present but also those which may appear in the future, without any need of previous definition or characterization thereof. Art. 348 CC sums up the traditional enumeration of powers by mentioning those with a wider content: enjoyment (i.e. the right to extract the utility of the thing through its use and the realisation of its fruits, either directly or through its transactional concession to others) and disposal (i.e. the right to transfer the whole or a part of the content of the right to a third person), together with the right to revindicate, which is a mechanism rather for the protection of ownership. However, CC mentions other rights of the owner elsewhere, such as those of acquiring the hidden treasure (arts. 351-352), having one’s right increased through accession (art. 353), ascertaining the boundaries of one’s property (art. 384), enclosure (art. 388), etc. Special laws also provide for the attribution to the owner – in principle – of rights of hunting and fishery. The quality of comprehensiveness of ownership does not imply that it is an absolute right, since the law determines its content and its limits in each case; but, in any case, ownership is the right which grants its title-holder the widest scope of power over a thing. (d) Consistent with its quality of comprehensiveness, ownership is presumed to be free of charges and encumbrances, unless the existence of a restricted property right or of another limitation is proved (presumption of freedom of ownership). Nevertheless, when it comes to the delimitation of ownership an essential distinction must be made between the concepts of “limits” and “limitations”.91 By “legal limits of ownership” it is intended to refer to those possibilities of acting which are excluded from the normal content of ownership, meaning that the owner is not allowed to exercise them for the mere fact of having such condition. They may be founded either on a public interest (e.g. the protection of the environment or of historical or artistic patrimony) or on a private interest (e.g. the regulation of neighbourhood relationships)92. On the other hand, the notion of “singular limitations of ownership” regards those possibilities of acting which, 91

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A warning note has to be sounded that the terminology used by doctrine, jurisprudence and the law itself may sometimes appear to be rather ambiguous, with both expressions frequently used interchangeably. The CC often uses the term “legal easements” regarding certain limits of ownership. The main examples of legal limitations of ownership – also applicable to other rights – can be found in art. 7 CC, which establishes the principle that all rights have to be exercised according to the requirements of good faith, as well as the prohibition to make an abusive or malicious exercise of rights.

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being included within the normal content of ownership, do not exist in an individual case for occasional reasons (e.g. for the existence of another’s restricted property rights upon the same thing, or the concurrence of a voluntary restriction as to the right of disposal). The limits of ownership have to be established by formal law of Parliament, according to the rule provided by art. 53 (1) CE (“reserva de ley”).93 They are imposed generally and equally to all those who find themselves in the situation prescribed by law, and since they do not diminish, but only define the normal content of ownership, their determination does not imply expropriation and does not provide any right to indemnity. They enjoy the publicity given by the law itself, and therefore operate against any acquirer, even where they have not been publicly registered or are not outwardly manifested through possession.94 Likewise, since they define the normal content of ownership, they are not subject to the presumption of freedom of ownership. Therefore, the legal limits of ownership are in force from the moment they are established by law, without any individual act (a judicial or administrative resolution) to render them operative being necessary. For the same reason, they do not have to be temporary, although they may be. On the contrary, the limitations of ownership imply an individual restriction of its normal content in a specific case, and have to be established by an individual constituting act (a judicial or administrative resolution, a private transaction) with regard to a specific thing. Because of their very nature, they are necessarily temporary, meaning that they are subject either to extinctive prescription (restricted property rights on another’s thing), or to a certain time limit (e.g. voluntary prohibitions of disposal). The burden of the proof is borne by the person who alleges their existence, according to the presumption of freedom of ownership.

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According to the same art. 53 (1) CE, the legal regulation of limits of ownership has to respect the “essential content” thereof in order to avoid their being considered unconstitutional. According to the doctrine of the Constitutional Court (SSTC 11 / 1981, of 8 April, 37 / 1987, of 26 March, 301 / 1993, of 21 October, 89 / 1994, of 17 March, and 61 / 1997, of 20 March), by “essential content” it has to be understood “those powers or possibilities of acting which are necessary in order to render the right recognisable as belonging to a certain kind”, or “that part of the content of the right which is absolutely necessary in order to make sure that those interests worth of legal protection, which found the right, are actually, concretely and effectively protected”. See arts. 26 (1) and 37 (3) LH, regarding legal prohibitions of disposal and legal rights of redemption.

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(e) Ownership is also characterised by its immediacy,95 meaning that, unlike other property rights, the owner is allowed to extract the utility of the thing, as a rule, without any need for cooperation from other subjects; the others are only obliged to restrain from any interference in the exercise of the right. (f) It is frequently said that ownership is an abstract right, meaning that it can subsist even though it may be deprived of some of the powers which formulate its content. The owner always keeps a minimum substantial content of which he or she cannot be deprived without simultaneously losing ownership itself: e.g. he or she cannot alienate perpetually his or her right of enjoyment (lease contracts and usufruct being necessarily temporary), and the constitution of non-typical property rights in favour of third persons is only allowed subject to important limitations. (g) Ownership is “elastic”, in the sense that it has the tendency to recover its fullness upon the cessation of the limitations that may occasionally fall upon it.96 A nullius restricted property right is not conceivable, therefore, since, in a case of abandonment, its content is automatically reverted into ownership. (h) According to its quality of comprehensiveness, ownership appears to be an exclusive and excluding right. This does not mean that ownership is protected against all (since this character is common to all property rights), but rather that the owner of a thing always has the right to exclude any person from the enjoyment and disposal thereof. Therefore, the possibility of solidary ownership of a certain thing is not conceivable, i.e. it is not possible to grant two or more subjects all of the powers that make up ownership. Even though the law permits different forms of concurrence of ownership titles over a thing (coownership, divided ownership, emphyteusis, etc.), these are cases in which the ownership of each one of the subjects is not complete. (i) Ownership is a perpetual right, since its existence is not restricted to the present owner’s life, but extends limitlessly through the successive title-holders, as long as the thing in which it lies continues to exist physically; even after the thing has been destroyed the right continues to lie in its remains. Moreover, ownership is not deemed to be subject to extinction through extinctive prescription, although this question is subject to discussion.97 However, ownership may be extinguished 95

96 97

LÓPEZ Y LÓPEZ, in LÓPEZ Y LÓPEZ, A., MONTÉS PENADÉS, V.L., ROCA TRÍAS, E., and others, Derechos reales y Derecho inmobiliario registral, Ed. Tirant lo Blanch, 2nd ed. (coord. CLEMENTE MEORO, M.), Valencia, 2001, p. 165. SSTS 3 December 1946 (RJ. 1413) and 2 October 1975 (RJ. 3410). See infra, I, 1.6.1.

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through abandonment (derelictio),98 which implies that the thing becomes res nullius and may therefore be acquired by another through occupation; although it has to be stressed that occupation is not possible with respect to those assets the ownership of which passes to the State in cases of abandonment.99 (j) Ownership can only lie in specific corporeal things (either movable or immovable). Therefore, ownership as such cannot lie in the following things: – Generic things: the consideration of things as belonging to a class is only of significance when applied to obligational relationships. – Incorporeal things: immaterial things can be the object of certain rights (industrial and intellectual property) which can be only considered as special kinds of ownership by analogy, inasmuch as they grant their title-holders the entirety of powers (enjoyment, disposal, exclusion, etc.) with a quality of comprehensiveness very similar to that of ownership. However, they are subject to rather different regulation. Rights themselves (either real or credit rights) cannot be considered as the subject-matter of ownership either. – Complex things and universalities: even though these can be considered a unit in relation to certain effects (e.g. for a specific transaction), ownership as such lies in each one of the things that make up the complex, and not upon the latter as a whole. – Parts of a thing: ownership lies in a certain thing considered as a unit, including all its parts. As long as these keep their nature as component parts or accessories of the main thing, they cannot make up the subject-matter of an independent ownership right. However, there are exceptions to this rule, as in cases of divided property.

1.6.

Protection of ownership

The content of ownership, like that of any other right, includes the possibility to use different mechanisms of defence and protection against eventual interference. When art. 348 (2) CC provides that “the owner also has a right of action against the holder and possessor of the thing in order to 98

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Abandonment requires not only the owner’s will to waive his or her right (considered as an act of disposal and subject to the general limits established by art. 6 (2) CC with respect to the waiving of rights: it may not harm the public interest, public order, or the rights of third parties), but also an effective act of dispossession, at least when the owner was holding possession. See infra, III, 6.1.

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revindicate it”, it is implicitly referring to all actions the owner is entitled to exercise in order to have his or her right protected.100 The law grants the owner thorough protection of his or her right, so that he or she can react against any illegal interference through bringing a corresponding action, regardless of whether such action has, or does not have, a specific name or indeed an appropriate regulation is present in the legal system. However, the doctrine usually focuses on certain actions which, due to their greater importance and frequent exercise, have traditionally been given a specific name. Among them different kinds may be found: preparatory actions, petitory actions, possessory actions, etc. Some of them are specifically designed to protect ownership (e.g. the revindicatory action), while others serve to protect other property rights or even other patrimonial rights also. It has to be also remembered that the legitimate interest of the owner – as well as of other title-holders of property rights –, may be protected through the exercise of other actions with a wider scope: e.g. the rules on extracontractual liability (arts. 1902 et seq. CC and different special legislation, including some rules of the CP particularly referring to the liability for damages caused as a consequence of criminal offences; see arts. 109 et seq.) allow a claim for compensation for damage caused to one’s property or person by another’s fault and, in some cases, even for purely objective reasons. In Spanish law the authority to assert this action is not subject to any principle of numerus clausus as to the rights or interests affected, but the prescription period is quite short (one year from the time the victim becomes aware of the damage, art. 1968 (2)). In principle, the compensation granted shall consist of a certain amount of money, although in some cases it is possible to obtain compensation in specie (see arts. 110 et seq. CP, regarding the restitution of assets and the reparation of damages). The title-holder of a property right is also entitled, of course, to have his or her right protected through the exercise of the rights and actions arising from the contracts he or she may have entered into, or through the special rules regarding the condictio indebiti (arts. 1895 et seq.). Lastly, the title-holder may bring a claim based on the doctrine of unjustified enrichment, which is not expressly provided for by Spanish law, but is unanimously acknowledged as a “general principle of law”, as such applicable only in default of law or custom (art. 1 CC). This doctrine is capable of being derived from different rules, among others, art. 1901 CC. According to this principle, any person who is enriched at the expense of another without the justification of a cause deemed as sufficient by the law, is obliged to compensate, within the limits of his or her own enrichment, the damage suffered by the latter, regardless of fault. Eventually, compensation may be granted in specie (e.g. through restitution of the very thing 100

STS 3 June 1964 (RJ. 3094).

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received or of the price obtained in exchange for it), although it will usually consist of money. The action for unjust enrichment is usually deemed to have a subsidiary nature, meaning that it may only be exercised when the person who has been impoverished has no other remedy. The essence of this rule may be found in the convenience of preventing the possibility of having an option between bringing an action for unjustified enrichment and bringing another action (e.g. a revindicatory action, an action for extracontractual liability, a condictio indebiti, etc.), thereby eluding the application of the specific rules providing a solution for the patrimonial imbalance in each particular case.

1.6.1. The action for revindication The action for revindication is the proprietary action granted to the owner against the person who illegally possesses the thing, in order for the owner to obtain a judicial declaration of his or her right, along with the restitution of the – factual or legal – possession of it (art. 348 (2) CC).101 Jurisprudence has consistently demanded the concurrence of the following requirements for the success of the revindicatory action:102 (a) It has to be proved that the claimant is actually the owner (dominium actoris). The authority to revindicate is granted to any owner (including a co-owner,103 a bare owner, an emphyteutic owner,104 a fiduciary transferor – 101

102

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STS 30 October 1997 (RJ. 7344). In contrast to the revindicatory action, there is the action provided for by art. 41 LH, through which the title-holder of immovable property rights entered into the Land Registry can demand the summary restitution of the corresponding possessory situation. Among many others, SSTS 9 March 1911, 28 October 1927, 31 January 1976 (RJ. 98), 28 March 1996 (RJ. 2201), 30 October 1997 (RJ. 7344), etc. SSTS 18 October 1894, 5 June 1918, 24 December 1929 and 3 February 1930 (RJ. 631). In the case of the co-owner (not only for ordinary co-ownership, but also in such situations as hereditary community), he or she is deemed to be authorised to defend the common right, so that a favourable judgment obtained by him or her profits the rest of the co-owners, while an eventual unfavourable judgment does not prejudice them: SSTS 26 March 1955 (RJ. 774), 29 September 1967 (RJ. 3709), 17 April 1968 (RJ. 2663) and 16 May 1995 (RJ. 8434). The lack of original authorisation by the other co-owners to exercise the action on behalf of the community can be solved through the application of the rules regarding negotiorum gestio (arts. 1892-1893 CC), if the claimant’s acts are later ratified or turn out to be profitable for the others; MARTÍN PÉREZ, J.A., in Jurisprudencia civil …, cit., I, p. 930, quoting SSTS 5 June 1982 (RJ. 4212) and 16 November 1987 (RJ. 8405). MARTÍN PÉREZ, op. cit., I, p. 929.

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fiduciante105 – or an owner under resolutory condition or time limit), who does not have factual possession of the thing; it cannot be used, however, by the buyer against the seller, since the parties to a contract cannot bring real actions against each other, but only those arising from their contractual relationship.106 The burden of proof with respect to his or her right of ownership lies with the claimant, according to the general rules on the subject (art. 217 (2) LEC).107 It is sufficient, to this effect, to prove that he or she acquired ownership before the claim was entered: it is presumed that the thing continues to belong to him or her at that time, unless the defendant proves that he or she lost it afterwards (not necessarily that the defendant him- or herself acquired it).108 In practice, nevertheless, proof that the claimant actually acquired ownership may turn out to be extremely difficult to obtain, especially where the acquisition took place by derivative title, since it would not suffice to prove – through any of the evidentiary instruments admitted by law109 – the act of acquisition as such (including, as the case may be, the existence of a valid acquisitive title as well as of the traditio), being also necessary to prove that the transferor, in turn, was the actual owner, and so on (probatio diabolica).110 Such difficulties, however, may be solved in different ways: (i) By proving that either the claimant himself or one of the previous transferors consummated an acquisition by original title (either through acquisitive prescription111 or through an a non domino acquisition, for instance, based on art. 464 CC112 or art. 34 LH), and that the successive transfers – as the case may be – were made regularly. If the thing involved is movable and the defendant also alleges that art. 464 CC operates in his or her favour (because he or she also acquired possession in the capacity of owner113 and acted in good faith), 105 106

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STS 2 December 1996 (RJ. 8784). See below, II, 4.3.5. SSTS 16 December 1983 (RJ. 6959), 17 July 1993 (RJ. 6456) and 16 March 1998 (RJ. 1569). SSTS 6 June 1966 (RJ. 2877) and 10 June 1993 (RJ. 5265). Among others, SSTS 21 February 1941 (RJ. 153) and 25 March 1969 (RJ. 1589). STS 24 June 1966 (RJ. 3443). In case of mortis causa succession, the courts have declared that proof of ownership for a revindicatory action requires proof of the decedent’s title, as well as the hereditary title (testament, abintestato succession), and, in the case of several heirs, the titles of partition and adjudication of the assets of each one of them: SSTS 29 June 1996 (RJ. 4907), 11 May 1987 (RJ. 3392), and others. SSTS 24 June 1966 (RJ. 3443), 5 December 1977 (RJ. 4660) and 10 November 1994 (RJ. 8465). STS 1 December 1947 (RJ. 1482). “Posesión en concepto de dueño” or “en concepto de propietario”; see infra I, 2.3.2.

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the claimant will still have the possibility to prove that he or she had previously lost the thing or had been illegally deprived of it.114 (ii) The claimant can also benefit from the iuris tantum presumption of legitimation arising from possession in the capacity of owner (art. 448 CC;115 see also art. 449, regarding those movables placed inside an immovable116) or, in the case of immovables and registrable movables, from the registration of ownership (art. 38 LH;117 art. 24 (1) ORVP). However, it has to be taken into account that, when the defendant possesses in the capacity of owner, he or she, being the current possessor, will be the one to benefit from the presumption of art. 448, and not the claimant, who will only be able to prove that he or she possessed at a previous time. (iii) Finally, it has been pointed out, after close analysis of the court decisions, that in order to succeed in bringing an action for revindication, it is not necessary to prove definitely and beyond any possible doubt that the claimant is the owner; it is enough to bring before the court a reasonable degree of certainty, taking into account, in particular, the arguments offered by the defendant.118 In practice, this means that an eventual judgment for the claimant following the bringing of an action for revindication does not necessarily imply an absolute declaration of ownership in his or her favour, but may only involve a verification that he or she has a “better right” than the defendant, based, at least, on proof that he or she has a true and valid title, sufficient in itself to acquire ownership; which, incidentally, seems consistent with the fact that the scope of the res iudicata effect of the judgment is limited to the parties to the proceedings (art. 222 LEC).119 114 115

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See infra, III, 8.6. STS 12 December 1966 (RJ. 5712), related to the revindication of a painting. Nevertheless, other judgments have denied that the action for revindication can be successfully brought on the mere basis of the possessory presumption arising from art. 448 CC (STS 4 February 1957, RJ. 381), thus demanding proof of a just title for the acquisition of ownership (STS 2 October 1965, RJ. 4256). STS 22 May 1999 (RJ. 4114) stresses that art. 448 cannot serve as a sufficient defence against the bringing of an action for revindication when the claimant has succeeded in proving his or her title to acquisition of ownership. SSTS 17 May 1956 (RJ. 1987) and 26 October 1977 (RJ. 4019), in spite of the fact that art. 449 only formulates a presumption of possession, and not of ownership. SSTS 23 November 1961 (RJ. 4112), 5 December 1992 (RJ. 9404) and 8 October 1994 (RJ. 7469). MARTÍN PÉREZ, op. cit., p. 935. VALPUESTA FERNÁNDEZ, M.R., Acción reivindicatoria, titularidad dominical y prueba, Valencia, 1993.

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(b) It also has to be proved that the thing claimed is precisely the one in which the claimant’s right lies (eadem res).120 The courts have established that the action for revindication can only be exercised with respect to specific and determined things – in fact, the only things that can be the subject-matter of ownership –,121 and that the claimant has the burden of proving that the thing, the ownership of which he or she has proved, is identical to the one demanded by him or her and possessed by the defendant. The action for revindication must be therefore excluded with respect to generic things, which are only identified by their belonging to a class (e.g. money; see art. 86 Ccom.); in other words, it is impossible to use this action to demand the delivery of things of the same kind and quality of those, in relation to which ownership has been proved.122 Indeed, the codified rules on mixture of things of the same kind123 do not apply to the confusion of completely fungible things, nor to money, as the result is not a “new” thing; therefore, the former “owner” is only granted a personal right – a credit – in order to demand restitution of what he or she delivered or – if the necessary requirements are fulfilled – a claim against the holder for unjustified enrichment.124 (c) The action for revindication is bound to succeed when brought against a person who possesses the relevant thing at the moment in which the claim is entered (contraria possessio),125 provided he or she has no right to possess which is opposable against the claimant.126 Nevertheless, according to the general rules on the burden of the proof, the claimant only has to prove that the defendant possesses the thing, not that he or she lacks any right to hold it (this being a negative fact); on the contrary, in order to counter the action, the burden shall be borne by the defendant to prove his or her right to possess the thing (either founded on a credit right or a property right), and the effect thereof against the claimant (art. 217 (3) LEC). If the defendant alleges and proves an apparently valid title, the success of the action for revindication may be subject to the previous or simultaneous exercise of the corresponding action designed to declare the

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In the case of immovables, the courts require that the identification of the tenement demanded is of utmost accuracy, which may make it convenient, in many cases, to bring a declaratory action – such as that designed to ascertain the boundaries – previous to or contemporaneously with the bringing of the action for revindication. SSTS 3 March 1943 (RJ. 304) and 14 November 1950 (RJ. 1767). SSTS 21 December 1908 and 1 March 1954 (RJ. 983). See below, III, 7.3.2. See A. CARRASCO PERERA, “Restitución de provechos”, ADC, 1988, pp. 69, 80. SSTS 7 July 1921 and 16 July 1997 (RJ. 6017). STS 11 December 1992 (RJ. 10136).

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invalidity or ineffectiveness of the defendant’s title,127 although this is not always considered necessary.128 The action can be exercised against any possessor, either mediate or immediate, without the requirement that the possession is held in the capacity of owner.129 If the defendant has a title entered in the Register, and the claimant’s assertion is not compatible with the content of the entry, the modification of the entry has to be claimed along with the main claim (art. 38 (2) LH; for identifiable movables, see art. 24 (1) ORVP), although the courts tend to consider that such requirement is implicitly met when the main claim is filed.130 In preparation for the bringing of an action for revindication, ensuring that the aforesaid requirements are met, the claimant may use the preparatory action regulated by art. 256 (2) LEC (traditionally known as actio ad exhibendum), which provides: “[a]ny proceedings can be prepared (…) by demanding that the person against whom the claim is intended to be brought exhibits the thing possessed by him, to which the proceedings must refer”. The exhibition claim has the purpose, on the one hand, of recognising the thing, making sure that it is the one the claimant intends to demand, and the state it is in; on the other hand, it has the purpose of ascertaining that the defendant actually possesses the thing. If the claimant identifies the thing, it will be registered into the court records, and the exhibitor will be warned to keep it in the same state until the end of the proceedings; by request of the claimant, it may also be decided to put the thing in custody or any other measure fit to guarantee the preservation thereof. This action can be brought, not only by the owner, but also by anyone who intends to enter a claim related to a thing, even if the action has not a real (proprietary) nature. Where the action for revindication succeeds, the defendant will be obliged to give back the thing along with any accession and fruits thereof, save the consequences of the application of the rules on liquidation of possessions in relation to the attribution of fruits, deterioration, expenses and improvements, taking into account the defendant’s good or bad faith 127

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SSTS 2 January 1946 (RJ. 250) and 12 June 1970 (RJ. 2921). Eventually, the challenge by the claimant of the defendant’s title will require that the claim is directed against all those who were parties to the relevant contract: STS 9 March 1979 (RJ. 856). E.g. where the lack of effect of the defendant’s title is a necessary consequence of the claimant’s own title (SSTS 12 March 1951, RJ. 995 and 4 July 1975, RJ. 3132), and can be established through the joint assessment of both titles (SSTS 1 December 1947, RJ. 1482, and 10 November 1994, RJ. 8465). SSTS 30 May 1925, 9 May 1961 (RJ. 2315) and 28 May 1979 (RJ. 1946). SSTS 3 November 1993 (RJ. 8962) and 29 May 1997 (RJ. 4327). In the case of movables, art. 24 (1) expressly includes a provision in this sense.

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in possession (see arts. 451 to 458 CC).131 If, after the claim is filed, the defendant loses possession, either in bad faith or by ”negligence”,132 the proceedings may continue.133 However, as it will be impossible to enforce the material restitution of the thing (the defendant not being the possessor any more), the judgment will award the compensation of damages (arts. 701 to 704 LEC). The owner may be entitled to bring a new claim against the present possessor, either through the exercise of a new action for revindication or of other actions, but, if he or she obtains the material restitution of the thing, he or she may be obliged to return the compensation received under the rules of unjustified enrichment, although he or she will be allowed to retain the amount of expenses and damages caused by the necessity to enter two different sets of proceedings. In principle, he or she may also be entitled to demand the rescission134 of the contract entered into by the former and the current possessor, under art. 1291 (4) CC, that regards the transfer of things subject to litigation without knowledge and consent of the litigants or of the competent judicial authority.135 However, this action can only be successfully brought where he or she does not receive any compensation, since it is a subsidiary action (art. 1294 CC). It is important to stress that, according to the general rules (art. 222 (3) LEC), a judgment for the claimant in an action for revindication produces the effect of res iudicata exclusively between the parties of the proceedings, their assigns and heirs. As a result, such judgment does not confer absolute title to the claimant which can prove his right erga omnes¸ and therefore it does not prevent any third party from successfully entering a new action for revindication against the former claimant, where the necessary requirements are fulfilled.

131

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133 134

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Regarding the application of arts. 451 et seq. in the context of the action for revindication, see, among others, SSTS 1 February 1964 (RJ. 543), 30 May 1978 (RJ. 1953) and 14 April 1998 (RJ. 2145). The term “negligence” used here is a direct translation of the Spanish term “negligencia”, meaning “lack of reasonable care, regardless of the cause”, and should be understood free of any common law implications this word may have. “Carelessness” (descuido) was not considered appropriate because this notion has a more narrow meaning than “negligencia” in Spanish legal terminology. STS 30 May 1925; contra, STS 19 April 1905. The term “rescission” is intended to be understood in the sense as explained in part II, subchapter 4.3.2. below. MARTÍN PÉREZ, op. cit., p. 937 points out that the transfer contract intervening between the defendant in the action for revindication and a third party may be subject to rescission according to art. 1291 (4) CC, since it regards assets under litigation.

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It is commonly accepted in Spanish doctrine that ownership, as such, is not subject to extinctive prescription; however, it is disputable whether the action for revindication is or not. According to a certain view, founded on historic law (Roman law, Partidas Laws, French Code, Project of Civil Code of 1851) and on practical reasons (it is convenient to prevent movable things from becoming res nullius, and immovables from becoming the State’s property), ownership as well as the action for revindication may only be lost through another’s acquisitive prescription, but not through extinctive prescription.136 However, others consider that the Civil Code changed the traditional point of view in order to extend the regulation of extinctive prescription to all proprietary actions, including the action for revindication. According to this theory, the claim entered by the owner who did not exercise his or her right within the legal period could be contested through the exception of prescription under arts. 1962 and 1963 CC.137

1.6.2. The third party action against execution based on ownership By exercising the so-called tercería de dominio (regulated by arts. 595 et seq. LEC138), the title-holder of assets or rights that have been seized for the satisfaction of another’s debts – be it an executive seizure or a preventive one – can have the seizure lifted . In spite of the name traditionally given to it by Spanish legislation, this third party action not only serves to protect 136

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See, for instance, DÍEZ-PICAZO, L., La prescripción extintiva (en el Código Civil y en la jurisprudencia), Ed. Thomson-Civitas, Madrid, 2003, pp. 194-197; and also in “Las relaciones entre usucapión y prescripción extintiva, y la prescripción extintiva de la acción reivindicatoria”, en Homenaje al Profesor Juan ROCA JUAN, Servicio de Publicaciones de la Universidad de Murcia, Murcia, 1989, pp. 221 et seq.; and some judgments from the TS affirming the existence of a necessary link between both kinds of prescription, although not always regarding the action for revindication: STS 24 June 1927, and more recently STS 2 June 1987 (RJ. 4024), pertaining to the petitio hereditatis action, and SSTS 16 November 1994 (RJ. 8839), 26 December 1996 (RJ. 9507) and 7 March 1998 (RJ. 1041), all of them referred to claims for titles of nobility. This is also the concept formulated by the 39th Law of the Compilation of Foral Civil Law of Navarra, which states: “][s]uch real actions for which no special prescription period has been set shall only prescribe as a consequence of acquisitive prescription which is not compatible with it”. LACRUZ (op. cit., III, 1°, p. 214), ALBALADEJO (Derecho Civil, T. I, Parte general, 16ª ed. Edit. Edisofer, Madrid, 2004, pp. 899-900, n. 24; and also in “La prescripción de la acción reivindicatoria”, in ADC, 1990, pp. 25 et seq.), and SSTS 18 April 1974 (RJ. 1665), 29 April 1987 (RJ. 2731) and 13 March 1996 (RJ. 2177). See also art. 729 LEC with respect to preventive seizure.

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ownership, but any proprietary or credit right that has been unduly seized and executed (art. 595 (2) LEC).139 On the contrary, the third party action cannot be used to have the seizure of fungible assets, like money, lifted, when such assets are confused within the debtor’s patrimony.140 It has to be pointed out that the seizure, as well as the later adjudication on the assets, can be perfectly regular, and can therefore serve as valid title for an eventual acquisition by original title (e.g. by prescription or by acquisition a non domino), even if they did not actually belong to the debtor against whom the execution is directed. It suffices that the debtor’s right can be reasonably presumed, taking into account the circumstances (art. 593 LEC). However, that does not prevent the real title-holder from defending his or her right, as long as he or she keeps such condition. The owner (or the title-holder of the right involved) can exercise the third party action at any moment of the execution proceedings, before the adjudication of the assets has concluded; but even where he or she did not bring the third party action in time, he or she maintains his or her right and will be allowed to exercise it against the adjudicatee or any subsequent acquirer, as long as these have not established their right through prescription or through a non domino acquisition (art. 594 LEC), and without prejudice to any other actions he or she might be entitled to bring in such cases (extracontractual liability, unjustified enrichment, nullity of the execution proceedings due to formal flaws, etc.). The third party action is not an action for revindication, since its main aim is not the restitution of the assets (that may still be under the real owner’s possession), but the lifting of the seizure.141 Therefore, under the current regulation, the third party action does not conclude with an actual judgment, but with a simple judicial decree, in which the question of to whom the assets belong has to be resolved, only with respect to the requested lifting of the seizure, not having any res iudicata effect as to the

139

140 141

MARTÍN PÉREZ, op. cit., I, pp. 948 and 953, quoting STS 2 February 1994 (RJ. 861). An example of a third party action brought against the seizure of a credit right can be found in STS 22 July 1996 (RJ. 6817). SSTS 25 February 1986 (RJ. 937) and 18 July 1989 (RJ. 5713). Among many others, SSTS 24 July 1992 (RJ. 6453), 16 July 1993 (RJ. 6450), 16 July 1997 (RJ. 5610), 31 December 1997 (RJ. 9408), 11 March 1998 (RJ. 1493) and 20 May 1998 (RJ. 4035). Nevertheless, under the LEC 1881 jurisprudence frequently affirmed the existence of a close connection – if not complete unity – between both actions (see, for instance, SSTS July 1987, RJ. 5215, 8 February 1988, RJ. 766, 19 February 1992, RJ. 1320), thus demanding the same requirements for the success of the corresponding claims (STS 5 November 1992, RJ. 9221).

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actual ownership (art. 603 LEC).142 The claimant has to sue the creditor who entered the claim for execution, and also the debtor who is being executed, where he or she has designated the asset seized. The action will be handled according to the rules of ordinary proceedings (art. 599 LEC).143 In order to succeed in the exercise of the third party action, the claimant has to prove that he or she is the title-holder of the asset or right seized – accurately identifying this144 –, and that he or she did not acquire it from the debtor after the seizure was ordered (art. 595 (1) LEC).145 If the third party’s acquisition took place after the seizure order, even though it may be considered valid, it will not have any effect against the execution creditor, at least as a general rule.146 Nevertheless, the courts have sometimes deemed sufficient the proof of a situation different from actual ownership, but capable of leading to it.147 The third party action will not 142

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Consistently, the new LEC has excluded the possibility of permeating the third party action with questions other than the eventual lifting of the seizure (art. 601). This way, the LEC 2000 has opted for the view followed by those decisions according to which the essential aim of the third party action was not that of declaring ownership upon the assets, but only that of ordering the lifting of the seizure (among others, SSTS 10 June 1991, RJ. 4438, and 30 January 1992, RJ. 533). According to art. 545 (4) LEC, the judicial decisions that put an end to third party actions brought in the course of execution proceedings shall adopt the form of a decree (auto), and not that of a judgment (sentencia). STS 5 April 1991 (RJ. 2640) rejected the third party action because the assets (cattle) had not been clearly identified. SSTS 21 June 1989 (RJ. 4771), 1 February 1990 (RJ. 651) and 19 November 1997 (RJ. 7982). The third party action is to be rejected where the traditio takes place after the moment of the seizure: SSTS 25 October 1988 (RJ. 7639) and 21 March 1998 (RJ. 1511). The reasons for such a lack of effect may be different in each case. As a rule, it has to be taken into account that the acts of disposal made by the debtor after the seizure are presumed to be fraudulent in order to bring an action for recission (the so-called “Pauliana action”; arts. 1291 (4) and 1297 CC; see II, 4.3.2. below). Where the seizure has been the object of a preemptory notice in the Register, arts. 71 LH and 658 LEC provide for the lack of effect of subsequent acts of disposal against the person who gained entry. In the case of movables that are not subject to registration, according to the doctrine of the TS, there are no exceptions to the rule that acts of acquisition carried out after the seizure have no effect against the execution creditor(see FERNÁNDEZ, M.A., Lecciones de Derecho Procesal, III, Barcelona, 1985, pp. 180-181). For instance, STS 30 October 1983 (RJ. 5846) admitted a third party action founded on the fulfillment of a resolutive condition in a contract for sale (see also STS 11 October 1995); while STSJ Navarra 17 June 1992 (RJ. 8374) admitted a third party

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succeed where it is established that the claimant does not have the status of third party with respect to the debtor against whom the seizure has been ordered.148 The execution creditor can also reject the action through the challenge of the third party’s title of acquisition, either on the basis of its nullity (e.g. in case of simulation149) or of its ineffectiveness (e.g. in the case of contracts concluded to defraud creditors, therefore being subject to rescission; art. 1291 (3)150). Different from the genuine third party action is the so-called “registered third party action” (tercería registral), regulated by art. 38 LH for immovables and by art. 24 (3) ORVP for movables, according to which the lifting of the seizure has to be ordered, automatically and even ex officio, the moment evidence exists that the assets or rights seized are entered in the Register in favour of someone other than the relevant debtor (see also art. 658 LEC).

1.6.3. The declaratory action for ownership The declaratory action for ownership is the action an owner can exercise against any person who contests the former’s ownership, in order to obtain a judicial declaration of his or her right.151 It may be particularly useful in a case of interference without actual deprivation, and also to get the necessary titles in order to have one’s right entered into the Register,152 as

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action brought by the buyer of an immovable under reservation of title in favour of the seller, stressing that the admission of the action was not founded on the declaration of ownership in favour of the buyer, but on the necessary protection of the right he or she actually has in the thing. SSTS 20 March 1989 (RJ. 2186), 30 January 1992 (RJ. 533) and 13 April 1993 (RJ. 3000). A frequent application of this rule involves cases in which the “lifting of the veil” of legal personality doctrine is involved: SSTS 20 June 1983 (RJ. 3635) and 20 January 1988 (RJ. 130). See also STS 20 March 1992 (RJ. 2212), for a case of hereditary succession, and STS 25 November 1994 (RJ. 8947), regarding subrogation of the debtor’s position. SSTS 25 February 1997 (RJ. 1327) and 29 April 1997 (RJ. 3409). SSTS 27 April 1998 (RJ. 2991) and 15 June 1998 (RJ. 4897). SSTS 24 March 1992 (RJ. 2284) and 10 July 1992 (RJ. 6277). A simpler way to obtain the entry in the Register of one’s ownership in an immovable by proving the act of acquisition is through the so-called “ownership proceedings” (expediente de dominio), regulated by the LH, which does not imply a judicial declaration of ownership nor does it prevent the bringing of further actions regarding this issue.

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well as to have the defendant’s entry of ownership cancelled.153 Unlike the action for revindication, this is not a restitutory action, since its aim is not that of getting back the lost possession of a thing.154 As a consequence, the requirements demanded are the proof of the claimant’s ownership and the identification of the thing, in similar terms as those explained with respect to the action for revindication; however, for this action, proof of the defendant’s possession is not required.155

1.6.4. The negatory action The negatory action is the action granted to the owner against the person who claims to be the title-holder of a restricted property right in the former’s owned property (e.g. a right of easement), in order to obtain a judicial declaration against the existence of such right so that freedom of ownership prevails. Indeed the claimant has to prove his or her ownership, but not the lack of the defendant’s right, because ownership is presumed to be free of encumbrances; it will be up to the defendant to prove the existence of his or her right (positive fact; art. 217 (3) LEC) in order to have the action rejected. Where the defendant has interfered with the owner’s right based on his or her alleged right, the claimant may also obtain compensation for damages.

1.7.

Restricted rights on movables and protection thereof

1.7.1. Rights of enjoyment: usufruct (a)

General regulation

In principle, usufruct is a property right that grants the title-holder (usufructuary), within a limited period of time, the widest powers to use and enjoy another’s thing, with the obligation of preserving the form and substance thereof, unless the constituting title or the law provide otherwise (art. 467 CC). However, the analysis of the provisions of the CC and of the different kinds of special usufructs therein regulated (e.g. usufruct of fungi153

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SSTS 31 October 1963 (RJ. 4263), 5 December 1983 (RJ. 6825) and 18 November 1992 (RJ. 9237). About the differences between the action for revindication and the declaratory action, see SSTS 10 July 1992 (RJ. 6277) and 11 October 1996 (RJ. 7557). Among many others, SSTS 3 December 1977 (RJ. 4658), 16 December 1993 (RJ. 9996) and 13 June 1997 (RJ. 4773).

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ble and consumable things, including money, usufruct of credits, usufruct with right of disposal, etc.), allows the description of usufruct in a more comprehensive sense: a right by virtue of which the title-holder is allowed to benefit in the widest possible way from the yields arising from the ordinary exploitation of another’s (the bare owner’s) asset or right, according to its nature, as long as his or her right lasts, so that, when the usufruct is extinguished, the owner is entitled to recover either the same assets or rights as at the beginning, other equivalent assets or rights, or their value. As aforesaid, usufruct may fall upon things, either material or immaterial (e.g. intellectual creations, patents), as long as they are capable of appropriation and enjoyment. Usufruct of rights (credits, real or personal actions, negotiable instruments, etc.) is also possible, provided the rights are not attached to a certain person and provided they relate to transferable property (art. 469). Usufruct may lie in the whole of a thing or right, upon a certain part of it, or upon an ideal share (arts. 469 and 490). Usufruct rights lying in a person’s entire patrimony or in a part of it are also very frequent in practice, especially as a consequence of mortis causa succession (arts. 506 and 510). It may be created by law itself (e.g. the legal usufruct granted to the widow or widower as her / his forced share in the deceased’s estate), by contract followed by tradition, by testament, and by acquisitive prescription (especially in cases of usufruct transferred by a non-owner). Usufruct is essentially a temporary right. Unless otherwise constituted, it is to last for life, extinguishing upon the usufructuary’s death. When created in favour of a legal person, its duration is subject to a maximum of thirty years. The usufructuary is allowed to dispose of his right, either by onerous or by gratuitous title (art. 480 CC), and to establish burdens upon it (see art. 108 (2) LH as to the immovable hypothec),156 that will be extinguished at the same time as the extinguishment of the usufruct; however, if the usufruct is extinguished by the usufructuary’s will (e.g. because he or she waives the right of usufruct), such extinction will not prejudice the rights acquired by third parties upon such usufruct. According to art. 467, it is possible to grant the usufructuary the power to dispose of the thing subject to the usufruct; such power is usually subject to certain limits (e.g. only in case of necessity; only by inter vivos acts; only by gratuitous title, etc.). In such cases, special authorisation to fulfil acts of disposal upon another’s thing (which must be construed in a restrictive sense) is attached to the normal content of usufruct; where the disposal

156

See however art. 1 LHMPSD, which forbids the constitution of a hypothec or pledge in a movable without transfer of possession upon the right of usufruct; only completely unburdened ownership can be the object of such security rights.

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takes place, the things or rights acquired in exchange will remain subject to the usufruct right, as a consequence of the principle of real subrogation. In order to use and enjoy the thing, the usufructuary has the right to obtain its direct and immediate possession. He or she is entitled to perceive natural, industrial and civil fruits of the thing during the usufruct’s existence; but in relation to the treasure found in the land he or she is considered as a stranger (art. 471). Arts. 472 to 475 establish special rules regarding the distribution of pending fruits at the beginning and at the end of the usufruct. In short, natural and industrial fruits which are pending when the usufruct begins belong to the usufructuary, while those pending when it is finished belong to the owner, although the latter is obliged to reimburse the usufructuary for the production-related expenses; as to the civil fruits, they are considered to be perceived by days, and belong to the usufructuary proportionally to the duration of the usufruct. The general limit of the usufructuary’s right is provided for by art. 467, which obliges him or her to preserve the form and substance of the thing (salva rerum substantia), unless the law or the constitutive title state otherwise. Although there has been a long debate on the meaning of such expression, it seems logical to understand it in an essentially economic sense: the usufructuary must not do anything that diminishes or deteriorates the productive ability of the thing (its “substance”), which implies the duty to exploit it appropriately; neither must he or she alter the “form” of the thing, i.e. its structure, its objective qualities or its economic destination resulting from its nature, from the destination given by the owner, and from the constitutive title. The usufructuary is obliged to preserve the things with the diligence of a “good father of a family” (the common standard of diligence; arts. 497 and 1104). He or she is also obliged, according to art. 511, to notify the owner any act of a third party which is known by him or her and which might damage the owner’s right. If, accomplishing such obligations, the things are naturally deteriorated by their normal use, the usufructuary is not obliged to satisfy any indemnity (art. 481). In contrast, if he or she does not fulfil the obligation, he or she will be responsible for the damages; additionally, “if the abuse causes an important prejudice to the owner, he will be allowed to demand that the thing is delivered to him, with the obligation to pay annually to the usufructuary the monetary product thereof, after reducing the expenses and the premium granted to him for his administration” (art. 520). The usufructuary is also responsible to the bare owner for the deterioration of the relevant things by fault or negligence157 of the person who substitutes him or her – e.g. the lessee, the assignee, etc. – (art. 498), without prejudice to the actions the usufructuary may bring against the substitute. 157

See the clarification provided in footnote 132.

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As to ordinary and extraordinary repairs, see arts. 500 to 502, which attribute them to the usufructuary and the owner respectively. Arts. 504 and 505 provide for the distribution of burdens and contributions, charging the usufructuary with those which are annual and lie in the fruits, and the owner with those which lie in the capital. The bare owner is entitled, for the duration of the usufruct, to claim satisfaction by the usufructuary of the interest of the investments made on the thing. Provided the substance and form of the thing are preserved, the usufructuary has the right to introduce useful and recreational improvements, although the regulation of the CC is very strict in this respect: he or she is not entitled to demand any indemnity for it, although he or she does hold a ius tolliendi – i.e. the right to remove them without deterioration of the thing –, and the right to set off the improvements he or she may have made on the property against any damage to the same (arts. 487 and 488). In order to have his or her right defended, the usufructuary is entitled to use the different actions which are common to other property rights (confessory action against the owner who refuses to acknowledge his or her right,158 actio ad exhibendum, negatory action against any person who alleges the existence of other rights in the usufruct, etc.), as well as those based on possession (interdicts), contractual or extracontractual liability, etc. The expenses arising from proceedings regarding the usufruct shall be charged to the usufructuary within the internal relationship with the owner (art. 512). Contrario sensu, the expenses of proceedings regarding ownership shall lie with the owner; where the proceedings affect both of them, they will be obliged to contribute to the expenses proportional to their respective rights. While the usufruct is in force, the bare owner is allowed to act in relation to the thing in any way, as long as this does not involve any alteration of its form and substance nor prejudices the usufructuary’s right. Within these limitations, he or she is allowed to establish easements on the thing (art. 595), carry out works and improvements (art. 503), and dispose of it (art. 489). As to the constitution of security rights on bare ownership, art. 107 (2) LH permits this with respect to the immovable hypothec, but in the case of movables it does not seem possible, since ordinary pledge requires delivery of possession – which the bare owner does not have –, while the movable hypothec and pledge without transfer of possession can only be established upon unburdened property (arts. 1 and 2 LHMPSD). 158

The confessory action may be used by the title-holder of a restricted property right (not only usufruct, but also easements and others) to obtain the acknowledgment of his or her right by any person who ignores it or interferes with it – usually the owner of the burdened property –, as well as the enforcement of his or her right, or the elimination of future interferences; if necessary, he or she can also obtain compensation for damages. It can be considered the counterpart of the negatory action.

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When one of the causes of extinction of usufruct is present (see arts. 513 et seq.), the right is automatically extinguished, and the corresponding powers are also automatically reintegrated into ownership. The owner is entitled to demand the material restitution of the thing, save the right of retention granted to the usufructuary or his or her heirs for the amounts subject to reimbursement. After delivery has been verified and the eventual responsibilities of the usufructuary are satisfied, the securities constituted at the beginning of the usufruct (see art. 491) shall be cancelled (art. 522). In case of expropriation, art. 519 states: “[i]f the thing given in usufruct is expropriated for reasons of public interest, the owner shall be obliged, either to replace it with another thing of the same value and analogous conditions, or to pay the usufructuary the legal interest of the indemnity received for the intended duration of the usufruct. If the owner chooses the second option, he shall be obliged to give securities for payment of the interest”.

(b)

Special usufructs

The typical regulation of usufruct may be altered in some cases due to the special nature of the object in which it lies. The practical relevance of the so-called “special usufructs” lies mainly in the fact that universal usufructs, falling in a person’s entire patrimony, which may include all kinds of assets and rights, are frequent (especially as a consequence of mortis causa succession). Generally, the regulation contained in the CC tries to make the usufructuary’s best enjoyment of the right or asset compatible with the necessary protection of the bare owner’s right. Some of the cases provided for can particularly relate to movable things and assets. (i) Usufruct of perishable things: art. 481 states that “[i]f the usufruct relates to things that, without being consumed, gradually deteriorate by their use, the usufructuary has the right to enjoy them according to their nature, and is only obliged to provide restitution for them in the state they are in when the usufruct finishes; however, he or she shall be obliged to compensate the owner for the deterioration caused for his or her malice or negliegence”. The main problem raised by this article relates to its coordination with art. 500, which charges the usufructuary with ordinary reparation, that is, reparation arising from the normal use of things and necessary for their preservation. A possible solution could be that of considering that art. 481 regards those things that suffer patent and irreversible deterioration as a result of their ordinary use. (ii) Usufruct of consumable things: art. 482 regulates the so-called cuasiusufructo: “[i]f the usufruct relates to things that cannot be used

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without being consumed, the usufructuary has the right to use them with the obligation to compensate for their value when the usufruct finishes, if they were reckoned with at the time of delivery. If no reckoning has been made, he has the right to give back the same quantity and quality, or to pay their current price159 at the time the usufruct finishes”. In these cases, the things continue to belong to the owner as long as they are not consumed or confounded to other things of the same nature existing within the usufructuary’s patrimony, so that the latter is obliged to give back the same things if he or she did not consume them and they are still identifiable.160 This construction allows the prevention of certain problems that would arise should ownership be deemed to be automatically transferred with the delivery of the thing to the usufructuary, e.g. in the case of bankruptcy of the latter or fortuitous loss of the thing. (iii) Usufruct of trees and tree-plantations: the CC distinguishes several cases in arts. 483 to 485 (usufruct of vines, olive-trees and other trees and bushes; usufruct of mounts; and usufruct of plant nurseries). The question these articles intend to resolve is that of differentiating agricultural exploitation from forestry exploitation. In the former, trees are not fruits, but a part of the capital; therefore, the usufructuary has the right to receive the fruits produced by the trees, but is obliged to preserve the trees themselves. In the latter, trees are the product of the exploitation, and the usufructuary is therefore entitled to benefit from them (e.g. by felling them in order to sell the wood), although some limitations are established in order to prevent abusive exploitation. (iv) Usufruct of cattle: art. 499 provides for the consequences of the death of a part of the cattle. In case of ordinary deaths, the rules tend to ensure that at the end of the period, the owner receives, as far as possible, the same number of cattle that were initially given in usufruct, substituting the young produced by the cattle for the dead cattle. The excess in number shall belong to the usufructuary. On the contrary, in case of non-ordinary deaths (due to disease, accidents, etc.), the usufruct is extinguished wholly or partially, and the usufructuary is only obliged to give back the remains, unless there has been fault on his part. In case of barren cattle, the rules established for usufruct 159

160

The term “current price” used here is a direct translation of the original Spanish term “precio corriente”. Although “market price” might alternatively be used in English, sticking to the original terminology was preferred because the meaning of the Spanish term “precio de mercado” does not have exactly the same meaning as “precio corriente”. JORDANO BAREA, J., “El cuasi-usufructo, como derecho de goce sobre cosa ajena”, en ADC, 1948, pp. 980 et seq.

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upon consumable things (although the CC inexactly uses the term “fungibles”) are deemed applicable. (v) Usufruct of mines: the provisions of the CC (arts. 476 to 478) have to be reconciled with the present legislation on mines, according to which all mineral and geological resources existing in a certain plot of land are considered to be independent from the land itself, so that the usufruct upon the latter does not necessarily imply the attribution of the usufruct upon its resources. In any case, if the usufruct right extends to the mine (as happens in universal and legal usufructs and also when there is an express covenant on this matter), unless the contrary is provided, the usufructuary shall be entitled to claim half of the yields extracted from it, the other half belonging to the titleholder of the exploitation. The explanation for such a provision is to be found in the fact that the mineral extracted from the mine is a fruit thereof, but also wears out its substance. (vi) Usufruct of rights: art. 469 generally admits usufruct in rights, provided such rights are not attached to a certain person and they do not pertain to non-transferable property. That excludes the usufruct in real rights of use and habitation (which are non-transferable rights according to art. 525), as well as an independent usufruct upon accessory rights (such as predial easements or security rights). As a general rule, the usufructuary of a right is entitled to use and enjoy all the profits arising from the right, with the obligation to preserve the latter for its title-holder. Different cases can be considered: – Usufruct of credits (arts. 507 and 475): the usufructuary of a credit has the right to realise all direct and indirect profits arising from the credit (interest, premia for the repayment of obligations, periodical rents or annuities falling due, etc.), which shall belong to him or her proportional to the duration – calculated in days – of his or her right. When the main credit falls due, he or she has the right to demand from the debtor the main and accessory prestation that form the subject-matter of the obligation, with the power to execute the securities that underlie the credit (provided he or she, in turn, has given security or, in the absence of it, has been authorised by the title-holder or by the judge; see art. 507); lastly, he or she is also entitled to enjoy the subject-matter of such prestation, after being satisfied, for the duration of the usufruct. When the usufruct ceases, he or she must give back to the title-holder the credit or, where it has been paid, the prestation obtained, where possible. – Usufruct of property rights: the usufructuary has the right to enjoy all profits arising from the property right given in usufruct. E.g. the usufructuary of a right of usufruct is entitled to obtain all profits

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that would belong to the first usufructuary, as long as his own right lasts. The usufruct established upon another usufruct is different from the assignment of usufruct, since in the former the death of the second usufructuary extinguishes his or her right, while with an assignment the right goes to the assignee’s heirs for the duration of the first usufruct. It could also be argued whether or not the usufruct can lie in bare ownership, as this is void of any specific powers; however, the main consequence of usufruct in this case lies in the eventual acquisition of the complete enjoyment of the thing when the first usufruct lying in ownership is extinguished. – Usufruct of real actions: art. 486 states: “[t]he usufructuary of an action to recover real property or a real right, or any movable property, has the right to bring the action and to oblige the owner thereof to give him the authority for this purpose and to furnish him whatever proof he may have. If in consequence of the enforcement of the action he acquires the thing claimed, the usufruct shall be limited to the fruits, the dominion remaining with the owner”. – Usufruct of a part of a co-owned thing: according to art. 490, “the usufructuary of a part of a thing held in common shall exercise all the rights pertaining to the owner thereof with respect to the administration and the collection of fruits or interest. Should the co-ownership cease by reason of the division of the thing held in common, the usufruct of the part allotted to the co-owner shall belong to the usufructuary”. – Usufruct of shares and interests in commercial or industrial businesses: from the general regulation of art. 475 it can be deduced that, when the usufruct lies in the rights of the partner, the profits corresponding to that position shall belong to the usufructuary for the duration of the usufruct. However, this question is regulated in more detail by the legislation on corporations and limited liability companies (arts. 57 and 67 et seq. LSA;161 art. 36 LSRL162), and also by the legislation on negotiable instruments represented by annotations in accounts (art. 10 LMV). (vii) Usufruct of patrimony: in principle, this is considered to lie in each of the assets that compose the patrimony. This case is referred to by art. 506, which intends to determine the destination of the debts of the owner of the patrimony. If it was agreed that the usufructuary would assume the debts, without specifically indicating which of 161

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Real Decreto Legislativo 1564 / 1989, de 22 de diciembre, por el que se aprueba el texto refundido de la Ley de Sociedades Anónimas (LSA). Ley 2 / 1995, de 23 de marzo, de Sociedades de Responsabilidad Limitada (LSRL).

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them, he or she shall only be obliged to pay those existing at the time of the constitution of the usufruct. If there is no stipulation as to the owner’s debts, the usufructuary shall only be obliged to pay them if the constitution of the usufruct was so formed to defraud the creditors; fraud is presumed if the owner constituting the usufruct has not retained enough assets to pay his or her debts. If the usufruct lies in the whole or in a part of hereditary patrimony, the usufructuary, who is deemed to be a legatee, is not obliged, in principle, to pay the debts, which have to be assumed by the heirs. Nevertheless, he or she has to pay, proportional to his part, those bequests and hereditary debts which encumber the fruits of the patrimony (e.g. he or she has to pay the rents and annuities bequeathed, and the interest produced by the hereditary debts, art. 508). On the other hand, the heir (bare owner) has to pay those bequests and debts which encumber the capital of the hereditary patrimony, although he or she has the right to recover the interest of the capital invested for the payment (art. 510) for the duration of the usufruct, or to demand the sale of the necessary part of the assets subject to the usufruct.

1.7.2. Rights of security: movable securities Some restricted property rights have the purpose of securing the satisfaction of an obligation, designating a certain asset, either movable or immovable, to the payment of a debt so that, in case of breach of the obligation, the creditor is entitled to demand the sale of the asset in public auction, in order to have the money obtained therefrom applied to the satisfaction of his or her credit. Their main common characteristics are the following: (a) They are accessory rights with respect to the credit secured; therefore, they follow its fate in the case of assignment, extinction etc. (b) They grant the title-holder direct power over the thing, so that the creditor will be allowed to enforce the security, in case of breach, even though the owner or possessor of the thing has changed. (c) The creditor has the right to demand the sale of the asset by public auction, but not to directly appropriate it in case of breach of the secured obligation. A pact through which the creditor is granted such right would be considered void by operation of the law: this rule is known as the “prohibition of the pactum commissorium” (art. 1884 CC). (d) A real security right has to be constituted necessarily by the titleholder of the asset or right in which it lies; but it may be constituted by the debtor him- or herself as well as by a third party. (e) The creditor whose right is secured by a real security is granted a special preference to be paid with the proceeds of the asset’s sale price in

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the case of concurrence with other creditors of the same debtor, either in the context of bankruptcy proceedings or in ordinary execution proceedings. (f) In case of concurrence with other property rights in the same thing, the principle of time priority rules: the enforcement of the real security does not affect the subsistence of previous property rights, but implies the extinction of subsequent ones. (g) As real securities are bound to have effect erga omnes (especially against those who acquire subsequent rights in the same thing), their constitution is subject to strict formal requirements, designed to give them the necessary publicity.

(a)

Ordinary pledge

Movables, especially those with a relevant economic value, have traditionally been used as a source of credit through their consideration as the possible subject-matter of pledge rights. Ordinary pledge (regulated by arts. 1863 et seq. CC) is a real security right characterised because it lies in movable assets and implies transfer of possession, either by delivering them to the creditor him- or herself, or to a third party, designated by common agreement of the parties to the contract. The CC regulates the ordinary pledge among the contracts, this being the most usual form of constitution; however, other ways might be accepted, some of them subject to discussion, such as prescription, a non domino acquisition (see art. 464 (3)), and unilateral mortis causa acts of disposal. In spite of the wording of art. 1863, the pledge contract as such is not subject to any formal requirement as to its validity (its traditional conception as a “real” contract – i.e. a contract the perfection of which requires actual delivery of the thing – being nowadays scarcely acceptable); the transfer of possession to the creditor or to a third party operates rather as a requirement for the constitution of the security right, in order to strengthen the creditor’s position163 and to provide a certain element of publicity as to the creation of the burden with respect to third parties.164 It also has to be stressed 163

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Art. 1191 CC establishes a iuris tantum presumption of extinction of the pledge in case the thing given, after being delivered to the creditor, is found in the debtor’s possession. The possessory transfer is a requirement for the contractual constitution of the pledge, but not for other cases, such as that of testamentary constitution (arg. ex art. 882). As to the constitution of the pledge through an inter vivos and gratuitous act, the requirement of delivery deduced from art. 632 CC does not operate as a requirement for the perfection of the contract, in the sense usually given to so-called

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that, according to art. 1865, “the pledge shall not produce any effect against third parties as long as the certainty of its date is not established through public deed”; the rule is designed to prevent any fraud as to the interest of other creditors,165 and implies the obligation to include the necessary data for the identification of the thing within the same document. The creditor is granted the right to bring the actions designed for claiming and defending the thing against the debtor and against third parties (art. 1869), not only including those corresponding to him or her (e.g. the possessory actions), but also those corresponding to the debtor (e.g. the action for revindication). The creditor is obliged to preserve the thing with the diligence of a “good father of a family”, and is not allowed to use it without the owner’s permission. In case he or she does not satisfy such obligations, the debtor is entitled, not only to claim damages, but also to demand that the thing is placed in the possession of a third party (arts. 1867 and 1870). However, the creditor has the right to be reimbursed for the expenses made for the preservation of the thing (art. 1867). With respect to such expenses, he or she is granted the credit preference established by art. 1922 (1), and the right of retention arising from art. 1871 (and also from arts. 1866 (2) and 453 (1)). The creditor has the right to keep the interest the pledge may produce and set off the interest accruing in relation to the main obligation or, in the absence thereof, the capital itself (art. 1868); out of the wording of this article it may be deduced that such compensation is also an obligation for the creditor. It is arguable whether or not such provision may also be applied to the fruits. In case of breach of the obligation secured, the creditor can demand execution of the pledge, by selling the thing in judicial or notarial public auction (see arts. 681 et seq. LEC and art. 1872 CC), in order to apply the money obtained for satisfaction of the credit.166

(b)

Special kinds of pledge

In practice certain special kinds of pledge are very frequent, some of which are subject to special rules:

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“real contracts”, but as a formal requirement, just like with donation, capable of being exchanged in written form. It is arguable whether or not art. 1865 excludes the applicability of art. 1227, which provides for certain cases of effect of the date of private documents against third parties. Where two notarial auctions have been carried out without any adjudication taking place, art. 1872 CC states that the creditor shall be allowed to acquire ownership in the thing, with the obligation to deliver a document of payment as to the total credit.

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(i)

Irregular pledge

The so-called “irregular pledge”167 is a security contract essentially characterised by the fact that the debtor – or a third party – delivers the creditor a certain amount of fungible non-identified things (money, in most cases168), as a security for the satisfaction of one or more determined obligations. Although from an economic point of view the irregular pledge – like the ordinary pledge – satisfies a security function, its nature is not that of a real right. As a matter of fact, the essential fungibility of the object in which the irregular pledge lies prevents the application of most of the legal rules pertaining to the ordinary pledge,169 due to the profound structural and functional differences existing between them. With the ordinary pledge, the creditor receives possession of a certain thing and acquires a real right in it that allows him or her to keep it, with the obligation to preserve it, until the secured obligation is performed, and to realise its value for payment in case of breach. With the irregular pledge, the creditor who receives a certain amount of money – or other fungible things – acquires actual ownership in it (at least from the moment it gets mixed with and confused in his or her own patrimony), and not a simple property right; that is why, in such cases, it is not possible, from a technical point of view, to detect any right of retention,170 or the existence of a genuine obligation to preserve the same monetary unities received. Where the debtor fulfils his or her obligations, the creditor is obliged to give back the same amount of the same kind and quality received; being a generic obligation, the risk of loss of the thing due is not present (genus numquam perit). In the case of breach of the obligation, the creditor’s right to realise the value of the thing through its public sale, a characteristic of the ordinary pledge, is replaced by the imputation of the 167

168

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On this concept, generally, see CRUZ MORENO, M., La prenda irregular, Madrid, 1995. In practice, the pledge of money is frequently known by the word fianza (see, for instance, art. 36 and 3rd Additional Provision of the Urban Lease Contracts Act of 1994), which is technically ambiguous, since fianza is the term used by the CC to name the typical personal security, through which a third party assumes the personal liability for another’s lack of performance (arts. 1822 CC). An analysis on the application to the irregular pledge of the rules provided for the ordinary pledge in CRUZ MORENO, op. cit., pp. 177-178. The view of the SAP Madrid 8 November 1986 (SAAP 1986, n. 68) does not seem acceptable, according to which art. 1866 CC, pertaining to the retention right of the creditor secured with a pledge, is clearly applicable to the fianza of urban lease contracts, because of its security function. However, the second paragraph of the same art. 1866, referring to the so-called Pignus Gordianus, could be considered applicable to the irregular pledge.

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amount received as a security for the satisfaction of the credit secured, with the corresponding extinction, total or partial, of the obligation of restitution, and without any need to use the legal proceedings provided for the execution of the genuine real securities. As a matter of fact, this last aspect furnishes the pledge of money with an undisputed usefulness as a security mechanism for the creditor, since its enforcement in case of breach is much easier than that of any other kind of security, either personal or real, and implies a clear incentive for the debtor as to the voluntary satisfaction of his obligations. On the other hand, the relationships between the parties merely have a personal nature (credit rights), and they have no effect against third parties, which has enormous practical relevance: e.g. where the creditor is subject to bankruptcy proceedings, the amount delivered to him or her in pledge by the debtor cannot be separated from the active mass of bankruptcy, rather being exposed to the demands of his or her own creditors. (ii)

Pledge of rights: in particular, pledge of credits

A pledge may lie in rights as long as they are qualified as movables; this is implicitly admitted by art. 1868 when it mentions the possibility that the thing given in pledge produces interest. In cases of rights that are capable of possession (e.g. usufruct), the transfer of possession is necessary for the constitution of the pledge; in cases of rights which are not, the transfer of possession has to be substituted by other measures designed to strengthen the creditor’s position. The most typical case of pledge of rights is the pledge of credits.171 Widely used in practice, especially with respect to credits arising from bank deposits,172 this has been expressly regulated for the first time in Spanish common law through its inclusion within the list of special credit preferences granted in bankruptcy proceedings according to art. 90 (1) subpara. (6) of the new LC.173 From a technical point of view, the pledge of credits 171

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On this issue, generally, GARCÍA VICENTE, J.R., La prenda de créditos, Ed. Thomson-Civitas, Cizur Menor (Navarra), 2006. VEIGA COPO (“Los créditos privilegiados en la nueva Ley Concursal”, in RDBB, núm. 93, enero-marzo 2004, p. 145) also points out the proliferation of those pledges of credits which are de iure deemed implicit in possessory pledges and immovable hypothecs when the thing given as security is extinguished, damaged or lost, thus granting the title-holder a subrogation right in a monetary credit. Even though there was a previous legal tradition going back to the Partidas Laws (Partida V, Título 13, Ley 2), where the pledge of credits was conceived as an assignment of the actio utilis, through which the secured creditor could demand from the debtor, either by judicial or extrajudicial means, the fulfilment of the obligation, just

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is usually deemed a limited assignment of the credit right,174 the aim of which is not that of transferring the credit as such to the secured creditor, but only to grant him or her the necessary mechanism to have his or her position secured, including that of demanding payment in case of breach of the main obligation. The debate on this institution has focused, on the one hand, on the possibility of substituting the absence of any possessory transfer – capable of sustaining the erga omnes effect of the security right against eventual fraudulent conduct of the debtor – by notifying the debtor of the credit given as security that the pledge has been constituted in it, warning him or her not to make any direct payment to his or her own creditor (cfr. arts. 1165 and 1527 CC); on the other hand, the debate has focused on the possibility of admitting set off as an adequate mechanism of execution of the security right when the credit in which it lies consists of money.175 If the credit given as security falls due before the secured one does, the creditor is entitled to demand its payment, with the result of it remaining subject to the security by real subrogation. Where this was money, an irregular pledge will be then constituted; in the case of any other movable

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like the debtor / pledgor, title-holder of the action, could have done, thus receiving the corresponding amount; see VEIGA COPO, “Los créditos …”, cit., p. 146, who also points out that the pledge of credits was expressly provided for in arts. 1774 (2) and 1777 of the 1851 Project of Civil Code, following the pattern of arts. 2075 and 2081 of the French Code. PANTALEÓN PRIETO, F., “De la clasificación de los créditos”, in FERNÁNDEZ DE LA GÁNDARA, L. / SÁNCHEZ ÁLVAREZ, M.M. (coords.), Comentarios a la Ley Concursal, Madrid, 2004, p. 533; and before, by the same author, “Prenda de créditos: nueva jurisprudencia y tarea para el legislador concursal”, in La Ley, 1997, pp. 1.460 et seq. See STS 19 April 1997 (RJ. 3429; see a laudatory commentary of this judgment in FÍNEZ RATÓN, J.M., CCJC, n. 45, sept.-dic. 1997, pp. 933 et seq.), that openly admits the possibility to establish a pledge upon a credit in relation to the restitution of a bank deposit, deemed as a limited assignment of credit with the purpose of security, and the execution of which should operate through the compensation against the secured credit. This last aspect justifies the effect of such a security right against the other creditors of the debtor (as long as the date of its constitution is defined, art. 1865 CC), where the latter is bankrupt, taking into account the right of separate execution granted to the pledgor at that time by art. 918 Ccom. In this way, the question of the effect of compensation of reciprocal credits against the bankruptcy of one of the parties involved does not arise, since in this case compensation only operates as a mechanism for executing a security right. The doctrine of this judgment has been followed by others: SSTS 7 October 1997 (RJ. 7101), 13 November 1999 (RJ. 9046), and 25 June 2001 (RJ. 5080).

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thing, an ordinary pledge will be constituted. If the secured credit falls due first, the creditor is entitled to demand the sale of the credit given as security through the ordinary proceedings, but he or she can also wait until it falls due, in order to demand its performance and execution of the things obtained thereafter; where this was money, he or she can use it directly for the satisfaction of his or her credit (see arts. 486 and 507, on usufruct of credits). (iii)

Pledge of negotiable instruments

Where the pledge lies in credits incorporated into negotiable instruments, since these are considered as movable assets, the situation becomes very similar to that of the ordinary pledge; however, some special rules are applicable in such cases, especially when it comes to their preservation and execution: art. 1872 (2) CC states that where the pledge lies in instruments subject to official quotation, their sale shall take place according to the proceedings established by the Ccom. After the reforms introduced by the LMV (4th Additional Provision), art. 322 Ccom. provides for special execution proceedings of such a pledge based on the sale of the instruments by the governing authority of the corresponding secondary official market.176 Art. 324 adds that the instruments pledged according to the precedent provisions shall not be subject to revindication as long as the creditor has not been reimbursed, without prejudice to the rights and actions granted to the deprived title-holder against those who are legally responsible for the acts as a consequence of which he or she was deprived of the instruments given as security; which is to be considered as an example of a non domino acquisition of a pledge right. The pledge of warrants relating to goods deposited in General Bonded Warehouses is also subject to special provisions contained in arts. 196 and 197 Ccom.177 In relation to those instruments represented by annotations in accounts, the general regulation is established by art. 10 LMV: “[t]he constitution of restricted real rights or other kinds of burdens upon instruments represented by annotations in accounts shall be entered in the corresponding account. The entry of the pledge is equivalent to the possessory transfer of title. The constitution of the burden shall have effect against third parties from the moment the corresponding entry has been registered”.178

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177 178

Art. 323 Ccom. states that the provisions included within the same section shall be also applicable to the pledge of the residue of in-credit current accounts in certain cases. See also Royal Decree of 22 September 1917; infra, II, 4.4.2.(b). See also arts. 57 and 72 LSA, with respect to the pledge of company shares, and art. 37 LSRL, with respect to the pledge of interests in limited liability companies.

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(c)

Right of retention

The right of retention is the mechanism granted to certain creditors, by virtue of which they can oppose the restitution of a thing as long as they have not been paid for a credit related to the same thing (e.g. the cost of repairing it, the expenses for custody, the amount of necessary and useful expenses, etc.).179 It is essentially a coercive measure designed to stimulate the payment of credits, founded on the interest that other individuals (the debtor normally, but eventually also other subjects, such as other creditors of the same debtor, the owner of the thing, etc.) may have in the delivery of the thing by the creditor who possesses it. As a matter of fact, the right of retention is often the most effective security available to the creditor, especially in those cases where the small amount of the credit would not justify the exercise of judicial actions (e.g. the owner of a workshop will not usually be interested in bringing a judicial claim against the owner of an automobile for the payment of the cost of repair; but he or she can legitimately refuse to give back the automobile as long as he or she has not been paid).180 Although the nature of the right of retention has been long discussed, it is normally assumed that it can not be considered as an actual property right in the thing, since it is only an additional power granted to certain creditors as an inseparable part of the content of their credits. The CC does not establish general rules on the right of retention, but only grants it to some creditors who legitimately possess a thing (not necessarily a movable) belonging to another. Among them the following cases can be remembered: the possessor in good faith (arts. 453 and 464 (2) and (3)),181 the usufructuary (art. 522), the contractor of a movable thing (art. 1600), the mandatary (art. 1730), the depositary (art. 1780), the credi179

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Save the case of the possession characteristic of the pledge, where the connection between the credit and the thing is merely occasional. Unlike in other systems, Spanish doctrine unanimously holds that the right of retention is different from the exceptio non adimpleti contractus in its basis, functions, and effects. The exceptio is essentially based on the “synallagmatic” relationship between the main obligations arising from a contract (e.g. transfer of the thing and payment of the price in a sale contract), while the right of retention is also granted in cases where no such relationship exists (e.g. as a security of the depositary’s right to compensation for damages and expenses made in the thing in gratuitous deposit). For more details, see DÍEZ SOTO, C.M., El depósito professional, JM Bosch Editor, Barcelona, 1995, cit., pp. 281-282. Those articles refer, respectively, to the necessary and useful expenses made on the thing subject to restitution, to the selling price of the movable asset lost or stolen, and to the amount loaned by public pawnshops.

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tor secured by pledge (art. 1866) or with antichresis (art. 1883). It is generally accepted that the right of retention can only be acknowledged in the cases expressly provided by law. It is arguable whether or not the parties can establish a right of retention which has not been provided for by the law in favour of one of them; in the inter partes relationship the answer is clearly affirmative,182 but it seems doubtful that such conventional rights could have effect against third parties. The creditor secured with a right of retention can legitimately oppose delivery of the thing he or she possesses as long as he or she does not receive the payment due. Although the question has been discussed, it seems that his or her right can be opposed, by way of exception, not only against the claim filed by the debtor him- or herself, but also against those made by any other persons alleging a right in the thing (e.g. the owner of the thing, when he or she is someone other than the debtor, or other creditors of the same debtor). In order to have his or her possessory position protected, he or she is granted interdictal protection (art. 446 CC). It has to be stressed, however, that the content of the right of retention does not go beyond its limits. The retainer, as such, is not allowed to use the thing nor to acquire the fruits or interest thereof. In spite of the ambiguous wording used in some cases by the CC (e.g. art. 1780 grants the depositary the right to retain “in pledge”, the thing deposited), the creditor secured with a right of retention does not have, because of such condition, the ius distrahendi in the thing183, i.e. he or she does not have a special right to demand the execution of the asset and to apply the price obtained to the satisfaction of his or her credit (unlike the creditor secured by pledge), nor does he or she have a special preference on the thing, unless such preference is expressly granted by the law in a specific case (see art. 1922 CC).184 182 183

184

As Law number 473 of the Compilation of Navarre expressly establishes. STS 7 July 1987 (RJ. 5185) holds that the mandatary is granted the ius distrahendi. Such view is criticised by JORDANO FRAGA in his comment on the decision (see CCJC, 1987, pp. 4.767 et seq.). It has to be taken into account that in Catalonia the right of retention has been specifically regulated by the Possessory Securities on Movables Act of 1991 (Ley 22 / 1991, de 29 de noviembre, sobre garantías posesorias sobre cosa mueble), where it is considered as an actual property right similar to a pledge (the creditor is expressly granted the ius distrahendi in the thing if the debtor fails to perform) but directly established by law in favour of certain creditors. Such definition has been maintained by the subsequent legal provisions referring to this right. It is worth pointing out that at the present moment a legislative project is being discussed in the Spanish Parliament (Project for an Act on Concurrence and Preference of Credits in Singular Executions), where a right of preference is generally granted to all those creditors with a right of retention (projected art. 1922 (10) CC).

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Like any other creditor, the retainer can demand seizure of the asset subject to retention or of any other asset belonging to his or her debtor in order to have his or her credit paid (art. 1911 CC); but he or she is not allowed to seize the asset retained if it does not belong to the debtor (e.g. where the depositor is not the owner). Even if it does belong to the debtor, he or she is obliged to keep the order legally established to seize the debtor’s assets (art. 592 LEC); besides, once the asset has been seized, he or she will not be allowed to oppose the right of retention, and will be subject to an eventual third party action based on ownership or on a credit preference on the asset. The right of retention ceases when the credit is paid or the obligation secured is extinguished, when the title-holder waives the right, and also when he or she loses possession (e.g. because he or she voluntarily returns the thing to the debtor). However, it has to be taken into account that, according to art. 466, “any person who recovers, according to the law, possession unjustly lost, shall be deemed for all purposes which may redound to his or her benefit, to have enjoyed it without interruption” (e.g. if the retainer exercises the interdict in a case of deprivation), and that possession is lost because of another’s possession, even against the former possessor’s will, only if the new possession lasts for more than one year (art. 460 (4)).

(d)

Movable hypothec and pledge without transfer of possession

Along with the ordinary pledge, other kinds of security rights in movables have been formulated by the Spanish legislature after the enactment of the CC. Leaving aside for the moment the reservation of title and the prohibition of disposal, deemed in practice – at least in some aspects – as security rights by the legislation on sale by instalments of identifiable movables,185 special attention must be paid to the legislation on the movable hypothec and pledge without transfer of possession. Both are considered as real security rights so characterised because they can only be established upon certain kinds of movables, and because the transfer of possession, required in the ordinary pledge, is replaced by registration – in relation to the publicity aspect –, and by the obligation of conservation imposed upon the debtor – in relation to the security aspect. The regulation of these security instruments – predecessors of which can be found in the Naval Hypothec Act of 21 August 1893,186 and in several norms promulgated in the first years of the 20th century on Agricultural

185 186

See infra, II, 4.5. and II, 4.6.4. This Act was founded upon a legal fiction, that of considering ships as immovables, only having effect in the context of the constitution of a hypothec.

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and Cattle Pledge, Wheat and Oil Pledge and Industrial Pledge187 – first took place through the Act of 5 December 1941, that introduced several new articles in the Civil Code, later repealed through the promulgation of a new special law, the Movable Hypothec and Pledge Without Transfer of Possession Act of 16 December 1954, which is still in force.188 The creation of these new forms of security rights upon movables were in response to two different requirements: a) the transfer of possession to the creditor – or to a third party –, which is characteristic of the ordinary pledge on movables, involves serious disadvantages when it comes to productive assets, the delivery of which may deprive the debtor of his or her main source of income, additionally making it more difficult to finance the acquisition of an asset by using it as a security; b) certain kinds of movable assets can be individually identified (e.g. through their registration number, serial number, frame number, etc.), which allows the organisation of a system of public registration similar in certain aspects to that concerning immovables, thus sufficiently securing the creditor’s right, even if he or she does not physically hold the thing. Although the legislation on movable hypothec and pledge without transfer did not have the success originally expected, it has recently been revived thanks to its use for the constitution of securities upon stocks of new or like-new (i.e. lacking registration or circulation licence) vehicles, ships and incorporeal rights.189

187

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See, for instance, Royal Decree of 22 September 1917, Decrees of 12 July 1934 and 29 November 1935, and Act of 17 May 1940. The former norm is still in force, and it regulates, among others, the warrants representing the pledge on fruits and goods deposited in General Bonded Warehouses (see also arts. 193 to 197 Ccom.). The 3rd Additional Provision LHMPSD provides for the subsidiary application of the (immovable) hypothec legislation, as long as it is compatible with the nature of these securities. RDGRN 12 March 2001 admitted the constitution of a pledge without transfer of possession in stocks, either of new vehicles not yet registered and stored until they are put in circulation, or of used or like-new vehicles, delivered to the concessionary for the sale thereof with provisory withdrawal of the circulation licence. This is since both of them may be considered as merchandise, for the purposes of art. 53 (2) LHMPSD. The same solution has been admitted for ships, through entry into the 4th Section of the Register, by RDGRN 25 July 2001, and for incorporeal rights, through entry into the 5th Section, by RDGRN 16 May 2001 (which refers to certain patrimonial assets belonging to sports entities and considered as movables, such as audiovisual rights regarding television broadcasting of football games, static publicity rights, sponsorship rights, and attendance subscription rights). See GÓMEZ MATOS, op. cit., pp. 344 and 356-357; GARCÍA SOLÉ / GÓMEZ GÁLLIGO, op. cit., pp. 23-24, 118 and 204 et seq.

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The difference between the movable hypothec and pledge without transfer of possession lies mainly in the special nature of the assets in which each one of them lies: the movable hypothec lies in assets which are perfectly identifiable (commercial establishments,190 automobiles, tramway and trains, aircraft, industrial machinery, intellectual and industrial property; see art. 12 LHMPSD). The pledge without transfer lies in assets the identifiability of which is less perfect, so they have to remain in a certain place to keep their individuality (status loci) (fruits, crops, instruments of agricultural exploitations, merchandise, cattle, raw materials, objects of artistic or historical value, etc.; see arts. 52 et seq. LHMPSD). This implies important differences in relation to the respective regulations: e.g. while the movable hypothec always has effect erga omnes, due to its perfect public registration (art. 16), the pledge without transfer of possession only has effect against third parties as long as the assets remain in the aforesaid status loci. In both cases, the assets capable of being subject to the security right are a numerus clausus, and the security right necessarily has to lie in unburdened ownership (art. 1 (2)).191 That implies that even though they can also form the subject-matter of an ordinary pledge, this is not possible after being subject to one of the security rights provided by the LHMPSD. The constitution of hypothec or pledge requires the formalisation of a notarial deed and the entry into the Register of Movable Hypothecs and Pledges Without Transfer of Possession (art. 3 LHMPSD), the regulation of which was developed by a decree of 17 June 1955. The secured credit can also be the subject-matter of assignment, provided the requirements demanded by art. 149 LH are met (art. 8: notarial deed, entry into the Register and notification of the debtor). The debtor is obliged to keep and carefully preserve the assets,192 and is not allowed to alienate them without 190

191

192

The concept of commercial establishment used by the LHMPSD pertains to the organisation of the different elements that configure the economic unit (steady and permanent installations belonging to the title-holder of the establishment, commercial name, signs, trade marks, intellectual and industrial property rights, machinery, furniture, tools and other work and production instruments), including, as the case may be, the lessee’s right on the commercial premises; but it is independent of the immovable on which the enterprise is located. In order to prevent rights collisions that might negatively affect commerce, art. 2 forbids the constitution of these securities in assets that have previously been given in hypothec or pledge or seized, or those the acquisition price of which has not been completely satisfied, unless the security right regards the part of the price as postponed. The securities will extend to any kind of indemnity granted to the owner for damages regarding the assets given in hypothec or pledge (arts. 5 and 6; see also arts. 40 to 42 LCS).

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the creditor’s consent (art. 4); in the absence of such consent, the creditor secured by movable hypothec will be allowed to exercise his or her ius persequendi against the third party acquirer, but the creditor secured by a pledge without transfer of possession will not, as long as the third party is in good faith, since the limited identifiability of the assets prevents the operation of the ius persequendi and provides the basis for the application of art. 464 CC.193 Where the secured obligation is not fulfilled, the creditor may claim the execution of the security through judicial or notarial proceedings.194

1.7.3. Rights of acquisition Rights of acquisition is the generic name given to those property rights which, falling upon another’s thing, grant the title-holder the right to acquire ownership in it, excluding any third party. Two different kinds can be distinguished:

(a)

Rights of preferential acquisition

Tanteo (pre-emption right) and retracto (redemption right) are usually considered as two different phases of the same right. The existence of such rights, either by legal provision or by the will of private parties, implies that the title-holder thereof has a preferential right to acquire a certain thing, where its present owner decides to transfer it (normally by sale or similar contract) under the same conditions that have been offered to him or her by a third party. In the most typical instance, the owner who intends to sell is obliged to give notice to the title-holder of the tanteo of his or her intention, along with the conditions of the sale. The title-holder of the tanteo has the possibility of opting between exercising his right to acquire the thing, by paying the price offered, or not exercising it, thus leaving the owner free to sell to a third party under the same conditions previously notified. Should the owner sell to a third party without previously notifying the title-holder of the tanteo, the latter will be entitled to exercise his or her right of retracto directly against the third party buyer, by reimbursing to him or her the price paid, as well as the other legitimate expenses and payments made for the sale, and the necessary and useful expenses made on the thing sold. 193 194

See below, III, 8.6. Special provisions regarding these security rights are contained in arts. 681 et seq. LEC.

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The rights of tanteo and retracto may have a voluntary origin (e.g. they may be granted by the present owner to a third party through contract or by will), but in most cases they are directly established by law, which grants them on the grounds of legislative policy (between co-owners, co-heirs, etc.; in the field of movables, one of the most important examples is that of the rights of tanteo and retracto provided for by the Historical and Cultural Patrimony Acts in favour of the State and of the different Autonomous Communities with respect to the sale of things with important historical or cultural value; see arts. 26 and 38 LPHE195 and arts. 40 to 44 RD 111 / 1986). A general – albeit limited – rule on the legal rights of tanteo and retracto can be found in arts. 1521 et seq. and 1518 of the CC and in some rules of the LEC (arts. 249 (1) subpara. (7), 266 and 403), which provide for the judicial exercise of such rights. Extrajudicial exercise is also possible, according to the majority in doctrine and jurisprudence, at least under certain circumstances.196 Typically, legal rights of tanteo and retracto are subject to very short time limits as to their exercise, and they are always effective against third parties (not only the first acquirer, but also those who may acquire from him or her), even if they lack any particular publicity, since they are considered as legal limits of ownership.

(b)

Option

An option is a right by virtue of which a subject holds, during a certain period, the power to acquire a certain asset belonging to another (the promissor), against payment of the price and under the conditions previously established. Unlike in the case of the rights of preferential acquisition, the exercise of the right of option does not require a previous decision of the present owner to transfer his or her property. The source of option is usually a contract, through which the right is granted, either by gratuitous title or – more often – against payment of a premium, which may be independent from the price established for the definitive acquisition or considered as a down-payment thereof in case such acquisition actually takes place. There has been a traditional debate about the classification of the option as a real right or as a simple credit right. The question is particularly relevant in order to determine whether the title-holder of the option is allowed to enforce it against the third acquirer whom the promissor has transferred the thing, ignoring the former’s right, or whether he or she is only entitled to demand compensation for breach of contract. In the field 195 196

Ley 16 / 1985, de 25 de junio, de Patrimonio Histórico Español (LPHE). More detailed, see DÍEZ SOTO, C.M., Ejercicio y efectos de los tanteos y retractos legales, Ed. DYKINSON, Madrid, 2000, pp. 102 et seq.

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of immovables, it is accepted that the right of option is effective against the third party acquirer where it has been previously entered into the Land Register, subject to the requirements provided for by art. 14 RH. In the field of movables, however, no such provision exists, not even for movables subject to registration. It could be therefore assumed that the title-holder of a right of option lying in a movable asset will only be entitled to enforce his or her right against a third party acquirer when it is proved that the latter knew of the existence of the option and acted in bad faith.

1.8.

Co-ownership

1.8.1. Concept and regulation According to art. 392, “co-ownership exists whenever the ownership of an undivided thing or right belongs to different persons”. The community of assets or rights includes different cases where a right, either real or obligational, belongs to two or more persons. The rules established by arts. 392406 CC apply, in the absence of specific provisions, to any of such situations (including, e.g. co-ownership in joint indivisible credits; see arts. 1139, 1150 and 1151 CC), as long as they are compatible with their particular nature. The term “co-ownership” (copropiedad or condominio), however, is used in particular where the community lies in ownership. As a rule, the regulation of the community of rights in the CC is based on the scheme of the so-called “Roman community” (known also as “ordinary community” or proindiviso community), characterised by the granting of shares to each of the co-owners (which are presumed to be equal, save proof to the contrary, art. 393) –, exclusive power of each co-owner over his or her share, and free exercise of the right of action for division. It is founded on a rather individualistic concept, where community tends to be considered as a provisory, incidental and unfavourable situation.197 However, some cases exist where the characteristics of the so-called “Germanic community” (“community in common hands”) concur, i.e. a rule based on the subordination of the individual interest to a collective conception, where the community appears as a permanent, stable and favourable situation, so that each co-owner does not have exclusive power over a share, and may not unilaterally demand the division of the community.198 The 197

198

Among many others, SSTS 31 December 1985 (RJ. 6627), 9 October 1986 (RJ. 5505), 21 March 1988 (RJ. 2221) and 25 March 1996 (RJ. 2439). On the general characteristics of the Germanic form of community, see RDGRN 8 July 1933 (RJ. 249). In Spanish law, several cases are usually explained as examples of the “Germanic community”, like some special societies regulated by Foral Laws

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concept of “divided property” or prodiviso property is also used to define some cases where, exceptionally, the powers that make up ownership in a thing are distributed among different subjects (e.g. use and enjoyment of the soil, of the trees, of the pasture, etc.), in such a way that each one of them is considered as owner of the thing in relation to that certain aspect.199 Special provisions also exist for certain cases of community, like those lying in a whole estate (e.g. hereditary community, matrimonial community of earnings),200 in the common elements of a building (regulated by

199

200

(“family partnership” in Galicia, “continuing partnership” in Aragón), as well as the communal rights of use lying, e.g. in pasture, mounts and woods (see arts. 600-602 CC, and the Act 55 / 1980, on Mounts in Common Hands, of 11 November 1980). The general characteristics of these cases are the following: the persons allowed to enjoy the rights are usually bound by personal links (e.g. as neighbours); the number of title-holders is not determined, rather subject to variation; there is no division in shares, and the enjoyment is not subject to precise limitations; the interest of each co-owner is not transferable; and the community is indivisible. In order to fill the gaps of regulation, the rules on ordinary community may not be applied, considering the differences in nature. The courts tend to apply to these situations some aspects of the regulation of ordinary co-ownership (e.g. in order to grant each one of the owners the right of redemption in case one of them transfers his or her right to a third party, or to admit the consolidation of ownership where one of them waives his or her right; see STS 9 July 1903). However, the right to demand division is excluded in these cases. The right of superficies and the right of emphyteusis, at least in some respects, can be considered as examples of divided property, although both of them are subject to special rules. Each of them is subject to a specific regulation (and so the rules on ordinary community are only indirectly applicable), but the proximity between them becomes clear when the matrimonial community of earnings (sociedad de gananciales) is extinguished but not yet liquidated (comunidad postganancial). The most characteristic thing about both of them is that the co-owners do not have a share in each one of the things and rights that comprise the undivided common estate, but in the estate as a whole; only when partition is made will those shares crystallise and attach to definite assets (SSTS 23 December 1993, RJ. 10113, 25 February 1997, RJ. 1328, and RDGRN 22 May 1986, RJ. 3042). The division of the common things is subject to the rules of hereditary partition, which require the previous satisfaction of debts. The consideration of these cases as examples of the so-called Germanic community seems more disputable, although, in the case of the matrimonial community of earnings this view has been often affirmed by the TS, especially for the period of when the community system is operating. See among many others, STS 4 March 1994 (RJ. 1652), severely criticised by GUILARTE GUTIÉRREZ in CCJC, 1994, pp. 669 et seq, who maintains the existence in this case of an ordinary community where the

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the “Horizontal Property Act” of 1960 – LPH201), or in a party wall (see arts. 571 et seq. CC). The rules on ordinary co-ownership are only applicable in those cases in a subsidiary way. In relation to movables, it has to be stressed that co-ownership in ships is also subject to specific rules, provided by arts. 589 et seq. Ccom.202 In principle, ordinary community is governed by the specific agreements entered into by the parties, with the rules of the CC applying only in the absence of such agreements (art. 392 (2)). However, the co-owners’ will can not exclude the rules that have a mandatory nature, such as those which provide for the subsidiary intervention of the court in relation to the acts of mere administration (art. 398 (3)), or those which tend to facilitate the extinguishment of the community (e.g. setting a time limit in relation to the effect of the agreement of indivision, art. 400). However, some authors203 have pointed out that the rules provided for by arts. 392 to 406 are only directly applicable to “incidental” communities, i.e. those where the situation of co-ownership has not been specifically intended by the subjects (e.g. the situation arising from the rules on commingling, art. 381 CC); if the community arises from a contract (e.g. one designed to create a partnership without legal personality), the rights and obligations of the parties are primarily subject to the contractual provisions, with the rules of co-ownership applying in default of such provisions.204

201 202

203

204

shares are not capable of being individually disposed of as long as the matrimonial system is not changed. By the same author, see also “La naturaleza de la actual sociedad de gananciales”, in ADC, 1992; and DÍEZ SOTO, C.M., Desplazamiento negocial de bienes entre patrimonios en el régimen de gananciales, Ed. Centro de Estudios Registrales, Madrid, 2004, pp. 91 et seq. Ley de Propiedad Horizontal. The courts have stressed that the regulation of co-ownership in ships differs in some respects from that of ordinary community, especially regarding the administration of the common thing, where some rules on partnership are deemed to be applicable; see, among others, SSTS 20 December 1968 (RJ. 5891) and 10 December 1955 (RJ. 3615). See, for instance, CAPILLA RONCERO (in LÓPEZ Y LÓPEZ, A., MONTÉS PENADÉS, V.L., ROCA, E., and others, Derechos reales y Derecho inmobiliario registral, M., Ed. Tirant lo Blanch, 2nd ed., coord. CLEMENTE MEORO, M., Valencia, 2001, p. 265), quoting MIQUEL. STS 19 April 1972 (RJ. 2550). According to art. 1669, “societies, whose articles are kept secret among the members, and wherein any one of the members may contract in his own name with third persons, shall have no juridical personality, and shall be governed by the provisions relating to co-ownership”. CAPILLA RONCERO (op. cit., p. 262) stresses that the reference to the rules on co-ownership is designed to protect the rights of third parties, and does not exclude the priority of the contrac-

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1.8.2. Rights and obligations of the co-owners The interests of the co-owners in the profits are proportional to their respective shares. The right to receive the profits must be held as relating to the net return, i.e. after discounting the expenses needed for their production; consequently, each co-owner may not directly appropriate his or her part of the yields, but has to request the distribution thereof from the others.205 Within the internal relationship, each one of the co-owners is also obliged to contribute to the expenses, charges and obligations arising from the common thing proportionally to his or her share (art. 393), provided the decision to perform the corresponding acts has been legitimately made (unanimously or by majority, depending on the cases). As a consequence, a co-owner who has met such expenses shall be entitled to claim reimbursement from his or her partners in the same proportion; an advance of the necessary funds can also be claimed. Particularly regarding the expenses necessary for the preservation of the common thing, art. 395 grants each co-owner the right to demand from the others the corresponding contribution, either in advance or by way of reimbursement (repetitio).206 Only he or she who waives his or her share in co-ownership shall be allowed to be discharged from such obligation. In this case, the waiver shall be discharged from the obligation to contribute to the obligations that may arise after the waiver, but not from those having fallen due prior to that;207 his or her share will profit the other co-owners in proportion to their respective share. In the relationship with third parties, the responsibility of each co-owner shall depend on the application of the general rules on individual or collective acts, representation, ratification, negotiorum gestio, etc. In contrast, the right to use the common things is not proportional to the share of each co-owner; according to art. 394, “each co-owner may use the thing owned in common, provided he does so in accordance with the purpose for which it is intended and in such a way as not to injure the interests of the co-ownership or prevent the other co-owners from using it according to their rights”. Such regulation is consistent with the situation of co-possession allowed by arts. 445 and 450 in cases of co-ownership: for the duration of the indivision, possession as a fact on the whole of the thing or right held in common can be recognised in two or more persons;

205 206 207

tual regulation with respect to the relationship between the partners. The difference between the “static nature” of co-ownership and the “dynamic nature” of partnership has been stressed in jurisprudence (see, e.g. STS 13 November 1995, RJ. 8122). LACRUZ, op. cit., III, 2°, p. 356. STS 7 February 1956 (RJ. 683). SSTS 26 October 1929 and 29 March 1989 (RJ. 2281), based on the principle that the change of debtor requires the creditor’s consent.

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but when the thing is divided, each one of them shall be deemed to have exclusively possessed the part which may be allotted to him or her upon the division thereof, for the entire period of co-possession. The situation of co-possession implies that the possessory acts undertaken by each one of the co-owners – acting in that capacity – redound to the others (e.g. the prescription gained, or the interruption in possession). For the administration208 and better enjoyment of the thing owned in common, the resolutions of those holding the majority of shares shall be binding for all; however, in order to prevent serious prejudice to the minority or situations of blockade, the possibility to request judicial intervention is provided for by art. 398, with the judge, in turn, having discretion to decide by him- or herself or to name an administrator. Unanimity is necessary for decisions that imply the alteration of the common thing (art. 397), which includes, not only those material alterations that exceed the ordinary administration of the thing, but also the modification of its economic purpose; according to jurisprudence,209 the rule is also applicable to juridical alterations, i.e. acts of disposal or burdening the thing as a whole.210 Consequently, a co-owner is not allowed to transfer or burden a specific part of the thing, nor the whole of it, without the consent of the other co-owners. The courts have in some cases (especially where the action for the declaration of voidness is brought by one or more of the other co-owners) stated that an act of disposal made by one of the co-owners in relation to the common thing should be considered absolutely void for lack of the power of disposal.211 This view seems disputable, since the lack of the power of disposal, as a rule, is not a ground for voidness; rather, it can be assumed that the rule applicable to such acts will depend on the circumstances of the case: contract made in the name of another without power of attorney (art. 1259 CC: the contract shall be void, but capable of ratification212), sale of another’s thing (valid, in principle, without prejudice to the eventual responsibility for breach of contract), voidability for mistake or fraud, etc. Ultimately, the transfer may even be considered effective,

208

209 210

211 212

The concept of “acts of administration” includes those relating to the use and ordinary exploitation of the thing, either material or juridical, excluding those of mere preservation, which can be claimed by each one of the co-owners (art. 395). See, for instance, SSTS 8 July 1988 (RJ. 5682) and 11 November 1991 (RJ. 8233). Where one of the co-owners carries out a material alteration of the thing without the necessary unanimity, the rules of accession may be applicable, with the corresponding adaptations. See STS 30 September 1982 (RJ. 4931), where the difficulties arising in such situations are dealt with. E.g., STS 29 April 1986 (RJ. 2065). STS 19 November 1964 (RJ. 5111).

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but limited to the seller’s share213 or to the portion that may be allotted to him or her when the common thing is divided (art. 399 in fine). Regarding hereditary communities, it has also been admitted that the transfer of a thing belonging to the estate can be considered subject to the condition that the thing involved is allotted to the transferor when the partition takes place.214 In the absence of specific rules, the courts hold that any of the co-owners is entitled to appear in court in proceedings affecting the community’s rights, either to exercise them or to defend them, as long as he or she does so for the benefit and interest of all co-owners; the corresponding judgment, if favourable, shall benefit the others, while a contrary judgment shall not prejudice them,215 unless they had – expressly or tacitly – accepted the litigation.216 However, this special legitimation shall not exist if any one of the other co-owners opposes the litigation217 or if the claimant does not affirm – at least tacitly – to act in the interest of all. This solution tends to facilitate the judicial protection of the community’s rights, without harming the right of defence of those co-owners who do not participate in the proceeding; according to some authors,218 an argument in favour of this view could be found in the regulation of negotiorum gestio (arts. 1892 and 1893). However, where a right is exercised against the community, it is necessary to bring the claim against all of them.219 Each co-owner is granted the right to freely dispose of his or her share and upon those elements that make up the content of his or her right (art. 399). He or she is therefore allowed to transfer his or her share, and to create restricted property rights in it (hypothec or usufruct of a share, see art. 490), or assign his or her interests in the thing to a third party through contract (e.g. through lease or commodate). It does not seem conceivable, however, to create a security right on a share relating to a movable, since the constitution of ordinary pledge requires transfer of possession, while art. 1 (2) LHMPSD states that the constitution of a movable hypothec or 213

214 215

216 217 218

219

Although this solution has been rejected in some cases: see, for instance, SSTS 26 February 1982 (RJ. 790) and 19 December 1985 (RJ. 6603). SSTS 5 July 1958 (RJ. 2537) and 28 May 1986 (RJ. 2832). Among many others, SSTS 17 November 1977 (RJ. 4224) and 8 February 1994 (RJ. 833). See also STS 5 February 1975 (RJ. 332), a case where one of the co-owners of assets with historical and archaelogical value claimed the restitution thereof from the National Archaelogical Museum, where they had been deposited. STS 5 January 1977 (RJ. 6). E.g., STS 20 December 1989 (RJ. 8851). See, for instance, CAPILLA RONCERO, in the 1st edition of Derecho Civil …, cit. (Ed. Tirant lo Blanch, Valencia, 1994, p. 396). SSTS 5 June 1954 (RJ. 2005) and 17 November 1977 (RJ. 4224).

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pledge without transfer of possession on movables subject to co-ownership can only lie in the whole of the thing and requires the consent of all partners.220 Where a share is transferred to a third party, the acquirer will be integrated into the community; however, if the transfer is made for consideration, the other co-owners are entitled to exercise a right of redemption on the share transferred (art. 1522). The granting of this right of redemption is designed to facilitate the concentration of shares and the consequent extinction of the state of co-ownership. The right may be exercised by any of the co-owners, but where two or more of them desire to exercise it, they may only do so in proportion to the share they may respectively have in the thing owned in common. The right of redemption is subject to a time limit of only nine days, to be counted from the date the co-owner knew the transfer or from the entry thereof into the Register.221

1.8.3. Extinction of co-ownership The situation of co-ownership can be extinguished for different reasons; destruction of the common thing, prescription by a third party, acquisition of all the shares by one of the co-owners, etc. The CC provides for a detailed regulation of the division of the common thing; in default of specific rules, those provided for hereditary division shall apply (art. 406). The traditional actio communi dividundo is provided for by art. 400 (1): “[n]o co-owner shall be obliged to remain in co-ownership. Each co-owner may demand at any time the partition of the thing owned in common”. The action is not subject to prescription (art. 1965), although it has to be exercised according to the exigencies of good faith (arts. 7 (1) and 1705). The power to demand division of the common thing is excluded in those cases where the situation of indivision is considered to be useful from an economic point of view. Leaving aside those communities that are indivisible by nature (as with those subject to the principles of the “Germanic community”), art. 401 (1) states that “notwithstanding the provisions of the preceding article, the co-owners cannot demand division of the thing owned in common, when to do so would render it unserviceable for the 220

221

It is not possible to create an easement on a share – since it is a right indivisible by nature, which must necessarily fall upon the tenement as a whole – (see art. 597 on the effects of the consent given by one of the co-owners as to the constitution of an easement on a thing held in common), nor to dispose of one’s own share when coownership lies in untransferable rights, such as those of use and habitation (art. 525). Art. 1524 CC originally only referred to the Land Register; however, the extent to which the same provision could be applicable to those movables subject to entry into the corresponding Register is a matter for debate.

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use for which it is intended”. The most typical example is that of the community in elements that are accessories to others having a privative nature. In the case of buildings, the regulation of such elements is provided for by the Horizontal Property Act (LPH) of 1960. In such cases, the co-owners may only exit the community by selling the privative element together with the share in the common thing. On the other hand, the power to demand division may be excluded by the existence of an agreement, either between the co-owners or between the co-owners and a third party, to keep the thing undivided for a certain period of time, not exceeding ten years. This term may be extended by a new agreement (art. 400 (2)). In spite of the existence of such agreement, it can be assumed that it will be possible to claim the division by just motive (art. 1707, by analogy). The restrictions as to the power to claim division may also arise from the testator’s – or donor’s – will; but in such cases the division shall always be possible if one of the causes of termination of the society contract is fulfilled (see art. 1051, referring to the testator’s prohibition from dividing inheritance, and art. 1700). If the thing is divisible, the division can be made in natura, by distributing the thing in homogeneous parts proportional to the share of each co-owner; if necessary, monetary compensation may be granted. It may also happen that the thing is not divisible, be it by its own nature (if division would cause its destruction or impairment, arts. 404 and 1062), or by the existence of a legal prohibition. In those cases, the material division of the thing is not possible, but the extinction of co-ownership is; if there is unanimous agreement, the thing may be allotted to one of the co-owners, who shall indemnify the others. If there is not, the thing shall be sold and its proceeds distributed (art. 404). Should any of the co-owners request that the thing be sold at public auction and that strangers be allowed to bid, this must be carried out (art. 1062). Attribution of the thing to one of the co-owners (adjudicación) as well as the sale and subsequent distribution of the price are also possible when the thing is divisible, if an agreement exists to do so. The division may be carried out by various means: (a) By agreement, through a partition act subject to the rules of hereditary partition (including, e.g. the possibility of rescission222 for laesio or economic imbalance). (b) By arbitration proceedings, subject to the Arbitration Act of 2003,223 or by the simple intervention of an arbitrator nominated by agreement of the parties (art. 402). (c) By judicial proceedings. 222 223

See II, 4.3.2. for a more detailed explanation of this concept. Ley 60 / 2003, de 23 de diciembre, de Arbitraje.

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According to art. 403, “the creditors or assignees of the co-owners may take part in the division of the thing owned in common and object to it being effected without their assent. However, they cannot impugn any partition already executed, unless there has been fraud, or where it was made notwithstanding formal opposition presented to prevent it, without prejudice to the right of the debtor or assignor to maintain its validity”. It must be stressed that they are allowed to take part in the division proceedings in order to prevent possible fraud, but their consent is not required for the division. The concept of assignees includes all those to whom one of the co-owners has transferred a right in his or her share, without having been integrated into the community (a usufructuary, a buyer of a share who has not yet acquired ownership in it for lack of tradition). In relation to the creditors, the rule applies not only to those whose credit is related to the common thing, but also to the creditors of each of the co-owners. In relation to the third parties holding property rights in the thing or credit rights against the co-owners by reason of the common thing (lien creditors, lessees, etc.), art. 405 states: “[t]he partition of a thing owned in common shall not prejudice third persons, who shall retain the rights of mortgage, servitude or any other real rights belonging to them before the division was made. Personal rights pertaining to third persons against the co-ownership shall also remain in force, notwithstanding the partition”. It has traditionally been discussed whether the acts of division of coownership have merely a declaratory nature or whether they imply an actual transfer; this is relevant, e.g. in order to determine the capacity requirements or to decide whether or not division has to be considered as an autonomous acquisitive title to the effects, e.g. of acquisitive prescription. The courts have consolidated (for this case as well as for hereditary partition) a “halfway” theory, according to which division does not imply a transfer, but rather has a “determining”, “substituting” or “specifying” nature, since it implies a modification of the content of each co-owner’s right, that ceases to lie in a share and passes to lie in the portion allotted.224 With this view, it is possible to decide in each case on the requirements and effects of division, taking into account the circumstances. In any case, after the division is made, the co-owners become exclusive owners of the portion allotted to each of them. They are reciprocally liable for defects of title and quality in relation to the portion assigned to each one, and they are also accountable for benefits received, reimbursements for expenses met, and damages caused by reason of neglicence or fraud. It will also be possible to demand rescission of the partition for laesio in more than a quarter of the value of the portion allotted (art. 406, in connection with arts. 1068, 1069 and 1074). 224

See SSTS 27 November 1972 (RJ. 4663) and 3 February 1982 (RJ. 374).

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2.

Possession

2.1.

Concept and nature of possession & basis of possessory protection

Concept and nature of possession. Possession appears in Spanish law as an extremely complex concept, the comprehension of which is however especially important, since it has an enormous significance for the operation of the whole system of patrimonial law. Possession is, first of all, a legal fact, namely a situation of power on things, characterised by the concurrence of two elements: one of them material, which has traditionally been called possessory corpus, implying a lasting and externally manifested situation of material power on things; and another mental, which is called possessory animus, consisting of the conscience and intention to hold such power: both elements integrate the notion of “possession as a fact”, following the terminology used, among others, by ALBALADEJO.225 It is, however, a factual situation considered by the law as a source of legal effects, since it grants the possessor special protection on the mere grounds of having such condition (i.e. regardless of the fact that the same subject may be owner, usufructuary, lessee, etc.): “possession as a right” – as ALBALADEJO calls it –, or ius possessionis, in the classical terminology. The essential content of this right is the very “right to continue to possess”,226 that is, the right not to be deprived of material control of the thing by illegal means, and to be restored to it in case of illegal dispossession. Taken as a right, possession can be considered as a real right, since it confers immediate power over a thing, protected against all (art. 446 CC); as a real right, it is characterised by the fact that it grants the possessor a scope of provisional power: the possessor’s right prevails at first over any other right, including that of the owner, but it is bound to yield ultimately when confronted with steadier or more definitive rights. Its provisional nature and its bond to the maintenance of a factual situation determine that possession itself cannot enter the Land Register (art. 5 LH). It is also an autonomous right, the source of which must be found in possession as a fact, and not in the existence of another right: the possessor is allowed to exercise his or her right whether or not he or she has a right of ownership, usufruct, etc. in the same thing.

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ALBALADEJO, op. cit., III, p. 34 et seq. Possession as a fact is referred to by art. 445 CC: “[p]ossession as a fact cannot be recognised at the same time in two different persons …”. LACRUZ, op. cit., III, 1°, p. 30.

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Different from the aforementioned ius possessionis, which can be identified with possession as a right, is the so-called ius possidendi, that is, the right to obtain and keep possession of things, arising, not from the factual state, but from the existence of a certain subjective right, which serves as possessory title.227 Both concepts may or may not coincide: the owner or the lessee with control over a thing have, simultaneously, both ius possessionis and ius possidendi; the owner who has been deprived of the thing (one year after the dispossession has taken place), the buyer to whom the thing has not yet been delivered, or the lessee to whom the lessor must still hand the thing over, have a ius possidendi, but not a ius possessionis. Finally, the thief who has deprived another of possession, or the lessee who still has the thing under his or her control after the lease contract has been extinguished, have a ius possessionis, but not a ius possidendi. The concepts of possession as a fact and possession as a right are closely related, since only he or she whom the law grants possession as a right can be deemed a factual possessor, from a technical point of view. Therefore, the delimitation of the concept of possession implies the previous delimitation of the scope of possessory protection: it must be taken into account that, even though the first step in understanding the concept of possession is the material power over a thing, it cannot be affirmed that every detentor is a possessor; whereas, sometimes, a subject who does not have the thing under his or her material control may be considered as a possessor: (a) A person is not deemed to be a possessor, where he or she has a thing in a material sense but does not have the conscience or intention to exercise any power over it, does not outwardly exhibit his or her control, or has the thing due to the mere tolerance of the actual possessor (art. 444). (b) A person is deemed to be a possessor where, not having the thing in a material sense, he or she factually exercises a certain power or influence over it, capable of being socially recognised through the possessor’s behaviour. In this regard, it must be taken into account that the behaviour demanded from the possessor in order to be considered as such depends on the kind of power he exercises and on the nature of the asset, e.g. physical, personal and permanent contact with the thing is not always necessary (hunted game can be possessed from the moment it falls into a trap or is collected by a dog, as can a letter from the moment it is placed into the mailbox, or an apartment that is only occupied during the summer months). The behaviour required is not the same for movable things, immovable things, or incorporeal assets; with respect to movables, art. 461 states: “[t]he possession of 227

The distinction between them has been accepted by the courts; see SSTS 29 February 1968 (RJ. 1394), 25 January 1972 (RJ. 118) and 12 June 1987 (RJ. 4294).

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movables is not deemed lost so long as they remain under the control of the possessor, even though for the time being he may not know their whereabouts”. It is also possible that the power of one person over a thing or right is externally manifested through another person’s behaviour (e.g. the lessor of a tenement exercises power on it – as a mediate possessor –, as long as the lessee – immediate possessor – acknowledges his or her ownership in it). (c) In some cases, the law grants possessory protection to subjects that do not exercise any present power or influence over the thing, either because they had it at a previous moment (arts. 460 (4) and 466), or because they are successors of a previous possessor (civilísima possession; art. 440 (1)). In such cases the expression “spiritualized forms of possession” is used, although it must be stressed that there is not an absolute dissociation between possession as a fact and possession as a right, since the subject has the right because he or she has had the possession as a fact, even though he or she does not have it any more. (d) Finally, the utility of the concept of possession to protect situations of apparent power over things has permitted its extension to situations of apparent enjoyment of rights (cuasiposesión or quasi-possession). On the other hand, the content of possessory protection is not the same in all cases, but depends on the characteristics of the possession enjoyed: e.g. although every possessor has the right to have his or her situation protected through the exercise of possessory interdicts – art. 446 –, not all possessors can consolidate a subjective right through acquisitive prescription. On these grounds, a classification of the different kinds of possession is usually accepted; this will be explained below. Basis of possessory protection. Possessory protection is granted to every possessor because of the mere fact of possession (art. 446); however, this means that the concept of possessor is not limited only to persons worthy of protection; and so, e.g. it is granted even to those who have stolen the thing or have deprived the actual owner of it by force or violence. What is the basis for such wide protection? Different bases in this respect have been formulated, which do not exclude, but rather complement each other, to justify the scope of possessory protection: (a) First of all, there is the consideration of the preservation of social peace and public order. Through the protection of the possessor, on the mere basis of having such condition, the possibility that someone takes justice into his or her own hands is prevented. This was the origin of possessory protection in Rome (where it first operated through criminal and administrative actions, of Pretorian law, against those who deprived the possessor); it was also stressed by SAVIGNY, and today finds legal expression in art. 441 CC.

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(b) The necessity to protect legal certainty and the stability of factual situations explains the fact that possession, acquired and maintained under certain conditions and during a certain period of time, can result in the consolidation of property rights in things, especially through acquisitive prescription. (c) The possessor’s protection is based on the necessary protection of legal appearance. Possession of things is a form of publicity of rights: a person who apparently possesses as owner, is deemed to be the actual owner by third parties acting in good faith. By protecting the former’s possession, also the interest of third parties who have relied on that appearance is protected. This explanation corresponds to the Germanic concept of possession and is reflected in art. 464 CC. (d) According to IHERING, since possession is normally the manifestation of a right (that of ownership etc.), by protecting possession, the actual title-holder of the right is also usually protected, through a faster and easier mechanism than that of the bringing of ordinary actions, which is held to be a good solution in spite of the risk of extending the protection to the usurper. (e) Possession has an important social significance, which sometimes can even exceed that of ownership.228 In cases where ownership and possession do not lie with the same person, it may occur that it is the possessor who, through the exercise of his or her right, creates wealth, whereas the owner profits only from the revenue of the assets. That is why it is deemed just that the possessor is granted special protection, different from that of the owner: this would be the basis, e.g. for the special regulation provided for the benefit of urban and rural lessees and against the owners, in order to protect more intensely those who actually occupy the dwelling, use the business premises, or cultivate the land.

2.2.

Elements of possession

2.2.1. Subjects of possession & co-possession Capacity. The status of possessor can be assumed either by physical or legal persons (art. 38 CC). Those subjects who do not have the complete capacity to act may acquire and exercise possession by themselves, depending on the degree of capacity they have and the kind of possessory acts involved. According to art. 443, “minors and incapacitated persons may acquire the 228

HERNÁNDEZ GIL, F., La posesión (Obras completas, t. II), Ed. Espasa-Calpe, Madrid, 1987, pp. 675 et seq.

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possession of things; but they need the assistance of their legal representatives in order to exercise the rights that arise from the possession in their favour” (e.g. to bring legal proceedings). Possessory representation. Possession may be acquired and exercised in one’s own name or through representatives (art. 431: “[p]ossession may be exercised upon things or upon rights either by the same person who has and enjoys them, or by someone else on his or her behalf”; see also arts. 439 and 443). Possessory representation implies that the donor of the power (in voluntary representation) or the law itself (in legal representation) grants a subject (the representative) the authority to carry out acts and exercise possessory powers, the effects of which lie with the principal. In a word, the representative has possession as a fact and as a right, but not for himself, but for another person (and so, e.g. the representative’s possession may serve for the acquisitive prescription of the principal, but not for his or her own prescription229). The so-called (using terminology taken from the German BGB) “server of possession” is not considered to be an actual possessor, either in his or her own name or in another’s name. The term relates to the subject whose contact with the thing is only justified by his or her relationship of dependency with another, in such a way that, according to a social assessment, it cannot be held that he or she “possesses for another”, but is rather “the instrument of another’s possession” (e.g. the chauffeur who drives another’s car, the worker who uses the employer’s tools, the private soldier who holds a weapon, etc.).230 The main consequence of such qualification lies in the fact that the server of possession is not authorised to claim any interdictal protection in case of deprivation or interference, nor can the interdicts be

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SSTS 7 February 1959 (RJ. 463), 21 April 1965 (RJ. 2278), 26 November 1970 (RJ. 4905). STS 16 October 1990 (RJ. 7870) denies also the representative’s authority to demand from the owner the expenses he or she made on the tenement on behalf of the lessee, without prejudice to the actions he or she may bring against his principal. The distinction is parallel to that running between an actual representative and the so-called “nuntius” or “messenger”, who limits himself to communicate another’s statement or declaration. However, the meaning of the expression in the decisions of the courts is not always clear; see LÓPEZ FRÍAS, in Jurisprudencia Civil …, cit., t. I, p. 1.047, who points out that the courts have qualified as servers of possession – thus denying their authority to demand the interdictal protection –: a worker acting on account of the possessor; the owner’s son who on his behalf changes a house’s lock; an agent who has sold a building under construction but has not yet delivered the keys (this case is considered as debatable by the same author); a doctor with respect to the dependencies of the clinic where he works; and the builder who is carrying out construction on another’s land.

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exercised against him or her, even if he or she has materially caused the deprivation or interference.231 Disputes on possession as a fact. It may happen that two or more persons simultaneously claim to be factual possessors of a thing on the basis of incompatible concepts, in order to benefit from possessory protection (e.g. in the case of deprivation by a third party, two subjects try to exercise the interdict, with each of them alleging to be the deprived possessor), or even from the effects of proceedings in which ownership as such is disputed.232 In such cases certain rules – those contained in art. 445 – apply in order to determine who must be considered as possessor for all purposes (possessory presumptions, acquisitive prescription, right to realise the fruits, authority to draw on the interdicts, etc.), and in whose power the thing must remain until it is decided who the actual possessor is: “[p]ossession as a fact cannot be recognised at the same time in two different persons except in cases of indivision (i.e. co-possession). Should a question arise regarding the fact of possession, the present possessor shall be preferred; if there are two possessors, the one in possession for longer;233 if the dates of the possession are the same, the one who presents a title (i.e. a document); and if all these conditions are equal, the thing shall be placed in judicial deposit pending determination of its possession or ownership through proper proceedings”. Co-possession. The concept of “co-possession” applies to those cases in which possession, in the same concept, is recognised in several persons (as owners, lessees, usufructuaries, etc.). Co-possession is an example of co-ownership, the rules of which apply – in default of contract or of special provisions – to all cases in which the ownership of an undivided thing or right – including possession as a right, as long as its nature allows it – belongs to different persons (art. 392 (2) CC); that is the meaning of art. 445 when it states that “possession as a fact cannot be recognized at the same time in two different persons except in cases of indivision”. As a result, e.g. any co-possessor can, for the common benefit, exercise the power to defend possession, or gain acquisitive prescription for all (art. 1933 CC);234 however, “interruption in the possession of the whole or part of a thing possessed in common shall be to the prejudice of all the possessors equally” (art. 450 in fine). However, co-possession does not imply a division in ideal 231

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233 234

As a matter of fact, it has been said that the “server of possession” was implicitly considered by art. 1652 in fine of the former LEC, when referring to the acts of deprivation carried out by a person or “another following his instructions”, in which case the interdicts had to be brought against the principal. SSTS 24 June 1957 (RJ. 2531), 27 January 1984 (RJ. 387) and 20 December 1984 (RJ. 6540). STS 27 January 1984 (RJ. 387). See STS 27 January 1984 (RJ. 387).

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portions (as happens in e.g. actual co-ownership); on the contrary, each one of the subjects possesses the whole of the asset up to the moment of division.235 Regarding that moment, art. 450 states: “[e]ach of the participants of a thing possessed in common shall be deemed to have exclusively possessed the part which may be allotted to him or her upon the division thereof, for the entire duration of co-possession (…)”. Concurrence of possessions. There is no co-possession, but rather concurrence of possession, when several possessors in different compatible capacities concur in a thing (immediate and mediate possessors), and also when, all of them claiming the same capacity, possession as a fact corresponds to only one of them: e.g. in case of deprivation, the depriver as well as the deprived are considered to be possessors “in the capacity of owner”236 for one year – in principle –, but there is no co-possession: the depriver is granted the interdictal protection, but he or she is not allowed to obtain acquisitive prescription; whereas, if the deprived recovers possession through the exercise of the interdict, he or she will be allowed to continue the prescription started before the deprivation.

2.2.2. The object of possession: possession of things and possession of rights According to art. 437, “only things and rights which are capable of being appropriated may form the object of possession”. No possession can be held, therefore, in entities which are not things in a legal sense (e.g. even though it is possible to have factual power over a corpse, it cannot be considered as possession), nor over things which are outside of commerce, such as those of public dominion, although situations may exist in which the law allows private persons to have possession of such things through administrative concessions (mines, water, etc.). The CC admits that possession may lie, not only in corporeal things, but also in incorporeal things and rights; this is confirmed by art. 430, which refers to “the holding of a thing or the enjoyment of a right”. Although it is not possible to physically hold incorporeal assets (energy, intellectual property, trade marks, patents, titles of nobility, etc.), their factual use or 235

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STS 27 April 1959 (RJ. 2448) considered that, in cases of co-ownership, the fact that some movable assets are physically held by one of the co-owners does not exclude the other’s possession; as a result, if the assets are seized for the debts of the first co-owner, the other can demand lifting of the seizure as to his or her share on the basis of art. 464, laying claim to his or her status as co-possessor (LÓPEZ FRÍAS, op. cit., i, p. 1069). See infra I, 2.3.2. for a discussion of this concept.

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exploitation is conceivable, independent of any title in the right. Such a fact situation is capable of possessory protection and may even – though it may seem more difficult – allow acquisitive prescription.237 Possession of rights, as opposed to possession of things, has been traditionally known as “quasi-possession”. It refers to cases in which a property right, such as an easement, whilst not granting the physical control of the servient land, allows a “limited factual influence” – be it either to do something or to stop another from doing something – which deserves possessory protection and explains the rules on usucapio of servitudes. On the other hand, some consider that the expression could be used in situations of “mediate” possession, as for instance, the “apparent” owner whose property is under the control of a lessee, as the former can also benefit from the rules on possessory protection and, as the case may be, eventually acquire the property right by means of acquisitive prescription. In any case, only property rights can be the object of possession, but not credit rights; although the Civil Code alludes to the payment made to someone who is in “possession of the credit” (art. 1164 CC), this relates to the appearance of a title of credit and the release of a debtor in good faith.

2.3.

Forms of possession

Considering the different means in which the possessory corpus can be expressed, and the different subjective intentions that the possessor may have, different kinds of possession come under consideration, each one of them having different effects.

2.3.1. Natural possession and civil possession Art. 430 CC states: “[n]atural possession is the holding of a thing or the enjoyment of a right by a person. Civil possession is the same holding or enjoyment together with the intention to have the thing or the right as one’s own”. Both kinds of possession require the concurrence of possessory corpus and possessory animus; a person who has a thing under his or her scope of influence without knowing or without any intention to exercise any power over it, is not a possessor, either natural or civil. The difference between them is that civil possession applies to those who possess in the capacity 237

See, however, STS 16 April 1941 (RJ. 502), which denies that a right of industrial property can be the object of possession.

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of title-holders of either a real or credit right, whereas natural possession applies to those who do not allege any right to justify their holding or detention (possessor pro possessore).238 The relevance of the distinction lies in the fact that natural possession suffices to obtain interdictal protection (art. 446), whereas civil possession is required in order to be in a position to benefit from other favourable effects arising from possession: e.g., to acquire through acquisitive prescription,239 tradition or occupation, to benefit from the possessory presumptions (art. 448), or to obtain some kind of protection within the liquidation of possessory situations.240 That way, for instance, a squatter who does not allege any title to justify his or her possession may obtain the interdictal protection in the case of deprivation by force or violence, but he or she is not allowed to claim any kind of fruits; a possessor in the capacity of a borrower in a commodate, being in good faith, is not obliged to render anything for the use of the thing; a possessor in the capacity of a lessee of a rustic tenement, being in good faith, is not obliged to return the fruits realised, etc.

2.3.2. Possession in the capacity of owner and possession in another capacity Art. 432 CC states: “[t]he possession of things or rights may be had in one of two capacities: either in the capacity of owner, or in that of the holder of the thing or right to keep or enjoy it, with ownership pertaining to another person”. A person who claims ownership as the basis for his or her possession is the possessor in the capacity of owner; possessors in another capacity may claim different titles as the basis of their possession, either in another’s interest (“to keep it”: e.g. as a depositary, administrator, manager of another’s business, etc.), in his or her own interest (“to enjoy it”: e.g. as a 238

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For others the distinction is equivalent to that expressed by art. 432 (possession in the capacity of owner, and possession in another capacity), and is therefore useless. See, for instance, SSTS 3 May 1974 (RJ. 2011), 9 March 1983 (RJ. 1431) and 6 June 1986 (RJ. 3293). SSTS 28 November 1983 (RJ. 6680), 6 June 1986 (RJ. 3293) and 14 March 1991 (RJ. 2221). The situation of a precarious possessor might be considered as an example of natural possession, since he or she does not have any ius possidendi, and cannot therefore consolidate any subjective right in the thing, nor benefit from the rules on liquidation of possessory situations (SSTS 17 May 1948, RJ. 771, and 9 July 1984, RJ. 3804); but he or she does have a ius possessionis arising from his or her holding of the thing, and therefore has interdictal protection.

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usufructuary, user, lessee, borrower, etc.), or as simple detentors (precarious possessor).241 The “possessory capacity” must be deemed quite different from that of “possessory title”.242 The latter is the legal ground justifying possession and granting the ius possidendi (e.g. the fact of having purchased or having received a thing through legacy justifies the buyer’s possession or the legatee’s possession). The fact that a person possesses in one capacity or another does not depend on the real existence of the relative title, nor even on the fact that the subject really believes in its existence. Decisive in determining the capacity of the possession is rather the unequivocal behaviour of the subject in the exercise of his or her power over the thing, according to social acceptance: a person possesses in the capacity of owner, where he or she externally behaves as such, even if he or she is not, and even if he or she knows this is not so.243 The possessory capacity has enormous significance in different regards: (a) It determines the subjective right that may eventually be consolidated by the possessor, especially through acquisitive prescription. According to art. 447, “only the possession acquired and enjoyed in the capacity of owner can serve as a title for acquiring ownership”, either through – ordinary or extraordinary – acquisitive prescription or through a non domino acquisition ex art. 464. Possession in the capacity of title-holder of another right (e.g. usufructuary), will serve to acquire the relative right through prescription. (b) It also determines the provisional powers of the possessor in relation to the thing: e.g. a person possessing as a usufructuary can use the thing and realise the fruits thereof; a person who possesses as a borrower can use the thing, but he or she cannot realise its fruits; a person who possesses as a depositary can do neither. These powers are provisional: that is, the possessor can exercise them against anyone, and he or she cannot be deprived of them by force (and he or she can use, as the case may be, the possessory interdicts); but they disappear where someone 241

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STS 26 March 1986 (RJ. 1471) makes it clear that the notion of “possessor in the capacity of owner”, as formulated by art. 432, includes all those who possess in the capacity of title-holders of rights susceptible of possession. The distinction between the possessory capacity and possessory title can be perceived, among other aspects, in the regulation of acquisitive prescription, since possession in the capacity of title-holder is needed for both ordinary and extraordinary prescription, whereas the possessory title is required only for ordinary prescription. Among many others, SSTS 3 June 1993 (RJ. 4385), 7 February 1997 (RJ. 685) and 10 February 1997 (RJ. 938). See a thorough analysis of the jurisprudence on this point in LÓPEZ FRÍAS, op. cit., I, pp. 1048-1049.

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with a better right brings the relative ordinary action and obtains a favourable judgment. (c) The fact of possessing in a certain capacity justifies the iuris tantum presumption that the possessor has the necessary title in it (art. 448). Art. 436 formulates the presumption of continuity in the possessory capacity (“it is presumed that possession continues to be enjoyed in the same character in which it was acquired, until the contrary is proven”). The change in the possessory capacity is called “possessory interversion”.244 The mere will of the possessor does not suffice for the possessory interversion to take place; the change in the possessory capacity must be externally manifested through acts which are consistent with the new capacity,245 and only thereby can it be proven, according to art. 436 (e.g. a person who possessed in the capacity of lessee fails to pay the rent at a certain point and begins to behave as owner). Possessory interversion may correspond to a perfectly legal purpose (e.g. in the constitutum possessorium – the owner of a thing sells it and transfers ownership, but keeps possession in the capacity of lessee –, or in the traditio brevi manu – the possessor in the capacity of lessee buys the thing and begins possessing as owner), but it may also reflect illegal behaviour of the possessor, which will justify the exercise of the relative actions by those affected by it (e.g. the owner-lessor is allowed to exercise, along with the actions arising from the lease contract, the interdictal actions against the lessee’s act of interversion through which the former is deprived of his or her mediate possession).

2.3.3. Possession in good faith and possession in bad faith Art. 433 provides: “a person is deemed a possessor in good faith where he or she is not aware that there exists in his or her title or mode of acquisition any flaw that invalidates it. A person is deemed a possessor in bad faith, where he or she possesses in a manner contrary to the foregoing”, that is, who does not ignore that he or she possesses the thing illegally, because

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ATAZ LÓPEZ, J.: “Sobre la interversión posesoria. Notas al artículo 436 del Código Civil”, en Homenaje al Profesor Juan ROCA JUAN, Servicio de Publicaciones de la Universidad de Murcia, Murcia, 1989, pp. 33 et seq. SSTS 13 December 1982 (RJ. 1988 / 9033), 16 May 1983 (RJ. 2825), 29 February 1992 (RJ. 1407) and 10 July 1992 (RJ. 6274). However, some judgments have inaccurately rejected the possibility of a unilateral interversion in the possessory capacity: e.g. SSTS 10 April 1990 (RJ. 2712), 17 July 1990 (RJ. 5946) and 28 June 1993 (RJ. 4791).

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he or she lacks title or has one which is invalid.246 Not merely any kind of error suffices for the existence of good faith: it must be an error which is justifiable under the circumstances. A possessor is in bad faith where he or she does not know that his or her title has a flaw, but should have known had he or she acted with a minimum of diligence. However, the lack of a just title in itself does not necessarily exclude the possessor’s good faith, as long as he or she erroneously believes he or she has title;247 neither does the fact of possessing on the basis of a contract that is eventually declared void248 or terminated,249 in itself, exclude the good faith of the possessor. Other important rules regarding the issue are the following: (a) Art. 434: “Good faith is always presumed, and the burden of the proof is borne by the person who alleges bad faith on the part of a possessor”. The presumption operates at the moment of acquisition as well as thereafter.250 (b) Art. 435: “Possession acquired in good faith does not lose this character except in the case and from the moment facts are evident that show that the possessor is not unaware that he possesses the thing improperly or wrongfully”. The main problem in relation to this article is that of determining whether or not the judicial or extrajudicial communication and notifications made to the possessor at the owner’s request suffice to extinguish the possessor’s good faith.251

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248 249 250 251

In relation to acquisitive prescription, art. 1950 provides that “the good faith of the possessor consists in the belief that the person from whom he or she received the thing was the owner thereof and could transfer ownership in it”. SSTS 10 July 1987 (RJ. 5454) and 12 November 1993 (RJ. 8765). A different view can be found in SSTS 3 October 1974 (RJ. 3649), 17 May 1948 (RJ. 771) and 9 July 1984 (RJ. 3804), which consider that possession in good faith necessarily has to be possession with title. STS 27 October 1932 (RJ. 1260). STS 15 February 1991 (RJ. 1272). STS 26 June 1912. See LÓPEZ FRÍAS, op. cit., t. I, pp. 1,054 and 1,055, quoting several judgments defending opposite standpoints: e.g. SSTS 13 January 1916, 23 March 1963 (RJ. 1938), 9 March 1956 (RJ. 926), 5 February 1955 (RJ. 320) and 12 December 1994 (RJ. 9437) consider that the possessor is not in bad faith because of the mere receipt of a judicial or extrajudicial request; STS 22 July 1997 (RJ. 5805) adds that the acts required to prove the possessor’s bad faith have to be his or her own acts, and not those of the claimant. Contra, other judgments hold that knowledge of the owner’s opposition suffices to affirm the possessor’s bad faith: SSTS 25 October 1955 (RJ. 2875), 10 April 1956 (RJ. 1927), 24 March 1983 (RJ. 1612), 13 February 1984 (RJ. 649) and 24 January 1952 (RJ. 273).

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(c) Art. 442: “Any person who succeeds by hereditary title shall not suffer the consequences of wrongful possession of the decedent, if it is not proven that he was aware of the flaws affecting it; but the effects of possession in good faith shall not be of benefit to him before the date of the death of the decedent”. The distinction between possession in good faith and possession in bad faith is relevant for different purposes: for the liquidation of possessory situations (fruits, expenses, improvements, deterioration, etc.); for acquisitive prescription (good faith is a requirement for ordinary prescription, the duration of which is shorter than that for extraordinary prescription); for protection arising from arts. 1473 (double sale) and 464 CC (a non domino acquisition), etc.

2.3.4. Immediate possession and mediate possession A thing may be simultaneously possessed by two or more persons, each in a different capacity, compatible with the other, in such a way that direct physical control over the thing corresponds with one of them – the immediate possessor – with the others (mediate possessors) also having material power over the thing exercised through the immediate possessor.252 E.g. the owner of a thing constitutes a usufruct upon it; the usufructuary leases it, and the lessee deposits it in the hands of another subject. Only the depositary is an immediate possessor, with the rest being mediate possessors, and, as such, they are granted a ius possessionis and are allowed, for instance, to use the possessory interdicts in order to protect their right to continue to possess (e.g. if the lessee, pretending to be the owner, intends to sell and deliver the thing to a third party, the owner can exercise the interdict to recover the immediate possession of which he or she has been deprived), or to acquire through prescription the right possessed (e.g. a person who possesses a tenement in the capacity of owner, not being the owner, and leases the tenement, is a possessor for the acquisition of ownership through prescription). Art. 463 states: “[a]cts relating to possession, executed or agreed to by a person who possesses a thing belonging to another as a mere holder to enjoy or keep it in any capacity (immediate possessor), do not bind or prejudice the owner (mediate possessor), unless he gave said holder express authority to do such acts, or ratifies them subsequently”; which unequivocally serves to grant each of them independent possessory protection.253

252 253

SSTS 28 June 1961 (RJ. 3017) and 10 July 1997 (RJ. 5464). STSJ Aragón 12 February 1996 (RJ. 1349).

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Acquisition of possession

Subjective requirements. Possession may be acquired by the same person who is to enjoy it, by his or her legal representative, by his or her agent, or by any person without any power of attorney whatsoever; but in the last case, possession shall not be deemed acquired until the person in whose name the act of possession was executed has ratified same (art. 439), without prejudice to the legal consequences of negotiorum gestio, in a proper case. Natural capacity to understand the consequences of one’s actions and intention suffices for the acquisition of possession; provided they have such capacity, minors and incapacitated persons may acquire possession on things, but they need the assistance of their legal representatives in order to exercise the rights which result in their favour from possession (art. 443 CC). Modes of acquisition of possession. Possession is considered to be acquired from the moment the thing or right falls under the action of the will of a subject, either through occupation (realisation of fruits, occupation of things with no owner), or because the subject is in the condition to exercise direct influence over it by any other means. As art. 438 puts it, “possession is acquired by the material occupation of a thing or the exercise of a right, or by the fact that it is subject to our will, or by the proper acts and legal formalities established for acquiring such right”. As examples of acquisition of possession by means other than material occupation, the following may be recalled: instrumental tradition; the judgment in judicial adjudication;254 the acceptance of inheritance; etc. The authors tend to differentiate between original and derivative modes of acquisition of possession. The significance of the distinction lies in the fact that, when the present possessor succeeds the preceding one in his 254

E.g. in the execution of a judgment (arts. 701 et seq. LEC; see, art. 701 for the execution of judgments regarding the delivery of specific movable assets); as a consequence of the exercise of the acquisition interdict (art. 1634 of the precedent LEC); or, in the case of immovables, through the so-called “procedure for judicial possession”, provided for by arts. 2056 et seq. LEC 1881 (still in force according to the final provision 1.1ª of the new LEC, which states that the content of the Third Book of the LEC of 1881 will be in force up to the moment in which the Voluntary Jurisdiction Act – currently being discussed in parliament – is enacted). The latter is a voluntary jurisdiction procedure (the formulation refers to proceedings designed to obtain a judicial decision over non-controversial matters), which may be used, as long as there is no opposition, where the acquisition interdict is not available – since the claimant does not have hereditary title. The claim can only be admitted if the claimant’s title has been registered in the Land Registry (see art. 38 LH, regarding the possessory protection of the registered title-holder). The judicial resolution giving possession to the claimant will preserve the rights of third parties.

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possessory situation (derivative acquisition), he or she receives some of the beneficial effects of the transferor’s possession: e.g. he or she can use the interdicts to recover the possession of that, of which the transferor was deprived, and he or she can also add to his or her own possession the time of the transferor’s possession, in order to complete the time for prescription. The distinction is, however, less important when applied to possession, than regarding other property rights, since the characteristics of possession held by a subject (good or bad faith, possession in the capacity of owner or in another capacity, etc.) depend mainly on his or her own attitude. Wrongful acquisition of possession. The acquisition of possession under certain circumstances may render the possession wrongful. Art. 444 states: “[a]cts merely tolerated, and those executed surreptitiously and without the knowledge of the possessor of a thing, or by violence, do not affect possession”. That does not necessarily mean that a person who carries out such acts may never be considered as a possessor; it rather means that the situation of the preceding possessor continues to be the same in all aspects, at least temporarily. Different cases may be considered here: (a) Merely tolerated acts: Such acts are sometimes referred to as “precarious possession”; but, in fact, this concept is used in Spanish law to describe different situations,255 including acts carried out without any title (either because no title at all is claimed256 or because the title claimed has lost its effect257), by mere tolerance of the owner,258 with his or her authorisation,259 or on the basis of a commodate contract (on immovables, especially), where the lender retains the authority to claim restitution by his or her mere intention (art. 1750 CC).260 The differences between “licence or authorisation”, on the one hand, and “tolerance”, on the other (concepts referred to by art. 1942, regarding acquisitive prescription), may be summed up as follows: with the former, the initiative lies with the authoriser, with the latter it lies 255

256

257 258 259 260

The common ground of all situations included within the concept of precarious possession is the fact of implying the gratuitous use of an asset; however, mere payment of a certain amount does not necessarily exclude such qualification, as long as it does not represent the actual remuneration for the use, but only the provision of expenses or improvements made by the possessor in his or her own interest. See SSTS 30 October 1986 (RJ. 6017) and 22 October 1987 (RJ. 7463). SSTS 22 October 1953 (RJ. 2696), 25 June 1964 (RJ. 3686) and 22 October 1987 (RJ. 7463). SSTS 10 January 1964 (RJ. 121) and 14 January 1964 (RJ. 156). SSTS 6 April 1962 (RJ. 1942) and 8 May 1968 (RJ. 2432). SSTS 23 January 1959 (RJ. 126) and 1 April 1966 (RJ. 3281). SSTS 23 May 1989 (RJ. 3880), 30 July 1991 (RJ. 5673), 31 December 1992 (RJ. 10670) and 31 January 1995 (RJ. 413).

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with the user; in relation to their structure, licence involves positive behaviour (to authorise), whereas tolerance is a mere abstention (to let something be done); as to their effect, the license is legally effective because it confers legitimacy to act, whereas tolerance only involves the lack of opposition to another’s act; finally, the licence may be revoked, being a unilateral act which attributes no right to its recipient, whereas in the case of tolerance, mere opposition suffices.261 (b) In Spanish law a person whose contact with the thing is based only upon the actual possessor’s tolerance, is not considered to be a possessor (art. 444: “[a]cts merely tolerated … do not affect possession”; e.g. the guest who occupies a chair or a room in another’s house).262 Acts merely tolerated by the possessor do not imply that the person who carries them out acquires any kind of possession (defective or not), and therefore the situation of the former is not changed in any way, whereas the tenant is not granted interdictal protection. The courts have sometimes considered certain situations of tenancy without title as cases of tolerance, either because the title does not exist at all or because the existing title is extinguished.263 (c) In contrast, a possessor who acts in relation to a thing on the basis of an express or implied licence may be considered a possessor (e.g. the neighbour whom the owner has permitted to pass through his or her property for a long time may be considered as possessor of a servitude). This possession, however, will only grant him or her the interdictal protection, but not the possibility to acquire any right through prescription – as long as he or she continues to possess in the same capacity –, since art. 1942 excludes it.264 (d) Finally, he or she who has the thing on the basis of a commodate contract is also a possessor; however, his or her possession does in fact affect the lender, since he or she is contractually bound to the former, according to the rules of commodate (see, e.g. art. 1752 CC).265 261

262

263

264 265

See BADOSA COLL, F., “Del depósito”, Comentario del Código Civil, Ministerio de Justicia, t. II, Madrid, 1991, p. 1659. See SILLERO CROVETTO, B., “Los actos meramente tolerados y la posesión”, en AC, núm. 36, 1996, pp. 525 et seq. See STS 30 October 1986 (RJ. 6017), commented by ARANA, CCJC, núm. 12, 1986, pp. 4099 et seq. See infra, III, 9.2.1. STS 2 December 1992 (RJ. 10250). The three situations described above, in relation to immovables, have in common that they award the mediate possessor of the property (described by art. 1564 of the former LEC as “actual possessor of the property”, with the title of owner, usufructuary, or any other which grants the right to enjoy it) – and his or her successors – the authority to claim eviction for precarious posses-

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(e) Clandestine possession and possession by violence.266 A person who acquires possession of a thing through clandestine or violent means is, notwithstanding, an actual possessor, and therefore enjoys possessory protection, although he or she cannot acquire through prescription as long as his or her possession does not become public (art. 1941), or as long as the actions arising from the offence do not prescribe (art. 1956). When art. 444 states that these acts “do not affect possession”, it means that the preceding possessor continues to be so to all effects, since, even though he or she does not have the thing in his or her control, he or she maintains an “ideal possession” that allows him or her, for instance, to recover the thing materially by exercising the interdicts, or to continue with the acquisitive prescription; according to art. 466, “a person who recovers, under the law, possession unjustly lost, shall be deemed for all purposes which may redound to his benefit, to have enjoyed it without interruption”. However, this situation is only temporary, because if the subject has not tried to recover his or her possession within a year – since the situation of violence or surreptitiousness has ended –, he or she is definitively considered to have lost possession (art. 460 (4)).

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sion. Under the precedent LEC (arts. 1561 et seq.), now derogated, it was possible to use a summary and brief procedure to recover possession of the property and have the precarious possessor evicted; according to art. 1563 (3), the claim for eviction could be brought against any person who enjoyed or controlled the property precariously, either urban or rustic, without paying any rent, provided he or she was required to vacate it with a month’s notice. The new LEC 2000 has abolished the summary nature of eviction procedures against precarious possessors, and provides the use of the verbal procedure for them (art. 250 (1) subpara. (2)); however, in the development of execution in relation to immovables, a brief incident is regulated in which the acquirer is allowed to evict those who can be considered as merely factual or unentitled occupants immediately, and in summary terms (arts. 675 and 704). Should the occupants show a title that might suffice, they are only subject to eviction if a judgment against them is passed after ordinary proceedings (art. 661 (2)). From the point of view of criminal law, both the defective acquisition of possession and the illegal interversion in the possessory capacity may be considered as criminal offences: see, e.g. arts. 234 et seq. (theft), 237 et seq. (robbery), 252 (constructive conversion), arts. 245-247 (usurpation), art. 455 (arbitrary realisation of one’s own right), and arts. 202-204 (unlawful entry into another’s dwelling, a legal person’s domicile or business premises open to the public). From a practical point of view, it has been stressed that behaviour which is harmful to possession is generally resolved before the civil courts when it regards immovable assets, and before the criminal courts, in the case of movables.

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The “civilísima” possession. A special mode of acquiring possession takes place in the case of hereditary acquisition. Art. 440 provides: “[t]he possession of hereditary property is deemed to be transmitted to the heir without interruption from the moment of the decedent’s death, where the inheritance is accepted. A person who validly renounces an inheritance is deemed never to have possessed same”. The most characteristic of this case is that possession is acquired by force of law from the moment of the decedent’s death, without the need for physical control of things,267 provided the heir accepts the inheritance (art. 989 CC). This kind of possession has traditionally been called civilísima possession;268 it only operates in favour of the heirs, but not in favour of the heir’s asignee,269 or of the legatees, who have to claim delivery of possession from the former, even though they automatically acquire their rights from the moment of the decedent’s death.270 The new LEC (arts. 250 (1) subpara. (3), 441 (1) et seq.) grants the heir a special judicial action, which has traditionally been called the “acquisition interdict”,271 and which may be used by the heir to transform his or her civilísima possession into factual possession, where no-one claims a contradictory title (ownership, usufruct). The procedure is very expedient, and concludes with a judicial decree, where no opposition is brought, and with a judgment, otherwise, without prejudice of the interested parties’ right to bring ordinary proceedings regarding the substance of the case. The heir continues, therefore, the decedent’s possession, is authorised to draw upon the actions granted to the decedent, and is affected by the possible defects in his or her possession (e.g. where the decedent had deprived the preceding possessor of possession, the latter is entitled to bring the interdict against the heir). However, in order to determine good or bad faith, art. 442 provides: “[a] person who succeeds by hereditary title shall not suffer the consequences of the wrongful possession of the decedent, if it is not proven that he or she was aware of the flaws affecting it; however, the effects of possession in good faith shall not benefit him or her before the date of the decedent’s death”.

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268 269 270 271

Unlike in the Foral Laws of Navarre and Catalonia, where the heir only has possession if he or she takes it. A historical analysis of art. 440 can be found in STS 21 March 1968 (RJ. 1742). STS 27 May 1967 (RJ. 2802). SSTS 6 November 1934 (RJ. 1781) and 3 June 1947 (RJ. 903). See arts. 1633 to 1650 of the preceding LEC.

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2.5.

Loss of possession

Loss of possession is regulated by art. 460, which provides for four ways of losing possession, but does not include other possible ways: e. g. the execution of a judicial decree (designed to protect ownership or possession), or an administrative order (e. g. expropriation). The voluntary means: (a) Abandonment of the thing, i.e. the physical relinquishment of the thing with the intention of giving up possession. (b) Assignment made to another either by onerous or gratuitous title (tradition, translative waiver, etc.). Loss of possession is not implied where the transferor keeps mediate possession of the thing. The involuntary means: (a) Destruction or total loss of the thing, or the fact of becoming unmerchantable. Regarding the loss of the thing, arts. 461 and 465 must be taken into account. Art. 461: “[t]he possession of movables is not deemed lost as long as they remain under the control of the possessor, even though for the time being he may not know their whereabouts”. This rule applies also to tame or domestic animals. As to wild animals, art. 465 provides: “[w]ild animals are possessed only while they are in one’s control; domesticated or tamed animals are considered domestic or tame if they retain the habit of returning to the premises of the possessor”. The loss of a wild animal transforms it into a res nullius, the ownership of which may be acquired by anyone through occupation. If the lost thing reappears, the preceding possessor has the right to claim its restitution according to the rules of finding (arts. 610 et seq., especially art. 615); but he or she is not entitled to exercise the interdicts. (b) Possession on the part of another, even against the preceding possessor’s will, provided the new possession has lasted more than one year.272 In principle, both the ideal or incorporeal possession of the one who lost the thing and the physical possession of the one who currently has it under his or her control seem to coexist. However, inasmuch as art. 445 states that factual possession cannot be recognised at the same time in two different persons except in the cases of co-possession, it must be held that in such cases a pending situation begins, which may last for one year, during which the preceding possessor may draw upon the actions to recover possession (the interdict, where he or she was 272

STS 13 February 1958 (RJ. 593) stated that the loss of possession under art. 460 (4) only takes place if the thing is possessed by another in the capacity of owner.

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deprived of possession). If he or she does not, he or she definitively loses possession and the current possessor is deemed to have kept it alone from the moment he or she acquired possession. If during that year the former “recovers, according to law, possession unjustly lost, shall be deemed for all purposes which may redound to his benefit, to have enjoyed it without interruption” (art. 466).273

2.6.

Protection of possession

2.6.1. The possessory actions: interdicts According to art. 446, “every possessor has a right to be respected in his possession; and should he be disturbed therein he shall be protected in or restored to said possession by the means established by the procedural laws”. The typical means of possessory protection are the so-called “possessory interdicts” (“protective interdict” and “restitutory interdict”; see arts. 1651 et seq. of the preceding LEC), the regulation of which is now to be found in the new LEC, that provides the rules for the so-called “juicio verbal” (art. 250 (1) subpara. (4)) for the handling of those claims regarding the “summary protection of tenancy or possession of things or rights, when exercised by the person who was deprived of them or suffered interference in the enjoyment thereof”.274 The bringing of these actions is designed, either to bring to an end those acts which, while not depriving of possession, imply an interference, or to render possession to a person who has violently been deprived of it. Inasmuch as it may be difficult to make it clear whether an act is to be considered as a case of deprivation or of mere interference, the courts have traditionally admitted the possibility to exercise both of them either cumulatively, alternatively or subsidiarily. Since these actions are based exclusively on the existence of a possessory situation, and not on the existence of another subjective right, they are deemed to be “possessory actions” in a genuine sense: in other words, not the ius possidendi, but the ius possessionis is discussed therein. Therefore, actions which serve to protect possession on the basis of another subjective right are not to be considered genuine possessory actions (e.g. the action 273 274

As to immovables, see art. 462. It has to be pointed out that, up to the enactment of the LEC 2000, the legal regulation of these proceedings completely excluded the right to appeal the final decisions of the Appeal (Provincial) Courts before the TS (Court of Cassation). That still implies the inexistence of a judicial doctrine from the TS on this issue, even though the new LEC admits the possibility of appealing before the Court of Cassation when there is a contradictory doctrine of the Appeal Courts on a certain issue (art. 477 (3) LEC).

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for revindication, which allows the non-possessing owner to recover possession, on the grounds of his or her right of ownership).275 The “prohibitory interdict” (designed to summarily forbidding the continuation of a risky construction of a house or building; art. 250 (1) subpara. (5) LEC), and the “demolition interdict” (designed to summarily ordering the destruction of an unstable house, building, etc.; art. 250 (1) subpara. (6) LEC), both of which may be founded on rights or interests others than ownership, can also not be considered possessory actions, at least in a strict sense. Lastly, the action provided for by art. 41 LH in favour of the title-holder indicated by the Land Registry, does not have a possessory nature; this is also a summary procedure (art. 250 (1) subpara. (7) LEC), which allows the title-holder according to the Registry to effectively exercise the rights registered in his or her favour against a person who, without any registered title, contradicts or interferes with that exercise. This action is not based on the possessory fact, but on the registered entry of rights in immovables. The time limit within which to bring the possessory interdicts is one year from the moment the interference or the deprivation took place (arts. 460 (4) and 1968 (1) CC; art. 439 (1) LEC; art. 1653 of the preceding LEC). It is a term of expiry, not of extinctive prescription, and therefore it is not subject to interruption. 275

A peculiar action, specifically designed for the protection of assets with significant cultural interest, is that provided by Council Directive 93/7/EEC, of 15 March 1993, on the return of cultural objects unlawfully removed from the territory of a Member State (modified by Directives 96/100, of 17 February 1997, and 2001/38, of 5 June 2001); this was implemented in the Spanish system through Act 36/1994, of 23 December (reformed in turn by Act 19/1998, of 15 June). The Directive establishes that the illegal removal of cultural assets (as defined by the law) from the territory of one of EU Members shall authorise the concerned State to bring a civil action before the courts of the State where the asset is found, in order to obtain its material restitution, once a fair compensation has been paid to the possessor (if he or she acquired the asset with the necessary diligence and in good faith), along with the maintenance expenses. In order to realise the provisions of the Directive, the obligation to offer the necessary cooperation is also imposed on the Member State in which the asset has been found. In Spanish law, it is stated that the action shall be brought before the civil courts by the so-called juicio verbal. The restitutionary action shall prescribe one year from the date the relevant Member State knew of the location of the asset and the identity of the possessor thereof; in any case, the action shall prescribe thirty years after the date on which the illegal removal took place. However, in case of assets belonging to public collections and to the Church (as long as they are subject to special protection rules in the corresponding State), the restitutionary action shall prescribe in seventy five years, except in those Member States where the action is not subject to prescription or where a longer period is established by bilateral agreements.

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The authority to sue lies with any possessor who has suffered interference or deprivation; but not with a possessor who has not lost possession through deprivation (e.g. a person who has lost the thing, even if another finds it and keeps it). It is enough to prove the fact of being – of having been – possessor; the proof of a right to possess is not necessary. The action may be brought by any possessor: mediate or immediate, in the capacity of owner or in another capacity, in good or bad faith, etc. and even by a person who has possession due to depriving another of possession. Also, the successor (either inter vivos or mortis causa) of the possessor has the authority to draw on the interdict. This action may be brought against any person who carries out the interference or the deprivation, and also against a person who orders this to be carried out, but not against a person who only acted as an instrument of the actual instigator (see art. 1652 (2) of the preceding LEC; the new LEC does not make any reference to the possibility of bringing the claim against a person who ordered the interference or deprivation, but it must be considered to have survived). The interdict can succeed even if the person who carried out the interference does not hold the thing anymore; in this case, the defendant against whom judgment has been entered may try to recover it from the present holder or he or she will have to pay damages. This action may also be brought against the depriver’s heir, and he or she who received the thing from the latter, when he or she knew – or should have known – of the deprivation. It is doubtful whether the current possessor with no knowledge of the deprivation can also be sued (see, however, art. 464). Every combination is possible here: a person who deprives another of his or her possession can exercise the interdict against him or her if the latter, in turn, deprives him or her of possession, by recovering the thing on his or her own initiative, without the aid of the law (it is doubtful whether the person who was first deprived will be authorised to challenge the action alleging his or her right to recover possession). The mediate possessor can bring the interdict against the immediate possessor who deprives him or her of his or her mediate possession (e.g. the owner may sue the lessee from the moment the latter begins possessing in the capacity of owner). The bringing of interdicts between co-possessors is also possible.276 Effects of the interdicts. If the protective interdict succeeds, a judicial order will be issued to maintain the position of the claimant in his or her possession and to require the defendant not to carry out such acts in the future, or others which serve the same purpose. If the restitutory interdict succeeds, the return of possession to the claimant will be ordered. The

276

LÓPEZ FRÍAS, op. cit., pp. 1,069 and 1,074, quoting several decisions from the inferior courts.

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defendant will have to pay the procedural costs and may also be obliged to pay damages and to return the fruits. Interdicts are summary proceedings, which means: (a) They tend to be especially expedient, subject to the rules of the “verbal proceeding” (art. 250 (1) subpara. (4) LEC). (b) There is a limitation concerning the claims the parties may raise before the court and the questions that may be discussed and proven: namely, the fact of possession, and the fact of interference or deprivation. (c) The judgment does not have res judicata force (art. 447 LEC), and therefore the parties keep the rights they might have in ownership or on the definitive possession, along with the authority to exercise such rights through the adequate ordinary proceedings (e.g. the action for revindication).

2.6.2. The Publiciana action Along with the typical possessory actions (protective and restitutory interdict), there has been a long discussion on the admissibility of the so-called “Publiciana action” in the Spanish legal system. Through this action, a possessor who has been deprived of his possession, but is no longer permitted to use the interdicts because their term has expired, may recover it from any other possessor who has an inferior right of possession (e.g. the same subject who deprived him), even if he or she cannot claim any other right in his or her favour (i.e. founded on what has traditionally been known as a iusta causa possessionis). This is particularly useful where the deprived possessor cannot bring an action for revindication because the prescription period has not yet elapsed, thus preventing him or her either from the acquisition of ownership, or – even if he or she is the actual owner – from the possibility of proving it, in the absence of other means of proof. Under this view, the possessor, within a year after the deprivation, has the ius possessionis and is therefore authorised to use the interdicts; after one year has passed, he or she no longer has the ius possessionis, but if he or she is able to prove a iusta causa possessionis, he or she is allowed to exercise the Publiciana action. After the prescription period has elapsed, and ownership is consolidated, he or she receives an actual ius possidendi and is therefore allowed to bring the action for revindication. The Publiciana action finds its roots in Roman law, where it was granted to the possessor in good faith and with a just title, where the prescription period had not elapsed, allowing him or her to claim restitution of the thing against someone who had a worse right to possess, through the fiction that such period had already elapsed (rei vindicatio utilis).

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In Spanish doctrine the different views on the admissibility of this action may be summed up into three strands: (a) For some authors,277 the Publiciana action is not admissible in Spanish law. The mechanism provided for by law in order to protect possession is the bringing of interdicts; after the time to bring them has expired, the possessor may not found any claim on the mere fact of possession (ius possessionis); only if he or she alleges a consolidated title which justifies his or her right to obtain possession (ius possidendi) will he or she be allowed to recover the thing. If he or she is the owner and can prove it, he or she will be allowed to bring the action for revindication; if his or her right to obtain possession is based in another title (e.g. a lease contract, a usufruct right, etc.), he or she is allowed to use the actions arising from it. However, if he or she does not have a ius possidendi and has lost the right to draw on the interdictal protection, he or she will not be allowed to recover possession, not even against another possessor with a worse right. (b) For others,278 the Publiciana action can be considered to have survived in the Spanish system, but not as an autonomous action, but absorbed within the action for revindication. The main argument in favour of this view is the judicial tendency to ease the burden for proof of ownership in the course of the action for revindication, considering sufficient proof which reasonably permits the deeming of the plaintiff’s ownership as likely, even if this is not absolute proof.279 (c) For a third group of authors,280 the Publiciana action is admissible under Spanish law. The main argument in favour of this view is that of fairness, since it seems fair to grant protection to someone who has a better right to possess against someone who has a worse one, and the interdicts, having such a short period within which to bring them, are not a sufficient mechanism for protection within the period intervening before the prescription period has elapsed, thus allowing the action for revindication to be brought.281 277 278 279 280

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E.g., ALBALADEJO, op. cit., III, p. 348. LÓPEZ Y LÓPEZ, op. cit., p. 196. See supra, I, 1.6.1. LACRUZ, op. cit., III, 1°, pp. 300 et seq.; DÍEZ-PICAZO, Fundamentos …, cit., III, p. 653; PUIG BRUTAU, J., Fundamentos de Derecho Civil, t. III, vol. 1°, 3rd ed., Ed. Bosch, Barcelona, 1989, pp. 231-232. These authors also allege the existence of some vague references to a possessory procedure, different from the interdicts, in art. 445 CC in fine and in art. 1658 (3) of the preceding LEC; however, as LÓPEZ Y LÓPEZ (op. cit., p. 195) remembers, such rules seem to refer to an ancient plenary procedure regarding possession, which vanished from Spanish positive law a long time ago. Another argument in favour of

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In jurisprudence, all kinds of decisions, even some contradicting each other, may be found; but, generally, the view in favour of the admissibility of the Publiciana action in Spanish legal system seems to prevail,282 considering it in some cases as an action independent of the action for revindication,283 while in others it is explained as a special manifestation of the action for revindication in which the strict requirement for proof of ownership is replaced by the proof of exclusive possession held in good faith, with a just title and in the capacity of owner against another possessor with an inferior right.284

2.6.3. Self-protection of possession When it comes to possessory protection, it must also be discussed whether and to what extent self-protection of possession is admissible, i.e. whether the possessor is or not authorised to protect him- or herself, even through the use of force, where his or her possessory situation is attacked. If the deprivation has already been completed or the interference has already finished, the injured possessor is not authorised to re-establish the preceding state of affairs on his or her own (arts. 441, 445, 446), and will therefore have to claim for judicial protection. However, before that moment, it may be assumed that the possessor is authorised to hinder the interference or deprivation by him- or herself, as long as the requirements of the legitimate self-defence285 are met and the relevant person has remained within its limits: according to art. 20 (4) CP, “in the case of protection of things, the attack against them shall be deemed illegitimate if it is to be qualified as a

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the admissibility of the Publiciana action could be found, according to PUIG BRUTAU (op. cit., p. 233), in the relative effect of res iudicata – limited to the parties of the procedure, art. 222 (3) LEC – of the judgment resulting from the action for revindication, which in practice implies that within the course of this action, the question submitted is one of a better or worse right. However, some decisions seem to exclude the admissibility of the Publiciana action, requiring thorough proof of the claimant’s ownership: SSTS 6 March 1914, 28 February 1958 (RJ. 1054), 20 March 1961 (RJ. 1211) and 26 February 1970 (RJ. 1015). See SSTS 26 October 1931 (RJ. 2207), 20 February 1962 (RJ. 1098), 13 January 1984 (RJ. 344) and 17 February 1989 (RJ. 973). SSTS 21 February 1941 (RJ. 153), 6 March 1954 (RJ. 985), 7 October 1982 (RJ. 5544), and 12 May 1992 (RJ. 3916). Legitimate defence is considered by art. 20 (4) CP as an exemption cause of criminal liability, consisting of acts intended for the defence of one’s own or another’s person or rights, and subject to three requirements: unjust aggression, rational need of the means used to hinder or repel it, and lack of sufficient provocation by the defender.

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criminal offence or misdemeanour and puts the things in serious danger of imminent loss or deterioration. In case of defence of dwellings or of their appurtenances, the unjust entering into them shall be deemed an illegitimate aggression”. Unlike all other possessors, the public administration has the authority to recover by itself, without any need to exercise the interdict, and even if more than one year has passed, the possession of property under public dominion (e.g. see art. 108 of the Coasts Act;286 art. 55 (2) LPAP); when it comes to patrimonial property, it can also recover them on its own authority during the year following the deprivation (art. 55 (3) LPAP). It can also evict and eject an illegitimate possessor on its own authority (e.g. arts. 81 (2) and 108 of the Coasts Act and art. 58 et seq. LPAP). Furthermore, it is not possible to bring an interdict against the public administration (art. 101 LRJAP 287); in case of interference or deprivation carried out by it, the relevant party may bring an ordinary claim before the courts, unless the administration has acted through so-called “factual means”, i.e. without observing the formal procedure established in order to decide and take possession of a thing.288

2.7.

Functions of possession

2.7.1. Legal presumptions in favour of the possessor Because of the mere fact of having such status, the possessor has the right to take advantage of the presumptions established by the CC in his or her favour: 286 287

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Ley 22 / 1988, de 28 de julio, de Costas. Ley 30 / 1992, de 26 de noviembre, de Régimen Jurídico de las Administraciones Públicas y del Procedimiento Administrativo Común (LRJAP). Art. 101: “Prohibition of interdicts. Interdicts against acts of administrative agencies, carried out within their responsibility according to legally established procedures shall not be admitted”. STC 166 / 1986, of 19 December; and SSTS 20 March 1987 (RJ. 1711), 22 September 1990 (RJ. 7285) and 1 April 1995 (RJ. 2926). See also art. 125 of the Expropriation Act (Ley de 16 de diciembre de 1954, de Expropiación Forzosa, LEF). Art. 125: “[w] henever, not having fulfilled the substantial requirements of declaration of public utility or social interest, necessity of occupation, and previous payment or deposit, depending on the terms established by this Act, the public administration occupies or intends to occupy the thing subject to expropriation, the affected person will be allowed to bring, apart from the adequate legal remedies, the protective and the restitutory interdicts, in order to obtain protection from the courts to protect him and, as the case may be, to restore his deprived or lost possession”.

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(a) Iuris tantum presumption of good faith and of the permanence in it. Art. 434: “Good faith is always presumed, and the burden of proof is borne by the person alleging bad faith on the part of a possessor”. Art. 435: “[p]ossession acquired in good faith does not lose this character except in the case and from the moment of the existence of facts which show that the possessor is not unaware that he possesses the thing improperly”. (b) Iuris tantum presumption of continuity in possession. Art. 459: “A present possessor who proves his possession at some previous time, is presumed to have held possession also during the intervening time, in the absence of proof to the contrary”. This presumption is particularly important with regard to acquisitive prescription, where uninterrupted possession is required. (c) Iuris tantum presumption of continuity in the possessory capacity, meaning that the burden of proof is borne by the person who affirms that a change in the possessory capacity – possessory interversion – has taken place, be it the possessor him- or herself or a third party. Art. 436: “[i]t is presumed that possession continues to be enjoyed in the same capacity in which it was acquired, until the contrary is proven”. (d) Iuris tantum presumption of possession of movables placed on an immovable. Art. 449: “[t]he possession of real property presumes that of the furniture and objects therein, so long as it is not shown or proved that they should be excluded”. This presumption may operate either in favour of the possessor him- or herself (e.g. in favour of the lessee as to the furniture existing on the leased immovable), or against him or her (e.g. in relation to the liability for damages caused by things, see arts. 1905 and 1908 CC). Only the immediate possessor can benefit from it, so that, if the mediate possessor intends to revindicate the movables, the burden of proving ownership is borne by him or her, as it might well happen – as is usually the case – that the movables existing in an immovable belong to the person who occupies it as a lessee, usufructuary, etc., and not to the owner of the building.289 The courts have in some cases made an extensive interpretation of this article, understanding as a presumption of ownership what in fact is formulated as a mere presumption of possession.290 289

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SSTS 29 May 1990 (RJ. 4098) and 8 June 1990 (RJ. 4744). STS 17 December 1984 (RJ. 6132) made it clear that the effect of a third party action against execution brought (according to art. 38 LH) by the registered title-holder of the immovable seized, cannot extend to the movable assets existing on the said immovable, on the mere basis of art. 449 CC. SSTS 13 May 1911, 22 June 1928, 11 May 1957 (RJ. 2048), 26 October 1977 (RJ. 4019) and 14 June 1988 (RJ. 4929); LÓPEZ FRÍAS, op. cit., p. 1,085. See,

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(e) Presumption of the existence of a title that justifies the capacity in which possession is held. Possession in the capacity of title-holder of a right creates a situation of appearance that is protected by presuming that such possession is in fact justified by the existence of a possessory title. It is the so-called “legitimating function of possession”, which operates in two ways, regarding the possessor him- or herself, and the third parties that acquire from him or her in good faith: – According to art. 448, “a possessor in the capacity of owner has in his favour the legal presumption that he possesses with a just title and he cannot be obliged to show or prove it”. It is so presumed, as long as the contrary is not proven (iuris tantum presumption), that he or she who possesses in a certain capacity has the necessary title. This presumption operates not only in favour, but also against the present possessor: it is enough to prove that one possesses in the capacity of owner to be in the position to exercise the powers characteristic of ownership (claiming for damages, exercising a third party action against execution, a legal right of redemption, the negatory action or the declaratory action for ownership; however, not the action for revindication, which is granted to the owner which has no possession291); but it is also sufficient to allow a third party to claim against the possessor by exercising those legal actions which are granted against the owner: liability ex art. 1907, confessory action, etc. Exceptionally, the mere fact of possessing in the capacity of owner does not imply an exemption to the obligation of proving just title in order to consummate the acquisitive prescription, since it is “never presumed”, according to art. 1954 CC.292 – As to the third party acquirers in good faith, in the case of movables, the presumption cannot be rebutted by any proof to the contrary (presumption iuris et de iure): he or she who acquires a movable trusting in the appearance of title arising from the transferor’s possession, shall be protected in his or her acquisition according to the terms established by art. 464, that will be analysed in the section relating to a non domino acquisitions.293

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on the contrary, STS 7 June 1988 (RJ. 5134), stressing that this article, along with art. 461, only refers to possession, and is therefore not relevant to the attribution of ownership in hidden treasure, which is provided for by arts. 351 and 614 CC. In relation to the effect of the presumption arising from art. 448 in proceedings where an action for revindication is brought, see supra, I, 1.6.1. Against this interpretation, see ALBALADEJO, op. cit., III, p. 57. See infra, III, 8.

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2.7.2. Acquisition of property rights Possession, acquired and kept with all the requirements established by law in each case, may establish the acquisition of ownership and other property rights through mechanisms such as acquisitive prescription, occupation, tradition and a non domino acquisition. It may serve as a criterion for the imputation of civil liability for damages caused by animals and things (see, e.g. arts. 1905 et seq. CC). It also provides the necessary authority for the exercise of the dispossession action (art. 250 (1) and (2) LEC) against lessees, administrators, precarious possessors, etc.;294 and justifies the preference of the person who first acquires possession in good faith in the case of double sale (art. 1473 CC).

2.7.3. Liquidation of possessory situations: Consequences of restitution of the asset to the owner When the possessor is judicially evicted, or abandons his or her possession in favour of one who has a better right, a liquidation or settlement of the possessory situation has to be made; i.e. the way the possessor, while having this condition, used his or her powers, must be assessed in order to regulate his or her relationship with the one who evicted him, mainly taking into account the former’s good or bad faith.295 The rules devoted by the Civil Code to this subject are designed for those cases in which a possessor in the capacity of owner loses possession in favour of another.296 In case the ceasing possession was held in another capacity (e.g. as borrower), other rules may be applicable: e.g. a possessor in the capacity of depositary is not authorised to keep the fruits in any case, even if he or she is in good faith; his or her liability for the loss or deterioration of the thing is regulated by the rules regarding the obligations of custody and restitution of the depositary (see arts. 1758 et seq. CC).297 In any case, the rules of arts. 451 et seq. shall only be applicable if the parties

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The authority for the exercise of such actions is also granted to the mediate possessor: SSTS 22 February 1955 (RJ. 743) and 22 March 1962 (RJ. 1454). In contrast, the existence of a title justifying possession is not relevant to the effects of arts. 451 et seq.: SSTS 17 March 1964 (RJ. 1681) and 8 May 1986 (RJ. 2670). 20 June 1992 (RJ. 5410). SSTS 28 September 1990 (RJ. 6909) and 20 March 1991 (RJ. 2421). However, STS 7 July 1987 (RJ. 5185) established the depositary’s right of retention of some of the proceeds with respect to the payment of the necessary expenses, both on the basis of art. 453 (1) and the specific rules on deposit contracts (art. 1780 CC).

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have not otherwise agreed,298 and as long as no special rules are applicable on the basis of the specific relationship existing between the parties.299

(a)

Fruits

In a legal sense, fruits (frutos) are all produce and utilities that form the economic yield of a thing (“mother-thing”), according to its nature and without detriment of its substance). Sometimes the word productos (“products”) is used in relation to those yields which are not periodically produced and the reception of which determines a diminution in the substance of the thing (e.g. the minerals extracted from a mine300). In Spanish law these yields may also be included under the concept of fruits,301 although in some respects they are subject to specific rules.302 The Civil Code classifies fruits in three categories: natural, industrial, and civil fruits. According to art. 355, natural fruits are the spontaneous products of the soil, and the young and other produce of animals; industrial fruits are those produced by lands of any kind through cultivation or labour;303 civil fruits are the proceeds from the renting out of buildings, the 298 299

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STS 15 April 1991 (RJ. 2687). SSTS 28 September 1990 (RJ. 6909), STS 30 October 1976 (RJ. 4424) – related to the consequences of hereditary division –, 9 September 1962 (RJ. 3785) – in the case of building on another’s land in bad faith, where art. 362 excludes any indemnity for the builder –, 7 July 1988 (RJ. 5583) and 20 June 1992 (RJ. 5410) – the latter two related to the division of ordinary co-ownership. However, in cases of contract nullity it has been understood that the provisions established by art. 1303 CC do not exclude the application of art. 451: SSTS 17 February 1922, 10 February 1970 (RJ. 792) and 14 June 1976 (RJ. 2752). Also, art. 455 has been applied in cases of simulation with respect to the fruits subject to restitution by the party who acted and possessed in bad faith (STS 24 April 1961, RJ. 1835). Contra, STS 1 February 1974 (RJ. 433), considering that in cases of nullity the restitution of the main thing along with the fruits has to be ordered automatically and without any consideration on the good or bad faith of the possessor. See below II, 4.3.1. See STS 30 June 1950 (RJ. 1235), which denied that the proceeds of a mine could be considered as industrial fruits. STS 6 March 1965 (RJ. 1436) rejected the qualification as fruits with respect to the differences in the quotation of shares; while STS 23 January 1947 (RJ. 21) excluded also such consideration with respect to the right of preferential subscription of new shares. See supra, I, 1.7.1, (b), regarding special usufructs. STS 23 June 1931 (RJ. 2100) considered that the profits arising from the exploitation of a theatre were industrial fruits thereof.

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price of leases of lands and other property, and the perpetual or life annuities or other analogous income. Since nowadays the distinction between natural and industrial fruits has lost its practical relevance, this classification is simplified in doctrine, differentiating only two kinds of fruits: natural fruits (organic products of a thing: crops, produce of animals, minerals, wood, etc.), and civil fruits (revenues obtained from a thing on the basis of a legal relationship based upon it: rents resulting from a lease, interest on debts,304 arrears of life annuities, yields of a business or exploitation, etc.). Fruits – especially natural and industrial fruits – may be apparent or not apparent, depending on the fact of whether or not they are born and perceptible. According to art. 357, only those which are manifest or born are deemed to be natural or industrial fruits; in relation to animals, it is sufficient that they are in their mother’s womb, even though they have not been born yet.305 Apparent fruits may be pending (still attached to the “mother-thing”), separated (naturally or artificially segregated from the “mother-thing”), received (taken with the intention of ownership), and consumed (no longer in existence through use or transformation). In principle, fruits belong to the owner of the things producing them (arts. 353-354). However, they may be granted to a person other than the owner, on the grounds of a property right (usufruct, emphyteusis, antichresis),306 of a credit right (lease),307 or of possession in good faith 304

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ARIAS DÍAZ (Jurisprudencia civil …, cit., p. 962) points out that the courts have the tendency to affirm the obligation to pay interest for the amount due in any case (SSTS 11 May 1994, RJ. 4018, and 30 May 1992, RJ. 4833), even though in Spanish law the obligation to pay interest (either for late payment or compensatory) has to be founded on a stipulation, on a specific legal provision or on the fact of mora debitoris. According to this provision, STS 6 March 1965 (RJ. 1436) declared that the titleholder of the ius fruendi had the right to fell and acquire such trees that were sufficiently developed for that purpose when the relationship ended, since they were to be deemed as natural fruits. STS 6 May 1995 (RJ. 3933) declared that the agreement to extend a hypothec to the fruits of the property only included those existing at the moment the obligation secured falls due, but not those previously produced. STS 28 June 1991 (RJ. 4634) rejected a third party action brought by the owner of several slot machines against the seizure of the yields to satisfy the debts of the owner of the premises where they had been installed, not on the basis of the agreement existing between the parties in relation to the exploitation of the machines, but taking into account that the administrative authorisation for such exploitation had been granted to the owner of the premises. The decision is considered disputable by ARIAS DÍAZ (Jurisprudencia civil …, cit., p. 961), since the relevant fact should be that of the contract intervening between the parties; however, the same

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(art. 451).308 When the main thing is sold, save a stipulation to the contrary, the fruits belong to the buyer from the moment the contract is entered into, even if he or she has not yet acquired ownership (art. 1095).309 In any case, the title holder of the right to receive the fruits (either the owner of the main thing or another person) has the obligation to pay the expenses met by a third person in their production, gathering, and preservation (art. 356),310 without prejudice to a stipulation to the contrary. It is important to determine the moment of acquisition of the fruits, especially where the title holder of the right to acquire them changes. According to the rules for the regulation of possession and usufruct, natural and industrial fruits are acquired through separation, either with the intention of receiving them or as a result of natural causes (arts. 451 (2) and 472). Civil fruits, on the other hand, are deemed to accrue on a daily basis, even if they have not been actually received (arts. 451 (3) and 474). According to art. 451, “a possessor in good faith is entitled to the fruits received before possession is legally interrupted. Natural and industrial fruits are considered received from the time they are gathered or severed from the thing. Civil fruits are deemed to accrue on a daily basis and belong to the possessor in good faith in that proportion”. It has been discussed whether possession has to be deemed legally interrupted from the filing of the claim, from the moment the defendant answers the complaint, or from the moment the possessor is summoned before the court, with the latter opinion being held in the majority of judicial decisions.311 This article also ceases to be applicable from the moment good faith disappears, even if possession continues; nevertheless, it has to be understood that the legal interruption of possession provided by this article does not necessarily turn the possessor into one in bad faith, as long as such condition is not proven.312 The consequence of this is that the possessor ordered to give back the things will be authorised to keep the fruits perceived up to that moment, and will be obliged to provide restitution for the fruits realised during the

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author points out that the ratio of the decision could be found in the appearance of ownership in the machines with respect to third parties. As to the liquidation of fruits in execution, see arts. 718 and 719 LEC. STSJ Navarre 28 June 1995 (RJ. 5928). See STS 10 November 1988 (RJ. 8429), and STS 31 May 1950 (RJ. 1009), that includes among the expenses subject to reimbursement those relating to the payment of taxes on the products. This provision is considered applicable to the possessor in bad faith, since the possessor in good faith is allowed to appropriate the fruits: STS 22 January 1980 (RJ. 84). See LÓPEZ FRÍAS, op. cit., p. 1087, quoting several examples of the various positions. SSTS 3 March 1995 (RJ. 1775) and 12 December 1994 (RJ. 9437).

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proceedings,313 but not those that could have been received by the legitimate possessor (which, conversely, the possessor in bad faith is obliged to provide according to art. 455). As to the pending fruits, art. 452 provides: “[i]f at the time the good faith ceases, there should be any natural or industrial pending fruits, the possessor shall have a right to the expenses for cultivation, and to a part of the net produce of the harvest, in proportion to the duration of possession. The charges shall be divided on the same basis by the two possessors. The owner of the thing may, should he or she so desire, give the possessor in good faith the right to complete the cultivation and gathering of the growing fruits, as an indemnity for his or her part of the expenses of cultivation and the net proceeds; the possessor in good faith, who for any reason whatever should refuse to accept this concession, shall lose the right to be indemnified in any other manner”. The possessor in bad faith “shall reimburse the fruits received and those which the legitimate possessor could have received” (art. 455). He or she has the right to claim the necessary expenses of production, because otherwise the new possessor would obtain an unjustified enrichment; moreover, art. 356 provides a general rule according to which “a person who receives the fruits has the obligation to pay the expenses made by a third person in their production, gathering and preservation”. The action to claim the fruits from the possessor in bad faith is a personal action and it is subject to the general prescription period of fifteen years (art. 1964 CC).

(b)

Expenses and improvements

Although sometimes used synonymously, expenses and improvements are actually different concepts. Expenses are the patrimonial disbursements invested in a thing; improvements are the actual increases in the value or utility of a thing, either in a physical (e.g. a building) or in a legal sense (e.g. release of burdens). There may be expenses which do not result in improvements; similarly, there may be improvements which do not result from any 313

STS 12 December 1994 (RJ. 9437) considered that, even though he had not received any fruits – in a technical sense – from the enjoyment of the premises, the possessor in good faith was obliged to reimburse the owner, for fruits from the moment the possession was legally interrupted under art. 451, in the amount of the average rent usually paid for the same kind of premises. Authors have pointed out that the “use” of an asset, despite it not being a “fruit”, is a “value” that may be claimed as damage or on the basis of unjust enrichment. See A. CARRASCO, “Restitución …”, op. cit., p. 62 et seq.

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expenses (e.g. improvements resulting from natural causes). However, the legal rules for both of them are the same in many respects; in particular, the rules providing for the liquidation of possessory situations on this point can be considered, to a great extent, as the general rules applicable to the expenses and improvements made on the property of a third person, as long as no specific legal or contractual provisions are applicable. Necessary expenses are those indispensable for the conservation of the thing, in such a manner that their omission would imply its destruction or deterioration.314 Useful expenses or improvements are those which, not being necessary, contribute to increase the capacity of the thing to yield proceeds. Expenses and improvements for pure luxury or mere pleasure are those which contribute to the adornment, mere aesthetic appearance, leisure or comfort in use of the thing. Art. 453 (1) provides: “[n]ecessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the thing until he has been reimbursed for such” (see also art. 455 for the possessor in bad faith). The article refers to those expenses which are necessary for the preservation of the thing in relation to its economic function, including those needed to maintain its output capacity,315 as well as the payment of taxes and public contributions.316 The defeated possessor has the right to demand the payment of the amount of the expenses actually met, and therefore the legitimate possessor cannot be released by paying the increase in value of the things.317 According to art. 453 (2), “useful expenses shall be refunded only to the possessor in good faith with the same right of retention, with the person who has defeated him for possession of the thing having the option of refunding the amount of expenses or paying the increase in value which the thing may have acquired by reason thereof”. Useful expenses are those which, while not being strictly necessary, result in an improvement or increase in value of the thing. The new possessor is not obliged to refund anything – neither for improvements which do not result from an expense made by the preceding possessor, nor for useful expenses which have not resulted in improvements remaining at the moment the possessory situation is modified: “[i]mprovements caused by nature or through the passage of time shall always accrue to the benefit of the person who has succeeded in 314

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It could be argued whether there can exist “necessary improvements”, as for instance those which are ordered by the authorities. SSTS 28 February 1968 (RJ. 1391) and 4 April 1968 (RJ. 2034). STS 4 March 1960 (RJ. 947) considered as necessary expenses, those made in the custody, feeding and veterinary attention of cattle. SSTS 27 January 1975 (RJ. 263) and 10 April 1956 (RJ. 1927). STS 14 April 1998 (RJ. 2145).

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recovering possession” (art. 456). Art. 458 adds: “[a] person who recovers possession shall not be obliged to pay for improvements which have ceased to exist at the time he takes possession of the thing”. The possessor in bad faith does not have the right to any reimbursement for useful expenses: according to art. 455, he or she only has the right to be refunded the necessary expenses made for the maintenance of the thing. Expenses for pure luxury or mere pleasure shall not be refunded either to the possessor in good faith or in bad faith; but both have the so-called ius tolliendi, i.e. the right to remove the ornaments and objects for which those expenses have been incurred, provided the principal thing does not suffer any harm thereby. A person who recovers possession can prevent the exercise of the ius tolliendi and retain the improvements by refunding the amount expended, if the possessor is in good faith, or by paying the value they may have at the time he or she takes up possession (arts. 454-455).

(c)

Deterioration and loss

Art. 457 states: “[a] possessor in good faith shall not be liable for the deterioration or loss of the things possessed, except in cases in which it is proved that he has acted with fraudulent intent. A possessor in bad faith shall be liable for deterioration or loss in every case, and even for those caused by a superior force, if he fraudulently delayed the delivery of the thing to its legitimate possessor”. This article raises the question of the fraud of the possessor in good faith: how can he or she continue to be in good faith when he or she acts fraudulently? The authors have given different explanations to this apparent inconsistency: for some, it refers to the intentional destruction of the thing (but it has to be remembered that the subject considers him- or herself as the legitimate possessor); for others, in relation to the damages caused by an abusive exercise of his or her right (art. 7 (2) CC), or to the damages he or she intentionally causes when, still being in good faith, there is reason to believe that he or she will have to return the thing (e.g. by judicial order). In relation to the possessor in bad faith, the formulation of the article allows the interpretation that he or she will be liable for deterioration or loss caused by any fortuitous event, including those occurring outside his or her scope of influence (superior force, in a strict sense), where he or she has consciously delayed in delivery of the thing to its legitimate possessor.

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The Register of Movable Assets

The precedents for the creation of the Register of Movable Assets can be found in several legal provisions that, in the decades following codification, established different Registries regarding certain kinds of movables based on their significant economic value and their high degree of identifiability. The first step that has to be mentioned was the creation of a Register of Ships, included as a Book of the Commercial Register, which was intended to operate as a Register of ownership under principles very similar to those regulating the Land Register; as a matter of fact, the regulation on the “Naval Hypothec” was founded upon the legal fiction according to which ships were to be considered as immovables for these purposes. Leaving aside this case, however, the original purpose of the different registries of movables created in Spain during the 20th century (especially those of Movable Hypothec and Pledge Without Transfer of Possession, Automobiles, and Sale of Movable Assets by Instalments) was much more limited than that of the Land Register, since through their creation it was not intended to establish a general system of publicity and legal certainty regarding ownership itself, but merely to facilitate the constitution of burdens and security rights in such assets with the necessary publicity, thus enabling their use in financial and credit operations beyond the narrow limits of the ordinary pledge, based upon the transfer of the thing’s possession to the creditor or to a third party; only the Register of Aircraft, created in 1960 as a Book of the Commercial Register, was conceived as an actual register of ownership and not of burdens, following the pattern of the Register of Ships. The actual creation of the Register of Movable Assets took place through the Additional Provision of the Regulation of the Register of General Conditions of Contracts, passed by Royal Decree 1828 / 1999, of 3 December,318 with the aim of unifying the pre-existing registries of mov318

The creation of this registry had been referred to by various norms; see, e.g. the 2nd Final Provision of Act 19 / 1989, of 25 July, of partial reform and adaptation of commercial legislation on the basis of the EU Directives regarding companies, which allowed the Government to pass legislation on the Registry of Movable Property, in which the existing Registers of Movable Hypothec and Pledge Without Transfer of Possession, as well as the Books of the Commercial Register on Ships and Aircraft were to be unified. The Additional Provision of Law 6 / 1990, of 2 July, which reformed Act 50 / 1965, of 17 July, on Sale by Instalments of Movable Assets, stated that also the Register of Sale by Instalments should be integrated into the Registry of Movable Property. The Regulation of the Commercial Register, passed by RD 1597 / 1989, of 29 December (6th Transitory Provision), uses the expression “Register of Movable Assets” instead of “Register of Movable Property” for the first time. The 3rd Additional Provision of the LVP 1998 insists on the integration of the Register

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able assets – those of Movable Hypothec and Pledge Without Transfer of Possession, Automobiles, Ships and Aircraft, Sale of Movable Assets by Instalments –, along with that of General Conditions of Contracts. The Register is made up of the following Sections: – Section 1 on Ships and Aircraft. – Section 2 on Automobiles and other Motor Vehicles. – Section 3 on Industrial Machinery, Commercial Establishments and Equipment Assets. – Section 4 on Real Securities. – Section 5 on other Movable Assets capable of Registration. – Section 6 on the Register of General Conditions of Contracts. The Register falls under the responsibility of the same registrars in charge of the Land and Commercial Register, and is not considered as an administrative register, but as a civil register, which is of great importance from the point of view of the distribution of competences between the State and the Autonomous Communities, since art. 149 (1) subpara. (8) CE grants the central state exclusive legislative competence on civil registers (also called “registries of legal certainty”), i.e. those designed to publicise acts and rights in things on the basis of the advance inspection of formal and substantial legality, and with effects on legal relationships between private parties. Administrative registers, on the other hand, may be regulated by the Autonomous Communities; they mainly serve an informative function on the things and their title-holders for the benefit of the administration itself, although they also play an important role in relation to the identification and individualisation of the assets, which prove to be an essential requirement in order to enable the articulation of civil registers of movables through the necessary coordination of both kinds of registers.319 Leaving aside the Register of General Conditions of Contracts,320 and the special – and quite complex – regulation applicable

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of Sale by Instalments into the Register of Movable Assets. Finally, the Transitory Provision of the Ordinance of the Register of Sales by Instalments of 19 July 1999 (ORVP) included some rules regarding the “future” Register of Movable Assets. On these matters, see GÓMEZ MATOS, op. cit., pp. 74 et seq. Generally, see also LEYVA DE LEYVA, “Planteamiento general de los registros públicos y su división en registros administrativos y registros jurídicos”, en Revista Crítica de Derecho Inmobiliario, 1989, pp. 261 et seq. This register was created by art. 11 of Act 7 / 1998, on General Conditions of Contracts, and was brought into force by the aforementioned RD 1828 / 1999. Several articles of this regulation were declared void by three judgments of the 3rd Division of the Supreme Court (two of them of 12 February 2002 and the other, of 19 February 2002), for lack of a sufficient legal basis. In any case, the actual usefulness

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to the public registration of company shares321 and of intellectual and in-

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of this registry still remains to be seen, the operation, content and effects thereof being completely different from any of the existing registers of things; as a matter of fact, the only effects arising from the recording of general conditions into the register (leaving aside the merely informative function) are, on the one hand, the commencement of the two year prescription period provided for the bringing of the collective actions of cessation and retraction (art. 19 Act 7 / 1998); and on the other, the possibility of recording the judgments declaring the nullity of general conditions, thus granting them effect against third parties (art. 22). For a thorough analysis of this Register, see ATAZ LÓPEZ, J., “Registro de Condiciones Generales”, en Comentarios a la Ley de Condiciones Generales de la Contratación, coord. BERCOVITZ RODRÍGUEZ-CANO, R., Ed. Aranzadi, Cizur Menor (Navarra), 2000, pp. 313 et seq. Negotiable instruments represented by annotation into accounts are subject to a specific system of registration, based on the operation of the registry created by the Financial Instruments Market Act 24 / 1988, of 28 July (LMV, see arts. 5 to 12, recently amended by Law 44 / 2002 and by the Royal Decree-Law 5 / 2005, of 11 March). This register is subject to principles and rules of operation very similar to those characterising the Land Registry, including the possibility of a non domino acquisitions based on the principle of public faith in registration (art. 9 (3) LMV). Its organisation and operation are however subject to criticism (see CARRASCO, A., “¿Es posible o necesaria la inscripción en el Registro de bienes muebles para la constitución de prendas sobre acciones y participaciones sociales? Comentario a dos resoluciones de la DGRN”, in Aranzadi Civil, 2003, vol. I, p. 2,066). However, in the case of company shares and interests represented by titles, there is no specific system of registration capable of providing official publicity to such acts and contracts with a possible real effect on them. The Commercial Register (which was brought into force by RD 1784 / 1996, of 19 July) clearly does not serve any function to this effect, in spite of it actually being a civil register, since, as RDGRN 27 December 1990 (RJ. 10499) expressed – in order to reject the preemptory notice into it of a seizure of shares –, its aim is not that of publishing and protecting legal trade of shares representing the corporate capital, but to provide the structure and system of operation for commercial corporations; accordingly, ownership in shares and interests is transferred according to their specific system of trade and regardless of the Commercial Register, apart from the moment in which the corporation is created. The registers that all companies must keep in order to record transfers and burdens upon shares and interests also have no function of publicity with respect to third parties. The eventual admission of the registration of such acts into the Registry of Movable Assets (specifically, into the 5th section, relating to “Other Movable Assets Subject to Registration”) as a way to providing them with general effect against third parties remains an open question in any case (in favour, see GARCÍA SOLÉ / GÓMEZ GÁLLIGO, op. cit., p. 253; DÍAZ VALES, F., “El Registro de Bienes Mue-

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dustrial property rights322 – all of which do not have immediate relevance to the issue of the present report, although shares and incorporeal rights as those mentioned are considered as movables in Spanish law –, the provisions contained in RD 1828 / 1999 grant the Registry of Movables a general tendency to operate, not only as a mere register of burdens, but as an actual registry of titles, in which all acts and transactions with a real effect on movable, identifiable and non-consumable assets, as well as lease contracts regarding the same assets, may be registered, in order to provide them with the necessary publicity and effect against third parties. Access to the register is not limited to specific kinds of movables, but generally to all those movables which are capable of identification. Nevertheless, the fact is that each one of the sections that make up the Register of Movables continues to be regulated by its own rules and principles, which, in practice, implies that such generic statements have more of a theoretical relevance, to be evaluated in light of the pre-existing rules (still in force) of the different registers of movables. (a) The Register of Ships, originally defined as one of the Books of the Commercial Register, and at present included in the 1st Section of the Register of Movable Assets, is regulated by the Naval Hypothec Act of 21 August 1893 and by arts. 145 to 176 of the Commercial

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bles: Bienes y derechos inscribibles según la doctrina de la Dirección General de los Registros y del Notariado”, in Revista de Derecho Privado, enero-febrero 2004, p. 97; and RDGRN 12 July 2002, JUR. 2003 / 96284; contra, GÓMEZ MATOS, op. cit., pp. 97 and 354, CARRASCO, “¿Es posible o necesario …?”, cit., pp. 2,005 et seq., and RDGRN 29 January 2003, which points out that the entry in a public registry would not be consistent with the necessary flow of trade in such assets). Such rights may be recorded into the 5th Section of the Registry of Movables (“Other Movable Assets Capable of Registration”), although the regulation thereof has to be coordinated with that of the administrative registers provided for by their respective specific legislation, which can also produce certain effects on private relationships: the Registry of Intellectual Property (out of which a presumption arises that the recorded rights exist and belong to the title-holder in the manner stated by the registered entries; see art. 27 (1) of the Regulation of the Register of Intellectual Property, passed by RD 281 / 2003, of 7 March), and the Spanish Office of Patents and Trade Marks (which grants the title-holders of the registered rights – patents, utility models, commercial names, signs, trade marks, etc. … – with different advantages concerning the exercise and protection of such rights against third parties; see RD 1270 / 1997, of 24 July). Furthermore, those rights may be the object of a movable hypothec according to the provisions of LHMPSD; the registration of such hypothecs should be made in the 4th Section of the Registry (Real Securities), although art. 76 (1) LHMPSD provides that the information regarding the constitution of such a hypothec shall also be recorded in the corresponding administrative registers.

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Register Regulation brought into force by the Decree of 14 December 1956.323 Ships have traditionally been subject to a special system of public registration, different from that of other movables and much more similar to that arising from the Land Register; as a matter of fact, the Naval Hypothec Act of 1893 itself considered ships as immovable assets only for the purposes of the constitution of a hypothec on them. According to the provisions currently in force, the ships with Spanish flag registered in Spain must be recorded in the Registry of Movable Assets (1st Section)324 and this entry has to be coordinated with the corresponding entry into the Administrative Register of Ships operated by the different Naval Command Departments, where information regarding ownership and burdens upon the ship is also recorded,325 together with those relating to the identification of the ship. Furthermore, public documentation is always required for the registration of acts and contracts concerning the ship. It is not merely a registry of encumbrances, but of titles, and it is subject to the principle of folio real,326 meaning that each ship has its own file in the Register, where 323

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Those articles are still in force according to the 6th Transitory Provision of the RD 1597 / 1989, of 29 December, by which a new Regulation on the Commercial Register was passed, and to the 13th Transitory Provision of the RD 1784 / 1996, of 19 July, through which the newer – and currently in force – Regulation of the Commercial Register is passed: “[t]he Books on Ships and Aircraft shall continue to be operated by the registries referred to by art. 10 of the Regulation on the Commercial Registry passed by the Decree of 14 December 1956, until the publication of the Regulation of the Register of Movable Assets to which the 2nd Final Provision of Law 19 / 1989, of 25 July, refers; to these effects, arts. 145 to 190 and related provisions of the aforementioned Regulation of the Commercial Register shall remain in force”. See STS 18 May 2005 (RJ. 4233), and the commentary thereof by RUBIO GARRIDO, T., in CCJC, n. 70, 2005, pp. 472 et seq., where the author expresses his doubts as to the existence of an actual obligation – in a technical sense – of registration. RDGRN 11 April 2000 has made it clear that entry into the registry is not limited to commercial ships. See RD 1027 / 1989, of 28 July, on Registration of Ships of Spanish Flag and Naval Registry. See also State Harbours and Merchant Marine Act 27 / 1992, of 24 November, that creates a Register of Ships and Naval Enterprises (especially arts. 75 et seq. and 15th Additional Provision, relating to the special Register of Ships and Naval Enterprises of the Canary Islands). The principle of folio real denotes a system of organisation of the registry where a specific file is created for each particular asset, where all the relevant information is included. In contrast, the system of folio personal means that there is a file for each person, where all the relevant information related to the assets belonging to this person is included.

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all acts and contracts concerning it are to be recorded.327 This way, the first record must be that regarding the very ownership in the ship, while the following entries are subject to the principle of “successive tract”, meaning that the different acts and contracts concerning the ship may only be registered if the transferor’s title has been previously registered. Once the corresponding records have been made, they will provide the proof of ownership and of the burdens established upon it, and may even establish the protection of a third party acquirer in good faith, according to the public faith principle.328 In relation to the seizure, claims and other measures that might be taken regarding the ship, their entry into the register shall take place through preemptory notice (art. 167 RRM 1956). (b) The Register of Aircraft, just like that of Ships, has passed from being one of the Books included within the Commercial Register to being integrated into the Register of Movable Assets (1st Section). Its main legal sources are the Air Navigation Act of 21 July 1960 and arts. 177 to 190 of the above mentioned Regulation of the Commercial Register of 1956. Its regulation is similar to that of the Land Register, although it does not reach the extremes of the Register of Ships in relation to the degree of formalities. It is a registry of titles and not only of burdens, subject to the principles of folio real and “successive tract”, with the first entry being that of ownership. All acts and contracts capable of having an effect against third parties – including contracts of sale by instalments and lease contracts – concerning aircraft of Spanish nationality and private property which are or may be used for industrial or commercial purposes,329 as well as engines and spare parts, as long as they are identifiable in themselves,330 are subject to obligatory entry into the register. The certification of the register serves to prove – in favour of the registered-holder, but also of the third party acquirer in good faith – ownership and other rights or burdens – or the absence thereof – lying in the aircraft; it has to be taken into account, in any case, that the constitution of a movable hypothec on aircraft recorded 327

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However, the entry merely has a declarative, and not constitutive, effect in relation to the creation and transfer of rights in ships other than a hypothec; STS 18 May 2005 (RJ. 4233), and RUBIO GARRIDO, op. cit., pp. 472 et seq. RUBIO GARRIDO, op. cit., pp. 471-472, rejecting the opposite view asserted, obiter dicta, by STS 18 May 2005 (RJ. 4233), and quoting arts. 20 (2) Ccom and 8 RRM, which state that the declaration of inaccuracy or voidness of the registry entries may not prejudice the rights acquired by third parties in good faith according to the law. On the possibility of entering into the Register of Movable Assets aircraft belonging to nationals of States of the European Union, see RDGRN 29 January 2001. See RDGRN 29 January 2001.

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in the register is regulated by arts. 38 et seq. LHMPSD.331 Public documentation is not required to record acts and contracts in the registry, with it being sufficient that the transactions subject to registration are formalised in private or public documents (art. 12 LNA332) or, at least, in the corresponding official forms passed by the DGRN (see arts. 10 et seq. of the ORVP). Art. 189 provides for the possibility of recording preemptory notices of seizures, claims, and other measures affecting aircraft. The Registry of Aircraft also has a counterpart in the administrative field, in the form of the Registry Index of Aircraft operated by the Office of the General Director of Civil Aviation,333 into which all aeroplanes, as well as acts, contracts and other events falling upon them, shall be recorded; the necessary coordination between both registries implies that only those aeroplanes that have previously been recorded in the administrative Registry Index may be entered into the Registry of Movable Assets. (c) The Register of Vehicles, created by the Traffic Code of 1934,334 and currently regulated by art. 2 of the RD 2822 / 1998, of 23 December, bringing into force the General Regulation on Vehicles,335 is an administrative registry, run by the Central Traffic Office under the di331

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See also International Convention of Cape Town of 2001 on Movable Equipment and Aeronautic Protocol, concluded under the auspices of the International Civil Aviation Organization, where the constitution and effects of international securities upon aeronautic objects and accessory rights are regulated (on this subject, see GARCÍA SOLÉ / GÓMEZ GÁLLIGO, op. cit., pp. 223 ss). Art. 12 LNA (Ley 48 / 1960, de 21 de Julio, de Navegación Aérea – Air Navigation Act –) states: “[t]he acquisition, modification or extinction of rights in aircraft shall necessarily be recorded in a public or private document”. The Register Index of Civil Aircraft is regulated in different provisions: among others, see in particular arts. 28 to 33 of the LNA; Decrees of 13 March 1969 and 10 March 1972; the Regulation of Nationality Marks and Registration (passed by Resolution of the Subsecretary of Civil Aviation of 17 November 1977); and the RD 2876 / 1982, of 15 October, that regulates the register and use of ultra-light structured aircraft and modifies the register of private non-commercial aircraft. Originally passed by Decree of 25 September 1934. See especially art. 244, presently derogated. This Regulation partially develops the Paper on Traffic, Circulation of Motor Vehicles and Road Safety, passed by RDLeg. 339 / 1990, of 2 March. Arts. 31 and 33 establish the administrative requirements for the transfer of motor vehicles, which do not have any relevance for the civil system of transfer of ownership, as the jurisprudence has stated (see, for instance, STS of 20 September 1965, RJ. 3988). In practice, however, the requirements demanded by such provisions in relation to the formalisation of the administrative transfer may serve as an effective instrument of

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rection of the Office of the General Director of Traffic. Its purpose is the administrative control upon ownership of motor vehicles, as well as their technical specifications, their suitability to be in circulation, their inspections, the fulfilment of the obligations regarding the subscription of insurance contracts and other legal obligations regarding them; it also serves other statistical functions, the assistance of other administrative and judicial offices and the cooperation with other registries to which it is related. Since it is not an actual civil register, its entries cannot result in any prejudice in relation to the issues of ownership upon the assets, fulfilment of contracts or any other issues of a civil or commercial nature concerning automobiles, as its own regulation and the judicial decisions have expressly stated.336 However, the fact of being public to all those who have a direct and legitimate interest explains that the judicial practice337 has founded upon it, at least in some cases, an actual iuris tantum presumption of ownership in favour of the registered title-holder; as well as the exclusion of good faith of the third party acquirer in relation to the information previously recorded in the Register. However, once the regulation of the Register of Movables has come into force, the presumption of title should only cover the rights registered in this register, and not those arising from the administrative Register of Traffic,338 even though the

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protection for the title-holders of security rights, reservation of title to or seizure of vehicles; see especially art. 32, paragraphs 7 and 8, and art. 33, paragraphs 4 and 5. SSTS 14 December 1983 (RJ. 6939) and 6 March 1984 (RJ. 1202), quoting many others. STS 19 December 1966 (RJ. 5828). See, in this sense, the Agreement concluded on 10 May 2000 between the Office of the General Director of Traffic and the DGRN (with express support of the General Council of Justice and of the Tax Office), according to the provisions contained in art. 6 (3) ORVP, in which it is established that the Central Register of Movable Assets and the Registry of Vehicles shall have a common source of data, through the interconnection of the respective telematic networks, to be operative from 1 April 2001. As a consequence of such agreement, the administrative transfer of vehicles shall only be authorised after checking that there are no limitations, burdens or contradictory entries in the Register of Movables to prevent such transfer; further, when the judicial or administrative authority issues an order to make a preemptory notice of seizure, claim, prohibition of disposal, forcible adjudication or any other measure that should be recorded in the Registry of Movables, the respective order shall be sent through telematic means to the register; see GARCÍA SOLÉ / GÓMEZ GÁLLIGO, op. cit., pp. 21, 118, 164 and 213. See also, with regard to the informatic interconnection between the new Register of Movables and the administrative re-

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latter will probably maintain an auxiliary role as to proof of ownership and other rights in automobiles.339 (d) The Register of Movable Hypothecs and Pledges without Transfer of Possession was originally created by the Act of 5 December 1941 as an essential instrument for the development of these new security rights on movables. Nowadays it does not exist as an independent register, its contents having been integrated into the new Register of Movable Assets. However, its regulation continues to be provided for by the Movable Hypothec and Pledge without Transfer of Possession Act of 16 December 1954 (arts. 67 to 80), which replaced the previous Act of 1941, which deemed it as a pure register of burdens, intended to give the necessary publicity to the aforesaid security rights, the essential outlines of which have already been expressed. The Register is run by the Land Registrars, and is subject to the principles of legality and folio real. The titles of ownership, as such,340 do not have access to the register regulated by the law; this is only had by titles relating to the constitution, amendment, transfer and extinction of the securities created upon the assets and the credits guaranteed(art. 68 of the Act and art. 13 of the Regulation). Claims relating to assets capable of being the subject-matter of a hypothec or pledge, to credits secured through them or to the validity and effect of the corresponding titles, as well as judicial orders of seizure concerning the same assets, may be the object of preemptory notices (arts. 34 et seq. of the Regulation).341 The possibility of recording titles of acquisition of movables capable of being the subject-matter of a hypothec, the price of which is to be paid by instalments and has been guaranteed with a covenant for reservation of title or of termination of ownership (art. 13 of the Regulation; by “termination of ownership”, the addition of a covenant subjecting the sale to the resolutory condition for breach of contract must be intended), seems to serve the purpose of facilitat-

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gister of vehicles, the Instructions of DGRN of 26 April 2001, 23 October 2001 and 3 December 2003. As has been stated by the Instruction of the DGRN of 3 December 2002. Art. 68 (a) of the Act, in its second sentence, expressly states: “[i]n no case shall the previous registration in favour of the person who appears as transferor in the aforementioned titles, be necessary in such registers, provided aircraft are not involved”. When the security right relates to assets to which the hypothec lying in the immovable that contains them might be extended, through application of art. 111 LH, the constitution of a movable hypothec or pledge without transfer shall be recorded through marginal notation on the file of the immovable in the Land Registry, in order to preserve the preference of the movable security upon the immovable securities that might be constituted afterwards (art. 75 LHM).

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ing the fulfilment of the provision contained in art. 2 of the Act, that states: “[i]t is not allowed to constitute a movable hypothec or pledge without transfer of possession in assets which have previously been subjected to a hypothec, pledge or seizure, or the acquisition price of which has not been fully paid, excepting the case in which the hypothec or the pledge are constituted as a security for the price payable by instalments”.342 Accordingly, it is a mere register of burdens, with a publicity system that cannot be compared to that of the Land Register, since basic principles such as those of “successive tract”, priority and public faith in registration do not operate;343 moreover, the principle of folio real only operates with respect to those assets capable of being the subject-matter of a movable hypothec, not in the field of the pledge without transfer (art. 74).344 Therefore, its only function seems to be that of making it possible to providing effect against third parties to the security rights constituted thereby, thus making up for the absence of possessory publicity through a system of constitutive registration. (e) The Register of Sale of Movable Assets by Instalments to which art. 15 LVP refers345 must be considered as the direct predecessor of the Register of Movables. The law provides for the regulation of contracts of sale by instalments regarding corporeal, non-consumable and individually identifiable movable assets,346 as well as the loans intended to facilitate the acquisition (either by financing the seller or the buyer), and the securities created in order to guarantee the 342 343

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See also art. 7 ORVP. Only in the case of the assignee in good faith and by onerous title of the guaranteed credit would the appearance of being registered have a certain protective effect (GARCÍA SOLÉ / GÓMEZ GÁLLIGO, op. cit., p. 115). It follows that those assets upon which it is possible to establish a pledge without transfer of possession are to be entered into the 5th Section of the Register of Movable Assets, relating to “Other Movable Assets capable of Registration”; see MARTÍN OSANTE, op. cit., p. 353, n. 35. The predecessor of which, in turn, is to be found in the Register of Covenants for Reservation of Title and Prohibitions of Disposal originally created by Act 50 / 1965, of 17 July, on Sale by Instalments of Movable Assets, later repealed by LVP 1998, which is currently in force. According to art. 2 LVP 1998, “for the purposes of this law, all those things in which the trade mark and serial or production number is indelibly or inseparably recorded on one or several of the essential parts, as well as those with a distinctive character reasonably excluding confusion with other things, shall be deemed identifiable assets”. Art. 6 (2) ORVP adds: “[i]n the case of automobiles, trucks and other vehicles capable of registration, their registered identification shall be made either through the number thereof or through the chassis number”.

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performance of the obligations arising therefrom. It is also applicable to those acts and contracts that pursue the same economic aim, regardless of their nature and the qualification attributed by the parties. However, financial lease contracts that include a sale option are expressly excluded, save in some aspects of the regulation.347 The system defined by the law is to a great extent founded on the existence of the Register of Sales by Instalments, originally conceived as a register of burdens – not of titles –, the aim of which is to facilitate the publicity and effect against third parties of the securities established in order to guarantee the rights of the seller or of the financier348 (covenants for reservation of title, prohibition of disposal), thus allowing these subjects to be granted priority against eventual 347

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The 1st Additional Provision of the law is devoted to the regulation of some aspects of financial lease contracts (see also 7th Additional Provision of the Discipline and Intervention of Credit Entities Act of 29 July 1998 – Ley 26 / 1988, de 29 de julio –, and art. 128 of the Company Tax Act – Ley 43 / 1995, de 27 de diciembre, sobre el Impuesto de Sociedades). Although the whole of the LVP is not applicable, such contracts may be recorded into the Register; the record is not a necessary requirement in order to defend the lessor’s ownership in the things against third parties (unlike the reservation of title and the prohibition of disposal in sale contracts), as long as these are not particularly protected by a good faith acquisition; but it is rather useful for the lessor, since he or she does not need to bring a third party action against the seizure of the things by the lessee’s creditors, but can benefit from the rule according to which any execution in relation to the thing shall be terminated ex officio from the moment it is proven that the ownership is registered in favour of the lessor (see GARCÍA SOLÉ / GÓMEZ GÁLLIGO, op. cit., pp. 136 and 196). Provision is also made for a special procedure for the termination of the contract and the enforcement of unfulfilled obligations in the case of breach of contract by the lessee (see also art. 250 (1) subpara. (1) LEC 2000, regarding the recovery of possession of the asset in such cases). Art. 250 (1) subpara. (11) LEC, in turn, provides for a summary procedure designed to grant the lessor the immediate delivery of the thing, once the contract has been declared terminated, as the case may be. This special action is only available where the contract has been formalised in the official form and recorded in the register; however, the consistency of such formal requirements with other legal provisions regarding the regulation of financial lease contracts (arts. 439 (4) LEC and 1st Additional Provision LVP, 3rd par. LVP) has been questioned; see, e.g. GARCÍA SOLÉ / GÓMEZ GÁLLIGO, op. cit., p. 147, asserting that the formalisation of the lease contract in an enforceable instrument (e.g. a notarial deed) should suffice to make this special procedure possible. On the legal tendency to equiparate the protection granted to the seller and to the financier in these operations, see also art. 9 of the Consumer Credit Act (Ley 7 / 1995, de 23 de marzo, de Crédito al Consumo, LCC).

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acquirers and creditors of the buyer. Additionally, the register allows the invoking of more expedient judicial or notarial proceedings for the forcible execution of such securities. The regulation of the Register of Sales by Instalments has been developed in detail by the Ordinance (passed by the Ministry of Justice) of 19 July 1999 (ORVP). According to art. 4, all contracts of sale by instalments of movables regulated by the law, along with the contracts designed to finance the acquisition, even if they do not include any express provision regarding reservation of title or prohibition to dispose (which implies a significant amendment of the preceding regulation), as well as their amendment, assignment, and any other circumstances that might affect them, may be recorded into the register, through the fulfilment of the formal requirements established by law, namely by using the standard form contracts provided in the DGRN (see arts. 10 and 11 and RDGRN 18 February 2000). Financial lease contracts for movables, lease contracts including a purchase option, lease-back contracts, and any other kind of lease contracts upon corporeal, non-consumable349 and identifiable movable assets – including renting contracts –, as well as their amendment, assignment and other circumstances that might affect them, are also permitted to be recorded in the same registry – although in a special section.350 The possibility of entering a preemptory notice of seizures and claims regarding movables is also provided for (arts. 5 and 27).351 Furthermore, the Register not only operates according to the principles previously characterising it, such as those of formal publicity for those who have a legitimate interest (arts. 31 et seq.), presumption of universal knowledge (art. 28 (1)), and no effect against third parties in relation to acts capable of registration but not registered (art. 28 (2)); in contrast, it has also assumed – in some cases with a clear 349

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GÓMEZ MATOS (op. cit., p. 93 et seq.) points out that the regulation of the Register of Movables (see art. 8 (2) ORVP and art. 53 LHMPSD) excludes the registration of consumable assets, but admits it for fungible assets, as long as they belong to the same group or kind of things and are considered as a complex economic unit, capable of individualisation as such. On this point, the ORVP clearly goes beyond the limits stated by the LVP, since the latter only provides for the entry of the financial lease contracts regulated by the 7th Additional Provision of the Discipline and Intervention of Financial Entities Act 26 / 1988, of 29 July. The 2nd Additional Provision LVP provides for the procedure for recording in the register preemptory notices of claims and seizures concerning assets that have not been previously entered, expressly stating that such notices may serve to open the respective file.

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legal basis, in others with one less certain – other principles with a much greater extent and more characteristic of a register of titles, such as those of folio real (art. 15), priority of registration (art. 26), “successive tract” (implicitly formulated in arts. 5 (a) and 27 (2)), legitimation (art. 24), and public faith of registration (art. 29). The principle of legitimation based upon registration (art. 24) implies going far beyond a system of presumptions based upon possession of things (art. 448 CC), and serves as a basis for the formulation of different rules with an extraordinary practical significance: the iuris tantum presumption that the rights and securities registered do exist and belong to the title-holder in the manner recorded in the register (expressly including within the presumption the ownership of the beneficiary of the reservation of title, regardless of the fact of him or her being the seller or the financier, as well as that of the lessor); the presumption, also iuris tantum, that the contracts verified by the registrar and registered are valid; the impossibility of bringing any judicial actions which are contradictory to the registered ownership or other rights on movables without previously or simultaneously filing a claim for the nullity or deletion of the corresponding entry;352 the unfeasibility of making a preemptory notice of seizure where the movables are registered in favour of a person other than the debtor subject to execution, unless the title-holder has received the thing from the debtor by sale, succession or any other title subject to registration;353 and the automatic and ex officio cessation of the execution proceedings regarding movables, as well as the products or rents thereof, from the moment it is ascertained through registered certification that such assets are registered in favour of a person other than the executed debtor (art. 24 (3) ORVP): it is the so-called “registered third party action”, which allows the prevention of the necessity to bring a third-party action based on ownership, and which will be operative, for instance, in the case of the seizure of assets subject to reservation of title by the creditors of the buyer354 (generally, see arts. 593 (3) subpara. (1) 352

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However, where a claim contradicting the registered ownership is filed against the registered title-holder, the above mentioned claim shall be deemed implicitly included. In this sense, GARCÍA SOLÉ / GÓMEZ GÁLLIGO, op. cit., p. 155, using an argument ex art. 20 LH. Art. 4 (c) expressly states that “the buyer of a thing, the ownership of which having been reserved by the seller or the financier, lacks the authority to dispose, and therefore any act of alienation or burdening made by him shall be void by operation of the law. Nor shall such things be subject to seizure for satisfying the buyer’s debts, although they shall be subject to seizure in this way for satisfying the debts of the beneficiary of the reservation of ownership”. It has to be remembered that the system

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and 658 LEC and art. 15 (3) LVP). More important still is the explicit formulation of the principle of public faith in registration by art. 29 ORVP, which uses terms practically equivalent to those used by art. 34 LH in the field of immovables – with the only exception being that of the necessity that the third party acquirer registers his or her own acquisition in order to achieve the registry protection, which does not appear in the Ordinance –, thus depriving of any relevance, with respect to identifiable movable assets, the provisions arising from art. 464 CC – at least theoretically.355 After analysing the main steps of the legal development of the Register of Movable Assets in the Spanish system, the time has come to make a global assessment of the resulting situation. In general terms, the doctrinal opinion is far from positive, in spite of the efforts made by certain groups and sectors – especially those related to the DGRN inside the Ministry of Justice, with a substantial presence of Registrars – to sustain the feasibility and convenience of establishing a system of registration, in the field of identifiable movables, similar to that operating in the field of immovables.356 Even

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of publicity does not exclude, but rather coexists with that based on possession, at least when it comes to assets which are capable of being registered, but are not, in fact, registered. In this way, the possessory presumptions may establish, according to art. 593 (3) LEC, the validity and effect of the seizure of movable assets that apparently belong to the debtor, even where the ownership thereof is capable of registration, unless the actual owner proves to be the title-holder according to the register by supplying the corresponding registry certification, with the right of eventual nonrecorded title-holders remaining to be exercised against the corresponding subject by the suitable proceedings (especially by a third party action against execution). The same principle excludes the possibility of seizure of the leased assets by the lessee’s creditors (arts. 5 (a) and 27 (2) ORVP); without prejudice to the possibility of connecting the seizure, in such cases, to the rights that the lessee may have upon the thing, including an eventual option to buy, provided such possibility had been foreseen by the court order; see GARCÍA-SOLE / GÓMEZ GÁLLIGO, op. cit., p. 104. GARCÍA SOLÉ / GÓMEZ GÁLLIGO, op. cit., p. 122; GÓMEZ MATOS, op. cit., p. 153, n. 197. The aforementioned art. 29 ORVP states: “[r]egistration does not validate those acts and contracts that are void according to the law. However, a person who acquires by onerous title and in good faith any right capable of entry in the Register of Sale of Movable Assets by Instalments, from one who according to the register itself is the title-holder, with the authority to dispose, shall have his acquisition maintained even if the transferor’s right is later annulled or terminated for a cause that does not appear in the register. Good faith is presumed”. As an example of this attitude, see GÓMEZ GÁLLIGO, “Principios hipotecarios de los Registros Mobiliarios”, in Revista Crítica de Derecho Inmobiliario, 1999, pp. 651 et seq.

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though it can be assumed that the centralisation of the publicity arising from the different registers of movables already in existence is a positive measure, in terms of facilitating the possibility of obtaining relevant information, the intention of creating a unitary Register of Movables subject to the same principles ruling the Land Register seems to be rather pointless.357 In fact, the category of movable assets is too wide and heterogeneous to sustain a single system of registration, even if it is limited to identifiable assets: the legal treatment of assets such as ships and aircraft, perfectly identifiable and having significant economic value and a rather extended durability (which permits the assumption that they will be the object of several transfers during their useful existence) cannot be the same as that of other assets (e.g. household appliances) the useful life of which is not likely to be long enough so as to justify the use of a costly and complex system of registration based on the publicity of ownership as such, and of the contracts regarding it.358 There are, certainly, different borderline cases of assets that may have significant value and a relatively long durability, which could eventually justify the configuration of a system of registration similar to that already existing for ships and aircraft, that is, a system fit to provide publicity of titles, and not only of burdens: the most evident case is, obviously, that of automobiles and other motor vehicles, which are easily identifiable and subject to highly dynamic trade; in fact, automobiles are the most frequent object of decisions from the DGRN regarding the Register of Movable Assets.359 Another example could be that of movable assets endowed with a special historical, artistic or archaeological interest, which were not considered by the LHMPSD as things capable of being the subject-matter of a movable hypothec, but only of pledge without transfer of possession, due to their limited identifiability (art. 54).360 More arguable 357

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A profound analysis of the process of creation of this register can be found in MARTÍN OSANTE, L.C., “La publicidad registral de los bienes muebles y los terceros”, RGLJ, april-june, 2001, pp. 325 et seq., where the author points out the lack of consistency of the aim of creating a Register of Movable Property with the same characteristics and effects of the traditional Registry of (Immovable) Property. In a similar line, see also CARRASCO PERERA, A., “¿Es posible …?”, cit., pp. 2055 et seq. It has to be remembered that art. 5 (4) LVP excludes from its scope of application such contracts the value of which is under the limit established through regulation; such limit, however, has not yet been determined. On the requirements and characteristics of the assets concerned by the Register of Movables, see GÓMEZ MATOS, op. cit., pp. 54 et seq. DÍAZ VALES, op. cit., p. 89, n. 25. GÓMEZ MATOS (op. cit., pp. 295-296) considers that these objects could be currently considered as identifiable as others (ships, aircraft, assets capable of being the subject-matter of a movable hypothec according to LHMPSD), in order to justify

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could be, finally, the case of other assets, such as industrial machinery and commercial establishments, which are more likely to be the object of credit transactions than of contracts for transfer. The Spanish legislature has traditionally been aware of the convenience of regulating differently both kinds of identifiable movables: for ships and aircraft, a system very similar to that of the Land Register was designed at an early stage, subject to the same principles (first registration of ownership verified by the Registrar, folio real, “successive tract”, no effect against third parties in good faith of acts and contracts capable of being entered but in fact not entered, protection of third party acquirers who, acting in good faith, acquire from the title-holder in the register, etc.), thus leaving no space for the application of art. 464 CC, based on the publicity arising from possession (except for those ships and aircraft that have not been recorded in the Register).361 In contrast, for the rest of the identifiable, corporeal movable assets, Spanish law has traditionally opted for a more modest and practical form of public registration, which is not based on ownership as such – the first entry does not have to be that of ownership –, and the purpose of which is not that of organising the entire legal circulation of movables, but only that of supplying such real burdens and security rights (including those based on the reservation of ownership) lacking any possessory publicity with official and constitutive publicity – and therefore with effect against third parties, either third party acquirers or creditors,

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their submission to a system of registration based on ownership, and not limited to burdens. On these objects, see the Spanish Historical Patrimony Act (Ley 16 / 1985, de 25 de junio, del Patrimonio Histórico Español, LPHE), where different administrative registers regarding such assets (the General Registry of Assets of Cultural Interest, the Inventory of Movable Assets; see arts. 12 and 26) are provided for. Other administrative registers of this kind are regulated by the provisions of the various Autonomous Communities. See SSTS 15 February 1990 (RJ. 687) and 25 February 1992 (RJ. 1549). The latter, supporting the Germanic theory as to the interpretation of art. 464 CC (see below, III, 8.6.), states that, in the case of movables, “possession creates an appearance of ownership, as a general rule”, but admitting that this principle may not operate in the case of those movables subject to registration. It has to be remembered that the Spanish registers of titles do not supply any publicity at all in relation to the possessory situation of the assets, since possession as such cannot be the object of any registration (art. 5 LH), and the registration of titles does not make any reference to the mode (necessary for the actual transfer of ownership under the title and mode system); the only possessory relevance of the register has to do with the possessory presumption (art. 38 LH) and the special possessory protection (art. 41 LH) granted to the registered title-holder.

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regardless of their good or bad faith.362 That was the origin of the Register of Movable Hypothecs and Pledges Without Transfer of Possession, and also that of the Register of Sales of Movables by Instalments, the purpose of which was not that of giving official publicity to ownership in things nor to contracts regarding ownership as such, but only that of establishing the effect against third parties of those covenants included in sale contracts which are designed to guarantee the creditor’s position: covenants for reservation of title, prohibitions of disposal, as well as the ownership of the lessor in financial lease contracts, which is bound to operate rather as a security right. It follows that, out of the strict limits of such purpose, the transfer system of ownership in movable assets – leaving aside the aforementioned cases of ships and aircraft – has continued to be founded on the system of tradition and the protection of publicity arising from possession. On the other hand, the new system introduced by the different norms promulgated in recent years, designed to submit the Register of Movables to the same principles of the Land Registry, has a very relevant drawback from the point of view of the principle of normative hierarchy: the lack of the necessary rank of the norms used. It has been rightly pointed out363 that the substitution of the system arising from the different laws currently in force (such as the LHMPSD and the LVP 1998) cannot be carried out on the mere basis of several Regulations (the level of which – as Royal Decrees – is not enough to modify higher norms, namely parliamentary acts) and of an Ordinance (that on the Register of Sales by Instalments) which has an even lower rank (Ministerial Order).364 However, leaving aside the formal 362

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It is important to point out that the possibility of transforming the pre-existing registers of burdens into actual registries of ownership through the promulgation of norms with a legal rank has been raised and rejected at least twice in the course of two legislative processes, namely those of the LHMPSD of 1956 and the LVP of 1998; see MARTÍN OSANTE, op. cit., pp. 328 and 332. MARTÍN OSANTE, op. cit., pp. 329 and 346. See also CARRASCO, “¿Es posible …?”, cit., p. 2.056; and DÍAZ VALES, op. cit., p. 81. Contra, see GARCÍA SOLÉ / GÓMEZ GÁLLIGO, op. cit., p. 120, for whom legal authority to promulgate these provisions can be found in the 2nd Final Provision of LVP, which authorises the Ministry of Justice to set out the necessary provisions regarding the organisation and operation of the register. For many authors, the ORVP raises serious doubts as to its legality, since it has widely exceeded the strict terms of the LVP, thus attempting to transfer some of the main principles of the Land Register to the field of movables. By way of example, MARTÍN OSANTE (op. cit., p. 342) explains that there is no sufficient legal basis in the principle formulated in art. 28 (2) ORVP, according to which those acts and contracts capable of registration but not in fact registered shall not have any effect against third parties, when relating to identifiable movables, since art. 15 LVP only

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objections, it seems clear that such norms have not been able to supply the whole system of the Register of Movables with a complete and consistent regulation; on the contrary, the provisions promulgated up to this moment state that the different Sections of the Registry of Movables shall be regulated according to the specific pre-existing norms applicable to the acts and contracts concerned (Additional Provision of the RD 1828 / 1999, 2nd paragraph), which raises important doubts and uncertainties as to essential aspects of the objective scope, nature, operation and effects of the Register.365 Beyond the generic affirmation – often contained in the most recent decisions of the DGRN366 – that the Register of Movables has to be considered as an actual register of titles, with a character of universality as to its objective scope,367 and subject to the principles of legitimation, priority, no effect against third parties of acts and rights not registered, public faith in registration, etc., the fact remains that the norms currently in force

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refers such regulation to those security rights arising from covenants for reservation of title or prohibition of disposal, not to all acts and contracts concerning such assets. See also CARRASCO, “¿Es posible …?”, cit., pp. 2,059-2,060. Stressing the problems arising from the heterogeneity of the different sections of the Register, see DÍEZ-PICAZO, prologue to GARCÍA SOLÉ / GÓMEZ GÁLLIGO, op. cit., p. 15. See, among others, RRDGRN 11 April 2000. The doubts affect rather fundamental issues, like that regarding the assets subject to registration, since the scope and object of the different laws and regulations concerned is not the same in all cases; see, for instance, art. 1 LVP and arts. 12 and 52 LHMPSD. The DGRN (RDGRN 12 July 2002, JUR. 2003 / 96284) has qualified the Register of Movables as a registry with a character of “comprehensiveness”, confirmed by the broad meaning of the names given to the 4th and 5th Sections of the Registry (“Other Real Securities” and “Other Movable Assets”); and has determined the characteristics generally required for the registration of movables in the register: they must have the nature of movables according to arts. 335 and 336 CC; they must be perfectly identifiable, or at least sufficiently to permit their individualisation; and they must have an economic value capable of being realised through their transfer. Fungible things are not necessarily excluded from the register, since the constitution of pledge without transfer upon such things has been expressly admitted (RRDGRN 12 March 2001 and 25 July 2001). From a more restrictive point of view, RDGRN 29 January 2003 has stated that access to the register is only possible for those assets the registration of which is provided for by their own special regulation (thus excluding the registration of prohibitions of disposal of company shares and interests). However, the difficulties in determining the object of public registration still remain; see GÓMEZ MATOS, op. cit., p. 66. On this issue, generally, see DÍAZ VALES, op. cit., pp. 78 et seq.

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do not correspond to a single pattern, but to different kinds of aims and problems, and are therefore necessarily heterogeneous. It is clear, for instance, that a system of registration bound to produce such important effects for traffic has to be necessarily founded on certain principles of organisation, such as those of folio real and “successive tract”, that undisputedly support some of the aforementioned norms, based on the concept of a register of titles (especially, the RRM 1956 with respect to ships and aircraft), but the relevance of which is not so clear in other norms, focused on the idea of a simple register of burdens (e.g. the LHMPSD, and the LVP 1998, in spite of its development through the ORVP). The fact that all of them have kept their force will necessarily cause significant doubts and inconsistency in the operation of the Register of Movables, at least as long as the task of setting out new legislation is not taken seriously. The solution designed by the Final Provision, par. 6, of the RD 1828 / 1999 does not seem to be sufficient to resolve such doubts and problems. This solution provides for the supplementary application to the Register of Movables of the norms contained in the ORVP, the Regulation of the Commercial Registry and the Regulation on the Land Registry (RH); all of them having a “sublegal” rank, and the application of which will in most cases be necessarily direct, since the specific rules provided for by the same norm are practically nonexistent. Still less reasonable and acceptable seems the solution designed by the 3rd Final Provision of the same RD 1828 / 1998, according to which “the Ministry of Justice, through the General Service of Registers and Notaries (DGRN), shall issue the necessary provisions to resolve all questions that may arise in the application of this Royal Decree with respect to the operation of the Register of Movable Assets”,368 taking into account that the decisions involved may directly affect provisions contained in several norms having the rank of parliamentary acts. In conclusion, it might be said that the purpose of creating a system of public registration for identifiable movables based upon principles similar to those of the Land Register, has not yet offered the necessary consistency – from a formal as well as from a substantial point of view – to replace the traditional system founded on the difference between assets subject to a complete system of registration based upon ownership as such (ships, aircraft), and assets subject to a more modest system of publicity limited to those burdens (security rights, including those based on reservation of ownership) which lack possessory publicity, with the general rules regard368

To date, several RRDGRN have been issued in order to resolve the doubts arising in relation to the register; among others, RRDGRN 27 January 2000, 11 April 2000, 29 January 2001, 12 March 2001, 16 May 2001, 25 July 2001, 14 February 2002, 12 July 2002, 21, 22 and 23 October 2002, and 29 January 2003. See also Instructions of the DGRN of 26 April 2001, 19 February 2002 and 3 December 2002.

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ing possession and transfer of titles applying to the rest.369 At the moment, it would be premature to conclude that, for all identifiable movables, the publicity system based on possession has been replaced in Spanish law by one based on public registration, even though that seems to be the idea underlying the different norms promulgated in recent years, and especially the ORVP; in any case, such a conception must be clearly rejected in relation to movables that have not been registered,370 even if they are capable of such, although the contrary should result from the principle stated by art. 28 (2) ORVP, according to which those acts and contracts capable of being registered but in fact not registered have no effect against third parties. Once the present difficulties of regulation have been overcome by the necessary legal reforms, the question would still remain open whether or not the eventual advantages of modifying the preceding system in order to transform it into one purely founded on public registration and given a universal objective scope would outweigh the disadvantages of imposing a general obligation of previous consultation of the registral information, that would necessarily imply a significant interference with the flow in the transfer of movables.

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MARTÍN OSANTE (op. cit., pp. 333 and 342) points out that even after the reforms introduced in the last years, the registration of a simple contract of sale concerning an identifiable movable – unless it is a ship or an aircraft – continues to be impossible. Contra, see GÓMEZ GÁLLIGO, “El Registro de Bienes Muebles”, in Revista Crítica de Derecho Inmobiliario, 2000, p. 977. For such assets, as well as for those which are not perfectly identifiable, even if they are registered (e.g. those subject to pledge without transfer of possession), the protection of commerce has to be founded on the effects of possession; GÓMEZ MATOS, op. cit., p. 295.

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Part II: Acquisition of property rights: derivative acquisition 4.

Basic characteristics of the transfer system

4.1.

Modes of acquiring property rights: art. 609 CC

The expression “modes of acquiring property rights” refers to those legal facts the effect of which is to grant ownership or another property right in a certain subject. Within this concept it is possible to include legal facts in a strict sense (e.g. accession), but also voluntary acts (e.g. occupation of a thing that has no owner in order to acquire its ownership; a contract followed by certain additional requirements, a testamentary legacy, etc.). The different modes of acquiring property rights may be classified as follows: (a) Depending on the type of acquisition they lead to, they may be either original or derivative. An acquisition is original when the acquirer’s right is not based on the former title-holder’s right (e.g. occupation of an abandoned thing, acquisitive prescription), being therefore not affected by the limitations or restrictions affecting such right. An acquisition is derivative when it is based on the preceding title-holder’s right, and therefore the content of the acquirer’s right depends on the content of the transferor’s right, according to the ancient Latin aphorism: Nemo plus iuris ad alium transferre potest quam ipse sibi habet.371 Derivative modes may be either translative – when the title-holder of a pre-existing right changes – or constitutive – when a previously inexistent right is created and subsequently transferred to another subject. (b) Depending on the cause, the modes of acquisition may be either onerous or gratuitous; inter vivos or mortis causa; and voluntary or forcible (e.g. by way of judicial execution and adjudication on a thing; or in the case of legal hypothecs, usufructs and easements, the constitution of which can be claimed by a certain subject).

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For example: a person who acquires by derivative title, ownership encumbered by a hypothec or a right of usufruct, cannot acquire ownership free of burdens; a person who buys from someone who is not the owner and receives possession cannot acquire ownership by derivative title, although he or she might acquire it by original title.

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(c) Depending on the manner of the acquisition, it may be either pure, conditional, or subject to a term. (d) Depending on the extension of the acquisitive event, it is possible to differentiate the universal modes of acquiring property rights, when the acquisition refers either to entire patrimony or to a proportional part of it (e.g. acquisition by inheritance), and the particular modes, if the acquisition refers to specific assets. Art. 609 CC contains an incomplete and disputable list of the modes of acquisition of ownership and other property rights in Spanish law: “[o] wnership is acquired by occupation. Ownership and other real rights over property are acquired and transmitted by law, by donation, by testate and intestate succession, and in consequence of certain contracts, by tradition. They may also be acquired by means of prescription”. Some preliminary remarks may be made on this provision: (a) Although occupation could theoretically be considered as a mode of acquisition suitable not only for ownership, but also for other property rights, in practice that possibility has no relevance; that is why art. 609 refers it only to ownership. In any case, the concept of occupation formulated by art. 609 does not only include occupation in a strict sense (which is provided for in art. 610), but also the cases of finding and treasure trove, which are regulated in other articles.372 (b) The mention of law as a mode of acquisition implicitly refers to all those facts or circumstances, not included in art. 609, to which acquisition of property rights is bound as a legal effect: concepts such as accession or a non domino acquisition (arts. 464 CC and 34 LH) could be included within this category. (c) The special reference to donation reflects the dogmatic doubts regarding its contractual or non-contractual nature, as well as those regarding the necessity or not of tradition to fulfil the acquisitive effect. (d) By means of testate and intestate succession, property rights – and also all other transferable patrimonial rights – are acquired without the necessity for tradition. (e) In those acquisitions the origin of which is a contract, art. 609 expresses the so-called “title and mode theory”, i.e. the tradition system, characteristic of Spanish law: the mere contract is not sufficient to produce the transfer of property, tradition or delivery being also necessary for that purpose. (f) Acquisitive prescription or usucapio is a mode of acquisition applicable only to those property rights which are capable of being possessed. 372

RUBIO GARRIDO, in Jurisprudencia civil …, cit., I, p. 1227.

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It is usually admitted that the system of transfer is a question that directly affects the economic public order, as it not only concerns the parties involved, but also third parties; it is therefore accepted that private autonomy is only effective in this field within the limits established by the law, so that the particular parties cannot create new modes of acquisition or essentially alter the rules established by law.373

4.2.

Derivative acquisitions “inter vivos”

4.2.1. The title and mode system: passing of ownership and passing of risk The determination of the precise moment in which ownership – or any other property right – is actually transferred from one subject to another has decisive practical relevance for different purposes: e.g. in relation to the assumption of the risk of loss or deterioration of the thing because of a fortuitous event (according to the aphorism res perit domino, although in the case of sale the general rule for specific things seems to be that of periculum est emptoris374), the liability for damages caused by things, when imputed to the owner (e.g. arts. 1906 and 1907), the entrance of assets and rights into patrimony in order to allow their seizure by creditors, etc. In Spanish law the transfer inter vivos of ownership and other property rights on the basis of a contract is subject to the concurrence of two different elements or requirements: 1. The title, i.e. a valid causal contract with the purpose of transferring (sale, barter, life annuity, etc.). 2. The mode, i.e. the tradition or delivery of possession, made with the specific purpose of transferring and acquiring a certain property right (arts. 609 and 1095).375 Spanish law has thus preserved the ancient Roman system of “title and mode”, discarding the assumption of other systems of transfer operating in other European countries, such as those based on mere consent (France, Italy, Portugal), or those based on the existence of an abstract transfer agreement (Germany). Under the system of tradition, the “title” (the juridical act constituting the transfer) by itself does not produce the transferring effect, but only 373 374 375

LACRUZ, op. cit., III, 1°, p. 182. See below in this section. Art. 1095 CC provides: “[t]he creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the thing has been delivered to him”. In jurisprudence, see, among others, SSTS 20 October 1990 (RJ. 8029), 1 March 1994 (RJ. 1637), 9 March 1994 (RJ. 2205) and 31 May 1996 (RJ. 3866).

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creates – in principle – the obligation to transfer by delivery. If the title fails (e.g. if the contract is void), the later delivery or tradition transfers possession, but not the property right (e.g. the seller continues to be the owner, and may therefore revindicate the thing against third parties, unless the latter are specially protected). In terms of legal certainty, the tradition system tends to be seen in a positive light by Spanish doctrine, since it permits establishing a neat distinction between the relative (inter partes) effect of the contract, as a source of obligations, and its real effect, bound to the transfer of possession, which provides – at least in principle – a certain degree of publicity for third parties. Theoretically, there may be some problems regarding its coordination with the system of registration, into which the mode has – in principle – no access, but in practice the instrumental tradition makes up for this problem in most cases.376 It has to be stressed that the “title and mode” system subjects the effective transfer of property rights to the concurrence of both elements, but it does not extend its scope to other effects of contracts of transfer. For instance, art. 1095 makes it clear that the creditor of an obligation to give a specific thing is granted the right to receive the fruits produced by the thing from the time the obligation arises (i.e. from the moment the contract is perfected), save a covenant to the contrary. He or she is also entitled to demand compensation for damage where the thing is lost or deteriorated through the fault of the the debtor (art. 1094; fault is presumed unless the contrary is proven, under art. 1183 CC), and also in those cases where the contract or the law attribute such risk to the debtor (arts. 1096 (3) and 1185). Aside from these cases, if the loss or deterioration is not attributable to the debtor, it is clear that the obligation of delivery is extinguished and the debtor is free from it (arts. 1105 and 1182 CC); but if an obligation of retribution for the delivery of the thing had been established (e.g. in sale contracts), the question arises if the buyer shall still be obliged to pay the price agreed upon, or if he may be liberated from such obligation (or, eventually, allowed to demand the restitution of the price already paid) through termination of the contract for subsequent impossibility of the prestation. The question, traditionally referred to as the “passing of risk problem” has been long discussed, since the Civil Code does not offer a clear solution within the regulation of the sale contract.377

376 377

See infra, II, 4.4.2.(c). See also supra, I, 1.3.2, (d).

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A wide part of doctrine378 and jurisprudence379 has considered that the rules contained in art. 1452380 permit the assumption that, in case of determined or specific things, the risk of a fortuitous event is attributed to the buyer (according to the ancient rule of periculum ist emptori), who will be obliged to pay the price agreed upon, without the possibility to demand the termination of the contract or the decrease of the price, even though he or she will not receive the thing bought or will receive it in a deteriorated state. Nevertheless, it has also been considered that it would be fairer and more consistent with the special structure of synallagmatic obligations381 and with an ownership transfer system based upon the “title and mode” rule, to attribute the risk to the seller (who continues to be the owner until delivery takes place), granting the buyer the right to terminate the contract, at least in cases of loss or destruction of the thing sold. The application of the traditional rule of res perit domino in the context of a system of tradition would also provide such solution. In the case of deterioration, the risk could be more easily attributed to the buyer on the basis of art. 1452, especially if one considers that art. 1468 (2) (as well as art. 1095) also grants him or her the right to realise the fruits of the thing from the time the obligation to deliver arises,382 and that he or she is also entitled to obtain 378 379

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See, for instance, LACRUZ, Elementos …, cit., II, 2°, pp. 26-27. SSTS 13 June 1944 (RJ. 893), 7 June 1946 (RJ. 706), 25 March 1947 (RJ. 452), 29 April 1947 (RJ. 607) and 6 October 1965 (RJ. 4358). The same solution is accepted by the 569th Law of the Navarre Compilation; see STS 28 June 1995 (RJ. 5928). SSTS 9 June 1949 (RJ. 729), 29 April 1947 (RJ. 607) and 16 November 1979 (RJ. 3850) made it clear that the rules regarding the attribution of risk are not applicable to the reduction in the market price of the assets sold within the same period. Art. 1452: “[a]ny injury to or benefit from the thing sold, after the contract has been perfected, from the moment of the perfection of the contract to the time of delivery, shall be governed by articles 1096 and 1182. / This rule shall apply to the sale of fungible things, made independently and for a single price, or without regard for their weight, number, or measure. / Should fungible things be sold for a price fixed according to weight, number, or measure, the risk shall not be imputed to the purchaser until they have been weighed, counted, or measured and delivered, unless the latter is in delay”. In those synallagmatic contracts involving obligations to make or construct something, it seems clear that the subsequent impossibility of the prestation, even if it is not attributable to the debtor, allows the creditor to terminate the contract and to liberate him- or herself from his or her obligation to pay, with the right to claim the restitution of the price already paid (see arts. 1589 and 1590, regarding construction contracts). In this sense, see ALBALADEJO (Derecho Civil, T. II, Derecho de obligaciones, Edit. Edisofer, 12th ed., Madrid, 2004, pp. 531-532), quoting PINTÓ RUIZ.

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the accessions received by the thing within that period (arg. ex art. 1097). In relation to fungible things, the second paragraph of art. 1452 subjects them to the general regulation where they are considered as specific things; however, if they are considered as generic things, the passing of the risk to the buyer shall only take place when the specification is carried out.383

4.2.2. Scope of application of the “title and mode” system The application of this system is, in principle, limited to the transfer of property rights by contract (sales – including those made in public auction –, barter, capital contributions, etc.); such consequence can be drawn from the text of art. 609, although out of art. 1095 it might be deduced that the mode is necessary for the transfer of property rights as a result of the performance of any preceding obligation, including those the source of which is not a contract (e.g. the transfer of a thing to comply with a unilateral promise – in those cases where it is considered as an actual source of obligations –, in order to indemnify the damages caused according to the rules on extracontractual liability, or to remedy the consequences of unjustified enrichment). It applies to the transfer of ownership as well as to other property rights capable of being possessed (usufruct, easements, etc.), and even, with some nuances, to those which are not, such as redemption and option. It neither applies to the transfer or assignment of credit rights, which operates on the basis of the mere agreement (arts. 1526 et seq.)384, nor to those cases of transfer which are not based on a preceding obligation, such as inheritance, the judicial constitution of an easement, etc. In contrast, the system of tradition is applicable to credits represented by bearer papers (art. 545 Ccom. and art. 120 (1) LCCh.), as well as to the transfer resulting from the seizure and consequent execution of the debtor’s assets in the course of judicial or administrative proceedings; art. 674 LEC, regarding judicial execution through public auction (not only of immovables, but also of movables subject to registration; see art. 655), states that the testimony, issued by the Judicial Secretary, containing the judicial order approving the result of the auction,385 the adjudication for the creditor, or the transfer by realisation agreement or through a specialised person or entity shall be 383 384

See supra, I, 1.3.2, (d). Notwithstanding the fact that the transfer of a credit right is operated on the mere basis of consensus, the observance of certain formalities (notarial deed, private document in certain cases, registration) is necessary in order to render the assignment opposable to third parties (see art. 1526 CC). On the other hand, the notification of the assignment to the debtor is needed in order to prevent him or her making payment to the original creditor (art. 1527).

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deemed as a title sufficient in order to enter the acquisition into the Land Register. A judicial order shall also be issued, when demanded by the acquirer, in order for the deletion of records and annotations from the registry regarding the same burden which caused the auction and adjudication, as well as all those made after it. Art. 675, in turn, provides for the attribution of material possession in the thing to the acquirer. Exceptionally, the transfer process of certain property rights in immovables requires an additional element: the entry into the Land Register (constitutive registration). The most typical case is that of hypothec, but there are other examples, such as the right of superficies – at least in those cases provided for by arts. 35 and 36 of the Land Act of 2007. It has to be stressed, however, that such cases are exceptional: the general rule in the Spanish legal system is that the transfer of property rights operates outside the Land Register, according to the “title and mode” system, and only subsequently has access to it (“declaratory registration”). Therefore the point of view of certain authors386 cannot be supported, that the transfer of property rights in immovables recorded into the Land Register operates on the basis of 385

385

386

The Courts have traditionally considered that the judicial approval of the result of the auction is equivalent to a sale contract and is therefore to be considered, for the purposes of the system of tradition, as the title (STS 30 October 1990, RJ. 8268, and STSJ Navarre 29 June 1991, RJ. 9795, in which a thorough analysis is made of the evolution in the jurisprudence on this point). Under the ancient LEC, and up to the reform made through the Act 10 / 1992, the judicial decision had to be followed by the execution of a notarial deed of sale, which was considered as a form of instrumental tradition, necessary to consummate the transfer of ownership (among others, SSTS of 28 June 1949, RJ. 736, 17 February 1956, RJ. 1497, 29 February and 1 April 1960, RJ. 943 and 1268, and 20 February 1975, RJ. 662) and to get the acquisition recorded in the Land Register. More modern judgments (e.g. SSTS 1 July 1991, RJ. 5311, and 11 July 1992, RJ. 6280) considered, however, that, since the list of forms of traditio contained in arts. 1462 et seq. CC was not a numerus clausus, the judicial approval of the result of the auction (title), followed by the judicial adjudication for the best offerer (mode), might be considered sufficient to deem the transfer to the adjudicatee consummated, the later execution of notarial deed being only necessary to other effects, such as the entry in the Land Registry. After the necessity of notarial deed was repealed in 1992, the testimony of a judicial decision suffices in order to have the acquisition registered (art. 1514 of the former LEC and art. 674 of the new one); the view held by the latterly mentioned decisions must be therefore considered as the most consistent with the present legal regulation. As to the effects for tradition of the judicial adjudication following the auction, see NAVARRO CASTRO, M., La tradición instrumental, JM Bosch Editor, Barcelona, 1997, pp. 146-148. DE LA RICA Y ARENAL, R., “Dualidad legislativa de nuestro régimen inmobiliario”, in Anales de la Academia Matritense del Notariado, 1953, pp. 631 et seq.

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registration and not of that of tradition. In the field of movables, the same principle has to be maintained: the possibility of registration of contracts regarding the constitution and transfer of ownership and other property rights in certain movables does not alter, as a general rule, the operation of the system of tradition; the fact of registration itself does not imply any validation of those acts that are void according to the law (cf. art. 33 LH for immovables; art. 29 ORVP for movables), and can only found a iuris tantum presumption of their validity, as well as of the accuracy of the rights registered and of their belonging to the title-holder according to the registration (art. 15 (2) LVP 1998). Only in exceptional cases does the entry in the Register have a constitutive nature creating and transferring property rights in movables, thus making up for the lack of any possessory publicity: that is the case for e.g. a movable hypothec, a pledge without transfer of possession, and according to some opinions,387 covenants for reservation of title and prohibitions of disposal included as securities into the sale by instalment contracts (art. 15 (1) LVP 1998). Aside from the cases of constitutive registration, it could be argued in the context of movables – as it has been in relation to immovables – whether or not the recording of a title into the register is subject to the previous verification that tradition has actually taken place; in other words, it could be argued whether or not access to the register has to be denied where it is verified that there has been no previous tradition, and therefore the real transition has yet not taken place.388 The question can be of relevance, especially in the context of a registry of titles – not only of burdens – in which a principle of public faith in registration might operate in favour of third party acquirers who rely on the public registration. Although the solution cannot be clearly resolved under the present regulation of the Registry of Movables (which, in fact, does not allow the affirmation beyond all doubt 387

388

CARRASCO, “¿Es posible o necesaria …?”, cit., p. 2060. Other authors consider that the registration of such securities in the register is only required to give them effect against third parties (creditors, acquirers), but does not have a constitutive nature, since the covenenat is valid and has effect inter partes even if it has not been registered (GÓMEZ MATOS, op. cit., p. 326). In practice, the public formalisation of the contracts necessary for registration (art. 3 LH), helps to prevent this problem in most cases, at least in the field of immovables, since such formalisation operates as a mode of tradition (“instrumental tradition”, art. 1462) and, therefore, when the contract is entered the real transfer has already taken place outside of the register, which only serves to declare it. However,problems may arise where entry in the Register of Movables is permitted on the basis of a merely private formalisation of the contracts, since private documents do not imply tradition, and the physical delivery of the thing is outside of the registrar’s scope of control.

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that a principle of public faith in registration is actually operating, leaving aside the field of ships and aircraft, in spite of the wording of art. 29 ORVP), it could be assumed that, should the register give publicity on an acquisition that had not actually been consummated for lack of tradition, an eventual third party acquirer acting in good faith would be protected by the principle of public faith in registration (should this principle operate), the lack of tradition in favour of the transferor being irrelevant for him or her. In relation to the other parties involved (within the inter partes relationship, and against third parties not protected by the principle of public faith in registration), the presumptions of accuracy of the register (art. 15 (2) LVP 1998) and of possession of the registered title-holder would operate until the contrary was proven.389 It has to be remembered, in any case, that the Registry of Movables (just like the Land Registry; see art. 5 LH) does not provide any publicity in relation to the fact of possession as such, but only allows establishing a basis for a certain iuris tantum presumption that the registered title-holder of a right has the possession of it (where the right is capable of possession), supplying him or her with the right to use special judicial proceedings in order to have his or her possession protected and, as the case may be, recovered against unjustified interferences or deprivations (arts. 166, 183 and 190 RRM 1956). 389

In fact, according to the most widely accepted opinion (that could also be extended to the Register of Movables), within the Land Registry the objects being registered are acts and contracts (títulos), but the publicity regards rights (titularidades). Therefore, the right that can be induced from a registered title shall be the one protected by the presumption of accuracy of the Register; a presumption that, as has already been mentioned, admits proof to the contrary, unless it operates in favour of a third party acquirer in good faith and by onerous title. Where the registration of a title from which it clearly appears that the tradition has not taken place (e.g. when the notarial deed itself states that its formalisation is not equivalent to the actual delivery of the thing, art. 1462 in fine), it is arguable whether or not the registrar will have to deny registration: the majority of the opinions in doctrine (ROCA SASTRE’s being perhaps the most significant opinion) supports the view that the registrar will have to deny registration, on the basis of art. 9 RH, which states: “[t]he obligation to constitute, transfer, modify or extinguish ownership or other property rights in immovables … as well as generally any other personal obligations or rights, cannot be registered”. Other authors (e.g. SANZ FERNÁNDEZ) think, in contrast, that in the Spanish system only the titles are the object of registration (arts. 1 and 2 LH), the fact of tradition as such being irrelevant for that purpose. An analysis of this question can be found in LACRUZ BERDEJO, J.L. and others, Elementos de Derecho Civil. T. III bis., Derecho inmobiliario registral, Ed. Dykinson, 2nd ed., revised and adjourned by DELGADO ECHEVERRÍA, J., and RAMS ALBESA, J., Madrid, 2003, pp. 103 et seq.

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It has also been traditionally discussed whether or not the transfer of assets by way of donation is subject to the system of tradition in Spanish law. The question is closely connected to that regarding the nature of donation: from the regulation provided by the Civil Code it could be deduced that donation is not a contract, but a unilateral act of disposal (art. 618 states that it is “an act of liberality”;390 art. 609 CC, referring to the modes of acquisition of property rights, draws a distinction between donation and contracts; it is not regulated in the same Book of the Civil Code as contracts). However, it is nowadays admitted by the vast majority that donation is an actual contract; several arguments may be raised in favour of this point of view: the requirement of acceptance by the donee (arts. 618 and 623), the submission to the general regulation of contracts (art. 621), and the fact that, when defining the cause of the different contracts, art. 1271 mentions those with a remuneratory cause and also those of pure benefit. It has to be admitted, in any case, that it is a most peculiar contract, especially if one takes into account the predominant role granted to the donor’s intention. The contractual nature of donation permits distinguishing it from unilateral acts such as the waiving of rights (either property rights or credit rights – remission), or the sewing or planting of crops or building on another’s land with one’s own materials and without any intention of demanding any remuneration for the work or the materials, which does not require, in principle, acceptance by the third person who benefits from it. When it comes to the mode of transferring rights through donation, two different cases have to be considered. When the object of the donation is the constitution or transfer of a credit right to the donee (obligatory donation: e.g. assignment of a credit by gratuitous title; gratuitous constitution of a life annuity), the acquisition of the right by the donee takes place as an immediate consequence of the valid conclusion of the contract, since in this field the system of tradition is not applicable. On the contrary, when the object of the donation is the constitution and / or transfer of a property right (real donation: transfer of ownership on a thing, constitution and transfer of a usufruct right, etc.), it has been discussed in doctrine whether the contract, validly concluded, has merely obligational effect, like other contracts (system of tradition: tradition or physical delivery is required in order to achieve the transfer391); or whether, different from other contracts, donation directly causes the real effect, meaning that it immediately transfers the property right without traditio,

390 391

Law 161 of the Navarre Compilation also defines donation as a unilateral act. On this theory, see ALBALADEJO (Derecho Civil, cit., II, pp. 577-578), among others.

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even though the donor is obliged to transfer possession.392 For the latter view the wording of art. 609 (2) (“[o]wnership and other real rights over property are acquired and transmitted … by donation,… and in consequence of certain contracts, by tradition”), and the fact that donation is regulated among the modes of acquiring ownership, can be put forward. It has to be stressed that the supporters of this theory admit the possibility of a donation contract with mere obligational, and not immediately translative, effect, based on the principle of private autonomy; it would not be, however, the typical case of donation provided for by the Civil Code. The issue is certainly arguable; however, both in ordinary as in legal language the word “donation” can be understood in a double sense: as a contract designed for the transfer of a thing or right, and as a material act by which the thing or right is transferred. Assuming that donation, in the Civil Code, is a contract, it seems that it should be granted, as with all other contracts, a merely obligational effect (art. 629, sensu contrario: “Donation … obliges the donor from the point of acceptance thereof”), tradition being necessary in order to cause the actual translative effect. Since donation is, in any case, a formal contract (see arts. 632 and 633), the issue is that the conclusion of the contract will usually be accompanied by the physical delivery of the thing (e.g. manual donation of movables, art. 632), or by other formalities (e.g. execution of a notarial deed in the case of immovables, art. 633), which can be considered, in fact, as different modes of tradition, causing both effects simultaneously.

4.3.

Defects regarding the “valid obligation” and effects on the transfer of ownership

In order to address the issues regarding the different reasons for the ineffectiveness of “title” (contract) and its effects on the transfer of property, a line must be drawn between invalid (void / avoidable) contracts, on the one hand, and contracts that, according to the law, are deemed to be valid, but subsequently are deprived of their effects for one reason or another: rescission, termination for (fundamental) breach of contract, resolutive (or subsequent) condition, or revocation of gifts. A reference shall also be made to those cases where the act of delivery is made, by mistake, in order to pay a non-existing obligation (solutio indebiti).

392

On this point of view, see LACRUZ (Elementos …, cit., II, 2°, pp. 89-90), and DÍEZ-PICAZO / GULLÓN (Sistema de Derecho Civil, Ed. Tecnos, Madrid, t. II, 7th ed., Madrid, 1995, p. 336), among others.

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4.3.1. Void and avoidable contracts The doctrine of invalidity entails a certain degree of complexity. The basic rules on this matter, laid down in arts. 6 (3) and 1300-1314 CC, allow the distinction between two categories: “absolute” or ipso iure nullity (nulidad absoluta) and voidability (anulabilidad).393 In both cases the contract has been concluded without complying with the requirements that are fixed by law in order to acknowledge the convention as legally binding. The boundaries of each type of invalidity are not always clear, and different kinds of defects or a lack of legal requirements are sometimes pronounced to be a source of absolute nullity, while others give rise to avoidable contracts, as for instance, the absence of legal formalities;on the whole, this can be simply explained by the fact that the final decision depends on the scope of the statute, as it is generally admitted that the law may provide for either of the two, taking into account the conflicting interests. In addition, neither scholars nor the courts always hold the same view in relation to the type of invalidity attached to certain types of defects, as for instance, the lack of sound mind. In particular, it must be mentioned that the contract of transfer concluded with lack of authority to dispose due to absence of ownership, absence of power of attorney or judicial authorisation394 is frequently declared to be void (art. 1259 CC). This is completely inconsistent with the fact that the contract, in itself, can produce effects and give the other party remedies for breach of contract; it may be ratified by the owner, and is also considered to be a valid title for the “ordinary” usucapio. Here we will only attempt to draw a general picture of the different causes and characteristics of each, as the consequences of invalidity on the transfer are equal: the delivery will be deprived of the necessary valid “title”, and ownership is deemed to have never passed to the transferee. “Absolute” nullity prevents the contract from producing the desired effects ipso iure, not needing, as a rule, a declaration of nullity. The law, how393

394

This categorisation is not without nuances, as the law may provide for specific “nullity” regimes, as it does in the Act on “General contract terms” (Ley 7 / 1998, de 13 de abril, de condiciones generales de la contratación). Where this is necessary, like when parents sell certain types of assets belonging to their children. It has to be taken into account that the validity requirements of those acts or contracts capable of being considered as titles of transfer may depend on the nature of the assets involved: e.g.,the contracts entered into by the parents as legal representatives for their children shall be avoidable, unless they respond to a cause of usefulness or necessity and have been authorised by a judge, with the previous audience of the Public Ministry, where their object is the transfer or burdening of the latter’s immovables, commercial or industrial establishments, precious objects and negotiable instruments, save the preferential right of subscription (art. 166 CC).

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ever, does not provide a closed or fixed list of the reasons for which a contract is ipso iure invalid. Usually the enumeration includes the following:395 (a) Lack or absence of any of the elements required for a contract to come into existence: consent, object or cause (art. 1261). (b) Illegality (infringement of a statutory prohibition), initial impossibility or lack of determination of the object (arts. 1271, 1272 and 1273 CC). (c) Illegal or false causa. The latter means the mere appearance of causa, as in a simulated contract, where the parties do not really intend to be bound at all, and only declare so, in order to deceive someone else. (d) Absence of legal formalities, when these are required ad solemnitatem, which is exceptional in contracts (see arts. 1278 to 1280), except for donation. (e) Where the limits of private autonomy (imperative law, “morals” and public order: art. 1255 CC) have been forsaken, unless the law provides for a different effect (art. 6 (3) CC). Broadly speaking, absolute nullity is considered to be definitive, as the contract, as it was originally concluded, cannot become valid, and therefore a judicial pronouncement of nullity may be obtained at any time – without limitation period – and by anybody, including the parties, who may be interested in destroying the “appearance” of legal effects (quod ab initio vitiosum est non potest tractu temporis convalescere).396 Courts could even appreciate ex officio the cause of nullity and reject claims flowing from the agreement, at least when the public interest is at stake, or the contract clauses are evidently contrary to imperative law, morals or public order.397 However, some authors consider that whilst the so-called “declaratory” action has no time limitation, the claim directed to obtain restitution of what was given, as between the parties, is subject to the general limitation period of fifteen years (art. 1964 CC) as it is a personal action, based on a datio indebita.398

395

396

397

398

See DELGADO ECHEVERRÍA, J. / PARRA LUCÁN, Mª.A. Las nulidades de los contratos en la teoría y en la práctica, Edit. Dykinson, Madrid, 2005, p. 50 et seq. On the arguable admissibility in Spanish law of the so-called “conversion of the void contract” (as provided, for instance, in § 140 BGB [German Civil Code] and art. 1424 of the Italian Codice civile), see DÍEZ SOTO, C.M., La conversión del contrato nulo (Su configuración en el Derecho comparado y su admisibilidad en el Derecho español), Ed. J.M. Bosch Editor, Barcelona, 1994. See MARSAL GUILLAMET, J. in S. VAN ERP / A. VAQUER, Introduction to Spanish Patrimonial Law, Edit. Comares, Granada, 2006, p. 166. See DELGADO ECHEVERRÍA, J.L. / PARRA LUCÁN, Mª.A. op. cit., p. 188.

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The grounds of avoidability (anulabilidad) are mainly threefold: lack of legal capacity of one (or both) of the parties,399 defects or “vices” of consent (error, dolus, violence or duress: arts. 1265, 1300 CC)400 and (some) contracts where the spouse has not consented to the contract, if this is required (arts. 1301 and 1322 CC). Hence, avoidable contracts are described as those in which one of the parties (or even both, or the spouse) is to be protected by the law and granted the power to avoid a contract entered into without being legally mature, sound or free and of conscious will. In contrast to “absolute” nullity, avoidable contracts can only be challenged by the party protected; that is, the one who lacked capacity (or his or her legal representatives), suffered the mistake, fraud, violence or duress, or the spouse whose consent was not given. Also by those who are obliged to satisfy the protected party’s debts in a “subsidiary way” (art. 1302, referring to a person who is responsible personally – as guarantor – or through real security). The action must be brought within a limitation period of four years (art. 1301 CC). The time does not start running, as a rule, before the contract has been consummated (i.e. the contractual obligations of the protected party have been fulfilled), and in some cases, it takes even longer: in case of lack of legal capacity, when full capacity is acquired; or in case of violence or duress, from the moment no undue influence is exercised. The “action for nullity” is extinguished even prior to this and the contract will produce all its effects, if it is “confirmed” – expressly or tacitly – by the party who suffered the “defect”, provided the initial flaw is no longer present at the time the confirmation takes place (art. 1311 CC); as for instance will happen if the person who suffered the mistake, on realising the truth decides to keep to the agreement anyway, or the person who was underage when the agreement took place, voluntarily delivers the thing he or she sold once he or she is of age. The exact definition of avoidable contracts, however, is debatable. Indeed, the majority of scholars deem the contract to be provisionally valid (at least binding for the party who was not “impaired” in any way) unless the party who suffered the defect and is the main object of protection files a claim – within the four year limitation period (art. 1301 (1) CC) – in order to have the contract invalidated and obtain, once the title has been declared void, restitution of what was given to the other party. In the view of others, the contract is initially void, unless it is confirmed; if not, the 399

400

Due to being underage (apart from emancipated minors) or mentally incompetent (art. 1263 CC). Contracts entered into by a person declared bankrupt may be avoided, according to the specific rules of the LC; see infra, II, 5.2. For an overview of “vices of consent” in Spanish law, see ARROYO I AMAYUELAS, E. in S. VAN ERP / A.VAQUER, op cit., pp. 113 et seq. Mistake as to the other party’s solvency is not relevant as error in persona, as a rule.

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protected party may at any time plead for a declaration of nullity in order to be declared free of the relevant obligations; the four year limitation period is then considered to refer to the claim designed to obtain the restitution of what was given.401 In any case, if a contract is deemed to be absolutely void, or has been successfully avoided, no transfer will have taken place, and the parties are obliged to reciprocally return what was given. Jurisprudence points out that the duty of restitution is a legal consequence of the declaration of nullity and can be pronounced by the court, even ex officio: full restitution is aimed at placing the parties to the contract in the position they would be, had they never entered into the contract.402 The Civil Code has a specific set of rules that deal with restitution in the case of void contracts in arts. 1303-1314. However, it must be borne in mind, that these are not the only rules that deal with such issues: undue payment (condictio indebiti) has its own provisions (arts. 1895-1901),403 liquidation of possessory situations has yet another set of rules dealing with fruits, improvements and expenses (arts. 451-458 CC),404 and, finally, the rules on accession settle for the rights and obligations in case of accession, commixture and specification (arts. 361 et seq).405 Co-ordination is not always clear; the specific rules are to be applied preferentially, whilst the other set of rules will be used to fill in the gaps, but at the same time taking care to check constructions or interpretations that would lead to contradictory evaluations. According to art. 1303, restitution covers the things that were given, with all the fruits / yields (or price plus interest); for some authors, fruitrestitution is to be determined considering the good or bad faith of the parties, in harmony with arts. 451 et seq. In contrast, others decide in favour of a purely “objective” approach to art. 1303 CC: each party has to return what they have received, including yields; in the case of bad faith of one of the parties, the other can still recover damages in tort.406 The duty of restitution is reciprocal; as a general rule, one party is not entitled to claim recovery if simultaneously he or she does not offer (or 401

402 403 404 405 406

See DELGADO ECHEVERRÍA, J.L. / PARRA LUCÁN, Mª.A. Las nulidades de los contratos. En la teoría y en la práctica, Edit. Dykinson, Madrid 2005, p. 54 et seq. STS 22 November 2005 (RJ 2005 / 10198). See infra, II, 4.3.4. See supra, I, 2.7.3. See infra, III, 7. For the different opinions on this matter, see LÓPEZ BELTRÁN DE HEREDIA, C. La nulidad contractual. Consecuencias, Edit. Tirant lo Blanch, Valencia 1995, p. 67 et seq.; BASOZÁBAL ARRÚE, J., Enriquecimiento injustificado por intromisión en derecho ajeno, Edit. Civitas, Madrid 1998, pp. 214 et seq. Restitution of fruits relates to such fruits that the asset would have normally produced with medium diligence.

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is in the position to do so) to give back what was given to him. This rule encounters several nuances and exceptions: (a) If the contract is avoidable, persons who lacked legal capacity (underage and mentally incapacitated), on avoiding the contract and claiming restitution, only have to return to the extent that they have been enriched by what they received (art. 1304, art. 1314); not, for instance, if the money paid was wasted. (b) If the person who is obliged to return cannot do so, because the thing has perished – even fortuitously (art. 1307) –, or is in the hands of a third party who has acquired a non domino,407 he or she must then pay the value it had at the moment it was lost (or at the moment it was sold to a third party) and the fruits realised up to that moment. (c) If a void contract – or the reason for which something was given – amounts to a criminal offence or the causa is pronounced to be particularly repugnant (causa torpe), arts. 1305 and 1306 provide for the traditional rules, nemo audiatur turpitudinem suam allegans, and in pari causa turpitudinis melior est condicio possidentis: only the “innocent” party may request recovery of what he or she gave and is not obliged to give what he or she promised. Subsequent transactions that involve the assets and third parties who acquire possession of them will be deemed to have been made without authority to dispose, as a void contract cannot have produced any effect, and the situation is to be treated as if the goods had never left the hands of the owner. The owner, therefore, can revindicate his or her right, unless the third party is protected by the rules on acquisition a non domino or has acquired by virtue of acquisitive prescription.

4.3.2. Functional or subsequent ineffectiveness of the title: resolutive condition, termination for breach of contract and rescission Under this heading we refer to rather different types of ineffectiveness that have in common that they impact on the effects of a valid contract (at least in relation to those who actually entered into the agreement), rendering it totally or partially ineffectual, such as resolutive or subsequent condition, 407

SSTS 6 June 1997 (RJ 1997 / 376), 11 February 2003 (RJ 2003 / 1004). Therefore, even if the person who has to return what he or she has received is in good faith, art. 1307 imposes the duty to give the value, his or her responsibility is not limited, as in condictio indebiti (art. 1897), to the price. See LÓPEZ BELTRÁN DE HEREDIA, C. op.cit., p. 104.

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rescission (arts. 1291 et seq CC), “resolution” or termination for breach of contract (art. 1124 CC, arts. 1504, 1505 CC), and revocation of gifts (arts. 644 et seq CC). Each case is governed by its own rules. (a) Where the parties have submitted the transfer to an express subsequent or resolutive condition, the property is deemed to have passed to the transferee, but subject to the possibility of return should the future and uncertain event placed as resolutive condition indeed take place. Common opinion sustains the effects of the condition, once fulfilled, to be automatic and retrospective (ex tunc), at least in contracts that do not strech over a period of time (such as a lease). Property is therefore automatically reacquired by the former owner. If the transfer is derived from a bilateral contract, the codified rule simplifies the restitution issues, as “fruits and interest” are to be “reciprocally compensated”, according to art. 1120 CC; the acquirer sub conditione is not entitled to recover expenses for improvements of the thing he or she has to return, as, in this respect, the rules of usufruct apply (arts. 1122 (6), 1123 (2) CC). The acts of disposal performed during the state of uncertainty lack a specific rule on the subject, but this does not prevent the main opinion from being in favour of the principle of resoluto iure dantis, resolvitur ius concessum, unless the rules on protection of a non domino acquisitions take hold. If the contract falls under a cause of rescission, or it is terminated for breach of contract (resolución) here it is sufficient to say that they have something in common: as far as the transfer of property is concerned, the contract, as sufficient title, will have carried out – together with tradition – the transfer of property. Hence, the transferee – while the contract had not been in any way challenged – may have disposed as true owner of the thing in favour of a third party, who will thereby – provided, naturally, title and mode concur – have acquired a domino, his or her own acquisition being preserved as long as he or she has acquired for value and in good faith. The main opinion in favour of the so-called “real” retrospective effect of resolution (ex tunc) does not hinder this conclusion, as it flows clearly from arts. 1124 (resolución) in conjunction with arts. 1295 and 1298 CC (rescisión).408 A brief description of rescission and “resolution” seems, however, necessary. (b) Rescission is a legal remedy aimed at obtaining the declaration of ineffect of a valid contract, but only as to the person who is entitled to claim for rescission. The Civil Code includes different cases under the expression “rescission”, basically in art. 1291, that have in common that the contract is detrimental or prejudicial, either to one of the parties (rescission for laesio), or to creditors of one of the contracting parties (Actio Pauliana). The rescission for laesio was adopted by the CC as a rather limited remedy, as the economic imbalance (of more than one quarter) between 408

See among others STS 2 March 2006 (RJ. 726).

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what was given and what was received in exchange will only be a ground to demand rescission of contracts if they have been concluded by legal guardians (not parents) of minors or of mentally incompetent persons, or legal representatives of people declared to be missing; and even then, only if the contract is one of such not requiring, according to the law, prior judicial authorisation; however, most of the transactions do need such authorisation.409 Rescission for laesio, consequently, is rare in this field; and courts usually only deal with laesio in other types of transactions, where the remedy is applicable in wider terms, such as conventional division of inheritances (art. 1079 CC) or division of joint ownership (art. 406). In any case, rescission is a subsidiary measure, which may be halted by adequate compensation; the claim has a four year limitation period (arts. 1294 and 1299 CC) and the parties must return what they received (with fruits or interest) or the value thereof, in case of impossibility, as when the transferred asset is in the hands of a third party who acted in good faith (art. 1295 (2) CC). Transactions that defraud creditors are mentioned in art. 1111 CC, and treated as a case of rescission in art. 1291 (3) CC. The Actio Pauliana allows the defrauded creditors to “rescind” what is a valid contract – in relation to the parties – but detrimental for the former, inasmuch as it renders the debtor insolvent and prevents him or her from meeting his or her prior obligations. As in other countries, donations are presumed iuris et de iure to be detrimental (art. 1297 (1), art. 643 (2) CC), and so are also contracts for value that have been entered into after a court has ordered, on behalf of the creditor, the seizure of the sold asset (art. 1297 (1) CC).410 However, if the debtor sold for value, a subjective element (consilium fraudis) is required; case law has smoothed the way and alleviated the burden of proof, as a positive intention to harm is not necessary, with it being sufficient that the acquirer knew the transaction to be detrimental. The general rules of rescission – the subsidiary nature of the action and the four year limitation period – apply, but the effects differ, according to the modern opinion on the matter. The successful Actio Pauliana does not really have to undo the transaction, nor do the assets have to return to the seller’s hands; it is enough that the creditor who filed the claim be entitled to seize the goods in order to redeem, and, therefore, only to the extent that it is necessary to pay him or her what is due; the remaining belongs, not to the debtor, but to the transferee.411 Third persons who acquired the thing for value and in 409

410

411

In some Autonomous Communities, such as Catalonia and Navarra, rescission due to laesio still remains as a general remedy. A specific case of rescission regards contracts on assets that have already been pronounced “litigious”: art. 1292 (1). See FERNÁNDEZ CAMPOS, J.A. El fraude de acreedores: La acción pauliana, Publicaciones del Real Colegio de España, Bolonia 1998, pp. 241 et seq.

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good faith cannot be affected by the Actio Pauliana, and the creditor is left to seek compensation from the debtor and the person who acquired directly from the latter. (c) Resolution is one of the general remedies for non-performance in the case of fundamental breach of contract. Notwithstanding the specific rules provided for each one of the typical contracts, the general regulation for bilateral or synallagmatic contracts is stated in art. 1124 CC: the creditor, in case of default, is entitled to choose between demanding specific performance (if it is still possible) or to “resolve” (terminate). In addition, and in both cases, a claim for damages can be filed, as long as the non-performance can be attributed to the fault of the debtor. According to consolidated judicial pronouncements, termination requires “fundamental” breach. The thing will be sufficiently clear if the debtor – for a prolonged period of time and evidently – refuses to fulfil his or her obligations or, more simply, performance has turned out to be impossible (i.e. the thing has perished), even fortuitously (except the case in which the “risk” has to be attributed to the creditor, according to the rules on passing of risk412). Moreover, courts take into account if the performance, being defective, partial or even just delayed, amounts to what is called a “frustration” of the creditor’s interest, enough to justify his or her right to put an end to the relationship. Resolution – if the aforementioned requirements are fulfilled – may take place by simple notice to the defaulting party. If it is disputed, a judicial decision will be necessary. The creditor’s action is subject to the general limitation period for personal actions: fifteen years (art. 1964 CC); the time starts running from the moment of non-performance. The prevailing view holds the effects of termination to be retrospective (ex tunc), except if the contract was one that entailed “continuous” performance, such as a lease contract (ex nunc). Both parties have to return what they received, and, as mentioned above, the defaulting party would also have to pay damages, to be decided according to the general rules on the matter (arts. 1103-1109 CC). In relation to the rights of third parties, art. 1124 CC in fine refers to arts. 1295 and 1298. This means that property rights acquired in the meantime by onerous title and with good faith are not affected by the restitution claim. According to the prescriptions of the Act on the Land Register (art. 11 LH) and jurisprudence on movables,413 if the third party was simply aware that the price was still due, he or she would not be considered to be in “bad faith”. In relation to the rules on expenses and improvements made on the things that have to be returned, although some authors solve some of these problems by reference to the regulation set out for expressive resolutive 412 413

See supra, II, 4.2.1. STS 5 May 1983 (RJ. 2668); STS 15 February 1990 (RJ 1990 / 687).

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(subsequent) conditions (i.e. the transferee who loses his property when the resolutive condition is accomplished is not entitled to claim expenses for improvements: art. 1123 in conjunction with art. 1122 (6)), others refer to the rules on liquidation of possessory situations and those of accession.414 In relation to the restitution of fruits that the asset may have produced in the meantime and interest on the price, the main opinion argues in favour of an “objective” restitution of fruits or – as the case may be – the value that is to be attached to the use of a non-producing asset (eg. a car) before it is given back after the contract has been terminated. Such value (of fruits or of “use”) may be compensated with interest accruing on the price, where it had been paid, which on the whole seems to be the attitude of the courts.415 (d) As to the revocation of donations, once the donation is perfected and property has been acquired by the donee, the gift may be revoked by the donor, but only for the specific reasons prescribed by arts. 644 et seq CC: if the donor subsequently has children or the one believed to be dead turns out to be alive; where one of the elements of “ingratitude” may be attributed to the donee (art. 648 CC), or if the donee fails to comply with the obligations (cargas) imposed by the donor at the moment of the donation. In the first two cases, the effect of the revocation is ex nunc: the donee is entitled to keep the fruits realised before the filing of the complaint (art. 651) and acts of disposal prior to this moment are deemed to be valid; if the thing itself cannot be returned, the donor is entitled to receive the value it had at the moment of the donation (arts. 645 and 650). If the gift is revoked for not complying with the “conditions” fixed by the donor, art. 647 seems to establish a retroactive effect, similar to termination of contract; but some authors also consider that a third purchaser who has acquired for value and in good faith will also be protected.416

4.3.3. Repurchase covenant The so-called “repurchase covenant” (pacto de retroventa, pacto de retro, venta a carta de gracia) is a stipulation added to a sale contract according to which the seller retains, within a certain time limit and subject to certain conditions, the right to recover the thing sold, through reimbursement of 414

415 416

See different opinions in MONFORT FERRERO, Mª.J., La restitución en la resolución por incumplimiento de los contratos traslativos del dominio, Edit. Tirant lo Blanch, Valencia, 2000, pp. 211 et seq. See MONTFORT FERRERO, op.cit., pp. 301 et seq. See a detailed explanation in relation to the moment the act of disposal took place in ALBALADEJO GARCÍA, M. / DÍAZ ALABART, S., La donación, Colegio de Registradores de la Propiedad y Mercantiles de España, Madrid, 2006, pp. 671 et seq.

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the price received and of other expenses met by the buyer (see arts. 1507 and 1518 CC). The right the seller acquires as a result of this covenant is called “conventional right to repurchase” or “conventional right of redemption”. In practice, this covenant is often used as a way to obtain financing, the transfer of ownership operating as a security for the financier. The right of repurchase has to be agreed upon at the time of the conclusion of the contract, and it is necessarily subject to a time limit, accordingly to the exigencies of legal certainty (taking into account its effect erga omnes). The time limit may be agreed upon by the parties, and it may be extended by a new agreement before it ends; but in any case the total time may not exceed the term of ten years from the date of the contract (art. 1508).417 In the absence of such agreement, the time limit is four years, which is also unextendable. By including a covenant of repurchase, the sale remains subject to an optional resolutory condition (art. 1506): the buyer acquires ownership – or the right involved – upon the thing sold (art. 1511: “[t]he buyer is subrogated to the seller’s rights and actions”), but his or her right is subject to the eventual exercise of the seller’s right to repurchase. The right to repurchase has to be exercised by means of a unilateral declaration of will directed to the buyer, either through judicial or extrajudicial claim. In order to exercise his or her right, the seller – or the third person to whom he or she has transferred his or her right – has to reimburse to the buyer the elements provided for by art. 1518 (besides other obligations especially provided for in the contract): price of the sale, expenses of the contract and other legitimate payments made by reason of the sale, and necessary and useful expenses invested in the thing. Such requirements may be excluded through a covenant to the contrary, as long as no fraudulent aim is pursued (e.g. fraud on the creditors, a concealed pactum commissorium, prohibited by art. 1884 CC, etc.). The buyer has the right to keep the fruits realised, as compensation for the interest on the price; as to the fruits pending at the time the right is exercised, art. 1519 provides for their compensation against those existing at the time of the sale; if there were none at that time, they will be distributed among the parties. Once the right of repurchase has been legally exercised, the sale is deemed to have been terminated with retroactive effect, as if the seller had never ceased to be the owner of the thing. Arts. 1513 to 1517 establish different rules designed to avoid, as long as possible, the situations of co-ownership in which the buyer could find himself, under certain circumstances (concurrence of several heirs to the creditor or to the debtor; purchase of undivided shares in co-ownership) as a consequence of the exercise by the seller of his or her right to repurchase. 417

In some territorial systems the time period is longer (e.g. thirty years in Catalonia and Navarra).

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Out of the regulation provided by the Civil Code (and the LH, regarding immovables), it may be deduced that the conventional right to repurchase is to be deemed as an actual real right; that has been the idea traditionally supported by doctrine and jurisprudence. Various arguments may be brought forward in favour of this theory: it is enforceable, not only against the buyer and his heirs, but also against eventual sub-acquirers, even in the absence of registration of the right, and regardless of the fact that the existence of the right was not mentioned in the contract by which it was acquired; save the case of such acquirers of immovables who are specially protected according to the LH (art. 1510 CC and art. 34 LH418). It is a right capable of being disposed of (either inter vivos or mortis causa, and either by onerous or gratuitous title) or given autonomously as a security, in the absence of any stipulation to the contrary (art. 107 (8) LH). Finally, after exercising his or her right the seller recovers the thing free from any burdens or security rights imposed by the buyer (art. 1520, in application of the principle prior tempore potior iure, which is characteristic of real rights).419 Obviously, this last norm is to be construed without prejudice to the eventual protection granted by the law to the third party acquirers of the corresponding rights in good faith. If the seller does not exercise his or her right in time and according to the aforesaid conditions, the buyer shall irrevocably acquire ownership in the thing (art. 1509). However, the seller’s creditors are also authorised to exercise the right, either through its seizure and subsequent execution or through subrogation (art. 1111); but they are subject to the conditions provided for by art. 1512 in order to protect the seller’s interest: “[t]he creditors of the seller cannot make use of the right of repurchase against the buyer, until after they have exhausted the property of the seller”.

4.3.4. “Solutio indebiti” If there was no prior relationship between the solvens and the accipiens, and something was delivered as payment, but by mistake, the prevailing opinion is that the solutio act performed without causa is not sufficient to transfer property as a rule.420 However, the rules on restitution laid down for condictio indebiti (arts. 1896-1899 CC), in particular art. 1897, have underpinned 418 419

420

See below III, 8., on good faith acquisitions. Although, according to art. 1520, he or her will have to take over the lease contracts made by the buyer in good faith and according to the customs of the land. In fact, the prevalent opinion rejects the autonomy of the so-called causa solutio, but some authors maintain a different interpretation and admit that property is transferred to the accipiens, who is then subject to the (personal) condictio of the

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a doctrinal trend that supports a transfer of property in favour of a third party who acquired from the accipiens for value and in good faith. Indeed, art. 1897 CC prescribes that the good faith accipiens is only responsible for impairment or loss of the thing unduly paid to the extent that he or she has been enriched; if the thing has been sold to a third party, only the price must be returned or the claim regarding it assigned. Others, nevertheless, construe this provision not as a rejection of the owner’s reivindicatio against the purchaser – unless protected by the rules on a non domino acquisitions –, but as a rule that limits the responsibility of the good faith accipiens where the asset itself cannot be recovered, precisely as a result of an a non domino acquisition.421

4.3.5. Fiduciary title The concept of negocio fiduciario (“fiduciary transfer”) refers to those legal acts through which a person (fiduciante) transfers one or more assets to another (the fiduciary), thus accomplishing a transfer contract (selling, gift) where a stipulation has been added (pactum fiduciae) by virtue of which the fiduciary commits himself to use the assets received for a certain purpose, with the obligation of returning them to the transferor – or to a third party – after the purpose of the operation has been achieved. The “fiduciary transfers” have traditionally been used in order to achieve two different kinds of purposes: in the so-called fiducia cum amico a right is transferred so that the transferee can fulfil certain acts of administration on the basis of his or her fiduciary title, and return the assets to the transferor afterwards.422 On the other hand, in the so-called fiducia cum creditore the transfer is aimed at securing a credit right of the transferee against the transferor, so that the latter will be allowed to recover his or her right once – and

421

422

tradens; see VILÁ RIBAS, C. El pago de lo indebido y la transmisión de la propiedad por tradición en el sistema del Código Civil español, Librería Bosch, Barcelona, 1989. See different opinions, and in favour of the second view, in BALLARÍN HERNÁNDEZ, R. in Comentario del Código Civil, T. II, Ministerio de Justicia, Madrid, 1991, p. 1.962. Others explain that the action against the good faith accipiens, as an action based upon unjustified enrichment, is subsidiary and cannot be used when the solvens is still entitled to recover the asset from the third party holder by means of the reivindicatio: CARRASCO, A. “Restitución …”, cit., pp. 100-101. SSTS 14 July 1994 (RJ. 6395), 22 June 1995 (RJ. 5182), 19 June 1997 (RJ. 5418), and many others. A typical example may be found in the adjudication of assets belonging to the hereditary estate to one of the heirs or to a third party, with the obligation to use them for the payment of the inherited debts.

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if – the obligation is accomplished: such cases are usually known also by the name of “security transfers” (transmisión en garantía, venta en garantía).423 In both cases, the fiduciary transfer implies a gap between the purpose of the operation and the means used to achieve it: the contract of transfer is not necessary in order to obtain the administration or security purposes sought, since other transactions with more restricted effects (e. g. granting of a power of attorney, mandate contract, constitution of real securities, etc.) could also be used. Such gap is founded on the trust (fiducia) that the transferor puts on the transferee. The fiduciary transfer is not a simulated contract, since it is not founded on a deceitful purpose;424 the effects arising from the contract are genuinely sought by the parties, even though, as a consequence of the pactum fiduciae, such effects are more restricted or different from those typically produced by the contract entered into.425 Also, it is not necessarily a contract concluded to defraud the law, even though it may be – and frequently is – used with the aim of eluding mandatory rules (e.g. a security transfer may be performed in order to elude the prohibition of the so-called pactum commissorium, through which the title-holder of a real security is granted the right to automatically acquire ownership in the thing, should the debtor fail to perform his or her obligation; see art. 1859 CC426). It should be remembered that the sanction provided for fraudulent transactions is not necessarily the voidness thereof, but “the due application of the rule the parties intended to elude” (art. 6 (4) CC), and accordingly of the specific sanctions or consequences therein provided. The admissibility of fiduciary transfers in Spanish law, as well as the regulation applicable, has long been debated. It is not expressly provided for – not even mentioned – by the Civil Code, but the courts have frequently admitted it. In order to explain this concept, different views have been held in doctrine and jurisprudence: (a) Theory of the double effect – real and obligatory –: the fiduciary acquires full ownership in the assets acquired, assuming the obligation to put them to the use planned, and to return them afterwards. This theory is usually sustained by the jurisprudence427, although it has been contended that it may lead to unfair consequences where the fiduciary fails to fulfil his or her obligations, since, notwithstanding his or her

423

424 425 426 427

SSTS 7 March 1990 (RJ. 1674), 30 January 1991 (RJ. 349), 5 July 1993 (RJ. 5794), 9 December 1998 (RJ. 9426), etc. SSTS 10 July 1995 (RJ 5561) and 19 June 1997 (RJ. 5418). STS 5 April 1993 (RJ 2791). STS 13 May 1998 (RJ. 3687). See, for instance, SSTS 5 July 1996 (RJ. 5576), 19 June 1997 (RJ. 5418).

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contractual liability to the transferor, the transfer made by him or her to a third party would not be subject to challenge. (b) Theory of so-called “formal ownership”: the fiduciary acquires some kind of “formal ownership”, that allows him or her to dispose of the thing in favour of third parties, while the transferor keeps the “material ownership” in the thing (together with the right to possess and enjoy it, as the case may be).428 This theory is based on a neat distinction between the “internal relationship” that binds the transferor and the fiduciary, and the “external relationship” existing between the fiduciary and the third parties. It does not seem convincing, however, since it implies the admission of atypical kinds of real rights, with a different effect as against the parties and against third parties, which does not seem consistent with the requirement of legal certainty. (c) Theory of the “fiduciary title”: a theory – first formulated in Spain by DE CASTRO429 – tends to prevail nowadays, according to which fiduciary transfers should be granted effects proportional to the purpose sought; therefore, the fiduciary should only be granted a power in accordance with that purpose. In other words: the fiduciary acquires ownership upon the right transferred to him or her, but not for all purposes, but only as far as it is necessary to guarantee the realisation of the aim sought. Accordingly, the acts of disposal made by the fiduciary, beyond the limits of his or her fiduciary title, shall not be effective, and the transferor will be allowed to exercise the reivindicatory action,430 unless the acquirer is a third party in good faith who believes to be acquiring from the real owner, without knowing the purpose and the limitations under which the fiduciary had acquired his or her right.431 For the same reasons, the creditors of the fiduciary may not seize the assets acquired by the latter subject to a pactum fiduciae; if necessary, the transferor shall be allowed to exercise a third party action against execution. Finally, the rights to enjoy the assets, as well as the obligations and responsibilities bound to ownership, remain with the transferor, as long as it is consistent with the aim of the pactum fiduciae;432

428 429

430

431

432

Among others, see SSTS 19 May 1989 (RJ. 3780) and 7 March 1990 (RJ. 1674). DE CASTRO Y BRAVO, F., El negocio jurídico, Edit. Instituto de Estudios Jurídicos, Madrid, 1967 (re-published by Edit. Civitas, Madrid, 1985), pp. 379 et seq. STS 2 December 1996 (RJ. 8784). The fiduciary title can not be considered as a just title for the purposes of prescription: STS 3 May 1955 (RJ. 1561). Regarding the protection of third party acquirers in good faith, SSTS 6 June 1995 (RJ. 5054) and 2 December 1996 (RJ. 8784). See LACRUZ, Elementos …, I, 3°, cit., pp. 206-207.

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although the fiduciary has been granted a right of retention by way of security in some cases.433

4.4.

“Traditio”: Delivery and delivery equivalents

4.4.1. Purposes of the delivery requirement The reasons for adopting the “title and mode” system in the Civil Code (following the mandate of the Ley de Bases of 11 May 1888, Base 20) were manifold. On the one hand, this was down to the historical tradition, based on the Partidas.434 On the other, the 19th century had been witnessing the passing of enormous extensions of land from the hands of the impoverished aristocracy and the so-called manos muertas (“dead hands”) to those of the emerging bourgeoisie and financiers; a consensual system could have accelerated a process that some social groups wished to slow down.435 Nowadays importance is attached to the fact that the accomplishment of the traditio requirement provides a certain degree of publicity for third parties, as the forms of tradition436 demand, as a rule, transfer of possession or a public title. In addition, it has been considered to favour the security of the circulation of property by granting the new owner the so-called “legitimating function” of possession.437 From a technical point of view, the distinction, conceptual as it may sometimes seem, is considered as clarifying and necessary to explain coherently the regulation of a number of conflicts and problems, such as dispossession, double sale, sale of a thing belonging to another, usucapio or the rules on validity of payment (art. 1160). Contract, therefore, is the source of obligations, and traditio the subsequent legal act and the moment in which the so-called “power of disposition” is requested in the transferor in order to operate the passing of the property right. The different forms of traditio, however, were not given specific treatment. The 1889 Civil Code decided to stick to the historical background in article 609, but the regulation of the forms of obtaining the transfer of a property right was entrusted to the rules on delivery of the thing, a propos of 433

434 435

436 437

Among others, SSTS 8 March 1988 (RJ. 1607), 22 December 1988 (RJ. 9748) and 6 July 1992 (RJ. 6186). P. 3, 28, 46. See RUBIO GARRIDO, T. Contrato de compraventa y transmisión de la propiedad, Publicaciones del Real Colegio de España, Bolonia, 1993, pp. 104, n. 2. See infra, II, 4.4.2. See, with further references, NAVARRO CASTRO, M. La tradición instrumental, J.M. Bosch Editor, Barcelona, 1997, pp. 83 et seq.

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the sale contract (arts. 1462-1464); the very same rules that the 1851 Project had already included within a “consensual system”. This has not negatively affected the application of such rules on any other contract aimed at the transfer or constitution of property rights,438 but it has contributed to obscuring the difference between the fulfilment of the seller’s obligation of procuring the “legal and peaceful possession” of the thing sold (art. 1474 (1) CC) and the meaning and different ways in which the traditio can be achieved. The two may coincide, but not necessarily. Traditio, in fact, can take place without delivery, and the latter will not transfer the property right if the transferor is not the owner. Payment of the price, as a rule, is not enough to acquire a right of property in the thing sold, and the buyer will not be considered to be the owner if traditio has not taken place.439 Likewise, if delivery has indeed been performed, lack of payment, unless there is an agreement to the contrary,440 does not prevent the passing of property to the buyer, who, as the real owner, may eventually dispose of the thing and transfer the property right in favour of a third party;441 notwithstanding the power of the seller to terminate the contract and thereby recover the asset.442 Whilst the price has not been paid, the seller can of course deny delivery on the basis of the exceptio non adimpleti contractus, unless payment has been postponed (art. 1466 CC); the exceptio, in fact, represents the first and most simple defence of a party to a bilateral contract, as it allows him or her to withhold his or her own performance until the contracting party has not fulfilled or does not offer to comply immediately with his or her own obligations.

438

439

440 441

442

See, for instance, STS 17 November 1988 (RAJ, 8603) and RDGRN 16 May 1996 (RAJ 3950), relating to barter. The issue usually crops up in third party actions, in which the buyer tries to prove his or her property right, among other arguments, by alleging the fact of having fulfilled his or her own obligations (STS 29 November 1991, RJ. 8490 and 15 June 1992, RJ. 5134, both relating to barter) or on having already paid part of the price (STS 27 June 1996, RJ. 4797). See infra, II, 4.5., and II, 4.6.4. See, with regard to movables, SSTS 5 May 1983 (RJ. 2668) and 15 February 1990 (RJ. 687). Both decisions, however, also appeal to art. 464 CC. Some authors are critical and maintain that the lack of payment, as affecting the cause of the traditio, hinders the transfer. See. GORDILLO CAÑAS, A. “Compra de cosa ajena cuyo precio no llegó a pagar el vendedor non dominus. Traditio sine causa ¿Adquisición de buena fe?”. Comentario a la STS de 5 de mayo de 1983” in ADC, 1984, pp. 577 et seq. See supra, II, 4.3.2.

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4.4.2. Forms of tradition The usual way of describing tradition is as the actual delivery and reception of possession of the asset with the intention in the one who gives (tradens) and in the one who receives (accipiens) to respectively transfer and acquire the property right according to the “title”.443 It involves, as a rule, the collaboration of both and is considered to be a juridical act (acto jurídico); this does not mean, in principle, that traditio in itself is the object of an autonomous agreement444 as the element of volition is provided by the “title” or contract;445 delivery alone is “neutral”, with its meaning depending on the contract from which it follows. Where delivery is performed in order to transfer a property right, art. 1160 CC provides that the payment made by a person who lacks the capacity to dispose is void; which, according to some authors, proves that the power to dispose of the thing when the debtor is bound to transfer a property right does not have to occur at the moment of the conclusion of the contract but when the traditio takes place; and, simultaneously, deprives a delivery lacking such authority of its ability to extinguish the obligation (dare) it was meant to realise.446 However, the aforementioned description does not mean that traditio must necessarily provide immediate physical control. Possession may be transferred in other ways if the tradens is not the immediate or direct possessor or material delivery is difficult or impossible or simply does not need to take place, as will be the case when the transferee is already in possession. According to the provisions of articles 1462-1464 Civil Code, scholars and courts usually draw a line between forms of “real” traditio, meaning actual handing over of the goods, as opposed to “fictitious” forms without actual delivery. Some authors consider that only a transfer of possession (“mediate” possession included) deserves the name traditio in a proper sense, notwithstanding other cases in which compliance with the prescribed legal formalities will be sufficient, albeit in the absence of a public change of possession.447

443 444

445

446

ALBALADEJO, op. cit., III, p. 135. STS 18 September 1996 (RAJ 6725). Except, perhaps, when it can take place solely by the agreement of the parties; see infra, II, 4.4.2.(d). See DE PABLO CONTRERAS, P. / MARTÍNEZ DE AGUIRRE, C. / PÉREZ ÁLVAREZ, M.A. Curso de Derecho Civil, T. III, Derechos Reales, Edit. Colex, Madrid, 2004, pp. 350, 354. See RUBIO GARRIDO, T. Contrato de compraventa y transmisión de la propiedad. Publicaciones del Real Colegio de España, Bolonia, 1993, p. 196. CUENA CASAS, M. Función del poder de disposición en los sistemas de transmisión onerosa de los derechos reales, Edit. J.M. Bosch Editor, Barcelona, 1996, pp. 476 et seq.

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According to the aforementioned sections of the Civil Code, tradition of movables may take place by physical delivery (art. 1462 (1): “real” tradition), the execution of a public instrument (art. 1462 (3): “instrumental tradition”), the handing over of the keys of the premises where the goods are kept (art. 1463, first sentence), and by the sole agreement or consent of the contracting parties if the thing sold cannot be placed under the control of the buyer at the time of the sale, or if the latter already had its possession for a different reason (art. 1463, second sentence). Art. 1464 CC contains a rule with respect to “incorporeal assets”, which includes property rights that are not capable of material delivery (such as intellectual property, patents and trademarks) or imply only a limited factual influence (such as easements), or are not at all aimed at conferring possession (such as “real” acquisition rights, security rights without transfer of possession, ground rents or negative easements – art. 533 CC). These cases are known as quasitraditio. The so called instrumental traditio is always possible;448 in addition, art. 1464 foresees the so-called “documentary tradition” – the “placing of the titles of ownership in the possession of the vendee” –, which is really a kind of symbolic tradition fit for the transfer of pre-existing rights other than property. As for limited property rights that only imply some kind of partial use of the thing (apparent easements, such as that for right of way), traditio may consist in the “use by the vendee of his rights, with the vendor’s consent”. Notwithstanding these different forms of traditio, as far as movables are concerned, the express legal admission of a “delivery” by the “sole consent of the parties” (art. 1463 CC) and its construction as a way of procuring “mediate” possession, despite the lack of factual delivery, has very much alleviated the task of deciding if and when property has been transferred, at least in cases in which the question is limited regarding the relationship between the parties. 447

(a)

Real tradition

Article 1462 (1) states that “the thing sold will be considered to have been delivered when it is placed under the control and possession of the buyer”. 447

448

See PEÑA, op. cit., I, pp. 106-107. BERCOVITZ ÁLVAREZ, G. Tradición Instrumental y Posesión, Edit. Aranzadi, Elcano (Navarra), 1998, pp. 66 et seq. This is even considered absolutely necessary for the constitution as “real” rights of autonomous rights of acquisition, negative easements or security rights without transfer of possession. See PEÑA, op. cit., I, p. 112; P. DE PABLO CONTRERAS, op. cit., p. 352.

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This provision is clearly applied in cases of physical delivery. It is generally admitted, however, that the handing over (animo solvendi) of the keys of the transferred thing (such as a car)449 or of the premises where the goods are kept (art. 1463, first sentence) can also be considered as real tradition, as long as it means that the transferee is thereby granted the exclusive access and control over them and that they were given to him or her with that purpose.450 The same would apply if the accipiens receives information that gives him or her access to the goods – such as the code of a safe – or as to the place where they are hidden, provided he or she may actually do so at will.451 The delivery by such means is not regarded as a subsidiary measure. What is really important is that as a result the transferee becomes the one who can be considered, according to social values, possessor and at the same time is enabled to use the thing as the rightful owner. In order to consider that the obligation of delivery – as performance of the obligation to transfer the property right – has been fulfilled, the handing over of means that authorise exclusive access to the thing may have to be accompanied by the conveyance of documents that allow – in conformity with statute, custom and good faith (art. 1258 CC) – lawful enjoyment, according to the terms of the contract. As, for instance, the vehicle circulation permit of a car sold.452 Such documents will then be included as accessories of the principal obligation of dare (art. 1097 CC) and the obligation to hand them over flows from the general rules on the so-called “integration” of contract, namely art. 1258 CC. In any case, the physical transfer of possession or of those other means is regulated in the Civil Code as being a bilateral legal act, to which the general principles that govern the “payment” of obligations apply. It requires intent and co-operation on both sides. Should the transferee neglect or reject the transferor’s offer, provided the offer of payment is exact and complete, the transferor is then entitled to obtain a judicial pronouncement on the regularity of what he or she intended to give, following the so-called “consignment procedure”.453 The transfer of possession, on the other hand, must have taken place with the consent of the transferor. If the transferee takes the thing of his or her own will, unless this is something they had previously consented to, his or her possession will be deemed to be “malicious”. Even if he or she claims the right to the things, in certain 449

450 451 452 453

Even if the transferor has secretly retained a copy of the same keys: LACRUZ, op. cit., III, 1°, p.186. STS 7 February 1994 (RJ. 916). MORALES MORENO, A., Posesión y usucapión, Madrid, 1971, p. 241. See RUBIO GARRIDO, Contrato de compraventa …, cit., p. 299. Arts. 1176-1181 CC.

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circumstances, if violence is used – not only on persons, but also on property – he or she could be considered to be committing a criminal offence: arbitrary performance of one’s own right (art. 455 Criminal Code). Commercial sales differ to some extent from the foregoing. The different forms of traditio of the Civil Code are admitted for commercial sales. The Commercial Code, however, regulates the so-called puesta a disposición: the obligation of delivery of the seller is satisfied as soon as the goods are ready and “at the disposal” of the buyer; which will be the case if they are ready to be taken away from the premises of the vendor, unless contrary agreement as to their dispatch.454 The moment of “place at diposal” determines the passing of risk to the buyer; whether this is also sufficient to fulfil the traditio requirement in order to transfer property, is a different question, in relation to which opinions differ. Courts and some authors seem prone to admit that the sole activity displayed by the seller – as a form of traditio ficta – allows the transfer of the “mediate” possession and the property to the buyer, so that the passing of risk coincides with the transfer of property. Others do not exclude such a possibility, if, as the case may be, both parties have admitted that the traditio would be achieved solo consensu; if not, scholars draw the distinction between the unilateral act of the vendor, on the one hand – that determines the passing of risk –, and the “delivery” (with the meaning of traditio), as something that requires the acceptance and reception of the goods by the buyer, on the other; both would be necessary in order to complete tradition.455 The delivery of goods that are to be carried from the transferor to the transferee has not been the subject of specific rules. The Commercial Code (1885) rules deal primarily with the so-called venta directa or venta en plaza, as the usual kind of contract in which the object is sold and delivered directly at the seller’s premises. The general default rule of the Civil Code provides for delivery to take place at the debtor’s domicile (art. 1171 CC). Up to the 1940’s, courts decided, however, that if the object had to be transported to a remote place, delivery – passing of the risk and of property – was performed at the place of destination, save an agreement to the contrary. Commercial practice, nevertheless, developed the wide use of conventional contract clauses that provide for transfer of risk and, 454 455

Arts. 337, 338 and 339 Ccom. The problem has been simplified for the sake of clarity. For more details, see DE COSSÍO, A., “Los riesgos en la compraventa civil y en la mercantil”, RDP, 1944, pp. 361 et seq., and 378. MENÉNDEZ, A., “La transferencia de la propiedad y del riesgo en la compraventa mercantil”, RDM, 1951, pp. 227 et seq.; NAVARRO CASTRO, op. cit., pp. 113 et seq. Instead of many, ALCOVER GARAU, G., La transmisión del riesgo en la compraventa mercantil. Derecho español e internacional, Edit. Civitas, Madrid, 1991, pp. 141 et seq.

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in most cases, traditio ficta as soon as the asset is handed over to the (first) carrier; if indeed traditio is deemed to have been consented, the carrier is deemed the “servant” of possession of the transferee.456 Jurisprudence has, in fact, evolved to a point in which the problem of the passing of risk is decided, unless the contract provides differently, according to who pays for the transport. Should it be the vendor’s concern (portes pagados), delivery is accomplished only when the goods arrive at the place of destination; if, on the contrary, the buyer concludes the transport contract and has to pay for it (portes debidos) – which, according to art. 1465 CC, is the default rule on the matter –, risk is borne by the latter from the moment the goods are handed over to the carrier.457

(b)

Documents of title

Documents of title, such as a waybill, bill of lading or deposit receipts, are called “titles of tradition”, as the transfer of the document implies not only that of the obligatory right derived from the contract (transport or deposit), but can also achieve a form of traditio of the property rights in the goods, as the document itself is apt to symbolise the “mediate” possession of the transferor, provided the “immediate” or direct possessor of the assets (carrier or deposit warehouse) recognises the “superior” possession. If the document is a receipt of deposit of movable things (resguardo de depósito) the credit of the depositor is incorporated into the document and entitles its possessor to claim restitution of the deposited goods. In the same manner, the bill of lading (conocimiento de embarque) authorises the exercise of the claims that arise from the transport contract, as obligational rights are incorporated into the document. The transfer of such documents carries out the transfer of obligational rights (art. 708 Ccom). Such obligational rights are, prima facie, independent from the property rights in the movables. Despite art. 195 Ccom,458 legal writing emphasises that the possession of a deposit receipt does not mean that the possessor is the owner, but that access to the goods can only be obtained by him or her who has the document. Therefore, transfer of the right of property in the goods can be obtained through the assignment of the document, provided the assignor is really the owner. They are also considered sufficient to justify 456 457

458

See SAP Castellón 19 May 2004 (JUR 2005 / 2460). For different opinions on the matter and the evolution of jurisprudence, see ALCOVER GARAU, op. cit. p. 208 et seq. Among other recent decisions that follow the same trend, see SAP Zamora 27 November 2002 (JUR 2003 / 20041). “The possessor of the resguardo (deposit receipt) has the full property (pleno dominio) on the deposited goods”.

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a situation of “mediate” possession, and in this sense, the possessor of the document may be considered a mediate possessor of the goods. Therefore, the person transferring the document is also entitled to transfer his or her mediate possession; the capacity in which this possession is held depends on the purpose of its delivery.459 The bill of lading was not expressly acknowledged in the Ccom as a “title of tradition”.460 The transfer of property by transfer of this document is, nevertheless, widely accepted.461 Opinions diverge, however, as to the form of traditio. Some authors include all types of delivery of documents of tradition as a form of “real” tradition. Others contend that precisely because the direct or immediate possession of the goods is in the hands of the carrier, physical delivery is not possible. Therefore, traditio is consensual, with transfer of mediate possession.462 In any case, delivery of the document, as traditio, has to be accompanied by a contract, aimed at transferring the goods. The transfer of the rights incorporated into the document and the “mediate” possession of the goods, requires physical delivery of the bill. Although the Commercial Code provides for the emission of four bills, only one of them, precisely the bill that is to be given to the party for whom the goods are destined and contains the promise of the carrier, is “representative” of the goods.463 Once the document has been issued and handed over to the assignee, the assignor can not transfer the claim to recover – derived from the transport contract – or the property of the assets to somebody else by mere agreement, because the credit is incorporated into the document and the transferor has lost mediate possession. This incorporation also protects the possessor of the document against new orders given by the transferor to the carrier to deliver the assets 459 460

461

462

463

See MORALES MORENO, Posesión …, op. cit., p. 244 et seq. Some authors derive it from art. 708 (2) Ccom., but the majority is of the view that this article does not really resolve the question of the transfer of the right of property in the goods. See PENDÓN MELÉNDEZ, M.A. Los títulos representativos de la mercancía, Madrid, 1994, op. cit., p. 313. The Act on Maritime Transport of 22 December 1949 does not regulate the function of the bill of lading as a document that “represents” the goods (p. 75 et seq). Not only a bill of lading, but also a received bill of lading. Delivery orders, those ordered by the possessor of the bill of lading and issued with the purpose of transferring some of the goods, are not contemplated by statute, but accepted as documents of title by practise, as long as they are also signed by the shipper or carrier. See PENDÓN MELÉNDEZ, M.A. Los títulos representativos de la mercancía, Madrid, 1994, pp. 37, 207 et seq. See RECALDE CASTELLS, A. El conocimiento de embarque y otros documentos del transporte. Función representativa, Edit. Civitas, Madrid, 1992, pp. 104, 108 and 141. PENDÓN MELÉNDEZ, op. cit., p. 102.

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to a different person, other than to the former.464 However, if a third person, other than the possessor of the document, receives the physical possession of the goods and the requirements of a non domino acquisition of the property of movables are met (art. 464 CC), the possessor of the document, who only had mediate possession of the assets, can lose his or her right of property in favour of the acquirer in good faith.465 In the case of deposit of movables in authorised warehouses, the documents are issued once the goods have been deposited and on request of the depositor.466 While the Commercial Code only provided for the issue of one document, the Royal Decree of 22 September 1917 introduced the system of “double title”. Art. 16 RD 1917 demands three documents for the deposit: the matriz, is kept by the warehouse; the other two – the receipt of the deposit and the “warrant” – are given to the depositor and can circulate, according to the rules on endorsement (to the order, in blank form or to the bearer) of negotiable documents. If both are endorsed to the same person, full property can be transferred (art. 16 (3) RD 1917), provided the goods belonged to the depositor and the cause of the assignment is a contract aimed at transferring property. The double title, however, allows separate and independent circulation of the documents, the warrant being the document apt to constitute a pledge, whereas the receipt document gives the entitlement of restitution of the goods, subject to the rights derived from the warrant.467

(c)

Instrumental traditio

When the transfer contract is documented through a public instrument, the document itself is described as “equivalent to the delivery” of the sold thing, if from the same writing the contrary cannot be conveyed or cannot be clearly inferred (art. 1462 (2) CC). For the purposes of this article, the concept of public document includes not only public notary deeds, but also judicial documents, such as the order approving the adjudication in case of execution,468 and other documents 464 465

466

467 468

RECALDE CASTELLS, op. cit., pp. 151 et seq. RECALDE CASTELLS, op. cit., pp. 148 et seq. RUBIO GARRIDO, T., La doble venta y la doble disposición, Edit. J. Mª Bosch, Barcelona, 1994, p. 88. If no such request is made, the depositor receives a document (documento de entrada) as proof of the deposit, that entitles the possessor to claim the delivery, but is not considered as representing the goods. PENDÓN MELÉNDEZ, op. cit., p. 254. See also DÍEZ SOTO, C., El depósito profesional, cit., pp. 146 et seq. See PENDÓN MELÉNDEZ, op. cit., pp. 270 et seq. See supra, II, 4.2.2.

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that, according to the law, are deemed to be “public”. The writing of a private document is not enough, as instrumental tradition prescribes the observation of those legal formalities that confer documents with the value of “full” proof of the written contract. The legal “equivalence” is understood as a true “form” of tradition; it does not require physical delivery in order to consummate the transfer and, therefore, this effect will not be excluded just because the parties declare that the direct or material possession will stay with the transferor or rests with a third party. Indeed, notwithstanding many statements in jurisprudence that seem to place the transfer subordinate to prior possession (direct or mediate) of the transferor,469 other decisions and the modern predominant doctrinal opinion maintain that the instrumental traditio, when not accompanied by physical delivery, is a “legal formality” apt to transfer “mediate” possession (art. 438 CC). This will be the case when the transferor retains the asset in a capacity other than as owner (constitutum posessorium),470 or if he or she was mediate possessor in relation to a third party who continues to acknowledge a superior possession. However, even if the tradens did not have any possession at all (e.g. the owner who had been previously deprived of possession for more than one year, art. 460 (4) CC) the “public document” will be deemed to have operated the transfer of property and, therefore, the transferee is entitled to use the action for revindication.471 Indeed, the role of the public instrument as a form of compliance with the “mode” in order to transfer “real” rights, is a separate issue to its effect with regard to other issues, such as fulfilment of the vendor’s obligation to procure the “peaceful” possession of the thing (that, depending on the circumstances, may require effective delivery),472 or the dies a quo for the exercise of the actions for hidden defects (art. 1490 CC: six months from 469

470

471

472

See the opinions summarised by BERCOVITZ ÁLVAREZ, G., Tradición instrumental y posesión, Edit. Aranzadi, Elcano (Navarra) 1998, pp. 120 et seq. As in STS 23 October 2003 (RJ. 7765), where the buyer of a hotel, including all the movables as accessories was deemed to be the lawful owner, despite the public document providing for the seller to continue in the possession and administration, considering that the buyer had thereby acquired “mediate” possession. Some writers contend that, due to the lack of possession of the transferor, traditio could not take place, as even instrumental traditio requires a transfer of possession; the action for revindication, according to this opinion, could be however assigned, according to the rules on assignment of claims (arts. 1526 CC). For the predominant opinion, see LACRUZ, op. cit., III, 1°, pp. 188 et seq.; NAVARRO CASTRO, op. cit., for extensive information, pp. 172 et seq. STS 20 October1990 (RJ 1990, 8029); BERCOVITZ ÁLVAREZ, Tradición …, cit., p. 165.

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the moment of physical delivery, as only then can the buyer check eventual defects),473 or if the transferee is pleading for something that requires him or her to be actual possessor (such as possessory claims against a third party, or usucapio).474 The exclusion of the significance of the notarial or public deed for traditio must, in consequence, be the object of the contrary will of the parties and is to be inferred from the document itself; as will be the case when the transfer of a property right is subject to a suspensive term or condition, or to a reservation of title clause.

(d)

Traditio of movables by mere agreement of the parties

Delivery of movable property may likewise be made by the sole consent or agreement of the contracting parties, if the thing sold cannot be transferred to the possession of the purchaser at the time of the sale or if the buyer already had the possession for a different reason (art. 1463, second sentence CC). The latter reflects the historical form of traditio brevi manu, which is seen to imply a change or conversion of the capacity in which possession is held by means of a change of title: the transferee ceases to possess as “immediate” or constructive possessor and begins to possess as an owner, while the transferor loses the mediate possession he or she previously held. If the thing cannot be delivered to the transferee at the time of sale, the traditional approach seems to restrict a traditio solo consensu to cases in which the asset cannot be put under the physical control of the accipiens due to the particular circumstances, or because it is in the possession of a third party, provided the transferor is in the latter case the mediate or indirect possessor. It is considered a subsidiary form, not to be accepted if material delivery is possible, as the parties cannot arbitrarily forsake the general system that pleads for effective transfer of possession in order to achieve some degree of publicity. Scholarly writing, nevertheless, has been inclined to admit consensual tradition if it suits the parties’ convenience475 and jurisprudence tends to refer to this rule in its justification of the right of property in movables, albeit the actual owner has never had the thing in his or her hands. As will 473 474

475

STS 6 November 1995 (RJ 1996, 9191); BERCOVITZ ÁLVAREZ, loc. cit. See, with extensive references to case law, BERCOVITZ ÁLVAREZ, G. / PEÑA LÓPEZ, F., in R. BERCOVITZ RODRÍGUEZ CANO (coord.), Comentarios al Código Civil, 2ª ed. Edit. Thomson-Aranzadi, Cizur Menor (Navarra) 2006, p. 1739 et seq. DÍEZ-PICAZO, L., “La tradición y los acuerdos traslativos en el Derecho español”, en ADC, 1966, p. 562.

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happen in the execution of financial lease contracts, where the delivery of the asset by the seller directly to the lessee, together with the related leasecontract, is sufficient to transfer the ownership to the financial lessor;476 or to justify, via constitutum possessorium, the property right of the lessor in a lease-back contract.477 In particular, such an agreement has been one of the favoured explanations when the financier of a sale by instalments exercises a third party action against confiscating creditors of the buyer: the consent of the latter suffices to “reserve” the property right in favour of the financier.478 In other cases, however, the position of the courts is stricter, considering that the agreement is not enough to oppose the transfer to third parties – creditors of the seller – if the assets have remained on the premises of the transferor, unless the asset has actually been delivered or the title has been consigned by public instrument (some of these are datio in solutum cases).479 The agreement of the parties to transfer property is construed by some authors as an approximation to a consensual system, as the conclusion of the contract would suffice. Others maintain the difference between the conclusion of the contract and the specific agreement on the passing of ownership,480 which is, however, to be considered as the implementation of the obligation of dare that flows from the contract, and not as an autonomous or independent agreement.481 If the transferee is already in possession 476

477

478

479

480 481

GARCÍA SOLÉ / GÓMEZ GÁLLIGO, op. cit., p. 84. SSTS 12 March 2001 (RJ. 5970), 7 October 2002 (RJ. 9265), among many others. STS 20 November 1999 (RJ. 8615), declares that the “impossibility” of art. 1463 CC is not to be circumscribed to the hypothesis of physical impossibility, but has to include convenience of the parties, as is the case when material delivery does not seem to be necessary, SSTS 20 June 2000 (RJ. 5294), SSAP Toledo 15 February 2002 (AC 2002 / 450), Cantabria 7 November 2002 (AC 2002 / 2219), Almería 3 November 2003 (JUR. 7673). On the effect of the reservation of title, see infra, II, 4.5. SAP La Coruña 29 April 2003 (JUR. 237005). STS 28 October 2003 (RJ. 7771): the court rejected the third party action of the buyer of movables, because the seller had continued to use them as the owner. Similary, STS 25 February 2004 (RJ. 854). As to datio in solutum: STS 1 December 2004 (RJ. 7904), STS 10 March 2005 (RJ. 3186), STS 28 March 2006 (RJ. 1864). The third party action is admitted if the parties had signed a “public document”, certified by a notary: STS 23 October 2003 (RJ 7765). The third party action is also admitted if the buyer took effective possession, notwithstanding a subsequent lease contract: SAP Barcelona 9 January 2004 (JUR 60910). DÍEZ-PICAZO, Fundamentos …, cit., III, p. 776. MORALES MORENO, Posesión …, op. cit., pp. 291, 294: the agreement is not an independent negocio, but a peculiar way of delivery.

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of the asset, the agreement will imply the waiver of the indirect possession of the transferor and the simultaneous change in the capacity in which possession is held by the new owner. Should the asset remain in the hands of the transferor in a different capacity (such as depositary or lessee), the “pact of constitutum” is regarded as a case of legal impossibility of physical delivery (usufruct, lease, etc.).482

(e)

Other forms of traditio

Courts constantly repeat that the forms of traditio prescribed in arts. 14621464 CC are not to be considered as numerus clausus, and seem to accept a broad approach derived from the progressive admission of “fictitious forms”: any type of act that unequivocally shows that the tradens has actually placed the thing at the complete and sole disposal of the transferee, with the evident and mutual intent of the parties of achieving the transfer.483 Scholars, however, observe that this is not to be understood as full party autonomy on the forms of tradition, but only that the codified rules do not intend to specify all types of acts that can lead to a change of possession.484 Where the asset is under the control of a third party, the so-called “instrumental” traditio (art. 1462 (2) CC), or traditio by mere agreement (art. 1463) will suffice; there is no specific rule on assignment of the claim to recover the movable, neither is notice of the transfer to the third party holder necessary. In this case, the “mediate” possession of the transferor will be deemed to have passed to the transferee. If the third party holds the thing by virtue of a “real” right (e.g. usufruct), the nemo plus iuris rule determines that the new owner must respect the pre-existing limited property right; where he or she holds the thing by virtue of a “personal” right, the effect of the transfer on the contract entitling him or her to possess the thing will be decided taking into account the general rules on assignment of claims and assumption of debts. Lease contracts, in particular, are subject to specific provisions.485

482 483

484 485

MORALES MORENO, Posesión …, op. cit., p. 292 STS 20 October 1989 (RJ 6945): the buyer of an immovable by private document appealed for a third party action, which was granted, despite the absence of a public deed. See PEÑA, op. cit., I, p. 101. BERCOVITZ ÁLVAREZ, Tradición …, op. cit., p. 71. According to art. 1571 CC, the new owner may choose to terminate the contract, unless contrary agreement, and the lessee is left to claim damages from his contracting party. This rule does not apply to lease contracts of immovables, subject to statute.

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The main problems regarding forms of traditio, in any case, do not deal with movables, since the forms laid down in art. 1463 CC have been construed in a rather broad manner. The main discussion deals with other topics, such as the admittance of a constitutum possessorium of an immovable, without a public instrument, or on the need of such a public deed when the transferor lacks any type of possession and his or her property right is seen as to be reduced to the real claim to recovery (rei vindicatio).

4.5.

Reservation of title

Reservation of title486 is usually described as a covenant that has the effect of suspending or excluding the transfer of the right of property, despite the delivery.487 This covenant usually appears in the sale of movables,488 where the asset is immediately delivered to the buyer, but payment is deferred; the seller then retains ownership until the price – including, as the case may be, the related interest – has been completely satisfied. The regulation of the reservation of title was not included in the Civil Code. The law on sale by instalments of movable assets, first promulgated in 1965 and later replaced by the LVP 1998, contains certain rules that deal primarily with the requirements of enforceability against third parties and the remedies of the creditor in case of default, but only applies to contracts included within its scope.489 A couple of other statutes relating 486

487

488

489

On this matter, see ANDREU MARTÍNEZ, M°.B., La reserva de dominio en el concurso, Granada, 2009. Notwithstanding some cases in which the covenant is used to construe the true intention of the parties to a contract and eventually to decide the scope of their agreement, as in STS 28 January 2000 (RJ. 455), regarding an assignment of sculptures only intended to be used for reproduction, but with reservation of the right of property. In the case of immovables, the constitution of a hypothec (mortgage) is usually preferred. MONTÁNCHEZ RAMOS (Algunas reflexiones respecto del pacto de reserva de dominio, Centro de Estudios Registrales, Madrid, 2006, p. 22, 24) explains that this is because the concept is thoroughly regulated in the sphere of movables, thus preventing the uncertainty of the parties, along with the absence – for movables – of an alternative security that could be considered competitive from an economic point of view, as ordinary pledge lacks such quality, and the regulation of the movable hypothec and of the pledge without transfer of possession has proved to be too restrictive. Currently it applies to sale by instalments for a period of time longer than three months and related loan contracts of non-consumable and identifiable movables (art. 1 LVP).

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to commercial sales allude to the clause, buy only to underline the need for express agreement and its validity in relation to the contracting parties.490 In relation to the public registration, the special rules regarding the Register of Movables are to be considered as well.491 The Bankruptcy Act (Ley concursal – LC –) of 2003, ultimately, rules its effects within insolvency proceedings, but its provisions are to be applied, notwithstanding extended criticism, to reservation of title clauses included in any kind of contract: movables, immovables, sale by instalments or commercial sales. The exact meaning of the reservation of title – as to what is retained – and the exact requirements of its effect against third parties have been long disputed. According to the so-called traditional or “classical” approach – applicable to both movables and immovables – the reservation would work as a condition precedent to the transfer of ownership – not of the sale contract – which is retained by the seller.492 This property right is opposable to third parties, such as the buyer’s creditors or subsequent purchasers, and therefore the title-holder of the reservation is entitled to file a third party action or a rei vindicatio, as the case may be,493 as long as the asset – in the case of movables – is still identifiable. If the buyer does not fully pay the purchase price, the seller may opt, according to the general rules on breach of contract, to claim the price or terminate the contract. If he or she decides to terminate, both parties have to return what they received and, usually, a contract penalty clause provides for the right of the seller to retain a portion of the price 490

491 492

493

Art. 17 (2) LOCM (regarding payment to providers); and art. 10 Ley 3 / 2004, of 29 December, that implemented the Directive 2000 / 35 / CE, on combating late payment in commercial transactions. On this issue, see OLIVA BLÁZQUEZ, F., “La reserva de dominio como instrumento de lucha contra la morosidad en la Directiva 2000 / 35 / CEE (LCEur 2000, 2084) y en la Ley 3 / 2004 (RCL 2004, 2678)”, in Revista de Derecho Patrimonial, n. 16, 2006 / 1, pp. 93 et seq.; and ZAHÍNO RUIZ, M.L., “La transposición de la Directiva 2000 / 35 / CE, por la que se establecen medidas de lucha contra la morosidad en las operaciones comerciales en el Derecho Privado español”, in BADOSA COLL, F. / ARROYO I AMAYUELAS, E. (coords.), La armonización del Derecho de obligaciones en Europa, Ed. Tirant lo Blanch, Valencia, 2006, pp. 334 et seq.; see especially pp. 371 et seq. See supra, I, 3. See MARTÍNEZ ROSADO, J. La compraventa a plazos de bienes muebles con reserva de dominio en el concurso, Edit. La Ley, Madrid, 2005, pp. 94 et seq. In relation to movables the third party action was granted by the STS 10 June 1958 (RJ 2142) where the clause is in writing and has a fixed date. For immovables, the TS has admitted the actio reivindicatoria of the seller who terminates the contract against a subsequent purchaser, despite the clause not having been in a public document, on the basis of the nemo plus iuris … rule: STS 14 October 2003 (RJ 6498).

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already paid, notwithstanding the judicial moderation that can take place according to art. 1154 CC. The buyer, in the meantime, obtains the right to use and enjoy the thing, but must take care of it and is not allowed to acquire it through prescription or to transfer it to a third person,494 although a subsequent purchaser of a specific movable thing may be protected by the rules on a non domino acquisitions (art. 464 CC). However, the buyer’s creditors are not protected by article 464; in order to hold the reservation of title against them, although no specific publicity measures or registration procedure has been established by law, the courts usually require sufficient proof in order to prevent fraud.495 If, on the other hand, the asset is seized in the interim by the seller’s creditors, the buyer would not be granted a third party action as a rule. Later court decisions, however, have admitted the action filed by a buyer who regularly satisfies his or her obligations, taking into account that his or her opposition to the seizure does not need to be strictly based upon actual ownership; indeed, his or her status as owner sub conditione allows him or her – according to art. 1121 CC – to use the necessary actions in order to preserve the aforementioned status, even before the condition is fulfilled.496 This view has been influenced by scholars who highlight the so-called “guarantee function” of the property retained by the seller – until the price is fully paid –, whose own creditors should only be entitled to seize the rights of the seller in relation to the buyer (credit as to the price and, eventually, the expectation of recovering the asset).497 494

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If he or she did so, he or she could be criminally liable for embezzlement. The Supreme Court, however (Pleno jurisdiccional 3 February 2005, JUR. 73173), has excluded criminal liability of the buyer, sustaining that the reservation of title or the prohibition of disposal in movables does not hinder the transfer of property to the buyer, when the asset has been delivered; creditors must apply for civil remedies. See MARTÍNEZ ROSADO, op. cit., pp. 28 et seq. Notwithstanding some decisions that reject the third party action of the buyer (STS 10 June 1958 [RJ. 2142], 11 July 1983 [RJ 4208) or STS 11 September 1983 [RJ 4208]), more recent judgments justify the opposing position: SSTS 19 May 1989 (RJ 3778), 16 July 1993 (RJ 6450), 3 July 1996 (RJ 5555), 21 March 2003 (RJ 2761) As a consequence, some authors point out that the opposition of the seller or the buyer to the seizure of creditors of either should be understood only in relation to the complete and free property of the asset, claiming that the object of the seizure – and the subsequent rights that can be acquired by a third party purchaser as a result of the judicial execution of the asset – is to be circumscribed to the “preventive title” each one of them had in the thing, according to the reservation of title clause. See PEÑA, op. cit., II, p. 440. ESPEJO LERDO DE TEJADA, M., La reserva de dominio inmobiliaria en el concurso, Edit. Thomson-Civitas, Cizur Menor (Navarra), 2006, pp. 185, 209. Following this line of thought, the seizure of the right of use and possession by the buyer’s creditors is admitted by STS 28 December 1999 (RJ 9618).

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As soon as the price is fully paid, the right of property passes automatically to the buyer, with retroactive effects. As aforementioned, the regulation of the reservation of title clause by the Act on the sale of movables by instalments gave way to a significant doctrinal trend that supports the “nature” of the clause as a charge or security right, similar to the pledge without transfer of possession, in the case of movables, and to mortgage, in that of immovables.498 This view is held in particular for the reservation of title clause incorporated into contracts included within the scope of the Act.

4.5.1. Reservation of title in the Sale of Movables by Instalments Act of 1998 As a requirement of the validity of the reservation of title, the contract of sale must be in writing (art. 6). The reservation of title clause can be agreed upon in favour of the seller or of the financier,499 in addition to the legal prohibition to dispose without their permission, until the price has been completely paid or the loan completely reimbursed (arts. 7, 10, 11 LVP). One of the most important points of this regulation has been the 498

499

The principal supporter of this theory is BERCOVITZ RODRÍGUEZ CANO, R. La cláusula de reserva de dominio, Madrid, 1971; “Comentario a la STS de 11 de julio de 1983” – RJ. 4208 –, CCJC, 1983, pp. 873 et seq.; “Comentario a la STS de 26 de marzo de 1984” – RJ. 1434-, CCJC, 1984, pp. 1.540 et seq.; “Comentario a la STS de 7 de noviembre de 1988” – RJ. 8421 –, CCJC, 1988, pp. 993 et seq.; “Comentario a la STS de 4 de octubre de 1993” – RJ. 7456 –, CCJC, 1994, pp. 67 et seq.), who is followed by many others. For further references and criticism, see ESPEJO LERDO DE TEJADA, op. cit., pp. 60 et seq.; MARTÍNEZ ROSADO, op. cit., pp. 127 et seq. As seen above, in this case, courts deem the property to have been transferred to the lender by means of consensual traditio; and the majority of decisions on appeal (Audiencias Provinciales) confirm that the buyer’s financier (financiador a comprador) is entitled to oppose the seizure by means of the third party property action. See QUICIOS MOLINA, S., Efectos de las garantías reguladas por la Ley de Venta a Plazos de Bienes Muebles en caso de incumplimiento del comprador y concurrencia de acreedores, Edit. Thomson-Aranzadi, Cizur Menor (Navarra), 2006, pp. 102 et seq. On the other hand, the financier may be granted the right as assignee of the seller; the assignment does not need the consent of the buyer, save a stipulation to the contrary: art. 11 (8) (a), art. 21 (2) ORVP. If the credit of the seller has indeed been assigned to the lender-financier, the reservation of title will be deemed to be included as an accessory right (art. 1212 and 1528 CC), and, in consequence, the latter is entitled to a third party action against the creditors of the seller-assignor, according to STS 30 September 2003 (RJ 7007).

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introduction of specific formalities where the aforementioned rights are intended to be held against third parties: they must have been entered into the Register of Sale of Movable Assets by Instalments, at present included as a section of the Register of Movable Assets. Thus the record of the reservation of title clause in the register is, in practice, constitutive of its effect.500 Art. 15 (3) LVP provides for the automatic abandonment of any proceedings directed against the assets sold, from the moment it is certified that a third person, other than the debtor, has registered rights upon them.501 The seller, on the other hand, cannot dispose of the thing in a way that may be prejudicial to the rights of the buyer, who is also, according to the register, the holder of rights in the thing. The creditors of the beneficiary of the reservation may seize and plead for the forced sale of the asset, but the relevant eventual acquirer shall be surrogated in the obligations of the former to the buyer.502 Referring generally to the consequences of the breach of contract by the buyer, the law states that where the buyer fails to pay two instalments or the last one, the seller is authorised to demand the payment of all the pending instalments or, if it is more convenient, to terminate the contract with the subsequent reciprocal recovery of what was given to the other party (art. 10 LVP). Art. 16 LVP enables the seller or the financier, provided they have formally requested payment previously, to follow a special summary procedure specifically directed at the asset itself, in order to obtain either the return of the asset or the sale thereof in notarial or judicial public auc-

500

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502

Notwithstanding some contrary judgments, most of the decisions of the courts reject the following actions when the reservation of title has not been registered: actio reivindicatoria against subsequent purchasers, provided they acquired for value and in good faith (STS 26 May 1995, RJ 4129), SAP Baleares 6 May 2003 (JUR 228838); third party action in insolvency proceedings (suspensión de pagos o quiebra): SAP Zaragoza 14 January 2003 (JUR 44729), SAP Valencia 7 June 2005 (AC 1175), STS 28 April 2000 (RJ 3233). The last one was, however, admitted by STS 13 May 1982 (RJ. 3166) and STS 7 October 1995 (RJ 7025). See QUICIOS MOLINA, op. cit., pp. 75 et seq. This provision has been criticised, especially when it is compared with the regulation laid down for the prohibition of disposal, where the subsequent purchaser is treated as a “third possessor”, meaning that the asset is still subject to the powers of the seller, as it was previously (art. 16 (3) LVP): if the thing was acquired as a result of judicial execution (forced sale) of the asset, the new owner will be held jointly and severally responsible with the debtor for the payment of the price secured by the prohibition of disposal (art. 15 (3) LVP). Art. 4 (c) ORVP.

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tion for collection of the purchase price.503 It is clear, however, that if the seller intends to recover the asset, it is as a consequence of the termination of the contract504 and he or she is then also obliged to repay, with a limited reduction, any partial payments made in the goods (art. 10 (1) subpara. (2) LVP). Still, the main part of the rules on the specific procedure is devoted to the matter of claiming the price. The creditor can opt between demanding the public sale of the thing in order to receive the purchase price or the direct adjudication thereof for the value expressed in the contract. If public sale is demanded, art. 16 (5) LVP, in turn, grants the creditor the special “pledge” preference over other creditors of the debtor in order to be paid from the proceeds of the forced sale.505 The direct adjudication of the asset is ruled as a datio in lieu of payment that allows the creditor to avoid the public (notarial or judicial) auction, but at the same time does not prevent the parties from claiming the difference (in favour of either) between the sum owed and the value of the thing, according to the depreciation tables in the contract (art. 16 c) and e) LVP; art. 634 (3) LEC). If the thing is in the hands of a subsequent purchaser, he or she will be treated as the third possessor of things subject to a real security: he or she must be summoned to comply, and if payment does not take place, the proceedings shall pursue him or her (art. 16 (2)-(3) LVP). Precisely the rights of the creditor to demand the forced sale of the asset itself and the priority granted thereby are the reasons underpinning the reservation of title “charge” doctrine; indeed, such powers do not seem consistent with the idea that the seller is still the owner.506 Many scholars, however, argue in favour of the traditional approach with nuances. The special rules on execution of the sold asset and the preference of the seller over other creditors of the debtor are deemed to be the natural aftermath of the creditor’s decision: in choosing to claim for the price – instead of the recovery of the asset – he or she definitely seeks to obtain what exactly consolidates the property right of the buyer and permits it to be acquired from the latter in the forced sale.507

503

504 505 506 507

As long as the contract has been formalised in the official legal application form (private document) and has been registered; in addition to the possibility of following ordinary declarative proceedings and the executive actions against the whole patrimony of the debtor, if the creditor has the necessary executive title: e.g. a notarial deed. Art. 250 (1) subpara. (11) LEC. See also art. 250 (1) subpara. (10) LEC. See supra footnote 498. See ESPEJO LERDO DE TEJADA, op.cit., p. 107.

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4.5.2. Reservation of title in insolvency proceedings The mere declaration of bankruptcy,508 as a rule, is not a cause of termination of the contract for sale, nor does it anticipate the expiry dates of the portion of the purchase price still due.509 If the price, however, is due and has not been paid, initially, it seems that the LC has decided to treat the reservation of title as a charge or real security, as long as the requirements of effect against third parties have been met; i.e. the reservation of title clause must have been entered into the Register of movable assets.510 The beneficiary is expressly granted by art. 90 (1) subpara. (4) LC a preference to be paid with priority over other creditors from the proceeds of the judicial sale of the asset. Therefore, most authors reject a separatio ex iure domini.511 Non-registered clauses, in contrast, are not effective within insolvency proceedings.512 As a secured creditor of the purchase price, he or she is entitled to claim separate execution of the sold asset – or may even continue the proceedings initiated before the declaration of insolvency.513 According to the rules on execution of real guarantees (art. 56 (1) subpara. (1) LC), if the assets are linked or connected to the debtor’s professional or business activity, enforced sale is temporarily suspended: as a rule, for one year if within this period the proceedings have not produced a formal arrangement or winding up; the reservation of title clause is considered, for this purpose, a “real” guarantee, similar to a pledge without transfer of possession.514 Naturally, the bankruptcy administrator may prevent the sale of the assets through the payment of the pending obligations, if it proves to be beneficial for the continuity of the debtor’s activity.515 508 509

510

511

512 513

514 515

See infra, II, 5.4. Where the contract has already been terminated for lack of payment within three months prior to the beginning of the bankruptcy proceedings, the bankruptcy administration may decide to restore it. See infra, II, 5.5. See CORDERO LOBATO, E., in BERCOVITZ RODRÍGUEZ CANO, E. (coord.), Comentarios a la Ley Concursal, Vol. 1, Edit. Tecnos, Madrid, 2004, p. 1076. Ruled in art. 80 LC. See QUICIOS MOLINA, op. cit., p. 115. CARRASCO PERERA, A. Los derechos de garantía en la Ley Concursal, 3 ed. Civitas-Thomson Reuters, Madrid, 2009, p. 198. See MARTÍNEZ ROSADO, op. cit., pp. 278 et seq. On the exact meaning of this “separate execution” for which the bankruptcy judge is competent, see CARRASCO PERERA, A., op. cit., pp. 154 et seq. See CARRASCO PERERA, A. op. cit., p.190 et seq. Art. 155 (2) LC. A further lack of payment will revive the creditor’s option of immediate execution of the asset. See BLANQUER UBEROS, R. Las garantías reales en el concurso, Ed. Thomson Cívitas, Madrid, 2002, p. 100.

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On the other hand, the seller will be able to recover the goods in cases in which he or she has communicated the termination of the contract for lack of performance before the bankruptcy proceedings; the recovery, however, will also be suspended or will have to wait for the aforementioned one year period, where the asset is necessary to carry out the debtor’s profession or business (art. 56 (1) subpara. (2) LC).516 After the declaration of bankruptcy, the LC does not seem to allow – as a rule: art. 61 (1) LC – termination for prior default; the credit of the seller – as party in bonis – is to be included in the passive estate; this issue, however, is controversial in relation to the beneficiary of a reservation of title.517 In the case of bankruptcy of the seller, the contract is equally deemed to subsist; the bankruptcy administrator may, however, terminate the contract, but only if the buyer had been in breach of contract before the proceedings, or proves to be subsequently so. If not, the buyer who continued to meet the future payments will simply consolidate his or her ownership.518

4.6.

Defects and restrictions of the transferor’s right to dispose

Since the system of tradition is a derivative mode of acquisition, actual transfer can only operate – provided both title and mode concur – if the transferor was title-holder of the right and had the power of disposal of it. If the transferor was not title-holder or his or her right of disposal was restricted, the other party will not acquire by derivative title, although he or she may be allowed to acquire by original mode (e.g. through a non domino acquisition or through prescription) if the relative requirements are met.

4.6.1. Transfer of ownership by sale In the Roman system – at least according to certain interpretations of it – the seller was only obliged to warrant the buyer the quiet and peaceful possession of the thing, but not the ownership thereof. However, in other modern systems (Italy, Germany), the obligation to transfer ownership is expressly established by law. In the absence of such express provisions, it has been long discussed whether, under the Spanish legal system, the seller is essentially obliged to transfer the ownership of the thing to the buyer, 516 517

518

CARRASCO PERERA, op. cit., p. 195. See infra, II, 5.4. On the termination issue, as necessary in order to obtain recovery, see different opinions in ANDREU MARTÍNEZ, M.ª. B. op. cit., pp. 102 et seq. On this topic, see also CARRASCO PERERA, op. cit.,¸p. 195 et seq. See CARRASCO PERERA, op. cit., p. 181 et seq.

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or, unless the contrary is established, his or her obligation relates only to the delivery of the thing, with an additional legal warranty regarding the quiet and peaceful possession thereof. In opposition to the possibility of considering the obligation of transfer as essential, it is argued that the Civil Code only refers to the obligation of delivery, not to that of transferring ownership; that the seller’s warranty obligation for dispossession takes place only when the buyer is disturbed in his or her legal and peaceful possession, and not for the mere fact that the seller turns out not to be the owner; and that both sale of another’s thing and title retention provisions are deemed admissible.519 Even though this theory could be sustained from a historical point of view, the fact is that, in most cases, the aim of the contract of sale, in the parties’ intention, lies in the transfer of ownership, and therefore the seller is obliged to do everything that is necessary to ensure that the buyer acquires it – including, first of all, material delivery of the thing. This is the view held by the majority in doctrine and jurisprudence.520 However, cases may be conceived, in which the parties to the contract of sale do not intend actual transfer of ownership (e.g. if both of them have doubts as to the real ownership of the thing); in such cases, the seller is only obliged to deliver possession, and the buyer will be in the condition to consolidate ownership, if necessary, through prescription.

4.6.2. Double / multiple selling of the same asset Since in Spanish law the perfection of the contract of sale does not produce an actual transfer of ownership, but only has obligational effects between the parties as long as tradition does not take place,521 it becomes necessary to establish certain rules in order to determine the attribution of ownership in cases of double or multiple selling of the same thing to different buyers.522 Such rules are provided for by art. 1473 CC: “[i]f the same thing should have been sold to different buyers, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, in the case of movable property. In the case of immovable property, ownership shall rest with the person acquiring it who first recorded it in the Land 519 520

521 522

ALBALADEJO, Derecho Civil, cit., II, pp. 518-519. See RUBIO GARRIDO, T., Contrato de compraventa y transmisión de la propiedad, Publicaciones del Real Colegio de España, Bolonia, 1993. STS 28 November 1986 (RJ. 6618). It has to be taken into account that the cases of double / multiple selling or disposal may have a criminal significance, being qualified as the offence of fraud. See art. 251 CP and SSTS 15 June 1990 (RJ. 5319), 26 June 1990 (RJ. 6547) and 3 July (RJ. 6209).

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Register. Where no registration exists, the ownership shall pertain to the person who was first in possession in good faith; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith”. Art. 1473 has also been applied in cases of the double sale of rights,523 and of double disposal by contracts other than those of sale;524 but such application has been rejected in cases in which one of the acts of disposal had been a donation.525 Art. 1473 CC is also out of the question when the second sale takes place after the first one has been consummated through tradition, as the case would be one of sale of another’s thing.526 It has to be stressed that the provisions regarding immovables can also be applied to those movables subject to a similar system of public registration based on ownership as such (i.e. ships and aircraft),527 but not to the rest of the identifiable movables, since the scope of the system of registration provided for them must be deemed limited to the field of security rights, without interfering with the application of the first sentence of art. 1473 CC (which focuses on possession) in relation to the cases of double transfer of ownership.528 In the absence of registration, the preference is given to the buyer who first acquires possession in good faith.529 It has been discussed whether, in 523

524

525 526

527

528

529

STS 31 December 1909 applied art. 1473 to the double sale of a credit right, and STS 17 December 1984 (RJ. 6286) to a case in which, after the sale of bare ownership, there had been another sale, in this case of the complete ownership in the same thing. For barter, see STS 13 November 1956 (RJ. 3442). The courts have applied the rules of art. 1473 in cases of double adjudication on the same things as a consequence of two execution proceedings running simultaneously (SSTS 5 January 1970, RJ. 165, and 29 July 1991, RJ. 5423). The application of art. 1473 CC to judicial sales is also admitted by SSTS 30 June 1986 (RJ. 4403) and 21 July 1994 (RJ. 5555). STS 25 July 1996 (RJ. 5572). Among others, SSTS 25 November 1994 (RJ. 8947), 11 April 1992 (RJ. 3096), 17 November 1992 (RJ. 9234), 25 July 1996 (RJ. 5572), and 18 May 2005 (RJ. 4233). Against this theory, see RUBIO GARRIDO, T., in his commentary on the last sentence, in CCJC, n. 70, 2005, p. 463. RUBIO GARRIDO, “Comentario …”, cit., pp. 468-469, criticising the opposite theory sustained in obiter dicta by STS 18 May 2005 (RJ. 4233), according to which a ship must be considered as a movable for the purposes of art. 1473 CC. MARTÍN OSANTE, op. cit., p. 344, explaining that, at present, the Register of Movable Assets can guarantee the acquirer that the asset is free of burdens, but it cannot guarantee that there have not been any previous transfers of it, since that is not the purpose of such a register. LACRUZ (op. cit., III, 1°, p. 182) points out that the relevance given by art. 1473 to good and bad faith in order to grant preference to one buyer or the other, mirrors

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order to consider such requirement met, all kinds of tradition must have the same effect or not. While some judgments have stated, on the grounds of art. 1462 (2), that instrumental tradition has to be considered equivalent to material delivery of possession for these purposes,530 others have given preference to real tradition over fictitious tradition, focusing on the fact that art. 1462 (2) only formulates a iuris tantum presumption that the execution of the deed implies delivery of material possession.531 However, in the field of double sale of movables it seems that the proper coordination between art. 1473, 1st sentence and art. 464 CC (good faith acquisition a non domino) will protect the second buyer to whom physical possession is transferred in conflict with a first buyer who only received a form of traditio ficta.532 As to the requirement of good faith in the buyer who claims protection under art. 1473, the courts have established that it implies ignorance of the thing having been already sold to another.533 Good faith is presumed, according to the general rules, save proof to the contrary.534 The buyer not protected by art. 1473 shall retain his or her actions against the seller, in order to obtain termination of the contract and compensation of damages according to the general rules.535

4.6.3. Sale by someone who is not the owner As has been mentioned above, the validity of a contract of sale in which the seller was not the actual owner of the thing at the time the contract was entered into is generally admitted nowadays, provided that the seller is in the position to acquire ownership in order to transfer it to the buyer.

530 531

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533 534 535

the influence of the causal title on the effect of tradition in the Spanish transfer system: “[h]ere, the preference of the first buyer to whom the thing has not been delivered by the seller over a second acquirer in bad faith whom tradition had been made shows the effect of the obligational act in relation to the creation of a ius ad rem: an obligational act without any transferring effect in itself, but influential, not only with respect to the transfer for which it serves as title or cause, but also with respect to other transfers that become ineffective because of it”. SSTS 5 November 1973 (RJ. 4066) and 25 March 1994 (RJ. 2535). SSTS 22 March 1930 (RJ. 788), 9 June 1955 (RJ. 1723) and 12 April 1957 (RJ. 2499). See T. RUBIO GARRIDO, La doble venta y la doble disposición, Edit. J.Mª Bosch, Barcelona, 1994, p. 86 et seq. For all, see SSTS 24 January 1990 (RJ. 20) and 11 April 1992 (RJ. 3069). STS 16 February 1981 (RJ. 528). SSTS 4 March 1988 (RJ. 1554), 10 November 1988 (RJ. 8432) and 4 December 1995 (RJ. 9160).

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If the seller does not accomplish such acquisition, he or she will be subject to liability for breach of the contract according to the general rules; if he or she actually delivers the thing to the buyer without having previously acquired the ownership thereof from its former owner, the latter will be entitled to revindicate it from the buyer, who, in turn, will be allowed to bring the actions arising from the legal obligation of warranty for dispossession (evicción) of the thing sold, against the seller (arts. 1475 et seq.). Where revindication is not possible because the buyer has consummated prescription or fulfils the requirements of a non domino acquisition, the previous owner will only be allowed to claim damages against the seller. However, it has to be remembered, that, depending on the circumstances, the sale of another’s thing can also be considered void for unlawful cause (art. 1275 CC), voidable for error or fraud in case the respective requirements are met (arts. 1265 et seq. CC), as a contract subject to condition precedent (arts. 1113 et seq. CC) or to ratification by the actual owner (art. 1259 CC), etc.536

4.6.4. Legal and voluntary restrictions of the right of disposal In some cases, the right of disposal of the thing, which normally rests with the owner, may be subject to restrictions. The notion of disposal includes not only the acts of transfer, but also those which imply the creation of a burden upon one’s thing or right, capable of compromising the future destiny thereof; even those acts which imply the assumption of obligations upon a thing, under certain circumstances (e.g. long term leases) may also be considered as acts of disposal.537 Some rights are not subject to disposal because of their own nature: that is, for instance, the case of the real rights of use and habitation (art. 525 CC). However, as a general rule, patrimonial rights may always be disposed of (art. 1112), and, in particular, ownership includes the right of disposal as a part of its normal content (art. 348 CC). However, under certain circumstances, the right of disposal may be excluded or restricted. In some cases, it is a consequence of the existence of legal limits of ownership, through which the law itself, in order to protect public or private interests, restricts or deprives an individual of his or her right to freely dispose of ownership, either directly – through a prohibition to dispose –, or indirectly – through the attribution to others of a right of preferential acquisition. Examples of temporary legal prohibitions to dispose may be found in art. 196 CC (the heirs of a person who has been legally declared dead may not dispose of the things and rights inherited until 536 537

See RUBIO GARRIDO, “Comentario a la STS de 18 de Mayo de 2005”, cit., p. 463. ALBALADEJO, op. cit., III, p. 268.

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five years have elapsed since the declaration took place), and in art. 27 (5) of the Act for the Modernisation of Agricultural Exploitation538 (a person who acquires ownership through the exercise of the legal abutter’s right of redemption may not dispose of it until six years have passed since the acquisition thereof). Examples of legal restrictions affecting the right of disposal are the legal rights of redemption provided by the CC (in favour of co-owners, abutters and co-heirs; see arts. 1522, 1523 and 1067) and by other special legislation. Such acts of disposal which are made against a legal prohibition are deemed void, as a general rule, unless the law itself provides for a different consequence (art. 6 (3) CC). Being legal limits of ownership, their effect is not subject to the existence of any special publicity, and they are therefore enforceable against third parties even if they have not been recorded in any public register (for immovables, see arts. 26 (1ª) and 37 (3o) LH, regarding prohibitions of disposal and legal rights of redemption, respectively). In other cases, the restrictions affecting the right of disposal may be founded on the existence of individual limitations of ownership. Such limitations may arise from a judicial or administrative decision, designed to secure the rights of the parties to a suit – e.g. where the debtor’s rights are seized – or the Treasury’s rights; in such cases, they may be recorded in the corresponding register by means of a preemptory notice (for immovables, see arts. 26 (2) and 42 (4) LH). However, individual restrictions of the right to dispose may also arise from the private parties’ will: the expressions “pacts de non alienando” (covenants of restraint on alienation) and “voluntary prohibitions of disposal” are in such cases used. The “pacts de non alienando” may entail either an absolute prohibition to dispose, or a relative prohibition (for a certain time period, by certain titles, to certain persons, etc.); and they may be granted either merely an obligational effect, or a real effect. In the first case, a subject assumes the obligation not to dispose of certain things or rights, however not being deprived of the right of disposal; therefore, should he or she carry out the act of disposal, a lack of performance will be attributed to him or her, thus being liable for damages, but the act of disposal in itself shall be deemed perfectly valid and effective. Such prohibitions of disposal, with merely an obligational effect, are perfectly admissible according to the principle of private autonomy provided for by art. 1255 CC. However, when it comes to those prohibitions of disposal with real effect, a subject receives ownership in a thing with a restriction as to the right of disposal; this way, the thing involved becomes unalienable and the acts of disposal regarding it are deprived of their effect.

538

Ley 19 / 1995, de 4 deJulio, de Modernización de las Explotaciones Agrarias.

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Real prohibitions of disposal deprive the acquirer subject to them of the right of disposal in the thing involved. The acts of disposal performed by him or her are not deemed to be void (provided the general requirements of contracts established by art. 1261 CC are met), but ineffective, with the authority to claim the declaration of such lack of effect corresponding to the transferor who imposed the prohibition and, sometimes, to the beneficiary thereof.539 It must be stressed that the lack of the right to dispose may be remedied where the requirements of an a non domino acquisition (especially, art. 464 CC for movables and art. 34 LH for immovables) are met. In order to deprive the prohibition of its effect, the will of the person who imposed it suffices, in principle, since the prohibition by itself creates no subjective rights in favour of third persons: the right of disposal of which the acquirer is deprived is not attributed to any other person, but remains amortised. However, in some cases, the right of disposal may be attributed to a person other than the transferee of ownership; e.g. art. 639 provides for the case of donation with reservation of the right of disposal in favour of the donor,540 the donee acquires ownership in the things donated, but the effects of the acts of disposal he or she may make will only be definitively consolidated if the donor does not exercise the right he or she reserved, save the legal protection granted to third party acquirers in good faith. There has been a long discussion on the limits within which voluntary real prohibitions of disposal may be admitted, since they may cause a thing to be excluded from trade, thus becoming inalienable. The point of view of Spanish law on this question may be summed up as follows: (a) The prohibitions of disposal may never surpass the time limit provided for by arts. 785 (2) and 781 CC; articles which, in order to prevent the amortisation of ownership, exclude the effect of those prohibitions of disposal which are perpetual and also of those temporary, unless they are established in favour of persons who are alive at the time they are provided for, or else do not exceed the second degree. 539

540

However, see art. 4 ORVP, which expressly declares void those acts of disposal or burdening made by the buyer of a thing subject to a prohibition of disposal, with the only exception being acts of transmission mortis causa or of a forcible nature. Art. 639 CC: “[t]he right to dispose of some of the things donated, or of some amount which shall be a charge thereon, may be reserved by the donor; but if he should die without having made use of this right, the property or amount reserved shall belong to the donee”. The reservation of the right to dispose of some amount charged on the things donated is a modal provision consisting of the donee’s obligation to deliver a certain amount of money, within the value of the things donated, to the donor himself or to the person designated by him or her. In relation to the regulation of donations with right of reversion in favour of the donor or of another person, see art. 641 CC.

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(b) It is generally assumed that real prohibitions of disposal are only admissible as long as their provision is intended for the protection of a fair and legitimate interest of the transferor, of the transferee, or of any other person. This way, e.g. they are deemed admissible when they are established for the benefit of the preservation of the household estate, but not when they are designed to render the transferee’s rights unseizable. (c) In any case, prohibitions of disposal are to be construed restrictively, since they are contrary to the presumption of freedom of ownership. (d) From arts. 26 (3) and 27 LH, regarding immovables, it may be deduced that only those licit prohibitions of disposal which are provided for in a will, marriage settlement, donation and other gratuitous acts may have access to the Land Register, meaning that only such prohibitions may be granted a real character and effect against third parties through registration. In contrast, prohibitions of disposal provided for in inter vivos and onerous transactions may not be granted any real effect. It is even subject to discussion whether or not equivalent mechanisms may be affected by the same rule; e.g. the admissibility of a provision subjecting the act of transfer to resolutory condition in the case of disposal by the transferee could be argued (although their access to the Land Register is in principle granted by art. 9 (2) LG), since it might lead to being in fraud of the law. (e) When it comes to movables, the admissibility and effect of prohibitions of disposal intended to be enforced even against third parties has to be dealt with taking into account, first, the special provisions regarding those assets that are subject to a special system of public registration. In the case of those sale contracts regulated by the LVP of 1998 (see also art. 4 ORVP), the prohibition to dispose of the thing sold without the express permission of the seller – or of the financier –, in order to warrant their rights as to the complete payment of the price – or the complete reimbursement of the loan – is considered to be directly established by law, unless the creditor expressly authorises one or more acts of disposal by the buyer. In any case, the effect of the prohibition against third parties (acquirers or creditors of the buyer) is subject to its entry into the Register of Movables. The prohibition has a scope determined by the parties; in the absence of any special provision, it extends to all acts of alienation and burdening inter vivos, but in no case may it exclude acts of transmission mortis causa, nor those inter vivos of a forcible nature (executions, expropriation), although the acquirer shall receive the assets subject to the same prohibition; according to art. 15 (3), in the case of a registered prohibition of disposal, the protection granted to the creditor is complemented by the affirmation of joint and several liability for the pay-

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ment of the obligation thereby secured, of both the original debtor and the acquirer of the thing as a result of its execution.541 It has to be remembered that the legal regulation of such prohibitions has traditionally tended to grant the seller – or the financier – a position very similar to that of the creditor whose right is secured with a pledge without transfer of possession; however, after the enactment of the new LC (Bankruptcy Act), the protection granted to the creditor in the case of the insolvency of the buyer has been substantially enhanced, allowing him or her to opt (as happens with the sale with reservation of title) between the material recovery of the thing, and the exercise of a special credit preference to be paid out of the proceeds of its sale in the bankruptcy proceedings. (f) As for the rest of the movables, the admissibility of prohibitions of disposal with a real effect has to be considered more restrictively, in the absence of any kind of public registration capable of providing the necessary protection of the interest of the third parties and generally of trade; it could be therefore assumed that such prohibitions shall only be admissible where established in gratuitous or mortis causa transfers, provided they are designed to protect a legitimate interest. In any case, the regulation provided for by art. 464 CC has to be taken into account, since it may deprive any prohibition of disposal of its practical effect, provided an acquirer in good faith obtains possession of the thing.

4.6.5. Transfer or acquisition by means of indirect representation The effect of indirect agency is disputed. The main opinion, however, draws a line between the rights and obligations derived from the contract the agent has concluded in his or her own name, and the transfer of property rights that are transferred or acquired on account or in the interest of the principal. In relation to the contractual (personal) obligations, the rule laid down by art. 1717 CC provides that the principal has no right of action against the person with whom the agent has contracted, nor do such persons have actions against the principal; if the agent has acted in his or her own name, as if the transaction was his or her own business, he or she is directly responsible vis à vis the other party,542 and in the same way entitled to claim for 541

542

Although art. 4 ORVP limits the joint and several liability of the third party acquirer to the thing itself. STS 18 May 1980 (RJ 2419), STS 4 July 2000 (RJ 6678): the agent who sold in his own name is responsible for breach of contract.

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performance. However, as an “exception”, this rule does not apply when the contract relates to assets that belong to the principal (art. 1717 (2), fine CC). The exact meaning of this last sentence has long been debated. A broad construction, such as “things that concern or have an interest for the principal” would render the general rule useless.543 Therefore, an extended doctrinal approach understands the exception as referring to cases in which the agent has been commissioned to enter into a contract for goods or assets that are the property of the principal (e.g. goods the agent is commissioned to sell or lease; or services rendered by the other party that concern an asset of the principal544) or even rights acquired for the principal with retainers provided by the latter. In such cases the principal may be sued directly for breach of contract, if, for instance, the vehicle circulation permit of a motorbike sold was not given to the buyer;545 if the asset has been bought for the principal with the money given to the agent, the former would be allowed to directly claim the delivery.546 The exception, on the other hand, does not exclude the intermediary from his or her contractual obligations to his or her contracting party, if the latter was not aware of the true facts or was relying on the intermediary as a contracting party,547 as he or she cannot be obliged to accept a different debtor; whereas, according to some authors and decisions of the Supreme Court, if the property or concern of the principal is well known or clearly acknowledged by the parties, the intermediary would not be held responsible, as the case should be treated as contemplatio dominio ex re to be inferred from the circumstances.548 However, according to most authors, property rights follow the same rules as in direct representation, in spite of the agent acting in his or her own name. Hence, if the contract is aimed at transferring property, such as a contract of sale, the sold asset is deemed to pass directly from the principal to the one who contracted with the agent, and the same will happen if the asset is bought by the agent on account or in the interest 543

544

545 546

547

548

For instance, STS 17 May 1993 (RJ 3555) rejected the action of the principal against the carrier who concluded the transport contract with the agent acting in his or her own name despite the things that were to be carried, which were destroyed on the way, being the property of the principal. A claim against the principal, if the performance of the contracting party of the agent turned out to be beneficial for the former, could clearly flow from the rules on negotiorum gestio, namely art. 1893 CC. SAP Barcelona 24 April 2003 (JUR 254230). See LACRUZ BERDEJO, J.L., et alii, Elementos de Derecho Civil, T. I, Vol. 3°, 2nd ed., Edit. Dykinson, Madrid, 2000, p. 316. This means that the claim can be filed against both principal and agent: STS 22 April 2005 (RJ 3751). See ALBALADEJO, Derecho Civil, cit., I, p. 840.

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of the principal.549 In this way, if the intermediary acquires something for the principal, ownership – once traditio has taken place – will pass directly to the principal, rendering unnecessary a subsequent transfer between the latter and the agent, who, if the thing was actually handed over to him or her, is obliged to place it under the control of the principal. This opinion was, among other reasons, based on art. 909 (4) Ccom., that provided for the principal’s right to separate ex iure dominii the assets the commissioner might still have in his possession – as possessor nomine alieno – in the bankruptcy proceedings of the latter.550 Under the current LC, although the law does not deal explicitly with this matter, the same seems to be applicable, provided the asset is in the possession of the agent.551

4.6.6. Selling in chain The concept of “selling in chain” or “chain of delivery”, as such, has not been provided for in Spain by any specific legal rule, nor has it been dealt with in legal doctrine and jurisprudence. This implies that most of the questions usually considered in other systems under this heading have to be analysed in Spanish law taking into account the general rules regarding the system of transfer. The subject seems to refer to the event of two (or more) different transactions (A-B, B-C) in which: – One of the parties in one of the sale contracts (B) is at the same time contracting party in the other. – Both transactions refer to the same “object” or asset. – Delivery, understood as the effectual handing over of the said asset and as a bilateral act (one person gives and the other receives) takes place between two links of the chain who are not deemed to have entered into a contractual relationship with each other (A delivers to C).552 First of all, it should be stressed that there may be many different situations in which two different transactions (A-B, B-C) take place, forming an apparent situation of selling in chain. As to the question whether ownership passes 549

550 551 552

In the case of acquisition of property on account of the principal, the TS sometimes describes the title of the agent as a “provisional title in transit to the estate of the principal”: STS 14 October 1989 (RJ 6920), among others. See LACRUZ, op. cit., I, 3°, p. 318. For a constellation of different cases, see RECALDE, op. cit., p.1462. It has to be remembered, in order to avoid any confusion, that traditio in the Spanish legal system is not considered to be a “real agreement”; consequently, it would be pointless to hold that the direct delivery made from A to C implies “one real agreement” corresponding to two underlying contracts.

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directly from A to C or, on the contrary, first to B and then to C, the answer may differ depending on the specific circumstances of each case and the nature of the underlying relationship existing between the parties involved.

(a)

Situations where ownership is deemed to have passed directly from A to C

(i) Indirect representation: B may really be the agent of either A or C. That is, B may be selling on behalf of A, without C being aware of it; or B may enter into the sale contract with A, in the interest of C who has provided him with the money to buy it. As previously explained in this report,553 most authors consider that in the case of indirect representation, property is deemed to pass directly from or to the principal, and therefore B will not be deemed to have acquired ownership of the movable. (ii) Direct representation without authorisation or power of attorney: if B has sold to C something that belongs to A, pretending to be A’s agent but without the authority to do so, A may ratify the contract of sale (art. 1259 CC),554 and thereby become party to the contract that was concluded in his or her name. The mere approval by A of the transaction concluded between B and C without A’s previous authorisation could also lead to a different solution, with A remaining alien to that contract, according to the scheme of indirect representation. (iii) Assignment of claim or substitution of the debtor: transfer of an entire contract. A may deliver the object to C because B, after the sale agreement with A, has assigned his or her claim to C, according to the rules on assignment of claim (arts. 1526 et seq. CC), that do not require, as a rule, the consent of the debtor (A); or B may have sold (in his or her own name) to C something that belongs to A, and the latter agrees to become new debtor of the sale contract, which (if B is to be released) requires the consent of the creditor (C) (art. 1205 CC). B may even transfer his entire contractual position, as a whole, to C, who would then be entitled not only to obtain delivery from A, but also obliged to pay the purchase price, as long as all three parties agree to the transfer.555 553 554

555

See supra, II, 4.6.5. Art. 1259 CC: “[n]o one may contract in the name of another without being authorised by the latter, or without being granted his legal representation by law. A contract entered into in the name of another by one who has no authority or legal representation, shall be void, unless it is ratified by the person on whose behalf it has been executed, before it is revoked by the other contracting party”. The transfer of an entire contract, as a whole, is not expressly acknowledged by the Civil Code; nevertheless, the “private autonomy” principle, as stated in art. 1255

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(iv) Contract in favour of a person to be designated (elected). Such a scheme, although not ruled in the Civil Code, is usually described as a contract in which one of the parties (B, stipulator) is granted by the other (A, promissor) the power to designate – within the agreed time – a third person, who at that point is unknown or has not been yet ascertained; if elected in time, the one designated will assume the contractual position (claims and debts) of the stipulator (B), who, in turn, remains out of the contract. Should the designation not take place at all, the stipulator remains a party to the original contract. Despite the lack of any specific provisions,556 most of the questions are answered by scholars taking into account the historical tradition and the aims usually pursued by those involved in the matter:557 – Indeed, the so-called stipulator may be in fact an agent of an undisclosed principal who, for the time being, prefers to remain in the shadows; the case should then be treated according to the criteria that govern representation, which, as soon as the designation takes place, will be deemed to be “direct”, as from the beginning there has been a kind of contemplatio domini, even if the identity of the principal was not yet known. – However, the stipulator may contract on his own account, whilst hoping to later find a third person to whom the asset could be resold, profiting from a higher repurchase price and at the same time avoiding the expenses (especially from tax law) of two transfers of property. If such is the purpose of the “designation clause”, most authors describe it as

556

557

CC, is the basis on which the predominant view construes such a possibility, as long as all the parties concerned agree to the change. Art. 647 (3) LEC does provide a rule which allows the executing creditor to bid in the auction or to demand direct adjudication of the seized assets, retaining the power to “assign” the adjudication to a third party. See also art. 1499 of the former LEC, which, up to the modification introduced in 1992, allowed any bidder – not only the execution creditor – to retain the right to assign the adjudication to a third party. It is interesting to point out that the Regulation of the Tax on Patrimonial Transfers (RD 828 / 1995, of 29 May, art. 20) considers that, in those situations where the transfer is made in a judicial auction with the right of assignment in favour of a third party, according to the procedural rules, only one transfer – and not two – will be subject to taxation, as long as the declaration of bidding with reservation of the right to assign is made before the auction takes place. The civil law of Navarre (Fuero Nuevo, Ley 514) rules it as a contract in which one of the parties is granted the power to designate, at a later moment, the person who will be surrogated in all the contractual rights and duties. DE CASTRO, F. Contrato por persona a designar, ADC, 1952, pp. 1369 et seq.; VALLET DE GOYTISOLO, J.B. Contrato de compraventa a favor de persona a determinar, AAMN, t. VIII, 1954, pp. 559 et seq.

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a way of achieving a transfer of the contract as a whole, as the person who accepts the designation is entitled to – and eventually obliged by – all rights and obligations that flow from the original contract; and will receive property directly from the original vendor. – Jurisprudence offers a few examples in which the buyer wishes to include this kind of agreement in the “private” contract because he or she intends to make a gift to the person who will be later designated and shall appear as the buyer at the moment the traditio is performed by the seller by means of a public or notarial deed. Indeed, in STS 9 March 2006 (RJ 2006 / 5709) the Supreme Court held that property is acquired directly by the persons – in this case, daughter and son-in-law – who in fact appear as party to the sale contract in the notarial deed; but, at the same time, the court ruled that the original buyer – who as a result of the designation had remained external to the contract of sale – on having paid the purchase price, may have intended to make a gift of the money or, on the contrary, may be entitled to the recourse actions that are provided for by the law on “payment by a third party” (art. 1158 CC), as he thereby released the acquirer from any kind of obligations to the seller.

(b)

Situations where ownership passes from A to B and from B to C: a succession of two different contracts of sale.

(i)

General

In all situations hitherto described, ownership in the assets is deemed to have been directly transferred from A to C,558 while B is not considered to have acquired ownership at any time, not even for a “logical second”. However, a situation based on a pure succession of sale contracts is perfectly conceivable,559 where – following the agreement of the parties involved – material possession of the assets is not given to all the members of the chain, but directly from one end of the chain to the other. In Spanish law, the application of the general rules regarding the system of transfer should 558

559

Although, from the point of view of tax law (and in order to prevent eventual fraud), the qualification of some of these cases may be different: see art. 17 (1) of the Tax on Patrimonial Transfers Acts (RDLeg. 1 / 1993, of 24 September), which states that in the transfer of credits or rights the exercise of which may lead to the acquisition of specific assets, the corresponding taxes shall be demanded in the same terms as those provided for the transfer of the assets themselves. The contract between A and B does not necessarily have to be concluded prior to the contract between B and C.

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lead to the understanding that, in such cases, ownership is successively transferred from one of the members of the chain to the next one, and not directly from the first one to the last one, even though for those subjects who have not received material possession of the asset, the attribution of ownership should be recognised only for a “logical second”. Indeed, the flexibility of the forms of tradition admitted by Spanish law would allow admitting that B, on concluding the contract with A, has commissioned him or her at the same time to deliver the thing to C, to whom B already has sold – or intends to later – that very same asset. B will have acquired property by means of a form of tradition as provided by art. 1463 (2) CC: tradition is performed by mere agreement of the parties if the thing cannot be placed in the power of the buyer at the time of the contract. As we have highlighted before, scholars and courts are perfectly willing to admit a broad construction of this provision; in fact it is the explanation of the property of a lessor – in a financial lease contract with a purchase option – although the asset is delivered directly by the original owner to the lessee, who afterwards buys the same asset, concluding the sale contract with the lessor.560 It could even be considered that traditio only takes place the moment A hands the thing over to C, but that B, for merely a ‘logical second’, acquired and subsequently transferred the mediate possession of the thing and, therefore, ownership to C. We have also pointed out that selling something that does not belong to the seller (B) at the time of the contract does not make the contract, as the source of rights and obligations between the parties, invalid;561 B may perform his own obligation of transferring property and peaceful possession to C by way of buying and acquiring solo consensu from A, who at the same time accepts the mandate to deliver the asset to C. Leaving aside the consequences of such construction in the field of tax law (where two different transfers should be subject to taxation), the fact that ownership of the asset has been acquired at a certain moment by B is of great importance from various points of view, especially in order to determine the impact of the eventual ineffectiveness of one of the contracts involved, and also to evaluate the position of the different parties’ creditors.562 560 561 562

See II, 4.4.2.(d). See II, 4.6.3. As to the contractual rights, actions and remedies granted to the parties (where, e.g. the asset turns out to be defective), it has to be taken into account that, in principle, each contractual relationship is independent from the other and, consequently, C may only bring a contractual claim against B, while B is only allowed to do so against A. However, it should be remembered, that the courts have in many cases considered that the transfer of a specific asset may also include the transfer of the contractual remedies regarding the asset, not only as a consequence of an express agreement (as

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595

Consequences of bankruptcy

In the case of bankruptcy proceedings, the LC has introduced a complete set of rules that deal with the effects the declaration of bankruptcy has upon contracts entered into by the debtor at the time the insolvency proceedings begin or in the months leading up to it.563 In general terms, these rules allow the bankruptcy administrators a wide operational margin in order to decide whether or not such contracts should be kept in force, revoked, terminated or even restored, taking mainly into account the interest of the bankruptcy creditors and the continuity of the debtor’s economic activity. Although the system laid out by the LC (see especially arts. 61 and 62) is rather complex, it may be summed up as follows: (aa) Where, at the time the bankruptcy is declared, one of the parties has completely satisfied his or her contractual obligations, while the other has not, art. 61 (1) LC states that the credits or the obligations pertaining to the bankrupt debtor shall be included into the active or passive bankruptcy estate. The meaning of this rule must be analysed considering both sale contracts separately. – The sale contract A-B: the creditor (A) who has already fulfilled his or her obligation by delivering the asset sold (to C), will be left to demand payment of his or her credit within B’s bankruptcy proceedings. As a rule, A is not allowed to terminate the contract (for B’s default prior to the declaration of bankruptcy) and thereby obtain restitution of what he or she delivered. In the cases in which – according to the LC – termination of the sale contract is indeed possible, A could recover the asset from C where A is the beneficiary of a retention of title clause, a prohibition of disposal or an express resolutive condition for lack of payment, followed by entry into the Register of Movable Assets, because in such cases the seller’s right is considered to be opposable to third parties.564 – The sale contract B-C: if C has already paid the purchase price to B, not yet having received the asset from A at the time of bankruptcy, C can only demand payment of his or her credit as a bankruptcy creditor, while

563 564

typically happens, e.g. in the case of financial lease contracts), but also impliedly, as long as the actual interest to use the corresponding rights and actions lies with the transferee (and so, e.g. by selling the asset to C, B would not only intend to transfer ownership in it, but also the contractual actions for hidden defects against A). A thorough analysis of jurisprudence and literature on this issue can be found in GONZÁLEZ PACANOWSKA, I., “Comentario al art. 1257 del Código Civil”, en Comentarios al Código Civil y Compilaciones Forales, dir. ALBALADEJO y DÍAZ ALABART, t. XVII, vol. 1°-A, Madrid, 1993. For a thorough description of these rules, see infra II, 5. See supra II, 4.5.1.

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the asset itself will be deemed to belong to the active bankruptcy estate. In principle, C is not granted the power to terminate the contract (with B); moreover, C is not granted any kind of preference, just because the asset is still in A’s hands. Should C seek and obtain direct delivery from A without the authorisation of the bankruptcy administrators or of the bankruptcy judge, this payment would be considered to have been made on account of the bankruptcy debtor and, as such, submitted to the challenging powers of the bankruptcy administration, according to the rules of the LC. Where the asset has already been delivered to C, without the latter having paid for it, the bankruptcy administrators may claim payment or – in case of lack of performance by C – decide to terminate the contract and recover the asset. (bb) The situation is more complex where, at the time of the declaration of bankruptcy, neither of the parties has satisfied their reciprocal obligations flowing from the various contracts. Art. 61 (2) LC states that the declaration of bankruptcy does not imply the automatic termination of contracts concluded by the bankrupt debtor (with any covenant to the contrary being void, art. 61 (3)). However, the bankruptcy administrators may choose between keeping to the agreement or the termination of the contract, as the law relies on them to decide whatever solution seems to be more convenient for the bankruptcy. As a result, the situation of the parties involved in the “chain of delivery” depends mainly on the decisions of the bankruptcy administrators or the bankruptcy judge. Each one of the sale contracts is to be considered independently. Thus, for instance, in the case of B’s insolvency, the contract of sale between A and B may be upheld, while the contract between B and C may be terminated: the asset, in this case, should consequently be delivered to the bankruptcy estate against payment of the purchase price – from the bankruptcy estate – to A.565 (iii)

Void or avoided contracts

Where one of the successive contracts proves to be void or is in fact avoided, the consequences in relation to the transfer of ownership have to be deduced from the general rules. (aa) If the contract between A and B is void, B will be deemed to have never acquired ownership and, therefore, was not able in turn to transfer it to C. Despite C having received the asset directly from the owner (A), such delivery does not mean that C acquires ownership derivatively – by virtue of some sort of “abstract” or “independent” agreement – from A; it is likely that the rules on undue payment would allow A to claim restitution directly 565

See further details on art. 61 infra II, 5.4.

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from C. However, such delivery could allow C to acquire ownership – and thereby retain what was given to him or her – by “original acquisition”, where C is protected by the rules on good faith acquisition of movables (art. 464 CC).566 (bb) If the contract between B and C is void, the lack of a “valid obligation” or “valid title” naturally excludes any possible derivative acquisition.567 Moreover, C would not even be protected – in relation to B – by the rule possession vaut titre (art. 464 CC), as the general opinion maintains that the protection of the acquirer in good faith and for value requires him or her to have celebrated a valid purchase contract.568 Even if the delivery was obtained directly from A, it has already been said that B is deemed to have acquired ownership, and the latter is therefore entitled to claim restitution of the asset, according to the rules on restitution duties in the case of voidness.569 B shall also be entitled to use a third party action to lift the seizure of the asset by C’s creditors, or, as the case may be, the right of separation ex iure dominii in the case of C’s bankruptcy.570 (iv)

Termination of one of the contractual relationships

Finally as to the consequences of the termination of either of the contracts of sale, it has to be remembered that, pursuant to art. 1124 (4), termination for breach of contract does not prejudice the rights of third party acquirers in good faith.571 Therefore, if A terminates the contract of sale with B, for B’s lack of performance, A will not be able to recover the asset from C, unless it is proved that C has acted in bad faith, as C is a third party to the contract between A and B. However, recovery of the asset against third parties can be secured by means of a reservation of title clause (or prohibition of disposal or express subsequent condition for lack of performance), as long as such clauses have the necessary requirements of publicity in order to be opposable to third parties.572 If B terminates the contract with C for the latter’s default, B will be entitled to claim restitution of the asset sold, unless it is now in the hands of a further third party who, as before, acquired in good faith and is not affected by any kind of reservation of title clause. 566 567 568

569 570 571 572

See infra III, 8.6. See supra II, 4.3.1. See LACRUZ BERDEJO, J.L. et alii, Elementos de Derecho civil, t.III, vol.1°, 2 ed., Ed. Dykinson, Madrid, 2003, p. 202. See supra II, 4.3.1. See infra II, 5.1. See supra II, 4.3.2. See supra II, 4.5.1.

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5.

Effects of the declaration of bankruptcy on the transfer system

The enactment of the new Bankruptcy Act (Ley 22 / 2003, of 9 July, Concursal – LC) implies a profound and widely demanded reform of the Spanish insolvency law, which had previously been subject to general and justified criticism in doctrine. Leaving aside other aspects of the reform, which do not affect the scope of this report, the new LC includes a detailed regulation of some issues that had not been satisfactorily dealt with under the preceding regulation, and which may have a direct impact on the system of transfer of movables when either the transferor or the transferee are subject to a declaration of bankruptcy. Special attention will be paid in the following pages: 1) to the formation of the active bankruptcy estate and the exercise of the third parties’ right to separate their own assets from the estate; 2) to the exercise of the debtor’s patrimonial powers during the bankruptcy proceedings; 3) to the new system of actions for the reintegration of the active estate; 4) to the effects of the declaration of bankruptcy upon the contracts entered into by the debtor but not fully completed before the declaration of bankruptcy; and 5) to the powers granted to the bankruptcy administrators in order to restore certain contracts entered into by the debtor but rendered ineffective by the counterparty before the declaration of bankruptcy was issued. An important aspect of the regulation of the LC – the situation of the creditors holding a security right based on the use of contractual stipulations relating to the transfer mechanisms of individual assets of the debtor – has been already dealt with in the foregoing.573

5.1.

The configuration of the active bankruptcy estate and the third party’s right to separate his or her own assets

Art. 76 (1) LC formulates the so-called “principle of universality” in relation to the determination of the active bankruptcy estate. According to this article, “the active bankruptcy estate is comprised of the assets and rights that make up the debtor’s patrimony at the date of declaration of bankruptcy, as well as those which may be reintegrated into it or acquired up until conclusion of the proceedings”. Special rules are formulated in the same article and in those following in order to determine the impact on the formation of the active estate caused by the legal provisions relating to assets not subject to seizure (art. 76 (2)), the exercise of preferential credits upon ships and aircraft (the only cases of absolute separatio ex iure 573

See supra, II, 4.5, and II, 4.6.4.

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crediti left in the new LC; art. 76 (3)), the debtor’s matrimonial economic system (arts. 77 and 78), and the debtor’s co-ownership in joint bank accounts (art. 79).574 Art. 80 regulates the right of separation granted to third party owners of assets possessed by the debtor (including, e.g. those assets handed over to the debtor in the execution of a contract that proves to be void or is annulled according to the law, thus establishing obligatory restitution under arts. 1303 et seq. CC). Such assets shall be delivered by the bankruptcy administrators upon the request of their legitimate owners, save in cases where the debtor holds a right of use, security or retention over them. Should the administrators refuse to deliver the assets, the third parties may bring a claim before the Bankruptcy Judge, using the special proceedings provided for by the LC (the so-called incidente concursal). Where the separation has become impossible because the assets or rights involved were transferred by the debtor to a third party before the declaration of bankruptcy, in such conditions that the assets are no longer capable of being revindicated (e.g. because the acquirer in good faith is protected by art. 464 CC), the original owner will be allowed, according to art. 81 (1), to opt between claiming the assignment of the right to recover the price – if the acquirer has not yet paid it –, or conveying to the bankruptcy administrators, in order to have it acknowledged within the bankruptcy, the credit for the value that the assets or rights had at the time of the transfer – or at a subsequent time, at the choice of the person claiming –, as well as the legal interest. This credit will be considered as an ordinary concurrent credit; the effects of the lack of timely communication of the credit (e.g. the classification of the credit as subordinate) shall only operate one month after the administrators’ acceptance or the judicial decision acknowledging the creditor’s right has become unappealable.

574

Further information on these issues can be found in ARNAU RAVENTÓS, L., La declaración de concurso de persona casada y la composición de la masa activa. Estudio de los artículos 77, 78 y 79 de la Ley 22 / 2003, de 9 de julio, Concursal, Ed. ATELIER, Barcelona, 2006; DÍEZ SOTO, C.M., Concurrencia y prelación de créditos: Teoría general, Ed. REUS, Madrid, 2006, passim, and, by the same author, “El régimen de gananciales en la nueva Ley Concursal”, in Libro Homenaje al Profesor Manuel ALBALADEJO, coord. GONZÁLEZ PORRAS, J.M. and MÉNDEZ GONZÁLEZ, F.P., Colegio de Registradores de la Propiedad y Mercantiles de España, Servicio de Publicaciones de la Universidad de Murcia, 2004, t. I, pp. 1277-1314.

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5.2.

Exercise of the debtor’s patrimonial powers during the bankruptcy proceedings

Once the active estate is determined, the transfer of the assets or rights that form it, as well as the acquisition of new ones, are subject to the general rules established by arts. 40 et seq. In short, such articles state that, in the case of voluntary bankruptcy – declared at the debtor’s request –, the debtor shall keep his or her powers of administration and disposal over his or her patrimony, although he or she will be subject to the intervention of the bankruptcy administrators. However, in the case of ”necessary” (i.e. involuntary) bankruptcy (concurso necesario, declared at the creditor’s request), the debtor’s powers shall be suspended, and the exercise thereof shall rest with the administrators. Nevertheless, the Bankruptcy Judge, taking into account the circumstances, may establish a system of suspension in the case of voluntary bankruptcy, or a system of intervention in the case of necessary bankruptcy; he or she may also modify the system originally established. A system of suspension shall also apply from the moment the proceedings enter into the phase of winding up (art. 145). It must be stressed that, according to art. 43, the exercise of the powers of administration and disposal during the bankruptcy proceedings has to be directed to the preservation of the active estate in the most convenient way for the interest of bankruptcy; as a consequence, until the agreement is judicially approved or the liquidation phase is opened, the assets and rights that make up the active estate may only be transferred or burdened with the judge’s authorisation, leaving aside, however, those acts of disposal which are deemed necessary for the continuity of the debtor’s professional or business activity, the regulation of which is established by art. 44. Taking into account that the debtor’s ordinary activity may well be based on the transfer of movable assets, it seems apt to bear in mind the main aspects of such regulation. If the debtor is subject to a system of mere intervention, art. 44 (2) permits the prevention of the necessity of obtaining the administrators’ authorisation or consent for every single transaction, allowing them to grant the debtor general authorisation for those acts and transactions that are characteristic of his or her professional or business activity; the same flexibility applies to the period prior to the administrators’ acceptance of their post, since the debtor is allowed to independently enter into such transactions that are characteristic of his or her activity and necessary for the continuity thereof,575 provided they are made under ordinary market terms, and without prejudice to the cautionary measures the judge might have laid down (arts. 17 and 21 (1) subpara. (4)). When the debtor’s pow575

The same view had been held by the courts under the previous regulation: see STS 26 May 1998 (RJ. 4002).

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ers are subject to a system of suspension, the administrators will have to adopt the necessary measures in order to ensure that the debtor’s activity can continue (art. 44 (3)); before the administrators accept their post, it is up to the judge to adopt such measures. The regulation applicable to those transactions that do not meet the requirements arising from articles 40, 43 and 44 is established by art. 40 (7) (even though it only expressly refers to the cases regulated in art. 40), which grants the bankruptcy administrators (as the case may be, upon the request of any creditor or of the counterparty of the transaction) the right to confirm the corresponding contracts or else to claim the nullity thereof before the Bankruptcy Judge and through the proceedings of the incidente concursal.

5.3.

The actions for the reintegration of the active estate

The new regulation of the effects that the bankruptcy may produce on the acts and transactions made by the debtor in the period immediately prior to the declaration is probably one of the most appreciated additions of the new LC, with respect to the preceding regulation. Particularly interesting is the replacement of the previous system, based on the use of the Actio Pauliana (arts. 643, 1111 and 1291 et seq. CC), and, when the debtor was a trader, on the attribution of retroactive effect to the declaration of bankruptcy – which implied the nullity of the acts made within the ‘retroactive’ period, causing a high degree of legal insecurity–,576 by a much more flexible system based on the possibility of removing the effect of those transactions considered to be detrimental for the formation of the active estate (including prepayments of debts and constitution of securities) through the bringing of the actions for its reintegration. Under the new LC, acts and transactions prior to the commencement of bankruptcy are no longer void. Chapter IV (arts. 71 to 73) refers to the “effects of prejudicial acts on the bankruptcy estate”, as described in art. 76 LC. The provisions of this chapter deal with “recovery of assets” (acciones de reintegración) and set out a detailed regulation for the avoidance powers of the administration of the bankruptcy. These specific remedies do not impair 576

See art. 878 (2) Ccom., now repealed by the LC, as well as the other provisions contained in the same code referring to insolvency proceedings. For a judicial analysis on this provision see STS 24 March 2006 (RJ. 5655). For more details, see GONZÁLEZ PACANOWSKA, I., “Spanish case note to Hof van cassatie van België / Cour de cassation de Belgique, 31 January 2002 – The effect of avoidance in bankruptcy as against a third party acquirer in good faith”, in European Review of Private Law, 6-2004, pp. 797 et seq.

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the possibility of using the Actio Pauliana as regulated in the CC (arts. 1111 and 1290 et seq.), if its requirements concur (art. 71 (6) LC). Pursuant to art. 71 (1) LC, juridical acts within two years of the date of the bankruptcy declaration and detrimental to the bankruptcy estate may be set aside by the bankruptcy administration (trustee or liquidator). Fraudulent intention is not required. Thus, the avoidance does not depend on establishing any particular intention or motive on the part of the debtor or of the person involved in the transaction. The legislator has taken into account that it is always difficult for a court to ascertain subjective motives. It is essential that the challenge will increase the assets available for distribution to creditors. Great care has been taken not to use the word ‘void’. Technically the transactions are ineffective vis à vis creditors, and any property transferred as part of the transaction is to be vested as part of the bankruptcy assets. The recovered assets are placed back in the pool for the benefit of creditors generally, as long as the two aforementioned requirements concur. This means that the transaction must have been entered into at a relevant time (within two years ending with the onset of the bankruptcy proceedings) and must have been detrimental. In principle, the burden of proof of detriment or damage lies with the liquidator or bankruptcy administration, as stated in article 71 (4). However, two rules provide an alleviation for the challenger: art. 71 (2) presumes iuris et de iure the damage in two cases, while in art. 71 (3) the burden of the proof is reversed. According to art. 71 (2) LC, some acts are always deemed to be detrimental; proof of the contrary is inadmissible. This is what happens with transactions with no consideration, excepting customary gifts. Art. 71 (2) also includes prepayments and other equivalent acts that extinguish obligations in relation to claims that only fall due after the date of declaration of bankruptcy. This provision is consistent, as formerly mentioned, with arts. 643, 1292 and 1297 CC. Detriment or prejudice is considered from two points of view. In the first place, it means the reduction of the common pool, caused by or originating in gratuitous conveyances. Secondly, anticipated payments of credits, that would have only been due after the onset of the proceedings, are deemed to favour one creditor and undermine the pari passu principle.577 In both cases the petitioner is freed from the burden of proof. It seems that the main difference with respect to the ordinary Actio Pauliana of the CC is the following: the gratuitous contract or transaction at undervalue may be avoided, even if the debtor was not unable to pay his or her debts at the 577

It is the general view that article 1292 CC does not require a subjective or intentional motive.

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time or did not become unable to do so because of the transaction. Prepayments may be also set aside even if the debtor was not in fact insolvent at the time or as a result of it, as otherwise required by art. 1292 CC. It appears to be sufficient that the act took place during the “suspect two year period”, without any inquiry into solvency at the time of the transaction. The second alternative that improves the avoidance powers of the bankruptcy administration derives from the reversal of the burden of proof pursuant to art. 71 (3). Damage to the bankruptcy estate is presumed iuris tantum in two circumstances: (a) transactions for valuable consideration when the contracting party is a person closely related or connected to the debtor, as described in art. 93 LC; and (b) real security rights granted in favour of pre-existing unsecured claims, or new ones created or established to substitute the original ones. In these two cases, the “non-prejudice” defence is admitted. Finally, it is important to point out that art. 71 (5), in accordance with what was the general view (even when transactions were labelled “null”), states that transactions entered into in the ordinary course of business or professional affairs and completed under “normal conditions” can not be avoided at all. Another exception to the invalidation provisions relates to payments made under special statutes, such as those that govern payment, netting and securities settlement systems. The LC 2003 has adopted specific provisions to protect a party who was not involved in the vulnerable transaction itself, clarifying what was previously professed by most authors and, essentially, by the courts.578 Art. 73 578

According to the provisions of the CC on “rescission” of fraudulent contracts, a third person who has acquired from someone other than the debtor, in good faith and for valuable consideration, is not subject to the order for restitution (art. 1295 CC). The Actio Pauliana is an actio in personam and works on the effects of a valid contract. Thus, the person who acquired directly from the debtor became the rightful owner. The delivery he or she subsequently made immediately operated to give ownership to the transferee. The person who acquired from the insolvent debtor, if he or she is in bad faith and is not able to return, is obliged to indemnify the defrauded creditors (arts. 1295 and 1298 CC). If the transferee of the initial transferee is also not in good faith, or acquired for no consideration or without value, the defrauded or damaged creditors may recover from him or her. Under the provisions of art. 878 (2) Ccom., the nullity of the transaction meant that no valid transfer of ownership had taken place. However, a subsequent transferee could gain ownership, if protected by the system of property registration rights on immovable property, or by the provisions relating to the bona fide purchaser of movables. The TS apparently rejected such principles when the transaction had taken place within the retroactive period, but in most cases, the subsequent buyer lacked good faith, and / or had not acquired by onerous title.

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(2) states that the order of restitution may not harm an interest which was acquired by a third person, if it was acquired in good faith or is protected by the provisions that impede recovery (irreivindicabilidad; see arts. 85 Ccom. and 464 CC) or by the system of registration of property rights (art. 34 LH).579 In this way, the third party transferee is protected, as long as he or she is in good faith and has an onerous title: the bankruptcy administration, according to Spanish law, would not be able to recover the movable in possession of a bona fide purchaser. In such cases, as well as in those where the claim has not been brought against the third party acquirer, the initial transferee, pursuant to art. 73 (2) LC, is obliged to pay a sum of money to the benefit of the common pool, which amounts to the value of what was provided by the debtor in the first place, plus the legal interest. Simultaneously the party to the vulnerable transaction is entitled to recover the prestation he or she provided to the debtor, as long as he or she was in good faith, with the right to be paid as a preferential creditor of the estate, and not as a concurrent creditor (see art. 84 (2) subpara. (8) LC).580 If he or she was not in good faith, his or her status is lowered to the category of “subordinate” creditor, and will have to indemnify any damage suffered by the rest of the creditors as a result of the fraudulent transaction and the non-recovery of the assets in possession of a protected third party (art. 73 (3)).

5.4.

Effects of the declaration of bankruptcy upon the contracts entered into by the debtor

Another important addition of the LC regarding the effects of bankruptcy upon the credits that make up the “passive estate” is the introduction of a detailed legal regulation on the impact of the declaration of bankruptcy on the bilateral transactions entered into between the debtor and certain creditors before the declaration was issued, the execution of which is fully or partially pending when the proceedings begin. The absence, under the previous regulation, of a clearly developed legal criterion on this impor579

580

According to art. 72 (2), the claims for rescission have to be brought, not only against the debtor and against those who were party to the detrimental transaction, but also against the third party to whom the asset has been transferred, in order to rebut the presumption of good faith of the acquirer, the fulfilment of the requirements needed to prevent the assets from being revindicated, or the protection arising from the public registration. This solution had been previously accepted by the courts in cases of nullity of the contracts entered into by the bankrupt debtor within the “retroactive” period, according to art. 878 Ccom. See, for instance, STS 24 March 2006 (RJ. 5655).

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tant issue explains the widespread doctrinal and judicial debate in recent years,581 particularly focused on two questions: on the one hand, whether or not the so-called “in bonis party” (the counterparty of the debtor) was allowed to enforce against the other creditors the bilateral nature of his or her own relationship to the debtor, in order to escape his or her credit being subject to the “dividend law” and the consequences of the graduation; on the other hand, determining which possibilities of action should be granted to the bankruptcy administrators in order to decide what the result of the corresponding transactions – and the credits and obligations arising from them – should be. The right of the in bonis party to allege the exceptio non adimpleti contractus against the bankruptcy in order to avoid his or her performance in the case of breach of contract by the debtor was generally admitted under art. 1467 CC.582 Thus, the main doubts were focused on the possibility of granting the same party the right to terminate the contract, enforcing the effects thereof against the other creditors, where the debtor’s lack of performance had taken place before the declaration of bankruptcy. Under the previous regulation, certain scholars defended the effect of the termination against the bankruptcy on the basis – in the absence of any express legal provision – of the general criteria arising from art. 1124 CC and art. 909 (8) and (9) Ccom., which, according to this view, allowed the creditor to assert the corresponding claims for restitution of the assets, as well as those for the compensation of damages – even though this second aspect was not expressly mentioned in art. 909 Ccom. –, against the bankruptcy estate.583 Others, on the contrary, pointed out that granting the termination such effect against the bankruptcy estate would imply the virtual disappearance 581

582

583

On this issue generally, see FÍNEZ RATÓN, J.M., Los efectos de la declaración de quiebra en los contratos bilaterales, Madrid, 1992, and GARCÍA VILLAVERDE, R., “Una forma especial de garantía: Los efectos de la declaración de la quiebra y la suspensión de pagos sobre las relaciones jurídicas bilaterales preexistentes y pendientes de ejecución”, en Estudios jurídicos en homenaje al Profesor Aurelio Menéndez, t. III, Madrid, 1996, pp. 3531 et seq. TRUJILLO DÍEZ, I.J., “Comentario a los arts. 57, 58, 65 a 68 y 70”, in Comentarios a la Ley Concursal, coord. BERCOVITZ, R., vol. I, Madrid, 2004, p. 637. According to art. 1467 CC, referring to contracts of sale, “the vendor is not bound to deliver the thing sold when a deferment or term for the payment of the price has been agreed upon, if after the sale is entered into the purchaser proves to be insolvent, so that the vendor runs the risk of losing the price. The case of where the purchaser gives a guaranty or security of payment within the fixed term is excepted from this rule”. See, e.g. URÍA, R., Derecho Mercantil, 23ª ed., Madrid, 1996, p. 1055, founded on the breaking of the equivalence of prestation characteristic of bilateral relationships.

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of the estate,584 undermine the principle par condicio creditorum – by allowing an actual credit preference not expressly established by law –,585 and would not be consistent with the occupation of the debtor’s estate and with the cessation of any individual actions against him or her.586 As a result, the creditor who had fully provided his or her prestation should remain subject, in relation to the counterprestation due to him or her, to the “dividend law”.587 This second point of view was maintained in some cases by the courts,588 notwithstanding some cases in which the creditor’s right of termination for breach of contract could be deemed effective against third parties through the application of the general rules regarding the effect of preemptory notices of claims (art. 42 (1) LH),589 or, eventually, of the registration of the lack of payment as an express resolutory condition (arts. 11 and 37 (4) LH, 59 RH, and arts. 1124 (4) and 1504 CC).590 The new LC devotes arts. 61 et seq. to this important question, offering an articulate solution to the different cases that may take place: specifically, art. 61 refers to the impact that the declaration of bankruptcy, as such, may have upon the bilateral contracts previously entered into by the debtor, while art. 62 regards the possibility to request termination for breach of contract in the context of bankruptcy proceedings.591 584 585 586 587

588

589

590

591

GARCÍA VILLAVERDE, op. cit., p. 3537. FÍNEZ RATÓN, op. cit., pp. 62 and 68. FÍNEZ RATÓN, op. cit., p. 305. Leaving aside those specific cases – not capable of being applied by analogy (GARCÍA VILLAVERDE, op. cit., p. 3.543; FÍNEZ RATÓN, op. cit., p. 121) – of separation of assets from the bankruptcy provided for in arts. 908 and 909 (8) and (9) Ccom. STS 2 January 1978 (RJ. 1). However, for the contra position, see SSTS 5 November 1979 and 28 October 1985 (RJ. 3823, 5084), which upheld the effect of the termination of the contract against the insolvency proceedings known as suspensión de pagos, although in both cases the exercise of the termination right had taken place before the onset of the proceedings. FÍNEZ RATÓN, op. cit., pp. 307-308, who understands that, in the case of movables, such effect arises from the mere filing of the claim before the declaration of bankruptcy. The judicial doctrine must be borne in mind, which admits the effect of a third party action based on ownership in the context of individual execution proceedings, on the basis of the retroactive effects of termination demanded after the seizure, provided an express resolutory condition had been previously entered into the register (STS 11 October 1995, RJ. 7405). Art. 61 LC: “Effects of contracts with reciprocal obligations. 1. In the case of contracts entered into by the debtor, where at the time of the declaration of bankruptcy one of the parties has fully satisfied his obligations while the other’s reciprocal ob-

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In relation to the first question, the LC formulates a general rule according to which the declaration of bankruptcy, in itself, does not affect the effect of bilateral contracts previously entered into by the debtor, as long as their performance is fully or partially pending. Thus, a view formulated in doctrine under the preceding regulation592 is formally taken, excluding, as

592

ligations are fully or partially pending, the credit or the debt of the debtor shall be included, depending on the circumstances, in the active or in the passive bankruptcy estate. 2. The declaration of bankruptcy, by itself, shall not affect the effect of bilateral contracts where both the debtor’s and the other party’s obligations are pending. The prestation due from the debtor shall be performed as a preferred debt of the estate. Without prejudice to the preceding paragraph, the bankruptcy administrators, in case of suspension, or the bankrupt debtor, in case of intervention, shall be authorised to claim termination of the contract, if they consider it fit for the bankruptcy’s interest. The judge shall summon the debtor, the administrators and the other party to an appearance in court and, should an agreement as to the termination and the effects thereof be obtained, he shall pronounce a decree declaring the termination of the contract according to the agreement. Otherwise, the differences shall be resolved through the ‘incidental bankruptcy procedure’ (incidente concursal), and the judge shall decide on the termination, determining, as the case may be, the corresponding restitution and compensation to be paid as a preferred debt of the estate. 3. Those stipulations which establish a right of termination or the extinguishment of the contract for the only reason of the declaration of bankruptcy of any of the parties shall be considered as not valid”. Art. 62 LC: “Termination for lack of performance. 1. The declaration of bankrupcty shall not affect the right to terminate the contracts provided for by the second paragraph of the preceding article in the case of a subsequent lack of performance by any of the parties. In the case of contracts of successive tract, the exercise of the right of termination shall also be possible when the lack of performance has taken place before the declaration of bankruptcy. 2. The action for the termination of the contract shall be brought before the bankruptcy judge and shall be handled through the ‘incidental bankruptcy procedure’ (incidente concursal). 3. Even if a cause for termination exists, the judge, considering the interest of the estate, may order the fulfilment of the contract. The debtor’s prestation shall be provided as a preferred debt of the estate. 4. Once the termination of the contract has been pronounced, the obligations that have not yet fallen due shall be extinguished. As to those that have already fallen due, the credit pertaining to the creditor that has already fulfilled his contractual obligations shall be included in the bankruptcy, as long as the debtor’s lack of performance had taken place before the declaration of bankruptcy; where it has taken place after the declaration of bankruptcy, the credit of the party who satisfied his obligations shall be paid as a preferred debt of the estate. In any case, the credit shall include the corresponding compensation of damage”. FÍNEZ RATÓN, pp. 122 et seq. and 287-288.

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a general rule, the possibility of considering the mere declaration of bankruptcy as a cause of termination or extinguishment of the contract, and particularly as a case of breach of contract, for the purposes of the exercise of the right of termination. The aim of such provision is to prevent the bankruptcy administrators from being deprived of the margin of operation needed to opt for the continuity of the transactions assumed by the debtor, when deemed in the interests of the estate, with the consistent legal aim of supporting the continuity of the debtor’s professional or business activity in spite of the bankruptcy, for as long as possible (art. 44 LC). The convenience of maintaining such a margin of flexibility is based on evident grounds of public order, which justifies the provision established by the 3rd paragraph of the same art. 61, according to which “the stipulations granting the right of termination or the extinguishment of the contract for the mere cause of the declaration of bankruptcy of any of the parties shall be deemed invalid”. The formulation chosen allows the inclusion within its scope of application of all those contractual stipulations tending to bind the declaration of bankruptcy to the ineffectiveness of the contract, be it granting the party in bonis the rights of termination or withdrawal, or considering the initiation of the proceedings as an express resolutory condition,593 or as a cause of anticipated expiration of the contractual obligations.594 The same considerations should lead to the exclusion of application, in these cases, of the rule contained in art. 146 LC, which provides for the anticipated expiry of the debtor’s obligations subject to a period when the liquidation operations begin. This is since such rule cedes to the convenience of facilitating, for those purposes, the formation of the passive bankruptcy estate, and should not therefore be applied when it is decided to continue with the contractual relationship.595 Likewise, the application of the right granted to the creditor by arts. 1129 (1) and 1467 (2) CC, to demand the constitution of sufficient securities where the debtor becomes insolvent,596 should also be excluded in these cases, since the protection of his or her right should be sufficiently guaranteed through its qualification as a credit against the estate. Nevertheless, the declaration of bankruptcy should not prevent the party in bonis from using the exceptio non adimpleti contractus in order to refuse the fulfilment of his or her own obligation on 593

594

595 596

Referring to the now repealed art. 1915 CC, FÍNEZ RATÓN, op. cit., pp. 65, 221, 290 and 307. PAU, Las limitaciones patrimoniales del concursado, Madrid, 2004, p. 50, quoting STS 27 March 1999 and RRDGRN 27 January 1986 and 5 June 1987; and PULGAR EZQUERRA, J., “El acreedor hipotecario en la nueva Ley Concursal”, in RDM, n° 250, oct.-nov., 2003, p. 1435. FÍNEZ RATÓN, op. cit., p. 292. FÍNEZ RATÓN, op. cit., p. 295.

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the basis of the lack of performance or on the risk of non-performance which is implicit in such declaration.597 Once it has been established that bilateral contracts entered into by the debtor are to retain their effect, as a rule, in spite of the declaration of bankruptcy, art. 61 provides the rule applicable to the corresponding credits. For this purpose, a distinction is drawn depending on whether, at the time the bankruptcy is declared, the pending obligations of one of the parties or both of them are fully or partially unsatisfied. In light of these legal provisions, it can be assumed that the legislator has deemed the consequences of the bilateral nature of the contract more relevant in the second case than in the first. This way, when the obligations of one of the parties have been completely fulfilled, with only those of the other party outstanding, the rule applicable to the credits will be, according to art. 61 (1), their inclusion, either in the active bankruptcy estate (if the credits belong to the bankrupt debtor), or in the passive estate (if the credits belong to the in bonis party), followed, in this last case, by its classification as a preferential, ordinary, or subordinate concurrent credit. Implicitly, such regulation excludes the possibility that any of the parties may request termination of the contract on the basis of the declaration of bankruptcy itself; however, the question remains whether or not the right of termination for breach of contract prior or subsequent to the declaration of bankruptcy may still be exercised in such cases, since art. 62 (which only refers to the cases provided for in art. 61 (2)) is not applicable. Obviously, if the breach of contract can be attributed to the party in bonis, the possibility to opt between the action for compulsory performance or that for termination, along with the compensation of damages, must be granted to the bankrupt debtor – or, as the case may be, to the bankruptcy administrators, see art. 54 –, according to the general rules, and regardless of the fact that the breach had taken place before or after the declaration of bankruptcy; a limitation – based on the literal terms of art. 61 (1) – of the rights granted by the general rules to the debtor who has fulfilled his or her obligations, when the other party has not, would not seem justified. The possibility to grant the right to terminate the contract for breach of contract to the party in bonis seems more arguable. The inclusion of his or her credit in the passive bankruptcy estate, which implies its submission to the legal rules on acknowledgment, graduation and payment – either through agreement or liquidation –, does not seem to be compatible with an eventual lack of performance after the declaration of bankruptcy capable of justifying the attribution of a right of termination. As to the possibility 597

GARCÍA VICENTE, J.R., “Comentario a los arts. 61 a 63”, In Comentarios a la Ley Concursal, coord. BERCOVITZ, R., vol. I, Madrid, 2004, p. 695.

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that the breach of contract by the debtor had taken place before the declaration, the ambiguity of the legal terms does not allow the ascertainment of a clear answer. It has to be taken into account, first, that the law provides a solution for those cases where the party in bonis has exercised – through extrajudicial means – the right of termination for breach of contract within the period immediately previous to the declaration of bankruptcy, granting the administrators in such cases the power to restore the corresponding contracts (arts. 69 and 70).598 It can be thus deduced that, without prejudice to the aforementioned right of restoration, the termination demanded before the declaration of bankruptcy has to be considered effective, although it might be argued whether, in such case, the third party shall be allowed to separate the asset from the estate or whether he or she will be left to allege his or her credit for restitution and compensation of damages against the bankruptcy estate, under the qualification of concurrent credit. However, where the party in bonis had not exercised his or her right of termination for breach of contract before the declaration of bankruptcy, it is still arguable whether he or she will keep the power to exercise it afterwards, or whether he or she will only be granted the possibility to allege in the bankruptcy, with the corresponding graduation and securities, his or her right to demand the compulsory performance of the contract (along with the compensation of damages, as the case may be). In fact, art. 61 (1) does not exclude the possibility of demanding termination in these cases, although it does clarify that, in any case, the credits for the restitution or for the compensation of the party in bonis will be classified as concurrent credits, and will not be granted an actual right of separation.599 Nevertheless, the doubts remain in light of art. 56 (1) subpara. (2), which clearly refers to the exercise of actions of termination designed to obtain the recovery of the assets, although it is not clear whether or not the feasibility of such actions is subject to the previous constitution of a real security in the wide sense given by the LC to that term.600 In relation to such bilateral contracts in which the obligations of both parties are still to be fulfilled when the bankruptcy is declared, art. 61 (2) allows the debtor (when his or her powers of administration have only been subject to intervention) or the administrators of bankruptcy (where such powers have been suspended) to opt between the preservation of the contract or the termination thereof, taking into account the interest of the estate and without further requirements. In principle, the contract shall retain its effect in spite of the bankruptcy, and therefore it will have to be 598 599 600

See infra, II, 5.5. GARCÍA VICENTE, op. cit., pp. 698 and 705. See supra, II, 4.5.2.

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completed according to the general rules. However, since in such cases the party in bonis will have to fulfil his or her obligations in the terms agreed upon (the debtor or the administrators, depending on the circumstances, being allowed to demand such fulfilment), without any right to release him- or herself from the contract through termination, it would be unfair if his or her credit were to be subject to the graduation system provided for concurrent credits. That is why the legislator has determined that the prestation of the debtor will have to be satisfied as credits against the estate, at the moment they fall due according to their regulation.601 Where the debtor or the administrators decide to terminate the contract in the interest of the bankrupt, it will rest with the Bankruptcy Judge to declare the extinction and the consequences arising from it, either through decree – when an agreement between the parties exists –, or through an actual judgment following the corresponding proceedings, in the absence of such agreement. The decision will determine the necessary restitution and, as the case may be, the compensation granted to the third party, which will be satisfied as credits against the estate. A partially different regulation is provided by the LC for the exercise of the right of termination for breach of obligations arising from bilateral contracts. It has already been pointed out that art. 62 only refers to such contracts where the obligations of both parties remain to be satisfied at the time the bankruptcy is declared. In such cases, the possibility that any of the parties may terminate the contract for lack of performance is only granted when such fact takes place after the declaration of the bankruptcy; although, as long as contracts of successive tract are involved, the right of termination can also be exercised when the breach of contract has taken place before the declaration. The difference in relation to the regulation of both kinds of contracts can be traced to the peculiar nature of the contracts of successive tract, where the lack of performance of one of the parties should grant the other party, in any case – regardless of the time at which it has taken place –, the right to release him- or herself from the contract and for the future; a different question is that of the regulation applicable – as concurrent credits – to the obligations arising from the same contract up to the moment of termination.602 Taking into account that – as will be soon explained – the possibility that the debtor’s or bankruptcy administrators’ 601

602

It is the same solution that, under the preceding rule, could be deduced from the provisions contained in arts. 1218 (2) and (3), and 1366 LEC 1881, and arts. 908 and 909, last paragraph Ccom. GARCÍA VICENTE (op. cit., p. 687) mentions, as examples of contracts of successive tract to the effects of this article, those of collaboration, furnishing, lease or services, excluding, however, those where there is unique prestation to be fulfilled by instalments.

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decision to terminate the contract for breach of contract by the other party prior to the declaration of bankruptcy can be founded on the provisions of art. 61 (2), it can be assumed that the main consequence of art. 62 (1) – in relation to the issue currently under analysis – is that of granting the party in bonis the right to terminate the contract for the debtor’s breach of contract occurring before the bankruptcy, only where contracts of successive tract are involved, but not when it comes to contracts of simple tract. In any case, out of a construction a contrario of art. 62, in conjunction with the preceding article, it can be deduced that the rule applicable to bilateral contracts of simple tract, when at the time of the declaration of bankruptcy the fulfilment of the obligations of both parties is outstanding, will always be that established by art. 61 (2), regardless of the fact that lack of performance may have been attributed to one of them before that moment; with the qualification that, if the lack of performance can be considered as imputable, the right will arise, in favour of the other party, to demand the corresponding credit for the compensation of damages. The very fact that art. 61 (2) expressly refers to the possibility that compensation has to be satisfied as a credit against the estate, in the case of the termination of the contract, could be interpreted in the sense that the provisions contained in such article are also applicable to the cases of lack of performance. As a consequence, the party in bonis whose obligations are still to be fulfilled at the time of the declaration of bankruptcy will be deprived of the right of termination for a previous breach of contract by the debtor, and will only be allowed to allege his credit for the compulsory performance (along with the compensation of damages), which will be satisfied as a credit against the estate, being him- or herself obliged to execute his or her own prestation in favour of the estate. Should the lack of performance be imputable to the third party, it can also be assumed that the debtor or the bankruptcy administrators will be allowed to opt between demanding the compulsory performance or the termination of the contract, in the interest of the estate, along with the compensation of damages in any of those cases (according to the general rules ex art. 1124 CC). However, the regulation in art. 62 will apply where, the debtor or the administrators having opted for preserving the contractual relationship in spite of the bankruptcy, according to art. 61 (2), lack of performance may be attributed to any of the parties after the declaration. In principle, it can be assumed that any of them will be allowed to allege the exceptio non adimpleti contractus or non rite adimpleti contractus to refuse the provision of his or her own prestation as long as the other party does not fulfil or offer the complete fulfilment of his or her obligations.603 It has to be remembered, for this 603

FÍNEZ RATÓN, op. cit., pp. 78 and 291; GARCÍA VILLAVERDE, op. cit., pp. 3538 and 3543.

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purpose, that the contractual credit of the party in bonis is to be considered, in this case, as a credit against the estate, and therefore it has to be satisfied as a preferred debt of the estate and at the time it falls due, without being subject to any special system of graduation (see art. 154 LC). In relation to the possibility that any of the parties may opt for the termination of the contract on the basis of the other party’s lack of performance after the declaration of bankruptcy, art. 62 begins with the acknowledgment of such right, according to the general rules, but introduces certain qualificationns based on the peculiar context where the bilateral relationship is developed. Beyond the logical provision according to which the action for the termination of the contract will have to be brought before the Bankruptcy Judge and according to the legal proceedings (the so-called incidente concursal), it has to be stressed that art. 62 (3) states that, even where grounds for termination exist, the judge is allowed to order the completion of the contract, taking into account the interest of the estate, in which case the prestation due from the debtor will have to be satisfied as a preferred debt of the estate. In spite of the wording of the article, it is not likely that the decision in favour of this completion can be taken by the judge on his or her own motion, but only when requested to do so by the debtor or by the bankruptcy administrators, with the possibility of he or she being able to make such decision on his or her own initiative being more contentious.604 Likewise, it seems that the judge will have to follow the latter option where the lack of performance subsequent to the declaration of bankruptcy is attributable to the third party. The general consequences following the termination for breach of contract are also subject to certain particularities in art. 62 (4), taking into account the peculiar context where the relationship arises where bankruptcy has been declared. Besides establishing the logical extinction of future obligations, the article determines the regulation applicable to the credits of the party in bonis who demanded the termination. In spite of the literality of the article, it does not seem logical that the right to demand such credits is subject to the previous fulfilment by that party of his or her contractual obligations, being sufficient, for this purpose, that he or she was prepared to fulfil them; it has to be rememberded that, in these cases, the lack of performance of the obligations assumed by the bankruptcy estate allows the third party, first of all, to use the exceptio non adimpleti contractus in order to legitimately refuse to perform his or her obligations, and, secondly, to terminate the contract, with the consequential effects as to the restitution 604

However, note the proximity to the rule established by art. 1124 (3) CC, which, generally referring to the exercise of the right of termination for breach of contract, states: “[t]he court shall decree the rescission claimed, unless there is just cause for authorising the fixing of a period”.

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of prestation and compensation of damages. As a matter of fact, based on a global interpretation of art. 62 (4) it can be deduced that the requirement that the party in bonis has fulfilled his or her obligations can only be referring to those contracts of successive tract where, in spite of the debtor’s lack of performance – occurring before the declaration of bankruptcy –, the third party has continued to perform his or her obligations; in that case, the main consequence of the termination would be the extinction of the contract for the future, without prejudice to the third party’s right to demand the obligations that have fallen due and were not satisfied by the debtor, along with the compensation of damages, with such credits deserving in that case the classification of concurrent credits. In contrast, where the party in bonis terminates the contract on the basis of lack of performance subsequent to the declaration of bankruptcy, he or she will be allowed to allege the credit for restitution as well as that for compensation as credits against the estate; although he or she will be subject, as the case may be, to the limitations established by art. 154 (2) LC, that regulates the claims for execution against the estate. It has to be pointed out, finally, that, according to art. 63, the provisions contained in the preceding articles do not apply to the exercise of the right to unilaterally withdraw from the contract granted by the law to the party in bonis, subject to the specific requirements established in each case,605 as well as to those cases where the law provides for the extinguishment of the contract as a consequence of the declaration of bankruptcy (e.g. in the case of a mandate contract, according to art. 1732 (3) CC), or expressly permits an agreement in that sense for the case of bankruptcy or administrative liquidation of any of the parties.

5.5.

The restoration of the debtor’s contracts

Excluding, as a general rule, the possibility that the declaration of bankruptcy is considered as a cause of automatic extinguishment of the contracts entered into by the debtor, the new LC has introduced into the Spanish 605

See, e.g. art. 1594 CC for enterprise contracts; art. 1733 CC for mandate contracts; art. 37 LCS for insurance contracts; art. 26 (1) (b) of the Agency Contract Act – Ley 12 / 1992 –; arts. 10 and 44 and First Additional Provision of the Retail Trade Regulation Act – Ley 7 / 1996, of 15 January –, for distance selling and other contracts negotiated at a distance. On these last cases, see GONZÁLEZ PACANOWSKA, I., and DÍEZ SOTO, C.M., in Régimen jurídico general del comercio minorista, Ed. McGRAW-HILL, coords. ALONSO ESPINOSA, LÓPEZ PELLICER, MASSAGUER FUENTES and REVERTE NAVARRO, Madrid, 1999, pp. 142 et seq., 492 et seq. and 909 et seq.

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insolvency system another mechanism designed to guarantee, in the interest of the estate, the continuity of the legal and economic activity of the debtor: indeed, arts. 68 to 70 grant the bankruptcy administrators the possibility of restoring the force of certain contracts entered into by the debtor with third parties and extinguished as a consequence of the former’s lack of performance before the declaration of bankruptcy. The LC expressly regulates the possibility of restoration in relation to three kinds of contracts: loan and financing contracts, acquisition contracts of assets at a deferred price, and urban lease contracts, as long as the debtor is the borrower, the acquirer or the lessee, respectively. In all of them, the right to restore the contracts is only granted to the bankruptcy administrators, even in those cases where the debtor’s powers of administration and disposal are subject to a system of mere intervention and not of suspension, the only right of the debtor being that of demanding the administrators’ action. Art. 68 considers such loan or financing contracts in which the anticipated expiry for lack of payment of instalments by the debtor took place within the three months prior to the declaration of bankruptcy. In such cases, the bankruptcy administrators are allowed to demand the restoration of the contract; for this purpose, they will have to notify the creditor of their decision – prior to the expiry of the period to communicate their credits to the bankruptcy administrator – paying or consigning the whole of the amount due up to the moment of restoration, and assuming the payment of the remaining amount as a preferred debt of the estate. Should the original securities have been cancelled, it may be assumed that the party in bonis will be allowed to refuse restoration as long as other equally effective securities have not been offered to him or her.606 In spite of the silence of the law on this point, it can also be interpreted – by analogous application of art. 69, which refers to contracts of acquisition of assets at a deferred price – that the subsequent lack of performance of the obligations assumed by the bankruptcy administrators will cause the expiry of the remaining instalments without the possibility of further restoration. In any case, the restoration regulated by art. 68 is not feasible if the creditor had filed the judicial claim for the payment against the debtor or against a joint debtor or guarantor before the declaration of bankruptcy. Art. 69 admits the restoration by the administrators of contracts for the acquisition of movable or immovable assets at a deferred price607 in those cases where the transferor had exercised through extrajudicial means the 606 607

TRUJILLO DÍEZ, op. cit., p. 803. MARÍN LÓPEZ (“Comentario a los arts. 49 a 55 y al art. 69”, in Comentarios a la Ley Concursal, coord. BERCOVITZ, R., vol. I, Madrid, 2004, p. 809), and HERBOSA MARTÍNEZ (“Los efectos del concurso en la Ley Concursal”, in La Ley, núms. 5.992

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right of termination for lack of payment within three months prior to the declaration of bankruptcy. The restoration is subject to the same requirements established by art. 68 (notification of the transferor, payment or consignment of the amount due and assumption of the remaining amount as a preferred debt of the estate608). Obviously, the subsequent breach of contract will allow the transferor to use the right of termination – according to the general rules of art. 62 (1) –, without the possibility of further restoration; but he or she will also be allowed to demand the compulsory performance of the contract before the Bankruptcy Judge and through the corresponding proceedings (incidente concursal), although the consequential judgment will only be capable of being executed within the limits established by art. 154 (2) (after an agreement is approved, the liquidation is opened, or a year has passed since the declaration of bankruptcy was issued without any of those situations having taken place). Art. 69 (2) grants the transferor the right to reject the restoration demanded by the administrators in certain cases: a) where he or she had filed the claim for the termination of the contract or the restitution of the asset before the declaration of bankruptcy; b) where he or she had legitimately recovered the material possession of the asset and given back – or consigned – the price received before the declaration of bankruptcy; and c) where he or she had legitimately recovered possession of the asset and subsequently disposed of it in favour of a third party before the declaration of bankruptcy. The first case can only refer to the judicial exercise of the actions of termination or restitution, since otherwise the previous paragraph of the same article – which in turn must refer to the extrajudicial termination of the contract – would be devoid of content. In the second case, the reason for excluding the restoration is the full completion of the restitutionary effects of the termination of the contract. As to the third case, the fact that the transferor is granted the right to oppose the restoration on the basis of the transfer made by him or her in favour of a third party, does not mean that the latter must be affected in any case by the restoration if the transferor did not exercise such right; in the absence of any express legal provision, it has to be assumed that the third party’s acquisition, when legitimately made, will not be affected by the decision to restore the first contract.

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y 5.993, April 2004, ap. IV, 2, A) hold that the same power of restoration, according to art. 69, should be granted in the case of financial lease contracts. MARÍN LÓPEZ (op. cit., p. 816) considers that the provision according to which the administrators have to assume the future payments as preferred debts of the estate implies that the restoration is only possible where the active bankruptcy estate contains enough assets to meet such payments.

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Lastly, art. 70 grants the administrators the right to challenge the action of dispossession for lack of payment filed against the debtor-lessee before the declaration of bankruptcy, as well as that of restoring the corresponding lease contract, as long as such rights are exercised before the actual dispossession has taken place. It has to be pointed out that the time limit for challenging the action for dispossession is wider in this case than in the general case provided by art. 22 LEC, where the time limit to pay or consign the amount due is the date of the court hearing.609 Although it is not expressly stated, it seems logical that the requirements established by art. 68 (notification of the lessor, payment or consignment of rents due and assumption of the future rents as a preferred debt of the estate) also have to be met in this case. The limitation established by the last paragraph of art. 22 LEC for contesting actions for dispossession in general is not applicable here.610 However, it can be assumed that the challenge will not be possible when a previous challenge or restoration by the bankruptcy administrators has taken place or where the demand of payment has been made directly to the administrators.611

609

610

611

Art. 22 (1): “[t]he proceedings for dispossession of urban tenements for lack of payment of rents or other amounts due by the lessee shall cease if, before the court hearing, the lessee pays the claimant or puts at his disposal, before the court or before a notary, the amount demanded in the claim as well as the amount due at the time such payment is made”. According to this paragraph, the right to challenge the action for dispossession is not granted where the lessee had previously challenged the dispossession, nor where the lessor had demanded the payment through any authoritative means at least two months before the filing of the claim, without the payment being made before the filing took place. The current text of this article was set out by Act 23 / 2003. CORDERO, Comentarios …, I, pp. 1002 and 1003; TRUJILLO DÍEZ, op. cit., pp. 826-827.

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Part III: Original acquisitions 6.

Occupation, finding, treasure trove

6.1.

Occupation

Occupation, in a strict sense, is an original mode of acquisition which only relates to ownership, and no other property rights (art. 609 (1)), consisting of the taking of possession of a thing that has no owner, with the intention to have it as one’s own. Art. 610 states, more specifically, that “things appropriable by nature which are without an owner, such as animals that are the object of hunting and fishing, hidden treasure and abandoned movables, are acquired by occupation”. Acquisition through occupation requires that the occupant takes possession of the thing with the intention to have it as his or her own. A person who intends to acquire through occupation has to have the natural ability to understand and to declare intention, which suffices, according to art. 443, for the acquisition of possession in the capacity of owner. Occupation is only possible in relation to things capable of private ownership (art. 610), which excludes the possibility of acquiring things under public dominion by occupation. Furthermore, it can only relate to movables: according to LPAP612 (see arts. 17, 18 and 23; see also STC 58 / 1982, of 27 July), those immovables which have no owner pass automatically to the State as private assets (“patrimonial assets”). The State is entitled to take hold of them through administrative acts, unless a third party who has possessed for more than one year opposes; in that case the State will have to bring the corresponding action before the ordinary courts (normally, an action for revindication). It has to be taken into account that a third party may acquire ownership in such things through prescription, but not through occupation. The law establishes also that those immovables detained or possessed without any title by entities or private persons belong to the State, and may be revindicated according to the law. On the other hand, occupation is only possible with respect to things which are res nullius, i.e. belonging to no one (art. 610), either because they have never belonged to anyone or because they were abandoned by the pre612

Ley 33 / 2003, de 3 de noviembre, de Patrimonio de las Administraciones Públicas (Act on Patrimony of the Public Administration).

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ceding owner.613 If the thing can be presumed to be abandoned, provisions regarding finding will apply. If it can be presumed to have been abandoned, its ownership is acquired through occupation if the presumption proves to be true; otherwise, the real owner is entitled to revindicate it from the possessor, unless the latter has consummated prescription in it (art. 464 (1)). Among the things that can be acquired by occupation, the CC expressly mentions the yields of the sea and its shores (see art. 617 CC, and Coasts and Ports Act of 1988), the cases provided for by arts. 612 and 613 CC,614 and the animals that are the object of hunting and fishing, subject to the special legislation regulating these activities (art. 611).615 The exercise of the right to hunt is subject to the fulfilment of the legal requirements regarding capacity and administrative authorisation. It can only relate to such animals that can be considered “huntable game” according to the legislation in force; for these purposes, domestic and tamed animals can only be considered as huntable game from the moment they lose that condition (art. 465 CC). The exercise of hunting is free when it takes place on common hunting lands, either of public or private ownership.616 In lands subject to a special hunting regulation (National Parks, Hunting Shelters, 613

614

615

616

It has to be taken into account that the abandonment of a share in co-ownership does not convert it into a res nullius, thus allowing its being acquired through occupation, but increases the other co-owners’ participation; RUBIO GARRIDO, Jurisprudencia civil …, cit., p. 1229. Art. 612: “[t]he owner of a swarm of bees shall have a right to pursue them to another’s land, indemnifying the possessor of the latter for any damage. Should it be enclosed, he shall need the consent of the owner to gain access. If the owner has not pursued the swarm, or ceases to do so within two consecutive days, the possessor of the land may occupy or retain the same. The owner of domesticated animals may also claim them within twenty days to be counted from their occupation by another person. This period having expired, they shall rest with the person who has caught and kept them”. Art. 613: “Pigeons, rabbits and fish which from their respective breeding places pass into the property of a different owner shall belong to the latter, provided they have not been lured by artifice or fraud”. See the Hunting Act of 4 April 1970 (especially arts. 22 et seq.), and its Regulation of 25 March 1971; Law of 27 March 1989 and RD of 8 July 1989, on species that can be the object of hunting and fishing; Fluvial Fishing Act of 20 February 1942; State Maritime Fishing Act, 3 / 2001, of 26 March; provisions from the Autonomous Communities (e.g. see Balearic Act 6 / 2006, of 12 April, on Hunting and Fluvial Fishing), etc. STS 3 October 1979 (RJ. 3323) declared that huntable game collected are not natural fruits of the land which belong to the usufructuary for the mere fact of having such condition; on the contrary, the price for the lease of the land, when it consists of or includes the right of hunting does have the condition of fruit.

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National Hunting Reservations, safety zones, private shooting preserves, etc.), hunting is only permitted subject to legal provisions. A hunter has the right to acquire the huntable game, even if it is on another’s land; but, if the land is enclosed or subject to a special hunting regulation, the owner’s permission to gain access or the material delivery of the game will have to be obtained.617 The exercise of the right to fish is also subject to the fulfilment of legal requirements. As a general rule, maritime fishing and fluvial fishing in waters of public dominion is free, whereas in waters of private ownership or of private exclusive utilization, the game belongs, in principle, to the owner. Some movable things are subject to a more specific regulation, closer to that regarding finding: e.g. the objects thrown by the sea to its shores, or those which are in it, not being the yields thereof (art. 617 CC618 and Act 60 / 1962, of 24 December, on Findings and Marine Extractions); abandoned aircraft and its remains (arts. 137 to 140 of the Air Navigation Act, 48 / 1960 of 21 June), abandoned automobiles (regulated by different Ministerial Orders of 15 July 1965, 8 March 1968, 14 February 1974), abandoned remnants of accounts and deposits of instruments, money and other movables in credit and financial entities, which belong to the State (arts. 29 (2) of the General Budgetary Act619 and 18 LPAP), negotiable instruments (arts. 84 to 87 and 154-155 of the Drafts and Cheques Act620), etc.

6.2.

Finding

Finding takes place when a movable which is presumed lost (with a present owner, therefore, unlike in the cases of occupation and treasure trove) is found and the finder takes hold of it. In such cases, automatic acquisition of ownership does not operate, the finder being subject to certain duties and acquiring certain rights regarding the thing or its value.621

617

618

619

620 621

An interesting analysis of the right to acquire through hunting can be found in STS 3 October 1979 (RJ. 3323), and STSJ Navarre 6 May 1996 (RJ. 4258). STS 11 November 1911 excluded the application of art. 617 in a case where the ownership in the objects found at the coast was perfectly known, as they proceeded from jettison. Ley General Presupuestaria, Texto Refundido aprobado por RDL 1091 / 1988, de 2 de septiembre (LGP). Ley 19 / 1985, de 16 de julio, Cambiaria y del Cheque (LCCh). RUBIO GARRIDO (op. cit., p. 1241) points out that the courts (especially criminal courts, when dealing with cases of theft and embezzlement; civil decisions on finding are virtually non-existent) tend to use objective criteria (the external circumstances

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The obligations of the finder are established by art. 615: (a) The finder must return the thing to its legitimate owner or possessor; where his or her identity is unknown, the finder shall immediately deposit it with the mayor of the city or municipality where the finding has taken place. The finding shall be publicly announced by the mayor for two consecutive weeks in a manner he or she deems fit. If the movable cannot be kept without deterioration, or without expenses which considerably diminish its value, it shall be sold at public auction eight days after the publication without its owner showing up, the price obtained remaining under deposit. (b) He or she must also keep the thing, prior to delivery, with the diligence of a good father. The finder has the right (arts. 615 and 616): (a) To receive from the owner, if he or she shows up in time, the reward promised by him or her, or, if the finder prefers, the reward established by law, which amounts to one tenth of the sum or of the price of the thing found. Where the value of the thing found goes beyond 2,000 pesetas (12 Euros), the reward shall be reduced to one twentieth of the excess. (b) To be reimbursed for expenses and damages caused by the finding, provided the amount thereof in addition to the reward does not go beyond the price of the thing. (c) To acquire the thing found (or its value, where it has been sold at auction), where two years have elapsed since the finding has been published for the second time without the owner showing up. Such rights, which are merely eventual, are transferable and subject to seizure. In any case, the person who finally receives the thing found (either the owner or the finder) shall be subject to reimbursement of the expenses met. Where the finder does not fulfil the obligations established by arts. 615616, he or she will be subject to the corresponding penalty for the criminal offences eventually committed; in any case, he or she will only be allowed to acquire ownership of the thing found through extraordinary prescription, with the additional requirements established by art. 1956 CC.622 As to those things subject to a special regulation (things abandoned in the sea, aircraft, automobiles, etc.), the general rule is that the finder does not acquire ownership of the thing, but only a percentage of its value; where the actual owner does not show up within the established time, the State shall assume his or her rights.

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of the thing and the social evaluation founded on it) to determine if, in the specific case, the thing found has to be considered as presumed lost or as a res nullius. RUBIO GARRIDO, op. cit., p. 1245.

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6.3.

Treasure trove

The CC provides for a special regulation with respect to so-called “hidden treasure” (treasure trove) (arts. 614, 351 and 352): a hidden and unknown deposit of money, jewellery or other precious objects, the lawful ownership of which is not apparent (art. 352), in the sense that, according to the circumstances of the finding, it is not to be presumed that it has a present owner.623 Treasure belongs to the owner of the land or of the thing where it is found,624 as a manifestation of his or her right of ownership, but only from the moment of its finding (inventio), regardless of whether the finding takes place by chance or intentionally; accordingly, those who were owners before the time of the finding cannot allege any right upon the hidden treasure.625 In contrast, when the discovery is made by a third party on the property of another, or of the State, and by chance, one half thereof shall be attributed to the finder (art. 351), who will be considered to have acquired

623

624

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For the application of the special regulation referring to treasure trove,the fact that the thing has no owner is not the relevant focus, but rather the impossibility of determining who is the present owner (STS – 2nd Section – 24 January 1977, RJ. 72, and STS 30 January 1990, RJ. 101). The fact that the identity of the original owner is known does not rule out the things found being considered treasure trove (in order to apply the provisions of art. 351), if it is not possible to determine who may be his or her present successors (STS 27 June 1988, RJ. 5134). However, such rules are not applicable where the identity of the present owner can be established in reasonable terms (SSTS 22 December 1882, 8 February 1902 and 17 April 1951, RJ. 1017). The latter decision cited makes it clear that, even though the antiquity of the objects is not a requirement for the application of art. 351, it is a circumstance frequently bound to the ignorance of lawful ownership. In spite of the wording of art. 351, it is not a requirement that the treasure is found in the ground: STS 8 September 1902. If the property is subject to emphyteusis, the rights granted to the owner by the regulation of treasure trove belong to the tenant (art. 1632 (2) CC). STS 30 January 1990 (RJ. 101) and STS (2nd Section) 24 January 1977 (RJ. 72). STS 27 June 1988 (RJ. 5134) considered that the stipulation included in a sale contract according to which the seller kept the right in the treasures that could be found in it, only has obligational effect (even though it had been qualified as an “atypical personal easement right”, and entered as such into the Land Register), and is therefore not effective against third parties in whose title the same clause has not been included. Such decision is considered contentious by RUBIO GARRIDO, op. cit., p. 1239.

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through occupation, thus establishing a situation of co-ownership.626 The third party who discovers the treasure as a consequence of works designed for that purpose is not allowed to receive any part of the treasure or of its value, as such solution would encourage practices that may be very prejudicial to the preservation of historical patrimony.627 This is also the case if the discovery took place as a consequence of the owner’s mandate, for in such case the treasure belongs to the owner himself, without prejudice to any possible agreements between the parties.628 The behaviour of the person who finds treasure on another’s land and keeps it for him- or herself is considered to be a criminal offence.629 In the case of objects of particular artistic or scientific interest, the State shall be allowed to acquire them through expropriation and in return for payment of a fair price, which shall be distributed in conformity with the rules stated (art. 351 (3)).630 The Expropriation Act of 1954 (arts. 76 to 84) also grants the State rights of preferential acquisition in case of subsequent disposal by their owner. In relation to those objects belonging to the National Historical-Artistic Patrimony, they are subject to the Spanish Historical Patrimony Act of 25 June 1985,631 to different provisions passed by the Autonomous Communities and to a far-reaching administrative regulation. According to arts. 41 (3) and 44 LPHE – which expressly exclude the application of art. 351 CC –, any objects with the characteristics of Spanish Historical Patrimony, which are found either by chance or as a consequence of excavations or works of any kind, are considered to be of public dominion, without prejudice to the rights granted to the finder and to the owner of the location where the thing was found, to receive half of the value thereof in money.632

626

627 628 629 630

631 632

STS 30 January 1990 (RJ. 101). STS (2nd Section) 24 January 1977 (RJ. 72) expressly points out that, in the cases provided for by art. 351 (2), the finder acquires through occupation, while the owner of the main thing acquires through accession. RUBIO GARRIDO, op. cit., p. 1238. STS 30 January 1990 (RJ. 101). RUBIO GARRIDO, op. cit., p. 1239, quoting several decisions. See STS 22 March 1976 (RJ. 1425), concerned an important archaeological finding (the so-called “Dama de Baza”): a person had been authorised to excavate on his own land in search of antique objects and constructions, but he entered a neighbour’s land, without any permission from the owner. There he found an important statue, the ownership of which was attributed by the TS to the neighbour and actual owner of the land, without prejudice to the State’s right to acquire it through expropriation according to art. 351 CC. Ley 16 / 1985, de 25 de junio, del Patrimonio Histórico Español (LPHE). See STS 7 June 1988 (RJ. 5134).

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7.

Accession, commixture, specification

7.1.

Concept, nature, fundament and kinds of accession

Art. 353 CC provides: “The ownership of property gives the right of accession to everything which is produced thereby, or which is incorporated or attached thereto, either naturally or artificially”. Under the common name of “accession”, the norm refers to different situations in which it is not easy to find a common nature. First of all, a distinction is usually drawn between “discreet accession” and “continuous accession”. Discreet accession or accession by production (after the Latin verb discerno, meaning “to separate”) implies the attribution to the owner of the products of the things (arts. 354 to 357). The relative rules make up the so-called “theory of fruits”, which has already been developed in this report.633 In such cases, the original ownership is unfolded or multiplied: the ownership of the “mother-thing” establishes the attribution to the owner of the ownership of separated fruits and products, which cease to be component parts of the former and become the independent object of rights. It is a phenomenon that can be explained as a manifestation of the owner’s right of enjoyment. However, it has to be remembered that the attribution of the fruits to the owner does not operate in some cases, like that of the possessor in good faith, or those in which the right of enjoyment is granted to others on the grounds of a credit right (e.g. lessee) or of a property right (e.g. usufructuary). Continuous accession or accession by incorporation (or by transformation) is a phenomenon by virtue of which the owner of a thing acquires – or is entitled to acquire – the ownership of other things which are incorporated into it, or into which it is transformed, either naturally or artificially (arts. 358 to 383). It has been long discussed in Spanish doctrine whether continuous accession (or simply “accession”, as it is generally referred to) is to be considered as a mode of acquisition of ownership,634 or rather as a facet of ownership. As PEÑA explains it,635 accession implies essentially an objective modification of the ownership previously held; a modification that appears as a manifestation of the normal content of ownership, as it is defined by law (see arts. 353 and 609), and which, therefore, may be considered as a facet of ownership rather than as an independent mode of acquisition. The basis of accession must be traced back to reasons of economic use: when two things become inseparably attached, it is better to grant their 633 634 635

See supra, I, 2.7.3, (a). ALBALADEJO, op. cit., III, p. 279. Derechos reales …, cit., I, p. 220.

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ownership exclusively to one of the original owners (the person who owned the most important thing), thus avoiding the eventual economic detriment arising from their separation, as well as the constitution of a situation of co-ownership, traditionally deemed undesirable. Since accession may cause a subject to be deprived of the ownership of a thing that becomes incorporated into or attached to another, different rules are provided for in order to correct eventual unjustified enrichments and prevent possible bad faith. In practice, the cases and consequent conflicts may be extremely varied, as are the legal solutions. Leaving aside the cases of accession exclusively regarding immovables, which are beyond the scope of the present report (see arts. 366 to 374), two different groups of cases have to be dealt with: those of the so-called “accession of movables to immovables”, and those of “accession of movables to movables”.

7.2.

Accession of movables to immovables

In this section various cases in which a movable thing is artificially incorporated into an immovable have to be dealt with. In principle, “all works, sowing, and planting are presumed to be made by the owner and at his expense, unless the contrary is proved” (art. 359).636 When the incorporation is made in another’s land, the general rule is that “whatever is built, planted or sown on the land of another and the improvements or repairs made thereon, belong to the owner of the land, subject to the provisions of the following articles” (art. 358, which corresponds to the ancient Roman principle superficies solo cedit). In order to resolve eventual conflicts of interests, the CC takes into account, on the one hand, the necessity to provide a remedy for unjustified enrichment; on the other, the good or bad faith of the person who caused the incorporation. The concept of good or bad faith in this context does not relate to the possession of the immovable, but rather to the act of building, planting or sowing; this way, a person is in good faith if he or she believes to have a right to build, sow or plant, or simply has been authorised to do so by the owner.637 Regarding this last aspect, the provisions in art. 364 have to be considered: “[i]f there was bad faith, not only on the part of the person who built, planted or sowed on the land of another, but also on the part of the owner of such land, the rights of both shall be the same as if both had acted in good faith. It is understood that there is bad faith on the part of the landowner whenever the act was

636

637

The rule can also be applied against the owner’s interest: see STS 7 November 1961 (RJ. 4077). ARIAS DÍAZ, op. cit., p. 972, and STS 11 June 1985 (RJ. 3107).

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done with his knowledge and without opposition on his part”.638 This solution will also apply to the cases of incorporation in one’s own land with another’s materials. If there was bad faith only on the part of the person who receives the incorporation, some authors consider that an “inverted accession” should take place, while others apply the rule of art. 360 (obligation to indemnify for the value of the things incorporated plus damages). It is usually assumed that the regulation of accession is not applicable where there are specific rules, either legal or contractual, regarding the case (e.g. those regarding usufruct, lease contracts, possession in good or bad faith, etc.).639 However, an analysis of the judicial decisions shows that such rules (and especially art. 361, which regards the incorporation made in another’s land with one’s own materials) have been applied in the context of different legal and contractual relationships.640

7.2.1. Incorporation in one’s own land with another’s materials This matter is regulated in art. 360. According to its 2nd sentence, “the owner of the materials shall have the right to remove them only where he 638

639

640

STS 17 March 1973 (RJ. 984) makes it clear that the “compensation” provided for by art. 364 only excludes the consequences of bad faith for the purposes of accession, but not for others (e.g. regarding the effects of possession in bad faith). ARIAS DÍAZ (op. cit., p. 976, quoting STS 18 December 1980, RJ. 4759) points out that this article is frequently used as an ultima ratio in order to avoid the demolition of the building demanded by the landowner, by interpreting the latter’s bad faith very widely. Art. 364 was applied by analogy in a case of extraction of mineral products from a neighbouring land with the knowledge of the owner: STS 7 July 1997 (RJ. 210) only obliged the defendant to pay the owner the rent corresponding to a mine concession. E.g. STS 20 September 1989 (RJ. 6323) pointed out that the provisions of art. 360 are only applicable in the absence of a specific stipulation; while STS 18 October 1996 (RJ. 7161) declared that arts. 353 et seq. were not applicable if there existed a lease or usufruct relationship between the parties. ARIAS DÍAZ, op. cit., pp. 970-971, quoting judgments relating to lease contracts, administrative concessions, commodate and precarious possession, co-ownership (construction made by one co-owner on the common land), life annuity, nullity of the contract (art. 361 is applied instead of art. 1303, which regulates the effects of nullity). STS 18 July 1990 (RJ. 5949) excluded the application of art. 361 in the context of a construction contract; however, as the same author points out, the contract was actually one in which the builder had been granted a right to build over the pre-existing building and acquire ownership in the part constructed, thus implicitly excluding the application of the rules on accession.

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can do so without injury to the work constructed, or without the plantings, constructions or works being destroyed”. Where the materials are actually removed, there is no incorporation, and therefore accession does not take place. Leaving aside these cases, the first sentence of the article implicitly refers to those situations in which the owner of the land causes incorporation acting in good faith (that is, believing he or she had the right to use those materials): “[t]he owner of the land who, personally or through another, plants, carries out constructions or works thereon with the materials of another, shall pay their value”. In contrast, if he or she acted in bad faith, art. 360 provides that “he shall also be obliged to the reparation of damages”, meaning that the owner of the materials is not allowed to remove them, even if the landowner acted in bad faith, in case separation is deemed to lead to economic deterioration of the resulting assets.

7.2.2. Incorporation in another’s land with one’s own materials According to art. 361, “the owner of the land on which anything has been built,641 sown or planted in good faith, shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in arts. 453 and 454, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent”. There is no right of choice where the building is made on public land – in which case the builder will be obliged to acquire the land occupied –,642 or by a public entity (a County) on private land – which implies factual expropriation, where only the payment of the value of the land can be demanded –,643 or when the building becomes a part of the public dominion and cannot therefore be appropriated.644 On the contrary, some authors645 hold that the landowner cannot enforce the sale if the other waives his or her rights. Art. 362 provides: “any person who builds, plants or sows in bad faith on the land of another, loses what is built, planted or sown without right to indemnity”. The application of this rule requires that the land belongs 641

642 643 644 645

As to the concept of building, the courts have admitted a very wide scope of application: STS 25 November 1985 (RJ. 5898). See, however, STS 28 April 1980 (RJ. 1564), that excludes the application of art. 361 to the installation of electric posts; and STS 31 January 1996 (RJ. 545), with respect to the asphalt of a public way. STS 17 December 1957 (RJ. 1958 / 535). STS 20 May 1977 (RJ. 2132). STS 20 May 1977 (RJ. 2132). LACRUZ, op. cit., III, 1°, p. 136; PEÑA, op. cit., I, p. 227, n. 19.

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to someone other than the builder when the construction takes place;646 the acquisition of ownership by the landowner operates automatically and not as a consequence of an option.647 In fact, the provisions of art. 363 are not an option, but a different effect arising from the same case, not incompatible with the application of the preceding article: according to art. 363, “the owner of the land on which anything has been built, planted or sown in bad faith may demand the demolition of the work, or that the planting or sowing be removed, in order to restore things to their former condition at the expense of the person who built, planted or sowed”. It could be understood that the landowner shall also be permitted to use the solution provided for by art. 361, in order to oblige the person who made the incorporation in bad faith to buy the land or pay rent for use of it.648 In any case, the landowner will also be entitled to demand the reparation of damages under the general rule in art. 1902 CC. Overextension building. The aforementioned rules apply, undisputedly, when the building has been fully constructed on another’s land. However, it is not unusual that, when building on one’s own land, an overextension takes place, partially extending onto neighbouring land belonging to another.649 In such cases, the application of the rules provided for by CC (based on the principle superficies solo cedit, which mirrors the traditional view according to which land is always the main thing, and the building an accessory thereof) may lead to solutions that are undesirable or contrary to economic reason, such as the creation of a situation of co-ownership in the building, or even the demolition of the part of the building made on another’s soil. That is why both doctrine and judicature have tried to find more convenient solutions for these cases. Thus, in cases where the builder was in good faith when the overextension took place, the courts have been developing for several decades650 the so-called “theory of inverted accession”: where the building made makes 646

647 648

649

STS 27 April 1983 (RJ. 2129) excluded the application of art. 362 in a case where the seller of the land built on it when the transfer of ownership had not yet taken place, as there had been no tradition, even though the price had already been paid; however, the TS stated that the seller was obliged to comply with the contract. ARIAS DÍAZ (op. cit., p. 974) holds that the decision may be technically correct, but does not seem adequate in relation to its consequences. STS 27 December 1980 (RJ. 4759). Thus, STS of 20 May 1977, explaining that “it is logical to grant the landowner, in case of bad faith of the person who built, planted or sowed, similar rights to those he would be granted where there had been good faith of the latter”. Although the same doctrine has been applied in cases where several buildings included in a project had been constructed and some of them lying entirely on the neighbour’s land: see, e.g. STS 8 November 1989 (RJ. 9890).

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up an indivisible whole,651 the value of which is greater than that of the encroached land, the owner of the building acquires through accession the ownership of the relative strip of land, through payment of the price thereof (which implies an obligatory election of the second option offered to the landowner by art. 361652) and the damage caused, according to art. 1902. In order to reach this solution (attained in other European Codes, more modern than the CC, like those of Italy or Portugal, and even in the legal system of Catalonia), in the absence of any legal basis, the courts base this on the principle underlying the entire regulation of accession, according to which ownership of the main thing attracts that of the less important thing; a principle that, in the present situation, should lead to the priority of the building over the land.653 As to the cases of bad faith of the builder, the best solution has been discussed in doctrine. On the one hand, it is said that it would be contrary to economic reason to grant the owner of the encroached land the power to demand the demolition of what has been built on it, and therefore he or she should only be granted the right to choose between the price of the land plus the reparation of damages, or the acquisition of ownership with respect to the whole formed by the building and the land upon which it has been constructed, through reimbursement to the builder in the amount determined by the courts.654 On the other hand, this solution is deemed to be 650

650

651

652

653

654

See, among others, SSTS of 31 May 1949 (RJ. 721), 28 May 1985 (RJ. 2831), 23 February 1988, and 23 July 1991 (RJ. 5416). The lack of indivisibility has prevented the application of the doctrine of inverted accession to the cases of plantations partially made on another’s land (STS 22 March 1996, RJ. 2584), as well as in cases where the construction made could be separated without any deterioration (SSTS 28 April 1980, RJ. 1564, 12 November 1985, RJ. 5582, and 31 December 1987, RJ. 9715). ARIAS DÍAZ, op. cit., p. 967, quoting SSTS 22 November 1989 (RJ. 7900) and 12 December 1995 (RJ. 9601). The same author points out that some decisions (e.g. SSTS 15 June 1981, RJ. 2524, and 24 January 1986, RJ. 117) have considered that the application of the doctrine of inverted accession implies a forcible sale imposed on the owner of the land; which, accordingly, should lead (in such cases as well as in those where the second option of art. 361 is chosen) to the application of the theory of title and mode in relation to the acquisition of ownership by the builder, that would not be automatically carried out through the mere payment of the land’s value. It has to be remembered that the overextended building does not cause the acquisition of easement through inverted acquisition (STS 1 October 1984, RJ. 4750, on light and view easements). The last solution has art. 360 as an argument in its favour; see PEÑA, op. cit., I, p. 29, n. 27.

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unfair, since the landowner would be obliged to choose, as a consequence of another’s bad faith, between two solutions which may not be convenient for him or her; therefore, by application of arts. 362 and 363, it is said that the owner of the land encroached should be allowed to choose between the price thereof or the demolition of the building, in both cases together with the reparation of damages, provided no abusive exercise of rights occurs.655

7.2.3. Incorporation in another’s land with another’s materials This case is regulated by art. 365: “[i]f the materials, plants or seeds belong to a third person who has not acted in bad faith, the owner of the land shall be subsidiarily liable for their value and only in the event that the one who made use of them has no patrimony with which to pay. This provision shall not apply if the owner makes use of the right granted by article 363”. This latter article regards the right to demand demolition in case of incorporation in bad faith.

7.3.

Accession of movables to movables

Three cases are to be considered under this title, the nature and consequences of which are very different. The rules provided for by CC shall only apply in the absence of a valid agreement between the affected subjects. It has to be further taken into account that the application of these rules may be altered by the impact of art. 464 CC, regarding the a non domino acquisition of movables.

7.3.1. Union or adjunction This takes place when a movable thing gets united to another one belonging to a different owner, thus making up a whole that is unseparable without detriment to its components; if separation without detriment is possible, there is no accession and separation can be demanded by any of the parties.656 According to art. 378, “whenever the things united can be separated without injury, their respective owners may demand their separation. Nev655

656

PUIG BRUTAU (op. cit., p. 359) and ALBALADEJO (op. cit., III, p. 294), citing several judgments. STS 13 December 1949 (RJ. 1472): an engine belonging to the claimant is incorporated in bad faith into the defendant’s lorry. The Court orders the separation and the compensation for damages.

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ertheless, where the thing united for the use, decoration or perfection of the other, is much more precious than the principal thing, the owner of the former may demand its separation, even though the thing with which it has been combined may suffer some injury”. Leaving aside this latter case, should separation not be possible – out of physical or economic reasons –, in the absence of a valid agreement, good or bad faith of the parties have to be considered. If there is good faith on the part of both of them, the owner of the principal thing acquires the accessory, indemnifying the former owner thereof for its value (art. 375). The principal thing, as between two things combined, is deemed to be that to which the other has been united as an ornament, or for its use or perfection (art. 376). If it cannot be determined by the rule in the preceding article which of the two things combined is the principal one, the thing of greater value shall be so considered, and as between two things of equal value, that of the greater volume. In painting and sculpture, writings, printed matter, engraving and lithographs, the board, metal, stone, canvas, paper or parchment shall be deemed to be the accessory thing (art. 377). In relation to the cases of bad faith, art. 379 provides: “[w]henever the owner of the accessory thing has carried out the incorporation in bad faith, he shall lose the thing incorporated and shall have the obligation to indemnify the owner of the principal thing for the damages he may have suffered. If the person who has acted in bad faith is the owner of the principal thing, the owner of the accessory thing shall have a right to choose between the former paying him its value or that the thing belonging to him be separated, even though for this purpose it is necessary to destroy the principal thing; and furthermore, in both cases there shall be indemnity for damages. If either one of the owners has made the incorporation with the knowledge and without the objection of the other, their respective rights shall be determined as though both acted in good faith”.657 Art. 380 adds: “[w]henever the owner of the material employed without his consent has a right to an indemnity, he may demand that this consists of the delivery of a thing equal in kind and value, and in all other respects, to the thing employed, or else in the price thereof, according to an expert appraisal”.

657

Art. 379 was applied by STS 8 November 1961 (RJ. 4076), which involved a case where the frame and the engine of an automobile had been incorporated in bad faith into another car. Considering that the pieces were more valuable than the defendant’s car, the TS ordered the separation along with the compensation of damages for the impossibility of use of the claimant’s automobile.

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7.3.2. Combination, confusion or commixture “If by the will of their owners two things of the same or different kinds are mixed, or if the mixture occurs by chance, and in the latter case the things are not separable without injury, each owner shall acquire a right proportional to the part belonging to him, bearing in mind the value of the things mixed or confused” (art. 381).658 “If by the will of only one owner, but in good faith, two things of the same or different kinds are mixed or confused, the rights of the owners shall be determined by the provisions of the preceding article. If the person who caused the mixture or confusion acted in bad faith, he shall lose the thing belonging to him thus mixed or confused, along with being obliged to pay indemnity for the damages caused to the owner of the other thing with which his own was mixed” (art. 382).

7.3.3. Specification This implies the realisation of a new work of a different kind by employing, in whole or in part, another’s material. It is not, therefore, a case of incorporation of a thing to another, but rather one of transformation. The regulation thereof is provided by art. 383: “[a] person who in good faith employs the material of another in whole or in part in order to make a thing of a different kind, shall appropriate the thing thus transformed as his own, indemnifying the owner of the material for its value. If the material is more precious than the transformed thing or is of more value, its owner may, at his discretion, appropriate the new thing for himself, after first paying indemnity for the value of the work, or demand indemnity for the material. If bad faith was evident in the making of the thing, the owner of the material shall have the right to appropriate the work to himself without paying anything to the maker, or to demand of the latter that he indemnify him for the value of the material and the damages he may have suffered”.

7.4.

The question of transfer of ownership in cases of accession

In cases where a subject has the possibility to acquire through accession the ownership of another’s thing through payment to the latter of the corresponding indemnity, the question arises, whether acquisition of ownership 658

The provisions of art. 381 have been applied to cases of joint bank accounts where money originating from the different title-holders had been mixed; see SSTS 16 June 1955 (RJ. 1732), 7 February 1956 (RJ. 682) and 24 March 1971 (RJ. 1447).

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operates automatically, or remains subject to the payment of the indemnity. This is a question that assumes special relevance in determining who is authorised to revindicate the thing subject to accession. The courts659 have supported the idea (specifically regarding cases of incorporation on another’s land with one’s own materials, but with a wider scope) that the acquisition of ownership is not automatic, but takes place only when the option to acquire is exercised and the corresponding indemnity is paid;660 actual delivery is not required for the acquisition of ownership.661 In the meantime, the builder in good faith retains a temporary right of ownership in the building, and is not obliged to deliver it.662 However, this theory has not been taken to the last consequences by the courts, since the person obliged to deliver the thing when the indemnity is paid has been denied the authority to revindicate before that moment.663 For this purpose, the principle underlying art. 453 has been applied, according to which a possessor in good faith of another’s thing may retain it until the improvements made upon it are paid to him; a position that does not seem completely consistent with the affirmation that the builder keeps a temporary right in the building, which could be perfectly coordinated with the idea that the transfer of ownership to the one who profits from accession operates by virtue of his or her unilateral declaration of will, in the exercise of a power included within his or her right of ownership, and without prejudice to the aforementioned right of the possessor in good faith to retention.

8.

Good faith acquisitions

The expression “a non domino acquisitions” is used to denote those cases in which a subject acquires a certain property right (ownership or other), with the concurrence of title and mode, but as a consequence of a contract – or other kind of legal act fit for the transfer of rights, such as a judicial execution664 – where the other party did not have the right of disposal in the 659 660 661

662

663 664

See, among others, SSTS of 2 January 1928 and 31 December 1987 (RJ. 9715). See art. 361, which expressly demands that the payment is made first. ARIAS DÍAZ, op. cit., p. 973; however, citing STS 6 December 1985 (RJ. 6520), where delivery is apparently required. SSTS 18 March 1948 (RJ. 467), 4 July 1985 (RJ. 3640), 6 December 1985 (RJ. 6520), and 31 December 1987 (RJ. 9715). SSTS 2 December 1960 (RJ. 3782) and 31 December 1987 (RJ. 9715). See art. 594 LEC: “Subsequent transfer of seized assets which do not belong to the debtor executed. 1. The seizure made upon assets which do not belong to the debtor subject to execution is nevertheless effective. Where the true title-holder does not exercise

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thing; e.g. a person acquires ownership in a thing as a consequence of the sale – title –, and subsequent delivery thereof – mode –, performed by a subject who was not the owner or could not dispose of it. According to certain general principles coming from Roman law (nemo dat quod non habet, nemo plus iuris ad alium transferre potest quam ipse habet), in such cases the acquisitive effect should not take hold. However, under certain circumstances, the legislator deems it fit that such effect operates, for the sake of the certainty of commerce, in order to protect those third parties who, in good faith, have put their trust in the appearance of title of the person with whom they have entered into a contract; appearance usually arises either from the fact of possession or from the transferor’s entry in the register. As a result, an effect similar to that produced by prescription operates, only with no requirement of time. The person who acquires a non domino does not acquire by derivative title, inasmuch as his or her right is not founded on the previous titleholder’s right (who has not participated in the contract or could not dispose of his or her right); rather he or she acquires by original title, and by force of law, a new and different right, which excludes that of the previous titleholder. For the same reasons, the content of his or her right (limitations, encumbrances, etc.) does not depend on the previous title-holder’s right, but mainly on the appearance on which he or she relied. The main examples of a non domino acquisitions in Spanish law are the following:

8.1.

Sale of goods in public establishments

Arts. 85 and 86 Ccom., relates to the sale of goods in public establishments. According to art. 85 (1), “the purchase of goods in stores or public sales shall cause legal prescription in favour of the purchaser as to the acquired commodities, without prejudice to the right of the owner of the sold goods to exercise the civil or criminal actions against the person who improperly sold them”. The same rule applies to the acquisition of movable assets at public auction, according to art. 61 (1) LOCM.665

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his right through a third party action he shall not be authorised to impugn the alienation of the assets seized, if the adjudicatee acquires them without the possibility of revindication, according to the general rules on the matter. 2. The provisions of the preceding paragraph shall be intended to be without prejudice to the actions for indemnity, for unjustified enrichment or for nullity of the alienation”. Art. 61 (1) LOCM: “[t]he acquisition of movable assets through sale at public auction according to the provisions of this law shall cause their becoming not reivindicable in conformity with art. 85 of the Commercial Code”.

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Art. 86 provides a general rule for the impossibility to revindicate money: “[t]he money used for the payment of cash-purchased goods in public sales or establishments shall not be subject to revindication”.

8.2.

Immovable property

Regarding immovable assets, art. 34 LH provides the requirements for the a non domino acquisition by a third party who relies on public registration. According to art. 34 (1), “the third party who, in good faith, acquires by onerous title a right from a person who appears in the Land Register with the authority to transfer it, shall have his acquisition upheld, provided he has his right recorded, even where the transferor’s right is annulled or terminated for causes that do not appear in the Register itself”. Art. 40, in fine, adds: “[t]he rectification of the register will never prejudice the rights acquired by a third party by onerous title and in good faith while the entry declared inaccurate was in force”.

8.3.

Bearer papers

Art. 545 Ccom. refers to the acquisition of possession by a third party in good faith of a bearer paper: “[b]earer papers shall be transferable through tradition of the document. When the possession of the paper is acquired by a third party in good faith and without gross negligence,666 it shall not be subject to revindication. The rights and actions of the legitimate owner against those responsible for the acts which deprived him of the document shall be saved”. A particular application of the same principle, relating to the acquirers of security rights in negotiable instruments, can be found in art. 324 Ccom.: “[n]egotiable instruments given in pledge under the provisions of the preceding articles shall not be subject to revindication as long as the lender is not reimbursed, without prejudice to the rights and actions of the deprived title-holder against those responsible, according to the law, for the acts as a consequence of which he was deprived of the instruments given in pledge”. In fact, the mechanism of a non domino acquisitions serves as a basis of the theory of negotiable instruments, which imply the incorporation of one or more credit rights (e.g. the obligation to pay a certain amount of money, or the status of partner in a corporation) in a movable asset (a document elaborated under certain formalities: cheque, bill of exchange, share, etc.). Within the inter partes relationship, the credit right is subject 666

See footnote 132.

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to its own regulation (e.g. if the creditor claims for the payment, the debtor is allowed to use the exception of payment, compensation, etc.). However, if the document is acquired by a third party in good faith according to its particular applicable law (through title and mode, in the case of bearer papers; through a chain of endorsements, in the case of order papers; etc.), he or she acquires by original title the credit right therein incorporated, and is allowed to exercise it in the terms arising from the document itself, regardless of the circumstances affecting the credit within the casual relationship (principle of literality: e.g. if the third party claims for the payment of the cheque, the debtor cannot use against him the exceptions he or she may use against the original creditor, and will therefore be obliged to pay, without prejudice to the subsequent repetition).

8.4.

Financial instruments recorded in an account register

Art. 9 (3) of the Financial Instruments Market Act of 1988667 provides for a case of a non domino acquisition in favour of the third party who acquires, by onerous title, instruments represented by annotation into accounts from a person who, according to the records of the account register, appears to be authorised to transfer them, unless at the time of the acquisition he or she had acted in bad faith or with gross fault.

8.5.

Goods entered into the Register of Sale of Movables by Instalments

Art. 29 ORVP, following the pattern of art. 34 LH, declares that the acquirer who, in good faith and by onerous title acquires ownership or other rights capable of being entered into the Register of Sale of Movables by Instalments from someone who, according to the register, is the title-holder thereof and has the right of disposal over them, shall have his or her acquisition upheld, even if the transferor’s title is subsequently annulled or terminated on grounds which did not appear in the register. The same article also reproduces the rules of the LH regarding the presumption iuris tantum of good faith and the principle according to which the entry into the register does not validate those acts and contracts that are void according to the law; however, the entry by the third party acquirer of his or her own acquisition is not expressly required in order to be granted protection by reason of registration. However, the legality of such a provision is subject

667

Ley 24 / 1988, de 28 de Julio, del Mercado de Valores (LMV).

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to discussion, as seen above;668 moreover, the operation of a principle of public faith in registration is subject to a prior condition, i.e. the existence of an actual “registral publicity” (publicidad registral) relating to the transferor’s title, and founded upon an initial registration of ownership under the assessment and qualification of the registrar. Up to this moment, such condition can only be considered existing beyond any reasonable doubt for ships and aircraft, according to arts. 149 and 180 of the Regulation of the Commercial Register of 1956, which is still in force.

8.6.

The general rule of art. 464 CC

When it comes to movable assets in general, it has been traditionally discussed whether art. 464 CC regulates a case of a non domino acquisition as a consequence of the acquisition of possession in good faith.669 More specifically, the meaning of the following sentence has been long discussed in doctrine and jurisprudence: “[t]he possession of movable property acquired in good faith is equivalent to a title”.670 Two groups of theories, both of them founded on the historical origins of the norm, have been maintained in this respect: (a) Romanist theories: consistent with the Roman principles that govern the Spanish legal system (nemo dat quod non habet, nemo plus iuris trasferre potest …), art. 464 does not provide for a case of a non domino acquisition. A person who acquires possession of a movable asset in good faith from a person who is not the owner thereof does not acquire ownership (or the property right involved); he or she only obtains the just title that, along with other requirements (possession, good faith, passage of time), is needed for the consummation of acquisi668 669

670

See supra, I, 3. Art. 464 CC states: “[t]he possession of movable property acquired in good faith is equivalent to a title. Nevertheless, a person who has lost any movable or has been unlawfully deprived thereof may recover it from the person in possession of same. If the possessor of a movable lost or of which the owner has been unlawfully deprived, has acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid for it. The owner of things pledged in public pawn shops established with the authorisation of the Government is not allowed to obtain the restitution thereof, regardless of who delivered the thing, without previously reimbursing the loan amount and the payable interest. In relation to things acquired in stock markets, fairs, markets, or from a legally established merchant, and habitually dedicated to the commerce of analogous objects, the provisions of the Commercial Code shall apply”. On this debate, see, among others, GÓMEZ MATOS, op. cit., pp. 110 et seq.

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tive prescription. According to the supporters of this theory, only this construction permits the explanation of the content of art. 1955 (1), which provides for the ordinary prescription of movables (“[o]wnership of movables is prescribed through uninterrupted possession of three years in good faith”), and that would be rendered inapplicable, should possession in good faith imply an automatic a non domino acquisition. Among those who support the Romanist view, some have considered that art. 464 only establishes a presumption of title in favour of the person who possesses a movable in good faith.671 However, this point of view would reduce art. 464 to a repetition of art. 448. More consistency is exhibited in the theory defended some years ago by VALLET,672 and later by MIQUEL:673 the person who acquires possession of a movable asset in good faith does not automatically acquire ownership (although he or she might subsequently be allowed to acquire it through prescription); but, as long as he or she holds possession, he or she is allowed to reject the true owner’s revindication, unless the latter proves he or she lost the thing or was illegally deprived of it. The practical result to which this theory leads is very similar to the a non domino acquisition view, but there remains a difference: under the latter, the possessor in good faith acquires actual ownership, to the prejudice of the former owner; therefore, where the first one loses possession, he or she will be allowed to revindicate it from the one who holds it under his or her control. Under VALLET’s and MIQUEL’s theory, on the other hand, the possessor in good faith is allowed to reject the true owner’s revindication as long as the thing remains under his or her control, but if he or she loses possession before he or she has consummated prescription, he or she will not be 671

672

673

TRAVIESAS, M., “Extinción y reivindicación de la propiedad”, en RDP, 1920, pp. 206 et seq. Several decisions from the TS also follow this view; see, for instance, SSTS 22 December 1954 (RJ. 3166), 18 December 1958 (RJ. 4201), 14 December 1970 (RJ. 5517) and 30 September 1985 (RJ. 4483). VALLET DE GOYTISOLO, J.B., “La reivindicación mobiliaria como tema fundamental del art. 464 del Código Civil”, en ADC, 1956, pp. 361 et seq. See also, by the same author, “De nuevo sobre la posesión de bienes muebles. Tres estudios en torno al artículo 464,1 del Código Civil”, in ADC, 1980, pp. 243 et seq. MIQUEL GONZÁLEZ, J.M., La posesión de bienes muebles (Estudio del art. 464,1 del Código Civil), Madrid, 1979; and “Notas sobre el artículo 464 del Código Civil y la reciente jurisprudencia”, en ADC, 1999, pp. 565 et seq. See also SSTS 31 December 1910, 13 January 1926, and especially STS of 19 June 1945 (RJ. 709), which is considered as the judicial decision that best represents support for the Romanist theory: it dealt with the sale of an asset (a Linotype machine) held in common by several co-owners and sold by one of them to a third party who was in good faith.

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allowed to revindicate it: only the former owner will, since he or she still holds ownership. (b) Germanic theories: according to different authors,674 and the most recent court decisions,675 art. 464 CC must be construed according to its origins, located in some principles belonging to the Germanic legal tradition (Hand wahre Hand, Wo man seinen Glauben gelassen hat, da soll man ihn suchen), which were also adopted in other European Codes (France, Italy, Germany), and the meaning of which might be summed up thus: if the thing has been given to another on the giver’s own initiative, the giver is responsible for the appearance of ownership he or she may have created in the new possessor. According to this theory, a person who acquires possession of a movable in good faith and in the capacity of owner (or in the capacity of title-holder of another property right), becomes the actual owner (or holder of another property right) as a result of an a non domino acquisition, even if the transferor was not the owner him- or herself or did not have the power of disposal of the thing. The true owner cannot revindicate the thing, and is only allowed to claim against the person who unduly transferred it. The only exception to this rule arises from art. 464 (1) itself, in stating: “[n]evertheless, one who has lost any movable or has been unlawfully deprived thereof may recover it from the person in possession of same”. Under this construction, the rule provided by art. 1955 (1) is not useless, since it is applicable precisely in case of loss or illegal deprivation; in such cases, the possessor in good faith does not automatically acquire ownership, but he or she may get to acquire it through prescription (of three years). In relation to the possibility of prescription in such cases, the following paragraphs of art. 464 establish certain special provisions:

674

675

Among others, HERNÁNDEZ GIL (La posesión, cit., pp. 504 et seq., and p. 836), LACRUZ (op. cit., III, 1°, pp. 200 et seq.) and DE LA CÁMARA, M., La adquisición a non domino de bienes muebles (Nuevo estudio sobre el art. 464-1° del Código Civil), Madrid, 1982, passim. See, for instance, SSTS of 3 March 1980 (RJ. 841), 26 June 1984 (RJ. 3263), 30 September 1985 (RJ. 4483), 15 February 1990 (RJ. 687), 25 February 1992 (RJ. 1549) and 9 October 1993 (RJ. 8172). After a thorough analysis of these decisions, GÓMEZ MATOS (op. cit., pp. 121 et seq.) points out, that the judicial doctrine in favour of the Germanist theory is not as clear as is commonly assumed, since most of the decisions do not refer directly to the question of acquisition of ownership. One of the most recent judicial approaches to the issue is STS 22 January 2002 (RJ. 21), which declares itself to be following the same line of STS 19 June 1945 in relation to the interpretation of the words “illegal deprivation”.

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– If the possessor of a movable that has been lost or of which the owner has been unlawfully deprived, has acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid for it; this means that the possessor has a right of retention upon it. This rule is applicable to sales made at judicial, administrative or notarial auction. As to auctions made by private enterprises, art. 61 of LOCM of 1996 has established that the movables therein acquired shall not be subject to revindication, according to the provisions of art. 85 Ccom. – Should the same things have been pledged in public pawn shops, the real owner shall only be allowed to obtain restitution thereof by first reimbursing the establishment the loan amount and the interest payable; this could be understood in the sense that the public pawn shop acquires a pledge right a non domino.676 – As to things acquired in stock markets, fairs, markets and open sales, the rules of the Commercial Code, which provide for different cases of a non domino acquisition (see arts. 85 and 86) will apply. The meaning and scope of the exception to the general rule of acquisition a non domino arising from art. 464 (1), referring to the cases of “illegal deprivation”, has also been discussed. The idea that every case of alienation made without the owner’s direct consent should be deemed illegal deprivation does not seem acceptable, as the exception would have the same extension as the rule, which would therefore be pointless.677 On the 676

677

See RD of 12 June 1909, on loan houses and similar establishments. An application of this rule can be found in STS 4 July 1975 (RJ. 3132); excluding its application with respect to an ordinary pledge securing a loan, see STS (2nd Section) 29 April 1992 (RJ. 3206). Such construction has been admitted by some judgments of the Second Division (Criminal) of the TS: SSTS 26 January 1955 (RJ. 2103) and 4 July 1973 (RJ. 3014), the latter involved the embezzlement of a painting. A decision of the First Division (Civil), STS 22 January 2002 (RJ. 21), has recently declared – following the doctrine of STS 19 June 1945 – that the expression “illegal deprivation” not only includes the cases of theft and robbery, but also other situations involving breach of trust and confidence. An analysis of this decision, focused on the interpretation of the concept of illegal deprivation, can be found in MIQUEL, J.M., “El concepto de privación ilegal del art. 464 CC. Comentario a la STS de 22 de enero 2002”, en Revista de Derecho Patrimonial, 2002, pp. 409 et seq. The advisability of differentiating cases as to the degree of protection granted to the third acquirer when a previous offence regarding the thing is involved, finds confirmation in the Criminal Code, which, after stating (art. 110) that the civil liability arising from an offence includes

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other hand, the wording of the second paragraph of art. 464 has established the idea according to which the notion of “illegal deprivation” should be understood as an equivalent for sustracción, that is, a concept including the cases of theft and robbery (see art. 1962, which refers to art. 1955 (3), and this to art. 464678). According to a historical construction (based on the Germanic principles mentioned above) it could be held that there is illegal deprivation in all those cases in which the movable thing is taken out of the owner’s scope of control without his or her intention; accordingly, there would not be any illegal deprivation if the owner him- or herself had given the thing voluntarily on loan, deposit, lease, administration, etc., even if the borrower, the depositary, the lessee or the administrator unduly appropriated of the thing subsequently.679 Even though it has not been unanimously accepted by doctrine and jurisprudence, the Germanist theory has important arguments in its favour: (a) The wording of the rule is very similar to that of art. 2279 of the French Civil Code (En fait de meubles, la possession vaut titre), where a case of a non domino acquisition has undoubtedly been adopted; and that seems to have been the intention of the Spanish legislator.

678

679

restitution, repair of the prejudice, and indemnity of material and moral damages, adds (art. 111): “1. As far as it is possible, the same asset shall be subject to restitution, along with the payment of the deterioration and loss determined by the judge. Restitution shall take place even if the asset is held by a third party who has acquired it legally and in good faith, his right of repetition remaining secure, and, as the case may be, his right to be indemnified by the person in whom the civil liability for the offence or misdemeanour lies. 2. This provision is not applicable when the third party has acquired the asset in the form and with the requirements established by law in order to exclude it from revindication”. Art. 1962 states: “[r]eal actions for movables prescribe six years after the loss of possession, save the case in which the possessor gains ownership in a shorter term, according to art. 1955, and excepting the cases of loss and public sale, and those of theft and robbery, in which the provisions of the third paragraph of the same article will apply”. Art. 1955 (3) provides: “[i]n relation to the owner’s right to revindicate the movable thing that has been lost or of which he has been illegally deprived, as well as to those acquired in public sale, in stock markets, fairs or markets, or from a legally established merchant, who trades in analogous objects, the provisions established by art. 464 shall apply”. See STS 25 February 1992 (RJ. 1549), which, supporting the Germanic theory, states that the concept of illegal deprivation has to be restrictively construed, only including the cases of theft and robbery, since otherwise the general rule (movables held in good faith are not subject to revindication) would become inapplicable.

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(b) Since art. 464 itself states that, exceptionally, the owner is allowed to revindicate the thing in the case of loss or illegal deprivation, it seems clear that the general rule is the impossibility of revindication; this can only be convincingly explained where the present possessor has become an owner him- or herself. (c) From a systematic point of view, art. 464 can be considered as one of the several manifestations of the principle of protection of legal appearance and of third parties in good faith; it might be considered as an equivalent of art. 34 LH regarding, not immovables, but movables, substituting the publicity function arising from possession for that provided – in a much more sophisticated way – by the Land Register. Being a manifestation of the same principle, some authors680 assume that the protection granted by art. 464, just like that provided by art. 34 LH, ought to be restricted to those who have acquired possession by onerous title, since, within the conflict of interests between the true owner and the a non domino acquirer by gratuitous title, the latter’s interest should not prevail. It has to be stressed, in any case, that art. 464 is not applicable when it comes to assets the transfer of which is subject to specific administrative requirements,681 or to the special publicity system established for the sale of movables by instalments.682

9.

Acquisitive prescription

9.1.

Functions and kinds of prescription

Acquisitive prescription (also referred to in doctrine and jurisprudence as usucapión, after the Latin term usucapio, although the CC never uses such expression) is the acquisition of a property right (ownership or other) through possession in the capacity of title-holder of the said right, held continuously over a period of time prescribed by law. It is an original mode of acquisition of property rights, since, as a result of prescription, a new property right is created in favour of the one who prescribes, which does not derive from the former title-holder. The previous right is extinguished 680

681

682

E.g. DÍEZ-PICAZO, Fundamentos …, cit., III, p. 807; ALBALADEJO, M., “Sobre si equivale o no al título la posesión de los bienes muebles adquirida de buena fe, pero gratuitamente”, en Anuario de Derecho Civil, 1997, pp. 483 et seq. STS 20 December 1991 (RJ. 9575), concerned the sale of works of art belonging to a museum of the Church. STS 15 February 1990 (RJ. 687).

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because a new right, incompatible with it, is created in favour of another subject. Therefore, technically there is no proper succession of the title; only from a chronological point of view can such a succession be assumed. Despite the terminological coincidence, and even though the CC contains some common rules on both of them, acquisitive prescription has little to do with extinctive prescription; the latter is a mode of extinction that may affect, in principle, all kinds of rights and actions, including not only real rights – as happens in the case of acquisitive prescription; see arts. 1930, 1940 and 609 –, but also credit rights, and which is founded on prolonged inactivity within a certain legal relationship; whereas acquisitive prescription is founded on possession held in a certain capacity, which implies an active attitude. It is not easy to justify, from a moral point of view, the phenomenon of acquisitive prescription, especially if one considers that it may even act in favour of a subject acting in bad faith (extraordinary prescription). However, the basis may be found, on the one hand, in the requirement of legal security and certainty as to the attribution of title over rights; on the other hand, in the protection due to the person who has things under his or her control and exploits them, rather than to the person who fails to exercise any kind of power over them. Furthermore, from a technical point of view, prescription plays an important role inasmuch as it renders it easier to prove ownership in order to exercise the action for revindication, thus avoiding the probatio diabolica of ownership in the previous title-holders. In any case, jurisprudence has repeatedly considered that the fulfilment of the requirements necessary for acquisitive – as well as for extinctive – prescription has to be evaluated in a restrictive sense, while the existence of a cause of interruption of prescription has to be evaluated in a favourable sense (in dubio, contra praescriptio).683 The CC provides for the general regulation of acquisitive prescription in arts. 1930 et seq., even though in certain cases other rules established in the same code (e.g. in the case of easements), or in special laws, may be applicable. It must be stressed that in certain foral systems (such as those of Navarre and Catalonia) special rules regarding prescription are provided for. Depending on the requirements provided by law, two different kinds of acquisitive prescription must be considered: ordinary and extraordinary prescription. For both of them possession and passage of time are required; for ordinary prescription, good faith and just title are also required (arts. 1940 and 1959). 683

Among others, SSTS 14 March 1990 (RJ. 2043), 24 May 1993 (RJ. 3727), 20 June 1994 (RJ. 6025) and 26 July 1994 (RJ. 6778); see LÓPEZ FRÍAS, A., in Jurisprudencia civil comentada. Código Civil, dir. PASQUAU LIAÑO, M., Ed. Comares, Granada, 2000, t. II, p. 3403.

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Subjective and objective elements. According to art. 1931, “those capable of acquiring things or rights through other legitimate modes, can also acquire them through prescription”. A specific capacity to act is therefore not required; only the ability to fulfil the requirements of prescription in each case is necessary: e.g. minors and incapacitated persons may acquire possession by themselves, provided they have the natural ability of understanding and to declare intention, otherwise they may do so through their representatives; when a just title is necessary (ordinary prescription), the capacity requirements of the title invoked (onerous contract, donation, etc.) will be necessary.684 Apart from this, all those who have legal capacity may acquire through prescription, including physical and legal persons. According to art. 1933, “prescription gained by a co-owner benefits the rest of them”; this implies that possession has been held precisely in the capacity of co-owner, and to the profit of the community.685 In some cases, prescription in favour of and against special patrimony is also possible, such as, for instance, inheritance that has not yet vested: according to art. 1934, “prescription produces its legal effects in favour and against the inheritance before it has been accepted and during the time granted to make an inventory and to deliberate”. An important exception to the possibility of acquiring through prescription is provided for in art. 1956: “[m]ovable things stolen or robbed shall not be subject to prescription in favour of those who stole or robbed them, or in favour of the accomplices and accessories after the fact, unless the offence or misdemeanour, or the penalty, and the action to claim civil liability arising from the offence or misdemeanour are extinguished by prescription”. It is doubtful whether the terms for acquisitive prescription begin to run only after those actions are extinguished through prescription or whether, given the ordinary requirements, the acquisition is not effective until such prescription operates. Acquisitive prescription is effective to the prejudice of any title-holder: according to art. 1932, “rights and actions are extinguished through prescription against all kinds of persons, including legal ones, according to the provisions established by law. The right to claim against legal representatives always remains available to those who are unable to administrate their assets, when the negligence of the former has caused prescription”. So CC has not assumed the ancient rule (Contra non valentem agere non currit praescriptio) which granted a person who could not act by him- or herself 684

685

It has to be taken into account, in any event, that the action to obtain the annulment of a legal act or contract on the basis of the incapacity of one of the parties can only be exercised by the incapable person him- or herself – if he or she later acquires the necessary capacity –, or by his or her representatives. STS 27 January 1984 (RJ. 387).

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certain mechanisms in order to prevent prescription (e.g. restitutio in integrum). As it is, this provision can be considered as a decisive argument in favour of the objective basis of prescription (legal certainty), and against a subjective basis, namely the previous title-holder’s negligence in exercising his or her own right. In relation to the objective elements of prescription, art. 1963 provides that “all things in commerce are subject to prescription”. Prescription does not apply to things outside of commerce, like things of public dominion, which are not subject to prescription (art. 132 CE),686 but it does operate with regard to patrimonial things belonging to the State and other public entities. Rather than upon things, prescription operates upon ownership and upon those property rights that can be possessed (usufruct, use and habitation, emphyteusis, superficies, etc.); however, the prescription of credit rights is not possible (like those arising from lease contracts687), nor is it possible for property rights which are not capable of possession (hypothec, rights of acquisition, etc.),688 nor for bare ownership.689 In relation to easements, those which are continuous and apparent are capable of prescription, but those which are discontinuous or non-apparent are not, even though it is possible to possess them (arts. 532, 537, 538 and 539).690 Prescription may also operate with respect to assets subject to registration, and may also prevail over acquisitions based on the effects of public faith in registration.691 686

687 688

689 690

691

Although the courts have at times admitted the prescription of things of the public domain on the basis of the concept of factual desafectación (among many others, SSTS 26 April 1986 (RJ. 2004), 10 November 1986 (RJ. 6249) and 17 June 1987 (RJ. 4473). STS 13 May 1960 (RJ. 1728). According to HERNÁNDEZ GIL (La posesión, cit., p. 457), the right to the inheritance and the status of heir are not subject to prescription. As to the right of pledge, ALBALADEJO (op. cit., III, p. 713) admits the possibility of prescription, but that does not seem consistent with the requirements arising from art. 1857 (2), according to which it is an esential requirement for the constitution of the right that the ownership of the thing given in pledge belongs to the pledgor. According to the contentious decision of STS of 26 March 1986 (RJ. 1471). De lege ferenda, the exclusion of prescription with respect to discontinuous and non-apparent easements does not seem altogether justifiable, provided there is a continuous and peaceful possession thereof manifested through normal exercise of the right; see LACRUZ BERDEJO, J.L., and others, Elementos de Derecho Civil, t. III (Derechos reales), vol. 2° (Derechos reales limitados. Situaciones de cotitularidad), 2nd edition, revised and adjourned by LUNA SERRANO, A., Ed. DYKINSON, Madrid, 2004, pp. 117-118; and DÍEZ-PICAZO, Fundamentos …, cit., III, p. 712. In the case of immovables, the possibility of usucapio contra tabulas is expressly provided for by art. 36 LH, which establishes the requirements and limitations thereof.

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A special case is that of so-called usucapio libertatis or liberatory prescription. The release from burdens or property rights lying in ownership can be achieved either through extinctive prescription of such rights (as a consequence of their holder’s inactivity), or through acquisitive prescription, operating as a consequence of the possession on the thing as free of burdens for the period of time established by law. In this way, the owner of the thing acquires those powers which have been separated from his or her right as a consequence of another’s property right. However, liberatory prescription is not possible with respect to those property rights that are not capable of possession (hypothec, redemption right).

9.2.

Requirements of prescription

9.2.1. Common requirements: possession “ad usucapionem” and prescription period (a)

Possessio ad usucapionem

The possession leading to prescription has to meet the requirements established by art. 1941: “Possession has to be in the capacity of owner, public, peaceful, and uninterrupted”. (i) Possession in the capacity of owner: this expression has to be construed in the sense that a person who intends to prescribe – either through ordinary or extraordinary prescription – has to possess in the capacity of title-holder of the property right, the prescription of which is intended. The requirement is similar to that provided for by art. 447, regarding prescription of ownership, which establishes that: “[o]nly the possession acquired and enjoyed in the capacity of owner can serve as a title for acquiring ownership”. As was already explained, the requirement of possession in the capacity of owner does not relate to the internal intention of the subject, but external behaviour consistent with the character of being the actual owner.692 For these purposes, not only immediate possession, but also mediate possession (e.g. possession held in the capacity of a lessor) can serve to found prescription, even if there is no physical contact with the thing, as long as the external behaviour of both possessors is consistent with the respectively alleged possessions.693 The possession in the capacity of

692

693

In the absence of specific rules, the provisions of art. 36 LH might be considered applicable by analogy to those movable assets subject to registration. SSTS 25 May 1995 (RJ. 4127), 7 February 1997 (RJ. 685) and 10 February 1997 (RJ. 938). STS 18 May 1953 (RJ. 1638).

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owner can exist even if the title upon which possession was acquired is not valid,694 the concurrence of a just and valid title being a different requirement demanded only for ordinary prescription. The possessor who intends to prescribe may benefit from the presumption established by art. 436: “[i] t is presumed that possession continues to be enjoyed in the same capacity in which it was acquired, until the contrary is proven”; as to the proof of possession as such, and the capacity in which it is held, the burden falls upon the person who intends to prescribe,695 but those who appear as titleholders of property rights upon immovables according to the Land Register can benefit from the iuris tantum presumption of possession of rights entered arising from arts. 35 and 38 (1) LH (usucapio secundum tabulas); however, in the case of movables, no such presumption exists, not even for registered movables. Art. 1942 completes the requirements of the possession ad usucapionem by providing: “[p]ossessory acts, executed on the basis of licence or out of mere tolerance of the owner do not profit from possession”.696 (ii) Public and peaceful. In order to consummate prescription, the subject has to enjoy possession in the capacity of owner in a way that is evident for the community, and undisputedly during the period of time legally required. The requirement of publicity regards not only possession as such, but also the capacity in which it is held, and is considered necessary so that the real owner has the possibility of defending his or her right against another’s acts.697 The notions of “not public” and “not peaceful” possession should not be confounded with those of “clandestine” and “violent” possession, which take into account the manner in which possession was obtained

694

695

696

697

STS 10 November 1955 (RJ. 3107). However, several judgments have inaccurately considered that a person who acquired possession on the basis of an invalid title (such as a non-formal donation) cannot be considered as a possessor in the capacity of owner for the purposes of prescription, thus confounding the significance of both requirements; see, e.g. SSTS 13 May 1963 (RJ. 2515), 25 June 1966 (RJ. 3550), 27 September 1989 (RJ. 6384) and 3 March 1995 (RJ. 1775). An accurate explanation of the difference between possession in the capacity of owner, just title and good faith as requirements of prescription can be found in STS 10 November 1955 (RJ. 3107). STS 6 October 1990 (RJ. 7477), 25 January 1994 (RJ. 442), 18 October 1994 (RJ. 7721) and 10 February 1997 (RJ. 938). Among others, SSTS 28 November 1983 (RJ. 6680) and 17 July 1995 (RJ. 5587). STS 7 June 1941 (RJ. 738) points out that art. 1942 refers to the execution of possessory acts based on tolerance or on a previous licence of the owner, but not to the mere lack of opposition or tacit acquiescence of the owner with respect to the possession. SSTS 21 October 1964 (RJ. 4488) and 29 November 1968 (RJ. 5705).

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from the previous possessor.698 The person who acquires the tenancy of a thing through clandestine or violent means immediately becomes an actual possessor in order to obtain the interdictal protection, and he or she is further entitled to start prescribing from the moment he or she begins to enjoy possession publicly and peacefully, with only the restrictions arising from art. 1956 as to the temporary impossibility of prescription of stolen or robbed movable things by those who participated in the act, being applicable. (iii) Uninterrupted. According to art. 1943, “for the purposes of prescription, possession may be interrupted either naturally or by civil means”. The causes of interruption of acquisitive prescription contained in arts. 1943 to 1948 are usually considered to be a numerus clausus,699 and not capable of being extensively construed.700 Possession is naturally interrupted where it ceases for more than one year for any reason (art. 1944; see also art. 460 (4)). Where possession ceases for a reason other than deprivation (abandonment, assignment, loss or exit from commerce), it is arguable that one year has to elapse in order for possession ad usucapionem to be deemed to have been interrupted. It has to be remembered, in any case, that, according to art. 466, “one who recovers, according to law, possession unjustly lost, shall be deemed for all purposes which may redound to his benefit, to have enjoyed it without interruption”. Prescription may also be interrupted by civil means in two cases: by judicial service, or by an act of conciliation. Although the CC refers to the interruption of possession, it is more correct to say that it is an interruption affecting prescription, since possession continues. An extrajudicial claim (unlike in the case of extinctive prescription) is not a suitable way of interrupting possession by civil means,701 though it may serve to eliminate the possessor’s good faith.

698

699

700 701

In this sense, see SSTS 20 April 1976 (RJ. 1920) and 8 May 1982 (RJ. 2559). However, a different view can be found in SSTS 26 October 1966 (RJ. 4762), 21 October 1988 (RJ. 7597) and 11 July 1994 (RJ. 6384), which consider that “peaceful possession” means “non-violent possession”. Implicitly, SSTS 20 September 1984 (RJ. 4329) and 21 October 1988 (RJ. 7597). However, there has been some discussion with respect to the effect of the claim for the right to proceed in forma pauperis as to the interruption of extinctive prescription; see LÓPEZ FRÍAS, op. cit., p. 3412. STS 18 April 1989 (RJ. 3064). SSTS 20 September 1984 (RJ. 4329) and 18 April 1989 (RJ. 3064). Exceptionally, STS 29 December 1969 (RJ. 1212) admits the interruptive effect of an extrajudicial claim by the title-holder.

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Art. 1945 provides that “civil interruption takes place by judicial summons, even if it is made by order of a judge without jurisdiction”. The rule regards those cases in which a judicial claim on possession or ownership of the thing is filed, that is contradictory to the possession of the person who is prescribing. Although most authors hold that prescription is deemed to be interrupted from the filing of the claim,702 the opinion according to which the interruption only takes place when the possessor is summoned before the court as defendant703 seems more consistent with the wording of the article (citación – “summons” –, mandato – “order” –), as well as with the nature of acquisitive prescription: in this case, the relevant point is not the moment in which the passive attitude of the title-holder ceases (as happens in the case of extinctive prescription), but the moment in which possession itself is interrupted, which could scarcely happen before the possessor becomes aware of the filing of the claim.704 Art. 1946 provides for three cases in which the judicial summons fails to interrupt prescription: “[a] judicial summons shall be deemed not to have been made and shall fail to cause interruption: 1°. Where it is void by infringement of formal requirements established by law. 2°. Where the plaintiff discontinues his action or leaves the suit to lapse. 3°. Where the possessor is absolved”.705

702

703

704

705

ALBALADEJO (op. cit., III, p. 180), DÍEZ-PICAZO (Fundamentos …, cit., III, p. 727). See also SSTS 10 July 1987 (RJ. 5454), 6 October 1993 (RJ. 7307), and STSJ Catalonia 2 October 1995 (RJ. 8180), which states that the interruption operates from the date on which the claim is filed, provided the judicial summons takes place, since, otherwise, an eventual delay in the execution of judicial measures would be prejudicial to the claimant. STS 23 June 1966 (RJ. 3442). STS 22 July 1997 (RJ. 5805) acknowledges that this is a disputed question. See, however, art. 479 of the previous LEC (introduced in 1984), which has been considered (see, e.g. PEÑA, op. cit., I, p. 133, n. 16, who had previously held the opposite view) as a decisive argument in favour of the “filing” theory: “[t]he filing of the application for conciliation, followed by the admission thereof, shall interrupt extinctive and acquisitive prescription, under the conditions and with the effects established by law from the moment of the filing”. The aforementioned STS 22 July 1997 (RJ. 5805) admitted that prescription had been interrupted on the basis of summons made through public proclamation (edicts), considering that, once the procedural relationship had been correctly established, all its legal effects – including interruption of prescription – had to operate. This article poses the problem of coordination with art. 1945, because the lack of jurisdiction of the judge may cause the exoneration of the defendant. It may be assumed that the summons made by a judge without jurisdiction will only interrupt prescription if the defendant is not exonerated for that reason, or if a new claim is

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According to art. 1947, “civil interruption also takes place by application for conciliation, where the claim on possession or ownership of the contested thing is filed before the judge within two months of the conciliation”.706 Halfway between natural and civil interruption, prescription may also be interrupted by the possessor’s express or tacit acknowledgment regarding the right of the person against whom he or she was prescribing. According to art. 1948, “any express or tacit acknowledgment of the owner’s right made by the possessor also interrupts prescription”. In this case the interruption does not affect possession itself, but rather the capacity in which possession is held.707 After prescription is interrupted, the period for a new prescription starts to run again from scratch. In the Spanish CC there are no cases of mere suspension of prescription – implying a merely temporary stoppage of the process of prescription, subject to the possibility of being resumed at the point in time at which it stopped –, but there are some provisions on it in some foral systems, such as that of Catalonia.

(b)

Passage of time

The terms established by law for acquisitive prescription are deemed to be an issue of public order, and are therefore not subject to any kind of negotiation before they are completed. (i) Legal terms. Regarding movables, art. 1955 requires three years for ordinary prescription, and six years for extraordinary prescription.708 (ii) Rules regarding the calculation of time. According to art. 1960, in the calculation of time for prescription, the following rules will apply: – To complete the time necessary for prescription, the present possessor may join his predecessor’s possession to his or her own. This is so-called accessio possessionis, which operates in cases of transfer of possession inter vivos, either by onerous or gratuitous title, as well as in the case of mortis causa succession (successio possessionis), although in the latter

706 707 708

not filed within the next two months, by analogy with art. 1947 (LACRUZ, op. cit., III, 1°, p. 165). See also art. 305 (2) of the previous LEC, on the extension of that term. SSTS 28 September 1990 (RJ. 6910) and 5 March 1991 (RJ. 1718). Special rules are provided for by art. 573 Ccom. for acquisitive prescription of ships: ownership of ships can be acquired through possession in good faith held for three years, provided there is a just title duly registered. In the absence of any such requirements, possession continuously held for ten years shall be required. The captain shall not be allowed to acquire the ship he or she commands through prescription.

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case other articles may also be applicable: arts. 440 (regarding civilísima possession), 442 (regarding the decedent’s bad faith), and 1934 (prescription in favour of and against the inheritance not yet vested). The courts have admitted that the person who prescribes may profit, not only from the time of possession of his or her immediate predecessor, but also from that of preceding ones.709 In any case, the transferor’s possession has to meet the requirements of prescription, especially the one regarding possessory capacity, which has to be the same as that alleged by the person who intends to prescribe.710 – The present possessor, who had possession at a previous time, is presumed to have possessed during the intervening time, unless there is proof to the contrary (see also art. 459). However, the burden of proof with respect to the commencement of possession, falls upon the person who intends to prescribe.711 – The date on which the period begins must be calculated entirely; but the last day of the relevant period has to be fully completed. It is an exception to the general rule provided for by art. 5 CC as to the legal calculation of time in civil law, since for the purposes of prescription the starting date is taken into account, and not excluded from calculation.

9.2.2. Specific requirements for ordinary prescription: good faith and just title (a)

Good faith

According to art. 1950, “the possessor’s good faith implies his believing that the person from whom he received the thing was its owner and could transfer the ownership thereof”. Good faith has in this case the sense of 709

710

711

SSTS 30 May 1968 (RJ. 4540), 27 January 1984 (RJ. 387), 13 June 1996 (RJ. 4766) and 4 June 1997 (RJ. 4782). LÓPEZ FRÍAS (op. cit., p. 3426) quotes a curious case, resolved by STS 25 October 1913, in which the seller of a movable thing belonging to another tried to oppose the claim filed against him by the real owner, alleging the prescription consummated by the buyer through accessio possessionis. The TS, correctly, rejected such allegation stating that, in any case, only the buyer could be allowed to allege such accessio. SSTS 10 November 1954 (RJ. 2646), 26 October 1966 (RJ. 4762) and 28 April 1997 (RJ. 3403). In the community of heirs, one of the heirs cannot join the deceased’s possession to his own to the prejudice of the others in order to consummate prescription upon one of the inherited assets (STS 17 May 1988, RJ. 4311). SSTS 24 January 1992 (RJ. 206), 24 March 1992 (RJ. 2284) and 8 May 1993 (RJ. 3467).

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ignorance or error, either regarding the law or the facts. Art. 1951 also requires the fulfilment of the conditions of good faith established for possession in arts. 433, 434, 435 and 436: therefore, for the purposes of prescription, a possessor who knew or should have known of the existence of a flaw either in the title or in the mode of his or her acquisition, or his or her transferor’s lack of title or of power of disposal, is deemed to be in bad faith. Good faith in acquisition, as well as the continuity of it are presumed, and are only deemed to be lost in the case and from the moment facts present themselves which show that the possessor is not unaware that he or she possesses the thing improperly or wrongfully. In contrast, a person who possesses in bad faith cannot allege the provisions of art. 364 CC in order to acquire through ordinary prescription, since this article only regulates the field of accession.712 Good faith is required, not only when possession is acquired,713 but also throughout the whole prescription period; art. 1940 formulates the classic principle introduced by canon law according to which mala fides superveniens nocet.714 If good faith is lost after prescription has commenced, the time in which it was kept benefits the possessor proportionally to the effects of extraordinary prescription; the opposite case may take place in cases of accessio possessionis, when the transferor was in bad faith and the transferee is in good faith.

(b)

Title

In order to consummate ordinary prescription, the existence of a just, true, valid and proven title is required by arts. 1952, 1953 and 1954:715 (i) Just: According to art. 1952, “just title is one that according to law suffices to transfer ownership or another property right subject to pre712

713 714

715

STS 17 March 1973 (RJ. 984). Art. 364 states: “[i]f there was bad faith, not only on the part of the person who built, planted or sowed on the land of another, but also on the part of the owner of such land, the rights of both shall be the same as if both had acted in good faith. It is understood that there is bad faith on the part of the landowner whenever the act was carried out with his knowledge and without opposition on his part”. STS 8 March 1956 (RJ. 1150). SSTS 26 December 1910, 25 January 1945 (RJ. 29) and 28 March 1961 (RJ. 1798). In Navarre the opposite principle applies. The difference between this requirement and the one regarding good faith has been pointed out in several judgments, stating that it is possible to be in good faith without having the necessary just and valid title for prescription: SSTS 10 July 1987 (RJ. 5454) and 12 November 1993 (RJ. 8765).

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scription”. It is therefore required that a fact has taken place which is fit, by itself, to transfer a property right (e.g. a contract of sale followed by tradition, a donation, a legacy, etc.),716 but which has not produced that effect precisely because the transferor was not the title-holder thereof or did not have the power of disposal of it.717 Such acts that are not fit by themselves to carry out the transfer of the right (deposit, lease, transaction – as to the disputed right –, division of the common thing, a declarative judgement, etc.) are not deemed to be just titles,718 nor are those that relate to an object that is not completely identified. (ii) True. A title that did had not have a real existence does not serve as a title for prescription (e.g. a simulated contract),719 and nor does one that the possessor incorrectly thought to be in existence (“putative” title, e.g. the testament inaccurarely deemed by the legatee to be the decedent’s last). 716

717

718

719

The TS has considered as just title for the purposes of acquisitive prescription, a will – followed by acceptance of inheritance – through which the testator had disposed of assets he could not dispose of himself (STS 11 December 1943, RJ. 311), a sale made by an apparent heir (SSTS 12 March 1958, RJ. 1073) and 14 April 1958, RJ. 1477), a sale erroneously including a portion of land which did not belong to the seller (RJ. 30 may 1958, RJ. 2116), a donation made by someone who was not the owner (STS 5 March 1991, RJ. 1718), and sale of another’s thing (STS 22 July 1997, RJ. 5805). An act formalised in a private document can also serve as a just title for prescription, as long as public formalisation is not a requirement for the validity thereof: SSTS 30 May 1958 (RJ. 2116) and 23 January 1976 (RJ. 29). SSTS 30 March 1943 (RJ. 410), 12 June 1956 (RJ. 2482), 3 February 1961 (RJ. 311), 11 December 1965 (RJ. 5610), 7 February 1985 (RJ. 538) and 25 February 1991 (RJ. 1594). SSTS 18 December 1910, 20 November 1964 (RJ. 5395), 28 November 1983 (RJ. 6680) and 16 April 1990 (RJ. 2761). With respect to mortis causa titles, the judicial doctrine is not unanimous; although some judgments accept that inheritance as such (SSTS 7 March 1930, RJ. 741, and 15 April 1932, RJ. 1006), as well as the hereditary partition (SSTS 20 October 1928, 24 May 1956, RJ. 2438, and 12 June 1956, RJ. 2482), can be considered as a just title for prescription, STS 11 December 1965 (RJ. 5610) holds a different view, taking into account that the deceased had acquired by an invalid contract. Regarding the inadmissibility of the pro herede title and of the hereditary partition as just titles for ordinary prescription, see GONZÁLEZ PACANOWSKA, I., “Notas sobre el justo título para usucapir y la sucesión mortis causa”, ADC, 1993, pp. 1.899 et seq., containing a full complement of doctrinal and judicial references. SSTS 14 October 1960 (RJ. 3172), 13 May 1965 (RJ. 2594), 16 April 1990 (RJ. 2761) and 20 October 1992 (RJ. 8088).

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(iii) Valid. A person who possesses by virtue of a title that is invalid for lack of the essential requirements demanded by law (see art. 1261 CC for contracts), for lack of the necessary formalities ad solemnitatem,720 or for violation of mandatory norms (art. 6 (3) CC) cannot acquire through ordinary prescription. The transferor’s lack of title or of power of disposal does not result in invalidity of the title for the purposes of acquisitive prescription – as long as the act of disposal in itself is not invalid for violation of mandatory rules721 –, but only in its lack of effect to actually transfer the right.722 In relation to voidable transactions, it is disputed whether or not they may be deemed valid titles for prescription while they are not actually annulled. As long as the action to impugn does not expire, the subject authorised to exercise it may invoke the voidability of the title, thus hindering ordinary prescription. If, otherwise, the transaction is confirmed or the action to impugn it expires, it may be considered as a sufficient title for ordinary prescription.723 Also, those contracts which are subject to rescission, termination or revocation are deemed to be just titles for prescription as long as the corresponding actions are not actually exercised.724 (iv) Proven. According to art. 1954, “the just title has to be proven; it is never presumed”.725 It is a significant exception to the rule established by art. 448, which formulates the general presumption of title arising out of possession. However, it has to be remembered that, in the case of movables, the requirement of title for the purposes of ordinary prescription is deemed to be met as a consequence of possession in

720

721

722

723

724

725

In relation to invalid donations for a lack of the formalities set out by arts. 632 and 633 CC, see SSTS 13 May 1963 (RJ. 2515), 25 June 1966 (RJ. 3550) and 26 January 1988 (RJ. 146). LÓPEZ FRÍAS (op. cit., p. 3420) points out that in some cases where the transferor did not have the power of disposal, the TS has rejected the fulfilment of a valid title for the purposes of prescription; but the real reason that explains such decisions is, in most cases, either the fact that the act of disposal in itself was contrary to a direct legal prohibition, or the absence of good faith in the transferee. SSTS 22 January 1969 (RJ. 195), 22 July 1997 (RJ. 5805) and 23 June 1998 (RJ. 4744). Most of the judgments of the TS admit voidable contracts as a just title for ordinary prescription: see, among others, SSTS 6 June 1969 (RJ. 3281) and 5 March 1991 (RJ. 1718). SSTS 13 May 1963 (RJ. 2515), 25 June 1966 (RJ. 3550) and 5 March 1991 (RJ. 1718). SSTS 20 October 1989 (RJ. 6949) and 16 May 1993 (RJ. 2285).

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good faith (arts. 464 (1) and 1955 (1)),726 the latter consisting of the possessor’s ignorance as to the existence of a flaw in the title by virtue of which possession is held. According to the Romanist interpretation, this is the essential meaning of art. 464 (1); according to the Germanist interpretation, on the contrary, the rule would only play a role for the purposes of prescription in cases of loss and illegal deprivation of possession, since for the other cases the acquisition of possession in good faith causes a non domino acquisition of the property right without any need for prescription.727 In relation to immovables entered into the Land Register, registration also makes the ordinary prescription in favour of the registered title-holder easier, where he or she is not the real owner (secundum tabulas prescription, art. 35 LH).728 Regarding ordinary prescription of immovables not entered into the register, the existence of a just title will have to be proven.

9.3.

Effects of prescription and waiver of consummated prescription

When all the necessary requirements of prescription are met, the acquisition of the right operates ipso iure; however, it cannot be granted ex officio by the judge, but has to be alleged (by way of action or exception) by the person who intends to profit from it,729 precisely because it can be the object of waiving, as will now be explained below. The extent of the right acquired through prescription does not depend on the former title-holder’s right, since it is an original mode of acquisition. Therefore, the content of the right acquired is not affected by the restrictions affecting the previous holder, unless such restrictions have also burdened the possession. This is since the latter determines the extent of the prescribed right. The content and extension of the prescribed right depends on the manner in which prescription has operated: in extraordinary prescription, the 726

727 728

729

STS 3 March 1951 (RJ. 1873) rejected the alleged prescription of some movable assets on the basis of the lack of a just title, in spite of the omission of such requirement in the wording of art. 1955 (1); however, the ratio of the judgment rested upon the absence of any act of acquisition of possession in the capacity of owner. See supra, III, 8.6. Art. 35 LH: “[f]or the purposes of acquisitive prescription in favour of a registered title-holder, registration shall be a just title, and it shall be presumed that he has possessed publicly, peacefully, uninterruptedly and in good faith for the entire time that his entry and that of his predecessors’ have been in force”. Among others, SSTS 27 May 1991 (RJ. 3839) and 31 March 1995 (RJ. 2795).

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possessor acquires the right just as it has been possessed (quantum possessum, tantum praescriptum);730 in ordinary prescription, he or she acquires the right as he or she has possessed it, but only up to the point in which good faith and just title existed (e.g. a person who possesses property believing in good faith that he or she is a usufructuary, and having a title for that purpose, but then possesses, in bad faith, in the capacity of owner, cannot acquire ownership through ordinary prescription, rather only usufruct). In any case, it has to be remembered that possession of a thing free of burdens does not extinguish by liberatory prescription those rights and burdens that are not capable of possession. Prescription has retroactive effects, and therefore the acquisition is deemed to have taken place from the moment prescription commenced. Therefore, after prescription is consummated, the acts carried out by the possessor in the intervening time, acting as title-holder without being such, are legitimised (e.g. as to the acquired fruits, lease contracts entered into by him or her acting as owner, etc.); the acts realised within the same period by the former holder of the right become, on the other hand, ineffective. Art. 1935 allows for the waiving of consummated prescription: “[t]hose persons with capacity to transfer may waive consummated prescription, but not the right to prescribe in the future”. The waiving of prescription does not have the same meaning as the abandonment of the right – which would allow anyone to acquire it through occupation –, but results in the retroactive nullity of its effects, and therefore, allows the consideration that the right of the verus dominus is still in force. It cannot be considered as a gratuitous act; it is rather founded731 upon a moral obligation: that of respecting another’s right. Therefore, the regulation of donations is not applicable here: tacit waiving is admissible (art. 1935 (2): “[p]rescription is deemed to be tacitly waived where the waiving results from acts that allow the presumption of the abandonment of the acquired right”; compare arts. 632 and 633, regarding the formalities required for donation), and revocation is not possible. In any case, the rights of third parties remain secured: according to art. 1937, “creditors, and other persons with an interest in the actuation of prescription, are allowed to make use of it in spite of its express or tacit waiving by the debtor or by the owner” (see arts. 6 (2) for the general rules regarding waiving of rights and art. 1111 regarding subrogatory and pauliana actions).

730 731

STS 17 November 1964 (RJ. 5102). DE CASTRO Y BRAVO, F., Temas de Derecho Civil, Madrid, 1972, p. 169.

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Table of Literature ALBALADEJO GARCÍA, M., Derecho Civil, T. I (Parte general), 16ª ed. Edit. Edisofer, Madrid, 2004. ALBALADEJO GARCÍA, M., Derecho Civil, T. II (Derecho de obligaciones), 12ª ed. Edit. Edisofer, Madrid, 2004. ALBALADEJO GARCÍA, M., Derecho Civil. T. III (Derecho de bienes), 10ª Ed. Edit. Edisofer, Madrid, 2004. ALBALADEJO GARCÍA, M., “La prescripción de la acción reivindicatoria”, in ADC, 1990, pp. 25 et seq. ALBALADEJO GARCÍA, M., “Sobre si equivale o no al título la posesión de los bienes muebles adquirida de buena fe, pero gratuitamente”, in Anuario de Derecho Civil, 1997, pp. 483 et seq. ALBALADEJO GARCÍA, M. / DÍAZ ALABART, S. La donación, Colegio de Registradores de la Propiedad y Mercantiles de España, Madrid 2006. ALCOVER GARAU, G., La transmisión del riesgo en la compraventa mercantil. Derecho español e internacional, Edit. Civitas, Madrid, 1991. ANDREU MARTÍNEZ, Mª.B., La reserva de dominio en el concurso, Edit. Comares, Granada, 2009. ARANA DE LA FUENTE, I., “Comentario a la STS de 30 de Octubre de 1986”, in CCJC, 1986, pp. 4.099 et seq. ARIAS DÍAZ, in Jurisprudencia civil comentada. Código Civil, dir. PASQUAU LIAÑO, M., Ed. Comares, Granada, 2000. ARNAU RAVENTÓS, L., La declaración de concurso de persona casada y la composición de la masa activa. Estudio de los artículos 77, 78 y 79 de la Ley 22 / 2003, de 9 de julio, Concursal, Ed. ATELIER, Barcelona, 2006. ARROYO I AMAYUELAS, E., in S. VON ERP / A.VAQUER, Introduction to Spanish Patrimonial Law, Edit. Comares, Granada, 2006. ATAZ LÓPEZ, J., “Registro de Condiciones Generales”, in Comentarios a la Ley de Condiciones Generales de la Contratación, coord. BERCOVITZ RODRÍGUEZ-CANO, R., Ed. Aranzadi, Cizur Menor (Navarra), 2000, pp. 313 et seq. ATAZ LÓPEZ, J.: “Sobre la interversión posesoria. Notas al artículo 436 del Código Civil”, in Homenaje al Profesor Juan ROCA JUAN, Servicio de Publicaciones de la Universidad de Murcia, Murcia, 1989, pp. 33 et seq. BADOSA COLL, F., “Del depósito”, Comentario del Código Civil, Ministerio de Justicia, t. II, Madrid, 1991.

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658 BALLARÍN HERNÁNDEZ, R., in Comentario del Código Civil, Ministerio de Justicia, t. II, Madrid, 1991. BASOZÁBAL ARRÚE, J., Enriquecimiento injustificado por intromisión en derecho ajeno, Edit. Civitas, Madrid 1998. BERCOVITZ ÁLVAREZ, G., Tradición Instrumental y Posesión, Edit. Aranzadi, Elcano (Navarra), 1998. BERCOVITZ ÁLVAREZ, G. / PEÑA LÓPEZ, F. in BERCOVITZ RODRIGUEZ CANO, R. (coord.), Comentarios al Código Civil, 2ª ed., Edit. Thomson-Aranzadi, Cizur Menor (Navarra) 2006. BERCOVITZ RODRÍGUEZ-CANO, R., La cláusula de reserva de dominio, Madrid, 1971. BERCOVITZ RODRÍGUEZ-CANO, R., “Comentario a la STS de 11 de julio de 1983” -RJ. 4208-, CCJC, 1983, pp. 873 et seq. BERCOVITZ RODRÍGUEZ-CANO, R., “Comentario a la STS de 26 de marzo de 1984” -RJ. 1434-, CCJC, 1984, pp. 1.540 et seq. BERCOVITZ RODRÍGUEZ-CANO, R., “Comentario a la STS de 7 de noviembre de 1988” -RJ. 8421-, CCJC, 1988, pp. 993 et seq. BERCOVITZ RODRÍGUEZ-CANO, R., “Comentario a la STS de 4 de octubre de 1993” -RJ. 7456-, CCJC, 1994, pp. 67 et seq. BLANQUER UBEROS, R., Las garantías reales en el concurso, Edit. Thomson Civitas, Madrid, 2002.

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Table of Abbreviations AAMN ADC Art(s).

Anales de la Academia Matritense del Notariado. Anuario de Derecho Civil. Article(s).

CC CCJC Ccom CE CP

Código civil (Civil Code). Cuadernos Cívitas de Jurisprudencia Civil. Código de Comercio (Commercial Code). Constitución Española de 1978 (Spanish Constitution). Código Penal (Criminal Code).

DGRN

Dirección General de los Registros y del Notariado (General Service of Registers and Notaries).

LAU

Ley 29 / 1994, de 24 de noviembre, de Arrendamientos Urbanos (Urban Property Lease Act). Ley 49 / 2003, de 26 de noviembre, de Arrendamientos Rústicos (Rural Property Lease Act). Ley 22 / 2003, de 9 de julio, Concursal (Bankruptcy Act). Ley 19 / 1985, de 16 de julio, Cambiaria y del Cheque (Negotiable Papers Act). Ley 50 / 1980, de 8 de octubre, de Contrato de Seguro (Act on Insurance Contracts). Ley1 / 2000, de 7 de enero, de Enjuiciamiento Civil (Act on Civil Procedure). Ley de 16 de diciembre de 1954, de Expropiación Forzosa (Expropriation Act). Ley Hipotecaria de 8 de febrero de 1946 (Act on Mortgages and Land Register). Ley de 16 de diciembre de 1954 de Hipoteca Mobiliaria y Prenda sin Desplazamiento (Act on the Movable Hypothec and Pledge without Transfer of Possession). Ley 24 / 1988, de 28 de julio, del Mercado de Valores (Financial Instruments Market Act). Ley 48 / 1960, de 21 de julio, de Navegación Aérea (Air Navigation Act). Ley 7 / 1996, de 15 de enero, de Ordenación del Comercio Minorista (Act on Retail Trade).

LAR LC LCC LCS LEC LEF LH LHMPSD

LMV LNA LOCM

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666

LPAP

LPH LPHE LPI

LRJAP

LS LSA

LSRL

LVP

Ley 33 / 2003, de 3 de noviembre, de Patrimonio de las Administraciones Públicas (Act on Patrimony of the Public Administration). Ley de 21 de julio de 1960, de Propiedad Horizontal (Horizontal Property Act). Ley 16 / 1985, de 25 de junio, de Patrimonio Histórico Español (Spanish Historical Patrimony Act). Ley de Propiedad Intelectual, Texto Refundido aprobado por Real Decreto Legislativo 1 / 1996, de 12 de abril (Intellectual Property Act, Copyright Act). Ley 30 / 1992, de 26 de noviembre, de Régimen Jurídico de las Administraciones Públicas y del Procedimiento Administrativo Común (Public Administrations and Common Administrative Procedures Act). Ley 8 / 2007, de 28 de mayo, del Suelo (Land Act). Real Decreto Legislativo 1564 / 1989, de 22 de diciembre, por el que se aprueba el texto refundido de la Ley de Sociedades Anónimas (Business Corporations Act). Ley 2 / 1995, de 23 de marzo, de Sociedades de Responsabilidad Limitada (Limited Liability Companies Act). Ley 28 / 1998, de 13 de julio de Venta a Plazos de Bienes Muebles (Act on Sale of Movable Assets by Instalments).

ORVP

Ordenanza del Registro de Ventas de Bienes Muebles a Plazos de 19 de Julio de 1999 (Ordinance of the Register of Sales of Movable Assets by Instalments).

RD RDBB RDGRN

Real Decreto (Royal Decree). Revista de Derecho Bancario y Bursátil. Resolución de la Dirección General de los Registros y del Notariado (Resolution of the General Service of Registers and Notaries). Revista de Derecho Mercantil. Revista de Derecho Privado. Reglamento Hipotecario, aprobado por Decreto de 14 de febrero de 1947 (Regulation of the Land Register). Real Decreto 1784 / 1996, de 19 de julio, Reglamento del Registro Mercantil (Commercial Register Regulation).

RDM RDP RH RRM

SAP

Sentencia de Audiencia Provincial (Appeal Court Sentence).

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Table of Abbreviations

STC STS STSJ

TC

667

Sentencia del Tribunal Constitucional (Constitutional Court Sentence). Sentencia del Tribunal Supremo (Supreme Court Decision). Sentencia del Tribunal Superior de Justicia (Superior Court of Justice of an Autonomous Community). Tribunal Constitucional (Constitutional Court).

Databases and Case Collections JUR

Aranzadi – Appeal Cases (Westlaw-Aranzadi).

RJ

Repertorio Jurisprudencia Aranzadi (Westlaw-Aranzadi).

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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

© sellier. european law publishers www.sellier.de