acquisition and loss of ownership of goods - book viii ...

M-EPLI MAASTRICHT EUROPEAN PRIVATE LAW INSTITUTE WORKING PAPER No. 2011/25

ACQUISITION AND LOSS OF OWNERSHIP OF GOODS BOOK VIII OF THE DRAFT COMMON FRAME OF REFERENCE Lars van Vliet

FACULTY OF LAW MAASTRICHT UNIVERSITY JUNE 2011

The paper can be downloaded without charge from the Social Science Research Network at http://www.ssrn.com

Electronic copy available at: http://ssrn.com/abstract=1856004

ACQUISITION AND LOSS OF OWNERSHIP OF GOODS – BOOK VIII OF THE DRAFT COMMON FRAME OF REFERENCE Lars van Vliet [email protected] Abstract

This article gives an overview of some of the key subjects of Book VIII DCFR: The Draft Common Frame of Reference. It focuses on the transfer of movables, the transfer by a non-owner, i.e. the rules on bona fide acquisition, and the conflict between a seller who delivered with a retention of ownership clause and the buyer who produces new goods from the goods delivered to him. This last subject is mainly treated in Book IX DCFR. The article explains the rules of the DCFR, criticizes the rules and compares them to Dutch, German and French law, and the UK Sale of Goods Act. Keywords: DCFR, Common Frame of Reference, Transfer, movable property, movables, specificatio, retention of title, retention of ownership, reservation of title, Book VIII, Book IX, acquisition and loss of ownership, transfer system Published in: Zeitschrift für Europäisches Privatrecht 2/2011


II. Entwicklungen Acquisition and Loss of ownership of Goods – Book VIII of the Draft Common Frame of Reference by Lars van Vliet, Maastricht Übersicht Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Transfer of goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. The transfer system in general . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Functional approach versus unitary approach . . . . . . . . . . . . . . . . . . . . . . . . . b) Causal tradition system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Should the transfer be regarded as a legal act? . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Rejection of real agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Transfer as a legal or juridical act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c) Valid transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . d) Termination of sales contract when seller is in possession . . . . . . . . . . . . . . 3. Transfer in the case of indirect representation . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Agreement as to the time ownership is to pass . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Transfer of goods forming part of a bulk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Co-ownership regime within a tradition system . . . . . . . . . . . . . . . . . . . . . . b) Loss of goods and overselling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. Transfer of the co-ownership share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. Sale from a bulk by a non-owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. Delivery of individual goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9. Multiple transfers (e. g. double sale) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Third party protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Protection against a resolutive condition in a preceding transfer . . . . . . . . . . 3. Sale and transfer through constitutum possessorium by non-owner to bona fide purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Deferring third party protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) The UK Sale of Goods Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c) French, German and Dutch law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . d) Why excluding constitutum possessorium? . . . . . . . . . . . . . . . . . . . . . . . . . . e) Reasons mentioned by the German and Dutch legislators . . . . . . . . . . . . . . f) Goods in the possession of a third party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . g) Standard of good faith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . h) The DCFR’s arguments are not convincing . . . . . . . . . . . . . . . . . . . . . . . . . . III. Retention of ownership and production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. The DCFR’s solution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) The classical conflict between retention of ownership and specificatio . . . . b) No automatic extension of retention of ownership to products . . . . . . . . . c) The ranking of the seller’s security right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Dutch law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. English law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. French law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. German law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. The novel DCFR solution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


293 293 293 293 294 296 296 297 299 300 301 302 303 303 304 306 307 307 308 309 309 309 311 311 312 315 316 318 319 320 321 322 322 322 322 323 324 325 326 329 331 333

2011

Book VIII of the DCFR

293

Introduction Three books of the so-called draft Common Frame of Reference (DCFR) are about property law. Book VIII called ‘Acquisition and loss of ownership of goods’ is the most general one, Book IX is about security rights in movable property and retention of ownership and Book X is about trusts. Book VIII as well as Book IX leave out immovable property and claims, thus concentrating on movable property. Book VIII, the subject of this article, has been drafted by a working team in Salzburg. In its comments the working team publishes a considerable amount of comparative research and shows that many of its choices are based on this comparative research1. All working teams made their drafts under the supervision of the Study Group on a European Civil Code and many of the fundamental choices have been made or approved by the Study Group. Other points of the draft of Book VIII have been left completely to the Salzburg working team. The comments do not show which group made which choices. When I refer to the drafters of the Book VIII this should be understood as a reference to both groups. It should be noted that two different comments on Book VIII have been published. The first comment was published as part of the ‘Full Edition’ (Sellier, Munich, 2009). The second comment is part of the ‘Principles of European Law Series’ (vol. 9, Sellier, Munich, 2011) and is an improved version in which the Salzburg team was able to react to criticism raised against the draft of Book VIII and its first comment. Even though Book VIII of the draft Common Frame of Reference contains only a small part of property law, there is more to say about the individual articles and doctrinal problems than is possible here. For that reason I concentrate on a number of topics which are interesting from a systematic or doctrinal view and issues which caught my interest from a comparative viewpoint. The topics are arranged in three categories: 1) the transfer of goods, 2) third party protection and 3) the question when a seller under retention of ownership loses his security as a result of specificatio.

I. Transfer of goods 1. The transfer system in general a) Functional approach versus unitary approach The comments on VIII.–2:101 (Requirements for the transfer of ownership in general) show that the drafters have made a thorough analysis of the advantages and disadvantages of all three transfer systems for movable property: the consensual system, the abstract tradition system and the causal tradition system. 1 I am indebted to Dr. Wolfgang Faber of Salzburg University for his detailed answers to many of my questions on Book VIII. I am equally indebted to Prof. Dr. Ulrich Drobnig for his detailed answers on my questions on Book IX.

294

Lars van Vliet

ZEuP

Yet, before starting this discussion the comments raise the question whether the DCFR should at all determine one single moment on which ownership passes. This refers to another divide within European property law that is often neglected: the divide between the ‘functional approach’ of the Nordic countries and the ‘unitary approach’ of the rest of the European systems. The unitary approach denotes a system in which one single moment is determined on which ownership passes. This moment is then decisive in an array of different questions, e. g. the passing of ownership between the transferor and transferee, the passing of ownership in relation to the transferor’s or transferee’s creditors. If some of these consequences are undesired the law should make a rule to deviate from the standard rule or supplement the standard rule. Thus, a consensual system, in which ownership of a specific thing passes when the contract is made, can be supplemented by giving the seller a lien until the goods are paid, and that lien may even work against the buyer’s creditors. In the Nordic functional approach it is said that the moment when ownership passes is irrelevant and that every conflict situation, such as passing between the parties or passing as against the seller’s creditors, should have its own rules. In fact, it could be called a fragmented approach. Both approaches may reach the same goals. The difference is only very small because legal systems following the unitary approach have had to develop various special rules to deviate from the standard rule. To some degree, therefore, they follow a fragmented approach as well. The vital difference is to my mind that the unitary approach gives a legal system a default rule to rely on when confronted with new problems unforeseen by the legislator. This is an important advantage of the unitary approach 2 . The comments stress that, although the DCFR opts for a unitary approach, the provisions are the result of discussions in which each conflict situation was solved separately, thus following a functional approach in the drafting process. Yet, in general the DCFR favours the unitary approach. The comments point out that in order to solve every possible question in a functional approach a large number of special rules would be needed and that the Nordic legal systems do not themselves offer codified rules for every possible conflict. On the contrary, a lot of these problems are left to case law and literature. The drafters considered it too risky to try out the functional approach in a comprehensive codification3. b) Causal tradition system The drafters have long debated the question which transfer system should be adopted. Unanimity could not be reached. The representatives of the Nordic countries favoured the functional approach and a large number of representatives 2 E.M. Meijers cited by F.H. Lawson, who in turn is cited in: T.B. Smith, Property problems in sale, London/Calcutta, 1978, p. 19-20: “I remember, however, the late Professor Meijers saying that in any case, even if one solved all the essential problems without reference to ownership, something ought to be included about the passing of ownership in case some problems should arise in the future that no one had thought about and that might best be solved by applying the concept of ownership […].” 3 Lurger/Faber (eds.), Principles of European Law, vol. 9, Acquisition and loss of ownership of goods (hereafter: PEL Acq Own), VIII.-2:101, Comment 93.

2011


295

favoured the consensual transfer system. Yet, the majority of the working team were in favour of adopting a traditio or delivery system4. The delivery requirement is, however, not mandatory: the parties may agree that ownership passes before delivery (e. g. constitutum possessorium) or after delivery (e. g. retention of ownership until the purchase price is paid). To reflect this freedom the DCFR puts forward in VIII.-2:101(1)(e) as its principal rule that the transfer of ownership requires that “there is an agreement as to the time ownership is to pass and the conditions of this agreement are met”. This is comparable to the approach of the UK Sale of Goods Act (SGA) in which a similar rule functions as principal rule (section 17(1) SGA). However, to characterise the transfer system in question we should focus on the default rule and, different from the Sale of Goods Act which opted for a consensual system, the default rule of the DCFR is that transfer of ownership requires delivery or an equivalent to delivery. The transfer system is causal, that is to say, it requires the transfer to be based on a valid legal ground, for example a valid contract of sale (iusta causa traditionis). In the DCFR the legal ground is called ‘entitlement’. In the case of a sales contract the transfer is based on the seller’s obligation to transfer ownership of the thing sold. The causal character can be found in VIII.-2:101(1)(d), VIII.-2:101(2) and VIII.-2:202 (Effect of initial invalidity, subsequent avoidance, withdrawal, termination and revocation). In addition VIII.-6:102 provides that where goods have been transferred on the basis of an invalid or avoided entitlement (legal ground), the transferor is able to revindicate the goods. VIII.-2:101(1)(e) requires that the transferee should be entitled as against the transferor to the transfer of ownership. Also para (2) refers to such entitlement. In most cases, it is true, the transfer will be based on a preceding legal ground (iusta causa praecedens), but there are cases in which no entitlement precedes the transfer. In some countries the gift from hand to hand is binding only after delivery of the thing to the donee. As a result, the transfer of ownership cannot be based on a preceding legal ground. IV.H.-1:104(b) also refers to a gift from hand to hand. That is not to say that there is no legal ground: the transfer is made with the intention that it should be a gift (causa donandi) and that intention is the legal ground. The DCFR’s definition of legal ground is too specific to cover this case as well. The comments deny that this definition is too narrow: “In general, the transferee’s entitlement will correspond to an obligation of the transferor to transfer the owner ship, but the term ‘entitlement’ lacks the prospective connotation of ‘obligation’. To say that there must be an obligation to transfer would, at least in some traditions, give rise to difficulties with regard to such situations as a spontaneous gift from hand to hand which is made without there being any prior obligation to make it. The concept of ‘entitlement’ is intended to cover such cases5.” However, such an interpretation is contrary to the literal meaning of the word entitlement. 4

PEL Acq Own, VIII.-2:101, Comment 9. PEL Acq Own, VIII.-2:101, Comment 102.

5

296

Lars van Vliet

ZEuP

Moreover, I see no good reason to prevent a wording like ‘valid legal ground’ or something similar.

2. Should the transfer be regarded as a legal act? a) Rejection of real agreement The comments stress that the concept of real agreement has not been adopt ed and tries to demonstrate that the concept of real agreement is superfluous6. The real agreement is the agreement in which the transferor declares that he is transferring ownership to the transferee and in which the transferee declares to accept ownership. This is normally done implicitly. The real agreement is another term for the legal or juridical act of transfer. It is the expression of the parties’ will that ownership passes; it is what makes the transfer a legal or juridical act. The real agreement, it is true, will normally pass ownership only if additional require ments have been met, such as a valid legal ground, delivery or a deed, but the declaration of will between the parties that ownership passes is always the core element of any voluntary transfer of ownership. These declarations of will form the real agreement. From the DCFR’s rejection of the concept of real agreement it follows logically that the DCFR does not regard the transfer of ownership as a legal act, but merely as a consequence of a certain factual act, namely delivery or an equivalent of delivery or the agreement as to the time when ownership should pass, in addition to the valid legal ground. It should be stressed, however, that the comments are silent on this point. Neither do the comments say that the transfer is a legal act, nor do they deny that it is a legal act. It seems that the drafters have not realised this consequence of rejecting the real agreement. The Comments in the PEL Series indicate that ‘transfer’ denotes the effect, that is, the passing of ownership7. Apparently, the agreement as to the time when ownership should pass should not be seen as the real agreement, even though it expresses the will to transfer ownership. Is it then part of the underlying contract, if there is one? The main reasons why the drafters do not adopt the concept of real agreement and deny that the transfer is a legal or juridical act, are the following. First of all, for various reasons the team regarded the concept as superfluous and did not want to burden the draft with seemingly dogmatic overload. Second, it feared that otherwise it would be possible for a seller who did not stipulate a retention of ownership clause in his contract to impose unilaterally a retention of ownership clause at the moment of delivery8. The latter reason is not convincing at all. First, this problem can be solved by a special provision that a retention of ownership clause cannot be made unilaterally 9. The proposed solution to this minor problem has far-reaching consequences and creates a lot of doctrinal difficulties. 6

PEL Acq Own, VIII.-2:101, Comment 10. PEL Acq Own, Introduction, Comment 10 and VIII.-2:101, Comment 3. PEL Acq Own, VIII.-2:101, Comment 75. 9 Moreover, it should be stressed that in systems in which a retention of ownership clause can be imposed 7 8

2011


297

b) Transfer as a legal or juridical act The concept of legal act or juridical act denotes an act which has a certain intended legal effect. The DCFR defines it as follows (II.-1:101(2)): “A juridical act is any statement or agreement, whether express or implied from conduct, which is intended to have legal effect as such. It may be unilateral, bilateral or multilateral.” By entering into a contract of lease, for example, the legal effects intended by the parties include the lessee’s right to use the thing and the lessor’s right to get one or more payments. In the case of a contract of sale, the intended legal consequences include the seller’s duty to transfer ownership (sometimes also the immediate passing of ownership) and the buyer’s duty to pay. Similarly, a transfer is commonly seen as an act which intends ownership to pass from the transferor to the transferee, and is therefore a legal act. Even though the legal act or juridical act as a named concept is a typically continental legal concept unknown to the English common law, English law does regard the transfer as a legal act without actually using this term. In the Dutch civil code the term ‘transfer’ is used in a double meaning10. In some articles the term denotes the legal act of transferring ownership and in other articles it denotes the result of a successful act of transfer, namely the passing of ownership. In some articles Dutch law speaks of the validity or invalidity of the transfer. This is a clear indication that ‘transfer’ in those articles is regarded as a legal act. A legal act can be valid or invalid. If valid, it brings about the intended legal result. On the other hand, a result or an effect, does or does not set in, but a result cannot be ‘valid’ or ‘invalid’. Since the acts required to let ownership pass are performed with the inten tion to let ownership pass, it meets the definition of legal or juridical act. Where delivery results in the passing of ownership, it cannot be denied that this is the parties’ intended effect. What is more, the mere physical act of putting an object in the hands of another person is in itself meaningless. The law attaches different meanings to it depending on the intention of the parties: is it intended to give the other person possession as a lessee or is it intended to let ownership pass to that other person? It therefore receives the legal meaning of ‘delivery’ only when accompanied by the intention to let ownership pass11. Applying the notion of legal act to the transfer is not indispensable to a legal system, but using the notion of legal act enables a legal system to explain a number of legal problems in a more simple way. For example, it explains more easily what happens when the transfer is performed by a direct agent. The traditional definition of direct representation includes that the legal act performed by the agent is deemed to have been performed by the principal: all legal consequences of the legal act are attributed to the principal. It will be very difficult to describe the effects of a transfer by a direct agent without regarding the transfer as a legal after the contract unilaterally, this amounts to a breach of contract. After all, the seller has a duty to transfer ownership without a retention of ownership clause. 10 O.K. Brahn/W.H.M. Reehuis, Overdracht, 3rd edition, Deventer, 1997, nrs. 2 and 3. 11 However, the drafters regard ‘delivery’ as a factual act. See PEL Acq Own, VIII.-2:101 Comment 79.

298

Lars van Vliet

ZEuP

act. In my opinion even in the DCFR it is an act with intended legal consequences and therefore meets the definition of legal or juridical act. If a thing is handed over to another on the basis of that other person’s entitlement the handing over takes place with the parties’ intention that ownership should pass to the other person. Still the DCFR takes a lot of effort to describe the transfer as a purely factual act. If the transfer is no legal act, it follows that no condition (suspensive or resolutive) can be attached to it. Yet, VIII.-2:203 titled ‘Transfer subject to condition’ reads in para (1): “Where the parties agreed on a transfer subject to a resolutive condition, ownership is re-transferred immediately upon the fulfilment of that condition, …” Does this mean that the resolutive condition is attached to the transfer, as the title of the article seems to indicate? If yes, this is impossible if the transfer is not a legal act. The comments show that according to the drafters the condition should be attached to the underlying legal act (normally a contract) which forms the basis for the transfer. Para (2) then continues: “Where the contract or other juridical act entitling to the transfer of ownership is subject to a suspensive condition, ownership passes when the condition is fulfilled.” I cannot imagine that the drafters mean that the entire contract underlies this suspensive condition. The intention of a retention of ownership clause is merely to suspend the passing of ownership, not to suspend all consequences of the contract including the seller’s duty to deliver and the buyer’s duty to pay for the goods. When not accepting the real agreement, should we then say that the retention of ownership clause is a suspensive condition attached to the seller’s obligation to transfer ownership? It might be said that as long as the obligation to pass ownership and therefore the buyer’s entitlement to acquire ownership is suspended ownership cannot pass. The way in which Book VIII treats transfer seems in conflict with other parts of the DCFR. In nr. 51 of the Introduction to the DCFR Outline Edition of 2009 Von Bar, Beale, Clive and Schulte-Nölke say: “The need for clear concepts and terminology also meant more frequent references than in the PECL to juridical acts other than contracts12. A juridical act is defined in II.-1:101 as a statement or agreement which is intended to have legal effect as such. All legal systems have to deal with various types of juridical act other than contracts, but not all use such a term and not all have generalised rules. Examples of such juridical acts might be offers, acceptances, notices of termination, authorisations, guarantees, acts of assignment, unilateral promises and so on.” Since assignment is a form of transfer, the reluctance of the drafters to regard the transfer of movables as a juridical act is inconsistent with the above view taken in the introduction to the DCFR. Accord ing to Clive ‘act of assignment’ refers to the juridical act of transferring the claim. He makes a distinction between ‘act of assignment’ which should be regarded as a juridical act and ‘transfer’ (the result of a valid act of assignment)13. Why is the 12 Chr. von Bar/E. Clive/H. Schulte-Nölke, Principles, definitions and model rules of European Private law, Draft Common Frame of Reference, Outline Edition, 2009. 13 Prof. Eric Clive confirmed this during a conference on Book VIII DCFR organised by the Edinburgh School of Law on 19 February 2010.

2011


299

same distinction not made for the transfer of movables? Moreover, Book X clearly regards the transfer as a juridical act. Chapter 2 (Constitution of trusts), Section 1 is titled: Basic rules on constitution by juridical act, and the second article of this section (X.-2:102) is entitled: Constitution by transfer. c) Valid transfer On various places the first version of the comment in the DCFR Full Edition uses the expression ‘valid transfer’. The term ‘transfer’ may denote either the result (passing of ownership) or the legal act of transferring ownership, or both. A result does or does not set in, but it cannot be said to be valid or invalid. A legal act, on the other hand can be either valid or invalid. Thus, it seems inevitable to conclude that the comments are self-contradictory and regard the term ‘transfer’ on certain places as a legal act after all14. To give an example, discussing the effects of a double sale of the same goods to two different buyers, the first version of the comment in the DCFR Full Edition says: “The first transfer is valid, the second one is undertaken by a non-owner, so that the second buyer does not acquire ownership from the seller, but could possibly acquire based on the rules on good faith acquisition15.” In the second version of the comment the word ‘valid’ has been replaced with ‘effective’16 , but this does not solve the contradiction. If in the DCFR the ‘term transfer’ indicates the result, the effect, and not the legal act, the term ‘effective transfer’ would really mean an ‘effective effect’. What is more, if transfer indicat ed the result, the word transfer should always be used as a noun, not as a verb, as the verb would indicate the act of transferring ownership. Now, VIII.-2:101(1) (c) requires that the transferor should have “the right or authority to transfer the ownership”. Here ‘transfer’ is used as a verb, clearly indicating the act of transferring ownership. The same has been done in VIII.-2:102, VIII.-2:302(3)(b), VIII.-2:304(1), VIII.-2:305(5), VIII.-3:101, VIII.-3:102. Also in the comments to VIII.-2:101 and 2:305 the word ‘transfer’ is often used as a verb. Cf. comment 8 to VIII.-2:305: “[…] it is necessary that the parties agree to transfer the ownership of the goods to the transferee […]”. The term ‘transfer’ is also used to denote the act of transferring in other books of the DCFR. See III.-5:104(1)(c), III.-5:112(6), IV. A.-1:102, IV. A.-1:202, IV. A.-1:203, IV. H.-1:101, IV. H.-1:102(2), IV. H.-1:104, IV. H.-1:105, IV. H.-1:201, IV. H.-1:202, IV. H.-1:203, VII.-5:101, IX.-2:104(2), IX.-5:207(2), IX.-6:105, X.-2:103, X.-5:204, X.-9:106. In addition the word ‘transferring’ is used in III.-3:510(3), VII.-5:101, IX.-1:201(4) and IX.-2:101(b). VIII.-2:201(3)(a) is equally confusing. It intends to uphold national rules on the so-called actio pauliana, and refers to ‘any right of the transferor’s creditors to treat the transfer as ineffective arising from the law of insolvency or similar provisions’. 14

PEL Acq Own, VIII.-2:101, Comment 51 and Comment 99, 102, 112 and 115. VIII.-2:105 Comment E (Transfer of document containing the undertaking to deliver the goods (paragraph (4)) (Relation to other transfer rules: no exclusivity of transfer by document), DCFR Full Edition, vol. 5, p. 4545. 16 PEL Acq Own, Introduction, Comment 10. 15

300

Lars van Vliet

ZEuP

Again, the transfer can only be ‘ineffective’ if it is seen as a legal act and not as a result. After all, if the ‘transfer’ is the effect, an ineffective transfer would mean that the effect would have no effect. Another example is VIII.-6:102(1) saying: “Where goods are or have been transferred based on a contract or other juridical act which is invalid or avoided, the transferor may exercise the right of recovery under paragraph (1) of the preceding Article in order to recover physical control of the goods”. If the term ‘transfer’ denotes the result, i. e. the passing of ownership, the provision wrongly speaks of goods being or having been transferred on the basis of an underlying legal ground which is invalid or has been avoided. The whole point of the causal system is that ownership does not pass when there is no valid legal ground and that as a result the transferor can revindicate his goods. The ‘transfer’ in the sense of the result has not been achieved. Apart from the transfer the law knows other forms of disposition, such as the granting of a limited proprietary right. It would be logical for the DCFR to take the same stance for both acts of disposition. IX.-2:107(1) refers to the validity of the creation of a security right by granting. The creation is thus regarded as a juridical act. And in the above, we have already seen that the assignment of a claim is a juridical act. d) Termination of sales contract when seller is in possession In order to demonstrate that the concept of real agreement is superfluous the comments give the example of a car dealer who sells a car without reten tion of ownership clause17. Ownership passes to the buyer immediately and the buyer is allowed to pay in instalments. The buyer brings the car to the dealer for a repair. As the buyer fails to pay his instalments, the seller withdraws18 from the contract and refuses to return the car. The comments concentrate on the question whether or not the buyer’s duty to re-transfer ownership is execut ed automatically by traditio brevi manu or whether the buyer still has a right to withhold the re-transfer until the seller repays the instalments already paid by the buyer. Such a right to withhold the re-transfer would be possible only if the re-transfer required a real agreement, if the re-transfer were regarded as a legal act. The comments stress that the fact that the seller is already in possession of the car automatically brings about the re-transfer under VIII.-2:105(1) (traditio brevi manu) and add that there is no good reason to give the buyer any right to withhold the re-transfer. In my view, however, the automatic re-transfer under VIII.-2:105(1) would clearly go against the rationale of VIII.-2:202(3)19 which provides that withdrawal has no retroactive proprietary effect and that ownership is not re-transferred immediately. The seller should have no more than a personal right for re-transfer of ownership. 17

PEL Acq Own, VIII.-2:101, Comment 77. This is termination in English legal terminology. 19 PEL Acq Own, VIII.-2:202, Comment 6. 18

2011


301

Another example given by the comments to demonstrate that the concept of real agreement is superfluous is about the sale of defective goods20. The buyer returns the goods to the seller for repair but when repair turns out to be impossible the buyer withdraws from the contract and demands repayment of the purchase price. Application of VIII.-2:105(1) would lead to ownership being re-transferred to the seller in possession automatically. The buyer would be unable to withhold the re-transfer until the seller repays the purchase price. The comments agree that this result is undesirable and claim that this automatic re-transfer does not occur because the “the seller’s retention of possession in the sense of VIII.-2:105 (Equivalents to delivery) paragraph (1) is not ‘referable to’ the seller’s entitlement to the retransfer of ownership as long as the purchase price is not repaid to the buyer […]21”. I cannot agree with this comment. According to VIII.-2:105(1) the re-transfer is triggered solely by the combination of the seller’s entitlement to the re-transfer and the seller’s possession. The comments try to avoid this result by adding an element of intention, namely that the seller’s possession was not intended to have any connexion with the seller’s later entitlement based on the withdrawal. This intention is exactly the contents of the real agreement: the parties’ will to bring about the transfer. However, in the following sentence the comments add that “a need for a real agreement concept does not arise”.

3. Transfer in the case of indirect representation Ownership can be transferred by an indirect agent on behalf of the principal and, conversely, ownership can be transferred to an indirect agent with the intention that ownership should be acquired by the principal. No special rule has been made for direct representation. Should we assume that the drafters thought this to be superfluous? If transfer is a legal or juridical act, it follows from the very definition of direct representation (II.-6:105) that a transfer performed by a direct agent shall be attributed to the principal so that the transfer is deemed to have been performed by the latter. However, the drafters made the decision not to regard the transfer as a legal or juridical act. At first sight it may seem as if the rules in VIII.-2:302(1) (representation for acquisition) and (2) (representation for alienation) are confined to an agent acting on the basis of a contract of mandate within the meaning of IV.D.-1:102 so that the agent is bound to the principal’s instructions. On the other hand, it seems allowed to apply IV.D.-1:101(2) in fine, where it is provided that the provisions on mandate can be applied by way of analogy to situations in which the agent is merely authorised but not under a duty to represent the principal. VIII.-2:302(1) (representation for acquisition) codifies the doctrine of direct acquisition. As the goods are delivered by the third party to the agent it would 20

PEL Acq Own, VIII.-2:101, Comment 77(ii). PEL Acq Own, VIII.-2:101 Comment 77(ii). Cf. PEL Acq Own, VIII.-2:101, Comment 110-113 and PEL Acq Own, VIII.-2:105, Comment 7. 21

302

Lars van Vliet

ZEuP

in principle follow that no delivery takes place between the third party and the principal. Consequently, without a special rule ownership could not pass directly to the principal. However, VIII.-2:302(1) intervenes by saying that the principal directly acquires ownership. This solution looks like the Dutch article 3:110 BW. I suppose that, as in Dutch law, the agent does not become ‘owner-possessor’ and owner, not even for a juridical second, that he merely becomes a détenteur. Oddly, though, this form of detention does not fit into the definition of limited-rightpossession of VIII.-1:207, which turns out to be too narrow. He does not hold the goods in his own interest. He may have a right to retain possession until charges and costs have been paid (the alternative in VIII.-1:207), but this is not always the case. Should he be regarded as a ‘possession-agent’ or in German terminology a Besitzdiener in the sense of VIII.-1:208?

4. Agreement as to the time ownership is to pass For the transfer of ownership of goods the DCFR has chosen for a so-called tradition system. In principle ownership passes only after delivery or an equivalent to delivery (VIII.-2:101(1)(e)). At the same time, it gives the transferor and transferee the possibility to opt out of this and choose a different moment on which ownership should pass. They are able to postpone the passing of ownership but they can also agree to let ownership pass before physical delivery of the goods. In continental tradition systems the latter agreement is often called constitutum possessorium. The tradition system is laid down in the following requirement for transfer: VIII.-2:101(1)(e): “there is an agreement as to the time ownership is to pass and the conditions of this agreement are met, or, in the absence of such agreement, delivery or an equivalent to delivery.”

The DCFR does not contain an explicit reference to constitutum possessorium, but the comments22 make clear that (1)(e) does not only refer to postponement of passing of ownership, used in for example a retention of ownership clause, but that is also covers what is commonly called constitutum possessorium. Yet, it should be noted that there is an important difference between the notion of constitutum possessorium and the agreement with which parties under the DCFR can opt out of the tradition system: constitutum possessorium is a form of transfer of possession, albeit a form that is not accompanied by physical delivery of the thing in ques tion. The “agreement as to the time ownership is to pass” (VIII.-2:101(1)(e)) does not amount to a transfer of possession at all. Therefore, it can also be used by the owner of stolen goods to transfer ownership of these goods. The parties may also choose to let ownership pass before physical delivery by the seller delivering a document of title to the goods issued by a third party who is holding the goods, e. g. a bill of lading. According to VIII.-2:105(4) the transfer of such a document is an equivalent to delivery. It is often held that transferring a 22

PEL Acq Own, VIII.-2:101, Comment 3 and PEL Acq Own, VIII.-2:103, Comment 3.

2011


303

document of title amounts to attornment by the holder of the goods to whomever may be the rightful holder of the document. The fact that the “agreement as to the time ownership is to pass” (VIII.-2:101(1) (e)) does not amount to a transfer of possession would make it easier to explain chain transactions. If in a chain of transactions the thing is physically delivered by the first in the chain to the last skipping all the others, application of V III.-2:303 leads to ownership running through the chain: “Where there is a chain of contracts […] for the transfer of ownership of the same goods and delivery or an equivalent to delivery is effected directly between two parties within this chain, ownership passes to the recipient with effect as if it had been transferred from each preceding member of the chain to the next.” If between all parties in the chain delivery or an equivalent to delivery has to take place, the definition of delivery or of its equivalents would have to be widened in order to cover these cases. This has been done for example in German law23.

5. Transfer of goods forming part of a bulk a) Co-ownership regime within a tradition system Inspired by the UK Sale of Goods Act 1979 the DCFR rules adopt a special rule for bulk sales which under certain circumstances gives the buyer a co-ownership share in the bulk. To a certain extent it solves the problem that according to the principle of specificity ownership of an unascertained, unspecified, quantity of things cannot exist. This principle is explicitly laid down in VIII.-2:101(3): “Where the contract or other juridical act, court order or rule of law defines the goods in generic terms, ownership can pass only when the goods are identified to it. Where goods form part of an identified bulk, VIII.-2:305 (Transfer of goods forming part of a bulk) applies.” Without special legislation ownership of a certain quantity from a larger bulk cannot pass to the buyer before physical segregation and appropriation to that buyer’s contract. The DCFR adopted a special regime for sale out of a bulk which under certain circumstances gives the buyer a co-ownership share in the bulk. Comparable to the Sale of Goods Act 1979 the DCFR confines the co-ownership regime to cases in which the ‘bulk’ is identified, that is to say, in which the parties to the contract have stipulated that the goods to be delivered should come from this particular bulk only. Otherwise it would be unknown which specific goods are co-owned. After all, the principle of specificity equally applies to co-ownership itself. In the DCFR the requirement of the identified bulk is to be found in art. VIII.-2:305(1): “For the purposes of this Chapter, ‘bulk’ means a mass or mixture of fungible goods which is identified as contained in a defined space or area.”

The equivalent provision of the Sale of Goods Act is section 20A(1)(a): 23 J. T. Füller, Eigenständiges Sachenrecht, 2006, pp. 315-316: „In dieser Konstellation verbleiben keine Publizitätsreste, die Übergabe ist vergeistigt.“ (p. 316).

304

Lars van Vliet

ZEuP

“the goods or some of them form part of a bulk which is identified either in the contract or by subsequent agreement between the parties […]”

The rules are not an exact copy of the relevant sections of the Sale of Goods Act 1979. There are two important differences between the DCFR rules and the Sale of Goods Act. First, under the Sale of Goods Act the buyer out of a bulk receives co-ownership only if and so far as he paid for the goods. The DCFR rules in principle give co-ownership irrespective of payment 24. Second, the DCFR rules operate within a tradition system whereas the transfer system of the Sale of Goods Act is a consensual system 25. In a consensual system, such as the Sale of Goods Act, in principle no delivery is needed to transfer ownership. This leaves a lot more scope for application of the co-ownership regime, whereas under the DCFR it can apply only if the parties opted out of the tradition system or delivered documents of title. Thus, the special co-ownership regime of the DCFR comes into operation only if the parties agreed that ownership should pass before physical delivery. This is not explicitly laid down in the DCFR, but it can be inferred from art. VIII.-2:305(2): “If the transfer of a specified quantity of an identified bulk fails to take effect because the goods have not yet been identified in the sense of VIII.-2:101 (Requirements for the transfer of ownership in general) paragraph (3), the transferee acquires co-ownership in the bulk.”

b) Loss of goods and overselling VIII.-2:305(4) provides that where part of the bulk is lost (as a result of theft or damage for example) the loss is first attributed to the transferor’s co-ownership share if there is any. If the loss exceeds the transferor’s share (or if the transferor has no co-ownership himself) the remaining loss is shared proportionately by all co-owning buyers. The rule that the loss is first attributed to the transferor presupposes that the transferor is also the original owner of the bulk. If a direct agent acting in his principal’s name sells and transfers part of the bulk, the principal is deemed to have made the sales contract and the transfer himself. All legal acts performed by the agent are attributed to the principal. Of course, this requires that also the transfer is seen as a legal act. However, if the transfer is performed by an indirect agent, the agent is the transferor whereas the principal is the owner of the bulk. It is clearly intended that also in this case the original owner’s share should be the first to suffer. It seems that the text of VIII.-2:305(4) does not take this case into account 26. Moreover, if one of the buyers sells and transfers a bill of lading to a subbuyer, there are now two transferors. If that sub-buyers happens to be the original seller and transferor, both parties are simultaneously transferor and transferee. 24 In principle, because in the case of overselling, where more goods have been sold and delivered than there are in the bulk, third party protection depends on payment. 25 L. van Vliet, The transfer of moveables in Scotland and England, (2008) 12 Edinburgh Law Review, pp. 173-199. 26 PEL Acq Own, VIII.-2:305, Comment 14 (in fine).

2011


305

VIII.-2:305(5) contains a complicated rule addressing cases of ‘overselling’ in which more than the entire bulk has been sold. Let us take the following example27. The owner (S) of a bulk of 60.000 tons sells to B1 and B2 30.000 tons each and delivers a document of title (e. g. a bill of lading) to B1 and B2 for these quantities. These sales have then exhausted the entire bulk. Now S sells another 30.000 tons to B3 and delivers a document of title to B3. Should all buyers suffer equally, as happens under VIII.-2:305(4) in the case of loss of goods? The outcome under the UK Sale of Goods Act is undecided. It is contended that where B3 is not in good faith no co-ownership share passes to B3. This is consistent with the principle that since co-ownership of the entire bulk has already passed to B1 and B2, S has no title left to pass to B3 (the rule of nemo dat quod non habet). Commonly, though, B3 will be in good faith. It would be inconsistent with the system of the Sale of Goods Act not to apply the third party protection of section 24 SGA in this case. Application of the section leads to preference of B3 over B1 and B228. Bridge asserts that reducing each buyer’s share proportionately would be contrary to the rules on third party protection which prefer a bona fide third party over the former owners29. In his view B3 (if in good faith) acquires a co-ownership share of 30.000 tons. The shares of B1 and B2 will then be reduced to 15.000 tons each. The approach of the DCFR is different: if B3 is in good faith, all buyers will suffer proportionately so that B1, B2 and B3 all get 20.00030. If B3 is not in good faith, however, the nemo dat rule brings that B3 acquires nothing. How should the loss created by the oversale be distributed if the sale to one single buyer is only partly in excess of the total bulk? Should that buyer get the full amount eating into the other co-owners’ shares or would he also eat into his own share? It would seem consistent with the rationale of third party protection that he acquires co-ownership for the full amount he bought. However, Guest claims that when the sale to one single buyer partially leads to an oversale, application of section 24 SGA reduces also that buyer’s co-ownership share. In his example of a bulk of 200, 100 is sold to A and afterwards 130 to B. His solution is as follows. At first instance, A and B become co-owners each for 100. Then section 24 SGA comes into operation as to the oversale by 30. This leads to an acquisition for which each of the then co-owners must suffer proportionately. As a result, A’s and B’s shares are reduced by 15 each. A will get 85 and B will get 30 + 85 is 11531. The Salzburg working team agrees with Guest’s view in that the last buyer partly eats into his own share, but the calculating method used by the Salzburg working team differs slightly from Guest’s proposal. In illustration 8 of Comment F to VIII.-2:305 the excess quantity is treated as a loss that is borne by all three buyers 27

The example is taken from M.G. Bridge, The sale of goods, 2nd edition, Oxford, 2009, nr. 5.141. A.G. Guest et al. (eds), Benjamin’s Sale of Goods, 7th edition, London, 2006, nr. 5-121; M.G. Bridge, The sale of goods, 2nd edition, Oxford, 2009, nr. 5.141. 29 M.G. Bridge, The sale of goods, 2nd edition, Oxford, 2009, nr. 5.141. 30 PEL Acq Own, VIII.-2:305, Comment 19. 31 A.G. Guest et al. (eds), Benjamin’s Sale of Goods, 7th edition, London, 2006, nr. 5-123. 28

306

Lars van Vliet

ZEuP

in proportion to the quantities they bought, similarly to a loss under VIII.-2:305(4). Guest’s example would then lead to A acquiring 100/230 x 200 = 86,96 and B acquiring 130/230 x 200 = 113,0432 . The difference between the two calculation methods will be larger if the excess is larger. In my view the DCFR’s calculating method is to be preferred. If the buyer whose contract causes the excess is not in good faith, the outcome of the DCFR will be the same as under the Sale of Goods Act: as the seller has no ownership left in the bulk he is unable, as regards the excess quantity, to pass any co-ownership share to that buyer.

6. Transfer of the co-ownership share Even though the DCFR does not explicitly say so, the co-owning buyers are able to transfer their co-ownership share. This raises the question what the third party acquires in the case of overselling. Let us take the above example of S having a bulk of 60.000 and selling first to B1 and B2 30.000 each and then selling a further 30.000 to B3. They each get a share for 20.000. Let us say that B1 resells and delivers the document of title for 30.000 tons to B4 after the sale to B3. Would B4 acquire a co-ownership share of 30.000 tons if he is in good faith? Application of VIII.-3:101 would indeed lead to B4 acquiring a share of 30.00033. Yet, this result is not intended. As long as all the goods are in the bulk a subsequent buyer (such as B4) cannot acquire a bigger share than the original buyer from whom he bought and acquired. This outcome cannot be derived from the text of the DCFR, but is now explained in the comments published in the PEL-Series in which my example has been adopted 34. What happens if B2 resells and transfers his share to S, the original seller, and delivers a document of title for 30.000 tons to him? One of the fundamental r ules of the co-ownership regime is that the seller’s share is the first to suffer from any decrease, whether it be caused by loss or by sales and deliveries. If we follow the explanation in the Full Edition that B2 cannot transfer more than he has, B2 would be able to pass his share of 20.000 to S and S would become co-owner for 20.000 even though there is still a shortage caused by him for which his share should suffer! In my opinion the text of VIII.-2:305(5) leaves room to suggest that, as long as there is an excess, the original seller (S) cannot have a co-ownership share in the goods sold by him, not even after a sale back by one of the buyers. This suggestion has been adopted in comment 23 to VIII.-2:305 in the PEL-Series.

32 If applied to the example in Illustrations 7 and 8 of Comment 18 and 19 on VIII.-2:305 Guest’s calculation method would give X 3600, Y 4500 and B 1900. 33 At the same time VIII.-2:301 applies to this case, since overselling involves selling the same goods more than once. 34 PEL Acq Own, VIII.-2:305, Comment 22.

2011


307

7. Sale from a bulk by a non-owner Suppose that in the above example the bulk had been sold by X to S under a retention of ownership clause. Could the sub-buyers (B1, B2 and B3) then acquire a co-ownership share under VIII.-2:305? This would be possible only by applying VIII.-3:101 by way of analogy. As the seller has no proprietary interest in the bulk himself, the conflict should be solved between the original owner X and the buyers B1, B2 and B3. Although X is innocent to this oversale, application of VIII.-3:101 would give B1, B2 and B3 a co-ownership share to the detriment of X, provided they received their document of title.

8. Delivery of individual goods The co-ownership regime offers the buyers protection against the seller’s insolvency in the phase between delivery (or something equivalent to delivery) and the physical separation and delivery of individual goods, and is therefore meant as temporary. Even if the buyers have acquired co-ownership, the seller is still under a duty to transfer ownership of individual goods to the buyer. VIII.-2:306(1) is about the delivery of individual goods from the bulk and thus refers to a different notion of delivery than the delivery needed to acquire co-ownership in the first place. It entails physical separation of goods from the bulk and relieves the acquirer in question from the temporary co-ownership regime. VIII.-2:306(1) implies that the seller still has the right to dispose of the goods enabling him to pass ownership of certain specified goods belonging to the co-owners to one individual co-owner. As far as the delivery of certain specified goods from the bulk leads to the deliveree acquiring more than his co-ownership share represents at that time, his acquisition is subject to the requirement that he should be in good faith as to this surplus. Let us say that in our example of S who owns a bulk of 60.000 tons and sells 30.000 to B1, B2 and B3 consecutively, 30.000 is physically delivered to B3 whereas his co-ownership share has shrunk to 20.000. VIII.-2:306(2) intends to say that B3 acquires 30.000 only if he is in good faith. In this regard the Salzburg working team deliberately deviates from the UK approach where good faith is irrelevant 35. This implies that if he is not in good faith the buyer in question would only acquire 20.000 (under para(1)) and that he would not acquire ownership of the excess quantity (due to para(2) and the general rule of nemo dat). The intention of VIII.-2:306(2) is that the other buyers (B1 and B2) should be the co-owners of this excess. However, this is impossible if the excess quantity had not been physically separated at the time of physical delivery. Separate ownership of part of a larger quantity (here: the quantity delivered to B3) is impossible. That is the very reason for setting up this co-ownership regime. Normally the 30.000 will be delivered in one large bulk. The excess quantity will then fully be owned by 35

PEL Acq Own, VIII.-2:306 Comment 2.

308

Lars van Vliet

ZEuP

the buyer. He may be under a duty to return the excess quantity, but this will probably be a personal obligation. Or should we accept, despite the lack of any provision on this point, that the buyer in question is a mere co-owner of the goods delivered to him for 20.000 and that the other co-owners of the original bulk are now co-owners for in total 10.000 in the second bulk: the goods physically separ ated and delivered to B3? At least, the UK solution in which B3 would become owner of the full amount of 30.000 tons has the benefit of simplicity and that is very valuable in property law. If after this separation and delivery there is only one buyer left and the bulk does not contain more goods than are due to this buyer, identification by exhaustion takes place and ownership of these individual goods passes to that buyer36. In our example this happens for example if B1 sells and transfers his document of title to B2.

9. Multiple transfers (e. g. double sale) VIII.-2:301 takes a novel approach to the question who should be preferred when there are several persons with competing rights to acquire ownership. The plural expression in para (1) ‘several purported transfers’ might give the impression that there must have been at least a beginning of an earlier transfer, but the comments show that the expression includes the typical case of a thing that has been sold twice by the owner to two different competing buyers and delivered to the second buyer, a case in which the first buyer has a mere personal right to the transfer of ownership. After all, because of the DCFR’s tradition system ownership has not yet passed to the first buyer. In many tradition systems the person who acquires ownership is the person to whom the thing is transferred, even if he is not the first buyer. VIII.-2:301(1) deviates from this approach and provides that the person to whom the thing is delivered first acquires ownership unless he knew or could reasonably be expected to know of the earlier entitlement to the transfer of ownership37. Let us take the example of a double sale (to B1 first and B2 later). When B2 is the first to take delivery and he is not in good faith (in the above sense) ownership does not pass at all. Consequently, the seller is still the owner so that he is able to transfer the goods to B1. B2 has a duty to restore the goods to the seller (the seller’s action resembles the revindication of VIII.-6:101). However, the peculiar thing about this action is that it can also be exercised by B1 in such a way that the goods should be delivered to B1 directly. In the seller’s insolvency two actions for claiming back the goods may compete: the seller’s claim based on either V III.-6:101 or VIII.-2:301(2) exercised by the seller’s administrator in insolvency, 36 Cf. the UK doctrine of ascertainment by exhaustion which since 1995 is to be found in section 18, rule 5, sub (3) and (4) of the Sale of Goods Act 1979. 37 VIII.-2:301(1) describes both buyers as ‘transferees’, but strictly speaking there can only be one transferee. It should be read as ‘purported transferee’.

2011


309

and B1’s claim based on VIII.-2:301(2). In such a case the comments say that B1’s action has preference38. Where parts of a bulk have been sold and more than the total quantity has been sold (overselling) VIII.-2:301 on multiple transfers overlaps with the rules on bulk sales. It seems that since the more specific rule has preference over the more general rule, the rules on bulk sales have preference.

II. Third party protection 1. General In its comments the drafters indicate that they make the policy choice of protecting third parties and thus protecting commerce39. They offer protection only to acquirers for value. VIII.-3:101 requires that, apart from the right or authority to dispose, all other requirements for a valid transfer should have been met, such as a valid legal ground (entitlement to transfer) and delivery or an equivalent to delivery. VIII.-3:101 not only protects the justified belief that the transferor is the owner but also the justified belief that the transferor, although he is not the owner, is authorised to dispose. Good faith already lacks when the third party has a good reason to doubt the transferor’s right or authority to dispose. Good faith is not only excluded in the case of actual knowledge or gross negligence but also in the case of normal negligence40. A striking feature is that, according to the comments, good faith is not presumed. The burden of proof is on the third party who claims to be in good faith. However, if the owner asserts that the third party had actual knowledge, the burden of proof is on the owner41. VIII.-3:101(2) contains two exceptions to third party protection. First of all, no protection is available if the goods in question have been stolen, but the paragraph adds ‘unless the transferee acquired the goods from a transferor acting in the ordinary course of business.’ The second exception is cultural goods in the sense of VIII.-4:102.

2. Protection against a resolutive condition in a preceding transfer The drafters show that the majority of European jurisdictions offer protection against resolutive conditions to bona fide third parties. If A has transferred a thing to B under a resolutive condition and B has transferred the same thing to C before the condition is fulfilled, the fulfilment of the condition in principle works against C. Upon fulfilment of the condition C will lose his right of ownership and ownership will revert to A directly. Without this third party effect no rule on 38

PEL Acq Own, VIII.-2:301 Comment 12. PEL Acq Own, VIII.-3:101 Comment 6. PEL Acq Own, VIII.-3:101 Comment 21. 41 PEL Acq Own, VIII.-3:101 Comment 26 and 27. 39

40

310

Lars van Vliet

ZEuP

third party protection were needed. In their comments the drafters of Book VIII acknowledge the third party effect of fulfilment of the condition and acknowledge that third party protection should be offered42 . The German civil code offers protection in that § 161(3) BGB applies the third party protection of § 932 BGB by way of analogy. Similarly, in Dutch law the rules on third party protection (art. 3:86 BW) are applied by way of analogy43. The DCFR offers third party protection in a technically very different way. V III.-2:203 provides: “Where the parties agreed on a transfer subject to a resolutive condition, ownership is re-transferred immediately upon the fulfilment of that condition, subject to the limits of the re-transferor’s right or authority to dispose at that time (italics LvV)”. The DCFR regards the reverting of ownership as a transfer in the sense of VIII.-2:10144. German and Dutch law, on the other hand, do not see this as a transfer. The traditional explanation of what happens is that in principle ownership reverts to A, but that in some cases C can be protected and keep his proprietary right on the thing. In the transfer by B to C the rule of nemo dat quod non habet is applied and at the same time it is acknowledged that this rule can be set aside in order to protect third parties in good faith (C in this case). The DCFR approach, on the other hand, reverses principle and exception by saying that the disposition to C, a transfer for example, is valid. From the validity of the transferee’s disposition the DCFR then draws the conclusion that B cannot re-transfer the thing to A as he is no longer the owner. Or, to take another form of disposition, if B has created a limited proprietary right in favour of C, the reasoning is that this creation is valid and that B cannot re-transfer the thing to A without the limited proprietary right attached to it. Thus, the principle of nemo dat quod non habet is applied in the re-transfer by B to A, rather than in the transfer B-C 45. This strange solution then raises the question whether or not A can invoke third party protection against the nemo dat rule, because in this re-transfer A is the third party! This cannot have been the intention of the drafters, as it would take away C’s proprietary right which he acquired under VIII.-2:203. Another quite different problem caused by this novel approach is that ownership which has been transferred by A to B under a resolutive condition cannot revert to A when the condition is fulfilled after the commencement of B’s insolvency proceedings, as B lacks the necessary “right or authority to dispose at that time”. I suppose that when B is declared insolvent he no longer has any right or authority to dispose of the thing. In many countries insolvency either leads to a loss of the right to dispose or, as in English law, to ownership being transferred by operation 42

PEL Acq Own, VIII.-2:203 Comment 9. Oddly, though, this is based on doctrine. The Dutch civil code lacks a specific provision like § 161 BGB. See PEL Acq Own, VIII.-2:203 Comment 7. 45 The comments assert that also the transferee’s unsecured creditors are protected by this rule. However, this must be a mistake. Protection is offered only to third parties acquiring ownership of the thing or a limited proprietary right in the thing, not to unsecured creditors who did not acquire a proprietary right in the thing. PEL Acq Own, VIII.-2:203 Comment 9. 43

44

2011


311

of law to a so-called trustee in bankruptcy46. In both cases the insolvent is no longer able to transfer property that is part of the insolvent’s estate. The DCFR does not contain any provision about the effects of insolvency on the insolvent’s ability to transfer. That is left to the national statutes on insolvency. On the other hand, the formulation of provisions in the DCFR should take into account the influence of insolvency provisions. Oddly, though, the comments in which the terms ‘right or authority to dispose’ are explained contain no reference to insolvency at all. Although the comments say that all legal systems reviewed offer some form of protection against a resolutive condition to third parties in good faith, they do not mention that under the DCFR third parties are protected only if they are in good faith47. We should therefore assume that, different from Dutch and German law, the DCFR does not require the third party to be in good faith. This is quite odd because a transfer under a resolutive condition and a transfer under a suspensive condition can be used to reach a similar result. If the suspensive condition is payment of the purchase price, the seller is able to revindicate the thing if the price remains unpaid because he is still the owner. Similarly, if nonpayment is a resolutive condition, the seller can revindicate if the price remains unpaid because ownership reverted to him. Oddly, though, third party protection differs: only bona fide third parties are protected against a suspensive condition (VIII.-3:101), whereas protection against resolutive conditions is offered to all third parties, even those in bad faith. Was this really the drafters’ intention?

3. Sale and transfer through constitutum possessorium by non-owner to bona fide purchaser a) Deferring third party protection Where the non-owner has delivered a thing by way of constitutum possessorium some legal systems postpone third party protection until the moment when the third party has received actual power over the thing in question, thus excluding constitutum possessorium from third party protection. As we shall see below, other legal systems, such as the UK Sale of Goods Act and Swiss law, do not pose the requirement of actual power and offer the third party protection even though the thing is still with the non-owner. VIII.-3:101 DCFR protects the bona fide acquirer of a movable against the transferor lacking the right or authority to transfer ownership. It requires in sub (a) that all other requirements for a valid transfer of ownership (other than the right or authority to transfer ownership) have been met. Second, it requires that delivery or one of the equivalents of delivery mentioned in VIII.-2:101 has taken place. When we look at VIII.-2:101 and read the Comments on VIII.-3:101 it is clear that an acquirer who acquires on the basis of constitutum possessorium or any other “agreement as to the time ownership is to pass” cannot invoke third party 46

Section 306 Insolvency Act 1986. This applies to bankruptcy of an individual. PEL Acq Own, VIII.-2:203 Comment 7.

47

312

Lars van Vliet

ZEuP

protection48. The protection is deliberately reserved to third parties who have acquired physical control of the movable in question. One would expect the DCFR to take the same approach for the acquisition of limited proprietary rights, such as security rights49. However, IX.-2:108 (good faith acquisition of security right) does not limit the third party’s protection to a possessory security right. If a non-owner grants a non-possessory pledge on a movable asset, the acquirer in good faith may acquire the security right despite the fact that he does not acquire physical control of the movable. b) The UK Sale of Goods Act The UK Sale of Goods Act 1979 (SGA) protects a third party even if delivery took place by way of constitutum possessorium, to use civil law terminology. A clear example of this is Gerson (Leasing) Ltd v. Wilkinson and State Securities Ltd. 50. In this case industrial equipment had been sold under a sale and leaseback agreement to a financing company. Subsequently part of these goods were sold to another financing company, equally on sale and leaseback. The second company was unaware of the previous sale and lease back. Meanwhile the goods remained in the physical power of the seller. The first fundamental question addressed by Clarke LJ is whether the second financing company has become owner of the goods under section 24 of the Sale of Goods Act 1979. The section protects a bona fide purchaser against a previous sale and is thus comparable to art. 1141 of the French code civil51. Under certain circumstances it protects the subsequent buyer against the seller not being owner of the things. Section 24 protects only if at the time of the subsequent sale the seller was still in possession of the goods. Moreover, like art. 1141 of the French civil code, it protects the subsequent buyer provided he gets possession first and is in good faith at the time he acquired possession. The section reads: “Where a person having sold goods continues or is in possession of the goods, or of documents of title to the goods, the delivery or transfer by that person, or by a mercantile agent acting for him, of the goods or documents of title under any sale, pledge, or other disposition thereof, to any person receiving the same in good faith and without notice of the previous sale, has the same effect as if the person making the delivery or transfer were expressly authorised by the owner of the goods to make the same.”

Section 24 SGA is one of the statutory exceptions to the so-called nemo dat rule. It protects the innocent buyer against the impression of ownership created by 48

PEL Acq Own, VIII.-3:101 Comment 12 and 13. In this respect Dutch law treats bona fide acquisition of a pledge and bona fide acquisition of ownership equally. This leads Dutch law to withholding protection if a non-owner tries to create a non-possessory pledge, a choice that would be contrary to the policy underlying Book IX DCFR. 50 Court of Appeal (civil division) 31 July 2000, [2001] Q.B. 514. The decision in Gerson v Wilkinson accords with earlier judgments dealing with the interpretation of section 25 SGA, such as Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd [1987] 163 CLR 236 and Forsythe International (UK) Ltd v Silver Shipping Co Ltd [1993] 2 Lloyd’s Rep. 268. 51 Although both provisions are not limited to sales contracts I will here focus on sales rather than other dispositions. 49

2011


313

the seller having remained in possession after the first sale. However, the text of the Sale of Goods Act omits mention of two important requirements, the first of which is a valid act of disposition, a sale for example, between the seller and the third party. Every transfer of ownership under the Sale of Goods Act demands a valid contract of sale. As it requires a valid legal ground for the transfer, a valid causa traditionis in Roman words, the Act created a causal transfer system52. There is no reason to disregard this requirement when it comes to third parties, for it was never intended that third parties should be protected against voidness or voidability of the underlying contract53. Although it does not provide so expressly, it seems that section 24 SGA also requires that at the time of the first sale the seller was owner of the thing or that he was otherwise authorized to dispose of the asset. The section is drafted specially to make provision in the case of a double sale or other disposition, that is to say, it is designed to protect the second buyer against the fact that the seller had lost his right of ownership or his right to dispose as a result of the first sale. It should not protect where a non-owner sells the same thing twice, for example a thief or a buyer who bought under a retention of ownership clause. It would seem odd to protect the second buyer if, as a result of the nemo dat rule, the first buyer would never have been able to become owner. For a valid transfer of ownership the Sale of Goods Act does not require a transfer of possession. However, section 24 SGA makes an exception to this rule: it requires that the seller should deliver possession to the second buyer, the third party. Should we read this requirement as handing over of actual power? In Gerson v. Wilkinson the Court of Appeal held that, unless the context or subject-matter otherwise requires, the term ‘delivery’ in section 24 has the mean ing indicated in section 61(1) SGA: “[a] voluntary transfer of possession from one person to another […]”54. The pivotal question is whether the seller transferred possession to the second financing company at any moment. There has been no handing over of actual power, no traditio vera. None the less, the Court held that there had been a genuine transfer of possession: it took place by way of constitutum possessorium, to use civil law terminology. In English law this way of transferring 52 See L.P.W. van Vliet, Transfer of movables in German, French, English and Dutch law, Nijmegen, 2000, p. 111-114; Lars van Vliet, (2008) 12 Edinburgh Law Review, pp. 173–199. 53 This requirement is possibly limited to a subsequent sale in English law. Section 24 applies equally to the creation of a pledge and other dispositions. It is unknown whether these dispositions require a valid legal ground. See L.P.W. van Vliet, Transfer of movables in German, French, English and Dutch law, Nijmegen, 2000, pp. 130–132. Moreover, it is asserted that in Scottish law ownership may pass to the buyer even if the underlying contract of sale is void or has been avoided with retroactive effect, provided that a valid transfer of possession has taken place based on a real agreement between seller and buyer. In such a case the causal system of the Sale of Goods Act 1979 is put aside by the abstract transfer of Scottish common law. See K.G.C. Reid, The law of property in Scotland, Edinburgh, 1996, nr. 610. Here two different transfer systems apply at the same moment, and it suffices if the transfer is valid under one of these systems. See Lars van Vliet, The transfer of moveables in Scotland and England, (2008) 12 Edinburgh Law Review, pp. 173-199. 54 The words ‘delivery or transfer of goods or documents of title’ in s. 24 SGA means that there should either be a delivery of goods or a transfer of documents of title. See E. McKendrick, Goode on Commercial Law, 4th edition, London, 2010, p. 466; A.G. Guest et al., Benjamin’s Sale of Goods, 7th edition, London 2006, nr. 7-062.

314

Lars van Vliet

ZEuP

possession is often referred to as attornment55. It has been acknowledged as a mode of transferring possession in for example Elmore v. Stone and Dublin City Distillery v. Doherty56. In English law this traditio ficta 57 is termed constructive delivery. So, there was no doubt that State had acquired possession constructively by way of a valid constitutum possessorium. The next question is: does constitutum possessorium, even though valid in itself, suffice to bring third party protection into play? The question is of great commercial interest not only in the case of a double sale and lease back, but also where goods sold under a retention of ownership clause are sold by the buyer to a bona fide party without the owner’s permission and before the goods are paid for. If in such a case the transfer to the bona fide third party takes place by way of constitutum possessorium, which happens in the case of sale and lease back or fiducia cum creditore, the question arises whether the third party will be protected. In Gerson v. Wilkinson Clarke LJ agrees with Sir Roy Goode QC, acting on behalf of the plaintiff, that ‘delivery’ in section 24 SGA includes constructive delivery. Clark LJ then draws the conclusion that as this form of attornment is a valid form of constructive delivery, the second buyer, having received possession of the goods, can rely on the protection given to him by section 24 SGA. He defends his judgment as making commercial sense: “…[I]t seems to me that the conclusions set out above make sense in modern conditions. This and other cases show that purchase of goods is commonly financed by sale and leaseback arrangements such as those entered into by both Gerson and State in the instant case. It seems to me that it makes commercial sense to hold that such arrangements involve a transfer of constructive possession to the finance company who buys the goods and leases them back, such that the innocent finance company can take advantage of the provisions of s. 24 of the 1979 Act [the Sale of Goods Act 1979, LvV]… For all these reasons I would hold that, on the evidence before the judge, Emshelf delivered the schedule 3 goods to State under a sale and that State received them in good faith and without notice of the sale from Emshelf to Gerson. It follows that State acquired good title to the schedule 3 goods under s. 24 of the Sale of Goods Act 1979 and that it is not liable for conversion. I would dismiss the appeal on this point.” It is very important to note that the protection of the bona fide buyer is avail able only if the sale has been followed by a form of delivery. In practice, h owever, constructive delivery is rare, apart from sale and lease back. What is more, without an explicit agreement to this effect a constructive delivery is difficult to infer from the circumstances of the case. Delivery could have been postponed 55 Confusingly the same term is also used to denote the transfer of possession where a third party is and remains in possession of the thing, for example where goods stored in a warehouse are sold. In the following I will use the civil law term constitutum possessorium instead. 56 Elmore v Stone (1809) 1 Taunt. 458 and Dublin City Distillery v Doherty [1914] AC 823. See L.P.W. van Vliet, Transfer of movables in German, French, English and Dutch law, Nijmegen, 2000, p. 127-128. 57 Lit.: fictitious transfer, that is, transferring possession by mere agreement without actual handing over being needed.

2011


315

or delayed. Undoubtedly, it cannot be assumed that every sale in which physical delivery does not take place immediately contains a constructive delivery. As a result, in most cases of sale by a non-owner the buyer will not be protected as long as the goods remain with the seller. If the sale to the second buyer would have been an outright sale rather than a sale and lease back the second buyer would not have acquired ownership due to lack of delivery. The same applies where goods sold under a retention of ownership clause are resold by the buyer/ non-owner to a third party. c) French, German and Dutch law In order to acquire ownership under art. 2276 c. civ. (bona fide acquisition of movables) or art. 1141 c. civ. (double sale) French law requires that the third party should have acquired possession réelle (real possession, that is, actual power over the thing)58. Similarly, in German law § 933 BGB provides that if a thing which has been transferred by way of constitutum possessorium does not belong to the transferor the transferee will become owner when the thing has been handed over to him, unless he is not in good faith at that time59. In Dutch law a comparable solution is attained somewhat clumsily by weakening the effect of constitutum possessorium. If in Dutch law a non-owner who is detentor, i. e. someone holding for the benefit of another, tries to transfer an object constituto possessorio the transfer of possession and thus the delivery will be invalid. An example is a lessee who in breach of contract sells and transfers the leased movable. As a valid act of delivery is one the prerequisites for third party protection60, a third party will not be protected even though he acquired in good faith and for a recompense. Where the non-owner is a possessor, thus holding the object for his own benefit, the constitutum possessorium is invalid as against the original owner, which has similar consequences for a third party: despite the latter’s good faith and recompense he cannot rely on a valid act of transfer and he will therefore not acquire ownership of the thing. An e xample: A sells and transfers to B and B in turn sells and transfers to C. Afterward A avoids the sale between A and B for error or fraud. As avoidance has retroactive effect, the sales contract is deemed to have been void from the outset. In a causal transfer system this results in ownership reverting to A with retroactive effect. In hindsight B had no right or authority to transfer ownership to C but he was 58 Art. 1141, a special version of the general article 2276 dealing with a double obligation to transfer a movable, such as a double sale, expressly mentions the requirement: »Si la chose qu’on s’est obligé de donner ou de livrer à deux personnes successivement, est purement mobilière, celle des deux qui en a été mise en possession réelle est préférée et en demeure propriétaire, encore que son titre soit postérieur en date, pourvu toutefois que la possession soit de bonne foi.« See also Mazeaud/Chabas, Leçons de droit civil, vol. II(2), Biens, Droit de propriété et ses démembrements, 8th edition, Paris, 1994, nr. 1529; Marty/Raynaud/Jourdain , Les biens, Paris 1995, nr. 393; J.-L. Bergel/M. Bruschi/S. Cimamonti , Traité de Droit Civil, Les Biens, 2nd edition, Paris, 2010, nr. 224; Cour de Cassation, civ 1, 25 March 1997, N° de pourvoi 95-12705; Cour de Cassation 27 November 2001, Bull. 2001, I, nr. 295, p. 186. 59 „Gehört eine nach § 930 veräußerte Sache nicht dem Veräußerer, so wird der Erwerber Eigentümer, wenn ihm die Sache von dem Veräußerer übergeben wird, es sie denn, daß er zu dieser Zeit nicht in gutem Glauben ist.“ 60 Note that such a requirement does not apply in French law.

316

Lars van Vliet

ZEuP

possessor at the time. If C acquired by way of constitutum possessorium he would be left without third party protection. French, German and Dutch law all have in common that the bona fide third party will be protected only if the third party received physical power over the object in question. Where delivery takes place by way of constitutum possessorium third party protection will be deferred until the non-owning transferor gives up his physical power to the third party buyer. From that moment the buyer is able to rely on third party protection, provided he is still in good faith at that time. Returning to French law another point deserves attention. In French law the acquisition of ownership by a third party is regarded as an original acquisition rather than a derivative acquisition, possibly because third party protection is often regarded as a special form of acquisitive prescription, a form of prescription without prescription period, called prescription instantanée (instantaneous prescription)61. If the acquisition is original the question arises whether the bona fide third party could become owner if the contract between the transferor and the third party were invalid. The French Supreme Court holds that a valid contract between the transferor and the third party is not needed62 and thus draws a far-reaching conclusion from its view that third party acquisition is original acquisition. The text of VIII.-3:101 DCFR does not make an explicit choice between original or derivative acquisition, although the first sentence of the first paragraph does not use the word transfer. It rather states that the transferee acquires owner ship and the original owner loses ownership. Comment A (General remarks), (Persons involved and terminology) clearly shows that the drafters regard good faith acquisition as an instance of original acquisition63. Different from French law, however, the text of VIII.-3:101(1)(a) makes clear that a valid legal ground is needed for good faith acquisition. d) Why excluding constitutum possessorium? Is there any valid reason for deferring third party protection in the case of constitutum possessorium? Does the English and Swiss solution make more commercial sense? Pill LJ in the Gerson case explicitly doubted Clarke LJ’s remark on this point: “I express no view as to whether it makes commercial sense to allow innocent finance companies to take advantage of s. 24 of the 1979 Act when they conduct a sale and leaseback.” Clarke LJ only mentioned the importance for sale and leaseback transactions, but it should be noted that under the DCFR 61 See G. Baudry-Lacantinerie/A. Tissier, Traité théorique et pratique de droit civil, vol. XXVIII (de la prescription), 3rd edition, Paris, 1905, p. 660, who regard art. 2279 c. civ. (now: art. 2276 civ.) as a special case of acquisitive prescription in which no prescription period is needed. 62 Cass 6 June 1886, D. 1887.1.25. 63 This is a dogmatic choice which is not obvious. In some legal systems, such as Dutch law (art. 3:86 BW) good faith acquisition is regarded as derivative. According to Quack the dominant view in German literature is that third party acquisition is derivative: MünchKomm BGB/Quack, 2004, § 932, Rn. 59. See also MünchKomm BGB/Oechsler, 2009, § 932, Rn. 69. The view of the drafters is the view generally accepted in Austrian law. Although it does not necessarily have any practical consequences the Comment in Book VIII would better refrain from such dogmatic choices.

2011


317

these transactions are regarded as creating a limited proprietary security right (IX.-1:102(3) and (4). Security rights, even if non-possessory, can be acquired in good faith under IX.-2:108 DCFR. Let us start with the oldest civil code involved here: the French civil code of 1804. Why do articles 1141 and 2276 c. civ. require the bona fide third party to have acquired actual power over the object? It appears that there is no clear answer to the question. In the parliamentary debates on art. 2279 (the old number of art. 2276)64, the notoriously opaque possession vaut titre rule, no mention is made of the requirement. We should bear in mind that the requirement of possession réelle is not mentioned in the text of art. 2276. It is to be found only in art. 1141 c. civ. However, as art. 1141 is merely a special application of the general art. 2276, French law accepts that possession réelle is required also when applying art. 2276 c. civ. Unfortunately, the parliamentary history of art. 1141 c. civ. is not very helpful either. It does not explain the requirement. According to Larombière the requirement of possession réelle in art. 1141 c. civ. indicates that the third party’s possession should be unequivocal65. It ought to be publique (public), that is recognizable to third parties66. In treatments about art. 2276 c. civ., or its predecessor 2279, the requirement of possession réelle is often explained by reference to the requirements for acquisitive prescription. Änd. this is perhaps the key to understanding the requirement of actual possession. As said previously, a large number of authors regarded art. 2279 as a special instance of usucapio (acquisitive prescription): a form of prescription without a prescription period, prescription instantanée 67. The analogy was facilitated by the fact that art. 2279 had been placed in a section called de quelques prescriptions particulières (on various special cases of prescription). Acquisitive prescription requires, among other things, that the possession should be non équivoque (unequivocal) (art. 2261 c. civ.). According to these authors the same requirement applied to art. 227968. So, perhaps the requirement of actual possession originated in applying by way of analogy the requirement of unequivocal possession originally written solely for acquisitive prescription69. Another explanation of the requirement of actual possession may be the fact that the adage possession vaut titre is not only used to protect third parties (its material function) but that it is also used as a rule of procedural law (its procedural function): in the case of a conflict over who owns the object, the possessor is presumed to be the owner. The claimant who tries to revindicate the object has the burden 64

The articles on possession, among which the famous 2279, have been renumbered in 2008. L. Larombière, Théorie et pratique des obligations, vol. 1, Brussels, 1862, art. 1141, nr. 8. 66 L. Larombière, Théorie et pratique des obligations, vol. 1, Brussels, 1862, art. 1141, nr. 8, 10, 12–14; G. Baudry-Lacantinerie/L. Barde, Traité théorique et pratique de droit civil, vol. XII (des obligations), part 1, 3rd edition, Paris, 1906, nr. 410. 67 This theory is no longer current. 68 Baudry-Lacantinerie/Tissier, Traité théorique et pratique de droit civil, vol. XXVIII (de la prescription), rd 3 edition, Paris, 1905, nr. 849-850; M. Planiol/G. Ripert/M. Picard, Traité pratique de droit civil français, vol. 3, Les Biens, 2nd edition, Paris, 1952, nr. 381 (who do not agree with this analogy). 69 Cf. F. Zenati, Revindication mobilière, Revue trimestrielle de droit civil 1998, p. 4 08. 65

318

Lars van Vliet

ZEuP

of proof. Dross points out that although the requirement of possession is logical for the procedural function of article 2276, the requirement is unjustified when article 2276 is invoked to acquire ownership from a non-owner70. e) Reasons mentioned by the German and Dutch legislators Unlike the parliamentary history of the French civil code the official explanations to the German civil code, the Motive and Protokolle, clearly indicate the reason for requiring actual possession. Here two reasons are mentioned. First of all, § 933 BGB is said to protect the owner of the thing against being deprived of his ownership without noticing it. Second, it is asserted that a third party who does not insist on acquiring actual power over the thing and leaves it with the transferor does not deserve third party protection71. The first of these reasons can also be found in the parliamentary history of the Dutch civil code and in the Comments on VIII.-3:101 DCFR72 . However, although these reasons look self-evident at first sight, they are unconvincing. The argument that the owner or holder of a limited proprietary right should not be able to lose his right without him being aware of it aims at protect ing the holder of such a right. Should the physical situation, that is, the change in physical power, warn the owner of a possible loss of his right? Obviously not, because if actual power shifts to the third party the original owner is too late: he has already lost his right. Such a warning, which will come after the event by definition, is not useful to the owner. According to Heck one of the reasons underlying § 933 BGB is the misuse made of constitutum possessorium to set up sham transactions (simulatio, Scheingeschäft)73. At the end of the 19th century and beginning of the 20th century many German (and also Dutch) lawyers feared the danger of this misuse, notably in combination 70 See W. Dross, Le singulier destin de l’article 2279 du code civil, Revue trimestrielle de droit civil 2006, p. 27. 71 Motive III, p. 345 (Mugdan, vol. 3, p. 192) and Protokolle III, p. 3704 (Mugdan, vol. 3, p. 632). As the Motive indicate § 933 BGB accords with the traditional interpretation of § 306 of the old commercial code for the German Confederation (deutscher Bund): the Allgemeines Deutsches Handelsgesetzbuch of 1861. The parallel provision of the new commercial code of 1897 still in force is § 366. This provision like its predecessor protects a bona fide purchaser who believed that a merchant was authorized to dispose. The old § 306, although silent on this point, was interpreted so as to require the third party to have acquired actual possession. Case law and literature postponed third party protection in the case of constitutum possessorium. See K. Cosack, Lehrbuch des Handelsrechts, 4th edition, Stuttgart, 1898, p. 149–150. So the draftsmen of the Bürgerliches Gesetzbuch simply applied to the civil code a requirement which had already developed on the basis of the commercial code. For the equivalent interpretation of the modern § 366 see K. Schmidt, Handelsrecht, 5th edition, Cologne etc., 1999, § 23 II 1 e. 72 C.J. van Zeben et al. (eds), Parlementaire Geschiedenis van het Nieuwe Burgerlijk Wetboek, vol. 3, Deventer, 1981, p. 384; PEL Acq Own, VIII.-3:101 Comment 13. 73 P. Heck, Grundriß des Sachenrechts, 3rd edition, Tübingen, 1930 (repr. Aalen 1994), p. 250. For exactly the same reason many legal systems require a causa detentionis. For a constitutum possessorium to be valid in these systems it is needed that the parties indicate exactly why the transferor remains in actual control of the goods, for example because of a loan agreement, lease, usufruct etc. These legal systems are thus said to require a concrete rather than an abstract constitutum possessorium. Also this requirement intends to prevent sham transactions. However, for parties who are willing to set up such a sham transaction it is very easy to pretend a loan or lease agreement as well. See Heck, p. 500–503 and as regards the problem of the causa detentionis in general L.P.W. van Vliet, Transfer of movables, p. 53–55.

2011


319

with fiducia cum creditore. However, as Heck correctly asserts, this concern cannot justify why third party protection should be postponed even where there is un doubtedly a genuine transfer constituto possessorio 74. Under the DCFR, by the way, this argument of discouraging sham transactions is totally irrelevant because a transfer for security purposes, in whatever guise, is regarded as the creation of a security right (IX.-1:102(3) and (4)) and the DCFR allows bona fide acquisition of a non-possessory security right on movables (IX.-2:108). The second argument, the third party does not deserve protection as long as he leaves the thing with the transferor, is unconvincing as well. Once the fundamental choice has been made to protect a bona fide third party under certain circumstances, why should this protection depend on the quite arbitrary question whether or not the third party has acquired actual control over the thing? What really matters is whether or not the transferor is in actual possession of the thing when he sells to the third party, because to innocent outsiders this actual power creates the impression of the transferor being owner75. Third party protection is intended to protect outsiders who relied on this appearance of ownership. Where a non-owner in actual control of the asset sells to an innocent buyer there is an impression of ownership regardless whether or not the transfer takes place by handing over or by constitutum possessorium 76. So, if the third party is preferred over the original owner when the thing is handed over to the bona fide purchaser, why does he have no preference when he leaves the thing with the transferor? It is sometimes said that where a non-owner transfers property the owner and third party put an equal trust in the transferor, and that there is therefore no good reason to prefer the third party over the owner77. However, the trust the bona fide purchaser put in his seller differs from the trust the owner may have put in the seller. The third party’s confidence was based on the impression created or reinforced by the seller having physical control78. f ) Goods in the possession of a third party Having seen this, it is quite strange that German law, Dutch law and the DCFR do not postpone third party protection where a seller transfers his indirect 79 posses74

P. Heck, Grundriß des Sachenrechts, p. 250. In a chain of transactions, where the thing is delivered by someone other than the transferor, the third party’s trust should be based on the transferor’s power to order another person to deliver the thing. See for German law: MünckKomm BGB/Oechsler, § 932, Rn. 6 and Bundesgerichtshof 30 October 1961, BGHZ 36, 56 = NJW 1962, 299. 76 Cf. E.W. Stark, Berner Kommentar, vol. I V (Sachenrecht), 3. Abteilung (Besitz und Grundbuch), 1. Teilband (Der Besitz, Artikel 919-941 ZGB), 2nd edition, Bern, 1984, p. 362. 77 See M. Wolff/L. Raiser, Sachenrecht, Ein Lehrbuch, 10 th edition, Tübingen, 1957, § 69 II 2c. 78 The argument mentioned in the Motive on p. 345 (see fn. 24 supra) that the transferee who leaves the thing in the hands of the transferor will run the risk of his confidence being broken, is convincing only where the same thing is transferred for the second time to a bona fide purchaser. In that case there is a good reason to prefer the second purchaser to the first. 79 Here ‘direct’ and ‘indirect’ indicate whether or not the possessor has actual power over the object. Where the possessor has actual power he has direct possession and can be called a direct possessor. Similarly a detentor or detentio may be direct of indirect. 75

320

Lars van Vliet

ZEuP

sion to the acquirer80. Take the following example: a non-owner who deposited goods in a warehouse sells the goods to a buyer. As the goods are to remain there, the seller/depositor instructs the depositee (the warehouseman) to attorn to the buyer. If the warehouseman so attorns to the buyer, he acknowledges the transfer and holds the goods henceforth for the benefit of the buyer. The first argument used against constitutum possessorium, the argument that the owner should not be able to lose ownership without noticing it, equally applies here. The original owner will not see the warehouseman’s attornment. On the contrary, there would even be a good reason to treat constitutum possessorium by a seller in direct possession more favourably than such an attornment by a warehouseman. For, the appearance of ownership created by such an indirect possession (possession via the warehouseman) is much weaker81 than the appearance created by direct power in the above example of constitutum possessorium. A similar weak impression of ownership is created where the seller-depositor rather than the warehouseman starts to hold the goods for the benefit of the buyer while the goods are still in the warehouse. It is a more complex example of constitutum possessorium. Both examples of depositum have in common that at the outset (the moment of sale) the depositor is indirect possessor of the goods while the depositee is direct detentor (having actual power). The physical situation is similar as well: during the transaction the goods remain in the warehouse. However, whereas in the first case the warehouseman attorns to the buyer, he is not at all involved in the second case. He may not even know of the transaction. He continues to hold for the benefit of the seller, but the seller by transferring possession constituto possessorio turns himself into (indirect) detentor for the benefit of the buyer and thus makes the buyer indirect possessor. It makes the warehouseman (direct) subdetentor. Since in both instances the physical situation creates a similarly weak appearance of ownership, there is no reason to treat these cases differently. What is more, in our example of goods deposited with a third party the seller and the buyer often do not specify whether the delivery amounts to constitutum possessorium by the seller or rather to attornment by the third party. This is a question of interpretation of the parties’ agreement. g) Standard of good faith There is clearly no justification to draw a rigid distinction between constitutum on the one hand and all other kinds of traditio on the other hand. As third party protection is based, among other things, on the appearance of ownership created by the seller’s physical control over the asset the question whether or not to protect 80 § 934 BGB. See H.P. Westermann/K.-H. Gursky/D. Eickmann, Sachenrecht, 7th edition, Heidelberg, 1998, § 47 II 2. As regards Dutch law see Hoge Raad 18 September 1987, Nederlandse Jurisprudentie (NJ) 1988/983 (Berg/De Bary) and W.H.M. Reehuis et al., Goederenrecht, 12th edition, Deventer, 2006, nr. 379. As regards the DCFR: VIII.-3:101(1)(b) read with VIII.-2:101(1)(e). 81 Unless the transferor delivers a document of title, such as a bill of lading or delivery order representing the goods. Some warehouseman’s warrants are title documents.

2011


321

a third party should depend on the degree of control/possession which the seller has, and therefore the degree of appearance created by it. A supple instrument to judge the degree of appearance in every individual case is the requirement of good faith. If the seller has direct control it gives a strong impression of ownership and consequently the requirement of good faith will be met more easily. If, on the other hand, the seller merely has indirect possession or control over the asset the requirement will be much more difficult to meet. In Swiss law, which adopted this solution82 , a bona fide third party who acquires possession by way of constitutum possessorium from a seller in direct control of the goods will acquire ownership even before having acquired actual control. However, where the transferor is indirect possessor (e. g. where goods have been stored in a warehouse) immediate acquisition of ownership is more difficult because of the higher standards for good faith which have to be applied in this particular case. Moreover, Swiss law correctly recognizes that a buyer who acquires possession without ever having seen the goods cannot be regarded as bona fide if he would not have been in good faith had he inspected the goods at the time of acquisition. To give an example, if on inspection the buyer would have seen an inscription or name plate with the name of the real owner, or a damaged lock giving him good reason to doubt the seller’s right of ownership, he cannot profit from not having inspected the goods83. h) The DCFR’s arguments are not convincing In its comments on VIII.-3:101 DCFR the drafters mention the reasons for the requirement of actual control by the third party84. However, the arguments are difficult to understand. I agree with the drafters that the non-owner’s possession has a strong influence on the third party’s good faith. If the non-owner is unable to deliver possession to the third party because he has no possession in the first place, it is clear that commonly the third party cannot be in good faith. On the other hand, if the relevant comments suggest that the fact that the third party did not acquire actual power will normally take away the third party’s good faith, I do not agree. The comments also use the argument that the owner should not be able to lose his right of ownership without noticing it. For the reasons set out above, this argument does not convince me. When he notices the loss, it is already too late to prevent the loss. 82 A. Homberger, Zürcher Kommentar, Band IV (Sachenrecht), 3. Abteilung (Besitz und Grundbuch, Art. 919–977), 2nd edition, Zurich, 1938, art. 933, Rn. 20-21; P. Liver in: M. Gutzwiller et al. (eds), Schweizerisches Privatrecht, vol. V/1, Basel/Stuttgart, 1977, p. 327; H. Rey, Die Grundlagen des Sachenrechts und das Eigentum, 3rd edition, Bern, 2007, nr. 1766. 83 A. Homberger, Zürcher Kommentar, Band IV (Sachenrecht), 3. Abteilung (Besitz und Grundbuch, Art. 919-977), 2nd edition, Zurich, 1938, art. 933, Rn. 20–21; H. Hinderling in: M. Gutzwiller et al. (eds), Schweizerisches Privatrecht, vol. V/1, Basel/Stuttgart, 1977, p. 487; E.W Stark in: H. Honsell et al. (eds), Basler Kommentar zum Schweizerischen Privatrecht, Schweizerisches Zivilgesetzbuch II, Art. 457–977 ZGB, art. 1–61 SchlT ZGB, 2nd edition, Basel, 2003, Art. 933, Rn. 26. 84 PEL Acq Own, VIII.-3:101 Comment 13.

322

Lars van Vliet

ZEuP

III. Retention of ownership and production 1. The DCFR’s solution a) The classical conf lict between retention of ownership and specificatio When drafting the rules on specificatio the drafters of the DCFR had to make a choice whether or not these rules should be mandatory. This is important if a seller under a retention of ownership clause wishes to extend his ownership to the products made by the buyer from the goods delivered by the seller. In the buyer’s insolvency it leads to a classical conflict between the seller and the buyer’s creditors. Comparative research shows a divide between legal systems which do and which do not allow the seller and buyer to deviate from the rules on specificatio. If the rules on specificatio are not mandatory it enables the parties to stipulate that the products will belong to the seller until the suspensive condition in the retention of ownership clause has been fulfilled. English and Dutch law do not allow the parties to deviate and they therefore exclude any extension of the retention of ownership clause. German law takes the opposite position in that it allows the parties to deviate and extend the retention of ownership to products. French law takes an intermediate position in that the rules on specificatio are mandatory in the buyer’s insolvency, but that the law itself offers a certain extension of the retention of ownership clause. The DCFR rules governing this conflict are to be found in Books VIII and IX. In principle the rules of Book IX have priority if the production involves goods delivered under a retention of ownership clause (VIII.-1:103(1))85. Before we look to the relationship between retention of ownership and the rules on specificatio, we should stress that, in contrast to the national legal systems reviewed below, IX.-3:107 provides that retention of ownership devices have no third party effect unless they have been registered according to Section 3 of Chapter 3 of Book IX86. Since a security right which works only between the parties does not add anything relevant to the seller’s unsecured claim for the purchase price, the retention of ownership device is worthless without registration. b) No automatic extension of retention of ownership to products Book IX DCFR wishes to prevent that the seller’s retention of ownership device is automatically extended to the new products made from the things he sold and delivered. However, strict application of VIII.-5:201 (Production) would lead to just that: an automatic extension into a security right on the new products. Where the buyer produces the new goods himself, VIII.-5:201 would give the 85 IX.-2:308 Comment B (Modified application of Chapter 5 of Book VIII (paragraph (1)), Full Edition, vol. 6, p. 5 466-5468. 86 IX.-2:201 Comment C (Retention of ownership devices as acquisition finance devices), Full Edition, vol. 6, p. 5 452.

2011


323

buyer ownership of the new products and it would give the seller a claim for the value of the goods used secured by a security right on the new products. If the producer is a person different from the buyer under retention of ownership, VIII.-5:201 would give ownership to the third party producer and give the seller a claim for the value of the materials used secured by a security right on the new product. Book IX wishes to give this claim to the buyer instead. To attain this result, I X.-2:308(1) provides that “references to the owner of these goods are to be understood as references to the buyer […]”. Under the DCFR rules the proprietary consequences of production (the DCFR term for specificatio) can be determined by agreement. It allows the seller and buyer who agree on a retention of ownership clause to extend this security device so that the seller acquires a security device on the new product. For this extension it is vital that such agreement is made prior to the production. The comments on VIII.-5:101 and IX.-2:308 stress that the security device of retention of ownership is not automatically extended to the newly produced thing87. This means that the agreement on retention of ownership (in the contract of sale or in an additional agreement) cannot be interpreted to contain an agreement on extension of the security device to new products. There should be an explicit agreement to this effect. However, different from German law this contractual extension cannot take the form of ownership of the end product being attributed to the seller. IX.-2:308(2) DCFR provides that the parties may agree on giving the seller a security right in the products, which according to IX.-1:102 means a limited proprietary right. As a result, the retention of ownership cannot be extended in the strict sense of the word, that is, in such a way that ownership of the products is attributed to the seller88. Furthermore, the extension is a security right which should obey the rules of Book IX Chapter 3 in order to be effective against third parties. As the security device amounts to a non-possessory security it is only effective against third parties if registered89. In order to be effective against third parties, such as the buyer’s creditors, it is required that the agreement should be registered. Normally the agreement on this extension will be part of the retention of ownership clause. As we have seen above, even a simple non-extended retention of ownership device should be registered in order to be effective against third parties. As a result, it will not often happen that the retention of ownership clause has been registered whereas its extension has not. c) The ranking of the seller’s security right As the extension of the retention of ownership device is not an extension in the classical sense of the word (i. e. ownership of the product) but offers the seller 87 PEL Acq Own, VIII.-5:101 Comment 38; IX.-2:308 Comment B (Modified application of Chapter 5 of Book VIII (paragraph (1)), Full Edition, vol. 5, p. 5 467. 88 In personal correspondence Prof. Dr. Ulrich Drobnig confirmed this to me. 89 PEL Acq Own, VIII.-5:101 Comment 38; IX.-2:308 Comment C (Rights of holder of retention of ownership device after production or combination), Full Edition, vol. 6, p. 5 469–5470.

324

Lars van Vliet

ZEuP

a limited proprietary right the question arises what the priority of this security right is. To give an example, does it take priority over a security right on the product granted in advance to a third party? Comment C on IX.-2:308 shows that the security right granted to the seller has the same priority as the retention of ownership device. This includes the superpriority of IX.-4:102 which gives high priority to ‘acquisition finance devices’. According to IX.-1:201(3) a retention of ownership clause is such a device. If the retention of ownership clause has been registered duly (under the rules of Chapter 3 Book IX) it takes priority over any security right or other limited proprietary right created by the buyer, even if creat ed in advance (IX.-4:102(1)). For the conflict between the seller under retention of ownership and the security right created by the buyer on the goods sold (i. e. before production takes place) this solution can already be based on the nemo dat rule: as the goods sold do not yet belong to the buyer he cannot validly burden them with a limited security right. IX.-4:103 (Continuation of priority) provides that priority is not affected if the encumbered asset is used in the production of a new thing, provided that the security right extends to the new thing. According to its text (‘encumbered asset’) this article does not apply to our example of a retention of ownership clause. Its scope is limited to security rights, i. e. limited proprietary rights, and does not cover a retention of ownership device90. However, comment D (Production, commingling and combination) on IX.-4:103 shows that the drafters have the intention that the article equally applies to goods delivered under a retention of ownership device. Consequently, the superpriority, in our example the seller’s priority over the security right on the product created by the buyer, continues.

2. Dutch law According to art. 5:16(2) BW91 someone who produces or orders to produce a thing for himself from materials belonging to others or partly from materials belonging to others, becomes owner of the new thing, unless the costs of production are so low that they do not justify this result. If goods sold under a retention of ownership clause have been used in the production of new goods, the seller has no proprietary right in the products. In the buyer’s insolvency the products are part of the insolvent’s estate and the seller is a mere unsecured creditor. Where goods sold under retention of ownership are used in a production process two interlinked questions are vital for determining who owns the products. First, the question whether the rules of art. 5:16 BW are mandatory or whether the parties are able to opt out. Second, the question how to determine who produces for whom: is there an objective criterion or are the parties to a contract free to determine this? Or more concretely, is a supplier under retention of ownership able 90 This is apparent from the use of the word ‘emcumbered asset’ in the first sentence of the first paragraph and from the use of the phrase ‘provided that the security right extends to the security provider’s rights in the asset resulting from the production, commingling or combination’ in sub (b) of the first paragraph. 91 The abbreviation ‘BW’ stands for Burgerlijk Wetboek, the Dutch civil code of 1992.

2011


325

to manipulate art. 5:16 BW and determine by contract that the buyer produces the products for the supplier so that the retention of ownership is extended to cover the products? In Dutch law the answer to both questions is negative. Art. 5:16 BW is mandatory law and objective criteria determine who becomes owner. In Dutch law a party agreement does not qualify as such an objective criterion. As we shall see below, this is different in German law. In its decision HR 5 October 199092 the Dutch Supreme Court held that, in the case of industrial production, the answer to the question for whom the new things are made and who therefore becomes owner depends on who has decisive influence on the production process and who bears the risk of disappointing usefulness, sales and profits. The judgment makes clear that under Dutch law the parties to the contract cannot op out of the rules on specificatio. Moreover, objective standards decide who becomes owner of the manufactured product. The outcome cannot be altered by a retention of ownership clause or any other contractual clause. The only thing the parties could do to give the seller security on the product is creating a non-possessory security right on the new product in advance.

3. English law Like the Dutch Supreme Court the English courts regard the rules on specificatio as mandatory law and do not allow the parties to a contract to opt out of these rules. This can be clearly seen in Borden (U.K.) Ltd. v. Scottish Timber Products Ltd. and another 93. The claimants sold resin to the defendants which was to be used by them to make chipboard. The contract contained a retention of ownership clause stipulating that ownership in the resin should pass when all goods supplied by the claimants had been fully paid for. The parties knew that the resin would be used before it had been paid for. When mixed with certain other substances, the resin as such could no longer be recovered. The defendants were declared insolvent and the claimants sued for the unpaid purchase price asserting that any chipboard manufactured with such resin or any money or property representing the proceeds of sale of such chipboard was charged with the unpaid sum and, further, that any such charge was not void by reason of section 95 of the Companies Act 1948 (the registration requirement). Per Buckley LJ: “It was impossible for the plaintiffs to reserve any property in the manufactured chipboard, because they never had any property in it; the property in that product originates in the defendants when the chipboard is manufactured. Any interest which the plaintiffs might have had in the chipboard must have arisen either by transfer of ownership or by some constructive trust or equitable charge, and, as I say, I find it impossible to spell out of this condition anything of that nature.” In the above case the contract between seller and buyer did not contain a clause stipulating that the products made from the goods delivered would equally be 92

NJ 1992/226 (Machinefabriek Breda NV v BV Machinefabriek Plaatwerkerij en Constructiefabriek St. Antonius). Court of Appeal 10 July 1979 [1981] Ch 25.

93

326

Lars van Vliet

ZEuP

subject to the retention of ownership clause. The question therefore arises what the effect would be if such a clause had been made. The answer can be found in Modelboard Ltd. v. Outer Box Ltd (in liquidation) 94. In this case the claimant sold to the defendant cardboard sheet boards under a retention of ownership clause which provided, among other things, that the end products belonged to the claimant until full payment of the price. The defendant did not pay the purchase price and was declared insolvent. The question was whether or not the contractual clause created a charge on the new products in favour of the claimant which was void for non-registration. The court held that, although the contractual clause created a charge, this charge was void for non-registration. The judgment shows that in a certain way the retention of ownership clause can be extended to the end product made from the materials delivered by the seller. Not that the seller becomes owner of the new products, but he rather receives a charge on the newly created products. The problem, however, is that such a charge is void under section 874 Companies Act 2006 if unregistered95.

4. French law Art. 571 c. civ. stipulates that the manufacturer becomes owner of the new thing made by him, provided that the cost of his work clearly exceeds the value of the materials used96. In practice the provisions of the Code civil on specificatio are hardly relevant, first because they are ius dispositivum and second because in insolvency special provisions apply. A seller of raw materials is able to stipulate that his retention of ownership extends to the product made from the raw materials, so that the seller becomes owner of the final product. This extended retention of ownership works not only against the buyer but also against third parties, such as the buyer’s creditors. However, in insolvency special provisions apply which are mandatory law. The retention of ownership does work against the insolvent’s liquidator and his creditors but under certain restrictions which cannot be set aside by contract. It is a peculiar characteristic of French law, different from the other systems reviewed, that original acquisition, such as specificatio, underlies rules of ius dispositivum as long as the buyer is not declared insolvent (the rules in the civil code then apply), but that it suddenly underlies rules of mandatory law once the buyer has been declared insolvent. The rule which applies in insolvency is art. L624-16(2) Code commercial (c. comm.). The second paragraph, first sentence, is relevant for specificatio. It reads as follows: 94

Chancery Division 22 September 1992 [1992] BCC 945. E. McKendrick , Goode on Commercial Law, 4 th edition, London, 2010, p. 6 49. See also R.M. Goode/L. Gullifer, Goode on legal problems of credit and security, 4 th edition, London, 2008, p. 22-23. 96 Si, cependant, la main-d’œuvre était tellement importante qu’elle surpassât de beaucoup la 95

valeur de la matière employée, l’industrie serait alors réputée la partie principale, et l’ouvrier aurait le droit de retenir la chose travaillée, en remboursant au propriétaire le prix de la matière, estimée à la date du remboursement.

2011


327

“Goods which have been sold under retention of ownership can also be revindicated, provided that they are in their natural state at the moment of opening of the [insolvency] procedure97.”

The essential criterion used to answer the question whether or not goods sold under a retention of ownership clause can be revindicated is the criterion of identity, or ‘existence en nature’. French case law is very reluctant in accepting that a thing has lost its identity as a result of modifications. Consequently, it is very generous against sellers under a retention of ownership clause98. To give some examples from French case law, the Supreme Court held that must from different owners which was mixed and processed into wine by a wine cooperative had not lost its natural state: Cass. com. 11 July 2006 (les Vignerons d’Opoul)99. Art. L624-16 c. com. also protects the revindicating seller against the danger of accessio and commingling. Cass. com. 4 January 2005 (Philippe Jeannerot v. Num)100 is on the borderline between accessio and specificatio. In this case computer parts had been installed into computer-controlled machines. It was held that the computer parts still existed in their natural state and that the seller could revindicate them. However, on seemingly similar facts the Court of Appeal in Cass com. 24 March 2004 ( Jacques Moyrand v. Siemens)101 decided differently. These examples show that even if the law on this point were harmonised, courts in different countries can interpret the same criteria in very different ways. Apart for the possibility to revindicate the goods delivered, French law in some cases offers the possibility to revindicate the purchase price from a sub-sale (art. 2372 c. civ and art. L624-18 c. comm.)102 . This goes further than the other national systems reviewed here and also further than the DCFR. However, it is a highly complex instrument and dogmatically difficult to explain103. An example is Court of Appeal of Lyon 22 January 2004 (Eisen Schmid v. Scarfogliero)104. Eisen Schmid sold and delivered under a retention of ownership clause pieces of iron to the ironworks Les Forges de la Becque, a company which sold steel sheet to the automobile industry. When Les Forges de la Becque was declared insolvent, Eisen Schmid tried to revindicate its steel from the buyer’s insolvent estate. Part of the steel had already been processed into steel sheet and sold on to the ironworks’ customers. For that reason Eisen Schmid also tried to revindicate the purchase price of this steel sheet from the insolvent’s estate. 97 Peuvent également être revendiqués, s’ils se retrouvent en nature au moment de l’ouverture de la procédure, les biens vendus avec une clause de réserve de propriété. 98 P. Crocq, JurisClasseur Commercial, fasc 2545 (2007), Sauvegarde, redressement et liquidation judiciaires, Situation du vendeur de meubles, Clause de réserve de propriété, nr. 78–80. 99 Bulletin 2006 IV N° 181 p. 199. 100 No de pourvoi: 02-10538. 101 N° de pourvoi: 01-10280. 102 Cour de Cassation, Chambre commerciale (Cass com.), 5 Nov 2003 (N° de pourvoi 00-21.357, Bulletin 2003 IV N° 162 p. 180) shows that article L624-18 c. comm. equally applies to a contract for the sale and supply of goods (contrat d’entreprise). 103 See T. Revet, La singulière présentation, par la chambre commerciale, de la subrogation, en cas de procédure collective, de la créance du prix de sous-acquisition à la chose objet d’un droit de propriété réservé, Revue trimestrielle de droit civil (RTD Civ) 2009, p. 751. 104 N° de pourvoi: 2002/05630.

328

Lars van Vliet

ZEuP

The Court of Appeal spelled out the requirements for revindication of the purchase price. The seller under retention of ownership is able to revindicate from the insolvent’s estate the purchase price paid by a sub-buyer to the insolvent first buyer. This revindication is allowed only if the following conditions have been met: the purchase price was still unpaid by the sub-buyer when the first buyer was declared insolvent and the materials still existed in their original state at the time of delivery to the sub-buyer. Steel which at that date had already been processed into sheet steel so that the original material is transformed irretrievably, does not meet this requirement. As a consequence, the purchase price of these materials could not be revindicated and the seller could not invoke priority of payment105. If at the moment of such revindication the price was not yet paid to the first buyer or his liquidator, the revindication is directed towards the second buyer. If during the interval between opening of the insolvency proceedings and the moment of revindication the purchase price has been paid to the first buyer or his liquidator, the revindication is directed towards the liquidator. Where, during this interval, the purchase price is paid to a third party, e. g. the assignee of the claim, the revindication is directed towards this third party106. If the purchase price due by the sub-buyer is higher than the price due by the first buyer the sum due by the first buyer will be the maximum which the seller may revindicate107, as no creditor is allowed to receive with his security device more than is due to him under the secured claim. In Cass. com. 20 June 1989 (BNP v. SMT)108 the Supreme Court held that, as a result of the sub-sale to a sub-buyer, the buyer’s claim against the sub-buyer for the purchase price was subrogated for the goods sold to the sub-buyer. The buyer had assigned all its current and future claims against customers to BNP. Now both the seller under retention of ownership, SMT, and BNP wanted to collect payment from the sub-buyer. The Supreme Court held that the assignment to BNP did not thwart SMT’s right of revindication of the purchase price. The buyer’s claim against the sub-buyer for the purchase price never belonged to the buyer but was immediately acquired by the seller as a result of real subrogation. For that reason assignment in advance by the buyer of all his claims (or this particular claim) cannot be set up against the seller. The term ‘revindication’ may render the false impression that the seller has a proprietary right, whereas he merely has a personal claim against the sub-buyer. It may look like a proprietary right because it entitles the seller to full payment despite the first buyer’s insolvency. If after opening of the insolvency procedure the sub-buyer pays to the first buyer, this money is not treated as part of the insolvent’s 105

See also P. Ancel, Droit des sûretés, 4th edition, Paris, 2006, nr. 458. P. Crocq, JurisClasseur Commercial, Fasc 2545, Sauvegarde, redressement et liquidation judiciaires, Situation du vendeur de meubles, Clause de réserve de propriété, nrs. 120-121. 107 Cass com. 16 June 2009, No de pourvoi 08-10.241. See P. Crocq, Revendication du prix de revente et plus-value de l’objet de la réserve de propriété, RTD Civ 2009, p. 760. 108 Bulletin 1989 IV no. 197, p. 131; Similarly, Cass com. 8 March 1988, Bulletin 1988 IV N° 99 p. 69; Cass. com. 5 June 2007, Bulletin 2007, IV, N° 152; Cass com. 16 June 2009, No de pourvoi 08-10.241 and 08-15.753. 106

2011


329

estate, because the claim belongs to the seller. If the money remains unpaid by the sub-buyer, the seller simply has to collect payment of his claim. However, if his debtor (the sub-buyer) is also declared insolvent before having paid, it becomes painfully clear that his claim is a mere personal right. In Cass. com. 6 October 2009 (Emtec v. Ricoh Europe)109, the Supreme Court held that the seller’s claim against the sub-buyer is a personal right acquired at the time of resale and that the sub-buyer’s administrator in insolvency was thus not obliged to pay the purchase price. The seller thus lost his security.

5. German law According to § 950 BGB it is in principle the producer who acquires ownership in the case of specificatio. As in Dutch law two interlinked questions arise: is § 950 BGB mandatory law and can parties to a contract determine who produces for whom? The German Supreme Court (Bundesgerichtshof) answers these questions differently from the Dutch Supreme Court. In BGH 3 March 1956110, for example, the Supreme Court held that, where the contract stipulates that the delivery of aluminium plates took place under a retention of ownership clause and that the production of the covers from these aluminium plates was to take place for the benefit of the supplier, the supplier should be seen as the manufacturer in the sense of § 950 BGB. The German Supreme Court thus gives effect to a so-called manufacturing clause (Verarbeitungsklausel). Although it is mandatory law that under § 950 BGB the manufacturer will become owner of the new product, parties to the supply contract can decide themselves who will be regarded as the manufacturer. According to long-standing case law of the Supreme Court the question who is to be seen as manufacturer of the product should be answered with reference to public opinion (Verkehrsauffassung). This gives the false impression that a purely objective standard is used. However, the Supreme Court does not focus on the perspective of an outsider unknown to the contract terms, but rather on the perspective of an insider who knows the contract terms between seller and buyer. The reasoning is as follows: if under the contract between supplier and buyer the goods will be manufactured for the benefit of the supplier, then from an objective perspective it is the supplier who should be regarded as manufacturer in the sense of § 950 BGB. Only where the factual situation is clearly in contradiction with the contract terms, i. e. where it is clear that the buyer manufactures the goods for his own benefit, will the buyer himself become owner under § 950 BGB111. Unfortunately, an example of such a ‘clear’ contradiction is not given. The fact that the buyer determines the production process and bears the economic risk of disappointing usefulness, sales and profits obviously does not suffice to contradict the manufacturing clause. 109

N° de pourvoi 08-15048. BGHZ 20, 159, NJW 1956, 788. 111 Staudinger/Wiegand, 2004, § 950, Rn. 23. 110

330

Lars van Vliet

ZEuP

The Supreme Court also gives effect to a contract clause giving the supplier only co-ownership in the final product. Is has done so in BGH 19 October 1966112. A supplier sold and delivered leather skins to a shoe manufacturer under a retention of ownership clause. The clause stipulated that the supplier would become co-owner of the final products. The Supreme Court held that a manufacturing clause in a retention of ownership clause may stipulate that the owner of the materials supplied will only become co-owner to the proportion that the value of his materials bears to the value of the final product. According to the Supreme Court another possibility is for the manufacturing clause to stipulate that the owner of the materials supplied will become co-owner to the proportion that the value of his materials together with the value added by the manufacturer bear to the value of the final product. However, it is impossible for a manufacturing clause to stipulate that the supplier’s co-ownership share depends on the value of the goods supplied and the manufacturer’s labour and overhead costs. The Supreme Court’s reasoning is that third parties cannot easily assess the manufacturer’s production costs, whereas it is easy for them to assess the added value. When the co-ownership share is difficult for third parties to assess, the principle of specificity would be violated, according to the Supreme Court. This reasoning is not very convincing because in most cases the manufactur ing clause itself is unknown to third parties in the first place. This brings us to a more general criticism of allowing parties to deviate from the rules on specificatio. In many instances property law uses objective criteria exactly to prevent that a party agreement can be set up against third parties. In modern German acad emic writing the case law of the Supreme Court on specificatio is heavily criticised for this reason. Almost all academics stress that the rules of original acquisition should be mandatory and that it should not be possible for the parties to opt out of these rules by deciding who will be seen as the manufacturer113. The reason most frequently mentioned is the third party effect. The rules of original acquisition, such as accessio, commixtio/confusio and specificatio, attribute ownership to certain persons. This attribution also works against third parties, since proprietary rights have third party effect. For that reason third parties should be able to rely on the factual situation and be able to infer from the facts who the goods belong to. If goods sold and delivered to a manufacturer are used by him in the production of new goods, third parties should be able to rely on the fact that these goods belong to the manufacturer, without the need to find out whether the goods have been sold under a retention of ownership clause and whether this clause includes a manufacturing clause. The same argument is used in Dutch law to support the Dutch case law on this point. The majority of Dutch authors defend the Supreme Court’s view that the rules on original acquisition are mandatory114. 112

BGHZ 46, 117, NJW 1967, 34. Staudinger/Wiegand, 2004, § 950, Rn. 25; MünchKomm InsO/Ganter, 2007, § 47 Rn. 106; MünchKomm BGB/Füller, 2009, § 950, Rn. 26; J.Th. Füller, Eigenständiges Sachenrecht, Tübingen, 2006, p. 397–402. 114 J. Wichers, Breda/Antonius, in: E.H. Hondius/G.E. van Maanen, Civiele klassiekers revisited, Deventer, 2003, pp. 239–258, at p. 252–253; 113

2011


331

Convincing as this argument may seem, the certainty achieved by applying objective standards, the certainty that products made by the manufacturer belong to him, is in sharp contrast to the uncertainty whether unaltered goods belong to the buyer. As there is no registration system for retention of ownership clauses in Germany, third parties cannot find out whether or not goods bought by their counterparty are bought under a retention of ownership device and whether the suspensive condition is still active.

6. The novel DCFR solution In short, under the DCFR a retention of ownership device may be extended to the product. As in Dutch, English and German law this extension should be stipulated. Different from French law the extension does not apply automatically. As in English and Dutch law the extension takes the form of a limited security right on the products rather than full ownership. It seems that under the DCFR the parties should explicitly stipulate that the seller will receive a limited security right on the products and that an agreement that ownership of the products belongs to the seller, is void. As to registration there is a difference between English law and the DCFR. Under English law application of section 874 Companies Act 2006 will render the extension void if not registered as a charge. Under the DCFR not only the extension but even the simple retention of ownership clause should be registered. If not, it has no effect against third parties and is therefore worthless. In so far as the DCFR’s extension has superpriority the result is more like German law. Under Book IX DCFR a registration system for security rights should be set up. In 2006 French law set up a system of registration of non-possessory pledges on movables115. Since 2006 a pledge on movables (gage) can be created in two different ways: either by giving the pledgee (or a third party holding for the pledgee) power over the object (the traditional pledge with dépossession) or by registration (gage sans dépossession). The register can be consulted on the internet116. However, different from the DCFR French law exempted the retention of ownership device from the registration system. As we have seen above, giving parties to a contract the option to extend a retention of ownership device to products is often criticised because third parties should be able to rely on purely objective criteria that they can easily check. It may be objected that, when under the DCFR the retention of ownership and its extension should be registered, this criticism is no longer valid. This raises the question what the impact of registration on third party protection is. In principle a security right runs with the security object (IX.-5:303(1)). When the encumbered thing is transferred the transferee takes subject to the security 115

Art. 2337 Code civil; décret nr. 2006-1804 of 23 December 2006 completed by arrêté 1 February 2007. On the internet site of the court registries of the commercial courts (Greffes des Tribunaux de Commerce): http://www.infogreffe.fr/infogreffe/index.jsp. 116

332

Lars van Vliet

ZEuP

right (droit de suite)117. IX.-5:303(2) briefly indicates that the security right may lapse as a result of good faith acquisition. The protection of a bona fide acquirer is laid down in VIII.-3:102 (protection against security right) and VIII.-3:101 (protection against retention of ownership device). IX.-6:102(2) supplements VIII.-3:102 by providing that when the security right118 has been registered the third party in principle cannot be in good faith. The same applies to a registered retention of ownership clause under IX.-6:102(3). However, IX.-6:102 adds two exceptions. If the third party acquires in the ordinary course of the seller’s business, he is not automatically held not to be in good faith. Positive knowledge of course excludes third party protection. The second exception is the case in which the security device has been registered against another person than the transferor. The security devices (limited proprietary rights and retention of ownership clauses alike) should be registered against the security provider’s name. If the thing is transferred by another person than the security provider, the third party upon inspection does not find the required information on the security device, since he is searching against the wrong person. As a result, he may be in good faith despite the registration having taken place (against another name). An example is the case in which A has a security right on an asset owned by B, B transfers ownership of the asset to C and C in turn transfers ownership to D. In this example A could also be a seller under retention of ownership. If A’s security has been registered, C cannot be in good faith and will take subject to the security: he will either receive an encumbered asset (in the case of a security right) or a mere ‘contingent right under retention of ownership’ (VIII.-2:307) or in German terminology an Anwartschaftsrecht (IX.-5:303(4). Under IX.-3:331 the transferee (C) has a duty to file an entry of the security device in the register against his own name. However, if he has not done so, D may be in good faith and take free from the encumbrance (in the case of a security right) or receive ownership (in the case of a retention of ownership device) under IX.-6:102 read with VIII.-3:102 or VIII.-3:101. Indirect agency is another example in which the transferor is a different person than the security provider. In such a case the transferee may be in good faith even though the security device (limited security right or retention of ownership) has been registered. If the transferee does not know that he acquires from an indirect agent, he will normally be in good faith and thus acquire free from the security device under VIII.-3:102 or VIII.-3:101 read with IX.-6:102(2)(b).

117 IX.-3:330 Comment A (Transfer of ownership of encumbered asset does not necessarily affect effectiveness of security right) writes that the continuation of the effectiveness of the security right after transfer by the security provider does not depend on a new entry in the register against the transferee’s name (Full Edition, vol. 6, p. 5537. The same applies for retention of ownership devices. See IX.-3:330 Comment D (Transfer of assets subject to an existing retention of ownership device), a. (Retention of ownership device in general not affected by this transfer), Full Edition, vol. 6, p. 5541. 118 This also applies to a security right created under IX.-2:308(2) extending the retention of ownership clause.

2011


333

Conclusion Although many rules, definitions and choices made by the drafters of Book VIII DCFR are based or partly based on Austrian law the comments on Book VIII contain a large amount of comparative work. The comparative research is supported by national reports which have been published separately and which have great importance for comparative law in this field. One of the fundamental choices which had to be made was the transfer system for the transfer of ownership. The choice made by the drafters is at first sight similar to the transfer system of Austrian law. This might look like ‘home bias’ of the Salzburg working team, but the comments show a thorough weighing up of all pros and cons of the different possibilities. Other choices made in Book VIII evidence that the draftsmen were receptive of approaches which deviate from Austrian law. A good example is the passing of ownership in the case of bulk sales. Still the influence of Austrian (and also German) doctrine is clear and a profound understanding of Austrian (and German) property law is vital to understand the rules. In this respect the comments are also helpful. A striking feature with far-reaching doctrinal consequences is the drafters’ choice to reject the concept of real agreement because it entails that the transfer of ownership is not regarded as a legal or juridical act. To my mind this choice is incompatible with the very definition of legal or juridical act. More importantly, it leads to a number of dogmatic difficulties which could have been prevented. The choice to develop a co-ownership regime for bulk sales leads to a number of very complicated questions some of which are not answered neither in the articles nor in the comments. The co-ownership regime is slightly more complex than the equivalent regime of the UK Sale of Goods Act. It seems that with this topic the drafters preferred fairness over the clarity of a hard and fast rule, a choice that is often doubtful in property law. For third party protection Book VIII requires the third party to have actual power over the object in question. I do not find the working team’s arguments convincing. When comparing the DCFR rules on this point to English law we should realise that although the rule in Gerson applies both to outright sales (i. e. not for the purpose of securing a claim) and to sale and lease back, the DCFR rules distinguish between these two types of transfer. In an outright transfer by way of constitutum possessorium the bona fide third party will not be protected whereas in a sale and lease back or similar transfer for security purposes the bona fide third party may be protected even though the transfer took place by way of constitutum possessorium. Art. IX.-1:102 (3) and (4) recharacterise the transfer for security purposes as the creation of a security right. As a result, such a transfer is outside the scope of art. VIII.-3:101 and is rather covered by art. IX.-2:108 (good faith acquisition of security right). Art. IX.-2:108 does not require the bona fide third party to be in possession of the security object and thus offers protection to the acquirer of a non-possessory pledge. This difference may seem odd because the

334

Lars van Vliet

ZEuP

arguments used to support the requirement of physical control in art. VIII.-3:101 are all about whether or not the factual situation, i. e. physical control, should have any bearing on good faith. In none of the arguments the purpose of the transfer (outright transfer or security transfer) plays any role whatsoever. Yet, for some reason these arguments are seen as irrelevant if the purpose of the transfer is to grant a creditor security. From the Comments on Books IX it is clear that the Hamburg working team on Book IX made a deliberate choice not to require the third party acquirer of a security right to have possession of the asset in order to be able to invoke third party protection. Since the arguments for allowing third party protection are the same for the transfer of ownership and the creation of a security right, one would have expected the same approach for both transactions. To my view the requirement of actual power should be eliminated. The conflict between the seller under retention of ownership and the buyer’s creditors is solved satisfactorily by Book IX. The seller’s retention of ownership is not automatically extended to the products made from the things he delivered, but the parties may agree on such an extension. The retention of ownership and its extension are valid against third parties only if registered. The extension takes the form of a limited security right rather than full ownership of the products. The problem that manufacturing clauses are not recognizable to outsiders is solved by the requirement of registration. Moreover, the sub-buyers are relieved from the burden of consulting the register, as they may acquire ownership in good faith despite the retention of ownership or take free of any limited security right on the thing if they buy in the ordinary course of business (VIII.-3:101(1)(d) read with IX.-6:102(3) and VIII.- 3:102(1)(d) read with IX.-6:102(2)).

aufgespießt „The University gave my parents a lunch to celebrate Arthur’s 80 th birthday and the Goodhart Chair. My parents almost died the night before the lunch because they had been staying at a hotel in Cambridge which caught fire. They were rescued with some difficulty, and their clothes were burned. My parents attended the lunch in borrowed clothes. After the speech in his honour, my father rose to reply and started by saying, ‘I expected a warm welcome in Cambridge, but not as warm as I got.’“ (William Goodhart, A.L. Goodhart, LSE Law, Society and Economy Working Papers 1/2010, 9)

acquisition and loss of ownership of goods - book viii ...

acquisition and loss of ownership of goods - book viii ...

Suggest Documents

Acquisition of ownership inside virtual worlds

Reputation and Ownership of Public Goods Maija ... - Bristol University

cross-border acquisition of the ownership of agricultural lands and ...

bidding requirements for acquisition of materials, goods and services

The Welsh Government's acquisition and ownership of Cardiff Airport

The Technology Ownership and Information Acquisition Habits of ...

The Technology Ownership and Information Acquisition Habits of ...

The Welsh Government's acquisition and ownership of Cardiff Airport

The Technology Ownership and Information Acquisition Habits of ... [PDF]

Government versus private ownership of public goods

Impact of Search Engine Ownership on Underlying Market for Goods ...

Loss of Cytochrome c Oxidase Activity and Acquisition of Resistance

Loss of p53 and Acquisition of Angiogenic MicroRNA ...

Loss of Cytochrome c Oxidase Activity and Acquisition of Resistance ...

Loss of E-cadherin and Acquisition of Vimentin in

Acquisition, Conservation, and Loss of Dual ... - Plant Physiology

Acquisition and loss of a neuronal Ca2+/calmodulin ... - Europe PMC

Perspex Machine VIII: Axioms of Transreal Arithmetic - Book of Paragon

PUBLIC GOODS AND CLUB GOODS

Herodotus: Histories Book VIII - Google Sites

A Text Book of Practical Science Class VIII

VIII

SMA1 OBSERVATIONS OF GOODS 850-11 AND GOODS 850-13

Consumer Acquisition Patterns for Durable Goods - Oxford Journals