учебный год 2023 / Drobnig, Security Rights in Movables
.pdfCHAPTER 32
Security Rights in Movables
Ulrich Drobnig
BIBLIOGRAPHY: Asser/Mijnssen, Handleiding tot de Beoefening van het Nederlands Burgerlijk Recht III/3, Zakenrecht, Zekerheidsrechten, 13th ed. (2003); Beale/Bridge/Gullifer/Lomnicka, The Law of Personal Property Security (2007); Bell, Modern Law of Personal Property in England and Ireland (1989); Bülow, Recht der Kreditsicherheiten, 7th ed. (2003); M. Cabrillac/Mouly/S. Cabrillac/Pétel, Droit des Sûretés,8th ed. (2007); Crossley Vaines, Personal Property, 5th ed. (1973); Drobnig, Security over Corporeal Movables in Germany, in: Sauveplanne (ed.), Security over Corporeal Movables (1974), pp. 181-205; Ghestin (ed.), Traité de Droit civil. Mestre/Putman/Billiau, Droit commun des sûretés réelles. Droit spécial des sûretés réelles, two vol. (Paris 1996); Goode, Commercial Law, 2nd ed. (Penguin Books 1995); Kieninger, Mobiliarsicherheiten im Europäischen Binnenmarkt (1995); McCormack, Reservation of Title 2nd ed. (1995); idem, Retention of Title and the Late Payment Directive, in Journal of Corporate Law Studies vol. 1 (2001) 501-518; Polak/Polak, Faillissementsrecht, 10th ed. (2005); Rutgers, International Reservation of Title Clauses (Thesis 1998); Serick, Securities in Movables in German Law. An Outline (1990); Wood, Comparative Law of Security and Title Finance, 2nd ed. (2007).
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1 Introduction
Economies in contemporary developed countries largely depend upon credits for their financing. Credits, however, in most cases are granted only against security, encumbering either real estate (immovables) or movables. Since the volume and value of movables increases and these are much more widely available to both individuals and enterprises, the role of security rights in movables has correspondingly and steadily increased since the last quarter of the nineteenth century up to current times.
Legal regulation has, however, generally speaking, not kept pace with the increasing economic demand for security in movable assets. It is true that there are well-established and widely accepted rules for one specific branch of security in movables, namely for possessory pledges. Due to modem economic demands, however, this particular branch has lost much of its earlier economic relevance. In our times, non-possessory security in movables has become of overwhelming importance. Ironically, however, this branch is legally least developed and in this area legal development has been most varied between the various countries. The increasing importance of security rights is demonstrated by the fact that in 2006 France consolidated all civil law rules on personal and proprietary security in a new Book IV of its Civil Code.
The present contribution is limited to security rights created by contract. Noncontractual security rights, which may be created by statute or the law (liens) or also by judicial decision, are of much lesser importance.
We will first deal with corporeal security. This may be possessory (infra 2) or nonpossessory (infra 3). A separate part will discuss incorporeal security, especially in accounts and other rights (infra 4). The conclusion will be devoted to a recent academic proposal for rules in the Common Frame of Reference (CFR) (infra 5).
2 Possessory Security - the Pledge
The pledge - without qualification - is the classical form of possessory security. 'Possessory' indicates that the pledged corporeal items are not held by the debtor but by the secured creditor or, otherwise, by a third person.
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2.1Economic Function
The decisive legal and economic criterion for distinguishing a (possessory) pledge from a non-possessory pledge is that under the former the debtor must be dispossessed of the pledged items (infra 2.3). This strict criterion determines the economic functions of pledges. Pledges primarily make sense only for goods which the debtor does not immediately need for industrial or trade purposes but which are dispensable for the time being, such as securities, precious metals, luxury goods, jewellery etc. A small business branch which specialises in granting small-scale credits against the pledging of household goods are pawnshops. Since their customers typically are consumers, they are everywhere subject to special regulation. Exceptionally, merchandise or supplies held by the debtor may be pledged, provided the debtor transfers to the creditor a document of title issued for those items since such a document incorporates the rights existing in those items.
2.2Historical Roots and Contemporary Legal Regime
The pledge is probably the oldest security device and was well known to Roman law (pignus). This Roman institution has spread over Europe and has been incorporated into all Continental Civil Codes. Due to the common historical root these code provisions are in substance quite similar to each other. Even the uncodified English common law of pledge is, generally speaking, in accord with the general European pattern, with minor deviations.
2.3Creation
The characteristic feature of the pledge as a possessory security is clearly expressed by the method of its creation. The debtor must be dispossessed of the pledged goods, either by transferring possession to the secured creditor himself or to a (mutually agreed) third person.1 The debtor's dispossession of the pledged goods is an essential and therefore permanent requirement which must be fulfilled until termination of the pledge.2 The debtor's dispossession fulfills two major functions: it makes it more difficult for the debtor to dispose of the pledged goods to a third person; and the debtor can no longer create the misleading impression in the minds of his other creditors of owning the pledged goods which might be available for the satisfaction of their claims.
In addition to transfer of possession by the debtor, many Romanic countries demand that certain pledge contracts comply with a certain formality. France now requires for perfection of the pledge the designation of the secured obligation and of the kind and quantity of the pledged assets.3 In Italy, a document with a 'certain date' is necessary, except if the creditor is a credit institution.4
2.4Relationship Between the Parties
Since the debtor has only dispossessed himself of the pledged goods, he remains their owner, while the secured creditor merely becomes their holder. Such a relationship is qualified as a bailment in English law,5 while on the Continent the Romanic countries regard this as detention, and the Germanic countries as possession. In spite of these
1Arts. 2337 (2) French Code civil; §§ 1205, 1206 German BGB; Art. 2786 Italian Civil Code; Art. 3:236 Dutch Civil Code; England: Bell (1989), p. 144.
2Expressly Art. 2787 (2) Italian Civil Code; this requirement is established in all other countries as well; cf. for England Bell (1989), p. 143 ss.
3Art. 2336 Code civil.
4Art. 2787 (3) and (4) Italian Civil Code.
5Beale/Bridge/Gullifer/Lomnicka s. 3.01.
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different terms, the relevant rules are in close harmony. The secured creditor, as the depositee,6 is responsible, at the debtor's expense, for the preservation and upkeep of the pledged goods.7 Breach of this duty exposes him in most countries to a claim for damages,8 whereas in France the debtor or third-party security provider may demand restitution of the pledged assets.9
2.5Protection Against Third Persons
That the secured creditor enjoys a preferential position over unsecured creditors is the main purpose of any security. This rule is generally recognized unless certain specific claims are 'reinforced' by a privilege which sometimes prevails even over a pledge which had been created earlier.
The rank between several secured creditors is, as a rule, determined by the time of creation: prior tempore, potior jure.10 This time-honoured principle not only applies between several creditors with contractual, or with contractual and statutory, security rights but also vis-à-vis execution creditors.
The debtor's insolvency traditionally did not affect the pledgee's rights, including his right of enforcement.11 In some Continental countries, the insolvency administrator is, however, entitled to acquire the pledged good against payment of the outstanding (part of the) secured claim.12 The administrator may also, after a certain time has passed without action by the secured creditor, demand delivery of the pledged good and is then entitled to enforcement.13 In France the administrator, and not the creditor, has the primary right to enforce the pledge; but this may pass to the pledgee.14 It is generally agreed that, if the proceeds of enforcement do not suffice to cover the secured claim, the deficit can be claimed from the estate but merely as a dividend;15 whereas a surplus must be paid over to the administrator.
2.6Enforcement by Secured Creditor
The interests of debtor and secured creditor clash sharply after the debtor has defaulted on his primary obligation to pay and the creditor seeks to enforce his proprietary right of satisfaction against the pledged goods. Legal systems have evolved quite differing solutions for this conflict.
Formerly it was broadly agreed that a contractual forfeiture clause under which upon the debtor's default title to the pledged goods would automatically pass to the creditor is void (lex commissoria).16 However, the new French law of 2006 offers a more realistic modern solution: the parties can agree to the creditor becoming the owner of the pledged asset; however, an expert must determine the market value at the time of appropriation, unless there is a recognised market value.17
6Expressly § 1215 German BGB and Art. 2790 (1) Italian Civil Code.
7Art. 2344 (1) French Code civil; Art. 2790 (2) Italian Civil Code; Art. 3:243 (2) Dutch Civil Code.
8Art. 2344 (1) French Code civil; Art. 2790 (1) Italian Civil Code; England: Crossley Vaines (1973), p. 85 ff.; for Germany, cf. § 823 (1) BGB.
9Art. 2344 (1) Code civil.
10Expressly § 1209 German BGB and art. 2340 French Code civil. Cf. for England Bell (1989), p. 516.
11Generally Art. 57 (1) Dutch Bankruptcy Act (Faillissementswet). For pledges see the new German Insolvency Act of 1999 § 166 (1), § 173 (1).
12Art. 159 (1) French Insolvency Act; Art. 58 (2) Dutch Bankruptcy Act.
13German Insolvency Act of 1999 § 173 (2); Art. 58 (1) Dutch Bankruptcy Act.
14Arts. 159 (2), 161 (1) French Insolvency Act.
15German Insolvency Act of 1999 §§ 52, 190 (1), 192; Arts. 59, 132 Dutch Bankruptcy Act.
16§ 1229 German BGB; Art. 3:235 Dutch Civil Code.
17Art. 2348 French Code civil.
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In other countries on the Continent, enforcement by the creditor is more or less strictly regulated - on the assumption that the creditor is not sufficiently motivated to achieve an optimal price for the pledged good beyond the amount of his own claim (for capital, interest and expenses). Usually a public auction is prescribed.18 In the Netherlands, the parties may agree that enforcement be subject to judicial ascertainment of the debtor’s default.19 The debtor must be notified of the auction20 which must usually be conducted by an official, a notary or an appointed auctioneer.21 Exceptionally, if the pledged good has a more or less official market price, sale by a broker is allowed.22
Alternatively, in France and the Netherlands, the secured creditor may apply for judicial attribution of the pledged goods. With the aid of an expert the court fixes the value of the attributed goods;23 the secured claim is then reduced by this amount.
After maturity, the parties can everywhere freely agree on any method of enforcement.24The most liberal regime is that which obtains in England: the secured creditor may sell the pledged goods after the debtor's default. It is merely required that the sale be ‘a reasonable one'.25
Everywhere, any surplus of the proceeds of sale remaining after satisfaction of creditor's claims and his expenses must be paid over to the debtor. In the reverse situation, any deficiency can be claimed from him.26
3 Non-Possessory Security
Non-possessory is a comprehensive label for all those forms of security where the encumbered corporeal movable assets are not delivered to the creditor or else to a third person (therefore non-possessory), but remain in the debtor's hands.
As was indicated above (supra 1), although economically of overwhelming importance in our time, the legal regulation of non-possessory security is neglected in many countries and, in addition, varies considerably from country to country, even within the European Union.
3.1Economic Function
The economic function of non-possessory security can easily be derived from the description of the disadvantages of possessory security (supra 2.1), the validity of which depends upon the debtor's dispossession of the pledged goods.
The decisive advantage of non-possessory security therefore is that the debtor may retain the encumbered asset: A consumer may use collateral consisting of durable household goods. An industrialist may use machinery and other equipment; he may process raw material or semi-finished goods; a merchant may sell merchandise. The use, refinement or sale of these items of collateral will enable the debtor producer or merchant
18Art. 2346 French Code civil; §§ 1228, 1235 ss. German Civil Code.
19Art. 3:248 (2) Dutch Civil Code.
20An informal notification suffices in Germany (§ 1237 BGB) and for commercial pledges in France (Art. L. 521-3 (1) Code de commerce).
21§§ 1235 (1) and 383 (3) German BGB.
22§§ 1235 (1), 1295, 1221 German BGB; Art. 3:250 Dutch Civil Code.
23Art. 2347 (1) French Code civil; Art. 3:251 (1) Dutch Civil Code.
24§§ 1229, 1245 German BGB; Art. 3:251 (2) Dutch Civil Code. In France, a forfeiture clause may already be agreed upon after the creation of the pledge since the debtor is then thought to be no longer subject to economic pressure, Mestre/Putman/Billiau (1996) II no. 856.
25Crossley Vaines (1973), p. 461; Bell (1989), p. 147 specifies that the sale must not be under value.
26These two rules are so basic that they are hardly laid down by legislation; cf. however Art. 3:253 (1), second sentence of the Dutch Civil Code.
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to earn the money with which to repay the credit secured by the above-mentioned items of collateral.
3.2Contemporary Legal Regime
Contrary to the very long tradition of the possessory pledge (supra 2.2), the historical roots of non-possessory security are very short. In particular, it was almost nonexistent in the 19th century, and does not therefore appear in the Civil Codes of that or the 20th century, except in the last decade.
However, in order to cope with the increasing economic needs for non-possessory security, a few, usually very specific statutes were enacted in the 19th and a growing number in the 20th century. In addition, in some countries the courts over many years constructed a more or less liberal legal regime on the basis of provisions and rules which had been designed for other purposes. The result of this uncoordinated development is that in almost all member countries of the European Union the present regime of non-possessory security is haphazard, sometimes even contradictory. There is even less harmony between the various countries.
Two noteworthy exceptions can be found in France and the Netherlands. In 2006 the French legislator inserted a new Book IV into the Code civil; it deals with most forms of civil law security, both personal and proprietary; in particular, the law of non-possessory security has been codified. However, several special security devices of a commercial nature have been collected in the Commercial Code without attempting to coordinate or unify them; cf. the enumeration infra n. 27. By contrast, Book 3 of the new Dutch Civil Code which entered into force in 1992, offers a consistent, although not quite exhaustive regulation of non-possessory security in movables.
3.3Basic Models
In view of the extremely diverse sources and forms of non-possessory security and also the limited space available, it would be impossible to present here a detailed survey of the various national regimes of non-possessory security. It is more fruitful to ask whether the great variety of legislative, judicial and doctrinal solutions and proposals which have been developed in order to cope with pressing contemporary needs can be reduced to a few basic models. Such models could help to detect common denominators which would be an intellectual key for understanding past developments, present diversities and possibly even to forecast future trends.
In my view, there are two basic models which underlie the great number of highly diverse legal instruments which are everywhere being used in order to obtain security in assets. These models are the pledge (or charge) and ownership of (or full title to) an asset. The first is especially designed to serve the functions of security in assets, although some specific features may have become disfunctional for present economic requirements. The second is the most comprehensive property right that exists and is not designed for purposes of security. Since it may convey too many powers to the creditor, it may be necessary to impose restrictions in order to reach adequate results.
It is proposed to demonstrate the utilisation of these two models, their respective advantages and disadvantages as well as their modifications and adaptations, by analysing the four legal systems to be investigated. None of them relies on only one of the models. All combine both models, but each does so in different ways.
3.4Non-Possessory Pledge
3.4.1 Terminology
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The term pledge as used in the present context has, of course, a broader meaning than that of 'possessory security' (supra 2). It comprises non-possessory security, but apart from this important distinction it is closely patterned upon the traditional legal regulation of the possessory pledge. This extension of the meaning of the original pledge is clearly reflected in most Civil Law countries (including France and Germany) in the titles of statutes regulating specific forms of non-possessory security; they all use pledge terminology.27 This is even more true in the Netherlands where Book 3 of the Civil Code contains a unified general regime for the non-possessory pledge which is integrated with the possessory pledge.28
By contrast, in English common law the pledge is narrowly limited to possessory security. Its non-possessory sibling was the charge; however, at present the term has no longer this specific meaning but is understood as embracing all kinds of proprietary security.29
3.4.2 Creation
In one crucial respect the requirements for the creation of a non-possessory pledge everywhere differ from those of a possessory pledge: the debtor need not dispossess himself of the collateral. In order to make up for the loss of the functions of that dispossession (supra 2.3), all legislators have introduced some more or less effective substitute for publicity so as to inform interested persons about the existence of charges upon certain assets of their (potential) debtor. Usually, the observation of these requirements is a condition for the validity of the non-possessory security, at least its effect vis-à-vis third persons.
The most popular and effective means of substitute publicity is registration of the security agreement. This is required in France for all three forms of security considered here30 and in England for charges over parts or all of an incorporated company's assets.31 The French legislator encourages the secured creditor to reinforce publicity of a non-possessory security in equipment by affixing a small plaque with details of the registration on an essential part of the encumbered equipment.32
Other countries replace registration by less demanding requirements. For a German security in an agricultural tenant's inventory, merely the deposit of the security agreement at the local court at the location of the farm is demanded?33 And the Netherlands is content with requiring a strict form for the security agreement which must be in a public or a registered private document;34 this serves primarily as proof of the date of the agreement.
27France has about a dozen special statutes or regulations which today are collected, but not integrated, in the Commercial Code and the Monetary and Financial Code; only the pledge of automobiles has been integrated into the Code civil, cf. artt. 2351–2353. Commercial Code (consolidated text of 2009): Pledge
of a business enterprise – L. 142-1 to L. 143-23; warrants for hotels – L. 523-1 to L. 523-15; warrants for oil – L. 524-1 to L. 524-21; pledge of equipment – L. 525-1 to L. 525-20; pledge of stocks – L. 527-1 to L. 527-11. Monetary and Financial Code: pledge of securities accounts: L. 211-20; financial lease:
L. 133-7 to L. 133-11.
Germany has three special statutes of minimal practical importance on agricultural tenants' inventories, on agricultural fruits and on overseas cables of 1951, 1949 and 1925, respectively. For details see Drobnig (1974), pp. 187–191, 192.
28Arts. 3:236–3:259 of the Dutch Civil Code; these provisions are preceded by general rules applicable to both pledges and mortgages, cf. Arts. 3:227–3:235.
29Cf. Wood (2007) at 2-007.
30Cf. Mestre/Putman/Billiau (1996) II nos. 880–882, 895–897, 968–971.
31Companies Act 1985 (8 Statutes 104) s. 396 (1).
32Mestre/Putman/Billiau (1996) II no. 897 for equipment.
33Cf. Drobnig (1974), p. 189.
34Art. 3:237 (1) Dutch Civil Code.
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The special character of non-possessory pledges is for certain types underlined by limitations upon the nature of the secured claims. France restricts two types to securing credits for the acquisition of the collateral;35 and Germany even restricts the class of creditors that are allowed to secure their loans upon agricultural tenants' inventories.36
3.4.3 Generic Assets as Collateral
It is one of the virtues of non-possessory security to facilitate the creation of a security in a fund, i.e. in a mass of assets with changing elements. This technique is especially important for securing credits used as working capital (as distinct from investment credits). The English floating charge, the French enterprise (fonds de commerce) pledge and the German pledge on an agricultural tenant's inventory exemplify this idea.
However, the issue arises also outside these specific institutions. Since the possessory pledge requires transfer of possession to the creditor, this implies the necessity to keep the encumbered assets separate from corresponding assets of the creditor (supra 2.3). This applies correspondingly to the modern non-possessory pledge in the debtor’s assets. However, in both cases the necessary specification is often practically difficult, expensive and therefore neglected. The new French law of 2006 has codified a helpful practical solution: rather than invalidating the security because of lack of specification, the legislator offers in the case of a possessory pledge the security provider either a claim for return of the encumbered asset; or, if he allows the secured creditor to appropriate them, he is obliged to return the same quantity of assets to the debtor.37 Correspondingly, in case of a possessory security the debtor may be allowed to dispose of the encumbered assets, but subject to the obligation of replacement.38 But in both cases the affected party must agree. Corresponding rules should be applied everywhere.
3.4.4 Protection Against Third Persons
The protection of the non-possessory secured creditor against third persons is, generally speaking, the same as that of the possessory creditor (supra 2.5). However, he will be affected by certain procedural disadvantages in insolvency proceedings over the debtor's property, especially with respect to the enforcement of the security, since the insolvency administrator holds the collateral.
Another issue of protection arises if the debtor without the creditor's permission disposes of the collateral. Does the broad Civil Law principle of good-faith acquisition protect the purchaser (especially a buyer or – another - secured creditor) if the security had been duly registered (provided this was feasible, supra 3.4.2)? Can the secured creditor therefore reclaim the collateral from the purchaser (droit de suite in French)? The answers differ and are often uncertain. For the French pledge on the debtor's equipment a negative answer is implied if the parties accept the legislator’s invitation to use an additional, but optional publicity by means of a sign to be affixed to the collateral (supra 3.4.2). For the French pledge on automobiles the courts tend to take seriously the creditor's fictive possession of the collateral (supra 3.4.2) as excluding the purchaser's good faith.39 In England it has been said by a leading author that 'registration fixes a party with notice ... if
35Mestre/Putman/Billiau (1996) II nos. 878, 893.
36Drobnig (1974), p. 188.
37Art. 2341 Code civil.
38Art. 2342 Code civil.
39Mestre/Putman/Billiau (1996) II no. 886.
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and only if the dealing between him and the debtor with respect to the asset is of such a kind that it would be reasonable to expect the party in question to search.’40
3.4.5 Enforcement by Secured Creditor
The enforcement of non-possessory pledges is in general governed by the same rules that apply to the enforcement of possessory security (supra 2.6). Two of the special French statutes refer expressly to the relevant provision of the Commercial Code.41 The new Dutch Civil Code even has a unified set of rules for both types of pledges.42
Two special features deserve mention. First, the secured creditor cannot begin to enforce his security until he has obtained the collateral, if held by the debtor. He is therefore entitled to request its surrender to him.43
Secondly, the enforcement of an enterprise pledge deviates in certain respects from that of a pledge over specific assets. The holder of an English floating charge is entitled to appoint a receiver who takes over the administration of the collateral in order to secure an optimal return from it.44 In France, a provisional administrator for an enterprise may be appointed by the court; by contrast, a judicial attribution of the charged enterprise to the creditor is expressly excluded.45
3.5Ownership (title)
Full ownership of things is an unspecific means of obtaining security. Since it confers upon the creditor/owner more rights than are necessary for purposes of security, it may be made subject to limitations, at least in certain respects. Since even within any specific country, a creditor's ownership may be treated differently depending upon the nature of the secured claim, we must follow this differentiation as well and distinguish between reservations of ownership (title) and security transfers of ownership (infra 3.5.1 and 3.5.2).
3.5.1 Reservation of Ownership (title)
The reservation (or retention) of ownership is the typical and widely used security of sellers who grant (trade) credit to their purchasers with respect to payment of the purchase price. Legal treatment differs depending upon the nature and extent of the secured debt(s).
3.5.1.1 Simple Reservation of Ownership (title)
‘Simple' is a reservation of ownership (title) if it is limited to securing the seller's claim for the purchase price. This form of reservation of ownership is today fully valid in all the four countries here investigated. In particular, since 1980 even France regards it as effective in the buyer's bankruptcy.
a. Creation. England, Germany and the Netherlands have no specific provisions so that even an informal agreement suffices to deviate from the seller's normal duty under a
40Goode (1995), p. 719; the same view is held by Beale/Bridge/Gullifer/Lomnicka (2007), ss. 11.05–11.17.
41Cf. Mestre/Putman/Billiau (1996) II nos. 887 and 897, p. 333–334.
42Arts. 3:248–3.253 Dutch Civil Code.
43Expressly Art. 3:237 (3) Dutch Civil Code. French Cass.civ. 24 November 1993, Bull.civ. 1993 I no. 348.
44Goode (1995), pp. 737–738.
45Art. L. 143-4 (1) and art. L. 142–1 (2) Code de commerce.
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contract of sale of immediately transferring ownership to the buyer.46 The new relevant French provision suspends the transfer of ownership under a contract until full payment of the obligation which is its counter-performance; but the clause must be in writing.47
b.Effects as against third persons. The seller's position as the owner is respected even in the two most critical situations, i.e. as against the execution and the insolvency creditors of
the buyer. The seller may object against an execution affecting his goods and he may reclaim them in the buyer's insolvency.48
c.Community-wide recognition. A rather hidden provision, art. 4 of the Directive on late payments of 2000,49 obliges the member states to give effect, according to the (national) rules of private international law, to a (simple) reservation of ownership expressly agreed
upon by the buyer and the seller before the delivery of the goods in another member state.50 While the provision expressly only deals with the recognition of reservations of title created in another member state, it presupposes obviously that all member states recognise these clauses in their domestic substantive law.
3.5.1.2 Extended Reservations of Ownership (title)
Extensions of a reservation of ownership may relate either to the secured debts (infra a) or to substitutes of the original collateral (infra b).
a.Coverage of additional debts. The general Dutch and the specific French provision limit coverage of a reservation to the claim for the purchase price.51 By contrast, English and German courts allow the parties to extend the reservation of ownership to secure other
debts owed to the seller that are unrelated to the purchase of the specific goods; even a so-called 'all claims'-clause is given effect.52 However, the degree of effectiveness varies. While English courts give full effect to the clause,53 German courts have restricted it. It deploys full effects - like a simple reservation (supra 3.5.1.1) - only so long as the purchase price for the 'reserved' goods is still open. As soon as it has been paid, the reservation of ownership is reduced to the lower status of a mere security transfer of
ownership (infra 3.5.2) since it now secures indebtedness other than the purchase price. The owner is treated like54 a pledgee; he can no longer reclaim the 'reserved' goods in the buyer's insolvency, but is still entitled to preferred satisfaction.
b.Coverage of substituted assets. The original goods may be replaced either by the proceeds of a sub-sale if the first buyer, being a trader, had been authorised to sell them; or by products if the buyer, being a producer, had been authorised to process them. In both cases, the first seller may wish to extend his reservation of ownership to the proceeds or to
46§ 449 German BGB and Art. 3:92 (1) Dutch Civil Code specify that normally a retention clause makes the transfer of ownership subject to the suspensive condition of full payment of the purchase price. For English law cf. McCormack (1995), pp. 63–72.
47Arts. 2367 (1), 2368 Code civil.
48Cf. for England, s. 251 Insolvency Act 1986; for France art. L. 624-16 (2)–(3) Code de commerce; for Germany, Bülow (2007), nos. 721, 725; for the Netherlands, Polak/Polak (2005), p. 144 s.
49Directive 2000/35/EC of 29 June 2000 on combating late payments in commercial transactions (OJ 2000 L. 200, p. 35).
50For details cf. especially McCormack (2001).
51Supra n. 46–47; Art. 3:92 (2) Dutch Civil Code adds claims for damages for breach of the contract of sale.
52However, since 1999 debts of third parties may in Germany no longer be validly covered, § 449 (3) BGB.
53Armour v. Thyssen Edelstahlwerke AG, [1991] 2 AC 339 (HL).
54Serick (1990), pp. 134-136, 72–74; Drobnig (1974), n. 120.
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the product (or to the proceeds of sale of the product); or by replacements after resale by the buyer.
French insolvency law formerly did not honour the first two extensions since it demanded that the sold good must still be present in the insolvent estate en nature. Dutch and English general law come to the same result on the ground that such extensions create a (non-possessory) security interest which requires the observation of the special formalities mentioned above (supra 3.4.2).55 Along the same line of thinking, in Germany such extensions, while valid in civil law, are treated like security transfers of ownership in the critical case of a conflict with the debtor's insolvency creditors.56 With respect to replacements, however, the French legislator opened the door in 1994 by extending the reservation of title to fungible goods of the same description and quality as those sold under reservation of title and resold.57
3.5.2 Security Transfer of Ownership
This institution is a peculiarity of German law which has been developed in court practice. Until 1992 it also existed in Dutch court practice but it has been invalidated by the new Civil Code Art. 3:84 (3) and replaced by the non-possessory pledge (supra 3.4). The legal structure is akin to an English (chattel) mortgage. This mortgage, however, has been regarded with great distrust as being an instrument of defrauding creditors. Mortgages created by individuals and small companies have therefore been subjected to an extremely strict regime by legislation on bills of sale;58 they are of very limited importance and will therefore not be considered here.
By contrast, for German lenders of money (other than sellers) the security transfer of ownership is the most important form of non-possessory security, in many, but not all respects comparable to a reservation of ownership. Externally, the security transfer of ownership is in most respects indistinguishable from an ordinary transfer of ownership; however, its purpose is limited to serving merely as security.
3.5.2.1 Creation
The general rules on the transfer of ownership59 apply, although the parties' economic motive is to transfer certain assets of the debtor merely as security for his indebtedness to the creditor. While it is possible to make that transfer subject to the resolutory condition of full payment by the debtor, usually the transfer is unconditional. Upon payment the creditor is merely obliged to retransfer the assets to the debtor.
Just as the reservation of ownership, a security transfer may either be in simple form, securing only one specific debt by transferring one specific asset to the creditor. Or it may be extended in the same way as a reservation of ownership into other debts or into substitutes of the original collateral, be they proceeds of a sale or products or the proceeds of the sale of a product (supra 3.5.1.2).
55Beale/Bridge/Gulliver/Lomnicka (2007), s. 5.11–5.17; Asser/Mijnssen (2003), no. 425.
56Serick (1990), pp. 114–116, 85–88. Cf. infra 3.5.2.
57Now art. 2369 Code civil and art. L. 624-16 (3) sent. 2 Code de commerce; however, such extensions merely secure the unsatisfied portion of the original purchase price.
58Bills of Sale Act 1878 and Amending Act of 1882, reproduced in McCormack (1995), pp. 247–281.
59Cf. supra. ch. 31.