A. INTRODUCTION AND OUTLINE OF THE ARTICLE
It is a commonplace that, within commercial law, the law of personal property is particularly important, and it is also obvious that commercial law deals to a large extent with cross-border transactions and business relationships. This article gives an overview of German moveable property law, since some knowledge of moveable (personal) property law of a foreign major European jurisdiction is valuable to trade and commerce as well as to comparative studies. However, there does not seem to be a concise synopsis of this area available to the English lawyer, and this article wants to remedy this situation. Although the following account is not more than a slightly extended outline, it tries to cover all relevant and interrelated topics, from the law of possession to the various types of security rights in German law.
Apart from seeking to provide a concise but fairly comprehensive description of German moveable property law, this article offers an analysis of this area of German law from an English law-Common law perspective or at least for readers primarily familiar with English law. However, the method used is not to find a common core of both legal systems on a functional basis which is then explored, nor is the task approached with a presumptio similitudinis in mind1. Accordingly, the exposition of German law is not “anglicised” nor adapted to the Common law in some form, but sets out the structure and organisation of German property law as these appear in German textbooks, in the way in which it is taught, learned and in the minds of those using and developing legal doctrine. This will familiarise English common lawyers with the very different legal culture of German private law2. One would not learn French spelling by omitting the perhaps confusing accents and by rendering (originally) French words in an English spelling, to make it “easier” for the English beginner and to underline a “common core” of these two languages. The same should apply to the learning of new – sometimes quite alien – laws.
Although this article concentrates on German moveable property law, it also draws comparisons with the relevant areas in English personal property law. However, some familiarity with English personal property law is presumed3 and the emphasis in the English law sections is on highlighting contrasts and occasional similarities, not on comprehensiveness. The article will rarely ever touch upon immoveable property law, which is mainly for reasons of space. English lawyers are accustomed to this separation because they perceive real property law and personal property law as quite different entities and teach these areas independently, but that is actually not the approach taken in German law. German law has a unitary approach to property law, whereby immoveable property and moveable property follow the same rules in principle. Therefore, the general concepts of property, property rights and ownership in German law, which will be discussed in the first sections of the article, apply to land and moveable property alike.
There is another purpose of this comparative analysis. Personal/moveable property law is a good example of the incompatibility of different legal cultures in Europe. While the law of contract by its nature is more sympathetic to the impression of a strong resemblance of rules in different jurisdictions, because the underlying idea of a contract is an agreement which invariably requires some broad common understanding as to its conceptual foundations for its effectiveness, the law of property dispels the illusion of similarity quite quickly. The comparison of German moveable property law and English personal property law should make one realise that both systems rest on different and largely irreconcilable intellectual and epistemic frameworks, with different definitions of “property” (a term which can tellingly not be translated satisfactorily into German), different methods and techniques for the transfer of property and creation of security rights, different levels of abstraction in legal rules and different approaches to the organisation of a body of law4 (the Common law approach as opposed to a particularly highly abstract, comprehensive, coherent and logically well-developed system for which German law is renowned), and so forth. The truism that both systems may achieve a similar economic outcome – notably though through their different techniques as a demonstration of their different mentalités – does not undermine their principal irreconcilability;5 and this irreconcilability is corroborated, albeit perhaps inadvertently, by occasional attempts at representing one legal system in the structural framework of another.6 Personal/moveable property law is at the heart of commercial law which apparently invites unification of the laws in Europe. But this commercially highly relevant area is a case which illustrates that the establishment of a new European ius commune7 as a preliminary stage to a harmonisation or convergence of the private laws of Europe is most likely to fail or can only be gained through forceful incisions into existing systems. The quite frequent proclamation of a rediscovery of a European ius commune tradition as a result of research into legal history and Roman law8 does not change that problem in the slightest. Historical research may rather reveal how fractured the old ius commune actually was.
What may strike the English lawyer immediately is the high level of theoretical abstraction in German law. There is a long tradition in German academic doctrine that reduces concrete cases to a few general and abstract principles, often successfully, sometimes less convincingly.9 Thus the principles of the strictly separated concepts of contract and conveyance, which are far more emphasised in German than in English law10, are not only important in relation to the derivative acquisition of ownership and original acquisition in good faith11, but also in the context of possessory and non-possessory security rights.12 Similarly, the four main categories of possession pervade the entire German property law13, as well as the different versions of transfer of possession: physical delivery, traditio brevi manu, constitutum possessorium etc.14 German Sachenrecht, as the whole of German private law, is a comprehensive and coherent body of interlinked and mutually dependent rules. However, one should not conclude that this comprehensive body of law is also exhaustive. Especially in the law of securities, German law developed several forms of security rights outside the system of codified rules and these security rights are still not at all or incompletely regulated by statute.15
In addition to the law, there is the language in which the law is expressed (or even created) and these two constituents are inextricably linked. Typical of German private law is the precise, but not always appealing, technical language and legal terminology which is very consistently applied throughout in the German Civil Code or BGB (Bürgerliches Gesetzbuch) and in legal doctrine. I have refrained from translating German legal terms into the nearest equivalent in English law, because often there is no nearest equivalent, and such a step would assist a somewhat casual approach to the comparison of laws in any case.16 Rather, I have supplied the German legal term in the original language in brackets and given a translation or explanation which tries to convey best its meaning.
It has already been stressed that German private law is a codified system of a highly abstract level, whereby the removal of one element can lead to the dysfunction of other large areas of the law. Thus it will often be necessary to leaf back and forth when reading the following account. After a definition of property rights (section B) and a short outline comparison between some major principles of German moveable property and English personal property law (section C), the general concepts of both systems of property law, possession and ownership, with emphasis on moveable/personal property, will be discussed (section D), but the provisions on the protection of possession and ownership, which are of a strongly procedural nature, will be outlined briefly only. Then the derivative and original acquisitions of ownership will be dealt with under E, and finally, the restricted real rights, especially security rights (pledges and retention of title) will be discussed under F.
B. DEFINITION OF PROPERTY AND PROPERTY RIGHTS IN ENGLISH AND GERMAN LAWS
1. The meaning of the term “property”
For the present discussion, a rather practical definition of “property” without too much emphasis on legal theory17 may suffice. Property law defines objects of property for the purpose of the law, whether tangible or conceptual18, and confers exclusive rights in these objects or “things” that are enforceable against the whole world. These rights, property rights, are socially recognised and legally protected or created exclusive powers over these objects, asserted against the world at large. Thus property law (Sachenrecht) creates “things” (Sachen) as normative concepts and assigns these things to natural or legal persons by way of conferring interests in them.19 The type of property right (ownership, pledge etc.) determines the extent of the granted exclusive power or interest.
The wonderfully ambiguous English legal term “property” is difficult to translate into German law and language.20 It has at least three meanings:21 property objects or things, property rights, and assets or wherewithal.22 Thus, where “property” would be used in the sense of an object, it will be referred to in the following as “thing” or “res” (Sache), or, in the appropriate context, “moveable” (bewegliche Sache), or also “chattel”, when English law is discussed. When the word “property” is understood in the sense of a right in such a thing which is enforceable against the world at large, this right will be called “property right” or “proprietary right” or “real right” (Sachenrecht, dingliches Recht). The word “property” will only be used when it is meant to denote “assets in general” (Vermögen) without reference to a specific item within such assets.
In German law, the meaning of “thing” (res) is narrower than in other legal systems. For the purpose of the law, a thing (Sache) is defined in § 90 BGB as comprising physical objects only.23 Anything that has no corporeal existence as such can be a thing if it can be embodied in some kind of physical object, such as a computer program on a magnetic disk.24 However, all kinds of rights (obligations, debts) are not things, because they are not corporeal. This is in contrast with, for example, Scots law,26 and Austrian law which states in § 285 ABGB that “everything that is distinguished from the person, and serves the use of men, is called a thing in the sense of the law.” Both legal systems reflect the notion of property under the influence of Natural Law in 18th century Enlightenment in its re-interpretation of the meaning of property in Roman law.28 Thus in Austrian and Scots law, rights (obligations) are things, in German law, they are not. In English law a division between tangible things, intangibles and pure intangibles can be made, but this plays a more subordinate role than in Civil law jurisdictions, and there is no real correlation to the Civilian concept of moveable and immoveable property. The historically grown distinction follows the remedial treatment of objects of property as to their recovery and is still more important today for the classification of things into (a) real property (land), which can be claimed in specie, and (b) personal property, where only damages are principally available but no right to delivery in specie.29 Personal property has the two subdivisions of (i) chattels real (principally leasehold interests in land) and (ii) chattels personal which comprise choses in possession and choses in action.30 Intellectual property rights are things in English and Scots law,31 but a sui generis category in German and Austrian law.32
As the automated handling of the order for payment procedure has been introduced with the view to replace the quite laborious system of manual processing by an effective, cost-efficient and – perhaps most pertinently – extremely fast procedure, § 689 I ZPO stipulates that in automated handling cases, submissions should have been dealt with no later than by the first business day after the day of filing.
2. The available types of property rights
In line with other continental European legal systems,33 German law recognises only certain types of property rights (numerus clausus of property rights, Typenzwang);34 the list of available property rights is conclusive and mandatory law. Thus the parties to a legal transaction can only choose the property rights in the way in which they are provided by the law, but they cannot create new ones. This applies both to a given category of property right as such (Typenzwang) and to its contents, at least in its broad outline (Typenfixierung).35 As property rights are absolute36 and bind third parties without their prior agreement, such parties must be able to ascertain the extent and quality of the rights they are expected to respect (“visibility” of the real right, Publizitätsprinzip37), and, if they acquire such rights, they must be certain as to the type and quality of the right they obtain, otherwise the safe transfer of property rights would be seriously impeded.38 That contrasts with the law of contract: a party to a contract has insider knowledge as to the true nature and extent of a (personal) right, thus in the law of contract there is no need for compulsory categories of (personal) rights.39 English law effectively operates a numerus clausus of real rights, obviously without a statutory basis, but with endorsement in case law and doctrine that has never seriously been challenged.40
The recognised property rights in German law are, in particular:41 (1) full real right (dingliches Vollrecht): this is ownership (Eigentum, § 903 BGB), the most comprehensive real right. It is strictly distinguished from possession (Besitz, § 854 BGB), which is not a (real) right, but the factual holding of a thing in one’s power with the intention to do so.42 (2) restricted real rights (beschränkte dingliche Rechte) are largely equivalent to proprietary rights less than ownership,43 or special property,44 or subordinate real rights:45 These include servitudes, user rights (ususfructus), real burdens (Reallast, § 1105 BGB), uncompleted real rights, such as the right of an owner in waiting in a retention of title arrangement46 (Anwartschaftsrecht), and rights in security. These rights in security in relation to moveables are pledges (Pfandrecht an beweglichen Sachen). Economically still very important, but not discussed here, are the rights in security in relation to immoveables: the Grundpfandrecht,47 a statutory security in land which can assume the type of (a) a hypothec (Hypothek, § 1113 BGB): security of a right (debt) without the creditor’s possession of the land that serves as the security (“mortgage/charge”), or of (b) a Grundschuld (§ 1191 BGB): security similar to a hypothec but without the requirement of a right to be secured (although this will usually be the case), or of (c) a Rentenschuld (§ 1199 BGB): a kind of Grundschuld plus the obligation to make regular payments to a creditor-beneficiary (now obsolete).48 English law also developed several of these forms of property rights in its own way, but with a less sophisticated overarching doctrinal and conceptual framework, which is one effect of the generally more flexible English property concept. Moreover, English law has certain types of security rights over chattels which are unknown in German law, but even where they seem similar, they still have certain remarkable distinguishing features (e.g. the pledge). The purely economic functions and results of these different legal techniques are usually largely the same.49
C. AN OUTLINE COMPARISON OF PRINCIPLES IN GERMAN MOVEABLE PROPERTY LAW AND ENGLISH PERSONAL PROPERTY LAW
As the discussion on the definition of property and property objects (things) has already shown, German and English laws may obtain similar economic results, but operate on very different theoretical premises. The term “property” in English law is rather vague, while the German definition of thing (Sache) is more precise and also narrow, even narrower than in other Civil law jurisdictions. A legacy of Roman law in German law is the strict separation between possession, which is in principle a mere fact, and ownership, the most extensive property right.50 English law sees possession as a right,51 and especially as regards personal property, possession and ownership cannot be clearly divided: an owner of a chattel could be described as the person with the best possessory interest in it.52 Thus one proprietary interest flows into the other and forms part of it, and that is supported by the fact that both possession and ownership are relative in nature.53 This relativity is expressed in the notion of “title”: the title measures the strength of a person’s interest in relation to others. That interest in an object of property denotes the sum of rights over it which the person enjoys against others, but not always against all others:54 thus ownership is, compared to possession, a more comprehensive superior right over a thing in a given dispute, but not an absolute right.55 In contrast, the German idea of ownership is that it is absolute as in Roman law,56 conferring dominium over the thing, which is not qualified by the strength of entitlement vis-à-vis a contestant in a dispute over the thing. Possession in German law is however relative, as in Roman law, and that is demonstrated by the possession protection rules: the person with the better entitlement to possession relative to his opponent wins, and that is not necessarily the person with a better proprietary right over a thing; a right to possess is no defence against a possession protection remedy.57
This difference between absolute ownership in German law and relative ownership in English law also appears in the ownership protection rules. English law protects property rights in chattels, including ownership, through remedies in tort, in particular trespass and conversion,58 while German law has a special proprietary remedy which grows out of the absolute ownership right and is an essential part and expression of it: the action of delivery of the res or rei vindicatio.59
Another most important difference is that German law does not recognise the division of ownership into legal and equitable (beneficial) ownership as the familiar feature of English law. However, even in English law the importance of equitable ownership in relation to personalty is limited. The only exception where equitable ownership is central, even as to chattels, is the trust.60 Real rights less than ownership introduce beneficial interests into the realm of personal property to a greater extent, for example the charge on chattels, which can only be equitable.61 But an equitable pledge is not recognised because English law does not permit the concept of equitable possession.62 As for pledges, German law struggles somewhat when devising the legal technique for regulating the sale of a pledged res in satisfaction of a secured debt, where the concept of beneficial ownership could be of some assistance in the division of the entitlement to the proceeds of sale between the owner of the pledged thing and the creditor.63 Partly because equitable real rights do not exist in German law, an instrument comparable to the fixed or floating charge in English law64 is not available.65
D. GENERAL CONCEPTS OF PROPERTY LAW: POSSESSION, OWNERSHIP, PROPERTY PROTECTION
At first glance, possession in English law does not differ much from German law. In both jurisdictions, possession is primarily a fact with legal consequences.66 This takes account of the factual side in which legal rules manifest themselves in the material world, but that is also as far as the similarity goes. As already noted, English law sees possession as a real right (the authors differ on that67 ), often expressed in the ambiguous form of “possessory title”,68 while German law does not. Because ownership and possession are relative rights in English law, especially in the law of personal property, they are closely connected to one another.69 Because of this close connection – possession typically denotes ownership70 and both enjoy the same tortious protection71 – they are sometimes even dealt with in reverse order in textbooks which would surprise a German lawyer: possession after ownership.72 English authors sometimes resort to the practical example of bailor and bailee when emphasising the difference between ownership (with the bailor) and possession (with the bailee),73 which is characteristic of this legal culture, because German lawyers would see that example as an application of an abstract rule, not as a concrete state of affairs (separation of possession from ownership) out of which abstract concepts could be developed. It has been stressed that possession in English law is incapable of precise or exhaustive definition.74 This fluidity of the English concept of possession contrasts strongly with German law, where ownership and possession are notionally separated with great care and where the incidents of possession are clearly defined.
(a) Types of possession
In German law, and in legal systems following Roman law generally, possession is the exercise of control or power over a thing with the intention to do so. Thus possession requires two elements: factual power over the res by way of exclusive physical control or detention (corpus possidendi), and intention to possess for oneself or another (animus possidendi).75 German law largely took over the Roman concept of possession (see §§ 854 BGB et seq.):76 it is not a real or personal right but a fact with legal consequences.77
German law distinguishes between several types of possession, in the main, but not entirely, following Roman law. The most important scenarios will be discussed briefly. The principal category of possession is that of (a) possession suo nomine:78 the possessor has the intention to possess for himself (Eigenbesitz, “possession for one’s own”, animus rem sibi habendi, § 872 BGB), irrespective of whether or not he has a legal right to possession. In contrast, there is (b) possession alieno nomine, where actual physical control is exercised for the possessor by someone else (Fremdbesitz “possession for someone else”, animus alieno nomine tenendi). Where the possessor himself exercises the act of possession, this is (c) unmittelbarer Besitz (“direct possession”). If the possessor has the intention to possess for himself, but physical possession is with someone else respecting the possessor’s intention, then this is (d) “indirect possession” (mittelbarer Besitz, § 868 BGB). These four categories (a)-(d) can appear in several combinations. For example, a tenant/hirer or pledgee exercises physical control directly (is therefore “direct possessor”, unmittelbarer Besitzer), and has the intention to possess, not for himself (thus he is Fremdbesitzer, “possessor for someone else”), but for the lessor or pledgor, the latter being indirect and suo nomine possessor (mittelbarer Eigenbesitzer).79 The tenant or pledgee (unmittelbarer Fremdbesitzer) who “mediates” possession in relation to an indirect possessor by exercising physical control over a thing as a direct possessor on behalf of that indirect possessor is also referred to as “Besitzmittler” (“mediator of possession”) in German law.80 He is not merely holder of the res (“Inhaber”) because he does not only hold the thing physically, but also has the intention to possess, albeit for someone else, and is therefore possessor.81 Contrary to the direct alieno nomine possession of pledgees, bailees and tenants who possess for their pledgors, bailors or lessors, respectively,82 an owner or a thief is possessor suo nomine (Eigenbesitzer), and also direct possessor suo nomine (unmittelbarer Eigenbesitzer) if he actually exercises physical control. The owner who is his tenant’s sub-tenant is both direct possessor alieno nomine (as sub-tenant) and indirect possessor suo nomine (as owner).83
Besides, there is the distinction between sole possession (Alleinbesitz) and possession together with others, being (a) co-possession (Mitbesitz, § 866 BGB), where the whole res has more than one possessor, and (b) partial possession (Teilbesitz, § 865 BGB), where possessors possess only parts of the res if that is physically possible.
English law tends to define possession in a similar way as (a) the exercise of factual control and (b) the simultaneous “intention to control”84 or “intention to exclude others from the exercise of control”.85 The latter formulation chosen by one author points towards notions of ownership (“exclusion”) and is another example that shows the proximity of these two concepts. English law is aware of different incidents of possession, sometimes referred to as “degrees of possession”,86 but sees them much more in connection with practical applications which illustrate them (e.g. bailment, pledge). Actual possession means that the possessor has physical control and the intention to control.87 This is contrasted with constructive possession, where the possessor has intention to control but the factual control is carried out by someone else. The constructive possessor has the right to take actual possession.88 This recalls the German notion of direct and indirect possession (unmittelbarer/mittelbarer Besitz). But is it direct/indirect possession suo nomine (Eigenbesitz) or alieno nomine (Fremdbesitz)? Bailor and bailee,89 for example, exercise possession in some way, the bailor having constructive possession, and the bailee factual control which goes beyond mere custody.90 This has been expressed as the bailee exercising control in a dual capacity, for himself and as agent for the bailor, which denotes “dual possession”, or “joint actual possession”,91 or “relativity of possession”.92 The term “constructive possession” is not entirely clear on that point, and that may have contributed to the fact that the usefulness of this term has been questioned.93 According to some English authors, “constructive possession” only covers cases where the bailee holds possession to the bailor’s order, so that possession is shared between the two, while where the bailee is holding for an interest of his own (e.g. as a hirer under a rental agreement), he has exclusive possession and the bailor merely a right to possess but no actual possession.94 The idea of regarding constructive possession as a joint interest like a joint tenancy in case of ownership,95 because of the nature of possession as being indivisible, is arguably even more confusing than the traditional view on constructive possession. There is dual possession, but the quality of possession is different with the bailor and the bailee (or pledgor, pledgee and the like).
Actual control short of possession is custody; for example the employee is regarded as having custody of his employer’s chattels. The employer is possessor.96
(b) Acquisition/transfer of possession
Following the neat differentiation of the types of possession, German law distinguishes between acquisition of direct possession and of indirect possession. Direct possession is acquired by obtaining factual power over a thing (§ 854 BGB), either in a derivative or original way, that is, either with or without the previous possessor’s intention to transfer.97 Indirect possession can arise in two ways (§§ 868 – 870 BGB): either a direct possessor becomes indirect possessor (an owner lets his res to another: owner – indirect possessor, lessee – direct possessor), or a direct possessor, who remains direct possessor, provides another with the indirect possession over a thing (a typical example is the transfer of ownership in a moveable for security purposes, whereby the prior owner retains possession 98).99
Obtaining possession is also a prerequisite for obtaining ownership.100 However, while the basic type of derivative acquisition of possession (and ownership) is by way of physical delivery, German law also recognises methods of surrogate delivery as a replacement of physical delivery: the traditio brevi manu (Übergabe kurzer Hand, short-handed delivery, § 929 BGB, sentence 2), and the constitutum possessorium (Besitzkonstitut, § 930 BGB). German law regulates these types of delivery in the context of ownership. Where the acquirer of the thing has already got the res in his/her possession, ownership can be transferred by the mere agreement between the parties that the new owner (acquirer) who has hitherto held the thing with the intention to possess for the transferor, shall now exercise possession for himself: traditio brevi manu. Thus the possessor for another (alieno nomine) becomes a possessor for himself (suo nomine).101 In contrast, transfer of ownership by way of the constitutum possessorium is effected by the previous owner retaining direct possession of the thing but giving someone else indirect possession, for example through a sale and lease back agreement.102 Thus the previous owner who was possessing for himself now possesses for another, the acquirer.103 In both cases of surrogate transfer, a physical transfer and retransfer of the res can be avoided by changing the possessor’s intention to possess.104
A possessor loses possession when he loses his factual control permanently, either unintentionally or deliberately (§ 856 BGB), irrespective of a possible continuing right to possess, e.g. as owner.105
The principal rules of the acquisition of possession are similar in English law. There is actual delivery, where actual possession is conferred to the deliveree.106 Besides that, English law recognises constructive delivery, which encompasses situations that resemble closely the methods of surrogate delivery in German law in all but name. Thus it is constructive delivery if the deliveror in actual possession of the res agrees with the deliveree to hold the res as his bailee, whereby the deliveree becomes constructive possessor;107 or if the deliveree already in actual possession as bailee for the deliveror agrees with the deliveror to hold the res from now on in his own right.108 If a third party is in actual possession, the third party can attorn to the deliveree with the deliveror’s consent, that is, acknowledge that he now holds as a bailee for the deliveree instead of the deliveror, and through this constructive delivery the deliveree acquires constructive possession.109
There is also the category of symbolic delivery, where a symbol is delivered or an act symbolising delivery is performed,110 although English authors tend to hold that where the symbol (e.g. a key) is capable of giving actual possession, it is actual delivery, and where it is not, it tends not to be seen as delivery at all, or is constructive delivery, which suggests that the category of “symbolic delivery” is superfluous.111
Possession is lost by way of transfer to a third person or if possession is deliberately surrendered by abandonment of intention and control in fact.112 Abandonment of possession is generally considered to be accompanied by a loss of ownership.113 It is interesting to note that the English courts, usually in the context of theft cases, tend not to assume abandonment without very strong evidence, but do not consider the potentially different legal situation as regards actual possession (which has been lost 114) and ownership (which may continue),115 which shows again how much possession and ownership are intertwined in English law.
(c) Protection of possession
As already mentioned, English law regards both possession and ownership as relative rights, whereby the best title prevails against competing titles, and it protects both interests by the same set of torts (“property torts”).116 Accordingly, the protection of possessory interests in English law will be discussed in the context of the protection of ownership.117 English lawyers distinguish, both in relation to possession and to ownership, between interest in property, which measures the quality of the rights which can be exercised over the thing, and title to property, which indicates the strength of an interest in the thing as against other parties asserting conflicting interests.118 The distinction in German law between “petitory remedies” (based on ownership and being absolute) and “possessory remedies” (based on possession and being relative)119 has no equivalent in English law. The possessory remedies in German law with be discussed below.
The general rule in German law is that unauthorised trespass or interference with possession is prohibited (§ 858 BGB, “Verbotene Eigenmacht”). When this happens, the possessor (whether as direct possessor suo nomine or alieno nomine) has the right to self-defence to counteract the impending loss of possession (“Besitzwehr”). If the possessor has been dispossessed, he can take the res from the trespasser (“Besitzkehr”), provided that happens without delay as a result of the trespasser being caught red-handed (§ 859 BGB).120 Beyond these cases, self-help is not available and the possessor has to enforce his claim for restoration of possession (Anspruch auf Wiedereinräumung des Besitzes, § 861 BGB) through the courts. A similar claim exists to fend off unauthorised interference with possession, and the possessor can also seek an injunction that the defendant cease and desist further interferences (§ 862 BGB).121 Both claims are statute-barred one year after the unauthorised interference or dispossession (§ 864 BGB). Damages can only be claimed under the general rules of tort (§ 823 BGB, especially fault requirement) and are not part of the possession protection remedies.122 The defendant has the defences of permission of interference (§ 863 BGB), and of the defective possession of the claimant vis-à-vis himself, the defendant, because the claimant has unlawfully dispossessed him before (§ 861 (2) BGB). However, a right to possess is not a valid defence against a possession protection remedy; the defendant must bring a separate action based on his contractual right (e.g. sale) or real right (e.g. ownership). 123
If the direct possessor suffers the trespass, his indirect possessor suo nomine, if there is one, also enjoys the possession protection rules outlined above against the trespassing third party, but not against his own direct possessor alieno nomine. Thus the lessor has no possession restoration remedy against his lessee; he has to sue on the basis of the lease or hiring agreement between the parties. The lessee/hirer, however, as direct possessor, can fend off the unauthorised interference by his lessor under § 859 or sue under § 862 BGB.124
(a) Nature, extent, content of ownership (use, exploitation)
The contemporary idea of ownership is the liberal concept of full individual ownership. English and German law concur on this point.125 The legal systems generally do not differ much in professing the extensive nature of ownership and in being fairly unspecific as to its concrete quality and content.126 The substance of a real or proprietary right can be split into a number of attributes that turn the real right into concrete individual real rights, commonly referred to as a “bundle of rights”.127 These concrete real rights are determined and delineated as to their existence and quality/content by an external and internal aspect, which both meet as coinciding sides of the same coin. The external aspect becomes manifest in the remedies for the protection of ownership. The internal side of real rights materialises in the powers over a thing which these real rights entail; and the widest possible legal power in relation to a thing is ownership (dominium). In the Romanist tradition, ownership is typically defined as (theoretically) the right (as in principle an unfettered power) to the substance and the use of a thing in whichever manner, and the right to dispose of the thing, all within the limits of the law. From a Common Law angle, one may say that “ownership is the greatest possible interest in a thing which a mature legal system recognises”.128 Ownership (“dominium” in a Roman law-based system) is therefore the most comprehensive property right the law provides. Ownership is considered as the standard, and residuary,129 real right conferring (ideally) the most absolute power over a thing. In comparison with the ownership right, any other real rights (restricted real rights) have a more defined and limited ambit.
German private law reflects these principles. § 903 BGB defines ownership (Eigentum) as the owner’s right to deal with the res at his will and to exclude everyone else from any influence over the res, subject to legal restrictions or rights of third parties. In particular, this most comprehensive real right entitles the owner to possession, to dispose of the thing, or to grant subordinate rights in relation to it, to use and exploit it, and to reap the fruits or other benefit of its use (jus utendi, fruendi, et abutendi).130 The owner also has the most comprehensive remedies, especially the right to recover the res in someone else’s possession without entitlement in an action of delivery131 (Eigentumsklage, Eigentumsherausgabeanspruch, rei vindicatio, § 985 BGB).132 In German law, ownership only refers to specific things, not to assets in general, such as a warehouse or a business.133
The main differences between the ownership concept in English law and in German law have already been stated.134 The concept of ownership in English law benefits from the elusiveness of the notion of “property”, which can, at the same time, refer to assets in general as well as to individual things and real rights in them. Thus ownership and also real rights less than ownership do not necessarily have to refer to specific objects.135 English ownership rights can be split into legal and equitable rights; the term equitable ownership can refer to rights which only equity recognises as property, or, more commonly, equitable ownership denotes the situation where equitable ownership rights are held by (a) legal owner(s) under a trust.136 English ownership rights are relative,137 rather than absolute, conferring title rather than dominium, and are much more bound up with possession, which is reflected in the way in which ownership rights are protected.138 This will be shown in the following.
The concept of co-ownership highlights the different ideas of “split ownership”139 in English and in German law. The principal position of co-ownership in German private law is that of ownership in common (§ 1008 BGB) whereby the co-owners hold notional – not factual – shares or fractions in the res (Miteigentum nach ideellen Bruchteilen). Each owner can dispose of his share, but only the community of owners can dispose of the whole res (§ 747 BGB). The regulations concerning the community of owners determine the rights of management and the rules regarding expenses and return in relation to the res (§§ 741 BGB et seq.). Each owner can require the termination of the community of owners, subject to special agreement (§ 749 BGB). This community of owners has to be distinguished from the (non-commercial) partnership according to private law under the BGB (Gesellschaft bürgerlichen Rechts, BGB-Gesellschaft, §§ 705 BGB et seq.): in the latter case ownership is held jointly (Gesamthandseigentum) between the partners (§§ 718-719 BGB).140
This account already shows the great conceptual differences to English law. Quite often a trust arises in case of a co-ownership situation, where one then has to consider a “vertical” split of ownership between the co-owners and, simultaneously, a “horizontal” split between the different qualities of ownership at law and in equity. Co-ownership is especially the domain of land law,141 but also exists in personal property law (then often also with a trust behind it).142 Co-ownership at common law can have the form of the joint tenancy (where survivorship or the ius accrescendi applies), and the tenancy in common, where there is a notional division in shares of the same or different sizes.143 Joint tenancy is similar to the German holding of ownership in the BGB Gesellschaft as Gesamthandseigentum (§ 719 BGB), while tenancy in common resembles the concept of Miteigentum nach ideellen Bruchteilen (§ 1008 BGB) in German general private law. This similarity does not go further because co-ownership at common law is often combined with a trust in equity, which is alien to German law. In the present context, such a trust typically comes into existence (apart from its express creation) where one party contributes money to the purchase of a res which is in the ownership of (only or also) another or others. In such a case, a resulting trust144 in favour of the contributing party normally145 arises, whereby the legal owner(s) hold(s) as trustee(s) a beneficial share in equity, which is commensurate with the beneficiary’s contribution,146 unless an agreement to the contrary can be inferred.147 The beneficiary can also be legal owner and trustee partly holding the beneficial interest for himself alongside the other trustee(s) who may also be beneficiaries, as the case may be.148 Thus there may be trustee A and B, who hold jointly the legal title (because common law presumes joint tenancy 149) who hold the beneficial interest for themselves, A and B, in equity in the form of a tenancy in common (since equity presumes tenancy in common) because both contributed to the purchase of the res. The size of the equitable shares is supposed to equate the size of A’s and B’s contribution, subject to agreement, and in the absence of any indication, will be presumed as equal.150 This complicated network of real rights in equity behind co-ownership at common law cannot not be emulated in German law; in fact, it would be quite difficult to explain its workings to a German lawyer.
(c) Relationship between possession and ownership
In German law, possession is not a real right, but essentially a fact with legal consequences. These consequences depend entirely on the existence of a factual control of the res.151 In contrast, ownership is the fullest and most comprehensive real right.152 However, this strict conceptual separation, which is rooted in Roman law,153 is somewhat overstated, and possession can assume a role which really amounts to a right or at least a legal relationship. One of the major effects of possession is the presumption of ownership (§ 1006 BGB), provided the presumed acquisition of ownership occurred together with the acquisition of possession, not earlier or later.154 Furthermore, a dispossessed possessor has a claim for delivery of the res against the possessor (§ 1007 BGB, petitorischer Besitzschutzanspruch),155 but only against a possessor who obtained possession in bad faith, or if the claimant has lost the res before. In these two situations the presumption of ownership (§ 1006 BGB) applies in favour of the prior possessor. This effectively amounts to a real right based on earlier possession or a better right to possession.156 The claim comes close to the real action of delivery (rei vindicatio) under § 985 as the central claim for the protection of ownership, and an owner may choose to resort to the action under § 1007 if proof of ownership for an action of delivery is too difficult.157
It has already been emphasised that in English law the relationship between possession and ownership is closer than in German law, which is particularly well shown by the way in which English law protects ownership.
(d)Protection of ownership
In English law, there is the rebuttable presumption that the possessor will also be the owner.158 This presumption is similar to the German rule in § 1006 BGB, but it has more extensive consequences. Unlike in German law, ownership as such does not confer a title to sue.159 It is possession, or the immediate right to possess, which does that, and in an action against a wrongdoer, possession counts as title.160 Only in so far as the ownership right confers, or is combined with, possession161 or an immediate right of possession,162 can action be taken (indirectly) on the basis of ownership. As a logical consequence, English law does not protect ownership through a vindication right (action of delivery, rei vindicatio),163 a remedy which emanates from the very nature of the right as being a real right. The vindication, a feature of Roman law-based jurisdictions, is regarded as an indispensable element of the real right, which is also shown by the fact that, for example, in German law, an independent assignment of the vindication right separately from a transfer of ownership itself is impossible.164 English law protects ownership through the law of torts,165 and these property torts require possession (or an immediate right to possess) for their applicability.166 Moreover, for the protection of interests in personal property, there is the common alternative route of an action in negligence alleging damage to the claimant’s property which caused loss suffered by the claimant.167
The details of the English property torts need not be discussed here.168 The relevant torts are trespass to chattels and conversion. The tort of trespass to chattels protects possessors (owners) against direct interference with their possession of the chattel.169 This possession must be physical possession or a right to immediate possession.170 The interference has to be a direct, not merely indirect, act, like taking away the chattel, and the act has to be wilful, not merely involuntary.171 The tort of conversion is an ancient and complex remedy which has arguably three functions: (a) it can act as a kind of substitute for a rei vindicatio, (b) it compensates owners for losses, (c) it may reverse unjust enrichment arising from the chattel or its proceeds.172 Conversion requires that the defendant deals with goods in a manner inconsistent with the right of the true owner, and by doing so also intends to deny the owner’s right or to assert a right which is inconsistent with the owner’s right.173 Many different acts can amount to conversion, such as the wrongful taking of the claimant’s property, its bailment, sale, loss or destruction. The claimant needs to be in possession of the chattel or must have right to immediate possession. An owner out of possession and without the right to immediate possession cannot sue in conversion, but he can seek to be joined in an action with someone who has entitlement to sue.174
It is common to both torts that the owner can only sue if he is in possession (which is interfered with) or has a right to immediate possession (if he is out of possession). The relative right of ownership is protected through the protection of the relative possessory title. This mirrors in Lord Campbell’s statement that “the person who has possession has the property”.175 Furthermore, the primary relief is damages, not re-delivery of the chattel to the owner. However, the claimant has the choice between two types of relief: either he can claim damages,176 or the delivery of the chattel, but in the latter case, the defendant has the alternative whether he wants to pay damages to the value of the goods instead.177 Apart from these two forms of relief, there is a third, discretionary, remedy: the court has a discretion to order the delivery of the converted property instead of damages.178 However, the owner can never recover his chattel in specie as of right.
In stark contrast to English law, ownership in German law is protected by a proprietary, not tortious, remedy which is directed at the recovery of the res in specie. The owner has especially two claims which result from his real right of ownership: (i) the action of delivery of the res against the possessor, whereby the possessor has not or no longer a right to possession vis-à-vis the owner (Eigentumsherausgabeanspruch, rei vindicatio, § 985 BGB); and (ii) a claim against interference with the enjoyment of the ownership right, whereby the interference does not amount to a dispossession of the owner. This latter claim against interference with ownership (Eigentumsstörungsanspruch, actio negatoria, § 1004 BGB), thus something which English lawyers would associate with a kind of owner’s remedy against nuisance or trespass, is particularly important in respect of land, but also applies to moveables.
The rei vindicatio under § 985 BGB is the dispossessed owner’s action of delivery of the res against a possessor to restore the owner’s possession. The possessor has a successful defence if he has a right to possess the res, based either on a contract with the owner (e.g. hiring agreement, loan) or on a real right (e.g. pledge) (§ 986 BGB).179 Otherwise, the possessor has to return the res to the owner, so that the latter can obtain direct possession again. There are several additional rights the owner and the possessor may have against each other.180 For example, the possessor in good faith (redlicher Besitzer) can claim reimbursement from the owner for his expenses made in the meantime, provided these expenses were necessary (notwendig) or useful (nützlich) for the res (§§ 994 (1), 996 BGB), and he can keep the benefits (gezogene Nutzungen) he has obtained from the res. The possessor in bad faith (unredlicher Besitzer, that is someone who knows or due to gross negligence does not know that he has no right to possession181 ), can only claim the necessary expenses made in the meantime, and he must hand over the benefits from the res.182 The possessor in good faith is not liable to the owner for destruction or damage of the res (§ 993 BGB), whereas the possessor in bad faith is (§§ 989, 990 BGB).183 Besides the rei vindicatio, the owner may have claims resulting from contract or unjust enrichment or tort against the possessor. The real action of delivery is not subordinate to these claims, but concurrent with them.184
The actio negatoria under § 1004 BGB is directed at the cessation of an existing interference (Beeinträchtigung) with the owner’s right to enjoy the res and at the prevention of future interferences.185 The interference (of whichever kind short of dispossession) must be unlawful, but the interferer need not be at fault. The interferer (Störer) must have brought about the interference through positive acts or by way of keeping a state of affairs which can be attributed to him.186 As this action is principally relevant to immoveable property, it is not discussed further here.187
E. ACQUISITION OF OWNERSHIP
1. Derivative acquisition of ownership
Far more than Common Law systems, Civilian jurisdictions emphasise the difference between the contract (a contract of sale or any other contract directed at the transfer of real rights), which creates the obligation to transfer, and the conveyance, the actual transfer of a proprietary right (especially ownership) in a res which effects the alienation of that res, that is, the passing of the real right from transferor to transferee. In German law, the division of the transfer of real rights into the two separate acts of “contract” (Verpflichtungsgeschäft, “bargain of obligation”) and “conveyance” (Verfügungsgeschäft, “bargain of disposition”) is particularly strongly developed, as this principle of separation (Trennungsprinzip) is complemented by a second principle of abstract real conveyance (Abstraktionsprinzip).188 The central question determining the existence of an abstract real conveyance is, whether a conveyance is only valid if there is an underlying legally recognised reason or iusta causa traditionis to pass the real right. This iusta causa (Rechtsgrund) is typically a contract which is by its nature able, or designed, to transfer real rights: a sale, a loan (if a mutuum or loan for consumption, not a commodatum or loan for use189 ), and so on. If real rights can be transferred independently of such an underlying iusta causa traditionis, then the system of transfer of real rights is abstract, as is the case in Germany; if a valid iusta causa is required, then the system of transfer is causal, as happens in Austria190 or Switzerland.191
The principles of the transfer of the real right of ownership in German law apply to moveable and immoveable property alike. German doctrine divides the principle of abstract real conveyance into two sub-categories: the abstraction as to content (inhaltliche Abstraktion): the validity of the conveyance does not depend on a purpose or cause; and the “external” abstraction (äußerliche Abstraktion): the validity of the conveyance does not depend on the validity of the contract or obligation to transfer ownership.192 This is expressed in § 929 BGB: for the transfer of ownership in a moveable, the owner must deliver the thing to the acquirer and both must be in agreement that ownership shall pass. That accentuates three essential elements of the German transfer of ownership: the factual requirement of a physical delivery of the res, the legal requirement of a consent between transferor and transferee as to the passing of ownership (dinglicher Vertrag, “real/proprietary contract”), and the independence of the effect of such a proprietary transfer from the existence or validity of a contract as a ground for that proprietary transfer.193 The idea of a conveyance being an independent “Real Contract”, free from a contractual purpose, was largely the result of the influence of Savigny194 and the Pandectists,195 who attempted to justify the concept of the abstract real conveyance on the basis of Roman Law by reinterpreting certain passages in the Digests,196 for example, the famous controversy between Ulpian197 and Julian.198
There are some limitations to this principle of abstract real conveyance. The parties to a contract are always free to stipulate that the validity of the conveyance depends on the validity of the underlying contract, which turns the conveyance effectively into a causal one. In addition, certain grave flaws of the contract may also destroy the conveyance (identity of defects in contract and conveyance, “Fehleridentität”), such as the incapacity to contract, or illegality of a contract according to § 134 BGB. If the contract is voidable because of mistake (§ 119 BGB), or fraud (§ 123 BGB), a successful rescission of the contract can render the conveyance void, too, though not normally in relation to third parties. Before the rescission, a third party can acquire ownership.199
The transfer of ownership in a moveable res in German law requires an (informal) agreement of the parties200 that ownership shall pass in respect of a specific res (real contract, dinglicher Vertrag),201 and the handing over of the res (delivery) as a factual act: however, the physical handing over may be replaced by one of the substitutes for physical delivery (Übergabesurrogate) – traditio brevi manu (§ 929 BGB, last sentence), constitutum possessorium (§ 930 BGB) – which have been discussed above in the context of the acquisition of possession.202 A special case of transfer of ownership is § 931 BGB, whereby physical delivery is also substituted: this is the assignment of the real action of delivery (rei vindicatio – Eigentumsherausgabeanspruch, § 985 BGB) from the old to the new owner if the res is in the possession of a third person.203 Because of this provision, it is not necessary that the third party returns the res first, which the previous owner then hands over to the new owner, who passes the res back to the third person.204 A typical example is the transfer of ownership in a res let to a third person.
Whether there is physical or surrogate or symbolic delivery, in all cases the previous owner and possessor must give up possession, and the acquirer must obtain possession, being either direct or indirect,205 as a result of the previous owner’s intention to transfer possession (Besitzübertragungswille des Veräußerers).206 The transfer of ownership necessarily entails the transfer of possession of a specific res. As a principal rule, the acquisition of ownership entails the extinction of prior restricted real rights (security rights etc.) which would restrict the dominium in the transferred res, provided the acquirer was in good faith in relation to the non-existence of these rights (§ 936).207
In principle, English law is aware of the distinction between contract and conveyance.208 That is sometimes expressed as the contract conferring a ius ad rem, which is a personal right, and the conveyance conferring a ius in rem, which is the actual property right.209 However, the distinction between contract and conveyance is of little practical importance in English law because of the general rule of consensual conveyance in the Sale of Goods Act 1979 which appears as the default rule in ss. 17 and s. 18 (especially rule 1) in relation to specific goods.210 The Sale of Goods Act which covers by far most transactions involving chattels consolidates the law in this respect, thus earlier potentially different conveyance rules under the common law211 are no longer applicable.212 Under s. 17, the real right (ownership)213 passes when the parties intend it to be transferred. In the absence of an intention to the contrary, the real right passes “when the contract is made, and it is immaterial whether the time of payment or time of delivery, or both, be postponed”, according to the presumptive rule 1 in s. 18. This at first sight relatively simple rule indicates a far less sophisticated theoretical superstructure of the conveyance than in German law. The English system of transfer of ownership in chattels appears to be that of the consensual conveyance, in some way similar to French law,214 and is also more akin to the causal system, as in Austria,215 than to the abstract system, as in Germany.216 But that would be too simplistic: the rule which governs the transfer of ownership is primarily left to the agreement of the parties, complemented by presumptive rules which continental European lawyers would call ius dispositivum. One may expect that in English law a void contract, which is typically conflated with the conveyance, would also render the conveyance void. For the contract could be regarded as acting as a iusta causa, which would make the situation similar to a causal system. That is in fact not necessarily so: a void contract does not automatically vitiate the conveyance.217 This, in turn, would rather indicate features of an abstract conveyance, similar to Germany. But in English law, unless a statute expressly or impliedly provides otherwise, even illegality does not render a contract void (only unenforceable), and under such an illegal contract ownership rights can pass, thus the conveyance remains valid.218 However, illegality is the major case where even in German law there is a distinct possibility that the illegal contract may also destroy the otherwise detached conveyance.219 The conceptual tools of the continental European lawyer do not fit well for English law.
2. Original acquisition of ownership
a) Acquisition in good faith from a transferor without ownership
The problem is perceived in principle in the same way in English and in German law: the law has to provide a solution to the conflict of ownership claims between owner and transferee which arise when a transferor, who is not owner and not authorised by the owner to dispose, transfers a chattel to a bona fide third person.220 In some cases, the law confers a better title on the bona fide third person than the transferor actually has, as an exception to the fundamental rule that nobody can give a better title than he himself possesses, in English law often also expressed as “nemo dat quod non habet”.221 The end results are often similar in both jurisdictions, but the methods which bring about these results are not.
As already stated, in German law possession of a res entails the presumption of ownership in it. This general rule (§ 1006 BGB) is one of the foundations of the provisions of acquisition of ownership in good faith from a non-owning or otherwise unauthorised transferor under § 932 GB, in contradiction with the principle of “nemo plus iuris ad alium transferre potest quam ipse habet”222 or, as an English lawyer would say, “nemo dat quod non habet”. In case of a moveable res, possession and ownership often do not coincide, but it is virtually impossible for a third person to ascertain the accurate legal situation without insider knowledge of previous or current legal transactions in relation to the res, such as a reservation of ownership (retention of title), or the grant of direct possession of the res on the basis of a loan for use (commodatum, Leihe). Thus the interest of the innocent acquirer prevails over the rights of the owner in that the acquirer obtains ownership from a transferor without actual entitlement but with apparent ownership, at the expense of the owner, who effectively becomes expropriated. The most convincing justification for this rather severe rule is that otherwise trade and commerce would be stifled. German lawyers sometimes also state historic reasons (especially the principle of old Germanic law as expressed in the legal proverb “Where you have left your good faith, there you have to look for it”223 – i.e. the person whom the owner has given the res), but doubts have been raised as to the true extent of their influence.224
The principal rule of § 932 BGB provides that if a transferor delivers (in accordance with § 929 BGB) a res belonging to another to a transferee, who is in good faith, then the transferee acquires ownership in the res. The transferor (who is not owner) of the res must be direct or, in some cases, indirect possessor,225 otherwise there is no appearance of ownership represented by possession, which justifies the acquisition in good faith. The transferor must relinquish possession entirely through delivery, which can be by way of physical delivery or traditio brevi manu. The transferor must hand over the res to the acquirer who must still be in good faith at the time of the physical delivery (§ 933 BGB). If the transfer is effected by a constitutum possessorium, the transferee cannot acquire ownership in good faith. Arguably, the reason for this exclusion is that the constitutum possessorium alone does not change the apparent possessory position of the transferor over the res; it only changes his legal status from suo nomine to alieno nomine possession in that he becomes direct possessor for the transferee as the new indirect possessor suo nomine. Thus the transferor does not entirely relinquish possession, as however required by § 932 BGB.226 The fact that the constitutum possessorium turns the acquirer into an indirect possessor only, whereby the transferor remains direct possessor, does not suffice for the acquisition of ownership.227 Somewhat in contrast to this rule,228 if the acquisition occurs by way of an assignment of the real action of delivery (according to § 931 BGB) from the apparent previous owner to the acquirer, merely indirect possession is sufficient for the appearance of ownership as a basis of acquisition in good faith: if the transferor/assignor is indirect possessor, then the bona fide acquirer becomes owner,229 if the transferor is not indirect possessor, then the acquirer obtains ownership only after he has also become possessor,230 provided he is still in good faith at the time of obtaining possession (§ 934 BGB).231
Acquisition of ownership from the transferor without entitlement under § 932 BGB requires a contract between transferor and transferee, and good faith on the part of the transferee at the time of the transaction and until the last act of acquisition. Thus acquisition of ownership by operation of law (e.g. accession), or without good faith, is not protected under § 932 BGB. However, good faith is defined in relatively wide terms: only where the acquirer knows that the transferor is not the owner, or is grossly negligent232 in not knowing this fact, good faith is precluded (§ 932 (2) BGB).233 Good faith is presumed; the true owner, who disputes the validity of the acquisition, must prove the contrary (§ 932 (1), first sentence).234 The bona fide acquirer must believe in the transferor’s ownership, good faith merely in the transferor’s authority to transfer ownership at the behest of the true owner (e.g. in case of an order to sell within an agency) is not sufficient for an acquisition in private law under the BGB.235
If the res in question has been stolen or lost, then bona fide acquisition according to § 932 BGB et seq. is not available (§ 935 BGB). The idea behind this limitation is that the owner has not parted with his direct possession deliberately, so that a third person shall not have the benefit of the appearance of entitlement through possession under such circumstances.236 However, when direct possession has been given up intentionally, bona fide acquisition is possible even without payment in German law. If the acquisition was gratuitous, the original owner has a claim of unjust enrichment against the acquirer under § 816 (1) BGB, which is directed at the delivery and re-transfer of ownership of the res to the original owner.237
English law sees the acquisition of ownership in good faith from the non-owner as being within the topic of the exception to the nemo dat rule, but the actual provisions are split into three major areas: common law, statute (Sale of Goods Act 1979, Factors Act 1889), and the law of trusts because of the owner’s potentially existing equitable right of tracing.238 The rules are detailed and casuistic, and they are only outlined as far as necessary for comparative purposes. The common law exceptions to the nemo dat rule are only relevant where neither the relationship between owner and seller nor between seller and buyer are transactions which are contracts of sale, otherwise the Sale of Goods Act would apply.239 Such a situation is rare;240 thus the Sale of Goods Act will cover most transactions. The Sale of Goods Act 1979 (1893) and the Factors Act 1889 have codified the old common law on the nemo dat exceptions241 and added further statutory exceptions, and the following discussion will therefore concentrate on these two statutes.
The (originally common law) nemo dat exceptions in the Sale of Goods Act and the Factors Act can be grouped into three different themes: (1) acquisition of good title based on agency (Sale of Goods Act, s. 21 (1)): a non-owner can pass good title if he has actual or apparent (ostensible) authority from the owner to dispose; (2) acquisition of good title based on the seller’s apparent ownership because of the owner’s conduct (Factors Act, s. 2 (1)); (3) sale in market overt: acquisition of good title of goods sold in market overt, according to the usage of the market, by a buyer in good faith without any notice of a title defect on part of the seller (formerly Sale of Goods Act, s. 22).242 This particular English243 rule, which permitted the acquisition of good title in stolen goods, dated back to the Middle Ages but was abolished fairly recently.244 The specific statutory exceptions, which complement the (restated) common law exceptions to the nemo dat rule, centre especially around the following topics: (1) sale by seller with voidable title (Sale of Goods Act, s. 23); (2) disposition by seller remaining in possession (Sale of Goods Act, s. 24, Factors Act, s. 8); (3) disposition by buyer obtaining possession (Sale of Goods Act, s. 25, Factors Act, s. 9).245
Another characteristic aspect of acquisition of good title in good faith is in the context of the law of equity. The (equitable) owner-beneficiary can assert ownership over his property transferred in breach of trust246 in that he has the proprietary remedy to follow his equitable interest in the property or to trace into the substitutes of the property, but only until the legal title in the property has passed to a bona fide purchaser for value (i.e. not by way of a gift) and without notice of the earlier equitable interest. This bona fide purchaser obtains a better title than his transferor had, and the original owner’s right to follow or trace stops in front of him: the title conflict has been solved against the original owner and in favour of the bona fide purchaser, who takes free of the original owner’s equitable interests and is sometimes referred to as “equity’s darling” because of his privileged position.247
One can see that not all the regulated incidents cover what German lawyers would consider as issues of acquisition in good faith from the non-owner. The areas of regulation overlap, but do not coincide when one compares the two jurisdictions. In fact, a meaningful comparison in this area is particularly difficult, if not impossible, but the problem illustrates markedly well the very different epistemic frameworks on which both jurisdictions rest. German law provides a highly abstracted rule in a codification under which a variety of sets of facts can be dealt with,248 while English law, through more casuistic lawmaking at a less high level of abstraction, regulates in the form of topics, which are narrower in scope, commercial scenarios in several sources of law that often apply simultaneously. The rules in equity, which are central to the nature and operation of English law and which exist alongside the bona fide purchaser rules in the statutes and originally at common law, have no equivalent at all in German law, but a comparative study which ignores them to create two matching sets of rules for the ease of comparison, distorts the image of English law and its legal mentalité substantially. Furthermore, although certain corresponding elements can be found in the various scenarios of the Sale of Goods Act and the Factors Act and the general rule of § 932 BGB, the idea of reducing these characteristics to an abstracted common core of acquisition in good faith rules in English and German law is arguably a scientifically meaningless game for its own sake. Neither legal culture operates and perceives itself in this way and there is no need to describe such a non-existing artefact, unless it is done as preparatory work for the purpose of enacting harmonising rules: but this example shows that such harmonising rules in the quest for oversimplifying sameness and uniformity would necessarily effect the partial destruction of either legal system. What a comparative lawyer can prepare is a description of, and commentary on, the similarities and, especially in the present case, differences, with respect and understanding for both systems.249
A general exception to the nemo dat rule comparable to German law does not seem to exist, which reinforces the paramount position of the nemo dat quod non habet principle in England.250 English lawyers regard the German exception to the nemo dat rule in § 932 BGB as wider than in English law.251 A fairly general rule is s. 21 (1) of the Sale of Goods Act: a non-owner can pass good title if he has actual or apparent (ostensible) authority from the owner to dispose. The owner by his own conduct has held out that the agent has ownership or authority to sell and is therefore precluded from denying that ownership or authority.252 Ss. 24 and 25 of the Sale of Goods Act253 perhaps come close to the ambit of the German rule of § 932 BGB, although they deal with special cases. In both jurisdictions the exceptions rest primarily on the seller’s apparent ownership for their operation, but the English rules also allow apparent authority of the non-owner (agent) to transfer ownership, unlike the German BGB. Apparent authority is, however, sufficient under the German Commercial Code, § 366 HGB, under certain circumstances;254 this separation between the general private law (especially in the BGB) and commercial law, the special private law for merchants (especially in the HGB), is unknown to English law. Unlike the German law, the English rules do not dwell on the various types of possession (in English law they would be actual and constructive possession) that are available for acquisition of ownership in good faith, but they do take account of them indirectly. S. 24 of the Sale of Goods Act effectively deals with the special case of a double sale whereby the seller has transferred ownership derivatively to the first buyer,255 but not actual possession, which could possibly be interpreted as constructive delivery of possession in the form of what German lawyers would call constitutum possessorium, and then, after having divested himself of the title, now transfers256 actual possession257 and purports to transfer ownership to the second buyer who acquires originally in good faith. Thus the second buyer taking delivery acquires full title at the expense of the first buyer (referred to as the “owner” in s. 24) because this rule protects the innocent purchaser who, misled by the seller’s possession, is unaware of the restriction on the seller’s apparent power to dispose.258 S. 25 also has a special situation in mind: this provision enables the buyer, who has (under a sale or an agreement to buy) obtained actual or constructive possession of the goods with the seller’s consent, to confer full title to the subsequent buyer in good faith and without notice of the previous sale, despite the fact that the first buyer has obtained a defective title from the seller. This rule treats the seller’s consent to the buyer taking possession as the seller’s authorisation to sell on, irrespective of the seller’s actual title or power to dispose.259 An important consequence is that if the seller sells under a voidable title and the buyer resells after the title has been avoided, then the subsequent buyer obtains full title and is protected.260 A similar rationale forms the basis of s. 23 of the Sale of Goods Act: After rescission of a contract the title will normally revest in the original owner. However, if the bona fide purchaser without notice of the seller’s voidable title buys from the seller before the contract is avoided, the purchaser obtains good title.261 In German law, the system of unjust enrichment, in connection with the operation of the principle of abstract real conveyance, would provide for a solution in comparable situations.
Ss. 21, 24 and 25 of the Sale of Goods Act already show that the English rules stress far more the general subject of agency in this context and see the passing of title from the unauthorised transferor as an instance of the agency relationship, rather than as a primarily free-standing provision of property law. This is more so the case with s. 2 (1) of the Factors Act 1889:262 A mercantile agent, who has goods in possession with the owner’s consent but no authority to transfer, can confer good title on a bona fide purchaser without notice of the agent’s lack of authority. The proprietary aspect, the disposition, is merely a subordinate event within the issue of apparent authority under the law of agency. However, in both jurisdictions the element of apparent authority or “appearance of having the right” (Rechtsschein) is the central reason for the justification of the exception to the nemo dat rule.263 A detailed comparative analysis would bring to light more differences with regard to issues such as the quality of possession required or the prerequisite of good faith. In German law, for example, gross negligence is regarded as bad faith for the purpose of § 932 BGB,264 while in English law negligence does not destroy good faith,265 as long as the purchaser is subjectively honest, albeit perhaps foolish. This mirrors the fact that good faith is a historically fairly young and by no means all-embracing concept in English common law.266 The close connection of good faith with taking “without notice” is also characteristic of English law.
b) Acquisition by way of occupancy, prescription and accession
Acquisition in good faith, as discussed before, results from a contract, but is a case of original acquisition of ownership of moveable property, because the real right does not derive from the previous owner but arises by operation of law.267 The following acquisition methods of moveables in German law do not involve a contract: occupancy; prescription; specification (accession), commixtion and confusion. They are, unlike the somewhat exceptional bona fide acquisition, the principal instances of original acquisition of ownership of moveable property, but (apart from accession) in reality less important, and they will be dealt with very briefly only. Their legal principles are also well documented as from the times of Roman law, and even writers on English law tend to have a sound and thorough grounding in Roman law when they embark on a systematic study in this area.268
In German law, occupancy (Aneignung) is regulated in §§ 958-964 BGB, and the find of lost property (Fund) in §§ 965-984 BGB. Anyone can acquire ownership of a moveable res, which is in no-one’s ownership (res nullius), by way of occupancy or occupatio, that is, by appropriating or taking direct possession of it. The classical examples are wild animals269 and abandoned things. The law relating to finds (§ 965 et seq. BGB) deals with lost property, where the owner has not given up possession deliberately and is still considered as owner, so the thing is not res nullius.270 The finder is under a duty to report the find to the authorities. The principal rules in English law on occupancy or taking possession of existing things without an owner are generally the same.271 As regards things lost on land, the basic rule is that occupation of land does not automatically entail possession of things found on it: the occupier must take active steps to exercise control over them to obtain possession.272 Once he does that, he gets a possessory title and therefore a better claim to the res than the finder.273
Acquisition of ownership by prescription presupposes that, in contrast to a finder, the possessor of the moveable res must consider himself reasonably as the owner. The importance of prescription is mainly historical. In Germany, the possibility to acquire ownership of a moveable res in good faith (§ 932 BGB) has restricted the relevance of prescription even further. According to § 937 BGB, the possessor who has a moveable bona fide in possession for himself for ten years acquires ownership by way of prescription (Ersitzung), provided the possessor (incorrectly) believes that he is the owner: that excludes bad faith or gross negligence.274 Prescription in English law is mainly important in relation to land (especially easements).275 Prescription in relation to chattels is dealt with by way of the limitation of actions rules, which give six years to claim the chattel or its value.276 As regards lost things, the limitation period only starts running when the finder does something inconsistent with the owner’s title,277 but after the expiry of the limitation period the owner is not only denied the procedural right to bring an action, but also the substantive right of ownership.278
Accession broadly deals with the problem of original acquisition of ownership in a thing, which has been separated from a principal thing, or which has been created out of different pre-existing materials (in a wide sense) belonging to different owners. In the following, accession is used in a wide meaning:279 it comprises the specification (making a new thing out of material belonging to another), commixition (mixing of solids), confusion (mixing of liquids), and accession in the narrow sense (attachment of a moveable thing to an immoveable or moveable,280 accession by land to land (alluvion), and accession by severance of fruits. Accession is in reality especially important in the context of retention of title clauses.281 The accession rules are intricate in the details, but the present discussion can be confined to a short outline, because a detailed comparative study on parts of this subject has fairly recently been published, to which reference may be made.282
In Germany, the methods of acquisition through accession (Zuwachs) are: Accession/attachment (Verbindung) of a moveable with another moveable (§ 947 BGB) or an immoveable (§ 946 BGB), commixtion/confusion (Vermengung/ Vermischung, § 948),283 specification (Verarbeitung, § 950 BGB), accession by fruits (Fruchterwerb, § 953-957 BGB). The rules on specification (§ 950 BGB) are probably the most relevant body of law in the present context. They provide that if a new moveable res is made out of material belonging to another, the maker or creator (Hersteller) of the new thing acquires ownership in the materials. But if the value of the manufacturing or transformation is substantially lower than that of the material, then the maker does not acquire ownership (§ 950 (1) BGB, 1st sentence).284 Interestingly, in the past attempts have been made to interpret this provision as indicating the right of workers to participate in the profits of their products by virtue of their work that has gone into the making of the products, but it is undisputed that § 950 BGB did not envisage a decision of social policy and does not apply to employer-employee relationships.285 Creator is not the person doing the (manual) work, but the owner of the business in which the thing is produced.286 It is controversial whether or not the rule of original acquisition of ownership under § 950 BGB can be altered by parties’ agreement, as some authors maintain;287 a view which allows the validity of retention of title clauses in favour of the owner of the material beyond the operation of § 950. The dominant view, however, sees this provision as compulsory,288 but permits several exceptions which effectively lead to an approximation of both views. Court decisions do not favour clearly one or the other opinion.289 The owner, who loses ownership as a result of the operation of the accession rules under §§ 946-950 BGB, can claim compensation according to the general rules of unjustified enrichment (§§ 812 BGB et seq. 290), however, the owner cannot claim the restoration to the previous position (§ 951 BGB).291 Thus the owner’s real right is turned into an obligation directed at a pecuniary indemnification for the loss of his proprietary right.292 This compensation rule does not limit the application of the law of tort.293
English law is unclear on the issue of specification, but it seems to be settled that the owner of the material loses ownership in favour of the creator, which is essentially also the principal German rule of § 950 BGB.294 The main authority for the rule that ownership of the new product vests prima facie with the creator is Borden (UK) Ltd v. Scottish Timber Products Ltd.295 The creator can, however, attract a liability in conversion,296 although he may benefit from a statutory allowance if he has acted in good faith.297 While for the German law it is somewhat unusual that the real right is extinguished and turned into a pecuniary obligation, the tortious, rather than proprietary, protection against conversion is perfectly consistent with the general protection mechanism of property rights in English law.
F. RESTRICTED REAL RIGHTS RELATING TO MOVEABLE PROPERTY
Several types of security rights exist to secure debts. The pledge (pignus) is the oldest real right in security in moveables and therefore discussed first.
1. Security rights
From a functional point of view, the pledge is probably that type of property right where German and English property laws closely resemble one another. In both jurisdictions, the essence of a pledge is that the pledgor transfers possession of the moveable property/chattel which serves as security, the pledge, to the pledgee creditor who obtains a restricted real right, or “special property”298 in the pledge. This special property entitles the pledgee creditor to sell the chattel on the pledgor’s default and satisfy the debt.299 But even in this seemingly straightforward case the presumptio similitudinis ignores central distinguishing elements which build up the legal institution of the pledge in either legal system.
In German law, the real right of a creditor in a (normally corporeal) moveable res in security of a debt is a pledge. The German law of pledges permits the creation of securities in corporeal moveables (Pfandrecht an beweglichen Sachen, §§ 1204 et seq. BGB) and in rights300 (debts, choses in action: Pfandrecht an Rechten, §§ 1273 et seq. BGB). It also distinguishes between pledges created by agreement between the parties (rechtsgeschäftlich bestelltes Pfandrecht, §§ 1204-1256 BGB), and pledges by operation of law (either by statute: gesetzliches Pfandrecht, § 1257 BGB, or by court order to enforce a judgment debt: Pfändungspfandrecht301 ). The following account only discusses the pledge by agreement. These structural distinctions are inappropriate in English law, because debts or other intangibles cannot be pledged,302 pledges are considered as being created by contract,303 and judgment debts are enforced through mechanisms which are not considered as instances of the pledge.304
The German law of pledges is based on four principles:305 (1) the pledge is strictly subordinate to the debt which it secures (Akzessorietätsprinzip, §§ 1204, 1252 BGB). A pledge can only arise in relation to an existing, or at least future or conditional, debt. The extinction of the debt (e.g. discharge of a contract by performance, set-off, waiver etc.) inevitably entails the extinction/redemption of the pledge. The pledge can only be transferred together with the debt (§ 1250 BGB). (2) only specific moveables can be pledged. A creation of a pledge over things in their entirety, without identifying a specific res to which the pledge shall attach, is impossible (speciality principle, Spezialitätsgrundsatz), although the law allows a security in collective entities of moveables, such as stocks of goods, where the individual items are likely to change during the lifetime of the pledge,306 provided the requirements for the creation of pledges are satisfied in relation to the new items.307 (3) the existence of a pledge must be made public, by transferring possession to the creditor which indicates the existence of the real right (publicity principle, Publiziätsgrundsatz). Only physical possession can indicate the security right, so the constitutum possessorium as a substitute for physical delivery is not available for the creation of pledges. A pledge by way of an assignment of the real action of delivery (§ 931 BGB)308 requires for its validity the notification of the third party who possesses the res for the creator of the pledge (debtor) (§ 1205 (2) BGB). As soon as the owner regains possession of the pledged res, the pledge is extinguished, irrespective of whether this was with the security holder’s consent (§ 1253 BGB). (4) the principle of priority applies: if two or more pledges are created over one moveable, the first in time prevails and is satisfied first from the proceeds of sale of the moveable. These four principles determine the rules on the creation and discharge of pledges.
In English law, as another indication of a dissimilar legal culture, there seem to be organisational differences in the way in which the pledge is regarded within the whole body of personal property law. The pledge (pawn309 ) is usually discussed in connection with the lien, whereby English authors stress that both the lien and the pledge are security rights founded on possession, and both are types of bailment. The lien is contrasted with the pledge in that the pledge gives a property right with an inherent power of sale, which the lien does not. The pledge can also slide into the more powerful non-possessory security right of an equitable mortgage over personal property (chattel mortgage) if a documentary intangible is deposited with a creditor as a security for the repayment of a debt.310 This kind of conceptual context of lien-pledge-equitable mortgage, whereby the pledge is regarded as the security of intermediate strength between the other two,311 does not exist as such in German doctrine; furthermore, there is no equivalent to an equitable mortgage over moveables in German law.
The four principles of the German pledge do not mirror exactly in English law. The first principle corresponds most to the situation in English law: repayment or performance as to the secured (underlying) debt leads to the pledgor’s right to redeem his pledged res which extinguishes the pledge.312 This is also expressed as an implied undertaking of the pledgee to return the pledged res to the pledgor on repayment. The undertaking is not perceived as contractual but arises from the pledgor’s ownership right (“general property”).313 Nevertheless, this concept does not exactly reflect the notion of the invariably dependent subordinate real right in German law, but rather suggests an implied condition subsequent that terminates the pledgee’s property right in the res. The pledge tends to be more disconnected from the secured debt in English law. Thus, unlike in German law (§ 1250 BGB), the pledge can be transferred without the secured debt: regardless of whether such disposition of the pledge has occurred with the pledgor’s authority, it is valid, but the pledgor can then always recover his pledged res on payment of the amount owed to the new (sub)pledgee,314 although that new person may not be the pledgor’s new creditor/assignee. As to the second principle, there does not seem to be a clear equivalent to the German requirement that only specific moveables can be pledged.315 The problem is of little practical relevance in English law because of the availability of the floating charge, a right to have specified property of the debtor applied to the discharge of the debt.316 The German speciality principle, a legacy from Roman law, stands against the device of the floating charge,317 although there are functional similarities between the floating charge and the German security in collective entities of moveables. The criteria for creating this kind of pledge (delivery to creditor, § 1205 BGB) in German law insist on transfer of possession and are stricter than for the floating charge in English law, because the floating charge is, when created, not an actual, but potential, “dormant”,318 and non-possessory security which does not confer a real right at this stage. It crystallises in case of a default of the debtor and only then becomes an actual security right. Thus the creation of the floating charge need not be dependent on the strict speciality principle; in fact, an identification of a class of assets usually suffices.319
Third, as in German law, transfer of possession is indeed required to create an English pledge, and possession advertises the security right to third persons.320 But the requirement of possession is much more flexible than in German law, in that also constructive possession may be conferred, and that category includes cases where the owner of goods in possession acknowledges his creditor’s possessory title and subsequently holds the goods as bailee of the creditor, who becomes possessor and pledgee in law. In this way the law confers a secured interest on a creditor who never receives physical possession of the pledged res.321 That scenario, which also resembles the German constitutum possessorium, would not be permitted for the creation of a pledge in German law. As the protection mechanism in English law for property rights differs widely from German law,322 there is no real action of delivery and therefore no equivalent to the German creation of a pledge by transfer of the real action and notification under § 1205 (2) BGB. The principle of priority generally applies in English law,323 but the real relevance of this rule in the present context is in relation to conflicts between a pledge and a floating charge. The pledgee takes priority over the floating charge holder if the charge was granted before but crystallised after the creation of the pledge (which requires delivery of possession in the wide sense described above for perfection).324
It follows from the systematised nature of German law that a clear notional distinction between the contractual and the proprietary elements of the pledge is carefully made, and that the law of pledges rests on general concepts and rules of ownership transfer to which it makes broad reference. This area of the law is an example of the way in which German law is logically constructed; the institutions of possession, ownership, derivative acquisition and original acquisition of ownership in good faith are interconnected with the law of pledges which cannot be understood without a good comprehension of these concepts. A pledge is created (Pfandbestellung) by an agreement (real contract325 ) between the parties that the creditor shall obtain a pledge, and by the delivery of the pledged res from the owner of the res to the creditor (§ 1205 BGB). This is much in the same way as the derivative transfer of ownership under §§ 929, 931 BGB,326 because the creation of a pledge is considered as splitting off and transferring this limited real right from the more extensive real right of ownership.327 While the pledgee must be the creditor of the secured debt, the pledgor need not be the debtor, nor the owner of the pledged thing, although that will usually be the case. Quite complicated scenarios are, however, possible: a debt between creditor C and debtor D is secured by the res which O owns and gives as pledge (i.e. to secure someone else’s – D’s – debt); or, the pledgor P secures a debt between C and D (or P) by giving a moveable owned by O as a pledge.328 In the last case, however, the owner O must have consented to the creation of the pledge (e.g. in an agency relationship). If the pledgor is not the owner and not authorised, the pledge can only be created if the pledgee (creditor) was in good faith as to the ownership329 of the pledgor in the pledged res. The bona fide acquisition of a pledge follows the rules on the acquisition of ownership in good faith from a transferor without title (§ 1207 referring to §§ 932, 934, 935 BGB).330 The pledge creates an obligation between the pledgor (even if that is an unauthorised non-owner!331 ) and the creditor (§§ 1214 et seq.). This statutory obligation determines the rights and responsibilities of pledgor, owner and creditor of the pledge.
The creation of a pledge requires the existence (or at least future or conditional existence) of a debt to be secured (§ 1204 (2) BGB).332 If the debt is assigned, the pledge is automatically transferred to the assignee without the need of a physical delivery of the pledged res. If the assignor and assignee exclude the passing of the pledge with the assignment of the debt, the pledge is extinguished (§ 1250 (2) BGB): as a restricted and subordinate real right, it cannot exist without the right which it secures. Once the pledge is created by delivering the res to the creditor, the creditor is entitled to possession and, if stipulated, to the fruits ensuing from the use of the res (§ 1213 BGB),333 and he assumes the responsibility of a bailee (§ 1215 BGB). Otherwise the creditor/pledgee enjoys the same protection as the owner (§ 1227 BGB 334). Once the pledge is extinguished, the pledgor can claim that the pledged res be returned (§ 1223 BGB). If the owner of the pledged thing and the debtor are not the same persons, the owner can claim his expenses, typically the value of the pledge, from the debtor in case of a sale or auction of the pledged thing (§ 670 BGB). The owner can also prevent the auction or sale, and effect the recovery, of his res by satisfying the outstanding debt himself; in that case the debtor and the creditor must accept the owner’s payment as soon as the debtor would be permitted to make payment (§ 1223 (2) BGB, Einlösungsrecht). The owner’s payment effects a subrogation: he obtains the debt from the satisfied creditor (§§ 1225 BGB).335
The discharge of the secured debt leads to an extinction of the pledge (§ 1252 BGB). Even where the secured debt continues to exist, the pledge comes to an end if the creditor returns voluntarily the pledged res to the pledgor or owner,336 because through this act the pledgee has lost possession, one of the pre-requisites for the subsistence of the pledge (§ 1253 (1) BGB).337
English law is aware of the difference between the pledge as a contractual agreement and as a property (right),338 but it does not apply the German level of abstraction. The conceptual emphasis on delivery of possession for the creation of the pledge also exists in English law, but the actual requirement of possession is much more diluted.339 Furthermore, the pledgee has a transferable proprietary interest, referred to as “special property”, as opposed to the “general property” of the owner/pledgor, and this quality distinguishes it considerably from German law. English lawyers argue that this “special property” is a property right,340 which would also be obvious to the Civilian lawyer, but the reasons given would be quite unfamiliar to him/her. English lawyers see special property in the context of possession which has a very close association with ownership in English law, as has been shown.341 Not only possession, also ownership is a relative concept in that the person with the better right as between two (potentially) adversarial parties is regarded as the owner. The possessory position of the pledgee as special property holder in relation to the pledgor is so strong, in that he enjoys so many of the incidents of ownership, that he can be regarded as having (qualified) property.342 The proprietary nature of the pledgee’s interest is shown by the fact that the pledge survives a sale of goods by the pledgor even though the buyer is unaware of the pledgee’s interest,343 and that the pledgee can sue a third person for wrongs inflicted on the res in his possession, much in the same way as the owner.344 The pledgee can also dispose of his proprietary interest, even in breach of the terms with the pledgor, either by assigning it or by sub-pledging the pledged res to create a security of his own.345 Even if these conceptions may partly lead to similar outcomes, they are alien to a German lawyer, because the German Civilian notion of ownership is conceptually much separated from possession, and is absolute dominium, not relative title; and the pledge cannot be disposed of separately, despite its proprietary quality, because the existence of the subordinate real right necessarily depends on the underlying debt which the pledge secures.346 The transferability of the right that the pledge confers in English law changes significantly the nature of this security right and the connected remedies.
English law does not seem to consider in too much detail the rather academic case of a pledgor who is not also debtor. English authors would phrase this problem as a question whether the creditor’s possession is lawful as against a third person with a better title than the debtor.347 If the debtor creates a pledge within his authority or with the owner’s consent, then the situation is unproblematic.348 If not, English law seems to solve the matter in the indeed practically most relevant context of a mercantile agent’s dealings with goods and the exceptions to the nemo dat rule under s. 2 (1) of the Factors Act 1889,349 and not under a general principle of original acquisition of ownership in good faith, as is under German law.350 If the unauthorised or even fraudulent creation of the pledge could be considered as having occurred in the “normal course of business of a mercantile agent” (meaning business-like behaviour common to agents in general), and the third party was acting in good faith without notice, then the pledge is valid.351 This example is a good illustration of the different legal cultures in English and German law: English authors do not discuss the present issue in the context of the law of pledges.352 English law considers legal problems as topical and solves them in a limited context arising from practical commercial circumstances. German law applies generally deduced legal principles as building blocks to different practical scenarios.
Once the pledge is created, the pledgee has the duties of a bailee353 and is not normally entitled to use the pledged res, unless specifically agreed,354 similar to German law. A difference to German law is, however, that, due to the more diluted requirement of possession for the creation of a pledge, continuity of possession is not broken if the pledged res is released by the pledgee to the debtor for a defined purpose not inconsistent with the pledge.355 Thus the pledge interest does not depend on continued possession by the pledgee, which also explains the pledgee’s right to sub-pledge (up to the amount secured by the original pledge).356
Under German law, if the secured debt remains unsatisfied, the creditor can seek the sale of the pledged res and obtain payment from the proceeds of sale. An agreement made before the debt has become due, to the effect that the creditor shall become the owner of the pledged res if the debtor does not discharge, is void (§ 1229 BGB, prohibition of the “lex commissoria” or Verfallspfand). The law enables the creditor to sell the res, normally357 in an auction in accordance with the requirements under §§ 1236 et seq. BGB 358). The legal mechanism concerning the proceeds from the sale of the pledged res is rather difficult: The buyer becomes owner of the pledged res as if he had acquired it from the owner (§ 1242 BGB), and the creditor becomes the owner of the proceeds of sale to the extent of his entitlement (according to the amount of debt and pledge). The law presumes the debt as being discharged by the owner of the pledged res vis-à-vis the creditor up to the outstanding sum: thus to that extent, the creditor is owner of the proceeds which he can keep (§ 1247 BGB). If, and to the extent that, the creditor is not entitled to the proceeds, such proceeds belong to the owner, as they are considered as representing the owner’s pledged res (Surrogation). This can happen if the sale is based on a void pledge (no entitlement of the creditor to the proceeds at all), or the proceeds exceed the amount of the debt (no entitlement to the excess). In this way, the owner of the pledged, and now sold, res obtains a proprietary protection against a creditor without entitlement, manifested in his real (not personal) right to the proceeds of sale, because otherwise the creditor would automatically become the owner of the sums paid to him by virtue of § 929 BGB (i.e. the general rule of derivative acquisition). Where the proceeds of sale exceed the amount of the debt, then co-ownership of the proceeds arises between the creditor and the former owner of the pledged res.359 The owner can claim the exceeding sum from the creditor, subject to the creditor’s prior (real) right to satisfy his debt fully from the proceeds of sale.360
The complicated legal technique regarding the proceeds of sale in German law, which seeks to give the owner-pledgor a proprietary right to the proceeds of sale to the extent to which they are not covered by the debt that they are supposed to discharge, contains elements of the idea of tracing of property into its representing substitutes following a breach of trust in English law.361 It is also functionally not too dissimilar to the overreaching of an equitable interest behind a trust of land in English land law, whereby the interest attaches to the proceeds of sale instead of the sold property,362 which enables the buyer to acquire unencumbered ownership. But one should be cautious with such an analogy. German property law does not recognise a division into legal and equitable ownership,363 and therefore does not have the concept of a trust which confers proprietary rights (in equity) and goes beyond that of a mere fiducia364 (based on personal rights only). When determining the entitlement of the owner-pledgor to the proceeds of sale, German law resorts to an exceptional technique which seeks to emulate in effect a mechanism that is a very familiar part of English law: an imposition of a trust on the pledgee-creditor with the owner as beneficiary whose pledged res is substituted by the proceeds of sale and subject to the owner-pledgor-beneficiary’s right to trace. Indeed, English law regards the relationship between pledgor and pledgee as a fiduciary one,365 under which the pledgee has to pay the surplus from the sale. If he does not do so, he must pay interest in equity to the pledgor.366 This reference to equity is remarkable because the pledge originates in common law367 and the pledgee’s duty of care is considered as deriving from common law without (much) intervention from equity.368 This is probably the reason why the relationship between pledgor and pledgee is seen as fiduciary, and not openly termed as one of trust, the most eminent creature of equity (although a trustee is invariably also a fiduciary 369). These subtleties that are characteristic of English law make no sense to the German lawyer, but if they are blanked out in a functional approach of comparison, one obtains a false picture. Otherwise, the process of the sale of a pledged res in English law is not significantly different from German law in its principles. The pledgee has an implied power of sale at common law which becomes exercisable when the debt is due and the debtor defaults. The sale does not have to be at an auction, but the pledgee must take care to ensure that the sale is carried out reasonably to obtain a fair market price.370
b) Transfer of ownership in a moveable for security purposes
The strict requirement for the validity of a pledge, to grant the creditor possession, prevents the debtor from using the pledged property and from obtaining a profit out of which he can pay his debts, and it also publicises the fact of pledging, which allows adverse inferences as to the debtor’s creditworthiness.371 Attempts to avoid these undesired effects have led to other methods for the creation of security rights over moveables. In Germany, the need for new forms of security has been greater than in England, because the delivery of possession rule has to be adhered to more strictly.
In Germany, such forms of security were developed fairly soon after the enactment of the BGB, and outside its legal framework, but they were relatively quickly endorsed by the courts, which ensured their enforceability.372 One type of these security rights not based on the system of the pledge is the transfer of ownership in a moveable thing to the creditor for the security of a debt that is owed to him by the owner of the transferred res, or by another debtor (Sicherungsübereignung).373 (For the sake of convenience, in the following the identity of the debtor and owner of the transferred res will be assumed.) In business reality, it is this method, not the pledge, which is the usual way of granting security rights over moveables.374 The owner-debtor conveys ownership in the res to the creditor typically by way of constitutum possessorium (§ 930 BGB),375 which enables the creditor to acquire ownership while the debtor retains possession and use of the thing.376 The conveyance is conditional on the full satisfaction of the debt; thus once the debt is extinguished, ownership of the res is either automatically re-transferred (condition subsequent), or the creditor is under an obligation to re-transfer, depending on the stipulations in the security contract of the parties. This security contract (Sicherungsvertrag), which is independent of any contract out of which the secured debt arises (e.g. a loan), may oblige the debtor (i.e. previous owner) to refrain from wasteful treatment of the res and to insure it, and it obliges the creditor (new owner) to re-convey ownership on satisfaction of the debt, to sell it according to certain stipulations on default of payment etc.377
As full ownership is transferred, this type of security is not a restricted real right, depending on the existence of the secured debt. If the debt does not arise, or is extinguished, prima facie the security right remains in existence, and is subject to the contractual stipulations of the security contract (e.g. re-transfer of ownership based on an express obligation to that effect, or on a condition subsequent, which will not be implied if it has not been stipulated 378).
Since the creditor becomes owner of the res, subject to merely contractual obligations which restrict his power to dispose of the res to the event of default, the creditor assumes the position of a fiduciary. Thus, even if in breach of the security agreement with the debtor-beneficiary (because the debt has not matured or has been paid in full), he can validly transfer ownership in the res to a third party. Unlike an English trust, where the debtor-beneficiary obtains an equitable, that is proprietary, interest, which is enforceable against third parties and traceable (with restrictions 379), the German trust relationship is a merely fiduciary one (Treuhand),380 and a personal right is given to the debtor enforceable in contract381 (damages for breach of contract etc.). This trust relationship is recognised in the event of the creditor’s insolvency. Provided the debtor has satisfied the secured debt (by paying the liquidator of the insolvent estate if necessary), the debtor can assert ownership over the res conveyed for security purposes against the third-party creditors of the insolvent estate and claim it back.382
The purpose of a security by outright transfer of ownership is that, unlike in the case of a pledge, the creditor obtains a “secret” security, which does not become apparent, when the security is granted (no change of possession), but which shall come into effect when the debtor is in default, and which shall give the creditor an advantage over other creditors of the debtor, particularly when the debtor becomes insolvent. The creditor and recipient of the security cannot seize the res given as a security, as one would normally expect, given that he is technically its owner, because the insolvency laws take account of the fiduciary nature of this conveyance. However, after the realisation of the res by the liquidator, the secured creditor has a right to obtain payment from the proceeds of the sale ahead of other (unsecured) creditors of the insolvent estate,383 similar to a pledgee. The secured creditor can no longer effect the sale of the res himself,384 this must be done by the liquidator.385
The device of the transfer of ownership for security purposes is an example of the fact that comparative lawyers will sometimes fail in finding an equivalent of a certain legal institution in another jurisdiction. There is no need for such a security mechanism in English law. First, the English pledge, despite its requirement to deliver possession, permits changes of possession in forms comparable to the constitutum possessorium in German law, thus allowing no change of factual possession, and the pledge interest does not depend on continued possession by the pledgee.386 English law also recognises the non-possessory (legal or equitable) chattel mortgage which allows the debtor to continue using the res, but actually transfers ownership to the creditor by way of security.387 (The outright transfer of ownership is not available for mortgages over land.388 ) Although looking similar in respect of their non-possessory nature, it is not the same as the German security right. The English chattel mortgage does not have the specific fiduciary relationship that the German Treuhand at the centre of the Sicherungsübereignung has. Conversely, the German mortgage or Hypothek is a non-possessory subordinate real right which does not confer outright ownership and is only available for land.389 A trust relationship for security purposes can be established in English law: this creates a beneficial interest which survives the trustee’s-creditor’s insolvency. One common example is the Quistclose trust,390 a device whereby (usually) loan money advanced to a company in financial difficulties is ring-fenced against the company’s possible insolvency by giving the loan on the condition that it be used for a specified purpose only. The money is held on trust for the lender until the purpose has been carried out. If the purpose cannot be achieved, the recipient of the loan (or his liquidator) must return the funds in specie.391 In such an arrangement, there is no need that additionally a chattel (as a quasi-pledge) is transferred to the creditor as a security for the debt.392 Furthermore, English law also has the non-possessory institution of the equitable charge as a security interest. The equitable charge,393 which can be a fixed or floating charge, does not confer possession or ownership, but entitles the chargee to have specified property of the debtor applied to the discharge of the debt.394 All these security interests are familiar to the English reader and need not be discussed further. However, this case shows that it can be highly misleading if elements of conceptually and contextually very different and unrelated legal devices in one jurisdiction are arranged in accordance with the comprehensive legal institution of another jurisdiction in order to seek a kind of “common core” which yields similar economic outcomes.
c) Assignment of a debt for security purposes
The assignment of a debt for security purposes also shows that German law was prompted to find methods to secure obligations which permitted a greater elasticity than pledges. In the discussion of the German law of pledges,395 it was mentioned that rights arising from a contract can be pledged, but that matter was not dealt with further because in practice, the pledge of rights has almost totally been replaced by the assignment of debts for security purposes (Sicherungsabtretung, Sicherungszession).396 Although rights are not things in the system of the BGB (§ 90 BGB), German academic doctrine discusses this legal institution within the law of property for practical reasons, especially as it usually forms part of the transfer of moveables for security purposes and of retention of title stipulations.
The assignment of a debt as a security resembles closely the transfer of a moveable res as a security; the difference is only that in the present case the security given is a debt, of which the debtor is creditor vis-à-vis a third party. The parties involved are, the creditor C in relation to a secured debt (x) (recipient of another debt (y) given as a security), the debtor D (debtor of (x) assigning the debt (y), of which he is the creditor), and the third-party debtor DD (debtor of D in relation to the debt (y)). The principal debtor D assigns his right (y) against DD to C to secure his debt (x). As with the transfer of ownership in moveable things, the creditor C can validly claim payment397 from DD, although that may be in breach of the security agreement with D, which governs the contractual relationship between C and D and sets out C’s powers and their limits. In case of default, C is normally entitled to choose which debt he wants obtain payment from, either the secured debt (x), or the securing debt (y): there is no obligation to try to get paid through the secured debt first, unless the security agreement stipulates this.398 In case of satisfaction of the secured debt (x), the debt (y) is re-assigned automatically due to a condition subsequent, or there is an obligation to re-assign (either based on contract, i.e. the security agreement, or on unjustified enrichment).399
It is typical of this means of security that the secrecy of the actual act of granting the security can be maintained. Therefore, the debtor DD is frequently not informed of the assignment, and C permits D to accept payment on his behalf from DD when the debt matures. Following the general assignment rules (§§ 398-413 BGB), DD is protected by § 407 BGB, in that he can validly pay to the previous creditor D and so satisfy his debt, until he is informed of the assignment. This protection of the uninformed DD applies, regardless of whether or not C has authorised the previous creditor D to accept payment on C’s behalf. The fact that DD can validly perform and thus extinguish the debt, although D is not (no longer) creditor at the time of payment to him, is not easily explicable, especially in the context of unjust enrichment.400 It is also possible to assign future debts for security purposes,401 provided that the debt to be assigned is certain or at least ascertainable402 at the time of the assignment. This often occurs in connection with retention of title/ownership agreements.
English law does not have a specifically hallmarked equivalent to this type of security right in German law, because other arrangements are available which effectively give a similar security interest. These are essentially the same devices already discussed in connection with the transfer of ownership of a moveable for security purposes under German law, especially the English mortgage and the charge. Depending on the type of the charge,403 or the type of debt404 assigned for security purposes in case of a mortgage,405 formality requirements may have to be observed. In case of an assignment of a debt under a legal mortgage, the assignment to the mortgagee must be in writing and the third party debtor must be notified,406 in case of an equitable mortgage and informal assignment or agreement for the same407 suffices. As the common law does not recognise future property,408 only the equitable mortgage is available for mortgaging future debts, including book debts.409 It is also possible that the debtor D directs his debtor DD to hold the debt on trust for the creditor C.410 Where these devices involve the transfer of an equitable interest, matters can become quite complicated,411 and at this stage English law departs completely from German law.
d) Retention of ownership or title
This area of the law is extremely important to trade and commerce but will only be discussed here to give an overview of the German law and to illustrate the difference of the conceptual framework of the English and German property laws.412 The retention of title or ownership, as another means of granting security without possession, will be dealt with in relation to the issues of property law that arise from it. In English law, retention of title is only one available security measure (and strictly speaking not security as a matter of law 413); the charge in particular,414 which is not available to German law, may achieve similar results. The reservation of the right to transfer ownership is a topic which can be discussed in a fairly isolated and “free-standing” way in English law, while in German law this matter is interconnected with practically all areas of German property law (and contract law) and cannot meaningfully be discussed before having obtained a good understanding of all other important areas of property law: possession and possession transfer, ownership and its derivative and original acquisition, the law of pledges and the limitations in its application.
The basic rules of the retention of title agreement can be stated for both English and German law:415 it is in principle an arrangement whereby the seller and owner of the property transfers ownership in a moveable res to a buyer, subject to the condition of the full payment of the purchase price. The seller parts possession with the res (what a pledge would not permit), and nonetheless retains a security for the outstanding sum through the transferred thing he continues to own, unless and until the buyer’s debt is fully paid, thus extinguished. The buyer obtains possession and use of the res as if he were already the owner, thus the institution of retention of title is, again, a security method which can be concealed from the outside world. Depending on the overall arrangement, the purchase price may be paid by the buyer, or by a third party, acting as a payer vis-à-vis the seller and as a lender in relation to the buyer. Typically, the lender obtains security for his loan, either by way of the transfer of ownership (but not possession) in the sold moveable res to the lender for security,416 or by way of an assignment to him as a security of the future rights that the buyer obtains through the re-sale of the moveable to a third party, or through other arrangements.417 English law recognises retention of title clauses, or Romalpa clauses418 as they are named after the leading case,419 which are based on s. 19 of the Sale of Goods Act 1979.420
The German BGB recognises retention of title stipulations in § 449, which states a presumption regarding ownership in the absence of an express agreement: in a retention of title agreement (Eigentumsvorbehalt), ownership is presumed to be transferred on the condition precedent of the full payment of the purchase price. While the seller retains ownership until the entire payment, the buyer acquires a beneficial right (Anwartschaftsrecht, “ownership in waiting”), which is a real right421 giving him a position of an owner in waiting that becomes economically more valuable with each further instalment paid. By virtue of this position, the buyer can obtain damages if the seller negligently thwarts the occurrence of the event422 (especially full payment) which is the subject-matter of the condition. In addition, he is entitled to an action of delivery (§ 985 BGB), and damages (§ 823 BGB), similar to an outright owner. As a lawful possessor, the buyer is protected against dispossession and self-help (§ 858 BGB),423 and also has a defence in an action of delivery against him by virtue of his title to possession (§ 986 BGB).424 The seller remains owner with respect to third parties, and enjoys all rights flowing from his ownership. He can also destroy the buyer’s beneficial right as an owner in waiting by rescinding the contract425 because of the buyer’s delayed payment of the purchase price (or one of the instalments), and he can then claim the transferred res to be returned.426 In the event of insolvency of the buyer, the seller can claim the transferred res from the insolvent estate, similar to the transferor’s rights after a transfer of ownership in a moveable for security purposes.427 This ownership in waiting resembles somewhat an equitable interest in English law, but they should not be confused with one another. In English law, the primary candidate for an equitable interest would not be the buyer but the seller. Furthermore, the law relating to the sale of goods, to which the retention of title device belongs,428 is within the domain of the common law, and interventions by equity in this area are generally unusual. This is for instance shown by the fact that under a retention of title clause the right to trace has been given to the legal (not equitable/beneficial) owner429 if the buyer has a fiduciary duty (which is actually a prerequisite for tracing in equity430 ) to the seller, and that is considered as being uncommon. To obtain a traceable equitable interest – and that would be one of the seller – which is particularly important if the buyer is permitted to sell on,432 seller and buyer have to be given the role as bailor and bailee/seller’s agent, preferably by express stipulation in the contract of sale,433 so that a fiduciary relationship arises which is required for equitable tracing.434 An actual equitable interest, thus a proprietary right, could arise, not by virtue of the retention of title clause alone and the payment of instalments in connection under the contract of sale, but either through the creation of an outright trust with the seller as beneficiary (especially also in relation to the buyer’s re-sale proceeds 435), or through the seller’s transfer of legal ownership but reservation of the equitable ownership. In the latter case, if the equitable ownership is to extend to any products manufactured out of the material delivered by the seller and to the buyer’s proceeds of sale from selling on, this would be interpreted as an equitable charge which requires compliance with the formality (registration) rules for its validity.436 Thus the slight resemblance between the German buyer’s right of ownership in waiting and an English equitable interest falls apart after some examination of the matter, particularly when one looks at the commercially common situation of the buyer’s ability to re-sell the bought goods before he has paid all instalments and therefore obtained ownership (seller’s extended reservation of title 437).
The matter of the right to re-sell and the preservation of the seller’s security in this situation is also complex in German law. The verlängerter Eigentumsvorbehalt (“prolonged reserved ownership”) – that is, to what extent a buyer can transfer his right of ownership in waiting to third parties and to what extent a seller can preserve his retention of title rights and the security therein in case of such a transfer – deserves separate treatment and can only be outlined here.438 If the res is used as material for the making of a new thing, the general accession rule of § 950 BGB provides that the maker of the new thing becomes owner of the res, so the seller would lose his retained ownership. Whether the parties can contract out of this rule, is controversial.439 The seller may also obtain security through an assignment to him of the rights the buyer anticipates to acquire when selling on the res440 (assignment of future rights for security purposes441 ). The buyer can transfer his right as owner in waiting in a sale to a third party buyer, particularly, if the first seller permits this,442 but also if he does not.443 In such a situation of an extended retention of title stipulation (verlängerter Eigentumsvorbehalt), there is always the danger for the seller that the buyer, who sells on, pretends to be outright owner. If the buyer purports to transfer ownership, thus the full and unconditional right, and if the bona fide third person believes that the buyer is owner, then the third person acquires ownership according to the rules on bona fide acquisition of ownership from a transferor without title (§ 932 BGB).444 If the buyer attempts to transfer his right as owner in waiting, but this right, for some reason,445 does not exist, a bona fide third person cannot acquire ownership in good faith and § 932 BGB does not apply.446 The reason given for this discrepancy between good faith regarding ownership (where acquisition of ownership is successful) and good faith as to ownership in waiting (where it is not), is that in the latter case the bona fide party believed in a conditional ownership right where it turns out that the conditional event can never occur, and full ownership can never come into being.447
In English law, the seller can obtain protection in these situations mainly by resorting to well-drafted reservation of title clauses in the contract which the courts have subsequently enforced.448 The principal problems are the same. The seller, who may lose ownership by virtue of the accession rules in the course of his material being manufactured to new goods449 or because the buyer may re-sell the goods under the reserved title (whether with or without authority), may, for example, seek to stipulate that the buyer has to hold on trust for the seller all proceeds from the re-sale of the manufactured product,450 or, at least, that the seller has an entitlement to resale proceeds (effected by the seller’s equitable tracing right) which is termed a “proceeds of sale” or “tracing” clause.451 A bona fide third person will be able to acquire ownership in re-sold property from an unauthorised buyer under one of the exceptions to the nemo dat rule provided in s. 25 of the Sale of Goods Act,452 thus attempts in “extended reservation of title clauses” to retain ownership in the goods beyond the buyer against sub-buyers are usually453 ineffective.454 English law gives sellers more opportunities than German law to create retention of title provisions which they can construct from a combination of different building blocks available in the law.
2. User rights: ususfructus
User rights, ususfructus (Nießbrauch), are a type of personal servitude. They are defined as the (usually inalienable) real right to use a thing and reap the benefit from its use. They have very little importance in moveable property law.455 The BGB and German legal textbooks characteristically refer to them for the sake of completeness, English textbooks on personal property law characteristically do not.456 English legal doctrine discusses servitudes practically only in the context of land law, where this problem is indeed relevant.457
German law provides for the user right in moveable things in § 1032 BGB. As the user right is a real right which is split off from the more extensive real right of ownership; its creation follows the general principles of transfer of ownership (§ 929 BGB), in a similar way as the creation of a pledge (§ 1032 referring to § 929 BGB). The user has a right to possession of the moveable res (§ 1036 BGB), and is entitled to the (natural and civil) fruits. He has no right to dispose of the moveable res, such as its alienation or the creation of a pledge.458 However, if the use is granted in respect of a res for consumption (§ 92 BGB), the law interprets the user right as ownership, and this provision is mandatory. In that case, the user can dispose of the thing but has to replace its value on termination of his user right (§ 1067 BGB).
Most user rights are granted for the purpose of securing someone’s livelihood and maintenance (similar to a life tenancy)459 or for the purpose of securing a debt (often combined with a security right).460 Such user rights are almost exclusively granted in relation to immoveable property, and the relevance of the ususfructus rules for moveable things is virtually always confined to accessories in connection with land.
Even from this succinct account of German moveable property law and its comparison with English law one can gather that the differences between German law and English personal property law are substantial. Both systems rest on quite different epistemic frameworks, despite the functional similarities of their legal institutions in many cases. Nevertheless, within the general movement of European legal integration, there seems to be the belief that the differences should not be overestimated and can eventually be overcome for a Europe-wide harmonisation of private laws.461 A unification of the property laws in Europe would probably not be able to avoid the destruction of the core principles of each system. But attempts have been made to create EU-wide property rights, mainly security rights, for example a unified mortgage law with regard to land. However, plans for a “euro-hypothec” have proved too complicated and been abandoned. A unification of the laws would put an end to an enriching legal plurality and abolish a functioning competition between the jurisdictions for the better legal solution in a given case.462
The seemingly perceived, but in reality created, if not imposed, “principal sameness” of different jurisdictions requires a considerable amount of “re-education” of the actors of the individual legal cultures for its success. A German lawyer would have to give up the idea of a vindication right as the most central remedy for the protection of ownership and get used to a set of quite ancient property torts, which in turn, even more surprisingly to him, become increasingly replaced in practice by the tort of negligence. An English lawyer would have difficulties to understand why, especially in the case of chattels, possession should not be the central basis for the protection of ownership, and why ownership, in contrast to possession, should be an absolute, rather than relative, right. From a practical point of view, which is usually at the heart of English law, there is not that often the need to re-deliver the actual chattel, the thing in specie, which is typically a replaceable thing that can be bought again with the damages awarded. Where that is not the case, the court may have a statutory discretion. This is somewhat similar to contractual claims, where equity may step in, by way of specific performance. But it takes a while to explain to a German lawyer what equity is, what it does, and why it exists in the way it does. An English lawyer may find the Roman concept of property rather crude in comparison with the adaptable, versatile and mercurial system of English property rights as it emerges particularly in the context of a trust. These fundamental principles obviously pervade the details of the different legal institutions. German lawyers may have to get used to the floating charge, and English lawyers have to get to grips with the quite complicated German regulation of the sale of a pledged thing and the proceeds arising from it which could probably more easily be dealt with through the device of the trust. English lawyers may find the overarching concepts and abstract principles of German law in a comprehensive codified form difficult to understand. However, they will also need to realise that, as an exception, the commercially really important German security rights were developed outside the Civil Code, by commercial practice which court decisions and doctrine subsequently recognised, because the BGB provides a type of pledge which follows Roman law and the ius commune, and that has proved to be too inflexible. Even a “common core” fanatic must acknowledge that the way in which English law and German law deal with the exceptions to the nemo dat rule have as much in common as a cat has with a tortoise. Admittedly, they are both animals and both breathe. Similarly, both German law and English law have exceptions to the nemo dat rule since they are confronted with the same problem of resolving a title conflict between two blameless parties. But the fundamental differences of these two legal cultures should have become particularly apparent in such issues of personal property law.
There is an understandable fear that especially certain security rights may not always be enforceable in foreign jurisdictions, even within the EU, but in view of applicable conflict of law rules and, potentially, EU directives (rather than regulations) one need not overemphasise this danger.463 All legal systems recognise possible functional/commercial similarities of an alien legal institution and try to emulate the desired results by translating them into their own, and often very different, legal techniques. It is a well-known theme in comparative law that functionally private laws are often quite similar, but not their legal methods and techniques. A comparative lawyer seeks to familiarise a legal community with a foreign legal system for the purpose of mutual understanding and trade, and may also try to develop a reference system against which different legal institutions can be compared. However, legal practitioners and jurists of doctrinal law do not only deal with the question of “what”, the social and legal purpose, but also, and mainly so, with the question of “how”, the legal method, and that should not be explained away in an oversimplifying manner. If a Pole, a German, a Frenchman, an Englishman and a Scotsman are shown a table, the Pole will refer to it as “stół”, the German as “Tisch”, the Frenchman and the Englishman as “table”, but with a very different pronunciation, and the Scotsman will also refer to it as “table”, with a pronunciation slightly different from the Englishman’s. And although they all refer to the same object, it also matters in which way they refer to it. Or, in terms of property law: functionally, they all talk about the same object, but it matters how objects are defined as “things” for the purpose of the law in question, and how legal relations to these “things” are created to achieve similar economic objectives. Within the system of the Polish language it makes perfect sense to refer to a table as “stó?”, but not in German. Thus if a foreign lawyer regards the Law of Property Act 1925 as a “perfectly closed book”,464 then he does not know the system of English property law well enough. Some scholars may therefore seek refuge in a “unification” of the laws in order to understand, but in fact damage, them. Individual jurisdictions should not be forced to give up their cultural identities by replacing their legal institutions with a “Euro-Thing Law” as an artificial and remote compromise of existing property laws.
* Mag. iur. et phil., Dr. iur. (Vienna), LL.M. (London), Solicitor (England & Wales). Senior Lecturer in Law, University of Glasgow, UK. This article first appeared in 2008 Journal of Comparative Law, Vol. 3 (1), 197-248 and is reproduced with kind permission of Wildy, Simmonds & Hill Publishing.
1 On the presumptio similitudinis, see Zweigert, K and Kötz, H (1998) An Introduction to Comparative Law (tr T Weir) (3rd ed) Clarendon Press, Oxford University Press 35, 40. On convergence theories, see De Cruz, P (1999) Comparative Law in a Changing World (2nd ed), Cavendish Publishing 481-494.
2 Explanation of a “legal culture” and examples in Legrand, P (1996) ‘How to compare now’ (16) Legal Studies 232, 236. Indications of an awareness of the conceptual difference of legal systems/cultures in David, R and Brierley (1985) Major Legal Systems in the World Today (3rd ed) Stevens & Sons 19.
3 This presumption is, admittedly, somewhat bold, compare Worthington, S (2000) Personal Property Law Hart Publishing at v (preface): “… personal property law is one of the most neglected and least understood aspects of English law.” Similarly Pretto-Sakmann, A (2005) Boundaries of Personal Property Hart Publishing 15-17.
4 On these two points see e.g. Rahmatian, A (2004) ‘Codification of Private Law in Scotland: Observations by a Civil Lawyer’ (8) Edinburgh Law Review 31, 50-53.
5 Compare discussion by Legrand, P (1996) ‘European Legal Systems are not Converging’ (45) International and Comparative Law Quarterly 52, 60.
6 One example of a representation of a legal system in the structural framework of another is the discussion of English property law in the conceptual framework of essentially German law by Middleton, S ‘England’ in Ch v Bar (ed) (2000) Sachenrecht in Europa, Vol. I Rasch 101-208. This account renders English property law virtually unrecognisable, not because it is incorrect in any way, but because it represents the essence of the law in a completely different cultural context, and that is accentuated by the use of a different language (German). I say that advisedly, having originally trained in a Civil law system close to German law and having been teaching English property law in England for some time.
7 On the movement of “new ius commune seekers” see the helpful overview by Örücü, E ‘Unde Venit, Quo Tendit Comparative Law?’ in Harding, A and Örücü, E (eds) (2002) Comparative Law in the 21st Century Kluwer Academic 1, 3, 6-11.
8 See the overview of this particular interpretation of ius commune by one of its prominent representatives, Zimmermann, R ‘Ius Commune and the Principles of European Contract Law: Contemporary Renewal of an Old Idea’ in MacQueen, H L and Zimmermann, R (eds) (2006) European Contract Law: Scots and South African Perspectives Edinburgh University Press 1, 8-24, 33-42, and about its curious results for the scholarship of comparative law briefly in A Rahmatian’s review of this book in (2006) 11 Scots Law Times 59-60. On the ‘neo-pandectistic’ ius commune interpretation see also Rahmatian, A (2007) ‘Friedrich Carl v. Savigny’s “Beruf” and “Volksgeistlehre”‘ (28) The Journal of Legal History 1, 18-23.
9 This is also a reason why in the following account reference is predominantly made to leading German textbooks, rather than German court cases which tend to be absorbed into German legal doctrine to a much greater extent than in English law.
10 They are really important in the law of security rights, see Goode, R (2004) Commercial Law (3rd ed) Penguin 625 (in the following: ‘Goode’).
11 Below under E. 1. and 2.
12 Below under F. 1.
13 Below under D. 1. a).
14 Below under D. 1. b) and E. 1.
15 This is the case with the Sicherungsübereignung, the Sicherungszession and the Eigentumsvorbehalt, see below under F.1.b)-d). See also Drobnig, U ‘Is Article 9 of the Uniform Commercial Code exportable? A German View’ in Ziegel J S and Foster W F (eds) (1969) Aspects of Comparative Commercial Law: Sales, Consumer Credit, and Secured Transactions McGill University, Montreal. Oceana Publications 369.
16 See Legrand, P ‘How to compare now’ supra note 2 at 234.
17 E.g. Penner, J E (1997) The Idea of Property in Law Clarendon Press, Oxford University Press 68, 105.
18 Thus the subject-matter of property can in principle be a tangible in the material world, an intangible (e.g. air), or a pure intangible, that is a legal concept, e.g. a debt, intellectual property right. The actual situation depends on the jurisdiction in question, see below.
19 E.g. Schwab, K H and Prütting, H (2003) H Sachenrecht (31st ed) C H Beck, § 1, n 1, § 2, n 14 (in the following: ‘Schwab/Prütting, [§ x n x]’); Bridge, M (2002) Personal Property Law (3rd ed) Clarendon Law Series, Oxford University Press 1-2, 12, 14 (in the following: ‘Bridge’).
20 See Kahn-Freund, O ‘Introduction’ Renner, K (1949) The Institutions of Private Law and their Social Functions Routledge 20.
21 On that point, see already Lord Kames (Henry Home) (1792) Historical Law-Tracts (4th ed) (‘III. On Property’) Cadell et al, 88 note (1). See also Rahmatian, A (2006) ‘The Property Theory of Lord Kames (Henry Home)’ (2 (2)) International Journal of Law in Context 177, 180-186. Today, see e.g. Lawson, F H and Rudden, B (2002) The Law of Property (3rd ed) Clarendon Law Series, Oxford University Press 9 (in the following: ‘Lawson and Rudden’).
22 In addition, “property” sometimes also denotes ownership (Eigentumsrecht), the most extensive property right.
23 Animals are not things in German law (§ 90a BGB), but they are also subject to the law that applies to things, unless there is a provision to the contrary (and there is virtually none, apart from § 251 (2) BGB: the defendant who has caused damage to an animal also has to pay the costs for its treatment which exceed the animal’s value).
24 Baur, J F and Stürner, R (1999) Sachenrecht (17th ed) C H Beck, § 3 n 2. (in the following: ‘Baur/Stürner [§ x n x]’).
25 Reid K G C et al (1996) The Law of Property in Scotland Butterworths, para 11. (in the following: ‘Reid, [para]’).
26 The 18th century liberal tradition of freedom of the person and of property has influenced Zeiller, the draftsman of the ABGB, see Mayer-Maly, Th ‘Zeiller, das ABGB und wir’, in Selb, W and Hofmeister, H (eds) (1980) Forschungsband Franz von Zeiller Böhlau 4.
27 Gaius, Institutes, Book II, 12-14.
28 Except in the context of conflict of laws, see Bridge, 10.
29 Crossley Vaines, J (1962) Personal Property (3rd ed) Butterworths 3, 5, 8-9.
30 Lawson and Rudden, 19 et seq., Bridge, 3-8.
31 See the intellectual property statutes, for example regarding copyright: Copyright, Designs and Patents Act 1988, ss. 1, 90, patents: Patents Act 1977, s. 30, trade marks: Trade Marks Act 1994, s. 22.
32 These rights are called “Immaterialgüterrechte” in German and Austrian law. Such rights have a proprietary quality, but their strong personal aspect is acknowledged in that they are not considered as purely property rights. This is particularly true of copyright (author’s right) with its typically strong moral rights element. See e.g. Rahmatian, A (2000) ‘Non-assignability of Authors’ Rights in Austria and Germany and its Relation to the Concept of Creativity in Civil Law Jurisdictions generally: A Comparison with UK Copyright Law’ Entertainment Law Review 95 with further references.
33 Rudden, B ‘Economic Theory v. Property Law: The Numerus Clausus Problem’ in Eekelaar, J and Bell, J (eds) (1987) Oxford Essays in Jurisprudence (3rd series) Oxford University Press 239, 243.
34 Westermann, H P in Westermann, H (1998) Sachenrecht (7th ed) Müller § 1 I. 2 (in the following: ‘Westermann/[chapter author]’, e.g. ‘Westermann/Gursky [section]’).
35 Baur/Stürner, § 1 nn 7-8.
36 Baur/Stürner, § 2 n 2.
37 See e.g. Bydlinski, F (1996) System und Prinzipien des Privatrechts Springer 318-321.
38 On the absence of notice and consent in property law, see Rudden, B ‘Economic Theory v. Property Law’ supra note 33 at 246-247.
39 However, contract law provides sets of rules which were developed for typical contracts, like the sale, barter, loan, lease etc.
40 Rudden, B ‘Economic Theory v. Property Law’ supra note 33 at 244.
41 Baur/Stürner, § 3 nn 24-46; Schwab/Prütting, § 3 n 14; § 3 n 18.
42 See also below, D. 1. a).
43 Compare Honoré, A M ‘Ownership’, in Guest, A G (ed) (1961), Oxford Essays in Jurisprudence Oxford University Press 105, 126.
44 This is the term in English law in a sale of goods context, see Bridge, 30, but it is not exactly the same as “beschränkte dingliche Rechte” or “restricted real rights”.
45 This is the term in Scots property law, see Reid, para 6.
46 See below, F.1.d).
47 Overview e.g. in Schwab/Prütting, § 53 n 616, § 54, § 66, § 67.
48 It has some similarity with the old (obsolete) pecuniary real burden in Scots law, see Reid, para 383.
49 Kahn-Freund, ‘Introduction’ supra note 20 at 16, 24.
50 See below under D. 1. and 2.
51 Goode, 42.
52 Bridge, 29.
53 Bridge, 17, 28.
54 Goode, 31.
55 Murphy, T et al (2004) Understanding Property Law (4th ed) Sweet and Maxwell 60.
56 See below under D. 2.
57 See below under D. 1. c).
58 Bridge, 48, 52.
59 See below D. 2. d).
60 Goode, 34, 39; Bridge, 11, 31.
61 Goode, 34.
62 Goode, 35, 41, 627.
63 See below under F. 1. a).
64 Goode, 587; Bridge, 182, 188.
65 Other hindrances are the German principle of speciality of the security right, and the requirement of physical possession to obtain a pledge, see below under F. 1 a). For a non-possessory security, German law has to resort to outright ownership transfer to the creditor as a fiduciary, see below under F. 1. b).
66 German law: Schwab/Prütting § 6 n 43; English law: Bell, A P (1989) Modern Law of Personal Property in England and Ireland Butterworths 33: ‘possession … not in itself an interest but rather a state of affairs.’ (in the following: ‘Bell’).
67 Bell tends to see possession as a mere fact, at 33, Goode sees it as a right, 41. Bridge: “largely a matter of fact”, at 17.
68 Possessory title as being a standing to sue under a contract conferring/relating to possession (rather than immediate possession) or as a right to possession in the form of a property right, see Palmer, N ‘Possessory Title’ in Palmer, N and McKendrick, E (eds) (1998) Interests in Goods (2nd ed) LLP Reference Publishing 63-64 on the definition of possessory title in The Aliakmon  1 AC 785, 809, per Lord Brandon.
69 Bridge, 17, 28-29, Bell, 76.
70 Goode, 31, Bell, 51.
71 Bridge, 47.
72 Goode, 31 (ownership), 42 (possession); Worthington, S Personal Property Law supra note 3 at 39 (ownership), 51 (possession).
73 Lawson and Rudden, 115, Bell, 33.
74 United States of America v. Dollfus Mieg et Cie SA  AC 582 at 605, per Viscount Jowitt. Goode, 42. Harris, D H ‘The concept of possession in English law’ in Guest, A G (ed) (1961) Oxford Essays in Jurisprudence Oxford University Press 69.
75 Paulus D 41, 2, 3, 1. See also Nicholas, B (1975) An Introduction to Roman Law Clarendon Law Series, Oxford University Press 112-113.
76 But not entirely: vestiges of the old Germanic “Gewere”, which was a possession right, found their way into the BGB, see, with further references, Mitteis, H and Lieberich, H (1978) Deutsches Privatrecht (8th ed) C H Beck 86, 89.
77 Schwab/Prütting, § 6 n 49; Westermann/Gursky, § 8 n 4.
78 This term has been used, following Roman law to some extent, because the largely equivalent term “civil possession” which is used in Scots law today, for example, is rather confusing in that it conflates somewhat the separate categories of Eigenbesitz and mittelbarer Besitz, compare Carey Miller, D L and Irvine, D (2005) Corporeal Moveables in Scots Law (2nd ed) Thomson/W Green 25-26. Also the term “constructive possession” in English law obscures rather than clarifies matters, see Goode, 43.
79 This account is quite short, see for more details on unmittelbarer Besitz – mittelbarer Besitz, Eigenbesitz – Fremdbesitz, Baur/Stürner, § 7 nn 1-3; Westermann/Gursky, §§ 9, 12, 17.
80 Baur/Stürner, § 7 nn 30-35.
81 Some jurisdictions also use the term “detentor” in this context (such as Scots and Austrian laws with slightly different meanings, compare the use of the term “detention” in Scots law in Reid, para 121. See the Austrian ABGB, § 318, which avoids this term and uses “Inhaber” instead of “Detentor”). “Detentor” is ambiguous because it can mean (natural) “possessor” (who possesses for someone else) or “holder” (“Inhaber”) who has merely factual control over the thing, but no intention to possess.
82 German law distinguishes between those persons on the one hand, and employees, domestic servants and other persons subordinate to the possessor on the other, who are not given possession on behalf of the possessor (their employer etc.) but are placed in a separate category of “servants as to possession” (“Besitzdiener”), § 855 BGB. The law denies them the quality of being a possessor to avoid arising any rights a direct possessor could otherwise have against the indirect possessor, such as a pledgee’s right to direct possession against the pledgor for the time period of the pledge. See for more details, Baur/Stürner, § 7 nn 61 et seq; Westermann/Gursky, § 10.
83 See this example in Schwab/Prütting, § 9 n 62.
84 Bell, 35, 36.
85 Bridge, 17.
86 Bell, 34.
87 Bell, 35.
88 Bell, 53.
89 Bailment means that the bailee is willingly and with authority in possession of goods to which the bailor retains a better title, see Bell, 86-87.
90 Bell, 53. In German law, the bailor would be indirect possessor suo nomine (mittelbarer Eigenbesitzer), and the bailee direct possessor alieno nomine (unmittelbarer Fremdbesitzer).
91 Bell, 53.
92 Bridge, 19.
93 Goode, 43.
94 Goode, 44.
95 Goode, 43.
96 Bridge, 20, Bell, 61. This is similar to the German concept of the employee as “Besitzdiener” under § 855 BGB.
97 Baur/Stürner, § 7 n 13.
98 See below, F.1.b).
99 Baur/Stürner, § 7 n 51.
100 See Westermann/Gursky, § 13 II, and below under E.1.
101 Traditio brevi manu: “Der Fremdbesitzer wird zum Eigenbesitzer”.
102 Eg the owner sells and transfers ownership in the thing but keeps it, rather than delivering it to the new owner. See explanation of the Roman law constitutum possessorium in Nicholas, B Roman Law supra note 75 above at 119.
103 Constitutum possessorium: “Der Eigenbesitzer wird zum Fremdbesitzer”.
104 Baur/Stürner, § 51 nn 20-21.
105 Schwab/Prütting, § 7 nn 58-59.
106 Bell, 62.
107 This is the scenario of the constitutum possessorium in German law, § 930 BGB.
108 Bell, 63. This is the scenario of the traditio brevi manu in German law, § 929, sentence 2 BGB.
109 Bell, 63. This would be a situation of “Besitzanweisung” which German law does not regulate separately. See instead § 931 BGB.
110 In German law this would be cases of “Besitzerwerb durch Einigung”, § 854 (2), see Schwab/Prütting, § 7 n 56.
111 Bell, 58, 64.
112 Goode, 45, Bell, 36, 51.
113 Bell, 51 with further references. The details surrounding abandonment by the possessor or owner are complicated and controversial, see Hudson, 595.
114 Or possession is presumed to continue if there is no abandonment, but that problem does not seem to arise as a separate issue for an English lawyer because in the case of a lost res he will concentrate only on the ownership aspect which encompasses possession. See e.g. Hudson, A ‘Abandonment’ in Palmer, N and McKendrick, E (eds) (1998) Interests in Goods (2nd ed) LLP Reference Publishing 595-619 who speaks of “owners and possessors of property”, at 595, 596, “possessory or proprietary rights”, at 614.
115 Hudson, ‘Abandonment’ supra note 114 at 603.
116 Bridge, 46.
117 Below, D.2.d).
118 Worthington, S Personal Property Law supra note 3 at 76, Goode, 31.
119 This distinction is not observed strictly in reality. In German law, § 1007 BGB, the action of the prior possessor for delivery of the moveable res against the present possessor in bad faith (an extended form of the Roman law actio publiciana), is based on possession, but allows the enforcement of a right to possession in a permanent way, close to ownership, and is therefore more “petitory” rather than possessory in nature, see Schwab/Prütting, § 50 n 587. See also below under D.2.c).
120 Baur/Stürner, § 9 nn 10-11.
121 Baur/Stürner, § 9 nn 10-11.
122 Schwab/Prütting, § 14, n 119.
123 See for more details Schwab/Prütting, § 14 nn 120, 121, 123-124; Baur/Stürner, § 9 nn 16-22.
124 Baur/Stürner, § 9 nn 23-25. The same applies in relation to a landlord-tenant situation in immoveable property law.
125 For the present paragraph, see Rahmatian, A ‘The Property Theory of Lord Kames’ supra note 21 at 181-182.
126 Honoré, A M ‘Ownership’ supra note 43 at 108-109.
127 Gray, K (1991) ‘Property in Thin Air’ (50) Cambridge Law Journal 252.
128 This is the well-known definition by Honoré commonly used in the Common Law world, see Honoré, A M ‘Ownership’ supra note 43 at 108.
129 See Honoré, A M ‘Ownership’ supra note 43 at 126.
130 More details in Westermann/Gursky, § 28 I 2. On the guarantee of ownership in German constitutional law, see Wolf, M (2004) Sachenrecht (20th ed) C H Beck § 3 nn 33-42.
131 On the action of delivery, see below D.2.d).
132 Baur/Stürner, § 11 n 1, § 24 n 5, § 50 nn 1-2.
133 Baur/Stürner, § 24 n 4.
134 See above under C.
135 See above under B.1., C. and below under F.1.a) (pledge and floating charge).
136 Bell, 153.
137 E.g. Bridge, 28.
138 See above under D.1.c) and below under D.2.d).
139 Compare Honoré, A M ‘Ownership’ supra note 43 at 142.
140 Schwab/Prütting, § 51 nn 591 et seq.; Baur/Stürner, § 3 n 27, § 50 nn 7-12. Joint ownership is only available within the institutions provided by law, such as the BGB-Gesellschaft, the community of heirs (§§ 2032 BGB et seq.) the general partnership (§§ 105 et seq. HGB or Commercial Code) and the limited partnership (§§ 161 et seq. HGB).
141 See e.g. Gray, K and Gray, S F (2005) Elements of Land Law (4th ed) Oxford University Press 1021.
142 See e.g. Bridge, 31, Worthington, Personal Property Law supra note 3 at 49, Bell, 74.
143 Lawson and Rudden, 92-93.
144 Fowkes v. Pascoe (1875) LR 10 Ch. App. 343.
145 This presumption may be defeated by the presumption of advancement, see e.g. Martin J E (Hanbury and Martin) Modern Equity (17th ed) Sweet and Maxwell, 269, Hayton, D and Mitchell, Ch (Hayton and Marshall) Commentary and Cases on the Law of Trusts and Equitable Remedies (12th ed) Sweet and Maxwell 322.
146 Wray v Steele (1814) 2 V & B 388.
147 Midland Bank v Cooke  4 All ER 562, Oxley v. Hiscock  3 WLR 715.
148 For more discussion on purchase money resulting trusts, see e.g. Martin J E (Hanbury and Martin) Modern Equity supra note 145 at 267-268.
149 In the case of land (real property), co-owners (co-trustees) must hold the legal title to the property jointly, see Law of Property Act 1925, ss. 35 (1), 36 (2).
150 In the context of land law, and especially the “family home” cases, where these issues are of most practical importance, these rules have been altered considerably, see Hanbury and Martin (Jill Martin), 285.
151 Schwab/Prütting, § 6 n 49.
152 Baur/Stürner, § 3 n 24.
153 Nicholas, B Roman Law supra note 75 at 114-115.
154 Baur/Stürner, § 10 n 6; Westermann/Gursky, § 34 I.
155 This claim is rooted in the actio publiciana of Roman law, see Nicholas, B Roman Law supra note 75 at 127.
156 The pre-requisites of a claim according to § 1007 are more complicated in the details, see Baur/Stürner, § 9 nn 27, 29; Schwab/Prütting, § 50 n 590, Westermann/Gursky, § 35.
157 Schwab/Prütting, § 50 n 587.
158 Bell, 76. There is also the presumption that the owner will be in possession where it is not clear who is in possession of the thing, Bell, 51.
159 Goode, 62.
160 Palmer, N ‘Possessory Title’ supra note 68 at 66; Crossley Vaines, J Personal Property supra note 29 at 45.
161 The Winkfield  P 42.
162 The Jag Shakti  AC 337.
163 Crossley Vaines, J Personal Property supra note 29 at 39.
164 Schwab/Prütting, § 47 nn 512, 522.
165 Goode, 62.
166 Bridge, 51, 62.
167 Worthington, S Personal Property Law supra note 3 at 572.
168 On the property torts, see e.g. Bridge, 47-79; Bell, 76-85; Tettenborn, A ‘Wrongful Interference with Goods’ in Alexander, D et al (eds) (2006) Clerk & Lindsell on Torts (19th ed) Sweet and Maxwell paras 17-01 to 17-142 at 1003-1079.
169 Worthington, S Personal Property Law supra note 3 at 572.
170 Bridge, 51.
171 Bridge, 48-49.
172 , A ‘Conversion, Tort and Restitution’ in Palmer, N and McKendrick, E (eds) Interests in Goods (2nd ed) LLP Reference Publishing 825.
173 Lancashire and Yorkshire Railway Co. v. MacNicoll  88 LJKB 601, Oaxley v. Lyster  1 KB 148.
174 Bridge, 63.
175 Jeffries v. Great Western Railway Co. (1856) 5 E & B 802.
176 Torts (Interference with Goods) Act 1977, s. 3 (c).
177 Ibid., s. 3 (2) (b).
178 Ibid., s. 3 (2) (a) and s. 3 (3) (b).
179 Schwab/Prütting, § 47 nn 513-515; Baur/Stürner, § 11 nn 1, 4; Westermann/Gursky, § 30.
180 This area is quite complicated and cannot be discussed here in detail, see Schwab/Prütting, § 48.
181 Baur/Stürner, § 11 n 6.
182 The relevant provisions in this area are significantly more detailed, see Schwab/Prütting, § 48 nn 532-534, 551-555.
183 Baur/Stürner, § 11 nn 9-10.
184 Schwab/Prütting, § 47 n 523.
185 Baur/Stürner, § 12 n 1.
186 Baur/Stürner, § 12 nn 2, 5, 12-14.
187 More details in Baur/Stürner, especially § 12 nn 20-27; Wolf, M Sachenrecht supra note 130 at § 14.
188 Baur/Stürner, § 5 n 40-41.
189 See on the Roman law institutions of mutuum and commodatum, Nicholas, B Roman Law supra note 75 at 167-168.
190 § 380 Austrian ABGB: no ownership can be acquired without a cause (Titel, titulus) and a legally recognised mode of transfer (rechtliche Erwerbungsart, modus).
191 Compare Swiss Civil Code (Zivilgesetzbuch) §§ 974-975 ZGB (regarding land), and court decision BGE 55 II 306 (regarding moveable property). The matter is slightly more complex, in that the parties can decide not to refer to the cause of the contract (art 17 Obligationenrecht), or exclude certain defences, and thus give their transaction a higher abstract quality, see Koller, A in Guhl (Koller et al) (eds) (2000) Das schweizerische Obligationenrecht (9th ed) Schulthess 100-101.
192 Baur/Stürner, § 5 n 41-42.
193 Baur/Stürner, § 51 n 1; Westermann/Westermann, § 37 n 3, §§ 38, 40.
194 Savigny, F C v (1853) Das Obligationenrecht als Theil des heutigen Römischen Rechts, vol II Veit und Comp. 254-261, especially at 257 and note (m). Note (m) is almost identical with the wording in § 929 BGB today.
195 Wieacker, F (1995) A history of private law in Europe (tr Tony Weir) Oxford University Press 341-362; van Vliet, L P W (2000) Transfer of Movables in German, French, English and Dutch law Ars Aequi Libri 169, 186.
196 See on this process Rahmatian, A ‘Friedrich Carl v. Savigny’s “Beruf” and “Volksgeistlehre”‘ supra note 8 at 1, 15-17, with further references.
197 Ulpian D 12,1,18 pr.
198 Julian D 41,1,36.
199 The wording chosen here (“acquire”) is deliberately vague, because the acquisition can be an original one in good faith or a derivative one, depending on the legal remedy in question. The matter of “Fehleridentität” is far more complicated than this outline suggests, see Baur/Stürner, § 5 nn 7-10, 51-53, Westermann/Westermann, § 4 IV. 1. There are different legal consequences, depending on whether the vitiation of the contract was due to mistake, fraud, usury etc.
200 In principle, the parties can withdraw from that agreement to transfer ownership (prevalent, but disputed, view), although that may attract liability for breach of the contract (e.g. sale) which obliges them to perform the real contract, Baur/Stürner, § 5 n 36.
201 Baur/Stürner, § 5 nn 2, 5. This agreement can be conditional, as is the case in retention or reservation of ownership/title stipulations, see § 449 BGB, Baur/Stürner, § 51 n 9.
202 See D.1.b).
203 In such a case the old owner is either indirect possessor (suo nomine) or not possessor at all (e.g. he had lost possession – obviously not ownership – to a thief), see Baur/Stürner, § 51 n 35.
204 Baur/Stürner, § 51 nn 35-36.
205 See above under D.1.a).
206 Baur/Stürner, § 51 n 18.
207 It is irrelevant whether the acquisition of ownership itself was a derivative acquisition or a bona fide acquisition (see below, E.2.a)), of which this rule is a sub-category in relation to the restricted real rights. There are various additional provisions in the context of this rule, which are not discussed here.
208 See Bell, 236, Bridge, 81, but characteristically without much emphasis, unlike Scottish textbooks, where the Civilan origin of Scottish property law is emphasised, see Reid, para. 606; Carey Miller and Irvine Corporeal Moveables in Scots Law supra note 78 at 131-134; Guthrie, T G (2005) Scottish Property Law (2nd ed) Tottel 47-50. As regards security rights, see Goode, 625.
209 Goode, 25-26.
210 In relation to unascertained goods, Sale of Goods Act, s. 16 applies, according to which title in unascertained goods cannot pass until the have become ascertained. See Bridge, 86.
211 See Cochrane v. Moore (1890) 25 QBD 57.
212 See Bridge, 80-81.
213 In the terminology of the Sale of Goods Act, s. 17, “property”.
214 Art. 1138 Code Civil.
215 § 380 ABGB.
216 § 929 BGB.
217 Bridge, 81.
218 Singh v. Ali  AC 167, Goode, 133, Bridge, 81.
219 Schwab/Prütting, § 4 n 27, Baur/Stürner, § 5 nn 7-10.
220 Schwab/Prütting, § 35 n 423; Bridge, 116; Crossley Vaines, J Personal Property supra note 29 at 139.
221 Goode, 416; Bell, 459; Ulph, J ‘Good Faith and Due Diligence’ in Palmer, N and McKendrick, E (eds) (1998) Interests in Goods (2nd ed) LLP Reference Publishing 403, 404.
222 Ulpian D 50,17,54.
223 “Wo Du Deinen Glauben gelassen hast, musst Du ihn suchen”, also expressed as “Hand wahre Hand”, see Conrad, H (1962) Deutsche Rechtsgeschichte I Müller 432.
224 Baur/Stürner, § 52 nn 8-10; Westermann/Gursky, § 45 I, III 1 d), V.
225 Indirect possession also confers the appearance or presumption of ownership, § 932 in connection with § 929 BGB, § 934 BGB.
226 Baur/Stürner, § 52 n 17.
227 That is, original acquisition in good faith under § 932 BGB. Derivative acquisition under § 929 BGB is of course possible through constitutum possessorium.
228 The theoretical conflict between § 933 BGB (no acquisition in good faith through constitutum possessorium), and § 934 BGB (acquisition in good faith by way of assignment of the real action), is not easy to justify, see e.g. Westermann/Gursky, § 48 II 2.
229 In that case, indirect possession of the transferor is transferred to the transferee, § 870 BGB. This rule applies both to derivative acquisition of ownership and acquisition in good faith.
230 Acquisition of indirect possession is sufficient, BGH Neue Juristische Wochenschrift 1959, 1536, Baur/Stürner, § 52 n 22.
231 Baur/Stürner, § 52 nn 20-22.
232 Gross negligence does not prevent acquisition in good faith of immoveable property (§ 892 BGB). The reason for this restriction to positive knowledge is that everybody is entitled to rely on the accuracy of the entries in the land register (“öffentlicher Glaube des Grundbuchs”).
234 Other jurisdictions are stricter. In Austria, any negligence destroys good faith, § 367 ABGB, and Koziol, H and Welser, R (1991) Grundriß des bürgerlichen Rechts II Manz 80 with further references.
234 In fact, this burden of proof provision is hidden in the wording and construction of the first sentence of § 932 “… es sei denn, daß … [der Erwerber] … nicht in gutem Glauben ist …”, as is typical of the BGB, and one example of its numerous drafting weaknesses, which strive for technical brilliance, not clarity, see also Zweigert; K and Kötz, H Introduction to Comparative Law supra note 1 at 145. Only academic writing helps identifying clearly the existence of this burden of proof rule, e.g. Baur/Stürner, § 52 n 25.
235 However, it is acceptable for a commercial transaction under the Commercial Code in certain circumstances, see § 366 HGB (Handelsgesetzbuch, Commercial Code).
236 Baur/Stürner, § 52 n 37.
237 In Austria, for example, there is only a bona fide acquisition if the contract effecting the transfer of the res was against payment, § 367 ABGB (in the new version as of 1 Jan 2007): “daß er die Sache gegen Entgelt […] erworben hat”. The effect is in most cases the same as in Germany. However, there are differences if a further transaction takes place after the bona fide acquisition and before the claim of the original owner. In Germany, the acquirer can pass ownership derivatively to a third party in the meantime, in Austria not, because the acquirer has never become owner.
238 Bridge, 115, 117; Ulph, J ‘Good Faith and Due Diligence’ supra note 221 at 404, 420; Goode, 417, 424.
239 Bridge, 117.
240 The most common practical example today is in relation to currency: the transfer of money (banknotes, coins) as a currency (not e.g. as antiques) to a transferee taking in good faith and for valuable consideration gives a good title to the recipient, Miller v Race (1758) 1 Burr 452. Money does not qualify as “goods” for the Sale of Goods Act, s. 61, so the Act does not apply to these transactions.
241 The restatement of the principle of nemo dat quod non habet is also in the Sale of Goods Act, s. 21 (1).
242 Goode, 417, 425, 426.
243 It did not apply in Scotland, see Sale of Goods Act, s. 22 (2), or in Wales, see Laws in Wales Act 1542, (former) s. 47.
244 Sale of Goods (Amendment) Act 1994, s. 1, in force since 1995. See Goode, 425. On the history and operation of the rule before 1995 (and this rule remains in force for all sales before 1995), see Davenport, B and Ross, A ‘Market Overt’ in Palmer, N and McKendrick, E (eds) (1998) Interests in Goods (2nd ed) LLP Reference Publishing 337-352.
245 Goode, 425, 430, 434, Bridge, 122, 129, 133.
246 That is, the trustee (whether under an express trust or a resulting or constructive trust) has misappropriated or misdirected trust property by transferring legal title in it to a third party or himself.
247 Worthington, S (2006) Equity (2nd ed) Clarendon Law Series, Oxford University Press, 87-89, 95-96; Hayton, D and Mitchell, Ch (Hayton and Marshall) Commentary and Cases on the Law of Trusts supra note 145 at 799-800.
248 The technical term of “Subsumption” German law (broadly, the incorporation under a more general category) in has tellingly no exact equivalent in English law.
249 Compare Legrand, P ‘The Same and the Different’ in Legrand, P and Munday, R (eds) (2003) Comparative Legal Studies: Traditions and Transitions Cambridge University Press 240, 276, 298-301.
250 Goode, 417.
251 Lord Millett in Shogun Finance v. Hudson  UKHL 62 para 86,  1 AC 919, 954.
252 Goode, 417-418, 423.
253 And ss. 8 and 9 of the Factors Act, respectively.
254 Schwab/Prütting § 35 n 427.
255 The acquisition in good faith rule under s. 24 does not apply if the seller does not have the right to sell in the first place, see Bridge, 130.
256 The equal scenario is that of the agent apparently transferring ownership to the second buyer, compare Sale of Goods Act, s. 24. See also the almost identical provision of the Factors Act, s. 8.
257 There is authority to the effect that constructive delivery suffices. On the problems of this view, see Goode, 432.
258 Pacific Motor Auctions Ltd v. Motor Credits Ltd  AC 867, PC, Bridge, 130-131, Goode, 431.
259 Bridge, 132. The rule operates against the seller, not, if applicable, against the true owner. If the seller has stolen the goods from the owner, sells them to the buyer and the buyer in turn re-sells them, the third party cannot resist the owner’s claim, see National Employers’ Mutual General Insurance Association v. Jones  1 AC 24, Goode, 437-438, Bridge, 135.
260 Goode, 434.
261 Bridge, 122-124, Goode, 425.
262 This rule is also important for the unauthorised creation of a pledge in favour of a bona fide pledgee, see below under F.1.a). See for more discussion, Goode, 426-430.
263 Schwab/Prütting, § 35 n 423, Baur/Stürner, § 52 nn 8-10, Goode, 417 et passim.
264 See § 932 (2) BGB, Schwab/Prütting, § 35 n 425.
265 See Sale of Goods Act, s. 61 (3).
266 See discussion in Ulph, J ‘Good Faith and Due Diligence’ supra note 221 at 407-409.
267 In German doctrine the view that acquisition in good faith is an instance of original acquisition is disputed, see Schwab/Prütting, § 35 n 441.
268 Birks, P ‘Mixtures’ in Palmer, N and McKendrick, E (eds) (1998) Interests in Goods (2nd ed) LLP Reference Publishing 227, 232.
269 The BGB devotes no less than four sections (§§ 961-964 BGB) on the occupancy of a swarm of bees, perhaps wishing to follow duly Roman law sources, such as Gaius D 41,1,5,2. The eager reader, who feels missing out on this essential part of legislation, is referred to German property law textbooks, e.g. Westermann/Gursky, § 58 V.
270 Baur/Stürner, § 53 n 78.
271 Bell, 68; Crossley Vaines Personal Property supra note 29 at 336.
272 Parker v. British Airways Board  QB 1004.
273 Bell, 40. The rules are quite intricate in the detail and depend on other criteria, such as whether the thing in question is on the land or buried in, or attached to, the land, or is lying in or on chattels, see Bell 40-46.
274 Baur/Stürner, § 53 nn 85, 88.
275 Lawson and Rudden, 155. But see also the time limit of 12 years for actions to recover land, Limitations Act 1980, s. 15 (1). Whether there is in case of chattels an equivalent of “adverse possession” in land law is unclear, at least for English law (US law seems to have recognised adverse possession for chattels), see Redmond-Cooper, R ‘Time Limits in Actions to Recover Chattels’ in Palmer, N and McKendrick, E (eds) (1998) Interests in Goods (2nd ed) LLP Reference Publishing 937, 949-950.
276 Limitation Act 1980, s. 2.
277 Murphy, T et al. Understanding Property Law supra note 55 at 65. Thus he must be a dishonest taker opening himself up to liability in conversion.
278 Limitation Act 1980, s. 3 (2). See also Worthington, S Personal Property Law supra note 3 at 658.
279 Somewhat different in Birks, P ‘Mixtures’ supra note 268 at 227-228 for English law who uses a narrower meaning of accession.
280 Although potentially involving immoveable property, accession is discussed here in the context of moveable property law for the sake of convenience.
281 See below, F.1.d).
282 Van Vliet, L P W (2002) ‘Accession of Movables to Land: I and II’ (6) Edinburgh Law Review 67-86 (on Dutch, German, Scots and English Law), and 199-216 (on French and South African Law).
283 On mixtures in English law, see Birks, P ‘Mixtures’ supra note 268 at 235-246.
284 This rule shows an influence of the Sabinian school in Roman law, while the general rule in § 950 BGB is essentially Proculian/Justinianic, see Schwab/Prütting, § 38 n 461; Palmer, N and Hudson, A ‘Improving Stolen Chattels’ in Palmer, N and McKendrick, E (eds) (1998) Interests in Goods (2nd ed) LLP Reference Publishing 919, 934; Birks, P ‘Mixtures’ supra note 268 at 228 n 3.
285 Baur/Stürner, § 53 n 14; Däubler, W (2002) BGB kompakt Deutscher Taschenbuch Verlag 402.
286 Baur/Stürner, § 53 n 20.
287 Baur/Stürner, § 53 n 15.
288 Westermann/Gursky, § 53 III. 1-2 with further references.
289 BGH Neue Juristische Wochenschrift 1977, 274, Westermann/Gursky, § 53 III e) with further references; Baur/Stürner, § 53 nn 15, 22.
290 Baur/Stürner, § 53 n 24: According to the prevalent view, § 951 BGB is not a separate rule of unjustified enrichment, but refers to the general rules, thus the whole law of unjustified enrichment (with all prerequisites etc.) applies, not only its legal consequences.
291 Wolf, M Sachenrecht supra note 130 at § 25.
292 Baur/Stürner, § 53 nn 23, 32.
293 § 951 (2) BGB.
294 Thus English law effectively follows the Proculian, not the Sabinian, school in classical Roman law, see Palmer, N and Hudson, A ‘Improving Stolen Chattels’ supra note 284 at 934-935, Birks, P ‘Mixtures’ supra note 268 at 228 n 3.
295  Ch 25, CA. See also Re Peachdart Ltd  Ch 131. There are several qualifications and provisos to this rule, see Bell, 69.
296 Palmer, N and Hudson, A ‘Improving Stolen Chattels’ supra note 284 at 935.
297 Allowance for improvement of goods by an improver having acted in the mistaken but honest belief that he had good title to them, Torts (Interference with Goods) Act 1977, s. 6 (1). Whether the old common law allowance under Greenwood v. Bennett  1 QB 195 is still valid after the enactment of this statute is unclear, see Palmer, N and Hudson, A ‘Improving Stolen Chattels’ supra note 284 at, 928-929.
298 This is, arguably, a restricted property right, compare Palmer, N and Hudson, A ‘Pledge’ in Palmer, N and McKendrick, E (eds) (1998) Interests in Goods (2nd ed) LLP Reference Publishing 621, 633, although the notion of a subordinate real right or restricted real right is rooted in Roman law thinking.
299 Compare for the English law, Bridge, 175-176; Palmer, N and Hudson, A ‘Pledge’ supra note 298 at 621.
300 Rights are not res in German law, see § 90 BGB and above under B.1.
301 Mainly, if not exclusively, dealt with in the German Code of Civil Procedure (Zivilprozeßordnung, ZPO), §§ 803 ZPO et seq.
302 In English law, the pledge is considered as an instance of bailment (see immediately below), and bailment is unavailable for intangible property, Palmer, N and Hudson, A ‘Pledge’ supra note 298 at 635.
303 Unlike liens to some extent, Bell, 137.
304 The relevant enforcement orders by the court are the Third Party Debt Orders, formerly Garnishee Orders (Civil Procedure Rules, Part 72) and the Charging Orders (Charging Orders Act 1979 and Civil Procedure Rules, Part 73). See Adenas, M ‘England and Wales’ (National Report), in Adenas, M et al (eds) (2005) Enforcement Agency Practice in Europe The British Institute of International and Comparative Law 131, 138-142.
305 Baur/Stürner, § 55 nn 3-7; Westermann/Gursky, § 127 II.
306 Compare §§ 562, 562a BGB (landlord’s pledge in respect of tenant’s property on the land/in the flat) which must have had such a scenario in mind.
307 Baur/Stürner, § 55 n 5.
308 On the rei vindicatio, see above under D.2.d).
309 The pawn is technically a pledge but associated with the business of making small advances against pledges by individuals. The term “pawn” is used in such a context and pawnbrokers are also subject to specialist consumer protection legislation (Consumer Credit Act 1974 as amended by the Consumer Credit Act 2006), see Bell, 138, Bridge, 175.
310 Bridge, 177. The difference is that in case of a mortgage, the creditor/mortgagee obtains the powerful remedy of foreclosure which permits him to treat the secured res as his own and to retain any surplus obtained on a subsequent sale of the res. The pledgee cannot foreclose.
311 Compare Palmer, N and Hudson, A ‘Pledge’ supra note 298 at 622, 635, Bridge, 175-176, Bell, 136, 145.
312 Bell, 148.
313 Palmer, N and Hudson, A ‘Pledge’ supra note 298 at 637-638.
314 Sewell v. Burdick (1884) 10 App Cas 74, Halliday v. Holgate LR 3 Ex 299, Bridge, 177, Bell, 146
315 Compare the discussion in Palmer and Hudson, 622-623, and Bank of Credit and Commerce International SA v Aboody, unreported, discussed ibid., 623 on pledges on stock-in-trade.
316 Palmer, N and Hudson, A ‘Pledge’ supra note 298 at 623.
317 For this reason, the floating charge had to be introduced by way of a special statute into Scots property law which is also based on Roman law, see Cabrelli, D (2005) ‘The case against the Floating Charge in Scotland’ (9) Edinburgh Law Review 407, 409.
318 Lord Macnaghten in Government Stock Investment Co v. Manila Railway Co  AC 81.
319 Compare Lawson and Rudden, 144; Bridge, 189.
320 Palmer, N and Hudson, A ‘Pledge’ supra note 298 at 628; Bell, 144.
321 Askrigg Pty Ltd v. Student Guild of the Curtin University of Technology (1989) 18 NSWLR 738; Palmer, N and Hudson, A ‘Pledge’ supra note 298 at 629.
322 See above, D.2.d).
323 Goode, 54, 654 on the priority rules.
324 Palmer, N and Hudson, A ‘Pledge’ supra note 298 at 624. In case of inchoate pledges where possession has not been transferred, the matter is more complicated and has not been conclusively decided, ibid., 624 and n 31.
325 See above under E.1.
326 See above under E.1. The constitutum possessorium (§ 930 BGB) as a substitute for physical delivery is not available, for the reasons see above. Traditio brevi manu, i.e. where the pledged thing is already in the creditor’s possession, is possible (§ 1205 (1) BGB, 2nd sentence).
327 Baur/Stürner, § 55 n 16.
328 Baur/Stürner, § 55 nn 9, 15.
329 Good faith merely in the pledgor’s authorisation does not suffice, as in the case of bona fide acquisition of ownership under § 932 BGB.
330 See above under E.2.a); Baur/Stürner, § 55 n 18.
331 Baur/Stürner, § 55 n 9.
332 Westermann/Gursky, § 128 III.
333 In that case, the creditor has to account to the owner of the pledge for his profits (§ 1214 BGB).
334 Especially by way of the rei vindicatio under § 985 BGB, see above under D.2.d).
335 As ownership and pledge are merged, the pledge is normally extinguished, § 1256 (1) BGB. If the payer is not the owner of the pledged thing, he obtains not only the debt but also its securing pledge. For more details see Baur/Stürner, § 55 n 23, 33; Westermann/Gursky § 129 IV, with further references.
336 Where these are not identical. However, returning the pledged res to the debtor, if different from the owner or pledgor, does not extinguish the pledge, see Baur/Stürner, § 55 n 34.
337 The pledgee cannot avoid this legal consequence by stipulating the continuance of the pledge. Such an agreement is void (§ 1253 (1) 2nd sentence).
338 Bell, 136.
339 See Palmer, N and Hudson, A ‘Pledge’ supra note 298 at 625, 628-629, and above.
340 Palmer, N and Hudson, A ‘Pledge’ supra note 298 at 633. Against that view, The Odessa  AC 145, 158-159: ‘The so-called special property … is in truth no property at all.’
341 Bell, 33, 76. see above under C. and D.1.
342 Palmer, N and Hudson, A ‘Pledge’ supra note 298 at 633.
343 Palmer, N and Hudson, A ‘Pledge’ supra note 298 at 631. This is a realistic scenario because possession in law of the pledged res can be transferred by way of constructive possession in which case the the res can be left in the pledgor’s custody, ibid., 628.
344 Saville v. Tankred (1748) 1 Vs. Sen. 101, Palmer, N and Hudson, A ‘Pledge’ supra note 298 at 632.
345 Donald v. Suckling (1866) LR 1 QB 585, Bridge, 176, Bell, 146, 149, Palmer, N and Hudson, A ‘Pledge’ supra note 298 at 630, 631.
346 Hence the pledge is extinguished when it is not transferred together with the debt secured by the pledge, § 1250 (2) BGB.
347 Bell, 144.
348 Bell, 482.
349 Bridge, 127. See also above under E.2.a).
350 § 1207 BGB referring to §§ 932, 934, 935 BGB, Baur/Stürner, § 55 n 18.
351 Oppenheimer v. Attenborough & Son  1 KB 221.
352 Compare Bridge, 124-136, Bell, 501-503.
353 Palmer, N and Hudson, A ‘Pledge’ supra note 298 at 628.
354 The Odessa  AC 145, 159. Palmer, N and Hudson, A ‘Pledge’ supra note 298 at 640.
355 Reeves v. Capper (1838) 5 Bing. NC 136; Bell, 145; Palmer, N and Hudson, A ‘Pledge’ supra note 298 at 626. In German law, the pledge would be extinguished, irrespective of a possible contrary stipulation (§ 1253 BGB).
356 Bell, 146.
357 Exceptions exist in relation to goods with fixed or ascertainable market prices, e.g. by reference to a stock exchange etc., in which case the res can be sold in a normal sale, subject to §§ 1221, 1235 BGB.
358 For more details, see Baur/Stürner, § 55 nn 26-28.
359 The fractions of the owner’s and creditor’s shares is in accordance with the fractions of owed sum and excess within the total of the proceeds, e.g. the debt is for 80, proceeds of sale amount to 100, then the creditor is entitled to 8, the owner to 2 parts.
360 § 1247 BGB, 1st sentence: ‘Soweit der Erlös … dem Pfandgläubiger … gebührt …’ (‘to the extent to which the proceeds are due to the pledgee’). The implications of this provision are not easy to understand from its wording. The matter is often more complicated than this account suggests, see Westermann/Gursky § 130 II 3., with further examples.
361 Lawson and Rudden, 176; Worthington, S Equity supra note 247 at 88-89.
362 Lawson and Rudden, 102-103.
363 Hence German law resorts to co-ownership of the proceeds of sale between pledgor and pledgee, a kind of “vertical division” of ownership instead of the unavailable “horizontal” division into legal and equitable ownership in English law.
364 That would be the German “Treuhand.” Thus the term “trust” should not be equated with “Treuhand”.
365 Compare also The Odessa  1 AC 145 (PC), 159: ‘[The pledgee] must appropriate the proceeds of the sale to the payment of the pledgor’s debt, for the money resulting from the sale is the pledgor’s money to be so applied.’
366 Matthew v. T M Sutton Ltd  4 All ER 793; Bridge, 176; Palmer, N and Hudson, A ‘Pledge’ supra note 298 at 639.
367 Whether equitable pledges exist, is controversial, see Palmer, N and Hudson, A ‘Pledge’ supra note 298 at 645. They do not exist according to Goode, 41, 627.
368 Palmer, N and Hudson, A ‘Pledge’ supra note 298 at 644.
369 Hayton, D and Mitchell, Ch (Hayton and Marshall) Commentary and Cases on the Law of Trusts, supra note 145 at 353.
370 Bell, 147; Palmer, N and Hudson, A ‘Pledge’ supra note 298 at 638-639. There is special consumer protection regulation for the sale of a pawn under the Consumer Credit Act 1974 (amended by the Consumer Credit Act 2006).
371 Compare e.g. Baur/Stürner, § 56 nn 2-3; Bridge, 175; Palmer, N and Hudson, A ‘Pledge’ supra note 298 at 623.
372 Baur/Stürner, § 56 nn 4, 9.
373 Baur/Stürner, § 57 n 1; Westermann/Westermann, § 44 I.
374 German law, as far as the statutory law is concerned, doee old insolvn equivalent of the security bill of sale in English law under the Bills of Sale Act 1878 and the Bills of Sale Act 1878 (Amendment) Act 1882, which evidences non-possessory security interests in personal chattels, see Bridge, 192-193. However, German law has developed an equivalent to the chattel mortgage (bill of sale) “without any statutory basis, entirely praeter, if not contra legem.” See Drobnig, U ‘Is Article 9 of the Uniform Commercial Code exportable? A German View’ supra note 15 at 369.
375 The constitutum possessorium is not available for the creation of pledges, but it is for the transfer of outright ownership, see above under E.1.
376 Baur/Stürner, § 57 n 8.
377 Baur/Stürner, § 57 nn 15. The procedure regarding the creditor’s right to sell the res in case of the debtor’s non-payment is discussed in Baur/Stürner, § 57 nn 41-45.
378 BGH Juristenzeitung 1991, 732, case comment by Gerhardt.
379 These restrictions can call the proprietary quality of the equitable interest in question, see discussion by Gretton, G ‘Trusts’ in Reid, K and Zimmermann, R (eds) (2000) A History of Private Law in Scotland Vol I Oxford University Press 480, 481.
380 Baur/Stürner, § 57 n 2.
381 This is similar to the Scottish trust, although the Scots trust concept goes somewhat beyond that, see Gretton, G ‘Trusts’ supra note 379 at 482.
382 See § 47 German Insolvency Act (Insolvenzordnung). The matter is more complex, see Baur/Stürner, § 57 nn 39, 40 with further references.
383 See §§ 50, 51 German Insolvency Act.
384 Unlike under the old insolvency provision of § 127 (2) of the old Insolvency Act (Konkursordnung).
385 See § 166 German Insolvency Act (as of 1 Jan 1999). This is because the liquidator is expected to have the interests of the insolvent estate and its creditors as a whole in mind, unlike the secured creditor. On the whole issue, see Baur/Stürner, § 57 n 31.
386 Palmer, N and Hudson, A ‘Pledge’ supra note 298 at 629; Bell, 146. See also above under F. 1. a).
387 Bell, 183, Bridge, 179, Goode, 586. On the registration provisions for the non-possessory chattel mortgage, Bills of Sale Act 1878, Amendment Acts 1882, 1890, 1891, see Bridge, 192.
388 Law of Property Act 1925, ss. 85-86. Since 1925, a mortgage over land can only be created by way of a charge or (this is rare) by way of a lease.
389 Schwab/Prütting, § 54 n 628.
390 Barclays Bank Ltd. v. Quistclose Investments Ltd.  AC 567 (HL) 579.
391 Hayton, D and Mitchell, Ch (Hayton and Marshall) Commentary and Cases on the Law of Trusts supra note 145 at 205, Worthington, S Equity supra note 247 at 255.
392 Quistclose trusts only operate in relation to money (usually advanced as a loan), not in relation to chattels delivered, see Worthington, S Equity supra note 247 at 256. On the retention of title provisions, see below under F.1.d).
393 There are only equitable, no legal, charges, except for the statutory charge by way of mortgage over land in accordance with the Law of Property Act 1925, ss. 85-86, see Bridge, 182.
394 Palmer, N and Hudson, A ‘Pledge’ supra note 298 at 623, Goode, 587.
395 See above, F. 1. a).
396 Baur/Stürner, § 58 nn 1-2.
397 In the present discussion, it is assumed that the debt consists of payment of money, and that is the usual situation, but also a debt directed at the delivery of a res can be subject-matter of an assignment for security purposes.
398 Baur/Stürner, § 58 nn 2-4.
399 Baur/Stürner, § 58 n 5.
400 See e.g. Rahmatian, A (1996) Der Bereicherungsausgleich in Zessionslagen Peter Lang 11 with further references.
401 For example in connection with a factoring agreement, a lender-credit sale, or a general assignment (“Globalabtretung”) of all existing and future debts of a business for securing a loan. These special areas are not discussed further, see an outline of these in Baur/Stürner, § 58 nn 9-15.
402 This is the view of the courts, and the prevalent academic opinion in Germany, but not undisputed, see Baur/Stürner, § 58 n 19, for further references. “Ascertainable” means that the ground as a result of which the debt will arise, and the extent of the debt are sufficiently certain at the time of the assignment, so that the actual subject matter (amount) of the debt and its debtor (the future DD) will be ascertainable when the debt comes into existence.
403 Goode, 649 (on the various types of charges).
404 Thus there are special rules for the transfer of company shares, life policies etc., see Bell, 184, Goode, 643.
405 Goode, 630.
406 Law of Property Act 1925, s. 136, Dearle v. Hall (1828) 3 Russ 1; see Goode, 643; Bell, 184.
407 Since “equity regards as done that which ought to be done”, that creates an immediate equitable mortgage, Bell, 184.
408 Lunn v. Thornton (1845) 1 CB 379.
409 Tailby v. Official Reveicer (1888) 13 App Cas 523, Holroyd v. Marshall (1862) 10 HLC 191, Bridge, 180-181.
410 Bell, 382. The legal details are, however, unclear.
411 Law of Property Act, s. 53 (1) (c). See also Bell, 184, 374, Goode, 630, 643.
412 Comparative treatment on retention of title by Pennington, R R (1978) ‘Retention of Title to the Sale of Goods under European Law’ (27) International and Comparative Law Quarterly 277, 284-286, 290-294 et passim.
413 Goode, 584, Bell, 202-203. In German law, the retention of ownership is seen within the group of the pledge and the transfer of ownership/assignment for security purposes, and therefore a “Kreditsicherungs-” and “Realsicherungsrecht”, see Schwab/Prütting, § 53 n 616.
414 Goode, 587 (fixed and floating charges), 677, 679 (floating charge).
415 English law: Bridge, 91, Bell, 202-203. German law: Schwab/Prütting, § 33 nn 388-389a.
416 In German law, transfer of ownership is effected by way of the constitutum possessorium in such cases.
417 The matter of the sale credit or lender credit sale, involving the laws of contract and of property alike, and in case of defects in the arrangement or its performance, the law of restitution/unjust enrichment, and/or tort, goes much beyond the scope of this article and cannot be discussed. For the English law see e.g. Goode, 579 with further references.
418 These clauses can have very different versions and are not always based on the Romalpa case, see overview of different types of retention of title clauses in e.g. Worthington, S Personal Property Law supra note 3 at 157-193.
419 Aluminium Industrie Vassen B V v. Romalpa Aluminium Ltd  1 WLR 676.
420 Goode, 608, Bridge, 91. S. 19 (1) produces virtually a Quistclose trust situation in its effects, though relating to goods, not loan money.
421 Baur/Stürner, § 59 n 4; Westermann/Westermann, § 39 III.
422 §§ 160 (1), 161 (1) BGB. The buyer is also protected against the seller’s creditors in this respect, § 161 (1) BGB, 2nd sentence.
423 See above under D.1.c).
424 Baur/Stürner, § 59 nn 3, 32.
425 Such a right is presumed by law if not expressly stipulated, § 449 (2) BGB.
426 Baur/Stürner, § 59 n 4.
427 See above, F.1.b).
428 See Sale of Goods Act 1979, s. 19 and below.
429 Aluminium Industrie Vassen B V v. Romalpa Aluminium Ltd  1 WLR 676, Martin, J (Hanbury and Martin) Modern Equity supra note 145 at 690-691.
430 Hayton, D and Mitchell, Ch (Hayton and Marshall) Commentary and Cases on the Law of Trusts supra note 145 at 801.
431 According to the interpretation of Romalpa in Clough Mill Ltd. v. Martin  1 WLR 111.
432 In German law, that is the scenario of the “verlängerter Eigentumsvorbehalt”, see briefly below and Schwab/Prütting, § 33 n 399.
433 Bell, 204.
434 However, this requirement has been increasingly disputed, often in the context of questioning the reasonableness of retaining two separate rules of tracing at common law and in equity, see e.g. Lord Millet in Foskett v. McKeown  1 AC 102.
435 Associated Alloys Pty Ltd v. ACN 001 452 106 Pty Ltd (2000) 202 CLR 588.
436 In this case Companies Act 1985, s. 395, see Re Bond Worth Ltd  Ch 228. See this and other scenarios in this context in Hayton, D and Mitchell, Ch (Hayton and Marshall) Commentary and Cases on the Law of Trusts supra note 145 at 132-133.
437 See Goode, 607.
438 Baur/Stürner, § 59 nn 34-37, 49-55.
439 See discussion above, E. 2. b).
440 This is especially the claim for payment of a purchase sum as a result of the sale of the res by the buyer to third party. See also Westermann/Westermann, § 39 II.
441 See above, F.1.c).
442 According to § 185 BGB, Baur/Stürner, § 59 n 6.
443 Baur/Stürner, § 59 n 34.
444 See above, E.2.a).
445 E.g. the buyer has defaulted on the repayment and the seller has rescinded the contract but not yet recovered the moveable.
446 The third party’s position is different if the ownership right in waiting exists but the person purporting to transfer this right does not have it: according to some writers, the bona fide third party shall be able to acquire in good faith the right of ownership in waiting according to § 932 BGB, see Westermann/Gursky § 45 III 1 d), and Baur/Stürner, § 59 n 39.
447 This view is not undisputed, see Westermann/Gursky § 45 III 1 d), and, generally, Baur/Stürner, § 59 nn 38-40.
448 Overview of the types of reservation of title clauses (simple clause, current account clause, extended or continuing clause, tracing or prolonged clause, aggregation or enlarged clause), in McCormack, G ‘Title Retention and the Company Charge Registration System’ in Palmer, N and McKendrick, E (eds) (1998) Interests in Goods (2nd ed) LLP Reference Publishing 727, 728 et seq.
449 McCormack, G ‘Title Retention’ supra note 448 at 757. See also above under E.2.b). If the seller stipulates that any additions to the goods supplied shall become the seller’s property, the courts will regard this as a transfer of the seller’s ownership in the goods supplied subject to a charge of the seller over the goods. Such a charge will typically be void because it has not been registered, see Specialist Plant Services Ltd. v. Braithwaite Ltd  BCLC 1. See also Bridge, 91.
450 Compare Associated Alloys Pty Ltd v. ACN 001 452 106 Pty Ltd (2000) 202 CLR 588. This should be expressed as a specific fraction (equalling the debt owed) to be held for the seller, and the rest to be held on trust for the buyer himself, otherwise problems of certainty of subject matter of the trust could arise, see Hayton, D and Mitchell, Ch (Hayton and Marshall) Commentary and Cases on the Law of Trusts supra note 145 at 133 and n 26.
451 More discussion in McCormack, G ‘Title Retention’ supra note 448 at 742.
452 Goode, 424, 434. A matching rule of acquisition of ownership based on the seller’s apparent ownership can be found in the Factors Act 1889, s. 9. See also above under D.2.a).
453 These clauses can be effective if the goods have been re-sold also subject to a reservation of title clause, see Re Highway Foods International Ltd  BCC 271.
454 McCormack, G ‘Title Retention’ supra note 448 at 728 n 5.
455 Westermann/Gursky, § 139.
456 On the importance of the concepts of “fruits” and “usufructs” in Civil Law jurisdictions, see Graziadei, M ‘Tuttifrutti’, in Birks, P and Pretto, A (eds) (2002) Themes in Comparative Law. In Honour of Bernard Rudden Oxford University Press 121, 130.
457 E.g. Lawson and Rudden, 153.
458 Baur/Stürner, § 32 n 10-14, § 56 n 3.
459 English law would use the device of the trust with personal property as trust property in such cases.
460 Baur/Stürner, § 32 n 5-6, § 54 n 2. See the various security rights under English law above under F. 1. a)-d).
461 Compare preface (Vorwort) by Ch v Bar, in Ch v Bar (ed) (2000) Sachenrecht in Europa, Vol. I Rasch 5.
462 See also Baur/Stürner, § 36 n 129.
463 Wolf, M Sachenrecht supra note 130 at § 30 n 801a.
464 Compare Zweigert, K and Kötz, H An Introduction to Comparative Law supra note 1 at 201.
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