Учебный год 22-23 / A Comparison of German Moveable Property Law and English Personal Property Law-1

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

a) Pledge

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