u s u f r u c t 43

circumstances. There is no automatic quasi-usufruct here, unless contractually agreed.

In conclusion, one can argue that from the perspective of the donor who reserves a usufruct over the property and who wishes to retain the income from the donated assets, reservation of traditional usufruct only partially achieves this purpose. The receipt of rent, dividends and interest can provide him/her with the desired income. In the case of shares, however, the usufructuary is not entitled to the excess value or the profits if reserved in the articles of association of the organisation. The same problem exists in relation to capital shares. It is, however, possible to obtain some income by a contractual redefinition of the concept of fruits.59

4. The modern face of usufruct

This reasoning is in full accordance with the basic characteristics of the institution of usufruct. It is a mere adaptation of the basic rules of usufruct in respect of the intended purpose or destination of the property.60 It is now clear that even the traditional concept of usufruct takes the destination or intended purpose of the property into account to determine the position of the usufructuary. For usufruct to be adapted to the needs of modern society, one simply has to extend this reasoning beyond fungible assets to all assets over which a usufruct is reserved, such as investment portfolios and art collections, while taking into account the intended purpose or specific destination of the assets. This destination is often more closely related to their economic value than to the substance of the assets,61 which is obvious in the case of an investment portfolio where the destination of the shares which is subject to the usufruct is probably not the shares themselves but their economic value. The traditional limitation on the entitlements of the usufructuary seems to prevent the efficient management of the usufructuary property in many instances where maximising the economic value of the property will require an extension of the entitlements of the usufructuary.62

The French Court of Cassation has therefore advanced the concept that a usufruct over an investment portfolio is a usufruct over a

59 Ibid. 573. 60 Ibid. 550.

61Ayne`s, ‘Observation’, p. 168; Verbeke, ‘Creatief met vruchtgebruik’, p. 546.

62See Verbeke and Vanhove, ‘Spelen met vruchtgebruik’, p. 191.

44 i n t r o d u c t i o n a n d c o n t e x t

collection of different kinds of assets (universitas iuris).63 In such a case, the object of the usufruct is not every single individual share or stock, but the portfolio in its entirety (in globo). The consequence is that the usufructuary can dispose of the usufructuary assets in the collection and can sell and reinvest shares.64 He/she cannot, however, impair the usufruct asset itself, which is the portfolio as such. The duty of restoration on expiry of the usufruct relates to the asset, namely the portfolio. Hence he can restore a portfolio, of whatever composition, to the nude owner by real subrogation of all the rights to the assets in the portfolio.65

Although this approach is useful, it still remains a mere application of the traditional concept of usufruct. The trick here is to re-define the object of usufruct, the portfolio as a universality of assets in lieu of concentrating on the individual shares as the object of the usufruct. In a more modern approach, it is not merely the object of the usufruct but also the legal status of the usufructuary and his/her entitlements that are re-defined. The key then is to assess the position of the usufructuary in view of the intended purpose or destination of the usufructuary property.66 We shall see how the position of the usufructuary becomes more opportune in relation to both retention of control and the provision of income.

4.1. Control

With the emphasis on the destination or intended purpose of a usufructuary asset and its role in modern commerce, the obligation of the usufructuary to preserve the substance of the property is re-defined as an obligation to preserve the property in accordance with its destination.67 The destination of the property thus becomes the seminal criterion for shaping the management of the usufructuary property and determining the competence and powers of the donor-usufructuary. He can now, within the framework of his/her entitlement to use and enjoy the property, perform any act, including an act of disposal and/or

63Ayne`s, ‘Observation’, p. 167; Van Sinay, ‘Vruchtgebruik op een algemeenheid’, pp. 729–46.

64Verbeke and Vanhove, ‘Spelen met vruchtgebruik’, p. 192.

65Sagaert, ‘Oude zakenrechtelijke figuren’, p. 240.

66Ayne`s, ‘Observation’, pp. 168–9; Dockes, ‘Essai’, pp. 487–94; Verbeke, ‘Creatief met vruchtgebruik’, p. 547; Verbeke and Vanhove, ‘Spelen met vruchtgebruik’, p. 181.

67Dockes, ‘Essai’, p. 493; Verbeke, ‘Creatief met vruchtgebruik’, p. 547.

u s u f r u c t 45

alienation, in so far as it corresponds with the destination of the property.68

If the identity and destination of the usufructuary asset is closely linked to economic value, fungibility, exchangeability and quick circulation, as in the case of stocks and bonds, alienation is not only in line with, but can even be required, in the interests of good management.69 The destination of an investment portfolio is not the individual shares and other assets of the portfolio, but the value of the portfolio as a whole:70 the shares are merely the means by which the objective of maximising the value of the portfolio can be achieved. Consequently, the donor-usufructuary who reserved the usufruct can dispose of and alienate shares which form part of the portfolio. He/she can sell shares and reinvest in other shares that seem more profitable or appear to represent a better investment in the long run. The donor will be preserving the substance of the usufructuary property as long as he/she acts with prudent and sound judgement in accordance with the destination of the usufructuary property.71 His right of disposal and exchange of the assets comprising the usufructuary property is inherent in the nature of the property and in tandem with the interests of the usufructuary who will benefit from the maximisation of the value of the usufructuary asset.

The same reasoning applies to the question whether the usufructuary can exercise the voting rights bestowed on the shareholder of a partnership or company (see section 3, above). Since the usufructuary can perform all acts that fall within the ambit of the destination of the usufructuary property, the voting rights with regard to transactions in respect of the usufructuary property will probably vest in the usufructuary because the exercise of voting rights is a part of the right to use the property and is necessary for the use and enjoyment of the property as (temporary) owner.72

It is equally clear that a house or a farm as usufructuary property is destined for a different purpose than stocks and bonds, namely to remain part of the estate for a longer period. Alienation is not compatible with the destination of such property and does not fall within the competence of the usufructuary. The usufructuary can therefore only

68Dockes, ‘Essai’, pp. 493–4; Fiorina, ‘L’usufrutier’, p. 51.

69See Verbeke and Vanhove, ‘Spelen met vruchtgebruik’, p. 191.

70Verbeke, ‘Schenking met voorbehoud vruchtgebruik’, p. 264. 71 Ibid. 276.

72Du Mongh, De erfovergang van aandelen, pp. 248; Verbeke, ‘Creatief met vruchtge bruik’, 560.

46 i n t r o d u c t i o n a n d c o n t e x t

dispose of the property with the consent of the nude owner.73 The modern face of usufruct is thus characterised by a relative and functional prohibition against alienation of the property.74

The criteria for such ‘teleological’ (purposive) management (in line with the destination of the property) are twofold.75 First, in the abstract, the usufructuary must behave as a prudent and reasonable man and bear in mind that he must return the property to the owner upon extinction of the usufruct without impairment of its substance. Secondly, and more concretely, the owner can pertinently determine the destination of the property. The usufructuary can use mines and quarries in the same way as the owner had previously used them if working the mines commenced at the outset of the usufruct (FCC/BCC, art. 598). A painting, art collection or a special quantity of wine produced in a particular year can be bought for investment purposes. The same applies to a house, apartment or farm. If the real estate is clearly identified as a mere investment asset, the usufructuary may have the power to dispose of the property to increase the value of the investment.

4.2. Income

Based on the destination of the usufructuary asset as the key criterion, the scope of the term ‘fruits’ can be increased under a modern approach. Products or proceeds gained from the usufructuary property can be considered fruits, even when the collection thereof affects the substance of the property, provided that the collection of the gains corresponds to the destination of the property. As explained above, this destination is determined in abstracto according to the criterion of the prudent man and concretised by the existing use and enjoyment of the owner. Hence certain products can be considered fruits if it was the intended purpose of the owner to accord that particular destination to the usufructuary property. The intention of the donor/owner is decisive. The usufructuary can continue to exploit the property as the owner did and enjoy the products as if they were fruits, if this was intended by the owner.76 Rings or necklaces produced from a gold bar which was melted down can be considered fruits if the owner had given the gold bar such a destination. One can argue that the products of logging down a plantation donated with reservation of a usufruct

73Verbeke, ‘Creatief met vruchtgebruik’, p. 547.

74Sagaert, ‘Oude zakenrechtelijke figuren’, p. 231.

75More comprehensive: Verbeke, ‘Creatief met vruchtgebruik’, p. 548. 76 Ibid. 572.

u s u f r u c t 47

are not considered fruits. This argument does not hold true where the owner has given a clear indication that the trees in the plantation are destined to be felled and thus have to be classified as fruits when cut down (cf. BCC, art. 590).

If the general meeting of a company decides to incorporate profits in the reserves, these profits become an integral part of the capital. Hence, reserves generated in the company cannot be considered fruits to be distributed to the shareholders in the company and to the person to whom these shares have been granted in usufruct (see section 3, above). We explained that the nude owner is entitled to these reserves and that the usufructuary is not allowed to contend that his/her usufruct (or even quasi-usufruct) entitles him/her to enjoy the reserves as fruits.77 However, it can be argued that if the articles of association of a company sanction the distribution of dividends with the specific objective of providing an income to the shareholders in the absence of profits, it may be considered a collection of the fruits of the property. This is an application of the principle that the destination or intended purpose of the usufructuary property must be taken into account.78

We discussed the position of the usufructuary concerning the capitalisation of the shares of a company. Normally the shares subject to the usufruct are not considered to generate fruits which can be enjoyed by the usufructuary. However, if the original object of the usufruct are shares from which dividends and profits can be expected and, subsequently, the general meeting decides to capitalise the profits derived from trading in shares, one may argue differently. This is especially the case if the decision to capitalise the profits is not taken by the owner, but by a general meeting where the owner has no decisive voting power. If the donor has indicated from the outset in the constitutive deed of the usufruct that the income derived from the shares will be distributed, it can be argued that the entire excess value of the shares can be considered fruits.79

We may conclude that the modern approach as to both control and income offers substantially more leeway to the donor-usufructuary. The modern interpretation of usufructuary rights, entitlements and competences is more in line with the commercial needs and context of today’s society, while respecting the basic characteristics of the notion of usufruct to the greatest possible extent.

77 Hansenne, Les Biens, 1048. 78 Verbeke, ‘Creatief met vruchtgebruik’, p. 578.

79 Ibid.