учебный год 2023 / Drobnig, Present and Future of Real and Personal Security

sanction of Quebec aims at the protection also of the grantor. The Netherlands require an official confirmation of the date of the security agreement in order to protect third persons against fraudulent dating; in other countries, this function is fulfilled by publicity (infra no. 34).

33Charged assets

Under the spell of the traditionally exceptional nature of debtor-held security, some civil law countries still have a numerus clausus of the types of assets that may be used as security. Argentina and Spain have such catalogues, especially of assets for agricultural, industrial and commercial use.

Of a different quality are rules that go beyond specific present assets. Poland mentions generic assets and Quebec allows to charge a “universality” of assets, such as the animals, the equipment of an enterprise or profession, inventory, raw materials, semi-finished goods. Similarly, a recent Greek Law allows to create a security in a universality with changing elements of things or claims.36 The Netherlands mention future assets, i.e. those that have not yet come into existence or which are not yet owned by the grantor. The English common law allows since more than a century to extend the security to after-acquired property. The broadest scope is envisaged in Anglo-Canada: future assets and after-acquired assets; generic categories and circulating funds. In all cases of not yet present assets, the security does not arise, as in the Netherlands, until the grantor “acquires title to it”.

A third level is reached by provisions that authorize the grantor to extend the security beyond the originally charged assets into the proceeds that may arise from a sale of those assets; such extensions may also be registered, and the resulting claims for the purchase price enjoy a superpriority (Greece). In the Anglo-Canadian provinces and Japan, proceeds are covered automatically by law. Dutch and Italian law extend a security right to claims for compensation for loss, damage or devaluation of the original assets;37 these claims also enjoy a superpriority.

34Publicity

Characteristic of security rights in debtor-held assets is a more or less strictly conceived publicity of the security right. The Polish reporter even thinks that publicity is constitutive for the proprietary character of debtor-held security! One may explain and in part justify this assertion since publicity by registration affects only relations to third parties – but it is not the exclusive means of giving such effect, as we will see. In fact, most of the countries with specific instruments for debtor-held security – except the Netherlands – provide for publicity; however, that publicity does

36KOUTSOURADIS (supra n. 1) 62.

37BUSSANI (supra n. 2) 258.

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not in all these countries cover every aspect of this security. While in most countries all security rights in debtor-held assets must be registered, England and Australia have a limited catalogue of those assets of a company, the encumbrance of which requires registration. Briefly said, it covers all practically relevant cases in which a company encumbers either the entirety of its assets or any individual elements by a charge.38

Registration is centralised for the whole country in Poland and Spain and in England for charges granted by companies. In a federal state like Canada, registration goes hand in hand with the legislative jurisdiction for the respective security right: federal registration for federal security rights, provincial registration for provincial security rights.

On the substantive level, two issues arise. First, what is the effect of non-regis- tration of a registrable right? As the all-Canadian report explains, registration was originally intended to protect innocent third persons only; consequently, actual knowledge of a prior unregistered right would prevent priority of a subsequently registered right. This doctrine of actual notice as a substitute for registration is still accepted in Australia, but has been restricted to some degree in Anglo-Canada – probably because it defeats major functions of the principle of publicity, such as warning the public at large, preventing fraudulent dating, etc. None of the reports from the civil law countries mentions an exception corresponding to the doctrine of actual notice. And Quebec even expressly refutes the idea that knowledge or notice may replace registration.39

Even more relevant is the effect of registration of a security right upon a third party who acquires the encumbered asset for value (transferee), e.g. by purchase. Since registration is limited to security rights and in the present context does not extend to title, the issue is whether the transferee acquires the purchased item charged with the creditor’s encumbrance or free from it. The Canadian provincial legislation, including that of Quebec, and also the Greek statute allow sales “in the ordinary course of business”, so that the transferee acquires the asset free from the security right. This rule is justified by the interest in a free flow of business since it would hardly be practicable to burden sales from a merchant dealing with the respective goods with a duty of inquiry at a register. The preceding rule does not apply if the sale is not “in the ordinary course”. However, Greece excepts the case where the transferee without negligence did not know that there was a security right; this exception implies that the transferee is not supposed to know the registration! Of more general relevance is the question whether and how the creditor’s security right can be protected against subsequent buyers from the first buyer. This is problematic since registration usually – except for objectively identifiable items, such as cars, boats or airplanes – is under the name and possibly only at the place of the grantor of

38MCCORMACK (supra n. 6) 154.

39CC Art. 2963.

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the security, i.e. the first buyer. In order to re-establish some kind of publicity, the Canadian provincial statutes oblige the secured creditor to amend the registration within a short time after having “learned of the transfer” (Anglo-Canadian provinces) or within 15 days after having been “informed in writing”40 of the transfer and the name of the purchaser; a notice of preservation of the security right is registered and a copy must be sent to the purchaser. In addition, only Quebec seems to extend its exception in favour of dispositions in the ordinary course of business to sales by the first buyer.

These complex rules and exceptions demonstrate the unavoidable complications which are created by a system of registration. They are also relevant for the creation of a security interest: the intending secured creditor is charged with a broad obligation of inquiry far beyond the inspection of the register. Especially used goods will require intensive searching of their title history.

35Priority

Little attention has been devoted by the national reports to the problems of priority or ranking of security rights. That is well understandable in the framework of legal systems providing for publicity by registration. Since the latter is the act creating third-party effects, ranking depends upon the sequence of registrations. The classical adage “prior tempore potior juris” applies here as well.

However, the all-Canadian report draws attention to one problem and to one qualification. The problem may not arise too frequently but nevertheless merits attention. How is priority to be determined if an encumbered asset first is held by the creditor but thereafter by the debtor? Or vice versa? Possession by the creditor and registration of security in debtor-held assets are equivalent from the viewpoint of publicity, and it must be legitimate to change from one method to the other. If there is a continuous, uninterrupted line of publicity in the one or the other form, priority dates back to the point in time at which this continuous line begins. This is the rule adopted by the Anglo-Canadian statutes and for the most relevant case, i.e. starting with creditor’s possession, also in Quebec.

More important is a substantive qualification of the prior tempore rule. Practically the most significant exception from it is the superpriority which the Anglo-Canadian provinces attach to so-called purchase money security, i.e. the security for credits financing the acquisition of the encumbered asset itself. Roughly, this is the equivalent, in the frame-work of a unitary, comprehensive security right, to the well-known retention of title, as will be demonstrated for Quebec whose unitary security right is less comprehensive (infra) than that of the other provinces. A security securing purchase money takes priority over a prior security covering the same assets if certain additional requirements are fulfilled. For assets that do not constitute

40 Quebec CC Art. 2700 par. 2.

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inventory, the creditor of the purchase money (i.e. the seller or the financer of either the seller or the buyer) has a grace period of 15 days after the agreement creating the security to effect registration. By contrast, for securing the superpriority for financing the purchase money for inventory, no grace period is available. Moreover the inventory financer has to give in advance notice to all registered secured creditors that it intends to take security in the same assets that are already covered by earlier financing notices.

Quebec has a simpler equivalent, securing only the supplier’s credit (and not also purchase money loans) and dispensing with notification of other secured creditors. The same effect can be achieved under contractual arrangements, such as an instalment sale with retention of title, a sale with right of redemption for the purpose of security or a leasing contract; if used for business purposes, these contracts must be registered.41 In all these cases, the creditor’s security is its title to the goods.

36Effects in the debtor’s insolvency

Real security has to prove its value in the acid test of the debtor’s insolvency. Various issues arise in this context.

The first and most important issue is whether security rights guarantee to their holders preferential satisfaction in the debtor’s insolvency. The national reporters rarely deal with this issue – the context implies affirmative replies, at least vis-à-vis unsecured creditors. The only exception is to be found in England with respect to the floating charge and will be discussed in the context of enterprise charges (infra no. 37).

On the other hand, there is also unanimity that a security right gives only a right of preferred satisfaction. However, this right of satisfaction is a charge on the right of ownership of the security grantor and is not, as we shall see in the context of title-based security, equivalent to ownership as such.

Indeed, all national reports dealing with the point imply that in the debtor’s insolvency the creditor’s security right can be enforced and that this enforcement serves primarily the purpose of satisfying, as far as possible, the creditor’s secured claim. However, any surplus resulting from that enforcement must be paid over to the grantor’s insolvency administrator who represents the debtor as owner of the secured assets (Argentina, Canada, Germany, Netherlands, Sweden).

The only major difference exists between Argentina, Canada and the Netherlands, on the one hand, and Germany and Sweden, on the other hand: Whereas the first group of countries permits enforcement by the secured creditor and therefore outside the proceedings, in the second group enforcement is, at least primarily, entrusted to the insolvency administrator. The new German Insolvency Law of 1994 imposes upon the creditor the expenses of ascertaining the assets

41 Quebec CC Art. 1545 (2), 1550 (2), 1847.

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serving as security (for which a lump sum of four percent of the liquidation value is fixed); and also of the expenses of enforcement (for which a lump sum of five percent is fixed which may, however, be reduced or increased if the factual costs are considerably lower or higher).42

The picture is more diversified if the debtor’s insolvency is not concluded, as is the rule, by liquidation of its assets, but by a reorganisation of its business undertaking. In Canada, the secured creditors are bound by an initial general stay of enforcement since a reorganisation cannot, in most cases, be effected without recourse to the secured assets. In Germany, a reorganisation plan may affect under certain circumstances the secured creditors, whereas in Argentina their rights cannot be affected without their unanimous consent to the reorganisation plan.

37Enterprise mortgage

Some countries have a very special form of a security right which deserves particular mention because of a number of peculiar features. One may distinguish between the small enterprise mortgages of some civil law countries such as Belgium and Poland; a rather broad variety in Spain; and comprehensive forms, such as the Swedish variant and especially the English/Australian floating charge, developed essentially by the common law although with some later important legislative interventions (by full-fledged legislation also introduced in Scotland). In both Anglo-Canada and Quebec, the floating charge is now covered by the comprehensive security interest introduced by the Anglo-Canadian provincial Personal Property Security Acts and the Civil Code in Quebec.43

The basic idea of the medium and large forms of enterprise mortgage is to create a global security in a universality of commercial and industrial assets. Global security in a universality (such as a full enterprise or defined parts of it) implies that the security right is maintained even though the various charged items may and usually will change by sale to buyers, on the one hand and purchase of corresponding replacements from suppliers, on the other hand.

The technique for recognising the debtor enterprise’s freedom of disposition over the charged assets varies. In England, Scotland and Australia, the direct way of allowing such disposition over a normal, i.e. a fixed charge is not accessible since this runs counter to a basic rule on charges. Therefore, an indirect way was paved by creating a preparatory stage in which a charge as a real right does not yet exist; this gives “management autonomy” (as the English report aptly says)44 to the debtor enterprise. Only if an event of default occurs, as defined in the security agreement, does the floating charge crystallise to become a fixed charge and the debtor enter

42Insolvency Act of 1994 § 171.

43Expressly CC Art. 2686.

44MCCORMACK (supra n. 6) 157.

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prise’s freedom of disposition expires. The civil law countries need not take this complicated approach. For them a debtor’s power of disposition over debtor-held charged assets is well reconcilable with the basic function of a real right.

An enterprise mortgage gives a very strong position to the secured creditor. However, this strength implies corresponding risks for the other creditors of the debtor. How are these risks countered? First, the other creditors must be warned. Consequently, an enterprise mortgage is everywhere subject to registration. Second, one can mitigate the substantive risks by curtailing the rank of an enterprise mortgage. This has been done to some degree in England where the floating charge, as distinct from a fixed charge, ranks after certain preferential claims, especially of the tax authorities and of employees. In Sweden, various proposals have been made going into the same direction. A parliamentary commission has recently proposed to limit an enterprise mortgage to 50% of all the assets of the charged enterprise, and this proposal has mustered broad political support.

This short survey demonstrates the attractions of an enterprise mortgage as well as the risks which it carries for the “economy” of all the interests involved. An adequate balancing of these interests is not easy to achieve.

b. Functional Security Rights

38Introductory Remarks

Functional are those real rights that originally had not been created by law for the purpose of serving as security rights in debtor-held assets but which were converted by business practice for this purpose and accepted by law. The attraction of most functional security rights is due to two factors: their creation is easier than that of security rights proper and they give more rights to the secured creditor than do the born security rights.

One can observe three different reactions of the laws to this phenomenon. First, countries without proper institutions for security rights in debtor-held assets tend to be favourable to functional debtor-held security rights; a typical example is Germany where refined and elaborate systems of both retention of title and security transfer of title were developed and sanctioned because the Civil Code of 1900 does not offer anything but the traditional strictly possessory pledge. A similar situation seems to exist in Japan where there is some specific legislation for special fields but in addition broad court practice on functional security rights. – Second, countries with a well-developed system of security rights in debtor-held assets have an ambivalent attitude to functional security rights. In some such countries there are outright prohibitions, at least of certain functional security rights (retention of title in Argentina,45 security transfers of title in the Netherlands and Switzerland).46 In other

45CC Art. 1374, 1376.

46For the Netherlands, cf. supra n. 33; for Swiss law WERLEN (supra n. 5) 257.

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countries there is an (often uncertain!) co-existence, as in Poland. – Very clear is the situation in the third group of countries, here represented by Anglo-Canada all of whose provinces have adopted a comprehensive unified security interest. Quebec has not gone quite so far but formally has left outside its comprehensive “hypothec” the security rights securing suppliers’ credits, although in substance the applicable rules resemble those on the hypothec or even refer to them. There is another fine difference between the Anglo-Canadian and the Quebec approaches. Under the former, functional security rights are not abolished, but may still be used – at least nominally. However, when they are used their creation and effects are subject to the rules for the comprehensive security interest. In Quebec, by contrast, the hypothec has completely replaced certain security rights; and those functional security rights that have survived by name are widely subjected to the rules on the unified hypothec, as we shall see.

One final introductory remark is in place. At least in certain countries, especially in those in which functional security rights play a major role, one can observe a more or less advanced trend to assimilate certain aspects of these rights to the corresponding aspects of genuine security rights. The aspects which are primarily exposed to such assimilation are their effects vis-à-vis third persons, especially in executions brought by unsecured creditors and in the debtor’s insolvency.

39Retention of title – simple retention

In numerous countries, the retention of title (or reservation of ownership) is widely used and recognised. It is typically a security for the credit granted by suppliers of goods who sell and deliver the purchased goods to the buyer but allow time for payment of the purchase price. By retaining title to the sold goods under the suspensive condition of full payment of the price, title to the sold goods serves as security for the supplier’s credit. We shall first deal with this basic type, the simple retention of title, before turning to its complex forms.

Even the simple retention of title is subject to regimes which differ considerably from country to country, depending to some degree upon whether or not the legislator has intervened.

At one extreme is a legislative prohibition of the retention of title in Argentina.47 At the other extreme is the full recognition of the simple retention of title with effects even as against third persons – without registration! – in Australia, England, Germany, the Netherlands, Poland and Sweden. The most important of these effects is that in the buyer’s insolvency the supplier may reclaim the sold goods and is free to dispose of them as it pleases. In England where there is a clear aversion against secret liens, the nonregistration of retentions of title is justified by a narrow interpretation of the requirements for registration: since these apply only to any “grant” of a security by a buyer/debtor, they are not applicable to a “retention” of security by the

47 Cf. supra n. 45.

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seller/creditor.48 However, two of the aforementioned countries establish conditions either upon the valid creation or upon the effects of the simple retention of title. In Poland, the retention clause must be in writing and must bear an officially certified certain date, which usually is achieved by the tax stamp on the document. In Sweden, not only any disposition by the buyer of the purchased goods, but already the seller’s authorization of such disposition is regarded as incompatible with the seller’s retained title and therefore voids it.

Four other countries have weakened even the conditions for creation and/or at least the effects of the simple retention of title by assimilating it somewhat or completely to a genuine security right. Thus Quebec and Spain only attach effects against third persons (and therefore also in the buyer’s insolvency), if the retention of title has been registered. This is true primarily in Spain;49 in Quebec only for goods sold for economic purposes. The Quebec rules are highly elaborate: Registration has retroactive effect if undertaken within 15 days after the making of the contract. The sanctions for omitted and late registration are detailed and fine-tuned to various situations. The seller’s enforcement of its rights is subject to the corresponding provisions for the hypothec. By contrast in Spain, while the seller’s position, in general, is similar to that of the creditor of a debtor-held security, upon the buyer’s default he becomes full owner again.50 Finally, in the Anglo-Canadian provinces, the retention of title is fully integrated, as to both creation and effects, into the comprehensive security interest.

A similar, very strong assimilation to the debtor-held security is also achieved in Greece, including the corresponding limitations: A retention of title is only allowed between economic sellers and buyers; registration is a condition for validity even between the parties; and creation as well as consequences of a retention of title are subject to the rules for security in debtor-held assets.51

40Retention of title – extended forms

Only two countries allow extensions of the retention of title, either with respect to proceeds or products of the originally sold goods or with respect to the claims that may be secured.

An extremely liberal position is taken by Germany: Subject to a small exception, not only the purchase price for the specific goods but any indebtedness of the buyer to the seller may be secured by retention of title. The same freedom obtains in Australia, England and Scotland where so-called all-monies and current-account

48MCCORMACK (supra n. 6) 168.

49For retentions of title securing payment of the purchase price in instalments: SÁNCHEZ JORDÁN (supra n. 4) 76.

50EADEM at p 77.

51KOUTSOURADIS (supra n. 1) 61.

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clauses are valid.52 By contrast, the Netherlands since 1992 expressly limit and circumscribe the obligations that can be secured: apart from the purchase price for the specific goods also that for other similar goods, even if to be delivered later, may be secured; the same is true for the costs for installation and for claims for damages due to non-performance.53

In addition to the virtually unlimited scope of claims that may be secured, German courts allow two major extensions in time of a retention of title: first, to products that will be manufactured from the original assets; and secondly, to proceeds arising from the sale of the original goods or from the products derived from them, by an anticipated assignment of the claim for the purchase price that will arise from a sale by the original buyer to a subsequent buyer. Contrary to the position in Sweden (supra no. 39), the first buyer may expressly or impliedly be authorised to dispose of the goods, still owned by the seller, provided the disposition is made in the ordinary course of the buyer’s business. Similarly, in Australia, it is possible to extend the effects of the retention of title to the proceeds of sale if an appropriately drafted clause has been agreed upon.

By contrast, such extensions of the original retention of title are not possible in England or the Netherlands because that is regarded as a grant of a new security.54 Security in such cases can therefore only be achieved in these (and probably other) countries by creating a new non-possessory security right under the ordinary conditions (such as registration in England). Even Germany itself has taken a step in the same direction: under the new Insolvency Law of 1994, the effects of any retention of title that go beyond securing the specific purchase price or affect assets other than the originally sold goods are no longer those of full ownership in the buyer’s insolvency, but are reduced to the status of a mere pledge. Consequently, the seller cannot reclaim those values and freely dispose of them, but the administrator must satisfy the seller’s open claims and may appropriate any surplus for the insolvent estate.55

41Retention of title – the buyer’s expectancy as a property right

While the assimilations of the retention of title to a security right mentioned in the preceding sections no. 39 in fine and 40 restrict the owner’s rights, German courts have increased the conditional buyer’s rights – without affecting those of the owner. Invoking the general rules on the effect of conditions, which grant an expectancy to the person who would be favoured by the fulfilment of a suspensive condition, the courts have bestowed upon the buyer a right of expectancy which was elevated – inspite of the numerus clauses of property rights – to a proprietary right, “equivalent

52MCCORMACK (supra n. 6) 167.

53Dutch CC Art. 3:52 (2).

54For England MCCORMACK (supra n. 6) 167-168.

55Cf. Insolvency Law of 1994 § 51 no. 1.

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to ownership”! The buyer is therefore entitled to dispose of this right by creating a second-ranking security right by (conditional) security transfer of title to another creditor; and the buyer’s creditors are entitled to bring execution into this secondranking right; also, it becomes part of the insolvent estate in the buyer’s insolvency. Depending upon the amount of the outstanding purchase price, the buyer’s right of expectancy may be economically quite valuable. The buyer’s creditor may even find it economically profitable to pay any outstanding minor amount in order to cause title to pass to the buyer since this elevates the priority of its own rights. This is another practical step of assimilating the retention of title to a security right encumbering the buyer/debtor’s ownership, favouring the buyer and its creditors.

Where, as in Anglo-Canada, the retention of title is integrated into a comprehensive security right, the same solution is achieved by virtue of the debtor’s equity in the assets bought.

42Security transfer of title, chattel mortgage and the like – general remarks

While the retention of title is popular in many countries, satisfies the special security demands of suppliers and is broadly known under one name, neither of these three characteristics applies to its analogue. It is by far not so well known; it satisfies mainly the security demands of bankers and other general credit providers; and it is by no means known under the same name but exists under the cover of very diverse institutions and names.

Since it serves the same functions as the debtor-held pledge, the need for, and popularity of, the security transfer of title depends to a great deal upon the existence of, and access to, genuine security in debtor-held assets; the better the born devices for such security function and the more they are available, the less is the demand for functional substitutes.

The essential unity of the institution of security transfer of title is hidden by the variety of names used. However, if properly analysed, the three major variations, i.e. chattel mortgage or bill of sale in England and Australia, Japan (joto tampo) and Sweden; security transfer of title in Germany, Poland, Greece and formerly the Netherlands; and the trust in Argentina and Quebec – merely focus on different aspects of the same phenomenon. The basic phenomenon is a sale of the assets to be “encumbered” by the debtor (or third person grantor) to the creditor; however, this sale is not absolute. The transfer of title to the buyer is only fiduciary; the buyer as creditor merely holds under a Roman law fiducia cum creditore or as an English law trustee; in English legal parlance, the buyer holds under the seller’s equity of redemption. For the purposes of the present comparative presentation, it seems preferable to use the term security transfer of title because its focus on title facilitates comparison with the retention of title and its treatment.

Indeed in this field as for the retention of title, one can also observe a trend to assimilate the title-based functional equivalents to the basic pattern of genuine, born security rights in debtor-held assets; this trend is here even stronger. This is not

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