12 Immobilisation and its legal analysis

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major financial crisis. Some banks discovered that there were shortfalls in securities; they did not possess sufficient securities to meet all their clients’ claims. It became clear that German law did not sufficiently protect investors holding securities indirectly through bank depositories.

German law solved the legal issues that arose in a path-dependent manner. Since the starting point was that the securities were tangibles, it was only natural for the law to analyse issues arising out of deposited securities in terms of bailment.

In German law, there are two types of bailment – entitled regular deposit (depositum regulare) and irregular deposit (depositum irregulare) – respectively. If assets are kept in a regular deposit, the depositor keeps her proprietary rights to the assets. If they are kept in an irregular deposit, title to the assets is transferred from the depositor to the depositee. The depositor has contractual rights only to have securities of the same kind and quantity returned to her. In normal circumstances, this difference would not be of great practical significance. As long as the depositee is financially in the position to satisfy claims raised against her, proprietary as well as contractual claims can be successfully enforced. This changes, however, with the depositee approaching insolvency. In the depositee’s insolvency contractual claims are of no significant value whereas, provided the asset is still with the depositee, proprietary claims will be satisfied in full.

One of the problems that arose during the German bank crisis at the end of the nineteenth century was that some banks had used ambiguous documentation.2 Investors generally seemed to have assumed that their securities were kept on the basis of a regular deposit, with the result that they would enjoy proprietary rights and be protected in the banks’ financial crisis.3 Some banks had used terms that could also be read as providing for a depositum irregulare giving investors only contractual rights. In the litigation that followed the bank crisis, the courts had to square the imprecise wording contained in the relevant banking documentation. The judges struggled to reach consistent results and found themselves, at times, reaching different conclusions in cases that appeared to be similar on the facts.4

2Bum, JBl 1924 93 (93); Bettelheim, JBl 1924 193 (193.ff.).

3Hofmannsthal, Bankhaftungsgesetz 30.

4Compare OGH 16 November 1921, Ob II 825/21 SZ 3/110 with OGH 23 November 1921, Ob I 819/21 SZ 8/115. In beiden Fa¨llen wurden Wertpapiere als Kaution fu¨ r Spekulationsgescha¨ fte bei einem Kommissiona¨ r hinterlegt. Im ersten Fall entschied das Gericht, dass ein Pfandbestellungsvertrag vorlag. Eine zu besichernde Forderung

Another problem was that there were cases where investors could rely on clear terms providing for a regular deposit, but were nevertheless unable to enforce their property rights. The reason was that, at the time of a bank’s insolvency, the customer files did not contain the securities belonging to the respective customers. There were two reasons for this.

The first was that it had become common practice for banks to use deposited securities for their own purposes.5 The banks did not do this with the intent to defraud; rather, they wanted only to make temporary use of the assets with which they were entrusted. They had the intent to return the securities after they had been used, and had, at the time, no reason to believe that they would be unable to completely restore their clients’ securities holding. Customers had been unaware that their securities had been taken out of their files and it was unclear if the banks, in using the securities, were acting in breach of their obligations to the customers.

The second reason leading to shortfalls of securities was that some banks outsourced some of their services relating to securities to other banks. Provincial banks would, for example, not keep client securities themselves but rather deposit them with better-equipped and more centrally located banks. Client securities were also delivered by provincial banks to banks in business centres for the purpose of corporate actions. Provincial banks would, for example, not themselves claim dividends for client securities but ask banks located closer to the issuer to do this for them. For the purpose of claiming dividends, the dividend coupons that were attached to the securities certificate had to be presented to the issuer and were therefore delivered to the bank employed to claim dividends.

The banks who delivered securities or dividend coupons to other banks did not in all cases disclose that they were client securities that did not belong to them. Under the standard documentation at the time, the depositee had a lien over deposited goods securing claims she had against the depositor. When banks entrusted other banks with client securities without notifying them of their clients’ proprietary interest the depositee banks were protected by the rule on the bona fide acquisition of title. Because they did not have notice of the adverse client interest they

bestand nicht. Der Hinterleger konnte die Papiere, die in der Konkursmasse noch vorhanden waren, absondern. Im zweiten Fall entschied das Gericht, dass die hinterlegten Papiere als Vorauszahlung geleistet wurden. Der Hinterleger hatte nur einen schuldrechtlichen Anspruch auf Ru¨ ckgabe der Anzahlung.

5Drucksachen des Reichstags 9. Legislaturperiode IV. Session 1895/97 Nr 14 abgedruckt, in Georg Opitz, Depotgesetz, 2nd edn. (Berlin: Walter de Gruyter, 1955) 465–466.

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acquired a lien over client assets even though the depositor banks were not entitled to create a proprietary interest in their favour.6

Another issue was that proprietary claims could be satisfied only if the securities held by the banks were actually appropriated to the client accounts. Legal doctrine tried to construe an argument whereby clients should be able to enforce property rights against assets of the same kind held by the banks on an unappropriated basis; there was, however, no legal basis for that view.7

All these and other legal uncertainties,8 which became apparent during the banking crisis, caused the legislature to intervene by reacting in a path-dependent fashion. It enacted special rules governing bailment of securities. In 1896, the law ‘On the duties of merchants safekeeping securities for others’ was adopted.9 The statute did not affect the general law of bailment; it created a special regime for securities only. The 1896 statute required depositories to appropriate securities to client accounts, and provided for other safeguards; it has been amended and renamed in the meantime but continues to influence the modern law. Some of the provisions in the act currently in force can be traced right back to the 1896 Act.

12.1.2 Depotgesetz 1937

The conclusion of subsection 11.2 was that, starting in 1925, German banks changed their system of holding securities. Instead of maintaining securities on an allocated basis they persuaded clients to agree to having their securities kept in bulk and on an unallocated basis. This changeover was supported by a legal opinion written by two leading German scholars.

In 1937, the German legislature decided to replace the 1896 statute with a modernised version and enacted the ‘Law on the deposit and the acquisition of securities’,10 referred to as the Depotgesetz 1937. It builds on the 1896 statute and clarifies several legal issues that were discussed at the time with a view to ensuring that investors had proprietary rights in the securities held in deposits rather than contractual rights against the intermediary.11

6 Bum, JBl 1924 93 (93). 7 Bum, JBl 1924 93 (94).

8Bettelheim, JBl 1924 193 (194).

9Gesetz betreffend die Pflichten der Kaufleute bei Aufbewahrung fremder Wertpapiere vom 5. Juli 1896, RGBl 1896 183.

10Gesetz u¨ber die Verwahrung und Anschaffung von Wertpapieren vom 4. 2. 1937, RGBl 1937, I 171.

11Schubert, Ausschussprotokolle 497ff. 502.