22. Security rights possession Flashcards
What are security property rights for?
created to secure the payment of a claim
2 main types of security property rights
- the right of pledge: created on most movable objects and on particular kinds of rights (e.g. credits)
- the right of hypothec (or mortgage): created on immovable objects and on some special movable objects
Subject, security rights and object (person who receives it) - relations
The security right is held by the creditor of the claim and gives the holder the power to sell the object through a judicial procedure and to satisfy the debt from the proceeds
Example of security property rights relations (for understanding)
- Mario buys a house and for that purpose borrows €100,000 from a bank
- As security for this loan the bank is entitled with a right of hypothec on the house
- If Mario does not repay the money in time, the bank may evict Mario from the house, sell it at an auction and satisfy the outstanding debt by means of the proceeds
- Suppose that Mario still owes € 80,000 to the bank
- If the house brings in € 100,000 at the auction, then the bank can take €100,000 from the proceeds and must return €20,000 to Mario.
- If the house only brings in €60,000, Mario must still pay the bank €20,000.
Two prerogatives of security property rights
- Run with the asset (as all the other property rights): If an object has been burdened with a security by its owner in favor of his creditor, and then sold to a subsequent purchaser, this latter party receives the object still encumbered by the security
- Priority (special feature of security property rights): secondary property rights holders have priority over creditors in case of insolvency. In general, creditors are treated equally in insolvency but the holders of a property security right have priority over the creditors who only hold personal rights.
Example of priority
Suppose that John is the owner of a house. He owes €100,000 to a bank and €50,000 to a supplier
No security rights case:
- If there is no security forany of these credits and the house is sold to satisfy the creditors, the bank will receive 2/3rds of the proceeds, and the supplier 1/3, proportional to the claims they had against Joan (paritas creditorum)
Security rights case:
- if the bank has a right of hypothec over the house, the proceeds of the house will first be used to pay the bank
- If the house brings in €80,000 the bank will receive all that money and the supplier will receive nothing
- If the house brings in €140,000 the bank will receive €100,000 and the supplier €40,000
Possessor v. owner
- Possessor and owner may coincide
- He who owns a good is also in possession
- Possessor and owner may be different subjects
- E.g. stolen goods
- E.g. buyer of a good under a void contract
- E.g. goods taken from the owner in good faith
State of fact v situation at law
Possessions refer exclusively to the state of fact and do not consider the underlying legal situation.
Possession and protection relation flow
If somebody behaves as if he were the owner, or were vested with a property interest, then he possesses the right of ownership or the property interest => protection of possession => The legal system attributes important legal consequences to the actual control over an object and grants the possessor the right to defend his position
Why does legal system attribute legal consequences for protection of possession? OR Why protecting actual possession irrespectively of the situation at law?
- Mitigate violence
- As possession refers exclusively to the state of fact, and does not consider the underlying situation at law (who is actually owning the property), protection of possession works equally in defense of persons not having the right of ownership or any property interest (person that might not actually own the property)
- Possession is protected in order to ensure peaceful and orderly intercourse in society
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Fundamental principle and use of force
Fundamental principle that the State has monopoly on the use of force (control in a way to mitigate violence)
Protection of possession
These protections work equally in defense of persons not having the right of ownership or property interest
Type of protection of possession
- Self-help: The possessor is entitled to defend his position by self-help in a limited series of cases:
- Through proportionate self-defence (against third parties violent acts)
- Through physical recovery of his possession, immediately after the interfering act has occurred
- Legal protection: Whenever the previous conditions are not met (in the case of self help), protection of possession is granted only through judiciary actions
What is a restoration action?
If the possessor has been violently or secretly deprived of his physical control over the good, he may sue the dispossessor in order to be restored in its possession
HOWEVER:
What if possessor and owner do not coincide?
What if restoration action is brought by a owner (non- possessor) against a thief (possessor)?
Types of legal protection
- Restoration of possession
- Recovery of ownership
Restoration of possession (state of facts)
The legal system – firstly, although temporarily – orders restoration of possession, i.e. the restitution of the thing to the person who has been violently or secretly stripped of possession
Recovery of ownership (situation at law)
Protection of possession works only temporarily, as the owner may then bring a recovery action against the possessor, i.e. the action granted to the owner in order to recover the “thing” from whomever possesses or has custody of it
General principle on moveable properties
nobody can transfer a property right that he did not have himself in the first place
Acquisition of movables from a non-owner
Any person to whom movables are transferred by one who is not the owner, acquires ownership provided that:
- the movable is delivered to him (possession)
- he is in good faith at the time of the transfer
- there is a“suitable title”for the transfer of the right of ownership (a suitable title when seller is also the owner of the good)
Paul v. Bill (moveables)
- Paul gets into an Art center and buys a painting paying € 5,000
- He asks the seller to keep the painting until he comes back
- Bill gets into the same Art center. He likes the same painting and he wants to buy it
- Bill offers € 30,000 cash for the painting The seller accepts and delivers the good
- Going out with the painting, Bill bumps into Paul, who recognizes the painting and claims for it
Paul v. Bill (judgement) for moveables
Protection of the situation at law (protection of Paul):
- Paul bought the painting from the true owner
- The seller was no longer owner of the painting
- Bill cannot acquire ownership from a non-owner
Protection of the state of fact (protection of Bill):
- He acquired control over the good from the seller
- There were no significant reasons to believe that the seller was not the true owner
- It would have been difficult for Bill to verify if the seller was the true owner
=> protection of state of fact prevails (efficient breach of contract)
Rationale: Transparency and reliability of transactions in possession of moveables
- By stating that the possessor in good faith acquires the right of ownership, the legal system promotes the circulation of wealth, by protecting prospective purchasers who – in good faith – relied on the state of fact (the exercise of the “power over the thing” by the possessor)
- It is not imposed on market participants to inquire about who is the real owner of the movable goods for which they negotiate
Paul v. Bill (immovables)
- Paul owns a parcel of land in the countryside that
- he never exploits or even visits
- Given the abandoned state of the field, Bill, Paul’s neighbor, decides to start cultivating it
- As years pass by, in the absence of any reaction by Paul, Bill decides to erect a fence around the field to protect his harvest
- After 20 years, Paul visits the field and finds it well farmed, but closed by Bill’s fence
- Paul claims the removal of the fence by Bill, and the recovery of his land
Paul v. Bill (judgement) for immoveables
Protection of situation at law (Protection of Paul):
- Paul is the owner of the field
- Ownership does not expire because of prescription
- Ownership covers the right to do nothing at all with the property
Protection of the state of fact (protection of Bill):
- He possessed the field for a long period of time
- He prevented the abandonment of the land and increased its value
- He deserves more protection than an idle owner
Acquisitive prescription definition
The continued and uninterrupted possession over a predetermined period of time leads to the acquisition of a right of ownership (or property interest) on any good, be it movable or immovable
e.g.
- The period of time: number of years required to acquire ownership bypossession
- The subjective element: in certain legal systems, the acquisitive prescription period is shorter for possessors in good faith (those who ignore that the good does not belong to them) / longer for possessors in bad faith
Reasons behind acquisitive prescription
- To promote active use of resources (by the possessor) over property unexpolited by the owner for a long period of time
- To promote certainty (a situation of fact ascertained over time coincides with the situation at law)
Protection of property in General Principles and Constitutional traditions of European Law
Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law
HOWEVER: Is it consistent with the general interest to deprive an idle owner of the peaceful enjoyment of his goods, without even providing him any monetary compensation?
European court of human rights - Pye v UK (Facts)
- The Graham family occupied the land of Pye and after 12 years sought to obtain it by acquisitive prescription under the English law
- English House of Lord ruled that the Grahams were the lawful owners of the land as Pye had failed to take possession of it
- The case was litigated as Pye v United Kingdom in the European Court of Human Rights, since Pye claimed that the deprivation of his property was contrary to the protection granted by the European Convention on Human Rights
Pye v. UK
- The Court originally ruled that obtaining property via adverse possession was contrary to Article 1 of Protocol 1 of the European Convention on Human Rights (the right to the peaceful enjoyment of one’s possessions)
- On appeal, the Grand Chamber (eu court of human rights - for difficult cases) subsequently held that although there was an interference with Convention right to property, it was a proportionate and thus permissible interference
=> Acquisitive prescription is still considered human-rights compliant
