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									                                                                  Introduction

                                   Harry C. Sigman/Eva-Maria Kieninger


The importance of the subject of security rights in movables has gained
recognition in Europe recently.1 Long seen in the academic curriculum as
little more than a sliver of the law of property, security rights in mov-
ables are now recognized as an important element in modern economies,
of special importance to capital-hungry small and medium enterprises,
and a much-needed addition to security in immovables and personal
security. The importance of these rights has also been recognized from a
financial supervisory point of view. Under the Basel II requirements,
financial institutions require a clear and certain legal structure to support
the efficient supply of credit, generating an immediate need for moderni-
zation of the law governing security in movables.
    This volume focuses on security rights in tangibles. It will be followed
by a volume on security rights in (and outright transfers of) receivables.
Both volumes deal with substantive law and, given the increasing impor-
tance of cross-border transactions, with private international law as well.
    The laws of seven European countries are studied in depth. These
countries represent economies of varying sizes, different legal families
and different approaches to the solution of the problems presented. They

1   Not only has France just made extensive modifications to its secured transactions
    regime, but in the recent past most of the countries studied, as well as other Euro-
    pean countries (particularly Central and Eastern Europe) have modified their se-
    cured transactions laws and/or their insolvency laws. In addition, many multilateral
    organizations (e.g., UNCITRAL (United Nations Commission on International Trade
    Law), UNIDROIT (International Institute for the Unification of Private Law), the
    Hague Conference on Private International Law, EBRD (European Bank for Recon-
    struction and Development)) have been and are currently engaged in projects af-
    fecting this field. See also the reform proposals made by the English Law Commis-
    sion, whose Final Report can be found at Company Security Interests (Law Com No.
    296, available at http://www.lawcom.gov.uk/lc_reports.htm (1 August 2007)). Cf.
    Drobnig/Snijders/Zippro (eds.), Divergences of Property Law, an Obstacle to the In-
    ternal Market? (2006); Graham-Siegenthaler, Kreditsicherungsrechte im internatio-
    nalen Rechtsverkehr (2005); Kieninger (ed.), Security Rights in Movable Property in
    European Private Law (2004); id., Nationale, europäische und weltweite Reformen
    des Mobiliarsicherungsrechts, WM 2005, 2305 et seq. and 2353 et seq.
2                                              Harry C. Sigman/Eva-Maria Kieninger


reflect different stages in the legislative or judicial development of struc-
tures to accommodate the need for non-possessory security rights in
tangibles and to respond to the increased need for credit in modern
economies. A careful comparison at the practical level, examining the
rules actually at work in the marketplace, reveals many significant differ-
ences between the countries, even where there are similarities or identi-
ties at the highest conceptual level. In certain countries, reliance for
credit support is still based primarily on personal security and security in
immovables (and, more recently, on security in financial instruments and
receivables), reflecting the absence in those countries of a legal structure
that facilitates security over tangibles and makes it effective.
   All countries provide for a possessory pledge, and this device is, at the
least, the baseline provision for security rights in the Civil Codes of all
six Continental countries studied. Although Roman law knew of a non-
possessory pledge, this device became lost to memory and was function-
ally non-existent in the nineteenth century.2 By the beginning of the
twentieth century, however, it had become clear that non-possessory3 se-
curity rights in tangibles were needed.
   The following comparative overview, setting out the different paths on
which secured transactions law developed in the seven countries, is
drawn from the reports presented in this volume. References in the coun-
try reports to statutory provisions, court decisions and scholarly writing
are not reiterated here. On various specific points, footnotes in this Intro-
duction provide information about Article 9 of the Uniform Commercial
Code, the secured transactions law in the states of the United States,
primarily to illustrate contrasts in law-making technique, in specific rules
or in policy.4 Because of the great importance of registration to modern
secured transactions law, a more elaborate discussion of filing under UCC

2   Zwalve, A labyrinth of creditors: a short introduction to the history of security
    interests in goods, in Kieninger (ed.), Security Rights in Movable Property in Euro-
    pean Private Law (2004), p. 38 et seq.
3   In contrast to the European distinction between possessory and non-possessory
    security interests, UCC Article 9 provides for a “unitary” security device, and does
    not treat possessory and non-possessory security interests as two distinct types of
    right. Instead, UCC Article 9 treats dispossession of the debtor as one of several
    possible methods of perfecting a security interest (depending on the nature of the
    collateral, possession may be a permitted but not exclusive method of perfection,
    the exclusive method of perfection or not available as a method of perfecting).
4   For a thorough discussion of UCC Article 9, including the history of its develop-
    ment, its structure and concepts and a detailed discussion of its rules and the po-
    licies underlying them, see Sigman, Security in movables in the United States –
    Uniform Commercial Code Article 9: a basis for comparison, in Kieninger (ed.), Se-
    curity Rights in Movable Property in European Private Law (2004), p. 54 et seq.
Introduction                                                                              3


Article 9 is presented separately in Part IV of this Introduction. And
because of the key role played by the filing system in the priorities re-
gime, as well as the great difference in the modes of development and
presentation of priority rules among the UCC and the legal structures of
the countries studied, Part IV also includes a more elaborate discussion of
the UCC Article 9 priorities regime.
  We start with a brief description of the basic structure of the national
systems, followed by a discussion of some core concepts. The Intro-
duction then presents the Case Studies and continues the comparative
overview on a case by case basis.


I.     Basic structure and development

In Germany, the BGB provided for a possessory pledge and, as the only
security arrangement without change of possession or other means of
publicity, title retention as security for the unpaid seller. Only a few years
after the adoption of the BGB, the courts permitted non-possessory secu-
rity rights through the use of ownership. This was permitted to non-seller
creditors in the form of transfer of title by way of security (also referred
to as fiduciary transfer).
   The German courts allowed the seller by contract to expand the benefit
of the retention of title in the sold goods by also obtaining (i) a security
transfer of the receivable generated in favor of the buyer by a subsale
and (ii) a right in products resulting from the processing or manufactur-
ing by the buyer of the sold goods.5 This right in such products is usually
created by a contractual agreement that the buyer processes the sold
goods on behalf of the seller, rather than by a security transfer. Further,
the German courts also permitted the seller to condition transfer of title
upon payment not only of the price of the sold goods but also payment
of any other obligation.6 Through such expansions, coupled with the

5    UCC Article 9 provides (in secs. 9-203 and 9-315) with respect to all security inter-
     ests (including those retained by a seller) for an automatic security interest in all
     “proceeds” (broadly defined in sec. 9-102(a)(64)) of collateral. With the assistance of
     tracing rules provided under other law, proceeds may be identified even after they
     have been commingled with other property; also, the definition of “collateral” in-
     cludes proceeds of proceeds.
6    UCC Article 9 places no limits on the nature, source or extent of the obligation(s),
     present or future, that may be secured by a security interest (subject, of course, to
     the basic delineation of UCC Article 9’s scope provided in sec. 9-109). Qualification
     of a security interest in goods as a “purchase-money” security interest is limited to
     the extent that it secures an obligation “incurred as all or part of the price of the
     collateral or for value given to enable the debtor to acquire rights in or the use of
4                                                Harry C. Sigman/Eva-Maria Kieninger


priority given by the courts to title-retaining sellers over competing in-
terests (both as to the sold goods and also as to the receivables proceeds),
German practice built the title retention device into something far more
powerful than in any other European country, and without imposing any
form of publicity (see the discussion in the report on Germany of the
verlängerte und erweiterte Eigentumsvorbehalt). Consequently, title reten-
tion is a common, and possibly the principal, form of secured asset-
acquisition credit in Germany.
   The fiduciary transfer device (Sicherungsübereignung) was, and contin-
ues to be, flexible enough to serve the business needs of borrowers and
lenders, functioning as a non-possessory pledge but without any formal-
ity or publicity. The courts, however, recognized, at least in certain con-
texts, that the “title” transferred to the creditor is a fictitious one, in-
tended only to serve a security purpose, and, by imposing fiduciary obli-
gations on the financier, limited the benefit of the transfer to the security
purpose intended by the parties; thus, for example, in insolvency, the
holder of the fiduciary title is treated the same as a pledgee, i.e., the
holder’s right is limited to the realization proceeds rather than in the
asset itself (this result was reached judicially under the old insolvency
law and is now expressly so provided under the new insolvency law). In
principle, however, an actual “title” has been transferred, leaving the
debtor7/transferor with only a personal claim against the transferee/cre-

    the collateral if the value is in fact so used.” Qualification as a purchase-money se-
    curity interest makes available a super-priority over an earlier perfected competing
    security interest and a grace period of twenty days after delivery for achieving per-
    fection, both discussed below. Note that UCC Article 9 expands the class of bene-
    fited secured creditors beyond sellers to include any person that provides asset-
    acquisition financing. With respect to the scope of collateral covered by a purchase-
    money security interest, a special cross-collateralization provision applies with
    respect to inventory and there are also special provisions with respect to software
    acquired in an integrated transaction with the related goods when the software is
    acquired for the principal purpose of using it in the goods. See sec. 9-103. See fur-
    ther discussion of this subject in Case Study 4.
7   References in this Introduction to “debtor” are intended to mean the person that
    grants the security right, whether or not that person owes the secured obligation.
    UCC Article 9 uses the terms “debtor”, “obligor” and “secondary obligor”, all de-
    fined in UCC sec. 9-102. Because the principal focus of UCC Article 9 is on the se-
    curity interest, rather than on the secured obligation, “debtor” is defined as a person
    that has an interest (other than a security interest or other lien – interests that nor-
    mally derive from and encumber the debtor’s interest) in the collateral, whether or
    not that person has an obligation to pay or otherwise perform the secured obliga-
    tion. “Debtor”, therefore, also includes a transferee of the collateral (whether or not
    that person has assumed the secured obligation). The existence of a right of re-
Introduction                                                                             5


ditor. This seems to have stimulated recent judicial recognition of an
Anwartschaftsrecht (a form of expectancy interest, regarded as a proprie-
tary right) in the buyer that has not yet fully performed its purchase
contract. This reflects an implicit recognition that the conceptual ap-
proaches based on title, which leave the buyer or debtor, not having
ownership, with nothing (or no more than personal claims) until it has
fully performed, require ameliorating doctrines in order to fit comforta-
bly with economic reality and modern business needs.
   In sharp contrast, France took a completely different path, both in le-
gal structure and in methodology. In France, title retention was an inef-
fectual and little-used device until the 1980’s amendment to the insol-
vency law made the retained title effective in that context. Further, even
then, the title retention is limited to the goods sold and whatever substi-
tute assets might qualify for “real subrogation”. With respect to tangibles,
France did not recognize transfer of ownership for purposes of security
generally until it adopted legislation in 2007 authorizing the fiducie,
which may, however, be constituted only by a legal person, must involve
a bank as fiduciaire (trustee) and must be registered. It remains to be seen
precisely how and to what extent this will be developed into a useful
commercial security device.
   Instead of using fiduciary transfer of ownership to evade the bedrock
principle of il n’y a pas de gage sans dépossession, France permitted,
through a series of laws adopted throughout the twentieth century (e.g.,
gage sur fonds de commerce, nantissement d’outillage, warrants for spe-
cialized purposes), the creation of specific non-possessory pledges, sub-
stituting registration for dispossession. Only in 2006 was the Code civil
amended to add a general gage sans dépossession (along with other mod-
ernizations), also based on registration. Even this legislation, however,
failed to revise the subject comprehensively into a single coherent body,
as it left the pre-existing devices in place alongside the new additions,8

    course and the law of suretyship will determine whether the obligation of an “obli-
    gor” is primary or secondary. Useful illustrative examples are found in the Official
    Comment to UCC sec. 9-102. The significance of the categories is mainly in the
    context of post-default rights and remedies, governed by Part 6 of UCC Article 9.
8   Both the German and French methodology and structure contrast sharply with the
    development in the United States (which commenced during the late 1940’s) of UCC
    Article 9, which presents a single comprehensive legislative treatment of the entire
    subject of secured transactions over movables (tangible and intangible). Article 9
    established a single device, denominated a “security interest” (although terminology
    used by the parties and structure of the transaction are irrelevant under UCC Article
    9), and, making the location of title irrelevant for secured transactions purposes,
    eliminated the possibility to use title as an alternative technique to obtain security.
    Further, in adopting a functional approach, UCC Article 9 effectively leveled the

								
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