Prof. Dr. Alexander Trunk

Class Introduction to the Common

Summer term 2020

http://www.eastlaw.uni-kiel.de 16.04.2020 Introduction. Overview: UK, Commonwealth 30.04.2020 Overview: U.S. Law 14.05.2020 law 28.05.2020 law 11.06.2020 law + 25.06.2020 Company and partnership law 09.07.2020 Civil procedure + insolvency law CommonL 05 Part 1 (of 5)

Notion of „property law“ in the understanding of the • Branch of law dealing with the relationship between one or more persons and things (cf. Encyclopedia Britannica) • Termin „property“ (from Lat. proprietas/ownership) refers to „ownership“ in „things“ • „Ownership“ tends to be understood more broadly than „property“ (extending beyond „things“) • „Things“ in this context can be „tangible“ (corporeal) or „intangible“ (incorporeal)  difference from Civil Law tradition! Eigentum - Vermögen • Practically, legal relations (ownership/property) with regard to intangibles are usually not dealt with in property law (but in contract law [e.g. ], company law etc.). Lease (landlord-tenant relationship) is often seen as a separate category between contract law and property law.  dogmatically not stringent • Strong historic influences! Property law in context

• Property and cultural background and historic development: role of private property • Property in socio-political theory (antiquity, enlightenment, French Revolution, Adam Smith, Marxist theory etc.). Relationship between property and society/justice/economy. • „Property rights theory“ under (new) institutional economics: importance of property rights in the process of economic development (“incentives”); how to structure. General concepts of „property“ in Common Law (general)

• Private property – public property • „Full“ property (or „bundle of rights“) - „limited“ proprietary (property) rights [rights in rem] • Personal property („personalty“: in chattels) – („realty“: in land) History of property law in Common Law countries History of property law in

• Norman conquest (1066) • feudal system (e.g. only „estates“/„fees“) • „writ“ system (actions) has led to fragmentation (differentiation between personal property – real property: actions „in personam“ – actions „in rem“). • distinction common law – equity in property law, e.g. „legal“ and „equitable“ „interests“ • some statutes, e.g. Property Act 1925, Land Registration Act 2002, 1979/1989, … • EU influence very limited

History of property law in the U.S.

• Based on English tradition, but particular developments: • U.S. Constitution • Federal structure: federal legislation – State legislation (+ Common Law) • Uniform , in particular UCC Art.9 (security interest) • Restatements Law of Property: 17 vol., but yet uncompleted • Economic analysis • Other Systematic position of property law

• Part of private law, but based on constitutional law and linked with administrative law and • Branch of law dealing with „property“: contents = „right to exclusion, use and transfer” • Linked with law of obligations and procedural law (as well as others) Core elements of property law

• Definition of sphere of application: lease? sales? intellectual property? trust? • Determination of types of property rights: • Personalty: legal/equitable property (ownership, “title“), credit security in rem (pledge et al.), possession as right? • Realty: • – leasehold • freehold: fee simple absolute in possession, other fees/estates (e.g. terms of years absolute, , life ) • „legal and equitable interests in land (see English Property Act 1925) • credit security in land: mortgage • possession • Principles of property law? • Most relevant aspects of the respective rights: • acquisition, protection, transfer, termination „Principles“ of property law

• Numerus clausus of property rights? In U.S. explicitly recognized for real property. UK? Legislation mostly not dispositive. • Principle of „separation“ of property law and law of obligations: yes • Principle of „abstraction“? No • Principle of „speciality“ (Spezialitätsprinzip) in property law: mostly yes, but some exceptions, e.g. floating charge, general liens and privileges • Principle of „legal certainty“ (Bestimmtheits- grundsatz) in property law: not discussed as principle • Principle of „publicity“ in property law: mostly yes, but some exceptions Further reading on the subject

https://www.peacepalacelibrary.nl/ebooks/files/321952723.pdf https://www.eui.eu/Documents/DepartmentsCentres/Law/ResearchTeaching/ResearchThemes/EuropeanPrivateLaw/RealPropertyProject/England%2 0and%20Wales.PDF

Hay, US-Amerikanisches Recht, 7. Aufl. (2020), 5.Kapitel D. (Sachenrecht)

CommonL 05 Part 2 (of 5) Constitutional guarantees of property U.S. Constitution •Fifth Amendment (1789/1791) No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury …; nor shall any person be subject for the same offence to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.  Numerous case-law by U.S. Supreme Ct., e.g. broad interpretation of “property”, 5th Amd covers also relations between private parties. Particular aspect expropriation (“eminent domain”)

UK No express constitutional guarantee (but see 1215). But Human Rights Act 1998 (enforced by regular courts, also ECtHR available). See also ECJ (but EU Charter of Human Rights not binding for UK). •Protocol 1, Article 1: Protection of property •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. •The preceding provisions shall not, however, in any way impair the right of the State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure payment of taxes or other contributions or penalties.

Sources of property law

• International law (e.g. investment protection) • [EU law] • Constitutional law (e.g. human rights) • Substantive private law • Procedure: procedural aspects typically involved, e.g. enforcement of security rights by „foreclosure“, actions in rem and in personam, insolvency • Related legal areas: e.g. trust, , company law, conflict of laws TypesTypes ofofsources sources

• “Codes” e.g. Texas Property Code, California Civil Code, Louisiana Civil Code • Specific legislation: movable/immovable property, supplementary legislation • Restatement of the Law Property (U.S.) • Uniform Acts, e.g. UCC Art.9 (security interest) (U.S.) Sources of property law: UK

• Statutes • Common for Personal and Real Property • Companies legislation (e.g. Companies Act 2013) on fixed and floating charges • Personal Property • Sale of Goods Act 1979 (includes property aspects) • Real Property • 1925 • Land Registration Act 2002

• Common Law (case-law)

Sources of property law: U.S. • Federal statutes • E.g. Uniform Relocation Assistance and Acquisition of Real Property Act for Federal and Federal-Assisted Programs (1970), 42 U.S.C § 4601 and 49 CFR Part 24 • States legislation • ULC Uniform Acts: • Uniform Abandoned Property Act 2018 (Model Act) • Uniform Condominium Act 1977 • Eminent Domain Code 1974 (Model Act) • Disclaimer of Property Interests Act • Federal Lien Registration Act • Residential Mortgage Satisfaction Act • Real Property Transfer on Death Act • Real Property Electronic Recording Act • Real Estate Time Share Act (Model Act) • UCC Art.2 Sales – Art.2A Leases • UCC Art.9 Secured Transactions • Uniform Unclaimed Property Act, Revised • Other legislation • e.g. Property Code (Texas), California Civil Code, Louisiana Civil Code Federal: URA, 42 U.S.C § 4601

See also: U.S.C.A. (= Annotated)

Restatements on Property Law (ongoing)

• Restatement of Property (1936–40; mostly superseded by Restatement of Property, Second and Third volumes) • Restatement of Property, Second, Landlord and Tenant (1977) • Restatement of Property, Third, Mortgages (1997) • Restatement of Property, Third, Servitudes (2000) • Restatement of Property, Third, Wills and Other Donative Transfers (1999, 2003, and 2011) • Restatement of Security (Division I largely superseded by the Article 9 of the Uniform Commercial Code; Division II entirely superseded by Restatement of Suretyship and Guaranty, Third) Division 3: Possession

Division 4: Acquisition

Vol. 2: INTERFERENCES WITH, AND LIMITS ON, OWNERSHIP AND POSSESSION Division 1: Property Division 3: Remedies (eg )

Vol. 3: POWERS AND DUTIES ASSOCIATED WITH OWNERSHIP DIVISION ONE: OWNER POWERS (eg alienation, gifts) DIVISION THREE: LANDLORD AND TENANT

Sources of property law: Other Jurisdictions

• Australia • Canada • India • South Africa

https://indiankanoon.org/doc/515323/

CommonL 05 Part 3 (of 5) Selected topics of property law Typical issues • Relevance of distinction movable/immovable (personal/real) property and consequences therefrom:  distinction is of basic character, but some statutes and literature develop general approaches • Acquisition of (full) property in general • Good faith transfers (movables/immovables):  possible, sometimes even without good faith • Protection of property (e.g. rei vindicatio (only ejectment as to immovables? tort?), relation with torts law, )

• Security rights in rem: numerous and practically important, usually different for personal and real property, e.g. liens/charges, pledge, mortgage, floating charge, ownership, retention of title, „security interest“ under UCC and international treaties) Categories of property rights Categories of property rights (rights in rem)

• General property positions • „Freehold“: corresponds roughly to full property. But may be limited in time or inheritance (e.g. or fee- tail) • „Leasehold“

• Limited property rights (encumbrances) • Credit security

• Other, e.g. bailment • Additional combination of law and equity (e.g. equitable title)

Personal property Categories of property rights in personalty

• Full property (also in England) • Limited property rights (encumbrances) • Encumbrances (general term may also be „charges“ or „liens“) • Credit security, e.g. • Pledge • Chattel mortgage • retention of title • fiduciary ownership • „security interest“ under UCC and international treaties • floating charge (extends also to real property) • Other

Real property (land) Categories of property rights in realty • Full property („freehold estates“): • In England no full/absolute property („allodial property“ is held by the Crown), but „fee simple and absolute“ practically identical. • U.S: full property available (but limits by „eminent domain“) • „Freehold“ may be limited in time, e.g. fee tail, life estate. Similar to „non- freehold“ rights („tenancies“) such as lease[hold]. • Limited property rights (encumbrances): general term may also be „charges“ or „liens“) • Credit security • Mortgage (England, U.S. etc.) • Sometimes „ of trust“ (involves third party) • Floating charge (England) (extends also to personal property). Limited to companies. • Others • legal and equitable servitudes (easements, profits et al.), licenses (only „privilege“, no legal right; may be oral).

Transfer of property Overview • Distinguish • movables (personalty) – immovables (realty) • legal and equitable transfers • Movables • Transfer basically regulated in the context of the respective contract (e.g. sales contract), although logically separate from sale • Immovables • Transfer basically regulated in [land] property law (which may include also provisions on sales) • Prerequisites differ on system of law: registered land – non- registered land (sometimes both approaches in one country, see England, Australia, Canada). Good faith effect of land register may be limited. Personal property UK Sale of Goods Act 1979: transfer of property

PART III EFFECTS OF THE CONTRACT Transfer of property as between seller and buyer 17. Property passes when intended to pass (1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.

 Transfer of possession not required.  Retention of title can also be agreed. Real property Usual Prerequisites of transfer (conveyance): - Valid sales etc. contract, gift, trust - Deed - Registration in land register (Land Registration Act 2002)

Also possible: - Resulting or constructive trusts - Proprietory

U.S. • Transfer of property in land requires • : must be in writing (), notary public not necessary • „Closing“ = transfer by „deed“; entry (of the deed) into land records not required, but protects against later purchasers from same seller Good faith acquisition of property Personal property UK Sale of Goods Act 1979: Good Faith Purchase

PART III EFFECTS OF THE CONTRACT Transfer of title 21. Sale by person not the owner (1) Subject to this Act, where goods are sold by a person who is not their owner, and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller's authority to sell. (2) Nothing in this Act affects— (a) the provisions of the Factors Acts or any enactment enabling the apparent owner of goods to dispose of them as if he were their true owner; (b) the validity of any contract of sale under any special common law or statutory power of sale or under the order of a court of competent jurisdiction.

Uniform Commercial Code (USA): Good faith purchase

ARTICLE 2 - SALES PART 4. TITLE, CREDITORS AND GOOD FAITH PURCHASERS § 2-403. Power to Transfer; Good Faith Purchase of Goods; "Entrusting". (1) A purchaser of goods acquires all title which his transferor had or had power to transfer …. A person with voidable title has power to transfer a good title to a good faith purchaser for value. When goods have been delivered under a transaction of purchase the purchaser has such power even though (a) the transferor was deceived as to the identity of the purchaser, or (b) the delivery was in exchange for a check which is later dishonored, or (c) it was agreed that the transaction was to be a "cash sale", or (d) the delivery was procured through fraud punishable as larcenous under the criminal law. (2) Any entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in ordinary course of business. Real property Categories

• Good faith acquisition of realty in the proper sense: • UK: Depends on general system of land law (land register with which effects, etc.) • U.S.: purchase for value, valid deed, good faith (does not exist in case of actual notice or negligence). Land registration requirement differs („Notice Statutes“ etc.)

• Adverse possession („Ersitzung“), usually without regard to good faith, but some jurisdictions require good faith

CommonL 05 Part 4 (of 5) (Limited) rights in rem • Distinguish • 1) rights in personalty – in realty; • 2)legal - equitable • Security interests • Pledge: possessory right • Mortgage: classical approach is „title theory“, by statute often „lien theory“ • Liens (private or public, contractual or statutory) • Charges (including e.g. fixed charge and floating charge) • Retention of title • Security transfer of title • Security interest (Art.9 UCC). Includes also floating lien. • Servitudes • Other encumbrances

U.S.: floating lien under UCC Art.9 (not limited to corporations) Québec: floating mortgage/hypothèque ouverte

„Crystallization“ necessary for determining ranking-order Security interests Personal property Overview

• England • Canada • U.S. • India

• Pledge • Retention of title • Fiduciary or conditional property • Security interest (originally U.S. UCC, but model for others)

Pledge

• Generally recognized, but often unpracticable (if direct possession requirement) https://www.thomascooperlaw.com/english-law-pledge/ Retention of title (Eigentumsvorbehalt)

• „Simple“ retention of title recognized, but sometimes needs registration • „Enlarged forms“ of retention of title often under question UK Sale of Goods Act 1979: transfer of property

PART III EFFECTS OF THE CONTRACT Transfer of property as between seller and buyer 17. Property passes when intended to pass (1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.

 Retention of title can also be agreed. Enlarged retention of title clauses: In principle admitted since „Romalpa“ decision of English C.A. (1976) Conditional or fiduciary transfer of property

• Usually recognized (not in England: instead chattel morgage, which has to be registered if granted by a company), • but sometimes not permissible, e.g. as circumvention of pledge or other security right • Problem: publicity India: Transfer of Property Act, 1882

Sec.25. Conditional transfer.

An interest created on a transfer of property and dependent upon a condition fails if the fulfilment of the condition is impossible, or is forbidden by law, or is of such a nature that, if permitted, it would defeat the provisions of any law, or is fraudulent, or involves or implies injury to the person or property of another, or the Court regards it as immoral or opposed to public policy.

Security interest under UCC Uniform Commercial Code: Security Interest ARTICLE 9 – SECURITY INTEREST § 9-201. GENERAL EFFECTIVENESS OF SECURITY AGREEMENT. (a) [General effectiveness.] Except as otherwise provided in [the Uniform Commercial Code], a security agreement is effective according to its terms between the parties, against purchasers of the collateral, and against creditors. § 9-203. ATTACHMENT AND ENFORCEABILITY OF SECURITY INTEREST … (a) [Attachment.] A security interest attaches to collateral when it becomes enforceable against the debtor with respect to the collateral, unless an agreement expressly postpones the time of attachment. (b) [Enforceability.] Except as otherwise provided in subsections (c) through (i), a security interest is enforceable against the debtor and third parties with respect to the collateral only if : (1) value has been given; (2) the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party; and (3) one of the following conditions is met: (A) the debtor has authenticated a security agreement that provides a description of the collateral … § 9-310. WHEN FILING REQUIRED TO PERFECT SECURITY INTEREST … (a) [General rule: perfection by filing.] … UCC Art.9 Security interest

• „Created“ by security agreement and „attached“ under additional requirements (e.g. debtor must have legal position in the object) • „Perfected“ by giving notice to third parties, usually by registration. Perfection is necessary for protection against third parties including insolvency adminstrator. • „Enforced“ in case of „default“ Influenc of UCC Art.9 Security interest abroad

European Bank for Reconstruction and Development (EBRD): Model Law for Secured Transactions in 1994 took inspiration from UCC Article 9, but differed significantly, e.g. was more limited (not for purchase money security interests etc.)

Reforms of secured transactions laws in Eastern Europe in 1990s and 2000s, took some inspiration from UCC Art.9, but chose specific approaches.

Albania, Kosovo, and Montenegro follow UCC Article 9 more closely.

Organization of American States (OAS): Model Inter-American Law on Secured Transactions 2002: inspired by UCC Article 9, but with significant changes. Adopted by Mexico, Peru, Guatemala and Honduras

UNCITRAL: Legislative Guide on Secured Transactions (2008), inspired by UCC Article 9 Real property Overview

• England • U.S. • Others

• Mortgage • Fixed charge • Floating charge (England); floating lien (U.S.) under UCC Art.9 – also beyond companies • others

CommonL 05 Part 5 (of 5) Trust Law Notion and main contents of trust law

• Branch of law dealing with „trusts“ • Definition of trust: usually a three-party fiduciary relationship in which the first party, the trustor or settlor, transfers ("settles") a property to the second party (the ) for the benefit of the third party, the beneficiary. • Historically developed since 12th century under the rules of equity • Characteristics: • Splitting of property: trustee has „legal title“, beneficiary has „equitable title“ (also protected by law and courts) • Trustee act upon the instructions of the settlor and has „fiduciary duties“ towards the beneficiary • Strong historic influences!

Types of trust

• Inter vivos trusts – testamentary trusts • Express trusts – implied trusts • Statutory trusts • Simple trusts – special trusts • Constructive trusts – resulting trusts • Revocable – irrevocable trusts • Discretionary trusts • Tax considerations • Flexible! Areas of „trust law“

• Business relationships, e.g. banking, investment, asset protection, business trust • Organizing co-ownerhip • Organizing construction project • Labour relationships, e.g. remuneration of employees, employee share ownership, pension schemes • Personal injury trust • Estate planning (inheritance) • Tax planning • Charitable activities • Other Legal sources of trust law

• UK • /2000 • Trustee Investments Act 1961 • Recognition of Trusts Act 1987 (implements Hague Trust Convention) • U.S. • Uniform Law Commission: • Uniform Trust Code 2000 • Statutory Trust Entity Act • Uniform Statutory Rule Against Perpetuities • Testamentary Additions to Trusts Act • Others, e.g. • Cyprus International Trusts Law 2012

Summary of the Uniform Trust Code (by the ULC)

“The Uniform Trust Code (UTC) is the first effort to codify the law of trusts in the history of the United States. A trust is formed when an individual (called settlor) transfers assets to a person called the trustee. The assets are held in “trust” for identifiable beneficiaries or for a valid beneficial purpose. All voluntary trusts fall under the UTC. Involuntary trusts such as resulting trusts are not included. The UTC provides rules for charitable trusts and other honorary trusts such as pet trusts, as well as for ordinary trusts in which there are income beneficiaries and remainder beneficiaries at the conclusion of the trust. Spendthrift trusts are recognized. A spendthrift trust prevents creditors of a beneficiary from attaching a trust distribution until it is actually made to that beneficiary. UTC distinguishes revocable trusts from irrevocable trusts. All trusts are revocable unless the trust instrument makes them irrevocable. A revocable trust, which allows the settlor to revoke it before the settlor dies or becomes incapacitated, is treated as a will substitute. UTC provides for fiduciary obligations of a trustee, except for those contained in the Uniform Prudent Investor Act. There can be valid oral trusts under UTC. A written instrument is not necessary for enforcement. There are rules for jurisdiction and enforcement. Almost all the rules in the UTC are default rules, and may be waived or varied in a trust instrument.” Source: Wikipedia,

Robert Maxwell stole the pension funds of his employees at the Daily Mirror and accidentally fell off his yacht, the Lady Mona K, near the Canary Islands. Bishopsgate Investment Mgt Ltd v Homan held Maxwell and his inheritors were strictly liable to account for misapplication of the assets. International aspects and impact of trusts

• Offshore trusts

• „Trusts“ adopted in Civil Law countries, e.g. Liechtenstein, Netherlands Antilles, Czechia, Russia • Trust as topic of international treaties and supranational law • Hague Convention on the Law Applicable to Trusts and on their Recognition 1985: choice of law by settlor, subsidiary rules, recognition of foreign trusts • EU Brussels Ia Regulation 2012 • Others