Legal System of Civil Law in the Netherlands
For accounting purposes one says that a person’s property is formed by the sum of all his assets and debts. An accountant is especially interested in the value of the different objects individually and in the value of the property of a person or a company as a whole. A lawyer approaches a person’s property differently. He doesn’t particularly look at the value of the assets and debts, but especially at the powers that a person may exercise with respect to an object and also, if it occurs, which type of performance a person must deliver to pay his debt. A lawyer defines the property of a person for this reason as the total of all valuable rights (the assets) and all legal duties with a negative value (liabilities) that, according to civil law, can belong to a person. The valuable rights mostly consist of property rights; the subjective duties are called debts (or obligations).
An accountant examines the above property scheme in principle purely in figures. He’s, above all, interested in the economic value of the different assets. On the basis of business economic criteria he tries to determine their real values in order to present his client correct information about his financial position. If the value of the house should increase because of favourable developments of housing statistics, he makes a record of this on the balance sheet by revaluing the long leasehold. He does the same when the value of the car, for instance as a result of wear off, has fallen down. This is depreciated on account of wear and tear, so that the value of the car decreases. Should the collection of the debt-claim of his client against his sister become doubtful, then the economic value of that claim must be adjusted as well.
A lawyer not particularly aims at the value of the assets, but more at the powers of the entitled person with regard to these objects. He is mainly interested in the way his client can use the house by virtue of his long leasehold. What does the law say about this? Can his client sell the long leasehold or take out a mortgage on it, and if so, how must this be done? Is it possible for his client to grant another person during a long or short period of time the right to use his house, and if so, what are the consequences thereof for his client in future? In a similar way a lawyer looks at the debt-claim of Piet against his sister. First he will trace what Piet’s sister has to perform to settle her debt to Piet. Is it the payment of money, the delivery or transfer of a thing or the provision of a service? In this respect it’s important where, how and at which moment the performance must take place and to which quality standards it has to be carried out. In addition, a lawyer examines which possibilities his client has - as being the creditor - if the debtor doesn’t perform his obligations. The legal relationship between Piet and his sister makes clear what kind of behaviour both parties, the creditor and the debtor, may expect from each other and which legal remedies or defences they may raise to enforce their position legally. This is regulated by civil law, and in particular that part of it that is specified as ‘property law’.
Valuable rights form the positive part - also called the ‘assets’ - of someone's property. They represent the powers which are recognised by law as an enforceable right with a financial value, like a right of ownership of a car, a copyright to a story and a personal debt-claim against the bank (savings account).
Dutch civil law distinguishes, roughly, two types of valuable rights.
First there are valuable rights that can be enforced against everyone.
These are the so called valuable rights in rem (for example ownership,
long leasehold). They assume always that the proprietor is the only person
who, in relation to a certain object, may exercise the powers which civil
law grants to him by virtue of this specific valuable right, and that
no other person is allowed to disturb him in anyway when exercising these
powers. In addition there are valuable rights which can only be exercised
against one specific person (or a particular group of persons). These
are the so called valuable rights in personam (for example Piet's
debt-claim against bank Amos). Valuable rights in personam always assume that
one specific person must perform something on behalf of the entitled person.
Because the entitled person is only capable to enforce such rights against
this specific person (or group of persons), since no other person is legally
obliged to fulfil the indebted performance, they are known also as personal
The valuable rights in rem, therefore the valuable rights that can be enforced against everyone, are split up in real property rights and intellectual property rights, depending on the nature of the object to which they relate.
Real property rights are valuable rights in rem, connected to an object that's not related directly to an intellectual idea, but to a material thing or to a right in such a thing. Examples of such property rights are the earlier mentioned right of ownership of a car and a long leasehold of a house. The entitled person (owner, leaseholder) has a property right that is recognised as such by civil law (ownership, long leasehold) and that's related to an object which in itself is not an intellectual idea, but something else, like a car, a house or another property right. Such a right can be enforced and vindicated by its proprietor against everyone. This becomes clear when one looks at the most important property right in rem of Dutch civil law – the right of ownership – and how it functions. The law stipulates in general that ownership includes all conceivable powers that a person could exercise with respect to a certain object. With this, the legal content of the right of ownership is given. So the owner is entitled to use and enjoy his object, to alienate it, to collect all of its revenues and even to destroy it. The law also specifies that the owner is able to enforce these powers against everyone who disturbs him in the exercise of his rights and powers, and that he, the owner, doesn’t need to accept that other people use his property without his permission. In this view the right of ownership is defined by its legal effects towards others. Third parties may not use the house just like that and they are not allowed to alienate it or to destroy or damage it. These powers belong exclusively to the owner. If others, nonetheless, make use of the house without the approval of the owner, the owner may ask the court to condemn them to leave the house, to give back his property or to repair the damage and pay a compensation. To this extend ownership functions as a valuable right in rem.
Intellectual property rights are valuable rights in rem to an idea or another intellectual achievement. One may think of rights to a story (copyright), to an invention (patent) and to a trade mark (registered trade mark). If the earlier mentioned property scheme is kept in mind, one will notice that Piet also possessed a copyright to a story. This is a valuable right in rem too, like the right of ownership. The entitled person (Piet) can vindicate his right to the story against everyone. This means that nobody is allowed to copy or publish the story without Piet’s authorisation. If someone nevertheless should do so, then the proprietor (Piet) can ask the court to order the offender to stop this violation immediately and to recall all objects that contain parts of the story (books, CD’s, video’s etc.). Moreover, the person who has unlawfully used the story must compensate the damage which the proprietor of the copyright has suffered from the infringement of his valuable right. Since no one else is allowed to use the story without permission of the proprietor of the copyright, since this is a valuable right in rem, thus a right that can be enforced against everyone, it must be observed by everyone who runs or could run into the story.
The valuable rights in personam, therefore the valuable rights that can only be enforced by its proprietor against one specific person (or group of persons), are divided in debt-claims and options.
Debt-claims always arise from an obligation and give its proprietor (creditor) the power to demand from a specific person (debtor) the fulfilment of a certain performance. An example is the claim of the holder of a savings account at the bank. In the past, the holder of the account has paid money to the bank. The bank has booked the received money on that account. Civil law stipulates that someone who has lent money to another person, in this case to the bank, may in due time demand the return of an equal amount, possibly raised with an interest. Of course, only the person who has received the money is obliged to make such repayment. This means that, according to law, the bank where the savings account was opened, has to pay back an identical sum. The holder of this account can exercise his debt-claim for repayment exclusively against this one bank (legal person). He cannot randomly address a third party or even another bank to pay back his savings. Just this particular bank is the debtor of the chargeable performance. No one else is legally obliged to satisfy this debt. This proves that a debt-claim only has a personal effect. The difference with a valuable right in rem is clear. The owner of a car may expect that every random third person observes his right of ownership of the car. Someone who, by chance, passes the car in the street, must respect the owner’s property, although he possibly doesn’t know him at all. There’s no legal relationship between them other than that on the basis of the right of ownership and the fact that the pedestrian actually has encountered the owner’s car as it is parked in the street. No one is allowed to take the car or to use, sell or damage it. And so, one says that the right of ownership can be exercised against everyone. It has ‘real effect’. A debt-claim, on the other hand, is only to be enforced against one specific person. Solely this person can be forced to carry out the indebted performance. In other words: the effect of a debt-claim derived from an obligation is restricted to one debtor (or group of debtors), and with that, it is a personal right, i.e. a valuable right in personam.
Besides the debt-claim, there's only one other valuable right in personam in Dutch civil law, namely an option. Options give its proprietor the right to bring about or to terminate, purely by expressing his will, an agreement or another juridical act, which immediately has binding effect for another person, without the need to obtain this other person’s approval (again) to this end. Options can only be exercised against one person (or a certain group of persons), and not against everybody in the whole world. An example of an option from which an agreement, and therefore debt-claims and obligations, may arise, is the irrevocable offer. If a person gets a contractual option on a house, he may unilateral close a purchase agreement solely by announcing that he uses (invokes) his option. The owner of the house, who has granted the option earlier, has up front engaged himself to the agreement if the option holder wishes to conclude it. Merely granting the option does in itself not produce an agreement, nor a debt-claim or an obligation. Yet, it is out of the hands of the person who granted the option if such debt-claims and obligations may arise. His will is no longer relevant. Only the will of the option holder is.
An example of an option that terminates a juridical act is the power of a contracting party to rescind a mutual agreement due to a breach of contract by the opposite party. When one of the parties to a mutual agreement doesn’t perform his obligation, the law provides the other party the right to end the agreement by means of a one-sided notification. That other party doesn't have to end the agreement. He's just entitled to do so. If he wants, he may end the contract, even when the opposite party doesn't agree with that. His counterparty has to accept such a decision, because he himself is, according to law, responsible for it. The right to end an agreement is embedded in law as a possible reaction to a failure in performance by a contracting party and both parties have accepted this by entering into a mutual agreement. It’s not a contractual right (debt-claim) and no obligation, but an option which is granted by law as soon as the statutory requirements are met. In a similar way a contracting party may nullify an agreement or another juridical act if it’s unlawful or if it’s voidable on the basis of another legal ground. Usually only one of the contracting parties has the right of rescission or nullification. It’s up to him if he uses this right. Only if he does, debt-claims and obligations may come to existence (for instance to undo the performances that have been carried out on the basis of the rescinded or nullified juridical act or to pay compensatory damages).
Although options, just like debt-claims, can only be invoked against one specific person (or a group of persons), they differ from them substantially. Options themselves do not (yet) create a right to a performance, like debt-claim does. However, a certain link between options and debt-claims exists. By exercising an option, a debt-claim to a performance might arise, and this against the person against whom the option is invoked. By exercising the option, the holder of this valuable right in personam has it in his power to create a debt-claim and an obligation standing opposite to it, for example the debt-claim to deliver the purchased house (after invoking an option to purchase) or to undo the effects of a juridical act (after the rescission or nullification of an agreement). Nevertheless, there are also options that do not result in the creation of a debt-claim. When a party to a mutual contract, on the basis of which not yet any performance has been carried out, rescinds the agreement, the effect is merely that both parties are as of that moment released from their obligations, which otherwise should have been performed in future. Of course it’s possible that, in addition, a debt-claim for damages may be drawn from law based on the breach of contract that justified the rescission of the agreement.
Opposite to a valuable right of one person always stands a duty incumbent on one or more other persons. Valuable rights in rem must be observed by everyone. All persons in the world must refrain from actions which could violate or disturb the rights and powers of the proprietor of such a right. Therefore, no specific obligation can be designated to a specific debtor or group of debtors. All people, who more or less coincidentally come into contact with the valuable right in rem of the proprietor, that is to say with the object to which that right is related, know that they themselves have no rights or powers over that object. Should they think that they are allowed to use an object because of an agreement with the proprietor, then they automatically will also be familiar with the conditions under which the right of use of this object has been granted to them. So they automatically will know what they may and may not do in view of the powers which the proprietor of the valuable right in rem has granted to them.
Characteristic for a debt-claim is that the creditor can only ask a specific debtor to perform the obligation standing opposite to that claim. Just this one debtor has to know which performance he has to fulfil. The creditor is only able to demand compliance with his debt-claim from his debtor, not from any other person. So opposite to the debt-claim of the creditor always stands a corresponding duty of one particular debtor. This duty forms a so called debt. On the property balance sheet such a debt is listed under the liabilities.
Within each obligation the debt of the debtor forms the opposite of the debt-claim of the creditor. Consequently it’s common just to explain which powers and rights the creditor has on the grounds of his debt-claim. With that, also the duties of the debtor are given.
Previously the differences between rights in rem and right in personam have been explained. Every type has two subspecies. The valuable rights in rem can be divided in real property rights and intellectual property rights. The valuable rights in personam can be split in debt-claims and options. In order to explain Dutch civil law, two of these rights hardly play a part: intellectual property rights, which are regulated outside the Dutch Civil Code and form a separate field of law, and options, which in practice only have meaning after they have been exercised (invoked), for instance when they are converted into an agreement or a debt-claim. These valuable rights will, as a consequence, not be reviewed here. As of now the attention will exclusively be directed to property rights and debt-claims (obligations) and to their mutual relation.
A debt-claim (‘vorderingsrecht’) gives its proprietor (creditor) the right to obtain a performance that has to be carried out by one specific person (or group of persons). Therefore, the creditor can only enforce his debt-claim against this particular debtor. He is not capable to address another person to perform the obligation. For this reason the law of obligations only regulates the legal position between the creditor and his debtor. Third persons aren’t involved in it at all. If they, in a roundabout way, have something to do with the obligation, they do not need to know its specific content. It’s sufficient that only the creditor and debtor are aware of their legal relationship.
Real property rights (‘goederenrechtelijke rechten’) are rights in rem in an object, which means that they can be enforced by its proprietor against everyone who encounters, intentionally or by chance, this object. Without permission of the proprietor, no one may exercise the powers within the proprietor’s real property right with respect to that object and no one is allowed to disturb him in executing his rights and powers over it. So the influence of these rights stretches out to everyone who encounters or could encounter that object. As soon as someone comes into contact with it, for instance with a house or a car, he must respect the rights and powers of the proprietor embedded in his real property right. Real property rights regulate in this way the legal position of the proprietor and of all other people with regard to a certain object. They always are attached to a specific object itself. The proprietor is entitled to use that object as far as his right enables him to do so.
With this, the most important characteristics of debt-claims and real property rights are revealed. A debt-claim has personal effect, a real property right has real effect. These characteristics work out on a number of other qualities of both rights. Five main rules can be established to accentuate the differences between debt-claims and real property rights:
debt-claims exclusively have effect between the creditor and its debtor. Only the debtor has to fulfil a performance. And only the creditor can demand performance. The legal relationship between the creditor and debtor is defined under the obligation. This obligation makes clear what the creditor may expect of his debtor and how he can react if his debtor doesn’t perform properly. The debtor may draw from the obligation the knowledge of what he must do in order to satisfy his debt. Third parties have in principle no interest in the obligation between the creditor and his debtor, because they are not affected by it. For this reason the creditor and debtor are free to determine the content of their obligation as they please. All kinds of alternatives occur. An obligation may virtually be related to every imaginable performance, as long as it is not in conflict with law. That’s why debt-claims belong to an open system (of mainly permissive law). The creditor and debtor may invent each time their own new performances. And although their legal bond is always an obligation, they are free, if they want to, to set aside the rules of law that regulate their mutual legal relationship under an obligation. Because third persons aren’t directly involved, the law does not think it is necessary to impose restrictions to protect their interests. The creditor and debtor must decide themselves to what they want to commit themselves from both sides. The obligation is, in other words, a standard property right, specially made for the legal relationship between two persons, a creditor and his debtor, but its framework is very flexible and mouldable, this in contrast to the standard frameworks which the law provides for real property rights. If the framework for real property rights is a brick house, the framework for an obligation is an adjustable tent that can be shaped in almost any form and placed anywhere.
Real property rights not only have meaning for its proprietor, but also for third persons (real effect). Everyone has to observe these rights. Everyone must refrain from behaviour which could disturb the proprietor in exercising his real property right and the powers embedded in it. Under those circumstances it’s not desirable that the proprietor may freely create the content and scope of his right. Third persons must in general know what they may and may not do when they encounter a certain object to which a real property right is or might be attached. If the proprietor could impose al kinds of uncommon powers on all people of the world, third persons, who aren’t involved in the creation of that right, will never know exactly which powers the entitled person has. For this reason, the law only acknowledges a limited number of real property rights and elaborates their content accurately. Dutch law recognizes eight real property rights: ownerships (‘eigendom’), easements (‘erfdienstbaarheid’), long leaseholds (‘erfpacht’), rights of superficies (‘opstalrecht’), apartment rights (‘appartementsrecht’), usufructs (‘vruchtgebruik’), mortgages (‘hypotheek) and pledges (‘pand’). Ownership is the right to use an object (a movable or immovable thing) in any imaginable way. All other real property rights are derived from it. They all contain the right to use an object in a more restricted way, but nevertheless with real effect towards third persons. A person who wants to acquire a real property right in an object, therefore a right that he can retain regardless who’s the new proprietor of that object, can only choose from one of the eight standard frameworks which the law provides for this purpose. No severe changes can be made to their content. That’s why the real property rights form a closed system (of mainly mandatory law).
Jan and Wim could just as easily have made a contract under which Wim has granted Jan a right of use of a path on his land (debt-claim), a performance to which Wim had engaged himself (debt). Debt-claims belong to an open system, so that virtually every performance - and therefore also the commitment of the debtor to tolerate something, like that someone else uses a path on his land – can be made the object of the obligation. In principle the content of each of the eight real property rights can be fixed in an obligation. The inverse, however, does not apply. Not everything that can be stipulated in an obligation, can be regulated in a real property right. Real property rights form, as said before, a closed system. There are only eight standard types. It’s not possible for a person to create a new real property right to an object or to establish a different content than allowed by law, not even when the owner of the object is willing to participate in this.
Because debt-claims cannot be upheld against third persons, third persons are in no need to know of the existence of these rights, nor of their content. Only the debtor has to know what he has to perform and to whom. So outside the parties themselves (debtor and creditor), no exposure has to be given to the debt-claim of the creditor. The publicity of a debt-claim may, as a result, be restricted to the involved creditor and debtor. Only they are affected by the obligation.
Since real property rights can be enforced against every random person who encounters the object to which such a right is attached, everyone must be able to know if such a right exists with regard to that object and, if so, what its content is. That's why real property rights are always made recognizable to the outside world. In the Dutch system a person can only acquire a real property right when and after it is published in the appropriate way. The way of publication differs depending on the object to which the real property right relates. The publication of real property rights (for example ownership, easement, mortgage) in immovable things (land, house, factory hall) takes place by registration of these rights in the public registers for registered property (the land register). The publication of real property rights (for example ownership, usufruct, pledge) in movable things (cars, bicycles, stocks) is implemented by exercising the actual power over the asset to which the real property right is attached. Third persons may assume that someone who actually keeps a movable object in his power, has a real property right (ownership, usufruct, pledge) in it. So everybody always at least has the possibility to become aware if an object is burdened with a real property right, but also what the content of this right is and to whom it belongs. Only under these circumstances it’s justified that everyone has to observe someone else’s real property right.
Debt-claims always imply that a debtor has to accomplish a certain performance on behalf of his creditor. No other person can be ordered by the creditor to fulfil this performance. The debt-claim is, as a result, fixed to the person of the debtor, irrespective of the kind of performance that has to be carried out.
This quality becomes visible when one examines debt-claims which are related to an object (property) of the debtor, in the meaning that the creditor has the right to make use of that object in a certain way. The debtor under such obligation must grant the creditor the use of one of his assets for a particular time. He then has to tolerate that the creditor uses his property in the agreed way. That such a performance may be the object of an obligation is already discussed earlier. In the open system of obligations virtually every performance can be made the object of an obligation, and therefore of a debt-claim. As a consequence it’s also possible that the owner of an asset gives his approval to another person to make use of it in a particular way for a certain period of time. Such an agreement creates an obligation between the two parties concerned. The owner of the asset, who has granted the right of use, is in this legal relationship the debtor. He has engaged himself to this performance, in the sense that he must tolerate that the other person uses his property. The other person, to whom a right of use is granted, is the creditor. He has a right to demand that de owner of the involved asset offers him the temporary use and enjoyment of his property in conformity with the agreement. One has to keep in mind, however, that the object of the obligation is not the asset itself, but the performance which de debtor has to carry out, in this case existing of a duty to bear that the creditor uses his property during the agreed time, which he normally, as owner of this asset, wouldn’t have to accept.
But also a debt-claim related to an asset of the debtor only has personal effect. It is still only attached to this specific debtor, and cannot be enforced against third persons. This disadvantage especially appears when the debtor transfers the ownership of his asset, which the creditor is allowed to use, to another person. The new owner of the asset is – as third person - not bound by the personal obligations of his predecessor in title. So the debt of the former owner to his own creditor, indicating that he must ensure that this creditor is able to use his asset in the agreed way, will not pass to the new owner of that asset as well. It remains with the former owner as his personal debt. It is attached to him personally. The new owner of the asset isn’t bound by it in anyway, so he is not compelled to grant the creditor the same use of his recently acquired property. This means that the creditor has lost his right to make use of this specific asset, because he can’t enforce his debt-claim against the new owner, while the old owner no longer possesses the asset, so he no longer has the opportunity to grant de creditor the agreed use. This result is, seen the personal nature of a debt-claim, the most logic outcome. The new owner (third person) couldn’t know, due to a lack of any publication of the debt-claim of the creditor, that another person had a right of use of the asset that he just acquired. He couldn’t be aware of the existence of that debt-claim. In those circumstances it would be unjust if the creditor nevertheless could order the new owner to keep respecting his debt-claim. Particularly because debt-claims aren’t published outside the relationship between the creditor and debtor, the law in general has to indicate that third persons have nothing to do with the personal debts (obligations) of others. If it’s impossible to verify objectively if such debts exist, then the existence of the debt-claims that go with it can’t be upheld against third persons who aren’t aware and could not be aware of their existence.
But what if the new owner, before buying the asset, by chance or by intent gets informed that another person has a debt-claim which allows him to use the to be acquired asset? Imagine, for instance, that the owner of the asset (debtor) has told the buyer beforehand that his neighbour (creditor) has a temporary right to use the asset to be sold. Does this create a duty for the buyer to respect the debt-claim of the neighbour after the ownership of the land is transferred to him? No, in principle not. Third persons are not affected by the obligations between other persons, even when they know of the existence of such legal relationships. Another starting point would be unacceptable, because it would lead inevitably to a lot of lawsuits and problems concerning the proof that the new owner of the asset must have known of the debt-claim of the other person. So even if the buyer knows that another person has an debt-claim against the seller personally, which allows him to make use of the sold asset, he himself is and will not be bound by it. As soon as the ownership of the asset passes to the buyer, he may – as the new owner of the asset - uphold his real property right against everyone, including the creditor of the seller who prior to the transfer was allowed to use this particular asset by virtue of a debt-claim against the former owner. This means that the new owner, even though he knew of the existence of the debt-claim, doesn’t have to tolerate that the creditor of the former owner keeps using the transferred asset, since the new owner himself has no obligation (debt) to him at all.
When overlooking the situation in which a debtor transfers the ownership of his asset to another person, it is noticed that the creditor loses his rights and powers to use this asset in conformity with his debt-claim against the former owner of that asset. After the transfer of ownership, the debtor is no longer able to grant his creditor the use of the asset, because the new owner doesn’t have to comply with that obligation and will not tolerate that someone else uses his property just like that. The new owner may demand that everyone, including the former owner and his creditor, refrains from behaviour which could disturb him in the exercise of his full potential right of ownership. Of course, the debtor, by transferring the ownership of the asset to a third party who is not bound by his obligation, has committed an accountable fault against his creditor and must pay for damages. But the creditor, through this, doesn’t get the performance that he actually wanted, whereas it’s still uncertain if he collects any payment of damages from the debtor in breach of contract.
Real property rights are always directly attached to a certain asset (object) itself. The difference with debt-claims is that they not only can be exercised against the person who has granted a real property right in that asset, but against everyone, and therefore also against new owners and other users of the encumbered asset, who have obtained their title or debt-claim after the proprietor of the earlier established real property right. This conclusion is appropriate within the system of law. Because real property rights must be published, everyone is informed about their existence, or at least everyone who’s interested in the legal situation of a particular asset has enough possibilities to examine if a real property right of someone else is already attached to that property, and if so, what kind of right it is and to whom it belongs. For this reason it’s understandable that a person who acquires the ownership of an object must respect the real property rights of other persons that already were vested on that object before he acquired his own real property right in or debt-claim to that asset. Apparently the presence of this real property right wasn’t a problem for him, because otherwise he wouldn’t have wanted to obtain a real property right in or debt-claim to that object himself in exchange for a valuable consideration. When he acquired his real property right or debt-claim, he must have detected that the object was encumbered with a real property right of a third person. Undoubtedly he will have asked the person who granted him his right to reduce the amount of the counter performance that he has to pay, knowing that he has to respect this real property right after the acquisition. All these circumstances make it logical that the new owner or new proprietor has to accept that the proprietor of an already existing real property right, for instance a long leasehold or a mortgage, may continue to use the powers in his right with regard to that object after it is transferred to another owner or burdened with another property right. A real property right isn’t attached to a specific person, for instance to a debtor, but to the object itself, regardless who owns it or obtains any right in it. So the proprietor of the real property right may enforce his rights and powers over that object against everyone, including its new owner. They say therefore that a real property right always follows the object itself as if it is chained to it.
As mentioned earlier, it’s not important for the effect of debt-claims whether a third person is aware of their existence, even when the debt-claim is related to a right of use of a certain object of the debtor. The new owner of the object doesn’t have to respect the debt-claim of another person, even when he already knew of its existence at the moment that he bought or obtained the involved object. As a starting point the legal system can’t take the subjective knowledge of third parties into account. Similarly it doesn’t matter if a third person really is unaware of the existence of a real property right on an object. He has to respect it anyway, even if he can proof that, in truth, he didn’t know that such a real property right was vested on the object. The required publication of real property rights implies that everyone at least has the opportunity to become aware of the existence of such rights, provided he checks the legal situation properly. If he doesn’t use this opening, because he thinks it’s to much effort to visit the public registers for registered property, then he mustn’t complain afterwards if another person already has obtained a real property right that he has to respect after the transfer of the encumbered property.
Sometimes a person wishes to ensure that his right to use another persons object will continue to exist after a possible transfer of ownership of this object to a third person, although he can’t make use of a real property right to get this result, simply because the law doesn’t offer a standard type for this purpose. In that case one might see that the creditor tries to prevent the loss of his debt-claim to use the debtor’s asset by incorporating a so called ‘perpetual clause’ (‘kettingbeding’) in the agreement with the debtor (the owner of that asses). The debtor has then accepted an additional obligation in de agreement with his creditor, namely to insist, when he sells his property to a third party, that this third party (the new owner and all his legal successors) will also grant the creditor the use of the sold asset. If the new owner, when concluding a sale agreement with the debtor (owner of the asset), accepts this additional obligation, then he will be obliged to recognize and observe the debt-claim of the creditor that is related to the acquired asset. So the new owner himself becomes the new debtor of the creditor, but merely because he has explicitly agreed to accept this extra obligation too, not in an agreement with the creditor, but with the former owner, being the debtor of the original obligation. If the new owner doesn’t accept this additional obligation, then the former owner simply won’t transfer the asset to him, because he knows that in that case he has to pay a financial penalty to the creditor. So the new owner can only get the ownership of the involved asset if he also accepts the existing obligation of the former owner to his creditor.
To make sure that the former owner (debtor) passes his obligation to the new owner, a violation of the perpetual clause is fined with a financial penalty. If the former owner doesn’t pass the obligation to the new owner, he is in breach of contract with his creditor and has to pay a sum of money to him. But in that event the new owner want be bound by the obligation to the creditor, since he hasn’t accepted it in his agreement with the debtor. In that case there’s no agreement between the former owner (debtor) and the new owner which stipulates that the new owner also has to respect the debt-claim of the creditor in relation to the transferred asset. When such an obligation doesn’t exist, the new owner doesn’t have to tolerate that the creditor still makes use of the asset after it is transferred. This means that the creditor has lost the possibility to use the asset. His debt-claim is worthless. He can only recover a financial penalty from the former owner, his original debtor, who didn’t performed his obligation towards him when he sold and transferred the asset to a third person without imposing the existing additional obligation (perpetual clause) on the new owner. The same applies when the new owner, after having accepted the additional obligation, in course of time wishes to transfer the ownership of the asset to another person. When the asset was transferred to him under a perpetual clause, he has committed himself also to pass the main obligation and the additional obligation under the perpetual clause to his successor in title, and he will be fined too with a financial penalty, payable to the original creditor, if he doesn’t comply with it. Although such perpetual clauses appear to work well in practice, the debt-claim of the creditor still doesn’t reach the same level as a real property right. A perpetual clause only sets up a number of obligations between the original creditor and the succeeding owners of the asset to which his debt-claim relates, who all individually have accepted to become the debtor of the main obligation and the perpetual clause. As soon as one of them breaks his obligation, in the sense that he doesn’t pass on the debt to a succeeding owner, the creditor is only able to demand payment of a financial penalty from that specific debtor, but he has lost his right to use the asset, since the new owner did not accept the obligation itself, and therefore isn’t compelled to grant the creditor the possibilities that he had under this obligation. The whole chain of contractual obligations is as strong as its weakest link.
The weakness of such a perpetual clause appears especially when the debtor - i.e. the owner of the object – is in financial problems and for this reason must allow that his property is sold under execution by the bank, a liquidator, an official receiver, a mortgagee, a pledgee or a seizor. In his capacity as third party the buyer under execution isn’t committed to the personal obligations of the owner of the sold asset. He hasn’t accepted this obligation himself. So the buyer of the asset, who obtains it at a sale under execution, doesn’t have to respect the debt-claim of the creditor any more. In that case the chain is doomed to break. The result is that the creditor definitively has lost his debt-claim which enabled him to make use of the asset of his original debtor and that he is left behind with a fine against a new debtor, the one who has broken the chain. But since this debtor is in financial problems, the creditor usually isn’t able to collect the financial penalty either. Also in this respect he stays empty handed. The proprietor of a real property right, however, can enforce his right against everyone, so also against the buyer of the encumbered asset at a sale under execution. The person who has obtained the ownership of an asset that was sold under execution, still has to recognize and observe the powers of the proprietor of an already existing real property right.
Debt-claims are among themselves of equal importance, irrespective of their nature, value or the moment on which they came to existence (‘paritas creditorum’). When it comes to a foreclosure of the property of the debtor, a creditor with a more valuable claim cannot demand performance prior to a creditor with a less valuable claim. And a creditor with an older debt-claim isn’t entitled to ask performance prior to a creditor who has obtained his debt-claim after him. This wouldn’t be fair, because creditors don’t have the possibility to obtain any knowledge of the existence of other debt-claims against their debtor at the moment on which they acquire a debt-claim against him themselves. Debt-claims aren’t published outside the relation between the debtor and his creditor. So other people, when entering into an agreement with that same debtor, can’t see if he already has one or more obligations towards other persons for which his entire property serves as security. For that reason the law stipulates that the position of all creditors towards their mutual debtor is equal and that none of them can demand that the debtor performs a certain eligible obligation previous to that of others.
This equal position of the creditors becomes particularly visible when the debtor no longer meets his obligations. The creditors then may recover their debt-claims from the property of the debtor in order to obtain the chargeable performance itself or, if it’s no longer available, an alternative compensation in money. The sale under execution (foreclosure) of the debtor’s property takes place according to a fixed procedure under supervision of the court. Generally, the recovery starts when one of the creditors seizes one or more assets of the debtor in order to sell it on a public sale by auction. A creditor cannot take over the ownership of the asset himself, but has to sell it in public. This is considered to be the safest way to determine the real value of the asset of the debtor and to avoid any misunderstandings regarding the value of the outstanding debt-claim after the proceeds of the sale under execution are subtracted. To guarantee a fair settlement, the creditor is not allowed to carry out the sale himself. The public sale has to be executed, after authorization of the court, by a bailiff or notary. The public sale is published in a newspaper, so everyone is notified thereof. Usually this triggers the other creditors of the debtor to present themselves to the bailiff or notary with their own debt-claim. They are no less entitled to the proceeds of the public sale than the creditor who started the seizure. A consequent implementation of the rule of ‘paritas creditorum’ requires, according to law, that every creditor is able to recover his debt-claim from the proceeds of the public sale to the same level. This means that these proceeds will be divided among them in proportion of the value of everyone’s debt-claim. So each creditor will be satisfied for the same percentage of the value of his debt-claim. The creditor who has started the seizure can’t demand that his debt-claim is paid prior to or for a larger percentage than the debt-claims of the other creditors.
A real property right has to be published in order to exist. So everybody is informed about it. Consequently it’s defendable that the proprietor of a real property right must respect all older real property rights, which already existed at the moment that he obtained his right. He knew at that time that a third person already had another real property right on the asset and that he had to respect it. So apparently he didn’t mind or has paid less to obtain his own real property right in that asset. Because of this, the law states that in the ranking order of real property rights an older right has priority over a younger right. This so called ‘priority principle’ is a consequence of the fact that real property rights are always chained to the object itself, in spite of the person who owns it, and that they are published at all times. They ‘follow’ that object, and not the person who has granted it to its proprietor.
Debt-claims may not only come in conflict with other debt-claims, but also with real property rights. In this confrontation debt-claims always come off worst. Real property rights are of another higher order. They always push a conflicting debt-claim aside, even when they were established later, at a moment on which that debt-claim already existed.
If a debtor no longer is able to satisfy his debts, he may lodge a voluntary bankruptcy petition in court. Also one of his creditors may file such a petition. Being bankrupt means that all assets of the debtor are seized in order to be sold by foreclosure (sold under execution), with the intention to satisfy all creditors from the total sale proceeds in proportion to the value of their debt-claims. The sale of all assets takes place under supervision of a liquidator appointed by the court. All seizures of individual creditors, which have not yet been carried out entirely, come to an end. Instead, a general seizure is established, which covers all assets of the debtor. First the liquidator makes an inventory of all vendible assets of the debtor. At the same time he calls all possible creditors through an advertisement in several newspapers to come foreword. During a special meeting the liquidator announces which debt-claims against the debtor are valid and which are not recognized as such. Creditors may appeal against this decision. Finally, the assets of the debtor are sold under execution and the sale proceeds are distributed among all recognized creditors in proportion to the value of their debt-claims. A creditor who wants to recover something of his debt-claim has to present it to the liquidator. There’s no way to get paid outside the bankruptcy procedure. As a rule the assets of the debtor aren’t nearly enough to satisfy all recognized debt-claims. In practice, unsecured creditors generally recover less than 10% of the value of their debt-claims. So a bankruptcy of their debtor has serious consequences for them.
The proprietor of a real property right is in a position to exercise and enforce it against everyone, and therefore also against the liquidator in the bankruptcy of the owner of the asset in which his right is vested. Although the encumbered asset of the bankrupt debtor falls under the general bankruptcy seizure, so that it will be sold under execution by the liquidator, this has no effect for the proprietor who holds a real property right in one of these assets. Like the liquidator, the person who has obtained the ownership of the asset that was sold under execution, has to respect and observe already existing real property rights of third parties vested on that asset. Because real property rights have real effect, their proprietors are able to vindicate them against any new owner of the asset and also against everyone who acquirers another real property right in it afterwards.
It doesn’t come as a surprise that a creditor often wants to obtain a real security right (mortgage, pledge) in one of the assets of his debtor before entering into an agreement with him that produces outstanding debt-claims. A security right guarantees him that he always can recover his debt-claim - both in and outside a bankruptcy – from the sale proceeds of the encumbered asset of his debtor, and this prior to all other creditors. But, of course, he should keep in mind that the value of the debt must not exceed the liquidation value of the asset on which security is taken. Generally the price of an object sold under execution represents a smaller amount than the real value of the asset, given the fact that it’s impossible to negotiate extendedly over the price and that the potential buyers know that the asset must be sold instantly. As a rule a creditor, whose debt-claim is secured by a pledge or mortgage, makes sure that the total debt doesn’t’ run up to more than 80% of the economic value of the encumbered asset. The security rights (mortgage and pledge) only give an advantage with regard to the sale proceeds of the asset subject to the pledge or mortgage, not to the proceeds of the other assets of the debtor.
Granting real security rights to one creditor certainly is disadvantageous for the other creditors of the debtor. The secured creditor is able to recover his debt-claim prior to all other creditors from the sale proceeds of the asset falling under his pledge or mortgage. So the turnover of that asset is withdrawn from the opportunities of the other creditors to take recourse. This appears to be particularly damaging for creditors with a small debt-claim and for those who only occasionally do business with the debtor. The reality shows, as it happens, that the most important creditors (bank, main suppliers, tax authority) manoeuvre themselves in a favourable position by demanding in advance al kinds of security rights from the debtor. The tax authority not even needs to stipulate primacy, but enjoys a preferential debt-claim by law. Precisely because these secured or privileged creditors are allowed to recover their debt-claims firstly from the sale proceeds of all valuable assets of the debtor, hardly any property is left for the other creditors to recover their debt-claims from. That’s why unsecured creditors usually get paid less than 10% of the value of their debt-claim in the bankruptcy of their debtor.
Only when, after the secured creditors are fully satisfied, there remains a surplus of the sale proceeds of the pledged or mortgaged property, the other creditors may participate in it. The secured creditors cannot keep this surplus themselves, but must hand it over to the liquidator or to the debtor and therefore in a roundabout way to the other creditors in the bankruptcy. But as far as the sale proceeds of the pledged or mortgaged property aren’t enough to reimburse a secured creditor in full, this creditor may present the unsatisfied part of his debt-claim to the liquidator as a debt that has to be paid proportionally from the net sale proceeds of the property falling under the general bankruptcy seizure. For this part he is an unsecured creditor, ranked equally to the other creditors. All unsecured creditors get the same percentage from the sale proceeds of the assets that are not encumbered with a real security right or other privilege.
As explained before, the main difference between real property rights and debt-claims is that real property rights are enforceable against everyone and, for this reason, must be published in a way recognizable for all person, whereas debt-claims can only be exercised against one specific debtor, which implies that it is not necessary to announce its existence to other persons.
In course of time the law has made some exceptions to this principle and the additional rules following from it.
This had to be done firstly because the publication of real property rights is not always in line with the authentic existing legal position according to law. Where the publication of a real property is not in agreement with the entitlement to the involved object, third persons need protection. If a third person, when acquiring a real property right in an object, doesn’t know and, in the circumstances, due to a defect in the publication ought not to have known that it doesn’t belong to the alienator or that it is already encumbered with a real property right, then he may ignore these real property rights in that object. Given that the third person acted in good faith when he obtained the object, he is protected by law to the prejudice of the person whose real property right was insufficiently recognizable as such due to a lack of publication. As a consequence, the original proprietor has definitely lost his real property right in the object, since he can no longer exercise it against the third person who in good faith acquired the object. In such an event the acquired real property right of the third person overrules the earlier created real property right of the real owner or other proprietor. Of course the real owner or proprietor may claim damages from the person who, without power of disposition, transferred the object to a third person, but he cannot regain his real property right itself from that third person. It’s lost forever. The fact that the third person, after he had acquired the object in good faith, becomes aware that the person who has transferred the object to him was not authorized to do so, is of no importance. Decisive is only whether the third person acted in good faith at the moment on which he acquired the object from a person without power of disposition.
Also in some other ways the law disregards the earlier mentioned principle. It recognises, for instance, that a debt-claim, just like a real property right, can be attached to a certain object itself in such a way that the new owner of that object has to respect and observe it after acquiring this object. The law declares in such situations that the new owner automatically has become the debtor of the obligation that is related to the acquired object, although there’s no agreement between the new owner and the creditor to cause this effect. So the debt-claim of the creditor is not connected with the debtor who has to fulfil a certain performance with regard to the transferred object, but follows that object regardless who owns it, in the sense that the new owner automatically becomes the debtor of the involved obligation and has to observe this debt-claim with regard to his newly obtained object. The quality of being the owner of that object makes the new owner in addition the debtor of the performance related to that object. The new owner has to perform this obligation to the original creditor, for the simple fact that the law says so. Such obligations are called ‘qualitative obligations’.
The third departure from the principle differences between real property rights and debt-claims concerns an exception to the rule that all creditors of a debtor are ranked equally, irrespective of the moment on which their debt-claim came to existence. The law recognizes one category of debt-claims to which the so called priority principle doesn’t apply. It concerns debt-claims that are formed by a purchase agreement (sale agreement) and that give the buyer a debt-claim against the seller to obtain the right of ownership of the bought property. If such a debt-claim comes in conflict with the same debt-claim of another buyer, who’s debt-claim is derived from a later concluded purchase agreement with the same seller, then the creditor with the oldest debt-claim may demand that the sold object shall be transferred to him, and not to the creditor with the younger debt-claim (Article 3:298 DCC). Then the principle, stating that all debt-claims take an equal ranking order among themselves, irrespective of the moment on which they arose, is no longer relevant. This exception, however, doesn’t have any meaning when the debt-claim of the creditor to obtain the ownership of the property is based on another legal basis or agreement than a sale agreement. So only when both conflicting debt-claims are formed by a sale agreement (purchase agreement) with the same seller, it has this impact.
The fourth exception entails a departure from the rule of ‘paritas creditorum’. Due to this rule all creditors have an equal position when recovering their debt-claims from the property of their debtor by means of a foreclosure. Every creditor collects the same percentage on the value of his debt-claim, regardless of the nature or value of everyone’s debt-claim and irrespective of the moment on which their debt-claims have come to existence. But the law asserts that a number of debt-claims, exclusively on the basis of their nature, must be satisfied out of the proceeds of the sale under execution prior to all other debt-claims. The position of such privileged creditors looks a bit like that of a creditor whose debt-claim is covered by a real security right, like a pledge or a mortgage. But still there are differences. A pledge or mortgage has to be stipulated by the creditor in his relationship with his debtor. A privileged debt-claim, on the other hand, is created by operation of law as soon as the legal position of the creditor and debtor meets the necessary factual requirements indicated by law. Privileged debt-claims can’t be stipulated by the creditor as part of the bargain. Because a privileged debt-claim still remains a debt-claim against a specific debtor, the advantage it produces when taking recourse only involves the sale proceeds of the property of this debtor personally. This means that when the debtor transfers the underlying property to someone else, the privilege want follow it and the privileged creditor has lost his advantageous position.
It is conceivable that a debt is related to an asset of the debtor himself (‘open system’), for instance when he has engaged himself towards the creditor to tolerate that the creditor makes use of his property in a certain way during a fixed period of time. Also such a debt-claim of the creditor, derived from a contract for the use of an asset, is in fact only linked to the debtor personally, and not to an object belonging to him. As soon as the debtor transfers this object to another person, he can no longer perform his obligations to the creditor, because the new owner isn’t bound by the obligations of his predecessor in title, so he doesn’t have to carry out the same performance on behalf of that creditor. The debt stays with the original debtor. Because the original debtor no longer is able to comply with his obligation, he is in breach of contract, which allows the creditor to demand a compensation for damages. In some cases this result is not sufficient, so the law has intervened. It stipulates in such events explicitly that also the new owner of the asset must grant the required use of that asset to the creditor. The new owner then automatically becomes the debtor of this performance and obtains, together with the right of ownership of that asset, the accompanying obligation from the old owner. Its purely his ‘quality’ as owner of this specific asset that makes that the law appoints him, even against his will, as debtor of the related obligation indebted to the original creditor. That’s why one speaks of a ‘qualitative debt’. Characteristic for a qualitative debt is, therefore, that it isn’t attached to the debtor in person, but – in the same way as a real property right – to the object to which the obligation is related.
Dutch property law distinguishes three types of qualitative debts.
The first two types of qualitative debts arise from agreements concerning the use of immovable property. First and most important is the debt-claim of the tenant (lessee) which arises from a lease agreement (‘huur’) with regard to a house, an office, a retail building or a factory building. The other one is the debt-claim of the lessee which is created by a farm lease agreement related to a farmhouse or farm land (‘pacht’). The legal situation of the lessee under a farm lease agreement is, to this point, the same as that of the lessee under a lease agreement related to immovable property, so it want be discussed separately.
When the owner of an immovable property has entered into a lease agreement with another person, this lessee has a debt-claim against the owner which allows him to use the owner’s property during a fixed or indefinite term. The debt of the owner of the immovable property standing opposite to this debt-claim, is the obligation to grant the lessee the undisturbed use of that property in conformity with the lease agreement. According to law, the transfer of leased out property has no effect on an existing lease agreement other than that the contractual position of the former lessor (owner of the leased out property) is automatically taken over by the new owner of the transferred property, who therefore continues the lease agreement as lessor. This means that the debt-claims and debts from that lease agreement are not attached to the original lessor personally, but to the object to which they relate, in this case to the leased out immovable property. They follow that property, in the sense that its owner by operation of law obtains all debt-claims and debts from lease agreements already existing at the moment of transfer. The old and new owner aren’t able to get around this mandatory rule of law, at least not without the consent of the lessee given at the moment of the transfer or afterwards. Usually the lessee doesn’t want to leave the premises, so he will appeal to this mandatory rule. In that event he may claim that the new owner still grants him the agreed use and enjoyment of the house. And if the house needs to be repaired, he can ask the new owner to fulfil this obligation instead of the former owner. Of course, from the day of the transfer he has to pay the rent to the new owner, being the lessor who continues the existing lease agreement in that capacity. The quality of being the owner of the leased out immovable property, makes this owner, instead of the former owner, by operation of law a full party to the existing lease agreement.
With respect to this point a qualitative debt shows resemblances with a real property right vested on someone else’s property. When the owner of that property transfers it, the new owner has to observe all real property rights that were already established on it at the time of transfer. This is fair, since real property rights have to be published in order to obtain this real effect. The new owner, therefore, could have known that the acquired property was already encumbered with another person’s real property right, which he has to respect after the transfer. In case of a defect in the publication of an already existing real property right, the acquiring party is, nevertheless, protected by law insofar he acted in good faith at the moment of acquisition of the encumbered property. In that event, he may ignore the real property right of which he wasn’t aware and reasonably ought not to have been aware, due to a lack of publication.
In the same way the new owner of leased out property is bound by an existing lease agreement related to that property. This result is remarkable, since the existence of a lease agreement isn’t published in any way, because – as being an agreement - it only creates obligations (debt-claims and debts) between the lessee and lessor. The right of the lessee to use the immovable property is a debt-claim that is created directly by the lease agreement. In order to be valid, it’s not necessary to publish the lease agreement or the debt-claims and obligations derived from it. In fact, there’s no possibility to make such a publication. Lease agreements may be entered into by parties verbally or by private deed. It is by no means necessary to put it in a notarial deed. This, consequently, hardly ever happens. And it’s neither possible to register the lease agreement in the public registers for registered property. The keeper of these registers want even allow such a registration. This means that the system for publication of real property rights doesn’t apply to debt-claims and debts derived from a lease agreement. A lease agreement isn’t published and can’t be published in the legal meaning of the word.
One would expect that a third person, who in good faith obtained an immovable property, thinking it wasn’t leased out, would be protected just like he would when he would have acquired in good faith a property that already was encumbered with a real property right of which he could not be aware due to a lack of publication. But the law has chosen with regard to lease agreements explicitly for another solution, taking at all circumstances the side of the lessee, who must be protected at all costs, even at the cost of a new owner who obtained in good faith the immovable property with the intention to use it himself. A third party who wants to acquire an immovable property, but doesn’t want to be surprised by the existence of any qualitative debt, must not only ask the seller if the property is leased out, but must also check that property in actual fact before buying it, so he can inspect the situation on the spot. But even then, he still has to respect the debt-claims of a possible lessee when he enters into the sale agreement with the former owner. Sure, he may hold the former owner liable for damages if he did not inform him correctly, but this has no influence on the debt-claims and debts of the lessee.
A third type of qualitative debt is mentioned in Article 7:663 DCC. When the owner of an enterprise transfers the business assets of that enterprise or of a branch thereof to someone else, then all existing employment agreements related to these assets are transmitted as well to the new owner. The new owner of the business assets automatically becomes the new employer of the involved employees. The mere fact that someone has become the new owner of the business assets, which together form the enterprise or its branch, means that this person has taken over also all contractual positions as employee of the former owner. So he has not only acquired these business assets, but in addition the involved employment agreements, including the debt-claims and debts resulting from them. The new and former owner of the enterprise or branch can’t derogate from this mandatory rule of law. Like a real property right, the debt-claims of the employees derived from the existing employment agreements, are attached to the business assets. As their employee, the new owner is entitled to demand that the employees perform the agreed work at the agreed place and times.
Again, it’s striking that this result sets in although the debt-claims of the creditors – the employees – aren’t published in any way. So before buying a business entity the potential new owner has no possibility to consult a public register or any other objective source of information to see if and how many employment contracts are existing and which debt-claims may result from them. Nevertheless, he has to respect these debt-claims after the business entity (assets) is transferred to him, even when he reasonably couldn’t know of their existence. Of course the new owner will have asked the former owner about the number of existing employment contracts and their content, but when he gets misinformed about it, he still has to acknowledge the agreements and debt-claims of all the employees. They still can enforce their debt-claims against the new owner (right to perform the agreed work and to obtain the agreed wages), even though he acted in good faith when acquiring the business entity. The new owner who has been misinformed about the existing employment contracts, may only hold the former owner responsible for damages. This, again, is a major divergence from the rule which indicates that real property rights have to be published in the correct way in order to be able to enforce them against third parties, as well as from the rule that the legal successor of an object, like the new owner of assets of a business entity, cannot be held responsible for the debts of his predecessor in title, not even when they relate to that object. But it is believed that the position of employees is more vulnerable than the position of the new entrepreneur. So the law protects the interests of the employees at the cost of the new entrepreneur, even at the cost of an entrepreneur who acted in good faith. Furthermore, it would otherwise be very simple to get around the mandatory rules for dismissal of employees.
Sometimes the law doesn’t stipulate directly that a debt follows the property to which it is related, like the debt-claims of a lessee derived from a lease agreement, but it just opens the possibility for parties to create an obligation which has to be observed and performed by all persons who become the owner of a certain asset. The creditor and debtor themselves may turn the debt of the debtor into a qualitative debt, so that new owners of the asset have to respect the debt-claim of the creditor and, thus, automatically become the new debtor who has to grant the creditor the right to use and enjoy the involved object in the way as agreed originally with the former debtor (former owner). To make a distinction between on the one hand debts which are qualitative debts by virtue of the law and on the other hand debts which are qualitative debts because the creditor and debtor have agreed so mutually, one speaks with regard to the first of ‘qualitative debts’ and with regard to the second of ‘qualitative obligations’.
Not every obligation can be transformed by the debtor and creditor into a qualitative obligation. The law uses strict criteria in this respect (Article 6:252 BW). A debt can only be made a qualitative obligation when the performance that the debtor has to fulfil, is a duty to tolerate that the creditor uses his property in a certain way during a certain period. Secondly, this property has to be an immovable thing or a real property right in such a thing (like a long leasehold or usufruct on premises). Thirdly, the qualitative obligation shall only have the intended ‘real effect’, i.e. enforceable against all possible new owners of the involved property, when and after it is described by a notary in an official deed and published in the public registers for registered property. So at this point the law indeed does require the publication of the creditor’s debt-claim to ensure that everyone who obtains the underlying immovable object at least has had the possibility to consult in advance the public registers in order to check if such a qualitative obligation is present. Only then it is appropriate that a new owner of the immovable object is bound by an already existing qualitative obligation of his predecessor in title.
Debt-claims not only may be related to an asset of the debtor (such as the right of the creditor to use an object belonging to his debtor), but also to an asset of the creditor himself. The debtor, for example, may be obliged to paint the house of the creditor or to keep the creditor’s shares in safe custody. Subsequently, the performance that the debtor has to fulfil, is not related to an object of his own, but to an object belonging to his creditor (house, shares). The creditor, in other words, may claim that the debtor fulfils a performance with respect to one of the creditor’s objects. In such an event it’s possible that the creditor only has an interest in the performance, to be fulfilled by his debtor, as long as he owns the involved object himself. Because the performance of the debtor is directly related to that object, the creditor loses any interesting the performance as soon as he no longer owns this specific object. Why should the creditor still want the debtor to paint his house when he has sold and transferred it to a third party who now lives there? The performance has lost its meaning for the creditor. When the performance that the debtor has to fulfil, is so strictly connected with a certain object of the creditor that the creditor only has any use of it as long as he owns this object, then his debt-claim against the debtor is called a ‘qualitative debt-claim’. Solely the quality of being the owner of the involved object brings along that he has an interest in the performance to be carried out by the debtor. For this reason the law indicates that a qualitative debt-claim of the owner of such an object, by operation of law, follows this object when it is transferred to someone else. This third party not only obtains that object, but also the debt-claim of the former owner against the debtor, which is directly related to his newly acquired property. He becomes, in other words, automatically the new creditor of the debtor (Article 6:251 DCC). So the debtor still has to fulfil the same performance with regard to the same object, but now he has to perform it on behalf of the new owner, who – as being the new creditor – may claim performance from him. Because the former owner of the object has no longer any interest in the performance, he probably will transfer his debt-claim, together with the right of ownership of his property, to the new owner. But this doesn’t have to occur explicitly. When the former and new owner haven’t made an agreement on this debt-claim, the law specifies that it is reassigned to the new owner of the involved object by operation of law, unless the former and new owner clearly have agreed otherwise or the new owner announces timely that he doesn’t want to obtain the debt-claim (nor the counter performance he has to pay that usually goes along with it).
Although Article 6:251 DCC represents the intentions of the new Dutch Civil Code correctly, in the sense that it always is looking for a reasonable and fair outcome, it hardly ever is applied in practice and, when a party appeals to it in court, the judge nearly always turns it down. So, in the end it has no real importance.
In principle all debt-claims against a debtor are ranked equally, irrespective of the moment on which they came to existence. An older debt-claim gives its creditor no right to demand performance prior to a creditor with a younger debt-claim. The nature or value of the performance that the debtor has to fulfil, isn’t of importance either. But for one type of debt-claim this rule doesn’t apply. Debt-claims derived from a purchase agreement (sale agreement) that give the buyer the right to demand the transfer of a specific asset are, as it happens, subject to the priority principle (Article 3:298 DCC). When two of such debt-claims come into conflict with each other, the oldest debt-claim precedes in their mutual relation. So in that case the buyer with the oldest debt-claim is ranked higher than the buyer who’s debt-claim was created later. The buyer with the oldest debt-claim may uphold his right not only against his debtor, but also against the buyer with a conflicting younger debt-claim. This means that he may force the seller to transfer the ownership of the asset to him. The buyer with the younger debt-claim is not in a position to oppose to this.
Article 3:298 DCC only regulates the mutual relationship between two conflicting debt-claims against the same seller, and only if those debt-claims grant different buyers the right to demand the transfer of the same property. It doesn’t influence the relationship between such a debt-claim and a real property right to the sold object. The creditor to whom the sold object effectively is transferred, obtains the right of ownership of it. This is a real property right, so the owner can uphold it against everyone, therefore also against a creditor with an older debt-claim to transfer the property to him, derived from a purchase agreement with the same seller. A real property right in principle always outranks a debt-claim.
Since the year 2004 the buyer of a house (not of other immovable or movable property) has the possibility to register his debt-claim, derived from a purchase agreement, in the public registers for registered property (Article 7:3 and 7:4 DCC). With that, he can achieve that his debt-claim almost has the same effect towards third parties as a real property right, in the sense that he can enforce it against everyone, so also against another buyer of the house. After his debt-claim has been registered, he may order the seller to transfer the house to him, irrespective of the existence of any other debt-claim that may have been granted by the seller to another person. The registration of the debt-claim includes that the buyer may disregard all real property rights (such as mortgages) and seizures established or levied upon the house after the registration of his debt-claim. One has to notice that a buyer, by making use of the possibility to register his debt-claim, may break through the before mentioned rule of Article 3: 298 DCC, implying that an older debt-claim has priority over a younger debt-claim. The buyer who has managed to register his debt-claim first, may uphold it also against a buyer who, before him, had obtained a debt-claim out of a purchase agreement with the same seller, but who has failed to make a (timely) registration of it in the public registers. So in these cases Article 3:298 DCC only has meaning as long as the debt-claim of one of the buyers isn’t registered in the public registers for registered property, provided that the buyer who actually has managed to register his debt-claim firstly, at that time did not know nor ought to have known of the existence of an older debt-claim of another buyer.
Some debt-claims, by their nature, are privileged by operation of law. Such a privilege places the creditor in a better position when recovering his debt-claim from the proceeds of a public sale under execution of the property of the debtor. They strike through the rule of ‘paritas creditorum’. Privileges are vested directly by law. Decisive is only if the situation through which the debt-claim has come to existence, meets the factual requirements which the law has set for this purpose. If that’s the case, then the creditor automatically enjoys the privilege. So privileges cannot be negotiated or contracted by the creditor, this in contrast to real security rights (pledge, mortgage), that can only be obtained this way (Article 3:278 paragraph 2 DCC).
The law distinguishes two types of privileges: particular and general privileges.
Particular privileges grant the creditor the right to be satisfied prior to all other creditors from the sale proceeds of a specific property of the debtor. The privilege is only attached to this one asset of the debtor. Just its sale proceeds, obtained at a foreclosure, have to be paid firstly to the privileged creditor. Since the privilege is not attached to any other asset of the debtor, the privileged creditor is not ranked first at the distribution of the sale proceeds of the remaining property of the debtor. There he takes the same position as other unsecured creditors.
General privileges place the creditor in a more favourable position at the recovery of his debt-claim from the proceeds of a public sale of the total property of the debtor. They are attached to all assets belonging to the debtor, but only as long as he owns these himself.
The mutual ranking order between the different types of privileges is regulated in Article 3:280 DCC. Particular privileges outrank general privileges. The creditor with a particular privilege must be paid first, therefore prior to the creditor with a general privilege, who gets paid prior to unsecured creditors. This, however, doesn’t mean that particular privileges are more advantageous than general privileges. Particular privileges are only attached to one specific asset of the debtor, whereas general privileges give priority with regard to the distribution of the sale proceeds of the debtor’s entire property, except where it concerns the sale proceeds of that one asset subject to a particular privilege.
It has to be mentioned, though, that compared to creditors whose debt-claim is covered by a real security right, the privileged creditors come off worst. A pledge and a mortgage imply, according to Article 3:279 DCC, that the pledgee and mortgagee must at all times be satisfied first, thus also prior to creditors with a particular or general privilege, although this, of course, only applies to the sale proceeds of the pledged or mortgaged property itself. Nevertheless, the law may instruct that in a specific situation a (particular) privilege even outranks a pledge or mortgage.
As a phenomenon the privilege is hard to describe. It’s neither
a pure debt-claim, nor a pure real property right. It has in common
with real security rights that it gives the creditor a far better position
at the recovery of his debt-claim from the property of the debtor. But it stays
attached to a debt-claim against the debtor personally. Therefore it can only
be enforced against the debtor himself and against his liquidator in bankruptcy
and his other creditors at a foreclosure of his property. When a creditor
has a particular privilege with regard to one of the assets of his debtor,
he looses his privileged right of recourse at the moment that the debtor
alienates this asset to someone else. And nothing withholds the debtor
from doing so, because the privilege isn’t granted by agreement,
but by law. So when the circumstances change, in the sense that the situation
no longer meets the legal requirements for the existence of a privilege,
this right automatically elapses. As soon as the debtor has transferred
the underlying asset to another person, the creditor can no longer execute
his particular privilege with respect to the sale proceeds of this specific
asset, nor to the counter performance that his debtor may have acquired
in return for the alienated asset. The new owner doesn’t have to
respect the debt-claim of the creditor against his predecessor in title, nor
the accessory privilege, because a privilege, in contrast to a real security
right, doesn’t follow the asset to which it is attached, but keeps
linked to the debt-claim, which itself can only be exercised against the original
debtor (and his creditors at a foreclosure). But there are some exceptions.
An example of such an exception can be found in Article 18 paragraph 1
of the Act on Registered Aircraft. The creditor whose debt-claim is secured
by a privilege to an aircraft as mentioned in art. 16 of that Act, continues
to have a privileged right or recourse, at least during some time, regardless
to whom the aircraft belongs. This, however, is not a general rule.