10 Paper transfers

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valid sales contract which underlies the transfer as long as the parties agree that, upon transfer of possession to the buyer, the buyer is to become the owner.

BGB, s. 929 does not explicitly state that it applies to bearer securities. The section of which the rule is a part, however, subjects bearer securities to the rules on tangible movables. The orthodox German view is that BGB, s. 929 applies to bearer securities.1 As a result, the buyer of securities is considered to have become the owner when she has acquired possession to the securities certificates, provided that the seller and the buyer have agreed that ownership is to pass to the buyer. The requirement for the buyer to acquire possession of the securities certificates is, therefore, a crucial step without which the buyer will not acquire title to the securities. The requirement for possession is interpreted in two different ways, depending on whether the seller has authority to sell the securities.

When the seller has authority to sell the securities, the requirement for possession is interpreted in a way which is favourable to the buyer, who is considered to have acquired possession provided that she has complied with one of following options.

The buyer becomes the owner (1) if the seller delivers the securities to her. She also becomes the owner (2) if the securities are with a third party and if the seller assigns the right to claim the tangibles from the third party to her. Finally, the buyer is considered to have acquired possession (3) even if the securities remain with the seller provided that both parties agree that the seller now holds the tangibles not for herself, but possesses them on behalf of the buyer. There usually exists a contractual arrangement which, for example, appoints the seller a bailee of the assets.

This general rule, however, applies only if the seller was the owner or was authorised to sell the securities. If the seller was not so authorised, the alternatives for the buyer to acquire possession are more limited.

1Alfred Hueck and Claus-Wilhelm Canaris, Recht der Wertpapiere, 12th edn. (Mu¨ nchen: Franz Vahlen, 1986) 208; Wolfgang Zo¨ llner, Wertpapierrecht, 14th edn. (Mu¨ nchen: Beck 1987) 175; Peter Marburger, in Norbert Horn (ed.), J von Staudingers Kommentar zum Bu¨rgerlichen Gesetzbuch Zweites Buch Recht der Schuldverha¨ltnisse (Berlin: Sellier–de Gruyter, 2002) s. 793, para. 19; Ulrich Meyer-Cording and Tim Drygala, Wertpapierrecht, 3rd edn. (Berlin: Luchterhand Neuwied, Kriftel, 1995) 6; Adolf Baumbach and Wolfgang Hefermehl, Wechselgesetz und Scheckgesetz, 22nd edn. (Mu¨ nchen: Beck, 2000) 4; Ingo Koller, ‘Empfiehlt sich eine Neuordnung und Erga¨ nzung des Wertpapierrechts im BGB?’, in

¨

Bundesministerium der Justiz (ed.), Gutachten und Vorschla¨ge zu Uberarbeitung des Schuldrechts, vol. II (Ko¨ ln: Bundesanzeiger Verlagsgesellschaft, 1981) 1439.

These circumstances will be analysed in section 10.2. In subsection 10.1.2, the Austrian rules governing transfers will be examined.

10.1.2 Austrian law

The Austrian rules on transfers of securities differ slightly from the German rules. Two differences stand out: the first is one of terminology; the second relates to the requirements that need to be satisfied for the buyer to become the owner of securities under Austrian law.

The first difference between Austrian and German law can be explained by the fact that the Austrian rules on securities transfers were adopted significantly earlier than the German rules. The ABGB came into force in 1811, almost a century before the current BGB, which entered into force in 1990.

When the ABGB was adopted, the modern theory on securities had not yet established itself. It was noted in section 9.1 that the ABGB does not use modern legal terminology but refers to bearer securities as ‘debt notes that are issued to the bearer’.2 For the same reason, transfers of bearer securities are not regulated in the section on tangible movables, but rather in the section on assignment.

ABGB, s. 1393 states that bearer securities are ‘assigned’ by way of delivery of the paper document. The transferee becomes the owner upon transfer of possession to the paper certificate to her.3 Notwithstanding the difference in language, modern Austrian legal doctrine classifies securities as tangibles and this classification has been adopted to explain that the other rules contained in the section of the ABGB regulating assignment do not govern securities transfers. It has also been adopted to explain that there exist rules protecting the bona fide purchaser of securities against adverse claims.4

Like the BGB, the ABGB requires possession of the securities certificate to be transferred to the buyer for her to become the owner. As in German law, the acquisition of possession is a requirement for the buyer to become the owner of securities. The requirement for possession in Austrian law is interpreted in the same way as in German law. For possession to pass to the transferee it is not necessary that the certificates be physically delivered to her; it suffices that the seller

3Gu¨ nter Roth, Wertpapierrecht, 2nd edn. (Wien: Manz, 1999) 6–7; Helmut Koziol and Rudolf Welser, Grundriss des Bu¨rgerlichen Rechts, vol. II, 12th edn. (Wien: Manz, 2001) 116.

4For this, see subsection 10.2.3.

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agrees to hold the securities on behalf of the transferee. As in German law, the parties need to agree that upon transfer of possession to the securities, the transferee is to become the owner for ownership to pass to the transferee.

There exists a third requirement that needs to be satisfied in Austrian law for the buyer to become the owner of securities. In addition to the transfer of possession to the securities from the seller to the buyer and to an underlying agreement that the buyer is from then on to be the owner of the securities, there is a further requirement that needs to be satisfied for ownership to vest into the buyer. The transferee becomes the owner of the securities only if the transfer is governed by a valid contract. This requirement does not exist in German law. It is possible, in German law, for the sales contract to be invalid but for the transfer of ownership to have validly occurred. That can occur, for example, when the sales contract was made before possession to the securities was transferred to the buyer. In those circumstances it is possible for the sales contract to be made under a mistake which does not affect the later agreement made between the buyer and the seller to transfer ownership. The buyer would then have acquired ownership to the securities notwithstanding the fact that the sales contract was not valid. Under Austrian law, the position is different: the buyer does not acquire ownership if the sales contract is invalid.

10.1.3 Conclusions

German and Austrian law have the same approach to securities transfers. In both, securities are transferred by way of acquisition of the buyer of possession of the securities certificates. In both, it is not necessary for the buyer to receive physical delivery of the securities; it is sufficient if the buyer and the seller agree that the seller continues to hold the certificates on behalf of the buyer. In addition to the transfer of possession to the securities, both require that the buyer and seller agree that ownership passes to the buyer. Under Austrian law, but not under German law, it is also necessary for there to exist a valid sales contract between buyer and seller. This difference between Austrian and German law is significant in that the requirement for the buyer to become the owner is more onerous under Austrian than under German law. Notwithstanding this difference, however, German and Austrian law adhere to the same approach in relation to transfers of securities. In both, securities are classified as tangibles and transfers require possession of the securities certificates to pass to the buyer.