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Accessoriness and Security over Land

Document Cited authorities 36 Cited in Related
Vincent
Pages387-426
DOI10.3366/E1364980909000560
AuthorAndrew J M Steven
Date01 September 2009
Published date01 September 2009
INTRODUCTION

The purpose of a security right is to improve the chances of a creditor recovering a debt.1

J Inst 3.14.4. For a helpful modern discussion, see G McCormack, Secured Credit under English and American Law (2004) ch 1.

This may be by means of a cautionary obligation (guarantee) from a third party (personal security), or by encumbering an asset, typically belonging to the debtor, which can be sold if the debtor defaults (real security). In either case the right in security depends on there being a debt. This is the “accessoriness principle” of security rights. To use the language of the property law doctrine of accession,2

See K G C Reid, The Law of Property in Scotland (1996) para 570.

 the debt is the “principal” and the security is the “accessory”

The idea may at first sight seem to be a simple one, but in reality the picture is more complicated. As can be seen from the terminology, the subject has been little researched in Scotland. The word “accessory” is familiar, but “accessoriness” is hardly a term that trips off the tongue. Nor is the adjective “accessorial”. When writing in English, Continental scholars have used terms such as “accessority”3

S van Erp, “Surety agreements and the principle of accessority – personal security in the light of a European property law principle” (2005) 13 European Review of Private Law 309.

and “accessoriety”,4

S Nasarre-Aznar, “The Eurohypothec: a common mortgage for Europe” [2005] 69 Conveyancer and Property Lawyer 32 at 37.

 neither of which is recognised by the Oxford English Dictionary. No criticism is intended. Rather, it shows that there is work to be done to catch up with the research of foreign colleagues. This article seeks to make a start from a Scottish perspective, focussing on the extent to which the law of heritable security5

“Heritable security” is the name used in Scotland to mean security over immoveable property (land).

 complies with the accessoriness principle HISTORICAL AND COMPARATIVE CONTEXT Civil law

The accessoriness principle can be traced back to the Roman law of personal security and real security. Ulpian states the general rule: “In omnibus speciebus liberationum etiam accessiones liberantur, puta adpromissores hypothecae pignora”.6

[In all cases of release of obligations, ancillary obligations are also released, for example, cautionary obligations, hypothecs and pledges.] D 46.3.43 (translation based on that of Watson et al, 1985).

According to Kaser, the dependence of a pledge on the debt it secured had developed as early as the Republic: “Ohne die Forderung entsteht kein Pfandrecht; erlischt sie, geht auch das Pfandrecht unter”.7

[Without a debt, no pledge could exist; on the extinction of the debt the pledge ended too.] M Kaser, Das Römisches Privatrecht, 2nd edn, vol 1 (1971) 465.

 The development of the accessoriness principle in Roman law is outlined generally by Habersack8

M Habersack, “Die Akzessorietät – Strukturprinzip des europäischen Zivilrechte und eines künftigen europäischen Grundpfandrechts” 1997 Juristen Zeitung 857 at 860.

 and, in relation to personal security, by Zimmermann.9

R Zimmermann, The Law of Obligations: Roman Foundations of the Civilian Tradition (1990) 121–125.

 Both take the view that it was a flexible rather than a rigid principle. For example, a cautioner could guarantee a smaller amount than the principal debt, or a pledge could secure a future debt. The dependency of the security on a particular debt was therefore not absolute

It was the conceptual work of the German Pandectists in the nineteenth century which led to a more dogmatic and strict approach,10

Habersack (n 8) at 860. See further W Mincke, Die Akzessorietät des Pfandrechts: Eine Untersuchung zur Pfandrechtskonstruktion in Theorie und Gesetzbung des 19 Jahrhunderts (1987).

as evidenced by various provisions in the German Civil Code.11

For example, BGB §§ 767, 1153. But security for future sums is nevertheless permitted by BGB §§ 1113(2), 1204(2).

 The accessoriness principle is recognised by the civil codes of other European Civil Law jurisdictions, such as France, Italy, the Netherlands and Spain, in relation to both personal and real security.12

See generally Habersack (n 8) at 860–861; C von Bar and U Drobnig, The Interaction of Contract Law and Tort and Property Law in Europe: A Comparative Study (2004) 354–356. On Italy, see G Alpa and V Zeno-Zencovich, Italian Private Law (2007) 147–148. On the Netherlands, see J H M van Erp and L P W van Vliet, “Real and personal security” (2002) 6.4 Electronic Journal of Comparative Law (available at http://www.ejcl.org/64/art64-7.html); L P W van Vliet, “Mortgages on immovables in Dutch Law in comparison to the German mortgage and land charge”, in M Hinteregger and T Borić (eds), Sicherungsrechte an Immobilien in Europa (2009). See also S van Erp, “DCFR and property law: the need for consistency and coherence”, in R Schulze (ed), Common Frame of Reference and Existing EC Contract Law (2008) 249 at 255.

 It is also adopted by the new Chinese Property Code for real securities.13

L Chen, “The new Chinese Property Code: a giant step forward” (2007) 11.2 Electronic Journal of Comparative Law (available at http://www.ejcl.org/112/art112-2.pdf).

A number of systems have, however, adopted so-called abstract (or non-accessory) real securities. The best known are the German Grundschuld14

BGB §§ 1191–1198, in particular § 1192(1). See F Baur, Sachenrecht, 17th edn, by J F Baur and R Stürner (1999) 504–553; J Wilhelm, Sachenrecht, 2nd edn (2002) 582–624. Significantly, the BGB was amended in 2008 to make the Grundschuld more accessory: see J.(3) below.

(land charge) and the Swiss Schuldbrief15

ZGB arts 842–874. See P Tuor, Das Schweizerische Zivilgesetzbuch, 13th edn, by B Schnyder, J Schmid and A Rumo-Jungo (2009) 1029–1043. The Schuldbrief is currently in the process of being reformed, but its non-accessory nature is to be maintained.

 (letter of mortgage). But similar concepts have been introduced in some Eastern European countries such as Estonia, Hungary and Slovenia.16

See C Schmid and C Hertel, Real Property Law and Procedure in the European Union: General Report (2005) 85, 89 (available at http://www.iue.it/LAW/ResearchTeaching/EuropeanPrivateLaw/ProjectRealPropertyLaw.shtml).

 Abstract securities do not require an underlying debt or even a future debt for the real right to be created.17

See, for example, BGB § 1192(1).

 The idea is that the holder has the right to be paid a certain amount out of a certain piece of land.18

BGB § 1191(1).

 A subsequent agreement of the parties is then needed to use the security to secure a particular debt. If that debt is later discharged, the security does not end, but becomes available to be used to secure another debt owed to another creditor.19

In practice, however, lower-ranking creditors often contract with the debtor to prevent this happening. See Van Vliet (n 12) at para 4.1.1.

 An advantage to that creditor is that he obtains the same rank as the original creditor. Proposals for a uniform immovable security in Europe – a Euromortgage – have recommended that this should be an abstract rather than an accessory right. This is discussed further below.20

See J below.

 Common law

In English law the accessoriness principle is found in sources on personal security,21

For example, J O'Donovan and J Phillips, The Modern Contract of Guarantee (2003) para 1–20.

but is less visible in treatments of real security.22

In the words of P Sparkes, European Land Law (2007) 399: “Discussion of mortgages in English law makes little reference to accessoriness in principle”. A notable exception is F H Lawson and B Rudden, The Law of Property, 3rd edn (2002) 129, but the authors, who both held the Chair of Comparative Law at Oxford, may have been influenced by foreign material. Another exception is Banque Financière de la Cité SA v Parc (Battersea) Ltd [1999] 1 AC 221 at 236 per Lord Hoffmann.

 Sir Roy Goode's Commercial Law is illustrative of this. Goode describes a guarantee by one party of another's debts as “an accessory engagement”,23

R Goode, Commercial Law, 3rd edn (2004) 799.

 but while his treatment of real security identifies “the subsistence of an obligation”24

Goode, Commercial Law 632.

 as a prerequisite for attachment of the security interest, the word “accessory” is nowhere to be found. It is also difficult or impossible to find in the leading English treatments of mortgage law.25

For example, in W Clark et al, Fisher and Lightwood's Law of Mortgage, 12th edn (2006) the application of the principle is eventually found at para 49.2: “By releasing the debt the security for the debt is released”. Reference is made to Cowper v Green (1841) 7 M & W 633. The debt is released, for example, on repayment or where the creditor cancels it. See generally also E F Cousins, The Law of Mortgages, 2nd edn (2000).

The same result is discovered with North American sources.26

For example, B Ziff, Principles of Property Law, 4th edn (2006) ch 11.

 The principle is hidden away in the American Law Institute's Restatement of the Law: Property: Mortgages in the section on the effect of transferring the obligation secured by the mortgage.27

American Law Institute, Restatement of Law Third: Property: Mortgages (1996) § 5.4.

 Here there is a reference to a statement from the US Supreme Court that the debt is the principal and the mortgage is the accessory,28

Carpenter v Longan 83 US (16 Wall) 271, 21 L Ed 313 (1872).

 and to a case which quotes a colourful analogy attributed to Professor Chester Smith of the University of Arizona: “The note is the cow and the mortgage the tail. The cow can survive without a tail, but the tail cannot survive without the cow.”29

Best Fertilizers of Arizona Inc v Burns 571 P 2d 675 (Ariz Ct App 1977) at 676.

It may be asked why the principle is difficult to track in Common Law works on real security. One reason is that a mortgage in its...

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