This contribution is a critical assessment of a number of topics regulated by Books 1 and 5 of the new Civil Code (henceforth CC). It deals with (a) what has traditionally been described as the implications of agreements for third parties, and (b) the relationships between more than two parties where there arises an additional or different creditor or debtor.
Part 1 focuses on the implications for non-contracting parties and is based on Article 4.103 CC, which replaces Article 1165 of the previous CC. In the first instance, the author examines Article 5.103(1), under which a contract merely gives rise to obligations between the parties involved, and that third parties are merely entitled to enforce compliance with a contractual obligation where the law so provides under Article 5.107. The author clearly indicates that the wording of both these provisions is misleading. What is also absent is a rule governing obligations which by virtue of the law are “qualitative”, i.e. linked to the capacity of holder of a certain asset.
In Section B of Part I there follows an extensive examination of Article 5.103(2) CC, which provides that “Third parties shall respect a contract as a fact, and may rely on its existence to their advantage”. However, closer scrutiny of the case law based on the second part of this sentence reveals that an obligation incurred by a third party may only be relied upon where that obligation is relevant to the validity or absence of a claim in favour of or against the party relying on that obligation. It is the regime of that right itself that determines the extent to which the creditor’s agreement with a third party, and the resulting obligations, are relevant. As will be elaborated upon later, such a change of perspective is also indispensable if the rules governing third-party complicity in non-performance are to be adequately understood.
This paper also examines the rules on simumation. Here again, it would appear that the rules in question are relevant, not to the agreement as a fact, but to the legal consequences of that agreement – more particularly in that these consequences are capable of relevance where such simulation (a) concerns the obligations themselves (this being the only contingency envisaged by the authors of this provision) or (b) is relevant to the ownership of the goods in question, i.e. to the property rights in question and their title holder.
The second part of Article 5.103(2) CC, under which “Third parties shall recognise the existence of a contract as a fact” is incorrectly worded, because here we are not dealing with the enforceability of contracts against third parties, but with the subjective rights which may result from agreements or from other legal sources. Such enforceability differs depending on the rights involved. The enforceability of obligations c.q. debt claims against is clearly different from such enforceability of property rights. In addition, in concrete terms this enforceability depends on the nature of the right with which the third party who finds himself in conflict with it may rely upon himself. Before examining the case law on third party complicity from this perspective, I would break down my analysis of the nature of debt claims on the basis of their three layers, to wit (a) as a form of ownership of intangible goods (b) as a right to performance and (c) as a right to seek recovery from the debtor’s assets where performance can no longer be enforced in kind.
Having analysed the resulting case law on third-party complicity, it appears to follow that, in order to conclude whether or not the requirement that the third party participated in the non-performance has been met, the third party’s existing rights need to be weighed against the primary party’s infringed rights. More particularly, there will be no fault, and therefore no unlawful act, where the third party exercises his rights or freedoms in a way that does not constitute an abuse of law.
Book 5 subsequently devotes a number of specific provisions to preferential and pre-emption rights. Article 5.24 has the merit of bringing terminological exactitude to the notions of preferential and pre-emption rights. Article 5.26 then contains special rules governing the penalties or remedies which may be raised against the third party in question, and contains two types of direct legal protection through which the party entitled to a pre-emption right may claim either non-enforceability of the sale against him, or its replacement. Because the law provides no answer to the question of the extent to which non-enforceability of the sales contract also has proprietary effects against further acquirers, the author provides a detailed response based on the existing case law as well as on the Belgian property law rules, providing as much coherence as possible with similar sanctions which apply to pre-emption rights determined by statutory provisions.
Part Two provides a conceptual framework which enables the relevant multi-party relationships to be analysed in the subsequent parts – more particularly the legal concepts under which a third party becomes involved – as a creditor or debtor – in contractual (or other) legal obligations resulting from agreements to which he is not a party. In the first instance, the author explains the notions of provision relationship, valuta relationship and performance relationship. Secondly, the various meanings of the notion of cause, which are used haphazardly throughout the legislation in question, are examined. When used in relation to multi-parti relationships, we are dealing here with the question whether the debtor has engaged in an obligation credendi causa, solvendi causa or donandi causa. The author subsequently discusses in what sense multi-party relationships can give rise to, and contain, abstract obligations.
Part III then contains a relatively extensive examination of the issue of representation. For the first time, the lawmaker makes a clear distinction between the external relationship (i.e. the relationship with the counterparty of the agent and principal), which is dealt with in Book I, Article 1.8, on the one hand, and the internal relationship, such as that between principal and agent, which is regulated in the law of special legal relationships, more specifically of special contracts. Unfortunately Article 1.8 merely deals with “the right (…) to conclude a legal transaction with a third party for the account of another party”, whilst representation can also be dealing with the authority to receive notice of a legal act, or the authority to receive a performance (i.e. passive representation). Unlike article 1.8, this contribution is also concerned with the issue of the legitimation of an agent notifying unilateral legal acts of a principal to a third party – where the authority is challenged not by the party represented, but by the party receiving notice of an act through which the principal exercises some power.
When dealing with the issues of direct representation, the author also examines more generally the various ways in which the notion of intuitu personae is used in the Belgian legal system, and creates a number of categories thereof, given that at no point the legislation concerned provides any clarity.
This article further examines the rules on apparent authority, as well as attempting an answer to the questions to which the gaps in the law on this issue give rise.
The author then examines in somewhat greater detail the revocation of so-called general interest mandates. In order to achieve correct regulation of these mandates, however, a distinction needs to be drawn depending on who, in principle, owes the irrevocability of such mandates to whom. On closer examination, it appears that there two important categories of mandate which by their very nature are irrevocable, of which only one can correctly be qualified as general interest mandate – i.e. that under which the principals owe each other irrevocability. Under Belgian law there are many cases where two or more parties agree that the interests of one of these parties demand that transactions may be concluded for the account of the other party without requiring the latter’s authorisation, and that, for this purpose, the first, or some other, party is appointed as mandatory having an irrevocable mandate. In such cases, the principal owes irrevocability to the first party (and not to the mandatory, unless where the first party is himself the mandatory). Accordingly, the ability to end the irrevocable mandate shall differ depending on whether we are dealing with the first or with the second category.
The rules on ratification in Article 1.8(4) lacks a rule which entitles the other contracting party to obtain from the represented party, at his request, immediately to bar the latter from the choice as to whether he should or should not give ratification. Articles 1.8(4) and 5.106 also dispose that ratification be retrospective “without prejudice to such rights as have been acquired by third parties” – without providing any clarification as to what is meant by this condition. If the notion of “third parties” were to be interpreted as including the other contracting party involved in the unauthorised transaction, this would be highly undesirable. Where a power has to be exercised or a notification has to be made within a certain time limit, in order to be effective, and where this was done within those time limits by an unauthorised representative and was ratified after this time limit had elapsed, the purpose of the time limit has been fulfilled, and the other contracting party should not be entitled to claim that notification had not been made by an authorised party within the time required.
The author subsequently deals with the extent to which an intermediary acting without authority can be held accountable, the issue of indirect representation, agents acting neutrally or qualitate qua, and the rules governing conflicts of interests found in Article 1.8(6). The latter rule has brought certain improvements – however, there is a shortcoming in that this legislation fails to include rules on the extent to which bona fide third parties are protected.
In Part IV, the author discusses clauses benefiting third parties. The relevant rules as embodied in Articles 5.107-5.109 are justifiably more detailed than those featured in the previous CC. These rules achieve a reasonable degree of completeness and are largely correct. They include rules on the formation of such clauses, the fact that a direct right is created against the promissor (an aspect which the author analyses from both the perspective of the law of obligations and that of the law of property), as well as the extent to which the provision relationship affects the performance relationship. However, in Article 5.107(6) it is possible to encounter a (fortunately non-mandatory) rule on the subject of revocability (or irrevocability) which is inconsistent with recognition of unilateral promises as a source of obligations under Belgian law, and which, wrongly, gives acceptance by the third party a role to play in this respect.
Part V starts with a number of general principles governing the various means of acquiring rights to performance (debt claims). These various means are then examined separately, focusing specifically on the property law aspects (in terms of acquiring the good) on the one hand, their implications for the law of obligations (in terms of changing the creditor) on the other hand, of transmission of debt claims. The author successively discusses the issues of assignment, pledging, personal subrogation, qualitative rights, substitution in case of indirect representation, substitution by a party having pre-emption rights, and so-called direct actions.
On the question of assignment, the author extensively examines the issue of future claims. Article 5.175 CC provides that “Assignment may concern one or more future claims, subject to these being determined or determinable”. A literal reading of this provision is in contradiction with the – correctly worded – Article 3.14(2)(4) CC, which provides that “In the case of future goods, transfer or creation shall only take place when the good comes into existence”. It is also unclear which criterion is used in order to distinguish between a future and an existing debt, and whether that distinction remains the same when it comes to the property law issues which arise when discussing assignment, or to the rules on obligations which impose restrictions on suretyships for future debts. Our analysis accordingly examines more extensively the various issues to which the distinction between the existing and the future is relevant, and seeks to establish which debts and claims can be described as existing or future.
The author also examines extensively the rules on the contractual restrictions on the assignability of claims (i.e. Article 5.174). He concludes that this rule, when interpreted literally, is unsuitable for the purpose of safeguarding – i.e. truly protecting – the interests envisaged by the lawmaker. A better balance of interests is achieved by means of a restrictive interpretation of Article 5.174 CC (and Article 63 of the Law on Pledges), which grants proprietary effect to a transfer or pledging which conflicts with a contractual prohibition, but only limited implications under the law of obligations for the debtor who stipulated the prohibition in question. Such an interpretation is at the same time infinitely more consistent with the Belgian legal system, under which, in principle, designated debt claims have no existence other than the way they apply between the debtor and creditor.
On the issue of the rules on pledges, the author proceeds to a critical analysis of Article 60(1) of the Law on Pledges, which makes the enforceability towards third parties conditional upon the contingency that the pledgee merely has fictional control over the pledged items – however fraught with uncertainty the interpretation of this concept may be.
As regards the implications of assignments for the law of obligations, the new rules have raised relatively few issues. There is, however, an omission in the shape of some clarification as to what the assignee can do where doubt arises as to whom he may make payment in order to secure release from his obligation – more particularly where he is merely given notification by an – alleged – assignor. Another issue subject to uncertainty is how a debtor who has knowledge of an assignment should interpret the attitude of the assignor who fails to give notification – this being an issue which is better regulated in the DCFR than is the case with Book 5. Nevertheless, the author attempts to clarify the relevant rules as much as possible in concrete terms.
Given that personal subrogation (Part V.C) also constitutes a transfer of property of a claim, this concept is, in this contribution, examined from a property law perspective, which enables a better insight into the similarities and differences between this concept and assignment. The fact that, as regards subrogation, under Book 5 the same rules apply to third party protection as those applying to assignment is to the credit of the new legislation. Article 5.220, regulating subrogation by operation of law, also represents an improvement – especially because the previous notion of quasi-subrogation has now been placed on an equal footing with subrogation by operation of law, and because it is made clear that for subrogation to apply this must concern a payment which, in relation to the common creditor, releases from payment the party who is to bear the definitive burden of the entire debt – or at least a part thereof. Thus subrogation is rightly joined to the obligation to bear the debt (contributio). This also makes it easier to conceive that, in all these cases of subrogation by operation of law, the right can only be exercised by a subrogated party to the extent that such party has a recourse action against the party subject to subrogation. Both the right of recourse and the right of subrogation of the payor solvent (solvens) is, in relation to each of the parties claimed against, restricted to that party’s share in the debt owed (i.e. the contribution or obligation to bear the debt). When it comes to the implications of subrogation for the law of obligations, another improvement is that the lawmaker has introduced as general rules on subrogation rules which are similar to those applying to assignment (i.e. as regards the part played by notification).
Certain other modes of transmission of claims receive but scant examination, because they have no specific regulation in Book 5, to wit proprietary subrogation in a debt claim (Part V.D), substitution in case of indirect representation (Part V. F) and substitution by a party having pre-emption rights (Part V.G). Nevertheless, the author does make a brief attempt at providing an answer to the equivalent questions to which these issues give rise. The automatic transfer of qualitative rights (Part V.E) on the other hand, is regulated in Article 5.105, but without any consistency with Article 3.9. The author seeks to achieve an appropriate interpretation of this provision, and gives some substance to its contents. As regards the implications thereof for the law of obligations, the question arises whether the rules on assignment and subrogation could be applied by analogy, given that Article 5.105 is silent on the part played by notification.
In relation to non-abstract so-called direct actions (Part V.H), the new Article 5.110 provides useful clarification of the rules on the secondary debtor’s right to rely on defences. The role of the notification as to the effects under the law of obligations in notification, which is regulated in brief terms in the statute, is also consistent with the rules that apply in the event of assignment and subrogation. That such direct claims essentially provide a security right that is similar to a pledge is, unfortunately, not something that is immediately apparent from the wording of the relevant legislation. The author has accordingly identified the relevant similarities and differences. As regards the property law aspects, the author proceeds to a systematic analysis which reveals the problematic arguments which appear in some courts’ decisions as well as the mistaken conclusions to which this gives rise in relation to enforcing direct claims following insolvency, and even in relation to the ranking of this security right in case of concursus creditorum.
Finally, in Part 6 the author performs a functional analysis, concerned only with the law of obligations, of the legal issues that arise where a new debtor replaces the existing one. This analysis raises the question as to which obligations are thereby created, subject to which conditions they arise and on whom they are imposed, and which obligations are terminated and if so under which conditions. More particularly the author raises four questions and answers them, i.e. (a) the legal grounds on the basis of which new debtors are obliged (b) the substance of the newly created obligation, (c) the implications thereof for the provision relationship, and (d) its consequences as regards the valuta relationship. As regards the second question, the author indicates that the distinction made by the law between debt assumption and delegation is not as evident as it may appear, and even leads us in the wrong direction. When comparing these two sets of rules, it would also appear that they are mutually inconsistent – more specifically the rule governing the enforceability towards third parties of defences out of the valuta relationship in the case of a delegatio solvendi raises a number of critical questions. Attempting a more functional analysis of these issues, the author also provides a better definition of the concept of delegatio solvendi.
Finally, Part VII, in its conclusions, brings together an overall assessment of the new provisions.
