9The historic starting point

150 G E R M A N A N D A U S T R I A N L A W

part of the German state; it will focus on the law of the state of Prussia as well as analysing Austrian law.

Prussia adopted a Civil Code in 1794, referred to in English translation as the ‘Prussian Civil Code’.5 The German title is ‘Allgemeines Landrecht’, abbreviated to ‘ALR’. The Prussian ALR was replaced by the German Civil Code (BGB) in 1900. In 1811, Austria adopted a Civil Code which was influenced by the ALR, enacted under the name of ‘General Civil Code’ (Allgemeines Bu¨rgerliches Gesetzbuch), abbreviated to ‘ABGB’. The Austrian ABGB is still in force.

It has already been pointed out that modern German and Austrian law classifies securities as tangibles. This analysis, however, started to appear only during the mid-nineteenth century. Before then, securities were also issued with the help of paper documents, but were nevertheless classified as intangibles. This earlier classification, the shortcomings attached to it and the way in which these shortcomings were overcome to create the modern theory will be examined in the following sections.

9.1 Securities as intangibles

There exists evidence that supports the conclusion that, until the late nineteenth century, securities were considered to be intangibles rather than tangibles. The first piece of evidence is the legal terminology used in legislation and legal writing. The term ‘Wertpapier’, which is shaped by the theoretical framework underlying securities in modern German and Austrian law, was not used in legislation or in legal writing until the mid-nineteenth century. The instruments that are now referred to as ‘Wertpapiere’ were, when securities started to become popular, referred to in different legal language, consisting of a somewhat cumbersome reference to the paper documents used for transfer purposes.

The first part of the ALR, for example, defines certain legal terms. One of these is what could be translated into English as ‘capital investments’:6 ‘Papers issued to the bearer, e.g. banknotes, mortgage debentures, shares, etc., irrespective of whether they carry interest, are like

5Eric Weitz, Prussian Civil Code, Excerpts Translated from Allgemeines Landrecht fu¨r die Preussischen Staaten (Berlin: 1821).

6The German term is ‘Kapitalvermo¨gen’.

other debt instruments considered to be capital investments.’7 ‘Papers issued to the bearer’ would in modern writing be termed a ‘Wertpapier’,8 but not only does the definition in the ALR not contain the modern German term it also appears from the provision that mortgage debentures and shares were considered similar in their legal nature to debt, which is classified as an intangible rather than as a tangible.

Language similar to that appearing in the ALR can be found in the ABGB, which contains rules governing ‘debt notes that are issued to the bearer’.9 There is another rule on ‘letters of debt issued to the bearer’.10 Both provisions refer to what would now be called bearer securities.11 Like the ALR, the ABGB does not contain the modern term ‘Wertpapier’ or a provision implementing the modern theory.

The hypothesis that in the late eighteenth and early nineteenth century securities were not yet considered to be tangibles is also supported by an analysis of the writings of academic commentators of the time. The analysis of some of these leads to two observations. The first is that securities appear to have been classified as ‘debt’ or as ‘obligations’

7ALR part 1, title 2, s. 12, which reads in German: ‘Die auf jeden Inhaber lautenden Papiere, zB Banknoten, Pfandbriefe, Aktien u.s.w., sie mo¨gen Zinsen tragen oder nicht, werden gleich anderen Schuldinstrumenten zum Kaptialvermo¨gen gerechnet’; see also ALR part 1, title 15, s. 47 which refers to ‘papers and documents issued to the bearer’ (‘auf den Inhaber lautende Papiere[n] und Urkunden’).

8This conclusion is confirmed by a monograph published in 1900 which compares the then newly enacted German BGB with the Prussian ALR which had come into force over 100 years earlier. The book was written with a view to assisting members of the German legal community to familiarise themselves with the new Civil Code. The BGB of 1900 contains a set of rules on certain bearer securities. These provisions are informed by the modern German theory that the rights the document relates to materialises in the paper document and therefore receive the same treatment as a tangible. In the chapter comparing the then newly enacted modern German law with the previous regime contained in the Prussian ALR, the author observes that the ALR did not contain a designated section on bearer securities, but nevertheless incorporated rules governing these instruments, albeit dispersed through the code. He points to the provision analysed in this book as examples of how the ALR took securities into account (Franz Leske, Vergleichende Darstellung des Bu¨rgerlichen Gesetzbuches fu¨r das Deutsche Reich und der Landesrechte, Band III, Das Bu¨rgerliche Gesetzbuch und das Preußische Allgemeine Landrecht,

Bu¨rgerlichen Gesetzbuches, vol. 2, Wien: Alfred Ho¨ lder, 1889 237); explanatory notes are regarded as authority for interpreting statutory provision in the Austrian and German legal tradition.

152 G E R M A N A N D A U S T R I A N L A W

rather than as tangibles by a significant number of eminent legal scholars. The second is that transfers of securities were considered to be primarily governed by the law of assignment. A selection of these contributions will be analysed in the following paragraphs.

In a book published in 1821, the author discussed the validity of forward sales contracts relating to Government bonds; he classified such transactions as the buying and selling of debt owed by the government. By using the term ‘debt’, the author adopted a classification that puts Government bonds in the category of intangibles rather than in that of tangibles.12 In another monograph published in 1826, the author analysed the legal nature of those Government bonds which as a consequence of the Napoleonic wars had become a widespread instrument to facilitate state finance. He explicitly rejected the view that Government bonds were tangibles, insisting that a distinction needed to be made between the paper documents evidencing the debt issued by the government and the debt itself. The document was a tangible: the debt, however, was an intangible.13

A commentary on the ALR published in 1804 contained the view that bearer instruments were in some respect similar to other debt in that they could be bought and assigned. In other respects they were similar to money because, in some German states, there existed a rule protecting the bona fide purchaser against adverse claims. In any event, they were not considered to be movables or even immovables.14 This contrasts sharply with the position in modern law, where securities are considered to be tangible movables.

Likewise, the author of a leading commentary wrote in 1854 that bearer instruments were a ‘special type of obligation’.15 They were not transferred by way of assignment, but rather like tangibles by way of delivery of the paper document.16 The author, however, stopped short of classifying bearer instruments as tangibles.

12Josef von Wayna, Antwort auf die Stock-Jobbery, und der Handel mit Staatspapieren nach dem jetzigen Zustande, politisch und juristisch betrachtet (Wien: Gerold, 1821) 27–33.

13Go¨ nner, Von Staatsschulden 172–177.

14Commentar zum allgemeinen Landrecht fu¨r die preußischen Staaten, vols. 1, 2 (Breslau: Hamberger, 1804) (no author mentioned) 14.

15Johann Caspar Bluntschli, Deutsches Privatrecht, vol. 2 (Mu¨ nchen: Literarisch-artistische Anstalt, 1854) 22. The author refers to bearer instruments as ‘Schuldscheine auf den Inhaber’, which are classified as ‘eine besondere Gattung von Obligationen’, for which this book offers the translation ‘special type of obligations’.

16Bluntschli, Deutsches Privatrecht 23.

Bills of exchange, which are traditionally grouped into the same category as securities by Austrian and German law,17 were also, until the mid-nineteenth century, considered to be intangibles. In a leading commentary published in 1823, the author discussed bills of exchange in the chapter on the ‘law of obligations’, and not in the chapter on the

‘law of things’.18 The same analysis was adopted in a book published in 1797.19

These examples lead to the first observation made in this section. They show that a significant number of legal scholars considered securities to constitute ‘debt’ or ‘obligations’.

The second observation following from an analysis of mid-nineteenth century legal writing is that there exists a significant number of contributors who analyse the transfer of securities in terms of assignment. Assignment is the legal method through which intangibles are transferred; the law of assignment does not apply to tangibles.20

In the mid-nineteenth century, a distinguished German scholar published a treatise of several volumes containing a systematic analysis of the Prussian civil law. Volume 3 of the treatise referred to an ‘obligation for which there exists a written document . . . [that] . . . is issued to the bearer’.21 The text also uses the French term ‘lettres au porteur’ which in English means something like ‘letters [issued] to the bearer’. As in the earlier literature, the author does not classify these obligations or the letters issued in connection with them as ‘tangibles’. Their transfer is rather discussed together with the transfer of other obligations in the chapter dedicated to the assignment of rights.22

17See Friedrich Wilhelm Ludwig Bornemann, Systematische Darstellung des Preußischen Civilrechts mit Benutzung der Materialien des Allgemeinen Landrechts, vol. 1, 2nd edn. (Berlin: Jonas, 1842) 106. The author refers to a bill of exchange as a debt instrument, which for that reason is part of what ALR part 1, title 2, s. 12 defines as ‘capital investment’ (Kapitalsvermo¨gen).

18Carl Friedrich Eichhorn, Einleitung in das deutsche Privatrecht mit Einschluss des Lehensrechts

(Go¨ ttingen: Vandenhoeck und Ruprecht, 1823); in the book, the law of obligations is referred to as ‘Recht der Forderungen’. The law of things is referred to as ‘Rechte an Sachen’.

19Wilhelm August Friedrich Danz, Handbuch des heutigen deutschen Privatrechts (Stuttgart: Lo¨ flund, 1797).

20Christoph Christian von Dabelow, System des gesammten heutigen Civil-Rechts, vol. I, 2nd edn. (Halle: 1796) 317.

21Friedrich Wilhelm Ludwig Bornemann, Darstellung des Preußischen Civilrechts mit Benutzung der Materialien des Allgemeinen Landrechts, vol. 3, 2nd edn. (Berlin: Jonas, 1843) 76.

22Bornemann, Darstellung des Preußischen Civilrechts, vol. 3 65–103.

154 G E R M A N A N D A U S T R I A N L A W

Likewise, the ABGB regulates the transfer of what it refers to as ‘debt notes that are issued to the bearer’ in the section on assignment.23 The rule suggests that the transfer of bearer debt notes would, in principle, be governed by the general law of assignment. It states in somewhat cumbersome language that ‘debt notes that are issued to the bearer are assigned by means of delivery and, apart from physical possession, do not require any further evidence of the assignment’.24 The fact that the transfer of such debt notes was inserted into the section on the law of assignment shows that the ABGB, historically, did not consider securities to be tangibles.

There is, therefore, evidence that the starting point of Prussian and Austrian law was to classify securities as intangibles rather than as tangibles. The legal classification of the ancestors of modern German and modern Austrian securities was therefore very similar to the classification used in early – and, indeed, in modern – English law.

From a similar starting point, English law maintained the original classification and went on, as we have seen, to adopt a novation-based analysis, whereas German and Austrian law began to qualify securities as tangibles and went on to apply the law relating to tangibles to transfers of securities. England adopted a preference for registered, Germany and Austria adopted a preference for bearer, securities.

What we observe here is divergence rather than convergence, and there may be more than one reason for this development. One factor, however, that has influenced the path along which the two legal systems have progressed is the legal environment that existed at time when securities first appeared.

Like English practice, German and Austrian practice began to create the financial instruments that are now known as securities at a time in their history when an unprecedented need for large amounts of capital appeared in the economy. In England, this first happened in the early- to-mid-eighteenth century, during the period leading to the South Sea Bubble.25 In Germany and in Austria, securities were first utilised by governments as a method to cover the cost the states incurred when fighting the Napoleonic wars in the late eighteenth century.