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30 January 2009
For a buyer of chattels to receive protection against the seller's creditors, it is necessary in many cases that a tradition of the property to the purchaser be executed. To be effective, the tradition must involve a change in possession of the right to dispose of the property. Swedish law is unique in this area as in most other European countries a purchaser of chattels is protected against the seller's creditors through the conclusion of the transfer-of-ownership agreement.
Before the 1980s, the content and purpose of the principle of tradition of property were not challenged to any great extent. The requirement of tradition was regarded as self-evident and purely formal, and the particular purposes and aspects of each case were not taken into account. The principle was strictly upheld and few exceptions were made. However, since the 1980s the requirement of tradition of property has been criticized in legal doctrine and a gradual movement away from the formal approach has occurred. More informal assessments are appearing in case law and greater consideration is being given to the individual circumstances of each case. With an approach more orientated towards the aim of the rule, the purpose of the rule has increased in importance and interest, both in the courts and in legal doctrine.
The requirement for tradition with a change in possession of the right to dispose of the property complicates cases where the tradition takes place between companies with the same representative or owner; or where the tradition takes place within a household. In 1962 the Supreme Court ruled in a case concerning tradition between family members. The court established that the requirement of a change in possession of the right to dispose must be maintained even in cases involving family members. In 1997 the court in another case declared itself unable to depart from the principle of tradition of property in commercial relations without the support of the law.
For a buyer to achieve a change in possession of the right to dispose where the seller is cut off from the disposition of the property has for a long time been limited in acquisitions between companies with the same repesentative or owner, or within a household. How such cases should be assessed has been a controversial issue in legal doctrine. However, during the past eight years the Supreme Court has resolved cases concerning tradition between companies with the same owner or representative. In its assessments the court abandoned the need for tradition of property in favour of an assessment whereby the purchaser is protected against the seller's creditors through the conclusion of the transfer-of-ownership agreement.
In 2000 the Supreme Court established that the circumstance of a pledgor handing over the pledge to its representative did not affect the fact that a real pledge agreement had been entered into. The pledgor was considered to have lost possession of the right to dispose of the property because its representative had stored the mortgage certificates in the arms cabinet in his home.
A case from 2007 concerned tradition of one company's assets to another company with the same representative. A sufficient change in possession of the right to dispose was considered to have been made by the seller, since the representative was exposed to both criminal and tort liability should he violate the buyer's interest over the property on behalf of the seller. Therefore, according to the Supreme Court, the buyer had made an acquisition protected from the seller's creditors. The judgment thus implied that protection against the seller's creditors is achieved by conclusion of the transfer-of-ownership agreement in cases where tradition takes place between companies with the same representative.
Another case from 2007 concerned movables which became fixtures as a result of the acquisition. The question was whether the property was to be assessed according to the in rem rules of movable or immovable property. With regard to immovable property, the buyer is protected against the seller's creditors through conclusion of the transfer-of-ownership agreement. The Supreme Court established that when movables become fixtures through a transfer, the buyer obtains protection against the seller's creditors by the conclusion of the transfer-of-ownership agreement. The court held that a requirement for tradition of the property would render transactions of commercial interest impossible.
A case from 2008 concerned a company's sale of a packing line to a financing company. After the acquisition the financing company leased the packing line to another company, which was a wholly owned subsidiary of the seller. The packing line was delivered from the seller directly to the lessee, whereupon the seller went bankrupt. The Supreme Court had to settle whether the financing company, through the lessee's occupation, had received protection against the seller's creditors, despite the fact that (i) the lessee was a wholly owned subsidiary of the seller, and (ii) the sole owner of the seller had been a person authorized to sign for the purchasing company and had sat on its board. In its judgment the court referred to the abovementioned case concerning tradition of assets from one company to another, and stated that the lessee possessed the property on behalf of the financing company. The court stated that if a representative of the lessee had returned the property to the seller without the financing company's consent, the representative would be exposed to both criminal and tort liability. The seller had therefore been sufficiently cut off from the possession in the right of disposition of the property, while the financing company had received protection against the seller's creditors.
The question of the adequacy of the requirement of tradition of property is constantly examined in Swedish legal doctrine. However, it is clear that the Supreme Court no longer considers it reasonable to require tradition in all cases. In the past, its rulings stated that the court considered itself unable to depart from the requirement of tradition without the support of the law. However, in its latest ruling in this area the court has made space for assessments about the purpose of the requirement, a consequence of which has been a relaxation of the principle of tradition of property. In future there will probably be further development in this direction.
For further information on this topic please contact Margareta Andersson or Caroline Öbrink at Wistrand Advokatbyrå by telephone (+46 31 771 21 00) or by fax (+46 31 771 21 50) or by email (firstname.lastname@example.org or email@example.com).
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