Dutch Civil Law

Obligatory claims and obligations

Obligation (obligatory claim and debt)

The law of obligations represents in Dutch property law one of the most important legal subjects. The word ‘obligation’ refers to the legal effect which may arise from a few different sources. An obligation can be defined as a ‘legal bond’ between two persons, within which one person (‘the debtor’) is legally compelled to carry out a specific performance to which the other person (‘the creditor’) under law is entitled. The enforceable right of the creditor to demand performance from the debtor, is called an ‘obligatory claim’. The legal duty of the debtor to fulfil this performance to or on behalf of the creditor, is called a ‘debt’. The relationship between the debtor and creditor is regulated by law. The law of obligations indicates what the creditor may expect from his debtor and which legal measures he may take when the debtor doesn’t fulfil his duties. On that same basis also the debtor can determine what, when and how he must perform to settle his debt and which measures he can expect from the creditor if he’s in default of performing his obligation.

The performance - the object of both the obligatory claim and the debt - is for the creditor and debtor the same. They just approach it from a different angle. The debtor has to fulfil the performance. The creditor receives it. The debtor and creditor are both tangled to that same object and, with that, to each other through incorporeal rules of conduct acknowledged by law.

This legal bond between the creditor and debtor, thus the obligation, exists as long as the indebted performance has not yet been carried out. With the settlement of the debt the obligatory claim (and debt) ends automatically, which means that also the legal bond between the creditor and debtor has come to an end. Creditor and debtor both are free to go their own way again. Should the debtor, on the other hand, fail to comply with his obligation, the legal bond remains intact. The debtor may still claim performance, but in addition he possibly has other legal remedies that according to law may arise from their legal bond, depending on the content of the obligation, the source from which it is derived and the circumstances of the situation. It’s possible as well that the creditor converts his original claim into an obligatory claim for compensatory damages in money. This, in fact, has created a new legal bond with its own content and legal consequences.

An obligatory claim must not be confused with a legal claim. A ‘legal claim’ refers to a ‘right of action’, therefore to the legal possibility to enforce a right in court. The demand (or request) which is filed in court on the basis of a right of action is called a legal claim. Often the terms ‘right of action’ and ‘legal claim’ are used as synonyms, since they both refer to the possibility for a proprietor (or other person) to enforce the compliance with and acknowledgement of his property right (or other legally acknowledged right) in court by means of an enforceable judgement or court order against someone who has violated his right. Most property rights are accompanied by a connecting legal claim, which enables the proprietor to take the proper legal measures so as to enforce his property right. An obligatory claim is a property right in itself. It grants the creditor the right to a performance of at least some value. An obligatory claim has its own right of action. When the debtor fails to comply with his obligation, the law grants the creditor a right of action, enabling him to file a legal claim in court to obtain a judgement which forces the debtor to fulfil the indebted performance after all or to pay alternative damages, to be collected, if necessary, by police or a sale under execution. Other property rights are supported as well by their own right of action. The owner of a house who wants the tenant to leave, because he’s not paying the rent, can go to court and ask for a judgement to be handed over to a bailiff and the police, so that they are permitted to remove the tenant from the house, if need be by force. Nevertheless there are property rights without an accompanying right of action. The most well-known example is the natural obligation. The creditor has, according to law, a property right to be exercised against the debtor to obtain a certain performance, but – in contrast to other obligatory claims – the creditor cannot enforce this right when the debtor doesn’t satisfy his debt. So a property right may exist without an accompanying right of action (legal claim). It still is a property right acknowledged as such by law, but it is not enforceable. This means that when the debtor performs his obligation anyway, this can't be seen as a gift or donation. He settles his debt in conformity with what he has to fulfil according to law.

The nature of the performance within an obligation

Characteristic for an obligation is that the debtor and creditor are allowed to make almost any performance the object of their legal bond. The law of obligations forms an open system of mainly permissive (additional) law. As long as parties stay within the boundaries set by mandatory law, they are free to subject themselves to any kind of performance (and counter performance). But the way in which this most be done, is always by entering into an obligation. This is the framework that the law provides to persons who want to commit themselves legally to each other in an enforceable way to perform something.

The answer to the question which kind of performance the debtor has to fulfil, depends on the content of the obligation. In the open system of obligatory claims in principle everything with an economic or financial value can be pointed out as the indebted performance. To its nature one distinguishes three types of performances:

a. delivery of an object (to give):

An example of a ‘delivery’ is the transfer of a good or the payment of a sum of money. The debtor, in fact, hands over to the creditor an object, for instance a car or coins and bank notes. By doing so, he has fulfilled his obligation.

b. performance of a work (to do)

The debtor can be obliged also to perform a work, like the employee who has the duty to carry out certain labour activities on behalf of his employer. Other examples of the performance of a work are the provision of a service and the transportation of goods. The doctor who treats a patient, performs a service. He does something. The same applies to the accountant who draws up the books. Their activities are regarded as the performance of a work.

c. refrain from doing something (to do not)

Sometimes the debtor has the obligation to refrain from doing something which he otherwise would have been allowed to do. He has engaged himself towards the creditor not to perform a specific action. If he does anyway, the creditor may demand that he stops this behaviour and claim compensatory damages or a preset financial penalty for each violation. An obligation from a non-competition clause may, for instance, impose a duty on the debtor not to start a similar company in a certain area during a fixed time period. Another example is the obligation of the owner of a movable or immovable thing to grant the creditor a right of use of that thing. Normally, as the owner of that thing, he would not have to tolerate that the creditor makes use of it. But as a result of his obligation he must accept that the creditor uses his property in the agreed way, and leave off any legal actions to end this use. Typically for such performances is that the debtor must perform continuously during the duration of the obligation: he continuously has to accept that the creditor uses his good and during the period set under the non-competition clause he may never start the prohibited company. Generally the obligation only exists for a determined period of time. On the expiry of this period, the obligation ends by operation of law. The debtor then is again allowed to do what he normally could have done.

The legal bond (obligation) between the debtor and creditor is governed in the first place by the content of the obligation itself. Parties themselves may, for instance, stipulate what the debtor has to perform and which measures the creditor may take if the debtor fails to comply with his obligation. But in addition the law sets rules that apply to the legal bond between a debtor and a creditor. These rules are usually of permissive law, so that they only have effect insofar parties themselves have not made an arrangement for specific subjects. On the basis of the content of the obligation and these statutory provisions the debtor and creditor are able to asses what they may expect from each other within their legal relationship.

Legal grounds which may produce obligatory claims

Obligations don’t drop from the sky by accident. It would be incorrect if a person, just like that, could be forced to perform something at his own cost on behalf of another person. Only the law is capable to point out when it’s appropriate that a person has to fulfil a performance to someone else. It is therefore civil law that stipulates when an obligation between two persons comes to existence. According to Dutch civil law obligations may arise from law or agreement. In principle there are no other sources from which obligations can be drawn.

Obligations arising from law are created automatically, therefore without the intention of the involved debtor and creditor to produce an obligation, as soon as certain facts have occurred which, according to law, justify the formation of an obligation. Generally it’s a response of law to a factual situation in which someone has been disadvantaged in a wrongful manner or has suffered damage from someone else’s behaviour. This injustice or damage must be made undone. For this reason the law automatically grants the disadvantaged or harmed person an obligatory claim which is enforceable against the person who is regarded to be responsible for causing the damage or who has gained an unjustified benefit without any legal ground. The law also makes clear, usually after interference of the court, which performance the debtor has to carry out on behalf of the creditor to repair the injustice or damage. So not only the existence of the obligation is set directly by law, but also its content. In practice, however, the involved persons usually don’t feel the same about the occurred circumstances and their consequences, so the court has to decide what the actual situation between them was and if it meets the conditions of a specific legal ground from which an obligation results and, if so, which performance the debtor has to fulfil to satisfy his debt. An example of a legal ground on the basis of which obligations may be formed by law, is a tortious act (Article 6:162 DCC). A person who has committed an unlawful act that has caused damage to someone else, has to repair that damage. The law automatically imposes an obligation on him, although often the court first has to ascertain if a tortious act indeed has been committed and, if that appears to be the case, which damage has been caused and how it must be repaired. Nevertheless, when the court awards the claim of the plaintiff, it only confirms that the occurred facts are to be regarded as a tortious act which, immediately on the basis of law, had formed an obligation, and this without any human intention to create such obligation.

Other legal grounds from which obligations may come to existence without any intention to produce this legal effect are an unjustified enrichment (Article 6:212 DCC), an undue performance (Article 6:203 DCC) and a benevolent intervention in someone else’s affairs (‘negotiorum gestio’, Article 6:200 DCC). The law may also create an obligation as a response to the fulfilment of a dissolving condition (Article 6:24 and 6:25 DCC) and the rescission of a mutual agreement due to a breach of contract, for instance insofar performances already had been carried out on the basis of that agreement (Article 6:271 and 6:277 DCC).

Of course the person who has obtained a claim derived from law is not compelled to use it against the debtor. He is only entitled to demand compliance.

Persons may also deliberately create obligations between them. They intentionally perform a juridical act, knowing that the law will respond to it by creating one or more obligations among them. The most important juridical act from which obligations may arise, is an agreement (contract). When two persons enter into an agreement with each other, the law says that one or more obligations will be formed between them, simply because the involved parties desire so. That’s the legal effect (obligation) of this juridical act (agreement). And that’s the legal effect that parties wanted to achieve with their agreement. Obligations derived from an agreement are, in contrast to obligations directly appointed by law, always the consequence of the fact that two parties have stated towards each other the common intention to create one or more obligations between them. Because the debtor and creditor are from the beginning involved in the making of these obligations, they are able to determine their content and effects. This means that the content of their legal bond, contrary to obligations which are derived directly from law, is not firstly set by law or court, but by parties themselves. Their arrangements indicate what they have to perform and what they may and may not expect from each other. Of course, these arrangements may not come in conflict with statutory provisions of mandatory law. If they do, then the content of their agreement is replaced by the content of these mandatory statutory provisions. This may even have the result that an agreement of another type than the intended one has been concluded or that no agreement at all has been brought about when it is obvious that one of the parties would not have entered into an agreement that would not enclose the arrangement which appears to be null and void. As far as their agreement is valid, not only the arrangements made by parties themselves form a part of its content, but also statutory provisions of permissive (additional) law. Usually parties will not have made an arrangement for all possible subjects that might become important. When such a subject comes to the surface, they may still agree mutually how to deal with it. But often they have non-compatible interests, so they can’t come to terms on it themselves. In that case parties (or one of them) can put forward a statutory provision of permissive law that is covering the issue. Both parties are bound by that statutory provision, so that it forms a part of the content of their agreement as well. If no such statutory provision is available, the question must be solved by rules of unwritten law, like common practice (usage) and the standards of reasonableness and fairness. Within the system of Dutch civil law these standards only play an additional role when neither the agreement itself, nor permissive law offers a possibility to fill the gap. After the content of the agreement has been determined in the before mentioned way, it’s conceivable that its outcome (the issue as it is set under the agreement or a statutory provisions of permissive or mandatory law) is so detrimental to one of the parties, that to standards or reasonableness and fairness it would be unacceptable to bind him to it. In that event this specific outcome has to be set aside in favour of a more reasonable and fair solution.

Tort

When a person violates someone else’s property right, for instance by using his movable or immovable thing without his consent or by destroying or damaging it, the proprietor may demand that this violation stops and that the inflicted damage will be compensated (Article 6:162 (1) DCC). It doesn’t matter whether this other person deliberately or by accident caused the damage. Merely the fact that he has inflicted damage to the proprietor by violating his property right, makes him liable, unless he proves there is a justification for his behaviour. The same applies when a person has inflicted damage to someone else by an act or omission in violation of a statutory duty or in violation of a rule of unwritten law imposed by proper social conduct. So when a person has not directly violated someone else’s property right, but his behaviour is considered to be unacceptable according to common opinion or he has been neglectful in an unacceptable way, he is liable as well for the damage caused. If a person, for example, had forgotten to close a trapdoor and, due to this neglect, someone else got hurt, he may be liable for damages on the basis of tort when his behaviour was, in the circumstances according to common opinion, so careless that it is justifiable to make him accountable for the negative results (Article 6:162 (2) DCC).

Dutch civil law doesn’t make a distinction between the various forms of extra-contractual responsibility between persons, known as delicts and quasi-delicts. A delict can be defined as a wrongful act which causes damage, and for which the harmed person is entitled to a compensation. A quasi-delict is a negligent act or omission which causes harm or damage to the person or property of another, and thus exposes a person to civil liability in civil law jurisdictions, as if the act or omission was intentional (a delict). In some civil law systems (for instance Scotland) delict and quasi-delict form a separate source from which obligations may arise when someone has been harmed in his personal life, health or property. It’s similar to the common law concept of tort, but nevertheless it differs from it in many substantive ways. The name ‘quasi-delict’ refers to a group of actions of no obvious similarity, except that they already were classified under the ancient Roman law as analogous to delictual obligations. It includes Res Suspensae, things poured or thrown, shippers, innkeepers, stable keepers, and erring judges. Quasi-delicts always concern an unintentional wrong, similar to the common law concept of negligence, but again it also differs from it in many ways. The civil law of the Netherlands, just as the civil law of Germany and Austria, does not separate delict and quasi-delict from tort. When damages arise outside a contract as a result of either intentional or negligent infliction of harm on the life, health or property of a person or the violation of a legal interest which is protected by law, the person who has suffered the harm can ask for compensation on the legal ground of tort, and therefore has acquired an obligation by law. Whether a person has damaged someone else’s interests wilfully or as a result of negligence makes no difference. Both situations are covered by the Dutch concept of 'tort' and have the same legal effect, namely the creation of an obligation to repair the damage.

A tortious act can be attributed to the person who committed it (this person is called a ‘tortfeasor’) if it is due to his fault or to a cause for which he is accountable by virtue of law or generally accepted principles (Article 6:162 paragraph 3 DCC). This last criterion basically means that the court takes all relevant and proven facts in consideration and decides on that basis whether the acting person is liable for damages in view of common opinion. When the court thinks that a tortious act has been committed, it merely validates that an obligation has been created by law on the basis of this legal ground. Secondly, it has to establish which damage has been caused as a direct result of this tortious act. Only this damage is eligible for compensation. Thirdly, depending on what the injured person has claimed, the court will determine what the tortfeasor has to do to repair the damage. The tortfeasor may be ordered to return the property or to carry out a specific performance, like the payment of a sum of money or the restoration of a property in its original condition. It’s conceivable also that he has to publish a correction of his earlier statements in a newspaper or that he is order to refrain himself from specific actions on the penalty of a fine. In the end the content and nature of an obligation based on tort are settled by court, thereby taking into account as much as possible the form of compensation that the injured person has requested.

Undue performance

When someone has carried out a performance to another person, while afterwards it becomes clear that he wasn’t legally compelled to do so, he may demand its restitution from the recipient or, if that’s no longer possible, the payment of an equal compensation in money. This legal ground (juridical fact) is called an ‘undue performance’. The legal effect which the law ties to this juridical fact is the formation of an obligation between the performer and the recipient (Article 6:203 DCC). The reason behind this statutory provision is that it is considered to be unjust when someone gains an advantage at the cost of another person although he is not entitled to it in any way and the performer, if he had known better, would not have given him this benefit because there was no legal ground or reason for him to grant this performance. It’s therefore reasonable that the occurred facts, which have set in, have to be corrected, which is done by creating an obligation between them to repair the result of the undue performance. Consequently an obligation arises between the performer and the recipient as soon as it’s clear that the recipient, without any justification, received a performance from the other. The law itself ties this legal effect directly to the occurred factual circumstances, without taken into account the intention of the involved recipient and performer with respect to the creation of this obligation to make the undue performance undone. Of course, the performer doesn’t have to invoke his obligatory claim against the recipient. He can always waive his right. But when he wants to claim his performance back, he is entitled to do so, irrespective of what the recipient wishes.

Example:
Pim owes € 100,000 to Sabine. Accidentally he orders his bank to transfer this sum to the bank account of Karel and not to that of Sabine. Pim’s bank indeed makes a deposit to Karel’s bank account. That Sabine still can claim payment from Pim is clear. Her obligatory claim isn’t satisfied by the payment of an amount to someone else. The fact that Pim transferred the amount to the wrong account isn’t her fault. But can Karel keep the sum of money which he wrongfully received, since he’s neither to blame for this payment? He neither was involved in it. May he withdraw the money rapidly from his account and spend it? The answer must of course be negative. Pim has mistakenly, without any legal ground, paid € 100,000 to Karel. There was no reason for him to do so. Possibly he even doesn’t know Karel. The payment is therefore unduly. Karel must have known this, because he absolutely had no reason to think that Pim owed him this sum of money. Under these circumstances the law states that Karel unjustifiably received the amount and has to pay it back to Pim. In other words: the law imposes a debt on Karel to return the undue payment and at the same time creates a corresponding obligatory claim in favour of Pim enabling him to demand the return of this performance (obligation) in court. Should Karel meanwhile have spend the money he unjustifiably received from Pim, then this doesn’t dismiss him of his obligation to pay back the unduly obtained amount to Pim. The law creates, purely on the basis of the actual events which have taken place (these facts form an undue payment and therefore the juridical fact or legal ground from which the obligation arises), so without that Pim and Karel have reached an agreement on this, an obligation between them, which forces Karel to make a repayment to Pim with regard to the undue performance (that obligation is the legal effect of this juridical fact).

Often an undue performance shows itself when the juridical act, which formed the legal basis for the fulfilment of one or more performances, afterwards appears to be invalid, for instance because it was null and void from the beginning or it was voidable and has been nullified later by one of the parties with retroactive effect. The parties to an agreement, for instance, thought that their mutual agreement ordered them to deliver the sold property and to pay the purchase price. So they did fulfil these performances in the execution of their agreement. Later, however, this agreement appears to be voidable. One of the parties nullifies it with retroactive effect. This means that, according to law, this agreement never existed. Therefore it can’t be seen as a legal ground for the performances which in the meantime were carried out on its basis. There has never been such a legal ground, and thus neither any justification for these performances. The delivery and payment are to be regarded as an undue performance. As soon as the actual situation meets the conditions of an undue performance, the law creates - ipso jure - an obligation between the person who received the performance without any justification and the person who has carried out this performance at his own expense. The recipient has to undo the performance by returning the received property to the performer or, when he is not able to do so, by paying an equivalent sum of money. Nor the performer (creditor), nor the recipient (debtor) has meant to create this obligation, let alone an obligation to undo the performance which was carried out without any legal ground. There is no mutual intention or consent to produce this legal effect. It just comes to existence because the law thinks it’s a reasonable solution for the occurred factual problem. That’s why the obligation directly arises from law. It’s the law which forms, purely on the basis of the actual circumstances, an obligation between the recipient and the performer of an undue performance, merely because the legislature believes that in the given circumstances the performer is helped the most when he obtains an obligatory claim against the recipient to undo the occurred injustice.

Unjustified enrichment

A person who has been unjustifiably enriched at the expense of someone else, for another reason than the reception of an undue performance, has to compensate the damage suffered by the other person as a result, but only to the amount of his enrichment (Article 6:212, paragraph 1 DCC). Where an undue performance presumes that a person intentionally has carried out a performance to another person, although, in legal reality, he was not obliged to do so, an unjustified enrichment concerns the situation in which a person more or less unintentionally has performed something which produces a loss in his property and an advantage in the property of someone else, although a legal justification for the existing situation is absent. If a person, for example, builds a house on the land of another person, then the owner of that land automatically becomes the owner of this house. This legal effect is called accession to property (Articles 5:3 and 5:20 DCC). In some situations the builder is entitled to get a compensation from the owner of the land, because the latter, without any reason, has enjoyed an advantage at the cost of the person who built the house. This may occur when the builder of the house thought that he had acquired the right of ownership of the building site, but afterwards the sale of the land is nullified with retroactive effect, so that the seller is legally considered to have been the owner of the land all the time. The builder of the house didn’t wrongfully think he had to carry out a performance on behalf of the owner of the land, as in the case of an undue performance. He never intended to deliver a performance to the owner of the house, but wanted to make a home for himself on his own land. Only because of other circumstances, for instance a rule of law implying that he has not become the owner of the land, he now is faced with the fact that he has suffered a considerable loss (costs of the house built), whereas, on the other hand, someone else, like the seller of the land who afterwards appears to have obtained a house for free, incorrectly benefits from this result.

Another example of an unjustified enrichment occurs when, at the sale of an enterprise, the buyer gets much more assets than both parties have agreed upon, because neither of them knew of the existence of additional assets or they both thought wrongly that these assets, according to law, would not also be transferred to the buyer. Again it cannot be said that the seller wrongfully thought that he legally was compelled to supply these assets to the buyer, so that an undue performance is out of the question. But it is clear that this situation proves to be a disadvantage for the seller, since the additional assets, which were his, are not included in the purchase price, whereas the assets are lavished upon the buyer for free. Merely because of the fact that one person is groundlessly enriched at the expense of another person, the law states that the person who has suffered a disadvantage of this specific situation, acquires an obligatory claim against the one who has enjoyed an advantage due to this occasion. The obligatory claim can never exceed the enrichment which the other person actually enjoyed, even when the disadvantage for the creditor of the claim was much higher. It would be unfair to impose an obligation on the enriched person to compensate all the damage that the creditor has suffered, since he isn’t to blame either for the entry of facts which have created the unjustified enrichment. For this reason he only has to compensate the advantage which he really gained without any legal cause. Once more, only the actual situation constitutes an obligation between the two involving persons. Their intention is, beside this, of no importance. That’s why the value of the claim of the creditor isn’t set according to the degree in which he has suffered a disadvantaged, but exclusively according to the degree in which the other person has effectively enjoyed an advantage. In this respect an unjustified enrichment differs from an undue performance.

Benevolent intervention in someone else’s affairs (‘negotiorum gestio’)

The legal ground, indicated with the phrase ‘benevolent intervention in someone else’s affairs’ (or ‘negotiorum gestio’), refers to an actual situation in which someone handles another person's affairs without having his authorisation to do so. The actual circumstances give the interfering person a right to manage the affairs of someone else, because the latter isn’t in the position to deal with them himself, whereas the circumstances demand that something is done in his interest. The person who takes over another person’s affairs, doesn’t act on the basis of an agreement or another juridical act allowing him to interfere on behalf of the other one. Solely the actual facts, which more or less have shown themselves accidentally, justify his intervention. Together they form a juridical fact with its own specific legal effects. One of its legal effects is the right for the intervening person to do something with or to the property of the other person, as far as this is appropriate in the given circumstances. Normally a person is not allowed to damage, take or even use the property of someone else without his consent or authorisation. He then would commit a tortious act which makes him liable for damages. But when the actual facts meet the requirements for a benevolent intervention, in the sense that the actions taken are in proportion to what is necessary in the best interests of the proprietor, then it is no longer possible to qualify them as tortious. They are now listed as a benevolent intervention, therefore as a different legal ground with its own legal effects (Article 6:200 DCC). It protects the interfering person against the legal consequences which otherwise would arise when someone is violating another person’s property or his capacity to perform juridical acts. Another legal effect of a benevolent intervention is that the interfering person has to continue to manage the other person’s affairs as long as this is required in the circumstances, until this other person is able to manage his own affairs again. This indeed is an obligation which he must comply with and for which he is accountable towards the person whose affairs he manages. If he fails to comply with it, he is liable for damages. A third legal effect, which itself is purely based on the actual circumstances as well, is the duty of the person whose affairs have been looked after, to compensate the interfering person for costs and damages made or suffered as a result of managing his affairs. Again, this obligation arises directly from law. This means that the legal ground, known as a benevolent intervention in someone else’s affairs, is a legal ground which may create one or more obligations that are directly derived from law.

Agreement

Characteristic for obligations which arise directly from law is that the creditor and debtor have come to stand into a legal relationship with each other - an obligation – without aiming at this legal effect. Merely the actual facts (juridical fact) have formed an obligation between them (legal effect). But persons may also deliberately produce one or more obligations. They can do so by entering into an agreement with each other. This is a legal ground which is recognized by law as a source for obligations. The law acknowledges the expressed commitment of parties to fulfil one or more performances as a binding agreement. Subsequently it ties to this agreement (juridical fact) the existence of one or more obligations (legal effect). This is the effect that parties intended to accomplish when entering into their agreement.

In general no formal requirements have to be observed to conclude a binding agreement. Since its legal effect (the formation of one or more obligations) only concerns the involved parties themselves, it is not necessary to put their intentions in writing and to publish them to the outside world. It’s sufficient that both parties know what is expected of them, therefore what must be performed and how and when it must be performed. An oral or even silent (tacit) agreement may express these intentions adequately. But problems may arise when parties disagree whether a binding agreement has been brought about already or what actually has been agreed upon. Therefore, after parties verbally have come to terms on their agreement, they usually fix it in a written contract so that they both are able to prove its existence and content.

Where an obligation has arisen from an agreement, its content is firstly made by parties themselves. Parties will have stipulated the performances to which they have committed themselves. This can be done extensively or briefly, but at least the essential points of the agreement must be set with mutual consent. These essential points indicate what kind of agreement has been concluded, for instance a sale contract or an employment agreement. Insofar parties have not regulated a specific subject in their agreement, the law fills up possible gaps in accordance with the statutory provisions of permissive law for this kind of agreement. When one party has committed himself to transfer his red Volvo to the other party, while the other party has engaged himself to pay € 10,000 in return, then all essential elements for a sale agreement are already present. This means that a valid and binding sale agreement has come to existence, creating two mutually dependent obligations: one for the seller to transfer the ownership of the car to the buyer and one for the buyer to pay the agreed price to the seller. It’s possible that parties have made arrangements in their agreement for various other issues, like the day and place of delivery and payment, the quality standards to be observed and the available remedies when the other party fails to comply with his obligation. But this is not necessary to be able to call their arrangements a valid and binding agreement. Where parties have not made an arrangement for non-essential elements, the law fills up possible gaps in accordance with the type of agreement that has been formed. The Dutch Civil Code provides in Book 7 (‘Particular agreements’) additional rules for the most common agreements, like sale, donation, lease, transport, employment and insurance. When a solution can’t be found in the agreement itself, parties have to retrieve to the statutory provisions set by Book 7 of the Civil Code for this specific agreement. So when the seller and buyer have forgotten to make an arrangement for the day of performance and they can’t come to terms on it afterwards, their dispute must be solved in line with the solution which Book 7 of the Civil Code offers for sale agreements. If the solution can’t be found there either, the general statutory provisions for agreements and obligations (Book 6 DCC) or juridical acts (Book 3 DCC) may enclose the answer. If it does, the legal relationship between the seller and buyer must be clarified in accordance with this solution. A lot of contracts aren’t regulated separately in Book 7 of the Civil Code or elsewhere. There are, for example, no special statutory rules for dealership agreements, distribution contracts, franchising agreements, joint ventures and other occasional contracts. This means that such agreements are only governed by the more general statutory rules of Book 6 DCC and Book 3 DCC. It’s possible, however, that no answer can be found in either of these Books. In that case the gap must be filled in accordance with unwritten law, especially in accordance with common practice (‘usage’) and the standards of reasonableness and fairness (Article 6:248 (1) DCC).

Of course, the agreement may not cross the lines which are set by mandatory law. If it does, then the entire agreement or at least the unlawful stipulation in it will be null and void or, when the violated statutory provision tends to protect merely one of the parties to the agreement, it will be voidable, so that this party may nullify it with retroactive effect. In both events the result is that the agreement or the unlawful stipulation has no legal meaning at all. Usually a violation of mandatory law doesn’t make the entire agreement invalid, but only the unlawful stipulation in it. When this stipulation falls, it creates a gap in the remaining agreement that has to be filled up again in accordance with mandatory or permissive law, common practice and the standards of reasonableness and fairness, taking into account as well the intentions of the parties to the agreement.

One has to keep in mind that the standards of reasonableness and fairness not only fill up possible gaps in an agreement, but may also set aside a normally allowed contractual provision and sometimes even a statutory provision of permissive law which otherwise would have been applicable to fill up a gap (Article 6:248 (2) DCC). Very rarely even a mandatory statutory rule of law, applicable to the agreement, cannot be tolerated by standards of reasonableness and fairness, and its effect must be excluded in that specific situation.

Publication and passage of obligatory claims

Obligatory claims work only between the creditor and its debtor. Others have in general nothing to do with it. They cannot draw any rights from it, nor can they be forced to comply with the debtor’s obligation. Thus the outside world doesn't need to know of the existence or content of such rights in personam. That's why obligatory claims don't have to be published, like (limited) real property rights in movable and immovable property, in order to come to existence. It is sufficient when the debtor knows what and when he has to perform and to whom. Consequently the publication of an obligatory claim only has to ensure that this information is available for the person under the obligation himself. When he doesn't know who his creditor is or what or when he has to perform, then one cannot expect that he carries out the right performance to the right person at the applicable time. So then it's not fair to say that he's in default.

In practice the publication of obligatory claims causes no problems. When the obligatory claim comes to existence the debtor will always know from the beginning what he has to perform and to whom. This is the case with an obligatory claim that arises directly from law, like from a tortious act or an undue payment. When parties themselves have a different opinion on this matter, the court will always announce in its judgment if an obligation has come to existence, and if so, what the debtor has to perform on account thereof and when this performance must be made. Also the identity of the creditor will in such cases automatically be known by the debtor. It's not necessary for the creditor to announce this once again to him, although the law states that the judgement of the court first has to be served on the debtor by a bailiff before it can be executed. If the obligatory claim is a result of an agreement between the debtor and his creditor, then parties themselves will have stipulated to which the debtor is obliged and to what the creditor is entitled. Also in this situation it's clear for the debtor what and when he has to perform and which person has the right to obtain that performance. The publication of the obligatory claim is in this way secured, because the person under obligation and the creditor are always informed about all the necessary information.

An obligatory claim is a property right in itself of which the creditor is its proprietor. Like other property rights it can be transferred to another person, who as of then will become the new creditor entitled to the performance which the debtor is obliged to carry out. Only when the debtor and original creditor have agreed that the claim is not transferable, this possibility is blocked (Article 3:83 paragraph 2 DCC). Very seldom also the personal nature of the performance indicates that the creditor cannot transfer his claim to someone else (Article 3:83 paragraph 1 DCC). But in general there are no obstacles for the creditor to pass his claim to another person. The transfer of an obligatory claim from one person to another is called an 'assignment'.

An obligatory claim is not a tangible or material object. It can't actually be handed over to someone else. The transfer of an obligatory claim can only mean that the creditor grants all his rights and powers, to be exercised against his debtor, to someone else, who then - instead of the original creditor – may exercise these rights and powers against the debtor. This means that the new creditor, after he has become the proprietor of the obligatory claim, may demand performance of what the debtor is indebted under the obligation. The debtor has to carry out the performance to or on behalf of the new creditor. He is no longer tied in a legal bond with the former creditor.

It is fair to say that the new creditor may only hold the debtor accountable for a default when the debtor knew or at least should have known that he no longer has to perform his debt to his original creditor, but to someone else. Only when he is properly informed about the passage of the claim it's reasonable to make him liable in his relation to the new creditor for any non-performance. This finds expression in the conditions which the law has set for the assignment (transfer) of an obligatory claim. In order to pass the claim from the property of the old creditor to the property of the new creditor, both parties have to draw up a (notarial of private) deed of assignment between them, followed by a declaration of one of them to the debtor that the claim has been transferred to a new creditor, whose identity must be mentioned at the same time. Informing the debtor about the assignment ('publication') is essential for the transfer itself. Without it, the transfer of the obligatory claim is incomplete according to law, also between the old and new creditor. As long as the passage has not been published in the required way, the new creditor cannot call himself the proprietor of the claim, since he only has an obligatory claim against the old creditor due to which the old creditor is compelled to perform all necessary formalities to pass the claim against the debtor to the new creditor. During this time the new creditor still has no claim against the debtor himself.

The above mentioned way of transferring obligatory claims only applies to claims to name. A claim to name is an ordinary obligatory claim. All obligatory claims arising from a legal source, like from an agreement, a tortious act or an undue performance, are initially claims to name. The indication ‘to name’ does not refer to any registration of the claim, but merely to the name of the creditor to whom the debtor must deliver his performance. The debtor must always know the name of the person who may claim performance of him. That’s why for an assignment of a claim to name it is necessary that the debtor is informed about the identity (name) of the new creditor.

The original creditor may have stipulated from the debtor that he is allowed to transfer his claim in future to someone else, even though he does not now yet who this person might be. To make the transfer of the claim more easy, the debtor and creditor may draw up in advance a document in which the debtor declares that he will perform the indebted performance to any person who shows him the document at the moment on which the claim has become due and demandable. By doing so, the claim to name has been made payable to bearer. ‘Payable to bearer’ refers to any negotiable instrument that forces the debtor to perform what he is indebted under his obligation to the bearer of that document without requiring proof of his identity. To make sure that the debt is not paid just to anyone who may fraudulently or by mere accident has obtained possession of that document, the debtor and original creditor may stipulate furthermore that the name of the new creditor must be mentioned on the document itself, together with the signature of the previous creditor, from which follows that he has confirmed the transfer. In that case the claim to name is converted into a claim payable to order. Payable to order documents are negotiable instruments on which generally is written: "pay to X (the name of the original creditor or of the new creditor that still has to be written on the paper in future) or order." So a claim to order distinguishes itself from a claim to bearer because it needs an endorsement.

The transfer formalities of a claim to order or to bearer look like the formalities necessary to transfer a movable thing. The claim passes to the new creditor as soon as the former creditor hands over the negotiable document to the new creditor (in case of a claim to bearer: provided that the former creditor has put the name of the new creditor on the document). By holding the document in his actual power, the new creditor presents himself to everybody who has to observe his right – this is in fact only the debtor under the obligation – that he is the proprietor of the claim. It belongs to him. Merely by presenting the document to the debtor, he may and is able to collect the indebted performance on his own behalf.

Limited property rights vested on an obligatory claim

An obligatory claim gives its proprietor (the creditor) the enforceable power to demand a certain performance form a specific person (the debtor), who has to carry out this performance to him. Because it can only be exercised against this one person, it is not a real property right. Nevertheless also obligatory claims have some characteristics of a real right. The obligatory claim only belongs to the creditor and only he is allowed to exercise the rights and powers embedded in it, like collecting the performance which the debtor has to fulfil and taking legal actions if his debtor fails to perform. Other people aren't allowed to disturb him in exercising these rights. When they wrongfully present themselves to the debtor as the one to whom the performance belongs or when they try to persuade the debtor to break the agreement with his creditor, they even may act tortious against the proprietor of the obligatory claim, which could result in a liability towards him for damages, in the same way as they would have been when violating someone else's real property right. When looking at an obligatory claim from this perspective, one might say that it forms an independent property right in itself, which exclusively belongs to its proprietor, the creditor. In some situations the law recognizes that an obligatory claim can be looked at this way. It acknowledges that the creditor has the possibility to split off certain powers of his right and to grant them to someone else. Just like the proprietor of a real property right, the creditor has two options. First he can give a third party a personal right of use of some of the powers locked up in his obligatory claim. He then has engaged himself towards this third person to carry out a specific performance, namely to tolerate that this third person makes use of the powers embedded in his claim (open system of the law of obligations). The weakness of such an obligatory right has been mentioned earlier. It works only between the creditor and the third party mutually. The third party obtains just a claim against the creditor, but not against the creditor’s debtor. Only when he receives the entire obligatory claim under an assignment (transfer) he may address the debtor directly to perform the debt to him. But a third party is not always interested in obtaining the whole obligatory claim of another, while the creditor not always wants to dispose of his entire claim. The law has taken this into account and opened the possibility to split off two different limited property rights of an obligatory claim: a usufruct and a pledge. In that case an obligatory claim forms the object on which the limited property right is established. The limited proprietor (usufructuary, pledgee) may address himself immediately to the debtor of the encumbered claim to collect the performances which are granted to him by the creditor under the created limited property right. The claim itself, although stripped to a smaller amount of rights and powers, remains with the creditor as his property.

Usufruct of an obligatory claim

The creditor who is entitled to obtain a performance from his debtor, can establish a usufruct on his claim in favour of another person. The one who acquires the usufruct (usufructuary), is competent to use the obligatory claim (the object of his limited property right) instead of the actual creditor ('naked' proprietor), and he also has the right to draw the fruits produced as a result of the claim. Where the claim gives the creditor the right to use a certain thing of his debtor, this right of use will now be exercised by the usufructuary. It has to be mentioned, however, that in practice hardly ever a usufruct is vested on such a claim. The lessee who under a lease agreement has obtained a claim against the lessor (owner of the leased out immovable thing) to make use of his property in a certain way for the agreed time, may grant a third party the use of (parts of) that property, but he will nearly always proceed to do so by means of a sublease agreement or, if the sublessee is not obliged to pay a counter performance, through a loan of property agreement. Where a usufruct is established on an obligatory claim it usually solely involves the right of the usufructuary to draw the civil fruits from the claim. Civil fruits are the periodic benefits which result from the claim and to which the actual creditor originally was entitled. Depending on the nature of the obligatory claim one may of think of interests (financial claims, bonds), dividends (stock, shares, securities), annuities (warrants, several insurances), the monthly rent (hiring, tenancy, lease) and other financial compensations. After the establishment of a usufruct on an obligatory claim, such civil fruits, insofar they become due and demandable during the existence of the usufruct, do not belong to the actual creditor, but to the usufructuary. The debtor must pay these civil fruits directly to him. Obviously the debtor only knows that he has to pay these benefits to the usufructuary, and not to his original creditor, if he has been informed of the establishment of the usufruct. The requirements for establishing a usufruct on an obligatory claim consist of a (notarial or private) deed, drawn up between the creditor and usufructuary, followed by a notification thereof to the debtor, mentioning as well the identity of the usufructuary to whom the debtor as of then must perform.

Pledge on an obligatory claim ('disclosed' and 'undisclosed' pledge)

A person entitled to an obligatory claim may demand performance of his debtor. So the debtor still has to pay a sum of money or deliver some goods to him. This means that his claim has a financial value. An obligatory claim may accordingly serve as collateral for the creditors of the proprietor (creditor) of that claim. His creditors, to whom he has a debt himself, may want to secure their claim against him by establishing a pledge on his claim against his own debtor(s). A creditor with a pledge on a claim knows that the performance which the debtor has to perform, will exclusively be for this creditor’s benefit only, in the sense that the debtor is obliged to perform his debt immediately to the pledgee (the creditor of his own creditor). Of course the pledgee deducts these earnings directly from the performance that the pledgor has to deliver to him. So instead of the performance of the pledgor himself, the pledgee obtains an alternative performance of another person, the debtor of the pledged claim. With this alternative performance the pledgor settles his debt to the pledgee, while the debtor of the pledged claim at the same time settles his debt to the pledgor.

Because a pledge is a limited property right, it has real effect within the legal sphere of the proprietor (pledgor) of the encumbered claim. Even when the proprietor of the claim (pledgor), who himself still has a debt to the pledgee, would go bankrupt, the pledgee may keep collecting on his own behalf all performances of the pledged claim from the debtor. He does not need to share the received or future performances with other creditors of the proprietor of the claim (pledgor). Neither does he have to give what he has collected or will collect to the liquidator in the pledgor’s bankruptcy.

Example:
Arie is entitled to an obligatory claim towards Bert for the payment of € 100,000. Bert has on the other hand a claim against his own debtor, Christel, for the payment of € 95,000. At a certain moment Bert establishes in favour of his creditor Arie a pledge on his obligatory claim against Christel. In principle, as soon as pledgee Arie demands this, Bert's debtor Christel can no longer pay her debt of € 95,000 to her actual creditor Bert, but she must pay it to Bert's pledgee, thus to Arie, who obtained a pledge on Bert’s obligatory claim against Christel. Let's assume that creditor Bert (pledgor) goes bankrupt before debtor Christel has paid her debt in full under the pledged claim to pledgee Arie. In the relationship between pledgee Arie and pledgor Bert the pledge on Bert's obligatory claim against his debtor Christel has real effect. This means that pledgee Arie can uphold the powers in his pledge against everybody within Bert’s legal sphere, so also against Bert’s other creditors and the liquidator in Bert’s bankruptcy. The pledge provides him the right to recoup his claim of € 100,000 against Bert with priority from the pledged claim which Bert has against Christel, thus prior to all other creditors of Bert. The result is that Christel still has to pay her entire debt, which she in fact owes to her own creditor Bert (total amount € 95,000), to pledgee Arie. Because the pledge has real effect within the legal sphere of Bert, the sum of € 95,000, which is paid by Christel, doesn't have to be shared equally by Arie among all creditors of Bert, but can be used by him entirely to recover his obligatory claim against Bert. After Arie has received a sum of € 95,000 from Christel, only an amount of € 5,000 of his claim against Bert remains unpaid. So this part has to be recouped by Arie out of the other assets of his debtor Bert. To this extent Arie has the same rights to the net sale proceedings as the other unsecured creditors of Bert. After Christel has paid an amount of € 95,000 to pledgee Arie, she is released from her debt to Bert.

But in these cases one must always keep in mind that the object of the limited property right itself is an obligatory claim that can only be enforced and upheld against one specific debtor. No one else can be hold liable for settling this debt. The real effect of a limited property right (usufruct, pledge) on an obligatory claim applies exclusively within the legal sphere of the proprietor of the encumbered claim, not in the legal sphere of his debtor. In the legal sphere of the debtor the proprietor of the claim only can operate as an unsecured creditor. Therefore also the usufructuary and pledgee on whose behalf the creditor has split off certain rights and powers of his claim, do not have a privileged position in the legal sphere of the debtor. If this debtor is not able to perform his debt, then this will affect the usufructuary and pledgee of the claim in the same way as it does the creditor of that claim.

Example:
The above mentioned example has a different result when not pledgor Bert, but his debtor Christel would go bankrupt before she had paid her debt to her creditor Bert or, after the establishment of the pledge, before she had paid her debt to pledgee Arie. Creditor Bert had only an obligatory claim against his debtor Christel. Bert's obligatory claim misses real effect in Christel’s legal sphere. So when Christel goes bankrupt, Bert's claim isn't settled prior to the claims of the other creditors of Christel. Bert participates as unsecured creditor for equal parts in the proceeds of all assets of Christel, in so far these aren't burdened with a real security right or privilege on behalf of one of Christel’s other creditors. Does Arie, because of his pledge on Bert’s claim against Christel, obtains priority in Christel’s bankruptcy? In other words: is Christel or the liquidator in her bankruptcy obliged to satisfy Bert’s claim prior to those of all other creditors, because Bert has encumbered his obligatory claim against Christel on behalf of Arie with a pledge? Of course not. The pledge which Bert has granted to Arie does not provide Arie with any privileged position within the legal sphere of Christel. Arie must wait and see how much his debtor Bert gets paid in the bankruptcy of his debtor Christel. So when the obligatory claim of Bert against Christel is paid for only 10 %, then Arie is bound to this result too. As pledgee he is towards Bert and his other creditors exclusively entitled to collect the performances coming from the pledged claim, but where these performances themselves only amount up to 10 % of the value of that claim, he will not collect more.

Although the debtor always has to know to whom he has to perform his debt, it is possible to establish a pledge on an obligatory claim without notifying the debtor thereof (‘undisclosed pledge’). In that case the debtor, who is not aware of such a pledge, still has to perform his debt to his own creditor. The creditor ensures that the received performances are handed over or paid to his own creditor who has an undisclosed pledge on his claim. The pledgee is, however, entitled to change the undisclosed pledge into a normal pledge by notifying the debtor of the existence of his pledge. As of then the debtor has to pay the indebted performance exclusively to the pledgee, and not to his own creditor. If he does anyway, he will not be released from his debt towards the pledgee. The formalities for the establishment of an undisclosed pledge lack any form of publication. It’s sufficient that a notarial or registered private deed is made between the creditor (proprietor of the claim) and pledgee. The debtor of the claim doesn’t need to get informed. Because an undisclosed pledge has real effect towards the other creditors of the pledgor and towards the liquidator in his bankruptcy, it must be certain that it was established on (as of) a specific date. Otherwise it would be possible to backdate the establishment of the pledge to the detriment of the other creditors of the pledgor. Therefore it is necessary that the undisclosed pledge is written down in a notarial deed (which is registered always) or in a registered private deed (which is registered by the pledgee at the Dutch Tax Authority (IRS)).

One has to be aware, however, that this registration doesn’t mean that the undisclosed pledge is published in any way. Neither the debtor of the pledged claim, nor the other creditors of the pledgor have the possibility to check whether such a registration has taken place. The notary is not allowed to provide this information to other persons than the involved pledgor and pledgee. Neither is the Dutch Tax Authority. A registration of a private deed at the Dutch Tax Authority simply means that a civil servant marks in his own computer system that he has received that deed on a specific day. After he has put a marking stamp on the private deed, he sends it back to the pledgee. There is no public register where undisclosed pledges can be recorded. Nevertheless, after the pledgee has disclosed his pledge, the other creditors of the pledgor have to acknowledge that it existed as of a certain date and that all claims falling within its scope exclusively must be performed to the pledgee. In that way an undisclosed pledge has retroactive effect up to the moment on which it was established, even though it was not published then. The rule that a person only has to observe someone else’s (real) right if it has been published sufficiently, so that they could have been aware of its existence, does not apply in this case, simply because the Dutch banks used their political influence to push this rule through.

Limited property rights derived from a limited property right vested on a claim

Dutch civil law recognizes that it is possible to split off a limited property right of a limited property right that has been split off of an obligatory claim. But, since only a usufruct and pledge can be vested on a claim, while a pledge in itself is not eligible to be encumbered, this simply means that it is possible to establish a pledge on the usufruct of a claim.

Such a pledge may be a disclosed one. This requires the making of a (notarial or private) deed between the usufructuary (pledgor) and the pledgee, followed by a notification to the debtor that a pledge has been established on the usufruct of the claim from which his obligation results. This debtor had already been informed of the existence of the usufruct. As of then he will have performed his debt to the usufructuary. Now he receives the message that the usufructuary has burdened his usufruct with a pledge, so that the performances from that moment have to be made to the pledgee.

A usufruct can be burdened as well with an undisclosed pledge. This must be effectuated by means of a notarial deed or a registered private deed between the usufructuary and the pledgee. The debtor, who already had been informed about the establishment of the usufruct, doesn’t have to be told of the existence of the pledge. As a result he still has to perform his debt to the usufructuary of the claim, until the pledgee converts his undisclosed pledge into a disclosed pledge by telling the debtor of the existence thereof.

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