September 9 1999 Claims of Beneficiary in the Bankrupcty of Trustee Pöch Krassnigg | Asset Finance - Austria Asset Finance FactsHeld CommentSource FactsThe plaintiff underwrote for three house share certificates of a specific series with S, a limited liability company, which later merged with the defendant, also a limited liability company. With regard to the last house share certificate the plaintiff paid monthly instalments in the amount of Sch 2,000 until December 1991. Since July 1989 these instalments were no longer transferred to the relevant series of house share certificates so that an aggregate amount of Sch 60,000 remained with the defendant which later fell into bankruptcy.The plaintiff then filed an action against the defendant's receiver claiming the amount of Sch 60,000 including interest and seeking a declaration by the court that the plaintiff had a claim for separation and recovery of the liquidation proceeds which the bankrupt company had in I, the company in which the plaintiff's funds were invested. The plaintiff's claim was limited to the share of the liquidation proceeds representing his payments in relation to the bankrupt company's total investment of funds from house share certificates. The plaintiff based his claim on a provision in the general business conditions for the issue of house share certificates and I's articles of association which stipulated that in case of a shareholder's bankruptcy the insolvent shall cease to be a shareholder and receive the value of its share. Both parties appealed to the Supreme Court against the decision of the Appellate Court, which upheld the claim for payment but reversed the lower court's decision on the declaratory claim.Held The Supreme Court upheld the plaintiff's claim for payment and granted the declaratory relief. With regard to the plaintiff's claim for payment the Supreme Court held that the defendant had not acquired title to the money received from the plaintiff pursuant to section 371 Civil Code, which provides for an original acquisition of title to another's money if it is mingled with one's own money. Although the plaintiff's instalments were paid into the defendant's general business account before they were transferred to a trust account it was still possible to establish the plaintiff's economic interest. No other payments were made by the defendant from this business account and the funds were later transferred to the trust account so that the trustee himself treated the plaintiff's funds as another person's economic interest. The plaintiff had a claim pursuant to section 415 Civil Code (Mengenvindikation) which contains the following rules: If fungible things of the same kind belonging to different owners have been mixed up in one undistinguishable unit, co-ownership of the unit by the various owners will result. Each co-owner is entitled to receive so much of this unit as corresponds to his share.With regard to the declaratory relief the Supreme Court found there was no direct contractual relationship between the plaintiff and I, in which the defendant had invested the plaintiff's money, but the general business conditions governing the trust agreement granted the plaintiff a proportional claim for the liquidation proceeds against the defendant which was identical to the defendant's claim under I's Articles of Association. Pursuant to the Supreme Court's case law the beneficiary has a claim for separation even in those cases in which the trustee acquired from a third person the object to be held in trust. These objects not only comprise property rights but also choses in action. While the majority view assumed that a claim for separation exists the legal reasoning was subject to dissent. Since a trust agreement is similar to a commission agreement an analogy was drawn to section 392 para 2 Commercial Code which stipulates that claims based on the transaction between the agent and the purchaser have to be regarded as claims of the principal in the relationship between principal, agent and agent's creditors. Thus the beneficiary would have a claim for separation if the trustee became bankrupt.Comment Although the Supreme Court had already granted beneficaries on previous occasions a claim for separation in the bankruptcy proceedings of trustees, the decision is important because it confirms that this rule not only applies to choses in possession but also to choses in action, such as claims for payment of the value of a share in a company. Although the reasoning of the decision is neither particularly well founded nor comprehensive, one can only agree with the outcome.Source Supreme Court April 10 1997, 6 Ob 2352/96t.For further information on this topic please contact Peter Pöch or Heinz Rindler at Ortner Pöch Foramitti Rechtsanwälte OEG by telephone (+431 535 37 21) or by fax (+43 1 533 15 55) or by e-mail ([email protected]).The materials contained on this web site are for general information purposes only and are subject to the disclaimer.