Summary

In 213 A.D. Roman Emperor Caracalla determined that in accordance with the rule prior tempore potior iure, security rights encumbering the same asset rank in order of time. This means that in the context of priority disputes the first in time rule prevails. The maxim prior tempore potior iure has not lost any of its significance since then. In modern proprietary legislation the – uncodified – first in time rule determines the priority between competing security rights.

This thesis, which is divided into four parts, pertains to the function and range of the application of the first in time rule in property law. The first part focuses on the origin and development of the rule. In the second part the first in time rule is examined from a comparative perspective. As the absence of codification of the maxim is generally justified by the idea that it follows naturally from the legal system – more in particular the distinction between property and contract law – part three provides the rule with a proper motivation. Finally, the fourth part concentrates on the application of the prior tempore rule in modern Dutch law.

In chapter 2, which explores Roman law, it is discovered that the first in time rule was originally applied in the context of competing security interests. The Corpus Iuris made clear that all security rights – both pignus and hypotheca, as well as both special and general – were submitted to the rule prior tempore potior iure. The priority was settled in the order in which the rights had been created. Later developments show two contraventions on the strict application of the first in time rule. In the first place, probably as a result of the lack of publicity that caused, for example, antedating, Emperor Leo gave priority to any hypothec registered with the public authority or made formally before three witnesses. Those hypothecaries took priority over creditors with a privately created hypothec. In addition to this, the order of priority was influenced by legal hypothecs that enjoyed the privilege of priority. These security interests tended to strengthen the position of certain classes of creditors. They were created by operation of law and ranked above all other conventional security interests.

Chapter 3 shows another contravention, this one originating from customary law. According to the rule ‘special has priority over a general charge’, which could be found in the Politieke Ordonnantie during the 16th century in Holland, general hypothecs – over a whole group of properties – were considered after special hypothecs – over a special thing. In contravention to the first in time rule, under Roman-Dutch law special hypothecs took priority over general hypothecs, even if they were subsequently created. This aversion to general security interests led to the introduction of the principle of specialty in the first codification, stating that hypothecs could only be created over a single thing.

In the first Dutch Civil Code, as examined in chapter 4, not only the principle of specialty, but also publicity was implemented, taking leave of both general and legal security interests. All hypothecs had to be registered, which enabled third parties, including subsequent creditors, to verify the existence of any previous charges.

The German private law system (chapter 5) adheres to a distinction between personal and property rights. The German legislator considered the codification of the first in time rule to be unnecessary as it follows naturally from the legal system. Consequently, the application of the first in time rule is reserved for property rights. Paragraph 879 of the German Civil Code states that with regard to registered property, the order of priority is determined by the order of registration. In regard to security interests in movables, German law only allows the right of Faustpfand, with the result that the legal practice prefers the use of the transfer of ownership as a form of real security. Another main form of security is that of reservation of title. This form can be extended by combining the reservation of title clause with an additional processing clause by which the creditor allows the debtor to process the goods, but acquires ownership of the processed ones. Banks often demand that the debtor assigns all of his existing claims arising from his business. In general, the principle of priority is applied in order to solve conflicts. That implies that the anticipatory assignment of all existing claims would void any later processing clause. However, in that conflict, as far as it includes the processing clause, the right of the bank is considered to be breaching good morals and is therefore void.

The French (chapter 6) consensual transfer system does not require the transfer of possession. In principle, the consensus between parties suffices. However, in regard to registered property, registration is required for the transfer in order to have third party effect. If the transferor has contracted several parties, the ownership of registered property is passed to the party who has his right registered first. In regard to movable property, the transfer of

possession to the first contracted party prevents any subsequent party to acquire ownership based on the principle possession vaut titre. The first in time rule has no play in this priority dispute because the contracted parties do not have equal rights. After the transfer to the first party, the transferor is no longer entitled to transfer property to any subsequent party. Only on the basis of a completely different maxim, the subsequent party can acquire ownership.

Until 2006 French law, like German law, required the dispossession of the encumbered thing for the creation of security interests in movables. Nowadays parties can register the security interest, instead of resorting to dispossession. In accordance with the first in time rule, the time of registration determines the order of priority in case subsequent charges have been made. In regard to security interests in incorporeal property, the order of priority has since 2006 been determined by the order in which the contracts were made.

In chapter 7, the general view in which the first in time rule is justified by the principle of nemo plus is rejected. In my point of view the justification of the rule follows from the characteristics of property rights as opposed to personal rights. As property rights have third party effect, they prevail against subsequently created property rights. For a proper justification of the application of the first in time rule, it is required that rights are known by subsequent creditors. The publicity of property rights is not always guaranteed by the legal system. With regard to security interests in movables and – in particular – in incorporeal property the publicity loses out to the interests of business efficiency and its need for the most effective and least time-consuming way of creating security interests.

Chapter 8 concentrates on the modern application of the rule in Dutch property law. The Dutch Civil Code does not explicitly include a provision of the first in time rule. Though, article 3:21 DCC expresses the first in time rule in regard to registered property. This article applies the first in time rule by the way that rights are ranked in order of registration. If two rights are registered at the same time, the notarial deed that was drawn up first is given priority to. This exception to the first in time rule, caused by the way the land registry has been organized, goes against property law principles. In view of the possibilities of modern technology, the provision in which this exception to the first in time rule is stated should be deleted.

The DCC includes a few other exceptions to the first in time rule. They all intend to protect certain classes of creditors. Hypothecs, for example, as security for an unpaid purchase price as well as hypothecs that have been stipulated at the division and apportionment of a community of property are ranked above some other rights. Of more practical significance is the change of ranking by stipulation. In order to have complete third party effect it is assumed that everyone with a right on the same registered asset must agree with the new ranking order.

Pledges rank in accordance with the first in time rule as well. As the creation of a non-possessory pledge is not made public, subsequent pledgees are protected in such a way that they – if in good faith and in control of the encumbered thing – rank higher than the first pledgee. A provision like this causes the loss of a property right with the highest rank and is therefore objectionable. If non-possessory pledges, like in France, would have to be registered, there would be no need for such a provision. Besides, the change of ranking of pledges by stipulation would not be faced with dogmatic and practical difficulties.

Some of the first in time rule applications in the DCC do not follow from the legal system, but are simply based on the legislator ’s choice. The fact that, for example, in regard to the transfer of future property priority is given to the transferee to whom the future property had been delivered first, finds its basis in article 3:97 paragraph 2 DCC.

It should be mentioned that the first in time rule only applies in cases of mutually incompatible rights of different persons in relation to the same property. The consequence of its application depends on the nature of the right that proves to be the strongest. If the strongest right is a security interest, the creditor will sell the property unencumbered with subsequent rights, which then cease to exist. If a property right of enjoyment takes priority over others, the subsequent rights continue to exist, but must not interfere with the right of enjoyment. If necessary, the court shall order him, upon request of the entitled person, to withhold from interfering.

The DCC also includes personal rights that have some characteristics of property rights. The buyer ’s claim for the delivery of bought immovable property (article 7:3 DCC) for example, as well as qualitative obligations (article 6:252 DCC) have third party effect after registration and rank in accordance with the first in time rule. In addition, there are some personal rights, the lessee’s for example, that are protected in such a way that the rights and obligations of the lessor pass to acquiring parties. As a result, in theory, the lessee even takes priority over previously created property rights.

In conflicts between two or more creditors pursuing conflicting claims for the delivery of the same asset, the legislator explicitly opted for the first in time rule to determine the ranking order. In principle, these kind of creditors have an equal right to be satisfied. However, the satisfaction in proportion to the value of their claims is no option as the performance is undividable. Therefore, in case both creditors pursue their claim, for pragmatic reasons, priority is given to the first creditor. That means that the first creditor acquires the property. The debtor is liable for the damage, which the other creditor suffers.

The first in time rule has both typical and atypical appearances. Its typical appearances follow naturally from the legal system and originate in Roman law of security interests. Its atypical appearances are based on the legislator ’s choice. In light of three later developments – publicity, specialty, privileges – the function and range of modern application of the first in time rule can be defined. First, the introduction of land registries in the 19th century extended its application from security rights to all registered property rights. Furthermore, this kind of publicity was useful to determine the order of registration properly. Publicity is very important for the justification of the first in time rule as well. Secondly, holding on to the principle of specialty made sure that no other rules such as ‘special has priority over a general charge’ endangered the force of the first in time rule. Finally, privileges inspired by the need to protect certain creditors explain the exceptions to the rule as well as the extension of its application to other fields than property law.