3.3 The Retroactive Effect of the Fixation Principle

Let us go back to the example used in subsection 2.3. On the day of the transfer (10 May), the notary examines the Central Insolvency Registry (CIR) for A’s insolvency at 10 AM (and finds that A is not bankrupt at 10 am). Hence, the notary signs and submits the notarial deed at 11 am and receives the confirmation of registration on 11.01 am. However, at 3 pm on the same afternoon, A is declared bankrupt by the court. The legal effect is that A lacked the right to dispose of the immovable property as from 0:00 hour on that day. This means that B never acquired the immovable property. In these circumstances, if payment took place simultaneously with the transfer of the immovable property (at 11.01 am), this purchase price would form part of the insolvent estate. This means that B would be left with an unsecured claim against the estate. This result would naturally not be in accordance with the duty of the civil law notary to ensure that the buyer becomes the full and unconditional owner of the immovable property. For this reason, the seller cannot request payment at 11.01 am. Instead, the notary uses a method laid out by the Royal Dutch association for Notaries (Koninklijke Notariële Beroepsorganisatie: KNB) in the regulation concerning the delivery of registered property (Reglement rechercheren registergoederen). This regulation dictates that the notary, when assisting in the delivery of immovable property, is obliged to examine the CIR three times. The first examination (eerste recherche) takes place well before the transfer is conducted. Most often, this examination takes place when the buyer and the seller first establish contact with the notary. The second examination (herrecherche) takes place shortly before the transfer, preferably on the day of the transfer itself. In our example, the examination of the CIR at 10 am is the second examination. The third examination (narecherche) must be conducted the day after the transfer. By conducting this third examination, the notary will spot A’s bankruptcy on the day after the transfer (11 May). The CIR usually displays a bankruptcy at the latest the day after the bankruptcy judgment. If the notary finds that B did not acquire the immovable property due to A’s bankruptcy, the notary will not release the money to A. Instead, the notary will reimburse the purchase price to B.

The civil law notary that fails to comply with these provisions, is exposed to two risks. First of all, the buyer can successfully hold the notary liable on the basis of breach of contract.1 Secondly, the notary may receive a disciplinary penalty by the disciplinary court.2 It must be noted that many insurance policies (for professional liability of notaries) explicitly provide that liability caused by failure to examine in accordance with the prescribed way of conduct (as laid down in the Reglement rechercheren registergoederen) is not covered by the insurance. It stands to reason that this is a strong incentive for the notary to abide by these rules of conduct.

It should be noted that the retroactive effect of bankruptcy as laid down in section 23 Fw, is considered as a serious obstacle by notaries. The retroactive effect plays a similar role in the context of trading shares in a company. For this reason, many scholars, the KNB and several other organizations that represent the interests of banks and lawyers, argue that the retroactive effect of bankruptcy should be abolished.3

Given the procedure as set out above, the delivery and the payment do not actually take place at the same time. This, despite the fact that the Dutch Supreme Court stated that the delivery of the immovable property and the payment of the purchase price must occur simultaneously. Usually (i.e. in around 99,9% of the cases) the transfer is complete as soon as the notarial deed is submitted to the public land records. However, the earliest possible time for payment is one day later, after the third examination of the public land records and the CIR has shown that the buyer actually became the owner on the day before. This discrepancy gives rise to the question of when the seller is entitled to the purchase price and hence at what moment the creditors of the seller can take recourse on the purchase price by attachment on the notary’s client account.4

Furthermore, it must be emphasised that there is a possibility that the notary fails to notice that the seller has been declared bankrupt with the third check. One can never be 100% sure that a bankruptcy is publicised in the CIR one day after the debtor has been declared bankrupt by the court.5 In the context of the example in subsection 2.3; there is no guarantee that A’s bankruptcy will be published in the CIR on May 11th. This possibility implies that there might be circumstances under which the notary is not capable of reimbursing the purchaser of the immovable property in case the seller was bankrupt at the time of the transfer. This possibility exists, because the notary releases the purchase price on May the 11th, whereas A’s bankruptcy may only become apparent on May the 12th. This is not in accordance with the proper fulfilment of the notary’s job to ensure that both parties fully fulfil their obligations as formulated in the Baarns beslag-judgment and the concerning regulations by the KNB. This possibility of misfortune raises the question of if and how B is protected, if this situation occurs. Since there is no case indicating that this situation has already occurred, the only solution is to make an educated guess. In these circumstances, it could be surmised that B would successfully hold the notary liable because the notary would have failed to ensure that B received the full and unencumbered ownership of the immovable property. Furthermore, B would have run the risk that they would not obtain the immovable property and would be left with an unsecured claim on the insolvent estate. This risk could in principle have been avoided by the civil law notary (this is the other criterium according to the Baarns beslag-judgment). The risk could have been avoided, because the civil law notary could have waited a few more days before releasing the purchase price to A. However, due to the fact that the notary did adhere to the prescribed rules of conduct (amongst which the regulation provided by the KNB), the insurance company would most likely cover the loss. But what would happen if the insurance company did not? Or what if the notary made a mistake and, for instance, forgot to examine the CIR on the day after the transfer? How is this legal gap filled in other jurisdictions?