Retention of a Thing that Does Not Belong to the Creditor

The reason for writing this article was a practical situation that I recently investigated¹.

The seller needed to deliver the goods to his buyer, for which he hired a carrier.

The carrier accepted the cargo for delivery and successfully completed the order.

However, a disagreement arose between the seller and the buyer over who should pay the freight. As you can easily guess, none of the parties wanted to pay for the carriage.

The carrier, however, announced the retention of the cargo.

After some time, the situation was aggravated by the fact that the cargo, as it turned out, did not belong to the seller – it was stolen from the actual owner.

The owner demanded that the carrier release the cargo to him. The carrier refused this and informed the owner that he should pay both the carriage and the necessary expenses for the maintenance of the cargo.

The owner has a question: is the retention declared by the carrier opposed to him?

In general terms, the question is as follows: under what circumstances can a thing that does not belong to the debtor be retained? (or otherwise) – under what circumstances can a thing be retained against the claim of an owner who is not a debtor under the contract?

To begin with, I propose to briefly describe the general conditions for retention, and then move on to address the problematic issue.

1. General conditions for retention

In order for the retention to be effective, the following conditions should be met (Article 359 of the Civil Code of the Russian Federation):

(1) the retention creditor should physically own the thing,

(2) the retention creditor should have a monetary claim against the person to whom he is obliged to return the thing. This claim should be enforceable. Also, such a claim should be related to the thing (paragraph one, clause 1 of article 359 of the Civil Code). However, if the claim arose from an entrepreneurial relationship, then such a connection is optional (paragraph 2 of the same clause)².

In the presence of these conditions, the retention creditor has the right to block the demand directed against him for the release of the thing. Also, as a result of a statement of retention, he also receives a fairly strong legal position in relation to the thing: he acquires a special right in rem to it and the right to foreclose (sell the thing and keep the proceeds for himself to pay off debts).

2. Is it permissible to retain a thing that does not belong to the debtor?

2.1. Asking questions

The owner is not bound by the contract with the retention carrier. Therefore (according to him) he does not owe him any sums of money.

To assess the possibility of retention in the original case, I propose to pose three questions:

(1) does the owner really have no monetary debt to the carrier? (not from a contract, but from a different basis)?

(2) is it possible to acquire the right of retention in good faith?

(3) if, nevertheless, the retention creditor knows that his debtor is not the owner of the thing, is it possible to find such cases in which the retention creditor, despite this, will be opposed to the owner?

2.2. Owner’s debt

From an everyday point of view, we can say that as a result of the carrier incurring the necessary expenses for the cargo (for example, for necessary repairs, ensuring the safety, etc.), the owner has gained property benefits at the expense of the carrier. At the beginning of the chain is the carrier who directly performed useful actions, and at the end – the owner (ultimate beneficiary).

However, from a legal point of view, this is not the case.

Legally, it is not the owner who is enriched from the activities of the carrier, but it is his contractor – the shipper. The enrichment of the shipper is substantial (based on the contract of carriage). The owner receives the benefit legally not at the expense of the carrier, but at the expense of the shipper.

This is explained by considerations of private autonomy: the shipper and the carrier have determined by their own will that the useful actions of the carrier are to provide it to the shipper within the framework of obligations³.

Therefore, there is no legal basis to endow the carrier with a direct claim against the owner for compensation for the necessary costs incurred by him. Moreover, there are no grounds for imposing on the owner the obligation to pay an amount equal to the carriage charge (freight), since the carriage itself does not in any way enrich the owner, cannot be considered as a necessary or any other expense to maintain or improve the thing.

In addition, the carrier is not a defendant in a action in replevin (Article 301 of the Civil Code), since he possesses a thing not in his own interest (does not own it), but keeps it in someone else’s name – in the name of the shipper. In view of this, the application of the rule on settlements during vindication is excluded (Article 303 of the Civil Code).

Thus, the carrier does not have any claims against the owner, therefore, strictly speaking, he personally cannot declare retention against the owner’s demand for the delivery of the thing.

2.3. Acquisition of the right of retention in good faith

Only another right in rem can stop the owner. Therefore, the statement of retention gives the carrier a real right: the owner not only has no right to take the thing from the retention creditor, but, moreover, if he does so, the retention creditor will be able to claim the thing back.

However, in the stated situation, the carrier declares the retention not against the owner, but against the debtor (shipper), who does not have any right to it. In other words, the carrier is trying to deduce the real right for himself from the position of the shipper in relation to the thing. But the shipper has no legal position!

In science, there is an idea that not only right of ownership, but also other real rights can be acquired from unauthorized persons in good faith. This idea sometimes finds practical embodiment.

Usually, the following factors are the conditions for acquiring in good faith:

(1) the acquirer of the right is in good faith, i.e. he does not know and cannot know that it was not the owner who appeared before him (as it turns out!),

(2) the owner himself is guilty of the fact that such a situation has arisen – it was his willful or careless behavior that led to the fact that the semblance of ownership was assigned to another person (in relation to the retention in question – for the debtor, the shipper),

(3) the acquirer is reimbursable (that is, it has fully provided the equivalent of the acquired). With regard to the right of retention, it seems to me, this criterion is subject to some modification: it is necessary that the debt for which the retention is declared should follow from a compensated relationship.

I believe that there are no obstacles to the acquisition of real right of retention in good faith. If the retention creditor declares the retention to the debtor and in good faith considers it to be the owner, then in the presence of the other factors indicated above, he will receive a real right. Even if the debtor was not the owner.

Thus, the retention of a thing that does not belong to the debtor should be allowed if the above requirements are met.

With regard to the specified case, a bona fide acquisition will not take place, since the thing was stolen from the owner (factor No. 2 is not fulfilled).

2.4. Acquisition of a right of retention by a creditor who knew that the debtor was not the owner

More complicated is the question of the admissibility of retention in cases where the retention creditor knows reliably that the debtor is not the owner.

It seems to me that for this case, as a general rule, a statement of retention should not give the creditor a real right.

However, I believe that in two cases, retention can be allowed:

(1) if objectively the shipper (debtor) acts on behalf of the owner. For example, the shipper himself is the owner’s carrier and then sets the same task to the sub-carrier;

(2) if objectively there is no such order, however, for the carrier, the appearance of its presence has been created and at the same time the owner is responsible for such appearance – it was the owner who, by his deliberate or careless actions, created the impression on the carrier, a good faith expectation that there is an order.

Thus, retention in a situation where the retention creditor knows or should know that the debtor is not the owner can be allowed in one of the two situations above.

In the described case, the owner did not give any order for carriage, and also did not create the appearance of such an order. It follows from this that the retention of the thing by the carrier turns out to be impossible.

3. General conclusion

It should be concluded that the carrier is deprived of the opportunity to retain the thing against the owner’s claim. ■

Notes