Limited Functionalism

The mortgage system for means of transport has little to do with the idea of functionalism as generally understood in the context of systems of security rights. A mortgage can be used for just one purpose, to create a security right of just one type, that is, a charge over a means of transport with respect to which a mortgage is registered. Besides, legislation provides exhaustive lists of mortgageable means of transport. A seller’s right based on a retention of title clause or a lessor’s right under a leasing agreement cannot be registered, and need not be registered for effectiveness against third parties.[1]

As a general proposition, though, Finnish law on security rights subscribes to functionalist thinking. This can be seen in the underlying aim, namely, to afford similar treatment to arrangements that pursue similar economic purposes. Two examples may serve as an illustration: First, the same third-party effects as by using a retention of title clause can be achieved by a clause on the right to recover the object of sale if the buyer fails to pay the purchase price. This is so because the clauses have a similar economic purpose.[2] Thus, the seller’s protection against, say, the buyer’s other creditors does not depend on resorting to concepts like “title” or “ownership”.[3] Second, a (non-possessory) security transfer of ownership is not effective against the transferee’s creditors because such a transfer has a similar economic purpose to a possessory pledge. Effectiveness would thus enable circumvention of the possession requirement concerning pledge, and the policy according to which this requirement is needed for publicity purposes.


  • [1] See Wassgren 2004, 564-565. He discusses the risk and unexpected consequences of a financiallease being recharacterised as hire purchase.
  • [2] See Tepora, Kaisto and Hakkola 2009, 370-373. They go a step further, suggesting that a retention of title clause and a recovery clause can be seen as indistinguishable not only as to economicpurposes but even as to legal content.
  • [3] Bankruptcy Act (120/2004), Chapter 5 Section 7. See HE 26/2003, Hallituksen esitysEduskunnalle konkurssilainsaadannon uudistamiseksi [Government Proposal 26/2003], 75. Cf.the outdated judgment of the Finnish Supreme Court 1983 II 132, where a recovery clause wasregarded as “obligational by nature”, and therefore effective only between the seller and the buyer.Furthermore, unlike in bankruptcy (collective liquidation proceedings), in enforcement (debtrecovery proceedings), a seller with retention of title is not protected “as the owner” of the objectof sale. That is, the object can be distrained against and realised, and the seller is protected “only”by way of a priority position in distribution of the realisation proceeds. See the Enforcement Code(705/2007), Chapter 4 Section 15.
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