7

MEANS OF SECURING OBLIGATIONS

1 GENERAL

The Russian Civil Code has a separate chapter on securing the performance of obligations. The starting provision in this chapter states as follows:

Performance of an obligation can be secured by a penalty (neustoika), a pledge, the withholding of the object, a suretyship, a bank guarantee, earnest money, and other means provided by law or contract (Art.329, para.1).

Penalties, pledges, withholding of the object, suretyship, and bank guarantees are covered in subchapters in this part. In addition, there is a provision which refers to the retention of title in the part on contract of sale. Bank guarantee is a novelty of the Code, while other means already existed in the socialist code. The Code has another provision which refers to the retention of title in a different part. If it is agreed in the contract that the title to the product is to be retained by the seller until payment or ful lment of other conditions, the seller is under an obligation not to alienate or otherwise dispose of the product (Art.491). It also allows the parties to agree on other means of securing obligations under a contract. The list of means of securing performance of obligation is by not exhaus- tive. The above-mentioned provision refers to “other means provided by law or contract”. This means that the Code does not exclude atypical security rights (see infra). Furthermore, the Law on Banking and Banking Activities provides that repayment of credit can be secured by a pledge on movables and immovables, including state and other securities, bank guarantees and other means provided by Federal law or contracts (Art.33). 246 MEANS OF SECURING OBLIGATIONS

2 REAL SECURITY RIGHTS (PLEDGE)

1) The Concept

The Russian term zalog is usually translated into English as “pledge”. The Civil Code provides that by virtue of zalog, the creditor has a right to have the claim satis ed from the assets of the debtor in priority to other creditors in case of the debtor’s default. Thus, in this context, zalog refers to security rights in general. The Code divides zalog into two categories; pledges with or without transfer of the collateral to the creditor. Zalog over immovables is known as hypothec (ipoteka), while pledges on other properties do not seem to have a speci c name under the Code. The 1992 Law on Pledge (zalog) called it zaklad. The 1998 Law on Hypothec recon rmed that zalog on immovables was hypothec. This arrange- ment was the reverse in the Tsarist law. There was no speci c term for the zalog on immovables, while zalog on movables was called zaklad.1 Pledge is regarded as a right in personam rather than a right in rem under the Code. Provisions on pledges are part of the law of obligations and not the law of property. This is different from German, French and English law, but it is similar to the Dutch Civil Code on which the Russians had modelled the Code. Those who took part in the preparation of the Code pointed out that this is indeed a Russian tradition from before the Revolution. Indeed, the Svod zakonov had provisions on security rights in the part deal- ing with contracts. Volume X (Civil Law) of the Svod zakonov was composed of four books. It started with the rights and duties of the family, followed by the procedure of obtaining and consolidating property rights in general. This part basically covered property rights. It was followed by the procedure of obtaining and consolidating property rights in speci cs. This latter part contained provi- sions on, inter alia, the obtaining of property by gift, sale, and inheritance. Book Four contained provisions on contracts. There was a chapter here which was devoted to the means of securing the performance of obligations. This included suretyship, pledges, and penalties for delay.2 Pledge was de ned as a right to receive payment from the proceeds of sale of the collateral in case of default.3 Thus, a pledge was not regarded as a right over the collateral, but rather, a right to demand that the collateral be sold and to have the claim satis ed from the proceeds. Presumably, this was why it was not made part of property law, but part of the law of obligations. On the other hand, some

1 D.I.Meier, Russkoe grazhdanskoe pravo, St.Petersburg 1902, pp.434-435. 2 Ibid., pp.43-48. 3 Ibid., p.432.