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Is a pledge of all property of the debtor acceptable?

Andrey Slabko, Lawyer 

The pledgee (the creditor in the main obligation) proposed to include in the contract on pledge of individually certain thing the following condition: "In case the sum received from realization of the subject of pledge, is insufficient for full satisfaction of requirements of the pledgee, it has the right to receive the missing sum, having collected on any other property of the pledger". Is such a condition permissible in the pledge agreement under Belarusian law?

We consider that this condition of the pledge agreement does not comply with the legislation of Belarus.

The basis of the pledge, as a rule, is a contract (part 1, paragraph 3 of article 315 of the Civil code of the Republic of Belarus (hereinafter-the civil code)). One of the essential conditions of the pledge agreement, of course, is the condition on the subject of the contract (the subject of the pledge). Thus, the subject of pledge must be individually defined; it means the terms of the pledge agreement must allow the parties to determine the subject of pledge from other property of the debtor. It should be noted that the pledge agreement, which does not consider any information about individually determined pledged property, can not be considered as concluded (part 2 p. 5 resolution of the Presidium of the Supreme Economic Court of the Republic of Belarus dated 27.10.2010 No. 42 "on certain issues of foreclosure on mortgaged property"). The exception is a contract for the pledge of goods in circulation, but this exception does not apply to the issue under consideration.

Thus, in order to answer the question of whether it is permissible to include the specified condition in the pledge agreement and whether this condition complies with the legislation of Belarus, it should be determined whether the subject of the pledge is sufficiently defined if it is expressed in the agreement as “any other property of the pledgor”.

We believe that the indication that the pledgee under certain conditions has the right to foreclose on any other property of the pledgor still does not allow to determine what property is mentioned. It should also be borne in mind that the disposal of property, as a general rule, is possible only with the consent of the pledgee (part 1 of paragraph 2 of article 327 of the Civil Code). If we assume that the condition of the pledge agreement under consideration is admissible, then the pledgor will have to coordinate the disposal of all his property.

In addition, it should be considered that proposed by the pledgee condition includes real estate (if it is owned by the pledger and is not already the subject of pledge under this agreement). At the same time, paragraph 2 of article 11 of the Law of the Republic of Belarus "On mortgage" mortgage agreement is considered concluded from the moment of its state registration, except in the case of mortgage of property to be delivered to the pledger in the future and which at the time of conclusion of the mortgage contract is not deemed created in accordance with the law.

It is important to note that in the Russian Federation from 01.01.2015 the so-called “total pledge” or the pledge of all property can be applied. According to part 2, paragraph 2 of Art. 339 of the Civil Code of the Russian Federation in a pledge agreement, if the pledger is a person carrying out entrepreneurial activity, the subject of the pledge may be described in any way that allows identifying property as the subject of pledge at the moment of collection, including by indicating the pledge of all property of the pledgor or a certain part of his property or on the security of property of a certain kind or type.

The Civil Code of Kazakhstan does not establish a “total pledge”, however, it is indicated that movable property and (or) certain categories of movable property (including machinery and inventories) that are the subject of a pledge may have a general description of the subject of pledge without requiring a specific description of pledge and without evaluating the subject of the pledge (part 2, paragraph 1 of article 307 of the Civil Code of the Republic of Kazakhstan).

Accordingly, the condition in question could be included in the pledge agreement if such an agreement were governed by Russian civil law. When regulating a pledge agreement with the civil legislation of Kazakhstan, it seems that the parties could describe only the general features of the property that is the subject of the pledge along with or if the “main” subject of the pledge is insufficient.

Thus, we believe that the condition that the pledgee has the right to foreclose on any property of the pledger, today does not comply with the legislation of the Republic of Belarus.