What is a collateral transfer?


Collateral transfer is a clause in the contract and constitutes protection of contractual claims. It consists in the fact that the debtor, on the basis of the contract, transfers to the creditor the ownership of a specific asset with the permission for the creditor to satisfy himself from this thing in the event that the debtor fails to fulfill his obligations. An important aspect is the fact that the debtor still has the right to own and use the item.

Although the Civil Code does not directly regulate the issue of transfer of title to security, the legal basis of this institution has been regulated in numerous normative acts, including in banking law, in which there is a clause according to which the security of receivables may be obtained by transferring to the bank by the debtor the ownership of a movable property or securities until all obligations to the remitter are made.

Transfer of ownership for security - variants

There are several different variants of a security transfer. The collateral may be transferred to the property:

  • On a dissolving condition - in this case, the contract should contain a clause that if the debt is repaid, the transfer of ownership for security loses its force and the secured item automatically returns to the owner;

  • Condition precedent - the content of the contract includes a condition that the transfer of ownership of the item to the creditor will take place only when the debtor fails to repay the debt;

The choice of the method of transfer of ownership exists only when the object of the transfer is a movable property.

Transfer of ownership for security - legality

The legality of this type of protection of claims is emphasized by the statutory principle of freedom of contract.