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Enforcement of a Security Interest

Freedom of contract is the general rule governing contractual relations between the parties under Polish law (art 3531 of the Polish Civil Code). Thus the parties are free to create terms of their agreement as long as they do not contravene statute or principles of community co-existence (art. 58 of the Polish Civil Code). However, by choosing to secure his interest in a form of a real right the creditor limits himself to the closed list of the real rights which includes the registered pledge. Furthermore, in cases of interests secured by the real rights generally no latitude is given for the parties as to the enforcement method. Yet in cases of the registered pledge parties have limited range of freedom as they may choose in a contract between defined remedies.

Meaning of Default

A question whether the parties are free to define the meaning of default triggering creditor’s remedies has a twofold answer. A principle of parties’ freedom applies in relation to the conditional sale agreement and the leasing agreement. In case of the leasing contract where parties did not contractually specify such default art. 70911 of the Polish Civil Code allows a financing party to terminate the contract without notice if, despite financing party’s written warning, the leasing party infringes his duties. To the contrary, in case of the registered pledge a contractual agreement does not influence the proprietary title in an object. According to art. 5 of the Registered Pledge Act only monetary claims may be secured by the registered pledge. Such pledge secures also the interest on a sum of money and incidental claims specified by the parties in the pledge agreement, as well as the cost of satisfying the creditor falling within the amount mentioned in the entry of the registered pledge. The security agreement which is the basis of the registered pledge should mention the secured claim and may determine only terms concerning relative (inter partes) relations between the parties.

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