Dr Jarosław Grykiel

Release of registered pledge by the pledgee as grounds for lapse of pledge

A registered pledge lapses when the pledgee submits a statement releasing the pledge, explains Dr Jarosław Grykiel from the Transactions group at Wardyński & Partners. Deletion of the pledge from the register is merely a declarative act.

Release of a registered pledge is a convenient legal instrument that allows the pledgor to sell an item covered by a registered pledge to a third party. Generally the pledge agreement will include a clause limiting the right to sell the pledged item. Thus effective sale requires that the registered pledge first be terminated, so that the ban on sale of the pledged item is also lifted.

One of the ways to terminate a registered pledge is to obtain a statement from the pledgee releasing the pledge securing the pledgee’s claims. Typically the pledgor will provide the pledgee some other security in exchange for releasing the pledge. This allows the pledgor to effectively sell the pledged item to a third party while avoiding the necessity to satisfy the pledgee’s claim immediately.

Under Polish law, Art. 19(1) of the Act on Registered Pledges and the Pledge Register provides that when a registered pledge lapses, it is subject to deletion from the pledge register. The law thus makes it mandatory to enter the information concerning lapse of the pledge.

The Act on Registered Pledges is not an exhaustive regulation with respect to registered pledges, however. The grounds for lapse of a registered pledge, as a type of encumbrance, is also governed by the Polish Civil Code, which includes provisions concerning release of a registered pledge by the pledgee (Civil Code Art. 246).

This position has been confirmed in the case law. The Polish Supreme Court, in a judgment dated 6 May 2004 (Case No. II CK 245/2003), clearly held that one of the grounds for lapse of a registered pledge is release by the pledgee, based on Civil Code Art. 246. Legal commentators have taken the same view.

Lapse of an encumbrance through release by the holder occurs as a result of a unilateral act by the holder, effective when the statement of the intent to release the right reaches the owner of the encumbered item.

Under the law as it now stands, there is no reason for thinking that deletion of a pledge from the pledge register, following release of the right by the pledgee, is a constitutive act (i.e. a necessary condition for lapse of the pledge).

In certain instances, nonetheless, specific regulations concerning registered pledges come into play. One example has to do with entry of a lien in the registration card of a motor vehicle; in that case, the law generally requires presentation of a legally final court order to delete the pledge from the register before the notation concerning the lien can be deleted from the vehicle registration. In such instances, the lien cannot be deleted from the vehicle registration until the court order becomes final, even though the pledgee has released the pledge and the pledge itself has already lapsed.