Lithuania Civil Code (entered into force on 1 July 2001) Important Disclaimer This does not constitute an official translation and the translator cannot be held responsible for any inaccuracy or omission in the translation. The text should be used for information purposes only and appropriate legal advice should be sought as and when appropriate.
(Extracts) Chapter XII - Pledge Article 4.198 - Definition of Pledge 1. A pledge is the pledge of a movable property or property rights as security for a present or future debt obligation when the collateral is transferred to the creditor, a third person or shall remain in the pledgor s possession. The collateral retained in the pledgor s possession may be locked, sealed or marked to attest the pledge thereof. 2. If the debtor fails to discharge the secured obligation, the creditor (pledgee) shall have the right to satisfy his claim from the value of the collateral before other creditors on the basis of the pledge. Article 4.199 - Grounds for the Pledge 1. A pledge shall be created by concluding a contract or by law. If the pledge is created by law, the law shall state a specific property subject to pledge. 2. The provisions of this Book governing the judgment mortgage shall mutatis mutandis be applied to the judgment pledge (when a pledge is created on the basis of the law or by the decision of a court). Article 4.200 - Claims Secured by the Pledge 1. A pledge may secure the discharge of any monetary obligation. 2. A pledge is an ancillary obligation of the principal obligation. The pledgor s rights are ancillary to his, as creditor s rights, and such rights are in regard to their effect dependant upon the effect of the secured obligation. 3. Unless otherwise provided in the agreement or law, a pledge shall secure a claim to the extent it is at the time of its satisfaction, including interest, punitive interest, losses incurred due to delay, and recovery expenses, which shall be discharged first. Article 4.201 - The Subject of the Pledge 1. Movable property and property rights may be used as the subject of the pledge. 2. Such property against which the execution cannot be levied under the existing laws, as well as movable property pledged together with an immovable property under the procedure prescribed in Article 4.7171 paragraph 3 hereof, shall not be used as the subject of the pledge.
3. Unless otherwise specified by laws or by the agreement, the pledge of things shall include their appurtenances and inseparable fruits. 4. The risk of an accidental loss or damage to the property shall fall upon the pledgor, unless otherwise specified by laws or the agreement. 5. Property which will come into the pledgor s ownership in the future in cases established by law may also be used as the subject of the pledge. Execution may be levied to said property only subject to the acquisition of title to that property by the pledgor. 6. Jointly owned property may be pledged only upon a written agreement of all the co-owners. Article 4.202 - Pledge of the Stock in Circulation The pledgor who has given stock in circulation (goods, raw materials, semi-finished and finished goods) as a collateral shall have the right to change the composition and the form of the pledged stock provided their total value has not been reduced. The sale of the pledged goods to the pledgor while he is engaged in business as set forth in his articles of incorporation shall release the goods from the pledge, while new goods in stock acquired by the pledgor shall become the subject of the pledge from the moment of acquisition of the goods into ownership. Article 4.203 - Substitution of the Collateral 1. The pledgor may substitute, with consent from the pledgee(s), any collateral defined by individual characteristics by another thing, which has never been pledged. 2. The pledge of the preceding thing in the case indicated in paragraph 1 hereof shall be closed by executing the pledge of the new thing. Article 4.204. - Property Rights as the Subject of the Pledge 1. Rights to the land, forests, other items of property, i.e., usage right, tenancy right and other property rights, except for the rights pertaining to the person of the owner of the collateral, as well as the rights the pledge whereof is prohibited by law or agreements, may be the subject of the pledge. 2. In the cases provided for by law, property rights which will be acquired by the pledgor in the future may also be the subject of the pledge.
3. When the property right subject to a pledge is evidenced by securities or special documents, they shall be transferred to the pledgee, unless otherwise provided by laws or the agreement of the parties. Article 4.205 - Insurance of Collateral 1. The Law or the agreement may impose a duty to insure the collateral. 2. The agreement may also provide for the obligation of the pledgor (legal entity) to insure the collateral against liquidation or insolvency. 3. In the event of the occurrence of the events covered by insurance, the creditor with secured claims shall have the preferential right (in case of multiples pledges according to the order thereof) to be satisfied from the amount insured. Article 4.206 - The Pledgor 1. The Pledgor may be the debtor himself and a third person. 2. The pledgor shall be the owner of a collateral or a person who owns a property right subject to pledge, save for the case when the law prescribes that the collateral may come into the pledgor s ownership in the future. 3. Property rights held by several persons may be pledged only upon a written agreement of all such persons. 4. The Lessee (beneficiary of the loan-for-use) may pledge the rights pertaining to the lease (loan-for-use) of the property items only upon a written consent of the lessor (grantor of the loan-for-use). Article 4.207 - Retention of the Pledge with the Conveyance of the Collateral to Any Other Person 1. With the conveyance of the ownership of the collateral from the pledgor to any other person, the pledge shall remain valid, when the subject of the pledge has been transferred to the pledgee or when the collateral bond has been registered in the Register of Mortgages, unless otherwise provided by law. This rule shall also apply in cases when property rights are the subject of the pledge. 2. The pledge shall remain in full effect even in case of partial fulfilment of the obligation by the debtor.
Article 4.208 - Right to Inspect the Collateral 1. The creditor shall have the right to inspect the amount, state, storage conditions, etc. of the collateral, unless otherwise provided by the agreement. 2. If the pledgor infringes the storage conditions of the collateral, avoids presenting a damaged thing or present the remainder of a lost thing, the creditor shall have the right to claim to execute the secured obligation before it becomes due. Article 4.209 - The Form of the Pledge Agreement and of the Unilateral Declaration of the Owner of the Collateral 1. When a collateral is handed over to the pledgee, a written pledge agreement shall be concluded. The pledge agreement may be executed as a separate agreement or an arrangement regarding pledge may be incorporated into the agreement, giving rise to the principal obligation. 2. When a collateral is transferred to a third person or left in the possession of the pledgor, the pledge agreement and the unilateral declaration of the owner of the collateral to pledge things or property rights shall be executed by drawing up a collateral bond, which shall be certified by a notary and registered with the Register of Mortgages. 3. Failure to observe the rules provided for in paragraphs 1 and 2 hereof shall invalidate the pledge agreement. 4. The pledge agreement (collateral bond) shall be signed by the pledgor, the debtor, the creditor, and the person to whom the collateral is handed over. When the collateral is pledged by a unilateral declaration of the owner thereof, the collateral bond shall be signed only by the pledgor. 5. The pledge of things may be effected by handing over the documents granting the right to such things (bills of lading, etc.) to the creditor. Article 4.210 - Contents of the Pledge Agreement (Collateral Bond) 1. The collateral bond shall contain the following: the venue and the date of execution, the pledgor, the debtor, and the person to whom the collateral is handed over, their place of residence (registered office), description, valuation and location of the collateral (property right), the secured obligation (including interest), the specific or maximum amount, and the maturity date thereof. 2. The pledge agreement (collateral bond) may also contain other data.
Article 4.211 -Subsequent Pledge 1. If the collateral has not been handed over to the pledgee by the preceding pledge and unless the collateral bond provides otherwise, the subsequent pledge shall be allowed without delivering the collateral to the pledgee. In such cases the preceding pledge shall remain in effect. 2. The pledgor shall notify each creditor of all preceding and subsequent pledges, as well as of secured obligations and the amount thereof. The pledgor shall indemnify any losses sustained by any of the creditors due to failure to fulfil this duty. Article 4.212 - Priority of Pledges 1. If several collateral bonds regarding the same collateral have been registered, priority shall be given to the claim secured by the collateral bond registered by order of priority. 2. Claims of the creditor with a subsequent right to the pledge shall be satisfied only after the sale expenses of the collateral have been paid and the claims of the preceding creditor have been fully satisfied. Article 4.213 - Creation of the Pledge Right The pledge right shall be created from the moment of entering into the pledge agreement, if the collateral is delivered to the creditor. If the collateral is retained in the pledgor s possession or handed over to a third person, the pledge right shall be created from the moment of registering the pledge in the Register of Mortgages. Article 4.214 - Duties of the Person to whom the Collateral was Handed Over The person to whom the collateral has been handed over, shall ensure its proper safekeeping. He shall be responsible for safekeeping of this thing, unless he proves that the thing has been lost or damaged without any of his fault. Such a person shall have no right to use the collateral, unless otherwise specified by the law or the agreement. Article 4.215 - Recovery of the Collateral If the collateral ceases to be possessed by the pledgee, pledgor or a third person with control over it, the thing may be also recovered by the pledgee or the third person according to Articles 4.95-4.97 hereof.
Article 4.216 - Right to Levy Execution against the Collateral 1. The pledgee shall acquire the right to levy the execution against the collateral, if the obligation has not been fulfilled upon its maturity, however not earlier than at the expiry of twenty days after the maturity date. Any other preferred time period may be set by the agreement of the parties, however it shall not be less than ten days. 2. The creditor shall have the right to demand the discharge of the secured obligation before the expiration of its maturity date when: any other person resorts to lien on the collateral; the pledgor dies or liquidation procedure against the pledgor (legal entity) is commenced; the collateral is lost or its value has decreased by more than 30 % for reasons other than the fault of the pledgor; the pledgor prevents the creditor from inspecting the state of the collateral; the terms and conditions of the agreement regarding subsequent pledge have been breached or actions have been committed due to which the value of the collateral may decrease or recovery may become impossible. Article 4.217 -Levying of Execution against the Collateral Consisting of Two or More Things (Property Rights) If the collateral consists of two or more things (property rights), the execution may be levied against all such things (property rights) or against each of them separately. The pledgee shall enjoy the right of choice until complete satisfaction of his claims. Article 4.218 - Consequences of the Satisfaction of the Pledgee s Claims by a Third Person If the pledgee s claim is fully satisfied by a third person, the latter shall acquire, along with the right of claim, the right to the pledge. Article 4.219 - The Procedure of Execution on Collateral 1. When the debtor fails to discharge the secured obligation, the creditor s claim shall be satisfied from the value of the collateral, unless otherwise specified in the law or the agreement. 2. The creditor shall notify the debtor and the pledgor (when the pledgor is not the debtor) in writing that in case of failure to discharge the secured obligation within the time period set in Article 4.216 hereof, enforcement proceedings will commence. If the pledge has been registered in the Register of Mortgages, a written notice shall be delivered to the debtor through the mortgage office, which shall inform thereabout other persons whose names are entered in the Register of Mortgages and who are entitled to the property against which the execution is levied.
3. Having received the notice about the execution on the property, the pledgor shall have no right to sell, lease the collateral or otherwise encumber the right thereto. The collateral must be delivered to the creditor. In this case the procedure specified in Article 4.215 shall be applied to the creditor. 4. If the pledgor does not place the collateral in the possession of the creditor, the creditor may apply to a mortgage judge with the request to attach and transfer the collateral to him. 5. The creditor shall sell the collateral in the manner agreed by the creditor, the debtor and the pledgor (when the pledgor is any other person than the debtor) or the collateral shall be conveyed to the ownership of the creditor by common agreement, and in case of failure to agree shall be sold at an auction. If the property is subject to multiple pledges, it may be transferred to the ownership of one of the creditors, only upon agreement of all the creditors. The creditor shall sell the pledged securities in accordance with the procedure prescribed by laws. The proceeds received from the sale of the collateral shall be transferred to the deposit account of the mortgage office and shall be allocated according to the procedure specified by the Code of Civil Procedure. 6. If the amount received after the sale of the collateral is not sufficient to fully satisfy the pledgee s claim, the latter shall have the right to recover the remaining amount from other assets of the debtor, unless otherwise provided by the law or the agreement. In this case the pledgee shall have no pre-emption right over other creditors. Article 4.220 - Exercise of Pledged Property Rights 1. If property rights are used as the subject of the pledge, the subject of the pledge shall be exercised by conveying to the creditor the pledgor s claims arising out of the pledged right or a part of the claim equivalent to the extent of the contractual obligation, when the amount of the contractual obligation is less than that of the right of claim. 2. The creditor shall acquire the right to claim the transfer of the pledged right from the moment he acquired the right to levy execution against the subject of the pledge. Article 4.221 - Procedure of Satisfaction of the Creditor s Claims Secured by the Funds in the Bank Account of the Pledgor 1. When funds in the bank account of the pledgor were given as a collateral to secure the discharge of an obligation, upon service of a notice about the enforcement upon the debtor, the right to operate the bank account of the pledgor shall be assigned to the creditor upon a written application of the pledgor or, in case he refuses thereto, upon the decision of a mortgage judge.
2. Upon the satisfaction of the claim secured by the pledge from the funds deposited in and the receivables of the pledgor s account, the creditor s right to operate the account of the pledgor shall terminate and the creditor shall return to the pledgor the collateral bond with an inscription therein about the satisfaction of the claim. Article 4.222 - Settlements after the Sale of the Collateral 1. If after the sale of the collateral the proceeds are in excess of the amount necessary for the satisfaction of the creditor s claims, the difference in the amount must be paid to the pledgor. 2. If the collateral has been sold at a lower price due to the fault of the creditor, the pledgor shall have the right to claim the difference between the actual market price of the collateral and the price at which it has been sold. Article 4.223 - Assignment of the Claim Secured by Pledge or the Right of Claim Arising from the Pledge 1. An agreement on the assignment of the claim secured by pledge or a portion thereof shall be concluded in accordance with the rules specified in the provisions of Book Six of this Code which regulate the assignment of the right of claim. A notice on the assignment of the right of claim shall be delivered to the debtor and also to the pledgor, if the latter is a third person. 2. The assignment of the right of claim arising from a registered pledge shall be effected by way of assignment of the collateral bond by endorsement. The assignment of the right of claim shall be registered in the Register of Mortgages according to the same procedure as applicable to the pledge. Article 4.224 - Termination of the Pledge 1. The pledge shall terminate, when: 1) the secured obligation expires; 2) the collateral perishes; 3) the collateral comes in the ownership of the pledgee or the pledged rights are conveyed to the pledgee; 4) the right which is the subject of the pledge expires; 5) the creditor cannot satisfy his claim from the subject of the claim due to the expiration of lapse of time; 6) upon agreement of the parties or waiver of the pledge by the creditor. 2. When the collateral is compulsorily sold as claimed by the creditor to whom the property has been pledged, all pledges of the property shall be revoked.
Article 4.225 - Guarantees of the Pledgor s Interests 1. The pledgor shall have the right to terminate the pledge by properly discharging the secured obligation at any time when the obligation becomes due until the moment the sale of the collateral. 2. If the secured obligation may be discharged in parts, the pledgor shall have the right to discontinue the execution on the subject of the pledge by discharging such part of the obligation the maturity whereof has expired. 3. The pledgor shall have the right to claim from the creditor the compensation of the losses incurred due to the execution levied by the creditor, as well as the losses sustained due to improper safekeeping or the compulsory sale of the subject of the pledge by the creditor. Article 4.226 - Termination of the Pledge after the Transfer of the Proceeds to the Deposit Account If the pledgee refuses to accept the subject of the obligation secured by the pledge, the pledgor may transfer an adequate amount into the deposit account of a notary, bank or any other credit institution and, if the pledge has been registered in the Register of Mortgages into the deposit account of the mortgage office. The Pledge shall terminate after depositing the whole debt amount. Article 4.227 - Definition of Pawn 1. Items of personal use may be pawned in order to secure the repayment of shortterm loans granted to natural persons by pawnshops. 2. A pledgor shall be given a pledge paper after delivery to of the things to be pledged to the pawnshop. Article 4.228. Rights, Duties and Responsibility of the Pawnshop 1. A pawnshop shall have no right to use the things in pawn and dispose of them, except for the case provided for in paragraph 3 hereof. 2. The pawnshop shall bear the responsibility for the loss (perishing) and damage to the things in pawn, unless it proves that the loss (perishing) or damage to the things has occurred to due to force majeure. 3. In the event of failure to repay the loan amount secured by the thing under pawn, the pawnshop shall have the right to sell the thing pawned at the expiration of the period of one month in accordance with the procedure specified in Article 4.219 paragraphs 2 and 5, Articles 4.222 and 4.225 of this Code.
4. The sale of the thing pawned shall terminate the right of claim by the pawnshop even if the proceeds received from the sale of the thing has not been sufficient to fully satisfy the claims of the pawnshop as the creditor.