Last Updated on June 28, 2021 by LawEuro
German Civil Code (BGB) German law
Division 8
Pledge of movable things and over rights
Title 1
Pledge of movable things
Section 1204
Statutory contents of the pledge of movable things
(1) A movable thing may be encumbered to secure a claim in such a way that the creditor is entitled to seek satisfaction from the thing (pledge).
(2) A pledge may also be created for a future or a conditional claim.
Section 1205
Creation
(1) To create a pledge, it is necessary for the owner to deliver the thing to the creditor and for both to agree that the creditor is to be entitled to the pledge. If the creditor is in possession of the thing, agreement on the creation of the pledge suffices.
(2) The delivery of possession of a thing in the indirect possession of the owner may be replaced by the owner transferring indirect possession to the pledgee and notifying the possessor of the pledging.
Section 1206
Replacement of delivery by granting joint possession
Granting joint possession suffices instead of delivery of the thing if the thing is under the joint control of the creditor or, if it is in the possession of a third person, it may be delivered only to the owner and the creditor jointly.
Section 1207
Pledging by an unauthorised person
If the thing does not belong to the pledgor, the provisions of sections 932, 934 and 935 governing the acquisition of ownership apply with the necessary modifications to the pledging.
Section 1208
Acquisition of priority of rank in good faith
If the thing is encumbered with the right of a third party, then the pledge takes priority over the right, unless the pledgee, at the time of acquisition of the pledge, is not in good faith in relation to the right. The provisions of section 932 (1) sentence 2, section 935 and of section 936 (3) apply with the necessary modifications.
Section 1209
Priority of the pledge
The priority of the pledge is determined by the time of its creation, even if it is created for a future or a conditional claim.
Section 1210
Extent of liability of the pledge
(1) The pledged item is liable for the claim as it exists from time to time, in particular including interest and contractual penalties. If a personal debtor is not the owner of the pledged item, the liability is not extended by a legal transaction entered into by the debtor after the pledging.
(2) The pledged item is liable for the claims of the pledgee for reimbursement of outlays, for the costs of notice and the pursuit of rights to be reimbursed to the pledgee and for the costs of the sale of the pledged item.
Section 1211
Defences of the pledgor
(1) The pledgor may assert against the pledgee the defences which are available to a personal debtor against the claim, as well as those of a surety under section 770. If the personal debtor dies, then the pledgor may not invoke the fact that his heir has only limited liability for the obligation.
(2) If the pledgor is not the personal debtor, he does not forfeit a defence by the personal debtor waiving it.
Section 1212
Extension to separated products
The pledge extends to the products that are separated from the pledged item.
Section 1213
Pledge of emoluments
(1) The pledge may be created in such a way that the pledgee is entitled to take the emoluments of the pledged item.
(2) If a thing which by its nature bears fruit is delivered to the pledgee for his sole possession, it is to be presumed in case of doubt that the pledgee is to be entitled to take the fruit.
Section 1214
Duties of the pledgee entitled to emoluments
(1) If the pledgee has the right to take the emoluments, he is obliged to attend to the production of the emoluments and to render account.
(2) The net yield of the emoluments is set off against the payment owed and, if costs and interest are payable, against these first.
(3) Diverging provisions are admissible.
Section 1215
Duty of safekeeping
The pledgee is obliged to keep the pledged item in safe custody.
Section 1216
Reimbursement of outlays
If the pledgee makes outlays on the pledged item, the duty of reimbursement of the pledgor is determined under the provisions on agency without specific authorisation. The pledgee is entitled to remove an installation with which he furnished the pledged item.
Section 1217
Violation of rights by the pledgee
(1) Where the pledgee violates the rights of the pledgor to a substantial degree and where he continues this injurious conduct notwithstanding a warning given by the pledgor, the pledgor may demand that the pledged item is deposited at the cost of the pledgee or, if it is not suitable for deposit, that it is delivered to a custodian to be appointed by the court.
(2) Instead of the deposit or the delivery of the thing to a custodian, the pledgor may demand the return of the pledged item in return for the satisfaction of the creditor. If the claim is interest-free and is not yet due, then the pledgee is entitled only to the amount which, with the addition of the statutory interest for the period from the payment until the due date, is equivalent to the amount of the claim.
Section 1218
Rights of the pledgor in the case of imminent spoilage
(1) If the spoilage of the pledged item or a substantial decrease in its value is to be feared, the pledgor may demand the return of the pledged item in return for the provision of some other security; the provision of security by sureties is excluded.
(2) The pledgee must notify the pledgor of the imminent spoilage without undue delay, unless notification is impracticable.
Section 1219
Rights of the pledgee in the case of imminent spoilage
(1) If the imminent spoilage of the pledged item or a substantial decrease of its value that is to be feared jeopardises the security of the pledgee, the pledgee may have the pledged item sold by public auction.
(2) The proceeds take the place of the pledged item. Upon demand by the pledgor, the proceeds are to be deposited.
Section 1220
Warning of auction
(1) The auction of the pledged item is permitted only after the pledgor has been warned of it; the warning may be omitted if the pledged item is vulnerable to spoilage and postponement of the auction entails danger. In the event of a decrease in value, it is necessary, apart from the warning, for the pledgee to determine a suitable time limit for the pledgor to provide other security and that this has expired.
(2) The pledgee must notify the pledgor of the auction without undue delay; in the event of failure to do so, he is obliged to pay damages.
(3) The warning, the determination of a time limit and the notification may be omitted if they are impracticable.
Section 1221
Sale by private agreement
If the pledged item has a stock exchange or market price, the pledgee may effect the sale privately at the current price through a commercial broker officially authorised to effect such sales or through a person authorised to sell by public auction.
Section 1222
Pledge of more than one thing
If the pledge extends to more than one thing, each thing is liable for the entire claim.
Section 1223
Duty to return the pledged item; right to redeem the pledged item
(1) The pledgee is obliged to return the pledged item to the pledgor after the pledge is extinguished.
(2) The pledgor may demand the return of the pledged item in return for the satisfaction of the pledgee as soon as the debtor is entitled to perform.
Section 1224
Satisfaction by deposit or set-off
The satisfaction of the pledgee by the pledgor may also be given by deposit or by set-off.
Section 1225
Passing of claim to the pledgor
(1) If the pledgor is not the personal debtor, then, insofar as he satisfies the pledgee, the claim passes to him. The provision of section 774, governing a surety, applies with the necessary modifications.
Section 1226
Limitation of compensation claims
The compensation claims of the pledgor for alterations or deteriorations of the pledged item and the claims of the pledgee for the reimbursement of outlays or for leave to remove an installation are subject to a six-month limitation period. The provision of section 548 (1) sentence 2 and 3, (2) applies with the necessary modifications.
Section 1227
Protection of the pledge
If the right of the pledgee is adversely affected, then the claims of the pledgee are governed by the provisions applying to claims from ownership, with the necessary modifications.
Section 1228
Satisfaction by sale of the pledged item
(1) The satisfaction of the pledgee from the pledged item is effected by sale.
(2) The pledgee is entitled to effect the sale as soon as the claim is due in whole or in part. If the object owed does not consist in money, the sale is not permitted until the claim has been converted into a money claim.
Section 1229
Prohibition of a forfeiture agreement
An agreement made before the right to sell comes into existence by which the ownership of the thing is to pass or be transferred to the pledgee if he is not satisfied or is not satisfied in good time is void.
Section 1230
Selection of pledged item from more than one pledged item
The pledgee may, unless otherwise provided, select from more than one pledged item those that are to be sold. He may only sell as many pledges as are required for his satisfaction.
Section 1231
Surrender of pledged item for sale
If the pledgee is not in sole possession of the pledged item, he may, after the right to sell comes into existence, demand the surrender of the pledged item for the purpose of sale. At the request of the pledgor, delivery to a joint custodian is to be effected instead of surrender; the custodian must, when delivery is made, agree to make the pledged item available for sale.
Section 1232
Lower-ranking pledgees
The pledgee is not obliged to surrender the pledged item to a pledgee who is lower-ranking than himself for the purpose of sale. If he is not in possession of the pledged item, then he may not, unless he himself handles the sale, object to sale by a lower-ranking pledgee.
Section 1233
Execution of the sale
(1) The sale of the pledged item is to be effected in accordance with the provisions of sections 1234 to 1240.
(2) If the pledgee has obtained an enforceable judgment against the owner for his right of sale, he may also have the sale made in accordance with the provisions governing the sale of a pledged thing.
Section 1234
Warning of sale; waiting period
(1) The pledgee must warn the owner of the sale in advance and at the same time specify the sum of money for which the sale is to take place. The warning may be given only after the right of sale has arisen; it may be omitted if it is impracticable.
(2) The sale may not be effected until after the expiry of one month after the warning. If the warning is impracticable, the month is calculated from the time when the right of sale arises.
Section 1235
Public auction
(1) The sale of the pledged item is to be made by public auction.
(2) If the pledged item has a stock exchange or market price, the provision of section 1221 applies.
Section 1236
Place of auction
The auction is to be held at the place at which the pledged item is kept. If an auction at the place of safekeeping is not expected to result in reasonable success, the pledged item is to be auctioned at another suitable place.
Section 1237
Public notice
The time and place of the auction are to be publicly announced, together with a general description of the pledged item. The owner and third parties who have rights in the pledged item are to be notified separately; the notification may be omitted if it is impracticable.
Section 1238
Conditions of sale
(1) The pledged item may be sold only subject to the condition that the purchaser immediately pays the sale price in cash and that he forfeits his rights if this does not take place.
(2) If the sale is effected without this provision, the sale price is to be seen as received by the pledgee; the rights of the pledgee against the buyer are unaffected. If the immediate payment of the sale price is not made, the same applies, unless the reservation of the forfeiture of rights is invoked before the end of the auction.
Section 1239
Bidding by creditor and owner
(1) The pledgee and the owner may join in the bidding at the auction. If the bid of the pledgee is accepted, he is deemed to have received the sale price.
(2) The bid of the owner may be rejected unless the amount is paid in cash. The same applies to the bid of the debtor if the pledged item is liable for the debt of another.
Section 1240
Things made of gold or silver
(1) Things made of gold or silver may not be knocked down at less than the gold or silver value.
(2) If no sufficient bid is made, the sale may be effected privately by a person authorised to sell by public auction at a price not less than the gold or silver value.
Section 1241
Notification of the owner
The pledgee must notify the owner of the sale of the pledged item and the result without undue delay, unless notification is impracticable.
Section 1242
Effects of the legal sale
(1) The lawful sale of the pledged item gives the purchaser the same rights as if he had purchased the thing from the owner. This also applies if it is knocked down to the pledgee.
(2) Pledges of the thing are extinguished, even if the purchaser had knowledge of them. The same applies to a usufruct, unless it outranks all pledges in priority.
Section 1243
Unlawful sale
(1) The sale of the pledged item is not lawful if the provisions of section 1228 (2), section 1230 sentence 2, section 1235, section 1237 sentence 1 or section 1240 are violated.
(2) Where the pledgee contravenes another provision governing the sale, he is obliged to pay damages if he is at fault.
Section 1244
Acquisition in good faith
Where a thing is sold as a pledged item, and the seller is not entitled to a pledge or the requirements upon which the lawfulness of the sale depends are not satisfied, the provisions of sections 932 to 934 and 936 apply with the necessary modifications, if the sale was effected in accordance with section 1233 (2), or if the provisions of section 1235 or section 1240 (2) have been observed.
Section 1245
Deviating agreements
(1) The owner and the pledgee may agree on a manner of sale of the pledged item that deviates from the provisions of sections 1234 to 1240. If a third party has a right in the pledged item which is extinguished by the sale, then the approval of this third party is necessary. Approval is to be declared to the person in whose favour it is given; it is irrevocable.
(2) The observation of the provisions of section 1235, section 1237 sentence 1 and section 1240 may not be waived before the right of sale comes into existence.
Section 1246
Deviation for reasons of equity
(1) If a manner of sale of the pledged item deviating from the provisions of sections 1235 to 1240 corresponds with the interests of the parties concerned as appears just, each of them may demand that the sale be made in this manner.
(2) If an agreement is not reached, the court decides.
Section 1247
Proceeds of the pledged item
To the extent that the pledgee is entitled to the proceeds from the pledged item for his satisfaction, the claim is deemed settled by the owner. Apart from this, the proceeds take the place of the pledged item.
Section 1248
Presumption of ownership
When the pledged item is sold, the pledgor is deemed, for the benefit of the pledgee, to be the owner, unless the pledgee knows that the pledgor is not the owner.
Section 1249
Right of redemption
A person, who through the sale of the pledged item would forfeit a right in the pledged item, may satisfy the pledgee as soon as the debtor is entitled to perform. The provision of section 268 (2) and (3) applies with the necessary modifications.
Section 1250
Transfer of claim
(1) Upon the transfer of the claim, the pledge passes to the new creditor. The pledge may not be transferred without the claim.
(2) If, when the claim is transferred, the passing of the pledge is excluded, the pledge is extinguished.
Section 1251
Effect of the passing of the pledge
(1) The new pledgee may demand from the previous pledgee the surrender of the pledged item.
(2) Upon obtaining possession, the new pledgee takes the place of the previous pledgee in relation to the duties connected with the pledge that are owed to the pledgor. If he fails to perform the duties, the previous pledgee is liable for the damage to be compensated for by him in the same way as a surety who has waived the defence of unexhausted remedies against the principal debtor. The liability of the previous pledgee does not come into existence if the claim passes to the new pledgee by operation of law or is assigned to him on the basis of a statutory obligation.
Section 1252
Extinction with the claim
The pledge is extinguished together with the claim to which it relates.
Section 1253
Extinction by return
(1) The pledge is extinguished if the pledgee returns the pledged item to the pledgor or to the owner. A reservation of the continuation of the pledge is ineffective.
(2) If the pledged item is in the possession of the pledgor or of the owner, there is a presumption that the pledged item has been returned to him by the pledgee. This presumption also applies if the pledged item is in the possession of a third party who obtained possession, after the creation of the pledge, from the pledgor or the owner.
Section 1254
Claim for return
If there is a defence to the pledge that permanently excludes the enforcement of the pledge, the pledgor may demand the return of the pledged item. The owner has the same right.
Section 1255
Cancellation of the pledge
(1) For the cancellation of the pledge by legal transaction, it is sufficient for the pledgee to declare to the pledgor or to the owner that he gives up the pledge.
(2) If the pledge is encumbered with the right of a third party, the approval of the third party is necessary. Approval is to be declared to the person in whose favour it is given; it is irrevocable.
Section 1256
Coincidence of pledge and ownership
(1) The pledge is extinguished if it coincides with ownership in the same person. There is no extinction as long as the claim for which the pledge exists is encumbered with the right of a third party.
(2) The pledge is not deemed to be extinguished if the owner has a legal interest in the continuation of the pledge.
Section 1257
Pledge by operation of law
The provisions on a pledge created by legal transaction apply with the necessary modifications to a pledge created by operation of law.
Section 1258
Pledge of the share of a co-owner
(1) If there is a pledge relating to the share of a co-owner, the pledgee exercises the rights that arise from the community of co-owners with regard to the management of the thing and the nature of its use.
(2) The dissolution of the community may, before the pledgee’s right of sale comes into existence, be demanded only by the co-owner and the pledgee jointly. After the right of sale has come into existence, the pledgee may demand that the community be dissolved without a need for the approval of the co-owner; he is not obliged by an agreement by which the co-owners have permanently or temporarily excluded the right to demand the dissolution of the community or have determined a period for notice of termination.
(3) If the community is dissolved, the pledgee is entitled to a pledge over the objects of property that take the place of the share.
(4) The right of the pledgee to sell the share is unaffected.
Section 1259
Realisation of a commercial pledged item
If the owner and pledgee are entrepreneurs, legal persons under public law or special funds under public law, they may agree when the pledge is created, with regard to the realisation of a pledged item that has a stock exchange or market price, that the pledgee may effect the sale privately at its current price himself or through third parties or that the ownership of the thing is to fall to the pledgee when the claim becomes payable. In this case, the claim is deemed to be settled by the owner in the amount of the stock exchange or market price applicable on the due date. Sections 1229 and 1233 to 1239 do not apply.
Sections 1260 – 1272
(repealed)
Title 2
Pledge of rights
Section 1273
Statutory contents of the pledge of rights
(1) The object of a pledge may also be a right.
(2) Pledge of rights is governed by the provisions on the pledge of movable things with the necessary modifications, except to the extent that sections 1274 to 1296 lead to a different conclusion. The application of the provisions of section 1208 and section 1213 (2) is excluded.
Section 1274
Creation
(1) A pledge of a right is created in accordance with the provisions governing the transfer of the right. If the delivery of the thing is required for the transfer of the right, the provisions of sections 1205 and 1206 apply.
(2) To the extent that a right is not transferable, no pledge may be created over the right.
Section 1275
Pledge of right to performance
If a right under which an act of performance may be demanded is the object of a pledge, the legal relationship between the pledgee and the person obliged is governed by the provisions that apply to the legal relationship between the purchaser and the person obliged in the event of the transfer of the right, and in the event of a court order made in accordance with section 1217 (1), by the provision under section 1070 (2), with the necessary modifications.
Section 1276
Cancellation or alteration of the pledged right
(1) A pledged right may be cancelled by legal transaction only with the approval of the pledgee. Approval is to be declared to the person in whose favour it is given; it is irrevocable. The provision of section 876 sentence 3 is unaffected.
(2) The same applies in the event of an alteration of the right, to the extent that it interferes with the pledge.
Section 1277
Satisfaction by execution
The pledgee may seek his satisfaction from the right only on the basis of an enforceable judgment in accordance with the provisions governing execution, unless otherwise provided. The provisions of section 1229 and section 1245 (2) are unaffected.
Section 1278
Extinction by return
If a right whose pledging requires the delivery of a thing is the object of a pledge, the provision under section 1253 applies with the necessary modifications to the extinction of the pledge through the return of the thing.
Section 1279
Pledge of a claim
The special provisions of sections 1280 to 1290 apply to the pledge of a claim. To the extent that a claim has a stock exchange or market price, the provision of section 1259 applies with the necessary modifications.
Section 1280
Notification of the debtor
The pledging of a claim for whose transfer a contract of assignment suffices is effective only if the creditor gives notice thereof to the debtor.
Section 1281
Performance before the due date
The debtor may pay only to the pledgee and the creditor jointly. Either of them may demand that payment be made to them jointly; either may demand that, instead of payment, the thing owed be deposited for both, or if it is not suitable for deposit, that it be delivered to a custodian to be appointed by the court.
Section 1282
Performance after the due date
(1) If the requirements of section 1228 (2) have been fulfilled, the pledgee is entitled to collect the claim and the debtor may pay only to him. The pledgee is entitled to collect a money claim only to the extent that it is necessary for his satisfaction. To the extent that he is entitled to collection, he may also demand that the money claim be assigned to him instead of payment.
(2) The pledgee has no right to make other dispositions of the claim; the right to seek satisfaction from the claim in accordance with section 1277 is unaffected.
Section 1283
Termination
(1) Where the due date of the pledged claim depends on a notice of termination, the creditor requires the approval of the pledgee for this notice only if the latter is entitled to receive the emoluments.
(2) The notice of the debtor is only effective if it is declared to the pledgee and the creditor.
(3) If the requirements of section 1228 (2) have been fulfilled, then the pledgee is also entitled to give notice; for the notice of the debtor, a declaration made to the pledgee suffices.
Section 1284
Deviating agreements
The provisions of sections 1281 to 1283 do not apply to the extent that the pledgee and the creditor agree otherwise.
Section 1285
Cooperation in collection
(1) Where performance is to be made to the pledgee and the creditor jointly, they are reciprocally obliged to cooperate in the collection if the claim is due.
(2) Insofar as the pledgee is entitled to collect the claim without the cooperation of the creditor, he is to ensure collection in due form. He must notify the creditor of the collection without undue delay, unless the notification is impracticable.
Section 1286
Duty of termination in the case of danger
If the maturity of the pledged claim depends on notice, the pledgee may, unless he has the right to give notice, demand that the creditor gives notice, if the collection of the claim is necessary under the rules of proper management of assets by reason of a danger to its safety. Subject to the same requirement, the creditor may demand from the pledgee his approval of the notice, to the extent that approval is required.
Section 1287
Effect of performance
Where the debtor performs under sections 1281 and 1282, then upon performance the creditor acquires the object provided and the pledgee a pledge over the object. Where performance consists in the transfer of the ownership of a plot of land, the pledgee acquires a debt-securing mortgage; if it consists of the transfer of ownership of a registered ship or a ship under construction, the pledgee acquires a ship mortgage.
Section 1288
Investment of collected money
(1) If a money claim is collected under section 1281, the pledgee and the creditor are reciprocally obliged to cooperate in order that the collected amount, to the extent that this is practicable without impairing the interests of the pledgee, is invested at interest in accordance with the provisions governing the investment of money held in trust for wards, and at the same time the pledge is created for the pledgee. The type of investment is determined by the creditor.
(2) If the collection is made under section 1282, the claim of the pledgee, to the extent that he is entitled to the collected amount for his satisfaction, is deemed settled by the creditor.
Section 1289
Extension to the interest
The pledge of a claim extends to the interest on the claim. The provisions of section 1123 (2) and sections 1124 and 1125 apply with the necessary modifications; the attachment is replaced by the notification by the pledgee to the debtor that he is exercising the right of collection.
Section 1290
Collection in the case of multiple pledges
If there is more than one pledge of a claim, only the pledgee whose pledge has priority over the remaining pledges is entitled to collect.
Section 1291
Pledge of land charge or annuity land charge
The provisions on the pledge of a claim also apply to the pledge of a land charge and of an annuity land charge.
Section 1292
Pledging of instruments made out to order
For the pledging of a bill of exchange or any other instrument that may be transferred by endorsement, agreement between the creditor and the pledgee and the delivery of the endorsed instrument are sufficient.
Section 1293
Pledge of bearer instruments
The pledge of a bearer instrument is governed by the provisions on the pledge of movable things.
Section 1294
Collection and notice of termination
If a bill of exchange, another instrument that may be transferred by endorsement or a bearer instrument is the object of a pledge, then even if the requirements of section 1228 (2) have not yet been fulfilled, the pledgee is entitled to collection and, if notice is required, to give notice, and the debtor may pay only to the pledgee.
Section 1295
Private sale of instruments made out to order
Where a pledged instrument, transferable by endorsement, has a stock exchange or market price, the creditor is entitled, after the fulfilment of the requirements of section 1228 (2), to have the instrument sold under section 1221. Section 1259 applies with the necessary modifications.
Section 1296
Extension to interest coupons
The pledge of a security extends to the interest, annuity or dividend coupons belonging to the instrument only if they have been delivered to the pledgee. The pledgor may, unless otherwise provided, demand the surrender of the coupons, to the extent that they fall due before the fulfilment of the requirements of section 1228 (2).
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