Is your property securing someone else’s loan? The Senate changes practice by establishing the pledgor’s right of recourse!

Third-party security is common in financing transactions: one company pledges its assets for another company’s credit, or a shareholder or ultimate beneficial owner secures their company’s obligations with personal property, or one holding company pledges its assets for the financing of another. The security provider does not borrow themselves but pledges their property, thereby assuming financial risk for the benefit of another. Until now, such a pledgor was limited in their rights to recover losses from the debtor if the pledged property was used to satisfy the creditor’s claim. However, recent Senate practice indicates a change in case law.

A borrower entered into a loan agreement with a bank. The obligation was secured by another person who pledged real estate belonging to them, without being involved in the loan themselves. When the borrower ceased payments, the bank directed recovery against the pledged property. The security provider turned to the court against the debtor, demanding compensation for the reduction in assets.

What is changing and why?

Articles 1704 and 1705 of the Civil Law provide that a guarantor who pays the creditor on behalf of the debtor automatically acquires the creditor’s claim against the debtor (subrogation). There was no such direct provision for a pledgor. 2017. In a 2017 judgment (SKC 76/2017), the Senate concluded that the pledgor is not entitled to a right of recourse because a guarantee is an obligation right, while a pledge is a property right. The result was economically inconsistent: the guarantor and the pledgor assume equivalent risk, but only the guarantor was protected.

However, this inconsistency has been rectified – in the judgment of May 27, 2026, in case No. SKC 32/2026, the Senate changed this practice, qualified this difference as an open loophole in the law, and filled it by applying Articles 1704 and 1705 of the Civil Law to the pledgor by analogy. The reasoning is based on the fact that the guarantor and the pledgor are in a substantially similar economic position – both facilitate the receipt of credit by assuming risk for another’s debt. In the case of a pledgor, the transfer of the claim is even more justified because, unlike a guarantor, a pledgor cannot demand that the creditor first direct recovery against the debtor’s property. The practice of other countries also confirms this approach: Section 1143 of the German Civil Code and Section 1358 of the Austrian General Civil Code provide that anyone who covers another’s debt with their property succeeds to the rights of the creditor.

Consequently, the creditor’s claim against the principal debtor shall henceforth pass to the pledgor to the extent that it has been satisfied by the sale of the pledged item. The Senate distinguishes between two independent claims:

First – the creditor’s claim acquired through subrogation, which passes automatically; that is, the creditor’s claim, now satisfied, passes to the pledgor. Specifically, on this basis, exactly as much is due as the creditor received from the realization of the pledge, and no more.

Second – arising from the mutual legal relationship between the pledgor and the debtor, which is most often an authorization or agency without authority (negotiorum gestio). On this basis, the pledgor may claim reimbursement of expenses, namely, compensation for the reduction of their assets, including the value of the pledged asset and the costs associated with its realization. This claim exists independently of the subrogation claim.

Waiver of the right of recourse is possible if the parties agree to it, but it is not presumed. This means that if security is given, it is automatically assumed that the pledgor expects to recover the loss from the debtor; the opposite – that the pledgor has waived this right – must be proven by the party asserting it.

Who benefits from these insights?

In group and shareholder financing, the security provider now has a guaranteed basis to recover losses from the debtor if the security is utilized. Since a waiver of recourse is not presumed, it is worthwhile for the parties to clearly regulate this issue in the contract. The more precisely the underlying relationship is formulated – authorization, intra-group loan, compensation agreement – the more predictable the recovery of losses becomes.

In structuring security and due diligence, it must henceforth be taken into account that the pledgor has a recourse claim against the debtor. This affects the picture of intra-group obligations, the distribution of risks, and the actual volume of the debtor’s liabilities.

Make informed decisions!