Croatian law distinguishes the following types of security rights:
- Real legal instruments of security and
- Security instruments under the law of obligations
1. Lien on movable, immovable assets, rights.
A lien is a limited real right on a certain item, called a pledge (in case of movable property) or mortgage (in case of immovable property), which authorizes its holder, i.e. the pledge creditor, to enforce a certain claim if it is not settled at maturity, from the value of such item, regardless of who is the owner and the owner has to endure such collection.
A lien can be a voluntary, judicial or mandatory legal lien.
Voluntary lien is established voluntarily on the basis of a legal transaction aimed at establishing a lien on an item or on a right, in order to ensure the enforcement of a certain claim from the value of the pledge. A contract on the establishment of a lien is concluded by which the debtor (pledgee) undertakes to hand over a certain movable item to the creditor (pledgor) in order to establish a lien or to allow him to register the lien in the public registries as encumbrance on a certain item.
Judicial lien may be coercive or voluntary. It is forcibly established pursuant to a court decision passed in proceedings of compulsory securing of a claim, and voluntarily on the basis of a pledge agreement in the form of court minutes on agreement between the parties to secure a certain claim by a lien.
Mandatory legal lien is established upon fulfillment of conditions stipulated on the basis of a special law.
In case of several claims against the pledgee, and the claim of the pledgor is secured by a lien, a claim of such pledgor has priority over all other claims that are not secured by a lien. In case all claims are secured by a lien, the priority is the lien that is ranked before the others in the priority order, and the priority is determined at the time of occurrence of such liens.
2. Transfer of ownership as a security right (fiduciary ownership)
Pursuant to the agreement, the creditor acquires the status of fiduciary owner and undertakes to return the item to the debtor in case the debtor fulfills the claim upon maturity, and the debtor acquires the status of fiduciant and undertakes to hand over the item to the fiduciary owner in case the debtor fails to fulfill the claim and to suffer collection up to the amount of the secured claim.
When an item is transferred to the fiduciary owner, unless the parties agree otherwise, the item still remains in the possession of fiduciant who can still use it, but is under obligation to bear all maintenance costs of such item.
Upon maturity of the claim, in case the debtor does not fulfill it, the creditor is authorized to sell (cash in) the item transferred to his fiduciary ownership. In addition to selling the item that is the object of fiduciary ownership and settling the secured claim from the received purchase price, the fiduciary owner also has the option to keep the item as his unconditional ownership.
When transferring collateral from the debtor to the creditor, the creditor does not pay taxes or other payables. However, in case the item given as fiduciary ownership is sold or in case the creditor becomes the full owner of the item, then taxes (on real estate transactions, VAT…) are calculated and charged as in any other legal transaction.
3. Right of retention
The right of retention is a legal institute that authorizes the creditor of a due claim, in whose possession is a certain debtor’s item, to keep such item until fulfillment or provision of appropriate security and to, after having duly informed the debtor about the intention, settle the claim from the value of such item.
Both movable and immovable objects may be the object of retention rights, as well as money. However, the creditor has no right of retention in case the debtor demands return of the item that left his possession against his will.
1. Guarantee agreement
Pursuant to the guarantee agreement, a third party – guarantor undertakes to fulfill the debtor’s obligation in case the debtor fails to do so. The guarantor’s obligation is of accessory nature, which means that it exists in case valid obligation of the principal debtor exists. Further characteristic of the guarantee is its subsidiarity, which means that the creditor may demand fulfillment of the obligation from the guarantor only in case he failed to settle the obligation with the main debtor. Fulfillment may exceptionally be sought from the guarantor without first requesting the principal debtor to fulfill it in case it is obvious that the debtor’s funds are insufficient to fulfill the obligation or the principal debtor has fallen into bankruptcy.
The guarantor who paid the creditor’s is claim may require the debtor to reimburse him for everything he paid on his behalf and for his account, as well as to request interest accrued from the date of payment.
2. Assumption of debt
Assumption of debt is a change in the obligatory relationship when a new debtor takes the place of the previous debtor. The debt is assumed on the basis of agreement between the debtor and the transferee, to which the creditor has agreed. By assuming the debt, the transferee takes the place of the previous debtor, and the debtor is released from the obligation.
3. Accession to debt
Accession to debt is a change in the obligatory relationship when the third party – the assignee enters into obligation to the creditor in addition to the debtor. The debt is accessed to on the basis of agreement between the creditor and the third party, pursuant to which the latter undertakes to the creditor to fulfill his claim against the debtor, the third party enters into obligation besides the debtor. Therefore, in this case, the creditor, in addition to the existing debtor, acquires a new debtor as well.
4. Bank guarantee
Bank guarantee is any obligation to pay a certain amount of money, regardless of how it is named, upon written request of the user and with the submission of documents to the bank, in case such documents are specified in the guarantee. Bank guarantee constitutes independent obligation of a bank, independent of the main legal transaction.
5. Letter of credit
Letter of credit is a letter or payment instrument pursuant to which the principal of the letter of credit, through the bank, makes certain amount available to the beneficiary of the letter of credit, which the beneficiary may collect upon fulfillment of certain conditions, i.e. fulfillment of obligations to the principal of the letter of credit. Letter of credit is a very commonly used payment instrument in trade because it is beneficial for both parties.
Example of the functioning of letter of credit: The principal, i.e. buyer of goods, opens a letter of credit with the bank, on which he deposits funds in favor of the seller, i.e. the beneficiary of the letter of credit. The bank then provides the seller with information on the letter of credit and the amount of funds in the letter of credit, and imposes condition the seller for disposing of the letter of credit by having to deliver the goods to the principal of the letter of credit or buyer.
6. Promissory note
Promissory note is a document voluntarily issued in one copy by the debtor, in which the debtor gives his consent to foreclose all his/her accounts with banks in order to collect the creditor’s claim, and to pay money from these accounts directly to the creditor, according to the debtor’s statement contained in such promissory note.