Warranties and guarantees in Ukrainian law Presented by Oleksii Bezhevets, Legal Alliance Company October 2012 bezhevets@l-a.com.ua

Types of warranties and guarantees Mortgage/pledge (of movable/immovable property) Forfeit (fine, penalty) Bailment Guarantee (bank, financial institution, insurance company) Retention Deposit (down payment) Charging orders

Pledge Types of Pledge: Hypothec (mortgage) of real estate. Hypothec (mortgage) of land plot. Pledge of movable property; Tax pledge. A written pledge agreement is always required. Notarization of pledge agreement is required if a real estate is a subject of pledge (mortgage); in other cases - as specified by respective provisions of law. State registration of pledge: Pledge of real estate shall be subject to state registration in cases and under the procedure established by law. Pledge of movable property may be registered based on application of a pledgor or a pledgee by making entry to the State Registry of Movable Pledge.

Forfeit (fine, penalty) This kind of guarantee is often stipulated by the parties in agreements. Fine is a forfeit calculated as a percentage of a sum of unfulfilled or unduly fulfilled obligation. Penalty is a forfeit calculated as a percentage of a sum of untimely fulfilled obligation for each delayed day. The right to forfeit shall arise irrespective of the losses inflicted to the creditor by a failure to fulfill or unduly fulfillment of the obligation. Subject of forfeit: A sum of money (amount shall be established by the agreement or the regulation of civil law); Movable and immovable property. Forfeit shall not release the debtor from fulfillment of his obligations.

Bailment This kind of guarantee is often required by banks. A bailment may secure either full or partial fulfillment of the obligation. Parties have to conclude a written bailment agreement. A bail (guarantor) under a bailment agreement shall: Warrant to the debtor’s creditor the fulfillment of his obligation. Be responsible to the creditor for violation of the obligation by the debtor. Be responsible to the creditor as joint and several debtor, unless the bailment agreement establishes additional (subsidiary) responsibility of the bail, in case the debtor violates the obligation secured by the bailment. Be responsible to the creditor with the same scope as a debtor, including payment of the principal debt, interest, forfeit, compensation of losses, unless otherwise is specified in the bailment agreement.

Guarantee By the guarantee a bank, another financial institution, an insurance company (guarantor) shall guarantee to a creditor (beneficiary) fulfillment of the obligation by a debtor (principal). Term of guarantee - for the period of its issuance. The guarantor’s obligation to the creditor shall be limited to the payment of the amount covered. The guarantor shall have: The right for a reverse claim (recourse) to the debtor within the amount of money paid by him under the guarantee to the creditor, unless otherwise is established in the agreement. No right for a reverse claim (recourse) to the debtor in case the amount paid to the creditor by the guarantor does not correspond to the conditions of the guarantee, unless otherwise is established in the agreement.

Retention A creditor that lawfully owns an object subject to transfer to a debtor or to another person indicated by a debtor, shall have the right of retaining an object until a debtor executes his obligation. A creditor retaining an object: Shall be obliged to immediately inform the debtor hereof. Shall be responsible for the loss, destruction or damage of a retained object, if the loss, distraction, or damage have occurred due to his fault. Shall have no right to use a retained object Claims of the creditor retaining an object shall be satisfied from its value. Registration for retention of goods is not required.

Deposit (down payment) Deposit is the amount of money or movables issued to the creditor by the debtor against the payments due to agreement to confirm the obligation and to secure its fulfillment. Legal consequences of violation or termination of obligations: If an obligation is violated through a debtor’s fault, the deposit shall be left with a creditor. If an obligation is violated through a creditor’s fault, he is obliged to return a deposit to a debtor and to pay additionally the amount of money equal to the deposit or to its value. In the case of the obligation termination prior to its fulfillment or due to impossibility to fulfill it, the deposit shall be subject to return.

Charging orders Court orders: Creditor in court proceedings can apply to court to impose a charge against debtor’s property or monetary finds. The court issues a court ruling on imposing such charge and charge is registered in the State Register of Pledge. State executive service: The creditor with an award may apply to state enforcement service to impose charge (arrest) against debtor’s property. State enforcement officer issues a resolution of enforcement and the charge is registered in the State Register of Pledge. Enforcement inscription by a notary is exercised on the original document which establishes debt (notarized agreement, protested bill, etc.)