DEBT

GROUNDS FOR A DEBT Grounds for the creditor’s right to claim over a debt: Agreement Trade credit Loan of money Tort liability Unjust enrichment

FORM OF THE TERMS OF DEBT Main rule: freedom of contract Fixed form: Bill of Exchange, consumer credit, hire-purchase agreement DIFFERENT KINDS OF PROMISSORY NOTES Non-negotiable/ordinary promissory note Not-to-order promissory note Negotiable promissory notes

NEGOTIABLE PROMISSORY NOTES NONNEGOTIABLE PROMISSORY NOTE €100 payable to Panu Banks VilleDebtor PROMISSORY NOTE MADE OUT TO ORDER €100 payable to Panu Banks or anyone ordered by Panu Banks Ville Debtor BEARER BOND €100 payable to the bearer Ville Debtor

TERM OF PAYMENT PLACE OF PAYMENT If the parties have not agreed on the due date, the debt must be paid on demand but also may be paid on the debtor’s initiative PLACE OF PAYMENT The debt must be paid at the agreed place but if no such place, at the creditor’s place of business

Each has joint and several liability SEVERAL DEBTORS Each has joint and several liability - A debtor who has paid more than his calculated share can claim the excess from the other debtors Debtors may agree on pro rata liability or liability based on specified shares

INTEREST RATES If the lender and borrower have not agreed that the debt will accrue interes => the debt is interest-free If the parties have agreed that the debt will accrue interest but not on the interest rate=> the reference rate of interest notified by the Bank of Finland If no agreement on the due date of the interest => due annually on the anniversary of the date when the promissory note was signed

OVERDUE INTEREST If nothing else agreed, the reference rate of interest + 7% In consumer credits never more than the reference rate of interest + 7% Overdue interest must be paid from the due date If no due date has been agreed in advance, the overdue interest must be paid 30 days after the date the creditor demanded payment

CASE Uuno had signed a promissory note, in which he promised to pay € 500 on demand. Later, Eetu demanded payment and Uuno paid the debt by a bank transfer on Eetu’s bank account. Two weeks after the payment, Eetu transferred the promissory note to Kaisa, who didn’t know about the payment. Your comments?

TRANSFER OF PROMISSORY NOTES Non-negotiable promissory note The debtor must be notified No endorsement is necessary The debtor has the right to present the same objections against the transferee that he could have presented against the original creditor

Negotiable promissory notes: Transfer: 1) Promissory notes made out to order Endorsement blank endorsement (only endorser’s signature) special endorsement (endorser’s signature and endorsee’s name) 2) Bearer instruments Bearer’s possession of the document proves his right The debtor has the right to present only strong objections against a transferee acting in good faith

OBJECTIONS OF THE DEBTOR Strong objections e.g. The promissory note is a forgery has been declared invalid by court is invalid as a result of grave duress was signed by someone not legally authorized to act on behalf of the debtor Weak objections e.g. The debt has been discharged or changed before the endorsement as a result of payment, agreement, set-off etc. No consideration was received or it was defective The promissory note was signed under duress, undue influence, fraud, mistake in utterance etc.

WEEK OBJECTION AGAINST AN ENDORSEE NONNEGOTIABLE PROMISSORY NOTE NEGOTIABLE PROMISSORY NOTE Creditor Debtor Debtor Creditor NONNEGOTIABLE PROMISSORY NOTE NEGOTIABLE PROMISSORY NOTE Week objection Week objection Week objection is effective against an endorsee of a non- negotiable promissory note Week objection is not effective against an endorsee of a negotiable promissory note Endorsee Endorsee

DISCHARGE OF A DEBT Payment by the debtor to the creditor Release that liberates the debtor from the debt Set-off Limitation of action General limitation period is 3 years from the due date Limitation period can be interrupted, after which it starts from the beginning Special limitation periods: e.g. in Tax Law, Labour Law, Act on Guarantees

COLLATERALS

COLLATERAL GUARANTEE SECURITY

GUARANTEE

GUARANTEE DEFICIENCY SURETY SECONDARY GUARANTEE

GUARANTEE Guarantor takes on the responsibility for the debt of another person Guarantee concerns only the principal amount of debt, unless agreed otherwise Creditor can demand repayment of the principal debt from the guarantor for three years counting of when the principal debt has fallen due and insolvency of the debtor has been officially proven => Secondary guarantee or when the principal debt has fallen due => Surety

1. SECONDARY GUARANTEE The guarantor is liable for the principal debt only if the principal debtor is not able to repay insolvency of the debtor must be officially proven (bankruptcy, unsuccessful distraint, adjustment of debts) A guarantee is a secondary guarantee unless agreed by the parties otherwise

2. SURETY Guarantor is in the same legal position as the debtor => A creditor has the right to demand repayment from the guarantor immediately when the principal debt has fallen due A guarantee must be explicitely defined as a surety Generally used by banks

3. DEFICIENCY Guarantee given to supplement another collateral The guarantor is liable to pay the remainder of a debt if the property pledged for the principal debt is not sufficient

SEVERAL GUARANTORS Liability for the principal debt Presumption, unless agreed otherwise: Joint and several liability => Creditor may demand repayment of the total debt from any of the guarantors If expressly agreed: Pro rata liability - Creditor may demand repayment of the proportional share of the debt from each guarantor Liability based on specified shares - The guarantors have agreed what their respective liabilities are

SEVERAL GUARANTORS Right of recourse Each guarantor has for three years a proportional right of recourse against the other guarantors, who gave their guarantee with him at the same time, or earlier Each guarantor has the right of recourse against the debtor for at least three years

SECURITY

SECURITY MORTGAGE PLEDGE The property remains Debtor hands over in the possession of the debtor but it is mortgaged as security for a debt or other obligation PLEDGE Debtor hands over some personal property to the creditor VESSEL, AIRCRAFT etc. MORTGAGE REAL ESTATE MORTGAGE ENTERPRISE MORTGAGE

1. PLEDGE Debtor (pledgor) hands over some personal property to the creditor (pledgee) If the debtor fails to perform his obligation secured by the pledge, the creditor may sell the pledge and obtain satisfaction When the debt has fallen due and Notice has been given to the debtor stating that the pledge will be sold if he does not redeem the pledge within one month and Pledge has not been redeemed Pledgee has priority over other creditors

2. REAL ESTATE MORTGAGE The real estate remains in the possession of the debtor but it is mortgaged as security for a debt When the mortgage instrument is handed over to the creditor, the real estate lien is created If the debtor fails to repay his debt, the creditor can enforce the debt The property is sold at a real estate auction If the property is mortgaged as security for several debts, senior mortgages are paid before junior ones

CREATING A REAL ESTATE LIEN DISTRICT COURT Granting the mortgage Entry into the Mortgage Register Mortgage instrument as a certificate 1 Application for a mortgage Owner of the real estate 2 Mortgage instrument to the owner MORTGAGE INSTRUMENT 3 Creditor Mortgage instrument to the creditor Real estate lien is created