11.02.2021 — Pledge and Acquisitive Prescription: Constitutional Court Interpreted Rules on Property Rights

The Constitutional Court issued the Digest of Case Law for 2020, which included the most significant clarifications regarding property rights. In particular, the Constitutional Court interpreted the rules on the grounds for termination of the pledge provided by a third party, which is not a debtor in the principal obligation. The Digest also covered the rules regarding the purchaser’s good faith with respect to the grounds for the acquisition of ownership through acquisitive prescription.

With regard to the grounds for termination of pledge, the Constitutional Court clarified that if the pledger is a third party and the term of the pledge is not specified in the pledge agreement, then the pledge shall terminate according to the rules on termination of suretyship (namely, if the creditor fails to file a claim against the pledger within one year from the due date of the obligation secured by the pledge). The court is entitled to consider the pledge terminated on its own initiative regardless the parties’ objections. At the same time, considering the existing guidelines of the Supreme Court, the pledge period must be clearly specified in the agreement. In particular, the linking of the pledge period to the date of performance of the principal obligation, which is common in practice, is not considered as the specified pledge period. This clarification must be taken into account by creditors when signing the pledge agreement.

Another important clarification of the Constitutional Court relates to rules regarding the purchaser’s good faith for the purposes of the acquisitive prescription. The Constitutional Court clarified that the purchaser of the property (including real estate) may be considered as acting in good faith also if the purchaser must have known about the lack of the grounds for the acquisition of ownership. According to the Court, good faith implies that the taking of possession is not unlawful and was carried out by seemingly lawful actions. Such concept of good faith must apply when the title owner failed to possess the property for a long time, showing no interest in it, failing to fulfill the obligation on its maintenance, as a result of which the property has ended up to be essentially abandoned by the owner (see the Digest of case law of the Constitutional Court of the Russian Federation for 2020).