Austrian Supreme Court on Power of Attorney in Third-party Pledging

Feb 24, 2023 Benn-Ibler Rechtsanwälte GmbH

No special power of attorney is required for third-party pledging; a generic power of attorney¹ is sufficient.

The third defendant granted his brother a general and unlimited power of attorney in a notarised deed which authorised the brother to represent the third defendant in all matters, and in particular to represent him in transactions under Section 1008 of the Austrian Civil Code (Allgemeines Bürgerliches Gesetzbuch, hereinafter ABGB). Shortly afterwards, the brother signed a pledge deed pledging the third defendant's property as security for a current account overdraft agreement. The plaintiff demanded payment from the third defendant for the outstanding loan balance subject to execution on the pledged property.

The court of first instance dismissed the claim because a power of attorney had been necessary for the pledge. The court of appeal overturned the decision, as the authorisation to sell includes pledging.

The Austrian Supreme Court (Oberster Gerichtshof) upheld the decision of the court of appeal, stating:

Sections 1006 ff ABGB provide that contracting parties are in principle free to agree on the nature of agency. However, under Section 1008 ABGB there is a qualification requiring a description of certain transactions. This is called generic power of attorney². However, pledges are not distinctly mentioned in Section 1008 ABGB. Even if the provision is generally understood as being exhaustive, case law and legal doctrine see it as being capable of becoming analogous and supplemented by special provisions. Examples of analogy are the contract of guarantee and agreements for opening bank accounts. The third defendant's argument that a third-party pledge is a free relinquishment of rights, which is why a special power of attorney was necessary, is not convincing, since the ‘free relinquishment of rights’ was included in the power of attorney in question. However, legal opinion demands equal treatment of security appointments. In an earlier decision, the OGH already recognised by way of an inference that a power of pledge is included in an authorisation to sell. This is also covered by the wording of the power of attorney in question, as it specifically provides for the free relinquishment of rights.

Austrian Supreme Court 4 Ob 92/22s (22.11.2022)

¹ Austrian law uses a special term for power of attorney restricted in its application to one specified type of act: Gattungsvollmacht.

² See Note 1.