OGH: Information and Clarification Rules for Collaterisation Agreements

Aug 23, 2024 Benn-Ibler Rechtsanwälte

Sections 25c and 25d of the Austrian Consumer Protection Act (Konsumenschutzgesetz, hereinafter KSchG) provide for protective provisions for co-debtors. The Austrian Supreme Court (Oberster Gerichtshof, hereinafter OGH) has recently ruled on whether these are also applicable to collaterisation agreements.

In 2017, the plaintiff pledged his property to secure a loan the defendant bank had granted the debtor. At the time of the collaterisation, the available information did not indicate whether the debtor was insolvent. However, the defendant had assumed that the financial situation of the debtor was good and that there was no risk of insolvency. The plaintiff stated that he was aware of the debtor’s situation and that the defendant had not informed him of the debtor’s financial situation. The defendant did, however, draw the plaintiff’s attention to the fact that his property was the only material security for the loan.

The plaintiff sought to set aside the collaterisation agreement and the registered lien on the grounds that the defendant had breached his duty of disclosure.

The OGH reached the following conclusion:

Section 25c of the KSchG sets out a bank’s obligations to inform and explain to a consumer who enters into an obligation as a co-debtor, guarantor, or security. According to the established OGH  case law, an analogous application of Sections 25c and 25d of the KSchG to the assumption of a mere lien is rejected on the grounds of the absence of an unintended loophole in the law.

Pure material liability based on a collaterisation agreement differs from other types of guarantorship in that it is always limited to the value of the pledged assets, and the pledgee can only obtain satisfaction from the proceeds of the pledge in relation to the pledgee.

Outside the scope of Section 25c KSchG, banks are obliged to disclose to co-debtors the debtor’s financial situation only under unusual circumstances before assuming liability. Rather, co-debtors are required to obtain the necessary information themselves and assess their financial risk on the basis of this information. This is all the more true if the co-debtor and the debtor know each other well and the co-debtor is therefor in a position to demand and obtain comprehensive information from the debtor.

OGH 9 Ob 37/24t (26 June 2024)

collaterisation agreement, co-debtor, duty of information, duty of disclosure, loan, property, Austrian Consumer Protection Act