Point of law 1: whether the floating pledge (“pledge of goods in circulation”, Art 357, Civil Code) may have priority over a common (or “firm”) pledge (the pledge of individually specified items) in the event of there being competing claims which flow from these two kinds of security interests (liens)?

Alternative attitudes: 1) it may, if the floating pledge was established earlier than the “firm” pledge; or 2) it may not, if such common or “firm” pledge was established in relation to the property which exceeds the value of pledged goods in circulation; or 3) solution shall depend on the good faith of subsequent pledge-holders: if the pledged property becomes the subject of one more pledge for the purpose of securing other obligations, the rights of the subsequent good faith pledge-holder who has not known and ought not to know of the existence of an earlier pledge, must be recognised either as a senior lien or at least (proceeding from the principle of justice)  must have an equal priority in satisfaction; or 4) the floating pledge becomes a full-fledged pledge only upon the moment when the necessary individualisation was made and their circulation was terminated, that is, upon the moment of “crystallisation” or “freezing” of the pledge; only this moment matters for determining the seniority of several liens with respect to one and the same property.

Ratio decidendi: the Presidium found that, in fact, there was no “firm” pledge in this particular case; therefore, the legal issue set above was not resolved in any way.

Point of law 2: the interrelation between the claims of several pledge creditors, whose interests were secured by pledging goods in circulation, in the event of the bankruptcy of the pledgor that entails “crystallisation” of the subject of the floating pledge by virtue of the law. 

Possible solution: the panel of judges of the Supreme Commercial Court suggested that since crystallisation occurs in such case by virtue of the law and simultaneously for all creditors, whose claims were secured by the floating pledge, the pledge rights which existed before on the grounds of floating pledge contracts must from the moment of crystallisation become equal, irrespective of the principle of good faith, and are subject to pro rata satisfaction depending on the value of goods indicated in each contract of floating pledge.

Ratio decidendi: the Presidium disagreed with the panel of judges and took another view: in the opinion of the Presidium, in the event of conclusion of several contracts of floating pledge, when determining the original and subsequent pledge-holders one should proceed from the fact that the right of pledge under a contract of this kind arises not at the moment of the conclusion of the contract, but from the moment of performance by the pledgeholder (creditor) of his duty to transfer to the pledgor (debtor) the monetary means whose return has been secured by the pledge in question.   

Practical consequences: the Judgment says that prior court decisions in analogous cases if inconsistent with this interpretation may be reversed in the procedure and within the limits envisaged by Art 311 of the Commercial Procedure Code.