Right of pledge lapses due to an error by the bank: breach of contract by pledgor?
Due to an administrative error by the ING bank the pledged deposit of the pledgor was released. The pledgor immediately transferred this amount to another account and refused to pay when ING calls on him. ING states that the pledgor is in breach of contract. Is that true? Contract lawyer Sander Schouten, who specializes in financial security rights, discusses the ruling in this case.
Granting credit under provision of security
The facts in this case are the following. In 2006 ING provides a credit to X. To ensure compliance, a right of pledge is established on the deposit account of X’s father-in-law for €80,000. This account is also held at ING. ING therefore, as creditor, has a right of pledge for its own claim (as debtor) on the pledgor. The deed of pledge stipulates, among others, that the pledgor (i.e. the father-in-law) cannot dispose of a pledged balance without the permission of the bank.
Right of pledge lapses due to erroneous transfer?
The term of the deposit expires in 2010. The amount on the deposit account of €80,000 would normally, because of the right of pledge established, remain on that account. However, due to an internal error (in communication) ING did not leave the deposit on the account, but transferred this to the current account of the pledgor. The pledgor then transferred the money to a Rabobank account. The pledgor did not comply with requests by ING to return the money to an ING account. A year later ING terminates the credit agreement with X, because X fails to redeem the credit. ING then calls on the pledgor about the security provided of €80,000. The pledgor however refuses to pay this amount.
ING claim: payment due to breach of contract
ING institutes proceedings. It claims payment of €80,000 for breach of contract. ING states that the pledgor failed to comply with the deed of pledge. The Court of Appeal finds, first of all, that the right of pledge lapsed as a result of the payment by ING to the pledgor. The issue is then whether the pledgor is still obliged under the deed of pledge to provide security for redemption of the credit loaned to X, as ING states. ING states that the deed of pledge has effect for an unlimited period. The pledgor should have understood that the transfer of the deposit was an error and that ING had no intention to have the right of pledge lapse. The pledgor should have understood that, also after that transfer, he could not freely dispose of that amount.
Court of Appeal: pledgor no longer obliged to provide security
ING refers to the stipulation in the deed that the pledgor could not dispose of a pledged balance without the permission of the bank. The Court of Appeal does not share this opinion. The stipulation to which ING refers is an interpretation of the legal consequences of pledging the claim, i.e. that, due to the right of pledge of ING, the pledgor cannot freely dispose of the €80,000. This does not mean that the pledgor could not dispose of that amount after the right of pledge has lapsed. Finally, the Court of Appeal finds that the pledgor could infer from the transfer by ING that ING had apparently decided to release the pledged amount. ING’s claim is dismissed.