Fiduciary transfer of title – key threats and opportunities

by Wojciech Śliz

28 April 2025

The fiduciary transfer of title is one of the ways to secure the repayment of debts. Banks often use it to secure their loans, but it is also used outside banks in lending. Yet, creditors sometimes struggle with exercising their rights, and this may be caused by shortcomings in contractual provisions.

This article will help you understand the mechanism of the fiducial transfer of title and points out how the debtor and the creditor should in practice secure their interests in drawing up an agreement on fiduciary transfer of title.

TABLE OF CONTENTS

Fiduciary transfer of title – how does it work?
Object of the transfer
Return of the fiduciarily transferred object after the debt claims have been satisfied – two approaches
Ways of satisfying the creditor
The most common controversies around the fiduciary transfer of title
Trust the experts

Fiduciary transfer of title – how does it work?

Polish laws lack comprehensive regulation of the fiduciary transfer of title. As a consequence, it functions as an innominate contract, is admissible under the freedom of contract principle¹ and may cover both movable and immovable property. However, the transferability of title to residential premises by individuals is limited.

In the fiduciary transfer of title, the transferor transfers the title to a thing to the creditor in order to secure the creditor’s claims under the original contract (e.g. borrowing or a bank loan). The transferor may be either the debtor under the loan agreement himself or a third party (who, as it were, puts his property at the debtor’s disposal so that the debtor can use it as security).

When using this mechanism, the creditor has the title to the thing from the very beginning, however, it is limited on the basis of the fiduciary transfer agreement itself which obliges the creditor to exercise the title only to the extent arising from the purpose of the transfer agreement, that is to secure the repayment of debt. Nonetheless, it is the creditor who acts as the owner of the thing in relation to third parties.

Object of the transfer

Polish law initially permitted the fiduciary transfer of movable property only (e.g. cars, production equipment). However, the case law of the 1990s has allowed also the fiduciary transfers of real property. Agreements on fiduciary transfer of a collection of variable property items are also common as they are attractive for business owners who can continue to operate using these items.

Transfer of title to a movable property

In order to effectively transfer the title to movable property of a certain kind (for example, a kilogram of sugar), the property items must be individualised, for example by being appropriately labelled or kept in a specified room.

Fiduciary transfer of title to secure a real property

In the case of real property, for a fiduciary transfer of title to be effective, it must be made in the form of a notarial act as it is an agreement on transfer of ownership. Once such an agreement is concluded, it is recommended that the creditor should be disclosed in the land and mortgage register as the new owner of that real property.

A collection of variable property items

The title to property items used by the business owner in day-to-day operations (e.g. all goods held in stock or a group of production machinery) may be transferred to the creditor as security. In such a case, the parties introduce in the fiduciary transfer agreement an authorisation for the debtor to sell the items included in that group and replace them with others in the ordinary course of business. An undoubted advantage of such a solution is that the transferor can continue his business using the goods contemplated in that agreement.

Return of the fiduciarily transferred object after the debt claims have been satisfied – two approaches

As already mentioned, the purpose of the fiduciary transfer of title is not to definitively transfer the title to a thing to a creditor, but to secure the creditor's claim(s). That is why, the agreement on fiduciary transfer of title must specify how the title will be returned to the transferor when the debtor pays the due amounts. In business practice, there are two most common ways to do that.

Method one

The transferor transfers the title to the thing to the creditor unconditionally, while the creditor simultaneously undertakes to return the title on condition subsequent that his claim is satisfied. In such a case, the parties exclude the dispositive effect and a separate contract with material effect upon the performance of this obligation is required for the transfer of title to be effective.

Example of a contractual provision:

“X hereby represents that he transfers the title to the car Z (brand) to Y. At the same time, Y represents that he undertakes to transfer the title to the car to X provided that he repays the loan in full”.

Method two

In the second method, the title is transferred to the creditor on condition subsequent that the debtor satisfies the creditor’s claim(s). In such a case, the title will return to the transferor automatically once the debtor pays the amounts owed.

Example of a contractual provision:

“X hereby represents that he transfers the title to the car Z (brand) to Y. If X duly repays the loan, the transfer of title becomes ineffective”.

In the case of real property, only the first method is possible in view of the prohibition on transferring the title to a real property on a condition or subject to the time limit, as referred to in Article 157(1) of the Civil Code.

Ways of satisfying the creditor

If the debtor fails to fulfil his obligation on time (e.g. when he stops paying back the borrowing or bank loan instalments on time), the creditor may take action to satisfy his claim which has been secured by the fiduciary transfer agreement. As already mentioned, Polish laws lack comprehensive regulation of the fiduciary transfer of title, so there are also no regulations saying explicitly how to satisfy the creditor. In particular, similar to a pledge or a mortgage, in the case of fiduciary transfer of title there are no provisions saying that the creditor is satisfied by way of court enforcement proceedings².

This lack of any regulation, on the one hand, is often emphasised as an advantage of this method of securing a claim as it allows the creditor to take quicker and less formalised steps to have his claims satisfied. On the other hand, it often leads to court disputes.

Nonetheless, the prevailing view in the case law³ is that if the method of satisfying the creditor has been specified in the fiduciary transfer agreement, the creditor is obliged to comply with it, but if the agreement does not regulate that issue, the creditor may satisfy its claims in any way that is not contrary to the content of the legal relationship, the agreement or the social norms.

The most common methods of satisfying a creditor are:

sale of the transferred thing,
retention of the thing by the creditor with its value being set off against the debt,
making it available to a third party for use for a consideration.

The most common controversies around the fiduciary transfer of title

Despite its attractiveness thanks to the lack of comprehensive regulation in civil law, an agreement for fiduciary transfer of title carries also many risks and may underlie many disputes between the transferor and the creditor.

The most common problems are:

Risk arising from the selected wording of the agreement. If the agreement provides for unconditional transfer of title with a conditional obligation on the creditor to return the title, it may lead to a situation in which, despite having his claim satisfied by the debtor, the creditor refuses to conclude a contract with material effect to fulfil the existing obligation because, for example, he will claim that the debtor has not satisfied the claim in full. In such a case, the only thing that the transferor can do is to go to court and file a lawsuit to order the creditor to conclude the agreement.
If the second method is used (i.e. the transfer of title on condition subsequent), in the event of a dispute as to whether the claim has been satisfied in full, uncertainty will arise as to whether the condition has been met. This, in turn, will lead to a dispute as to who currently owns the thing.
Issues related to leaving the thing at the disposal of the transferor. The transferor may continue to use the thing even though the title is formally held by the creditor. However, if the debtor defaults on his obligation, the creditor will have to take physical possession of the thing in order to be satisfied. In such a case, the transferor may refuse and the creditor will only be left with an option to file for debt collection under Article 222 of the Civil Code.
Issues related to a very serious threat of a definite loss of title to a thing if the debtor is late with payment of even just one bank loan instalment. This is a default, which entitles the creditor to take action to have his claims satisfied, and this, in turn, will result in the definitive loss of the thing by the debtor.

In the context of potential disputes between the parties, equally important is the issue of the settlement of the parties to such an agreement after the creditor has been satisfied. Remember that the purpose of the fiduciary transfer is to secure the repayment of the amounts due, and not to let the creditor earn additional income. That is why, the Supreme Court emphasises in its rulings⁴ that where the value of the transferred thing is higher than the amount of the secured claim, the creditor is obliged to return the excess to the debtor whenever the creditor takes over the ownership of the thing in order to satisfy its claims. Otherwise, it leads to unjust enrichment of the creditor against the debtor.

In order to avoid potential disputes, the agreement on fiduciary transfer of title should regulate in detail how the creditor is to be satisfied. Otherwise, according to the rulings of the Supreme Court³, the creditor will be able to satisfy his claims at his discretion. The suggestion to regulate this in the agreement is important as it will prevent the creditor from, for example, selling the transferred thing underpriced.

In turn, in order to adequately secure the creditor's claims in the event of the transferor’s bankruptcy, one should remember about Article 84(2) of the Bankruptcy Act, according to which an agreement on fiduciary transfer of title must be made in writing with authenticated date in order to be a part of the bankruptcy estate.

Trust the experts

Our experts are always happy to assist you in both the drafting of agreements on fiduciary transfer of title, and any disputes that may arise in this regard. You are welcome to contact us.

Legislation:

¹ Article 353¹ of the Civil Code

² Article 312 of the Civil Code, Article 75 of the Land Register and Mortgages Act

³ Supreme Court's ruling of 27 June 1995, file no. I CR 7/95.

⁴ Supreme Court's ruling of 4 June 2024, file no. I CSKP 1712/22.