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by Gabriela Anton
The 2011 Romanian Civil Code
(Civil Code) institutionalized two new mechanisms that may function as security
instruments using transfer of title: the sale with an option to repurchase and
the retention of title. Under the new Civil Code, these transfer of title
techniques are subject to the general sale conventions and assimilated to
security rights, which now brings certain noticeable benefits for the creditor.
The article deals with the advantages and practical uses provided by the newly
adopted security instruments.
Transfer of title as security device
On 1 October 2011, the new Civil Code entered into force in Romania, replacing
both the 1864 Civil Code and the 1887 Commercial Code. The new Civil Code aims
to implement modern and uniform regulations applicable to both civil and
commercial private relationships. The reform institutionalized two procedures
that may function as security instruments: the sale with an option to
repurchase and the retention of title. The sale with an option to repurchase
had been prohibited by Romanian law since 1931, and its allowance by the new
Civil Code now benefits creditors, as is permitted in other jurisdictions.
Retention of title was already a commercial practice in Romania, and which is
now institutionalized and legally effective against third parties.
Transfer of title mechanisms may be used to secure the performance of the
borrower's repayment obligation. The transfer of title as security is
attractive for creditors especially in the current economic crisis, because in
the case of enforcement, and in the case of the grantor's insolvency, a
creditor often enjoys a better position as an owner rather than as a holder of
a security right. (Caution should be noted, however, with respect to title
retention for immovables.) Although these techniques are typically meant to
operate as security devices, the new Civil Code deals with them as variations
to a sale agreement, assimilated to security rights.
The Sale with an Option to Repurchase
The new Civil Code has re-established the institution of sale with repurchase
option, initially regulated by the 1864 Civil Code and then repealed by the
1931 Anti-Usury Law. The sale with repurchase option was prohibited because, in
practice, it disguised loans at usurious interest rates (which exceed the
maximum level allowed by law in civil transactions). In these loans, the
lender-purchaser would stipulate in the sale-purchase contract, as a repurchase
price, a disproportionately large amount of money compared to the borrowed
amount (i.e., the initial price).
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Gabriela Anton is a Managing Associate with Ţuca Zbarcea &
Asociatii, specializing in mergers and acquisitions, corporate and commercial,
banking and finance. Ms. Anton has helped the Romanian Ministry of Justice
assess the impact of the implementation the new Civil Code, allowing her to
study the changes in detail and to understand the practical legal consequences.
She was graduated from the Faculty of Law at the University of Bucharest and
has a master's degree in European legal studies from the University Pantheon
Sorbonne in Paris.