LAW OF OBLIGATION ACT, PART 9, CHAPTER 46

Part 9

SECURITIES 

Chapter 46

GENERAL PROVISIONS 

  • 917. Definition of security

(1) A security is any instrument to which a patrimonial right is attached in a manner which precludes the exercise of the right without the instrument.

(2) In the cases provided by law, rights which are expressed and transferred only by the making of a registry entry are also deemed to be securities. Unless otherwise provided by this Act, the provisions concerning rights contained in this Act and the Law of Property Act do not apply to such rights.

[RT I 2004, 37, 255 – entry into force 01.05.2004]

  • 9171. Pledging of securities upon provision of financial collateral

(1) If book entry securities specified in subsection 917 (2) of this Act and § 2 of the Securities Market Act are encumbered on the basis of a financial collateral arrangement specified in § 3141 of the Law of Property Act, the registrar of the securities register is required to maintain records on the securities such that the securities subject to financial collateral are separated from other securities held in the account of the pledgor.

(2) With regard to securities encumbered with financial collateral, the registrar of the register of the corresponding securities shall:

1) only fulfil the orders of the pledgee as of the date of entry into force of the irrevocable right to dispose of the securities encumbered with financial collateral granted to the pledgee and communicated to the registrar of the securities register by the pledgor;

2) fulfil the joint orders of the pledgor and pledgee until the date specified in clause 1) of this subsection.

[RT I 2004, 37, 255 – entry into force 01.05.2004]

  • 918. Types of securities

(1) A bearer security is a security which grants the holder of the security the right to demand performance of an obligation arising from the security or to exercise any other right arising from the security.

(2) A negotiable security is a security which grants the person indicated on the security or another person ordered thereby the right to demand performance of an obligation arising from the security or to exercise any other right arising from the security. If the name of the person entitled on the basis of the security is indicated on the security, the security is presumed to be an order security.

(3) A registered security is a security which grants the person indicated on the security the right to demand performance of an obligation arising from the security or to exercise any other right arising from the security, and which is not an order security.

  • 919. Performance of obligations arising from securities

(1) A person obligated on the basis of a security shall perform the obligation only if the security is transferred to the person. A person obligated on the basis of a security shall not demand transfer of the security if the person is to perform other obligations on the basis of the security.

(2) An obligation arising from a registered security shall be performed for the benefit of the person who holds the security and proves that the security is issued in the name of the person and who transfers the security.

(3) An obligation arising from an order security shall be performed for the benefit of the person who holds the security and proves that the security is issued in the name of the person or transferred thereto by means of an endorsement, and who transfers the security.

(4) If a person obligated on the basis of a security performs the obligation in good faith for the benefit of the person entitled on the basis of the security, the obligation is deemed to have been performed even if the person for whose benefit the obligation is performed is not the actual obligee.

(5) If a person obligated on the basis of a security performs the obligation for the benefit of a person who does not prove that the person is the person indicated on the registered or order security or, in the case of an order security, that the security has been transferred to the person by means of an endorsement, the person obligated on the basis of the security is not released from the obligation to perform for the benefit of the person actually entitled on the basis of the security.

  • 920. Restrictions on defences by person obligated on basis of security

(1) A person obligated on the basis of a bearer security or order security may set up only the following defences against a claim arising from the security:

1) defences against the validity of the security;

2) defences arising from the security itself;

3) defences which the person obligated on the basis of the security may personally set up against the person entitled on the basis of the security.

(2) The person obligated on the basis of a security may set up defences, which do not arise from the security itself but from the relations of the obligated person with persons previously entitled on the basis of the security, against a claim of a person entitled on the basis of the security, only if the person entitled on the basis of the security knowingly damaged the interests of the person obligated on the basis of the security upon acquisition of the security.

  • 921. Transfer of security

(1) In order to transfer a right arising from a bearer security or to encumber the right with a usufruct or to the pledge the right, the security shall be transferred pursuant to the provisions concerning the transfer of movables.

(2) In order to transfer a right arising from an order security, the transferor shall, in addition to transferring the security, write an endorsement on the security or the slip attached thereto (allonge).

(3) A right arising from a registered security shall be transferred pursuant to the provisions concerning the transfer of the corresponding right, concurrently with the transfer of the security. A right arising from a registered security shall be transferred by a written contract on transfer unless agreed otherwise.

(4) Upon the transfer of a security by an endorsement, the rights arising from the security for the person writing the endorsement (the endorser) shall transfer to the transferee unless the security or endorsement indicates otherwise. The provisions concerning bills of exchange apply to the writing of an endorsement on a security, to certification of the rights of the person entitled on the basis of the security and to acquisition of a security in good faith by means of endorsement.

(5) If a security issued in order to secure performance of an imperfect obligation is transferred, the new holder who has acquired the security in good faith may exercise the rights arising from the security.

  • 922. Alteration of type of security

The issuer of a security may alter the type of the security only with the consent of all persons obligated or entitled on the basis of the security, whereupon such consent shall be written on the security itself or on an allonge.

  • 923. Destruction or loss of security

(1) If a bearer security is no longer suitable for use due to damage or for another similar reason, the holder may demand that the issuer of the security issue a new security if the holder returns the unsuitable security and the content and special characteristics of the security are identifiable.

(2) In the case of loss or destruction of or damage to a security and pursuant to the provisions of civil procedure, a claim may be filed for declaration of the security invalid in court by way of calling proceeding.

[RT I 2008, 59, 330 – entry into force 01.01.2009]

(3) At the request of a holder whose security has been lost, destroyed or damaged, the issuer of the security is required to provide the holder with information necessary for initiating a calling proceeding and for suspending payments and to issue the necessary certificates.

[RT I 2008, 59, 330 – entry into force 01.01.2009]

(4) If a bearer security is declared invalid, the person who filed the corresponding application may demand that the issuer of the security issue a new security to replace the security which was declared invalid.

(5) A person submitting a request specified in subsection (1), (3) or (4) of this section shall bear the expenses relating to the provision of certificates and the issue of a new security and other expenses relating to the satisfaction of the request and, if the issuer of the security so requires, pay such expenses in advance.

  • 924. Limitation period for claims arising from securities

(1) The limitation period for a claim arising from a security shall be three years as of the due date for the performance of the obligation.

(2) If a security is presented to the person obligated on the basis of the security for the performance of an obligation arising from the security, the limitation period shall be one year as of expiry of the term during which the security can be presented for the performance of an obligation arising from the security.

(3) The issuer of a security may indicate the limitation period and the commencement date thereof on the security differently than provided for in subsections (1) and (2) of this section.

(4) In the case of a calling proceeding which is initiated for the purpose of declaring a security invalid, the running of the limitation period shall be suspended with regard to the person who files the application for the security to be declared invalid. In such case, suspension terminates upon termination of the calling proceeding.

[RT I 2008, 59, 330 – entry into force 01.01.2009]

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