What is a pledge agreement and when to use it

A pledge agreement is a contract by which a debtor or a third party provides an item or right as collateral for securing a debt.
If the debtor defaults, the creditor may sell the pledged asset to satisfy the debt.

Common examples:

• car or property pledged to secure a loan,

• a company pledging receivables or shares,

• parents pledging their apartment for their child’s loan.

Legal framework

Governed by the Czech Civil Code (Sections 1312–1394).
A pledge may involve:

• movable or immovable property,

• a right (e.g. receivable, share, deposit),

• intellectual property or securities.

The pledge becomes effective:

• upon registration (e.g. land register),

• or transfer of possession,

• or as otherwise provided by law.

Key elements of a pledge agreement

• Parties to the contract

• Specification of secured debt

• Precise identification of the pledged asset

• Legal form and effectiveness

• Rights and duties of the parties

• Enforcement method

• Signatures and date

Common mistakes

• Failure to register pledge = ineffective against third parties

• Vague or inaccurate asset description

• Securing a non-existent debt without clear future clause

• No procedure for enforcement (sale, auction)

• Collateral in possession of debtor without protection

Recommendations

Creditor:

• Insist on clear asset identification and register the pledge.

• Add an agreement on out-of-court enforcement.

Pledgor:

• Clarify terms and avoid over-secured obligations.

• Avoid pledging essential assets without safeguards.

Practice tip

Never underestimate the legal and financial weight of a pledge – especially if it involves real estate or business assets.
A well-drafted agreement and correct registration are critical.

Basic pledge agreement template – available for a symbolic fee

I offer a simple pledge contract template (for cars, loans, receivables, etc.) in Czech-English version for a symbolic fee.

For complex assets (real estate, shares, IP), I recommend individual drafting.

Contact me by e-mail or contact form – fast and safe solution.

FINAL THOUGHTS – WHAT NOW?

A pledge agreement isn’t just a formality – it’s a legal shield, if drafted properly. And a trap, if not.

Do you want to be sure your contract will hold up even in a crisis? Get in touch and let’s schedule a meeting. I am a specialist on contract law – more information here.