Published On: Thu, Jul 28th, 2016

Civil and Commercial Code: Right of Retention

According to Section 241 of the Civil and Commercial Code, anyone who lawfully possesses property belonging to another person and the possessor has an obligation in his favor that relates to the property possessed, then the possessor may retain the property until the obligation has been fulfilled. However, an interesting legal question arises as to when a property is deemed to relate to an obligation. A recent Thai Supreme Court decision, No. 8752/2556, addressed this issue briefly.

The background of the case was that the Deceased had entered into a loan agreement with the Defendant and offered an N.S.2 document (a type of deed less than a full title deed granting rights to land) to the Defendant as security. The loan was not repaid, but the Plaintiff who was the administrator of the Deceased’s estate, sued the Defendant for the return of the N.S.2 document on the grounds that the obligation in favor of Defendant was not related to the property.

Specifically, the Plaintiff argued that the obligation in favor of Defendant was only a loan agreement and the Deceased’s obligation to pay back Defendant was not related to the land itself.

The Court was in agreement, but nevertheless ruled against Plaintiff: “The Deceased delivered the document (N.S.2) to the Defendant as security for repayment of the debt according to the loan agreement, although it did not create the right of retention on behalf of Defendant because the debt was only loan money that Defendant would have received back from Plaintiff and was not a debt… related to the land in the document; in any case, once the Deceased delivered the document to Defendant as security for a loan agreement, which Defendant had the right to enforce in court, and the Defendant has not yet been paid back, Defendant may still retain the property.

In Thai Supreme Court Decision No. 6664, the Thai Supreme Court came to a similar conclusion. It held that property used to secure a loan agreement was not related to the obligation to repay back the loan and that in such a case, the creditor would not have the right of retention over the property. Nevertheless, it enforced the creditor’s right of retention on the grounds that the loan agreement specifically gave the right to the creditor to retain the property unless the loan was repaid.

One possible rationale for the above decisions is that by adjudicating that the creditor does not have the right of retention (although still granting him the right to retain the property nevertheless) the creditor is thereby not required to follow the legal rules related to the right of retention as detailed in the Civil and Commercial Code.

Thai law is very complex and can be quite different from that of other jurisdictions. It is always advised to seek competent legal counsel when entering in the legal contracts in Thailand.

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