BRIEFING
NEW PROTECTION FOR THAI GUARANTORS
AND MORTGAGORS
11 FEBRUARY 2015
 AMENDMENTS TO THE THAI CIVIL
AND COMMERCIAL CODE COME
INTO EFFECT TODAY.
 THESE CHANGES AFFECT THE WAYS
GUARANTEES AND MORTGAGES
CAN BE GIVEN.
 BANKS AND OTHER LENDERS NOW
NEED TO REVISE THEIR STANDARD
TERMS AND CONDITIONS FOR
GUARANTEES AND MORTGAGES TO
CONFORM TO THE NEW LAWS.
Amendments to the Thai Civil and Commercial Code (“CCC”) which
change the way guarantees and mortgages can be given come into effect
today despite vocal opposition by major Thai banks.
“THE NEW LAWS ARE
IN FAVOUR OF
GUARANTORS AND
MORTGAGORS AND WILL
SUBSTANTIALLY REDUCE
THE AMOUNT OF RISK
LENDERS CAN SHIFT TO
THIRD PARTIES PROVIDING
SECURITY TO THE
LENDER.”
The new laws are in favour of guarantors and mortgagors and will substantially
reduce the amount of risk lenders can shift to third parties providing security to
the lender. The new laws apply to personal guarantors and mortgagors as well
as corporate guarantors and mortgagors. Bank lenders are affected as well as
non-bank lenders.
The new laws specify a number of mandatory provisions which the parties cannot
contract out of. Guarantees and mortgages entered into which differ from the
mandatory provisions will be void: the new laws do not limit the invalidity to the
offending provision and the entire contract of mortgage or guarantee will be
void, not just the offending provision.
Failure by a lender to comply with the new provisions can limit the amount of
costs and expenses recoverable by the lender.
Banks and other lenders now need to revise their standard terms and conditions
for guarantees and mortgages to conform to the new laws – lenders using old
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“BANK LENDERS ARE
AFFECTED AS WELL AS
NON-BANK LENDERS.”
standard forms which do not conform to the new laws will reap a large number
of void guarantees and mortgages.
The new laws do not have the effect of invalidating guarantees or mortgages
which have been entered into prior to February 2015, but failing to take into
account the new enforcement requirements could result in lenders losing their
entitlement to interest.
Guarantees
It is a common feature of the Thai banking industry for banks and other lenders
to require a guarantee before extending loan finance to a borrower and many
guarantees are drafted on terms which are highly favourable to the lenders. The
new laws require lenders to remove certain terms from guarantees to prevent the
guarantees from being void or unenforceable. Examples of some of these terms
are set out below.
“…LENDERS USING OLD
STANDARD FORMS WHICH
DO NOT CONFORM TO
THE NEW LAWS WILL REAP
A LARGE NUMBER OF
VOID GUARANTEES AND
MORTGAGES.”
Often lenders require “all money” guarantees which secure all amounts which are
owed at any time by the borrower with the result that the guarantor could
become liable for new loans taken out by the borrower after the date of the
guarantee and the obligations of the guarantor could continue for an indefinite
period.
The new laws require guarantees to clearly specify the duration and amount of
the guaranteed obligation and also to specify the main agreement which is being
guaranteed: the guarantor’s liability is now limited to the obligations specified in
the guarantee, effectively prohibiting all-money guarantees.
One exception to the requirement to specify duration is when the guarantee
secures amounts payable under a series of transactions, in which case the current
law entitles the guarantor to disclaim liability for future transactions by giving
notice to the lender. Lenders often require guarantors to agree not to issue such
notice, however under the new laws a guarantee is void if it seeks to prevent the
guarantor from exercising its statutory right to disclaim liability for future
transactions. This effectively prevents a lender from obtaining an enforceable
guarantee for a series of future transactions.
“…EFFECTIVELY
PROHIBITING ALL-MONEY
GUARANTEES.”
When borrowers experience difficulty repaying, lenders will often reschedule loan
payments by extending the time in which the borrower can repay the loan.
Guarantors are often asked to provide consent in advance to any such loan
rescheduling however under the new laws this will no longer be effective. If a
lender grants an extension to the borrower without obtaining the agreement of
guarantor at the time of the extension, the guarantee will be discharged.
If a borrower is in default of its payment obligations, the new laws change the
way in which a lender can enforce a guarantee and will require the lender to
notify the guarantor of the default within 60 days. Lenders failing to comply with
the notification requirement lose their rights to recover interest and costs &
expenses against the guarantor incurred after the 60 day notice period.
Guarantors are also frequently asked to be jointly liable with the borrower as this
entitles the lender to claim against the guarantor without first having to
commence proceedings against the borrower. The new laws prevent a lender
from requiring a guarantor to be jointly liable with the borrower and any
guarantee contravening this requirement is void.
NEW PROTECTION FOR THAI GUARANTORS AND MORTGAGORS
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Mortgages
Lenders often require a third party to grant a mortgage over its assets if the
borrower has insufficient assets to provide security and it is common practice to
require a mortgagor to also provide a guarantee in addition to the mortgage.
“…LENDERS CAN NO
LONGER REQUIRE A
MORTGAGOR TO
PROVIDE A GUARANTEE.”
Lenders can no longer require a mortgagor to provide a guarantee: lenders must
choose only one and any attempt to require both will result in the guarantee
being void even if the guarantee is in a separate agreement from the mortgage.
The new laws change the way in which a lender can enforce a mortgage and will
require the lender to provide the borrower with at last 60 days’ notice to perform
prior to enforcement and to provide a copy of the notice to the third party
mortgagor within 15 days of delivering the notice to the borrower. If the lender
fails to comply with the notification requirement, it loses its rights to recover
interest and costs & expenses against the mortgagor incurred after the 15 day
period.
The new laws also entitle a third party mortgagor to insist on the sale of the
mortgaged property at any time after the secured obligation becomes due if
there are no other mortgages or preferential rights on the property, in which case
the mortgagee is obliged to carry out a sale by auction within one year of
receiving notice from the mortgagor.
Affected laws in more detail
The tables below identify the new provisions of the CCC relating to guarantees
and mortgages, compared with the superseded provisions. The text is an English
summary and it is highly recommended that lenders review the original Thai
wording (preferably with their Thai legal advisors) prior to placing reliance on any
of these changes.
GUARANTEES
Current law
New law
“Section 681. Suretyship can be given
only for a valid obligation.
“Section 681. Suretyship can be given
only for a valid obligation.
A future or conditional obligation may
be secured for the event in which it
would have effect.
A future or conditional obligation may
be secured for the event in which it
would have effect but the purpose,
type, amount of guaranteed money,
the period of such obligation must
be specified. Except the suretyship
for a series of transactions under
section 699 may not specify the
period.
An obligation, resulting from a
contract which under mistake or
incapacity does not bind the debtor,
can be validly secured if the surety at
the time when he binds himself knows
such mistake or incapacity.”
The guarantee agreement must
clearly specify the obligation or the
main agreement which is being
guaranteed. The guarantor shall be
liable only to such obligation or
agreement.
An obligation, resulting from a
contract which is conducted under
mistake or incapacity does not bind
the debtor, can be validly secured if
the surety at the time when he binds
himself knows such mistake or
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incapacity.”
“Section 681/1. An agreement which
binds the guarantor to be jointly liable
with the debtor or as joint debtors is
void.”
“Section 694. In addition to the
defences which the guarantor has
against the creditor, he can also set up
defences which the debtor has against
the creditor”
“Section 685/1. Any agreement in
relation to guarantee which is different
from section 681 paragraph 1, 2 and
3, section 694, section 698 and
section 699 is void.”
“Section 698 The guarantor is
discharged as soon as the obligation
of the debtor is extinguished by any
cause whatsoever”
“Section 699 The suretyship for a
series of transactions without limit of
time in favour of the creditor can be
terminated by the guarantor for the
future by giving notice to the creditor to
that effect.
In such case the guarantor is not liable
for transactions done by the debtor
after the notice has reached the
creditor.”
“Section 686. As soon as the debtor is
in default, the creditor is entitled to
demand performance of the obligation
from the surety.”
“Section 686. As soon as the debtor is
in default, the creditor must notify the
guarantor within sixty days since the
default date and the creditor cannot, in
any case, demand performance of the
obligation from the guarantor before
he receives such notification. The
foregoing however shall not prevent
the guarantor to pay the debt when it
is due.
If the creditor fails to notify the
guarantor within the time specified in
paragraph 1, the guarantor is
discharged of the interest and
reimbursement including any charges
accessory to it which is incurred after
such period.
When the creditor demands
performance of the obligation from the
guarantor or the guarantor is entitled
to pay the debt as specified in
paragraph 1, the guarantor may pay
all debt or pay debt in accordance with
the conditions and procedures that the
debtor has with the creditor before the
debtor is in default. The guarantor
may pay debt only for the part he is
liable to. Section 701 paragraph 2
must apply mutatis mutandis.
During the period of payment by the
NEW PROTECTION FOR THAI GUARANTORS AND MORTGAGORS
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guarantor in paragraph 3, the creditor
cannot call for more interest incurred
because of the default of the debtor
during such period.
The payment of debt by a guarantor in
this section does not affect the rights of
the guarantor in section 693.”
“Section 691. If the surety is bound
jointly with the debtor, he has not the
rights mentioned in Sections 688, 689
and 690.”
“Section 691. In the event that the
creditor has performed any action which
causes to reduce the amount of
guaranteed debt including interest,
reimbursement or any charges accessory
to it, if (i) the debtor repays the reduced
debt or (ii) the debtor partially repays the
reduced debt but the guarantor repays
the rest of the debt or (iii) the debtor fails
to repay the reduced debt but the
guarantor recovers the reduced debt
whether the payment is overdue, the
guarantor shall be discharged.
Any agreement which causes more
burden to the guarantor than as
specified in paragraph 1 is void.”
“Section 700. If suretyship has been
given for an obligation which is to be
performed at a definite time, and the
creditor grants to the debtor an
extension time, the surety is
discharged.
The surety is not discharged if he
agreed to the extension of time.”
“Section 700. If suretyship has been
given for an obligation which is to be
performed at a definite time, and the
creditor grants to the debtor an
extension time, the surety is discharged
unless he agreed to the extension of
time.
An agreement that the guarantor
has made in advance as regards his
consent to the extension of time
before the creditor grants an
extension time is not enforceable.”
MORTGAGES
Current law
New law
Section 714/1. A contract of
mortgage is void on account of its
differing from provision of Section
728, Section 729 and Section 735.
Section 727. If a person has
mortgaged his property as security for
the performance of an obligation by
another person, the provisions of
Sections 697, 700 and 701
concerning Suretyship shall apply
mutatis mutandis.
Section 727. The provision of Section
691, Section 697, Section 700 and
Section 701 shall apply, mutatis
mutandis, in case of a person who has
mortgaged his property as security for
the performance of an obligation by
another person.
Section 727/1. In no case shall a
mortgagor, who has mortgaged his
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property as security for the
performance of an obligation by
another person, be liable in an
obligation in excess of the value of
property mortgaged at time of
enforcement of mortgage or
foreclosure of the mortgage.
An agreement which may cause a
mortgagor to be liable in excess of
those provided in paragraph one or
which may cause a mortgagor to be
liable as a guarantor is void, whether it
is an agreement attached to the
contract of mortgage or in a separate
contract.
Section 728. For enforcement of
mortgage the mortgagee must notify
the debtor on writing to perform his
obligation within a reasonable time to
be fixed in the notice. If the debtor fails
to comply with such notice, the
mortgagee may enter an action in
Court for a judgment ordering the
mortgaged property to be seized and
sold by public auction.
Section 728. For enforcement of
mortgage, the mortgagee must notify
the debtor in writing to perform his
obligation within a reasonable time
which shall not be less than 60 days
from the date the debtor has received
the notice. If the debtor fails to comply
with such notice, the mortgagee may
enter an action in Court for a
judgment ordering the mortgaged
property to be seized and sold by
public auction.
Under paragraph one, if it is a case of
a mortgagor who has mortgaged his
property as security for the
performance of an obligation by
another person, the mortgagee must
deliver such notice to a mortgagor
within 15 days from the date of
delivery of the notice to the debtor. If
the mortgagee fails to proceed with the
prescribed action within 15 days, the
mortgagor shall be discharged from
liabilities in interest and compensation
due by the debtor on account of the
obligation and all charges accessory to
it from the day after the lapse of 15
days from such date.
Section 729. In addition to the remedy
provided in the foregoing section, the
mortgagee is entitled to claim
foreclosure of the mortgage, subject to
the following conditions:
(1) The debtor has failed to pay
interest for five years;
(2) The mortgagor has not satisfied the
Court that the value of the property is
greater than the amount due; and
(3) There are no other registered
mortgages or preferential rights on the
Section 729. For the enforcement of
mortgage stipulated under Section
728, if there is no other mortgage or
preferential rights on the same
property, the mortgagee is entitled to
claim foreclosure of the mortgaged
property, subject to the following
conditions in lieu of sell by public
auction:
(1) The debtor has failed to pay
interest for five years; and
(2) The mortgagee has satisfied the
NEW PROTECTION FOR THAI GUARANTORS AND MORTGAGORS
same property.
Court that the value of the mortgaged
property is less than the amount due.
Section 729/1. At any time after the
obligation becomes due, if there are
no other registered mortgage or
preferential rights on the same
property, the mortgagor is entitled to
notify the mortgagee in writing for the
mortgagee to carry out sale of the
mortgaged property by public auction
with no requirement to enter into an
action in Court. The mortgagee shall
carry out sale of mortgaged property
by public auction within one year from
the date of receiving such letter of
notification. It shall be deemed that the
letter of notification from the
mortgagor is the letter of consent to
sale by public auction.
If the mortgagee fails to carry out sale
of mortgaged property by public
auction within the period prescribed in
paragraph one, the mortgagor shall
be discharged from liabilities in interest
and compensations due by the debtor
on account of the obligations and all
charges accessory to it after the lapse
of the said time.
On enforcement of the mortgage, the
mortgagee must appropriate the net
proceeds to the extinction of the
obligation and accessories and must
return the surplus to the mortgagor or
any person entitled to it. If the
proceeds are less than amount due, it
shall be carried out in accordance with
provision in Section 733. In case the
mortgagor is a person who mortgaged
his property as security for
performance of an obligation by
another person, the mortgagor shall
be liable to the extent as specified in
the provision of Section 727/1.
Section 735. When the mortgagee
intends to enforce the mortgage
against the transferee of a mortgaged
property, the latter must be served with
a written notice one month before the
enforcement of the mortgage.
Section 735. When the mortgagee
intends to enforce the mortgage
against the transferee of a mortgaged
property, the mortgagee shall notify
the transferee with a written notice no
less than 60 days before the
enforcement of the mortgage.
Section 737. The transferee may
remove the mortgage at any time, but
if he has been notified by the
mortgagee of the mortgagee's
intention to enforce the mortgage, he
Section 737. The transferee may
remove the mortgage at any time, but
if he has been notified by the
mortgagee of the mortgagee’s
intension to enforce the mortgage, he
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must do so within one month
thereafter.
must remove the mortgage within 60
days from the date of receipt of the
notice.
Section 744. A mortgage is
extinguished:
Section 744. A mortgage is
extinguished:
(1) By extinction of the obligation
secured, otherwise than by
prescription.
(1) By extinction of the obligation
secured, otherwise than by
prescription.
(2) By release of the mortgage granted
in writing to the mortgagor.
(2) By release of the mortgage granted
in writing to the mortgagor.
(3) By the mortgagor being
discharged.
(3) By the mortgagor being
discharged.
(4) By the mortgage being removed.
(4) By the mortgage being removed.
(5) By auction sale of the mortgaged
property by order of the Court as a
result of enforcement or removal of
mortgage.
(5) By auction sale of the mortgaged
property by order of the Court as a
result of enforcement or removal of
mortgage or by auction sale of the
property under Section 729/1.
(6) By foreclosure of the mortgage.
(6) By foreclosure of the mortgage.
CONTACTS
Should you like to discuss any of the matters raised in this Briefing, please speak
with one of the authors below or your regular contact at Watson Farley & Williams.
CHRIS OSBORNE
Partner
Bangkok
KRIT JULAPANICHAKUM
Associate
Bangkok
JIRADA KITTAYANUKUL
Associate
Bangkok
+66 2 665 7837
cosborne@wfw.com
+66 2665 7841
kjulapanichakum@wfw.com
+66 2665 7828
jkittayanukul@wfw.com
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