IS IT A
TIME TO USE "POWER OF SALE" FOR SOLVING
MORTGAGE ENFORCEMENT PROBLEM IN THAILAND?
By
Manisara Chulasamaya*
1. INTRODUCTION
Nowadays loan with securities are widely accepted as
a result of the requirement of working capital and long-term financial
of the business. The most important type of securities is a mortgage.
The increasing complexity of our society and the increasing
in the member of business transaction has inevitably leaded to a great
number of legal disputes. The expansion of the court system however
has failed to keep pace with this growth. Consequently, the problem
of excess cases is considered a primary problem of the justice procedure
of every country. Even Thai court start using continuous hearing but
the parties still have to wait for a while before their cases are on
trial. Mortgage law is one such area of difficulty.
Thai mortgagees have been facing the problems of enforcing
the mortgaged property for a decade. This problem happens not only from
the complexity of the court proceeding but also from the process of
execution and public auction. All these three processes cause the slowness
in mortgage enforcement. The problem in enforcement of mortgage in Thailand
is not only the problem between the parties of the contract but also
the problem of the whole economic system in Thailand.
II. WHAT IS A "MORTGAGE"?
Generally, the mortgage is an interest in property
created by a written instrument providing security upon repayment of
a loan or the performance of some other obligations. The borrower is
known as the "mortgagor", the lender as the "mortgagee".
The mortgagor is still the owner of the property and may utilize such
property during the mortgage term until the loan is in default; the
mortgagee is entitled to be paid out of the mortgaged property in preference
to ordinary creditors. When the loan becomes due and the debtor is in
default, the mortgagee has the right to enforce the mortgage. The right
to enforce the mortgaged property of the mortgagee is depended upon
the mortgage law of each country.
III. THAI MORTGAGE LAW
Thai mortgage law is governed under the Civil and Commercial
Code (1998) and Civil Procedure Code (1997). According to Section 702
under the Civil and Commercial Code, the meaning of the mortgage is
a contract whereby a person, called the mortgagor assigns a property
to another person, called the mortgagee, as security for the performance
of an obligation, without delivering the property to the mortgagee.
Thai mortgage has two different ways to enforce the mortgage: public
auction and foreclosure the mortgaged property(1).
It is found that it is a must that the process of mortgage enforcement
in Thailand begins at the court. The mortgagee files his cases to the
court in order to obtain a sell order from the court. Nevertheless,
Thai court procedure is very complex and time consuming. Therefore,
a lot of fraudulent mortgagors use loophole of the law to prolong the
case. Some mortgagors may use the loophole of the law in order to delay
their cases by asking the court for postponing the trail or calling
for more witnesses. Moreover, after the court has passed a judgment
they may appeal to the Appeal Court and the Highest Court, respectively.
Therefore, for the whole process the case can be in the court proceeding
for almost 10 years. Nonetheless, even the court has already issued
judgments to foreclose the mortgage property; the mortgagee still has
to wait the executing officer on behalf of the Execution Department
in order to sell such property through the process of execution of the
said judgments or orders. At this stage, in the past (before the execution
law has amended) the fraudulent debtor can prolong this process for
a few more years.
The problem of mortgage enforcement in Thailand has
led to many follow problems to Thailand.
For these reasons, it would be beneficial to the Thai
economy if the problem of delaying in mortgaged enforcement can be solved.
This article is a possible alternative way to solve the problem of delaying
in mortgaged enforcement by using power of sale.
IV.WHAT IS THE "POWER OF SALE"?
"Power of sale" is a mortgagee's power to
sell a mortgaged property by himself out of court when a mortgagor is
in default (subject to rules and conditions of law). This power will
help the mortgagee receiving the repayment within a proper period of
time. In practice, this is the remedy of the mortgagee which is most
commonly used, in conjunction with entry into possession. The great
advantage, from the mortgagee's point of view, of the power of sale,
is that it enables the mortgagee to recover his capital without difficulty
so that he can invest it elsewhere.
England also faced the same problem Thailand is facing
right now. In his book, The Law of Mortgages(3), Edward
mentioned that during the early part of the eighteenth century while
the mortgagee could only sell or foreclose through the proceeding of
the court, it was significant that the delays of the Chancery courts
were at their worst during that period. Moreover, it was also tedious
and expensive. Hence, to avoid this problem England created the power
of sale principle, giving the mortgagee power to sell out of court.
However it took almost 65 years for the development of this principle.
In the beginning the mortgagee only had power of sale if it was stated
in the express power in the mortgage deed then in Lord Cranworth's Act
1860, and subsequently in the Conveyancing Act 1881 and the Law of Property
Act 1925.
Since it takes time to adopt the principle of power
of sale into the mortgage law, this would be an appropriate time for
Thailand to consider giving the power to sell out of court to the mortgagee.
If Thailand does not take any action now, this problem will become worst.
V. POWER OF SALE UNDER THE ENGLISH MORTGAGE
LAW
Before Thai will adopt or amend the principle of mortgaged
enforcement. We should compare Thai mortgage with other countries' law.
In this article, I will compare with the English mortgage law. The English
mortgagee has five useful remedies available for enforcing payment.
Three of the remedies are primarily directed to recovering the capital
due and putting an end to the security. They are an action for the money,
foreclosure, and power of sale. The other two remedies are taking possession
and appointing a receiver(4).
In the case of power of sale, the mortgagee is empowered
with the right to sell the mortgaged property by himself out of court.
This right will eliminate the complexity in the court and also save
the time. On the other hand, Thai mortgagee has no such power; Thai
has to ask the court for the sell order or foreclosure order, which
as mentioned earlier, the process in the court can easily be very long.
I will only focus on the right to sale out of court
since this article suggest to use the "power of sale" to solve
the problem. The power of sale in English Law of Mortgage; this power
will help the mortgagee receiving the repayment within a proper period
of time. "In practice, this is the remedy of the mortgagee which
is most commonly used, in conjunction with entry into possession. The
great advantage, from the mortgagee's point of view, of the power of
sale, is that it enables the mortgagee to recover his capital without
difficulty so that he can invest it elsewhere(5)."
Under English law, the mortgagee of land in Thailand has originally no implied power
to sell securities when the mortgagor is in default unlike a mortgagee
of stocks or shares and a mortgagee of personal chattels who is in possession.
However, the mortgagee of land can exercise power of sale according
to an express or statutory power or by the consent of the mortgagor.
The power of sale creating either by deed or by virtue
of the Act shall have the same result. Nonetheless, this principle will
be applied only so far as a contrary intention is not expressed therein(6).
In Twentieth Century Banking Corp Ltd v Wilkinson [1976] 3 All E.R.
361. the court held that if there no provision was made in the legal
charge for the principal sum to become due prior to repayment date,
the statutory power of sale conferred by the Law of Property Act 1925
s. 101 was excluded.
Part
2
* LL.B. (Hons) (Chulalongkorn),
Barrister-at-Law, LL.M. (Reading University, UK), Lecturer in Law, Dhurakijpundit
University.
(1) Section 728 For enforcement of mortgage the mortgagee
must notify the debtor in 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 mortgage may enter an action in Court for a judgment
ordering the mortgaged property to be seized and sold by public auction.
(Civil and Commercial Code)
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 same property. (Civil
and Commercial Code)
(2) Pollop, S. and Boonbumrung, W. (1999) The Procedure
of Petty Cases and Simple Cases, Thammasart Law Journal, Issue 3 p428.
(3) Cousin, E.F. and Ross, S. (1989) The Law
of Mortgages. London: Sweet & Maxwell Limited.
(4)
Megarrey, R. (1993) A Manual of the law of real property. London: Sweet
& Maxwell
(5) Fairest, B. P. (1980) Modern Legal Studies MORTGAGES.
London: Sweet & Maxwell
(6) Tyler, E.L.G. (1998) fisher & Lightwood's Law
of Mortgage. London: Butterworths.
