In practice, there are many cases where the parties to a mortgage contract wish to change the mortgaged property (collateral) for various reasons and replace it with another collateral. So, does the law allow the parties to change the mortgaged property? Let’s learn about this issue with PL & Partners through the following article.
Article 317 of the Civil Code 2015 provides:
|“Mortgage is a security interest for the performance of an obligation, one party shall use its own property to secure the performance of the obligation and shall not deliver the property to the other party.”|
And pursuant to Article 321 of the Civil Code 2015 stipulating the rights of the mortgagor, including the rights to: sell, replace, or exchange the mortgaged property, if such property is a commodity circulated in the process of production and business. In this case, the right to demand payment from the buyer, the proceeds, the property formed from the proceeds, and the replaced or exchanged property becomes the mortgaged property.
For example: Company M borrows money from Bank T, and the collateral for the loan is the volume of goods Company M produces. In this case, Company M has the right to sell this collateral to the customer/partner without Bank T’s consent.
For other mortgaged properties not falling into the above case, the mortgagor has the right to change the mortgaged property if it is agreed by the mortgagee.
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The article is based on the current legal regulations at the time of writing, and it may no longer be valid or relevant at the time you are reading it due to changes of the law. The article, therefore, is seen as reference only.