We’ve heard these three words ‘Guarantee’, ‘Pledge’, and ‘Mortgage’ from several media and news channels most of the time. Many people have been familiarized with those terms while some have not. Let’s find out if each word conveys a similar or different meaning. 

Guarantee, Pledge, and Mortgage are defined as substantive law in Civil and Commercial Code, Chapter 3 under a Nominate Contract. Those three terms consist of major principles which can be defined as follows.

1. Guarantee

A guarantee is a contractual promise that must have a third party or ‘Guarantor’ to make a legally binding to creditor to guarantee debt payment in case debtor doesn’t pay a debt as agreed. When making a guaranteed contract, the evidence must be made in written form with the signature of a creditor; otherwise, filing a lawsuit can’t be made. The guarantee contract must clearly state debt or guarantee contract, and the Guarantor will have legal liability for debt or contract as stated only.
 

If the debtor defaults to pay the debt on due payment as agreed with the creditor, the law states that the creditor is allowed to issue and send a notice to the Guarantor within sixty days after the debtor has defaulted. During that time, the creditor is prohibited to demand the Guarantor to immediately pay the debt until the notice reaches the Guarantor.
 

If the Guarantor has already paid all debts, the Guarantor has the right to seek recourse from a debtor for principal and interest and to protect the loss or any damage regarding that guarantee. Or, at the time of due payment, the Guarantor can request for debt payment with the creditor effective from the debt due date.

The essence of Guarantee

- It’s the guarantee of the third party which means the third party agrees to be bound by the debt of the others.

- There must be Chairman’s contract debt which can come from contract or infringement (Infringement is civil damages or monetary awards granted when a person suffers a loss due to illegal actions of another party, either intentionally or carelessly).

- A Guarantee contract may be either oral or written. However, if the contract is not in written form with the Guarantor’s signature, filing a lawsuit can’t be made.

- The Guarantor has the right to seek recourse from the debtor.


2. Pledge

Pledge is a way to change properties to money quickly and those properties still belong to pledgers. Pledge is an agreement made between pledger and pledgee. Most significantly, the property must be handed over as a financial guarantee for paying the debt. Those properties which are capable of being pledged are called ‘Chattel’ (movable property), such as gold, watch, car, etc. Properties not to be capable of being pledged are Real estate and Non-commercial property (Non-commercial property is property which is not capable of being traded or property which can’t be transferred according to the law, such as stars, sun, monastery land), etc.
 

Pledger can be the debtor or the third party. When making a Pledge agreement, it’s no need to be in written form or any written evidence. The essence of the pledge is to make a clear agreement in order to guarantee debts, and property must be handed over to the pledgee. If the pledger or debtor doesn’t pay the debt on due payment, it’s called ‘Debtor default’. A pledgee or pledgee creditor has the right to put the property up for auction without suing in court.

The essence of Pledge

- The property which is capable of being pledged must be Chattel (movable property), and the pledgee has to be the owner, or the pledgee has a proprietary right in that property.

- That Pledge agreement is an Accessory contract (Accessory contract is entered into primarily for the purpose of carrying out a principal contract and it is made for the purpose of assuring the performance of a prior contract to guarantee debt payment. If the Principal contract is not made, the Accessory contract can’t have existed accordingly.). The Pledge agreement doesn’t need to be in written form or written evidence, but the property must be handed over as a guarantee.

- In case of debt default, the pledgee has the right to put the property up for auction regarding the compulsory acquisition of property.

 

3. Mortgage

A mortgage is close to pledging which is to hand over property as a guarantee of the debt payment. The property which is guaranteed for a mortgage must be Real estate only, such as land, condominium, etc. Briefly, the mortgage is a legal obligation that is established between an individual or two parties to create reliability and confidence in debt payment. Consequently, a contract has to be made between debtor and creditor, and property is handed over as a guarantee of the debt payment. A mortgage is a contract that has to be made in written form and registered in front of the official. A mortgage contract is considered an Accessory contract.
 

Normally, the mortgaged property must belong to the mortgagor. If it’s not, consent must be given by the true owner. The property which is capable of being mortgaged is Real estate including land and real properties attached to the land or everything attached to the land, and which includes properties related to the land or real properties attached to the land, or everything attached to that land. The property which is not capable of being mortgaged is legally registered Chattel (movable property). For example, a Ship/Boat with a net tonnage of 5 or more, Raft, Pack animal, etc.
 

For compulsory mortgage, when the obligation in the principal contract or Principal obligation is on due payment and debtor doesn’t pay the debt, the official must take legal proceedings, that is to file a lawsuit with the court in accordance with the Mortgage contract made earlier. And then the court judgment will be taken to confiscate the mortgaged properties and sell them at auction because the proprietary right still belongs to the mortgagor.
 

The essence of Mortgage 

- Mortgage is an Accessory contract that takes the property as a guarantee for debt.

- The contract must be made in written form and registered in front of the official.

- If the debtor doesn’t pay the debt on due payment, filing a lawsuit in court for a compulsory mortgage will be taken to put the property up for auction.

Therefore, ‘Guarantee’, ‘Pledge’ and ‘Mortgage’ share a similar definition that is to make an agreement or a contract for reliability and as a guarantee for debt payment. However, those three words are much different in terms of law, such as details, regulations, sanctions, conditions, and enforcement of the provisions. Thus, the content mentioned here is presented for primary understanding only. Those who are in need to be engaged in guarantee, pledge or mortgage, should think thoroughly and carefully as you must be bound in the contract or agreement made with the others and you must be responding accordingly.

 

Writer: Nakorn Wallipakorn