Article 21 of the Saudi Commercial Pledge Law
المادة 21 من نظام الرهن التجاري · الفصل السادس: التصرف في المال المرهون وانتقاله
The article lets whoever acquired ownership of the pledged asset clear it by paying the debt, costs and expenses, and then have recourse against the pledgor within the limit of what the pledgor would have paid.
Official text (Arabic)
This article has not been amended since the law was issued.
يجوز لمن انتقلت إليه ملكية المال المرهون تطهيره بأداء الدين المضمون والنفقات والمصروفات التي تكبدها المرتهن، ويحق له في هذه الحال الرجوع على الراهن بما لا يتجاوز إجمالي ما كان سيدفعه الراهن إلى المرتهن، ما لم يتفق مع الراهن على غير ذلك.
This is the official Arabic wording, the only legally binding version. We do not translate the law itself; the explanation below is ours. Official source: Bureau of Experts at the Council of Ministers
Article 21 explained in plain English
This article gives a means to whoever has acquired ownership of a pledged asset, whether by purchase or otherwise, to get rid of the pledge rather than face enforcement against the asset. This means is called clearing.
Clearing is done by the new owner paying the pledgee:
- The secured debt.
- The costs and expenses the pledgee incurred.
After clearing, it may have recourse against the pledgor, but subject to a set ceiling: what it recovers may not exceed the total the pledgor would have paid the pledgee. The new owner may agree otherwise with the pledgor.
This article is connected to Article 20, which provides that the pledged asset passes by inheritance or bequest burdened by the pledge, so clearing is available to whoever acquired ownership of the asset in any of these ways, because the text is general as to whoever acquired ownership.
It is also connected to Article 22, which makes the possessor responsible for the safety of the pledged asset until the pledge ends or enforcement is carried out, and permits the pledgee or the pledgor, as the case may be, to ask the competent court to require the possessor to take the measures necessary to preserve the asset.
Before clearing a pledged asset or agreeing with the pledgor on the terms of recourse, it is advisable to consult a lawyer specialized in commercial and finance matters.
Practical example
A company in Riyadh bought a truck from an establishment and then found that it was pledged to a financing entity. To avoid enforcement against the truck, the company paid the entity the secured debt and the expenses it had incurred, so the truck was cleared of the pledge. The company then has recourse against the pledging establishment for no more than the total the establishment would have paid the entity, unless they agree otherwise.
Translated from our Arabic explanation with machine assistance. For guidance only; it does not replace advice from a lawyer on your situation.
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Frequently asked questions about Article 21 of the Saudi Commercial Pledge Law
What does clearing a pledged asset mean?
It means the person to whom ownership of the pledged asset passed pays the secured debt and the costs and expenses the pledgee incurred, so the asset is freed of the pledge.
Does someone who cleared the asset get back what they paid?
They may have recourse against the pledgor for no more than the total the pledgor would have paid the pledgee, unless they agree otherwise with the pledgor.
Can I agree with the pledgor on a different recourse amount?
Yes. The article provides that the recourse ceiling applies unless the person to whom ownership passed agrees otherwise with the pledgor.
More articles on Disposing of the Pledged Asset
- Article 19
The article lets a pledgee with a right of pursuit enforce against the pledged asset in the hands of whoever acquired its ownership even if unaware of the pledge, and gives that person recourse against the pledgor or seller.
يترتب على ثبوت حق المرتهن في تتبع المال المرهون حقه في التنفيذ عليه في يد من انتقلت إليه ملكيته وإن لم يعلم بوجود الرهن، ويحق لمن انتقلت إليه ملكية المال المرهو
- Article 20
The article provides that a pledged asset passing by inheritance or bequest passes burdened by the pledge, so the pledge does not lapse upon its transfer.
ينتقل المال المرهون بالإرث أو الوصية محملاً بالرهن.
- Article 41
The article allows the pledgee under an effective pledge contract to transfer to others its right to recover the secured debt together with the pledge securing it.
للمرتهن -في عقد الرهن النافذ- أن ينقل إلى الغير حقه في استيفاء الدين المضمون مع الرهن الضامن له.
The texts are reproduced from the official website of the Bureau of Experts at the Council of Ministers for reference; where they differ, the officially published Arabic text prevails. This content is not legal advice.