Article 3 of the Saudi Commercial Pledge Law

This article deals with a common situation in commercial dealings: a pledge is requested before the debt becomes established and due from the debtor. The article permits a pledge to be made to secure a debt that is not established against the debtor at the time of contracting.

The article gives two examples of such a debt:

• Conditional debt: A debt that is established only if a particular event agreed by the parties occurs.
• Contingent debt: A debt that may or may not arise depending on the dealings between the parties.

The second important rule is that the pledge is considered effective from the date of the pledge contract, not from the date on which the debt is later established. The pledge does not wait for the debt to be established before taking effect.

This rule connects with Article 2, which requires, for a pledge contract to be treated as written, that it include details such as: the general description of the secured debt or its amount or the maximum limit it reaches, as the case may be, the date of the pledge contract, and the due date of the debt or the expected due date of a debt that is not established. So the contract should state these details clearly even for a debt that is not yet established.

Article 4 also explains that a pledge contract becomes effective against third parties by public notice or by transfer of possession of the pledged asset to the pledgee or the custodian, which is separate from the pledge being effective between its two parties.

Note that Article 2 makes the law's provisions apply to a written pledge contract over a movable asset securing a debt. To know the effect of this rule on a specific agreement, it is advisable to consult a lawyer specialized in commercial and finance matters.