Article 6 of the Saudi Commercial Pledge Law
المادة 6 من نظام الرهن التجاري · الفصل الثالث: نفاذ عقد الرهان
The article provides that a pledge contract that has not become effective against third parties remains valid and produces its effects between the pledgor and the pledgee.
Official text (Arabic)
This article has not been amended since the law was issued.
يكون عقد الرهن غير النافذ في مواجهة الغير صحيحًا منتجًا لآثاره بين الراهن والمرتهن.
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 6 explained in plain English
This article distinguishes between two matters in a pledge contract:
- Validity of the contract between its parties: The pledgor and the pledgee being bound by what they agreed.
- Effectiveness of the contract against third parties: The ability to rely on the pledge against persons outside the contract.
The article provides that failing to complete the procedures for effectiveness against third parties does not invalidate the contract; it remains valid and produces its effects between the pledgor and the pledgee. So the pledgor cannot escape its obligations toward the pledgee on the ground that the pledge has not completed the procedures for its effectiveness.
But as long as it is not effective, the contract cannot be relied on against third parties. Article 6 does not deal with the procedures for effectiveness against third parties; it is limited to stating that failing to complete them does not affect the contract's validity between its two parties. Under the law's definitions, a pledge contract includes any amendment to it or addition to it.
A pledgee who settles for a valid but ineffective contract protects only its relationship with the pledgor. Article 7 explains that the pledged asset secures, in addition to the principal debt, the expenses of preserving it, investing it, collecting its proceeds and enforcing against it.
To assess whether a particular pledge contract has completed its procedures for effectiveness and what follows from that, it is advisable to consult a lawyer specialized in commercial and finance matters.
Practical example
A merchant in Dammam pledged a group of his machines to a creditor company by a written contract, and the procedures for the pledge to be effective against third parties were not completed. When the company demanded that he comply with the pledge terms, he argued that the pledge was not effective. Under this article the contract remains valid and binding on him toward the pledgee company, although it cannot be relied on against third parties.
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 6 of the Saudi Commercial Pledge Law
Is an unregistered pledge contract void?
No. Article 6 provides that a pledge contract not effective against third parties is valid and produces its effects between the pledgor and the pledgee.
What is the difference between a pledge being valid and being effective?
Validity means the contract is binding between the pledgor and the pledgee, while effectiveness means it can be relied on against third parties.
Can the pledgor get out of the pledge because it is not effective against third parties?
No. A pledge contract not effective against third parties remains valid and produces its effects between the pledgor and the pledgee under Article 6.
More articles on Registering the Pledge and Its Effectiveness
- Article 4Amended by M/94
The article makes a pledge contract effective against third parties by public notice or by transfer of possession of the pledged asset to the pledgee or custodian, under the Law of Security Rights over Movable Assets.
يعد عقد الرهن نافذاً في مواجهة الغير بالإشهار أو بانتقال حيازة المال المرهون إلى المرتهن أو المعدل، وذلك وفقاً لأحكام نظام ضمان الحقوق بالأموال المنقولة
- Article 5Amended by M/94
The article prevents changing the custodian in a commercial pledge except by agreement of the pledgor and the pledgee, and gives the custodian the right to claim compensation for damages from the change.
1- لا يجوز تغيير العدل إلاَّ باتفاق الراهن والمرتهن، ويحق للعدل المطالبة بالتعويض عن أي أضرار ترتبت على هذا التغيير.
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.