Article 8 of the Saudi Commercial Pledge Law
المادة 8 من نظام الرهن التجاري · الفصل الخامس: المحافظة على المال المرهون واستثماره
The article requires the pledgor to own the pledged asset and have capacity to dispose of it, and the asset to be saleable or valuable, and bars pledging estate and bequest assets before the pledgor owns them.
Official text (Arabic)
This article has not been amended since the law was issued.
1- يجب أن يكون الراهن مالكًا للمال المرهون عند إبرام العقد وأهلاً للتصرف فيه، فإن تبين ما يخالف ذلك بعد التعاقد فللدائن المرتهن حسن النية التمسك بحقه في رهن بديل عن المال المرهون بعقد جديد، أو سقوط أجل الدين المضمون والمطالبة بالوفاء به حالاً.
2- يجب أن يكون المال المرهون مما يصح بيعه أو مما يمكن تقدير قيمته.
3- استثناءً من حكم المادتين (التاسعة) و(الخامسة والثلاثين)، لا يصح رهن أموال أو حقوق من تركات أو وصايا لم تدخل في ملك الراهن.
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 8 explained in plain English
This article sets the basic requirements for the pledgor and the pledged asset, in three rules:
1- Ownership and capacity of the pledgor: The pledgor must own the pledged asset when the contract is made and have capacity to dispose of it. If it later appears that this is not the case, the good-faith pledgee may choose one of two things:
- Insist on its right to a substitute pledge in place of the pledged asset by a new contract.
- Or have the term of the secured debt fall away and demand payment of it immediately.
2- Nature of the pledged asset: It must be an asset that may be sold or whose value can be assessed.
3- Estate and bequest assets: It is not valid to pledge assets or rights from estates or bequests that have not entered the pledgor's ownership. The article states that this rule is an exception to Articles 9 and 35:
- Article 9 permits, as an exception to the ownership requirement, pledging a future asset provided that the pledgor and the pledgee expect it to come into existence and the pledgor acquires it before the secured debt falls due.
- As for Article 35, the paragraph mentions it without stating its provision here. Note that the prohibition covers rights as well as assets, and a future right, under the law's definitions, is a debt that a person is obliged to pay to the pledgor within a term, or a debt that has fallen due but has not been collected.
That is, what is expected to pass to the pledgor from an estate or bequest does not fall within this permission.
To assess a particular case, such as determining the pledgee's good faith or choosing between the two alternatives, it is advisable to consult a lawyer specialized in commercial and finance matters.
Practical example
Salem pledged workshop equipment in Riyadh to a supplier to secure the price of goods, and it then turned out that the equipment belonged to his partner, not to him. The supplier did not know this, so it may ask for a substitute pledge by a new contract, or treat the debt's term as fallen away and demand that Salem pay immediately. If Salem instead wanted to pledge his expected share of his father's estate before it entered his ownership, that would not be valid.
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 8 of the Saudi Commercial Pledge Law
Can I pledge an asset the pledgor does not own?
As a rule the pledgor must own the pledged asset when the contract is made and have capacity to dispose of it, with an exception for pledging a future asset on the conditions of Article 9.
What can the pledgee do if it discovers the pledgor is not the owner?
A good-faith pledgee may insist on its right to a substitute pledge by a new contract, or have the term of the secured debt fall away and demand payment of it immediately.
Can I pledge my share of an estate before I own it?
No. The article provides that assets or rights from estates or bequests that have not entered the pledgor's ownership may not be validly pledged.
Articles this article refers to
- Article 9Amended by M/94
استثناءً من حكم الفقرة (1) من المادة (الثامنة)، يجوز الاتفاق على تقديم مال مستقبلي كمال مرهون، بشرط أن يكون وجود المال المستقبلي متوقعًا من الراهن والمرتهن وأن
- Article 35 Repealed
1- يرهن الحق المستقبلي بقيد عقد الرهن في السجل، مع تحديد قيمته وتاريخ استحقاقه واسم المدين بذلك الحق. 2- يشترط لنفاذ رهن الحق المستقبلي إبلاغ المدين به، وتوثيق
More articles on Conditions of the Pledged Asset
- Article 10Amended by M/94
The article provides that the whole pledged asset secures the whole debt unless otherwise agreed, and permits pledging an undivided part of a movable asset even if it cannot be divided.
2- يعد كل المال المرهون ضامناً لكامل الدين، ما لم يتفق على غير ذلك. 3- يجوز رهن جزء من مال منقول ولو استحالت قسمته أو فرزه، ويقع الرهن في هذه الحال على الجزء ال
- Article 12
The article permits pledging more than one movable asset to secure the same debt, and gives the pledgee the right to set the order of enforcement against them unless otherwise agreed.
يجوز رهن أكثر من مال منقول لضمان الدين نفسه، ويحق للمرتهن في هذه الحال تحديد ترتيب التنفيذ على هذه الأموال، ما لم يُتفق على غير ذلك.
- Article 38Amended (1411 AH)
The article permits pledging all of the pledgor's movable assets, a part or class of them, or an adequately described asset, and states when enforcement may take place and the pledgor's right to dispose of the assets before default.
1- يجوز رهن جميع الأموال المنقولة المملوكة للراهن أو جزء منها أو فئة منها، ويجوز كذلك رهن أي مال منقول موصوف وصفً عاماً وكافياً لتعيينه 2- يكون التنفيذ على الره
- Article 43
The article refers the determination of a pledged asset's value and average valuation to the Regulations' rules and procedures, unless the body competent for certain types of assets has its own special procedures.
تحدد قيمة المال المرهون ومتوسط التقويم في الحالات المنصوص عليها في النظام وفق القواعد والإجراءات التي تبينها اللائحة، ما لم يكن لدى الجهة المختصة بتنظيم أنواع م
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.