1. What rules, if any, govern retention of title (RT) in your country? In the absence of rules, what are the principal mechanisms, if any, on which RT is based in your country?

RT in Thailand is governed by Section 459 of the Civil and Commercial Code (CCC).

In principle, the title of ascertained goods will be transferred to the buyer upon the execution of the sale contract, according to Section 458 of the CCC, regardless of whether the payment of the goods has been fully made. In case of unascertained goods, the title will be transferred when such goods are measured or identified according to Section 460 of the CCC.

Section 459, however, allows the parties to agree on a condition or time period to retain the title of the goods with the seller until such condition or time period is fulfilled. In case the buyer is unable to make the payment and the seller decides to terminate the sales contract, the seller can ask for the products delivered back to the buyer, as the owner of the products.

  1. Please describe the characteristics and scope of your country’s RT rules

RT under Thai law is a contractual instrument which is enforceable under Section 459 of the CCC. The parties can agree on the condition or time period to retain the title in the sales contract, details of which are subject to the freedom of contract of the parties, but it shall not be contrary to public order and good morals.

RT can be used with movable goods only. Transfer of title of immovable property is subject to a registration requirement and the title will be transferred upon completion of the registration.

  1. If RT is not regulated in your country, are there similar or commercially equivalent forms of security preserving seller’s rights to the goods?

RT is regulated in Thailand as described above.

  1. What is the relation of RT and passage of risk in your system? How may a seller protect its interest after the passage of risk?

The passage of risk in the Thai legal system is regulated in Section 370 and Section 371 of the CCC.

Section 370 governs the contract aiming to transfer the title of property. Section 370 stipulates that the risk of loss of property due to a cause not attributable to the seller (as a debtor of the title transfer) is to be borne by the buyer (as a creditor of the title transfer):

  • upon the execution of the sale contract, if the property is ascertained; and
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  • in case of unascertained property, the risk of loss will remain with the seller until such property is measured or identified.

In case of a sale contract having a condition precedent, the passage of risk will be governed by Section 371 of the CCC which regulates that the risk shall pass to the buyer upon fulfilment of such condition.

It should be noted that the law refers to the passage of risk to either a ‘creditor’ or a ‘debtor’ and does not directly indicate that the title holder shall bear the risk.

Moreover, this law is not jus cogens. The parties to the sale contract may agree otherwise and it is practicable to separate the point in time when the risk and the title are transferred or to have insurance coverage on the goods to protect the seller’s interests.

  1. What are formal requirements, if any, including timing, to perfect the seller’s right?

There is no special requirement for an RT clause, but the contract has to conform to general requirements of contract law. In case of a sale of movable property valued over THB 20,000, the contract needs to be in written form and signed by the parties in order to be an eligible evidence in court and enforceable.

  1. Effectiveness
  1. Does sale to a third party break RT? What if goods have been transformed or sold?

In principle, the purchase of goods from a seller who is not a title holder shall not entitle the buyer to be a title holder of such goods.

Section 1303 of the CCC, however, protects a bona fide buyer who has paid the price for a property and is in possession of such property, except when such property is acquired through illegal acts, and Section 1332 of the CCC protects a bona fide buyer who has purchased a property from a public auction, an open market or from a trader who deals in such a product. In these cases, the buyer will not be able to enforce RT against the third party.

In case the goods have been transformed, the seller may still be able to enforce RT. If the goods have been mixed with other things and cannot be separated from the mixed item, according to Section 1316 of the CCC, the seller will become a co-holder of the title of the mixed item. Only when the goods are a dominant part of the mixed item, will the seller become a sole title holder of the mixed item against payment for other things input in the mixed item.
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When the buyer has used the goods to produce a new item and the labour cost far exceeds the price of the goods, the buyer will become a sole title holder of the new item in accordance with Section 1317 Paragraph 2 of the CCC.

If yes, is there a possibility to transform the RT in case of a sale to a third party?

According to Section 1332 of the CCC, the seller may recall the goods from a third party against payment of the price paid by such third party for the goods. If this is not possible in practice, the seller has a claim against the buyer for compensation for breach of contract.

  1. Enforcement of RT if delinquent buyer is not insolvent — What is the judicial procedure and what is its likely timeline?

If the seller terminates the contract, the seller can recall the goods from the buyer as the title holder of the products, according to Section 1336 of the CCC. The judicial procedure in the Court of First Instance may take around 1-2 years. If the case proceeds to the Court of Appeal and the Supreme Court, it may take another 3-4 years.

  1. What happens in case of conflict between RT and a buyer’s creditors’ rights, including carrier’s liens?

In a normal case (not a bankruptcy case) and according to the Business Collateral Act B.E.2558 Section 9, if the title is not yet transferred to the buyer, other buyer’s creditors will not have any right over the purchased products, except when the case falls into an exemption such as the case of Section 1332 of the CCC as already mentioned.

According to Section 630 of the CCC, the carrier may retain the cargo until the fee is paid, regardless of whether the buyer is the title owner of the cargo.

  1. Bankruptcy — interaction of RT (which is not contract law) and bankruptcy law
  1. Goods still with buyer

Despite the RT, Section 109(3) of the Bankruptcy Act B.E.2483 (Bankruptcy Act) stipulates that any things in possession of the debtor shall be deemed the debtor’s properties which may be seized by the receiver. The buyer may not claim back the goods as a title holder of such goods. If the buyer becomes bankrupt before making the full payment for the products, the seller may claim for the payment within the normal bankruptcy procedure.

The seller may also submit an objection to the receiver that the goods are not the debtor’s properties in accordance with Section 158 of the Bankruptcy Act.
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  1. Goods already sold by buyer

The seller will have no right over the goods if a third party is protected under Section 1303 or Section 1332 of the CCC as mentioned above and the seller has no preferential right over the money received by the buyer from the sale of the goods or the right of the buyer against the third party.

  1. Time limits to declare title to receiver

Upon seizure of the goods by the receiver, the seller may submit an objection to the receiver in accordance with the Bankruptcy Act Section 158. The receiver will investigate the matter and issue an order. The seller may object to the receiver’s order by submitting a claim to the Bankruptcy Court within 14 days from the date of acknowledgement of the receiver’s order.

In a normal bankruptcy procedure, the creditor has to submit an application to the receiver within 2 months from the date of the publication of the absolute receivership order. If the creditor is not in Thailand, the receiver may extend the deadline for a period not exceeding 2 months.

  1. Who pays storage, insurance and transport during discussions with receiver?

In case of a claim within a normal bankruptcy procedure related expenses will be paid out of the debtor’s properties, but the law is silent for the case of Section 158 of the Bankruptcy Act.

  1. Model clause(s) — Drafting tips

NOTE: The following language is based on contractual provisions commonly seen in this country, but readers should always consult legal counsel before including an RT clause in a contract.

Parties to a sale contract may agree on any condition or time period for the title to be transferred to the buyer, as long as it is not contrary to public order and good morals.

In practice, the common condition is that the title shall pass to the buyer upon full payment of the price.

Example:

Title to the Products shall pass from Seller to Buyer once the payment of such Products has been made to the Seller in full.