The 2015 Civil Code stipulates that Lien on property is a measure to ensure the fulfillment of obligations. Lien on property is a legal mechanism to protect the party entitled to payment in contracts where both parties have obligations. In this article, TNTP will present the basic content you need to know about the measure of securing the performance of obligations: the measure of Lien on property.
1. Concept of Lien on property
Lien on property means that the obligee (hereinafter referred to as the lienor) who is legally possessing the property being an object of a bilateral contract is entitled to retain the property when the obligor fails to perform the obligations or has performed the obligations not strictly as agreed upon. A bilateral contract is a contract in which each party has obligations to the other.
2. Effectiveness of Lien on property
• The moment of binding effectiveness among parties is when one party violates an obligation in the contract, and the subject of the contract is the property of the breaching party.
• The moment of counteractive effectiveness: Article 347(2) of the 2015 Civil Code stipulates that Lien on property becomes counteractively effective against third parties from the moment the holder seizes the property. According to this regulation, the counteractive effectiveness against third parties of the holder is determined based on the actual possession of the property, entirely independent of registering the Lien on property measure. However, the actual possession of the property begins from the moment the obligated party fails to perform or improperly performs its obligation, so the binding effectiveness among parties and counteractive effectiveness arise simultaneously.
3. Rights and obligations of the lienor
Lienor has the following rights and obligations:
• Request the obligor to fulfill completely the obligations arising from a bilateral contract.
• Require the obligor to pay expenses necessary for taking care of and keeping such property.
• Exploit the property to obtain yield and income therefrom with the consent of the obligor. The value of benefits from the exploitation of the property shall be offset against the value of the obligation of the obligor.
• Take care and preserve the property.
• Do not change the status of the property.
• Do not transfer or use the property without the consent of the obligor.
• Return the property upon the complete performance of the obligation.
• Compensate for lost or damaged property.
4. Lien right execution
• Lienors shall only hold properties or parts of properties directly related to infringed obligations. In case subjects of infringed obligations include multiple properties, lienors have the rights to select properties to hold.
• In case subjects of infringed obligations are works that create products, lienors shall hold created products or materials necessary for production. In case subjects of infringed obligations are works that do not create products, lienors shall hold tools and equipment handed over by obligors to conduct tasks.
• In case held properties generate profit that is not a result of extraction of held properties, lienors must hand the generated profit to obligors. In case lienors are managing profit where subjects of obligations have been handed over to obligors before the obligors infringe obligations, lienors shall hold the profit until obligations to the lienors have been fulfilled.
5. Termination of lien on property
A lien on property shall terminate in any of the following cases:
(i) The lienor actually no longer retains the property;
(ii) Contracting parties shall agree on another security instead of retain on property;
(iii) Upon the complete performance of the obligation;
(iv) The property ceases to exist;
(i) As agreed by the parties.
6. Lien right guarantee
• In case competent agencies or competent individuals as per relevant law provisions request lienors to hand over held properties to settle the case as per the law, handing over of held properties in such case shall not at as the basis for termination of lien in properties.
• In case property owners or other competent individuals include held properties in civil transactions, lienors shall not have obligations to hand properties to parties that participate in the civil transactions, except for following cases:
(i) The obligation to lienors has been fulfilled;
(ii) The obligation towards the holder has not been fulfilled, but falls under the termination of Lien on property as stipulated in cases (i), (ii), or (v) mentioned in Part 5 of this article.
This article, “Lien on property – Basic content you need to know” is presented by TNTP. In case of any issues requiring discussion, please contact TNTP for timely assistance.