Bangkok Legal Service

Priority of Registered Real Rights over Immovable Property: Contractor’s Preferential Right, Unpaid Purchase Price, and Subsequent Mortgage

Mr. Daeng sold to Mr. Dam a house and a parcel of land covered by a title deed for the price of THB 500,000, by a written agreement duly registered before the competent official on the date of transfer. At the time of registration, Mr. Dam paid only THB 400,000, leaving an unpaid balance of THB 100,000 owed to Mr. Daeng as the seller. Thereafter, Mr. Khao agreed to extend the existing house by constructing four additional rooms for a contract price of THB 80,000, and, prior to commencing the work, properly registered his preferential right for the contractor’s wages. Upon completion of the construction, however, Mr. Dam failed to pay the construction price. The work performed by Mr. Khao increased the value of the house and land by THB 50,000. Subsequently, Mr. Dam mortgaged the house and land to Mr. Khiao as security for a loan of THB 400,000, and such mortgage was also duly registered before the competent official.

If Mr. Dam defaults and Mr. Daeng, Mr. Khao, and Mr. Khiao all seek satisfaction of their respective claims out of the house and land, the order of payment must be determined according to the law governing registered preferential rights and mortgage over immovable property. Mr. Khao, as the contractor who registered his preferential right before the commencement of construction, is entitled to receive payment in the first priority, but only to the extent of the increase in value of the immovable property resulting from his work. Since the construction increased the value of the property by THB 50,000, his recoverable amount from the property is limited to THB 50,000, notwithstanding that the agreed contract price was THB 80,000.

After satisfaction of Mr. Khao’s preferential right, Mr. Daeng, as the unpaid seller of the immovable property, is entitled to payment in the second priority for the unpaid balance of the purchase price in the amount of THB 100,000, assuming his right has been duly registered in accordance with the law. Only after these two prior registered preferential claims have been satisfied does Mr. Khiao, as the mortgagee, become entitled to enforce the mortgage and receive payment in the third priority, up to the mortgage debt of THB 400,000, from the remaining value of the property.

Accordingly, the legal order of priority is as follows: first, Mr. Khao in the amount of THB 50,000, being the amount by which the immovable property increased in value; second, Mr. Daeng in the amount of THB 100,000 as unpaid purchase price; and third, Mr. Khiao as mortgagee, up to THB 400,000 from the balance remaining after prior claims have been discharged. This conclusion is based on the rules governing registered preferential rights over immovable property and the ranking of such rights in relation to a subsequently registered mortgage under the Civil and Commercial Code.