Jurisdiction - Thailand
Thailand – Case In Brief: “Agreement To Pay The Prepayment Fee At The Rate Of 2%”

26 November, 2014


The agreement to pay the prepayment fee at the rate of 2 % of the loan amount in case a borrower repaid the loan amount in full before the period scheduled in the contract is not deemed as an unfair contract term.

By Supreme Court Judgment No. 17432/2555


Details And Decision Of The Case

To consider whether an agreement is an unfair contract under the Unfair Contract Terms Act, B.E. 2540 (1997) of Thailand, one should consider whether there is character or effect in a way that a party to such agreement is obliged to comply or bear more burden than that prescribed by laws or to bear more burden than that which could have been anticipated by a reasonable person in normal circumstances. Although there is section 203 of the Civil and Commercial Code of Thailand which grants the debtor the right to pay its debt before the time such debt becomes due, it will only apply when there is a doubt regarding the time that the debt must be paid. However, if there is an agreement between the debtor and the creditor or it can be implied by an obvious circumstance that the debtor may not pay its debt before the time which the debtor and the creditor agreed, this section 203 will not apply.

Based on the judgment of the Supreme Court case No. 17432/2555 (2012), the Supreme Court delivered the judgment that the Plaintiff (as the debtor to the loan agreement) must pay the Defendant (as the creditor to the loan agreement) the Prepayment Fee at the rate of 2 % of the loan amount as agreed in the loan agreement made between them and which the Defendant was entitled to receive under section 14 of the Commercial Banking Act B.E. 2505 (1962) as amended by the Commercial Banking Act (No. 2) B.E. 2522 (1979) as it was the applicable law at the time which the loan agreement was made.

According to this case, the Plaintiff and the Defendant had the loan agreement which the Plaintiff agreed to pay the Defendant the prepayment fee at the rate of 2 % of the loan amount in case the Plaintiff repaid to the Defendant the loan amount in full before 5 years from the date of the loan agreement. Thus, it was clear that the debtor was not allowed to pay its debt before such time without the permission from the creditor and section 203 shall not apply to this case. The Plaintiff therefore was obliged to pay the Prepayment Fee to the Defendant if he desired to pay the debt before the said time. The Supreme Court also judged that this agreement was not an unfair agreement under the Unfair Contract Terms Act, B.E. 2540 (1997) since there was no contract term that caused the party to comply or bear more burden than that prescribed by law.


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