Understand what subrogation and legal policy

Subrogation is a term in civil law that may sound foreign to some people, but this concept plays an important role in the relationship of debt, especially when involving a third party who pays off debt. This mechanism often appears in banking practices, insurance, to guarantees. This article will review in full about the definition of subrogation, the legal basis in Indonesia, as well as its application in the practice of civil law.

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What is subrogation?

Subrogation is the transfer of rights from third parties to third parties who have obtained debit to creditors. In other words, a third party replaces the credit position.

In the legal context of law, subrogation is a form of transition, where parties who pay the debt of others have the right to claim debit as the right owned by creditors.

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Legal basis for subrogation in Indonesia

The subrogation is regulated in the Civil Code (Civil Code), namely in:

1. Article 1328 of the Civil Code, regarding payments made by third parties.
2. Article 1400 Civil Code, that subrogation is a replacement of rights by a third party who pays the creditor.
3. Article 1401 of the Civil Code, regulates the subrogation that occurs due to the agreement.
4. Article 1402 of the Civil Code, regulates the subrogation that occurs due to law.

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Type of subrogation

Based on the Civil Code and Civil Law Doctrine, subrogation is divided into two, namely:

1. Legal Subrogation (Judge subrogation), which is also referred to as a subrogation because of the law. This subrogation occurs automatically, without requiring special agreement or agreement. For example, the owner of the goods guaranteed to pay debts to free the goods.
2. Conventional subrogation (Party Subrogation), which is also referred to as a subrogation because of the agreement or the will of the parties. This subrogation must be agreed upon and can be poured into the repayment deed and/or receipt that states that the payer replaces the creditor.

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Sample subrogation application

Examples of subrogation applications are as follows:

1. Legal subrogation

A is a debtor, B is a creditor, and c is the guarantor A. When A fails to make payment, c pays debt A to B. then legally, c automatically replaces B position as the creditor against A.

2. Conventional subrogation

A owed B to Rp 100 million, c agreed to pay debt A to B on condition c would have the same bill against A. B approved and included in the receipt that C replaced B. Rights, then C legally became a new creditor against A (conventional subrogation).

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Differences in Subrogation and Cessie

The following are the differences between subrogation and cessie:

1. Subrogation

Is a third party replacement in the position of the creditor because it has paid debtors to the creditor. This can happen because of the law (automatic) or agreement (conventional), which is not required to do notification to the debtor. The aim is to give rights to third parties who have committed repayment. Parties who pay debtors as well as recipients of rights are third parties who are the guarantor or interested parties. An example is an insurance company replacing losses and collecting third parties to cause losses.

2. Submission

Is the transfer of the right of billing (receivables) from old creditor to new creditor based on the agreement. This can only happen through a clear agreement. The aim is to move the right of the right to other parties and can be for commercial purposes, which must be notified or approved by the debtor. There is no payment of debt, only the transition of the right to collect with other parties (individuals/legal entities) who buy/receive receivables. An example is Bank A sells its receivables to finance companies (Factoring).

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Subrogation conditions

Subrogation can occur in two forms namely legal (law) and conventional (agreement). Each has different conditions, which are as follows:

1. Provision

Subrogation automatically occurs if:

1. Payment is made by the guarantor (Borg), i.e. the guarantor is required to pay if the debtor defaults.
2. Payment is made by the owner of the goods burdened with a mortgage or pawn to free the goods.
3. Payment is made by a third party with direct interest in the repayment.
4. Does not require explicit approval from creditors or debtors.
5. Provision
   • There is an explicit approval from the creditor that a third party will replace its position.
   • Strictly stated in the receipt of repayment and/or special deed that the payer replaces the rights of the creditor (billing rights, guarantees, interest, etc.).
   • Payment is made by a third party, not by the debtor itself.
   • Without fulfilling the above conditions, third parties are only considered to help payment, not creditors.

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The benefits of subrogation to third parties

Subrogation provides legal protection and certainty to third parties that melt debt, especially in the context of business agreements and accommodation. The following benefits are:

1. Gain

Third parties have the right to collect debtors for the amount that has been paid to the creditor.

2. Inherit guarantee rights

Including the right to mortgage, pawn, other mortgage rights. The third party who replaces the creditor also receives a guarantee inherent in the original debt.

3. Avoid financial or legal losses

For example the guarantor is not disadvantaged because it can demand back to the debtor, or the owner of the goods does not lose assets because it can collect the debtor.

4. Facilitate commercial transactions

Subrogation allows insurance companies to demand third parties that cause losses. Also banks or financial institutions can still collect debt from the debtor even though the right rights have been switched to those who pay.

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(This article has been edited by the perqara editorial team)

Legal basis

1. Civil Code (Civil Code).

Reference

1. Muhammad Yunus and Eko Raharto, “Practice of Positive Legal Perspectives and Fatwa of the National Sharia Council (DSN-MUI)”, Journal of Sharia Economics StudyVol. 4, No. 2, (2022): p. 15-23.
2. Yumei Karuniawati, “Comparison of Subrogation and Cessie by Law Civil law And General Law“, Scientific Journal of the Faculty of Law, Mataram University(2020): p. 1-12.
3. Jifer Naki, “Subrogation as one of the reasons for the elimination of the engagement according to the Civil Code (BW)”, Private Law Journal Vol. 7, No. 1, (2019): p. 31-38.