BANK LIABILITY IN LAND AUCTIONS WITHOUT LEGAL BASIS OF OWNERSHIP: CASE STUDY NO. 662 PK/PDT/2023

Abstract

Land auctions as an instrument for executing mortgage rights play a crucial role in civil law and banking practices in Indonesia, yet they often create legal issues when the auctioned object lacks valid ownership. Although procedurally considered legitimate, in practice there is a significant gap between normative provisions and actual implementation, particularly in ensuring legal protection for third parties. Previous studies have mainly focused on procedural aspects and debtor defaults, while the issue of banks’ liability in auctions of land without valid ownership remains understudied. Therefore, this study aims to analyze the legal responsibility of banks in defective land auctions, with a specific focus on Supreme Court Decision No. 662 PK/PDT/2023. The research method employed is normative juridical with a case approach, supported by literature review of relevant legislation. The findings reveal that the Supreme Court emphasized the liability of the bank as the creditor who negligently failed to verify ownership, declaring the bank and the debtor to have committed an unlawful act and holding them jointly liable to pay compensation. This ruling reflects a balanced application of the principles of legal certainty, justice, and utility, while providing an important precedent for banking practices to adopt stricter due diligence in executing mortgage rights. Accordingly, this study contributes to strengthening the understanding of third-party protection in civil law and supports the need for regulatory reforms in land auctions in Indonesia.