Author: TNTP LAW

Credit contracts and the handling of collateral are integral parts of the financial and banking system, promoting economic development and helping businesses and individuals access capital. However, when parties fail to fulfill their commitments or when disputes arise, resolving these disputes over credit contracts and handling collateral becomes complex and hard to deal with.

1. Credit contracts and collateral

A credit contract is a written legal agreement between the lender (credit institution) and the borrower (individual or legal entity) regarding the provision of a loan with specific terms on interest rates, loan duration, and repayment methods.

Collateral (or security) is the asset that the borrower uses to secure the loan, and where the borrower cannot fulfill their repayment obligation, the lender has the right to handle the collateral to recover the debt.

2. Common arising disputes

Disputes over credit contracts are types of disputes arising from the relationships between parties in a credit contract. The content of disputes often revolves around issues such as:

• Disputes due to breaches of obligations in the credit contracts: The borrower does not comply with the commitments on principal and interest payments according to the contract terms or violations related to the misuse of funds, providing false information.

• Disputes regarding the parties establishing and performing the contract: Disputes about the legal status and authority of the parties when signing the contract, or ambiguities about the rights and obligations in the contract.

• Disputes over the law governing credit contracts: Conflicts regarding the choice of applicable law and dispute resolution methods.

• Particularly common now are disputes arising from the implementation of security interest for credit contracts and the handling of collateral.

3. Causes of disputes in the process of handling collateral

Article 295 of the Civil Code 2015 has specifically detailed the conditions for collateral:

• Collateral must be under the ownership rights of the securing party, except for the cases of lien on property or title retention.
• Collateral may be described broadly but must have enough information to identify.
• Collateral may be existing property or off-plan property.
• The value of collateral may be greater, equal or smaller than the value of the secured obligation.

Additionally, the Civil Code 2015, Law on Credit Institutions 2010, and accompanying legal documents provide detailed regulations on the process of handling collateral. However, in practice, the handling of collateral faces many difficulties, mainly due to the following reasons:

• There are many cases where during the process of handling collateral, credit institutions do not fully notify the asset owner and the borrower or do not follow the process to handle the asset correctly. This often leads to disputes and a lengthy dispute-resolution process in court.

• Disputes can also arise during the auction and sale of collateral. The lack of transparency in the auction process, unreasonable sale price, or the borrower and collateral owner not being timely informed about the auction of their property can lead to legal disputes over the recognition or cancellation of auction results.

• In some cases, the collateral is related to the interests of third parties (e.g., co-owners, beneficiaries of the asset, etc.). If handling the collateral affects the interests of third parties, it can cause disputes.

4. Solutions for resolving disputes

• Negotiation and Mediation: This is the first and preferred method of resolving disputes to avoid prolonged conflicts and minimize legal costs. Parties can seek the solution through direct negotiation or use mediation services from a third party.

• Arbitration: This is an alternative dispute resolution method to court and is often used when the parties have an arbitration clause in the contract. The arbitration process is usually quicker and less costly than litigation in court, and the arbitration result has high legal binding power.

• Court: Resolving disputes in court is a common method currently used. If parties do not comply with the judgment, they will be enforced by the Enforcement Agency. However, the court resolution process can be lengthy.

Disputes over credit contracts and handling collateral are complex processes, requiring strict adherence to legal regulations. To minimize disputes and ensure the lawful rights of all parties involved, credit institutions, as well as borrowers and guarantors, should consider consulting or seeking support from experienced lawyers in this field. Lawyers can provide accurate legal advice, help parties understand their rights and obligations, and guide the handling of complex legal situations. This not only ensures transparency and fairness in the handling process but also reduces legal risks and avoids unnecessary prolonged disputes. Seeking support from legal experts and a team of lawyers will be an important step to protect the rights of the parties.

The above article, “Disputes over credit contracts and handling of collateral” is presented by TNTP to our valued readers. If you have any issues for discussion, please contact TNTP for support.

Best regards,

The mortgage is a useful source for debt recovery when the borrower fails to repay the debt on time and in full. However, in practice, the realizing of mortgaged assets by the lender does not always proceed smoothly. During the execution of the contract, especially in the stage of realizing mortgaged assets, disputes between the parties often arise. In this article, TNTP will present several methods that parties in a mortgage relationship can apply to resolve disputes.

1. Types of disputes arising from mortgage contracts

Disputes arising from mortgage contracts are varied, but basically include the following types:

• Disputes related to the parties establishing and performing the contract;
• Disputes due to violations of the form of the mortgage contract;
• Disputes over ownership and use of the mortgaged asset;
• Disputes due to breaches of obligations in the mortgage contract;
• Disputes in selecting the method of realizing the mortgaged asset;
• Disputes when negotiating and valuing the mortgaged asset;
• Disputes over the priority order of payment and the discrepancy between the value of the mortgaged asset and the secured loan amount in the mortgage contract;
• Disputes related to the applicable law and jurisdiction for dispute resolution.

2. Methods for resolving disputes arising from mortgage contracts

Several common methods for resolving disputes arising from mortgage contracts include negotiation, mediation, arbitration, and court litigation.

• Negotiation:

The participants include the parties in the mortgage contract and lending contract relationship. Additionally, the parties may seek support from third parties such as lawyers, experts, etc. The parties will meet and discuss to reach a mutual agreement, but this agreement is not binding and relies entirely on the voluntary compliance of the parties.

• Mediation:

In this method, besides the parties involved in the mortgage contract and lending contract relationship, a mediator’s assistance is also required. The mediator acts as an intermediary to help the parties reach a dispute resolution agreement. The mediator can advise and propose solutions, which the parties may accept or reject, or propose alternative solutions. The mediator does not have the authority to impose solutions on the parties. If the mediation is successful, for the result to be enforceable, the mediation agreement must be submitted to the court for recognition as per the Civil Procedure Code. If the parties fail to reach a resolution through mediation, they may proceed to resolve the dispute through arbitration or court, depending on their agreement.

• Arbitration:

The parties must have an arbitration agreement to resolve disputes through arbitration. The arbitration agreement can be established before or after the dispute arises. Depending on the parties’ agreement, the arbitration can be an arbitration center or ad hoc arbitration. When the parties reach a dispute resolution agreement, the arbitration tribunal will prepare a mediation record and then issue a decision recognizing the parties’ agreement. This decision is final and has the same value as an arbitral award. Arbitral awards are binding on the parties, providing an advantage over negotiation and mediation.

• Court litigation:

This is the most common method that parties use to resolve disputes arising from or related to mortgage contracts after unsuccessful negotiation attempts. One of the parties must submit a lawsuit petition to the court, clearly stating the facts of the case, the claims, and relevant evidence. During the court proceedings, the plaintiff must undertake several tasks, such as paying court fees in advance, attending court meetings and sessions, preparing statements, and providing additional evidence as requested by the judge, participating in the trial, etc. The court’s judgment/decision is binding on the parties, and if the obligor does not voluntarily comply, the other party has the right to request enforcement through the competent civil enforcement agency.

The above article on “Dispute resolution methods arising from Mortgage contracts” is presented by TNTP to readers. TNTP hopes this article provides valuable insights for readers.

Best regards,

In judicial practice, there are still different views on the right to re-initiate a case when the Court has issued a decision to suspend the resolution of a civil case. Case law no. 50/2021/AL is an example of the Court determining whether the involved parties have the right to re-initiate the case. This is a case where a legally effective judgment or decision of the Court resolves the division of property, but this judgment or decision has not been enforced because the judgment creditor has not requested enforcement of judgment and has not received real property. When the statute of limitation for requesting enforcement of judgment expires, the person to whom the Court delivered the new property has a dispute to reclaim the delivered property according to the judgment or decision that has been issued. Hereinafter, TNTP will analyze the Court’s judgment more clearly in this case.

1. Contents of the case:

a) In the petition dated January 4, 2005, the plaintiff Mr. Nguyen Van N presented: He and Ms. Nguyen Thi T got married in 1963 and they have a house located on a plot of land in village B, Commune X (house no. 04 H street, area A, ward C, Hue city) with the area of 1,490m2. In 1968, Mr. N departed to the North. In 1975, Mr. N returned home, and Ms. T had another husband, so they divorced.

b) In Civil Court of Appeal No. 43/DSPT dated May 13, 1977, the People’s Court of Binh Tri Thien province granted Mr. N and Ms. T a divorce. Regarding the separation of property, Mr. N has the right to use a part of the land within the above land plot, which contains the grave of Mr. N’s father, with a boundary drawing drawn up by the Court attached to the judgment. After the appeal judgment took effect, Mr. N fulfilled his child support obligation, and the authorities divided the land according to the Court’s drawings.

c) In 2001, Mr. N returned to his hometown to build an ancestral house but Ms. T obstructed, so he sued to request that Ms. T return the property, which is land use rights according to the judgment, and restore the current state of the boundary as divided by the judgment.

d) The defendant, Ms. Nguyen Thi T, admitted to being married to Mr. N, then divorced according to Judgment No. 43 dated May 13, 1977. In 1968, Mr. N went to the North. In 1969, there was Mr. N’s death notice, so Ms. T married another husband. From the date of the judgment, the judgment creditor, Mr. N, did not file a request application for enforcement of the judgment, so Ms. T did not accept returning the land to Mr. N because she believed that the land was left to her by Ms. T’s father.

e) In First Instance Civil Judgment No. 08/2006/DSST dated June 21, 2006, the People’s Court of Hue City, Thua Thien Hue province decided:

Accept Mr. Nguyen Van N’s request to force Ms. Nguyen Thi T to return the land use rights of an area of 452.85m2 (with sides 37.5; 38.55; 36.14) which is the property established under Judgment No. 43/DSPT dated May 13, 1977, on which there is the grave of Mr. N’s father in plot number 42, cadastral map sheet number 28, with an area of 1,997.06m2 at house number 04, H street, area A, ward C, Hue city (location of Mr. N’s plot of land is attached in the drawing).

f) After the first instance trial, Ms. T appealed.

g) The Appellate Judgement No. 55/2006/DSPT dated December 11, 2006 of the People’s Court of Thua Thien Hue province decided:

Vacate the First Instance Civil Judgment No. 08/2006/DSST dated June 21, 2006 of the People’s Court of Hue City, Thua Thien Hue Province on the dispute over property rights and land use rights between the plaintiff, Mr. Nguyen Van N and the defendant, Ms. Nguyen Thi T. Suspended the resolution of the case. Return the petition to Mr. Nguyen Van N.

h) After the appeal trial, Mr. N complained.

i) In Appeal Decision No. 708/2009/KN-DS dated December 10, 2009, the Chief Justice of the Supreme People’s Court protested against Civil Appeal Judgment No. 55/2006/DSPT dated December 11/ 2006 of the People’s Court of Thua Thien Hue province, commented:

• Mr. N’s land use rights were determined in Appeal Judgment No. 43/DSPT dated May 13, 1977. Mr. N has the right to sue for the property in a new civil case. The Court of Appeal determined that Mr. N did not have the right to sue and returned the lawsuit to Mr. N, which was unreasonable.

• Requesting the Civil Court of the Supreme People’s Court to conduct a cassation trial to vacate the above-mentioned civil appeal judgment and vacate the First Instance Civil Judgment No. 08/2006/DSST dated June 21, 2006 of the People’s Court of Hue city, Thua Thien Hue province; delivering the case file to the People’s Court of Hue city, Thua Thien Hue province for re-trial under the provisions of law.

j) At the cassation trial, the representative of the Supreme People’s Procuracy agreed with the appeal of the Chief Justice of the Supreme People’s Court.

2. Comments of the Court:

• Based on the documents in the case file, there is a basis for concluding that Mr. Nguyen Van N and Ms. Nguyen Thi T got married in 1963. Mr. N and Ms. T have a house located on the plot of land in Village B, Commune X (now house number 04, Street H, Area A, Ward C, Hue City) area of 1,490m2. In 1968, Mr. N departed to the North. When Mr. N returned home in 1975, Ms. T had another husband, so they consented to a divorce.

• In Appellate Judgement No. 43 dated May 13, 1977, the People’s Court of Binh Tri Thien province granted Mr. N and Ms. T a divorce and decided on the responsibilities of raising children and dividing property. According to the decision in the judgment, Mr. N was entitled to a part of the land within the above land plot (with a boundary division diagram drawn up by the Court attached to the judgment). Due to working conditions far from home, Mr. N left the land in its original state. In 2001, Mr. N returned to his hometown to build an ancestral house, but Ms. T obstructed, neither side did not agree on the land boundary and Ms. T did not agree to return the land to Mr. N. Therefore, Mr. N sued to request Ms. T to return the land according to the legally effective Court of Appeal.

• Up to now, Ms. T is still the manager and user of the land that the People’s Court of Binh Tri Thien province assigned to Mr. N. According to Ms. T, Mr. N had not filed a request for execution of the judgment and the Appellate Judgment mentioned above had not been enforced. The statute of limitation for the enforcement of the judgment had expired according to the provisions of the law.

• Key point of Case law: According to the law, Mr. N’s land use rights to the disputed land were determined in Appellate Judgment No. 43 dated May 13, 1977 of the People’s Court of Binh Tri Thien Province. The Court must not resolve the relationship between who is the legal landowner, but suing to reclaim property is a different legal relationship. If the statute of limitation for the enforcement of the judgment is still available, Mr. N has the right to request the judgment enforcement agency to force the land delivery according to Judgment No. 43 dated May 13, 1977 of the People’s Court of Binh Tri Thien province. However, now that the statute of limitation for requesting the enforcement of the judgment has expired, Mr. N has the right to sue to reclaim his property through a new civil case. In this case, if there is no basis to determine that Mr. N has given up his property rights, Mr. N’s request for a lawsuit must be accepted.

• The Court of Appeal determined that Mr. N did not have the right to sue and returned the lawsuit to Mr. N is unfounded. On the other hand, the Courts at all levels have not yet verified and reviewed land management and use, tax declaration and payment; Opinion of the competent State agency on whether or not to recognize the legal use rights for this land.

• The Court of First Instance accepted Mr. N’s request to force Ms. Mr. N’s father, but not taking the effort to preserve and repair the land for Ms. T as well as the amount of land tax Ms. T paid into account is not appropriate. The Court of Appeal vacated the first instance judgment of the People’s Court of Hue City to suspend the resolution of the case; returned the petition to Mr. N is not consistent with the law.

• Therefore, the appeal of the Chief Justice of the Supreme People’s Court has the ground for acceptance.

3. Comments on Case law:

• Regarding the prescriptive periods for requesting execution of the civil judgment:

– In Clause 1, Article 30 of the Law on Enforcement of Civil Judgments 2008 (“Law on ECJ”) stipulates: “Within 5 years after a judgment or ruling takes legal effect, the judgment creditor and judgment debtor may request a competent civil judgment enforcement agency to issue a judgment enforcement decision.”

– Thus, the statute of limitation for the enforcement of the judgment is 05 years. After this time, if the judgment creditor does not request the competent civil judgment enforcement agencies to issue a decision to execute the judgment, the judgment will be considered invalid, unless the judgment creditor can prove that he or she has a reason for not being able to request to execute the judgment on time (Clause 3, Article 30 of the Law on ECJ 2008).

In this case, Civil Court of Appeal No. 43/DSPT was issued on May 13, 1977, but until 2001, Mr. N returned to his hometown to build the ancestral house. According to the regulation, the final time that Mr. N has the right to request execution of a civil judgment is in 1982, which means the statute of limitation for the enforcement of the Civil Appellate Judgment No. 43/DSPT has expired.

• Regarding the right to sue to reclaim property through a new civil case:

– According to the Civil Appellate Judgement No. 43/DSPT dated May 13, 1977, the Court decided that Mr. N had the right to use a part of the land within the plot of land containing Mr. N’s father’s grave, which means this Judgement only records the separate of the land plot for Mr. N upon divorce. This is completely different from Mr. N suing to claim Ms. T when Mr. N was prevented by Ms. T from building an ancestral house, which means that suing to reclaim property – is a completely new lawsuit and is not related to the request to initiate a lawsuit to resolve a civil dispute (divorce).

– Article 256 of the Civil Code 2005 reads: “Lawful owners and/or possessors shall have the right to request the persons possessing, using or receiving benefits from the property under their lawful ownership or possession rights without a legal basis to return such property…”

– The request to sue for the return of property is a request that Mr. N has not submitted to the Court in previous cases. Therefore, it is unreasonable for the Appellate Court to vacate the first instance judgment and suspend the case resolution. At the same time, we also found that Mr. N returned to his hometown to build an ancestral house, which is a basis to consider and determine that Mr. N did not waive his property rights. Therefore, there is a well-founded basis to accept Mr. N’s request to sue for the return of property.

Above is TNTP’s article on “Case law No. 50/2021/AL regarding the right to initiate a lawsuit to reclaim the property of the person to whom the property is delivered according to a legally effective judgment or decision“. We hope this article will be helpful to our readers.

Sincerely,

Lending activities always carry numerous risks due to various reasons, such as borrowers failing to repay, repaying incompletely or late, or losing the ability to pay. To mitigate these risks, lenders often require borrowers to implement security measures such as pledges, mortgages, or third-party guarantees. Among these measures, mortgage is a commonly chosen option by lenders. To implement this measure, the parties must enter into a mortgage contract. In this article, TNTP will outline the key points that parties need to consider when entering into a mortgage contract.

1. Form of the mortgage contract

Article 319.1 of the 2015 Civil Code stipulates that “The mortgage contract takes effect from the time of conclusion, unless otherwise agreed or otherwise provided by law.” Thus, the above regulation implicitly confirms that the mortgage is only recognized if the parties enter into a mortgage contract. If the obligor fails to perform or improperly performs their obligations, the mortgagee has the right to handle the mortgaged asset.

In practice, the content regarding asset mortgage can be separately documented (commonly known as a mortgage contract) or recorded as clauses within the main contract (loan contract). However, for certain types of mortgaged assets, the law requires that the mortgage document be notarized, authenticated, and registered as a secured transaction, so parties usually prioritize creating a mortgage contract. For example, mortgage contracts for land use rights and assets attached to land must be notarized or authenticated.

2. Content of the mortgage contract

Law does not stipulate mandatory contents for a mortgage contract. Therefore, the parties will specify terms suitable to their circumstances and actual conditions. Basic terms that should be included in a mortgage contract are:

• Information of the mortgagor and mortgagee;
• Information on the mortgaged asset, such as type, quantity, and value;
• Information on the loan under the asset loan contract secured by the mortgagor;
• Rights and obligations of the parties;
• Liability for contract breaches;
• Dispute resolution methods;
• Mortgaged asset realisation;
• Cases of contract termination and legal consequences;
• Contract validity, etc.

3. Effectiveness of the mortgage contract and its effectiveness against third parties

Based on Article 319.1 of the 2015 Civil Code and Article 22 of Decree 21/2021/ND-CP, the mortgage contract takes effect from the time of conclusion, unless otherwise agreed or law stipulates otherwise, such as provisions on notarization and authentication. The ineffectiveness of the mortgage against third parties does not alter or terminate the validity of the mortgage contract.

Accordingly, the mortgage measure only takes effect against third parties if the mortgage contract has legal effect. The time of effectiveness against third parties is the time of registration. Decree 99/2022/ND-CP stipulates cases that must be registered and cases registered upon request. Cases that require registration include mortgage of land use rights, mortgage of residential houses, and assets attached to land in cases where ownership rights are certified on the Certificate of ownership, mortgage of aircraft, mortgage of ships, etc. For other types of assets, the parties have the right to agree on whether to register the mortgage measure.

The mortgage contract will cease to be effective upon the occurrence of events such as (i) The obligation secured by the mortgage terminates; (ii) The mortgage is canceled or replaced by another security measure; (iii) The mortgaged asset has been realized; and (iv) Other cases as agreed by the parties.

The above article on “Key considerations when entering into a mortgage contract” is presented by TNTP. Should readers have any issues to discuss with TNTP, please contact us for timely support.

Best regards,

In the context of Vietnam’s economy, deducting employees’ wages is a contentious issue, especially when considering its legality and fairness. However, the question remains whether wage deduction is a reasonable and fair method for both parties. In this article, TNTP will present the points that both businesses and employees need to be aware of regarding the deduction of employee wages.

1. Cases where the company can deduct wages:

• According to Article 124 of the Labor Code 2019, disciplinary measures for employees include reprimand, deferment of a pay raise for up to 6 months, demotion, and dismissal.

• Additionally, under Clause 2 Article 127 of the Labor Code 2019, it is prohibited for employers to apply monetary fines or reduce the employee’s wage.

Thus, although companies, as employers, can use disciplinary measures to manage personnel and maintain discipline within the company, withholding wages instead of applying disciplinary measures is prohibited. Therefore, companies are not allowed to deduct employees’ wages for disciplinary purposes.

• However, in practice, there are cases where companies or employers arbitrarily deduct employees’ wages. According to Article 102 of the Labor Code 2019, employers are only allowed to deduct employees’ wages in the following cases:

– When the employee damages tools, or equipment, or causes damage to the company’s property.

– When the employee loses tools, equipment, or other property entrusted by the employer.

– When the employee consumes materials exceeding the allowable limit, they must compensate for the damage either partially or entirely based on market prices or internal labor regulations.

Thus, the company is only allowed to deduct employees’ wages to compensate for damage caused to tools, equipment, or company property, or for excessive consumption of materials beyond the permitted limit.

2. Regulations on deducting employees’ wages

According to Article 102 and Article 129 of the Labor Code 2019, deducting employees’ wages to compensate for damages must also adhere to the following regulations:

• Amount of compensation for damages

– In case the damage caused by an employee is not serious, not deliberate, and is worth less than 10 months’ region-based minimum wage announced by the Government, the employee shall have to pay a compensation of not more than his/her 03 months’ salary, which shall be monthly deducted from his/her salary. Any monthly deduction shall not exceed 30% of the net monthly salary of the employee, after the deduction of insurance premiums.

– In cases where materials are consumed beyond the permitted limit, the employee shall pay compensation for damage in full or in part at the market price or as stipulated in the internal labor regulations or the responsibility contract (if any).

– In case this is caused by a natural disaster, fire, war, major epidemic, calamity, or another force majeure event that is unforeseeable and insurmountable, and all necessary measures and possibilities for avoidance have been taken, the compensation shall be exempted.

• Notification of reasons for wage deductions: Employees have the right to know the reasons for the deduction of their wages, and the deduction must be communicated transparently.

3. Handling violations in cases where the company deducts employees’ wages against legal regulations

• According to Clause 3, Article 19 of Decree 12/2022/NĐ-CP, apart from the cases permitted to deduct wages as mentioned in section 1, companies engaging in arbitrary deduction of employees’ wages may face administrative penalties ranging from 20,000,000 VND to 40,000,000 VND. Employers using fines or wage cuts instead of applying labor disciplinary measures may face these penalties.

• Additionally, according to Clause 4, Article 19 of Decree 12/2022/NĐ-CP, measures to remedy the consequences of wage cuts instead of labor disciplinary measures include compelling the employer to return collected amounts or pay full salaries to employees.

4. Solutions for companies

• Enhance legal awareness: Companies and employees need to be trained on legal regulations related to wage deductions and labor discipline to avoid violations and protect rights.

• Implement fair procedures: Procedures for handling discipline and wage deductions should be fair, transparent, and consistent, ensuring that employees have the opportunity to explain and protect their rights.

• Seek legal advice from lawyers or legal experts: Companies and employees should seek support from lawyers or legal experts to advise and assist with legal issues related to labor. Lawyers or legal experts can help companies assess and manage legal risks, ensuring compliance with legal regulations.

Companies must strictly adhere to legal regulations regarding wage deductions to protect employees’ rights and maintain a fair and transparent working environment. Applying effective and transparent disciplinary measures, along with creating a positive work environment and consulting legal experts, will help companies develop sustainably and build trust among employees.

The above article, ” Is the company allowed to deduct employees’ wages?” is presented by TNTP for our valued readers. If you have any issues for discussion, please contact TNTP for assistance.

Best regards,

The land use rights mortgage contract is one of the most common methods that the borrower chooses to mortgage their land use rights as collateral to borrow credit from the bank. In practice, there are many disputes arising from the non-performance of the borrower with the bank for a long time, leading to the bank initiating a lawsuit against the borrower to the Court for resolution. However, during the period when the mortgage contract is valid, the borrower’s Land use rights certificate is revoked or cancelled. Similar events occur quite often in practice and Caselaw No. 36/2020/AL is a typical example for the Court to apply in practice when adjudicating cases with similar content. In this article, TNTP’s lawyers will comment and clarify the content of Caselaw No. 36/2020/AL.

1. Summary of the case

a) On March 22, 2010, Bank V entered into Credit Contract No. 10.36.0015 with Mr. Nguyen Van C and Mrs. Vu Thi T. Accordingly, Bank V lent Mr. C and Mrs. T 900.000.000 VND, with an annual interest rate of 12% within the term; the overdue interest rate is 150% of the in-term interest rate; the loan term is 12 months.

In order to secure the loan, Mr. C and Mrs. T have mortgaged their asset, which is the land use rights of a parcel with an area of 3.989,7 m2 belonging to parcel No. 12, map sheet No. 05, H Commune, B Town (Land use rights certificate No. Đ544493 issued by the People’s Committee of B Town on July 14, 2004) under Mortgage Contract No. 10.36.0015 dated March 18, 2010. The secured transaction was registered at the Land use rights Registration Office of B town on March 19, 2010.

b) After borrowing the money, Mr. C and Mrs. T did not fulfill their payment obligations to Bank V. Therefore, Bank V filed a lawsuit demanding that Mr. C and Mrs. T repay the entire debt of VND 1.449.537.500 (of which VND 900.000.000 is the principal and VND 549.537.500 is the temporary interest calculated as of July 17, 2013 and interest until the date of debt repayment).

c) During the time the Mortgage Contract was in effect, the People’s Committee of B town issued Decision No. 3063/QĐ-UBND dated August 31, 2011 to revoke Land use rights certificate No. Đ544493. However, Bank V determined that although Land use rights certificate No. Đ544493 no longer exists, the land use right of the 2,400 m2 area that Mr. C and Mrs. T had previously transferred (after being adjusted according to the actual situation) has been completed, so it still has collateral value for the loan of Mr. C and Mrs. T. Bank V will request the Civil judgment enforcement Agency of B city to prioritize the auction of the collateral asset to Bank V.

d) The defendant, Mr. Nguyen Van C, stated that he confirmed the information about the Credit Contract and Mortgage Contract as presented by Bank V is correct. After borrowing, he paid Bank V a portion of the interest debt, which is 122.775.000 VND, but he has not paid the principal amount, and he agrees with Bank V’s lawsuit request.

e) Mr. C and Mrs. T had filed an administrative lawsuit against Decision No. 3063/QĐ-UBND dated August 31, 2011 of the People’s Committee of B Town. However, both the court of first instance and the court of appeals did not accept their request, so he requested the Court to resolve the case according to the provisions of the law, as the collateral asset no longer exists.

f) In the First Instance Commercial Judgment No. 04/2013/KDTM-ST dated December 10, 2013, the People’s Court of Ba Ria – Vung Tau province decided:

• Mr. Nguyen Van C and Mrs. Vu Thi T are required to pay Joint Stock Commercial Bank V – B Branch the amount of VND 1.449.537.500, of which VND 900.000.000 is the principal and VND 549.537.500 is the interest.

• The Mortgage Contract No. 10.36.0015 dated March 18, 2010 signed between Joint Stock Commercial Bank V – B Branch and Mr. Nguyen Van C and Mrs. Vu Thi T regarding the mortgage of a land area of 3,989.7 m2 belonging to parcel No. 12, map sheet No. 05, H Commune, B Town, as per Land use rights certificate No. D544493 issued by the People’s Committee of B Town (now the People’s Committee of B City) on July 14, 2004 in the names of Mr. Nguyen Van C and Mrs. Vu Thi T, is declared void. Therefore, it has no collateral value for the repayment of the debt under Credit Contract No. 10.36.0015 dated March 3, 2010.

g) On December 23, 2013, Joint Stock Commercial Bank V – B Branch filed an appeal.

h) In the Appellate Commercial Judgment No. 48/2014/KDTM-PT dated August 15, 2014, the Appeals Court of the People’s High Court in Ho Chi Minh City decided:

• Dismiss the appeal request of Joint Stock Commercial Bank V – B Branch; to uphold the First Instance Commercial Judgment No. 04/2013/KDTM-ST dated December 10, 2013 of the People’s Court of Ba Ria-Vung Tau province.

• To accept the request of Joint Stock Commercial Bank V – B Branch regarding the dispute over the credit contract against Mr. Nguyen Van C and Mrs. Vu Thi T.

– To order Mr. Nguyen Van C and Mrs. Vu Thi T to pay Joint Stock Commercial Bank V – B Branch the amount of VND 1.449.573.500, of which the principal is 900.000.000 VND and the interest is 549.573.500 VND.

– To declare the Mortgage Contract No. 10.36.0015 dated March 18, 2010 signed between Joint Stock Commercial Bank V – B Branch and Mr. Nguyen Van C and Mrs. Vu Thi T regarding the mortgage of an area of 3,989.7m2 belonging to parcel No. 12, map sheet No. 5, H Commune, B Town according to the Land use rights certification No. D544493 issued by the People’s Committee of B Town (now B City) on July 7, 2004 in the name of Mr. Nguyen Van C and Mrs. Vu Thi T is invalidated. It has no value to secure the payment of the debt for the credit contract No. 10.36.0015 dated March 22, 2010.

i) After the appellate trial, Joint Stock Commercial Bank V submitted a petition requesting a review under the cassation procedure for the above-mentioned appellate judgment.

j) On August 15, 2014, the Chief Justice of the People’s Supreme Court filed a cassation appeal against the Commercial Appellate Judgment No. 48/2014/KDTM-PT of the Appellate Court of the People’s High Court in Ho Chi Minh City regarding the part declaring the Mortgage Contract No. 10.36.0015 dated March 18, 2010 invalidated; requesting the Judicial Council of the People’s Supreme Court to hear the cassation and vacate a part of the above-mentioned Commercial Appellate Judgment and vacate a part of the Commercial First Instance Judgment No. 04/2013/KDTM-ST dated December 10, 2013 of the People’s Court of Ba Ria – Vung Tau Province regarding the part declaring the Mortgage Contract No. 10.36.0015 dated March 18, 2010 invalid; returning the case file to the People’s Court of Ba Ria – Vung Tau Province to re-trial at the first instance in accordance with the provisions of law.

k) At the cassation trial, the representative of the People’s Supreme Procuracy proposed that the Judicial Council of the People’s Supreme Court accept the Cassation Appeal of the Chief Justice of the People’s Supreme Court.

2. Assessment of the Court

• Bank V and Mr. Nguyen Van C both confirmed that Bank V and Mr. Nguyen Van C, Mrs. Vu Thi T signed Credit Contract No. 10.36.0015 dated March 22, 2010 and Mortgage Contract No. 10.36.0015 dated March 18, 2010. The mortgaged asset is a land area of 3,989.7 m2 belonging to parcel No. 12, map sheet No. 05, H Commune, B Town, according to Land use rights certificate No. Đ544493 issued by the People’s Committee of B Town on July 14, 2004 in the name of Mr. Nguyen Van C and Mrs. Vu Thi T. The asset was registered for secured transactions at the Land use rights Registration Office of B Town on March 19, 2010. According to the provisions of Article 343 of the Civil Code 2005; Point c, Clause 1, Article 10 and Point a, Clause 1, Article 12 of Decree No. 163/2006/NĐ-CP dated December 29, 2006 of the Government on secured transactions, the mortgaging of the above land use rights is in accordance with the provisions of law.

• Main point of Case law: On August 31, 2011, the People’s Committee of B Town issued Decision No. 3063/QĐ-UBND on the revocation and cancellation of the Land use rights certificate No. Đ544493 issued by the People’s Committee of B Town on July 14, 2004 in the name of Mr. Nguyen Van C and Mrs. Vu Thi T. The revocation and cancellation of the aforementioned Land use rights certificate was due to errors in the land area and the order and procedures for issuing the Land use rights certificate to Mr. C and Mrs. T. However, the revocation and cancellation of the Land use rights did not deprive the lawful land use rights of Mr. C and Mrs. T, as the transfer of land use rights between the couple Mrs. Tran Thi Ngoc H, Mr. Tran Huynh L and the couple Mr. C, Mrs. T had been completed, and the parties had no disputes over this transfer contract.

On the other hand, before the Land use rights certificate of Mr. C and Mrs. T was revoked, Mr. C and Mrs. T had mortgaged this land use right to the Bank multiple times to borrow money, most recently on March 19, 2010. The land use rights mortgage contract between Mr. C, Mrs. T and the Bank complied with the provisions of the law, so this contract is legally valid. The court of first instance and the court of appeal based on Article 411 of the Civil Code 2005 stated that the land use rights mortgage contract No. 10.36.0015 dated March 18, 2010 mentioned above is invalid because the object of this mortgage contract no longer exists is not appropriate.

• According to Official Letter No. 887/CNVPĐK-ĐKCG dated March 28, 2017, the Branch of the Land Registration Office of B City determined that: After the People’s Committee of B Town issued Decision No. 3063/QĐ-UBND on the revocation and cancellation of the Land use rights certificate No. Đ544493 and the Administrative Judgment No. 01/2013/HC-PT dated January 4, 2013 of the People’s Court of Ba Ria – Vung Tau Province took effect, the Civil Judgement Enforcement Agency of B City had issued Decisions on Judgment Enforcement in accordance with the effective civil judgments that Ms. Tran Thi Ngoc H had the obligation to enforce. Accordingly, the property of 2.741,1 m2 of land in parcel 386, map sheet No. 05, H Commune was organized for auction. Mr. Bui Van C1 was the successful bidder for the land use rights of 2.747,1 m2 of land. On March 14, 2016, the People’s Committee of B City issued the Land use rights certificate No. CA959055 for the auctioned area to Mr. Bui Van C1.

• Therefore, to ensure the rights and obligations of the parties involved, when re-adjudicating the case, the court of first instance needs to rely on Clause 4, Article 68 of the Civil Procedure Code to bring in the Civil judgment enforcement Agency of B City, Ms. Tran Thi Ngoc H, Mr. Bui Van C1, and the People’s Committee of B City as parties with related rights and obligations, in order to comprehensively and thoroughly resolve the case.

3. Comment on Case law

• Regarding the subject matter of a Mortgage Contract:
– According to the regulations in the Land Law 2013, in order to be able to mortgage the land use rights (“LUR”), the following 4 conditions must be fully satisfied:
(i) The land to be mortgaged must have a Land use rights certificate;
(ii) The land must not be in dispute;
(iii) The LUR must not be seized for the enforcement of a judgment;
(iv) The land must still have a remaining term of use, and only the LUR within the remaining term of use can be mortgaged.
– According to the definitions in the Land Law 2003 and the Land Law 2013, the Land use rights certificate is a legal document by which the State confirms the LUR of the person who has the LUR (Clause 20 Article 4 of the Land Law 2003 and Clause 16 Article 3 of the Land Law 2013). The issuance of a Land use rights certificate occurs when the land user has already had the LUR, and it is only applied to those entities that have the LUR. This also means that in practice, there will be entities that have the LUR but have not yet been issued a Land use rights certificate.

Thus, in essence, it is not that the entity only has the LUR after being issued a Land use rights certificate. The LUR of the entity may have arisen before the entity was issued a Land use rights certificate.

– According to the content recorded in the Case law, LUR is the subject matter of the mortgage relationship. The important issue is to determine whether the mortgagor still has the LUR and the remaining LUR after the Land use rights certificate is revoked. The conclusion of the cassation review has affirmed that “… The revocation, cancellation of the Land use rights certificate does not deprive the legitimate of the transferred land use rights” (of the mortgagor). The consequence of this only occurs when the revocation, or cancellation of the Land use rights certificate “is due to errors in the land area and the order and procedures for issuing the Land use rights certificate”. Furthermore, the mortgagor’s LUR in this case still exists. Specifically, the Case law has clearly stated that the transaction “has been completed, and the parties have no disputes about this transfer contract”. When the LUR transfer contract is not deemed invalid, the LUR of the transferee (the mortgagor) is still recognized.

Accordingly, the above is the basis for the Case law to affirm that the land use rights (LUR) of the mortgagor “are not lost”.

• Regarding the validity of the Mortgage Contract:

– The determination of the validity of the Mortgage Contract in this case aims to recognize the obligation to perform the contract of the parties. Specifically, both the court of first instance and the court of appeal have concluded that the Mortgage Contract in this case is invalidate.

– According to Clause 1, Article 411 of the Civil Code 2005, stated that “in the event that, from the time of conclusion, the contract has an object that cannot be executed for objective reasons, then this contract shall be invalidate”. The content of this provision has also been reiterated in Clause 1, Article 408 of the Civil Code 2015. Comparing the case with the regulation, it can be seen that this case does not fall within the scope of application of this Article. When entering into the contract, Mr. C and Mrs. T’s couple, and even Bank V, did not know that the revocation of the Land use rights certificate would occur in the future. The provisions in Clauses 2 and 3, Article 411 of the Civil Code 2005 are also not compatible, as the Land use rights certificate in this case was revoked due to an error in the area. This means that the remaining land use rights after the adjustment are the assets securing the debtor’s debt repayment obligation (if the mortgage contract is determined to be valid).

It can be seen that the prerequisite condition for declaring the contract invalid in this case is that the “object cannot be performed” must appear from the time of signing the mortgage contract. However, according to the content of the case, the revocation of the Land use rights certificate occurred after the parties had entered into the Mortgage Contract, and in fact, the dispute over the mortgage of land use rights arose after the mortgage contract had been signed. Because of that, the mortgage contract still has legal validity.

Thus, it can be seen that the cassation decision of the People’s Supreme Court’s Judicial Council to not recognize the first-instance and appellate judgments when they declared the contract invalid is completely reasonable.

This is an article from TNTP on “Case law No. 36/2020/AL regarding the validity of mortgage contract for land use rights when the land use rights certificate is revoked, canceled”. We hope this article will be helpful for our dear readers.

Sincerely,

The limitations period is the period during which a party has the right to file a lawsuit to request the court or arbitration to resolve a civil case to protect the infringed legal rights and interests; if this period expires, the right to sue is lost. In the article below, TNTP will present some issues related to the limitations period on a mortgage contract for the parties to refer to when initiating legal proceedings at the competent dispute settlement body.

1. On the dependency of the limitations period on a mortgage contract

Since a mortgage contract is essentially an ancillary contract, a component of the main contract – the loan contract, the filing of a lawsuit in general and the limitations period to resolve disputes, in particular, are calculated according to the limitations period of the main contract.

2. On the limitations period

According to Article 429 of the 2015 Civil Code, the limitations period to request the court to resolve contract disputes in general, and mortgage contract disputes in particular, is 03 years from the date the entitled person knew or should have known that their legal rights and interests were infringed. However, the reclamation of assets in a loan contract does not apply to the limitations period because it falls under the category of “requesting the protection of ownership rights.” The lender no longer owns the loaned asset from the moment the borrower receives it according to the following regulation: “A borrower shall become the owner of borrowed property from the time of delivery of the property.” Therefore, when the lender sues to require the borrower to fulfil the payment obligation, the principal debt amount is not subject to the limitations period, but the limitations period applies to the interest debt and other related costs arising from the loan contract.

The 2015 Civil Code stipulates “limitations period to request the court to resolve contract disputes”, but does not mention arbitration. Meanwhile, the 2015 Civil Code stipulates “If a particular civil right is violated or is under a dispute, the protection of such right shall be implemented as prescribed in procedural law at the court or arbitration.” According to Article 33 of the 2010 Law on Commercial Arbitration, except for other provisions in specialized laws, the limitations period under arbitration procedures is 02 years from the time the legal rights and interests are infringed.

3. On the periods excluded from the limitations period

The 2015 Civil Code stipulates periods excluded from prescriptive periods for initiating legal action for civil cases and from prescriptive periods for requesting resolution of civil cases, including:

• The period during which a force majeure event or an objective obstacle occurs, preventing the entitled person from filing a lawsuit or making a request within the limitations period.

• The period during which there is no representative in cases where the entitled person is a minor, has lost civil act capacity, has difficulty in perception and behaviour control, or has limited civil act capacity. The minor, a person who has lost civil act capacity, a person with difficulty in perception and behaviour control, or a person with limited civil act capacity does not have another representative to replace in the following cases: the representative dies if an individual, or ceases to exist if a legal entity; the representative, for legitimate reasons, cannot continue to represent.

4. On the re-commencement of the limitations period

When the limitations period expires, the limitations period starts can re-commence in the following cases:

• The obligated party has acknowledged part or all of their obligation to the claimant;

• The obligated party acknowledges or fulfils part of their obligation to the claimant;

• The parties have reconciled.

5. On the acceptance of cases of the Court

Previously, the court would not accept or would return the case if the limitations period had expired. However, according to the 2015 Civil Procedure Code, in case the limitations period expires, the court still has to accept the case and only applies the limitations period rules upon the request of at least one party.

The above is the article by TNTP on “Legal regulations on the limitations period on mortgage contracts”. If you have any issues to discuss, please contact TNTP for timely support.

Best regards,