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,
