Overview of the disposal of collateral which is the right to claim
Overview of the right to claim debts
1.1.1 Concept of the right to claim debts
The historical right to claim debts has deep roots, as evidenced by ancient legal codes The Code of Hammurabi states that failure to meet a debt obligation could result in the debtor and their family being sold into servitude for three years, after which they would be freed Similarly, the Twelve Tables assert that creditors have the right to exact severe penalties, including the dismemberment of debtors who do not fulfill their obligations In medieval Vietnam, the law during the early Nguyen Dynasty, known as "Hoàng Việt luật lệ," also imposed corporal punishment on those who failed to repay debts These historical precedents illustrate the harsh consequences of debt non-payment across different cultures and eras.
Historically, creditors' rights to claim debts were safeguarded by the state's coercive measures, allowing them to compel debtors to fulfill their obligations This interpretation of debt collection was reinforced by harsh legal frameworks of the time.
In modern law, while there is no precise definition of the right to claim debts, debt is understood as a specific amount of money or a nonmonetary obligation owed by one individual to another The term "right" refers to the freedom to exercise legal powers Consequently, the right to claim debts can be interpreted as the legal authority granted to demand repayment of a specified sum or nonmonetary asset.
According to Article 450 (2) of the Civil Code 2015, the right to claim debts is classified as a type of property right Specifically, Decree 21 Article 14 outlines that the obligee in a contract has the right to use their claim to secure the fulfillment of obligations This perspective positions the right to claim debts as a contractual property right, offering a more comprehensive understanding compared to the definition provided in the Civil Code 2005.
1 "The Code of Hammurabi", https://avalon.law.yale.edu/ancient/hamframe.asp, accessed 5/5/2021
2 "The Twelve Tables", https://avalon.law.yale.edu/ancient/twelve_tables.asp, accessed 5/5/2021
3 See Nguyen Ngoc Nhuan (2011), Điển chế và pháp luật Việt Nam thời trung đại, Tập III [Trans: Medieval
Vietnamese legislation, Chapter III], Social Science Publisher, page 419
4 See Black’s Law dictionary (2003), second pocket edition, page 176
5 Oxford Dictionary of Law (2003), page 435
Property rights can originate from various sources, not solely from contracts For instance, certain property rights emerge from compensation for damages Additionally, if regulations merely categorize the right to claim debts as a property right, they fail to capture the full essence of what that right entails.
Article 22(4) of Decree 163 previously established that the priority between a debt claim transferee and a mortgagee is determined by the registration timing of the transfer and mortgage transactions at the relevant security transaction registry, as outlined in Article 309 of the Civil Code 2005, which addresses the "Transfer of the right to claim." Although Decree 21 no longer explicitly specifies this regulation, the concept of the right to claim debts remains valid and can still be inferred as a form of the right to claim based on the principles established in Article 309.
33 of Decree 21, "Mortgage by the right to claim debts, accounts receivable and other right to claim payment"
The right to claim debts is defined as the entitlement to receive payment, stemming from contractual agreements between parties, with the payment being either in cash or in kind.
The lack of a clear legal definition for "the right to claim debts" leads to inconsistencies in legal documents, where some refer to it as "creditor's rights." These terms are often used interchangeably, creating potential confusion in their meaning According to legal expert Le Trong Dung, this ambiguity highlights the need for clarity in the terminology surrounding debt claims.
In nature, the right to claim debts is recognized as a property right that enables individuals and organizations to demand the fulfillment of obligations from others Creditor's rights arise at the moment of a transaction but are not classified as property, cannot be valued in monetary terms, and are non-transferable Consequently, the Civil Code of 2005 and 2015 does not acknowledge creditor's rights as property; instead, it defines the right to claim debts as property that can be mortgaged to ensure the performance of obligations.
1.1.2 Characteristics of the right to claim debts
The right to claim debts has the following characteristics:
In his 2020 article, "Conditions for the Right to Claim Debt as Collateral under Vietnamese Law," Le Trong Dung explores the legal framework governing the use of debt claims as collateral in Vietnam He outlines the necessary conditions that must be met for such claims to be validly utilized as security for loans, emphasizing the importance of proper documentation and legal compliance Dung's analysis provides valuable insights into the implications of these conditions for both creditors and debtors, highlighting the need for clarity and enforceability in collateral agreements.
The right to claim debts is classified as a relative intangible asset, representing a type of property right While property rights are generally considered intangible, the right to claim debts is unique in that it materializes through documentation, indicating a specific amount owed This distinguishes it from absolute intangible assets, such as those derived from intellectual property, which do not have a physical representation.
The right to claim debts is a people-oriented property right that holds monetary value, distinguishing it from other property rights such as object-oriented and absolute intangible property rights Unlike object-oriented property rights, which allow direct control over objects without external cooperation, the right to claim debts requires collaboration from others to fulfill interests Furthermore, while it shares characteristics with other people-oriented rights, such as the right to seek an apology for reputational harm, the right to claim debts is unique in that it can be quantified in monetary terms, as it specifically pertains to the demand for payment.
Thirdly, the ground for arising the right to claim debts is a lawful bilateral contract
Contracts can be classified into two main types based on the correlation of rights and obligations: unilateral and bilateral contracts A unilateral contract involves only one party bearing obligations, meaning that from the moment the contract takes effect until it ends, only one party is obligated to perform The rights and obligations in this type of contract are not reciprocal A common example of a unilateral contract is a property donation In contrast, a bilateral contract involves mutual obligations between both parties.
The textbook "Law on Property, Ownership and Inheritance" published by Hong Duc in 2019 provides comprehensive insights into legal principles regarding property rights and inheritance It serves as a valuable resource for understanding the complexities of ownership and the legal frameworks surrounding asset distribution.
Litigation rights concerning property encompass the ability to engage in legal actions, including initiating lawsuits, filing complaints, and making formal requests These rights are safeguarded by appropriate authorities, which can compel responsible parties to either return the property in question or compensate the obligee with a specified monetary amount to restore their material benefits.
Mortgage of the right to claim debts at commercial banks
Commercial banks operate as financial institutions that facilitate borrowing and lending activities, prioritizing the security of their loan sources To mitigate risks associated with lending, these banks rely on various financial factors, including robust security measures A mortgage serves as a crucial security measure, significantly minimizing the risk of credit capital loss for commercial banks.
In the article titled "Transaction that has an object being the debt claim," Bui Duc Giang explores the legal framework surrounding transactions involving debt claims The piece emphasizes the significance of understanding the rights and obligations of parties engaged in such transactions, highlighting potential risks and legal implications It serves as a valuable resource for individuals and businesses navigating debt-related dealings, ensuring they are informed about their entitlements and responsibilities For more insights, visit the full article at Thong Tin Phap Luat Dan Su.
14 Truong Thanh Duc (2017), Chín biện pháp bảo đảm nghĩa vụ hợp đồng [Trans: Nine measures to secure contractual obligations], Chinh tri Quoc Gia Su that Publisher, page 161
15 See Ho Chi Minh City University of Law (2019), Giáo trình luật ngân hàng [Trans: Textbook Law on Banking], Hong Duc Publisher, page 331
Article 317 of the 2015 Civil Code defines a mortgage as a legal arrangement where a party, known as the mortgagor, uses their own property to secure an obligation This property can be either immovable or movable, but it is important to note that the ownership of the mortgaged property does not transfer to the other party, referred to as the mortgagee.
When comparing a mortgage with other security measures, there are many similarities between mortgage and pledge:
Firstly, pledge and mortgage are both use the property to secure the performance of an obligation
Secondly, the type of property used in both measures is objects, money, valuable papers, and property right
Thirdly, pledge and mortgage both exist in the form of contracts
Lastly, only when the obligor fails to perform its obligations agreed in the contract will the obligee have the right to dispose of the property
The key distinction between pledge and mortgage lies in property management A pledge requires one party to transfer their property to another as security for an obligation, while a mortgage allows the mortgagor to retain possession and use of the property, only needing to provide the mortgagee with the ownership certificate if agreed upon.
A mortgage contract with a commercial bank is a legal agreement between the borrower, known as the mortgagor, and the bank, referred to as the mortgagee In this arrangement, the mortgagor uses their property as collateral to secure their payment obligations, while retaining ownership of the property without transferring it to the bank.
1.2.2 Mortgage of the right to claim debts at commercial banks
According to Article 292 of the Civil Code 2015, among the nine security measures outlined, the mortgage stands out as the most appropriate option for securing debt claims This is due to the nature of debt claims as intangible property, which inherently cannot be transferred.
1.2.2.1 Characteristics of the debt claim mortgage contract
Firstly, The mortgage of the right to claim debt arises on the basis of an agreement among the parties
Civil obligations can stem from legal requirements or agreements between parties, while security measures specifically depend on mutual consent This principle applies to the mortgage of debt claims as well In banking transactions, commercial banks typically prepare the contracts, including those for mortgages, yet this does not preclude the possibility of negotiation between the involved parties.
12 transaction In fact, customers are still allowed to read the draft, give opinions to make amendments if necessary 16
Secondly, there are at least three subjects that exist in this relation
In a debt claim mortgage contract, there are at least three key parties involved: the mortgagee, typically a commercial bank; the mortgagor, who holds the right to claim debts; and the debtor, the individual or entity responsible for repaying the debt to the mortgagor.
Under Article 317 of the 2015 Civil Code, a mortgagor can use their own property to secure an obligation, but it does not clarify that this obligation must solely belong to the mortgagor This implies that the secured obligation may also involve third parties Consequently, a debt claim mortgage contract can arise in two scenarios: when the mortgagor is the debtor or when the obligation is owed by another party.
Mortgaging the right to claim debts serves as a security measure for fulfilling obligations, benefiting both the mortgagor and third parties involved This practice ensures that the claims can be leveraged to guarantee the performance of financial commitments, providing a layer of protection and assurance in debt management.
It is important to differentiate between a mortgage securing guarantee obligations and one securing third-party obligations In the latter scenario, if the mortgaged property's value falls short of covering the obligation, the mortgagor is not liable for the deficit Conversely, when a mortgage secures guarantee obligations, the mortgagor is responsible for any shortfall if the property's value is inadequate to meet the obligation.
Commercial banks often misidentify security measures, leading to invalid contracts when challenged in court However, Decree 21 Article 4(4) has addressed this issue effectively Despite this improvement, some courts still invalidate mortgage contracts intended to secure third-party obligations, citing a lack of legal recognition.
In her 2014 work, Pham Thi Huynh Nhu explores the concept of mortgaging the right to claim debts as a means to secure payment obligations within credit contracts This analysis highlights the legal implications and practical applications of using debt claims as collateral in financial agreements.
Bachelor Thesis, Ho Chi Minh City University of Law, page 9
17 The Civil Code 2015 Article 336 (3) provides, "The parties may agree to use property as security for the performance of the guaranteed obligation"
When an agreement includes provisions for securing obligations but fails to correctly specify the relevant security measures as outlined in the Civil Code, the applicable security measures will default to those that align with the agreement's content.
Bài viết của Bùi Đức Giang với tiêu đề "Bảo đảm khoản vay bằng tài sản của bên thứ ba: từ quy định pháp luật đến thực tiễn áp dụng" phân tích sự liên kết giữa các quy định pháp luật và thực tiễn trong việc bảo đảm khoản vay Tác giả nêu rõ những thách thức và cơ hội trong việc sử dụng tài sản của bên thứ ba làm đảm bảo, đồng thời cung cấp cái nhìn sâu sắc về cách thức áp dụng các quy định pháp luật hiện hành trong thực tiễn Bài viết có thể được truy cập tại địa chỉ http://tapchinganhang.gov.vn/bao-dam-khoan-vay-bang-tai-san-cua-ben-thu-ba-tu-quy-dinh-phap-luat-den-thuc-tien-ap-dung.htm, ngày truy cập 8/5/2021.
Overview of collateral disposal which is the right to claim debts at commercial
1.3.1 Overview of collateral disposal at commercial banks
The concept of collateral disposal has yet to be addressed in any legal documents, but some authors have explored its significance Le Thi Thu Thuy defines loan collateral disposal as a critical phase in loan security, involving actions taken on collateral to recover debts owed to credit institutions when borrowers fail to fulfill their obligations.
In their 2017 publication, "Scientific Commentary of the Civil Code 2015," Nguyen Van Cu and Tran Thi Hue provide an in-depth analysis of Vietnam's Civil Code, highlighting its significance and implications for legal practice in the Socialist Republic of Vietnam This work, published by People Police Publishing, serves as a critical resource for understanding the nuances of the 2015 Civil Code.
23 See Vu Thi Hong Yen (2017), Collateral and collateral disposal under Civil Code 2015, National Political Publishing House, page 51-52
24 In cases where the collateral is a property right, the agreed description shall include the name and legal grounds in which the property right arises
Mortgaged property disposal refers to the process where the mortgagee exercises their rights to dispose of the ownership of mortgaged property, with proceeds distributed to the mortgagee and other entitled parties according to legal or agreed-upon priorities Additionally, loan collateral disposal involves the parties in a security transaction utilizing agreed-upon methods or legal measures to sell collateral, ensuring the obligee's claims are satisfied if the obligor fails to meet their obligations.
Collateral disposal at a commercial bank refers to the process of converting collateral into cash or equivalent value to recover a debt owed to the bank, in accordance with legal agreements or established terms.
1.3.1.2 Characteristics of collateral disposal at commercial banks
Collateral disposal at commercial banks has the following characteristics:
Firstly, the collateral disposal shall be performed as agreed upon by the parties in the security contract
A core principle of civil law is the freedom of parties to reach agreements, provided that these agreements do not violate legal statutes or go against societal moral standards.
A security contract is classified as a civil transaction, allowing the involved parties to mutually decide on the method for disposing of collateral This agreed-upon method takes precedence when a situation requiring collateral disposal arises.
Secondly, collateral disposal needs to comply with certain principles and procedures of law
Collateral disposal involves transferring property ownership from one party to another and requires adherence to specific administrative procedures, even if not explicitly stated in the security contract Mismanagement of this process can lead to extortion, prompting legal principles and regulations designed to uphold social order, safety, and the interests of all parties involved.
In her 2010 Bachelor Thesis, Phan Thi Ngoc Huyen examines the regulations governing the disposal of loan collateral, specifically focusing on immovable properties at commercial banks This study highlights the legal framework surrounding secured loans and the procedures for managing collateral in the context of real estate.
Minh City University of Law, page 9
26 Vu Thi Hong Yen, tldd(23), page 46
The textbook titled "Law of Obligation Security," published by the Ho Chi Minh City National University in 2020, provides comprehensive insights into legal frameworks governing obligation security Authored by the University of Economics and Law, this resource is essential for understanding the complexities of obligation security in legal contexts The publication spans 308 pages, making it a valuable reference for students and professionals in the field of law.
Thirdly, the purpose of collateral disposal is debt recovery
Collateral disposal occurs solely to recover outstanding debts and is not intended for profit generation If a debtor fulfills their repayment obligations as per the agreement, the collateral will not be disposed of Thus, commercial banks only engage in collateral disposal when they are unable to recover overdue debts.
Fourthly, The legal consequences of collateral disposal terminate the ownership of the securing party of such property
Collateral disposal occurs exclusively in cases of a breach of the secured obligation, with the collateral's value utilized to offset the breached obligation Common practices for determining this value include selling the property for cash or using it as a replacement for the secured obligation Such disposal methods effectively terminate the securing party's ownership of the collateral.
1.3.2 The basic legal content of collateral disposal which is the right to claim debts 1.3.2.1 Principles for disposal of collateral which is the right to claim debts
Collateral disposal involves the lawful rights of both the secured party and the securing party, as well as the interests of other stakeholders To ensure fairness, the law establishes general principles that must be adhered to during the disposal of collateral These principles govern the rights to claim debts associated with collateral disposal.
Firstly, the principle of agreement
When creating a security transaction, the involved parties define the terms for collateral disposal, including the method, timing, and the party authorized to dispose of the collateral According to legal provisions, these agreed-upon terms take precedence during the collateral disposal process.
According to Decree 163 Article 58(1), when an asset is used to secure an obligation, its disposal must follow the parties' agreement, or else it will be auctioned per legal provisions However, there are shortcomings in these regulations, as not all property types can be auctioned, particularly debt claims Auctioning debt claims is often deemed inappropriate and ineffective, leading to concerns about the value and utility for potential buyers.
28 Phan Thi Ngoc Huyen, tldd (25), page 9
29 Vu Thi Hong Yen, tldd(23), page 47
17 speculative intentions 30 For this reason, Decree 21 Article 49 (1) only stipulates,
The enforcement of collateral will be executed in alignment with the agreements made by the parties involved, with distinct provisions established for various types of property during collateral disposal This approach addresses previous shortcomings and introduces a more flexible and reasonable framework for handling different kinds of collateral.
Secondly, the secured party shall perform the realization of collateral based on the agreement in the security contract without acquiring written authorization or written consent from the securing party 31
Vietnamese legislation on the disposal of the collateral being the
Vietnamese legislation on the disposal of the collateral being the right to claim
2.1.1 Notification procedure for the disposal of the right to claim debts
2.1.1.1 Subjects having obligations to notify
Under Article 300 of the Civil Code 2015, the mortgagee is required to inform the mortgagor and other mortgagees prior to any disposal of the right to claim debts This notification must be given within a reasonable timeframe, but no less than ten days before the disposal occurs, unless a different agreement is made.
The mortgagee is required to inform the debtor of the disposal of the right to claim debts at least seven working days prior to the transfer This notification must be sent to the mortgagor, other mortgagees, and the debtor, and it should include essential details such as the reasons for disposing of the collateral.
(2) The collateral which will be realized; (3) Time and place for realization of collateral
Decree 163 lacks a requirement for advance notice when disposing of the right to claim debts, failing to address the need for notifying debtors or mortgagors prior to such actions Article 61 allows mortgagees to dispose of debt claims immediately while notifying other mortgagees, but this absence of notification can hinder the mortgagee's ability to recover debts Without proper communication, debtors may remain unaware of the reasons, methods, timing, and location of the disposal, resulting in hesitation to repay Consequently, even willing debtors may struggle to understand how and when to fulfill their obligations.
Decree 163, along with its amendment by Decree 11, mandates that mortgagees must provide written notification to other mortgagees before disposing of collateral However, this regulation is considered inadequate as it restricts the methods of notification to only those specified Decree 21 has addressed this limitation by allowing parties greater flexibility in choosing their preferred notification methods.
A reasonable time limit refers to a duration established through mutual practice between parties or a timeframe within which, under typical conditions, parties involved in a security contract or related entities can fulfill their rights and obligations.
Article 51(2) permits parties to select their preferred notification method, and in the absence of an agreement, they can choose from various options such as written notice, direct communication, postal service, electronic messages, or other methods, provided the notice reaches the mortgagor's designated address Additionally, when a single property secures multiple obligations, notification of collateral realization can also be accomplished through a legally registered written notice in accordance with security interest registration laws.
Decree 21 highlights the legal validity of electronic communication, enabling notices to be sent digitally This modern approach provides numerous advantages for mortgagees, including time savings through efficient digital processes and reduced operational costs Additionally, it minimizes human errors such as typos, lost mail, and misdirected messages, enhancing overall communication effectiveness.
Decree 21 Article 51 stipulates that if a mortgagor changes their address without informing the mortgagee, the mortgagee is not required to locate the new address The mortgagor must notify the mortgagee of any address change; failing to do so allows the mortgagee to send correspondence to the address listed in the mortgage contract or the information registered with the security measure agency This regulation enhances the protection of the mortgagee's interests.
2.1.1.3 Legal consequences of disposal notification
Under Article 300(2) of the Civil Code 2015, if a mortgagee fails to fulfill their notification obligation when selling collateral, resulting in harm to the mortgagor and other mortgagees, they are required to compensate for the damages Conversely, if the mortgagee adheres to the notification obligation, they are permitted to transfer the right to claim debts.
2.1.2 Disposal methods for collateral being the right to claim debts
2.1.2.1 Receipt of money or other property from a third party
Under legal provisions, when collateral involves a right to claim debts, the mortgagee can demand that the debtor transfer a specified amount of money or other assets to them Additionally, the mortgagee is required to validate their rights if requested by the obligor.
Decree 21 does not mention how the mortgagee proves its right with which kinds of documents However, such documents are clarified in Joint Circular 16 Article 7(1) 51
If a debtor asks the mortgagee to validate their claim and the mortgagee cannot supply the necessary documentation, the debtor has the right to withhold payment of the debt.
In the event that the mortgagee succeeds in proving its right and implementing notice procedure, the debtor shall pay the debt amount to the mortgagee as follows:
If a mortgaged debt claim is due prior to the designated time for managing the debt claims under the mortgage contract, the debtor must deposit the debt amount into a bank account specified by the mortgagee The mortgagee has the right to instruct the bank to freeze this account, allowing access to the funds only when the appropriate time arrives Once the debtor deposits the money, they are prohibited from requesting the bank to release or conduct any transactions with the deposited funds.
When the deadline for addressing the right to claim debts under a mortgage contract arrives before the mortgaged debt claim is due, the mortgagee has the right to request payment from the debtor at the time the mortgaged debt claim becomes due.
When a mortgagee receives money or property directly from the debtor, a written record must be created and signed by the mortgagor, mortgagee, and debtor, detailing the amounts or assets exchanged and their values If the mortgagor refuses to sign, the record only requires the signatures of the mortgagee and debtor Subsequently, the mortgagee is responsible for sending this written record to the mortgagor.
If the debtor fails to pay according to the law, the mortgagee will have the right specified in Joint Circular 16 Article 7(4)
In the context of mortgage agreements, the bank acts as the mortgagee and has the discretion to nominate itself for the money transfer process The designation of the bank does not impact the interests of either party involved, as the debtor's account will be frozen, preventing access to the funds until specific conditions for realization are met Consequently, the bank retains the option to either appoint itself or select another bank as needed.
Risk identification when disposing of collateral which is the right to claim debts
Valuing collateral at the time of disposal is a critical challenge, often leading to disputes that stem not from the method of disposal or the rightful party but from disagreements over the selling price The collateral's value established during the mortgage contract can differ significantly from its value at disposal Additionally, the value of the debt claim may fluctuate since the inception of the mortgage Consequently, revaluating the debt claim at the time of disposal is essential to safeguard the interests of both the mortgagor and the mortgagee.
In accordance with Joint Circular 16, Article 11 and Article 10, the valuation process must be adhered to when the mortgagee receives a debt claim as a substitute for fulfilling obligations, as well as in instances where the mortgagee sells the debt claim itself.
The question is whether the valuation is necessary in case the mortgagee receives a sum of money or other property from the debtor in accordance with Article 54 of Decree 21
When a mortgagee receives payment from a debtor, asset valuation is unnecessary since the asset in question is cash, making the valuation redundant If the mortgagee receives an amount less than the mortgagor's obligation, they can demand that the mortgagor continue fulfilling their obligation However, in contrast to other methods such as the sale of debt claims, the buyer of the debt claim cannot require the mortgagor to cover any shortfall Similarly, when a debt claim is received as a substitute for obligation performance, the bank cannot hold the mortgagor accountable if the debtor defaults.
To recover debt, it is essential for banks to conduct a valuation of any additional property received from the debtor, as these assets will eventually need to be sold Although the law does not explicitly require this valuation, it is implied that assessing the value of such assets is a necessary step in the debt recovery process.
52 Truong Thanh Duc, tldd(14), page 523
31 valuation in this case will follow the valuation method of the sale of the debt claim under Article (10) of Joint Circular 16
Valuation must maintain objectivity and align with market prices The valuation organization is responsible for compensating any damages resulting from illegal actions related to the collateral valuation for both mortgagors and mortgagees.
When disposing of collateral, particularly in the context of debt claims, conflicts of interest often arise between commercial banks and other stakeholders involved with the property A key issue that must be addressed in these scenarios is the establishment of a clear priority order for claims.
Understanding the priority of payment is crucial before analyzing potential conflict situations, particularly when funds are insufficient to repay all lenders Typically, the lender with the highest priority is entitled to recover their entire debt from the sale proceeds before any lower-priority lenders receive payment It's important to note that the right of priority of payment differs from the right to dispose of collateral As explained by Vu Thi Hong Yen, the right to dispose of collateral is based on statutory principles, where the creditor with the closest interest to the property, such as the first due creditor, has the right to manage the collateral securing multiple obligations Consequently, the entities holding the rights to dispose of collateral and to priority payment may not be the same.
(i) The conflict of interest with the transferee of the right to claim debts
Bui Duc Giang highlights that Decree 163 Article 22(4) appears to conflict with the Civil Code, as it implicitly acknowledges the mortgagor's right to transfer debt claims after the asset has been used as collateral in a mortgage agreement.
After mortgaging a debt claim, the mortgagor cannot transfer the claim to a third party without the mortgagee's consent, as this provision aims to mitigate potential conflicts of interest.
53 "Priority of mortgages", https://uk.practicallaw.thomsonreuters.com/3-202- 2763?contextData=(sc.Default)&transitionTypeault&firstPage=true, accessed 20/5/2021
54 Vu Thi Hong Yen, tldd(23), page 65
According to Article 309 of the Civil Code, when a debt claim is transferred, the priority between the transferee of the debt claim and the mortgagee is established based on the chronological order of registration of the transfer and mortgage transactions at the relevant security transaction registry.
In the article "Priority of Payment of the Mortgagee of Debt Claim," Bui Duc Giang discusses the legal rights of mortgagees regarding debt claims The piece emphasizes the importance of understanding the priority of payment in debt recovery situations, highlighting the protections afforded to mortgagees under the law It serves as a crucial resource for legal professionals and individuals involved in financial transactions, providing insights into the implications of mortgage agreements and the rights of creditors For further details, the full article can be accessed at the provided link.
Before establishing a mortgage contract, a mortgagee must have the right to claim debts and be a transferee of the debt claim If the debt claim has already been transferred, it cannot be used as collateral for the mortgage, making the situation unjustifiable.
Decree 21 has removed the provisions of Article 22(4) from Decree 163, clarifying that transferred debt claims cannot be used as collateral in mortgage transactions The mortgagor may only transfer debt claims after establishing the mortgage contract, contingent upon the mortgagee's agreement However, mortgagees typically do not permit such transfers due to the risk of losing collateral, indicating that a conflict of interest between the mortgagee and the transferee does not exist under prevailing law Despite this, there are instances where mortgagors transfer debt claims without the mortgagee's consent, rendering such transactions invalid due to legal prohibitions.
(ii) Conflicts of interest with co-mortgagees of the right to claim debts
Conflicts of interest among co-mortgagees regarding debt claims are governed by Article 308 of the Civil Code 2015 This article stipulates that the priority of payment is determined by the order of registration of the mortgage contracts In cases where the contracts are not registered, the priority will follow the order in which the contracts were established.
The current solution remains impractical as it fails to inform the debtor about the mortgage contract, a crucial aspect of the debt collection process For example, when a debt claim is mortgaged to secure a loan, proper notification is essential for effective debt management.
Some recommendations for improvement to the disposal of collateral which is
2.3.1 Some specific recommendations for improvement to the disposal of collateral which is the right to claim debts
2.3.1.1 The obligation to supply information on debt claim mortgage
The obligation to provide information is crucial in the context of mortgaging debt claims; however, Decree 21 primarily addresses this requirement during the disposal stage, leaving the initial obligation unclear This lack of clarity creates challenges and risks for mortgagees during the disposal process To ensure a smoother and safer disposal stage, it is essential to enhance regulations regarding the notice of debt claim mortgages.
The notification obligation in debt claims primarily involves the mortgagee, as the law does not explicitly require the mortgagor to inform the debtor Bui Duc Giang highlights that debtors feel more secure receiving notices from their original creditor rather than an unfamiliar secured party Japanese law further emphasizes this by stating that a security assignment is ineffective against the obligor unless they are notified or acknowledge the assignment The author argues that both the mortgagor and mortgagee should be required to notify the debtor when a debt claim mortgage is established This dual notification not only reassures the debtor during payment transfers but also serves as evidence to resolve potential disputes between the debtor and mortgagor For the mortgagee, sending a notice reinforces their rights and provides clear instructions to the debtor regarding payment.
In the article by Bui Duc Giang, the author explores the concept of property and the regulations surrounding security transactions in the Draft Amended Civil Code The discussion highlights the significance of defining property and its implications for legal transactions, emphasizing the need for clear guidelines to ensure effective security measures The article serves as a critical resource for understanding the evolving landscape of property law and its impact on civil transactions in Vietnam For further details, the full text can be accessed at the provided link.
71 Lien Dang Phuoc Hai, "The legal aspect of security over future receivables in Japan and suggestions for Vietnam", http://stdjelm.scienceandtechnology.com.vn/index.php/stdjelm/article/view/633, accessed 28/5/2021
Decree 21 specifies the time limit and content of notices during the disposal stage but does not address notices related to debt claim mortgages To prevent premature payments by the debtor to the mortgagor, both the mortgagor and mortgagee should promptly notify the debtor once the mortgage contract is effective This notice should clearly outline the debtor's obligations during the debt claim mortgage period and detail the payment method if the debt claim becomes due before the secured obligation By establishing clear timelines and content for these notices, debtors can fulfill their legal obligations effectively.
The value of notice is crucial in mortgage agreements, as the law does not penalize a debtor who continues to pay the mortgagor after receiving notice from the mortgagee This disregard for the mortgagee's notice can harm the mortgagee's rightful interests According to Article 17 of the United Nations Convention on the Assignment of Receivables in International Trade, a debtor is only discharged from obligations by paying the assignee after receiving notification of the assignment Consequently, if the debtor pays the mortgagor post-notice, they remain liable to pay the mortgagee.
2.3.1.2 Disposal methods for collateral being the right to claim debts
(i) Receipt of money amounts or other property from a third party
Bui Duc Giang argues that the option of accepting alternative property from a debtor is impractical for several reasons Firstly, the ambiguity surrounding what constitutes "other property" complicates matters, as it may not effectively replace the debt value While the mortgage contract may specify certain properties, this renders the debt claim mortgage redundant, as parties could directly mortgage the property instead Additionally, the right to claim debts ultimately converts into cash upon maturity, making it more advantageous for the mortgagee to receive money directly rather than dealing with the complexities of selling alternative property, which poses challenges in valuation.
In many cases, it is a factor that encumbers the disposal of collateral" 73
The primary advantage of a debt claim over other types of property is its liquidity Unlike other assets that require appraisal and lengthy debt collection processes before they can be sold, debt claims can be readily converted into cash, making them a more attractive option for banks.
72 https://www.yumpu.com/en/document/read/7853569/united-nations-convention-on-the-assignment-of- uncitral, page 10 accessed 21/06/2021
73 See more Bui Duc Giang, tldd(30), accessed 28/5/2021
42 the debt claim as collateral Therefore, "other property" should be omitted in this provision
Under Joint Circular 16 Article 7(2)(a), a debtor must transfer funds to the bank account specified by the mortgagee only after receiving a written notice regarding the handling of debt claims This obligation arises when the debt claim is due before the specified time for handling the right to claim debts as outlined in the mortgage contract.
In situations where a debt claim is due but it remains unclear whether the mortgagor has defaulted on payment obligations, the bank is unable to issue a written notice regarding the debt claim to the debtor Consequently, the debtor faces a dilemma, as they cannot make payments to either the mortgagor or the mortgagee Assigning funds to the mortgagor could harm the mortgagee's legal interests, while transferring money to the mortgagee without explicit payment instructions poses a significant challenge for the debtor.
The law should be amended to require that upon receiving a debt claim mortgage notice, the debtor must transfer the owed amount to a bank account designated by the mortgagee, regardless of any payment obligation violations If the mortgagor repays the debt, they will benefit from this account; if not, the mortgagee will To enforce this regulation, the notice of debt claim mortgage must include essential details, particularly the designated bank information.
Although the law allows the mortgagee to receive the transfer of other property from a third party, the law leaves many issues untouched regarding "other property"
"Other property" is mentioned only in Article 7(4)(a) of Joint Circular 16, whereby
"the mortgagee may take the security assets into custody for disposal according to the procedures specified in Article 63 of 163 in case the debt is in kind" Joint Circular
16 references Article 63 of Decree 163 on procedures for taking mortgaged assets into custody However, Decree 163 has ceased its effectiveness, and Decree 21 does not address the issue of seizing collateral
Decree 21 Article 52 only mentions the obligation to hand over the collateral of the secured party or the holder of the security property It can be seen that Decree 21 is aiming to abolish the mortgagee's right to taking assets into custody to restrict social violence Instead of stipulating the right of coercion for the mortgagee, the law stipulates the obligation to deliver the security property of the mortgagor or the
If a debtor fails to surrender collateral, the mortgagee can request the Court to resolve the matter While this approach may help mitigate social unrest, it poses challenges for the mortgagee, as court proceedings can be both time-consuming and expensive.
When a securing party does not cooperate in managing a security asset, the secured party has options to enforce their rights They can request a court decision to seize the security property through summary procedures, allowing them to involve the civil judgment enforcement agency to apply coercive measures for recovery Alternatively, the secured party may directly approach the civil judgment enforcement agency for the same purpose, ensuring the proper disposal of the security property.
To enhance the effectiveness of the law regarding "other property," it is essential to amend and supplement existing provisions to facilitate the prompt handling of collateral, particularly debt claims, thereby safeguarding the interests of mortgagees This approach will also alleviate the court's workload, as it would require only the issuance of a decision rather than the resolution of disputes.
(ii) Sale of the right to claim debts
The assignment of debt claims can occur through the transfer of the right to claim or the sale of property rights, each with distinct implications While both methods effectively transfer the right to claim debts to a third party, the transfer of the right to claim requires notification as a key obligation, whereas the sale of property rights does not specify such a requirement Additionally, the law lacks clarity on the necessary documentation for both processes, leaving buyers exposed to significant risks due to the sparse and ambiguous regulations.