subject law on secured transaction topic 09 evaluate the provisions on pledge of property of vietnamese 2015 civil code

Provision on definition of Pledge of propertyPledge of property is a security device regulated by the Civil Code.Article309 of Civil Code 2015 defined Pledge of property as “the delivery

MINISTRY OF JUSTICE

HANOI LAW UNIVERSITY

FULL SEMESTER ASSIGNMENT

SUBJECT: LAW ON SECURED TRANSACTION

Topic: 09 Evaluate the provisions on Pledge of Property of

Vietnamese 2015 Civil Code.

Student number : 433641

TABLE OF CONTENTS

INTRODUCTION 1

BODY 1

1 Provision on definition of Pledge of property 1

2 Provisions on collateral of Pledge of property 2

3 Provisions on subjects of Pledge of property 3

4 Provision on formalities of Pledge of property 5

5 Provisions on effectiveness of Pledge of property 6

6 Provisions on rights and obligations of pledgors and pledgees 7

7 Provisions on enforcement of Pledge of property 7

8 Provisions on termination of Pledge of property 8

CONCLUSION 9

The growth of the economy leads to the rapid development of civil transactions, in which secured transactions play a very important role in protecting the legitimate rights of subjects participating in civil transactions, encourage secured financing, facilitate access to credit and hence boost economic growth Pledge is one of the most commonly used security devices

in Vietnam todays In this essay I shall evaluate the provisions on Pledge of property of Vietnamese 2015 Civil Code

BODY

1 Provision on definition of Pledge of property

Pledge of property is a security device regulated by the Civil Code.Article

309 of Civil Code 2015 defined Pledge of property as “the delivery by one party (hereinafter referred to as the pledgor) of property under its ownership

to another party (hereinafter referred to as the pledgee) as security for the performance of an obligation” According to this article, Pledge of property must meet two requirements: (i) there is a conduct of “delivery” the property and (ii) the property must under the ownership of the pledgor, whereby the

“delivery” act must be understood as the “delivery” in reality, which mean the pledgee must really obtain that collateral and not just receive delivery of legal documents which prove the ownership of the property

This provision is entirely inherited from article 326 of Civil Code 2005, different to definition from article 329 of Civil Code 1995 as it extends the collateral possibility not just as moveable property but can also be real property This extension is pertinent, as the need for Pledge of property is increasing and there may be the need to put real property as collateral from some people However, because Pledge of property requires the act of

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“delivery” that property must be in reality as aforementioned, most of the time, the collateral for Pledge is moveable property, rarely be real estate put down to be collateral

This is quite an open provision, as it does not specify if the obligation must be the obligation of the pledgor or not Hence, the pledgor can also be a third party – who is neither parties of the secured obligation but delivers property under his ownership to the pledgee to secure payment of performance of that obligation

2 Provisions on collateral of Pledge of property

Whereas collateral in general can be property, acts which must be performed

or even reputation, collateral of Pledge of property can only be property, including moveable property and real estate As earlier mentioned, this inclusion of real estate is rational, to be more specific, it is because when the country has become more and more developed, more new services are started

to launch and become more diverse, including preserve property services, the pledgees have more measures to obtain, supervise the collateral even if the collateral is real estate This is an improvement as it facilitates the party with1

rights to secure in the most effective way correspondingly

Civil Code 2015 only specifies one condition in article 309 that the property must under the ownership of the pledgor, but as per the nature of Pledge of property, it must also meet other conditions: the property must be present, are identified or identifiable, and transferable Thus, this security device is not apply to property to be formed in the future 2

In my opinion, the provisions of Civil Code 2015 in this matter are still lacking and not quite reasonable, since (i) other conditions are not included

1 Nguyen Anh Tuan (2013), Cam co tai san – Mot so van de ly luan va thuc tien, Luan van thac si luat hoc, Truong Dai hoc Luat Ha Noi.

2 Bui Duc Giang (2020), Phap luat ve cam co tai san – Goc nhin tu thưc tien, Tap chi Ngan hang, (18), tr 16-19

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which can create confusion or misconception for people who are not involved

in legal profession reading the Civil Code and (ii) the requirement that the property must under the ownership of the pledgor can be troublesome when applies to real life With property that must be registered to have ownership over such as car, motorbike, etc, the determination of who really own that property is quite simple, but with properties that do not require this such as phone, laptop, how can the pledgee really identify if that property truly belongs to the pledgor or not Most of the time, it is based on presumption of possession in reality and affirmation from the pledgor, which is incorrect in a lot of situations The Civil Code does not regulate how can the pledgee accurately identify this, or if the property is under the ownership of others but not the pledgor, can the pledgee still enforce it in accordance with the agreement, or how to protect the right of that pledgee, as the real owner has rights to pursue his property, which makes the pledgee left with no more security for the performance of obligation from the pledgor and it is difficult for the pledgor to ask for another property as an substitute to be secured property

3 Provisions on subjects of Pledge of property

Subjects of Pledge of property are parties who take part in Pledge of property relation As stipulated in article 309 of the Civil Code 2015, the subjects of Pledge of property include pledgor - the party who delivers property under his ownership, and pledgee – the party who receives the property from the pledgor as security for the performance of an obligation The pledgor can also

be a third party – who is neither parties of the secured obligation but delivers property under his ownership to the pledgee Contrary to that, the pledgee can only be the party with rights in the secured obligation by Pledge of property Because Pledge of property is a supplemental device to secure the main obligation, the subjects of Pledge of property must also meet the requirements

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of legal capacity when entering into a contract There are no provisions on specific subjects of Pledge of property, hence they are applied in accordance with general provisions in article 20 to article 24 of Civil Code 2015 The subjects of Pledge of property can be individuals, legal entities, family households, co-operate groups or other organizations without legal entity status

However, the application of these general provisions in practice may lead to some troubles, restrictions First, as article 309 stipulated, the pledgor must be the owner of collateral that he delivered, but in the situation where the pledgor

is a State owned enterprise, the property that this enterprise put down to be collateral are technically belongs to the entire people with the State as the representative owner, which means the properties are not under the ownership

of that enterprise, but because the State assigned the property for that enterprise and its manage rights so that the enterprise can utilize and use it for their operation, the State owned property is really the subject of this Pledge of property, not the State In this case, the requirement that the pledgor must be the owner of the collateral is not suitable in practice and differs from provisions of other relevant legal documents

Moreover, in the situation when one party of the Pledge of property is family household, co-operate groups and other organizations without legal entity status, according to Civil Code 2015, where a member involved in a civil relation is not authorized by other member as the representative, such member

is the subject of the civil relation established and performed by himself or herself Nevertheless, Law on Land 2013 recognized household using land as

a subject participate in transactions in relation to land use right, therefore there is inconsistency between the Civil Code and Land on Law as to subject participate in relation to land use right in general, and in relation to Pledge of property contract in specific Hence, there should be more detailed provisions

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regulate this situation to create legal basis for the subjects when applying the law, and also synchronize, unify all over the country.3

4 Provision on formalities of Pledge of property

Civil Code 1995 and Civil Code 2005 require the Pledge of property contract must be made in writing according to the law Nonetheless, Civil Code 2015 dropped this requirement and stipulated in article 310.2 that only when the collateral is real estate, the Pledge of property contract must be made in writing The Pledge of property documents do not need to be notarised, authenticated or registered, unless in the case where the law provides otherwise

This begs the questions, if the pledgor or the pledgee is illiterate and the Pledge of property contract must be made in writing, must there witnesses or not? If there are no witnesses, how can rights of the illiterate party be secured? Provisions of today’s law have not yet regulated these problems, which cause loop-holes when applying the law in practice

Also, in the case where the Pledge of property contract must not be made in writing and the parties involved choose to contracting by oral, when the pledgee sells the collateral to a third party and at the moment of enforcing the Pledge, the pledgor is nowhere to be found to establish a contract with that third party, the pledgee still does not have the right to establish a contract with that third party to sell the collateral by himself, then there is no possible way for that third party to transfer the ownership under his name because there are

no contracts for sale and purchase of property or contracts for gifts of property, etc to allocate to State agencies

3 Duong Thi Mung (2020), Cam co tai san theo quy dinh cua Bo luat Dan su nam 1015 va thuc tien thuc hien, Luan van thac si Luat hoc, Truong Dai hoc luat Ha Noi.

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5 Provisions on effectiveness of Pledge of property

Article 310 of Civil Code 2015 seperated effectiveness of Pledge of property into two different angles: (i) effectiveness of a contract of pledge of property and (ii) effectiveness against a third person

A contract of pledge of property shall be effective at one of these three moments: (i) from the time of entering the contract, (ii) from the time in agreement or (iii) from the time provided by law This shows the spirit of dignification of freedom of agreements from the Civil Code 2015

This is the first time which effectiveness against a third person of Pledge of property is directly regulated by provision in the Civil Code This provision can be understood that when establishing a security transaction, there may arise rights and obligations not only for the pledgor and the pledgee, but also for a third person who is not a subject of that transaction, by which the pledge

of property shall be enforceable against that third person from the time when the pledgee holds the pledged property if it is moveable property, from the time of registration if an immovable property is the subject matter of a pledge.4 However, the Civil Code 2015 does not have any provisions regulate the time-limit when the parties must register, which party has the obligation to register, etc, which may leads to disputes or non-unify application This provision does not require registration of pledge for the Pledge to enforceable against third person, except for real estate, in my opinion this is reasonable because in the case of Pledge of property, the collateral has already been physically transferred to the pledgee Therefore, the pledge's possession of the property is sufficient to inform any third party about the existence of the pledge transaction with respect to that asset

4 Nguyen Minh Tuan (2016), Binh luan khoa hoc Bo luat Dan su cua nuoc Cong hoa xa hoi chu nghia Viet Nam nam 2015, Nxb Tu phap, Ha Noi.

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6 Provisions on rights and obligations of pledgors and pledgees

The obligations and rights of pledgors are listed at article 311, article 312 of Civil Code 2015 Similarly, the obligations and rights of pledgees are listed at article 313, article 314 of Civil Code 2015 Compare to Civil Code 2005, these provisions are basically inheritance of provisions in Civil Code 2005, but their ways of using words are appended and more improved to consistent with the nature of regulated relations, for example, article 312.1 of Civil Code

2015 uses “terminate use of the pledged property” instead of “suspend” Civil Code 2015 also opens the scope of the pledgor and the pledgee’s rights such

as rights to “exchange or give the pledged property” , rights to “lease, lend5

the pledged property” 6

7 Provisions on enforcement of Pledge of property

The Civil Code does not propose provisions regulate enforcement of Pledge

of property in specific but regulate enforcement of security devices in general

As for cases where the pledger can enforce Pledge of property, they are listed

at article 299 of Civil Code 2015 This provision not just introduces the default principles of the enforcement rights of the pledgee, on the other hand also allows the parties to agree in their Pledge of property contract on other enforcement cases

Article 303 provides different enforcement ways, including selling by auction, selling the property by the secured party, receiving the property in replacement of the and other methods as the pledger and pledgee agreed This provision shows the respect of Civil Code for the freedom of agreements, as they can select a method in article in accordance with their agreement or set themself a separate method that they agreed upon

5 Article 312.4 of Civil Code 2015

6 Articl 314.3 of Civil Code 2015

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Regarding enforcement procedure, the notice process of enforcement must conduct in accordance with provision from article 300 However, these article does not clarify how can a period of time considered “reasonable”, are there any differences in period of time if the collateral is moveable property and if

it is real estate, etc Concerning the valuation of security property process, the requirement that “the security device shall be objectively valued in conformity with the market price” as stipulated in article 306.2 is reasonable

to avoid the collateral being priced below the market price, which affects the interests of the pledgee However, Article 306 does not specify whether this requirement applies when the security parties agree on the collateral price, especially if the agreed price is significantly lower than the market price

8 Provisions on termination of Pledge of property

Article 315 of Civil Code 2015 listed four situations that terminate Pledge of properties: (i) the obligation secured by the pledge has terminated, (ii) the pledge of property has been cancelled or substituted with another security, (iii) the pledged property has been realized and (iv) as agreed by the parties

In the first situation, the most common case of termination is when the loan secured by Pledge of property is fully paid by the borrower The final case of termination is when the parties agree to terminate this security measure This agreement may be stated in the Pledge of property contract already established or given at another time within the validity period of the pledge contract Article 316 provided that when the Pledge of property is terminated

in the first two cases and the fourth case of termination, the collateral and documents related to the collateral shall be returned to the pledgee; profits and incomes collected from the collateral are also returned to the pledgee, unless otherwise agreed These provisions are entirely inherit from Civil Code

2005 and basically meet the requirements of reality

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