Literature Review —The Overview of the Research Scenario The literature review provides an overview of the following research categories:i the theoretical studies on secured transaction,
Literature Review —The Overview of the Research Scenario
The literature review provides an overview of the following research categories: (i) the theoretical studies on secured transaction, its governing law, and the functional approach, (ii) the research about its implementation in foreign jurisdictions, (iii) the studies about the legal framework of secured transactions in Vietnam The categories indeed correspond to the structure of the dissertation, which reflects the research scenario of the topic worldwide and particularly in Vietnam.
(i) ‘The theoretical studies on secured transactions, their governing lw, and the functional approach
On the theoretical framework of secured transaction, the following works can be considered, inter alia: William Warwick Buckland (1939), A Manual of Roman Private Law (2nd Ed), Cambridge University Press, R D Melville (1915),
A Manual of the Principles of Roman Law relating to Persons, Property an
Obligations, Edinburgh W Green & Son Publisher; Andrew Borkowski, Paul du
Plessis, Borkowskis Textbook on Roman Law oh Ed), Oxford University Press,
Hendrik LE Verhagen (2022), Seciaity and Credit in Roman Law — The historical evolution of pignus and Iypotheca, Oxford University Press, New York; Richard E.
Speidel, Robert S Summers, James J White (1993), Secured Transactions:
Teaching Material (S* Ed), West Publishing Co, United States of America; Ross
> Huyen Plum, “Secured Transactions Refomm in Vietruma: Prominent Achievements, Experiences, andLesson Leamt” from Louise Gullifer Ed.) and Dara Neo (Ed) (2021), Secured Transaction Law in Asia:Principles , Perspectives and Reform, Hut Publishing, Grest Britain,p 292.
Commercial Law (6% Ed), LexixNexis and Penguin Books Ltd, United Kingdom;
Hugh Beale, Michael Bridge, Louise Gullifer, Eva Lomnicka (2018), The Law of
Security and Title-Based Financing (#" Edition), Oxford University Press, New
These studies have provided a comprehensive theoretical framework for the concept of secured transactions and the cornerstone concept of security interest based on the doctrine of private Roman law They provide the perception of security interest in common law and civil law jurisdictions and suggest that both jurisdictions share a common theoretical understanding of security interest in general.
On the law of secured transaction and the functional approach, these following publication can be taken into account, inter alia: UNCITRAL (2010), UNCITRAL Legislative Grade on Sectred Transactions, United N ations Publication, New York, European Bank for Reconstruction and Development (EBRD), “Core Prinicples for a secured transaction law”, Grant Gilmore (1968), “Security Law, Formalism, and Article 9”, Nebraska Law Review, Volume 47, Issue 4; Michael G Bridge, Roderick A Macdonald Ralph L Simmonds, Catherine Walsh (1999),
“Formalism, Functionalism, and Understanding the Law of Secured Transactions,
(1999) 44 McGill Law Journal 567; Michael Bridge, “The Scope and Limits of Security Interest” from Horst Eidenmuller Ed), Eva-Maria Kieninger (Ed) (2008), The Future of Secured Credit in Europe, De Gruyter Recht Publisher, Berlin, Grant Gilmore (1965), Secwity Interests in Personal Property, Little, Brown and Company, United States and Canada, Volume 1; Ray D Henson (1972), Serwcred Transacions under the Uniform Commercial Code, West Publishing Co, United States
These studies first laid down an overview of the law of secured transaction, set boundaries for its scope, and provided key characteristics of the regime Secondly,they have served to forge a definition of the functional approach as a legislative approach in the law of secured transactions The approach’s scope, as well as its advantages and drawbacks, all have been discussed by those research.
This topic matter includes the following materials, inter alia: Louise Gullifer (Ed) and Orkun Akseli (Ed) (2016), Secured Transactions Law Reform — Principles, Policies, and Practice, Hart Publishing, US and Canada; Louise Gullifer (Ed) and Dora Neo (Ed) (2021), Secured Transaction Law in Asia: Principles, Perspectives and Reform, Hart Publishing, Great Britain, Spyridon V Bazinas and
N Orkun Akseli (2017), International and Comparative Secured Transactions Law, Hart Publishing US and Canada; Philip R Wood (1995), Comparative Law of Security and Guarantees, Sweet and Maxwell Publisher, London, Yoram Keinan,
“The Evolution of Secured Transactions”, WorldBank Group; Jacob S Ziegel
(1991), “The New Provincial Security Law Regimes”, (1991) 70 Canada Bar Review 681; Grant Gilmore (1965), Seciaity Interests in Personal Property, Little, Brown and Company, United States and Canada, Volume 1.
The given material has provided valuable insights into how the functional approach is developed in its home country (the US) and adopted in different countries in the world They also provide propositions of how the approach could be implemented in jurisdictions that have not incorporated the idea, especially the civil law counties.
(iii) the studies about the legal framework of secured transactions in
The resources (in Vietnamese) in this section include, inter alia: Pham Văn
Tuyết, Hoàng Thi Loan (2022), “Bao đảm thực hiện nghĩa vu’ [Obligation’s
Security] from Trường Đại học Luật Hà Nội (2022), Giáo trình Luật Dân sự TIiệt
Nam [Textbook on Vietnamese Civil Law], Nxb Tư Pháp [Judicial Publishing];
Nguyễn Ngọc Điện (2014), “Sự cân thiệt của việc vận dung lý thuyét về vật quyên bảo dim vào quá trình sửa đổi Bộ luật Dân su” [The Necessty of Applying the
Theory of Security Interest in in the Reformation of the Civil Code], Tạp chí Nghiên cứu Lap pháp [Journal of Legislation Research], (02/2014); Vuong Thanh
Thúy, Kiéu Thi Thuy Linh, “Vat quyền bảo đảm trong pháp luật dan su” [Security Interest in Civil Law] from Nguyễn Minh Oanh (Ed) (2018), Vật quyén trong pháp luật dân sự Viét Nam hién dai [The lus in Re in Vietnamese Modern Legal System],
Bồ luật dén sự hiển hành [9 Security Devices for Contractual Obligation —
Law&Practice and Structure of transactions by the Civil Code], Nxb, Chính trị
Quốc gia Sự that [National Political and Truth Publisher], Hanoi; Doan Đức Lương,
Viên Thé Giang Võ Thi Mỹ Hương (2015), Pháp luật về giao dich bảo dam trong hoạt động cấp tín dimg ở Viét Nam [The Law of Secured Transaction in Credit and
Financing Arrangements in Vietnam], Nxb, Chính trị Quốc gia Sự thật [National
Political and Truth Publisher], Hanoi; Huyen Pham, “Secured Transactions Reform in Vietnam: Prominent Achievements, Experiences, and Lesson Learnt” from Louise Gullifer (Ed) and Dora Neo (Ed) (2021), Secured Transaction Law in Asia: Principles, Perspectives and Reform, Hart Publishing, Great Britain, Lê Thi Thu Thủy (2018), “Biên pháp bảo đâm thực hiện nghia vu - nhìn từ góc độ lý luận” [Security Devices — A Theoretical Perspective], Tạp Chí Nghiên cứu Lập pháp [Journal of Legislative Studies] (18/370)
The given voluminous studies have provided a detailed review of the theoretical framework of the local jurisprudence and the legal framework of secured transactions in Vietnam The material has revealed the basic understanding of the functional approach of the local legal scholars However, their lack of detailed suggestions to reform the law on secured transactions by adopting the functional approach can be considered as a gap in the current research scene This dissertation ultimately aims to fill such a gap by proposing the potential implementation of the approach in the law of secured transactions in Vietnam with reference from the experience of other jurisdictions.
Scientific and Practical Significance of the Dissertafiom
The dissertation has formulated a detailed analysis of the functional approach concerning its definition, characteristics, scope, doctrinal conflicts with the civil law theories as well as the advantages and disadvantages More importantly, the research emphasized how the approach redefines the concept of security interest and the re-organization of the legal system that comes afterwards.
- Practical Contribution: necessary for the lew, the practice, and the legal academia in Vietnam to keep up with the most recent discussions and ideas in the lew of secured transaction around the world.
Additionally, this research proposes the potential implementation of the functional approach into the legal system by referencing the experience of different jurisdictions, which can serve as valuable insight for future reforms in Vietnam.
Finally, the functional approach, which essentially puts emphasis on the true intention of the parties when they establish an interest for security purposes, can clarify and illumine the legal reasoning regarding secured transactions of the law practice in Vietnam The true intent of the party, rather than formal requirements of the law, now will become more determinant for the characterization of a security interest This significantly embraces party autonomy — a principle of private law where the regime of security interests belongs.
Aimsofthe dissertation
The dissertation aims to answer the following main research questions:
(i) What is the definition of the functional approach as a legislative approach in the law of secured transactions? What is the scope of the approach? How is the approach created?
(ii) What are the shortcomings in the lew on secured transactions in Vietnam that can be reformed by the Functional Approach? a How the similar shortcomings in the law of other jurisdictions are addressed by implementing the Functional Approach? i From the experience of adopting the functional approach to reform those shortcomings of other jurisdictions, what suggestions for reform can be made for Vietnam? b What are the valuable ideas that arise from the adoption of the functional approach in the lew of other jurisdictions that Vietnam can potentially adopt? And how?
This dissertation applies the following methodologies to analyze and reach conclusions:
Textualism and intentionalism method of legal interpretation;
The functional method of comparative law in which the examination of law must take into account their functional relation to society In other words, the question of what is this law made for or what benefits the law aims to seek must be answered when analyzing a legal institution
(ii) Historical and Logical Inquiry
The structure of the dissertation comprises three chapters to address the three main categories of research questions listed above In particular, there are 03 chapters with the names as follows:
Chapter 1: The Theory of The Law on Secured Transactions and The Functional Approach
Chapter 2: The Legal Framework for Secured Transactions in Vietnam
Chapter 3: Potential Implementations of The Functional Approach toReform The Law on Secured Transactions In Vietnam: Suggestions FromThe Experienced Jurisdictions
1.1 An Overview of Secured Transaction and Related Concepts
Acknowledging there is a body of law on secured transactions equals to imply that there is a concept of secured transactions Thus, one must first understand what secured transactions are to understand their governing lew In essence, a secured transaction is an agreement that creates a security interest to secure the performance of an obligation Consequently, one must again elaborate on another concept, particularly the concept of security interest to comprehend what is a secured transaction Moreover, security interest is often alternatively referred to by the term ‘security device’ in many contexts and this term is even codified into the law of a jurisdiction Arguably, security interest is a variation of security device, and a clarification would provide helpful insights into the nature of security interest By such rationale, this section aims to define the three following concepts: () security interest; (ii) security devices, and (iii) secured transactions.
1111 Definition The concept of security interest originated from the European-C ontinental (Civil-Law) legal tradition It is often briefly referred to as ‘Sectaity right’ or
‘security According to the voluminous literature from the civilian jurisprudence, it can be concluded that security interest is a jus in re - right in property given to the obligee to secure the performance of an obligation’ Under classical Roman law, three types of security interests were recognized namely pignus’, ?ypothec”, and Ffiducia cum creditore’ In ancient Rome, these security interests were nourished in the commercial and banking practice, they originally manifested in the form of
+ Nguyễn Ngọc Điện (2014), “Sự cần thiết cia việc vin đựng lý thuyết về vật quyền bio dim vio quá trù sữa doi Bo bait Din sx” [The Necessity of Applymg the Tear of Securty Interest m m Reform
Process of the Civil Code], Tap chi Nghiền cứu Lip plup [Jounal of Legislation Research], (02/2014) [in
Viemamese] (Available at: http:/Mlapphap vavPageshintuc hinchitiet aspx tintucid 7777) (Acessed on:21/03/2024); William Warwick Buckland (1939), A Mcomal of Roman Private Law (2nd Ba.), CambridgeUniversity Press,p 352; Andrew Borkovrski, Paul du Plessis, Sorkowski’s Textbook on Roman Law (5"" Ea),Oxford University Press p 155,p 176.
‘Pignus’ involves a physical possession of the collateral — the asset given for security and a limited right to sell the collateral of the obligee if the obligor defaults, the pignus’ can be granted by a third party over his asset Pignus is equivalent to the modern-day ‘pledge’ as a security right that allows the obligee to have physical possession of the collateral — the asset used for the purpose of securing obligation by any means.
‘Hypotheca’ is the pignus without possession, the obligee is simply granted a tight to sell a property given as collateral in case of default (violation of obligation) while the obligor still owns and possesses the property.
‘Fiducia cum creditore’ involves a transfer of the ownership of a property of the obligor to the obligee to secure the performance of an obligation However, this ownership is limited The obligee who receives the ownership, œr the fiduciarts, must exercise this ownership within the terms of the transfer, he will be liable for selling the property before the debt was due; he also must not damage the property and return it to the obligor when the obligation is discharged’ ‘iducia cian creditory’ was the earliest form of real security in Roman society and it is replaced by pigaus’ in the postclassical times’ However, fiducia is not considered a true security but rather a quasi-security which is by nature a sale transfer with a buy- back right.
It is recorded that the common law jurisprudence has adopted the concept of security interest from the civil law legal tradition Scholars from Anglo-American backgrounds have formed the definition of security interest with the same traits of Jus in re identified by the civilian theorists The United States scholars particularly Speidel, Summers, and White all share the common view that security interest is an interest in both personal property and real property to secure obligations’.
According to the authors from the United Kingdom, Cranston defines a security š Hendrik LE Verhagen (2022), Seciaity and Crecit in Roman Law — The historical evolition of igus and Ippotheca, Oxford University Press, New York, ch4,p 1-2,p 55,p.62
` Rafael Domingo (2018), Rome Lene: An butrochuction (1* Đã.) Routledge , New York,p 194.
* Ridurd E Speidel, Robart S Smmurs, James J White (1993), Sectaed Bansactions: RachingMaterial (5'* Eà ), West Publishing Co., United States of Ameria,p 39 - 40. interest as an interest in property that secures the performance of an obligation’.
Goode and McKendrick describe security interest as a right given to an obligee in an asset to secure payment or performance of an obligation and this right can be granted by the obligor himself or a third party They even assert that security interest does entail the right of pursuit and the right of preference!®, which are the bvo unique entitlements of the its in re Gullifer explicitly explains security interest is “a right in rem given as sectơit) for an obligation” and it is “enforceable against the whole world’#!.
All in all, in light of the above, it can be concluded that the concept of security interest is perceived similarly within both common law and civil law jurisdictions as a is in re that originates from the Roman law jurisprudence. Accordingly, a security interest can be defined as a legal right in an asset given to the obligee to secure the performance of an obligation owed to him.
Security interests can be consensual or non-consensual The fact that security interests can be either has been acknowledged since ancient Rome” In essence, consensual security interests are created by an agreement The ‘pledge’, ‘deposit’, the common law ‘mortgage’, or ‘hypothec’ in civilian jurisdiction, or ‘field- warehousing’ in the United States are the popular kinds of consensual security. Meamvhile, the non-consensual kinds are given by statutory, judicial decision, and administrative acts and not by parties’ agreement The examples include the repairer’s lien by which the repairer retains the possession of the goods he repaired until the payment for his service is made; the tax’s lien on the asset of a person who fails to pay taxes to the government Since non-consensual security interests fall outside of this dissertation’s scope, they shall not be discussed Nonetheless, their impact is significant in the process of securing obligation due to the immediate effect without consent.
There are different types of security interests and they work by different rules among jurisdictions Even the most common type of security interest can have
THE THEORY OF THE LAW ON SECURED
Overview of the Law of Secured Transacfion
The Law of Secured Transactions is the law that governs the secured transactions as defined above Particularly, it is the system of legal norms that
National legidation: Article 9 named “Secured Transaction” of the Unifonm Commercial Code in the United States; Tanvan’s Personal Property Secured Transactions Act; Sci Lanka’s Secured ‘Transactions Act. Intemational Instrument: Exopem Bark for Reconstruction and Development’s Model Law on Secured Transactins; UNCITRAL’s Model Law an Secured Tansaction °S Louise Gullifer (Eọ ) md Dora Neo (đi) (2021), suprastnote 26,
}4 Article 2.1 Decree No 165/1999/ND- CP on Secured Transactions. govern the social relations arising from the process of establishing enforcing and. concluding any secured transactions, which means the contract that creates a security interest in personal property.
The lay of secured transactions has two fundamental characteristics: (i) Secured transactions lew stands at the intersection of many other branches of law; (ii) the role of secured transactions lew is a legal regime to promote economic development.
@ =‘ Secured transactions law stands at the intersection of many other branches of hw.
In other words, secured transactions are governed by many principles from many other branches of law, and the multitude of those principles comes together as the law of secured transactions Looking at the basic components of the concept, security interest over an asset is governed by property law and the agreement which creates the security interest falls into the scope of contract law At this point, we can see that secured transaction law is the application of fundamental principles of private law, many concepts of private law really come to life in different aspects of secured transaction However, there are many other interferences The perfection of the security interest aften requires a process of registration with a public body, and thus administrative law is involved The enforcement of a security interest to capture the collateralized assets is carried out by some judicial proceedings which are governed by the law of civil procedure The list of the involved law can be endless, since collateral can be of many kinds and therefore subject to other different laws, especially in the case of heavy-regulated assets such as intellectual property, stocks and bonds, minerals, etc All in all, secured transaction law sits at the intersection of various branches of lew This trait has been acknowledged by UNCITRAL and it is suggested that the importance is legal coherence must be achieved in those intersections®*.
(i) The role of secured transactions hw is a legal regime to promote economic development.
}* UNCITRAL Legislative Guide on Secured Transactions
It has been recognized by experts and international institutions in the field of finance and law that secured transactions law directly serves economic development The foundational premise of and justification far secured transactions law is the presumption that “the total net wealth of an economy will increase if more secured credit is available as a complement to unsecured credit’ Thus, there must be a law to validate and govern secured transactions to promote secured credit and thus boost the growth of the economy.
The law of secured transactions fosters economic development by providing security for the creditors The modern economy involves the production of movable assets and the delivery of services, both domestically and internationally Many businesses, during their course of activity, cannot meet all their ongoing financial requirements This demand for capital is often fulfilled by creditors and they are only able to do so effectively and willingly when the risk of non-repayment is reduced as much as possible’ Apparently, this is when the secured interests become relevant by their function of securing payment By mitigating the risk for the creditor, the loan can take place and thus more capital is circulated into the economy and creates development®® The appearance of a secured transaction permits credit to be granted in situations where unsecured credit would not be available at a reasonable cost or would not be available at all A huge proportion of the cost of credit is taken by the interest Unsecured credit often involves a high interest rate that significantly increases the cost of credit, since that high rate is the only means of guaranteeing that the loan will be repaid on time It pressures the debtor to return the loan within the agreed timeframe by making it grow fast from time to time All in all, secured transactions can promote economic growth because they can facilitate credits for businesses by securing the repayment obligation for the sake of the creditors.
The scope of the secured transactions law can be divided into four main categories:
“ UNCITRAL Legislative Guide on Secured Tansactions ,p.19. ia wd
@ the creation of the security interest, in other words, the formation of a secured transaction;
(ii) the ‘perfection’ of the security interest, which is the process of taking effect against the third parties outside the secured transactions, (iii) Three, the ‘priority’ or ‘subordination’, which means the order of preference of the parties who have security interests in the same movable asset;
(iv) Fourth, the enforcement of the security interest default, which is the process of invoking the security interest in case the debtor does not perform the secured obligations This action of non-performance can be referred to as ‘default’ The realization of collateral is included in this fourth category.
The functional approach, which is introduced in the subsequent parts, mostly affects the first category since it fundamentally redefines what is a security interest. 1.3 Theory of the Functional Approach —A Legishtive Approach in the Law of Secured Transaction
1.3.1 A Brief History of Origin of the Functional Approach
Does not come into existence out of nowhere, the functional approach is a practical response to the inadequate security interests that cannot fulfil the demands of credit, which causes fragmentation and inconsistency in the law on secured transactions.
Throughout the 20% century, credit demands were often unsatisfied by the absence of a competent legal framework that allows the borrowers to grant security rights to the credit providers® The law at that time often prohibited the granting of security rights over certain types of property or simply did not provide an appropriate legal security device for the needs of credit, sometimes the parties were able to tailor a legal device for their own goods, but it was inefficient, costly, and complex to operate!? This situation led to creative contractual practices and legislative innovations that create fictitious security interests, title (ownership)- based mechanisms, and other legal transactions for specialized economic activities,
'“UNCITRAL Legislative Guide on Secured Transactions ,p 55.
“ya all of which serve the function of securing an obligation’s performance! These reactive and ad-hoc developments created complexity, inefficiency, and gaps in the legal system There were many security devices, each adhering to different rules. However, not every device that involves a right in an asset is recognized as a security interest and thus its holder cannot enjoy the position of the secured creditor", Eventually, by the middle of the twentieth century, some States decided to reconsider the whole field of security rights in movable property The creation of a functional approach to redefine the concept of security interest, which generalizes all the existing devices operating based on a right over a movable asset into a single form of security interest governed by a unified set of rules, was the result of this reflection®>
Essentially, the functional approach liberates the consensual security interests in movable assets from the limits of law Accordingly, they are not limited to conventional forms like pledge, mortgage, or, deposit, etc Any interest in movable assets created with an intent to secure the performance of an obligation, regardless of its form, shall be recognized as a security interest and thus grants its holder the position of secured creditor.
The functional approach was created in the United States (US) and was originally manifested in Article 9 of the Uniform Commercial Code (UCC) - a model code to unify the rules on the major transactions in commercial activities that has been adopted by all 50 States** Article 9, which is titled ‘secured transactions’, is a single integrated system of rules that governs the consensual security interest in personal property of almost all kinds.
Until early in the 19 century in the US, only two forms of security interest were known, the pledge of movable assets that requires the creditor to possess the collateral and the common lew mortgage of real property in which the creditor holds
4“ UNCITRAL Legislative Guide on Secured Transactions p 55.
UNCITRAL Legislative Guide ơn Secured Tansactions,p 55; Grant Gilmore (1968), supraat note 24,
2 * UNCITRAL Legislative Guide on Secured Transactions 660 ,p Số.
“ UNCITRAL’s Werkng Document No A/CN.9/475 an 27 April 2000 ơn Security Interests — Cunrert activities and possible furure work,p 12 Hereafter cited as: UNCITRAL Working Document’s No.
Objects of Security Device ccsccsessesesseseeseseseneeeseeseseeseeeeneeeen 4D 2.4 The Secured Obligafiens -.c.cececee 42 2.5 Kinds of Security Device 2.6 The Creation of Security Devices
The objects of the security device are the factors, whether intangible or non- intangible, that can be manipulated by a security device to secure the performance of an obligation Under the Civil Code 2015, the objects of the security device can be assets, undertakings of a subject, and fidelity.
'9 Nguyễn Ngọc Điền (2014), zrứra at note 1; Vương Thanh Thỳy, Kiểu Thị Thựy Linh (2018), sere at note 8,p 373.
*" Art 116 of the Civil Code 2015.
*! Hanoi Law University (2022), Giáo trinh Luật Dân sự Việt Nam — Tập 2 [Textbook on Civil Law in
‘Viera - Chapter 2] ,Neb Tư Pháp [Judicial Publisher] ,p 85. © Art, 2.5 of Decree 21/2021ND-CP
When an asset is taken over by a security device to secure the performance of an obligation, it is regarded as collateral Under Article 295 of Civil Code 2015, in principle, the available assets for collateral can be of any kind from movables to immovables, from tangibles to intangibles The collateral may be a future asset The asset must be under the ownership of the securing party, except in ‘Retention of
Title and ‘Lien of Asset’, the value of the collateral may exceed, equal, or lower than the value of the secured obligation’? In general, the exceeding value of the collateral must be returned to the secured party after the realization, unless agreed otherwise.
The principle that collateral must be under the ownership of the securing parties takes root for two reasons One, the ability to grant a security device over a collateral is a part of that collateral’s ownership, two, the principle of Nemo dat quod non habet, which essentially means “he cannot give what he doesn’t have $5. because the realization of the collateral may include the transfer of ownership from the securing party to the secured party or the secured party to a third party And in both cases, there must be an authorization of the right to sell from the owner of the collateral Thus, the secured party must have ownership over the collateral.
Additionally, pursuant to Art 295.3 the collateral may not be described in detail without being specific, but there must be a means for determination in such cases This rule is for the case of a floating mortgage, in which the collateral is non- constant and may change in terms of quantity, value, or owner In these situations, if the description of collateral cannot be abstract and general, inconvenience may arise as parties have to provide a description every time the collateral fluctuates in quantity or transforms in quality®.
Finally, the proprietary characteristic of the collateral is a deciding factor of whether a security device must be registered to be effective within the involved parties and against the third parties In general, the heavy-regulated assets (e.g:
*° Nguyễn Minh ‘Thin, Comment on Art 295 of the Civil Code from Nguyễn Vin Cừ, Trần Thị Huệ
(Gis) (2017), Binh hận khoa học Bộ Init Din sự nim 2015 của nước Cộng hoa 24 hội chủ nghứa Việt Nam [Commentary of the Civil Code 2015 of the Socialist Republic of Vieterm], Nxb Công an nhin din [The People’s Police Publisher] ,Hmoi,p 488,489.
*° Id p 488-489. immovable assets, intellectual properties, registered securities, land use rights, aircraft, and vessels) when taken as collateral, often make the registration mandatory for security devices to become effective within the parties.
Besides collateral, undertakings of third parties and fidelity of ‘socio- political organizations’ can be taken over by a security device The undertakings are subjected to the ‘Guarantee’ — a security device The fidelity is taken over by
‘Fidelity Guarantee’ — also a security device ‘Fidelity Guarantee’ is an ad-hoc solution in Vietnam to provide loans for extremely economically disadvantaged individuals and households who are incapable of serving their basic demands. Although they desperately need credit, poverty makes access to loans difficult for them, as they do not have many assets to offer as collateral, thus they must be guaranteed by the reliability of social-political institutions that offer support.
According to Art 293 Civil Code 2015, an obligation can be partially or wholly secured The obligation can exist at present or in the future or be
‘conditional’, which means that the performance of that obligation depends on the happening of external events as agreed in prior Present obligations are the obligations that have already existed when the security device is established, future obligations are the obligations that will arise after the establishment of a security device.
According to Art 293.3 and 294 of the Code on future obligation: () an obligation arises in the period of security’? of the security device is a secured obligation; (ii) the parties may agree on the scope of the secured obligation and the deadline by which the secured obligation must be performed unless otherwise prescribed by law; (iii) when the future obligation arises, the parties are not required to re-establish the security for such obligation.
Regarding future obligations, marking a period of security is necessary since those obligations arise after the establishment of a security device If there is an obligation arises after this period, it is regarded as an unsecured obligation Setting a time limit for the cover of the security device is important for the securing party By
*? The agreed time frame when any obligations arised within shall be secured by the security device doing so, this party can protect itself from the risk of having to secure indefinite obligations for an indefinite amount of times®.
Parties are not required to re-establish the security device for a future obligation when that obligation arises This is because they have already agreed in prior that their security device can cover such obligation This rule under the Civil Code 2015 reflects the simplification of administrative procedure policy in the law of secured transactions, which can save the cost and time of the parties for the registration, and notarization when setting up a security device’.
Realization of the Collateral 48 2.8.1 Releazation EYieitf ĂSsteeeetrriererireirierirrrrrir 48 2.82 Methods of Collateral Realization
Only the security devices over assets are involved in the realization of the collateral Realization of the collateral is the process of manipulating the the collateral, which often involves extracting the collateral’s value, to compensate for the secured obligation that has not been performed or improperly performed. According to Article 299 of the Civil Code 2015, the realization of the collateral is contingent upon the following situations:
(@ When the obligation is due and the obligor does not perform the obligation or does not perform the obligation properly according to the contract In other wards, the obligor has “defaulted”.
However, when the obligor has defaulted due to force majeure or is exempted from liability by any other means, the realization of collateral cannot take place!
(ii) The obligor must perform the obligation before the due because he has breached a contract or imposed by law.
This situation arises when secured transactions are established to secure the performance of a contract and the obligor thereof breaches that contract For example, ina credit agreement with a mortgage, the bank can terminate the contract and impose a new due for the repayment obligation (typically sooner than the original due) if the borrower has used the loan not in accordance with the agreed purpose After this new due, if the obligation still has not been discharged the bank can initiate the realization of the collateral105,
(iii) Other situations as agreed or as provided by an Act.
402 Art 331.3 of the Civil Code 2015
Art 23.3 and 23 4 of the Decree No 21/2021/NĐ- CP.
19% Nguyễn Mi Tuần, Comment on Art 299 of the Civil Code 2015, strat note 87, p 495. °0S Hanoi Law University (2022), supra at note $3,p 100.
The parties involved within a security device may bargain on their own terms on when the realization may take place, besides the two situations given above. However, there are other scenarios provided by another Act where realization must proceed regardless of the parties’ agreement or the obligor’s default An ‘Act’ is a source of law in Vietnam It is a statutory agreement passed by the legislative organ of the country.
The first is the event under Article 296.3 of the Civil Code 2015. Accordingly, this is the event where an asset is collateralized to secure multiple obligations And the asset must be realized to secure one of the obligations thereof. The other obligations, although have not yet fallen due, shall also be deemed due and all the secured parties taken the collateral shall be entitled to take part in the realization.
The second is the event under Article 90 of the Act on Enforcement of Civil Judgements No 26/2008/QH12 (Hereafter ‘Enforcement Act 2008”) The Article is about the pledged and mortgaged collateral in the enforcement process. Accordingly, in case the obligor in a judgment does not have sufficient assets to enforce the judgment, the authority may take the asset which is currently in pledges and mortgages if the value of those assets exceeds the value of the secured obligation and the enforcement fees.
Under the Civil Code 2015, there are three means of collateral realization, including:
There are two kinds of sale available, auction and self-liquidation:
Auction is the sale of collateral where people make higher and higher offers of money, and the collateral is sold to the person who makes the greatest offer If the auction is chosen by the parties, the secured party may commence the auction through an authorized auction institution Auction is the default means if the parties cannot reach consent for the realization method,
19* Art 303 2 of the Civil Code 2015
Self-liquidation is the sale of the collateral by the secured party The sale must be conducted by the rules on the sale contract or the rules on the transfer of land use tights under the Civil Code 2015 By this means, the secured party is the seller in the sale, although he doesn’t have ownership over the collateral The secured party may sell to any other parties without the consent of the securing party.
The party who is entitled to realize (usually the secured party) and the owner of the collateral (usually the securing party) must carry out any required registration to transfer the ownership of the collateral to the buyer.
Regarding the proceeds of the sale, in principles!®?: first, they must be distributed by the priority of payment between the secured creditor, second the remaining amount, after paying for the cost of preservation and realization of the collateral and the value of the secured obligation, must be returned to the securing party, third if the proceeds are still less than the value of the secured obligations after paying for the preservation and realization of the collateral, the part of the obligation that cannot be covered by the insufficient proceeds is deemed as an unsecured obligation, unless the party agree to include additional collateral The secured party may request the obligor to perform any unpaid secured obligations.
Substitution means the secured party takes the ownership of the collateral to compensate for the secured obligations Substitution must be agreed in prior by the parties When taking a collateral that exceeds the value of the secured obligation, the difference must be returned to the securing party in money If the value of the collateral is less than the secured obligation, the unsecured remaining parts becomes the unsecured obligations.
Besides the two given methods, the parties may agree to realize the collateral by different means For example, when the collateral is receivables, the parties may agree that the secured party can directly require the debtor in those receivables to discharge payment The can parties also agree that the secured creditor may lease
19! Art 307 of the Civil Code 2015. the collateral for a third party or harness the economic value of the collateral by any means.
However, according to the official rules of the Code, these three means are not universal for all security devices Only the parties within a pledge and a mortgage have a choice of how the collateral is going to be realized by one of the given means? The other security devices over assets, i.e ‘Deposit’, ‘Call-bets’, ‘Escrow deposit’, ‘Retention of Title’, and ‘Property Lien’ are subjected to different rules of realization
Accordingly, ‘Deposit’ requires that the collateral thereof shall be transferred to the depository taker if the deposit giver does not perform or conclude the contract.
And the deposit taker must retum the collateral plus an equivalent amount of property to the deposit giver if he does not perform the or conclude the contractl99.
The rules of ‘Call-bets’ provide that the collateral shall immediately belong to the secured party if the leased property is no longer available for return!!9 Within an
“Escrow deposit’, in case the securing party defaults, the credit institution that holds collateral must make payment by the collateral to the secured party to compensate for any damages caused by the securing party, after deducting the bank service charges!
Nothing among the mentioned means of realization applies to the ‘Retention of title’, as the collateral in the retention of title is under the ownership of the secured party Thus, there is no sense for him to sell, or take ownership of that collateral. The secured party within a title retention agreement is granted the right to reclaim the property of which the ownership is retained Accardingly, if the buyer (securing party) fails to fulfil the payment obligation for the seller as agreed the seller (the secured party) is entitled to reclaim the sold property The seller shall refund the paid amount by the buyer after deducting any depreciated value of the sale asset resulting from the buyer’s prior usage of the asset from the time it was handed to him until the seller claims the property backÌ12,
19 Art 307 of the Civil Code 2015.
19 Art 328 2 of the Civil Code 2015.
‘© Art 329 2 of the Civil Code 2015.
11! Art 330 2 of the Civil Code 2015.
‘©? Art 332 of the Civil Code 2015.