Source of case: Cassation Decision No. 01/2017/KDTM-GDT dated March 01, 2017 of the Judge’s Council of the Supreme Court on the business and trade dispute case “Disputes over a credit agreement” in Ha Noi between the plaintiff: The Joint Stock Commercial Bank A (Mr. Pham Huu P as a legal representative and Ms. Mai Thu H as a proxy) and defendants: Company B Ltd (Mr. Tran Luu H1 as a legal representative); the persons with related rights and obligations: Mr. Tran Duyen H, Ms. Luu Thi Minh N, Mr. Tran Luu H1, Ms Pham Thi V, Mr. Tran Luu H2, Ms. Ta Thu H, Mr. Nguyen Tuan T, Ms. Tran Thanh H, Mr. Tran Minh H and Ms. Do Thi H.

Overview of case: In this case, a party mortgaged their land – use rights and the property on land to ensure civil obligations. However, there was other property owned by a person other than the mortgagor on such land; the content and form of this civil transaction was in accordance with the relevant regulations. In this case, the Court determined that this mortgage agreement was valid, and when the Court settled this case, it must reserve for the owner of the property on land priority to receive the transfer of such land-use rights.

 Validity of mortgage agreement. According to Article 342 Clause 1 of the Civil Code 2005 (“BLDS 2005”), the mortgagor is only allowed to use his/her own property to secure the performance of a civil obligation toward the other mortgagee. In this case, there was a 3.5-story house built by Mr. Tran Luu H2 and the other of Mr. Hung’s children besides the old 2-story house (owned by Mr. Hung and Ms. N) on this land. According to the mortgage agreement on land – use rights and the property attached to such land, both the mortgagor (Mr. Tran Duyen H and Ms. Luu Thi Minh N) and the mortgagee (The Joint Stock Commercial Bank A), the parties only agreed on the mortgage of the property including land – use rights and the 2-story house on land. However, the Appeal Court decided that the mortgage agreement on land – use rights and the property attached to land on June 11, 2008 was partially invalid (the part relating to the 3,5-story house) and it was incorrect due to relevant regulations. In addition to the form and the content of this agreement in accordance with the law, it should have been legally valid. However, when settling the case, the Court should request the involved parties to provide documents and evidence proving the origin of the 3.5-story house to ensure the lawful rights and interests for those persons.

The Disposal of mortgage property. There were 2 properties attached to the land in this case: the 2-story house (owned by Mr. H and Ms. N) and the 3.5-story house. But in the process of settling the case, the First-instance Court and the Appeal Court only determined the disposal of the land- use rights and the 2-story house on land, it was not appropriately decided. Under  Article 1 Clause 1 Sub Clause 4 of  Decree No. 11/2012/ND-CP dated February 22, 2012 of the Government in amending and supplementing a number of articles of the Government’s Decree No. 163/2006/ND-CP dated December 29, 2006 on secured transactions: “In case only the land use right is mortgaged while the asset attached to land is not and the land user is not the owner of the asset attached to land, when the land use right, is handled, the owner of the asset attached to land may further use land as agreed with the land user, unless otherwise agreed upon. Rights and obligations of the mortgagor and the owner of the asset attached to land shall be transferred to the buyer or the recipient of the land use right”. In short, the 3.5-story on land must also be considered when deciding the mortgage property disposal so as to protect and ensure the rights and interests of the involved parties.


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