Precedent No. 11/2017/AL

On recognition of mortgage contracts for land use rights where the land has assets not owned by the mortgagor

Adopted by the Council of Judges of the Supreme People's Court on February 14, 2017 and promulgated under Decision No. 299/QD-CA dated December 28, 2017 of the Chief Justice of the Supreme People's Court.

Source of case law

Final judgment No. 01/2017/KDTM-GDT dated March 1, 2017 of the Council of Judges of the Supreme People's Court on the business and commercial case "Dispute over credit contract" in Hanoi city between the plaintiff, Joint Stock Commercial Bank A (legal representative is Mr. Pham Huu P, authorized representative is Ms. Mai Thu H) and the defendant, Limited Liability Company B (legal representative is Mr. Tran Luu H1); people with related rights and obligations include: 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, Ms. Do Thi H.

Location of case law

Paragraph 4 of the “Court's Opinion” section.

Overview of case law

- Case study 1:

One party mortgages the land use rights and assets attached to the land under his/her ownership to secure the performance of civil obligations, but on the land there is also assets owned by another person; the form and content of the contract are in accordance with the provisions of law.

- Legal solution 1 :

In this case, the Court must determine whether the mortgage contract is legally valid.

- Case law 2:

The mortgagor and the mortgagee agree that the mortgagee may sell the secured property, which is the land use right, on which there is a house not owned by the land user.

- Legal solution 2 :

In this case, when resolving the matter, the Court must give the owner of the house on the land the right of priority to receive the transfer of land use rights if they have a need.

Legal provisions relating to precedents

Article 342 of the 2005 Civil Code (corresponding to Article 318 of the 2015 Civil Code); Article 715, Article 721 of the 2005 Civil Code; Section 4, Clause 19, Article 1 of Decree No. 11/2012/ND-CP dated February 22, 2012 of the Government on amending and supplementing a number of articles of Decree No. 163/2006/ND-CP dated December 29, 2006 of the Government on secured transactions (codified in Clause 2, Article 325 of the 2015 Civil Code).

Keywords of case law

“Mortgage of land use rights”; “On land there is property of others”; “Recognition of mortgage contract of land use rights”; “Agreement on handling of mortgaged property”; “Priority to receive transfer”.

Contents of the case

In the petition dated October 6, 2011 and the testimony at Court, the plaintiff, Joint Stock Commercial Bank A, stated:

On June 16, 2008, Joint Stock Commercial Bank A (hereinafter referred to as the Bank) and Limited Liability Company B (hereinafter referred to as Company B) signed Credit Contract No. 1702-LAV-200800142. Accordingly, the Bank lent Company B VND 10,000,000,000 and/or equivalent in foreign currency. The purpose of the credit is to supplement working capital for Company B's registered business.

In performing the contract, the Bank has disbursed a total of VND 3,066,191,933 to Company B under the Credit Contracts and Debt Acknowledgement Agreements. As of October 5, 2011, Company B still owes VND 4,368,570,503 in principal and interest of the 3 Agreements (of which the principal is VND 2,943,600,000 and the interest is VND 1,424,970,503).

The collateral for the above loan is the house and land [plot No. 43, map sheet No. 51-1-33 (1996)] at No. 432, Group 28, Ward E, District G, Hanoi City, owned and used by Mr. Tran Duyen H and Ms. Luu Thi Minh N (according to the Certificate of house ownership and land use rights No. 10107490390 issued by the Hanoi People's Committee on December 7, 2000), mortgaged by Mr. Tran Duyen H and Ms. Luu Thi Minh N under the Mortgage Contract for land use rights and assets attached to land dated June 11, 2008. This mortgage contract was notarized by Notary Office No. 6 of Hanoi City on June 11, 2008 and certified for registration of secured transaction by the Department of Natural Resources and Environment of Hanoi City on June 11, 2008.

On October 30, 2009, the Bank and Company B continued to sign Credit Contract No. 1702-LAV-200900583. Accordingly, the Bank lent Company B 180,000 USD. The purpose of the loan is to pay for the transportation of exported goods; the loan term is 09 months; the loan interest rate is 5.1%/year; the overdue interest rate is 150%.

In order to perform the contract, the Bank has fully disbursed the loan amount of 180,000 USD to Company B. Company B has just paid the Bank the principal amount of 100,750 USD and the interest amount of 1,334.50 USD. As of October 5, 2011, Company B still owes 79,205 USD in principal and 16,879.69 USD in interest. The total principal and interest amount is 96,120.69 USD.

Collateral for the loan under Credit Contract No. 1702-LAV-2009058 includes:

- A batch of 19 finished trucks with a capacity of 1.75 tons, brand JMP, 100% new, worth VND 2,778,750,000 (assembled by Company B in the form of goods kept in the unit's warehouse, the Bank holds the Certificate of vehicle quality inspection) mortgaged by Company B under Mortgage Contract No. 219/2009/EIBHBT-CC dated October 29, 2009. This mortgage contract was registered for secured transaction at the Hanoi City Secured Transaction Registration Office on November 2, 2009;

- The balance of the 3-month term deposit account worth VND 1,620,000,000 issued by the Bank. Because Company B has partially paid off the loan, the Bank has released the amount of VND 1,620,000,000 in Company B's savings account, corresponding to the debt paid.

At the first instance trial, the Bank representative confirmed: for the loan of 180,000 USD, Company B has paid off the principal; only the remaining interest debt is 5,392.81 USD; the collateral is 19 cars, 18 have been sold, 1 car remains; requesting the Court to handle the remaining car to recover the outstanding loan debt.

The Bank requests the Court to compel:

- Company B pays the principal and interest in VND of Credit Contract No. 1702-LAV-200800142, which is 4,368,570,503 VND;

- Company B paid 5,392.81 USD in interest debt in USD of Credit Contract No. 1702-LAV-200900583.

In case Company B does not pay or does not pay in full, the Court is requested to auction the mortgaged assets as follows:

- The house ownership and land use rights at No. 432, Group 28, Ward E, District G, Hanoi City are owned and used by Mr. Tran Duyen H and Ms. Luu Thi Minh N;

- 01 finished truck, 1.75 ton capacity, JMP brand, 100% new, assembled by Company B according to Asset Mortgage Contract No. 219/2009/EIBHBT-CC dated October 29, 2009.

The defendant's representative, Mr. Tran Luu H1 - General Director of Company B, stated: Acknowledging the principal, interest and mortgaged assets as presented by the Bank, but requested the Bank to allow gradual repayment.

The persons with related rights and obligations, Mr. Tran Duyen H and Ms. Luu Thi Minh N, stated: They admitted to signing the mortgage contract of the house and land No. 432 mentioned above to secure the maximum loan of VND 3,000,000,000 of Company B. The mortgage contract was notarized and registered as a secured transaction. The family of Mr. Tran Duyen H and Ms. Luu Thi Minh N also supported the Company to pay nearly VND 600,000,000 for the loan with the mortgaged property being their house and land. They requested the Bank to extend the debt of Company B so that the Company has time to recover production and arrange to repay the debt to the Bank; requested the Court not to summon their sons, daughters-in-law, daughters and sons-in-law to the Court to work.

Mr. Tran Luu H2, on behalf of the children and grandchildren of Mr. Tran Duyen H and Mrs. Luu Thi Minh N, who are living at house and land plot number 432, presented:

At the end of 2010, he learned that his parents mortgaged the house and land where his family lived to secure the loan of Company B. After Mr. Tran Duyen H and Ms. Luu Thi Minh N were granted the Certificate of house ownership and land use rights in 2000, Mr. Tran Luu H2 and Mr. Tran Minh H spent money to build an additional 3.5-storey house on the land and 16 family members are currently living in the house and land No. 432 mentioned above. When signing the mortgage contract, the Bank did not ask for the opinions of the brothers and the people living in this house and land. Therefore, he requested the Court not to recognize the mortgage contract and consider the amount of VND 550,000,000 that the brothers and sisters contributed to pay the debt to Company B under the Credit Contract with the collateral being the house and land No. 432 mentioned above but the Bank arbitrarily deducted it from the foreign currency loan with the collateral being 19 cars, which is incorrect.

In the First Instance Commercial Judgment No. 59/2013/KDTM-ST dated September 24, 2013, the Hanoi People's Court decided:

- Accept the lawsuit request of Joint Stock Commercial Bank A against Limited Liability Company B.

- Compel Limited Liability Company B to pay Joint Stock Commercial Bank A the outstanding amount of Credit Contract No. 1702-LAV-200800142, including: principal debt of VND 2,813,600,000; interest debt within the term of VND 2,080,977,381; overdue interest debt as of September 23, 2013 of VND 1,036,575,586; late payment penalty interest as of September 23, 2013 of VND 123,254,156; total : VND 6,054,407,123.

- Compel Limited Liability Company B to pay Joint Stock Commercial Bank A the outstanding amount of Credit Contract No. 1702 -LAV-200800583, including overdue interest of 5,392.81 USD.

In case Limited Liability Company B fails to repay or does not fully repay the outstanding amount of Credit Contract No. 1702-LAV - 200800142, Joint Stock Commercial Bank A has the right to request the Civil Judgment Enforcement Department of Hanoi City to handle the secured assets according to the provisions of law, which are the house ownership rights and land use rights at plot No. 43 , map sheet No. 5 I - I -33 (1996) according to the Certificate of house ownership rights and land use rights No. 10107490390 issued by the People 's Committee of Hanoi City on December 7, 2000 to Mr. Tran Duyen H and Ms. Luu Thi Minh N at address No. 432 , group 28, ward E, district G, Hanoi City. to collect debt...

In case Limited Liability Company B fails to pay the debt or does not pay the full amount of the debt under Credit Contract No. 1 702-LAV-200800583, Joint Stock Commercial Bank A has the right to request the Civil Judgment Enforcement Department of Hanoi City to handle the secured asset, which is a 1.75-ton JMP truck assembled by Limited Liability Company B under the Property Mortgage Contract No. 219 /2009/EIBHBT-CC dated October 29, 2009, to recover the debt.

In addition, the Court of First Instance also decides on court fees and the parties' right to appeal according to the provisions of law.

After the first instance trial, the defendant and those with related rights and obligations all filed an appeal against the first instance judgment.

In the Commercial and Business Appeal Judgment No. 111/2014/KDTM-PT dated July 7, 2014, the Appeal Court of the Supreme People's Court in Hanoi decided:

Uphold the decision of the First Instance Judgment No. 59/2012/KDTM-ST dated September 24, 2013 of the People's Court of Hanoi City on the Credit Contract, on the loans and money that Limited Liability Company B must pay to Joint Stock Commercial Bank A ; annul the decision of the First Instance Judgment No. 59 /2013/KDTM-ST dated September 24, 2013 of the People's Court of Hanoi City on the mortgage contract and third party guarantee, specifically:

...Cancel the decision on the mortgage contract of land use rights and assets attached to the land of a third party (house and land No. 432 , Group 28, Ward E, District G, Hanoi City) signed on June 11, 2008 at Notary Office No. 6, Hanoi City and registered the secured assets at the Department of Natural Resources and Environment of Hanoi City on June 11, 2008...

Transfer the case file to the People's Court of Hanoi City for verification, collection of evidence and retrial, determining the legal assets owned by Mr. Tran Duyen H and Ms. Luu Thi Minh N as collateral to secure for Limited Liability Company B for the loan at Joint Stock Commercial Bank A under Credit Contract No. 1 702-LAV-200800142 dated June 16, 2008.

In addition, the Court of Appeal also decides on court costs.

After the appeal trial, the Bank and the People's Court of Hanoi City issued a document requesting a review of the appeal judgment according to the cassation procedure.

In the Appeal for Review No. 14/2016/KDTM-KN dated April 12, 2016, the Chief Justice of the Supreme People's Court appealed the Appeal Business and Commercial Judgment No. 111/2014/KDTM-PT dated July 7, 2014 of the Appeal Court of the Supreme People's Court in Hanoi. Requesting the Council of Judges of the Supreme People's Court to annul the Appeal Business and Commercial Judgment No. 111/2014/KDTM-PT dated July 7, 2014 of the Appeal Court of the Supreme People's Court in Hanoi and the First Instance Business and Commercial Judgment No. 59/2013/KDTM-ST dated September 24, 2013 of the Hanoi People's Court; handing over the case file to the Hanoi People's Court for retrial in accordance with the provisions of law.

At the appeal hearing, the representative of the Supreme People's Procuracy agreed with the appeal of the Chief Justice of the Supreme People's Court; requested the Council of Judges of the Supreme People's Court to annul the appeal judgment and transfer the case file to the High People's Court in Hanoi for retrial.

Court opinion

[1] The case file shows that, to secure the loan under Credit Contract No. 1702-LAV-200800142 dated June 16, 2008 at Bank of Company B, of which Mr. Tran Luu H1, son of Mr. Tran Duyen H, and Ms. Luu Thi Minh N, is the Director, on June 11, 2008, Mr. Tran Duyen H and Ms. Luu Thi Minh N mortgaged the house and land at No. 432, Group 28, Ward E, District G, Hanoi City, owned and used by Mr. Tran Duyen H and Ms. Luu Thi Minh N under the Mortgage Contract for Land Use Rights and Assets Attached to Land dated June 11, 2008. This mortgage contract was notarized and registered as a secured transaction in accordance with the provisions of law.

[2] According to the Certificate of house ownership and land use rights dated December 7, 2000, the house and land at No. 432, Group 28, Ward E, District G, Hanoi City (hereinafter referred to as house and land No. 432), includes: residential land area of ​​147.7 m2 ^, house area of ​​85 m2 ^, house structure: concrete and brick; number of floors: 02+01. When appraising the mortgaged property, the Bank knew that on the land area of ​​147.7 m2, ⁱⁿ addition to the 2-storey house that had been registered for ownership, there was also a 3.5-storey house that had not been registered for ownership, but the Bank only valued the land use rights and the 2-storey house that had been registered for ownership with a total value of the house and land of VND 3,186,700,000, without collecting information and documents to consider clarifying the origin as well as who was the owner of the 3.5-storey house, which was a shortcoming and did not ensure the rights of the parties.

[3] During the process of resolving the case, on June 6, 2012, the Hanoi People's Court conducted an on-site review and assessment, determining that: house and land No. 432 has 02 blocks of houses (including: the first block of houses: land area is 37.5 m2, length 5.9 m, width 6.35 m; the second block of houses is a three-story concrete house with balcony, area 61.3 m2 ⁾ and currently has 16 permanent residents, long-term registration, and regular residents. Before the first instance trial, on September 21, 2013, Mr. Tran Luu H2 (son of Mr. Tran Duyen H, Mrs. Luu Thi Minh N) submitted a petition to the People's Court of Hanoi City stating that after being granted the Certificate of house ownership and land use rights in 2000, due to difficulties in housing, in 2002, the family of Mr. Tran Duyen H, Mrs. Luu Thi Minh N agreed to let Mr. Tran Luu H2 and the children of Mr. Tran Duyen H, Mrs. Luu Thi Minh N spend money to build an additional 3.5-storey house next to the old 2-storey house on the above land plot. Thus, the Hanoi People's Court knows that in reality, the current status of the land plot when mortgaged had 02 houses (the old 02-storey house and the 3.5-storey house) which is not in accordance with the Certificate of house ownership and land use rights in 2000 and the Mortgage Contract of land use rights and assets attached to land dated June 11, 2008. When resolving the case, although the Hanoi People's Court considered the request of Mr. Tran Luu H2 and the children of Mr. Tran Duyen H, Ms. Luu Thi Minh N related to the 3.5-storey house, the Hanoi People's Court did not clearly decide whether to foreclose on the 3.5-storey house or not, which is incorrect and does not ensure the rights and legitimate interests of the parties.

[4] According to the provisions of Section 4, Clause 19, Article 1 of Decree No. 11/2012/ND-CP dated February 22, 2012 of the Government on amending and supplementing a number of articles of Decree No. 163/2006/ND-CP dated December 29, 2006 of the Government on secured transactions: “In the case of mortgaging only the land use right without mortgaging the property attached to the land and the land user is not at the same time the owner of the property attached to the land , when handling the land use right, the owner of the property attached to the land is allowed to continue using the land according to the agreement between the land user and the owner of the property attached to the land, unless otherwise agreed. The rights and obligations between the mortgagor and the owner of the property attached to the land are transferred to the buyer, the recipient of the land use rights .In this case, when signing the mortgage contract for land use rights and assets attached to the land, the mortgagor (Mr. Tran Duyen H, Ms. Luu Thi Minh N) and the mortgagee (Bank) both clearly knew that on the land plot of Mr. Tran Duyen H, Ms. Luu Thi Minh N, in addition to the 2-storey house with registered ownership, there was also a 3.5-storey house with unregistered ownership on the land, but the parties only agreed to mortgage the assets including the land use rights and the 2-storey house attached to the land. In the case where there are many assets attached to the land, some of which are owned by the land user, some of which are owned by others, and the land user only mortgages the land use rights and assets attached to the land under his/her ownership, the mortgage contract has content and form in accordance with the provisions of law, then the mortgage contract is legally valid. Therefore, the Court of Appeal determined that the Mortgage Contract for Land Use Rights and Property Attached to Land dated June 11, 2008 had a part invalid (the part with the 3.5-storey house); the decision of the first instance judgment on the mortgage contract was annulled and the case was transferred to the People's Court of Hanoi City to verify and collect evidence to determine the legal property owned by Mr. Tran Duyen H and Ms. Luu Thi Minh N and to retry the case was incorrect. With the documents and evidence in the case file, the Court of Appeal should have considered and decided on the handling of the secured property, which is the land use rights and the house legally owned by Mr. Tran Duyen H and Ms. Luu Thi Minh N, in accordance with the provisions of law. When re-examining the case, the Court of Appeal needs to request the litigants to provide documents and evidence proving the origin of the above 3.5-storey house to resolve the case to ensure the legitimate rights and interests of those who have spent money to build the house and are living there. At the same time, the Court of Appeal needs to consult, encourage and motivate the litigants to reach an agreement on handling the mortgaged property. In case the mortgagor and the mortgagee agree that the mortgagee can sell the secured property which is the right to use the land area on which there is a house owned by someone other than the land user, the owner of that house must have priority if they want to buy (receive the transfer).

[5] In addition, the Court of First Instance based on the agreement of the parties in Clause 5.4, Article 5 of the Credit Contract on late payment penalty interest on unpaid interest "late payment penalty interest is more than 10 days from the due date , the penalty interest rate is 2% on the unpaid interest; more than 30 days from the due date, the penalty interest rate is 5% on the unpaid interest" to accept the request of the Bank to force Company B to pay the late payment penalty interest of VND 123,254,156 is illegal, unacceptable because this is interest on interest. The Court of Appeal did not discover this error, and still upheld this decision of the judgment of first instance, which is also incorrect.

For the above reasons,

Decision

Pursuant to Clause 2, Article 337, Clause 3, Article 343, Article 345 of the 2015 Civil Procedure Code; Resolution No. 103/2015/QH13 dated November 25, 2015 on the implementation of the Civil Procedure Code;

1. Accept the Chief Justice's Appeal No. 14/2016/KDTM-KN dated April 12, 2016.
2. Annul the Business and Commercial Appeal Judgment No. 111/2014/KDTM-PT dated July 7, 2014 of the Appellate Court of the Supreme People's Court in Hanoi regarding the business and commercial case of credit contract dispute between the plaintiff, Joint Stock Commercial Bank A, the defendant, Limited Liability Company B and 10 people with related rights and obligations.
3. Transfer the case file to the High People's Court in Hanoi for retrial according to the appeal procedure in accordance with the provisions of law.

Case law content

“ [ 4] In case there are many assets attached to the land, some of which are owned by the land user, some of which are owned by others , and the land user only mortgages the land use rights and assets attached to the land under his/her ownership, the mortgage contract has content and form in accordance with the provisions of law, then the mortgage contract is legally valid...

... In case the mortgagor and the mortgagee agree that the mortgagee is allowed to sell the secured property which is the right to use the land area on which there is a house owned by someone other than the land user, the owner of that house must be given priority if they have a need to buy (receive the transfer ).”

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