INTRODUCTION TO LAW
TRAN THANH TAM (LL.M, PhD Candidate)
SECURITY FOR PERFORMANCE OF OBLIGATIONS
1. Pledge of property.
2. Mortgage of property.
3. Performance bond.
4. Security deposit.
5. Escrow deposit.
6. Reserve of ownership rights.
7. Guarantee.
8. Fidelity guarantees.
9. Retention of property.
PLEDGE OF PROPERTY
Pledge of property means 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.
(Art 309 – Civil code)
MORTGAGE OF PROPERTY
• Mortgage of property means the use by one
party (hereinafter referred to as the
mortgagor) of property under its ownership as
security for the performance of an obligation
to the other party (hereinafter referred to as
the mortgagee) without transferring such
property to the mortgagee.
(Art 317 – Civil code)
PLEDGING/MORTGAGE CONTRACT
• Form:
+ Made in writing
+ Be notarized or certified (if applicable)
+ Registered with security transaction (if
applicable) (Art 298- Civil Code) – Legal
consequences (Art 297 + Art 308)?
DECREE NO 21/2021/ND-CP
Article 29. Relationship between security contract and contract with
secured obligation
1. The security contract being invalidated or canceled or unilaterally
terminated does not terminate the contract with the secured obligation.
2. Where a contract with a secured obligation is invalidated or cancelled,
or unilaterally terminated, the performance shall be settled as follows:
a) If the parties have not performed the contract with the secured
obligations, the security contract shall terminate;
b) The parties have performed part or the whole of the contract with
the secured obligations, the security contract shall not terminate. The
secured party has the right to realise the security property to
compensate the obligor's repayment obligation.
DISCUSSION
• Company A borrowed money from Bank B and
used its property as collateral which was
registered at a competent authority. A continued
to borrow money from bank C and used the
above property as collateral (The title document
was delivered to Bank C and the collateral was
then registered at the competent authority).
• Now company A declare insolvent. Who would be
given priority for the payment, B or C?
PERFORMANCE BOND
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Definition
Performance bond property
Handling of performance bond property
Form:
- Civil Code 2005: In writing
- Civil Code 2015: No regulation
(?) Performance bond vs advance payment
PERFORMANCE BOND
Performance bond means a sum of money, precious metals,
gemstones or other valuable objects (hereinafter referred to as
performance bond property) delivered by one party (hereinafter
referred to as depositor) to another party (hereinafter referred to as
recipient of a performance bond) for a period of time as security for
the entering into or performance of a contract.
Upon a contract being entered into or performed, any performance
bond property shall be returned to the depositor, or deducted from
the amount of an obligation to pay money. If the depositor refuses to
enter into or perform the contract, the performance bond property
shall belong to the recipient of the performance bond; and if the
recipient of the performance bond refuses to enter into or perform the
contract, it must return the performance bond property and pay an
amount equivalent to the value of the performance bond property to
the depositor, unless otherwise agreed.
(Art 335 – Civil code)
DISCUSSION
In December 2021, Mr. A and Mrs. B agreed to buy
and sell Mrs. B’s luxury apartment located in District
7, Ho Chi Minh City with a total value of USD
100.000. Accordingly, Mr. A makes a deposit of 20%
of the house value to Mrs. B in the amount of USD
20.000. Due to the sudden increase in market price,
Mrs. B later refused to sell the house to Mr. A. Did
Mrs. B have to pay Mr. A twice the deposit given
that there is no other agreements between the two
parties?
SECURITY DEPOSIT
Security deposit means a sum of money, precious metals,
gemstones or other valuable objects (hereinafter referred to
as security deposit property) delivered by a lessee of
moveable property to the lessor for a period of time as
security for the return of the leased property.
Where the leased property is returned, the lessee is entitled
to recover the security deposit property after rent has been
paid; and if the lessee does not return the leased property,
the lessor is entitled to reclaim the leased property; and if the
leased property is no longer able to be returned, the security
deposit property shall belong to the lessor.
(Art 329 – Civil code)
DISCUSSION
A and B entered into an apartment leasing
contract, in which A has given B a security
deposit. For personal reasons, A had to
terminate the contract early and the Court
applied the provision of security deposit to
force B to pay A the security deposit.
Is the judgement convincing? Why?
ESCROW DEPOSIT
1. Escrow deposit means a sum of money, precious metals,
gemstones or other valuable papers deposited by an obligor
into an escrow account at a credit institution as security for
the performance of an obligation.
2. Where an obligor fails to perform or performs incorrectly
an obligation, the obligee is entitled to be paid, and
compensated for any loss and damage that the obligor causes,
by the credit institution where the account is held, after bank
service charges are deducted.
3. The procedures for making [escrow] deposits and making
payments shall be as provided by law.
(Art 335 – Civil code)
Guarantee means an undertaking made by a third
person (hereinafter referred to as the guarantor)
to an obligee (hereinafter referred to as the
beneficiary) to perform an obligation on behalf of
an obligor (hereinafter referred to as the
principal) if the obligation falls due and the
principal fails to perform or performs incorrectly
the obligation.
(Art 335 – Civil code)
DISCUSSION
• Can the branch of company A receive a bank
loan guaranteed by company A?
DISCUSSION
• In 2007, the Bank lent the money to Company A with a guarantee from
Mr. B whose his land use right certificate were used as the security for
A’s loan and handed over to the bank.
• In 2010, the Bank and Company A liquidated the 2007 loan contract and
lent Company A a new amount of money. The bank and company A
agreed to continue to use Mr. B's land use right certificate as security.
• Now company A is unable to pay and the bank sues Mr. B. Does the
bank have the right to force Mr. B to perform the guarantee obligation?
Can Mr. B ask the bank to return his land use right certificate?
DISCUSSION
• Guarantee vs. mortgage of a third party’s
asset.
• Fidelity
guarantee
by
socio-political
organizations
A socio-political organization at the grassroots
level may provide a fidelity guarantee in order
that poor individuals and households are able to
borrow sums from credit institutions for purposes
of production, business or consumption in
accordance with law.
DISCUSSION
Some commercial banks are offering unsecured
loans without collateral and guarantee. Is this
offer a fidelity guarantee?
DISCUSSION
On 01 September 2020, ABC Co., Ltd, represented by Mr K – Director
negotiated to enter into a credit contract with D Joint-stock Commercial
Bank. Accordingly, Bank D would grant ABC a loan of 2 VND billion with
the loan term of 2 years and interest rate of 10%/year. The loan purpose is
to make payments to their foreign partner in accordance with the contract
of importing machines. Decide if the following options are legitimate.
1. The company could use importing machines as security assets for the
loan.
2. The Company may request the local Vietnam Women’s Union to
provide fidelity guarantee for the loan as the company is recruiting many
local female employees.
3. The company could use shares issued by Bank D to mortgage for the
loan.