Tài liệu Khoá luận regulations on the disposal of collateral which is the right to claim debts at commercial banks

HO CHI MINH CITY UNIVERSITY OF LAW FACULTY OF COMMERCIAL LAW NGUYEN PHAM MINH THAO REGULATIONS ON THE DISPOSAL OF COLLATERAL WHICH IS THE RIGHT TO CLAIM DEBTS AT COMMERCIAL BANKS COMMERCIAL LAW MAJOR HO CHI MINH CITY− 2021 HO CHI MINH CITY UNIVERSITY OF LAW FACULTY OF COMMERCIAL LAW -------- BACHELOR'S THESIS REGULATIONS ON THE DISPOSAL OF COLLATERAL WHICH IS THE RIGHT TO CLAIM DEBTS AT COMMERCIAL BANKS STUDENT CLASS : NGUYEN PHAM MINH THAO : CLCQTL41 STUDENT CODE : 1651101030129 SUPERVISOR : Dr. PHAN THI THANH DUONG HO CHI MINH CITY− 2021 COMMITMENT I hereby commit that the thesis "Regulations on the disposal of collateral which is the right to claim debts at commercial banks" is my work of research. All information in this thesis is completely cited honestly. Besides, I also personally give opinions relevant to issued problems in the thesis with the instruction of Doctor Phan Thi Thanh Duong – lecturer of Faculty of Commercial Law, and I do not copy from any previous works. I sincerely appreciate the devoted guidance from my instructor. I am responsible for this commitment. June 28, 2021 Nguyen Pham Minh Thao ABBREVIATION Circular 20/2017/TT-NHNN issued by the State bank of Vietnam on Circular 20 December 29, 2017, on Sale of receivables from financial leasing contracts Circular 27/2002/TT-BTC issued by the Ministry of Finance on March 22, Circular 27 2002, on Guiding the financial regime applicable to debt-managing and assetexploiting companies under commercial banks Circular 219/2013/TT-BTC issued by Circular 219 the Ministry of Finance on December 31, 2013, on Guiding the implementation of the law on valueadded tax and the government’s decree no. 209/2013/nd-cp of december 18, 2013, detailing and guiding a number of articles of the law on value-added tax Decision 150 Decision 150/2001/QD-TTg issued by the Prime Minister on October 5, 2001, on The establishment of debt management and asset exploitation companies under commercial banks Decree 163 Decree 163/2006/ND-CP issued by Government on December 29, 2006 on Security transactions Decree 11 Decree 11/2012/ND-CP issued by Government on February 22, 2012, on Amending and supplementing a number of articles of the Government’s Decree No. 163/2006/ND-CP of December 29, 2006, on secured transactions Decree 21/2021/ND-CP issued by the Decree 21 Prime Minister on March 19, 2021, on The implementation of the Civil Code to secure the performance of obligations Joint Circular 16/2014/TTLT-BTPBTNMT-NHNN issued by The Ministry of Justice - The Ministry of Joint Circular 16 natural resources and environment The State bank of Vietnam on June 6, 2014, on Guiding a number of matters on disposal of security assets. TABLE OF CONTENTS INTRODUCTION.......................................................................................................1 CHAPTER 1: Overview of the disposal of collateral which is the right to claim debts at commercial banks ..........................................................................................6 1.1 Overview of the right to claim debts .................................................................6 1.1.1 Concept of the right to claim debts ............................................................6 1.1.2 Characteristics of the right to claim debts..................................................7 1.1.3 Classification of the right to claim debts ...................................................9 1.2 Mortgage of the right to claim debts at commercial banks .............................10 1.2.1 Overview of a mortgage contract .............................................................10 1.2.2 Mortgage of the right to claim debts at commercial banks ......................11 1.3 Overview of collateral disposal which is the right to claim debts at commercial banks .....................................................................................................................14 1.3.1 Overview of collateral disposal at commercial banks .............................14 1.3.2 The basic legal content of collateral disposal which is the right to claim debts ..................................................................................................................16 1.3.3 Significance of collateral disposal which is the right to claim debts .......22 CONCLUSION CHAPTER 1 ...................................................................................24 CHAPTER 2: Vietnamese legislation on the disposal of the collateral being the right to claim debts at commercial banks..................................................................25 2.1 Vietnamese legislation on the disposal of the collateral being the right to claim debts at commercial banks ....................................................................................25 2.1.1 Notification procedure for the disposal of the right to claim debts .........25 2.1.2 Disposal methods for collateral being the right to claim debts ................26 2.2 Risk identification when disposing of collateral which is the right to claim debts ...............................................................................................................................30 2.2.1 Valuation of the right to claim debts ........................................................30 2.2.2 The priority of payment ...........................................................................31 2.2.3 Mortgagor being an individual dies .........................................................33 2.2.4 Mortgagor being a legal entity goes bankrupt. ........................................35 2.2.5 Defenses used by the debtor.....................................................................37 2.3 Some recommendations for improvement to the disposal of collateral which is the right to claim debts ..........................................................................................40 2.3.1 Some specific recommendations for improvement to the disposal of collateral which is the right to claim debts .......................................................40 2.3.2 Some general recommendations on debt claim mortgage contract at commercial banks..............................................................................................46 CONCLUSION CHAPTER 2 ...................................................................................49 CONCLUSION .........................................................................................................50 BIBLIOGRAPHY INTRODUCTION 1. The necessity of research The banking sector is one of the pillars of economic prosperity for many countries, especially for a developing country like Vietnam. In Vietnam, many enterprises are lack incentives because of the capital shortage. However, with commercial banks and their loan policies, enterprises have chances to change, grow, and succeed. Nevertheless, the lending activities of banks include many potential risks. Therefore, Vietnamese legislators have made regulations on security measures, including but not limited to pledge, mortgage, and guaranty. The right to claim debts is a common right in business transactions. According to Vietnam law, it is a property right and allowed to be used as collateral to secure the performance of obligations. Because it is an intangible asset and carries hidden risks, collateral disposal, which is the right to claim debts, is more complex than other types of assets. Due to this reason, commercial banks hesitate to accept the right to claim debts as collateral, and even if they accept, they have considerable difficulties in disposing of it. It is thought that if the security measures system can provide a transparent and efficient mechanism to dispose of this special asset, commercial banks will be more confident to accept the right to claim debts as collateral. At that time, investors can mobilize a more considerable amount of capital to carry on and expand business activities, thereby contributing to national economic development. Therefore, clarifying legal aspects of the disposal of this special collateral is an issue that needs to be addressed so that investors can exploit their debt claims as efficiently as possible and banks can ensure their lawful rights and interests. The above reasons make the study of collateral disposal, which is the right to claim debts, valuable. Additionally, it is of the author’s interest to learn more about the right to claim debts due to its unique characteristics. Therefore, the topic "Regulations on the disposal of collateral which is the right to claim debts at commercial banks" is selected to be the author’s graduation thesis. 2. Literature review Disposal of collateral is not a new issue and has been studied by many authors at different levels such as bachelor thesis, master thesis, doctoral thesis, papers published in different journals, etc. 1 Many outstanding studies have been given on topic analyzing the disposal of collateral from an overview perspective, namely: - Master thesis "Pháp luật về xử lí tài sản bảo đảm tiền vay tại các tổ chức tín dụng- Thực trạng và hướng hoàn thiện" [Trans: Regulations on loan collateral disposal at credit institutions – Practical issues and recommendations] by Tran Thi Thuy Anh protected at Ho Chi Minh City University of Law in 2006. This thesis focuses on clarifying some theoretical issues as well as practical issues of the disposal of loan collateral at credit institutions, thereby recommending for improvement. The problems and difficulties in collateral disposal mentioned in the thesis are still controversial, such as property auction, collateral valuation when handling, judgment enforcement related to bankruptcy proceedings. - Master thesis "Pháp luật về xử lý tài sản thế chấp trong hoạt động cho vay của tổ chức tín dụng" [Trans: Regulations on collateral disposal in lending activities of credit institutions] by Lam Minh Duc protected at Ho Chi Minh City University of Law in 2009. The thesis analyzes very specifically the difficulties when applying the collateral disposal regulations in practical situations, such as property auction, problems when disposing of land use rights, properties formed from the loan capital. The thesis also mentions some problems when dealing with property rights, which are still challenging issues for lawmakers, such as in case a debtor acknowledges the mortgage and commits to make a payment to the mortgagee, but then - fails to perform or incorrectly perform the payment, what are the sanctions for the debtor? Doctoral thesis "Tài sản thế chấp và xử lý tài sản thế chấp theo quy định của pháp luật dân sự Việt Nam hiện hành" [Trans: Collateral and collateral disposal in accordance with the current Vietnamese Civil Law] by Vu Thi Hong Yen protected at Ha Noi University of Law in 2013. The thesis contributes scientific concepts and characteristics on collateral disposal. Moreover, the thesis analyzes the inadequacies when disposing of collateral in some specific cases, including land use rights and houses to be formed in the future, disposal when the mortgagor goes bankrupt, etc. The thesis also mentions the disposal of the right to claim debts, raising typical issues such as the debtor's defenses, the notification obligation. Additionally, the thesis contributes a lot of recommendations so that the 2 mortgagee can promptly handle the collateral, especially on step-by-step instructions for disposing of collateral. Furthermore, there are also many types of research on disposing of collateral being the right to claim debts in particular, namely: - Bachelor thesis "Pháp luật về thế chấp quyền đòi nợ trong hoạt động cho vay của các ngân hàng thương mại" [Trans: Regulations on the mortgage of the right to claim debts in lending transactions of commercial banks] by Vo Thi Dai protected at Ho Chi Minh City University of Law in 2011. The thesis has specifically analyzed the theoretical issues of the right to claim debts, such as the concept and characteristics of the right to claim debts, the concept and characteristics of mortgage of the right to claim debts. However, the thesis does not analyze in-depth the issues related to debt - claim disposal, such as notification obligation, order of payment priority. Bachelor thesis "Thế chấp quyền đòi nợ bảo đảm nghĩa vụ thanh toán trong hợp đồng tín dụng" [Trans: Mortgage of the right to claim debts to ensure payment obligations in credit agreement] by Pham Thi Huynh Nhu protected at Ho Chi Minh City University of Law in 2014. The thesis has analyzed many aspects of mortgage of the right to claim debts, such as conditions for the right to claim debts used as collateral, valuation of the right to claim debts, registration and notarization of mortgage contracts. The thesis also mentions the disposal of the right to claim debts, typical issues such as the order of payment priority, the debtor's defenses. However, the thesis has not fully exploited all aspects of it, for example, it has not mentioned the disposal of the right to claim debts when the mortgagor goes bankrupt. - Master thesis "Pháp luật về xử lý tài sản đảm bảo là quyền đòi nợ trong hoạt động cho vay tại các ngân hàng thương mại" [Trans: Regulations on the disposal of collateral being the right to claim debts in lending activities at commercial banks] by Nguyen Thanh Luan protected at Ho Chi Minh City University of Law in 2014. The thesis focuses on analyzing the issues of disposal of the right to claim debts; thus, it examines comprehensively all aspects of debt claim disposal, such as regulations, risk identifications in specific situations. It has given particular recommendations for improvement. However, the thesis omitted general theoretical issues of collateral disposal, such as its concept, characteristics, and significance. 3 Other outstanding papers regarding disposal of the right to claim debts include the article "Một số hạn chế của chế định thế chấp quyền đòi nợ theo quy định hiện hành" [Trans: Some limitations of the mortgage regulations on the right to claim debts under the current law] by Bui Duc Giang published in Banking Journal No. 21/2011; the article "Quyền ưu tiên thanh toán của bên nhận thế chấp quyền đòi nợ" [Trans: Priority of payment of the mortgagee of debt claim] by Bui Duc Giang published in Banking Journal No. 17/2012; the article "Pháp luật về xử lý tài sản bảo đảm là quyền đòi nợ" [Trans: The law on collateral disposal being the right to claim debts] by Bui Duc Giang published in State and Law Journal No. 03/2013, etc. These articles do not examine all aspects of the disposal of the right to claim debts but instead focuses on an in-depth analysis of a specific aspect. It can be seen that the research topics on collateral disposal from an overview perspective have not delved deeply into the issue of debt claim disposal. For topics focusing on analyzing the mortgage of the right to claim debts at credit institutions, the disposal of debt claim has been mentioned but is not an essential part. To a certain extent, these studies are valuable references for approaching the issue of the disposal of the right to claim debts at commercial banks. However, most of the legal instruments used in the above topics have ceased their effectiveness. The author inherits theoretical issues, such as the concept and characteristics of the right to claim debts, the concept and characteristics of collateral disposal; and practical issues such as risk identification when disposing of the right to claim debts. The author also refers to recommendations for the improvement of debt claim disposal. Based on prevailing regulations, the author analyzes more specifically and compares the prevailing regulation and the obsolete one to point out the advancement of the prevailing as well as its shortcomings. Thereby, the author makes some recommendations to further refine the disposal process of the right to claim debts. 3. Research purposes This thesis aims to provide an overview of prevailing law provisions on the disposal of collateral, which is the right to claim debts. The thesis evaluates the pros and cons when commercial banks apply laws on collateral disposal, which is the right to claim debts to its debt recovery activity. Additionally, the thesis points out limitations of the law and enforcement mechanism, thereby suggesting remedy to solve those issues, contribute to perfecting the 4 mechanism of collateral disposal being the right to claim debts at commercial banks. 4. Scope of study This thesis focuses on the disposal of collateral which is the right to claim debts at commercial banks. Other methods that are not mentioned in the thesis are not in the scope of this thesis including but not limited to the conversion of debts into capital contribution portions, initiating a lawsuit at court, or arbitration. Also, other receivables that may arise from the right to claim debts including but not limited to fines against violations, compensation for damages are not in the thesis's scope of the study. The future debt claim can be mentioned but is not the main object of this study. This study only focuses on the disposal of collateral being the existing debt claim. 5. Research methodology The author has applied multiple methods in the research process, namely: - Dialectical and historical materialism: This method is used to view and evaluate issues objectively. The author is based on the history and the laws to provide an overview of the right to claim debts, thereby, clarify - characteristics of it, explaining the difference in the collateral disposal method between the right to claim debts and other property. Comparison: the primary aim of this method is to identify similarities and differences among subjects. For example, the author compares the expired one and the prevailing law to point out the progress and innovation of the - latter. Statistical method: For instance, the author collects opinions from the previous researcher to indicate the efficiency and limitations of the collateral disposal methods, base on which the author has a better overview and in-depth understanding of the disposal methods, then the author will be able to recommend regarding the issue more appropriately. - Other methods such as induction, deduction, analysis, and synthesis methods,... are also used in this thesis. 6. Thesis structure The content of this legal research is presented into two chapters as followed: Chapter 1 : Overview of the disposal of collateral which is the right to claim debts at commercial banks Chapter 2 : Vietnamese legislation on the disposal of the collateral being the right to claim debts at commercial banks 5 CHAPTER 1: Overview of the disposal of collateral which is the right to claim debts at commercial banks 1.1 Overview of the right to claim debts 1.1.1 Concept of the right to claim debts Historically, the right to claim debts was formed a long time ago. Article 117 of the Code of Hammurabi stipulates "If any one fail to meet a claim for debt, and sell himself, his wife, his son, and daughter for money or give them away to forced labor: they shall work for three years in the house of the man who bought them, or the proprietor, and in the fourth year they shall be set free"1. It shows that the Code of Hammurabi has indirectly allowed creditors to keep debtors as slaves to pay off debts. The Twelve Tables also mentions the right to claim debts in Table III, "On the third market day the creditors shall cut shares. If they have cut more or less than their shares it shall be without prejudice"2. This means creditors have the right to cut debtors into pieces if debtors fail to pay off the debt. Vietnamese law in medieval times also refers to the right to claim debts. The official law of Vietnam in the early Nguyen Dynasty, which also known as "Hoàng Việt luật lệ", provides that if anyone fails to pay off debt, they shall suffer corporal punishment3. From the aforementioned regulations, the right to claim debts of creditors were protected by coercive behavior of the state. In that old times, the right to claim debts were interpreted as a right of the creditor to force the debtor to pay off the debt and it was supported by barbaric rules of the state. Regarding modern law, there is no specific definition of the right to claim debts. However, debt is defined as a specific sum of money or a nonmonetary thing that one person owes another4. And right means freedom to exercise any power conferred by law5. Therefore, the right to claim debts can be perceived as power conferred by law to demand a specific sum of money or a nonmonetary thing. Base on Article 450 (2) of Civil Code 2015, the right to claim debts is defined as a type of property right. More particularly, Decree 21 Article 14 regulates property rights arising from contracts, "The obligee in the contract is entitled to use the right to claim debts… to secure the performance of obligations". Thereby, the right to claim debts is a property right arising from contracts. Such regulation is more reasonable than only defining it as property right as stipulated in the Civil Code 2005 Article 1 "The Code of Hammurabi", https://avalon.law.yale.edu/ancient/hamframe.asp, accessed 5/5/2021. "The Twelve Tables", https://avalon.law.yale.edu/ancient/twelve_tables.asp, accessed 5/5/2021. 3 See Nguyen Ngoc Nhuan (2011), Điển chế và pháp luật Việt Nam thời trung đại, Tập III [Trans: Medieval Vietnamese legislation, Chapter III], Social Science Publisher, page 419. 4 See Black’s Law dictionary (2003), second pocket edition, page 176. 5 Oxford Dictionary of Law (2003), page 435. 2 6 322(1). In general, property rights may or may not arise from a contract. In fact, some property rights do not arise from a contract, such as property rights arising from compensation for damages. If regulations only define the right to claim debts as a property right, it does not fully describe the nature of the right to claim debts. Formerly, Article 22(4) of Decree 163 stipulates, "When the debt claim is transferred according to the provisions of Article 309 of the Civil Code, the order of priority between the debt claim transferee and mortgagee is determined according to the time of registration of transfer and mortgage transactions at the competent security transaction registry". Article 309 of the Civil Code 2005 regulates about "Transfer of the right to claim". Therefore, the right to claim debts can be inferred as a form of the right to claim. Though such regulation has been no longer specified in Decree 21, the right to claim debts can still be inferred as a form of the right to claim base on Article 33 of Decree 21, "Mortgage by the right to claim debts, accounts receivable and other right to claim payment". Through the above analysis, the right to claim debts can be understood as "the right to claim payment, which arises from contracts, of one subject towards other subjects; the specific object can be in cash or in kind". Nevertheless, because the law does not define the right to claim debts, there is a problem that the legal documents do not agree on the usage of the term "the right to claim debts". Some documents use the term "the right to claim debts", while others use the term "creditor's rights". And these two terms are used interchangeably with the same meaning. However, according to Le Trong Dung: "In nature, only the right to claim debts is considered the property expressed in the form of property rights of individuals and organizations used to request other individuals and organizations to perform their obligations. Creditor's rights are a collection of creditor's rights formed from the moment the parties enter into a transaction, are not considered property, cannot be valued in cash, and cannot be assigned. Because of that, the Civil Code 2005 and 2015 do not recognize the creditor's rights as the property but only specify the right to claim debts as the property and is allowed to mortgage to secure the performance of an obligation"6. 1.1.2 Characteristics of the right to claim debts The right to claim debts has the following characteristics: Le Trong Dung (2020), "Điều kiện để quyền đòi nợ được làm tài sản thế chấp theo pháp luật Việt Nam'' [Trans: Conditions for the right to claim debt as collateral under Vietnamese law], Procuracy's Journal 20/2020, page 34. 6 7 First of all, the right to claim debts is a relative intangible asset. As mentioned above, the right to claim debts is a type of property right. In terms of nature, property right is an intangible asset; it does not exist as a physical thing or an amount of money; it is the right to demand, human behavior related to property. Many authors assimilate property rights with the intangible property; however, there are still property rights that are not absolute intangible, and the right to claim debts is one of them because the right to claim debts itself exists by materializing (it is represented on paper and has a specified amount of debt). Only property rights arising from intellectual property subject matters are an absolute intangible asset7. Secondly, the right to claim debts is a people-oriented property right that can be valued in money. Property rights include people-oriented property rights, objectoriented property rights, litigation right on property, and absolute intangible property rights from the perspective of theory and practice law. The right to claim debts is neither absolute intangible property rights nor litigation right on the property 8. The object-oriented property right is the right of the subject to directly exercise on objects to satisfy interests without requiring any cooperation from others. Considering the nature of the right to claim debts, it cannot be an object-oriented property right because it needs cooperation from others to satisfy interests. Additionally, different from other people-oriented rights such as the right to ask the person who offends the honor, the reputation to apologize, the right to claim debts can be valued in money as it is a demand payment right. Thirdly, the ground for arising the right to claim debts is a lawful bilateral contract. Based on the correlation of rights and obligations of subjects in the contract, there are two types of contracts: unilateral and bilateral contracts. A unilateral contract is a contract under which only one party has obligations9. In a unilateral contract, from the time the contract becomes effective until the contract ceases to be effective, only one party has an obligation to the other. The rights and obligations of the parties are not reciprocal and incompatible10. A typical contract of unilateral contract is contracts for donation of property. Conversely, a bilateral contract is a contract under which 7 See Ho Chi Minh City University of Law (2019), Giáo trình pháp luật về tài sản, quyền sở hữu và thừa kế [Trans: Textbook Law on Property, Ownership and Inheritance], Hong Duc Publisher, page 39. 8 Litigation right on property is the right to request through legal proceedings such as the right to initiate a lawsuit, the right to complain, or the right to request. These rights are protected by a competent agency by compelling the identified subjects to hand over the property or to pay a certain amount of money in order to restore material benefits to the obligee. 9 The Civil Code 2015 Article 402(2). 10 See Ho Chi Minh City University of Law (2017), Giáo trình pháp luật về hợp đồng và bồi thường thiệt hại ngoài hợp đồng [Trans: Textbook Law on Contracts and Compensation for non-contractual damage], Hong Duc Publisher, page 128. 8 each party has obligations to the other11. The rights and obligations of the parties are always reciprocal. The rights of one party are the obligations of the other party and vice versa. Because of the difference in nature between these two types of contracts, the law provides separate regulations for them. For example, in a bilateral contract, the parties can agree on penalties for breach of contract, claim compensation for damage, etc. Another difference is the time a contract becomes valid between unilateral contract and bilateral contract. According to the Civil Code 2015 Article 401(1), "A contract that is legally entered into shall become valid on the time of its entry"; however, Article 458(1) specifies, "A contract for donation of movable property shall become effective from the time the donee receives the property". According to the words in the law, the author understands that even though there is a contract between donor and donee, the contract is not valid until the donee receives property from the donor. Therefore, it makes no sense to raise the issue of the right to claim debts in such cases. The right to claim debts mainly arises from bilateral contracts. If the obligor fails to make the payment, the obligee may initiate a lawsuit order the obligor to perform obligations together with compensation for damage and penalties if agreed. Besides, a bilateral contract shall be a lawful one for the right to claim debts becomes effective. Fourthly, the object that the right to claim debts aims at is a sum of money paid out at a specific time. In a bilateral contract, when a party has fulfilled its obligations, such as transfer goods, provide service, the other shall fulfill its obligations by making a payment at a specific time agreed under a contract. In such cases, the right to claim debts arises when the obligor fails to fulfill its obligation to make a payment at the due date, and the right to claim debts only terminates when the obligor has fulfilled the payment obligations12. 1.1.3 Classification of the right to claim debts According to Decree 163 Article 22, it can be inferred that there are two types of the right to claim debts: existing debt claim and future debt claim. An existing debt claim is a property over which its subject has established ownership rights prior to or at the time of establishing the transaction. Particularly, it is an amount of money that will be paid out at a specific time in the future under a contract or in accordance with the law. In other words, an existing debt claim is a debt claim that arises upon or before 11 The Civil Code 2015 Article 402(1). See Vo Thi Dai (2011), Pháp luật về thế chấp quyền đòi nợ trong hoạt động cho vay của các ngân hàng thương mại [Trans: Regulations on the mortgage of the right to claim debts in lending transactions of commercial banks], Bachelor thesis, Ho Chi Minh City University of Law, page 8. 12 9 the conclusion of the security contract. Contrary to an existing debt claim, a future debt claim is a debt claim that arises after the conclusion of the security contract. To distinguish between an existing debt claim mortgage and a future debt claim mortgage, it is necessary to determine whether the mortgagor's right to demand payment has arisen at the time of the conclusion of the mortgage. If it has arisen, it is an existing debt claim even though it is future receivables. A debt to be paid in the future under a signed contract is an existing debt claim, not a future debt claim13. Conversely, if the right to claim payment has not arisen at the time the mortgage transaction is concluded, it is a future debt claim. For example, a mortgagor is an office lessor who wants to mortgage the debt claim arising from a promise to lease contract in which stipulates that only when the lessee obtains a work permit and a license for the establishment of representative offices in Vietnam, does it has an obligation to lease the office and pay money to the lessor. If the lessor uses a debt claim arising from such a contract to mortgage at the bank, it is a mortgage of a future debt claim as a debt claim has not formed at the time concluding the mortgage contract. An existing debt claim itself has more potential risks to the commercial banks than other types of assets when being collateral because it depends on the debtor's cooperation. Future debt claim is even riskier because it has both an "uncertain" and "dependent" nature. According to Truong Thanh Duc, "the mortgage of the future property, especially future debt claim, is a huge risk for the mortgagee because there is almost no financial guarantee. If the payment obligation arises right after signing a future property mortgage contract, there will be no collateral to handle"14. 1.2 Mortgage of the right to claim debts at commercial banks 1.2.1 Overview of a mortgage contract Commercial banks are monetary trading enterprises in the form of borrowing to grant loans. Therefore, commercial banks shall assure the safety of the loan source. For this reason, when lending, commercial banks must rely on financial factors, such as security measures for loans15. And the mortgage is a property security measure that plays a significant role in reducing the risk of losing credit capital of commercial banks. Bui Duc Giang, "Giao dịch có đối tượng quyền đòi nợ" [Trans: Transaction that has an object being the debt claim], https://thongtinphapluatdansu.edu.vn/2013/11/12/giao-dich-c-doi-tuong-quyen-di-no/, accessed 29/06/2021. 14 Truong Thanh Duc (2017), Chín biện pháp bảo đảm nghĩa vụ hợp đồng [Trans: Nine measures to secure contractual obligations], Chinh tri Quoc Gia Su that Publisher, page 161. 15 See Ho Chi Minh City University of Law (2019), Giáo trình luật ngân hàng [Trans: Textbook Law on Banking], Hong Duc Publisher, page 331. 13 10 According to Article 317 of the Civil Code 2015, a mortgage can be understood: a party (mortgagor) uses its own property to secure the performance of an obligation. Mortgaged property can be immovables or movables; however, there will be no transfer of mortgaged property to the other party (mortgagee). When comparing a mortgage with other security measures, there are many similarities between mortgage and pledge: Firstly, pledge and mortgage are both use the property to secure the performance of an obligation. Secondly, the type of property used in both measures is objects, money, valuable papers, and property right. Thirdly, pledge and mortgage both exist in the form of contracts. Lastly, only when the obligor fails to perform its obligations agreed in the contract will the obligee have the right to dispose of the property. The most significant difference between these two security measures is property management. Pledge is a security measure by which one party has to hand over its own property to the other to secure the performance of an obligation. But for the mortgage, the mortgagor only has to hand over the certificate of ownership to the mortgagee if agreed upon. As such, the property still belongs to the possession and use of the mortgagor. From the above analysis, the concept can be given as follows: the mortgage contract at a commercial bank is an agreement between the borrower (the mortgagor) and the commercial bank (the mortgagee), under which the mortgagor undertakes to use its own property to secure the performance of payment obligation without transferring such property to the mortgagee. 1.2.2 Mortgage of the right to claim debts at commercial banks Considering nine security measures specified in Article 292 of Civil Code 2015, the mortgage is the most suitable measure reserve for the right to claim debts because the right to claim debts is intangible property, which cannot be transferred. 1.2.2.1 Characteristics of the debt claim mortgage contract Firstly, The mortgage of the right to claim debt arises on the basis of an agreement among the parties. Civil obligations may arise from different bases, such as prescribed by law or agreed upon by parties; however, security measures only arise when there is an agreement between parties. The mortgage of the right to claim debts is no exception. In banking operations, the contracts are usually drafted by the commercial bank, including mortgage contracts. Nevertheless, it does not eliminate the negotiation element in the 11 transaction. In fact, customers are still allowed to read the draft, give opinions to make amendments if necessary16. Secondly, there are at least three subjects that exist in this relation. In the debt claim mortgage contract, there are three subjects at least, including the mortgagee (commercial banks), the mortgagor (the owner of the right to claim debts), the debtor (the subject that must pay off the debt to the mortgagor). According to the Civil Code 2015 Article 317, "mortgagor uses his/her/its own property to secure the performance of an obligation"; however, it does not specify whether such obligation shall belong to mortgagor only. Therefore, it can be understood that the secured obligation is not necessarily the obligation of the mortgagor. Therefore, the debt claim mortgage contract can also exist in two cases: (1) Mortgaging the right to claim debts to secure the performance of the obligations for the mortgagor; (2) Mortgaging the right to claim debts to secure the performance of the obligations for the third party. Noted, the second case should be distinguished from the mortgage to secure the guarantee obligations17. In the case of a mortgage to secure the performance of the obligations for the third party, if the value of the mortgaged property is insufficient to cover the obligation, the mortgagor is not required to pay for the deficit. However, in the case of the mortgage to secure the guarantee obligations, if the value of the mortgaged property is insufficient to cover the obligation, the mortgagor is obliged to pay for the deficit. In reality, there are many cases in which commercial banks incorrectly identify the name of the security measures. When brought to trial, the court usually declared those contracts invalid. However, Decree 21 Article 4(4)18 has completely solved this problem. Nevertheless, there is still another issue that some courts have declared mortgage contracts to secure the performance of the obligations for the third party invalid on the grounds that they are not recognized by the law 19. Decree 21 Article See Pham Thi Huynh Nhu (2014), Thế chấp quyền đòi nợ bảo đảm nghĩa vụ thanh toán trong hợp đồng tín dụng [Trans: Mortgage of the right to claim debts to ensure payment obligations in the credit contract], Bachelor Thesis, Ho Chi Minh City University of Law, page 9. 17 The Civil Code 2015 Article 336 (3) provides, "The parties may agree to use property as security for the performance of the guaranteed obligation". 18 In cases where an agreement contains contents on security for the performance of obligations, but the parties do not specify or incorrectly identify the name of the security measures which are consistent with the security measures prescribed in the Civil Code, the provisions on security measures corresponding to such contents of the agreement will be applied. 19 Bui Duc Giang, "Bảo đảm khoản vay bằng tài sản của bên thứ ba: từ quy định pháp luật đến thực tiễn áp dụng'' [Trans: Loan security with third-party assets: from legal regulations to practice], http://tapchinganhang.gov.vn/bao-dam-khoan-vay-bang-tai-san-cua-ben-thu-ba-tu-quy-dinh-phap-luat-denthuc-tien-ap-dung.htm, accessed 8/5/2021. 16 12 3(3)20 has also solved this problem. With such regulation, it can be understood that the mortgagor may not be the obligor at the same time, which infer that a mortgage contract to secure the performance of the obligations for the third party is recognized by law. Thirdly, the debt claim mortgage contract has a close relationship with the credit contract. The relationship between the credit contract and the mortgage contract is the relationship between the principal contract and the subcontract. In a lending relationship, a credit contract is a principal contract that defines the rights and obligations of the parties in the loan process, using and repaying the loan. A mortgage contract is a subcontract made in a separate document or included in a credit contract with the purpose of securing a loan. The relationship between the mortgage contract and the credit contract is specified in Decree 21 Article 29. Fourthly, the debt claim mortgage contract is a supplementary and preventive measure for the main obligation. A mortgage is a supplementary measure to deduct for the performance of a credit contract's obligation. The mortgaged property is only disposed of when the borrower fails to pay the debt when it is due. Besides, a mortgage is a measure to prevent credit risk, not a prerequisite that the commercial banks based on to decide granting loan. The revenues from the disposal of mortgaged property recover the loan that commercial banks grant their clients, prevent and minimize the risk of loss of credit capital21. 1.2.2.2 Conditions for the right to claim debts become a mortgaged property in a mortgage contract at commercial banks. Firstly, the right to claim debts must come under the ownership of the mortgagor. According to The Civil Code 2015 Article 295(1), "Collateral must come under the ownership of the securing party, except for the cases of lien on property and retention of title". Such regulation stems from the principle that only the owner of the property has the right to dispose of the property unless the owner authorizes or assigns that right to another person. In addition, when the collateral is disposed of, the ownership rights of the collateral may be assigned to the mortgagee (or a third party). If the right to claim the debts does not come under the ownership of the mortgagor, it cannot be 20 The secured obligor means a person whose obligations are guaranteed to be performed through a security measure. The secured obligor may or may not be the securing party at the same time. 21 See Ho Chi Minh City University of Law (2019), tldd(15), page 334-335. 13