Nowadays, among security measures for transactions, mortgage of land-use rights is one of the most popular measures because of certain advantages. However, in practice, security measures are risky if the certificate of land-use rights (the “CLUR”) is revoked or cancelled due to a format error. Thus, can the secured party protect its legitimate rights in this situation?
In response to this question, the Supreme People’s Court (the “SPC”) has issued Case Law No. 36/2020/AL (“Case Law No. 36”) to guide the resolution of disputes over land-use rights mortgage contracts when the CLUR is revoked or canceled.
In this article, BLawyers Vietnam presents several issues that the party in the secured transaction, especially the secured party, should pay attention to when a dispute arises.
1. Contents and perspectives about dispute resolution in Case Law No. 36
a. Overview of the dispute
Case Law No. 36 mentions a dispute about a credit contract between a plaintiff, which was a bank, and a defendant, who was a borrower. Accordingly, plaintiff and defendant agreed to enter a credit contract (the “CC”) with a loan amount of VND900,000,000, with an interest rate of 12%/ year, an overdue interest rate of 150% of the interest rate, and a loan term of 12 months. The defendant mortgaged the property, which is a land-use right (the “LUR”), for a land area of 3,989.7 m2 in accordance with the CLUR issued by People’s Committee of Town B (the “PCT B”) as security for the loan mentioned above. Plaintiff and defendant entered into a mortgage agreement (the “MA”) with respect to this property and registered the mortgage transaction at the land-use right registration office in Town B.
When the payment was due, the defendant failed to perform their payment commitments; therefore, the plaintiff filed a lawsuit against the defendant and requested the defendant to pay all of the debts in line with the agreement in the CC.
At the time of raising the dispute between the parties, PCT B issued a Decision to revoke the CLUR (the “Decision”) of the defendant because of errors in the land area and orders and procedures for issuing the CLUR to the defendant.
During the procedure of dispute settlement, the plaintiff maintained their perspective that the issuance of Decision by the PCT B does not affect the terms of the MA; therefore, though the CLUR was no longer available, this LUR had already undergone all the procedures for the legal transfer of the LUR. As a result, the MA remained in effect.
Additionally, the defendant separately filed an administration lawsuit related to the above Decision. This case went through the first instance and appeal court stages. After the appellate administrative judgment became effective, the Civil Judgment Enforcement Department of B City held an auction of the defendant’s LUR in line with its jurisdiction. Accordingly, Mr. C was the winner of this LUR auction.
However, the settlement of the dispute at the trial court and appellate court stages is as follows: firstly, requiring the defendant to pay debt to the plaintiff in accordance with the CC; secondly, the MA is invalid.
Until the cassation stage, the Court annulled part of the commercial business trial judgment and annulled part of the commercial business appellate judgment by declaring the mortgage contract void with the principal reasons, as follows:
- Before the revocation of the CLUR, the defendant had mortgaged the LUR to the bank several times for the loans. The CCs and MAs were established by the parties in accordance with the laws. In particular, the mortgage property is the land-use right registered for secured transactions at the competent authority as prescribed by law; and
- The revocation or cancellation of the CLUR does not take away the LUR with respect to the land area that the defendant has transferred because the defendant has completed all the procedures for the legal transfer of the LUR, and the parties have no dispute about this LUR transfer contract.
b. The SPC’s perspective on dispute settlement
In Case Law Number 36, it can be observed that the SPC has taken the standpoint of resolving disputes in a manner that safeguards the rights and interests of both the secured party and third parties involved in secured transactions.
The Court of First Instance and the Court of Appeal, based on Article 411 of the Civil Code 2005, held that the MA was void because of the subject matter of this Mortgage Contract was no longer incorrect. This perspective was essentially grounded in the provisions regarding the revocation of the CLUR under Land Law 2013. Accordingly, if the CLUR was issued without proper jurisdiction, incorrect land-use subjects and land area, insufficient qualifications for issuance, incorrect land-use purposes or land-use duration or land-use origin, the person (for whom the CLUR was granted and who has transferred the LUR and ownership of land-attached assets in accordance with the land law) is not subject to revocation of the CLUR.
Next, since this LUR was auctioned pursuant to legally enforceable civil judgments to which the defendant must enforce, the Court of First Instance placed the Civil Judgment Enforcement Department in B City and related persons involved in this transaction as persons with related rights and obligations when settling to ensure the rights and obligations of litigants. This is the content that ensures the legitimate interests of bona fide third parties.
Eventually, the Court recognized the effect of the MA for the following reasons (1) Before the CLUR was revoked, the defendant’s LUR had been mortgaged to the credit organization several times for a loan; (2) The MA was established in accordance with law.
2. Notes when implementing secured transactions for land-use rights
- Firstly, the mortgagee party must pay attention to appraising all information related to land-use rights, such as fluctuation information and the legal status of the transferor party and transferee party for the secured LUR.
- Secondly, in accordance with mortgage property being a land-use right, parties must register the secured transaction at the competent authority.
- Thirdly, the mortgagee party must pay attention to establishing a contract for the mortgage of land-use rights against the mortgagor in accordance with the conditions, orders and procedures of contract law and other relevant specialized laws.
- Fourth, the secured party must pay attention to collecting records and dossiers and documents showing that the grantor has complied with procedures for transferring land-use rights and ownership of assets attached to land according to law, and there are no disputes arising from this transfer. This shows legitimate evidence capable of supporting the secured party in protecting their legitimate rights and interests when there is a dispute over a secured transaction with the grantor.
The above is not official advice from BLawyers Vietnam. If you have any questions or suggestions about the above, please contact us at consult@blawyersvn.com. We would love to hear from you.
Date: 16 April 2024
Writer: BLawyers Vietnam
