Regulations on the disposal of collateral which is the right to claim debts at commercial banks commercial law major

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 hồn 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 địi nợ bảo đảm nghĩa vụ thanh tốn 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 tốn của bên nhận thế
chấp quyền địi 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", accessed 5/5/2021.
"The Twelve Tables", 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],
/>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 tốn 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],
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


assigned22. In addition, the right to claim debts must be without dispute to minimize
potential risks for commercial banks.
Secondly, the right to claim debts can be assigned in civil transactions.
There are two basic elements to consider that the property is transferable in civil
transactions: (1) the property is not associated with the personal identity, such as the
right to claim support money; (2) property which is not prohibited by law 23.
Moreover, in many cases, the parties in the contract agree to prohibit the assignment
of the right to claim debts. Thus, in addition to meeting the two above conditions, the
right to claim debts need to meet the third condition: the contract does not prohibit
the assignment of the right to claim debts, in other words, the contract does not
stipulate an anti-assignment clause.
Thirdly, the right to claim debts must be identified.
According to The Civil Code 2015 Article 295, "Collateral may be described in
general terms but must be identified". The property description is one of the methods
to identify the mortgaged property in order to help others identify the object of the

mortgage contract. If the parties describe the property too general, unclear; thus,
cannot identify the property in the mortgage contract, a dispute will arise, and the
mortgaged property cannot be disposed of. The Decree 163 does not stipulate the
description of property rights in general and the right to claim debts in particular;
however, Decree 21 Article 9(4)24 has resolved this shortcoming with the specific
regulation on the description of property rights.
1.3 Overview of collateral disposal which is the right to claim debts at commercial
banks
1.3.1 Overview of collateral disposal at commercial banks
1.3.1.1 Concept of collateral disposal
Until now, the concept of collateral disposal has not been mentioned in any legal
document. However, through research, some authors have given their views on the
concept of collateral disposal. According to Le Thi Thu Thuy, "loan collateral
disposal is a stage of loan security with properties, the stage of taking measures over
collateral to recover debts that credit institutions have lent when there is a breach of
the performance of obligations, which the borrowers have committed in the credit

See Nguyen Van Cu, Tran Thi Hue (2017), Bình luận khoa học bộ luật dân sự năm 2015 của nước cộng hòa
xã hội chủ nghĩa Việt Nam [Trans: Scientific commentary of the Civil Code 2015], People Police Publishing
House, page 488.
23
See Vu Thi Hong Yen (2017), Collateral and collateral disposal under Civil Code 2015, National Political
Publishing House, page 51-52.
24
In cases where the collateral is a property right, the agreed description shall include the name and legal
grounds in which the property right arises.
22

14

contract"25. From the perspective of Vu Thi Hong Yen, "Mortgaged property disposal
is the process of exercising the mortgagee's rights by carrying out procedures for
disposing of ownership rights of the mortgaged property and the earned proceeds will
be paid to the mortgagee and other subjects who have the same benefit on such
property according to the order of priority prescribed by law or agreed upon" 26.
Another view on the concept of collateral disposal, "Loan collateral disposal means
that the parties to a security transaction apply the methods and measures as agreed
upon or in accordance with the law to dispose of collateral to satisfy the right to claim
of the obligee in the event that the obligor fails to perform or incorrectly perform its
obligations in an established obligation relationship"27.
Learning from the above definitions, the author draws a brief definition as follows:
Collateral disposal at a commercial bank is a process of changing the collateral into
money or equivalent material value to recover a debt that a commercial bank has lent,
in accordance with law or as agreed upon.
1.3.1.2 Characteristics of collateral disposal at commercial banks
Collateral disposal at commercial banks has the following characteristics:
Firstly, the collateral disposal shall be performed as agreed upon by the parties in
the security contract.
One of the fundamental principles of civil law is that the parties are free to agree upon
as long as the agreement is neither prohibited by law nor contrary to social morality.
A security contract is a civil transaction, so the parties in the contract are free to agree
upon the method to dispose of the collateral. And this method shall prevail when a
collateral disposal base arises.
Secondly, collateral disposal needs to comply with certain principles and procedures
of law.
Collateral disposal is the process of assigning the ownership of property from one
subject to another. Therefore, when disposing of collateral, parties must comply with
certain procedures such as administrative procedures, even though it is not specified
in the security contract. Furthermore, the disposal of collateral, if not well managed,

can transform into extortion. Therefore, the law also sets out other principles and
regulations that require subjects to comply with to protect social order and safety as
well as interests of others.
Phan Thi Ngoc Huyen (2010), Pháp luật về xử lý tài sản bảo đảm tiền vay là bất động sản [Trans:
Regulations on loan collateral disposal being immovables at commercial banks], Bachelor Thesis, Ho Chi
Minh City University of Law, page 9.
26
Vu Thi Hong Yen, tldd(23), page 46.
27
University of Economics and Law (2020), Giáo trình pháp luật về bảo đảm nghĩa vụ [Trans: Textbook on
the Law of obligation security], Ho Chi Minh City National University Publisher, page 308.
25

15


Thirdly, the purpose of collateral disposal is debt recovery.
If it is not for the purpose of recovering the amount of debt that might be lost, there
will be no process of disposing of the collateral. It is thought that if the debt has been
repaid in accordance with the agreement, the collateral disposal will not occur.
Therefore, only proceeding to collateral disposal when a commercial bank cannot
recover debts that are due, and only for the purpose of debt recovery, not for making
a profit28.
Fourthly, The legal consequences of collateral disposal terminate the ownership of
the securing party of such property.
Collateral disposal is performed only when there is a breach of the secured obligation.
The value of the collateral is used to compensate for the value of the breached
obligation. In determining the value of collateral, it is common practice to sell the
property for money or to use it as a substitute for the secured obligation. These are
all forms of disposal that terminate the ownership of the securing party of the

collateral29.
1.3.2 The basic legal content of collateral disposal which is the right to claim debts
1.3.2.1 Principles for disposal of collateral which is the right to claim debts
Collateral disposal is not only related to the lawful rights and interests of the secured
party and the securing party but also the interests of other subjects. Therefore, the law
has set out general principles when disposing of collateral. Collateral disposal being
the right to claim debts shall follow such principles.
Firstly, the principle of agreement.
When establishing a security transaction, the parties also set out the terms of the
disposal of collateral. According to the provisions of the law, the parties are free to
agree on all matters on the collateral disposal, such as the method, the time, and the
subject having the right to dispose of the collateral. These terms are given priority to
apply when disposing of collateral.
According to Decree 163 Article 58(1), "In case an asset is used to secure the
performance of an obligation, the disposal of that asset shall be carried out as agreed
upon by the parties. If there is no agreement, that asset shall be put on auction
according to the provisions of law". However, such regulations exist shortcomings
because not all property types can be put on auction, particularly the right to claim
debts. Debt claim auction is inappropriate, or in other words, it is meaningless, and
assuming that debt claim auction is implemented, the buyers seem to have only

28
29

Phan Thi Ngoc Huyen, tldd (25), page 9.
Vu Thi Hong Yen, tldd(23), page 47.

16

speculative intentions30. For this reason, Decree 21 Article 49 (1) only stipulates,
"The realization of collateral shall be carried out in accordance with the parties'
agreements", and provide separate provisions for different types of property when
disposing of collateral. Such regulations have resolved the shortcoming mentioned
above, and it is more reasonable as it allows for flexibility when disposing of a
different kind of collateral.
Secondly, the secured party shall perform the realization of collateral based on the
agreement in the security contract without acquiring written authorization or written
consent from the securing party31.
This principle is inherited from Article 58(4) of Decree 163. The principle once again
emphasizes the principle of agreement between the parties when disposing of
collateral. Additionally, it also has an important meaning: saving time and cost for
parties when disposing of collateral. Specifically, in the case of the disposal of
collateral which is the right to claim debts at commercial banks, if the commercial
bank can immediately dispose of the debt claim as agreed in the contract without
relying on the cooperation of the securing party. It is clear that the bank saves both
time and costs (by reducing cumbersome administrative procedures and time for
waiting for the consent from the securing party).
Thirdly, in cases where the Civil Code and other relevant law provisions prescribe
that the property being used as collateral shall be realized in order for the securing
party to perform another obligationin, such property shall be realized in accordance
with such provision32.
This principle is to protect the lawful rights and interests of other subjects.
Particularly, according to the Civil Code 2015 Article 296(3), "In case the property
has to be realized for the performance of a due obligation, other undue obligations
shall all be regarded as due, and all secured parties may participate in the realization
of the property". Such principle is quite similar to the principle mentioned in Article
58(3) of Decree 16333. Both provisions are aimed at protecting the lawful rights and
interests of other subjects. However, Decree 21 Article 49 does not mention the
principle of objectivity, publicity, and transparency specified in Article 58(3) of

Decree 163. Thus, can it be understood that the principle of objectivity, publicity, and
See more Bui Duc Giang, "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], accessed 10/5/2021.
31
Decree 21 Article 49(2).
32
Decree 21 Article 49(3).
33
The disposal of security assets must be carried out in an objective, public and transparent manner so as to
ensure the legitimate rights and interests of the parties to security transactions, the concerned organizations and
individuals and in compliance with the provisions of this Decree.
30

17


transparency is no longer necessary when disposing of collateral? Decree 21 does not
provide for the principle of objectivity, publicity and transparency because this
principle has been applied throughout the process of disposing of collateral.
Objectivity means not subjective, not arbitrarily disposing of collateral based on the
intention of one party, but it must be based on the agreement or the provisions of the
law. This is already mentioned in Decree 21 Article 49(1). Publicity and transparency
mean disclosing information in the process of disposing of property to relevant
subjects to protect their lawful rights and interests. This aspect has also been specified
by the law when stipulating the notification obligation of the mortgagee when
disposing of one collateral used to secure performance of many obligations.
Fourthly, the realization of the collateral by the secured party to collect the debts
shall not be considered as property trading activity by the secured party34.
According to the Law on Enterprise 2020 Article 4(21)35, the purpose of conducting
business is to make a profit. Property trading activity can be understood as any

activity of investing, producing, buying, and selling property for the purpose of
making a profit. However, the commercial bank's collateral disposal is only for the
purpose of debt recovery, not for profit-making purposes. This is reflected in the fact
that the bank must dispose of the collateral in accordance with the agreement between
the parties and in accordance with the law. The bank will not be allowed to invest in
assets and then wait for a while for the assets to appreciate before selling them, just
like a property trading activity for making a profit. And because the collateral
disposal is only for the purpose of debt recovery, not for profit-making business, the
law stipulates that the sale of collateral by a commercial bank is not subject to valueadded tax36.
1.3.2.2 Cases of realization of collateral which is the right to claim debts
The legal consequences of disposing of collateral affect many subjects; hence, the
disposal of collateral is implemented only when it is so prescribed by law37. Cases of
realization of collateral in general and the right to claim debts, in particular, are
prescribed in the Civil Code 2015 Article 299.
Firstly, The obligor fails to perform or improperly performs the secured obligation
when it becomes due38.

34

Decree 21 Article 49(4).
Conducting business means the continuous performance of one, several or all of the stages of the process
from investment and production to the sale of products or provision of services in the market for making profits
36
Circular 219 Article 4(8).
37
Vu Thi Hong Yen, tldd(23), page 58-59.
38
The Civil Code 2015 Article 299(1).
35

18