Distinguishing between pledge, mortgage and guarantees in Vietnam? How to realize collateral, pledged or mortgaged property?
How many property security measures does the law recognize?
According to the provisions of Article 292 of the 2015 Civil Code of Vietnam, the civil law now provides for 09 types of security for performance of obligations, including:
- Pledge of property;
- Mortgage of property;
- Deposit;
- Security collateral;
- Escrow deposit;
- Title retention;
- Guarantee;
- Fidelity guarantees;
- Lien on property.
Distinguishing between pledge, mortgage and guarantees in Vietnam? How to realize collaterals, pledged or mortgaged property?
Distinguishing between pledge, mortgage and guarantees in Vietnam?
Currently, there are 09 security measures as prescribed in Article 292 of the 2015 Civil Code of Vietnam, of which 03 are commonly used, including: Pledge of property, mortgage of property and guarantees. Here are the criteria that help distinguish these three security measures:
Criteria | Pledge of property | Mortgage of property | Guarantees |
Definition | Pledge of property means the delivery by one party (hereinafter referred to as the pledgor) of property under its ownership to another party (hereinafter referred to as the pledgee) as security for the performance of an obligation. | Mortgage of property means the use by one party (hereinafter referred to as the mortgagor) of property under the ownership of the obligor as security for the performance of an obligation to the other party (hereinafter referred to as the mortgagee) without transferring such property to the mortgagee. | Guarantee means an undertaking made by a third person (hereinafter referred to as the guarantor) to an obligee (hereinafter referred to as the creditor) to perform an obligation on behalf of an obligor (hereinafter referred to as the principal debtor) if the obligation falls due and the principal fails to perform or performs incorrectly the obligation. |
Subjects | The pledgor, the pledgee | The mortgagor, the mortgagee, a third person to hold the mortgaged property (if any). | The guarantor, the oblige, the obligor. |
Nature | There is a transfer of property. | There is no transfer of property. | The guarantor may provide security with property to secure the performance of the guarantee obligation. Therefore, the nature of the guarantee is also a pledge or mortgage. (Clause 3 Article 336 of the 2015 Civil Code of Vietnam) |
Formalities | Must be made in writing. | Must be made in writing. | Must be made in writing. |
Objects | Usually movable property, valuable papers such as bonds, stocks, etc. | Real estate, movable property, property rights. | The property belongs to the guarantor. |
Effectiveness | Shall take effect from the time of concluding, unless otherwise agreed or prescribed by law. (Article 310 of the 2015 Civil Code of Vietnam) | Shall take effect from the time of concluding, unless otherwise agreed or prescribed by law. (Article 319 of the 2015 Civil Code of Vietnam) | he validity period of the guarantee commitment shall last from the date of issuance of the guarantee commitment, or from any date after the date of issuance of the guarantee commitment as agreed upon between the relevant parties. (Article 19 of Circular 07/2015/TT-NHNN of Vietnam) |
How to realize collateral, pledged or mortgaged property?
Before a collateral is realized, a secured party must notify the securing party and other secured parties of the realization of the collateral within a reasonable time limit according to Article 300 of the 2015 Civil Code of Vietnam.
According to the provisions of Article 299 of the 2015 Civil Code of Vietnam, the collateral will be handled in the following cases:
- An obligator fails to perform or perform not as agreed an obligation when it falls due.
- An obligator must perform the secured obligation before time limit due to his/her violation against the obligation as agreed or prescribed by law.
- Other cases as agreed by the parties or prescribed by law.
Specifically, in Article 303 of the 2015 Civil Code of Vietnam and Article 304 of the 2015 Civil Code of Vietnam, the collateral, pledged or mortgaged property will be realized as follows:
+ The securing party and the secured party may agree any of the following methods of realizing collateral:
++ Put collateral up for an auction;
++ The secured party sells collateral itself;
++ The secured party accepts the collateral as substitutions for the performance of obligations of the securing party;
++ Other methods.
+ If there is no agreement on methods of realizing collateral as prescribed in Clause 1 of this Article, the collateral shall be put up for auction, unless otherwise prescribed by law.
On the other hand, the collateral shall be put up for auction as prescribed by law on property auction.
The collateral sold by the secured party must comply with the regulations on property sale in this Code and the regulations below:
+ The payment amount derived from the realization of collateral shall comply with Article 307 of this Code;
+ The owner of collateral and the person competent to realize the collateral, upon the completion of the sale, shall comply with procedures for transfer of ownership rights to the buyer.
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