Precedent no. 08/2016/AL on commerical case regarding dispute over credit agreement

- Situation:

In the credit agreement, the parties agree on interest, including: the interest rate within the term of the loan, overdue interest rate, adjustment of interest rate in each period of the bank/lending institution on the unpaid amount up to the first-instance trial, or inadequate payment of principal and interest as per the credit agreement.

- Legal solution:

In this case, the borrower must keep paying the unpaid principal and interest on principal within the term of the loan (if any), overdue interest on the unpaid principal according to the interest rate agreed by the parties under the agreement until the principal is fully repaid. If the parties agree on adjustment of interest rate in each period of the bank/lending institution, the interest rate incurred by the borrower subject to the Court’s decision shall be adjusted in conformity with the adjusted interest rate of the bank/lending institution.

According to the lawsuit petition dated July 20, 2010 and available evidence in the case file:

Joint Stock Commercial Bank for Foreign Trade of Vietnam  - Thang Long Branch (hereinafter referred to as Vietcombank) and Kaoli Pharmaceutical Joint Stock Company (hereinafter referred to as Kaoli Company) concluded 4 credit agreements, including: Credit agreement No. 03/07/NHNT-TL dated December 25, 2007; No. 04/07/NHNT-TL dated December 28, 2007; No. 144/08/NHNT-TL dated March 28, 2008 and No. 234/08/NHNT-TL dated May 27, 2008. The above-mentioned credit agreements are secured by housing ownership right and land use right at:

- No. 122 Doi Can, Doi Can Ward, Ba Dinh District, Hanoi City (land plot No. 46B+39C+37C, map No. 19) under ownership and right to use of Mrs. Nguyen Thi Phuong (under the mortgage agreement No. 1678.2008/HDTC dated June 25, 2008; secured for the loan and guarantee of up to VND 4,605,000,000; terms and conditions for the lending of the said amount shall be specified in the banking documents signed by Vietcombank and the principal debtor (Kaoli Company) at the head office of Vietcombank (Clause 1.2 Article 1); value of the collateral is VND 4,605,000,000 based on the valuation report No. 105/08/NHNT.TL; mortgage term is 5 years from the date on which the principal debtor receives the disbursement of loan; the agreement takes effect from the date on which it is registered at the land use right registration office (Clause 10.1 Article 10). This agreement was notarized by Public Notary Office No. 3 of Hanoi City on June 25, 2008 and certified by the Office of Natural Resources and Environment of Ba Dinh District that the mortgage on land use right and property on land was registered on July 10, 2008. Earlier, on September 3, 2007, Mrs. Phuong and Vietcombank made a record of handover of mortgage and guarantee documentation, stating that: “The parties, at Thang Long Branch of Vietcombank, hand over original documentation of collateral to secure the obligations of Kaoli Pharmaceutical Joint-Stock Company; property: housing ownership right and land use right at 122 Doi Can, Doi Can Ward, Ba Dinh District, Hanoi” (case file p. 52).

- Group 13 Cluster 2 Nhat Tan Ward, Tay Ho District, Hanoi City under ownership and right to use of Mr. Nguyen Dang Duyen and his wife, Mrs. Do Thi Loan (under the mortgage agreement No. 1677.2008/HDTC dated June 25, 2008; secured for the loan and guarantee of up to VND 1,250,000,000; terms and conditions for the lending of the said amount shall be specified in the banking documents signed by Vietcombank and the principal debtor (Kaoli Company) at the head office of Vietcombank (Clause 1.3 Article 1); value of the collateral is VND 1,250,000,000 based on the valuation report No. 106/08/NHNT.TL dated September 3, 2007 (Clause 3.1 Article 3); mortgage term is 5 years from the date on which the principal debtor receives the disbursement of loan; the agreement takes effect from the date on which it is registered at the land use right registration office (Clause 10.1 Article 10). This agreement was notarized by Public Notary Office No. 3 of Hanoi City on June 25, 2008 and certified by the Office of Natural Resources and Environment of Ba Dinh District that the mortgage on land use right and property on land was registered on July 1, 2008. Earlier, on September 3, 2007, Mr. Nguyen Dang Duyen and Vietcombank made a record of handover of mortgage and guarantee documentation, stating that: “The parties, at Thang Long Branch of Vietcombank, hand over original documentation of collateral to secure the obligations of Kaoli Pharmaceutical Joint-Stock Company; property: housing ownership right and land use right at Group 13, Cluster 2, Nhat Tan Ward, Tay Ho District, Hanoi” (case file p. 58a).

In addition, the loans under the said credit agreements were also secured by house and land under right to use and right to own of Mr. Cao Ngoc Minh and his wife, Mrs. Doan Thi Thanh Thuy, house and land of Mr. Giang Cao Thang and his wife, Mrs. Duong Thi Sinh (the mortgage was released); land use right of Mr. Chu Quoc Khanh; house and land of Mrs. Chu Thi Hong and Mr. Nguyen Van Minh.

Following the said credit agreements, Vietcombank - Thang Long Branch disbursed the loan amounts to Kaoli Company. Kaoli Company has just repaid partial principal and interest. Vietcombank filed a lawsuit with the Court, claiming Kaoli Company to repay the debts of the said 4 credit agreements of VND 8,197,957,837 (including: VND 5,457,000,000 of the principal, VND 397,149,467 of the interest within the term of the loans, and VND 2,348,808,370 of overdue interest up to the first-instance trial date) and dealt with against the collateral of Mrs. Nguyen Thi Phuong; of Mr. Nguyen Dang Duyen and Mrs. Do Thi Loan for debt collection.

Representation of the defendant - Mr. Do Van Chinh, Director of Kaoli Company: He acknowledges that Kaoli Company still has principal and interest within the term of the agreements, overdue interests in debt under 4 credit agreements as stated by Vietcombank. He acknowledges Kaoli's liability to repay the debt according to the four credit agreements mentioned above and proposes a deferred repayment period of 5 years.

In case Kaoli Company fails to repay debts or fails to repay full debts and Vietcombank requires the sale of collateral assets of Mrs. Nguyen Thi Phuong, of Mr. Nguyen Dang Duyen and Mrs. Do Thi Loan, the Court is required to settle according to regulations of law. Mr. Chinh confirms that Vietcombank disbursed the loan amount before signing the mortgage agreement No. 1678.2008/HDTC on June 25, 2008 and the mortgage agreement No. 1677.2008 / HDTC on June 25, 2008. Since June 25, 2008, Kaoli Company has not borrowed another loan, has not signed any other credit agreement with Vietcombank.

Representation of persons with relevant rights and obligations:

- Statement of Mr. Nguyen Van Nghi (authorized representative of Mrs. Nguyen Thi Phuong): Vietcombank sued Kaoli Company and asked the Court for the sale of Mrs. Phuong's collateral in case Kaoli Company defaults on a loan obligation; he did not agree because Mrs. Phuong signed the mortgage agreement on June 25, 2008, so she was not responsible for guaranteeing the loan of Kaoli Company at Vietcombank under the 04 credit agreements that Vietcombank is taking legal proceedings. Propose the Court to force Vietcombank to complete the mortgage release procedure and return the certificate of land use right and house ownership to Mrs. Phuong.

- Statement of Mr. Nguyen Dang Duyen and Mrs. Do Thi Loan: They signed a mortgage agreement on June 25, 2008 but this agreement only secures Kaoli Company's loan at Vietcombank and will bear all responsibilities arising out from June 25, 2008 to April 25, 2009, and they will not take responsibility for any credit agreement signed before June 25, 2008 between Vietcombank and Kaoli Company. According to Vietcombank, Vietcombank has not signed any credit agreement with Kaoli Company since June 25, 2008. Thus, their legal responsibility has not yet arisen. Propose the Court to force Vietcombank to release the collateral under a mortgage agreement dated June 25, 2008 for them.

In the First Instance Commercial Judgment No. 32/2011/KDTM-ST dated March 24, 2011, the People’s Court of Hanoi City judged:

 “1. Accept partial lawsuit petition of Vietnam Joint Stock Commercial Bank for Foreign Trade against Kaoli Company. Force Kaoli Company to pay to the Bank the total amount of principal and interest of VND 8,197,957,837.

2. Refuse Vietcombank’s request for the sale of assets which are ownership of houses and land use rights at the land plots No. 46B + 39C + 37C, map No. 19 , No. 122 Doi Can, Doi Can Ward, Ba Dinh District, Hanoi City according to the certificate of housing ownership and land use rights No. 10101132587 issued by the People's Committee of Ba Dinh District on April 27, 2004 to Mrs. Nguyen Thi Phuong and the value of house ownership and land use rights at Group 13, Cluster 2, Nhat Tan Ward, Tay Ho District, Hanoi City according to the certificate of housing ownership and land use right in the land plot No. 13 + 64A (1 part), map No. 04 at the address Group 13, Cluster 2, Nhat Tan Ward, Tay Ho District, Hanoi City according to the certificate of housing ownership and land use right No. 10103090899 by the People's Committee of Hanoi issued on March 23, 2004 to Nguyen Dang Duyen and his wife, Mrs. Do Thi Loan.

Joint Stock Commercial Bank for Foreign Trade of Vietnam is responsible for returning all documents of house ownership and land use rights and completing procedures to release collateral for Mrs. Nguyen Thi Phuong and the married couple Mr. Nguyen Dang Duyen and Mrs. Do Thi Loan”.

In addition, the Court of First Instance decided the court fee and announced the appeal right to litigants as per the law.

On April 4, 2011, Vietcombank filed an appeal.

In the Appellate Commercial Judgment No. 148/2011/KDTM-PT dated August 17, 2011, the Appellate Court of the Supreme People's Court in Hanoi, based on Clause 2 of Article 275 and Clause 1 of Article 276 of the Civil Procedure Code, decided:

"Correct the First Instance Commercial Judgment No. 32/2011/KDTM-ST dated March 23 and 24, 2011 of the People's Court of Hanoi on the guarantee obligation for Mrs. Nguyen Thi Phuong and the married couple Mr. Nguyen Dang Duyen and Mrs. Do Thi Loan, in specific:

Judges: Records of handover of collateral, mortgage and guarantee documents dated September 3, 2007 between Vietcombank - Thang Long Branch with Mrs. Nguyen Thi Phuong and the married couple Nguyen Dang Duyen and Mrs. Do Thi Loan are considered as guarantee agreements (case file p. 52, 58a).

Forcing Kaoli Pharmaceutical Joint Stock Company to repay Vietcombank the total amount of principal and interest in debt of VND 8,197,957,837...

In the event that Kaoli Pharmaceutical Joint Stock Company does not fulfill its obligations or fails to fulfill its debt repayment obligation to Vietcombank, Vietcombank may request the Department of Civil Judgment Enforcement of Hanoi City to deal with the collateral in accordance with the Law on Civil Judgment Enforcement to recover debts under the guarantor's responsibility.

...... From the date on which the Judgment takes legal effect and the judgment creditor files a request for judgment enforcement, the judgment debtor must also pay interest on the delayed judgment amount according to the base interest rate quoted by the State Bank corresponding to the judgment enforcement delay time”.

In addition, the Court of Appeal also decided the court fees and judgment enforcement.

After appellate trial, Mrs. Nguyen Thi Phuong; Mr. Nguyen Dang Duyen and Mrs. Do Thi Loan have applied many applications for reviewing the above Appellate Judgment under cassation procedures.

In the Appeal No. 34/2012/KDTM-KN dated October 15, 2012, the Chief Justice of the Supreme People’s Court requested the Council of Judges of the Supreme People’s Court to review the case under cassation procedure in order to quash the above Appellate Judgment No. 148/2011/KDTM-PT dated August 17, 2011 of the Court of Appeal of the Supreme People’s Court of Hanoi; and then refer the case to the Court of Appeal of the Supreme People’s Court of Hanoi city for re-conducting the appellate trial as per the law.

At the cassation trial court hearing, the representative of the Supreme People’s Procuracy consents to the Appeal made by the Chief Justice of the Supreme People’s Court.

1. Quash the Appellate Commercial Judgment No. 148/2011/ KDTM-PT dated August 17, 2011 of the Court of Appeal of the Supreme People's Court in Hanoi on dispute over credit agreements between the plaintiff, Joint Stock Commercial Bank for Foreign Trade of Vietnam, and the defendant, Kaoli Pharmaceutical Joint Stock Company and persons with related rights and obligations, Mrs. Nguyen Thi Phuong, Mr. Nguyen Dang Duyen, and Mrs. Do Thi Loan.

2. Refer the case file to the Appellate Court of the Supreme People's Court in Hanoi for appellate re-

“The Court of First Instance and the Court of Appeal decided: " From the date on which the Judgment takes legal effect and the judgment creditor files a request for judgment enforcement, the judgment debtor must also pay interest on the delayed judgment amount according to the base interest rate quoted by the State Bank corresponding to the judgment enforcement delay time”. They were wrong decisions. For loans of the bank/lending institutions, in addition to the principal and interest within the term of agreement, overdue interest, fees that the borrower must pay to the lender under the credit agreement up to first instance trial date, from the next day of the first instance hearing date, the borrower must continue to bear the overdue interest of the unpaid principal amount according to the interest rate agreed upon by the parties in agreement until the principal is fully repaid. In the case where under a credit agreement, the parties have an agreement on the adjustment of the interest rate in each period of the lending bank, the interest rate that the borrower must continue to pay to the lending bank according to the decision The Court will also be adjusted to suit the interest rate adjustment of the lending bank.”

Considering agreements on mortgage on land use rights and property on land to guarantee bank loans taken out by a third party (Notarization No. 1677.2008/HDTC and 1678.2008/HDTC on June 25, 2008):

Both agreements on mortgage on land use rights and property on land to guarantee a third-party’s loan from the bank do not indicate the loan under a specific credit agreement and were signed after 04 credit agreements (No. 03/07/NHNT-TL dated December 25, 2007; No. 04/07/NHNT-TL dated December 28, 2007; No. 144/08/NHNT-TL dated March 28, 2008 and No. 234/08/NHNT-TL dated May 27, 2008) under which the loans were disbursed by Vietcombank - Thang Long Branch. According to clause 1.3 of Article 1 of the above two mortgage agreements: "The detailed conditions for borrowing and lending the above-mentioned amount (the secured obligation is the loan and loan guarantee of up to VND 4,605 .000.000 ...; - Clause 1.2 Article 1 Mortgage agreement) will be specified in the banking documents that Party B (Vietcombank - Thang Long Branch) and the principal debtor will sign at the office of Party B (Vietcombank - Thang Long Branch) ”, it could be understood that Mrs. Phuong, Mr. Duyen and Mrs. Loan only guarantee Kaoli Company’s loans under credit agreements which will be signed at Vietcombank's office following the date of signing the mortgage agreements (June 25, 2008), not guaranteeing the loans under 04 credit agreements signed earlier.

Vietcombank also refers to Clause 6.2 of Article 6 of the four credit agreements mentioned above on loan security measures with the contents (handwritten) below: "The detailed agreements on assets, rights and obligations of the parties specified in ... Mortgage agreement No. 1677.2008/HDTC dated June 25, 2008 and Mortgage agreement No. 1678.2008/HDTC dated June 25, 2008" to ask the Court to force Mrs. Phuong, the married couple Mr. Duyen and Mrs. Loan to guarantee the loans of Kaoli Company under 04 credit agreements mentioned above. But the representative of Vietcombank, at the first instance trial, also confirmed that these were "written by the bank's accountant". At the trial of first instance, Mr. Do Van Chinh - Director of Kaoli Company said: “Kaoli Company does not know about this interlineation” and “Disagree with the Bank's request for sale of collateral. The assets of Mrs. Phuong and the married couple Mr. Duyen and Mrs. Loan were later inserted by the Bank in credit agreements”.

On the other hand, at the appellate trial, the authorized representative of Mrs. Nguyen Thi Phuong said that Nguyen Thi Phuong did not receive any credit agreement from Vietcombank; and Mr. Duyen and Mrs. Loan have received credit agreements from Vietcombank. Thus, Mr. Chinh, Mrs. Phuong and the married couple Mr. Duyen and Mrs. Loan do not know the interlineation written by the bank accountant in credit agreements. They did not sign the credit agreements, so there is no ground to determine that the above credit agreements are secured by mortgage agreements No. 1677.2008/HDTC and 1678.2008/HDTC dated June 25, 2008.

Besides the two mortgage agreements mentioned above, in the case file, there are 02 documents related to mortgage on property: 01 set of Mrs. Phuong; 01 set of the married couple Mr. Duyen and Mrs. Loan; in each set, there are: Property valuation report and property handover record dated September 3, 2007; application for mortgage registration (dated January 29, 2008 by Mrs. Phuong; dated June 25, 2008 by Mr. Duyen and Mrs. Loan). However, these report and record do not clarify the loans of specific credit agreements.

The Court of Appeal identified (summarized): "The records of handover of collateral, mortgage and guarantee documents between Vietcombank - Thang Long Branch with Mrs Phuong, the married couple Mr. Duyen and Mrs. Loan established on September 3, 2007 all have contents related to mortgage and guarantee for obligations of Kaoli Pharmaceutical Joint Stock Company at the bank ... so this is an agreement ... ". And the Court of Appeal declared: "The records of handover of collateral, mortgage and guarantee documents dated September 3, 2007 between Vietcombank - Thang Long Branch and Mrs. Nguyen Thi Phuong and the married couple Mr. Nguyen Dang Duyen and Mrs. Do Thi Loan are considered as guarantee agreements (case file p. 52, 58a)” and “In case Kaoli Pharmaceutical Joint Stock Company fails to perform its obligations or fails to perform complete debt repayment to Vietcombank, Vietcombank has the right to request Hanoi Civil Judgment Enforcement Department to deal with collateral in accordance with the Law on Civil Judgment Enforcement to recover debt under the guarantor's guarantee responsibility”.

The above judgment and decision of the Court of Appeal are unfounded and not in accordance with law. Because:

- The records of handover of collateral, mortgage and guarantee documents on September 3, 2007 between Mrs. Nguyen Thi Phuong (as well as between Mr. Duyen and Mrs. Loan) with Vietcombank - Thang Long Branch are not considered as guarantee agreements as the Court of Appeal determined.

At the appellate trial on August 17, 2011, the representative of Vietcombank only determined: "The record of property handover and the property valuation report are an integral part of the property mortgage agreement".

- According to the record of handover of collateral, mortgage, guarantee documents, the property valuation report and presentation of Vietcombank's representatives at the appellate trial, while the date of handover of documents and property valuation was September 3, 2007, the mortgage agreement between Mrs. Phuong (as well as Mr. Duyen and Mrs. Loan) with Vietcombank - Thang Long Branch was signed on June 25, 2008 (after the date of the record of the handover of property documents and the property valuation report), so it is impossible to consider these record and report as an integral part of the mortgage agreement mentioned above. The Court of Appeal also identified: "Mortgage agreement on June 25, 2008 ...is not related to the records of handover of documents...".

- According to the date recorded in the record and presentation of the representative of Vietcombank at the appellate trial, the date of handover of document(the original copy of the certificate of house ownership and land use right) and the property valuation date is September 3, 2007, but the property valuation reports state: Based on land price schedule in districts in Hanoi issued together with Decision No. 150/2007/QDUBND dated December 28, 2007 of Hanoi City People's Committee" and this record are an integral part of the mortgage agreement No. 1678.2008/HDTC and No. 1677.2008/HDTC on June 25, 2008. Particularly for Mrs. Phuong's case, the value of residential land use right is determined according to the actual land price determination record dated September 4, 2007 and the application for mortgage registration of Mrs. Phuong dated January 29, 2007. 2008, in specific:: "Mortgage agreement No. 1678.2008 / HDTC was signed on June 25, 2008". On the other hand, according to the presentation and documents presented by Mrs. Phuong, the married couple Mr. Duyen and Mrs. Loan, on September 3, 2007, the house and land of Mrs. Phuong were being mortgaged at the AgriBank - Quang An Branch, Tay Ho District, and the mortgage were not released until January 11, 2008; while the house and land of Mr. Duyen and Mrs. Loan mortgaged at VPBank - Thang Long Branch was not released until January 16, 2008.

With the above items of evidence, there are grounds to conclude: The record of handover of collateral, mortgage, guarantee and property valuation report were not made on September 3, 2007, certificate of house ownership and land use right was not be handed over on September 3, 2007, and the valuation was not carried out on September 3, 2007 as the representative of Vietcombank presented and accepted by the Court of Appeal.

On September 3, 2007, the agreement on mortgage on and guarantee of land use right and property on land must be notarized and registered for security transactions in accordance with Point a, Clause 1, Article 130 of Land Law 2003; at Point a, Section 1, Article 12 of Decree 163/ND-CP dated December 29, 2006 and in Subsection 2.4, Section 2 of Joint Circular No. 03/2006/TTLT-BTP-BTNMT dated June 13, 2006; rather than exemption from notarization and security transaction registration as determined by the Court of Appeal.

The Court of Appeal was improper and incorrect when considering that records of handover of documents as the guarantee agreement while having not clarified any other evidence proving that the mortgage agreements signed by Mrs. Phuong, Mr. Duyen and Mrs. Loan were guaranteed for the loans under 04 credit agreements of Kaoli Company. Because these records cannot be a guarantee agreement, considering both the format and the content.

- If there are grounds to believe that mortgage agreements dated June 25, 2008 of Mrs. Phuong and the married couple Mr. Duyen and Mrs. Loan were guaranteed for the loans under the credit agreements mentioned above, the guarantee agreement of Mrs. Phuong only guarantees a loan of up to VND 4,605,000,000; guarantee agreement of Mr. Duyen and Mrs. Loan only guarantees a loan of up to VND 1,250,000,000. Meanwhile, the Court of Appeal identified the records of handover of collateral, mortgage and guarantee documents dated September 3, 2007 as guarantee agreements and declared: "In the case where Kaoli Pharmaceutical Joint Stock Company fails to fulfill its obligations or fails to fulfill full repayment obligation to Vietcombank, Vietcombank has the right to request the Department of Civil Judgment Enforcement of Hanoi City to deal with the collateral under the provisions of the Civil Judgment Enforcement Law to recover debts under the guarantor's responsibility". It could be understood that Mrs. Phuong, Mr. Duyen and Mrs. Loan take guarantee responsibility for paying all debts of Kaoli Company and the Court did not clearly define the guarantee responsibilities of Mrs. Phuong, Mr. Duyen and Ms. Loan. It was a wrong decision.

In addition, the Court of First Instance and the Court of Appeal decided: "From the date on which the Judgment takes legal effect and the judgment creditor files a request for judgment enforcement, the judgment debtor must still pay interests on delayed enforcement amount according to the basic interest rate quoted by the State Bank corresponding to the judgment enforcement delay. It was also a wrong decision. For loans of the bank/lending institutions, in addition to the principal and interest within the term of agreement, overdue interest, fees that the borrower must pay to the lender under the credit agreement up to first instance trial date, from the next day of the first instance hearing date, the borrower must continue to bear the overdue interest of the unpaid principal amount according to the interest rate agreed upon by the parties in agreement until the principal is fully repaid. In the case where under a credit agreement, the parties have an agreement on the adjustment of the interest rate in each period of the lending bank, the interest rate that the borrower must continue to pay to the lending bank according to the decision The Court will also be adjusted to suit the interest rate adjustment of the lending bank.

According to facts and matters, pursuant to Clause 3 Article 291, Clause 3 Article 297 and Clause 299 of the Civil Procedure Code (amended in 2011),