Case study on determining whether the bank is a bona fide third party or not in Vietnam

1. Regarding the content of the case

The original plaintiffs are Mr. YHK and Mrs. HDN (with Mr. YA acting as their representative, according to the book). In 2011, through an introduction, Mr. YHK and Mrs. HDN became acquainted with Mrs. Huynh Thi My Ng (who introduced herself as an agent of a lending company). Due to the need for investment in agricultural production, Mr. YHK and Mrs. HDN requested a loan of 50,000,000 VND. Mrs. Ng agreed, but requested that Mr. YHK and Mrs. HDN use their Land Use Right Certificates (LURC) as collateral for her before the company would provide the loan. Mr. YHK and Mrs. HDN provided LURC number M 823257, which included land parcels number 35 and 36, map sheet number 11; and land parcel number 20, map sheet number 8 in EH commune, CM district, DL province to Mrs. Ng for the loan. Afterwards, Mr. YHK and Mrs. HDN had to grant full authority of land use to Mrs. Ng so that she could apply for the loan on their behalf. Taking advantage of Mr. YHK and Mrs. HDN's illiteracy, Mrs. Ng had them sign a Land Use Right Transfer Agreement instead of a power of attorney. At the Notary Public Office DA, Mr. YHK and Mrs. HDN did not reach an agreement and did not receive the amount of 150,000,000 VND as stated in the land use right transfer agreement. They only received 50,000,000 VND as the loan amount. Currently, Mr. YHK and Mrs. HDN still manage and use the land and assets on the land. On March 2, 2012, Mr. YHK and Mrs. HDN fully repaid the principal and interest to Mrs. Ng, but Mrs. Ng did not return the LURC. On December 20, 2012, Mrs. Ng wrote a declaration stating that she lost the LURC of Mr. YHK and Mrs. HDN and promised to return it on March 20, 2013. On March 12, 2013, Mrs. Ng wrote a letter to Mr. YHK and Mrs. HDN stating that she lost the LURC and asked the "DL Radio and Television Station" to send text messages to search for the documents. Mr. YHK paid the text message fee. Mr. YHK and Mrs. HDN were unaware of Mrs. Ng's borrowing from the bank. Around April 2015, a person claiming to be a bank official came to measure the land, and that was when Mr. YHK and Mrs. HDN found out that Mrs. Ng had forged the Land Use Right Transfer Agreement to transfer the land to her name and used it as collateral for the bank loan. Therefore, Mr. YHK and Mrs. HDN requested the court invalidate the Land Use Right Transfer Agreement between them and Mrs. Huynh Thi My Ng on March 18, 2011, invalidate the mortgage agreement on June 1, 2012, and also invalidate the LURC number BC 944798 issued on April 6, 2011, in the name of Mrs. Huynh Thi My Ng for land parcel number 35 (area of 9,320 m2), land parcel number 36 (area of 7,950 m2), and map sheet number 11 in EH commune, CM district, DL province.

The defendant is Mrs. Huynh Thi My Ng: During the legal proceedings, the court summoned and posted the litigation documents and sent text messages to search for the person at her residence, but Mrs. Ng did not appear in court to resolve the case.

The court ruled that Ms. Huynh Thi My Ng has the obligation to repay the bank the amount of 2,301,740,000 Vietnamese Dong (including the principal debt of 1,200,000,000 Vietnamese Dong and the estimated interest debt until October 4, 2015 of 1,101,740,000 Vietnamese Dong). The court also ordered the handling of the mortgaged assets in two Land Use Right Certificates (LURC), including LURC numbers BC 944532 and BC 944541, both in the name of Huynh Thi My Ng. As for the remaining Land Use Right Certificate number BC 944798 issued on April 6, 2011, Ms. Ng agreed with the bank to handle this asset by repaying the bank, so the bank did not request further resolution. However, after the effective date of the first-instance Commercial Judgment number 35/2015/KDTM-ST, Ms. Ng did not fulfill her commitment and did not cooperate with the bank to handle this asset. Therefore, the court requested the bankAs for the remaining Land Use Right Certificate number BC 944798 issued on April 6, 2011, Ms. Ng agreed with the bank to handle this asset by repaying the bank, so the bank did not request further resolution.  be authorized to handle the secured assets in Land Use Right Certificate number BC 944798 issued on April 6, 2011, in the name of Huynh Thi My Ng, for plot number 35, map sheet number 11, with an area of 9,320 square meters, and plot number 36, map sheet number 11, with an area of 7,950 square meters in EH commune, CM district, DL province, in order to repay Ms. Ng's debt to the bank according to Credit Contract number 604/2012 dated March 9, 2012.

2. Case study

Regarding the procedure

According to the Marriage Certificate at the People's Committee of TL Ward, BMT City, DL Province, Ms. Huynh Thi My Ng (the defendant) married Mr. PTL on September 23, 2010. On March 18, 2011, Mr. YHK and Mrs. HDN, the spouse of Mr. YHK, signed a contract for the transfer of land use rights with Ms. Ng for an area of 17,270 square meters of land, belonging to plot numbers 35 (9,320 square meters) and 36 (7,950 square meters), map sheet number 11 in BJ, EH commune, CM district, DL province. On April 6, 2011, Ms. Ng was granted a Land Use Right Certificate for the transferred area (excluding assets on the land) by the People's Committee of CM district. On June 1, 2012, Ms. Ng mortgaged the aforementioned land use rights to the bank under Contract No. 507/TC (certified by the Notary Office on the same day) and registered the mortgage on June 6, 2012. Therefore, the disputed land area transferred to Ms. Ng after marrying Mr. L is only registered in Ms. Ng's name, and the mortgage contract with the bank is also signed by Ms. Ng. During the process of resolving the case, the Court did not verify the marital status of Ms. Ng to determine whether the disputed land area is the joint property of Ms. Ng and Mr. L or the separate property of Ms. Ng. This is insufficient evidence to resolve the case. At the same time, the Court did not involve Mr. L in the lawsuit as a person with rights and obligations, which violates Article 68(4) of the Civil Procedure Code 2015.

Regarding the content

- Article 10 of the Land Law 2013 stipulates: "Transfer of land use rights is the transfer of land use rights from one person to another through conversion, transfer, inheritance, donation of land use rights, and capital contribution by land use rights." In reality, Ms. Ng only mortgaged the mentioned land area to the bank, not transfer land use rights according to the provisions of Article 10 of the Land Law 2013. Therefore, the mortgage contract for the land area of 17,270 square meters, belonging to plot numbers 35 and 36, map sheet number 11 in BJ, EH commune, CM district, DL province, to the bank is not considered a transaction transferring land use rights according to the provisions of Article 2 of the Civil Code 2005 and Article 10 of the Land Law 2013. Thus, the mortgage contract dated June 1, 2012, between Ms. Ng and the bank, is invalid for the land use rights according to the Land Use Right Certificate BC 944798 issued on April 6, 2011, in the name of Ms. Huynh Thi My Ng.

- During the process of resolving the case, the appellate court applied the wrong provisions of Article 2 of the Civil Code 2005, so the decision to "Maintain a part of the mortgage contract for land use rights No. 507TC dated June 1, 2012, signed by Ms. Huynh Thi My Ng, with the Land Use Right Certificate BC 944798 issued on April 6, 2011, in the name of Ms. Huynh Thi My Ng, specifically plot number 35, plot number 36, map sheet number 11, with a total area of 17,270 square meters" is inaccurate. The first-instance court correctly invalidated a part of the mortgage contract No. 507/TC dated June 1, 2012, in exchange for the Land Use Right Certificate BC 0944798 issued on April 6, 2011, in the name of Ms. Huynh Thi My Ng. However, the first-instance court failed to include Mr. L (Ms. Ng's husband) as a participant in the litigation with rights and obligations, significantly affecting the legitimate rights and interests of the parties.

- The appellate court's decision to compel Mr. YHK and Mrs. HDN to transfer plot number 35 and plot number 36, map sheet number 11, with a total area of 17,270 square meters, to Ms. Ng exceeds the scope of the independent request of the plaintiff, violates Clause 1 of Article 5 and Article 293 of the Civil Procedure Code 2015.

The prosecutor, who examined the case resolution in accordance with the first-instance and appellate procedures, did not detect any violations by the Court in terms of the determination of the lack of participation of the Prosecutor's Office at the appellate level. The prosecutor believed that the bank is not a third party and therefore the bank officials involved in this matter should not have been prosecuted for violating banking regulations. This belief is inaccurate because the bank officials were prosecuted not for their actions related to the loan and mortgage relationship between the bank and Ms. Ng, but for other cases, which should not lead to the invalidation of the mortgage contract between Ms. Ng and the bank. Therefore, the report recommending the appeal to the director of the appellate court is not based on proper grounds and does not identify any violations by the appellate court in its erroneous application of the law in accordance with Article 326, Clause 1 of the Civil Procedure Code 2015

More details can be found in Notice 100/TB-VKSTC dated May 4, 2022 in the attached file.

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