Vietnam: Can the mortgaged property at the bank be sold?

Hello Mr. Huy, for your question, LAWNET would like to answer as follows:

According to provisions of the Civil Code of Vietnam on mortgaged property:

“Article 320. Obligations of mortgagor

1. Transfer documents related to the mortgaged property, unless otherwise agreed or prescribed by law.

2. Take care of and preserve the mortgaged property.

3. If the mortgaged property is in danger of losing its value or depreciating in value due to its exploitation, to take necessary remedial measures, including ceasing the exploitation of the mortgaged property.

4. When the mortgaged property is damaged, the mortgagor is obligated to, within a reasonable period, repair or substitute another property with equivalent value, unless otherwise agreed.

5. Provide information about the actual condition of the mortgaged property to for the mortgagee.

6. Deliver the mortgaged property to the mortgagee for realization in one of the cases prescribed in Article 299 of this Code.

7. Notify the mortgagee of any third person rights with respect to the mortgaged property (if any). In the case of failure to provide such notice, the mortgagee shall have the right to cancel the contract of mortgage of property and demand compensation for damage or the right to maintain the contract and agree on the rights of the third person with respect to the mortgaged property.

8. Do not sell, exchange or give the mortgaged property, except in the cases provided in Clauses 4 and 5 of Article 321 of this Code.”

According to Clause 4 and 5 of the Civil Code 2015 of Vietnam:

“Article 321. Rights of mortgagor

4. Sell or replace mortgaged property being goods rotating during the production and business process. In the case of a sale of mortgaged property being goods rotating during the production and business process, the right to require the purchaser to pay money, the proceeds received or the assets formed from the proceeds received shall form the mortgaged property in substitution for the property which was sold.

When a warehouse is mortgaged, the mortgagor may substitute goods in the warehouse but must ensure the value of the goods in the warehouse remains the value agreed.

5. Sell, exchange or give mortgaged property not being goods rotating during the production and business process with the consent of the mortgagee or as prescribed by law.”

Thus, the Civil Code 2015 of Vietnam stipulates that selling, exchanging or giving the mortgaged property are not allowed, except in the cases provided in Clauses 4 and 5 of Article 321 of this Code. You and the buyer both know that the car is mortgaged at the bank, but still buying and selling without the bank's consent is a violation of the law. Therefore, there is a basis to determine that the car sales contract with the other party is invalid.

According to Article 131 of the Civil Code 2015 of Vietnam on legal consequences of invalid civil transactions:

“1. An invalid civil transaction shall not give rise to, change or terminate any civil rights and obligations of the parties as from the time the transaction is entered into.

2. When a civil transaction is invalid, the parties shall restore everything to its original state and shall return to each other what they have received.

If the restitution is not able to make in kind, it may paid in money.

3. A bona fide person in receiving yield and/or income is not required to return such yield and/or income.

4. The party at fault which caused damage must compensate therefore.

5. The settlement of consequences of invalid civil transactions regarding personal rights shall be prescribed in this Code and relevant laws.”

Thus, when a purchase transaction is invalidated, the parties will restore the original condition and return to each other what they have received. In this case, you will refund the money received to the seller and at the same time get the car back in accordance with the law.

You can refer to a similar case that was judged by the Court at Judgment No. 50/2021/DS-ST dated June 08, 2021 on the request to declare the contract void and settle the consequences of the void contract, with the following contents:

On March 29, 2016, Ms. L bought a 16-seat passenger car from Mr. and Mrs. Nguyen Duc Th and Mrs. Le Thi Minh T and the two parties signed a deposit contract at the Notary Office. Ms. L made a deposit for Mr. Th and Mrs. T with an amount of VND 200.000.000; the remaining amount she will pay VND 25.000.000 every month to the bank herself, Mr. Th and his wife, Mrs. T are not responsible for the above amount. Mrs. T and her husband handed over the car for her to use from March 29, 2016. At the time of signing the deposit contract, she knew that the car with license plate 92B-009.70 was mortgaged at the Bank for a loan.

According to the written agreement at An Phat Notary Office: "...If Ms. L doesn't pay for 3 days late, Mrs. T will take the car and all relevant papers...". On December 29, 2016, Mrs. T not only stopped the car without informing her, but also chased the customer to get the car back. According to the defendant's statement, the dispute between the parties was due to Ms. L's fault for not paying the monthly payment on time as agreed, so she took back the car and now she is managing this car. Ms. L filed a lawsuit to ask the Court to declare the car sales contract invalid.

The People's Court of Thang Binh district, Quang Nam province said: At the time of the transaction, both parties knew that this car was mortgaged at Commercial Bank A, but the parties still carried out the purchase and sale without prior consent of the Bank is a violation of the prohibition of the law as provided for in Clause 8 Article 320 of the Civil Code 2015 on the obligations of the mortgagor: “It is prohibited to sell, replace, exchange or donate assets mortgage…”. Therefore, it is necessary to declare that the written agreement on car sales made on June 20, 2016 between Ms. Tran Thi L and Mrs. Le Thi Minh T is invalid.

Regarding the fault that makes the contract void and the liability of the parties to compensate for damage: When establishing the purchase and sale of the property as a 16-seat passenger car, the parties know that this car is mortgaged but still enter into the contract. The agreement on the purchase and sale of the above vehicle is a violation of the prohibition of the law specified in Article 123 of the Civil Code 2015. Therefore, in this case, the fault of the parties is equal, so the parties must have obligations to return to each other what they have received in accordance with the provisions of Clause 2 Article 131 of the Civil Code 2015.

From the above observations, the Court decided: Declare the written agreement on the purchase and sale of car invalid. Handing over the car to the couple Mrs. Le Thi Minh T and Mr. Nguyen Duc Th. Forcing husband and wife Mr. Nguyen Duc Th and Mrs. Le Thi Minh T to be jointly obliged to pay Ms. Tran Thi Lan amount of VND 300.000.000.

Thus, in general, for purchase and sale transactions, both the buyer and the seller need to pay attention and learn carefully the provisions of the law and the actual condition of that property before deciding to enter into a contract to avoid future disputes.

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