Vietnam: If the pledged properties are items whose value can be lost or reduced, what is the responsibility of the pledgees?

Vietnam: If the pledged properties are items whose value can be lost or reduced, what is the responsibility of the pledgees? (Internet image)

Regarding this issue, LawNet would like to answer as follows:

1. What is pledge of property?

According to Article 309 of the Civil Code 2015, 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.

2. If the pledged properties are items whose value can be lost or reduced, what is the responsibility of the pledgees?

Pursuant to Article 31 of Decree 21/2021/ND-CP, there are regulations on delivery of pledged property as follows:

- Agreements on delivery of pledged property specified under Clause 1 Article 311 of the Civil Code 2015 can be the case where pledgers deliver pledged properties to pledgees or to third individuals for temporary hold. Pledges may hold pledged properties here the properties are located or in location of their choice.

- In case pledged properties are items whose value can be lost or reduced, the pledgees that are holding the properties must inform the pledgers and request the pledgers to provide resolution within a reasonable period; if the pledgers fail to respond within the period, pledgees shall adopt necessary preventive measures.   

- In case pledged properties held by third individuals that are facing risks of being lost, damaged, lost of value or reduced of value, rights and obligations between the third individuals and pledgees shall conform to property hold agreements.

- Regulations under Clause 2 and Clause 3 of Article 31 of Decree 21/2021/ND-CP are not applicable in case pledged properties are naturally corroded.

Thus, In case pledged properties are items whose value can be lost or reduced, the pledgees that are holding the properties must inform the pledgers and request the pledgers to provide resolution within a reasonable period; if the pledgers fail to respond within the period, pledgees shall adopt necessary preventive measures.   

3. Can single item of property be used as security for performance of several obligations in Vietnam?

Article 296 of the Civil Code 2015 stipulates single item of property used as security for performance of several obligations as follows:

- A single item of property may be used as security for performance of several obligations if, at the time of establishment of the security transaction, the value of such property is greater than the total aggregate value of the secured obligations, unless otherwise agreed or otherwise provided by law.

- Where a single item of property is used as security for performance of several obligations, the securing party must notify the later secured party that the security property is being used as security for performance of other obligations. The provision of security on each occasion must be made in writing.

- Where the security property must be realized in order to satisfy one obligation which has fallen due, the other obligations which have not yet fallen due shall also be deemed due and all secured parties shall be entitled to take part in the realization. The secured party which provided notice of realization of the property shall be responsible for realizing the property, unless otherwise agreed by the secured parties.

If the parties wish to continue to fulfill the obligations which have not yet fallen due, they may agree that the securing party will use other property as security for performance of the obligation which has fallen due.

Thus, according to the above regulations, a single item of property may be used as security for performance of several obligations if, at the time of establishment of the security transaction, the value of such property is greater than the total aggregate value of the secured obligations, unless otherwise agreed or otherwise provided by law.

Note: Where a single item of property is used as security for performance of several obligations, the securing party must notify the later secured party that the security property is being used as security for performance of other obligations. The provision of security on each occasion must be made in writing.

Nguyen Ngoc Que Anh

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