[Case Note] 54/2019/KDTM-PT on 04/06/2019, on disputing of credential contract
[Case Note] 54/2019/KDTM-PT on 04/06/2019, on disputing of credential contract
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FACTS

The Plaintiff in this case is Company CP XD, acting as the Guarantor, while the Respondent is Bank Q, serving as the Secured Party.

The primary secured obligation pertains to the debt repayment owed by Company CP XD to Bank Q, as stipulated in the Credit Agreement executed on October 15, 2010, and subsequent borrowing activities between the two parties in the years 2013-2014. The Security Device utilized for this transaction is a Mortgage, with the Collateral being a portion of the premises located in the building block at Lot E5, PH street, TH ward, CG district, Hanoi. Specifically, the mortgaged area encompasses the 2nd floor of the building block, spanning an area of 605m2 (referred to as the "Premises"). Although the Mortgage Contract was signed on November 8, 2005 (referred to as the "Mortgage Contract"), it has not yet been registered as a valid mortgage.

It is noteworthy that the aforementioned Premises are subject to an Office Ownership Transfer Contract (referred to as the "Transfer Contract") between VIMECO (as the Seller) and Company CP XD (as the Buyer), numbered 188 and signed on February 16, 2005. However, Company CP XD has not completed the registration process to establish its ownership rights over the Premises. In practice, up until the time of the dispute, VIMECO remains recorded as the Owner on both the Certificate of land use right and the Certificate of ownership pertaining to the Premises.

The Respondent holds a Certificate of registration of security interest issued by the Security Transaction Registration Center on April 3, 2018, which acknowledges the existence of a property right arising in the future from Transfer Contract number 188.

The Plaintiff has sought a declaration from the Court to deem the Mortgage Contract null and void. Conversely, the Respondent disagrees and proposes that the Mortgage Contract should be upheld. Furthermore, the Respondent has filed a counterclaim requesting the Court to address the handling of the security property as stipulated in the Mortgage Contract in the event that the debt repayment obligation is not fulfilled.

THE DISPUTED LEGAL ISSUES

The validity of the Mortgage Contract, wherein the Collateral is real estate (land-attached property) not owned by the Secured Party and not registered for mortgage, raises substantial legal concerns. Furthermore, this case revolves significantly around the rights of a bona fide party who becomes the mortgagee in a mortgage contract despite the collateral not being owned by the mortgagor.

THE COURT'S ARGUMENTS & ANALYSIS

Regarding the legitimacy of the Mortgage Contract, based on the procedures for registration of mortgage / registration of security transactions, the Court found that the Mortgage Contract has not been authenticated, the Collateral has not been registered for a secured transaction. Therefore, the condition for perfection by filling is not met, and the  Mortgage Contract is void. The legal grounds include:

Article 323 Civil Code 2005: registration of secured transactions

2. The registration of secured transactions shall comply with the provisions of the law on registration of secured transactions. The registration is a condition for the secured transaction to take effect only in cases where it is required by law.

Point 2, Section I, Joint Circular No. 05/2005/TTLT-BTP-BTNMT: Cases of registration of mortgage and guarantee at the Land Use Right Registration Office

2.2. Mortgage, guarantee with houses, other architectural works, forest trees, perennial trees (hereinafter collectively referred to as land-attached assets).

2.2. Mortgage, guarantee with houses, other architectural works, forest trees, perennial trees (hereinafter collectively referred to as land-attached assets).