Content of Legal Relationship Regarding Loan Contract

+ In case the borrower is a deceased individual: 88

Based on the provisions of the law on inheritance in civil law, the heirs of the borrower's assets can negotiate with the credit institution on resolving the consequences arising from the loan contract. In case the heir (of the borrower) has a need to continue borrowing capital, has full legal capacity, receives trust and fully meets the conditions for debt repayment at that time, the parties must also sign a new loan contract to bind mutual responsibilities according to the actual credit needs at that time.

This event (the borrower is an individual who dies) is a basis for the lender to terminate the loan contract as the contract actually cites (For example: Credit contract No. C0110073-NHKD signed on January 28, 2011 between TV Joint Stock Commercial Bank (Ho Chi Minh City Branch) and Mr. Nguyen Luu H, in Article 6, the basis for early debt collection is stated as follows: "c) The borrower dies or is declared dead by the court; is declared missing by the court, ... "), which is consistent with the provisions of law on contract termination arising from the principles of safety in lending activities. 89

In theory, it is true, but the work of handling the consequences of the contract when the borrower is an individual who dies (even when declared missing) encounters many difficulties for banks and those working in the adjudication (when the case is brought to court for settlement). The reason is that the heirs and those with related rights do not cooperate, even refuse to inherit the property, refuse to accept the consequences of the contract. The civil procedure law also does not have a specific solution to clear up and resolve the rights of the bank, according to a proactive and specific mechanism.

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- Fire, storm, flood, natural disaster, enemy attack (natural change) affecting the performance of contractual obligations:

The lender signs the loan agreement for the purpose of doing business and making a profit. Current legal regulations do not recognize force majeure as a legitimate reason for the borrower to delay the repayment obligation. However, in some special cases, the law still considers these as conditions (force majeure) to support the borrower to overcome difficulties, often seen in loans for policy subjects (with the attention and support of the state). For loans for profit, in order to restructure the repayment period, the parties must comply with more stringent and complicated conditions as presented in the thesis. 90

In short, it is the requirement that lending must comply with the principles of safety and risk reduction that lawmakers have set forth regulations on the responsibilities of the lender.

88 The settlement of legal consequences is closely linked to the provisions of the Enterprise Law. Clause 1, Article 201 of the Enterprise Law 2014, an enterprise will be dissolved in the following cases: “ c) The company no longer has the minimum number of members as prescribed by this Law for a period of 06 consecutive months without completing the procedures to convert the type of enterprise ”

89 According to the author, it is necessary to distinguish between the principles of "safety" and "risk" in the relationship between HĐCV. If "safety" is a principle that the parties must comply with in order to protect the object, which is the normal operation of the monetary and banking system, "risk" is a danger that may or may not occur, only affecting economic benefits, and can be overcome and limited, so this measure is often more flexible, as the credit institutions decide to implement it depending on the control capacity of each credit institution.

90 See: Section 3.3.4.1. Debt repayment restructuring

Borrowers are required to “review credit before lending”, or comply with the obligations of “fully repaying the loan and interest”. This principle forms an interactive legal relationship between the parties. In particular, the relationship arising at the pre-contractual stage needs to be legalized to raise awareness of responsibility for complying with commitments, ensuring access to loans.

2.2.2.2. Content of legal relationship on loan contract

a) Subject of legal relationship on loan contract

Parties participating in the legal relationship of HĐCV include: lenders (credit institutions) and borrowers (organizations and individuals).

- Lender:

These are legally established credit institutions with charter capital; the legal representative must have capacity and understanding of the banking sector in order to standardize management and operation capacity. This is also the basis for the judicial authorities to determine the capacity of the lender and evaluate the validity of the signed loan agreement. Credit institutions include banks and non-bank organizations:

+ Commercial banks : This banking model operates on a large scale, providing a variety of credit services. In which, lending is still the main business with the purpose of seeking profits. Due to the high proportion of transactions in the banking system, having systemic impacts and influences, the lending procedures of these banks are often carried out strictly, according to a complex mandatory credit process. With a commercial nature, commercial banks develop strongly according to the model of a specific currency trading enterprise, guaranteed by the state to be autonomous in signing contracts, choosing customers, negotiating interest rates, etc., and at the same time being responsible for all activities, including bankruptcy like other enterprises if they lose liquidity.

+ Foreign bank branches: These are dependent units of foreign banks, without legal status, guaranteed by foreign banks to be responsible for all obligations and commitments of the branch's operations in Vietnam. The operations of these banks are guaranteed by the state for investment, guaranteed business environment, and allowed to conduct lending transactions equally with domestic credit institutions.

+ Cooperative bank : This type of bank operates not for profit, the main purpose is to support and help among members. Loans of this bank are usually low value, simple procedures.

+ Microfinance organizations : Granting credit in Vietnamese Dong in the form of loans to the poor in the locality or adjacent areas, which can be secured by compulsory savings, guarantees from savings and borrowing customers. Banking laws have provisions prohibiting and restricting lending to people with related interests, maintaining the ratio of total outstanding loans to borrowers in the total outstanding loans, not lower than the ratio prescribed by the State Bank. Lending interest rates of microfinance organizations are often high to compensate for costs and losses.

+ People's credit funds: Operate under the cooperative model. This form of credit promotes lending efficiency, especially in rural areas where people do not have the habit or conditions to access banks. This type of credit institution is small in scale and does not have a large impact or influence on the banking system.

+ Finance companies : Allowed to lend installments and for consumption. The activities of finance companies are increasingly developing, building relationships with commercial enterprises, meeting the living and consumption needs of individuals. However, due to high costs and many risks, finance companies often set many binding regulations beyond the borrower's capacity: high interest rates, non-transparent debt collection methods that cause oppression and inequality in contractual rights.

+ Financial leasing company : Financial leasing is a medium-term and long-term credit activity based on asset leasing contracts (these assets can be machinery, equipment, means of transport, other real estate...). Financial leasing companies only provide loans to supplement working capital for financial lessees.

- Borrower:

Each customer has its own characteristics in terms of formation conditions and capital needs, so the legal status of these entities is also different. State management agencies, armed forces, political organizations, and socio-political organizations operating with financial resources provided by the state budget should not participate in loan relationships and cannot be subjects of the HDCV.

In general, civil and economic law divides borrowers based on legal capacity and behavioral capacity, suitable for each condition and each field and profession.

+ For organizations (enterprises) : These entities have legal status, including types of legally established enterprises, participating in labor relations performed by representatives (by law or by authorization), with full capacity, complying with regulations on the form and content of authorization (Articles 562-569 of the 2015 Civil Code).

The authorization contract is agreed upon by the parties and must be made in writing, fully expressing the will of the authorizing party. In the case of unilateral authorization by one party, in principle, it must be approved by the authorized party (the authorized person), only then will it be valid. The authorization contract must clearly state the basic contents: the authorized party, the authorizing party, the scope and duration of authorization and other rights and obligations (if any).

+ For individuals : Individuals must have full civil capacity, this capacity is based on the age allowed by law to transact, and at the same time, they are responsible for repaying debts they establish and perform.

Depending on the borrower, the lending procedures are also different. Normally, lending to businesses requires stricter procedures because the loan capital is often large, linked to the effectiveness of investment and business projects, the loan term is long, and there are many objective risks. For personal loans (not for business purposes),

Credit institutions need to distinguish the purpose of using loans for living or consumption purposes, so it is not necessary to provide documents and information on capital efficiency as in business loans.

Legal capacity for the borrower, in addition to the provisions of civil law and business law, these entities must also meet the loan conditions prescribed by specialized banking laws. In case the borrower does not meet these conditions, the lender has the right to refuse to lend.

Subject capacity is associated with lending conditions according to legal regulations:

The subject's qualifications are linked to the conditions for borrowing capital, which are the capital needs for legal purposes, with a feasible capital use plan, and the financial capacity to repay the debt. For preferential loans according to the State's policies, the borrower must also have transparent and healthy finances to enjoy maximum lending interest rates according to the criteria set by the credit institution. In addition to prohibiting lending for illegal capital needs, current law also affirms that capital needs cannot be lent to repay debts at credit institutions for the purpose of debt restructuring, debt concealment (Clause 5, 6, Article 8 of Circular No. 39/2016/TT-NHNN), which poses a risk of unsafe loans.

In practice, credit institutions often set out a number of detailed conditions that are appropriate to their capacity and financial conditions. For example, the collateral must have liquidity (easy to buy, sell, transfer on the market, and have low price fluctuations); no previous bad debts (sue by another bank); and in terms of financial ability to repay the debt, the borrower must have a plan to remedy the situation if the business is not effective.

With the diverse characteristics of borrowers, the work of checking the legal status of the borrower and the loan application must meet the set criteria, which is a prerequisite before signing the loan contract, ensuring the long-term reputation of the customer through the awareness of contract enforcement and compliance with debt repayment obligations.

b) Subject of legal relationship regarding loan contract

In the legal relationship of civil service contracts, the subjects include: material benefits arising from lending and receiving loans.

- On the lending side : With the characteristics of an economic legal entity, business activities aim at profit, but credit institutions do not have to trade all material benefits, but must build reputation, bring convenience to customers throughout the operation process. The object in this case is material or immaterial benefits. To achieve these goals, credit institutions regularly expand business, diversify and improve the quality of credit services in response to the fierce competition between domestic and foreign credit institutions.

- On the borrower's side: It is the need to borrow capital for studying, traveling, shopping or for business purposes. These benefits and needs, in principle, must also be legal. It is difficult to accept businesses borrowing capital to buy goods prohibited by the state, participating in prohibited business fields, or using borrowed money for purposes

illegal. The subject of the legal relationship of the loan contract is closely linked to the characteristics of the loan contract. Based on the characteristics of the subject and the purpose of the loan contract, banking law divides social relations into groups with similar characteristics and interests to issue appropriate regulatory regulations.

The objects of the HĐCV relationship can also be social interests and security protected by law. The State must perform its management function with the aim of controlling loan safety, resolving policies for the development of the banking system, issuing regulations on incentives and lending limits; and exercising the right to inspect and supervise the State through economic and legal management tools. Looking deeper, the interests of these objects are the interests of the social community, and the reputation of credit institutions must be protected by the State.

c) Rights and obligations of the parties in the legal relationship regarding the loan contract

Legal rights and obligations, which are the ways of behaving that the law allows the contracting parties to carry out or are required to perform, arise from the law or from the parties' agreement. In the civil contract relationship, the rights of one party are linked to the obligations of the other party to the contract, but, with the nature of a civil transaction, the agreement of the parties must be evaluated based on the principle of not being contrary to the law. Comparing and defining the scope of this agreement with the provisions of law is the basis for determining the legal rights and obligations, and assessing the level of strict compliance with the law by the contracting parties.

- On the rights and obligations of the lender:

+ Right to request the borrower to provide information: The information provided by the borrower has a wide scope, not only stopping at information related to the borrower, the loan process, the purpose of using the loan... This is also a guarantee of the honesty and correctness of the documents and certificates that the borrower provides to the lender, right from the loan approval stage.

The right to request credit information is a fundamental credit right, codified by law. Based on this information and documents, the lender knows the borrower's capacity at the time of the contract to promptly take appropriate professional measures. Unlike information about private life or business secrets, credit information is only provided to serve the purposes of the loan contract. If the lender requests illegal information, unrelated to the contract's benefits, the borrower has the right to refuse and not perform.

+ The right to request the borrower to repay the principal and interest in full and on time: The lending credit institution should have the right to request the borrower to repay the principal and interest in full and on time. Setting a repayment period helps the credit institution to "recycle" the loan capital (timely put capital into business, continue to lend to new customers to generate profits) or implement plans to pay deposits and regular expenses of the credit institution. This is also the basis for determining the time of completion or violation of the loan agreement. Thereby, the credit institution applies risk management measures and strengthens control to ensure the implementation of these rights.

In general, the right to request repayment of principal and interest is only exercised when the lender disburses. This is a broad power, associated with the borrower's awareness and attitude, and is guaranteed by the state in law (by regulations: allowing credit institutions to terminate loans, transfer overdue debts, and dispose of secured assets if the borrower violates).

+ Right to extend debt, adjust repayment period: This is an active right, depending on the capacity of the lender and the ability of the borrower after the extension or adjustment of the repayment period. Although, in the loan agreements, these rights are often mentioned, in reality, these rights do not bind the responsibility of the lender. Therefore, the decision to extend debt, adjust repayment period depends on the financial conditions and effective plan established by the borrower at the time the credit institution decides to lend.

+ Right to change loan security measures: Credit institutions are allowed to choose security measures when lending and have the right to change security measures. To effectively implement, credit institutions must develop internal regulations and record these provisions in the loan agreement to bind the borrower, based on the principle: credit institutions decide for themselves and are responsible for the customer's loan repayment obligations. Changing loan security measures must also have the borrower's consent, at which point the parties must still carry out full legal procedures (valuation, notarization of contracts, registration of secured transactions) for the transaction to be legally valid.

+ Right to terminate lending and recover loan capital in case the borrower violates contractual obligations: The credit institution has the right to suspend lending if the borrower violates the contents of the loan agreement. This is a power that arises after the credit institution disburses. The suspension of lending is usually accompanied by measures taken by the credit institution, requiring the borrower to remedy the situation within a reasonable period of time. For late interest payment, the credit institution applies a penalty for violation. In case the customer continues to violate and does not submit effective remedial measures, the credit institution has the right to terminate the loan.

+ Right to enforce debt collection (withdraw from the borrower's account to collect debt, right to handle secured assets to collect debt according to the secured debt handling process): If the borrower does not fulfill the obligation to pay the loan, interest, fees, etc., these amounts automatically become debts of the credit institution. As a creditor, the credit institution exercises the right to collect debt by handling the borrower's assets: offsetting money in the account (mortgaging savings books), foreclosing on secured assets. For secured assets that are real estate, the handling of these assets is usually more complicated. Credit institutions must comply with the agreement in the debt collection contract, and at the same time need to be granted the right to proactively handle to recover and offset debt.

+ The right to sell debt, transfer the contract without the consent of the borrower: This right of the credit institution must be attached to specific conditions set by law, based on a certain margin and ratio allowed to be implemented in principle, without infringing on the rights of the borrower. The lender must also comply with strict conditions prescribed by law, so it does not enjoy many direct benefits from these rights because it still has to perform the responsibility of monitoring and debt collection (authorized by the debt buyer to perform).

currently), risk provisions are set aside, so the pressure to handle debt still exists even though the debt has been sold before.

+ Obligation to lend to the right borrower: Lending to the right borrower is to ensure the effectiveness of the contract when signed, minimizing risks. Accordingly, the borrower (organizations, individuals) must have legal capacity, capacity to act, not violate the cases of prohibited or restricted lending; the need to use the loan must be legal; have the ability to repay the debt. If the credit institution lends in violation of regulations leading to loss of capital, the lender may be prosecuted for civil or criminal liability.

+ Obligation to inspect and supervise the use of loan capital and debt repayment by the borrower : This work is carried out before and after lending (until all debt is recovered), in order to achieve safe and effective credit goals. When lending, credit institutions not only focus on applying security measures according to the provisions of civil law, but also must establish a monitoring mechanism right from the time of receiving loan applications until all debt is recovered (contract liquidation) through the work of: controlling loan cash flow, disbursement conditions, investment project efficiency, loan use..., promptly detecting and preventing possible violations to minimize contract risks.

+ Obligation to comply with regulations on disbursement, not to arbitrarily terminate the loan in case the borrower has not committed any violation: The credit institution is a financial institution, with the function of "borrowing to lend", so it must prepare loan sources and reasonable credit reserves. The credit institution cannot use the reason of not having money to refuse to disburse according to the progress stated in the contract. In case of violation of this obligation, the credit institution must compensate for damages, regardless of whether the parties have agreed on sanctions in the contract or not.

+ Obligation to provide information upon request of the borrower (information on interest rates, principal balance, interest debt, credit fees, etc.): The borrower has the right to request the lender to provide information on the loan and the interest rate policy of the credit institution. The obligation to provide information of the credit institution is important to help the borrower determine the debt repayment plan, promptly detect violations to exercise the right to complain and file a lawsuit. Strictly implementing this obligation also aims to make credit transparent, limit the situation of widespread fee collection and illegal interest calculation.

- On the rights and obligations of the borrower:

Based on the basis of origin, the rights and obligations of the borrower are temporarily divided into two groups: Rights and obligations of the borrower arising from the law; and Rights and obligations of the borrower arising from the contract. Although in reality, in the content of the loan agreement, there are many contents of the rights and obligations of the borrower that are fully conveyed from legal provisions.

Group 1 : Rights and obligations of the borrower according to the law.

+ Right to access credit capital: Right to access credit is a concept used to refer to organizations and individuals being allowed to access credit in a preferential, transparent and fair manner. This is a basic civil and economic right, with a broad and narrow scope.

This power depends on the organizational and implementation capacity of each country. The manifestation of these rights is realized through: the right to fair access to the lending interest rate policy of the state and credit institutions; the right to borrow capital of the poor, small-scale enterprises, and limited finances; the ability (of state management) to remove barriers that limit access to credit...

+ Right to complain or sue when the lender violates the loan agreement : The borrower has the right to complain to the credit institution about issues related to the loan transaction. In case the complaint is not resolved, the borrower can request the state management agency to resolve it according to its authority or file a lawsuit in court. These complaints are usually: complaints about groundless loan refusal; requests for disbursement according to the contract; complaints about incorrect interest rate and credit fee calculation; unclear valuation and handling of secured assets... Credit institutions, state management agencies, and prosecution agencies are responsible for resolving complaints according to their authority.

+ Obligation to use loan money effectively and for the right purpose: This provision was legalized right from the formation of the law on lending to promote the effectiveness of loan use and increase the ability to repay debt. The effectiveness of the obligation to use loan money is the basis for ensuring the debt repayment obligations of the borrower. In case the purpose of capital use is not as effective as the original committed goal, the credit institution has the right to apply professional measures to terminate the loan and recover the loan.

+ Obligation to comply with the inspection and supervision of the lender: This is the main obligation of the contract. If the borrower does not comply, the credit institution has the right to terminate the loan and recover the loan. This obligation is associated with specific criteria to ensure consistent implementation.

The inspection and supervision work requires the person performing it to have a certain level of professional expertise, promptly detecting the situation where the borrower conceals shortcomings and violations. This work does not hinder the freedom of business of organizations and individuals but is carried out to ensure that the loan is more effective and safe.

Second group : Rights and obligations arising from contracts.

+ The right to request the bank to disburse in accordance with the agreement in the contract: The borrower enters into a loan agreement to receive the loan for its predetermined purpose. In theory, if the credit institution subjectively misjudges the effectiveness of the use of the loan and does not disburse, it will cause damage to the borrower. Therefore, the law needs to have measures to sanction violations in this case to ensure fairness for the borrower. The borrower's right to complain needs to be considered under many different objective and subjective factors. In case the lender's act of not disbursing is due to the state's credit management and control requirements, in compliance with the banking sector's directives, the lender does not violate the loan agreement.

+ Obligation to repay principal and interest on time: The borrower, as the temporary owner of the loan, must comply with strict conditions when using the loan as committed in the loan agreements. To ensure the implementation of this obligation, the law

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