The bank failed to pay its debt and filed a counter-suit against the bank, claiming that a member of Mr. Nguyen Van A's household participated in signing a forged mortgage contract and requested the Court to declare the mortgage contract invalid.
Comment on this case: For this case, the majority of the Court's opinions declared the mortgage contract invalid due to a violation of the subject signing the contract. The legal basis cited by the Court:
The mortgage of land use rights of a household must be agreed by all members of the household aged 15 years or older as prescribed in Clause 2, Article 108 of the Civil Code : "The disposal of assets that are means of production or valuable common assets of the household must be agreed by members aged fifteen years or older; for other types of common assets, the majority of members aged fifteen years or older must agree" [49].
Clause 2, Article 146 of Decree No. 181/2004/ND-CP dated October 20, 2004 of the Government on the implementation of the Land Law stipulates:
Contracts for conversion, assignment, lease, sublease of land use rights; contracts or documents on donation of land use rights; contracts on mortgage, guarantee, and capital contribution using land use rights under the common use rights of a household must be agreed upon and signed by all members with full civil act capacity in that household or have a written authorization in accordance with the provisions of the law on civil matters [19].
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However, in my personal opinion, such a judgment is unreasonable for the following reasons:
- There is no legal basis to determine the members of the household. Accordingly, requiring all members of the household to sign the mortgage contract is untenable.
- Article 107 of the Civil Code stipulates the representative mechanism of the Household.
Civil transactions established and performed by the representative of a household for the common benefit of the household give rise to the rights and obligations of the entire household.
- In addition, according to the law on land, land use rights are granted to households for the purpose of agricultural, forestry and fishery production. Land use rights granted for residential purposes are not granted to households.
From the above analysis, the verdict of the above case should be in the direction of: recognizing the mortgage contract when it is found that the representative of the household owner participated in signing the mortgage contract and the contract was notarized and registered for secured transactions in accordance with the provisions of law. In case of impersonating another person, the parties should file a complaint with the police for appropriate investigation.
+ Determine whether the person signing the contract has full civil capacity
In fact, there are cases where notaries have even let a person who has just died sign a contract, or even let a healthy person who is still alive but " eats leaves, kicks a bamboo tube, and writes poetry all day" (referring to people with signs of mental illness) sign a contract. It is even more difficult for notaries to determine the civil capacity of people with schizophrenia, who are sometimes normal and sometimes sick.
+ Determine whether the person signing the contract has sufficient authority or not
In the case of signing a mortgage contract between 02 (two) legal entities, each party only needs one representative to sign the contract. For banks, the legal representative rarely signs the contract, but is usually signed by an authorized person, in which there are many cases where the authorization is given to a third party on a regular and continuous basis. A common case is that the legal representative of the bank authorizes the branch director, then the branch director authorizes the deputy director or department head. On the contrary, to prevent risks, the bank should accept the borrower being an enterprise to authorize a second person, usually in a position right below the person who authorized the signing of the contract.
The above requirement of the bank is stricter than the requirement of the law, but it has important meaning in practice, aiming to limit the risk of the contracting party, making the mortgage contract safer and easier to collect debt.
For the mortgagor being an enterprise, the approval of the Board of Members or the Company Owner or the Board of Directors is required in cases where the value of the secured assets reaches a certain level such as: "equal to or greater than 50% of the total value of assets recorded in the financial statements at the time of the company's most recent announcement or another smaller ratio specified in the Company Charter" (Articles 47, 64 and 108 of the Enterprise Law 2005).
The bank must choose a legal representative to sign the contract because Clause 5, Article 144 of the Civil Code stipulates the scope of representation: "A representative is not allowed to establish or perform civil transactions with himself or with a third party that he is also a representative of, unless otherwise provided by law" [49]. Accordingly, transactions in the following cases are illegal transactions:
- A represents an individual or/and organization to sign a contract with A;
- A represents an individual or/and organization to sign a contract with A representing the individual or/and organization.
At GP.Bank, there was a case of suing a customer with overdue debt and the Court ruled in favor of the case with the above legal basis.
Summary of the case: The borrower is Thien Thach Pharmaceutical Joint Stock Company, whose director is Mr. Nguyen Thanh Binh, who is also the legal representative of the company. The mortgagees are Mr. Nguyen Van Xuat's household and Mr. Vu Dinh Luyen's household. The two property owners and Mr. Nguyen Thanh Binh signed an authorization contract with the content that Mr. Binh was authorized to sign on behalf of the property owners on the mortgage documents of the two properties owned by them to secure the loan of
Thien Thach Pharmaceutical Joint Stock Company at GP.Bank. On that basis, the mortgage procedure at GP.Bank was completed and GP.Bank disbursed the loan of Thien Thach Pharmaceutical Joint Stock Company.
When the loan was overdue, although it created favorable conditions for Thien Thach Pharmaceutical Joint Stock Company to have the conditions and time to repay the debt, Thien Thach Pharmaceutical Joint Stock Company did not cooperate, so GP.Bank initiated a lawsuit in this case at Court.
In the appellate judgment No. 144/2012/KDTM-PT dated August 1, 2012 of the Supreme People's Court, the Hanoi Court of Appeal stated: The two mortgage contracts established to secure the loan of Thien Thach Pharmaceutical Joint Stock Company were not in accordance with the legal provisions on authorized representation. Clause 5, Article 144 of the Civil Code stipulates the scope of representation: "A representative is not allowed to establish or perform civil transactions with himself or with a third party of whom he is also a representative, unless otherwise provided by law" [49]. In the two mortgage contracts, Mr. Binh is the authorized representative as the mortgagor and at the same time Mr. Binh is also the signing representative of the borrower, Thien Thach Pharmaceutical Joint Stock Company. Thus, Mr. Binh is the authorized representative established with the third party, Thien Thach Pharmaceutical Joint Stock Company, of which he is a representative. Therefore, the above Mortgage Contract is invalid. Accordingly, the Court rejects GP.Bank's request to sell the mortgaged property in case Thien Thach Pharmaceutical Joint Stock Company does not pay/does not fully pay the debts at GP.Bank.
Thus, the current loan has no collateral. Debt collection or in other words, enforcement of the appeal judgment is hopeless.
+ Risks when signing a contract with a person authorized to mortgage property In reality, many cases of property sales are "disguised"
Under the authorization contract, the authorized person has full ownership rights: use, possession, and disposition. When an authorized person owns in general and is authorized to mortgage assets to borrow capital from banks in general and GP.Bank in particular, there will be 06 (six) possible risks that may occur:
First , one of the two parties in the authorization relationship can still request the court to declare the authorization contract invalid on the basis that this contract was established to conceal the real estate sale and purchase transaction, which is a transaction under the true will of the parties.
For example: The phenomenon of borrowing from each other is real. Companies borrow additional working capital and lend to relatives/acquaintances. At GP.Bank, it is calculated in large numbers: the collateral documents comply with the provisions of the law (notarization, registration of secured transactions). However, the real owner living in that real estate is completely different from the person whose name is on the Certificate of land use rights and ownership of the house - mortgaged property. When filing a lawsuit in this case, the risk is extremely high because there are currently no regulations to protect the interests of the bank in this situation. The risk of invalidating the mortgage contract is high, the loan no longer has collateral, so debt collection is extremely difficult.
Second , the authorized representative of the Mortgagor dies or is declared by the court to have lost civil capacity, has limited civil capacity, is missing or is dead. The authorization contract will be automatically terminated (even if the parties have agreed otherwise).
According to Article 589 of the Civil Code:
The authorization contract terminates in the following cases:
1. The authorization contract expires;
2. The authorized work has been completed;
3. The authorizing party and the authorized party unilaterally terminate the performance of the contract according to the provisions of Article 588 of this Code;
4. The authorizing party or authorized party dies, is declared by the Court to have lost civil act capacity, has limited civil act capacity, is missing or is dead [49].
Thus, if the mortgage is accepted in this case, it will lead to a very high risk for the bank, the authorization contract is terminated (due to the death of the owner or user of the mortgaged property), the heirs of the authorizer are the ones who have the right to inherit this property, the process of handling the property is extremely complicated and lengthy. In many cases, there is a dispute between the authorized party and the heirs of the authorizer, at this time the property in the hands of the bank is only "frozen". Or the owner or user of the property has died, but the authorized person still uses the authorization contract to establish the mortgage transaction, then the mortgage contract will be completely invalid. Determining the life/death status of the authorizer is very difficult because when participating in a mortgage transaction, the notary only checks the legal documents to see if they match the correct person and the scope of authorization and checks the status of the authorized person (the person who directly signs the mortgage transaction).
Third , the Authorizing Party or the Authorized Party unilaterally terminates the contract.
Article 588 of the Civil Code on unilateral termination of authorization contract:
1. In case of remuneration for authorization, the authorizing party has the right to unilaterally terminate the performance of the contract at any time, but must pay remuneration to the authorized party corresponding to the work performed by the authorized party and compensate for damages; if the authorization does not involve remuneration, the authorizing party may terminate the performance of the contract at any time, but must notify the authorized party a reasonable time in advance. The authorizing party must notify the third party in writing of the authorizing party's termination of performance.
present contract; if not notified, the contract with the third party remains valid, except in cases where the third party knows or should know that the authorization contract has been terminated;
2. In case of an uncompensated authorization, the authorized party has the right to unilaterally terminate the performance of the contract at any time, but must notify the authorizing party in advance within a reasonable time; if the authorization is for remuneration, the authorized party has the right to unilaterally terminate the performance of the contract at any time and must compensate the authorizing party for damages [49].
The risk in this case comes from the current notary management system that is not public and transparent. The bank cannot know that one party has unilaterally terminated the contract and then entered into a mortgage contract with the authorized person (as an authorized representative), then a dispute will arise and the risk of the mortgage relationship being invalid is very high.
Fourth , when the authorized party has obligations to a third party, for example, debts to partners, tax authorities or banks, according to the provisions of the Law on Civil Procedure, tax administration, judgment enforcement... these creditors have the right to request the freezing, seizure and auction of the authorized party's assets, including real estate that has been "transferred" under the authorization contract. Unless it has been legally transferred to a third party, the real estate is still legally owned by the authorized party. The authorized party is essentially only a representative of the owner, so the creditors still have the right to request the seizure and/or auction of the real estate to pay for their debt.
Fifth , in fact, the person who authorized the person when signing the authorization contract is still the legal owner of the property, but due to a violation of the law, the prosecution agency has determined that this property is evidence of the case or property obtained from a crime.
But if the bank needs to handle this asset, it will be "whistled" by the prosecution agency and the bad debt... will return to bad debt.
Sixth , there are some other cases where if the authorizing party and/or the authorized party commits a breach of trust, each party can still use certain techniques in applying the contract and legal provisions to legally deprive the other party of its rights. For example, there was an incident that occurred after signing the Authorization Contract (the transaction was essentially a sale and purchase), after a while, the authorizing party sent a written request to Bank A not to accept the mortgage of the land use rights of the authorized party... and a dispute occurred.
Accordingly, when the bank encounters one of the six risks above, the mortgage authorization contract is invalid and bad debt... still piles up on bad debt. GP.Bank currently has bad debts arising from the first, fifth and sixth risks. Because it recognizes many potential risks, GP.Bank currently does not accept mortgages in this form anymore.
3.1.2. Second issue: Appraisal of collateral
In fact, GP.Bank's internal document system is built quite tightly and limits most risks. The problem is that risks often occur due to inexperienced employees who do not assess and research thoroughly or from external difficulties. The most difficult and dangerous risk is the risk due to the ethics of officers and employees. Currently, GP.Bank's system summarizes some typical cases as follows:
+ Virtual collateral or real assets but not properly valued. The customer service staff did not conduct an actual asset appraisal, only based on the ownership documents provided by the customer, so when the debt was overdue, the customer did not pay the debt. The bank proceeded with the mortgage processing procedure and discovered that there was no house at that address and no land documents. It turned out that the customer had falsified documents and records to borrow money. The customer provided a certificate of ownership.