The legal issue is, after the loan is transferred (also known as "disbursement"), is that money the property of the borrower? Does the borrower have full rights to manage, decide, and use the loan according to his own will?
Current scientific views all agree that: The transfer of ownership (loan money) is only "temporary". In case the loan money is transferred to the borrower's account according to the progress of the loan contract, the borrower is only allowed to use that amount for the specified purpose according to the conditions that they (the borrower) have committed to the bank. Therefore, in theory, the loan money must also be used for the correct purpose of the loan, to ensure the repayment obligations as committed by the borrower. The amount of money held by the borrower is the source of the loan disbursed by the bank and cannot be confiscated or seized by any organization or individual for any other purpose or reason.
Third, the normal contract is a contract actively drafted by the credit institutions.
Credit institutions operate in the form of large-scale business units, including many dependent units, so the research and development of a sample contract for application throughout the banking system is a necessary task. Therefore, these contract terms are often disadvantageous to the borrower when implementing, as well as when disputes arise.
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For example, the Credit Contract form of the Joint Stock Commercial Bank for Industry and Trade currently in use (Form No. 01A/TD-OCB/2017) at Point c, Clause 3, Article 9 of this contract stipulates: The Bank has the right to recover debt before maturity in case “The Borrower has changes in operations or/and organization (division, separation, consolidation, merger, enterprise conversion, equitization, change of ownership...) and/or changes in shareholders with voting rights or/and key personnel (Legal representative, operator...) that may affect the business performance and debt repayment ability of the Borrower... " 57 .
According to the author, the terms of this contract form use phrases such as: "affecting business operations", "ability to repay debt" showing the basis for allowing early debt collection is vague, depending on the lender's discretion, even if this term has the borrower's consent. The above phrases have not clearly shown the direct factor causing insecurity, the criteria for the lender to legally collect early debt.
In the field of consumer lending, contract law emphasizes the protection of consumer rights as a disadvantaged subject. Therefore, consumer credit contracts must also be expressed in the form of "model contracts" (this type of contract is legalized to protect the rights of the disadvantaged party) with full provisions ensuring transparency and equality of interests of the borrower. For subjects borrowing capital for business purposes or other purposes, loan contracts must still be made in writing, but only need to clarify the mechanism for implementing the framework agreement, legalize some provisions on basic terms will resolve and meet the requirements set by lawmakers, which is equality in contractual relations.
57 See more at: Appendix 2 - Sample loan contract of a credit institution
Fourth, the implementation period of the contract is often long, risky, and prone to disputes.
When signing a loan contract, the parties all aim for different purposes (benefits), including the need to seek profits, so the contract term often lasts along with the production, investment and business activities of the borrower. This process is different from business and commercial contracts, where the parties usually only carry out a few investment stages, or a specific transaction, which is terminated when the transaction is completed.
Long-term loans will generate many unpredictable risks, so credit risk management is always the top priority solution for credit institutions. Through the act of signing a contract, credit institutions proactively include favorable terms in the contract, binding many strict and tight conditions on the borrower to ensure the avoidance of objective and subjective risks. This is also the reason why credit contracts are more likely to lead to disputes than other normal business and commercial contracts. These disputes do not simply stop at the obligation to repay the loan but also include disputes over fees, interest rates, property handling, etc. Therefore, when resolving disputes, those working in adjudication must distinguish the scope of legal and illegal contract agreements, agreements that are not consistent with the reality of equal credit relations, being oppressed, etc.
In summary, HDCV has common characteristics of contractual relationships but also shows many specific characteristics, different from business and commercial contracts originating from the right to dispose of assets in business of credit institutions with stricter limits. Moreover, lending activities are closely linked to the responsibility of providing capital for the economy, affecting the macro management of the state, therefore in the loan contract relationship, the right to freedom of contract, freedom of business is not simply a matter of profit, it is also the common interests of the parties involved that need to be reconciled and guaranteed.
c) Some comparisons of the differences between a loan contract and a property loan contract . The loan contract is a special form of a property loan contract, so these two contracts have common and similar characteristics as analyzed. In addition, the property loan contract is subject to the Civil Code as a general law, the law allows the application of relevant laws when there are differences, so the provisions on the two contracts show certain specific points. The comparative study is only relative, based on scientific arguments, legalized through regulations.
decision on this difference.
Regarding the subject, the organizations and individuals participating in the asset loan contract relationship are often broader (without the participation of credit institutions), only organizations and individuals with legal capacity, capacity to act, need to borrow, and ability to repay assets. The parties themselves carry out the transaction, are not required to use the loan capital for the right purpose, and are not required to make a written document, so the loan procedure is open and quick. This characteristic proves that the asset loan contract relationship is not complicated and is not subject to control.
strict state, as long as the parties agree and seriously perform the obligation to return the property.
The issue of interest rates is raised to ensure the rights of the lender of the property. However, due to the nature of the mutual relationship, the lender (as the owner, has full authority to dispose of the borrowed property), they may not require interest rates. In the case of lending with interest, the interest rate must also be within a certain framework, not allowing the situation of "interest on interest" (an illegal form of calculating interest, increasing the debt repayment obligation of the borrower).
This issue is still raised in current legal practice. In the Draft document (3rd time) of the resolution on interest rates of the court sector, there is a mention of compounding interest (sub-section a.2, clause 2, article 3). According to the author, in principle, interest rates cannot be included in the principal and then continue to calculate interest, because the 2015 Civil Code has stipulated how to calculate interest on overdue debts, including interest (in the banking sector, the law specifically stipulates the obligation to pay interest and sanctions, not allowing compounding into the principal), 58 even though legal practice has mentioned it and allows implementation (Specifically: Section 1, point 4, section a of Joint Circular No. 01/TTLT dated June 19, 1997 on resolving difficulties in civil transactions; Article 655 of the Civil and Commercial Code of Thailand).
The interest rate, in the property loan relationship, is agreed upon by the parties themselves, but there is a certain limit to protect the borrower's rights (not exceeding 20%/year of the loan amount as prescribed in Clause 1, Article 468 of the 2015 Civil Code). Meanwhile, the Law on Credit Institutions does not mention interest rates, the interest rate in the loan contract is agreed upon by the parties themselves, according to the needs and adjustment rules of the market instead of being set by the State Bank as in previous regulations (in the form of basic interest rates, usually from 8-9%/year). This has shown the views of lawmakers on the unreasonableness between the lending interest rate in civil loans and the lending interest rate at banks. This unreasonableness gives rise to the psychology of the borrower wanting to delay debt repayment to benefit from the difference in interest rates (due to higher bank interest rates) that they should have paid as some comments. 59
However, in the author's opinion, the interest rates inside and outside the banking sector, besides the inherent relationship, always have a certain difference. Indeed, lending activities give rise to many costs that credit institutions must pay. In addition, with the purpose of making a profit, the lending interest rate (bank) is always higher than the interest rate in the civil sector, which then ensures the rights of credit institutions, and at the same time limits the situation where borrowers take advantage of bank loans to re-lend, profit from the interest rate difference, causing instability in the monetary market. On the other hand, the law allows the parties to agree on interest rates, but it must be within the financial and operational capacity of the bank, based on the set targets and growth rates (this capacity is determined by the State Bank).
58 See more: Draft 3 Resolutions guiding the application of some legal provisions on interest rates and penalties for violations https://vbpq.toaan.gov.vn/webcenter/portal/htvb/chi-tiet-vbdt?dDocName=TAND053142 , accessed at 20:39 on January 16, 2019
59 See: Do Van Dai (2011), Vietnamese Contract Law: Judgments and Commentaries on Judgments , Volume 2 (third edition), National Political Publishing House, p. 231
(controlled by the State Bank), credit institutions are not allowed to arbitrarily agree on any interest rate without basis, affecting the reputation and causing damage to the bank.
In summary, from the above basic differences, Vietnamese law divides two contracts into separate groups of social relations, subject to the regulation of general law and specialized law, similar to the laws of countries following the written law system: i) In China : Contractual relations are subject to the regulation of the 1993 Unified Contract Law of China 60 , this contract law includes asset loan contracts (Chapter XII, Article 196). For bank credit contracts, the law stipulates quite specifically in Article 37 of the 1995 Law on Commercial Banks of China; ii) In Germany : Lending transactions are subject to the regulation of specialized credit laws (Articles 2, 3 of the Law on the German Credit Industry). 61 Asset loan relations are also considered civil relations, subject to the regulation of the German Civil Code (Geman Civil Code). 62
In practice, organizations, individuals, law enforcement agencies and law enforcement agencies still confuse these two types of contracts, so they often apply the law incorrectly, causing disputes to drag on and affecting the quality of adjudication. Therefore, identifying the characteristics of these two contract regimes is also the basis for lawmakers to establish appropriate legal regulations, as a basis to ensure that organizations and individuals properly enforce the law.
Thus, the HDCV has common characteristics with the asset loan contract regarding the obligation to repay the loan. However, from the nature of being a type of consent contract with specific features as analyzed, this loan relationship is subject to the regulation of banking law. Through the regulation mechanism of specialized banking law, the loan relationship meets the specific criteria on the contractual rights of the parties, meets the economic management goals of the state, as well as the safety goals of the credit system.
2.1.2.2. Economic nature of loan contracts
Based on the study of the economic nature of the contract, the thesis evaluates the impact and interaction of the economy on changes in the law on the contract, as well as the effectiveness of law enforcement in this field on the economy, according to the economic and legal theories mentioned in the thesis.
Firstly, the capital contract is a form for the parties to negotiate and resolve capital needs for life and business production.
By signing the contracts, businesses and individuals can borrow capital in a timely manner according to the contract's progress, in accordance with the capital use plan to expand investment, production, and business, promoting the development of commodity production and creating jobs for workers.
60 Chinese Contract Law. Source: http://www.npc.gov.cn/engishnpc/Law/2007-12/11/content_1383564.htm , accessed at 13:34 on November 30, 2016
61 State Bank of Vietnam, op. cit. (36), World Publishing House, 1997, pp. 387-404
62 German Civil Code. Source: http://ww.gete-im-internet.de/english_bgb/ , accessed at 6:09 on 11/27/2016
63 For example: Judgment No. 1413/2010/DS-PT dated December 14, 2010 of the People's Court of Ho Chi Minh City resolved the dispute over the "loan contract" case but incorrectly determined the dispute relationship, when it stated that this was a dispute over a "property loan contract". See also: Appendix 3 (Case 1)
The capital for credit institutions to lend is not only reserved for individuals or groups of individuals. With limited capital resources, entities facing financial difficulties will have difficulty accessing loans. Therefore, the right to access loans, in theoretical and legal research, is aimed at solving the diverse capital needs mentioned above. It is also the basis for organizations and individuals not to be hindered from accessing credit if they have all the conditions for borrowing capital permitted by law, ensuring the equal rights of borrowers regardless of which customer entity they are.
Second, credit institutions participating in the contract relationship aim at business goals to make a profit.
The lending activity is a means for credit institutions to achieve their profit-making purposes. This function is closely associated with credit institutions, as assessed “ from the very beginning of the formation of commercial banks ” 64 , with the role of “ creating surplus value of money ” 65 (money creation). Unlike other economic transactions, lending transactions of commercial banks are always systematic, developing in breadth both domestically and internationally, on a large scale, and difficult to control without a strict and appropriate management mechanism. In order to perform their functions and meet the needs of credit development, credit institutions always seek and provide convenient and diverse lending products and services, solving the increasing capital needs of borrowers.
Completing the Law on Housing Loans, in addition to requirements on safety and risk reduction when lending, credit institutions must also aim to simplify and make transparent loan procedures, meeting the diverse capital needs of customers.
Third, interest rates are negotiated in accordance with the laws of supply and demand of the economy.
Borrowers, when using borrowed money for consumption, living or production and business activities, will bring certain economic and civil benefits. A part of that profit is paid to credit institutions, this is the loan price. 66 With the motto " borrowing to lend " 67 , seeking profit, in case of reasonable interest rates, it will encourage customers to borrow capital. Lending interest rates are also the basis for adjusting economic contractual relationships, in case the parties violate payment obligations.
Indeed, Article 306 of the 2005 Commercial Law stipulates that interest due to late payment will be calculated based on the average overdue debt interest rate on the market at the time of payment, corresponding to the period of late payment. For business and commercial sectors in general, the law allows parties to impose penalties for breach of contract but does not specify an interest rate for late payment. Therefore, courts often apply the "average overdue debt interest rate" of 03 (three) commercial banks for this sector due to the reason that economic entities also have to borrow to cover financial shortfalls, so the bank's interest rate should be applied.
Thus, the interest rate under the contract must meet the demand and be subject to the adjustment of the market economy. This factor requires the interest rate to be transparent to protect the rights.
64 See: Le Van Te (2007), Commercial banking operations , Statistical Publishing House, p. 21
65 Ho Chi Minh City University of Law (2015), op. cit. (34), p. 321
66 Ho Chi Minh City University of Law (2015), op. cit. (34), p. 305
67 This phrase is interpreted as “ buying a loan at a low price, selling a loan at a high price, the difference is the profit ”. See Ho Chi Minh City University of Law (2015), op. cit. (34), p. 307
legitimate of the borrower, as well as the subjects participating in economic relations in general. The bank should not oppress customers, set many unreasonable fees and interest rates just because they need to borrow capital.
The question is, to what stage of the contract is this interest rate applied? The judiciary has considered it as an option (option 2, Article 8 of the 3rd Draft Resolution on interest rates and penalties for violations) when the dispute is resolved. However, the views in the draft only accept an interest rate of 10% to 20% when the parties do not have an agreement or have an agreement but do not exceed the level prescribed by law. This content was later edited by the drafting committee in the direction of being based on the agreed interest rate (point a, clause 1, Article 13 of Resolution 01/NQ-HDTP dated January 11, 2019 of the Council of Judges of the Supreme People's Court guiding the application of a number of provisions of the law on interest, interest rates, and penalties for violations).
However, in this matter, according to the author, it is necessary to apply interest due to late performance of payment obligations (stipulated in Clause 2, Article 357; Clause 2, Article 468 of the 2015 Civil Code) at the time of debt repayment according to the court's decision, even if there is a new appropriate interest rate agreement. Because at that time, the contractual relationship between the parties has ended, the obligations arising from late payment of debts in civil and business have been determined by the court. This is completely different from the obligation to pay principal and interest in a bank, which the borrower is required to perform until the debt is fully paid according to the signed contract, even if the dispute must be brought to court or arbitration for settlement.
Fourth, the HDCV relationship has many potential risks for the lender.
Unlike in the business and commercial sectors, risks when signing contracts still occur, but usually the scope and level of impact have certain limits. In the banking sector, credit risks are affected by many factors, are likely to be beyond the control of the bank, have a large scale of damage, and affect the reputation and quality of the credit system.
Objective and subjective impacts that may cause risks are as follows: The state's management and operation of credit policies directly affects the lending activities; Credit institutions loosen risk management, pressure to expand credit leads to substandard lending decisions; Objective risks due to the crisis, negative impacts of the economy have a chain effect, affecting the effectiveness of lending activities (for example: the value of collateral assets being mortgaged or pledged decreases; businesses using customers' loans are ineffective, customers lose their ability to pay, etc.).
Minimizing lending risks is always a legal requirement for state management agencies and lenders, through measures such as improving credit approval quality, strengthening control and supervision; establishing strict lending procedures, consistent with the capacity of credit institutions; proactively recovering assets to handle debts;...
2.2. LEGAL REGULATION OF CONTRACTUAL RELATIONSHIPS IN THE BANKING CREDIT FIELD
2.2.1. The need for legal regulation of loan contract relationships
Legal regulation of labor contract relations are legal measures and methods that affect the process of signing, implementing and terminating labor contracts. The goal of legal regulation of labor contract relations is to form and develop these relations in a certain direction, ensuring equality and the right to self-determination among participating entities.
a) Principles of legal regulation of loan contracts
The relationship between credit institutions and employees has a long historical origin and development process, giving rise to the need for legal regulation in accordance with the framework and will of the state, serving the common interests of society. The customs and ethical standards of credit business cannot replace legal norms to effectively regulate the relationship between credit institutions and employees (because they do not ensure enforcement and do not consolidate and maintain the order of contractual relations in this specific field).
As the superstructure, the law in general and the law on credit contracts in particular must adapt to the economic infrastructure and the requirements in the management of the financial and monetary markets. Based on the needs of socio-economic development, the requirement to regulate credit contracts by law must come from the following principles: Credit institutions " as economic legal entities", 68 (due to the conversion of the market economy model, banking activities are considered economic units with legal status), when signing credit contracts, from any perspective, credit institutions must aim for economic goals and benefits. No one can force credit institutions to lend to a certain subject at a lower interest rate than the market lending rate. Similarly, in the relationship with partners (borrowers), the requirement to ensure safety when lending requires a harmonized legal mechanism, ensuring legitimate material rights between subjects and each group of borrowers.
Thus, legal regulation of the relationship between credit institutions and individuals must, in principle, meet the needs of objective movement and change of the economy, the needs of state management of lending transactions, and the intrinsic needs of credit institutions, enterprises, and individuals.
b) Regulate by law the loan contract relationship but always respect the parties' right to freedom of agreement, self-determination and self-responsibility.
Originating from the right to freedom of will when concluding a contract, the concept of a contract is stipulated in Article 385 of the 2015 Civil Code in the sense of: " an agreement between the parties ". The intervention of the state by law is also aimed at ensuring the right to equality in that contract.
Freedom of contract is the supreme principle that governs the entire contract performance process. It can be seen that in the banking sector, freedom of contract is limited.
68 According to documents: State Bank of Vietnam, op. cit. (36), World Publishing House, 1997, p. 111
limited by the principle of loan safety. However, when negotiating a contract, the basic interests of the parties must be guaranteed by law based on actual credit needs, associated with certain economic benefits. For example, the law allows the parties to agree on loan interest rates (Circular No. 07/2010/TT-NHNN dated February 26, 2010 of the State Bank on lending in Vietnamese Dong at the agreed interest rate of credit institutions with customers), reflecting the true nature of the contractual relationship, forming a transparent lending interest rate level, meeting the capital needs of the market. Up to now, the regulation on agreed interest rates is still in effect, demonstrating the stability in practical application, in accordance with the criterion: "The Law on Credit Contracts must be stable, have long-term value, and promptly resolve problems arising during the application process" as mentioned in the thesis. 69
The principle that the parties are free to agree on a contract but not against the law. With the framework regulations, amplitude, permitted rate of agreement, scope of application of internal regulations, legal regulations, limitations on contract agreement conditions, etc. set out in the current law on labor contracts, determining the legal content of the agreement is not easy, even for the judicial authorities when resolving disputes.
For example : Article 13 of Credit Contract No. 6010/HDTD dated September 10, 2010 signed between CTVN Joint Stock Commercial Bank (PY Branch) and PH Production and Trade Private Enterprise, states as follows: “ … any disputes arising from the contract or related to the contract will be brought to the Economic Court… or brought to the Vietnam International Arbitration Center for resolution ” .
The above agreement clause allows the parties to choose a court or arbitration agency to resolve the dispute. In principle, it must be a court with jurisdiction specifically prescribed by the civil procedure law. In case the parties choose arbitration proceedings, the loan contract must clearly state the name of the arbitration organization along with the model clause of that arbitration organization, in accordance with the conditions for accepting and resolving the case (Article 5 of the Law on Commercial Arbitration 2010).
The agreement clause “ resolve at the economic court… ” under Credit Contract No. 6010/HDTD dated September 10, 2010 is illegal (the reason is that the district court in this case does not have a specialized court – the Economic Court). Meanwhile, the detail agreed by the parties: “ resolve the dispute at the Arbitration Center… ”, existing next to the provision allowing the choice of court is not appropriate because the parties can only choose a single jurisdiction. If this condition is not met, the above agreement will cause difficulties in determining the jurisdiction of the jurisdiction to resolve the case, when a dispute occurs.
Therefore, when analyzing and mentioning the terms of the contract, the thesis needs to clarify the scope of the legal agreement, not against the law, thereby locating and determining the limits of the agreements of the HĐCV. However, in the long term, specifying the regulations and the scope of the agreement needs to be of concern to lawmakers with solutions and provisions.
69 See also: Section 2.3.1.2. Timely, synchronous; stable, transparent, non-overlapping