Theoretical Basis of Mortgage Contract Between Commercial Bank and Customer

Comparative method : Compare the efficiency in implementing mortgage contracts to examine trends over the years.

Analytical method : Used to determine the advantages and disadvantages and causes of regulations in policies that have been issued and are being implemented.

6. Contributions of the thesis

Contribute to deepening theoretical and practical issues on property mortgage contracts. Thereby, contributing to providing more scientific data with meaningful reference and recommendations to bank leaders in determining policies and improving the effectiveness of using property mortgage contracts at PGbank. The thesis can be used as a reference material in research, teaching and learning at universities and colleges.

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7. Structure of the thesis

In addition to the Introduction, Conclusion, References, the thesis consists of 3 chapters :

Chapter 1 : Theoretical basis of mortgage contracts between commercial banks and customers

Chapter 2: Current status of mortgage contracts between PGbank Quang Ninh and customers

Chapter 3 : Improving the efficiency of using mortgage contracts between PGbank Quang Ninh and Customers .

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CHAPTER 1

THEORETICAL BASIS OF MORTGAGE CONTRACT BETWEEN COMMERCIAL BANK AND CUSTOMER

1.1. Mortgage contract between commercial bank and customer

1.1.1. Commercial banks and bank lending activities

1.1.1.1. Commercial bank

Concept of commercial bank

There are different views about commercial banks.

According to the French Banking Act (1941) definition: "Commercial bank

Commercial banks are those enterprises or establishments whose usual occupation is to receive public money in the form of deposits, or in other forms, and to use these resources for their own benefit in discount, credit and financial operations.

According to Decree No. 59/2009/ND-CP of the Government on the organization and operation of commercial banks: “A commercial bank is a bank that is allowed to carry out all banking activities and other related economic activities for profit purposes according to the provisions of the Law on Credit Institutions and other provisions of law”.

According to the Law on Credit Institutions No. 47/2010/QH12 passed by the National Assembly on June 16, 2010 (amended in 2017), “A commercial bank is a type of credit institution that can perform all banking activities and other related activities for the purpose of profit”. This law also defines “Banking activities are the business of regularly providing one or several operations such as receiving deposits, granting credit, and providing payment services through accounts”.

In summary : A commercial bank is an economic organization that operates in the monetary sector. It is a credit institution that mobilizes idle capital from economic entities to create credit sources and lend for economic development and social consumption.

Commercial banking operations : Capital mobilization operations; Lending and investment operations; Intermediary operations.

1.1.1.2. Bank lending activities

Concept : According to Decision No. 39/2016/TT-NHNN dated December 30, 2016 of the Governor of the State Bank of Vietnam on promulgating regulations on lending by credit institutions to customers, "Lending is a form of credit granting, in which a credit institution transfers or commits to transfer to a customer a sum of money to be used for a specified purpose within a certain period of time as agreed upon with the principle of repayment of both principal and interest".

Lending principles: Use loan capital for the right purpose as agreed in the credit contract; Must repay principal and interest on time (according to Decision No. 39/2016/TT-NHNN dated December 30, 2016 of the Governor of the State Bank of Vietnam).a

Loan term : According to Decision No. 39/2016/TT-NHNN dated December 30, 2016 of the Governor of the State Bank of Vietnam on promulgating the lending regulations of credit institutions to customers, "loan term is the period of time calculated from when the customer begins to receive the loan until the time of full repayment of the principal and interest of the loan as agreed in the credit contract between the credit institution and the customer and the repayment period is the periods of time within the loan term agreed between the credit institution and the customer at the end of which the customer must repay part or all of the loan to the credit institution".

Lending form : According to Decision No. 39/2016/TT-NHNN dated December 30, 2016 of the Governor of the State Bank of Vietnam on promulgating the lending regulations of credit institutions to customers, "Lending can take place in the form of secured lending and unsecured lending. In which, secured lending is the lending of capital by a credit institution in which the borrower's debt repayment obligation is committed to be secured by collateral, mortgage, or third party guarantee. Unsecured lending is a type of loan without assets.

mortgage, pledge or third party guarantee, where the loan is based solely on the customer's own reputation".

1.1.2. Concept and characteristics of property mortgage contracts

1.1.2.1. Concept of mortgage contract

To give the concept of a mortgage contract, we need to understand the concept of a contract and a mortgage, specifically as follows:

- Contract: According to the Civil Law textbook of the University of Law, 2010, the concept of contract is defined in two meanings:

In the subjective sense : A contract is a civil transaction in which the parties freely exchange their wills with each other in order to reach a consensus, creating certain rights and obligations. A contract, as stipulated in Article 385 of the 2015 Civil Code, is an agreement between the parties to establish, change or terminate civil rights and obligations. Thus, a contract is not only an agreement for one party to transfer property or perform a task for the other party, but can also be an agreement to change or terminate a certain obligation.

In the objective sense : Contract is the totality of legal norms issued by the State to regulate social relations arising in the process of transferring material benefits between subjects.

- Mortgage

According to Article 346 of the 1995 Civil Code, it is stipulated that: “Property mortgage is the act of the obligated party using real estate owned by him/her to secure the performance of his/her obligations to the entitled party…”. Thus, according to the provisions of the 1995 Civil Code, property mortgage is the act of the obligated party using property owned by him/her to secure the performance of his/her obligations to the entitled party.

According to Article 342 of the 2005 Civil Code, the provisions on property mortgage have been changed as follows: “Property mortgage is the act of one party (hereinafter referred to as the mortgagor) using property owned by him/her to secure the performance of civil obligations towards the other party (hereinafter referred to as the mortgagee)” and not transferring that property to the mortgagee. The provisions on property mortgage are stipulated in the 2005 Civil Code.

(from Article 342 to Article 357) and more specifically in Article 20 to Article 28 of Decree 163/2006/ND-CP on secured transactions.

According to the provisions of Clause 1, Article 317 of the 2015 Civil Code : Mortgaging property is when one party (hereinafter referred to as the mortgagor) uses property owned by him/her to secure the performance of obligations and does not transfer the property to the other party (hereinafter referred to as the mortgagee) . That is, the mortgagor mortgages the property owned by him/her to secure the performance of civil obligations to the mortgagee and does not have to transfer that property to the mortgagee. Because the mortgaged property has registered ownership, the mortgagee cannot establish ownership of this property.

In summary : Mortgaging property is when the mortgagor uses his/her property to secure the performance of civil obligations to the mortgagee and does not transfer the property to the mortgagee but only hands over documents related to the property to the mortgagee for safekeeping.

- Mortgage contract

According to Article 388 of the 2005 Civil Code (amended and supplemented in 2011), the concept of contract is defined as follows: "A contract is an agreement between the parties on the establishment, change or termination of civil rights and obligations".

According to the 2015 Civil Code, it is clearly stated that mortgages must be made in the form of contracts and mortgage contracts are agreements between the parties, in which the mortgagee uses his rights to ensure the performance of civil obligations to the mortgagee.

According to Article 385 of the 2015 Civil Code, "A contract is an agreement between the parties to establish, change or terminate civil rights and obligations".

Based on the above definitions, the author defines: A mortgage contract is a contract to secure a loan with property, a legal document recording the secured transaction between the bank and the mortgagor to use the mortgaged property to ensure the performance of the debt repayment obligation as clearly stated in the contract.

1.1.2.2. Characteristics of property mortgage contracts

A mortgage contract is a subsidiary contract, depending on the borrower and the lender. A valid subsidiary contract must fully comply with the legal conditions on the subject, content, and form of a general contract. On the other hand, in addition to complying with the above conditions, a mortgage contract is invalid if the main contract is considered invalid.

A mortgage contract is a bilateral contract: Bilateral contracts are contracts in which both parties have obligations and are responsible for performing according to the terms committed. In other words, each party to a bilateral contract is both the right holder and the obligor. In a mortgage contract, the mortgagor has the obligation to preserve and maintain the mortgaged property; accordingly, the mortgagee has the obligation to return the documents related to the mortgaged property when the borrower has fulfilled the debt repayment obligation. Clause 1, Article 406 of the 2015 Civil Code stipulates a bilateral contract specifically as follows: "A bilateral contract is a contract in which each party has obligations to each other and a secondary contract is a contract whose validity depends on the main contract". In a bilateral contract, when the parties have agreed on a time limit for performing the obligation, each party must perform its obligation when due; Performance may not be postponed on the grounds that the other party has not yet performed its obligations to it, except in the cases provided for in Articles 415 and 417 of the 2015 Civil Code. In cases where the parties do not agree which party shall perform its obligations first, the parties must simultaneously perform their obligations to each other; if the obligations cannot be performed simultaneously, the obligation that takes longer to perform must be performed first.

A mortgage contract is a contract with compensation: A contract with compensation is a type of contract in which each party, after performing a benefit for the other party, will receive a corresponding benefit from the other party. The compensatory nature of a mortgage contract is reflected in the fact that both the mortgagor and the mortgagee receive benefits from the conclusion of the contract. The mortgagor hands over documents on the mortgaged property to receive a loan from the bank. Conversely, the bank can limit credit risk by receiving the mortgaged property and keeping documents related to the mortgaged property.

such as real estate; houses, valuable mortgaged items. The compensation contents are clearly stipulated in the signed contract such as the rate of property compensation if the contract is broken or unilaterally terminated without the agreement of the parties involved. The form of compensation can be in cash or in part of the mortgaged property.

1.1.3. Subjects and conditions for performing property mortgage contracts

1.1.3.1. Subject of property mortgage contract

In the 2015 Civil Code, there are no specific provisions on the subject of a mortgage contract. However, according to Article 346 of the 2015 Civil Code, it is stipulated that "Property retention is the act of the entitled party (hereinafter referred to as the retaining party) who is legally holding the property that is the subject of a bilateral contract to retain the property in the event that the obligated party fails to perform or improperly performs the obligation." So we can understand that the subject of the contract is the property to be delivered, the work to be done or not to be done. In a property mortgage contract, the main subject of the contract is the mortgaged property. Previously, the 1995 Civil Code considered that the mortgaged property could only be real estate. However, Article 318 adds an exclusion clause in the case of mortgaging the entire real estate or movable property with accessories. Accordingly, in case of mortgaging the entire real estate or personal property with accessories, the accessories of that real estate or personal property also belong to the mortgaged property, unless otherwise agreed. According to Clause 1, Article 174 of the Civil Code, real estate is also stipulated as land, houses, construction works attached to land, including assets attached to those houses and construction works; other assets attached to land; other assets prescribed by law. These assets have certificates of ownership, for land use rights, there are certificates of land use rights. Depending on each case, the parties may agree to use all or part of the real estate to secure the performance of civil obligations. In case of mortgaging land use rights, the assets attached to the land belong to the mortgagor, the assets attached to the land also belong to the mortgaged property, unless otherwise agreed. At the same time, the 2015 Civil Code added two completely new articles (Articles 325 and 326), clearly and specifically regulating the mortgage of land use rights without mortgaging assets attached to the land; and the mortgage of assets attached to the land without mortgaging assets attached to the land.

land use rights and how to handle these two cases. Specifically as follows:

+ In case of mortgaging land use rights without mortgaging assets attached to the land and the land user is also the owner of assets attached to the land, the assets to be handled include assets attached to the land, unless otherwise agreed.

+ In case of mortgage of land use rights where the land user is not at the same time the owner of the property attached to the land, when handling the land use rights, the owner of the property attached to the land may continue to use the land within the scope of his/her rights and obligations; the rights and obligations of the mortgagor in relation to the owner of the property attached to the land shall be transferred to the transferee of the land use rights, unless otherwise agreed.

+ In case only the property attached to the land is mortgaged without the land use right and the owner of the property attached to the land is also the land user, the property to be handled includes the land use right, unless otherwise agreed.

+ In case of mortgaging only the property attached to the land without mortgaging the land use rights and the owner of the property attached to the land is not at the same time the land user, when handling the property attached to the land, the transferee of the ownership of the property attached to the land may continue to use the land within the scope of rights and obligations of the owner of the transferred property attached to the land, unless otherwise agreed.

Vietnamese law does not have specific regulations on mortgaged property but only has regulations on secured property in Clause 7, Article 3 of Decree 163/2006/ND-CP dated December 29, 2006 on secured transactions: “Collateral is the property that the guarantor uses to secure the performance of civil obligations towards the secured party”. The secured property is agreed upon by the parties and is owned by the obligated party or owned by a third party who commits to use that property to secure the performance of the obligated party’s obligations towards the entitled party. The secured property can be existing property, property formed in the future and allowed to be traded. The division of mortgaged property can be based on many different criteria. If based on the existence of