Not in all circumstances, parties comply with performance of obligations as agreed. Therefore, legal regulations on security for performance of obligations are very essential. Let’s find out this issue with Lawyer X through the following situation: “Dear Lawyer! I want to ask what are types of security for performance of obligations in Vietnam? What is scope of security for performance of obligations? Thanks for answering me!”
Legal grounds
2015 Vietnam Civil Code
Types of security for performance of obligations
Types of security for the performance of obligations comprise the following:
– Pledge of property;
– Mortgage of property;
– Deposit;
– Security collateral;
– Escrow deposit;
– Title retention;
– Guarantee;
– Fidelity guarantees;
– Lien on property.
Scope of security for performance of obligations
– An obligation may be fully or partly secured, as agreed or as provided by law. If there is no agreement on or if the law does not provide, the scope of the security, the obligation, including the obligation to pay interest and to compensate for any damage, shall be deemed to be fully secured.
– Secured obligations may comprise current obligations, future obligations and conditional obligations.
– With respect to a future obligation which is going to arise within a guaranteed time limit, it shall be the secured obligation, unless otherwise agreed.
Security for performance of future obligations
– With respect to a future obligation, the parties may agree on the scope of the secured obligation and the deadline by which the secured obligation must be performed, unless otherwise prescribed by law.
– When the future obligation arises, the parties are not required to re-establish the security for such obligation.
Regulations on collateral
– Collateral must be under the ownership rights of the securing party, except for the cases of lien on property or title retention.
– Collateral may be described generally but must be identified.
– Collateral may be existing property or off-plan property.
– The value of collateral may be greater, equal or smaller than the value of the secured obligation.
Single item of property used as security for performance of several obligations
– A single item of property may be used as security for performance of several obligations if, at the time of establishment of the security transaction, the value of such property is greater than the total aggregate value of the secured obligations, unless otherwise agreed or otherwise provided by law.
– Where a single item of property is used as security for performance of several obligations, the securing party must notify the later secured party that the security property is being used as security for performance of other obligations. The provision of security on each occasion must be made in writing.
– Where the security property must be realized in order to satisfy one obligation which has fallen due, the other obligations which have not yet fallen due shall also be deemed due and all secured parties shall be entitled to take part in the realization. The secured party which provided notice of realization of the property shall be responsible for realizing the property, unless otherwise agreed by the secured parties.
If the parties wish to continue to fulfill the obligations which have not yet fallen due, they may agree that the securing party will use other property as security for performance of the obligation which has fallen due.
Effectiveness against third parties
– Security shall take effect against a third party from the time of registration of such security or the secured party keeps or possess the collateral.
– When the security takes effect against a third party, the secured party is entitled to reclaim the collateral and the payment prescribed in Article 308 of 2015 Vietnam Civil Code and relevant laws.
Registration of security
– Security shall be registered as agreed by the parties or provided by law.
The registration shall be the condition for a secured transaction become valid only the case as prescribed by law.
– A registered security shall take effect against third party from the time of registration.
– The registration of security shall comply within regulations of law on registration of security.
Cases of realization of collateral
– An obligator fails to perform or perform not as agreed an obligation when it falls due.
– An obligator must perform the secured obligation before time limit due to his/her violation against the obligation as agreed or prescribed by law.
– Other cases as agreed by the parties or prescribed by law.
Notification of realization of collateral
– Before a collateral is realized, a secured party must notify the securing party and other secured parties of the realization of the collateral within a reasonable time limit.
If the collateral at risk of being damaged resulting in diminished value or lose the entire value, a secured party may realize it immediately and notify the securing party and other secured parties of the realization of such asset.
– If the secured party does not notify the realization of collateral as prescribed in Clause 1 of Article 300 that cause damage to the securing party and/or other secured parties, compensation must be made.
Giving collateral for realization
The holder of collateral is obliged to give it to the secured party for realization in any of the cases prescribed in Article 299 of 2015 Vietnam Civil Code.
If the holder of collateral fails to give the asset, the secured party is entitled to request a court for settlement, unless otherwise prescribed by relevant laws.
Right to reclaim collateral
The securing party may reclaim the collateral if, before the realization of the collateral, it completely performs its obligations and pay all expenses incurred for the late performance of obligations, unless otherwise prescribed by law.
Methods of realizing collateral
– The securing party and the secured party may agree any of the following methods of realizing collateral:
+ Put collateral up for an auction;
+ The secured party sells collateral itself;
+ The secured party accepts the collateral as substitutions for the performance of obligations of the securing party;
+ Other methods.
– If there is no agreement on methods of realizing collateral as prescribed in Clause 1 of Article 303, the collateral shall be put up for auction, unless otherwise prescribed by law.
Regulations on selling collateral
– The collateral shall be put up for auction as prescribed by law on property auction.
– The collateral sold by the secured party must comply with the regulations on property sale in 2015 Vietnam Civil Code and the regulations below:
+ The payment amount derived from the realization of collateral shall comply with Article 307 of 2015 Vietnam Civil Code;
+ The owner of collateral and the person competent to realize the collateral, upon the completion of the sale, shall comply with procedures for transfer of ownership rights to the buyer.
Acceptance of the collateral as substitution for the performance of obligations of the securing party
– The secured party may accept the collateral as substitution for the performance of obligations of the securing party if agreed by the parties.
– If there is no agreement prescribed in Clause 1 of Article 305, the secured party may only accept the collateral as substitution for the performance of obligations of the securing party with the written consent of the securing party.
– Where the value of the collateral is greater than the value of the secured obligation, the secured party must pay the difference amount to the securing party; where the value of the collateral is less than the value of the secured obligations then the unpaid obligations become unsecured obligations.
– The securing party is obliged to follow the procedures for transfer of ownership rights to the secured party as prescribed by law.
Regulations on valuation of collateral
– The securing party and the secured party may agree on collateral prices or have the collateral valuated by an asset valuation organization upon the realization of the collateral.
If there is no agreement mentioned above, the collateral shall be valuated by an asset valuation organization.
– The valuation of the collateral must be objective and in conformity with market price.
– The asset valuation organization must compensate for any damage to the securing party and/or the secured party during the process of valuation due to its legal violations.
Payment of the sum of money obtained from the realization of collateral
– The sum of money obtained from the realization of the collateral after deducting from the cost of preservation, capture and realization of the collateral shall be paid in order of priority specified in Article 308 of 2015 Vietnam Civil Code.
– Where the sum of money obtained from the realization of the collateral, after deducting from the cost of preservation, seizure and realization of the collateral is greater than the value of secured obligations, the difference amount must be paid to the securing party.
– Where the sum of money obtained from the realization of the collateral, after deducting from the cost of preservation, seizure and realization of the collateral is less than the value of secured obligations, part of the unpaid obligations are defined as unsecured obligations, unless the parties otherwise agree additional collateral. The secured party may request the obligor to perform the unpaid secured obligations.
Order of priority for payment between joint secured parties
– When an asset is used to secure the performance of many obligations, payment priority order between the joint secured parties shall be determined as follows:
+ If all types of security take effect against a third party, the order of priority for payment shall be determined according to the order of effect against the third party;
+ If there are some types of security take effect against a third party while some types of security do not take effect against the third party, the payment of obligations with security taking effect against the third party shall be given priority;
+ If all types of security do not take effect against a third party, the order of priority for payment shall be determined according to the order of establishment of types of security.
– The order of priority for payment prescribed in Clause 1 of Article 308 may be changed as agreed by the parties. The subrogating party of the right to priority of payment shall only be given priority within the secured extent of the subrogated party.
Please see more:
- Instructions for exclusive registration of company logos in Vietnam
- Service of changing the legal representative of Vietnamese enterprises
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Frequently asked questions
Yes! An obligation may be fully or partly secured, as agreed or as provided by law. If there is no agreement on or if the law does not provide, the scope of the security, the obligation, including the obligation to pay interest and to compensate for any damage, shall be deemed to be fully secured.
Secured obligations may comprise current obligations, future obligations and conditional obligations.
When the future obligation arises, the parties are not required to re-establish the security for such obligation.
Conclusion: So the above is What is scope of security for performance of obligations?. Hopefully with this article can help you in life, please always follow and read our good articles on the website: lsxlawfirm.com
