Source of the case

Cassation Decision No. 05/2018/KDTM-GDT dated 18 May 2018 of Judges’ Chamber of Supreme People’s Court on the commercial case of “Credit contract dispute” in Ba Ria – Vung Tau province

Overview

The mortgage contract of land use right is made in accordance with the law. Thereafter, the certificate of land use right is revoked and canceled because of error in land area and procedures of granting land use right certificate. The revocation and cancellation of the land use right certificate will not invalidate the lawful rights of the land users over the land area, such as to use their property as secured property in a mortgage contract.

Material Facts

In 2004, Mr C & Ms T (“Land Owners”) obtained the assignment of a land area of 3.989,7m² from Mr Tran Huynh L & Ms Tran Thi Ngoc H based on a lawful assignment contract. On 14 July 2004, the Land Owners obtained the certificate of land use right for such land area from the People’s Committee of town B.

On 22 March 2010, V bank signed a credit contract with the Land Owners and lent them an amount of 900 million VND with an interest of 12% per year (overdue interest rate of 150%) for a period of 12 months. To secure the loan, the Land Owners signed a mortgage contract with V bank to mortgage their land use right of the 3.989,7 m² land area.

On 18 May 2011, V bank filed a lawsuit against the Land Owners to recover a total amount of 1.449.537.500 VND upon the Land Owners’ failure to comply with their obligations under the credit contract, and further invoked its right to the land use right under the mortgage contract.

On 31 August 2011, while the litigation between V bank and the Land Owners was still ongoing, the People’s Committee of town B issued a decision to revoke the Land Owners’ certificate of land use right over the 3.989,7m² land area because of error in land area and procedures of granting the certificate.  In respond to such revocation, V bank asserted before the court that the mortgage contract was still valid because the assignment of the land area (after amendment, changed from 3.989,7m² to 2.400m²) to the Land Owners had been completed. Accordingly, V bank requested the Enforcement Department of town B to conduct liquidation of that land area for V bank.

Both first instance and appellate courts disagreed with V bank.  The courts were in the opinion that the mortgage contract was not valid because the Land Owners’ certificate of land use right had been revoked.  The courts ruled that V bank was only entitled to enforce their rights against the Land Owners personally, but not against their property.

Subsequently, V bank requested for cassation procedure for such decision.

Applicable laws

– Article 322, Article 343 of Civil Code 2005

– Article 342 of Civil Code 2005 (corresponding to Article 317 of Civil Code 2015)

– Article 411 of Civil Code 2005 (corresponding to Article 408 of Civil Code 2015)

– Article 61, Article 62 of Land Law 2003

– Article 46 of Land Law 2003 (corresponding to Article 95 of Land Law 2013)

– Article 106 of Land Law 2003 (corresponding to Article 167 of Land Law 2013)

Judges’ reasoning and Legal application

V bank entered into a credit contract and a mortgage contract with the Land Owners on 22 March 2010 and 18 March 2010 respectively.  On 19 March 2010, the property under the mortgage contract had been registered for security transaction at the Registration Office for land use right. Pursuant to Article 343 of Civil Code 2005, Point c Article 10.1 and Point a Article 12.1 Decree No. 163/2006/ND-CP dated 29/12/2006, the mortgage of the land use right under the mortgage contract was made in accordance with the law.

People’s Committee of town B revoked the Land Owners’ certificate of land use right because of error in land area and granting procedure. However, the assignment of the 2.400m² land area (after amendment from 3.989,7m²) between Ms Tran Thi Ngoc H & Mr Tran Huynh L and the Land Owners was completed, and no parties had any dispute over this assignment contract. Therefore, the Land Owners’ right over the assigned land area was not affected by the revocation of the certificate of land use right.

On the other hand, before the revocation of the certificate of land use right, the Land Owners had mortgaged their land use right to lend money from V bank for several times, last time being on 19 March 2010.  The mortgage contract abided by the law, thus, this contract was valid.

In conclusion, the mortgage contract of land use right which was made in accordance with the law will stay valid even if the certificate of land use right is subsequently revoked.

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