Point out the shortcomings of the law on lien and provide proposals for futher reform

In order to limit risks, ensure the legitimate rights and interests of the subject in relation to obligations, securitydevices to ensure the implementation of civil obligations have been specified and clearly stipulated in the Civil Code 2015. In particular, lien is a security device that plays an important role in practice, contributing actively in ensuring the interests of the subject in the obligation relationship

Lien on property is a new regulation in the Civil Code 2015, which is regulated from Article 346 to Article 350 of the Civil Code. Article 346 of the Civil Code provides: "Lien on property means that the obligee (hereinafter referred to as the lienor) who is legally possessing the property being an object of a bilateral contract is entitled to retain the property when the obligor fails to perform the obligations or has performed the obligations not strictly as agreed upon”. There are some shortcomings of the law on lien, they are:

Objects of lien on property.

According to Article 346 of the Civil Code 2015, the obbjects of lien are property. However, the objects of lien on property in the Vietnam Maritime Code 2015 and the Trade Law of 2005 may be an object of a bilateral contract or any assets that may be held[1]. Current law regulates that lien applies only to property. In other words, for bilateral contracts whose objects are work to be performed but the obligor does not perform or perform incorrectly obligations, lien on property does not be set out. This regulation has restricted the rights of the obligee in the contract which has the subject matter of an obligation is property, however, the subject matter of an obligation may be property or acts which must be performed

For example, A and B sign uniform design contracts. Accordingly, A will deliver raw materials to B, the contractvalue is 10 million. Wages are paid 60% as soon as the two parties conclude the contract, the remaining 40% after Areceives the product. By the time of delivery, A does not pay enough wages to B, B is also not allowed to apply the lienon property (goods that B has sewn) to ask A to perform obligations. Because the obligation of paying does not arisingfrom assets, it arises from other objects.

Therefore, the law should amend "the property being an object of a bilateral contract" to "the property being an objectof obligations in a bilateral contract". Because in theory, the object of the obligation and the object of the contract are twoindependent concepts (e.g. in service contracts). In addition, it is necessary to issue a written guidance on the subject matter of lien not only the property – the object in the contract but also the property that can be held by the violatingobligator.

Establishment of lien on property .

According to Article 347 of the Civil Code 2015, Lien on property shall arise from the due time for performance of obligation that the obligor failed to perform or perform incorrectly the obligation. In other words, the right to hold assetsarises when there is a violation of the obligations of the obligor. The law gives the obligee the right to hold the property of the obligor who violates its obligations without considering that this obligation is not performed or perform incorrectly due to subjective or objective reasons. If the two parties do not have an agreement, where an obligor is not able to perform a civil obligation due to an event of force majeure, it shall not have civil liability[2].

It can be seen that the lien on property arises when the obligor violates obligations. However, in cases where an event of force majeure or entirely due to the fault of the right party, it is unreasonable to allow the obligee have the right to holdthe property. Therefore, it is necessary to regulate cases which excluding the right of obligee to hold assets when theobligor violates obligations.

Scope of lien on property.

Under present law, lien on property is limited within the scope of bilateral contracts. However, now there are many cases of lien on property in " bilateral relationships". For example, when A performs a task without authorization on an asset of B. According to Clause 2, Article 576 of the Civil Code 2015, B must pay A a sum of money and A must return the property to B. Between A and B there is no bilateral contract but is in a bilateral relationship. If Article 346 of the Civil Code 2015 applies, when B does not pay for A, A will not be held property of B. Thus, B will be at a disadvantage. B must use other security devices to require A to pay.

There are many cases liking this that occur in life. If lien on property is applied, the rights of the obligee whose performance is failed will be more effectively protected. Thus, the Civil Code should issue a written guidance to expand the scope of application of lien on property for bilateral relations.

Duration of lien on property.

The Civil Code does not specify duration of lien on property. This causes a lot of difficulties for the obligees because they do not know exactly how long they must hold the collateral. The duration of lien on property plays is an important role in the case where the collateral needs to be preserved under special conditions (conditions on support hooks or warehousing,....) Generally, the cost of preserving the property will be paid in advance by lienors, then they ask obligors to pay it back to. The non-duration of lien on property will create difficult things for the lienor when the obligor does not voluntarily pay the main obligation; on the other side, the obligee whose obligation is not performed or performed incorrectly must pay the cost of preservation for the collateral.

Therefore, lawmakers should add the duration of lien on property in order to apply this device effectively in practice. Where the time-limit for the fulfillment of the civil obligation has expired but the obligor does not perform or does not fully perform these obligations, obligees may proactively conduct its acts directly affecting the property of the other party to satisfy interests.

Mechanism of realizing collateral.

The Civil Code does not regulate the mechanism of realizing collateral. This has a huge impact on the rights of the lienor. Because in fact, not always, the value of collaterals are also greater than the value of the obligation to be taken. The value of the collaterals can also be equal to or less than the value of the guaranteed obligation. Because there is no specific mechanism of realizing, the lienor cannot determine the collateral. For lien on property, it is necessary to regulate the right to handle the property and the right of Order of priority for payment, namely: the realizing collateral can be applied only when the violation has happened within a certain time and this violation is not overcome.

Therefore, the Civil Code should add provisions to create conditions for the obligee to perform powers effectly inpractice. In cases where the obligor does not perform or perform incorrectly, the lienor has the right to handle the collateral in the fastest and least expensive way but ensuring objective and honesty. In addition, the Civil Code 2015should specify the method of realizing collaterals in order to prevent the lienor from arbitrarily realizing collaterals.

Order of priority for payment

The current regulation on order of priority for payment greatly affects the lienor. In the process of receiving andrealizing collaterals, there are some cases where the collateral was held by others. The disadvantage to the lienor is thatthe value of the assets after being realized is sufficient only to pay the debt to another security party. So, the lienor have to use other security devices to ask the obligor to perform their obligations. Therefore, it is necessary to set out the issue of payment and prioritize payment to the lienor, especially in case, the lienor is not entitled to profits, income of thecollaterals but also to bear a cost to preserve these collaterals.

Thus, the Civil Code should add regulation about order of priority for payment between the lienor with other parties (e.g. the pledgee, the mortgagee). The lienor is always the highest priority. This is in accordance with the concept of thesecurity right (the security device established does not depend on the agreement of the parties in the bilateral contract)

The English common law early recognized the creditor’s possessory lien, a right of a creditor to retain possession of a debtor’s goods until the satisfaction of the debt, generally the payment of the purchase price. In time, the common law developed two kinds of possessory liens: specific liens and general liens. The specific lien extended only to the indebtedness of the property owner for the value of services rendered to or in connection with his property—that is, the price for the repair or improvement of the property. The general lien extends not only to the value of services rendered in regard to the specific property but also to all indebtedness on general account by the property owner to the creditor. Whether a creditor had a general or specific possessory lien came to be determined by custom and trade usage. This classification of creditor’s possessory liens was largely superseded in the eventual refinement of common-law contract remedies.

In addition to the common-law possessory liens, there are also equitable and statutory liens. Courts of equity will in certain situations recognize a creditor’s interest in a debtor’s property even though the property remains in the debtor’s possession. An example of a statutory lien in general use in the United States is the mechanic’s lien, most commonly of statutory creation, that confers upon builders, contractors, and others furnishing labour and materials for land improvement an interest in the land so improved as security for payment for their services.

Mortgages, pledges, and pawns are a generic species of the lien to the extent that they create creditor interests in property, although the law governing these differs substantially from that which applies to the lien.