Compare security collateral and escrow deposit measures in civil law

Criteria

Security collateral

Escrow deposit

Concept

Security collateral is an act whereby a lessee of a movable property transfers a sum of money or precious metals, gems or other valuable things (hereinafter referred to as security collateral property) to the lessor for a specified time limit to secure the return of the leased property.

 (Clause 1, Article 329 of the 2015 Civil Code)

Escrow deposit is an act whereby an obligor deposits a sum of money, precious metals, gems or valuable papers into an escrow account at a credit institution to secure the performance of an obligation.

(Clause 1, Article 330 of the 2015 Civil Code)

The object

The object of security collateral  are a sum of money or precious metals, gems or other valuable things

 (Clause 1, Article 329 of the 2015 Civil Code)

The object of escrow deposit a sum of money, precious metals, gems or valuable papers

 (Clause 1, Article 330 of the 2015 Civil Code)

The subject

Consists of 2 subjects:

+ Lessee

+ Lessor

Consists of 3 subjects:

+ Obliged party

+ The party has the right

+ Credit institution where deposit is made

Purpose

To ensure the return of leased assets

To ensure the fulfillment of obligations

Rights and obligations

  Parties putting up collateral have the rights and obligations to:

+ Request parties receiving collateral to cease extracting, using or establishing civil transactions for deposited properties and security collateral properties; preserve and keep security collateral properties from losing value;

+ Exchange and security collateral properties or include security collateral properties in other civil transactions when parties receiving security collateral agree;

+ Pay for parties receiving security collateral appropriate costs for managing, preserving security collateral properties.

Appropriate costs are necessary, legitimate expenditure which, in normal conditions, parties receiving security collateral must pay for to prevent security collateral properties from going missing, being damaged or destroyed;

+ Register property ownership or fulfill other obligations as per the law to enable parties receiving security collateral to possess security collateral properties

+ Other rights and obligations agreed upon or prescribed by the Civil Code or the relevant law provisions.

-  Parties receiving collateral have the rights and obligations to:

+ Request parties putting up security collateral to cease exchanging, replacing or establishing other civil transactions with security collateral properties without consent of parties receiving security collateral;

+ Possess security collateral properties in case hired properties are no longer available to be returned to parties receiving collateral;

+ Preserve deposited properties and security collateral properties;

+ Refrain from establishing civil transactions, extracting, using security collateral properties without consent of properties of parties putting up security collateral;

+ Other rights and obligations agreed upon or prescribed by the Civil Code or the relevant law provisions.

 (Article 38 of Decree 21/2021/ND-CP)

Credit institutions where escrow deposits are made have the rights and obligations to:

+ Benefit from service fee

+ Request parties holding rights to comply with agreements on escrow deposits to receive payment for obligations from escrow deposits;

+ Pay for obligations at request of parties holding rights within the scope of escrow deposits;

+ Return remaining escrow deposits to parties making deposit after paying for obligations at request of parties holding rights and when terminating escrow deposit

+ Other rights and obligations agreed upon or prescribed by the Civil Code or the relevant law provisions.

-  Parties making escrow deposit have rights and obligations:

+ Agree with credit institutions where escrow deposits are made regarding payment conditions as per commitment with parties holding rights;

+ Request credit institutions where escrow deposits are made to return deposits; may return interest in case agreed upon with credit institutions where escrow deposits are made;

+ Withdraw, add deposits or include deposits in other civil transactions under consent of parties holding rights;

+ Submit deposits in credit institutions where deposits are made;

+ Other rights and obligations agreed upon or prescribed by the Civil Code or the relevant law provisions.

-  Parties holding rights in escrow deposits have rights and obligations to:

+ Request credit institutions where deposits are made to pay for obligations in an adequate and timely manner;

+ Comply with procedures at request of credit institutions where escrow deposits are made when executing right;

+ Other rights and obligations agreed upon or prescribed by the Civil Code or the relevant law provisions.

 (Article 40 of Decree 21/2021/ND-CP)

Legal consequences

In cases where the leased property is returned, the lessee shall be entitled to reclaim the security collateral property after pay the rental; if the lessee does not return the leased property, the lessor shall be entitled to reclaim the leased property; if the leased property is no longer available for the return, the security collateral property shall belong to the lessor.

(Clause 2, Article 329 of the 2015 Civil Code)

In cases where the obligor has failed to perform or has improperly performed an obligation, the obligee shall be entitled to receive payment and compensation for damage caused by the obligor from the bank where the escrow deposit is affected, after deducting the bank service charges.

(Clause 2, Article 330 of the 2015 Civil Code)