A subtler variant of the previous article’s risk: land already contributed to the joint venture, but the Vietnamese partner secretly mortgages that very plot for a private loan — no consultation with the venture, no notice to the foreign party. When the loan defaults and the bank moves to enforce, the venture is blindsided. This is no longer market risk — it is a breach of a contributing member’s duties, and the law gives the venture more tools than people think.
Why the partner has no right to mortgage contributed land
The foundational principle of the 2020 Enterprise Law (Article 34): contributed assets, once ownership is transferred, belong to the company — the partner is no longer the owner of the plot, only the owner of a corresponding capital stake. One without ownership or disposal rights cannot mortgage the asset. A mortgage contract signed by the partner here suffers a fatal capacity defect: under the 2015 Civil Code (Articles 117, 122), a civil transaction by a person without disposal rights, unratified by the owner, is void. The one exception to rule out: “contributed” land never titled to the company — where the registry still shows the partner as the lawful user and a diligent, good-faith bank may be protected; the dispute then multiplies in complexity and the venture negotiates from weakness. Once again, every road leads back to: title over upon contribution.
Can the venture stop the partner? Escalating tools
Yes, and act in escalating order. Step 1 — demand cessation: send a written demand that the partner immediately stop, repay the loan and delete the mortgage registration within a set time; simultaneously notify the bank that ownership of the mortgaged asset is disputed. Step 2 — provisional urgent measures: if the bank prepares enforcement, the company sues and asks the Court for provisional urgent measures under the 2015 Civil Procedure Code (Article 114) — seizure of the disputed asset or a ban on transferring rights in it — to “freeze” the plot against auction pending trial. Step 3 — sue to void the mortgage: under Civil Code Article 131, a void transaction means mutual restitution; the bank returns the “mortgage right,” and the partner (and the bank, if negligent in due diligence) compensates the company’s losses. Step 4 — internal handling: contractual damages, exercising a buy-back of the breaching partner’s stake if the charter allows, or member expulsion under agreed mechanisms.
Can the bank auction the venture’s contributed land?
It depends on the bank’s good faith and diligence. If the land is company-titled: the bank took a mortgage from a non-owner — if it knew or should have known (e.g. its registry search showed the company’s name yet it accepted an individual’s mortgage), it is hardly good-faith; the mortgage is void and the bank has no auction right. If the land was never titled over: the bank searched, saw the partner’s name, lent in good faith — the law protects good-faith third parties in certain cases, and the venture faces an uphill fight proving its rights (via the contribution contract, handover minutes, actual use). Practice shows banks usually prefer negotiation over forcing an auction of disputed assets — because disputed, seized assets fetch almost nothing. That is the venture’s leverage: proactively propose the bank recover from the partner’s own separate assets instead of targeting company land.
Which clauses stop partners from mortgaging contributed land?
Prevention beats cure — four clauses for the JV contract and charter: (1) disposal ban: no contributing member may mortgage, transfer, lease or encumber contributed assets for private obligations in any form without written approval of the Members’ Council/General Meeting; (2) transparency duties: periodic declarations of contributed-asset status, immediate notice of any related transaction; (3) breach sanctions: contractual penalties, full damages (including legal costs of defending company assets), and a right to buy back the breaching party’s stake at a discount; (4) monitoring: the foreign party (or controllers) may periodically check secured-transaction registrations on contributed assets — spotting one strange mortgage registration early costs a ten-thousandth of fighting an auction. And one last reminder: all these clauses only bite if the land is company-titled — contract clauses cannot substitute for registration.
Frequently asked questions
1. How to handle a partner mortgaging contributed land for a private loan?
Escalate: demand the partner stop and delete the mortgage; notify the bank of the dispute; seek provisional urgent measures from the Court to block auction; sue to void the mortgage; handle internally (damages, stake buy-back).
2. Can the joint venture stop the partner mortgaging contributed land?
Yes. Once company-titled, the partner has no disposal rights; the company may demand cessation, seek provisional urgent measures, and sue to void the mortgage contract.
3. Can the bank auction the joint venture’s contributed land?
If company-titled and the bank still took the partner’s mortgage, good faith is hard to claim — the mortgage is void, no auction right. If never titled over, the dispute is far more complex.
4. Which clauses prevent partners from mortgaging contributed land?
A disposal ban without written approval; periodic transparency duties; penalties + full damages + discounted stake buy-back; and periodic monitoring of secured-transaction registrations.
Key takeaways for investors
- Company-titled land: the partner has no mortgage right — the mortgage contract is void.
- Tools: cessation demands, urgent measures blocking auction, voidness suits.
- A bank is hardly good-faith taking a mortgage from a non-titled person.
- Prevention: disposal bans + transparency + sanctions + monitoring in the charter.