Buying a house with a capital contribution contract in Vietnam - The risk of an invalid contract

Specifically, in the Appellate Civil Judgment No. 818/2019/DS-PT dated September 18, 2019 on the dispute over the contract for capital contribution and purchase and sale of apartments, the content is as follows:

“On August 3, 2009, Ms. H signed with Company B 06 contracts to contribute capital to buy and sell apartments in Phu L apartment project. All 06 contracts above were delivered in August 2011. Implementation of 06 Contracts: On August 3, 2009, December 9, 2009 and December 22, 2009, she gave Company B VND 3,810,000,000.

During the contract performance, it is known that on June 16, 2010 Company B transferred the above project to Company V. On February 19, 2016 Company V transferred the entire above project to Company P. During the process of construction of the project by Company P, she worked many times, asking Company P to settle her interests in capital contribution contracts to buy and sell apartments at Phu L apartment project, but up to now, Company P did not settle but still put the apartments up for sale.

She has sent many complaints to agencies and departments asking Company P to inherit all rights and obligations arising from Company V, including the obligations of Company V inherited from Company V. Company B has not been resolved completely, she now sues to ask Company P to return to her VND 3,810,000,000 which is the amount she contributed as capital to buy an apartment at Phu L Apartment.”

The People's Court of Ho Chi Minh City judged that 06 contracts signed between Ms. H and Company B are invalid from the time of contract signing. Ms. H has the right to initiate another lawsuit against Company B regarding the request to declare 06 contracts of capital contribution to purchase and sell apartments and settle the consequences of the contract is invalid when all conditions are met to initiate a lawsuit in accordance with the law.

Capital contribution contracts, loan contracts or business cooperation contracts are the result of the hot period of real estate development. This is when many customers take risks because of the desire to buy a house before the project is eligible to open for sale through signing capital contribution contracts. As a result, when the project cannot be implemented, these customers face a lot of difficulties in claiming their rights.

The current law of Vietnam does not have any specific provisions on capital contribution contracts, but it can be temporarily understood that this contract is an agreement between business cooperation parties, including a capital contributor, in this case, the contributed property capital is usually cash. The case in the judgment is not a business capital contribution because, by the nature of the capital contribution, one must earn interest or participate in operating the company. H and Company B signed a contract to buy and sell apartments in the future. Because the investor has signed a capital contribution contract, the investor does not share the profit but gives the capital contributor to buy an apartment that is intended to be formed in the future, so the buyer is a partner, not a customer. Therefore, the contract between the parties is void.

Furthermore, the 2014 Law on Real Estate Trading as follows:

Article 55. Requirements in terms of off-the-plan real estate to be put on the market

1. There are documents on land, project documents or construction drawing approved by competent agencies, License for construction if it is required, documents on certification of completion of technical infrastructure in equivalent to project progress; or it is required to gain the certification of completion of the foundation of the building regarding off-the-plan apartment buildings or mix-used buildings.

Therefore, the investor must complete the foundation before being allowed to open the project for sale. Back to this case, Ms. H signed a contract with Company B in 2009, however, at this time, the foundation of Company B's project has not been built. According to the 2015 Civil Code of Vietnam, a civil transaction is invalid when the purpose and content violate the prohibition of the law.

Article 123. Invalidity of civil transactions due to breach of legal prohibitions or contravention of social ethics

Civil transactions with objectives and contents which breach legal prohibitions or which contravene social ethics shall be invalid.

Legal prohibitions mean provisions of law which do not permit entities to perform certain acts.

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When a civil transaction is invalidated, the parties will return what was received and restore it to its original condition. In this case, Ms. H can sue to request Company B to return the contributed capital.

Buying a house with a capital contribution contract will be very easy to bury money in projects that are behind schedule or have legal errors. Therefore, people who want to buy when learning about the project need to learn carefully about the investor and about the law to limit risks for themselves.

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