Discussion on the validity conditions of the deposit and the relationship between the deposit and the formal contract in Vietnam

Deposit is one of nine types of security for performance of obligations specified in Article 292 of the Civil Code 2015. Article 328 of the Civil Code 2015 specifically stipulates deposits as follows:

"1. Deposit is an act whereby one party (hereinafter referred to as the depositor) transfers to another party (hereinafter referred to as the depositary) a sum of money or precious metals, gemstones or other valuable things (hereinafter referred to as the deposited property) for a period of time as security for the entering into or performance of a contract.

2. Upon a contract being entered into or performed, any deposited property shall be returned to the depositor, or deducted from the amount of an obligation to pay money. If the depositor refuses to enter into or perform the contract, the deposited property shall belong to the depositary. If the depositary refuses to enter into or perform the contract, it must return the deposited property and pay an amount equivalent to the value of the deposited property to the depositor, unless otherwise agreed."

In the event that the party who placed the deposit for a contract refuses to enter into the contract, the deposited assets belong to the receiving party. However, if the receiving party refuses to enter into the contract, they must return the deposited assets to the party who placed the deposit, along with an equivalent amount of the deposit value, unless otherwise agreed.

In this article, the author discusses the validity of the deposit, the relationship between the deposit and the main contract, which currently has different viewpoints, through a specific case as follows:

On March 8, 2018, Mr. A and Mr. B signed a deposit contract to ensure that when Mr. B is granted the land use rights certificate for 12 plots of land in X district, both parties will sign the official land use rights transfer contract (i.e., at the time of the deposit, the seller has not been granted the land use rights certificate). Accordingly, Mr. A handed over 1 billion VND as a deposit to Mr. B and completed the transaction. On April 2, 2019, the People's Court of Y province heard the dispute case of the land use rights transfer contract between Mr. B and Mrs. C; it invalidated 4 land use rights transfer contracts between Mr. B and Mrs. C for the mentioned 12 plots of land and recognized the land use rights of these 12 plots for Mr. B.

While Mr. B had not been granted the land use rights certificate, Mr. A repeatedly requested the official transfer contract, but Mr. B did not fulfill it. Therefore, on July 29, 2019, Mr. A sued Mr. B, demanding that he fulfill his obligation to return the received deposit of 1 billion VND and compensate 3 billion VND according to the agreement of the deposit contract. On November 1, 2019, Mr. A submitted a supplementary petition, demanding that Mr. B continue to fulfill the transfer of the 12 plots of land. If Mr. B fails to fulfill the transfer, he must return the deposit and compensate for the damages, according to the petition submitted on September 27, 2019. Mr. B did not accept Mr. A's lawsuit because he believed that: On November 28, 2019, he was granted the land use rights certificate, which was the time when the obligation to sign the official contract with Mr. A arose according to the agreed deposit contract. On July 29, 2019 and November 1, 2019, Mr. A sued Mr. B for contract violation, so Mr. A must bear the loss according to the agreement.

The case has two different viewpoints:

The first viewpoint states that the two-level court invalidated the deposit contract for the land use rights transfer and the assets attached to the land on March 8, 2018 between Mr. A and Mr. B, forcing Mr. B to return the 1 billion VND to Mr. A. It does not accept Mr. A's demand for compensation of 3 billion VND, as it is in accordance with the legal provisions. Because at the time of the agreed transfer value and the deposit contract, both parties knew that the land was in dispute, Mrs. C was named on the land use rights certificate, and the land dispute between Mr. B and Mrs. C was being resolved by the Court.

According to Article 328 of the Civil Code 2015, the deposit agreement is a civil transaction. Therefore, the deposit only takes effect when it meets all the conditions in Article 117 of the Civil Code 2015, which states: "...The content of the civil transaction does not violate the prohibitions of the law and does not contravene social ethics." At the same time, Clause 1 of Article 188 of the Land Law 2013 stipulates the conditions for exercising land use rights only when: there is a land use rights certificate; the land is not in dispute; and the land use rights are not subject to mortgage for enforcement of judgment.

Considering the deposit contract for the transfer of land use rights between the parties was executed when Mr. B was not the land user in dispute and the land use rights were temporarily subject to urgent measures by the X district court. Therefore, the content of the agreement between the parties violates the provisions of the Land Law 2013 and is therefore void.

The second viewpoint is also the author's viewpoint: on November 28, 2019, Mr. B was granted a certificate of land use rights for 12 plots of land, therefore, he is eligible to sign a transfer contract according to the agreement. However, Mr. B refused to sign the transfer contract, which is a violation of the agreement, so Mr. B must refund the plaintiff (Mr. A) the amount of 1 billion VND and compensate 3 billion VND, which is appropriate, for the following reasons:

On March 8, 2018, Mr. B and Mr. A signed a deposit contract to ensure the signing of the transfer contract for the use rights of 12 plots of land in X district for a price of 6 billion VND, with a deposit agreed upon of 1 billion VND. When signing the deposit contract, both parties knew that the 12 plots of land were not under Mr. B's name but under Ms. C's name and that the land transfer contract dispute between Mr. B and Ms. C had not been resolved by the Provincial People's Court of Y. Therefore, in the deposit contract, both parties agreed explicitly: "Both parties will proceed to sign the transfer contract for the use rights of the land at the Notary Office when the enforcement agency transfers the land to Mr. B and Mr. B completes the transfer procedures, then sign the transfer contract for the use rights of the land to Mr. A."

The deposit contract is a conditional contract of "promise to buy, promise to sell." The parties only proceed to sign the transfer contract for the use rights of the land at the Notary Office when there are sufficient conditions, which means when Mr. B has been granted the land by the enforcement agency and Mr. B has completed the transfer procedures. This is a voluntary agreement, not against social ethics, and does not violate the prohibitions of the law. The court has made a mistake in applying the law because the deposit contract on March 8, 2018 is a "promise to buy, promise to sell" when there are sufficient conditions, not a transfer contract for the use rights of the land, so it is not against social ethics, does not violate Article 117 of the Civil Code 2015, and Clause 1 of Article 188 of the Land Law 2013, which means it is not null and void.

The court's conclusion that Mr. A was at fault, leading to both parties not being able to sign the transfer contract for the use rights of the land, is unfounded because: according to the agreement in the deposit contract, Mr. A has paid the full amount of 1 billion VND to Mr. B immediately after signing the deposit contract. Therefore, Mr. A has fulfilled the obligations according to the agreement in the deposit contract. The judgment of the Provincial People's Court of Y in the dispute case "transfer contract for the use rights of the land" between Mr. B and Ms. C has declared that Mr. B is the rightful owner of the use rights for the 12 plots of land. At the same time, in the Official Dispatch No. 462/CV-CN/VPĐKĐĐ dated June 30, 2020 of the Land Registration Office of X district, it is confirmed that the 12 plots of land were granted a certificate of land use rights for Mr. B on November 28, 2019 and handed over to the recipient on December 5, 2019. Since December 5, 2019, Mr. B has had sufficient conditions to transfer the use rights of the plots of land to Mr. A according to the conditions of the deposit contract. Mr. B believes that because Mr. A filed a lawsuit against him when he did not have sufficient conditions to transfer the rights, Mr. A has violated the contract and lost the deposit.

The author realizes that the deposit contract stipulates the conditions for signing the transfer contract for the use rights of the land when Mr. B is given the land and Mr. B completes the transfer procedures without specifically specifying the time to sign the official contract. The filing of a lawsuit by Mr. A is the right of citizens to protect their legal rights and interests with the desire to continue to perform the contract. Filing a lawsuit does not affect or violate the content of the deposit contract. Although Mr. B has had sufficient conditions to transfer the use rights of the aforementioned plots of land to Mr. A according to the deposit contract, Mr. B refuses to fulfill it, which is a violation of the contract.

Source: Kiemsat.vn

Key word: deposit | contract | in Vietnam | Vietnam | performance of obligations |

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