Inadequacies in regulations protecting bona fide third parties when a contract is rendered void in Vietnam

1. Abstract

The void contract not only affects the parties involved but also impacts the legitimate rights and interests of bona fide third parties who participate in the contract honestly, sincerely, and in good faith. Therefore, in civil interactions, these individuals need legal protection.

Protecting the rights of bona fide third parties in cases where a contract is rendered void is an important issue because such nullification not only affects the contracting parties but also affects bona fide third parties who engage in transactions honestly and in good faith, without knowing or being able to know that the transaction they have entered into lacks legal basis. Comparing the provisions on protecting bona fide third-party rights in the Civil Code 2005 with those in the Civil Code 2015 of Vietnam, the latter has introduced new regulations to protect bona fide third-party rights in civil transactions related to real estate or movable property that require registration. However, there are still shortcomings in the provisions of the Civil Code 2015 regarding the protection of bona fide third-party rights. This article will analyze these shortcomings and propose recommendations to improve the law.

2. Cases where the seller is not the true owner in Vietnam

A bona fide third party acquires property through a contract with someone who, according to the court's judgment or decision of the competent authority, is the owner, but, later, the judgment or decision is annulled or amended. The judgment or decision of the competent state authority is the basis for verifying the person who established the contract as the legal owner of the property. However, in some cases, the person who established the contract is not determined as the owner based on a judgment, but they are granted a decision determining them as the owner. Regarding this issue, the author cites a judgment as follows: "On April 9, 1991, even though Mr. Nhơn was not present and did not express his opinion, Mr. Khải, Ms. Linh, and Ms. Ngau signed a contract to transfer the ownership of the residential land of Mr. Nhon to Mr. Long for a price of 1,600,000 VND. Therefore, the appellate court determined that the contract transferring the land use rights between Mr. Khai, Ms. Linh, Ms. Ngau, and Mr. Long is void. However, since Mr. Long was granted a certificate of land use rights, built a warehouse, and transferred the entire area of land mentioned above to the private enterprise - Tan Hung, the fact that the appellate court ruled that those who infringed Mr. Nhơn's right must compensate him is legal" According to the current legal regulations, the certificate of land use rights, ownership of houses, and other property attached to the land is a legal document for the state to confirm the land use rights, ownership of houses, and other property attached to the land. Although the Civil Code does not explicitly state it, according to the author, it can be inferred that the issuance of the certificate mentioned above is a "decision" because this type of document is only issued by the "competent state authority" and falls within the scope of the regulation being analyzed (Article 133.2 of the Civil Code 2015). When the person who granted the certificate of land use rights transfers it to a bona fide third party, the third party should be protected in this case, similar to the case mentioned above, because the third party relies on the "legal document"; and this type of document is only issued by the state authority, so they trust and establish a contract with that person in good faith.

According to the author, determining the level of bona fide of a third party is difficult. Therefore, it is necessary to assume that a third party is acting in good faith unless there is evidence proving their "bad faith". Furthermore, some argue that when participating in establishing a contract, a third party has an obligation to seek all information related to the property they are transacting. According to the author, this viewpoint is not persuasive. It is not reasonable to burden the third party with the responsibility of searching for information, as they may have made every effort to search for information, but the seller or transferor deliberately concealed information or used tactics to provide the transferee with limited information. In such cases, the third party needs to be protected. Moreover, if the buyer or transferee relies on the certificate of land use rights to establish a transfer contract, they should be protected. If we do not protect the bona fide third party, we inadvertently devalue this type of "legal document".

In addition, a person is considered "bona fide" when they receive property through a "transaction with a person who, according to a judgment or decision of a competent state authority, is the rightful owner of the property, but later the said entity is not the owner of the property due to the judgment or decision being annulled or amended." Regarding this issue, the author cites a related judgment as follows: Ms. Long and Mr. Thang got married in 1984 and later divorced. In the first-instance divorce judgment and the appellate divorce judgment, the Court decided to divide the house at 5 Le Loi Street. At the time of the aforementioned appellate civil judgment, which was effective, in April 2000, Ms. Long transferred the entire property to Ms. Dinh through a contract. In the director's decision, the civil court cancelled the division of joint property from the two previous judgments and, upon re-examination, the Court decided to grant ownership and use of the entire property, including the part that Ms. Dinh had purchased and used, to Mr. Thang. Therefore, after this decision, Ms. Long is no longer the owner. Regarding the fact that Ms. Dinh received the real estate through a transaction with Ms. Long (recognized as the owner in the 1998 judgment, which was later annulled), according to the panel of judges, Ms. Dinh's "transaction between Ms. Long and Ms. Dinh is bona fide." According to the author, this approach to the trial is persuasive.

Judgments and decisions are the products of the state's judicial activities. In theory, they contain the results of judicial activities; and the third parties who trust in the judgment in the name of the state to establish contracts must be protected, even if the judgment is subsequently amended, as it is natural for judgments made in the name of "state power." If we impose the consequences on bona fide third parties, it would be illogical and indirectly weaken the effectiveness of judicial activities.

However, according to the author, whether the judgment or decision is later annulled or amended is irrelevant to the bona fide status of the third party. The bona fide third party participates in the formation of the contract based on the judgment or decision of the competent state authority recognizing the person transferring the property as the owner at the time of the judgment or decision;  if the property has been openly and honestly transferred to the bona fide third party at the time of establishing the contract, then the person transferring the property is considered to have the right to do so. This also implies a lawful transaction. The bona fide third party participating in the contract must be protected by law because they relied on the state's representation in the judgment or decision. Even in cases where the judgment or decision is not amended, it is sufficient to establish that the third party is bona fide. We should not differentiate whether the judgment or decision is annulled or amended; the contract should be considered valid. From both subjective and objective perspectives, the bona fide third party relies on the judgment or decision of the state, they trust in the "judicial activities,"  the representation of the state, so the law must protect them; otherwise, it will diminish the trust of the people in the law.

Philippine law in paragraph 2 of Article 150 also recognizes the contract for a bona fide third party when they acquire property from a seller determined to be the owner according to the judgment or decision of a competent court, even if the seller is not the true owner and there is no judgment or decision that is annulled or amended.

3. Recommendations for improving legal provisions

The condition of whether the judgment or decision is annulled or amended is not necessary, as analyzed earlier, whether the judgment or decision is annulled or amended does not affect the recognition of a contract by a bona fide third party. According to one author, the provision stipulating "the owner of the property determined by the annulled or amended judgment or decision" is not necessary [6].

The author proposes to amend paragraph 2 of Article 133 of the Civil Code 2015 as follows: "... even if the person is not the true owner of the property due to the judgment or decision being annulled or amended," or we can remove the provision "due to the judgment or decision being annulled or amended" altogether. Alternatively, we can refer to the legislative experience from the Civil Code of the Philippines, paragraph 2 of Article 150, which recognizes the contract for a bona fide third party when they acquire property from a seller determined to be the owner according to the judgment or decision of a competent court; even if the seller is not the true owner and there is no judgment or decision that is annulled or amended.

In summary, it can be seen that the Civil Code 2015 currently plays a very important role in regulating civil exchanges to relatively protect the rights and legitimate interests of bona fide third parties, avoiding infringement, and minimizing deceit. Furthermore, from the perspective of state management, it requires state administrative agencies to correctly follow the registration procedures, not causing difficulties for the people and avoiding regrettable mistakes. Additionally, it is important to enhance the judicial expertise of the judges in resolving disputes to protect the rights of bona fide third parties.

NGUYEN HOANG BA HUY (Ho Chi Minh City University of Law)

Source: "Tạp chí Toà án" (Court Journal)

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Key word: Vietnam | owner | land use rights | Civil Code 2015 | bona fide third-party |

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