REAL ESTATE BUYERS WHEN SALE CONTRACTS ARE INVALIDATED 2025

PROTECTING THE RIGHTS OF REAL ESTATE BUYERS WHEN REAL ESTATE SALE CONTRACTS ARE INVALIDATED: PRACTICAL INSIGHTS FROM HỒ CHÍ MINH CITY

Phạm Văn Tuyên

MSc, Vietnam Joint Stock Commercial Bank for Foreign Trade

Tô Quang Minh

Ministry of Foreign Affairs

ABSTRACT

The resolution of disputes regarding the validity of real estate sale contracts in Hồ Chí Minh City often takes several years. Numerous first-instance and appellate judgments have been annulled by competent courts for erroneous application of the law and misassessment of evidence. This article aims to explore practical applications and offer reference insights for resolving similar cases. Besides analyzing basic theoretical aspects, the author has selected several exemplary judgments with precise reasoning to effectively address issues related to the rights of real estate buyers under invalidated sale contracts in Hồ Chí Minh City.

Keywords: invalid, assessment, reasonable, solution

I. THE NECESSITY OF PROTECTING THE RIGHTS OF REAL ESTATE BUYERS WHEN SALE CONTRACTS ARE INVALIDATED

In current practice, real estate sellers, especially developers, often hold a dominant position, presenting contracts with unfavorable and risky conditions for real estate buyers (Vũ, 2024).

A contract is a legal act, thus to be effective, it must be lawful; an illegal act does not give rise to the legal consequences for the parties involved. The 2015 Civil Code stipulates that the validity of a contract requires it to not “violate the prohibitions of the law” (Article 117), while Article 10 of this Code uses the term “unlawful” for the limits of civil rights. Articles 102, 133, and 158 of the 2024 Law on Land, Articles 3 and 127 of the 2023 Law on Housing also use the term “unlawful”.

Academically, it is possible to point out the difference in the connotations of “unlawful” and “violate the prohibitions of the law”, but there is no basis for presuming substantive law. The inconsistent stipulations of the Civil Code lead to the principle of freedom of contract being difficult to ensure fairness in real estate sale contracts (Phạm, 2006). To ensure clarity and feasibility of the law, it may be better to use the term “does not violate mandatory regulations” instead of “unlawful” or “violate the prohibitions of the law” (Bùi, 2014).

An invalid contract does not give rise to the consequences that the parties intended to achieve when entering into it, except in cases where the parties did not intend for legal consequences from the outset. An invalid real estate sale contract is considered as never having existed from past to future, cannot give rise to legal validity, and the rights and obligations that the parties intended cannot arise, change, or terminate.

Signing a real estate sale contract incurs significant costs, prolonged time, and associated opportunities for the buyer, but when the purpose of the sale contract is not achieved due to its invalidity, it negatively impacts the rights of the real estate buyer. If the legal provisions are inappropriate, it is difficult for the buyer’s rights to be promptly placed in the correct position. This necessitates an evaluation and study to improve the limitations of substantive law to propose solutions for protecting the legitimate rights of real estate buyers when real estate sale contracts are invalidated, minimizing contract invalidity to the utmost extent.

In practice, judgments in Hồ Chí Minh City, as will be discussed and analyzed in the following sections, reveal phenomena where real estate is bought and sold, but the seller acquires the property through an invalidated sale contract, and then the buyer continues to sell it to another buyer. There are also cases where sale contracts are fabricated through authorization contracts, or false transfers are created to rectify previous errors of the parties involved.

Real estate buyers rely on the seller’s registered ownership of the property on the Land Use Rights Certificate, the ownership of housing, and other properties associated with the land to establish the transaction. Therefore, they are unaware of the invalidity of the preceding real estate sale transaction. The provisions on the consequences of invalid real estate sale contracts in the 2015 Civil Code are heavily theoretical and, when applied to actual cases, reveal inadequacies that do not protect the legitimate rights of real estate buyers.

Hence, it is necessary to research and propose solutions to improve the legal framework to protect the rights of real estate buyers under invalidated contracts.

II. CURRENT STATE OF LAW AND JUDICIAL PRACTICE IN PROTECTING THE RIGHTS OF REAL ESTATE BUYERS WHEN SALE CONTRACTS ARE INVALIDATED

Current State of Law on Protecting the Rights of Real Estate Buyers When Sale Contracts are Invalidated

1.1. Current State of Law on the Legal Consequences of Invalid Real Estate Sale Contracts

The 2015 Civil Code stipulates eight cases of invalid civil contracts corresponding to Articles 123 to 129 and Article 408 of the 2015 Civil Code, including:

(i) Invalid due to violation of the law’s prohibitions, contrary to social ethics;

(ii) Invalid due to fabrication;

(iii) Invalid due to minors, persons losing civil act capacity, persons with cognitive and behavioral difficulties, or persons with restricted civil act capacity establishing and performing the contracts;

(iv) Invalid due to error;

(v) Invalid due to deception, threats, or coercion;

(vi) Invalid due to the person establishing the contract not recognizing or controlling their actions;

(vii) Invalid due to non-compliance with form regulations;

(viii) Invalid due to the object of the contract being unfeasible.

The 2015 Civil Code lacks specific provisions on the classification of invalid civil transactions, leading to subjective perceptions about the classification of invalid real estate sale contracts based on each individual’s understanding, with no unified basis for classifying invalid real estate sale contracts.

Based on the provisions of the 2015 Civil Code, from a legal science perspective, invalid real estate sale contracts can be classified by nature and scope. By nature, invalid real estate sale contracts can be divided into absolutely invalid contracts (contracts violating legal rules aimed at protecting the common rights and interests of the community) and relatively invalid contracts (contracts violating legal rules aimed at protecting the legitimate rights and interests of a specific entity).

By scope of invalidity, transactions can be classified as entirely invalid or partially invalid. Although this is a fundamental theoretical issue, the classification of invalid contracts significantly impacts the procedures for resolving the legal consequences of invalid real estate sale contracts. In cases of disputes involving absolutely invalid contracts, the law does not allow reconciliation, and the disputing parties cannot negotiate to resolve the dispute in court because Article 206 of the 2015 Civil Procedure Code and Article 19 of the 2020 Law on Court Mediation and Dialogue at Court do not permit reconciliation for cases arising from civil transactions violating legal prohibitions or contrary to social ethics.

The laws on real estate, including the 2023 Law on Housing, the 2023 Law on Real Estate Business of Vietnam, and the 2024 Law on Land, do not provide additional mechanisms to address the rights of real estate buyers under invalid contracts, except for Article 88 of the 2023 Law on Housing, which stipulates that in cases of selling or leasing social housing in violation of this Law’s provisions on the subjects or conditions for buying or leasing social housing,

the sale or lease contract is invalid, and the buyer or lessee must return the housing to the project investor in the social housing development project or the social housing management unit; if the housing is not returned, the provincial People’s Committee where the housing is located will organize the forced retrieval of the housing.

From the cases of invalid contracts, the 2015 Civil Code stipulates the legal consequences of invalid civil transactions to resolve the rights of the parties involved in Article 131, inheriting and amending the content of Article 137 of the 2005 Civil Code, which in turn inherited Article 146 of the 1995 Civil Code. Article 131 of the 2015 Civil Code stipulates the legal consequences of invalid civil transactions, allowing bona fide parties not to return profits and interest:

(i) An invalid contract does not give rise to, change, or terminate the civil rights and obligations of the parties from the time the transaction is established; the parties restore the original state and return to each other what they have received. If it is impossible to return in kind, the value must be converted to cash for repayment;

(ii) Bona fide parties in receiving profits and interest are not required to return those profits and interest;

(iii) The party at fault causing damage must compensate.

In summary, a contract declared invalid by the court will result in legal consequences that return the parties to their original state as if the contract had never been concluded, hold the at-fault party responsible for compensation, and transfer illicit assets or income, which are the subject of an invalid contract in criminal cases, to the state budget as stipulated by law over time. For example, accomplices who pool embezzled funds from an agency to buy a house attached to land for organizing gambling or illegal drug use can have the real estate confiscated under Article 47 of the 2015 Penal Code, as amended in 2017.

The Vietnamese Civil Code tends to gradually amend towards reducing risks for real estate buyers under invalidated real estate sale contracts to align with practicalities, abolishing the unclear provisions on asset, profit, and interest confiscation, and the inappropriate asset confiscation function of the Civil Code as a private law.

1.2. Current State of Law on Mechanisms Protecting the Rights of Bona Fide Third Party Real Estate Buyers in Case of Invalidated Real Estate Sale Contracts

The Vietnamese Civil Code, over different periods, has not only provided mechanisms for invalidating contracts but also acknowledged policies for validating contracts with legal defects to protect bona fide third parties. This is an effective mechanism to protect the interests of real estate buyers, provided the legal basis ensures it is not due to their fault. The policy of protecting bona fide third parties aligns with the complex societal realities, ensuring the stability of legal acts and encouraging honesty in society. The scope of rights and interests of bona fide third parties has been increasingly expanded reasonably.

Article 133 of the 2015 Civil Code introduced new policies to protect the rights of bona fide third parties when civil transactions are invalidated as follows:

“In cases where a civil transaction is invalid, but the property has been registered with a competent state agency and subsequently transferred through another civil transaction to a bona fide third party, and this person relies on that registration to establish and execute the transaction, then that transaction is not invalid.

In cases where the property must be registered but has not been registered with a competent state agency, the civil transaction with the third party is invalid, except where the bona fide third party receives this property through auction at an authorized organization or transaction with the person who, according to a judgment or decision of a competent state agency, is the owner of the property, but later this person is not the owner of the property due to the judgment or decision being annulled or amended.

The owner does not have the right to reclaim the property from the bona fide third party if the civil transaction with this person is not invalid according to the provisions of Clause 2 of this Article, but they have the right to sue, request the party at fault that led to the establishment of the transaction with the third party to return reasonable costs and compensate for damages.”

Analyzing Article 133 of the 2015 Civil Code in the context of invalidated real estate sale contracts reveals two issues:

Firstly, the 2015 Civil Code acknowledges for the first time the validity of real estate sale contracts to protect bona fide buyers in situations where the buyer relies on documents proving the seller’s registered ownership (as shown through the Land Use Rights Certificate, the ownership of housing, and other properties associated with the land) originating from a sale contract with another person, believing the seller to be the owner and concluding the sale contract. Even if the court later declares the sale contract between the seller and the previous seller invalid, the real estate sale contract between the seller and the buyer remains valid.

Secondly, the 2015 Civil Code lacks provisions addressing cases where the original owner does not engage in selling the real estate, and an impersonator sells the property, which subsequently becomes the subject of sales between subsequent buyers. It raises the question of whether the sale contract between the final buyer and the immediate preceding seller is invalid. This issue is particularly significant and quite common due to the ease with which fraudsters can carry it out, causing severe losses to buyers and banks that lend money to buyers when the preceding real estate seller becomes unable to repay.

Current State of Judicial Resolution of the Rights of Real Estate Buyers When Sale Contracts are Invalidated

2.1. Cases Where the Initial Owner Does Not Engage in Real Estate Transactions but an Impersonator Sells the Property, Which Becomes the Subject of Subsequent Sales

According to the legally effective appellate criminal judgment No. 404/2024/HS-ST dated May 29th, 2024, of the High People’s Court in Hồ Chí Minh City:

Mr. Nguyễn Dũng and Mrs. Nguyễn Thị Hiệp, the owners of the house and land at plot 509 from map 5, Khu Phố 1, Thạnh Lộc Ward, District 12, Hồ Chí Minh City, according to the Land Use Rights Certificate, the ownership of housing, and other properties associated with the land No. CH00208 issued by the District 12 People’s Committee on March 22nd, 2010, did not sell the property.

However, a group of fraudsters used the Land Use Rights Certificate provided by Mrs. Hiệp to secure a loan and orchestrated an impersonator to pose as Mr. Dũng and Mrs. Hiệp to sign an authorization contract for the fraudsters to sign the sale contract for plot 509 mentioned above. Subsequently, the buyer continued to sell the property to others (the property became the subject of successive sales).

The court, based on point a, clause 4, Article 139 of the 1999 Civil Code as amended in 2009; point s, clause 1, clause 2, Article 51 of the 2015 Penal Code as amended in 2017; Article 48 of the 2015 Penal Code as amended in 2017; and Articles 584, 585, 589 of the 2015 Civil Code, ruled that the defendant impersonating the property owner, in addition to being sentenced to prison, was also civilly liable and required to compensate the first buyer, who in turn had to compensate the second buyer.

The court declared the mortgage contract with the real estate, which was the subject of the invalidated sale contract, invalid. The court did not address the notary offices’ compensation liability but only recommended that the Hồ Chí Minh City Department of Justice handle the involved notary offices (Hội nhập Notary Office, Châu Á Notary Office, and Tân Bình Notary Office, now Đỗ Trí Tín Notary Office) for their errors in notarizing the related contracts.

In the above case, the second real estate sale contract was still declared invalid by the court, even though the final buyer based their purchase on information that the seller had registered ownership on the Land Use Rights Certificate. The court argued that the initial property owner did not sign any transaction documents, so even if the property was fraudulently sold by impersonators and subsequently resold, the final bona fide buyer’s contract was still declared invalid.

With such judicial reasoning, the provision protecting the rights of bona fide third parties in invalid civil transactions under Clause 2, Article 133 of the 2015 Civil Code does not apply in practice, and the risk is transferred to the final buyer in this situation. The 2014 Law on Notarization does not clearly define the responsibility of notary offices when a notarized contract is invalid, so the court’s practical resolution does not acknowledge the compensation responsibility of the notary office for the invalid notarized contract, which is a shortcoming.

The court ruled that the final buyer could only claim money from the immediate preceding seller, leading to situations where the preceding seller cannot repay, causing the final buyer to suffer losses without being able to claim from the party who forged the documents. This inadequacy shows that the 2015 Civil Code has not fully addressed and considered the issue of protecting the weaker party in contracts, as seen in the laws of other countries and modern legal science (Phạm, 2006).

2.2. Current State of Resolving the Rights of Real Estate Buyers under Invalid Contracts in Civil Cases through Typical Cases

2.2.1. Case of Protecting the Rights of Buyers of Secured Property under Invalid Auctioned Real Estate Sale Contracts

According to the first-instance civil judgment No. 117/2021/DS-ST dated May 18th, 2021, of the People’s Court of District 1, Hồ Chí Minh City, concerning the dispute over an auctioned property sale contract, on December 8th, 2020, Mr. Vũ Hoàng Cương filed a lawsuit against Mr. Lâm Trúc Nhỏ due to the auctioned property sale contract not being notarized, leading the land registration office to refuse to register the transfer of ownership to the buyer, Mr. Vũ Hoàng Cương.

The court, based on Clause 2, Article 129 of the 2015 Civil Code: “If a transaction is established in writing but violates mandatory notarization or certification requirements, and one or both parties have fulfilled at least two-thirds of their obligations under the transaction, at the request of one or both parties, the court shall issue a decision recognizing the validity of the transaction.

In this case, the parties are not required to perform notarization or certification.” The court reasoned that the auctioned land sale contract was in line with the intent of the property owners and complied with legal provisions; although the property sale contract was not notarized or certified, it was a civil transaction voluntarily established by parties with civil legal capacity and civil act capacity;

the purpose and content of the transaction did not violate the prohibitions of the law or social ethics; the auctioned property had valid documentation, and the parties involved in the contract had fulfilled at least two-thirds of their obligations under the transaction. Therefore, it was necessary to accept the plaintiff’s lawsuit and the consensus of the litigants in the case, recognizing the auctioned property sale contract.

The court ruled in favor of the plaintiff’s lawsuit, granting Mr. Cương the right to contact the competent state agency to issue the Land Use Rights Certificate, the ownership of housing, and other properties associated with the land for the auctioned property based on the judgment.

Even though the real estate sale contract was unlawful due to lack of notarization, the court still recognized the validity of the auctioned property sale contract, respecting the parties’ intentions and aligning with international practices. To alleviate difficulties faced by the parties in administrative procedures for land registration, the court flexibly allowed Mr. Vũ Hoàng Cương to use this judgment to contact the competent state agency to apply for the Land Use Rights Certificate and ownership of housing and other properties associated with the land for the auctioned property according to the law, despite the lack of specific provisions.

Thus, even though the real estate sale contract was unlawful due to lack of notarization, the court still recognized the validity of the auctioned property sale contract, respecting the parties’ intentions and aligning with international practices. To alleviate the difficulties faced by the parties in administrative procedures for land registration, the court flexibly allowed Mr. Vũ Hoàng Cương to use this judgment to contact the competent state agency to apply for the Land Use Rights Certificate and ownership of housing and other properties associated with the land for the auctioned property according to the law, despite the lack of specific provisions.

2.2.2. Case of Protecting the Rights of Buyers of Secured Property under Invalid Sale Contracts Due to Fictitious and Fabricated Contracts but Serving the Legitimate Interests of the Parties

According to the appellate civil judgment No. 641/2022/DSPT dated October 21st, 2022, of the People’s Court of Hồ Chí Minh City, resolving the dispute over property ownership at the request of Mr. Nguyễn Tỗ Văn (deceased in 2021). The case had previously been resolved through the first instance, appellate, cassation, and cassation decision of the Supreme People’s Court annulling all first-instance and appellate civil judgments, directing the first-instance court to retry the case.

In this case, the court proved that the high-value real estate sale was not through a sale contract but represented by an authorization letter from the seller to the buyer to use and dispose of the property, after which the buyer requested the initial seller to sign the sale contract for the buyer again. Although these transactions were fictitious and unlawful in form, the court, based on the genuine intent of the parties, recognized the first buyer as the owner of the house and affirmed that the initial seller’s sale contract with the second buyer remained valid, establishing the second buyer’s ownership rights.

The analysis and reasoning of the second appellate trial council in the above case are entirely accurate, ensuring the legitimate rights of the real estate buyer under the sale contract that does not meet validity conditions. The second appellate trial council applied a reasonable reasoning method to clarify the legitimate rights of the real estate buyer that need to be protected when legal provisions are not specific and clear. Recognizing the validity of the sale contract that does not match the exact parties on the documents but aligns with the nature and circumstances of the case to determine who is recognized as the owner of the purchased house is essential.

Considering the protection of the bona fide third-party real estate buyer through the court’s comprehensive and persuasive evidence and reasoning system is a valuable reference for similar cases in practice.

III. RECOMMENDATIONS FOR IMPROVING THE LEGAL FRAMEWORK TO PROTECT THE RIGHTS OF REAL ESTATE BUYERS WHEN SALE CONTRACTS ARE INVALIDATED

– Amend Article 133 of the 2015 Civil Code to supplement provisions on the legal consequences in cases where the initial owner does not engage in selling the property but an impersonator sells the property, which then becomes the subject of subsequent sales.

– Recommend that the Supreme People’s Court issue case law recognizing the validity of fictitious and fabricated contracts established to complete previous real estate sale transactions with formal errors for the legitimate interests of the parties, as a solution in appellate civil judgment No. 641/2022/DSPT dated October 21st, 2022, of the People’s Court of Hồ Chí Minh City.

– The Chief Justice of the Supreme People’s Court and the Minister of Justice should issue a joint circular guiding the responsibility of notary offices when notarized contracts are invalid due to the notary office’s errors.

IV. CONCLUSION

The legal provisions on resolving the consequences of real estate sale contracts are still inadequate, significantly affecting the parties involved, particularly in Hồ Chí Minh City. Through analyzing substantive law and referencing several actual cases in judgments resolving complex issues related to the subject, the author evaluates the law and the resolution of invalid real estate sale contracts.

Consequently, it is recommended to amend the 2015 Civil Code to supplement provisions on the legal consequences in cases where the initial owner does not engage in selling the property but an impersonator sells the property, which then becomes the subject of subsequent sales.

It is also recommended that the Supreme People’s Court issue case law recognizing the validity of fictitious and fabricated contracts established solely to complete previous real estate sale transactions with formal errors for the legitimate interests of the parties, as a solution in appellate civil judgment No. 641/2022/DSPT dated October 21st, 2022, of the People’s Court of Hồ Chí Minh City. Additionally, it is recommended to provide guidance on the compensation responsibility of notary offices when notarized contracts are invalid due to the notary office’s errors.

REFERENCES

Bùi. T. T. H (2014), The Invalid Civil Contract Regime in Light of the Amendment and Supplementation of the 2005 Civil Code, VNU Journal of Science. Retrieved from https://js.vnu.edu.vn/LS/article/view/464, accessed on July 20th, 2024.
Judicial Academy (2015), Civil Law Textbook. Judicial Publishing House, Hà Nội, pp. 136-140.
Phạm. H. G (2006), The Development of Contract Law: From the Principle of Freedom of Contract to the Principle of Equity, Journal of State and Law No. 10/2006.
National Assembly (2015), 2015 Civil Code.
National Assembly (2024), 2024 Law on Land.
National Assembly (2024), 2023 Law on Real Estate Business.
People’s Court of District 1, Hồ Chí Minh City (2021), First-instance Civil Judgment No. 117/2021/DS-ST dated May 18th, 2021.
High People’s Court in Hồ Chí Minh City (2024), Effective Appellate Criminal Judgment No. 404/2024/HS-ST dated May 29th, 2024.
People’s Court of Hồ Chí Minh City, Appellate Civil Judgment No. 641/2022/DSPT dated October 21st, 2022.
Vũ T. H. Y (2024), Commentary on the Validity of the Deposit Agreement When the Real Estate Developer is Not Qualified to Sell Apartments, Legal Profession Journal, No. 2/2024, p.68.

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