THE MEASURE OF DEPOSIT IN THE CONTRACT OF FUTURE HOUSING SALE – FROM THE PERSPECTIVE OF PROTECTING THE RIGHTS OF THE BUYER IN HỒ CHÍ MINH CITY
THE MEASURE OF DEPOSIT IN THE CONTRACT OF FUTURE HOUSING SALE – FROM THE PERSPECTIVE OF PROTECTING THE RIGHTS OF THE BUYER IN HỒ CHÍ MINH CITY
Lê Thị Tuyết Hà
Ph.D., Head of the Commercial Law Department, Faculty of Law, Open University of Hồ Chí Minh City
Lê Văn Sơn
LL.B., Faculty of Law, Open University of Hồ Chí Minh City
ABSTRACT
When entering into real estate sale contracts, the parties involved habitually agree to establish a deposit contract in advance to ensure the conclusion or execution of the main contract. Within the scope of this article, the authors focus on analyzing the assurance of the implementation of real estate sale contracts through deposit measures from the perspective of protecting the buyer’s rights based on several practical cases in Hồ Chí Minh City. Consequently, several recommendations are proposed as an opening to solutions to protect the rights of the buyer in deposit contracts of real estate sales, specifically future housing.
Keywords: Deposit contract, real estate sale contract, housing sale contract, protection of buyer’s rights
I. INTRODUCTION
Deposit is one of the fairly common measures to ensure the performance of obligations in current civil transactions, especially often appearing in high-value civil transactions, such as housing sale contracts. Through its superiority, practical evidence shows that most real estate sale contracts, particularly housing sale contracts, are adopted by parties in civil transactions with the deposit measure aiming to facilitate the conclusion of real estate sale contracts. For buyers and sellers, the deposit act is a promising behavior, ensuring commitments to agreements.
Similar to the deposit contract for transferring land use rights, home buyers also use deposit contracts for housing sales with the main purpose of establishing a basis for recording the actual delivery and promise of performance, limiting risks from non-performance of contracts, unilateral termination of contracts, and cancellation of contracts (Tống Văn Trực, 2023).
In Hồ Chí Minh City, the real estate market is gradually recovering with growth in the number and value of transactions after the freezing period of real estate (Đình Sơn, 2024). However, in current real estate sale contracts, buyers often face risks of non-performance of commitments from the sellers, negatively affecting their rights. Taking advantage of legal loopholes and bottlenecks, many organizations and individuals as sellers of real estate have violated the legal rights and interests of buyers in civil transactions.
In the scope of this article, the authors will analyze the application of deposit measures in current real estate sale contracts in Vietnam, referring to the practice in Hồ Chí Minh City from the perspective of protecting the rights of buyers. Consequently, the article proposes some recommendations to improve legal regulations to protect buyers in real estate sale contracts with the application of deposit measures. Note that in the article, the authors only refer to real estate sale contracts as housing.
II. LEGAL REGULATIONS ON DEPOSIT MEASURES IN REAL ESTATE SALE CONTRACTS
Deposit is a measure to ensure the performance of obligations stipulated in Article 292 of the 2015 Civil Code. Accordingly, “deposit is when one party (hereinafter referred to as the depositor) hands over to the other party (hereinafter referred to as the depositary) a sum of money or precious metals, gemstones or other valuable items within a certain period to ensure the conclusion or performance of a contract” (Clause 1, Article 328 of the 2015 Civil Code).
In essence, the 2015 Civil Code recognizes nine security measures, and a deposit is a measure formed by the agreement between the parties established in the form of a contract (Đỗ Văn Đại, 2017). The deposit can be agreed upon by the parties as a measure to ensure the conclusion of the contract or to ensure the performance of the contract. This is a fairly common measure and is often used in sale contracts, especially in real estate sales.
In principle, for a deposit to exist, two conditions must be satisfied:
Firstly, there must be an obligation that needs to be ensured, i.e., the deposit measure is an auxiliary contract to ensure the conclusion or performance of a main contract.
Secondly, the deposit’s assurance effect must satisfy the demand of the party with the right without depending on the goodwill of the party with the obligation in the relationship between the parties (Nguyễn Ngọc Điện, 2024).
Therefore, when there is a violation of legal obligations, the party with the right is entitled to handle the secured assets according to the agreement between the parties or according to the law without depending on the goodwill of the obligated party.
Simply put, a deposit contract is merely an auxiliary contract to bind the parties in a contract to conclude a main contract. However, the validity of the deposit contract is independent of the main contract (Clause 2, Article 407 of the 2015 Civil Code). Meaning, if the main contract does not exist, the deposit contract does not automatically terminate.
Accordingly, the housing sale contract plays the role of the main contract (the secured contract), while the deposit contract becomes an auxiliary contract – the housing sale deposit contract. Because of its nature as a contract, the deposit measure carries the basic characteristics of the contractual institution. A contract is a civil transaction, so the validity conditions of the contract are also the validity conditions of the civil transaction.
The 2015 Civil Code does not stipulate conditions for the establishment of the form for the deposit measure. Therefore, in principle, the deposit measure only needs to be explicitly agreed upon by the parties through a document, speech, or specific action (Article 119 of the 2015 Civil Code). This regulation has been revised compared to the 1995 and 2005 Civil Codes, which stipulated that the deposit must be made in writing (Article 363 of the 1995 Civil Code and Article 358 of the 2005 Civil Code).
Thus, in terms of form, the housing sale deposit contract will be based on the parties’ consent and can be established in the form of a document, speech, or specific action. However, most housing transactions today are agreed upon by the parties to establish the deposit measure in the form of a contract to legally bind the parties to ensure the conclusion of the housing sale contract.
In terms of content, the deposit contract records that the depositor transfers to the depositary a sum of money, precious metals, gemstones, or other valuable items. Practically, deposit assets are usually money. Thus, in the housing sale deposit contract, the parties will agree that the home buyer will deposit a sum of money to the home seller to bind both parties to enter into and execute the housing sale contract. The value in the deposit contract will be smaller and is a separate amount from the main contract – the housing sale contract.
Additionally, the content of the deposit contract needs to agree on the time of conclusion or the maximum period to establish and perform the main contract (Nguyễn Ngọc Điện, ibid). Furthermore, the deposit contract must satisfy content conditions according to contract law, including the capacity of the subject, the agreement must not violate the prohibitions of the law, not contrary to social ethics, and must be entirely based on the voluntary consent of the parties (Article 117 of the 2015 Civil Code).
Regarding the legal consequences of the deposit contract. According to the definition of a deposit, it can be seen that the purpose of this measure is to maintain the conclusion or performance of the contract. If the contract is concluded and performed, the parties can choose to return the deposit or deduct it to fulfill the buyer’s payment obligation when signing the main contract. Conversely, if one of the parties does not conclude and perform the contract, they will face legal consequences. However, sanctions for the seller and the buyer are different.
The buyer will lose the deposit to the seller if they do not conclude and perform according to the agreement in the contract. If violated, conversely, the seller will have to return the deposit and an equivalent amount, i.e., double the amount that the buyer violated, unless otherwise agreed by the parties. This regulation seems to protect the buyer’s rights, limiting the situation where the seller, after agreeing with the buyer on the establishment of the deposit contract to prepare for the main contract, terminates the contract halfway to conclude a contract with another party of higher value.
Thus, in the housing sale deposit contract, if the seller or the buyer violates the contract, they can only request the violating party to compensate but cannot request the Court to force the obligor to perform the obligation.
Additionally, if the buyer in the contract hands over a sum of money to the seller, and the parties do not clearly identify whether it is a deposit or an advance payment, this sum will be considered as an advance payment (Article 37 of Decree 21/2021/NĐ-CP). This regulation clarifies the confusion between a deposit and an advance payment. Therefore, it is necessary to clearly distinguish between the two.
Although both are amounts that the buyer hands over to the seller to ensure the contract, they differ in nature. A deposit is the sum of money the buyer gives to the seller within a certain period to ensure the conclusion or performance of the contract. Meanwhile, an advance payment is the amount the buyer pays to the seller in advance, i.e., fulfilling a part of the obligation. Thus, a deposit is not an advance payment.
III. PRACTICAL PROTECTION OF BUYERS’ RIGHTS IN REAL ESTATE DEPOSIT CONTRACTS IN HỒ CHÍ MINH CITY
In the practice of civil interactions, high-value purchase and sale relationships often apply deposit measures to ensure the performance of obligations, both legally binding the parties and providing psychological reassurance. Before entering into a housing sale contract, the parties often agree to establish a deposit contract, which is notarized.
From the perspective of protecting the buyer’s rights, considered the weaker party, entering into a housing sale deposit contract is seen as a “shield” protecting the buyer’s rights. Indeed, according to the economic and social report of April by the Hồ Chí Minh City Statistics Office, revenue from the real estate business sector reached over 61,000 billion VND in the first quarter of 2024, increasing by 15.7% compared to the same period last year (Hồ Chí Minh City Statistics Office, 2024). Real estate transactions accounted for 15% of Hồ Chí Minh City’s economy, and the real estate market has flourished with positive growth in the first three months of this year (Anh Kỳ, 2024).
The report also indicates that most real estate transactions focus on the sale of future housing in real estate business projects, such as apartments. Clearly, ordinary homebuyers are typically individuals purchasing for non-commercial purposes (residence), while sellers are real estate business investors for commercial purposes. If examined on the scale of purchase and sale relationships, the disadvantage tends to lean more towards the buyers.
It should be emphasized that the establishment of a housing sale deposit contract is not recorded in the 2014 Law on Real Estate Business and the 2014 Law on Housing but is based on the provisions of the 2015 Civil Code. This will disadvantage the buyer in the housing sale contract when entering into a housing sale deposit contract.
Several typical cases can be mentioned:
In the First-instance Civil Judgment No. 70/2023/DS-ST dated June 19th 2023 of the People’s Court of District 4, Hồ Chí Minh City, and the Appellate Civil Judgment No. 1043/DS-PT dated November 6th 2023 of the People’s Court of Hồ Chí Minh City on the dispute over the housing sale deposit contract (The Supreme People’s Court’s Public Judgments and Decisions Information Website), the legal situation in the case is as follows:
Mr. Trần Văn T and the T Real Estate Joint Stock Company (hereinafter referred to as Company T) signed a deposit contract to ensure the conclusion of the real estate sale contract for an apartment at Building A under Project L (hereinafter referred to as the apartment) located at Ward 8, District 4, Hồ Chí Minh City.
The content of the deposit contract and the accompanying annex specified the deadline for signing the real estate sale contract for the apartment and the handover time of the apartment. After signing the deposit contract and paying the deposit, Company T repeatedly and unilaterally changed the signing time of the contract and the handover time of the apartment, contrary to their commitment. Therefore, Mr. T sued Company T for deposit return and deposit penalty.
However, in the First-instance Civil Judgment No. 70/2023 of the People’s Court of District 4, it was ruled that Company T had to return the deposit but did not accept the plaintiff Mr. T’s request for a deposit penalty. The Court explained that the deposit contract between Mr. T and Company T was illegal. The apartment at Project L is a future asset and therefore needs to meet all legal conditions stipulated in the current Law on Real Estate Business.
The apartment at Project L did not meet the conditions to be put into business, but Company L intentionally opened sales. When agreeing and signing the apartment sale deposit contract, Mr. T knew the legal status of this project. However, he still proceeded to sign and deposit to purchase the apartment. For this reason, the People’s Court of District 4 partially dismissed Mr. T’s request for a deposit penalty against Company T. Subsequently, the plaintiff appealed, and in the Appellate Civil Judgment No. 1043/DS-PT dated November 6th 2023 of the People’s Court of Hồ Chí Minh City, the Court also rejected Mr. T’s appeal and amended part of the First-instance Judgment.
Thus, it can be seen that the views of the first-instance and appellate courts are the same regarding the deposit contract: if it violates the prohibitions of the law, it will be declared void. This is consistent with legal regulations. However, considering the protection of the buyer’s rights in the above case, the authors disagree with the views of the two levels of courts that handled this case.
Firstly, Company T did not meet the legal conditions but still brought future assets (apartments) to the market. Was this an intentional fault on the part of Company T? Clearly, even though the company knew its projects did not meet the conditions to be allowed for business, it deliberately ignored legal conditions to market for profit. If considered in terms of fault, this is an intentional fault, because Company T was well aware of the legal status of the projects it was selling but still carried out the sales.
Therefore, in this case, the failure to conclude the apartment sale contract and hand over the apartment on time as agreed with Mr. T is entirely the responsibility of Company T. Conversely, when the plaintiff sued, Company T filed a counterclaim, citing force majeure to deny its responsibility for the delay in signing the contract and handing over the apartment to Mr. T.
Additionally, the judgment states: “Mr. T was well aware of the legal status of this project. However, he still proceeded to sign and deposit to purchase the apartment there.” From the authors’ perspective, Mr. T, as an individual, could not foresee all the legal consequences that arose, and his decision was also influenced by circumstances. When deciding to buy an apartment in the project, the plaintiff’s family used savings accumulated over many years with the desire to have a stable home. The judgments of the first-instance and appellate courts rigidly relied on the law without thoroughly investigating the circumstances of the buyer and the seller.
Secondly, as analyzed above, buyers, usually individuals, in real estate sale contracts for apartments are often the weaker party. This can be explained by the fact that most future real estate sale projects are conducted by enterprises permitted to engage in real estate business according to the conditions of the Law on Real Estate Business, acting as the sellers. During purchase negotiations, customers – the buyers – are naturally “bound” to contracts with pre-drafted terms by the sellers. As a result, these pre-drafted contracts somewhat diminish the principles of freedom, voluntariness, commitment, and agreement (Clause 2, Article 3 of the 2015 Civil Code).
Specifically, in the above Judgment, when considering Mr. T’s request for a deposit penalty, the Court stated that the agreement between the two parties in the deposit contract recorded that the depositor “understood the issues related to the Project, clearly understood the current legal status of the Project, and committed not to complain, having agreed to the deposit”. It is noteworthy that these terms were entirely pre-drafted by the seller, and the buyer had little opportunity to negotiate or adjust these terms. This is entirely disadvantageous for the buyer. Therefore, in transactions involving the sale of real estate as future assets (apartments, etc.), the transaction balance between buyers and sellers can hardly be equal in terms of benefits.
In Precedent No. 25/2018/AL, passed by the Council of Judges of the Supreme People’s Court on October 17th 2018 and published according to Decision No. 269/QĐ-CA dated November 6th 2018 of the Chief Justice of the Supreme People’s Court regarding the exemption from deposit penalties due to objective reasons (The Supreme People’s Court’s Public Judgments and Decisions Information Website), the legal situation is as follows:
Mr. L and Mrs. H signed a deposit contract for the sale of Mrs. H’s house at Ward T, District H, Hồ Chí Minh City, which Mrs. H had purchased through auction at the Hồ Chí Minh City Civil Judgment Enforcement Agency. In the deposit contract, both parties committed that within 30 days from the date of signing the contract, Mrs. H must complete the procedures to obtain the ownership certificate for the house mentioned above, after which they would sign a notarized sale contract. If the deadline was violated, Mrs. H would be penalized an amount equivalent to the deposit.
However, Mrs. H did not fulfill this commitment, citing the delay in transferring house ownership by the Civil Judgment Enforcement Agency. Mr. L sued Mrs. H, requesting the return of the deposit and a deposit penalty.
In the First-instance Civil Judgment No. 344/2009/DS-ST dated November 11th 2009, the People’s Court of Phú Nhuận District, Hồ Chí Minh City, and the Appellate Civil Judgment No. 522/2010/DS-PT dated May 6th 2010, the People’s Court of Hồ Chí Minh City both ruled in favor of the plaintiff, Mr. L. However, the Supervisory Decision No. 79/2012/DS-GĐT dated February 23rd 2012 of the Civil Court of the Supreme People’s Court annulled the entire first-instance and appellate judgments for re-trial.
This was because the first-instance and appellate courts had not verified and clarified the issues mentioned but had immediately accepted Mr. L’s lawsuit request. The authors disagree with the decision of the Civil Court of the Supreme People’s Court and the solution of Precedent No. 25/2018/AL.
The reason is that when Mrs. H signed the deposit contract with Mr. L without having been granted the house ownership certificate, it was entirely her fault. Before proceeding to sign the contract with Mr. L, Mrs. H should have had the responsibility to “legally clean” the house she wanted to sell. That is, before selling the house, Mrs. H needed to ensure she was the rightful owner of the house by having her name on the house ownership certificate and not having any legal entanglements related to the house. However, Mrs. H did not do so and hurriedly sold the house she had just successfully auctioned.
Additionally, Mrs. H should have anticipated the delay of the Hồ Chí Minh City Civil Judgment Enforcement Agency in transferring the ownership certificate to her, and thus could have chosen to negotiate an extension of the timeframe for the house transfer procedures with Mr. L. Therefore, in terms of fault, it is not entirely justified to attribute it solely to force majeure due to state agency delays, and Mrs. H should bear joint responsibility.
IV. SOLUTIONS TO PROTECT BUYER’S RIGHTS IN REAL ESTATE DEPOSIT CONTRACTS
The State’s respect for the freedom and voluntary agreement of entities through civil transactions is essential and appropriate in the current practical context. However, not intervening too deeply in transactions between entities can sometimes lead to imbalance and the loss of the fundamental principles on which those relationships are built. Therefore, it is necessary to improve the current legal system regarding deposit measures in general and real estate deposit contracts, specifically for housing, to protect the buyer’s rights.
Firstly, regulations on deposit measures need to be tightened to ensure the purpose of contract conclusion. Currently, deposits in the form of advance capital mobilization by investors in future real estate projects are prohibited according to the 2014 Law on Real Estate Business. However, this is consistent with the provisions of the Civil Code. The 2023 Law on Real Estate Business, effective from August 1st 2024, supplements regulations on deposit measures (Article 23 of the 2023 Law on Real Estate Business) to ensure the consistency of the legal system.
The law stipulates the disclosure of information on real estate and real estate projects introduced for business on the housing and real estate market information system as prescribed by the law on real estate business and on the enterprise’s electronic information page (Article 6 of the 2023 Law on Real Estate Business). Additionally, the law requires that deposit contracts clearly state the selling price, lease-purchase price of housing, construction works, and the construction floor area (Clause 5, Article 23 of the 2023 Law on Real Estate Business).
Thus, the law does not require entities to disclose information about the legal status of real estate projects in contracts signed between parties. This can lead to situations where customers deposit “reservations” in projects that do not meet the conditions for business due to a lack of information about the legal status of those projects. Therefore, tightening regulations on deposit measures and applying sanctions against entities that do not comply with information disclosure regulations about real estate projects is necessary to help protect the buyer’s rights in civil transactions, especially real estate transactions, such as housing sales.
Secondly, there needs to be a mechanism to control the coercion of buyers in real estate sale contracts, specifically housing, to sign pre-drafted contracts. This is particularly true for housing sale deposit contracts between individual buyers for non-commercial purposes and real estate business enterprises in future housing projects. This mechanism aims to free buyers from “binding” terms that disadvantage them, helping maintain a balanced and harmonious benefit scale between entities.
Thirdly, clearly identify the fault element in the failure to fulfill the contractual commitments of the parties in civil transactions as a basis for determining the responsibilities of the parties in the contractual relationship. This is especially important for sellers who delay progress as committed to the buyer in the deposit contract. At the same time, the fault element should be emphasized as a basis for the Court to determine the degree of violation of the parties in the contract.
V. CONCLUSION
Due to its specific characteristics, the deposit measure is often used to ensure the performance of obligations in contracts, especially housing sale contracts. Based on the agreement method, the purpose of the deposit contract is to bind the legal obligations of the participating entities as they prepare to sign the main contract, i.e., the housing sale contract. Before establishing a real estate sale contract, the parties tend to set up a deposit contract. This is to record the contract signing and simultaneously create legal obligations between the parties, although the law does not mandate it.
Particularly in localities where real estate transactions hold a large market share, such as Hồ Chí Minh City, establishing a deposit contract before formalizing the sale helps mitigate risks for the participating entities, especially the buyers, who are seen as the weaker party.
Within the scope of this article, the authors have analyzed several practical cases of housing sale deposit contract disputes in Hồ Chí Minh City and interpreted them from the perspective of protecting the buyer’s rights in housing sale deposit contracts. Consequently, the authors have expressed their view that the rights of buyers in housing sale transactions have been violated. Additionally, several recommendations have been proposed as an opening to solutions to protect the buyer’s rights in housing sale contracts that use deposit measures.
REFERENCES
- Civil Code 1995, 2005, and 2015. 2014 Law on Real Estate Business. 2023 Law on Real Estate Business. 2014 Law on Housing.
- Nguyễn Ngọc Điện (2024), Giáo trình Pháp luật về bảo đảm thực hiện nghĩa vụ, National University of Hồ Chí Minh City Publishing House, Hồ Chí Minh City.
- Anh Kỳ (2024), Real estate business in Hồ Chí Minh City prospers, VnExpress, Retrieved from https://vnexpress.net/kinh-doanh-bat-dong-san-o-tp-hcm-khoi-sac-%20c%C3%B9ng%20k%E1%BB%B3%20n%C4%83m%20ngo%C3%A1i
- Đình Sơn (2024), Real estate transactions in Hồ Chí Minh City increase, notary offices become busy again, Thanh Niên Newspaper, Retrieved from https://thanhnien.vn/giao-dich-bat-dong-san-tphcm-tang-phong-cong-chung-nhon-nhip-tro-lai-18524050516084024.htm
- Đỗ Văn Đại (CB) (2017), Giáo trình Pháp luật về hợp đồng và bồi thường thiệt hại ngoài hợp đồng, Hồng Đức Publishing House – Vietnam Lawyers Association, Hồ Chí Minh City.
- Hồ Chí Minh City Statistics Office (05/2024), Monthly socio-economic report of the Hồ Chí Minh City Statistics Office, Retrieved from https://thongkehochiminh.gso.gov.vn/Thongbao/Bantin_KTXH_TPHCM_T04_2024_02.5.pdf
- The Supreme People’s Court’s Public Judgments and Decisions Information Website, https://congbobanan.toaan.gov.vn/3ta1364980t1cvn/, accessed on July 8th 2024.
- The Supreme People’s Court’s Public Judgments and Decisions Information Website, https://anle.toaan.gov.vn/webcenter/portal/anle/chitietanle?dDocName=TAND057546
- Tống Văn Trực (August 16th 2023), Legal risks in housing sale deposit contracts in Vietnam, Giáo dục & Xã hội, Retrieved from https://giaoducvaxahoi.vn/giao-duc-dao-tao/r-i-ro-phap-ly-trong-h-p-d-ng-d-t-c-c-mua-ban-nha-t-i-vi-t-nam.html
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