CASE LAW DRAFT NO. 07/2024 On the validity of a deposit contract (Please note that this image is not related to the specific case being discussed).

CASE LAW DRAFT NO. 07/2024

On the validity of a deposit contract

Approved by the Judges’ Council of the Supreme People’s Court on [date] [month] 2024 and published under Decision No. [number]/QĐ-CA on [date] [month] 2024 by the Chief Justice of the Supreme People’s Court.

Source of the Case Law:

The Cassation Decision No. 296/2023/DS-GĐT dated December 13^th, 2023, by the Judges’ Committee of the High People’s Court in Hồ Chí Minh City concerning the case of “Deposit Contract Dispute” between the plaintiff, Mrs. Lê Thị Tuyết N, and the defendant, Mr. Nguyễn Xuân Đ, with the interested parties including Ms. Nguyễn Thị Hoàng K and Ms. Nguyễn Thị Hoàng M.

Location of the Case Law’s Content:

Paragraphs 11, 12, 13 and 14 of the “Court’s Opinion” section.

Summary of the Case Law:

– Factual Background 1:

The parties entered into a deposit contract to secure the execution of a land use rights transfer contract between them. The depositor was aware that the land use rights subject to the transfer was mortgaged at the bank but still signed the deposit contract.

– Legal Resolution 1:

In this case, the Court must determine that the deposit contract is an independent and valid contract.

– Factual Background 2:

The deposit recipient did not have ownership rights over the transferred property and had no authority to perform the property transfer but was authorized by the property owner to sign the deposit contract. The depositor knew but did not object.

– Legal Resolution 2:

In this case, the Court must determine that the deposit recipient had the right to sign the deposit contract and that the deposit contract is valid.

Relevant Legal Provisions:

Article 328 of the Civil Code 2015.

Keywords:

“Validity of deposit contract”; “Contract signing parties”; “Independent contract”; “Breach of deposit contract agreement”; “Mortgaged property”.

CASE DETAILS

The plaintiff, Mrs. Lê Thị Tuyết N, presented the following:

She and Mr. Nguyễn Xuân Đ, a relative, entered into an agreement where Mr. Đ would transfer two plots of land located in T Town, G District to her. Specifically: Plot 4011 with an area of 100m², registered in the name of Ms. Nguyễn Thị Hoàng K (according to the Land Use Rights Certificate No. CV 012535 dated June 4^th, 2020, adjusted to Ms. K’s name on October 23^rd, 2020);

Plot 4012 with an area of 100m², registered in the name of Ms. Nguyễn Thị Hoàng M (according to the Land Use Rights Certificate No. CV 012536 dated June 4^th, 2020, adjusted to Ms. M’s name on July 31^st, 2020).

On April 6^th, 2022, Mrs. Lê Thị Tuyết N and Mr. Đ signed a deposit agreement (dated February 6th, 2022 in error), stipulating that Mrs. N would deposit VND 1,000,000,000 to initiate the transfer of plots 4011 and 4012.

An additional VND 1,500,000,000 was to be paid upon notarizing the land use rights transfer contract on April 16^th, 2022, with the remaining VND 500,000,000 to follow after the transfer of the land use rights to Mrs. N’s name. Mrs. N promptly transferred the deposit amount of VND 1,000,000,000 to Mr. Đ on the same day. 

Upon consultation with her legal counsel following the deposit agreement, Mrs. N discovered that Mr. Đ did not hold ownership of the aforementioned properties and thus lacked authority to proceed with the transfer. Consequently, she contacted Mr. Đ to request the cancellation of the deposit agreement and the return of her deposit. Mr. Đ, who was in the U.S. at the time, initially agreed to the refund. However, subsequent attempts to reclaim the deposit were met with Mr. Đ’s refusal, insisting that Mrs. N should pursue legal recourse.

As a result, Mrs. N filed a lawsuit seeking the court to invalidate the deposit transaction dated April 6^th, 2022, and compel Mr. Đ to return the VND 1,000,000,000 deposit to her.

The defendant, Mr. Nguyễn Xuân Đ, stated the following:

Ms. Nguyễn Thị Hoàng K and Ms. Nguyễn Thị Hoàng M are his biological daughters. Acknowledging their desire to transfer the land and Mrs. Lê Thị Tuyết N’s intention to acquire it, on April 6^th, 2022, he, Mrs. Tuyết N, Mr. Nguyễn Xuân L, and Ms. M conducted a site inspection of the land. Following this inspection, they returned to his mother’s residence at 414 H Street, T Town, G District, where Mrs. Tuyết N and Ms. M engaged in discussions regarding the transfer of the two plots.

During this meeting, Mrs. Tuyết N also conducted a FaceTime call with Ms. Nguyễn Thị Hoàng K to discuss the land transfer, resulting in an agreement on a total transfer price of VND 3,000,000,000 for both plots. On the same day, Mr. Đ visited the C Commercial Joint Stock Bank – A Branch – G Transaction Office to photocopy the two Land Use Rights Certificates for Mrs. Tuyết N. He confirmed that the deposit contract was indeed signed on April 6^th, 2022, although it erroneously listed the date as February 6^th, 2002.

Furthermore, Mr. Đ clarified that on April 6^th, 2022, Mrs. Tuyết N transferred VND 1,000,000,000 in two transactions into his account number 105868723495, earmarked as “land transfer deposit”. Upon receiving this deposit, he promptly transferred the equivalent amount to Ms. K and Ms. M for their house purchase in Hồ Chí Minh City.

In response to Mrs. Tuyết N’s lawsuit seeking the return of the deposit, Mr. Đ disagreed, asserting that the agreement for the transfer of plots 4011 and 4012 was between Mrs. Tuyết N and his daughters. He emphasized that his role was merely that of a representative entrusted to receive the deposit on their behalf.

The interested parties’ statements:

– Ms. Nguyễn Thị Hoàng K stated the following: 

Before Mrs. Lê Thị Tuyết N and Mr. Nguyễn Xuân Đ signed the deposit agreement, they, along with Ms. Nguyễn Thị Hoàng M, had reached an agreement regarding the transfer price, deposit amount, and the timing for signing the transfer contract. It was agreed that Mr. Đ would act as their representative to receive the deposit. According to this agreement, she and Ms. M were to transfer plots 4011 and 4012 to Mrs. Tuyết N, with each plot valued at VND 1,500,000,000. This agreement was made on the same day Mrs. Tuyết N inspected the land.

Ms. K noted an error in the deposit document prepared by Mrs. Tuyết N, which incorrectly stated February 6^th, 2022, instead of the correct date, April 6^th, 2022. On April 6^th, 2022, Mrs. Tuyết N transferred VND 1,000,000,000 into Mr. Đ’s account, who subsequently transferred this amount to Ms. K and Ms. M. The next day, Mrs. Tuyết N contacted Ms. K to express dissatisfaction with the agreed transfer price and demanded the return of the deposit. However, Ms. K had already used the deposit to purchase a house in Hồ Chí Minh City and declined to refund it.

Regarding the planned signing of the transfer contract on April 16^th, 2022, Mrs. Tuyết N mentioned that it fell on a Saturday and proposed moving it to April 19^th, 2022. Ms. K returned to D City and waited until April 19^th, 2022, for the signing. During this period, Mrs. Tuyết N persistently complained about the transfer price and attempted to negotiate it down to VND 1,200,000,000, which Ms. K refused.

On April 21^st, 2022, Ms. K texted Mrs. Tuyết N to propose signing the contract, but received no response. Subsequently, she initiated negotiations with Mrs. Tuyết N, suggesting either transferring one plot for VND 1,600,000,000 or extending the contract signing deadline to May 31^st, 2022, after which the deposit would be forfeited due to Mrs. Tuyết N’s breach of contract. Ms. K maintained that Mrs. Tuyết N’s failure to uphold the contract terms necessitated the forfeiture of the deposit, thus opposing Mrs. Tuyết N’s lawsuit.

– Ms. Nguyễn Thị Hoàng M stated the following:

On April 6^th, 2022, Ms. Nguyễn Thị Hoàng M participated in the agreement with Mrs. Lê Thị Tuyết N and Mr. Nguyễn Xuân Đ regarding the land transfer, joined by Mr. Nguyễn Xuân L for a subsequent site inspection. During this meeting, she and Mrs. Tuyết N directly negotiated the price and the method of deposit receipt, with Mr. Đ entrusted to handle the deposit collection.

Mrs. Tuyết N transferred VND 1,000,000,000 into Mr. Đ’s account on April 6^th, 2022. Mr. Đ promptly recorded the transaction and notified Ms. M via her Zalo account, labeling it “Mrs. N transferring land deposit”. Upon receipt of the funds, Mr. Đ transferred the amount to Ms. M and Ms. K.

In light of Mrs. Tuyết N’s breach of contract, Ms. Nguyễn Thị Hoàng M argued that Mrs. Tuyết N should forfeit the deposit. Consequently, she opposed Mrs. Tuyết N’s lawsuit.

In the First-instance Civil Judgment No. 42/2022/DS-ST dated October 27^th, 2022, the People’s Court of Đơn Dương District ruled as follows:

– The court accepted the lawsuit filed by Mrs. Lê Thị Tuyết N against Mr. Nguyễn Xuân Đ concerning the dispute over the civil deposit contract for land use rights transfer.

– The court declared the deposit contract dated April 6^th, 2022 (mistakenly dated February 6^th, 2022) between Mrs. Lê Thị Tuyết N and Mr. Nguyễn Xuân Đ null and void, thereby cancelling the contract.

– Additionally, the court ordered Mr. Nguyễn Xuân Đ to refund the deposited amount of VND 1,000,000,000 to Mrs. Lê Thị Tuyết N.

The judgment also addressed court fees and the parties’ right to appeal.

Subsequently, on October 27^th, 2022, Mr. Nguyễn Xuân Đ, Ms. Nguyễn Thị Hoàng K, and Ms. Nguyễn Thị Hoàng M appealed the aforementioned First-instance Civil Judgment.

In the Appellate Civil Judgment No. 17/2023/DS-PT dated February 22^nd, 2023, the People’s Court of Lâm Đồng Province ruled as follows:

– The court partially accepted Mr. Nguyễn Xuân Đ’s appeal.

– The appeals filed by Ms. Nguyễn Thị Hoàng K and Ms. Nguyễn Thị Hoàng M were dismissed.

– The appellate court amended the First-instance Civil Judgment and upheld the lawsuit filed by Mrs. Lê Thị Tuyết N against Mr. Nguyễn Xuân Đ concerning the dispute over the civil deposit contract.

– The court declared the deposit contract dated April 6^th, 2022 (mistakenly dated February 6^th, 2022) between Mrs. Lê Thị Tuyết N and Mr. Nguyễn Xuân Đ null and void.

– Mr. Nguyễn Xuân Đ was once again ordered to return the deposited amount of VND 1,000,000,000 to Mrs. Lê Thị Tuyết N.

Additionally, the appellate court also ruled on the court fees and interest if the parties delay judgment enforcement.

On April 24^th, 2023, Mr. Nguyễn Xuân Đ submitted a request for cassation review of the above Appellate Civil Judgment.

In the Decision No. 70/2023/KN-DS dated August 14^th, 2023, the Chief Justice of the High People’s Court in Hồ Chí Minh City appealed against the Appellate Civil Judgment No. 17/2023/DS-PT dated February 22^nd, 2023, of the People’s Court of Lâm Đồng Province.

It was proposed that the High People’s Court in Hồ Chí Minh City conduct the cassation trial and vacate the aforementioned Appellate Civil Judgment and the First-instance Civil Judgment No. 42/2022/DS-ST dated October 27^th, 2022, of the People’s Court of Đơn Dương District, Lâm Đồng Province, and remand the case file to the People’s Court of Đơn Dương District, Lâm Đồng Province for retrial in accordance with the first-instance procedures.

At the cassation hearing, the representative of the High People’s Procuracy in Hồ Chí Minh City proposed that the Cassation Panel accept the Appeal Decision of the Chief Justice of the High People’s Court in Hồ Chí Minh City, vacate both the above judgments for retrial in accordance with the first-instance procedures.

COURT’S OPINION:

[1] Based on Land Use Rights Certificate No. CV 012535 dated June 4^th, 2020, and Land Use Rights Certificate No. CV 012536 dated June 4^th, 2020, the 100m² land, plot 4011, map sheet No. 7, is under the use rights of Ms. Nguyễn Thị Hoàng K, and the 100m² land, plot 4012, map sheet No. 7, is under the use rights of Ms. Nguyễn Thị Hoàng M. On April 6^th, 2022, Mr. Nguyễn Xuân Đ and Mrs. Lê Thị Tuyết N signed a deposit paper (mistakenly dated February 6^th, 2022, as acknowledged by the parties) with the following content:

[2] “I, Mr. Nguyễn Xuân Đ, sell to Mrs. Lê Thị Tuyết N, residing at ¾ P Street, D City, two plots of land owned by my children:

[3] * Nguyễn Thị Hoàng K: Citizen ID No. 06818800253 issued on October 13^th, 2020, with Land Use Rights Certificate No. CV 012535 * Lot: E9 – Plot 4011, map sheet No. 7, area 100m²

[4] * Nguyễn Thị Hoàng M: Citizen ID No. 025491134 issued on May 17^th, 2020, with Land Use Rights Certificate No. CV 012536 * Lot: E8 – Plot 4012, map sheet No. 7, area 100m²

[5] The price for each plot is: VND 1,500,000,000 (One billion five hundred million dong)

[6] The total value of the two plots is: VND 3,000,000,000 (Three billion dong)

[7] Mr. Nguyễn Xuân Đ, as the father of the above children, received an advance deposit from Mrs. Lê Thị Tuyết N of VND 1,000,000,000 (One billion dong).

[8] On April 16^th, 2022, after notarizing the land use rights transfer, Mrs. Lê Thị Tuyết N will pay VND 1,500,000,000 (One billion five hundred million dong). The remaining amount of VND 500,000,000 will be paid by Mrs. N after receiving the Land Use Rights Certificate.”

[9] On April 6^th, 2022, Mrs. Lê Thị Tuyết N transferred a deposit of VND 1,000,000,000 to Mr. Nguyễn Xuân Đ. Upon receiving the deposit, Mr. Đ subsequently transferred this amount to Ms. Nguyễn Thị Hoàng K and Ms. Nguyễn Thị Hoàng M.

[10] According to Clause 1, Article 328 of the Civil Code, “Deposit is an act where one party (hereinafter referred to as the depositing party) delivers to the other party (hereinafter referred to as the receiving party) a sum of money or precious metals, gemstones, or other valuable items (hereinafter collectively referred to as deposit property) within a certain period to ensure the signing or performance of a contract.” In the present case, Mrs. Tuyết N’s deposit was intended to secure the signing of a land transfer contract for plots 4011 and 4012.

[11] Upon reviewing the process of contract signing and execution, it was noted in the Record of Confrontation dated August 15^th, 2022, that Mrs. Tuyết N admitted, “Due to the need to buy land in Đ, I agreed to purchase land with Mr. Đ, and Mr. Đ directly called me to inspect the land in S Commune. However, as S Commune was too far, we returned to T town and agreed to purchase plots 4011 and 4012 with Mr. Đ.

During the negotiation to buy the land with Mr. Đ, Ms. M was present. Ms. M mentioned a value of VND 1,500,000,000 per plot, and she called Ms. N for Ms. N to discuss with me to request a VND 1 billion deposit to retrieve the land certificate from C Bank, G branch. On April 17^th, 2022, I called Ms. N to complain about the high purchase price and stated that April 16^th, 2022, fell on a Saturday, so it was postponed to April 19^th, 2022.”

In both the first-instance and appellate court sessions, Mrs. Tuyết N admitted she was related to Mr. Đ, drafted the deposit contract herself, gave it to Mr. Đ for signing, and transferred the deposit money directly to Mr. Đ.

[12] Therefore, there is a sufficient basis to determine that during the transaction between Mrs. Tuyết N and Mr. Đ, Ms. Nguyễn Thị Hoàng K and Ms. Nguyễn Thị Hoàng M, they had agreed and consented regarding the deposit amount, transfer price, and the duration for signing the contract. Additionally, Mrs. Tuyết N was aware that the two plots of land were owned by Mr. Đ’s daughters, Ms. Nguyễn Thị Hoàng K and Ms. Nguyễn Thị Hoàng M, and were mortgaged at C Bank. Mrs. Tuyết N also agreed for Mr. Đ to sign the deposit contract on their behalf.

Therefore, Mrs. Tuyết N’s claim that Mr. Đ was not authorized to sign the deposit contract is unfounded. 

[13] Pursuant to Article 117 of the Civil Code, the deposit contract dated April 6th, 2022, fulfills all the validity conditions of a civil transaction, thereby rendering this contract legally binding upon the parties. Mrs. Lê Thị Tuyết N’s refusal to proceed with signing the land use rights transfer contract with Ms. Nguyễn Thị Hoàng K and Ms. Nguyễn Thị Hoàng M, citing objections to the high transfer price, constitutes a breach of the deposit agreement, for which fault lies entirely with Mrs. Tuyết N.

Therefore, Mrs. Tuyết N is liable to forfeit the deposit in accordance with Clause 2, Article 328 of the Civil Code.

[14] Both the first-instance and appellate courts acknowledged that at the time of signing the deposit contract, the parties were aware that plots 4011 and 4012 were mortgaged at the bank. Despite this knowledge, they proceeded with the contract, leading to the determination that the deposit contract dated April 6th, 2022, was valid, albeit both parties sharing fault. Contrary to the court’s initial ruling and appellate decision to return the deposit of VND 1,000,000,000 to Mrs. Tuyết N, the case files and evidence do not support this outcome.

By the consensus and agreement of the parties, it was stipulated that by April 19^th, 2022, they were obligated to sign and notarize the land use rights transfer contract. Should this deadline not have been met due to the property’s mortgage status at the bank, it would have constituted fault on the part of the receiving party. Moreover, the deposit contract remains an independent agreement, unaffected by the parties’ agreement to secure the land use rights transfer contract during the period when the property was under mortgage at the bank.

In light of the foregoing,

IT IS DECIDED:

Pursuant to point b, Clause 1, Article 337; Clause 3, Article 343; and Article 349 of the Civil Procedure Code,

The Cassation Appeal Decision No. 70/2023/KN-DS dated August 14^th, 2023, of the Chief Justice of the High People’s Court in Hồ Chí Minh City is accepted.

1. The entire Appellate Civil Judgment No. 17/2023/DS-PT dated February 22^nd, 2023, of the People’s Court of Lâm Đồng Province and the First-instance Civil Judgment No. 42/2022/DS-ST dated October 27^th, 2022, of the People’s Court of Đơn Dương District, Lâm Đồng Province, are to be vacated.
2. The case file is to be remanded to the People’s Court of Đơn Dương District, Lâm Đồng Province for re-trial in accordance with the law.
3. The cassation decision takes legal effect from the date of issuance.

CONTENT OF THE CASE LAW:

“[11] Upon reviewing the process of contract signing and execution, it was noted in the Record of Confrontation dated August 15^th, 2022, that Mrs. Tuyết N admitted, “Due to the need to buy land in Đ, I agreed to purchase land with Mr. Đ, and Mr. Đ directly called me to inspect the land in S Commune. However, as S Commune was too far, we returned to T town and agreed to purchase plots 4011 and 4012 with Mr. Đ.

During the negotiation to buy the land with Mr. Đ, Ms. M was present. Ms. M mentioned a value of VND 1,500,000,000 per plot, and she called Ms. N for Ms. N to discuss with me to request a VND 1 billion deposit to retrieve the land certificate from C Bank, G branch. On April 17^th, 2022, I called Ms. N to complain about the high purchase price and stated that April 16^th, 2022, fell on a Saturday, so it was postponed to April 19^th, 2022.”

In both the first-instance and appellate court sessions, Mrs. Tuyết N admitted she was related to Mr. Đ, drafted the deposit contract herself, gave it to Mr. Đ for signing, and transferred the deposit money directly to Mr. Đ.

[12] Therefore, there is a sufficient basis to determine that during the transaction between Mrs. Tuyết N and Mr. Đ, Ms. Nguyễn Thị Hoàng K and Ms. Nguyễn Thị Hoàng M, they had agreed and consented regarding the deposit amount, transfer price, and the duration for signing the contract.

Additionally, Mrs. Tuyết N was aware that the two plots of land were owned by Mr. Đ’s daughters, Ms. Nguyễn Thị Hoàng K and Ms. Nguyễn Thị Hoàng M, and were mortgaged at C Bank. Mrs. Tuyết N also agreed for Mr. Đ to sign the deposit contract on their behalf. Therefore, Mrs. Tuyết N’s claim that Mr. Đ was not authorized to sign the deposit contract is unfounded. 

[13] Pursuant to Article 117 of the Civil Code, the deposit contract dated April 6th, 2022, fulfills all the validity conditions of a civil transaction, thereby rendering this contract legally binding upon the parties. Mrs. Lê Thị Tuyết N’s refusal to proceed with signing the land use rights transfer contract with Ms. Nguyễn Thị Hoàng K and Ms. Nguyễn Thị Hoàng M, citing objections to the high transfer price, constitutes a breach of the deposit agreement, for which fault lies entirely with Mrs. Tuyết N.

Therefore, Mrs. Tuyết N is liable to forfeit the deposit in accordance with Clause 2, Article 328 of the Civil Code.

[14] Both the first-instance and appellate courts acknowledged that at the time of signing the deposit contract, the parties were aware that plots 4011 and 4012 were mortgaged at the bank. Despite this knowledge, they proceeded with the contract, leading to the determination that the deposit contract dated April 6th, 2022, was valid, albeit both parties sharing fault. Contrary to the court’s initial ruling and appellate decision to return the deposit of VND 1,000,000,000 to Mrs. Tuyết N, the case files and evidence do not support this outcome.

By the consensus and agreement of the parties, it was stipulated that by April 19^th, 2022, they were obligated to sign and notarize the land use rights transfer contract.

Should this deadline not have been met due to the property’s mortgage status at the bank, it would have constituted fault on the part of the receiving party. Moreover, the deposit contract remains an independent agreement, unaffected by the parties’ agreement to secure the land use rights transfer contract during the period when the property was under mortgage at the bank.”

THE RATIONALE FOR THE CASE LAW DRAFT’S PROPOSAL

Disputes over deposit contracts are increasingly common, yet resolving these disputes consistently remains a challenge in practice.

Firstly, the issue of signing a deposit contract to secure the obligation to sign a land use rights transfer contract between parties, particularly when the property is mortgaged at a bank, has been contentious. In the case at hand, both the first-instance and appellate courts initially ruled the deposit contract invalid and nullified it. However, the supervisory cassation court determined that the deposit contract stands independently and remains effective.

The court clarified that the property’s mortgage status at the bank does not undermine the validity of the deposit contract.

Secondly, there is ambiguity regarding who should sign the deposit contract to ensure the performance of the land use rights transfer contract. Some argue it should be signed by the property owner or someone authorized to transfer the property. In this case, Mr. Nguyễn Xuân Đ was neither the property owner nor authorized to transfer the property, but he was authorized by his children to sign the deposit contract.

Importantly, Mr. Đ was not authorized by his children to sign the land use rights transfer contract, a fact Mrs. Lê Thị Tuyết N was aware of but did not contest. The supervisory cassation court affirmed Mr. Đ’s qualification to sign the deposit contract, which aligns with legal principles.

Therefore, to ensure consistent application of the law in similar legal situations, there is a need to develop case law on these matters. This development aims to provide clearer guidance for resolving disputes over deposit contracts in the future.

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