Perspective from Case Law No. 25/2018/AL on the case of non-penalty deposit due to objective reasons

 Date: 19 July 2021

Writers: Thao Nguyen & Tuyen Pham

Deposit penalty is one of the reasons leading to disputes regularly when the parties enter into a deposit contract. A question raised is of that “in which case, a party shall not pay a deposit penalty even though it has breached the obligations specified in the deposit contract?”. Through this article, BLawyers Vietnam would like to introduce to you Case Law No. 25/2018/AL to answer the above question.

1. Summary of Case Law No. 25/2018/AL

On 12 May 2009, Ms. H agreed to sell Mr. L the house in her name (which was bought at an auction hold by Ho Chi Minh City Civil Judgment Execution Agency (“CJEA”) under the Deposit Contract (“Contract”) with the following contents:

  • Mr. L shall deposit an amount of VND2,000,000,000 for Ms. H;
  • Ms. H shall complete the procedure to be granted a certificate of ownership for the house within 30 days from the date of signing the Contract; and
  • In case of violation of the time limit, Ms. H shall pay the penalty with an amount of VND2,000,000,000 equivalent to the deposit.

At the end of the expiry date stated in the Contract, Ms. H still has not completed the necessary procedures as agreed. Therefore, Mr. L filed a lawsuit against Ms. H for requesting to return the deposit of VND2,000,000,000 and pay a penalty of VND2,000,000,000.

Ms. H agreed to return the deposit and interest as prescribed but did not agree to pay the penalty because she supposed that the failure to perform the agreement was due to the delay of the CJEA in transferring the ownership of the house to her.

The first-instance court accepted Mr. L’s request and compelled Ms. H to pay Mr. L VND4,000,000,000. Ms. H appealed and the Appellate Court decided to uphold the first-instance judgment.

The Supreme People’s Court re-tried the case according to cassation procedures and issued a decision to annul the first-instance and appellate judgments with the following opinion: “If there is the basis to determine that the CJEA delayed in transferring the ownership to Ms. H, Ms. H’s failure to comply with the agreement with Mr. L shall be due to the objective reason, and Ms. H shall not be subject to the penalty”.

Thus, if the party receiving the deposit cannot fulfill its commitment due to objective reasons, the deposit recipient shall not be subject to the penalty.

2. Applying Case Law No. 25/2018/AL for similar cases

Case Law No. 25/2018/AL can be appliable in similar cases as follows:

  1. Regarding the type of property: The property mentioned in this Case Law is a sum of money, however, this Case Law can still be applied for other types of deposit assets, such as valuable papers, precious metals and gems.
  2. Regarding the type of secured contract: The secured contract in this Case Law is the house sale and purchase contract. For other cases that are not related to housing sale and purchase contracts, this Case Law may still be applied.
  3. Regarding the objective reasons: The objective causes do not necessarily come from the CJEA but may come from other competent state agencies or due to state policies that the contract cannot be performed as agreed.

3. Some unresolved issues of Case Law No. 25/2018/AL

a. Case Law 25 does not clearly explain the phrase of “not subject to a penalty

The phrase of “not subject to a penalty” can be understood in two ways as follows:

  1. The deposit recipient shall not have to pay the depositor an amount equivalent to the value of the deposited asset and shall not return the deposit amount which he/she has received; or
  2. The deposit recipient shall not be required to pay the depositor an amount equivalent to the value of the deposited asset but shall return the deposit. Because this Case Law does not clarify this phrase, some courts will apply it in option (i), others will apply it in option (ii).
b. The case law has not mentioned the issue of return of income arising from the deposited asset

In case the deposit recipient uses the deposited asset and earns income from such asset, does that income have to be returned to the depositor? If it does, the deposit recipient shall fully or partially return the income? These issues are still unresolvable by the Case Law, therefore, the practical application still depends on the opinion of the Trial Panel.

In summary, although we got the answer for the question of “in which case, the party that violates the deposit contract is not subject to a deposit penalty?”, Case Law No. 25/2018/AL still has some unresolved legal issues. It will cause some difficulties for Courts in the application process, leading to the existence of judgments with conflicting contents.

Should you have any questions about the above contents, please revert to BLawyers Vietnam at consult@blawyersvn.com. We are more than happy to hear from you!

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