Deposit Agreement Disputes: Causes, Legal Consequences, and Solutions Under the 2015 Civil Code of Vietnam

1. Deposit: Concept and Legal Nature

A deposit is a measure to secure the performance of a civil obligation, specifically regulated in Article 328 of the 2015 Civil Code. Accordingly, a deposit is defined as an act whereby one party (the depositor) delivers to the other party (the deposit recipient) a sum of money or precious metals, gemstones, or other valuable assets (collectively referred to as the deposit asset) for a specified period to ensure the conclusion or performance of a contract.

This measure is very common in civil and commercial transactions, such as the sale and purchase of real estate, goods, or the provision of services.

• If the contract is concluded and performed as agreed, the deposit asset may be returned to the depositor or offset against their payment obligation.
• Conversely, if either party breaches the commitments in the main contract secured by the deposit, disputes regarding the handling of the deposit asset and other related obligations may arise.

2. Common Types of Disputes Arising from Breach of Deposit Agreements

Disputes typically originate when a party fails to perform, improperly performs, or incompletely performs the obligations committed to in the main contract after a deposit agreement has been made. Typical breaches include:

• From the Deposit Recipient's side:

  • Failure to perform or incomplete performance of obligations under the main contract, such as not delivering goods, not transferring property ownership, or providing services not in accordance with the agreed quality.
• From the Depositor's side:
  • Failure to fulfill the remaining payment obligation or not continuing with the necessary steps to perform the contract after making the deposit.
• Other disputes:
  • Disagreements over the time or method of contract performance, or misunderstandings and different interpretations of contractual terms.

3. Legal Consequences of Breaching a Deposit Agreement

Clause 2, Article 328 of the 2015 Civil Code stipulates the legal consequences for breaches of obligations related to deposits:

• If the depositor refuses to conclude or perform the contract: The sum of money or deposit asset shall belong to the deposit recipient (commonly known as "forfeiture of deposit").

• If the deposit recipient refuses to conclude or perform the contract: The deposit recipient must not only return the entire deposit asset to the depositor but also pay a penalty equivalent to the value of the deposit asset (commonly known as a "deposit penalty"), unless otherwise agreed by the parties.
• If the contract is concluded and performed: The deposit asset shall be returned to the depositor or offset against the payment obligation.

Additionally, the breaching party may also be liable for compensation for damages (if any) to the aggrieved party in accordance with Article 419 of the 2015 Civil Code, if such breach causes actual damage.

4. Authority for Resolving Deposit Agreement Disputes

When a deposit agreement dispute cannot be resolved through negotiation or mediation, the parties may request the intervention of a competent adjudicatory body:

• Court: Disputes over deposit agreements are among the types of cases falling under the jurisdiction of the Court as prescribed by civil procedure law (general reference to Article 14 of the 2015 Civil Code on protection of civil rights through competent authorities ).

• Commercial Arbitration: This method is applicable if:
  • The dispute arises from commercial activities, for example, a deposit agreement securing a contract for the sale of goods.
  • The parties have an arbitration agreement. This agreement can be made before or after the dispute arises.

5. Important Considerations to Mitigate Disputes

To minimize the risk of disputes related to deposit agreements, parties should consider the following:

• Draft clear and detailed contracts: Both the deposit agreement and the main contract should specify terms regarding a_n_time limits, rights and obligations of each party, conditions for deposit penalties, and mechanisms for damage compensation in case of breach.

• Retain complete evidence: Parties should carefully preserve all documents related to the transaction, such as records of receipt of money/deposit assets, contract content, letters, emails, and other written communications.
• Seek specialized legal consultation: Before signing any contract, consulting with a lawyer or legal expert is necessary to ensure that the terms comply with legal regulations and maximally protect one's interests.
• Agree in advance on the dispute resolution method: Parties should agree on the choice of dispute resolution method (negotiation, mediation, arbitration, or court) right from the contract negotiation stage to be more proactive when a dispute occurs.

6. Conclusion

Disputes arising from breaches of obligations related to deposit agreements are not uncommon legal issues in civil and commercial transaction practices. A thorough understanding of legal provisions, especially the articles in the 2015 Civil Code, combined with careful contract drafting and the application of risk prevention measures, will help parties significantly reduce the likelihood of disputes and effectively protect their legitimate rights and interests. In the unfortunate event of a dispute, parties should prioritize negotiation and mediation. If unsuccessful, seeking recourse from adjudicatory bodies such as arbitration or the courts is necessary to ensure a fair and transparent resolution.

Le Viet Manh - DB Legal

The information contained in this article is general and intended only to provide information on legal regulations. DB Legal will not be responsible for any use or application of this information for any business purpose. For in-depth advice on specific cases, please contact us.

 

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