Is a land use right transfer contract effective when one of the signatories loses civil act capacity?

The contract for the transfer of land use rights is a common type of civil contract in our daily life. Through the contract, the parties agree on the establishment, change and termination of each party’s rights and obligations when transferring the land use right. Usually, when establishing a land use right transfer contract, the parties are only interested in terms directly related to their rights such as payment method, time for the handover of land use rights, etc. but forget the most important factor when entering into a civil contract is the validity of the contract. So, what is the validity condition of a civil contract and what happens when the contract does not meet this condition? We understand the questions of our readers and would like to send you an article about a case where a civil contract does not meet the conditions for validity of a contract: A land use right transfer contract signed by one party losing the capacity for civil acts.

1. Validity conditions of the land use right transfer contract

When entering into any civil transaction, the parties need to pay attention to the valid conditions of the transaction and the land use right transfer contract is not an exception. Only when the contract comes into effect will give rise to the rights and obligations that the parties agreed in the contract, from which the parties will have a binding basis for the responsibility of the proper performance under the contract, especially where an obligation is breached by one party. In contrast, an invalid land use right transfer contract will not give rise to rights and obligations to perform under the contract for the parties, as a result, the parties must restore the original condition as before the contract was entered and return to each other what they have received. At the same time, the party at fault causing damage must also pay compensation to the other party.

One of the conditions to ensure the validity of a land use right transfer contract in particular and a civil transaction in general is that the subject entering into the contract must have civil legal capacity and civil act capacity in accordance with established civil transactions.

An individual’s civil act capacity is an individual’s ability to establish and perform civil rights and obligations through his/her actions. However, the subject of a civil transaction can also be a legal entity. With regard to the subject being a legal entity, the legal entity participates in civil transactions through its representative (which can be represented at law or by authorisation). The representative establishes and performs civil transactions in the name of the legal entity and the rights and obligations established by the representative give rise to the rights and obligations of the legal entity. Whether it is an individual or a legal entity, it is necessary to have civil act capacity, to be able to establish transactions by themselves, to exercise their rights and obligations, and to take full responsibility for such civil transactions.

2. Land use right transfer contract signed by a party who has lost civil act capacity

When a person, due to a mental illness or another disease, is unable to perceive and control his or her behavior, at the request of a person with related rights and interests or concerned agencies or organisations, the Court will issue a decision to declare this person as a person incapacitated for civil acts on the basis of the conclusion of a psychiatric forensic examination. At this time, a person who has been declared incapacitated for civil acts is not able to enter into any civil contract in general and land use right transfer contract in particular. Any contract entered into by a party who has lost civil act capacity will become a void civil contract due to the failure to meet the conditions for the validity of the contract.

In principle, when an individual is declared incapacitated for civil acts, they no longer have the ability to participate in establishing and exercising their civil rights and obligations, and their civil transactions must be established and conducted by a legal representative that is their guardian[1]. In the case of transferring land use rights, the guardian will on the behalf of the person who has lost their civil act capacity to enter into a contract for the transfer of land use rights such as determining the legality of the transferred land use right, signing a contract for the transfer of land use rights, submitting the transfer of land use rights dossier, and fulfilling financial obligations such as personal income tax, and land transfer fees.

Therefore, the guardian will act on behalf of the person who has lost their legal capacity to carry out the transfer of land use rights, however, the transaction must be made sure to be carried out in the interest of the person who has lost their legal capacity to act. According to the provisions of the 2015 Civil Code, the rights and obligations of the representative must be aimed at protecting the legitimate rights and interests of the person who has lost their legal capacity to act. Therefore, if the transfer of land use rights is not for the purpose of benefiting, but leads to loss of property, affecting the interests of the person who has lost their civil act capacity, then the transaction cannot be carried out and may be invalidated.

In some special cases below, the land use right transfer contract signed with the incapacitated person for civil acts will take effect:

a) Case of restoration of civil act capacity

According to the provisions of Article 125.2.(c) of the Civil Code 2015, for a civil transaction that the transaction maker acknowledges taking effect after having restored his/her civil act capacity, this transaction will not be considered a void transaction. Thus, if a person enters into a contract to transfer land use rights within a period of time unable to perceive and control his/her acts, but when he/she recovers his/her civil act capacity, he/she acknowledges the validity of his/her act of that transaction, then this land use right transfer contract will still have legal effect and bind the rights and obligations of the parties under the signed land use right transfer contract.

b) In case of loss of civil act capacity after requesting/being requested to entering into a contract

In practice, there are many cases where the contract for the transfer of land use rights has been agreed upon and accepted by both parties, but later, for various reasons, one party loses their civil act capacity when the parties have not yet signed a contract on transfer of land use rights.

If based on the provisions on the validity conditions of civil transactions and concluding that the entering of the contract is not valid, it will be unfair to the parties, especially the party who has not lost the capacity for civil acts as at the time of proposing to enter into or accepting a contract, the parties have full civil act capacity, have voluntarily entered into and agreed with each other on the rights and obligations of the parties in the contract. Therefore, to protect the interests of the parties, the law has stipulated that in cases where the proposed party or the offeree party loses civil act capacity or has difficulty in perception or control of behavior, the proposal and the reply to accept the offer to enter into a contract are still valid, unless the content of the contract is attached to the personal identity of the offeror/offeree[2].

In this case, the guardian of the person who has lost his civil act capacity will continue to perform the land use right transfer contract with the other party.

With the above analysis, we find that not all the cases when one of the signatories is incapacitated for civil acts, the land use right transfer contract will automatically be declared invalid. However, in order to avoid unnecessary disputes and damages, everyone needs to ensure the valid conditions of the land use right transfer contract, especially the conditions on the subject of the contract.

The above is a summary of issues related to the Contract for transfer of land use rights when one party signing the contract is a person who has lost civil act capacity. If you have difficulties in finding a Law Firm to advise and support on drafting contracts and carrying out procedures related to land use rights transfer, please contact us: Phuoc and Partners is a law firm established in Vietnam and currently has nearly 100 members working at three offices in Ho Chi Minh City, Hanoi and Da Nang. Phuoc and Partners is also rated as one of the law firms with a team of top legal professionals in Vietnam and with practice areas that are among the top-rated in the legal market such as Labour and Employment, Taxation, Mergers and Acquisitions, and Litigation. We are confident that we are one of the best Law Firms providing legal services to our valued customers.

[1] Clause 1 Article 22 of the Civil Code 2015

[2] Article 395, Article 396 of the Civil Code 2015