Rights of a bona fide third party in invalid civil transactions under Article 133 of the Civil Code 2015
In civil transaction practice, it is not uncommon for a transaction to be declared invalid due to a violation of the conditions for contractual validity, while the subject matter of the transaction has already been transferred to a third party. The handling of legal consequences in such situations poses a challenge in balancing the principle of protecting legal order, the rights and interests of the original owner and the need to ensure safety and stability for civil transactions. Article 133 of the Civil Code 2015 was enacted to directly address this conflict, through a mechanism to protect the bona fide third party in cases where a transaction is invalid. Proper understanding of the scope of application, conditions for protection and limitations of this provision is of particular importance in legal advisory work, dispute resolution and the formulation of appropriate handling strategies for the parties involved.
1. Concept of a bona fide third party and determination in practice
Although the law does not provide a specific definition, in its ordinary meaning, “bona fide” is understood as the absence of deceit. A bona fide third party is identified as a person who possesses property in good faith through an invalid civil transaction but who completely does not know and is not legally required to know that the person transacting with them does not have the right to transfer such property, resulting in their possession of the property being, from a legal perspective, without lawful grounds. The element of “bona fide” therefore not only reflects the subjective state of awareness of the third party at the time of entering into the transaction but is also assessed based on an objective standard of reasonable diligence that a person in the same circumstances is required to exercise when participating in a transaction.
In judicial practice, courts often consider whether the third party has carried out sufficient measures to verify the legal status of the property, especially with respect to property subject to mandatory registration of ownership or use rights. Verification of ownership certificates, registration information at competent state authorities, the existence of disputes, distraint or restrictions on transactions are important factors in assessing bona fide. If the third party has taken reasonable verification steps but still could not detect the prior invalid transaction, they have grounds to be considered bona fide and to be protected by law.
2. Provisions and significance of protecting a bona fide third party
Article 133 of the Civil Code 2015 provides for the protection of a bona fide third party as follows:
• In cases where the subject matter of the civil transaction is property not required to be registered for ownership or use rights: although the transaction is invalid, if the property has been transferred to a bona fide third party, the transaction established and performed between the transferor and the bona fide third party remains legally valid, except for the cases stipulated in Article 167 of the Civil Code 2015.
• In cases where the subject matter of the civil transaction is property required to be registered for ownership or use rights: although the transaction is invalid, if the property has been lawfully registered and subsequently transferred through another civil transaction to a bona fide third party and the bona fide third party relies on such registration to establish and perform the transaction then the transaction between the bona fide third party and the person registered as the owner or user of the property is not invalid. In cases where property subject to mandatory registration has not been lawfully registered, the civil transaction with the third party shall be invalid, except as otherwise provided by law.
As a matter of principle, an invalid transaction does not give rise to, change or terminate civil rights and obligations of the parties from the time of its establishment. However, if this principle were rigidly applied in all cases, a third party who did not participate in the invalid transaction and was not at fault could suffer adverse legal consequences. Article 133 of the Civil Code 2015 therefore functions as a “safety valve” of the civil law system, aimed at protecting legal certainty for completed and lawfully registered transactions.
3. Conditions for a bona fide third party to be protected under Article 133 of the Civil Code 2015
Not every third party is automatically protected by law when a prior transaction is invalid. Article 133, Article 177 of the Civil Code 2015 and Article 91 of the Code of Civil Procedure 2015 set out strict conditions to limit the scope of application, preventing abuse of this provision to legitimize unlawful transactions, specifically:
• First, for property subject to mandatory registration under law, registration with a competent state authority is an important legal basis for the third party to form a legitimate belief that the transferor’s rights are lawful. For property not subject to registration, the primary condition is that the transfer of the property has been completed.
• Second, the transaction between the property owner and the third party must be an independent civil transaction, established after the invalid transaction and satisfying all conditions for validity under the Civil Code 2015. If the transaction with the third party also violates conditions regarding subjects, form or purpose and content, such transaction cannot be protected by law.
• Third, the bona fide status of the third party must be proven based on the objective circumstances of the case. In many cases, the burden of proving bona fide lies with the third party, through the provision of documents and evidence demonstrating the process of legal due diligence conducted on the property prior to entering into the contract.
4. Legal consequences when a bona fide third party is protected
When the above conditions are satisfied, the transaction between the bona fide third party and the transferor is recognized as legally effective, notwithstanding the fact that the prior transaction has been declared invalid. This means that ownership or use rights to the property are lawfully established in favor of the third party and the original owner has no right to reclaim the property from the third party.
In such cases, the original owner has the right to claim compensation for damages from the party who entered into the invalid transaction with them, provided that fault and actual damage can be established. This mechanism shows that the law does not deny the rights of the original owner but instead shifts protection toward civil liability relationships rather than disrupting the rights of a bona fide third party.
5. Legal recommendations
From the perspective of legal advisory services and assisting clients in dispute resolution, assessing the applicability of Article 133 of the Civil Code 2015 should be conducted at an early stage, before determining litigation strategy. For the original owner, it is necessary to clearly determine whether the property can be reclaimed or whether only a claim for damages against the party at fault is feasible. Pursuing a claim for recovery of property when the conditions for protecting a bona fide third party have already been met often leads to the risk of the court rejecting the claim, prolonging proceedings and incurring unnecessary costs.
For the third party, the key factor is the ability to prove the state of “bona fide” at the time of establishing the transaction. In practice, courts do not rely solely on statements but place particular emphasis on the body of evidence demonstrating the level of diligence exercised by the third party when participating in the transaction. Therefore, proactively verifying information, requiring representations and warranties from the transferor regarding ownership or use rights and maintaining complete legal records and evidence of the property verification process and contract execution – including the property’s legal documentation, registration search results, notarized contracts, payment records and documents evidencing legal due diligence prior to the transaction – are crucial to proving bona fide. Proper and consistent retention of these documents from the time of contract execution forms a vital foundation for protecting rights and interests if disputes arise.
In conclusion, Article 133 of the Civil Code 2015 is one of the provisions that clearly reflects the philosophy of balancing interests under Vietnamese civil law, between protecting legal order and ensuring safety and stability for transactions. The protection of bona fide third parties not only has significance in individual cases but also contributes to strengthening trust in the legal system. However, for this provision to be applied effectively, transaction participants must enhance their awareness of legal compliance, carry out all necessary verification measures and proactively seek advice from lawyers or legal experts when they identify that their lawful rights and interests have been infringed.
