Khóa luận tốt nghiệp: Conditions in the law of contract: a comparative perspective and implications for VietNamese legal reform

RESEARCH OBJECTIVES AND QUESTIONS

Research Question 1: To What Extent Does Vietnamese Legal

There is a growing use of conditions in contracts, especially in complex and high-value business transactions under the ‘Conditions Precedent’ clause However, there has been little research on conditions, and conditions are often mistaken for obligations in the negotiation process Therefore, the first research question is directed at the efficacy of Vietnamese law on conditional contracts It examines the approach to conditions in the 2015 Civil Code of Vietnam and some follow-up precedents, compares these legal instruments to international best practices, and critically analyses the law.

Research Question 2: How Should the Regime on Conditions in Vietnam

The regime on conditions has been well-developed in western countries However, whether their approach to conditional contracts could simply be transplanted to Vietnam - a country with a significantly different socio-cultural, legal and commercial context remains unanswered Thus, the second question considers the suitability of other jurisdictions’ regimes on conditional contracts to the Vietnamese context and proposes a legal reform to Vietnamese regulations on conditional contracts.

RESEARCH METHODOLOGY

Doctrinal Research

A doctrinal research approach is defined as one “which provides a systematic exposition of the rules governing a particular legal category, analyses the relationship between rules, explains areas of difficulty and, perhaps, predict future development” 5

5 Definition by Pearce Committee cited in Terry Hutchingson, ‘Doctrinal Research’ in Dawn Watkins and Mandy Burton (eds), Research Methods in Law (Routledge 2013) 10

In doctrinal research, scholars engage in a two-fold process: identifying and interpreting legal texts Researchers analyze primary sources (i.e., the law itself) to uncover its "objective" meaning They then examine secondary sources (e.g., academic commentary) to assess the coherence and consistency of the law This process involves locating and scrutinizing both the legal documents and the relevant scholarly interpretations.

In Chapter Two and Four, doctrinal legal research methodology has been applied in order to analyse in-depth legal provisions through primary and secondary sources of law, which involves vertical and horizontal comparisons and critical analysis Applying doctrinal research in Chapter Two can help the researcher answer the question as to what the condition is In the meantime, employing doctrinal research in Chapter Four also helps the author to review and assess the efficacy of Vietnam’s laws on conditional contract through primary and secondary sources.

Comparative Research

Comparative analysis is the second research method in this study Comparative law can be simply understood as “the comparison of the different legal systems of the world” 7 , but it means more than a research method In terms of content, it has the property of being regarded as an academic discipline that examines law from a new perspective 8

A comparative study can be categorised as (i) a macro-comparison or (ii) a micro-comparison While the former is a complete comparison of different legal systems to learn about their legal styles, cultures, ways of thinking, and procedures,

6 Michael McConville and Wing Hong Chui (eds), Research Methods for Law (Second edition,

7 Konrad Zweigert, Hein Kotz and Tony Weir, Introduction to comparative law (Oxford University Press 1998) 2

8 Pierre Legrand, ‘Comparative Legal Studies and Commitment to Theory’ (1995) 58 The Modern Law Review 262

5 the latter deals with specific areas of law 9 Macro-comparison begins with the presumption of difference that identifies the legal mentality of compared legal systems; in contrast, micro-comparison presumes the similarity to seek the best solutions 10 The latter method bears a resemblance to the doctrinal analysis as they both separate a set of rules from their context or purposes to study

The thesis employs a comparative research methodology to analyze conditional contracts In Chapter Three, a micro-comparative approach assesses legal systems and practices internationally Chapter Four similarly uses micro-comparative research to compare Vietnam's provisions with international norms Chapter Five employs macro-comparison to examine the potential transplantation of common law models into Vietnam's unique socio-cultural and legal context.

LITERATURE REVIEW

Research on Conditions in Foreign Jurisdictions

During the Romanian era, the research on conditions was found in Justinian’s Institute (533 AD) in which it divided obligations into three types: absolute obligations, postponed obligations, and conditional obligations The Digest later clarified on the characteristics of these conditional obligations in disconnected passages written by Ulpian 11 and Julian 12 However, these passages only presented a few specific cases without tackling other matters of conditional contracts

From the middle of the 19 th century until the first part of the 20 th century, contract law was dominated by a school of thought known as classical contract law, which found its central inspiration in Christopher Columbus Langdell, Oliver

10 Geoffrey Samuel, An Introduction to Comparative Law Theory and Method (Bloomsbury

Wendell Holmes Jr., and Samuel Williston 13 As to the definition of a conditional contract, while Langdell (1880) insisted that a condition needed to be future as well as uncertain, 14 Harriman (1901) and Williston (1908) argued that uncertainty in the minds of parties was enough 15 Following their predecessors, Costigan (1907) 16 and Corbin (1919) 17 presented a more comprehensive study of conditions However, it should be noted that these studies were heavily affected by the classical contract law, which was a rigid instrument responsive to neither the actual objectives of the parties, the actual facts and circumstances of the parties’ contract, nor the dynamic character of contracts 18

In the present day, contract law has been transformed from classical to modern, and the modern contract-law reasoning is justified by social needs more than by doctrines 19 Therefore, contemporary studies on conditions are mostly based on this school of thought; however, that does not mean the viewpoints on conditions cease to diverge UNIDROIT Drafting Committee (2010) has agreed on the concept of a condition that disregards the acts of parties as conditions However, Melvin A Eisenberg (2018), in her publication, devoted a chapter to express conditions 20 in American law, stating that conditions can also be acts within the control of parties Martin Hogg (2017), in his research on obligations, 21 presented the ongoing debate revolving around their conditionality and contingency However, this book, as its title may suggest, focused more on the confusion caused by languages rather than addressing the legal problem

13 Melvin Aron Eisenberg, Foundational Principles of Contract Law (Oxford University Press 2018)

14 Christopher Columbus Langdell, A Summary of the Law of Contracts (Little, Brown, 1880)

15 Edward Avery Harriman, The Law of Contracts (Little, Brown, 1901)

16 George P Costigan Jr., ‘Conditions in Contracts’ (1907) 8 Columbia Law Review 151

17 Arthur L Corbin, ‘Conditions in the Law of Contract’ (1919) 28 The Yale Law Journal 739

18 Melvin Aron Eisenberg, Foundational Principles of Contract Law (Oxford University Press 2018)

19 Melvin Aron Eisenberg, Foundational Principles of Contract Law (Oxford University Press 2018)

20 Melvin Aron Eisenberg, Foundational Principles of Contract Law (Oxford University Press 2018) 716-730

Research on Conditions in Vietnam

Before 1995, no official study or research had been conducted on conditional contracts It was not until 1995 when the Civil Code recognised the conditional contracts that follow-up studies started to emerge, i.e Pham Cong Lac (1995) 22

The 2005 Civil Code continued to recognize the conditional contracts and added more detailed provisions on the interference with conditions, leading to many more research projects For example, Tran Thi Thu Quynh (2011), in her LLM thesis on conditional civil transactions, 23 argued that unilateral acts could not be conditional, thus, she suggested excluding unilateral acts from the bases giving rise to conditional contracts However, in my opinion, unilateral acts can also be conditional, and this will be discussed in Chapter Four of this thesis

The provisions on conditional contracts mostly remained unchanged in the

2015 Civil Code As to the definition of a condition, Le Thi Diem Phuong (2020), in her article, has criticized it for its ambiguity 24 However, the article only cited various concepts of the condition in different jurisdictions without stating the hypothesis Truong Nhat Quang (2020), in his publication on the law of contract, 25 provided a practitioner’s view on clauses named ‘Conditions Precedent’, which include acts by parties, the accuracy of one party’s representations or warranties, and other events that are outside the control of parties However, despite the terminology used by the parties, not all the events referred to as ‘Conditions Precedent’ are true conditions as defined by internationally accepted standards, and Chapter Two of this thesis will discuss this problem Do Van Dai (2020), in his book, argued that fulfilling a condition will only give rise to the existence of a contract instead of giving rise to the

22 Pham Cong Lac, ‘Ve “dieu kien” trong cac hop dong co dieu kien’ [Conditions in Conditional Contracts] (Luat hoc 1995); Pham Cong Lac, ‘Gop y cho du thao Bo luat dan su ve giao dich dan su co dieu kien’ [Recommendations for the Drafting of the Civil Code on Conditional Contracts] (Luat hoc 1995)

23 Tran Thi Thu Quynh, ‘Conditional Contracts’ (LLM thesis, Vietnam National University 2011)

The concept of a condition in a conditional contract is explored in the work of Le Thi Diem Phuong, "The Conception of Conditions in Conditional Contracts" (2020) Phuong's research examines the legal framework surrounding conditions in conditional contracts, providing insights into the nature and function of these contractual elements within the Vietnamese legal system.

25 Truong Nhat Quang, Phap Luat Ve Hop Dong: Cac Van De Phap Ly Co Ban [Contract Law:

8 contract’s effect 26 However, if this view is to be adopted, a party may withdraw their offer at any time before the condition is fulfilled, despite the other party using all reasonable efforts to bring about the fulfillment of the condition.

THESIS STRUCTURE

The thesis is divided into five chapters

Chapter One is the introductory chapter providing the background, the objectives of the research, the research questions, the research methodology, the literature review, and a brief outline of the content of this thesis

Following this chapter, Chapter Two outlines the theoretical framework for understanding conditions in the law of contracts In this theoretical framework, to answer the conceptual question, I first approach the contract and then examine the condition as a contractual term, thereby providing a foundation for further research in the thesis Moreover, this chapter also examines the historical evolution of conditions, which provides an understanding of the development of conditions

The three following chapters concentrate on a closer analysis of the legislation in different jurisdictions as well as in Vietnam These chapters lead to a conclusion that Vietnam requires a legal reform to better the provisions on conditions in the law of contracts

Chapter 3 analyzes provisions on conditions in international practices (UNIDROIT Principles, Principles of European Contract Law) and national legal systems (The Restatement (Second) of Contracts in the United States, German Civil Code) By examining conditional contracts across jurisdictions, this chapter contributes to answering the research question: how closely does the Vietnamese legal framework on conditional contracts align with international best practices and other established legal systems?

“Contract Law in Vietnam – Cases and Commentaries (Volume 1)” (Vietnam National University - Ho Chi Minh City Publishing House 2020) explores the complexities of the Vietnamese contract law system.

Chapter Four critically reviews the substantive law on conditional contracts in Vietnam It discusses the conception, the historical evolution, the classification, the effect, and the legal consequences of the non-occurrence of conditions On top of that, the chapter will also provide a practical perspective by looking at the most recent precedents on conditional contracts to assess whether these precedents can fill the gap in the 2015 Civil Code This analysis answers the first research question by arguing that the Vietnamese law on conditions has many inappropriate provisions that need to be amended

The final chapter includes the recommendations for the reform of Vietnamese law on conditional contracts Following previous chapters that compare the Vietnamese law with other jurisdictions to assess its appropriateness, this chapter will come to the answer to the final question: How should the regime on conditional contracts in Vietnam be reformed?

CHAPTER TWO: THEORETICAL ANALYSIS OF CONDITIONS IN THE LAW OF CONTRACT

This chapter aims to answer the question as to the concept of a condition by providing a theoretical framework for the condition in the law of contract Therefore, in the first section, the chapter will approach fundamental principles of contract law to provide a foundational basis for the conceptual framework of the condition Legal issues relating to the condition will be mentioned, including the contract and its legal effect, to later examine how a condition interacts with the contract’s legal effect Accordingly, the chapter will examine the condition along with various issues revolving around it, including its concept, its impact on the contract’s legal effect, its history of development, its classification, and its effect of non-occurrence.

CONTRACT AND ITS LEGAL EFFECT

Contract As A Basis Giving Rise to Obligations

A contract is an agreement giving rise to obligations that are enforced or recognised by law 27 This proposition remains generally true, and the justifications for which will be examined below

The agreement to be legally bound gives rise to a contract

The first requisite of a contract is that the parties should have reached an agreement Generally speaking, an agreement is made when one party accepts an offer made by the other 28 However, an agreement is not as binding as a contract if it was made without any intention of creating legal relations The question of whether the parties had the intention to be bound can be answered by differentiating between which promises should be made legally enforceable and which should only be considered moral obligations

Sometimes, people exchange promises with the mutual understanding that either party may withdraw from the promise, and such promises are not legally

27 Peel E and Treitel GH, The Law of Contract (Sweet & Maxwell 2015) para 2-001

11 enforceable The moral principle that all promises must be kept cannot be applied in this case, as revoking a promise that both parties understood to be revocable is not immoral For example, some promises are made based on the assumption that people would prefer to rely on social (rather than legal) dispute settlement to determine the implicit obligations of the promise It would be surprising if the promise to have lunch with a friend the following week would require that the promise be kept at any cost And even if this promise would impose an obligation on one person to notify the other if their plans changed, it would be surprising if the obligation to inform the other party would result in legal sanctions That is because neither party to the relationship would want or expect the legal intervention to determine the terms of their relationship 29

Legally binding contracts require mutual intent to create legal obligations The objective test determines whether such intent exists, regardless of the promisor's subjective expectations Reasonable observers evaluate the parties' conduct, leading to a presumption of legal intent in commercial express agreements.

A contract gives rise to obligations

The second requisite of a contract is that it gives rise to obligations A promise, which is legally binding, is called an obligation; and if both parties intend their agreement to create legal relations, they agree to impose legal obligations on each of them

Therefore, from the above analysis, the contract can be understood as an agreement giving rise to obligations that are enforced or recognised by law This conception is broadly adopted in different jurisdictions In common law countries, for example, the United States interpreted the contract as a “total legal obligation that

29 Peter M Gerhart, Contract Law and Social Morality (Cambridge University Press 2021) 119

30 Janet O’Sullivan and Jonathan Hilliard, The Law of Contract (Oxford University Press 2006) 47

31 Carlill v Carbolic Smoke Ball Co (1893) EWCA Civ 1; British Airways Board v Taylor (1976) 1 All ER 65

12 results from the parties' agreement”, 33 and the classic Deluxe Black’s Law Dictionary also introduced a similar definition: “An agreement between two or more parties creating obligations that are enforceable or otherwise recognizable at law” 34 In civil law countries, the French Civil Code defined a contract as “an agreement by which one or several persons obligate themselves to one or several others to give, to do, or not to do something” 35 , while the Civil Code of Quebec (Canada) explained that “a contract is an agreement of wills by which one or several persons obligate themselves to one or several other persons to perform a presentation” 36 These conceptions all share the same characteristics of a contract: (i) it is the result of parties’ agreement, and (ii) it creates obligations.

The Concept of Legal Effect

The previous section has indicated that the contract is a source of obligations; however, not all of them can give rise to obligations, but only enforceable ones can Its enforceability is also known as the legal effect of a contract

The legal effect (or enforceability) of a contract is a complex issue, yet no clear-cut definition has been given to this matter The Dictionary of Legal Jargons has interpreted the ‘legal effect of a contract’ as ‘the binding performance of obligations that contracting parties must undertake’ 37 This view was also adopted by Nguyen Ngoc Dien: “A contract must be appropriately and fully performed A legally concluded contract imposes binding obligations to contracting parties” 38 From a broader perspective, in addition to the domain of performance, the legal effect issue may involve various domains, including (i) the domain of contract formation (to determine which promise gives rise to legal obligations), (ii) the domain of interpretation (to determine what a legal obligation entails), and (iii) the domain of excuse and illegality (to determine whether an otherwise enforceable promise will be excused or deemed unenforceable 39

33 Uniform Commercial Code of United States of America, Art 1-201

34 Bryan A Garner, Black’s Law Dictionary (Thomson Reuters 2019)

36 Civil Code of Quebec, Art 1378

37 Dinh Van Thanh, Pham Cong Lac, ‘Thuat Ngu Luat Dan su’ [Civil Law Jargons] in Dictionary of

Legal Jargons (Public Security Publishing House, 1999) 65

38 Nguyen Ngoc Dien, Giao trinh Luat Dan su II [Textbook on Civil Law II] (Vietnam National University Ho Chi Minh City Publishing House 2018) 107

39 Peter M Gerhart, Contract Law and Social Morality (Cambridge University Press 2021) 107

According to legal instruments in various countries, contracts legally entered into have the force of law for the parties involved For example, the French Civil Code establishes that agreements must be respected and can only be revoked by mutual consent or for legal reasons, and they must be performed in good faith Similarly, in Russia and Vietnam, contracts become enforceable upon conclusion, requiring parties to fulfill their agreed-upon obligations These concepts emphasize the legally binding nature of contracts, obligating parties to perform their respective obligations.

Enforceable obligations are justified on both moral and economic grounds Morally, broken promises result in injustice as one party fulfills their obligations while the other reneges Conversely, when promises are kept, societal trust is strengthened, facilitating transactions and advancing civilization Economically, promises serve as risk allocation mechanisms, allowing businesses to shift potential losses to better equipped parties Maintaining these obligations fosters commercial activity and upholds the market economy.

However, it is noteworthy that the effect of a contract is different from that of an obligation The effect of a contract is what gives rise to an obligation, yet when we mention an ‘obligation’, it is not always attached to a contract Those attached to a contract are called ‘contractual obligations’, which are a subset of ‘civil obligations’

In fact, a contract is just one of the sources giving rise to obligations, besides other judicial events giving rise to civil obligations such as unjust enrichment, tort,

42 The 2015 Civil Code of Vietnam, Art 401.2

43 Oughton, Sourcebook on Contract Law (Cavendish Publishing 2000) 91

14 unilateral acts, etc Therefore, the obligation should not be examined from the contractual approach but rather be analysed as a separate regime 44

Time for the Arousal of Legal Effect

As analysed above, the legal effect renders a contract legally binding, thus imposing obligatory performance upon contracting parties The next question is, when does a contract incur its legal effect? Answering this question, the 2015 Civil Code of Vietnam has listed three possible points when a contract could come into effect:

2.1.3.1 Time of Conclusion of the Contract

To provide a default rule to pinpoint the time when a contract comes into force, the 2015 Civil Code of Vietnam has recognized that the time of conclusion of the contract to be simultaneous with the time when a contract comes into effect, providing that “a contract legally entered into shall take effect from the time when it is entered into unless otherwise agreed or otherwise provided by law.” 45

By this provision, the Vietnam Civil Code has differentiated between two different points of time: (i) the time of conclusion of the contract and (ii) the time when the contract takes effect This is an intriguing point as other national civil codes 46 or international customs 47 all automatically assume the time of the conclusion of the contract is as same as the time when a contract comes into force without

44 Vu Van Mau, Viet Nam Dan Luat Luoc Khao [Vietnamese Civil Law – Book II: Contracts and Obligations] (Bo Quoc Gia Giao Duc Xuat Ban 1963) 241

45 The 2015 Civil Code of Vietnam, Art 401.1

46 Including French Civil Code, German Civil Code, Russian Civil Code, and Japanese Civil Code

47 Including the 2016 UNIDROIT Principles of International Commercial Contracts

Three possible points for a contract to come into effect

Time of conclusion of the contract

Time agreed by the parties

Time imposed by the law

Figure 1- Three Possible Points for A Contract to Come into Effect

15 elaborating further on the effect of the contract In Vietnam, to determine the time of the contract conclusion, one must examine the means through which parties expressed their intentions For example, if the parties have agreed that silence shall constitute an acceptance within a time limit, the contract shall also be deemed to be entered into when such time limit has expired; if parties choose an oral contract, the contract is entered into when the parties have reached agreement on the contents of the contract; if parties agree on a written contract, it is then entered into when the last party signs the contract or by other forms of written acceptance 48

Providing a default rule as to the time when a contract comes into force like this can fill the gap where parties have yet to agree on the time for the legal effect of the contract On top of that, this provision is also compatible with other jurisdictions and international practices at the time when a contract takes effect

2.1.3.2 Time Agreed by the Parties

In accordance with the principle of freedom of contract, parties are at liberty to determine the effective date of a contract, as opposed to the default rule of immediate effect This flexibility empowers parties to tailor the contract's commencement to their specific needs and circumstances.

In practice, the right to choose a time from which the contractual effect arises is frequently used For instance, the terms and conditions of the “Healthier 100” product provided by AIA Insurance Vietnam LLC set out the effective date of the contract as follows: “if the application is accepted, the effective date of the contract shall be the date when customers complete the application form and pay an initial premium in full.” 50 In addition to the insurance contract, parties to the conditional contract also agree on the point when the contract shall come into force This is because parties are free to decide when a contract shall take effect as well as what conditions would make a contract become effective A contract containing such conditions is called a conditional contract As will be elaborated further in the following sections, in conditional contracts, parties would agree upon certain events

48 The 2015 Civil Code of Vietnam, Art 400

49 The 2015 Civil Code of Vietnam, Art 401.1

50 In accordance with Document ref 14152 /BTC-QLBH date 21 November 2019 issued by the Ministry of Finance

16 that shall give rise to the legal effect of the contract The time when this contract shall take effect can only be agreed by the parties – a distinctive feature from two other points when other contracts can also come into force

2.1.3.3 Time Imposed by the Law

As to certain contracts that emphasize the formality, the time when they come into force shall be the time when all formal requirements are satisfied Such requirements generally consist of writing, sometimes with additional requirements, e.g those of authentication by a notary

Such a requirement may serve one or more of several purposes First, it promotes certainty, as it is usually relatively easy to tell whether the required form has been used A requirement of writing also simplifies the problem of ascertaining the contents of the agreement Secondly, form has a cautionary effect: a person may hesitate longer before executing a deed than he would before making an oral promise Thirdly, the form has a protective function: it is used to protect the weaker party to a contractual relationship by ensuring that he is provided with a written record of the terms of the contract 51

In Vietnam, high-value and complex transactions are often contracts that will only come into effect if their formal requirements are met For example, the requirement for contracts for gifts of property sets out that: “A gift of immoveable property must be recorded in writing and notarized or certified, and must be registered if the law on an immoveable property requires registration of ownership.” 52

51 Edwin Peel and GH Treitel, The Law of Contract (Sweet & Maxwell 2015) para 5-002

52 The 2015 Civil Code of Vietnam, Art 459.1

Time for the Performance of Contractual Obligations

The duty of performance under a contract is the obligation for the parties to fulfill their contractual obligations This duty arises due to the legal effect of the contract When this duty becomes due depends on the type of obligation: pure obligations are due immediately, future obligations become due at a specified point in the future, and conditional obligations become due only if a certain uncertain future event occurs.

Bases for the Termination of Legal Effect

As analysed above, there are three points of time that shall give rise to the legal effect of a contract, among which the suspensive condition falls into the realm of the time agreed by the parties 54 The next question is, when does a contract terminate its legal effect (or when does a contract comes to an end)? Answering this question would help clarify the legal basis for the resolutive condition that will be analysed later in section 2.2.4 The bases for the contract termination listed in the 2015 Civil Code of Vietnam 55 could be classified into three groups:

55 The 2015 Civil Code of Vietnam, Art 422

Classification of obligations based on the time for their performance

Figure 2- Time for The Performance of Obligations

2.1.5.1 Termination by the Completion of the Contract

To assess whether the contract has been completed, the principle of substantial performance has prevailed over perfect performance Substantial performance, stemming from the common law system, is used to mean that it is unnecessary to perform to the minute detail of the contract 56 The formulation of this principle arises from the fact that parties can rarely perform their obligations perfectly, and the law needs to recognise that fact 57 This approach renders contract performance more feasible, and at the same time ensure that the principle of good faith is preserved When it comes to determine whether the contract has been substantially performed, Robert W Emerson and John W Hardwick suggest that it is important to consider contractual provisions, and, if they have been performed, the contract would be considered to have been substantially performed 58 Looking from a different angle,

A James Barnes, Terry Morehead Dworkin, and Eric L Richards observes that some types of contractual obligations are more difficult to be performed perfectly because of their nature and the limit of human capabilities, i.e construction contracts, contracts of a personal or professional nature, and merger and acquisition cases However, the doctrine of substantial performance will only come to play when the party has sincerely attempted to perform its obligations perfectly, yet due to its lack

56 Robert W Emerson, Business Law (Simon and Schuster 2016) 122

57 Lawrence S Clark and Peter D Kinder, Law and Business (McGraw-Hill 1988) 254

Three bases for the termination of legal effect

Termination by the completion of the contract

Termination by the parties' agreement

Resolutive conditions Termination by breach

Figure 3- Bases for the Termination of the Legal Effect of a Contract

19 of ability or some external factors, the performance of contract leaves some minor defects 59

2.1.5.2 Termination by the Parties’ Agreement

The contract rests on the agreement of the parties: as it is their agreement which binds them, so by their agreement they may be terminated 60 The termination of a contract should be distinguished from the cancellation and the voidness of contract While the former retains the legal effect of the contract until it is terminated, the other two set aside the contract from the beginning 61 Thus, when a contract is either cancelled or void, the parties are reverted to their original state as if there was no contractual relationship

Resolutive conditions are used in contracts to specify events that will terminate a legally binding agreement When a resolutive condition occurs, the contract becomes invalid from that moment forward, and neither party is obligated to return any benefits received.

When a substantial breach of contract occurs, the non-breaching party may consider the contract "discharged by breach." However, this does not immediately release the innocent party from their obligations Instead, it signifies the innocent party's option to treat the contract as ongoing or terminated as a consequence of the breach The termination in this situation serves as a penalty for the breach.

59 A James Barnes, Terry Morehead Dworkin and Eric L Richards, Law for Business (McGraw-

60 Jack Beatson, Andrew S Burrows and John Cartwright, Anson’s Law of Contract (Oxford University Press 2020) 459

61 Vu Van Mau, Viet Nam Dan Luat Luoc Khao [Vietnamese Civil Law – Book II: Contracts and Obligations] (Bo Quoc Gia Giao Duc Xuat Ban 1963) 245

CONDITIONS IN THE LAW OF CONTRACT

Concept of a Condition

Discussions of this topic are made difficult by the fact that in the law of contract, the word ‘condition’ bears many senses: it is “a chameleon-like word which takes on its meaning from its surroundings” 64 The word ‘condition’ has been used variably, including: as a contract term; as a necessary component element in the constitution of an obligation; as a future event whose occurrence is uncertain; and as a pre-requisite for the occurrence of something else The latter two senses will be discussed in this chapter

To answer the conceptual question as to what a condition is, there are three sub-questions we should ask: (i) What can be made conditional?, (ii) When is a condition? and (iii) What events qualify as conditions while the others do not?

What can be made conditional?

A glance at the international practices and some jurisdictions shows variable results as to whether only obligations or contracts or both of them can be made conditional While PECL only provides for conditional obligations, 65 the German Civil Code recognises conditional transactions, 66 DCFR ambiguously implies the possibility of both conditional obligations and conditional contracts, 67 the UNIDROIT embraces both of them 68 From the author’s observation, both contracts and obligations can be made conditional, and a distinction between them should be made

Conditional obligation and conditional contracts are two distinctive matters A contractual obligation can be made conditional by suspending its performance until an uncertain event occurs; meanwhile, the contract giving rise to that obligation may have come into effect and has given rise to other unconditional obligations On the other hand, the contract made conditional only refers to its suspended contractual effect, and it shall not give rise to any contractual obligation until the condition is met

64 Nordheim v Petrofina SA (The Varenna) [1984] Q.B 599, 618

The answer to this question, in fact, depends on the parties, on what they would have intended it they had anticipated subsequent events, and on what the interests of society require However, in an attempt to set a default rule for the existence of a condition, scholars were divided on two possibilities:

(1) A condition exists after there has been an obligation, but under which performance will not fall due unless the condition occurs; or

(2) A condition exists before an obligation has been formed, and such formation depending on the occurrencee of the condition

Those who support the second viewpoint suggest that an obligation is essentially no more than a duty of performance, and to say that the duty of performance is suspended is synonymous with saying that the undertaking of the obligation is suspended 69 In Vietnam, Do Van Dai submitted that the occurrence of a condition should give rise to a contract’s existence rather than to the effect of the contract, as the Supreme People’s Court argued 70 However, if this view is to be adopted, the equilibrium between parties will not be achieved as the offeror can withdraw from the agreement any time before the fulfillment of the condition, despite the other party having performed substantially to facilitate the occurrence of the condition

70 Do Van Dai, Luat Hop Dong Viet Nam - Ban an va Binh luan ban an (Tap 1) [Contract Law in Vietnam – Cases and Commentaries (Volume 1)] (Vietnam National University - Ho Chi Minh City Publishing House 2020) 260.

The Existence of The Contract

Therefore, it would be more reasonable to side with the view that there is already an existing obligation, and the occurrence of a condition will give rise to the duty of performance under that obligation To recognize that there is a contractual tie between parties is of great significance as it would impose subsidiary obligations (i.e one not to withdraw, not to prevent the occurrence of the condition, or to make reasonable efforts to bring it about) on parties when the fulfillment of the condition is still pending (as will be discussed in section 2.2.5) This approach is compatible with the theory on the legal effect of contracts as mentioned above: the point of time when a contract comes into effect needs not to be simultaneous with when the parties enter into the contract At the same time, it ensures the rights of parties before the condition is fulfilled and goes hand in hand with the principle of good faith

The effect of fulfilling a condition is also a criterion to differentiate conditions from obligations that a party must perform first While the breach of an obligation may trigger various remedies (i.e., claim for damages, termination, cancellation, etc.), the non-fulfillment of conditions is treated in a distinctive way by either the ‘fictional fulfillment’ approach or by awarding damages in case the non-fulfillment was caused by the party’s bad faith (as will be discussed in section 2.2.5.4)

What events qualify as conditions?

An uncertain event: In order to be qualified as a condition, an event needs to be uncertain This is the decisive factor in differentiating conditional obligations from

An obligation is deemed 'pure' when it is unconditional, meaning it does not depend on the occurrence of any event other than the passage of time Therefore, the simple passing of time, which is not subject to uncertainty, cannot be considered a condition A duty is deemed unconditional if it solely requires the passage of time to arise.

A condition needs to be an uncertain event, but uncertain to what extent? Whether a party will do what it said it would do or whether the event beyond the parties’ control will occur both relate to uncertainties in the future However, some opinions suggest treating a promised performance as not strictly an uncertain matter, while others regard both events that are within or outside the parties’ control as conditions A typical example of the former view can be found in UNIDROIT Chapter on Conditions, whereas the latter is inspired by the Restatement (Second) of Contract in the US

On the one hand, American law and English law adopt a broader scope of conditions American law includes acts of parties, acts of the third party, and natural events as conditions English law adopts a similar stance but classifies conditions as either ‘promissory’ or ‘contingent’ Promissory conditions are those in which an obligation of A to do something is conditional upon the performance by B (which is analogous to acts of parties as in the American law); in contrast, contingent conditions relate to an uncertain event that is not the performance of the parties, but to some event external to their performances 72 (i.e acts of the third party or natural events in the American law)

On the other hand, UNIDROIT Drafting Committee limits the scope of conditions to only events that are outside the control of parties The group illustrated the consequences of adopting too broad a definition by an example given by R Goode 73 There was a case in England of an FOB sales contract requiring the buyer to give the seller notice of appropriation so that the seller could make arrangements for loading the goods on board the vessel The buyer failed to give notice of appropriation, and the seller did not deliver the goods but nevertheless tried to recover the price If the provision on the interference with conditions was applied in this case, the buyer failing to give such notice would make the condition be deemed to be fulfilled under PECL; 74 thus, the buyer would have to pay for the goods even though the goods had not been delivered

However, the problem disturbing the UNIDROIT Drafting Committee was related to the interference of conditions rather than a conceptual problem The example that Goode raised could be addressed by modifying the provisions on interference with conditions rather than by limiting the conceptual scope In fact, this

‘fictional fulfillment’ approach towards the interference with conditions has been criticised for its punitive element, which is unsuitable for contractual relations (as will

72 Peel E and Treitel GH, The Law of Contract (Sweet & Maxwell 2015) para 2-103

73 Working Group for the Preparation of PICC, Summary Records of the 1 st session (UNIDROIT 2006)

“(1) If fulfilment of a condition is prevented by a party, contrary to duties of good faith and fair dealing or co-operation, and if fulfilment would have operated to that party's disadvantage, the condition is deemed to be fulfilled

History of Conditions

The classification between pure, future, and conditional obligations (as mentioned above) stems from Roman law

Justinian’s Institutes, in discussing ‘stipulationes’ (obligations), categorising them as being absolute, postponed, or conditional (which are now equivalent to the

78 Louisiana Civil Code, Art 1767: “A conditional obligation is one dependent on an uncertain event”

79 California Civil Code, Art 1434: “An obligation is conditional, when the rights or duties of any party thereto depend upon the occurrence of an uncertain event.”

80 South Dakota Codified Laws, Sec 20-2-1: “An obligation is conditional when the rights or duties of any party thereto depend upon the occurrence of an uncertain event”

26 pure, future, and conditional obligations) 81 An obligation can be made conditional by making it dependent on the happening of some uncertain events, and the result is that the obligation is only triggered if the event occurs or does not occur 82

Digest, as one would expect, offered a more detailed treatment of conditional obligations Answering the question as to the legal position of each party before the fulfillment of conditions, a passage from Ulpian suggests that, in the case of a conditional stipulation (obligation), the stipulator is “a creditor even while the condition is pending” 83 This approach supports the hypothesis I identified earlier: a conditional obligation means an obligation exists, but under which performance is conditional The problem relating to the impossibility of fulfilling a condition is also mentioned in Digest: If a conditional stipulator died before fulfulling the condition, the stipulation bound the heir 84 However, in modern law, this problem would be addressed within the domain of the contract frustration rather than touching upon the conditionality domain Another issue brought up in the Digest was the interference with conditions: what if a party prevents the condition from happening? The solution back then was quite simple: the stipulator “is nonetheless bound” 85

Although Roman law does not expressly answer the question relating to when a condition exists, it can be inferred that Roman texts support the hypothesis that a condition exists after the constitution of obligations and before the duty of performance As to the uncertainty of a condition, despite lacking a detailed analysis, the Institutes embrace a definition that is close to the modern conception of the condition: an uncertain event

2.2.2.2 Early Modern Concepts of Conditions

The Roman law was then reproduced in the early modern law of Scotland In Stair’s Institutions of the Law of Scotland (1681), he expressed his view on conditional obligations: “Conditional Obligations are such as to depend upon a Conditional, and so are but Obligations in hope, till the condition be existent; but Obligations to a day, are such as are presently binding, but the effect or execution thereof is suspended to a day, betwixt which there is this main difference, that in

27 conditional Obligations, the condition must necessarily be uncertain, either as being in the power of mans will, or an accidental” 86 It should be noted that a conditional obligation is “but a hope” until the condition is satisfied, suggesting that there exists no obligation until the fulfillment of the condition If this approach is to be followed, an offer can also be called a conditional obligation since the fulfillment of the condition is subject to the act of the offeree, and this is exactly what Stair offers: “An offer hath the like implyed condition of the other parties acceptance, and in that it differs from an absolute Promise; so that if the acceptance be not adhibit presently, or within the time exprest in the Offer; in which the other party hath Liberty to accept; There ariseth no Obligation” 87 Discussion of offer within the legal framework of conditions conveys the view that the fulfillment of a condition only gives rise to the obligation’s existence rather than a duty to perform that obligation However, in later texts, he elaborates on other types of conditions that impact only the performance of an already formed obligation 88 It should be noted that Stair’s conceptions mentioned here are of suspensive conditions rather than resolutory ones

At around the 17 th century, there was little evidence of research on conditions in English law One short description of conditions is recorded in John Rastell’s

Terms de la Ley (or Certain Difficult and Obscure Words and Terms of the Common Lawes and Statutes of this Realm): “[a condition is] a restraint or bridle annexed to a thing, so that by the non performance or not doing of it, the party to the condition shall receive prejudice and loss, and by the performance and doing of it, commodity and advantage” 89 He was probably the pioneer of what was to become a classification of conditions into suspensive and resolutory ones (as will be discussed in section 2.2.4) However, his discussion was not put in the context of general contract law but rather in the context of property, with conditions precedent (also known as suspensive conditions) being “going before the estate, and […] executed” and conditions subsequent (also known as resolutory conditions) being “following after the estate, and executory” This observation was later reproduced in Bacon’s The Elements of the Common Lawes of England (1630)

86 James Dalrymple Stair, The Institutions of the Law of Scotland (1681) I.iii.7

89 John Rastell, Les Termes de La Ley, Or, Certain Difficult and Obscure Words and Terms of the

Common Lawes and Statutes of This Realm Now in Use, Expounded and Explained (J Streater 1659)

In the 18 th century, Commentaries on the Laws of England (1765–9) by Blackstone adopted a similar stance to that of Rastell and Bacon as both analyzed conditions within the context of estates 90 Additionally, Blackstone examined conditions in correlation with the conditional bond, with a bond being known as a formal document which stated that a debtor was to pay an amount of money to the creditor if the debtor fails to fulfill a performance 91 Such conditional bonds had grown as an informal way of promoting the performance of obligations at the time when the limits of the common law proceedings made it difficult to enforce obligations directly; therefore, a conditional bond was preferred since a breach of conditions offered an easy remedy

Lord Mansfield's conception of conditionality, established in Kingston v Preston (1773), emphasized the significance of a condition precedent as a fundamental obligation that must be met prior to requesting performance from the opposing party This definition innovated by distinguishing between the condition and the performance, highlighting the critical importance of fulfilling the condition before the performance obligation arises.

‘condition precedent’ is understood as B’s performance is conditional upon A’s first performing its obligations This approach seems to diverge from Roman and Scottish concepts of conditions, in which the condition is interpreted as an uncertain future event rather than a prior performance of the other party’s performance One way to reconcile such divergence is, from the author’s perspective, to consider the performance of a contracting party as an uncertain event (the uncertainty as to whether the party would do what it has promised)

Erskine, in his Institute of the Law of Scotland (1773), characterized conditions as a means to suspend not only the duty of performance but also ‘the obligation itself’:

“A conditional obligation, or an obligation granted under a condition the existence of which is uncertain, has no obligatory force till the condition be purified; because it is in that event only that the party declares his intention to be bound, and consequently no proper debt arises against him till it actually exist: so that the condition of an uncertain event suspends not only the execution of the obligation, but the obligation itself.” 93 However, it differs from Stair’s view since the party cannot withdraw from the agreement once it is conditionally bound, despite no obligation

90 William Blackstone, Commentaries on the Laws of England (1765-1769), Vol 2, ch 10

93 John Erskine, An Institute of the Law of Scotland (1773) para 24

29 existing: “Such obligation is therefore said in the Roman law to create only the hope of a debt Yet the granter is in so far obliged that he hath no right to revoke or withdraw that hope from the creditor which he had once given him.” 94 It can be said the Erskine’s description of conditions ranges in the middle between the ‘no obligation existed’ point and the ‘existed obligation yet the performance of which is suspended’ point It is almost like an offer in German law, in other words, a juridical act that is not yet a binding contract but which cannot be withdrawn by the maker of it 95

In the 19 th century, with the publication of Pothier’s A Treatise on the Law of

Obligations, or Contracts (1806), the civilian conception of conditionality within the context of contract law was first introduced Pothier divided obligations into ‘pure and simple’ or ‘conditional’, 96 with conditional obligations being explained as “those which are suspended by a condition under which they were contracted, and which is not yet accomplished” Pothier even took a leap to classify conditions as being either suspensive or resolutory (also known as conditions precedent and conditions subsequent in English law), and these concepts are quite close to that of modern law While Blackstone’s Commentaries on the Laws of England only restricted the discussion of conditions in the realm of estates, and Mansfield only focused on the order of performance justifying the suspension of performance on the other side, then Pothier built a civilian concept of an obligation to perform, conditional upon some uncertain events Following Pothier, Colebrooke’s Treatise on Obligations and Contracts (1818) adopted a similar classification and concept, with conditional obligations being “made to depend on an uncertain event”, and is classified into either ‘precedent and suspensive’ or ‘subsequent and resolutory’ 97

From the historical perspective, it can be seen that for most of the period, the condition is defined as an uncertain event giving rise to the duty of performance (or sometimes to the existence of the obligation itself) Yet it pointed to the fact that conditions played a pivotal role in the pre-modern world as well as in the early modern societies, and they would continue to do so in the modern world

96 Robert Joseph Pothier and William David Evans, A Treatise on the Law of Obligations, or Contracts (J Butterworth 1806) para 176

97 Henry Thomas Colebrooke, Treatise on Obligations and Contracts (1818) para.20

The Significance of Conditions

The first reason why parties may prefer conditions to promises is that neither party is willing to commit in case they are unsure about whether relevant events will or will not happen The normal sanction for breach of a promise is contractual remedies; meanwhile, the normal sanction for the nonfulfillment of a condition shall not apply those remedies, because neither party has promised that the condition will be fulfilled 98 Share Purchase Agreements, and Loan Agreements are typical examples demonstrating the intention of parties to be legally bound only if certain events occur Such events are referred to as “Conditions Precedent”, usually including the receipt of all necessary written consents from the Board of Members/Partners, the permit of state authority, the admittance to trading on a stock exchange, and the submission of a tax certificate evidencing that no taxes are due by the party concerned, etc In such cases, the buyer/the creditor does not intend to be bound by the contract unless the business situation of the targeted company has been confirmed to be in good condition; thus, a condition act as an effective means to prevent the buyer/creditor’s purchase duty from coming into existence

The second reason why conditions are used can be explained by their risk- allocation purpose For example, the insurance company wants the payment of premiums One way to secure this desired item is to get a promise to pay premiums from the insured Failure to pay will result in legal sanctions However, in reality, insurance contracts rarely include such a promise; the payment of premiums is secured in a more effective way than that The insurance company does its own duty to pay the insurance amount conditional upon the payment of premiums Here is no express promise of the insured creating a duty to pay premiums, but there is an express condition precedent to his right to recover on the policy Payment by the insured is obtained not by holding a lawsuit over him but by hanging before him a purse of money to be reached only by climbing the ladder of premiums 99 Instead of entering into bilateral contracts, which breach would lead to sanctions, and the insurance company would have to go through various steps in pursuit of a lawsuit to force the insured to perform its obligation, using conditional contracts appears to be a more

98 Merritt Hill Vineyards, Inc v Windy Heights Vineyard, Inc (1984) 460 N.E.2d 1077

99 Arthur L Corbin, ‘Conditions in the Law of Contract’ (1919) 28 The Yale Law Journal 739, 746

31 effective means It helps the insurance company to avoid the non-performance risk (the risk that the obligation will not be fulfilled) from the insured.

Classification of Conditions

Based on the effect of the fulfillment of a condition, conditions are classified into suspensive conditions and resolutory conditions On the one hand, there is a suspensive condition when a contractual obligation is made conditional upon the occurrence of an uncertain future event so that the obligation takes effect only if the event occurs In practice, the suspensive condition is often named ‘condition precedent’ (precedent to the duty of performance) On the other hand, where a party has already come under a duty to perform and will be relieved from that duty by the fulfillment of a condition, then that condition is called a resolutory condition (also known as a ‘condition subsequent’, meaning a condition is subsequent to the duty of performance)

The common application of this classification is the provision usually included in insurance policies For instance, a general rule of life insurance contracts is that insurance companies are not responsible unless death occurs within the specified period, such as 90 days after death This condition is usually referred to as precedent (suspensive), as insurance companies do not come under a duty of payment unless timely evidence of death has been made Another common term is that suit against the insurance company must be filed within a specific period of time, for example, one year from the day of death This condition is typically described as subsequent

(resolutory), as the expiration of a year without the insured bringing suit would relieve the insurer from its pre-existing obligations 100

As to its significance, the distinction between suspensive conditions and resolutory conditions is crucial for certain civil procedural problems If there is a suspensive condition, then it is reasonable that the plaintiff should bear the burden of proof, as he would have no case unless the condition has happened, so it is up to him to allege and prove that it did happen In contrast, if the condition is resolutory, it is

32 natural to put the burden of proof on the defendant because the defendant is trying to

“get out of something”, 101 so it is up to him to prove that he is excused from liabilities

Concerning how an event may be made a condition, the Restatement (Second) of Contracts suggests classifying conditions into express conditions (by the agreement of the parties) and constructive conditions (by the interpretation of the court) 102 A certain event, which may operate as a condition because the parties intended that it should and said so in words, is called an express condition Meanwhile, an event can also be considered a condition if the court believes that the parties would have intended it to operate as such if they had thought about it at all or because the court believes social morals require that it should so operate 103 Such an event made a condition by the court is called a constructive condition, or sometimes described as an ‘implied in law’ condition

The aim of a constructive condition is to allow the court to fill the gap where the parties have yet indicated a clause is an obligation or a condition Indeed, it is common for contracts, especially those drafted without professional assistance, to contain a clause requiring a certain job to be done by one of the parties without stipulating how the other is to compel its performance, namely without stipulating whether a clause is intended to be an obligation or a condition 104 The words of such a clause will have, in fact, a different meaning, according to the party who uses them

In a contract, the party responsible for performing an act assumes an obligation to do so if the language is used by them Conversely, if the language is used by the party benefiting from the act, their obligation is contingent upon its completion Determining the party to whom language refers can be straightforward in unilateral contracts, where the speaker is the responsible party In bilateral contracts, however, the distinction is less clear, as language can originate from either party Nonetheless, it is generally accepted that clauses in bilateral contracts which merely state that an action or event will occur should be attributed to the party who will benefit from it.

102 Restatement (Second) of Contracts (Am Law Inst 1981) § 226

104 George P Costigan, 'Conditions in Contracts' (1907) 7 Columbia Law Review 151, 163

33 to be the language of the party who is to do the act 105 since he is the one who takes the risk of non-performance by the other party However, there are no standard criteria for judges to determine whether a clause is an obligation or a condition, and this act is often done based on the subjective judgement of the court in the interest of justice

It is useful to distinguish constructive conditions, even though ‘the distiction is necessarily somewhat arbitrary’ 106 For one thing, it is of importance in terms of analysis and description to have terminology that reflects the two distinctive processes, sometimes called ‘interpretation’ and ‘construction’, which give rise to conditions For another, as long as the parties have agreed on the terms of their agreement, which expressly made an event a condition, they can be confident that: courts usually feel forced to apply this term A common example is when A’s obligations cannot be fulfilled without B’s action, and the court supplies provisions that make that action a condition of A’s obligation to make sure B follow the principle of good faith to get the performance from A Furthermore, in most cases of this kind, the obligation of good faith and fair dealing obliges B to act so that a material failure to perform would have the same effect as the non-occurrence of a condition 107

Conditions in contracts can be classified based on the party responsible for fulfilling them: promissory conditions (a party promises to fulfill the condition) and contingent conditions (neither party undertakes to bring about the condition) Promissory conditions create an immediate obligation, such as promising to pay for work completed, while contingent conditions make the obligation dependent on an event beyond the control of either party, such as the sale of a house contingent on its liquidation by the state.

This classification if of great importance as it helps answer the question of whether one party is under an obligation to make reasonable efforts to bring about the

106 Restatement (Second) of Contracts (Am Law Inst 1981) § 226

A promissory condition, governed by condition 109, operates as a precedent to the fulfillment of other obligations in a contract Failure to fulfill this condition can result in a breach of contract action In cases where one party's performance (e.g., erecting buildings) is contingent on the other party's promise (e.g., granting a lease), the former's performance constitutes a promissory condition precedent The obligated party is required to make reasonable efforts to fulfill the condition However, for contingent conditions beyond the parties' control, the obligated party has only passive obligations, such as not withdrawing from the agreement or interfering with the conditions.

Subsidiary Obligations Pending the Fulfillment of the Conditions

Obligations are classified into principal obligations and subsidiary obligations While a breach of principal obligations would result in a fundamental breach of the contract, a breach of subsidiary obligations would not Before the fulfillment of the conditions, parties are under no duty to perform principal obligations: e.g a sell is not bound to deliver, and a buyer is not bound to pay 112 However, a conditional contract that is subject to such a condition may impose subsidiary obligations on the parties or on one of them to comply with the principle of good faith; these are (i) the obligation not to withdraw from the agreement, (ii) the obligation not to interfere with the conditions, and (iii) the obligation to make reasonable efforts to bring about the conditions

2.2.5.1 The Obligation Not to Withdraw from the Agreement

Before the occurrence of the conditions, and as long as the event can still occur, the parties cannot withdraw from the agreement This obligation is compatible with the definition of condition that is currently prevailing: an obligation has already existed, and a condition will only give rise to its duty of performance Therefore, since

109 Albion Sugar Co Ltd v Williams Tankers Ltd (1977) 2 Lloyd’s Rep 457 at 464; The Fanti and the

Padre Island (1991) 2 A.C 1 at 31; UR Power GmbH v Kuok Oils and Grains Pte Ltd (2009) EWHC 1940

110 Peter Cassidy Seed Co Ltd v Osuustukkukauppa IL (1957) 1 WLR 273 (sale of goods contract; delivery to be ‘as soon as export licence granted’; obligation on sellers to apply for licence)

111 Eastham v Leigh, London & Provincial Properties Ltd (1971) 1 Ch 871; Michaels v HarleyHouse

35 there is a contract, the parties to it cannot revoke its offer once it has been accepted

In Smith v Butler, 113 A promised to buy land from B with the condition that a loan to

B (secured by a mortgage on the premises) would be transferred to A The court held that A could not withdraw before the time fixed for completion of conditions: he was bound to wait until then to see whether B could arrange the transfer

Retaining the obligation not to withdraw is of great significance since it would preserve the principle of good faith and fair dealing Imposing this obligation would protect the party which is striving to bring about the condition by preventing the remaining party from withdrawing from the agreement any time before the occurrence of conditions, despite the condition being nearly fulfilled

Despite the general obligation to perform contracts, the freedom to contract principle allows for exceptions If parties have explicitly agreed on the possibility of withdrawal before certain conditions are met, their intention takes precedence This concept is illustrated in the case of Pym v Campbell, where the parties mutually agreed that

“be the agreement” unless a third party approved of the invention He disapproved, and the court held that the buyer was not liable for refusing to perform because the written agreement was “not an agreement at all”, 115 thus giving rise to no obligations The court did not elaborate on whether parties could withdraw from the agreement, but if the contract is taken seriously, either party could withdraw even before the third party has given his opinion

Another excuse would be the impossibility of the conditions If there is clear evidence that the condition will not occur within the time set under the contract, the contract is discharged on the basis of the impossibility of the subject under the contract Thus, parties are free to resile from the contract On an equal note, if the occurrence of the condition is possible yet has not occurred for a period, parties can agree to suspend the duty of performance; however, that state of suspension can not last eternally, and at some point, the contract will be discharged 116

116 Total Gas Marketing Ltd v Arco British Ltd [1998] 2 Lloyd’s Rep 209

2.2.5.2 The Obligation Not to Prevent the Occurrence of Conditions

Before the event occurs, the main obligations have not arisen; yet, in the meantime neither party should do anything to interfere with the occurrence of the event For example, in Mackay v Dick, 117 an excavating machine was sold with the condition that it could excavate at a specified rate on the buyer’s property The buyer’s act of refusing to supply facilities for a suitable trial was deemed to be a breach Similarly, if the seller refused to subject the machine to a proper test, he would be in breach too Another interesting case is Bournemouth & Boscombe Athletic FC v Manchester United FC, in which Bournemouth Football Club sold one of their best players - Edward MacDougall, to Manchester United Football Club for £200,000 175,000 was paid, while the remaining £25,000 was to be paid when MacDougall had scored 20 goals for Manchester United However, before he had the chance to do so, Manchester United dropped him from their first team, and they were held to be in breach as they had not given the new player a reasonable opportunity to score 20 goals 118

This obligation embodies the principle of good faith and rests on an implied term The implied term served to make sure that a party will not prevent the fulfillment of the condition by imposing a sanction in case he is doing nothing (i.e not supplying proper facilities for a trial as in Mackay v Dick and not giving opportunities for the player to goal as in Bournemouth & Boscombe Athletic FC v Manchester United FC) or in case he wrongfully prevents the occurrence of the condition (i.e wrongfully firing the employee to deprive him of the chance of earning a bonus as in Thompson v ASDA-MFI Group Plc) 119

2.2.5.3 The Obligation to Make Reasonable Efforts

Before the event occurs, and the principal obligations have yet to come into existence, one of the parties must undertake to use reasonable efforts to facilitate the occurrence of conditions 120 It is notable that this duty only requires the party to use

‘reasonable’ efforts rather than ‘best’ efforts, which means that a party is only required to bring about the condition within a reasonable person’s capacity by using

118 Bournemouth & Boscombe Athletic FC v Manchester United FC (1980)

119 Thompson v ASDA-MFI Group Plc (1988)

37 only cost-effective means From the author’s perspective, the reason why ‘reasonable’ effort is preferred in this context is that it is unnecessary to employ excessively expensive means to bring about the conditions at all costs unless otherwise agreed If the ‘best’ effort approach is adopted, the party undertaking to perform the conditions would be in breach for not lavishing on whatever that could facilitate the occurrence of conditions, even though he might ‘scratch’ himself (i.e cause damages, going bankrupt) by doing so

This duty is applied in cases where a party should obtain a permit from the state authority, and he must therefore put reasonable efforts to do so If he had failed to make reasonable efforts, he will be liable for damages unless he can show that any such efforts which he should have made would have been futile 121 For example, in H

O Brandt & Co v H N Morris & Co, a party must obtain the export licence before the goods can be sold The duty to obtain the licence does not guarantee that a licence will be obtained; thus, a party who undertakes this duty is free from liability even though those efforts failed

2.2.5.4 Legal Consequences of the Failure to Perform Subsidiary Obligations

The above subsidiary obligations pending the fulfillment of conditions are enforced either by (i) an action for breach or (ii) a ‘fictional fulfillment’ mechanism, depending on the law adopted in different countries Each approach would lead to a different legal consequence

On the one hand, the doctrine of ‘fictional fulfillment’ requires that the party who fails to perform the above subsidiary obligations is to be treated as if the condition had occurred; and that he is then liable for the principal obligation 122 This mechanism aims to protect the principle of good faith by holding the party interfering with the occurrence of conditions liable for full performance promised by him, on the fiction that the condition had occurred To date, the fictional fulfillment mechanism has been employed broadly in several jurisdictions For example, the Princicples of European Contract Law prescribe that:

Non-fulfillment of Conditions and Its Legal Consequences

2.2.6.1 Consequences for Non-fulfillment of Conditions

As can be inferred from the definition of a condition in which the obligation takes effect only if the event occurs; then, on the contrary, if the condition did not occur, the obligations shall not come into effect and will be discharged (terminated) 133 The non-occurrence of a condition has two possible effects: (i) preventing principal obligations from becoming enforceable and (ii) discharging subsidiary obligations pending the fulfillment of conditions Therefore, the legal consequence for conditional contracts in which conditions fail to occur is that the contract becomes unenforceable An unenforceable contract creates contractual

131 Bournemouth & Boscombe Athletic FC v Manchester United FC, The Times, May 22, 1980

132 Damon Compania Naviera SA v Hapag-Lloyd International SA (“The Blankenstein”) (1985) 1

133 Restatement (Second) of Contracts (Am Law Inst 1981) § 225

41 obligations but cannot be enforced by one or, in some circumstances, either party 134 Therefore, a breach of conditions is not a breach of contract

2.2.6.2 Mitigating the Consequences of the Non-fulfillment of Conditions

To mitigate the harsh results produced by the discharge and to save the effort and time the parties have spent for the conclusion of the contract, this effect can be avoided by either (i) interpretation or (ii) excuse of the non-occurrence of conditions

When a condition fails to occur, it does not automatically lead to the discharge of the contract if the parties’ intention is interpreted otherwise This approach is adopted in Swiss law: when a condition is not satisfied, the parties’ intention needs to be interpreted: did contracting parties intend to be bound in any case or only when the condition is satisfied? 135 It is only in the latter case that the contract can become unenforceable

However, there are realms where the interpretation cannot save the contract from being discharged, typically in cases where the condition is the prerequisite for the performance of obligations For example, in cases where the transfer of the land from A to B is the condition precedent to the transfer of the land from B to C, if the condition cannot be fulfilled, there is no way the sale contract can be enforced

Excuses for the non-occurrence of conditions

Apart from cases where the non-fulfillment of conditions is transparent by parties simply doing nothing or the natural events simply not occurring, the problem becomes more intricate when one of the parties has given a substantial but imperfect performance of a condition In these cases, it would be unfair if substantial but imperfect performance of conditions is strictly considered as non-fulfillment, thus terminating the contract Therefore, the trial practice has developed a list of excuses where the non-occurrence of conditions would not give rise to the contract termination, including (i) the termination would cause a forfeiture, (ii) the non- fulfillment does not materially prejudice the party whose favor the condition ran; (iii)

134 Andrew Burrows, A Restatement of the English Law of Contract (Oxford University Press 2016)

135 Commentaire Romand, Code des obligations I (Helbing Lichtenhahn Verlagp 2021) 834

42 the purpose of the condition was achieved, (iv) impossible fulfillment, and (v) the non-fulfillment is trivial

The first ground for excusing the non-occurrence of a condition is that the termination caused by which would result in a disproportionate forfeiture This excuse is even codified in Restatement (Second) of Contracts: “To the extent that the non- occurrence of a condition would cause disproportionate forfeiture, a court may excuse the non-occurrence of that condition unless its occurrence was a material part of the agreed exchange.” 136 The ‘forfeiture’ is defined as “the denial of compensation that results when the obligee loses his right to the agreed exchange after he has relied substantially, as by preparation or performance on the expectation of that exchange.” 137 To determine whether the forfeiture is disproportionate, the court must weigh the forfeiture by a party against the risk protection for the other party and the degree to which that protection will be lost if the non-fulfillment of conditions is excused For example, a construction contract sets out a condition that: if A uses no pipe other than that of Reading, B will pay him However, during the construction, without A’s knowledge, a sub-contractor inadvertently uses a pipe of Cohoes, which is identical in quality and is distinguishable only by the name of the manufacturer stamped on it The construction is completed, and the replacement would require the building to be destroyed In this case, the court may hold that the use of Reading rather than Cohoes pipe is so relatively unimportant to B that the forfeiture that would result from denying A the entire balance would be disproportionate and may allow recovery by A subject to any claim for damages for A’s breach of his duty to use the Reading pipe

Second, the non-fulfillment of the condition can be excused if it does not materially prejudice the party benefiting from the condition For example, in an insurance contract where Murphy was insured under Chubb’s policy, the condition for that insurance was “in the event of an [insured] occurrence, written notice shall be given by or for the insured to [Chubb] as soon as practicable” 138 On Murphy’s giving

136 Restatement (Second) of Contracts (Am Law Inst 1981) § 229

138 Aetna Casualty and Surety Co v Murphy (Conn 1988) 538 A.2d 219

43 the notice of claim late, Chubb refused to pay The court held that the purpose of that insurance policy was to guarantee the insurer a reasonable time to investigate the lawsuit, and late notice did prejudice the insurer to a certain extent However, “if it can be shown that the insurer suffered no material prejudice from the delay, the non- occurrence of the condition of timely notice may be excused” 139

Non-occurrence of a condition in a contract may be justified when its purpose has been fulfilled If a written notice clause aims to inform the carrier of damage promptly, an oral notice that achieves this purpose may suffice In such cases, a court may waive the non-occurrence of the written notice condition to ensure recovery for the party (B) who suffered the damage This exception allows for equitable outcomes when the purpose of the condition has been met through alternative means, preventing technicalities from hindering compensation.

Fourth, non-fulfillment of conditions is normally excused where fulfillment was impracticable In Royal-Globe Insurance Co v Craven, for example, the insurance policy required Craven to notice the Royal-Globe within 24 hours for any loss Craven was injured but did not give a timely notice because he was in intensive care during the first 24 hours after the accident; thus, the non-fulfillment of the time condition was held to be excused 140

Lastly, if the non-fulfillment is trivial, it should not give rise to harsh legal consequences In Hegeberg v New Eng Fish Co., the tribunal’s report was filed two days late, so the court held that “the time element […] was of the least of consequence” Similarly, Williston opined that “the strict enforcement of the time provision of the contract […] would involve an extreme forfeiture or penalty, the time element forming no essential part of the exchange of appellants’ agreement to work in consideration of respondents’ promises to pay, should not be adjudged unless required by law” 141

140 Royal-Globe Insurance Co v Craven (Mass 1992) 585 N.E.2d 315

141 Samuel Williston & Walter H E Jaeger, Williston on Contracts (Lawyers Cooperative Publishing 1961) § 805, 839–40

This chapter has examined the conceptual framework of the condition to come closer to answering the question of what a condition is A number of conclusions could be drawn from the chapter as follows:

As to the concept of a condition, a condition is an uncertain event upon which an obligation is conditional, so that the obligation takes effect only if the event occurs or comes to an end if the event occurs

The historical development of the condition also points to the fact that the condition is necessarily be an event uncertain to happen, and if it happened, it would give rise to the duty to perform principal obligations under the contract A historical perspective indicates the significance of conditions in the law of property as well as in the law of contracts

In an attempt to explain the significance of conditions, two justifications can be made First, neither party is willing to bind themselves to enforceable contracts if certain events did not occur, thus, they make their obligations conditional by subjecting them to conditions Second, the condition is an effective risk-allocation mechanism to encourage the corresponding party to perform its duties without the interference of courts

CONDITIONS IN INTERNATIONAL AND EUROPEAN

Principles of European Contract Law (PECL) and Draft of a Common

3.1.1.1 Introduction to PECL and DCFR

To draft the most appropriate contract rules for the single-market economy in the Europe, several study groups consisting of academics are gathered to partake in law unification projects

The first project of such type was Principles of European Contract Law (PECL) undertaken from 1980 to 2003 by the Commission on European Contract Law, which aim was to serve as the first draft of a part of the European Civil Code However, before the Code is enacted, it may serve other purposes, such as providing general principles of contract law to which the European Court sometimes can refer Moreover, the European Community have enacted directives regulating certain

47 contracts, yet, these instruments are not well-coordinated, 142 so the PECL could serve as a matrix to make these directives more coherent

After the completion of PECL, another study group on the European Civil Code took on the work of PECL and established a Common Frame of Reference (CFR), which is expected to be the ‘best solutions’ for the definition, terminology, and substantive rules in European private law 143 To draw up the ‘political’ CFR, the group worked on an academic draft first, which is called the Draft of a Common Frame of Reference (DCFR) The DCFR contains ‘principles, definitions, and model rules’, hoping that it would contribute to a harmonious and informal Europeanisation of private law

The provisions on conditions in these two documents will be considered altogether due to their similarities in (i) the definition of conditions, (ii) the effect of interfering with conditions, and (ii) the effect of non-fulfillment of conditions

3.1.1.2 Concept of Conditions in PECL and DCFR

As to the concept of the condition, PECL approaches the conditionality of obligations:

‘A contractual obligation may be made conditional upon the occurrence of an uncertain future event, so that the obligation takes effect only if the event occurs (suspensive condition) or comes to an end if the event occurs (resolutive condition).’ 144

‘The terms regulating a right, obligation or contractual relationship may provide that it is conditional upon the occurrence of an uncertain future event, so that it takes effect only if the event occurs (suspensive condition) or comes to an end if the event occurs (resolutive condition).’ 145 Regarding the scope of these articles, it can be deduced that these provisions only cover conditional obligations that arise from a contract by looking at the wording

142 Commission on European Contract Law, Principles of European Contract Law: Parts I and II

(hereinafter PECL) (Kluwer Law International BV 2000) xxiii

143 Hugh Beale, ‘The Nature and Purposes of the Common Frame of Reference’ (2008) 14 Juridica International 10

145 Christian von Bar and others (eds), Principles, Definitions and Model Rules of European Private

Law: Draft Common Frame of Reference (hereinafter DCFR) (Outline ed, Sellier, European Law Publishers

‘may be made conditional’ and ‘may provide’ Constructive conditions or conditions implied by law are outside the scope of these provisions However, the scope adopted in DCFR appears to be broader than that of PECL While PECL only provides for an

‘obligation’ to be conditional, DCFR embraces not only obligations but also a

‘contractual relationship’, which may imply that a contract can be made conditional

As to the characteristics of a condition, both PECL and DCFR embrace the uncertainty and future traits of a condition While there is a unanimous view on the uncertainty of a condition, the lawmakers remain divided on whether a condition needs to happen in the future or not From the author’s perspective, although it is usually the case that a condition shall take place in the future, there are no clear justifications for retaining this feature Meanwhile, in practice, there are cases where the occurrence of a present or even a past event is uncertain, 146 demanding the recognition of these uncertain events as conditions Furthermore, the exclusion of this feature does not infringe on the fundamental principles of contract law and even embodies the principle of freedom of contract

The classification of conditions is also mentioned in the definitions adopted by PECL and DCFR As analysed earlier, based on their effect upon their occurrence, conditions are divided into ‘suspensive’ and ‘resolutory’, 147 with ‘resolutive’ being used in this case as a synonym However, the PECL fails to elaborate on the other two classifications based on the sources giving rise to a condition and the duty of performing the condition

3.1.1.3 Interference with Conditions in PECL and DCFR

The ‘fictional fulfillment’ approach is clearly adopted in both PECL and DCFR To be precise, the PECL reads:

‘(1) If fulfilment of a condition is prevented by a party, contrary to duties of good faith and fair dealing or co-operation, and if fulfilment would have operated to that party's disadvantage, the condition is deemed to be fulfilled

146 For example, a marine policy insures against a loss that may already have occurred but its occurrence has yet been confirmed

(2) If fulfilment of a condition is brought about by a party, contrary to duties of good faith and fair dealing or co-operation, and if fulfilment operates to that party's advantage, the condition is deemed not to be fulfilled.’ 148

Such a provision is of no difference to that of DCFR:

‘When a party, contrary to the duty of good faith and fair dealing or the obligation to co-operate, interferes with events so as to bring about the fulfilment or non-fulfilment of a condition to that party’s advantage, the other party may treat the condition as not having been fulfilled or as having been fulfilled as the case may be.’ 149

From these provisions, one can make an assumption as to the viewpoint of PECL and DCFR: not all types of interference are repugnant, but only those that are

Interfering with contractual conditions in bad faith or failing to cooperate can lead to unfair interference The "fictional fulfillment" approach addresses this by reversing the outcome intended by the interfering party If fulfillment would benefit them, it's deemed not fulfilled; if it would harm them, it's deemed fulfilled This approach aligns with the common use of specific performance to remedy non-performance of non-monetary obligations, holding the interferer liable for fulfilling the breached condition.

However, as analysed earlier, there are two drawbacks to this approach since it contains punitive elements that are unsuitable for contractual relations A more simple solution could be adopted alternatively: awarding damages to the aggrieved party

3.1.1.4 Effect of the Fulfillment of Conditions in PECL and DCFR

As can be inferred from the definition, PECL further elaborates on the effect of two types of conditions:

‘(1) Upon fulfilment of a suspensive condition, the relevant obligation takes effect unless the parties otherwise agree

(2) Upon fulfilment of a resolutive condition, the relevant obligation comes to an end unless the parties otherwise agree.’ 150

‘(2) Upon fulfilment of a suspensive condition, the relevant right, obligation or relationship takes effect

(3) Upon fulfilment of a resolutive condition, the relevant right, obligation or relationship comes to an end.’ 151

It is clear that both PECL and DCFR agree on the time for the existence of a condition By providing that the obligation ‘takes effect’ rather than ‘comes into existence’, these two documents implies that there is an existed obligation but its performance is suspended until the condition is fulfilled Similarly, one can deduce that there exists a contract, yet its legal effect is suspended This approach is generally compatible with the majority’s view on the condition 152

In contrast to PECL, which permits parties to negotiate the consequences of contractual conditions, DCFR prohibits such agreements, deeming them irrelevant From the author's perspective, this distinction holds minimal significance, as standardized legal terminology and contract interpretation guidelines override party agreements, ensuring consistency in comprehension.

As to the effect of resolutive conditions, DCFR appears to go a step further than PECL in recognising the right to restitution of parties:

UNIDROIT Principles of International Commercial Contracts 2016

3.1.2.1 Introduction to the UNIDROIT Principles of International Commercial Contracts 2016

The International Institute for the Unification of Private Law (UNIDROIT) is an independent intergovernmental organization whose purpose is to consider the need and methods of modernizing and harmonizing private law between states and groups of states To achieve these goals, UNIDROIT unifies legal documents, principles, and rules to formulate a uniform law instrument 154 Thus, the UNIDROIT Principles of International Commercial Contracts (UNIDROIT Principles) is the model law formulated by the organization

As to the regime on ‘conditions’, the UNIDROIT Working Group recognized the need to provide default rules for this distinctive regime The reason is that there are many problems with conditional contracts that parties often neglect and cannot be addressed merely by applying the provisions on contract interpretation 155 Thus, the group recognized the need to establish a clear regime with standard terminology

When working on drafting provisions for conditions, the Working Group considered significant earlier codifications, especially the PECL (Chapter 16) and, later, the DCFR (Article III.-1:106) 156 Therefore, the analysis below will be examined in comparison with these two documents

The concept of ‘condition’ starts with Article 5.3.1 of the UNIDROIT Principles, which provides:

‘A contract or a contractual obligation may be made conditional upon the occurrence of a future uncertain event, so that the contract or the contractual

154 ‘Overview - UNIDROIT’ (18 May 2021) accessed 8 April 2022

155 Bénédicte Fauvarque-Cosson, ‘Position Paper on Conditions’ (2007)

accessed 8 April 2022

52 obligation only takes effect if the event occurs (suspensive condition) or comes to an end if the event occurs (resolutive condition).’ 157

At first glance, this provision may seem similar to that in PECL and DCFR; however, there are a few distinctive features to make, including (i) the separation between the legal effect of a contract with that of an obligation and (ii) the exclusion of the parties’ performance as a condition in the UNIDROIT Principles

Distinguishing between the effect of conditional contracts and conditional obligations

While PECL only refers to the effect of obligations and DCFR embraces the effect of contracts through an ambiguous wording of ‘contractual relationship’, UNIDROIT separates the effect of contracts and the effect of obligations as two distinctive matters Article 5.3.1 in the UNIDROIT Principles covers conditions affecting the effect of the contractual obligation as well as those affecting the contract itself From the author’s view, this approach is novel as it opens up the possibility of suspending the effect of the whole contract rather than a few obligations under it This may particularly be the case when neither party is ready to be bound by a contract where the occurrence of a specified event is uncertain

Disregarding the performance by one party as a condition

UNIDROIT Working Group provides an interesting view that cannot be found in PECL or DCFR: When the contract stipulates that the performance of one party is dependent upon the performance of the other party, this is not a condition It is a contractual provision that specifies the obligations which the other party is required to perform 158 According to which, despite the terminology used by the parties, not all the events referred to as “conditions precedent” are “conditions" as defined by the UNIDROIT Principles In actual practice, there are mixed provisions Thus, for instance, events such as the receipt of all necessary antitrust clearances, the admittance to trading on a stock exchange, the granting of an export licence, and the obtaining of a bank loan, may be true suspensive conditions because they are events that are not certain to occur Other terms such as the accuracy of one party’s representations or warranties, the commitment to perform or abstain from some specific acts, and the submission of a tax certificate that evidences that no taxes are

53 due by the party concerned, are in fact obligations that the parties have agreed to fulfil before the formal conclusion of the transaction These are not events that are uncertain to occur, and, therefore, these provisions are not conditions under the Principles 159

The importance of narrowing down the notion of “conditions” precisely was raised by members of the Group who illustrated the consequences of adopting too broad a definition, especially as regards performance and non-performance An example was given by Roy Goode: ‘there was a case in England of a FOB sales contract requiring the buyer to give the seller notice of appropriation so that the seller could make arrangements for loading the goods on board of the vessel The buyer failed to give notice of appropriation, and the seller did not deliver the goods but nevertheless tried to recover the price The court rightly rejected its claim and only granted damages for breach of contract Indeed, one could hardly argue that the notice of appropriation by the buyer was a condition for the delivery of the goods by the seller so that if the buyer failed to give such notice, the condition would be deemed to be fulfilled with the consequence that the seller was entitled to the payment of the price even if the goods had not been delivered The only remedy the seller had in such a case was clearly awarding damages for breach of contract by the buyer.’ 160

However, the above example above can be simply addressed by replacing the

The "fictional fulfillment" approach harmoniously aligns with the "awarding damages" approach, effectively addressing the concern of not redefining a well-established definition This approach recognizes the importance of promissory conditions, which have existed since the Romanian era and are supported by extensive precedents Disregarding the performance of one party would render these promissory conditions and their established legal framework irrelevant, a risk deemed too significant to undertake.

As to the effect of conditions, UNIDROIT Principles adopts a similar view to PECL, recognizing the right to negotiate of the parties:

‘Upon fulfillment of a suspensive condition, the relevant obligation takes effect unless the parties otherwise agree

160 Secretariat of UNIDROIT, ‘Summary Records of the 1 st session’ (2006) para 222

accessed 11 April 2022

Upon fulfillment of a resolutive condition, the relevant obligation comes to an end unless the parties otherwise agree.’ 162 The effect of the fulfillment of conditions raises a binary issue of retroactive effect versus prospective effect The reason why the retroactivity of resolutive conditions is brought to the discussion is that when a fulfilled resolutive condition terminates a contract, the parties often have performed fully or partially their obligations Should the parties who performed their obligations obtain restitution for what they did? The parties may have foreseen such situations; therefore, two solutions can be sought: (i) attributing the retroactive effect to their resolutive conditions or (ii) recognizing a specific restitution regime

In answer to this binary question, the UNIDROIT Working Group were generally against the recognition of retroactivity of resolutive conditions in favour of adopting a restitution regime (as will be discussed later) The first reason is that modern contract law has evolved towards abolishing the concept of retroactivity, 163 and the UNIDROIT Principles themselves had taken this approach, i.e regarding the termination of the contract The second reason is that the restitution regime appears to be more familiar to most of the national legal systems than retroactivity is; thus, adopting the former solution might well avoid the conflict of law 164 UNIDROIT Principles decided to adopt the non-retroactivity of resolutive conditions and to provide a suitable restitution regime The consequence of adopting retroactivity for resolutive conditions is that the parties would be put in the same situation as if it had not existed, thus giving rise to the application of restitution Meanwhile, in the case of non-retroactivity, the existed contract would come to an end when the condition occurs, and available remedies at that time do not aim at reverting the parties to the same position as if the contract never existed In fact, in civil law countries, remedies are granted by applying the unjust enrichment regime 165

However, this is just a default rule, and there is room for parties’ agreement by the wording ‘unless the parties otherwise agree’ Parties can choose to set their conditions to have either prospective effect or retroactive effect

163 Secretariat of UNIDROIT, ‘Summary Records of the 1 st session’ (2006) para 238

accessed 11 April 2022

Article 5.3.3 on the interference with conditions embodies the principle of good faith:

(1) If fulfillment of a condition is prevented by a party, contrary to the duties of good faith and fair dealing or cooperation, that party may not rely on the non-fulfillment of the condition

(2) If fulfillment of a condition is brought about by a party, contrary to the duties of good faith and fair dealing or co-operation, that party may not rely on the fulfillment of the condition 166 The provision on interference with conditions was first considered by the UNIDROIT Working Group as to its necessity Subsequently, the Group agreed on the importance of such provisions, especially for those legal systems which are not familiar with the principle of good faith and cooperation 167

Similarly to PECL and DCFR, the ‘fictional fulfillment’ approach in the case of the prevention of conditions is applied in the UNIDROIT Principles Since the majority of the Working Group felt that specific performance had been adopted as a general rule in case of non-performance of a non-monetary obligation as in Article 7.2.2 of the UNIDROIT Principles, 168 the general principle, in this case, should be that the condition is deemed to be either fulfilled or not fulfilled, depending on whether it is suspensive or resolutory

CONDITIONS IN NATIONAL LEGAL SYSTEMS

United States’ Restatement (Second) of Contracts

3.2.1.1 Introduction to the Restatement (Second) of Contracts

The Restatement (Second) of Contracts is a valuable secondary source aimed at distilling a concise set of principles or rules from common law It was published by the American Law Institute, a group of prominent judges, lawyers, and professors Notably, it provides a foundation for the US judicial reasoning in contract disputes 177 Therefore, despite being a secondary source, this document deserves careful study

The Restatement (Second) of Contracts provides a distinctive concept of the condition:

‘A condition is an event, not certain to occur, which must occur unless its nonoccurrence is excused, before performance under a contract becomes due.’ 178

The definition of conditions adopted in the Restatement (Second) of Contracts is a far cry from that of PECL, DCFR, and UNIDROIT Principles While the three former documents include both suspensive and resolutory conditions in their definitions, the Restatement (Second) of Contracts refers to the term ‘condition’ only suspensive conditions and refers resolutory conditions to as ‘events that terminate a duty’ in § 230

The uncertainty of a condition is once again confirmed in the Restatement (Second) of Contracts as it was in PECL, DCFR, and UNIDOIT Principles However, the degree of its certainty is different from that adopted in the UNIDROIT Principles While UNIDROIT Principles disregard the parties’ performance as conditions and only embrace events that are outside the parties’ control, the Restatement (Second) of Contracts recognises acts of parties as conditions, along with acts that are beyond the parties’ control The Illustration under § 224 is an indicator of this recognition: ‘A and B contract to merge their corporate holdings into a single new company It is agreed that the project is not to be operative unless the parties raise $600,000

177 Edward Allan Farnsworth, ‘Ingredients in the Redaction of the “Restatement (Second) of Contracts”’ (1981) 81 Columbia Law Review 1, 1

178 Restatement (Second) of Contracts (Am Law Inst 1981) § 224

59 additional capital.’ 179 The degree of uncertainty in the Restatement (Second) of Contracts is less strict than that in the UNIDROIT Principles While the Restatement (Second) of Contracts accepts the uncertainty as to the possibility of raising $600,000 additional capital, UNIDROIT Principles do not The author concurs with the former view since it adapts to the real-life demand of contract law and to the purpose of conditional contracts where parties are not ready to be bound unless an uncertain event (such as the performance of a party) occurs

Another distinctive point of the definition adopted in the Restatement (Second) of Contracts is that the ‘future’ trait of a condition is excluded The occurrence of a condition does not have to occur after the contract is signed to qualify as a condition, though this is frequently the case It can be current or even historical, as in the case of a marine policy that protects against a loss that has already occurred 180

The classification of conditions into suspensive and resolutive is ubiquitous, as discussed in PECL, DCFR, and UNIDROIT Principles earlier However, the Restatement (Second) of Contract separates these two types of conditions into two different sections that are § 224 and § 230 While § 224 provides a definition of a suspensive condition, § 230 refers to resolutive conditions as ‘events that terminate a duty’:

‘[…] if under the terms of the contract the occurrence of an event is to terminate an obligor's duty of immediate performance or one to pay damages for breach, that duty is discharged if the event occurs.’ 181

The reason for this separation is because, according to the Restatement, resolutive conditions are subject to the rules on discharge rather than the rules on conditions; therefore, it is not called a ‘condition’ here 182 The rules on discharge, including the restitution, may be deemed unsuitable for all types of conditions, except for the resolutive ones; thus, the resolutive condition is separated into an independent provision with distinctive rules revolving around them

Based on the sources giving rise to conditions, the Restatement (Second) of Contracts divides conditions into express or constructive conditions (as analysed in section 2.2.4), although it does not exactly use these terminologies:

‘An event may be made a condition either by the agreement of the parties or by a term supplied by the court.’ 183 The express condition is referred to as ‘an event made a condition by the agreement of the parties” To make an event a condition, no specific terminology is required, though terms like ‘on the condition that,’ ‘given that,’ and ‘if’ are frequently used The overall nature of an agreement, as well as specific language, can reveal the parties’ intention to make an obligation conditional To determine whether the parties have made an event a condition by their agreement, it is necessary to apply rules on contract interpretation 184

On the contrary, when the parties fail to provide a clause that is necessary to determine their rights and obligations, the court may substitute a term that is appropriate under the circumstances, called a ‘constructive’ (or ‘implied in law’) condition This distinguishes it from events that are made contingent on the parties' consent, either by their words or other actions and are referred to as ‘express’ and

Even if the distinction is arbitrary, it is useful to distinguish between express and constructive conditions For one point, having terminology that reflects the two separate processes that give rise to situations also referred to as ‘interpretation’ and

‘construction,’ is useful in analysis and description For another, to the extent that the parties have clearly made an event a condition by a term of their agreement, they can be confident that a court will ordinarily feel constrained to strictly apply that term, whereas the same court may regard itself as having considerable latitude in tailoring a similar term it has provided 185

3.2.1.4 Effects of the Non-occurrence of a Condition

The Restatement stipulates the consequence of the non-fulfillment of conditions as follows:

‘(1) Performance of a duty subject to a condition cannot become due unless the condition occurs or its non-occurrence is excused

(2) Unless it has been excused, the non-occurrence of a condition discharges the duty when the condition can no longer occur

(3) Non-occurrence of a condition is not a breach by a party unless he is under a duty that the condition occur.’ 186 The unexcused non-occurrence of a condition might have two impacts on the obligation that is subject to it The first effect is always present, and the second is frequently present The first is to allow the party to refrain from doing the principal obligation before it is due, 187 as supported by the definition of ‘condition’ The second is to discharge (terminate) the obligation when the condition occurs The failure to occur within a certain period also results in an additional effect, which results in the release of duty 188 The time limit for the condition to occur in order for the performance of the duty to become due may be set by a term of the agreement or, in the absence of one, by the court

The Restatement supports the concept of discharge of duty due to frustration Upon the occurrence or non-occurrence of a specified event, the original consent given during contract formation expires, liberating both parties from future performance obligations or liability for non-fulfillment A notable legal precedent illustrating this principle is Fibrosa Spolka Ackcyjna v Fairbairn Lawson Combe Barbour Ltd., where the court sanctioned the recovery of advance payments made for machinery due to the complete failure of consideration caused by a frustrating event.

German Civil Code

Taking a different approach, the German Civil Code distinctively embraces only the definition of conditional contracts:

‘(1) If a legal transaction is entered into subject to a condition precedent, the legal transaction that is subject to the condition comes into effect when the condition is satisfied

(2) If a legal transaction is entered into subject to a condition subsequent, the effect of the legal transaction ends when the condition is satisfied; at this moment the previous legal situation is restored.’ 194

While PECL only provides for conditional obligations, the German Civil Code, on the contrary, only embraces the definition of conditional legal transactions, which can be interpreted as contracts The effect of a contract provided in the German

Civil Code is no different from that in other legal documents: a contract has already existed, yet its legal effect is suspended until the condition is met

The classification of conditions into suspensive and resolutory conditions is also included in the definition under the name ‘conditions precedent’ and ‘conditions subsequent’, respectively It should also be noted that the retroactive effect is assigned to the resolutive conditions (so-called ‘conditions subsequent’ in the Civil Code), inferring from the wording ‘the previous legal situation is restored’

3.2.2.2 Subsidiary Obligations before the Fulfillment of Conditions

The Code provides a solution to the interference of conditions as follows:

‘Any person who has a right subject to a condition precedent may, in the case of the satisfaction of the condition, demand damages from the other party if the latter, during the period of suspense, is at fault for defeating or adversely affecting the right dependent on the condition.’ 195

The German Civil Code employs the "award of damages" approach for breaches of obligations subject to conditions Unlike the "fictional fulfillment" method, which allows for enforcement via a breach action or a simulated fulfillment, German contract law favors the latter This approach simplifies subsidiary obligation enforcement, making it more effective compared to the "fictional fulfillment" alternative.

This chapter has provided a comparative analysis of international practices and some national legal systems A number of conclusions could be drawn from the chapter as follows:

Both PECL and DCFR are early documents that provide for the regime of conditions in Europe, and both share common provisions However, it still leaves many issues open

Subsequently, UNIDROIT Principles, having drawn on PECL and DCFR, have provided a more detailed regime on conditions What is novel in this document is that it disregards the performance of parties as a condition, stating that the so-called condition in such cases is merely a contractual obligation The UNIDROIT Principles also addressed other issues that are left open in PECL and DCFR, including the subsidiary obligations pending the fulfillment of a condition and the restitution in case of resolutive conditions

Turning to the Restatement (Second) of Contracts, it also provides a new approach as it only recognises suspensive conditions to be true conditions, while resolutive conditions are referred to as ‘events that terminate a duty’ The Restatement holds a different stance from that of UNIDROIT Principles when recognising both acts that are within the control of parties and natural events to be legit conditions As to the effects of the non-fulfillment of conditions, the Restatement chooses to discharge the duty, which will be referred to when finding a solution to fill the gap in the Vietnamese legal framework in Chapter Five

CHAPTER FOUR: CONDITIONS IN THE CONTRACT

This chapter examines the effectiveness of Vietnam's civil law regime on conditions by analyzing its provisions in the 2015 Civil Code, comparing them internationally, and examining conditions in trial practice It considers cases pre- and post-precedent to assess the role of precedents in addressing gaps in the Civil Code and case law The chapter also evaluates conditions in arbitration practice for compatibility with legal instruments and trial practices.

CONDITIONS IN THE VIETNAMESE CIVIL CODE

The Historical Development of The Regime on Conditions in The

The regime of conditions in the law of contract first appeared in the 1995 Civil Code of Vietnam, continued to find its way into the 2005 Civil Code, and currently the 2015 Civil Code The development of this regime throughout the three codes can be summarised as follows:

197 The 2005 Civil Code of Vietnam, Art 406.6

198 The 2015 Civil Code of Vietnam, Art 402.6

1995 Civil Code 2005 Civil Code 2015 Civil Code

In cases where the parties have agreed on the conditions which shall give rise to or cancel a

Conditional contract, which is a contract the performance of which depends on the occurrence, change or termination of a certain event 197

A conditional contract is a contract the performance of which depends on the occurrence, modification or termination of a specified event 198

196 The 1995 Civil Code of Vietnam, Art 134

199 The 2005 Civil Code of Vietnam, Art 125

200 The 2015 Civil Code of Vietnam, Art 120.1

201 The 1995 Civil Code of Vietnam, Art 299

202 The 2005 Civil Code of Vietnam, Art 294

203 The 2015 Civil Code of Vietnam, Art 284 civil transaction, the civil transaction shall arise or be cancelled upon the occurrence of such conditions 196

In cases where the parties have agreed on the conditions which shall give rise to or cancel a civil transaction, the civil transaction shall arise or be cancelled upon the occurrence of such conditions 199

In cases where the parties have agreed on the conditions which shall give rise to or terminate a civil transaction, such civil transaction shall arise or be terminated upon the occurrence of such conditions 200

In cases where the conditions for the performance of a civil obligation are agreed upon by the parties, the obligor must perform the obligation when such conditions arise 201

In cases where the conditions for the performance of a civil obligation are agreed upon by the parties or provided for by law, the obligor must perform the obligation when such conditions arise 202

Where the parties have agreed on conditions for the performance of a civil obligation or where the law provides certain conditions for the performance of an obligation, the obligor must perform the obligation when such conditions are satisfied 203

Not provided In cases where the conditions which give rise to or cancel a civil transaction cannot occur due to the act of intentional hindrance of one party or a third person, such conditions shall be considered having occurred; if one party or a third person exerts impacts to deliberately promote the occurrence of conditions so as to give rise to or cancel the civil transaction, such conditions shall be

In cases where the conditions which give rise to or terminate a civil transaction cannot occur due to the direct or indirect action of deliberate impeding of one party, such conditions shall be considered having occurred; if the direct or indirect efforts of one of the parties promotes deliberately promote the occurrence of conditions so as to give rise to or terminate the civil transaction, such conditions

While the 1995 Civil Code only provides for conditional civil transactions, the

2005 Civil Code and the 2015 Civil Code set out conditional civil transactions and civil contracts Paradoxically, both the 2005 Civil Code and the 2015 Civil Code set out a conceptual framework for conditional contracts from two contrasting approaches (as will be discussed below)

Furthermore, it can be seen that since the 2005 Civil Code, the regime on conditions has remained mostly unchanged, albeit with some minor altered wording Therefore, the thesis will concentrate on the 2015 Civil Code that is currently in effect.

Conceptual Framework of Conditions

It is noteworthy that Vietnam recognises contracts and the performance of obligations to be conditional; thus, two definitions of the ‘conditional contract’ and the ‘conditional performance of obligations’ will be analysed

4.1.2.1 Conditional Contract: Two Contrasting Approaches

The definition of ‘conditional contract’ has been recognised in the 2015 Civil Code, which reads:

‘A conditional contract is a contract whose performance depends on the occurrence, modification or termination of a specified event.’ 204

Figure 6- The Approach to Conditional Contracts Under Article 402

It can be seen that the definition adopted in the Civil Code of Vietnam is compatible with the prevalent viewpoint on the concept of ‘conditional contract’, which is an existing contract, yet its effect is suspended until an uncertain event occurs The wording ‘performance’ is used instead of ‘existence’ suggests that the condition only has an impact on the contract performance (or its effect), not on the

204 The 2015 Civil Code of Vietnam, Art 402.6

Duty of Perfomance considered having not occurred shall be deemed not to have occurred

Figure 5- The History of Conditions in The Contract Law of Vietnam

However, the 2015 Civil Code also stipulates a confusing definition of the

‘conditional civil transaction’ in Article 120:

Conditions precedent and subsequent, as agreed upon by parties, determine the commencement or termination of civil transactions These conditions, when met, trigger the creation or dissolution of a legal obligation between the involved parties.

Figure 7- The Approach to Conditional Contracts Under Article 120

Contrary to the approach adopted in Article 116, Article 120 suggests an opposite one By providing that the civil transaction ‘arises’ rather ‘takes effect’, the wording of Article 120 supports the view that the fulfillment of the condition will give rise to the existence of a civil transaction rather than to its effect However, if this view is to be adopted instead of that in Article 406.2, the parties can freely withdraw from the agreement before the fulfillment of conditions, causing an aggrievance to the one who is striving to bring about the condition

On top of that, the term ‘civil transaction’ also causes confusion as to whether both unilateral acts and contracts can be made conditional since civil transactions are defined as contracts and unilateral acts under Article 116 of the Civil Code 206 In fact, Louisiana Civil Code recognises conditional donation 207 and conditional legacies 208 However, looking at specific provisions in the 2015 Civil Code of Vietnam for an answer, it appears that there are no provisions prescribing unilateral acts to be conditional The problem may become more intricate if a dispute arises from a conditional will and the court lacks substantive rules to refer to

From the author’s view, the problem lies in the definition of a ‘civil transaction’ The ‘transaction’ itself always refers to the act of two or more parties

205 The 2015 Civil Code of Vietnam, Art 120.1

206 The 2015 Civil Code of Vietnam, Art 116

207 Louisiana Civil Code, Art 1528: ‘The donor may impose on the donee any charges or conditions he pleases, provided they contain nothing contrary to law or good morals.’

208 Louisiana Civil Code, Art 953: ‘A legacy that is subject to a suspensive condition may be accepted or renounced either before or after the fulfillment of the condition.’

69 an important matter, it is likely to lead to faulty specific regimes, which include the regime on conditions

4.1.2.2 Conditional Performance of Obligations: Are They Synonymous with Conditional Obligations?

The conditional performance obligation is recognised in the 2015 Civil Code under a single provision:

According to the legal principle, parties to a contract must adhere to the agreed-upon conditions for performing civil obligations, or in the absence of such conditions, to the legal stipulations Performance of the obligation is mandatory upon fulfillment of these conditions.

The wording ‘conditional performance of obligations’ appears to differ from that of international practices and other jurisdictions While it is common to encounter

‘conditional obligations’ in most legal instruments, the ‘conditional performance of obligations’ adopted in the 2015 Civil Code of Vietnam is quite foreign when looking from a comparative perspective It is more common to say that an obligation is conditional, meaning its performance is suspended until the condition is met, rather than to say the performance of an obligation is conditional However, looking at the substantive provision, it can be seen that the approach in the 2015 Civil Code of Vietnam is similar to that of many international practices and national legal systems: the fulfillment of a condition shall give rise to the duty of performance under the obligation, rather than to the existence of the obligation itself 211

Furthermore, this provision on conditional obligation serves to distinguish it from that of conditional contracts The obligation made conditional under Article 284 belongs to Chapter 3, Section 1 of the Civil Code on general provisions of obligations, which means that this section covers all types of obligations arising from all kinds of sources, one of which is the contractual obligation

One question may arise when the provision on conditional obligations is placed in the Section on general provisions of obligations: does that mean that all obligations, regardless of their sources, can be made conditional? Looking from a comparative perspective, some types of obligations can be made conditional, such as obligations arising from contracts or from unilateral acts in certain countries (i.e

209 Garner (n 33): 'transaction n (17c) 1 The act or an instance of conducting business or other dealings; esp., the formation, performance, or discharge of a contract 2 Something performed or carried out; a business agreement or exchange 3 Any activity involving two or more persons'

210 The 2015 Civil Code of Vietnam, Art 284.1

Vietnam, it is unclear whether Vietnam recognises all types of obligations under Article 275 212 or only certain types of obligations to be conditional From the author’s observation of the conditional gift contracts stipulated in Article 462, 213 the conditional civil transactions in Article 120, it can be inferred that the 2015 Civil Code of Vietnam only recognises obligations arising from unilateral contracts or bilateral contracts to be made conditional.

Requirements of a Condition

The Civil Code does not clearly stipulate the elements that qualify an event to be a condition Article 402.6 only states that a condition is ‘a specified event’, which is not indicative of whether the ‘uncertain’ and ‘future’ characteristics are required for a condition Adopting such an ambiguous term leads to a risk of referring to the mere passage of time as a condition though there is no uncertainty to it In such cases, the conditional obligation would be mistaken for future obligations

The requirements of a condition are only set out in the provision on conditional gift contracts, which stipulates that ‘the conditions for giving a gift must not contravene the law or social morals.’ 214 However, besides gift contracts, can this requirement applies to other types of contracts as well? Eventhough the 2015 Civil Code does not provide for the requirements of conditions in its general provisions on conditional contracts, the trial practice in Vietnam has implied that a condition must not contravene the social morality or the law (as will be illustrated by a case in section 4.2.1).

Categorisation of Conditions

Based on the effect of the fulfillment of the condition, conditions are classified into conditions giving rise to a civil transaction and conditions terminating a civil transaction, 215 which is equivalent to suspensive conditions and resolutory conditions, respectively

However, the effect of suspensive conditions in the Civil Code of Vietnam may differ from that in international practices and other jurisdictions While the

212 The 2015 Civil Code of Vietnam, Art 275: ‘Obligations arise from the following bases: 1 Contracts; 2 Unilateral legal acts; 3 Unauthorized performance of acts; 4 Unlawful possession or use of or receipt of benefits from property; 5 Causing damage through unlawful acts;’

213 The 2015 Civil Code of Vietnam, Art 462.1: ‘A giver may require a recipient to perform one or several civil obligations prior to or after the giving of a gift The conditions for giving a gift must not contravene the law or social morals.’

214 The 2015 Civil Code of Vietnam, Art 462.1

215 The 2015 Civil Code of Vietnam, Art 120.1

In Vietnam's contract law, suspensive conditions establish the existence of a civil transaction, as opposed to creating the "effect" of a contract or obligation Consequently, parties may revoke their promises freely before the conditions are met, potentially disadvantaging the party attempting to fulfill the conditions.

The Civil Code of Vietnam's resolutory condition mirrors the approach of other legal systems The phrase "the civil transaction shall be […] canceled" implies that the transaction is valid and effective, as cancellation applies to valid contracts with defective performance In contrast, annulment applies to contracts with defective inception.

4.1.4.2 Express Conditions – Conditions Implied by Law

From the wording of Article 284 of the 2015 Civil Code, 216 it can be inferred that conditions can be classified into conditions agreed by the parties and conditions provided by law, based on the sources giving rise to conditions However, this wording can only be found in the provision on the conditional performance of obligations rather than conditional contracts; thus, it is unclear whether this classification applies to the latter as well.

Interference with Conditions

The 2015 Civil Code adopts the ‘fictional fulfillment’ approach to deal with the interference with conditions:

‘In cases where the conditions which give rise to or terminate a civil transaction cannot occur due to the direct or indirect action of deliberate impeding of one party, such conditions shall be considered having occurred; if the direct or indirect efforts of one of the parties deliberately promote the occurrence of conditions so as to give rise to or terminate the civil transaction, such conditions shall be deemed not to have occurred.’ 217 Although PECL, DCFR, UNIDROIT Principles and the Civil Code of Vietnam all embrace the ‘fictional fulfillment’ approach, there is a difference in the Civil Code of Vietnam PECL, DCFR, and UNIDROIT Principles do not consider all types of interference to be reprehensible unless they are contrary to the principle of

216 The 2015 Civil Code of Vietnam, Art 284: ‘Where the parties have agreed on conditions for the performance of a civil obligation or where the law provides certain conditions for the performance […]’

217 The 2015 Civil Code of Vietnam, Art 120.2

72 the good faith element and considers all deliberate interference with conditions to be blameworthy This can be explained by the fact that the Vietnamese legal framework is unfamiliar with the principle of good faith and lacks a system of precedents to assess whether an act is of good faith or not However, if all kinds of acts are considered reprehensible, parties might refrain from making efforts to bring about the desired condition, and that would go against the subsidiary obligation of making reasonable efforts in the period pending the fulfillment of conditions.

CONDITIONS IN VIETNAMESE TRIAL PRACTICE

Cases Before the Advent of Precedents

With a few provisions provided in the 2005 Civil Code and the 2015 Civil Code, there appears to be a difficulty in trial practice when determining the legal consequences in various situations, which will be illustrated by the cases below

4.2.1.1 Hung v Dung and Huyen: Failure to Perform Obligations After the Occurrence of Suspensive Conditions

In this case, Dung and Huyen entered into a real estate purchase agreement subject to two conditions (i) they are granted the certificate of land use rights, and (ii) the buyer (Hung) shall give them 150 troy ounces of gold 219 In their real estate purchase agreement, the parties further agreed on the remedy that ‘Party A (Dung and Huyen) shall remunerate Party B (Hung) a double amount of the received gold within ten days’ in case the seller refuses to sell When the conditions were fulfilled as Hung had given 160 troy ounces of gold and Dung and Huyen had also been granted the certificate of land use rights, Dung and Huyen changed their mind, increasing the contract price to 750 troy ounces of gold

The trial court, in this case, has voided the contract and made the seller remunerate an amount of 401.5 troy ounces of gold without stating the reason why Subsequently, the appellate court accepted the cassation appeal of the procuracy and made the seller remunerate an amount of 494 troy ounces of gold with no reasons stated

The Supreme People’s Court, therefore, has cancelled the judgments of the trial court and appellate court and rightfully held that the seller has unilaterally

218 PECL, Art 16:102; DCFR, Art III.-1:106(4); UNIDROIT Principles, Art 5.3.3

219 Hung v Dung and Huyen, Decision No 192/2006/DS-GDT (Supreme People’s Court, August 18, 2006)

73 the received gold, being 320 troy ounces of gold

It should be noted that from the moment the condition has fulfilled, the real estate purchase agreement in the case at hand has come into effect, rendering the seller liable to perform its principal obligations (sell the property) However, as the seller refused to perform its obligations, it has breached the contract and must be subject to remedial measures agreed by parties or implied by law In the present case, since the parties have already agreed on the remedy in case of a breach, the Supreme People’s Court has rightfully applied

4.2.1.2 That v Thoa: Effect of the Occurrence of Resolutory Conditions

That and Thoa had engaged and were expected to organise a wedding subsequently At the engagement party, That had given Thoa a total of 1.1 troy ounces of gold and 2.000.000 VND in cash After that, That had secretly read his fiancee’s text messages and suspected that Thoa has committed adultery Therefore, That suggested abandoning the weeding, and Thoa agreed That sued Thoa to claim the assets he had given her in their engagement party Similarly, Thoa made a counter- claim that That must remunerate all wedding organisation fees of 2.200.000 VND 220

The court has identified the act of gifting Thoa at the engagement party as a conditional gift of property with the condition being That and Thoa marries each other on a certain wedding day; thus, if the condition could not occur, the gift contract shall come to an end The court deemed that since the condition could not occur due to both parties’ fault (That refused to marry Thoa, and Thoa agreed), it is unreasonable to make Thoa remunerate all assets she has received and make That compensate for the wedding organisation fees Therefore, the court held that Thoa must return one troy ounce of gold to That, and That needed not to remunerate the wedding fees

In this case, the provisions on interference with conditions were not applied as the ‘fictional fulfillment’ approach adopted in the Civil Code of Vietnam shall only apply in case there is one party interfering with the conditions In the case at hand, both parties interfered to prevent the condition from occurring; therefore, the court applies the remedy of compensation in the case of conditional gift contracts: ‘Where a recipient fails to perform any obligation required to be performed after the giving of a gift, the giver may reclaim the gift and demand compensation for damage.’ 221 The calculation method adopted in this case is quite dubious; however, within the

220 That v Thoa, Judgment No 42/2010/DS-ST (Chau Thanh District People’s Court of Long An

221 The 2005 Civil Code of Vietnam, Art 470.3

The court's judgment does not establish a clear connection between the compensation awarded to restore the parties' positions and the underlying cause of the gift contract cancellation or annulment The court's position on the consequences of a resolutory condition remains undefined.

4.2.1.3 Tai Nguyen LLC v TPBank: Conditional Performance of Obligations

In this case, Tai Nguyen LLC and Phi Kha LLC entered into a processing contract in which Phi Kha LLC provided and installed an aluminium and glass system for the Kenton Luxury Apartment project, while Tai Nguyen LLC transferred an advance amount of money to Phi Ka to perform its obligations 222 At the request of Phi Kha LLC, Tien Phong Bank (TPBank) has issued two letters of guarantee to the beneficiary – Tai Nguyen LLC, one of which is the Letter of Guarantee for Advance Refund According to which, TPBank commits to pay Tai Nguyen LLC upon the receipt of (i) Request for Payment in writing from the guarantee and (ii) Original Letter of Guarantee before December 31, 2011 Subsequently, Tai Nguyen LLC transferred to Phi Kha LLC an advance payment of 36.936.620.036 VND and later accused Phi Kha LLC of materially breaching the contract and reclaimed the money Based on the Letter of Guarantee, Tai Nguyen LLC filed a lawsuit requesting TPBank to pay the advance payment guarantee TPBank refused to pay on the ground that Tai Nguyen LLC had failed to meet the condition: Tai Nguyen LLC did not hand over the original Letter of Guarantee to TPBank but only submitted a photocopy

The court held that TPBank’s refusal to make the guarantee payment to Tai Nguyen LLC has a legal basis According to Article 294 of the 2005 Civil Code of Vietnam, ‘in cases where the conditions for the performance of a civil obligation are agreed upon by the parties or provided for by law, the obligor must perform the obligation when such conditions arise’ In this case, the condition is both provided by the parties and by the law Apart from the Letter of Guarantee, this condition is also recognised in the 2006 Decision Promulgating the Regulation on Bank Guaranty:

‘During the guaranty term, the guarantor or guaranty certifier shall perform the guaranty obligation when the guarantee produces a claim for performance of the

222 Tai Nguyen LLC v TPBank, Judgment No 06/2015/KDTM-ST (People’s Court of District 5, Ho Chi Minh City, January 22, 2015)

75 conditions specified in the guaranty undertaking.’ 223

In the case at hand, when the condition could not occur within an agreed period, whether the obligation shall come to an end is made unclear by the Civil Code, leaving the court no bases to dictate the fate of the obligation From 2005 to the 2015 Civil Code, only ‘conditional performance of obligations’ is recognised rather than

‘conditional obligations Therefore, it can be deduced that only the ‘performance of obligations’ is subject to a condition, not the ‘obligation’ itself When applying the provision on the conditional performance of obligations in the Civil Code, it can be affirmed that the performance of obligations shall not become due if the condition fails to occur However, in the case at hand, the court held that ‘the guarantee obligation has terminated since the guarantee period under the letter has expired’ It should be noted that the ‘obligation’ and the ‘performance of obligation’ are two distinctive matters, and it seems that the court has mistakenly mingled these two definitions

4.2.1.4 Xa v Ngo: Requirements of a Condition

Mr Xa and Ms Ngo's business partnership in constructing a chili drying oven resulted in a financial dispute After reconciling their accounts, Mr Xa initiated legal action against Ms Ngo to recover a claimed loan of 600,000,000 VND Notably, the receipt Ms Ngo provided stated that the payment was contingent upon Mr Xa fathering a child with her.

The Supreme People’s Court cancelled the trial court’s judgment on the ground that the condition was contrary to social ethics and against the law since both

Xa and Ngo were married to their husband and wife Instead, the Supreme People’s Court sided with the appellate court’s judgment to reject Xa’s request but did not explain why The question as to the effect of the condition as well as the contract is left open

Two Requirements of a Condition: Morality and Legality

From this case, it can be inferred that there are two requirements for a condition: (i) conditions are not contrary to the social morality and (ii) conditions are not contrary to the law As analysed earlier, this case illustrates an answer to whether the requirements for the condition in gift contracts can similarly apply to other types of contracts In the present case, even though the Supreme People’s Court did not

223 Decision No 26/2006/QD-NHNN Promulgating the Regulation on Bank Guaranty (The State Bank, June 26, 2006), Art 27.3

224 Xa v Ngo, Decision No 12/2016/DS-GDT (Ho Chi Minh App Div of the Supreme People’s Court, January 22, 2016)

Precedent No 14/2017/AL: When Conditions Are Not Provided in the

4.2.2 Precedent No 14/2017/AL: When Conditions Are Not Provided in the Contract

In this case, Quang Van P1 entered into an agreement to gift his son (Quang Van P2) the land use rights with three conditions: (i) P2 shall construct a house for P1 on the land given (ii) P2 shall take care of P1, and (iii) P2 shall take care of P1’s parents 230 Although these conditions were not included in the gift agreement, they are impliedly included in the Authorisation Letter in which P1 authorised P2 to apply for a construction permit, and P2 was responsible for building a house on the given land for his father to live in Additionally, in the Statement of Commitment, P2 also wrote: ‘I was given this land by my father […] I made this commitment with the local government to build a house for my father, and I shall not transfer the land to anyone’ 231 However, after P1 had completed the procedure for transferring the land use rights, P2 not only refused to carry out the construction of the house as requested but also asked P1 to live in a different place

Therefore, the Supreme People’s Court held that ‘although the gift agreement does not contain any conditions, it is shown in the above documents that Quang Van P2 has to build a house for Quang Van P1 to live in and take care of Quang Van P1 and his parents’, 232 making a precedent for future similar cases

4.2.2.2 Contributions of the Precedent to the Formal Expression of Conditions

This precedent has served to fill the gap in the 2015 Civil Code as to the form of conditional gift agreements Should the conditions be contained in the contract to make the contract conditional? Or can they be located in other documents? Precedent

In case No 14/2017/AL, the court emphasized the significance of interpreting parties' intentions thoroughly and accurately This approach is supported by the author, as it enhances the protection of contracting parties Contracts, particularly those drafted without professional guidance, often lack precise provisions that reflect the parties' true intentions This highlights the importance of meticulous interpretation to ensure that the actual intent of parties is upheld.

230 Quang Van P1 v Quang Van P2, Precedent No 14/2017/AL (Supreme People’s Court, December

78 evidence before and after the contract conclusion

From the author’s view, this precedent may have further implications for the dispute resolution of similar cases First, apart from the gift agreement, this precedent can apply to resolve disputes arising from other types of contracts in case the conditions are provided elsewhere Second, as to the form of the condition, the condition can be expressed via a written document as in the precedent or via sound recordings, videos, and verbal communication that can be verified All these expressions of conditions can be considered a part of the gift agreement

On the other hand, the precedent still leaves many open issues that could have been addressed First, the precedent has yet to set out a standard framework to assess whether a condition is fulfilled or not In this case, the three conditions cannot be fulfilled within a short time but require a constant and long-term commitment, especially the conditions of taking care of P1 and his parents From the author’s perspective, the court could have applied provisions on resolutory conditions to resolve this issue Specifically, under the provisions on resolutory conditions, 233 the gift agreement is effective but shall come to an end if the resolutory condition occurs

In this case, the resolutory condition can be considered the act of not building a house and not taking care of P1 and his parents Thus, as long as P2 starts building a house and takes care of his father and his grandparents, the resolutory conditions cannot occur, and the gift agreement remains its effect

The precedent overlooks the potential for Quang Van P2's inability to fulfill the condition due to impracticality Despite the suggestion that P2's residence in Hanoi at the time may have hindered his ability to care for his father and grandparents in his hometown, the precedent did not investigate this possibility However, in similar situations within the US legal system, impracticality may be accepted as a reason for the non-occurrence of conditions.

233 The 2015 Civil Code of Vietnam, Art 120.1

234 See Royal-Globe Insurance Co v Craven (Mass 1992) 585 N.E.2d 315

In this case, Tran Van C - the tenant of a state-owned house (the seller) commits that after purchasing a state-owned house, she will transfer the ownership of the house to the buyer – Tran Thi C1 and Nguyen Cong H The seller received the money and delivered the house to the buyer, but then the State did not liquidate the house and did not recognise the homeownership of C 235

The Supreme People’s Court held that ‘Although the conditions agreed in the contract do not violate the law, and are not contrary to social morality, […] the State does not liquidate the house and does not recognize C's house ownership and land use rights, so most of those conditions do not occur Therefore, the agreement between C and C1 shall not come into effect Therefore, it is reasonable for the first- instance and appellate courts to declare the contract null and void.’ 236

4.2.3.2 Contribution of the Precedent to the Effect of the Occurrence of Suspensive Conditions

The varying approaches to conditions in the 2015 Civil Code are addressed in Precedent No 39/2020/AL The concept of a 'conditional contract' suggests the contract's performance depends on the conditions, while a 'conditional civil transaction' implies that the conditions initiate the transaction itself The precedent establishes that a suspensive condition gives rise to the contract's legal effect, not its existence, as evidenced by its description of the transaction as a "conditional civil transaction."

C has purchased the state-owned house, the transaction will take effect’ and ‘[…] most of those conditions do not occur; therefore, the agreement between C and C1 shall not come into effect.’ 238 The commentary of the Supreme People’s Court emphasises the ‘effect’ of the contract rather than the contract itself; thus, it can be inferred that the contract has already existed, yet its legal effect is suspended until the condition is fulfilled

235 Tran Van C v Tran Thi C1 and Nguyen Cong H, Precedent 39/2020/AL (Supreme People’s Court, August 13, 2020)

Under the conditional contract between C and C1, C's transfer of a 45m² area to C1 was contingent on the State liquidating that land to C Due to the allocation of 42.74m² within a highway, the State could not liquidate this area Consequently, the court ruled that since "most of the conditions do not occur," all conditions were considered unfulfilled This implies that when a substantial portion of the conditions cannot be met, it is deemed that none of the conditions have been fulfilled However, the exact extent to which a condition can be considered "largely" unfulfilled remains undefined.

4.2.3.4 Limitation of the Precedent: The Theory of Voidness and Why the Precedent Should Not Void the Contract

From the above facts, the Supreme People’s Court comes to a legal solution, which is to void the house ownership transfer contract because the conditions cannot occur 240

To examine whether the decision to void the contract is justified or not, one needs to look at the theoretical analysis of defective contracts and their consequences

Contracts that fail to meet the essential requirements of a valid contract are referred to as defective contracts The consequence of a defective contract is that the contract can either be ‘void’, ‘voidable’, ‘discharged’, or ‘unenforceable’ 241

"Void" denotes a complete absence or nothingness, conveying an absolute In the legal context, to account for nuanced forms of nonexistence, courts differentiate between "void" and "voidable" actions Since the 17th century, English law has recognized varying degrees of invalidity, acknowledging that legal actions may possess inherent flaws that necessitate varying levels of nullification.

A void contract is an act that the law considers to be no contract at all— a nullity from the start; the conclusion of a void contract does not modify the legal

240 Tran Van C v Tran Thi C1 and Nguyen Cong H, Precedent 39/2020/AL (Supreme People’s Court, August 13, 2020)

241 Lantera Nadew, ‘Void Agreements and Voidable Contracts: The Need to Elucidate Ambiguities of Their Effects’ (2010) 2 Mizan Law Review 94

242 Anne H Soukhanov ed., Webster's II New Riverside University Dictionary (The Riverside

243 Jesse A Schaefer, ‘Beyond a Definition: Understanding the Nature of Void and Voidable Contracts’ (2010) 33 Campbell Law Review 18, 195

244 Keite v Clopton (1657) 124 Eng Rep 799, 799 ("An act or thing may be said [to be] void in several degrees.")

Precedent No 39/2020/AL: Legal Consequences of the Non-occurrence

Precedent No 39/2020/AL, it can be boiled down to the fact that the Vietnamese legal framework has yet provided a distinction between different types of defective contracts There is still confusion among ‘inexistent contract’, ‘void contract’,

‘voidable contract’, and ‘unenforceable contract’, resulting in the overuse of ‘void contract’ (hop dong vo hieu) in Vietnamese trial practice 251

However, the confusion among different defective contracts is not a problem persisting only in Vietnam but also in other countries In common law countries, court rulings, statutes, scholarly literature, and contract draftsmen all use the phrases ‘void,’

‘voidable,’ and ‘unenforceable’ - and dozens of other terms of the same ilk - to describe defective contracts 252 Nonetheless, the meaning of these assertions is vexingly ambiguous When the precise definitions of these phrases are called into play in the courtroom, plaintiffs are frequently surprised to learn that a contract that was previously (and unequivocally) deemed void is now only voidable or unenforceable 253 The question of whether a contract or other legal act is void or voidable can sometimes be the deciding factor in a case; yet, in most circumstances, the distinctions between the different categories of invalidity are essentially theoretical, and appropriate classification would have no practical effect on the outcome of a case 254 As a result, courts have used the terms ‘void,’ ‘voidable,’

‘invalid,’ and ‘unenforceable,’ inexactly or even interchangeably However, the distinction between different types of defective contracts is the key issue in a small number of cases in which courts have no choice but to try to make sense of the confusion in order to reach a decision.

CONDITIONS IN VIETNAMESE ARBITRATION PRACTICE

Contract Enforcement before the Fulfillment of Conditions

In Company D v Company A, Company D (Claimant – Buyer) signed a contract to supply concrete with Company A (Respondent – Seller) According to the contract, the payment is made on the condition that a set of payment documents is

251 Do Van Dai, Luat Hop Dong Viet Nam - Ban an va Binh luan ban an (Tap 1) [Contract Law in

Vietnam – Cases and Commentaries (Volume 1)] (Vietnam National University - Ho Chi Minh City Publishing House 2020) 260

253 Green Tree Acceptance, Inc v Blalock (1988) 525 So 2d 1366, 1370 (Ala 1988) ("Although the statute states that the contract is automatically void, in practice the contract is merely voidable "); Ewell v

Daggs (1883) 108 U.S 143, 148-49 (observing that the word "void" is "often used in statutes and legal documents in the sense of voidable merely and not as meaning that the act or transaction is absolutely a nullity, as if it had never existed")

83 to the buyer, the Arbitral Tribunal held that the buyer’s payment obligation has yet to fall due; thus, the buyer did not breach the payment obligation 255

The approach that the Arbitral Tribunal adopted in this case is similar to that in the provision on the conditional performance of obligations in the 2015 Civil Code According to which, an obligation has already existed, yet its performance shall not become due unless the condition occurs In the decision, the Arbitral Tribunal commented: ‘[…] after the buyer has received the complete set of payment documents, the buyer shall pay for the goods to the seller […] So the seller needs to complete the set of payment documents, send it to the buyer, and the buyer shall be obliged to pay according to the prescribed payment schedule specified in the contract.’ 256 This comment shows that the Arbitral Tribunal does not deny the existence of a payment obligation that the buyer will have to make towards the seller; however, the Arbitral Tribunal considers that the buyer has not yet had to make the payment immediately because the seller has not completed the conditions Therefore, when comparing the two contrasting approaches that the 2015 Civil Code offers, the Arbitral Tribunal, in this case, appears to prefer the viewpoint adopted in Article 402.6: the occurrence of a condition shall give rise to the effect of the contract rather than the contract itself.

Contract Enforcement with the Interference with Conditions

In this case, the contract between A (Respondent) and B (Claimant) reads that

‘[…] The following payments must be paid to Party B quarterly, and Party A agrees to pay that amount within thirty (30) days (i) from the date of receipt of the invoice and (ii) after two parties have accepted and signed all pre-acceptance tests of all services performed in that quarter’ 257 In fact, while B has performed its obligations, the representative of A did not sign the pre-acceptance test, leading to the conditions being unfulfilled The Arbitral Tribunal has applied the provisions on the interference with conditions in the 2015 Civil Code to force the A (Respondent) to perform its payment obligations

However, even if the 2015 Civil Code does not require the interference with conditions to be of bad faith, the Arbitral Tribunal still takes this element into account to determine whether the act of the Respondent is truly repugnant The Arbitral

255 Do Van Dai, Giai Quyet Tranh Chap Hop Dong – Nhung Dieu Doanh Nhan Can Biet [Contract Dispute Settlement – What Businesses Need to Know] (Vietnam International Arbitration Center 2019) 83-86

257 Do Van Dai, Giai Quyet Tranh Chap Hop Dong – Nhung Dieu Doanh Nhan Can Biet [Contract Dispute Settlement – What Businesses Need to Know] (Vietnam International Arbitration Center 2019) 86-88

84 by the dissatisfaction with B’s performance, thus, examining the possibility that A’s act may not be considered of bad faith On the contrary, there are no documents indicating the Respondent’s objection to the work that the Claimant has done, nor any written request to settle the backlog between parties The specialised departments of the Respondent even signed the Minute of Confirmation of the workload Hence, the Arbitral Tribunal held that the lack of signatures in the pre-acceptance test was the fault of the Respondent

As to the consequence of the interference of one party, the Arbitral Tribunal employs the provision on the conditional performance of obligations in the 2015 Civil Code 258 to force the Respondent to perform its payment obligations The ‘fictional fulfillment’ approach is applied in this case: ‘The non-fulfillment of the conditions is caused by the Respondent’; therefore, ‘there are grounds to hold that the payment conditions under the contract must be considered to have been fulfilled’ 259 From there, the Arbitral Tribunal decided to ‘force the Respondent to pay the Claimant for the remaining fee’ 260

Regarding the 2015 Civil Code, it can be concluded that the Code still leaves many open issues concerning conditional contracts and conditional obligations To be specific, there are two provisions stipulating conditional civil transactions and conditional contracts; however, their approaches contradict each other as to the effect of the occurrence of conditions Secondly, the characteristics of conditions are made unclear; thus, it may lead to confusion between conditional obligations and future obligations Finally, the provision on the interference with conditions adopted a

‘fictional fulfillment’ approach, yet it fails to recognise the element of bad faith to render the interference reprehensible; thus, it may result in parties’ refraining from making reasonable efforts to bring about the condition

As to the trial practice, due to the ambiguity in the Civil Code, judges met with difficulty when dealing with cases relating to conditional contracts In most the cases, the judges fail to provide a detailed explanation and quickly leap to the judgment, leaving many issues relating to the conditional contracts open It was not until the advent of Precedent No 14/2017/AL that the issue relating to the formal expression

258 The 2015 Civil Code of Vietnam, Art 284.2

259 Do Van Dai, Giai Quyet Tranh Chap Hop Dong – Nhung Dieu Doanh Nhan Can Biet [Contract Dispute Settlement – What Businesses Need to Know] (Vietnam International Arbitration Center 2019) 87

39/2020/AL, the court has addressed the two contrasting approaches that the 2015 Civil Code has adopted in the conceptual framework on conditions It has also filled the gap of the 2015 Civil Code when providing for the legal consequences in case the condition was unfulfilled However, Precedent No 14/2017/AL still leaves many open issues that could have been addressed, such as setting out standard criteria to assess whether a condition is fulfilled or not As to Precedent No 39/2020/AL, the court voids the contract on the basis of the non-occurrence of conditions could lead to the risk of creating a new basis for voiding the contract while, in fact, in this case, the contract is void based on the impossibility of performing the subject matter

The arbitration practice on conditional contracts indicates some original viewpoints of the Arbitral Tribunal First, when dealing with the two contrasting approaches as to the effect of a condition, the Arbitral Tribunal has opted for a prevailing approach that has been adopted in international best practices and other jurisdictions Second, the Arbitral Tribunal, when dealing with the interference with conditions, despite not being required by the 2015 Civil Code, also takes into account the element of bad faith to examine whether the act of interference is truly reprehensible or not

CHAPTER FIVE: PROPOSAL TO REFORM THE REGIME ON CONDITIONS IN THE CONTRACT LAW OF

The previous chapters have examined the effectiveness of the legal framework for conditional contracts in Vietnam when compared with international practices and other jurisdictions and realised there are loopholes that need filling Thus, this chapter aims to answer the second question as to how the provisions on conditions should be reformed It first proposes to refine the conceptual framework of conditions; then, it suggests a treatment for subsidiary obligations pending the fulfillment of conditions After that, the chapter proposes to clarify the legal consequence for the non- occurrence of conditions by first explaining the judgment in the Precedent No 39/2020/AL and later providing for a standard consequence in the Civil Code Finally, the chapter recommends recognising the right to restitution of parties in case the resolutive condition occurs.

REDEFINE THE CONCEPTUAL FRAMEWORK OF CONDITIONS 86 1 Refining the Definition of ‘Conditional Contract’ From a Single

Construing ‘Conditional Obligations’ from the Provision on ‘Conditional

The 2015 Civil Code of Vietnam only provides for the ‘conditional performance of obligations’ while leaving a gap as to the fate of the obligation itself Furthermore, whether the obligations that can be made conditional under the Civil Code could arise from contracts, unilateral acts, or other sources should be made clear From the author’s observation, it can be inferred that Vietnam only recognises obligations arising from contracts to be made conditional; thus, this view should be made clear in the provision

Therefore, the author proposes to establish a definition of ‘conditional obligations’ by amending Article 284.1 as follows: ‘ Article 284 Conditional performance of obligations : Where the parties have agreed on conditions for the performance of a civil [a contractual] obligation or where the law provides certain conditions for the performance of an [a contractual] obligation, the obligor must perform the obligation when such conditions are satisfied.’

Elaborate on the Characteristics of a Condition

Looking from a comparative perspective, uncertainty is an indispensable element of a condition 261 as it helps differentiate conditional obligations from future obligations Therefore, the author proposes that the 2015 Civil Code of Vietnam give a detailed description of a condition instead of ambiguously referring it to ‘a specified event’ 262 Accordingly, Article 402.6 should be modified as follows: ‘A conditional contract is a contract whose performance depends on the occurrence, modification or termination of a[n] specified [uncertain] event.’

When it comes to the interpretation of the degree of the uncertainty, the author suggests that it needs not strictly interpret only events that are outside of the parties’ control as uncertain as in UNIDROIT Principles 263 Alternatively, the 2015 Civil Code of Vietnam could refer to the Restatement (Second) of Contract, which

262 The 2015 Civil Code of Vietnam, Art 402.6

88 uncertain events, 264 allowing more flexibility and adaptability to the real-life demand of the contracting parties.

ADOPT A SUITABLE TREATMENT FOR SUBSIDIARY

Supplement Other Subsidiary Obligations Pending the Fulfillment of

In the context of contractual obligations, the principle of good faith requires fair dealing, taking into consideration unique circumstances where the fulfillment of a condition remains pending A party standing to benefit from the condition's fulfillment holds a conditional right that warrants protection, especially when it is a suspensive condition that delays the obligation's enforceability until the condition is met.

However, the 2015 Civil Code of Vietnam has only recognised the duty not to interfere with the occurrence of conditions yet has not embraced other subsidiary obligations, including (i) the obligation not to withdraw from the agreement and (ii) the obligation to make reasonable efforts 265 Therefore, it is recommended to add these two obligations to ensure the principle of good faith before the fulfillment of conditions Especially when the Civil Code still remains unclear on whether a condition shall give rise to a contract or to the contract’s legal effect, it is recommended to provide for the obligation not to withdraw from the agreement

Vietnam's Civil Code imposes liability for deliberate interference with conditions without considering good faith This provision dispenses with the UNIDROIT Principles' requirement of bad faith for remedies, potentially deterring parties from taking reasonable efforts to fulfill conditions To address this concern, the author suggests amending Article 120.2 to include a "bad faith" element, deeming conditions not to have occurred if efforts to promote their occurrence were deliberately made without good intentions.

Adopt the ‘Awarding Damages’ Approach for Breach of Subsidiary

To deal with the interference with conditions, the 2015 Civil Code adopts the

The "fictional fulfillment" approach has drawn criticism due to its punitive nature and failure to consider external factors that hinder condition fulfillment Instead, the author proposes a long-term reform: replacing the "fictional fulfillment" approach with the "awarding damages" approach for breaches of subsidiary obligations, as implemented in the German Civil Code This approach aligns with Vietnamese trial practices and offers a more straightforward solution.

CLARIFY THE LEGAL CONSEQUENCE FOR THE NON-

Short-term Solution: Explain About the Legal Consequence of The Non-

If the approach to void the contract based on the non-occurrence of conditions in Precedent No 39/2020/AL was applied automatically to every conditional contract, it would leave no room for the party whose favor the condition runs the opportunity to waive the condition and continue with the contract, especially in cases where the fulfilment of conditions is not a prerequisite for the contract performance Thus, it shall go against the trend of minimising the voidness of contracts for cost- efficient and time-saving purposes

Therefore, a short-term solution would be that the Supreme People’s Court should explain clearly their judgment on Precedent No 39/2020/AL: the non- occurrence of conditions does not automatically render a contract void However, in the precedent, the non-occurrence of conditions (the house was not liquidated by the State) led to the impossibility of performing the subject matter (C could not sell the house to C1) Thus, it is the impossibility of performing the subject matter that makes the sales contract void, not the non-fulfillment of conditions

Subsequently, the Supreme People’s Court could interpret the legal consequence in the Precedent No 39/2020/AL to be voidable rather than void to make room for parties’ negotiation in case the non-occurrence of the condition does not

90 condition is a must for the performance of a contract, the court can void the contract based on the impossibility of performing the subject matter rather than on the non- occurrence of conditions

5.3.2 Long-term Solution: Recognise the Contract to be Ineffective as the Legal Consequence of the Non-occurrence of a Suspensive Condition

As can be inferred from the definition in Article 402.6 of the 2015 Civil Code, if a condition fails to occur, it shall not give rise to the legal effect of the contract; thus, the contract can be said to be an ineffective one An ineffective contract can be understood as a contract that has no legal effect even though its requirements of contract formation have been met 268 However, in fact, the concept of ‘ineffective contract’ and another concept of ‘contract that shall not give rise to rights and obligations’ recognised under the 2015 Civil Code are still voided by the courts, and therefore, these concepts appear to be understood analogously with the concept of

‘void contract’ 269 Since the consequence of voiding the contract can be drastic, parties have agreed to their customised legal consequences in the contract

Since the 2015 Civil Code of Vietnam lacks provisions for default consequences when conditions are not met, parties often define these consequences in their contracts, such as contract termination or cancellation Nonetheless, the 2015 Civil Code should include a default consequence for scenarios where parties have not stipulated consequences for the non-fulfillment of conditions.

The author suggests that a suitable approach for the non-fulfillment of suspensive conditions is to regard the contract as ineffective This consequence can be inferred from the concept of a condition, whose fulfillment would give rise to the legal effect of a contract Thus, when that condition cannot occur, the contract shall not arise its legal effect Subsequently, an ineffective contract shall not give rise to any rights and obligations and the parties are discharged from the contractual relationship This approach is compatible with the reason why parties enter into

268 Truong Nhat Quang, Phap Luat Ve Hop Dong: Cac Van De Phap Ly Co Ban [Contract Law:

269 Do Van Dai, Luat Hop Dong Viet Nam - Ban an va Binh luan ban an [Contract Law in Vietnam – Cases and Commentaries] (Vietnam National University - Ho Chi Minh City Publishing House 2017) 345- 347.

270 Truong Nhat Quang, Phap Luat Ve Hop Dong: Cac Van De Phap Ly Co Ban [Contract Law:

91 therefore, when the event fails to occur, the consent to be bound by the contract expires, leading to the discharge of the contract.

RECOGNISE THE RESTITUTION IN CASE OF THE OCCURRENCE

As indicated in the definition of a resolutive condition, the contract subject to a resolutive condition ‘shall be terminated upon the occurrence of such conditions.’ 271 When a contract subject to a resolutive condition terminates as a result of the resolutive condition being fulfilled, the parties will often have completed their contractual obligations in full or in part, raising the need to recognise their right to restitution Accordingly, the 2015 Civil Code of Vietnam has provided for the consequences of the unilateral termination of a contract, in which ‘a party which has already performed its obligation may demand the other party to make payment for the performed obligation.’ 272 The author suggests that the provision on unilateral termination can be applied similarly to the termination of contracts in general to recognise the parties’ right to get restituted for what they have given

Establishing an effective legal framework for conditional contracts is a long- term project that necessitates a strategic, systematic plan as well as suitable procedures at each level

In the short term, enacting explanatory documents to define the concept of

‘conditional contract’ from a single approach and clarifying the judgment as to the legal consequence in the Precedent No 39/2020/AL should be the priorities

In the long run, Vietnam should think of redefining the definition of

‘conditional contract’ and establish a definition of ‘conditional obligation’, adding other subsidiary obligations before the fulfillment of suspensive conditions to ensure the principle of good faith, adopting the ‘awarding damages’ approach for breach of subsidiary obligations instead of ‘fictional fulfillment’ one, recognising termination as the legal consequence of the non-occurrence of conditions, and providing for the restitution right in cases of resolutive conditions

271 The 2015 Civil Code of Vietnam, Art 120.1

272 The 2015 Civil Code of Vietnam, Art 428.3

Conditional contracts have become increasingly common in complex and high-value business transactions as well as daily transactions Therefore, the study has hopefully answered the two research questions revolving around the condition in the contract law of Vietnam set out at the beginning of the project First, regarding the question of the effectiveness of the Vietnamese legal framework for conditions, the thesis points out that the 2015 Civil Code has yet provided a clear regime on conditions, compared with international practices and other jurisdictions Second, the thesis answers the question of how the Vietnamese legal framework for conditional contracts should be reformed by suggesting some short-term and long-term solutions

Clearly, however, this thesis will not be able to address all of the challenges in this area Many questions are left to be explored What are the criteria to determine whether a condition has been fulfilled? What is the solution to the circumstance where the recipient in a gift agreement has transferred the gift to a bona fide third party before fulfilling the conditions? What is the legal consequence for the situation in which a party cannot fulfill the condition due to an event of force majeure? Answers to all of those questions must be sought sooner or later, whether by contracting parties, commentators, courts, or others with interest in the topic All of these efforts will eventually result in the formation of a set of established regulations in this domain At some point in the future, possibly quite distant, the majority of today's ambiguity and difficulty will disappear, to be replaced by a mature system The discussions in this thesis hopefully provide a general platform for such further research and developments to take place

Principles of European Contract Law

Restatement (Second) of Contracts (Am Law Inst 1981)

UNIDROIT Principles of International Commercial Contracts

Uniform Commercial Code of United States of America

The 2014 Law on Marriage and Family

The 2015 Civil Code of Vietnam

The 2015 Criminal Code of Vietnam

Aetna Casualty and Surety Co v Murphy (Conn 1988) 538 A.2d 219

Albion Sugar Co Ltd v Williams Tankers Ltd (1977) 2 Lloyd’s Rep 457

Borders (UK) Ltd v Metropolitan Police Commissioner (2005) EWCA Civ 197;

Bournemouth & Boscombe Athletic FC v Manchester United FC (1980)

British Airways Board v Taylor (1976) 1 All ER 65

Carlill v Carbolic Smoke Ball Co (1893) EWCA Civ 1

Damon Compania Naviera SA v Hapag-Lloyd International SA (“The Blankenstein”)

Eastham v Leigh, London & Provincial Properties Ltd (1971) 1 Ch 871

Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd (1942) UKHL 4 Green Tree Acceptance, Inc v Blalock (1988) 525 So 2d 1366

Hung v Dung and Huyen, Decision No 192/2006/DS-GDT (Supreme People’s

Kuddus v Chief Constable of the Leicestershire Constabulary (2001) UKHL 29;

Merritt Hill Vineyards, Inc v Windy Heights Vineyard, Inc (1984) 460 N.E.2d 1077 Michaels v HarleyHouse (Marylebone) Ltd (1997) 1 W.L.R 967

Nordheim v Petrofina SA (The Varenna) [1984] Q.B 599

Peter Cassidy Seed Co Ltd v Osuustukkukauppa IL (1957) 1 WLR 273

Quang Van P1 v Quang Van P2, Precedent No 14/2017/AL (Supreme People’s

Royal-Globe Insurance Co v Craven (Mass 1992) 585 N.E.2d 315

Stoke-on-Trent CC v W & J Wass Ltd (1988) 1 W.L.R 1406

Tai Nguyen LLC v TPBank, Judgment No 06/2015/KDTM-ST (People’s Court of

District 5, Ho Chi Minh City, January 22, 2015)

That v Thoa, Judgment No 42/2010/DS-ST (Chau Thanh District People’s Court of

The Fanti and the Padre Island (1991) 2 A.C 1

Thompson v ASDA-MFI Group Plc (1988)

Total Gas Marketing Ltd v Arco British Ltd [1998] 2 Lloyd’s Rep 209

Tran Van C v Tran Thi C1 and Nguyen Cong H, Precedent 39/2020/AL (Supreme

UR Power GmbH v Kuok Oils and Grains Pte Ltd (2009) EWHC 1940

Xa v Ngo, Decision No 12/2016/DS-GDT (Ho Chi Minh App Div of the Supreme

A James Barnes, Terry Morehead Dworkin and Eric L Richards, Law for Business

Anne H Soukhanov ed., Webster's II New Riverside University Dictionary (The

Anthony Gordon Guest, Anson’s Law of Contract 26th ed (Oxford University Press,

Arthur L Corbin, ‘Conditions in the Law of Contract’ (1919) 28 The Yale Law

Bénédicte Fauvarque-Cosson, ‘Position Paper on Conditions’ (2007)

Bénédicte Fauvarque-Cosson, ‘The New Provisions on Conditions in the UNIDROIT

Principles 2010’ (2011) 16 Uniform Law Review - Revue de droit uniforme

Bryan A Garner, Black’s Law Dictionary (Thomson Reuters 2019)

Christian von Bar and others (eds), Principles, Definitions and Model Rules of

European Private Law: Draft Common Frame of Reference (Outline ed,

Commentaire Romand, Code des obligations I (Helbing Lichtenhahn Verlagp 2021) Commission on European Contract Law, Principles of European Contract Law:

Parts I and II (hereinafter PECL) (Kluwer Law International BV 2000)

Do Van Dai, Giai Quyet Tranh Chap Hop Dong – Nhung Dieu Doanh Nhan Can Biet

[Contract Dispute Settlement – What Businesses Need to Know] (Vietnam International Arbitration Center 2019)

Do Van Dai, Luat Hop Dong Viet Nam - Ban an va Binh luan ban an (Tap 1)

[Contract Law in Vietnam – Cases and Commentaries (Volume 1)] (Vietnam National University - Ho Chi Minh City Publishing House 2020)

Dinh Van Thanh, Pham Cong Lac, ‘Thuat Ngu Luat Dan su’ [Civil Law Jargons] in

Dictionary of Legal Jargons (Public Security Publishing House, 1999)

Edwin Peel and GH Treitel, The Law of Contract (Sweet & Maxwell 2015)

Edward Allan Farnsworth, ‘Ingredients in the Redaction of the “Restatement

(Second) of Contracts”’ (1981) 81 Columbia Law Review 1

Edward Avery Harriman, The Law of Contracts (Little, Brown, 1901)

Geoffrey Samuel, An Introduction to Comparative Law Theory and Method

Harlan Grant Cohen, ‘Theorizing Precedent in International Law’ in Andrea Bianchi,

Daniel Peat and Matthew Windsor (eds), Interpretation in International Law (Oxford University Press 2015)

Henry Thomas Colebrooke, Treatise on Obligations and Contracts (1818)

Hugh Beale, ‘The Nature and Purposes of the Common Frame of Reference’ (2008)

Jack Beatson, Andrew S Burrows and John Cartwright, Anson’s Law of Contract

James Dalrymple Stair, The Institutions of the Law of Scotland (1681)

Janet O’Sullivan and Jonathan Hilliard, The Law of Contract (Oxford University

Jesse A Schaefer, ‘Beyond a Definition: Understanding the Nature of Void and

Voidable Contracts’ (2010) 33 Campbell Law Review 18

John Erskine, An Institute of the Law of Scotland (1773)

John Gillespie, Transplanting Commercial Law Reform: Developing a ‘Rule of Law’ in Vietnam (Routledge 2017)

John Rastell, Les Termes de La Ley, Or, Certain Difficult and Obscure Words and

Terms of the Common Lawes and Statutes of This Realm Now in Use, Expounded and Explained (J Streater 1659)

Konrad Zweigert, Hein Kotz and Tony Weir, Introduction to comparative law

Lantera Nadew, ‘Void Agreements and Voidable Contracts: The Need to Elucidate

Ambiguities of Their Effects’ (2010) 2 Mizan Law Review 94

Lawrence S Clark and Peter D Kinder, Law and Business (McGraw-Hill 1988)

Le Thi Diem Phuong, ‘Khai Niem Ve Dieu Kien Trong Loai Hop Dong Co Dieu

Kien’ [The conception of a condition in a conditional contract] (2020) Tap chi Toa an

Martin Hogg, Obligations: Law and Language (Cambridge University Press 2017) Melvin Aron Eisenberg, Foundational Principles of Contract Law (Oxford

Michael McConville and Wing Hong Chui (eds), Research Methods for Law (Second edition, Edinburgh University Press 2007).