The recently issued Case Law No. 81/2024/AL (CL 81) introduces a precedent that allows creditors to bypass the standard statute of limitations by re-characterizing an unpaid contractual debt as a property reclamation claim upon the mutual termination of the contract and an agreement on the payable amount. Below are a few of our observations regarding CL 81.

Summary of the Case

The dispute originated from a service contract between Company M (the Service Provider) and Company A (the Client). After the Service Provider performed its services, the parties mutually agreed to terminate the contract. Subsequently, the Client explicitly confirmed in writing the specific amount of the service fee it owed to the Service Provider and the late payment interest but ultimately failed to make the payment. When the Service Provider filed a lawsuit to recover the unpaid amount, the Client requested the court to dismiss the case, arguing that the 3-year statute of limitations for a contractual dispute had already expired.

The Court ruled that when (i) a contract is terminated (the Contract Termination Element) and (ii) the payment obligation is explicitly confirmed by the debtor (the Debt Confirmation Element), the dispute in question is a civil dispute regarding the reclamation of an asset rather than a commercial contract dispute. Consequently, the standard 3-year statute of limitations applicable to a contractual dispute under Article 429 of the Civil Code 2015 does not apply. Instead, pursuant to Article 155.2 of the Civil Code 2015, no statute of limitations applies to civil disputes regarding the reclamation of assets, effectively rendering such payment recoverable indefinitely. The Court, unfortunately, did not provide a detailed legal basis for its conclusion in CL 81.

Some Observations

Contradiction to the Rules on the Timing of Ownership Creation

The ruling in CL 81 implies a specific moment when ownership of an asset is legally established (the Ownership Creation Point), which conflicts with the principles set out in Article 161 of the Civil Code 2015.

Under Article 161 of the Civil Code 2015, by default, ownership over an asset is established when the asset is physically handed over to the owner—i.e., when the owner or their lawful representative takes possession of the asset (the Possession Point). However, from the ruling in CL 81, one must infer that ownership of the "asset" (the unpaid amount of money) was created before the Possession Point.

For the claim at issue in CL 81 to be a valid "reclamation of asset" under Article 166.1 of the Civil Code 2015, the Service Provider must legally be the owner of the unpaid amount. It is unclear at what moment before the Possession Point the ownership over this unpaid amount was supposedly conferred upon the Service Provider. Given that the Court cited the Contract Termination Element and the Debt Confirmation Element to reach its conclusion, it is conceivable that the Court views the Ownership Creation Point as the moment both elements are satisfied. Furthermore, it is entirely unclear which legal ground under Article 221 of the Civil Code 2015 (which specifies the bases for establishing ownership) the Court relied upon to reach this conclusion.

At the time of the lawsuit, the Service Provider had never physically possessed the funds. According to Article 161, ownership is only established upon delivery; therefore, the Service Provider should not have been considered the legal owner, even though the ruling in CL 81 was given as if ownership had already been conferred.

Potential Gaps in Legal Effects: Active vs. Terminated Contracts and Debt Confirmation

The conclusion of CL 81 potentially creates drastically different legal consequences for the exact same financial obligation based solely on two factors: the contract's termination status and whether the payable amount is agreed upon.

Scenario A (Contract Not Terminated, Amount Agreed):

Facts: A owes B VND 100. A confirms the payable amount, but the parties do not terminate the contract.
Legal Consequence: Based on the Court’s reasoning under CL 81, the dispute over the payment of such debt might still be a contractual dispute because the contract remains active.
Time Limit: The standard 3-year statute of limitations under Article 429 of the Civil Code 2015 might apply. If B claims after 4 years, B will be time-barred.

Scenario B (Contract Terminated, Amount NOT Agreed):

Facts: The parties mutually terminate the contract, but they dispute the final value of the services rendered (e.g., B claims VND 100, but A claims it only owes VND 70 because the services were incomplete or defective).
Legal Consequence: Based on the Court’s reasoning, the dispute over the contested VND 30 difference might remain a contractual dispute. Lacking an agreement on the specific payable amount, the claim for the VND 30 difference has not yet turned into a claim for a specific asset.
Time Limit: The standard 3-year statute of limitations under Article 429 still applies. If B claims after 4 years, B will be time-barred.

Scenario C (Contract Terminated AND Amount Agreed - The CL 81 Scenario):

Facts: A owes B VND 100. The parties terminate the contract AND explicitly agree that A owes B exactly VND 100.
Legal Consequence: Following the logic of CL 81, since the contract is terminated and the specific debt amount is settled, the claim for VND 100 becomes an asset reclamation claim. This reasoning implies that once a service contract is terminated and the payable amount is agreed upon, B can no longer pursue a breach of contract claim for unpaid amount.
Time Limit: No statute of limitations applies pursuant to Article 155.2 of the Civil Code 2015. If B waits 4 years to sue, B will not be time-barred.

This comparison reveals glaring inconsistencies in legal outcomes.

First, comparing Scenario A and Scenario C, it is unclear what legal basis justifies termination suddenly stripping a claim of its contractual nature. Logically, termination should not fundamentally alter the character of a claim for breach of obligations that arose during the contract's term. If termination effectively removes the contractual nature of such claims, it raises the question of whether B can still sue A for any breach prior to termination—not just payment—once the contract is terminated. If this is the case, a debtor could strategically cease performance to trigger termination (whether lawful or not, pursuant to Article 428 of the Civil Code 2015) as a means to evade contractual claims.

Second, comparing Scenario B and Scenario C, the legal basis by which merely agreeing on a final number could transform a contractual payment claim into an asset reclamation claim is unclear and questionable. Furthermore, if an agreed-upon payable amount can be claimed forever, does this mean that if the payable amount (or part thereof) is not agreed upon, the claim for the disputed portion remains permanently subject to the 3-year time bar?

Internal Contradiction Regarding Remedies

The Court's re-characterization of the dispute creates a legal paradox concerning the applicable remedies:

If the dispute is treated as a claim for asset reclamation: The legal remedy for possession without a legal basis is the restitution of the asset, along with potential compensation for damages or the return of any yields and profits gained by the unlawful possessor. It remains unclear in CL 81 whether contractual late payment interest remains applicable. If the Court were to apply property law principles strictly, contractual penalties like late payment interest should be unenforceable. Allowing both would enable the Service Provider to "double-dip" by concurrently pursuing remedies for asset reclamation and penalties for contractual breach.
If the dispute is treated as a dispute about breach of contract: The remedy rightfully includes the agreed-upon late payment interest as provided in the contract, but the claim at issue remains subject to the 3-year statute of limitations.

By classifying the dispute as an asset reclamation claim and thereby rendering the statute of limitations inapplicable, while implicitly still accepting claims for late payment interests as provided in the contract, the Court’s approach appears highly inconsistent.

The Flawed Assumption of Pre-existing Ownership and "Wrongful Possession"

The Court’s ruling appears to rely on the flawed assumption that the Service Provider "owns" a specific sum of money that the Client is unlawfully "possessing". This premise seems inconsistent with the facts, as the Service Provider never actually possessed the funds; they merely held a contractual right to receive payment. Furthermore, from a physical and legal perspective, if the Client lacks the necessary funds in its bank accounts in the first place, it is impossible for them to "unlawfully possess" the Service Provider's property. From the perspective of legal science, by conflating a payment obligation with a reclaimable asset, CL 81 blurs the critical distinction between ownership rights (which is rights in rem – quyền đối vật), which are enforceable against the world at large, and personal rights (rights in personam – quyền đối nhân), which are enforceable only against specific individuals.

Applying the Ruling to Claims for Damages

A significant open question is whether the logic of CL 81 can be extended to claims for damages. Fundamentally, a claim for damages represents an obligation to pay a sum of money, making it functionally similar to the unpaid service fee at the heart of this case. If a contract is terminated and the parties explicitly agree on the exact amount of damages owed, it follows from the Court’s reasoning that this claim could also be considered a property reclamation claim. Such an interpretation would theoretically exempt damage claims from any statute of limitations, further expanding the impact of this controversial precedent.

This post is written by Ha Thanh Phuc and Nguyen Hoang Duy.

Vietnam Business Law