Enforcement of Conditional Obligations in Share Transfer Agreements

Title: Enforcement of Conditional Obligations in Share Transfer Agreements

Case Study: In the case of judgment No. 32/2023/KDTM-PT, the obligation to transfer shares from the Construction Electromechanical Corporation (the Corporation) to Mr. Nguyen Quoc A can be considered a conditional obligation. This means that the obligation is only to be fulfilled when the agreed condition in the contract is met. However, this needs to be carefully analyzed according to the provisions of Vietnamese law.

What is a Conditional Obligation? A conditional obligation is an obligation that is to be performed upon the occurrence of a specific event, agreed upon by the parties or prescribed by law. The condition must be pre-agreed in the contract, and when that condition occurs, the obligation becomes enforceable.

Conditions in Share Transfer Agreements In this case, the conditions set forth in the share transfer agreement between Mr. Nguyen Quoc A and the Corporation include:

1. The Board of Directors of the Corporation must pass a resolution not to hold controlling rights in the related joint-stock companies.
2. The transfer of shares must be completed within three years from the date of signing the contract.

Does the Obligation Arise When the Condition Occurs? In Mr. Nguyen Quoc A’s case, the contract stipulated a condition regarding controlling rights. However, the issue arose as to whether this condition genuinely prevented the Corporation from transferring shares to Mr. Nguyen Quoc A.

The court analyzed and concluded that the condition concerning controlling rights might be a reason, but it was not a justifiable reason to delay the share transfer beyond the three-year term agreed upon. The court held that waiting for a new resolution from the Board of Directors on waiving controlling rights could not exceed the committed period.

Vietnamese Legal Provisions Under Vietnamese law, contracts must be performed according to the agreement of the parties and within a reasonable time. Conditions in contracts are lawful and enforceable if:

• The condition does not violate legal provisions.
• The condition does not infringe upon the legitimate rights of the parties.

In this case, the court found that the condition concerning controlling rights was not a reasonable basis to extend the share transfer obligation, especially when the period for fulfillment had already exceeded the three-year limit agreed upon by both parties.

Conclusion Although the contract included a conditional obligation, this Enforcement of Conditional Obligations must be evaluated in the context of actual and legal circumstances. If the condition does not occur within a reasonable time or if it no longer fits the actual circumstances, the obligated party must still fulfill their obligation. In this case, the Corporation must carry out the share transfer to Mr. Nguyen Quoc A as agreed, even if the condition has not been entirely met.

If you need more detailed advice on conditional obligations in corporate contracts, please contact Unilaw at +84 0912266811 for support (HERE)

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