Ownership transfer clauses in contracts: contents and proper application under legal regulations

In many civil and commercial transactions, ownership transfer clauses constitute an important part of the contract for determining the point in time at which ownership of assets is transferred from the seller to the purchaser. Clearly stipulating ownership transfer clauses helps the parties identify their respective rights and obligations and minimize disputes arising during contract performance.

I. Current issues relating to ownership transfer clauses

In practice, within civil and commercial contractual transactions, ownership transfer clauses are often not clearly stipulated or are not given adequate attention by the parties. It has resulted in numerous disputes concerning the timing of ownership transfer, liability in relation to assets, and the right to dispose of assets after the transaction has been established.

Common practical issues include:

• Contracts failing to clearly specify the time of transfer of ownership, thereby causing difficulties in determining liability when risks arise in relation to the assets.
• Confusion between delivery of assets and transfer of ownership, whereas under Articles 161 and 188 of the Civil Code 2015, certain cases require registration procedures before the transfer of ownership becomes legally effective.
• Failure to implement registration procedures for assets subject to ownership registration, such as land use rights or vehicles.
• Contract clauses drafted in a general or incomplete manner, without adequately stipulating the conditions, timing, and responsibilities of the parties regarding ownership transfer.

II. Concept of ownership transfer clauses

1. What is an ownership transfer clause?

Pursuant to Article 192 of the Civil Code 2015 regarding the right to dispose of assets: The right to dispose of assets is the right to transfer ownership of assets, relinquish ownership rights, or consume or destroy assets.

Based on the above provision, an ownership transfer clause may be understood as a contractual provision agreed upon by the parties to determine the timing and conditions for transferring ownership of assets from the transferor to the transferee.

Such a clause generally stipulates matters such as: The timing of ownership transfer, conditions for ownership transfer to become effective (for example, after full payment has been made), the responsibilities of the parties, and procedures required for assets subject to ownership registration. Clearly stipulating ownership transfer clauses helps accurately determine the parties’ rights and obligations and minimize disputes arising during contract performance.

2. What is the legal nature of an ownership transfer clause?

An ownership transfer clause in a contract is essentially a civil agreement between the parties intended to establish the transfer of ownership rights over assets from the transferor to the transferee.

Pursuant to Article 430 of the Civil Code 2015: A sale and purchase contract is an agreement between the parties whereby the seller transfers ownership of assets to the buyer and the buyer pays the seller.

Accordingly, ownership transfer clauses possess the following legal characteristics:

• They constitute contractual agreements in civil transactions to determine the transfer of ownership from one entity to another.
• They serve as the legal basis for establishing or terminating ownership rights over assets between the parties to the transaction.
• They determine the timing of transfer of ownership rights over assets, unless otherwise provided by law.

In addition, under Article 158 of the Civil Code 2015: Ownership rights comprise the rights to possess, use, and dispose of assets of the owner in accordance with law.

3. How is the timing of transfer of ownership determined for assets subject to ownership registration?

Under the Civil Code 2015, the timing of transfer of ownership for assets is determined in accordance with relevant laws or based on the agreement of the parties.

Specifically, Clause 1 Article 161 of the Civil Code 2015 provides: The time for establishment of ownership rights and other rights over assets shall comply with this Code and other relevant laws; where the law contains no provisions, it shall comply with the agreement of the parties; where neither the law nor the parties provide otherwise, the time for establishment of ownership rights and other rights over assets shall be the time the assets are delivered.

Therefore, for assets requiring ownership registration, compliance with statutory registration procedures is an essential factor in establishing and recognizing the lawful ownership rights of the transferee.

III. Legal regulations relating to ownership transfer clauses

1. What conditions must be satisfied for an ownership transfer clause to have legal effect?

For an ownership transfer clause in a contract to have legal validity, it must satisfy the validity conditions applicable to civil transactions under Article 117 of the Civil Code 2015.

• The parties possess legal capacity and civil act capacity appropriate to the established transaction.
• The parties participate in the transaction voluntarily and are not deceived, threatened, or coerced.
• The purpose and contents of the transaction do not violate prohibitory provisions of law or social ethics.
• The form of the transaction complies with legal requirements where the law requires the transaction to be made in writing, notarized, authenticated, or registered.

In addition, for ownership transfer clauses relating to assets, the establishment and implementation thereof must also comply with regulations concerning the timing of establishment of ownership rights under Article 161 of the Civil Code 2015 and specialized legal regulations (where the assets are subject to ownership registration).

2. In what circumstances may an ownership transfer clause be declared invalid?

An ownership transfer clause in a contract may be declared invalid if it violates the provisions governing the validity of civil transactions under the Civil Code 2015. Common cases include:

• First, transactions violating prohibitory provisions of law or social ethics: Pursuant to Article 123 of the Civil Code 2015, civil transactions with purposes or contents violating prohibitory provisions of law or social ethics are invalid.
• Second, transactions established through deception, threats, or coercion: Pursuant to Article 127 of the Civil Code 2015, where a party enters into a contract due to deception, threats, or coercion leading to consent to the transfer of ownership clause, such party has the right to request the Court to declare the transaction invalid.
• Third, transactions established due to mistake: Pursuant to Clause 1 Article 126 of the Civil Code 2015, where an ownership transfer clause is agreed upon due to mistake causing one party to fail to achieve the intended contractual purpose, the mistaken party may request the Court to declare the transaction invalid.
• Fourth, transactions established by persons lacking appropriate civil act capacity: Pursuant to Article 117 of the Civil Code 2015, parties participating in transactions must possess appropriate legal and civil act capacity. 
• Fifth, failure to comply with legal requirements regarding transaction form: Pursuant to Article 129 of the Civil Code 2015, where the law requires a transaction to be made in writing, notarized, authenticated, or registered, but the parties fail to comply with such requirements, the transaction may be declared invalid.

3. Does an oral agreement on transfer of ownership have legal validity?

Under the Civil Code 2015, oral agreements regarding transfer of ownership may have legal validity if all conditions for validity of civil transactions are satisfied.

Pursuant to Article 119 of the Civil Code 2015 regarding forms of civil transactions, civil transactions may be established verbally, in writing, or through specific conduct, except where the law requires transactions to be made in writing, notarized, authenticated, or registered.

However, the legal validity of oral agreements depends on the type of asset involved and relevant legal regulations, specifically:

• Where the law does not require written form: If transfer of ownership does not fall within cases requiring written form or registration, the parties may reach an oral agreement, and such transaction remains legally valid provided that the conditions under Article 117 of the Civil Code 2015 are satisfied.
• Where the law requires written form or registration: For certain assets such as land use rights, houses, vehicles, or other assets subject to ownership registration, the law requires contracts to be made in writing, notarized, authenticated, or registered with competent authorities. If the parties merely enter into an oral agreement, the transaction may not be legally recognized under Clause 2 Article 129 of the Civil Code 2015.

4. What contents should an ownership transfer clause include?

In civil and commercial contracts, ownership transfer clauses should be clearly stipulated in order to determine the timing and conditions of ownership transfer over assets. Pursuant to Article 158 (ownership rights), Article 161 (timing of establishment of ownership rights), and Article 192 (right to dispose of assets) of the Civil Code 2015, such clauses generally include the following fundamental contents:

• Identification of transferred assets: Clearly describing the assets, quantity, characteristics, condition, or identifying information of the assets in the contract.
• Timing of ownership transfer: The parties may agree on the timing of ownership transfer; in the absence of agreement, the timing shall be determined in accordance with Article 161 of the Civil Code 2015.
• Conditions for transfer of ownership: Stipulating conditions under which ownership transfer is implemented, such as completion of payment obligations or completion of relevant legal procedures.
• Rights and obligations of the parties: Determining the responsibilities of the transferor and transferee during the ownership transfer process.
• Ownership registration procedures (if any): For assets requiring ownership registration under the law, the contract should stipulate the responsibilities of the parties in implementing registration procedures with competent authorities.

IV. Questions relating to ownership transfer clauses

1. Can an ownership transfer clause be amended after the contract has become effective?

Pursuant to Article 421 of the Civil Code 2015, the parties have the right to agree on amendments or supplements to the contract during the course of contract performance. Such amendments shall only become effective when all contracting parties consent thereto.

When amending an ownership transfer clause, the parties should execute a written amendment agreement or a contract appendix to record the amended contents.

If the original contract is required to be notarized, authenticated, or registered (for example, contracts for transfer of land use rights or sale and purchase of residential houses), any amendment relating to ownership rights must also comply with the same formal requirements in accordance with specialized laws.

Accordingly, ownership transfer clauses may be amended after the contract has taken effect, provided that such amendment is based on the parties’ agreement and complies with the legal formalities prescribed by law.

2. Is notarization or authentication mandatory for ownership transfer clauses in all cases?

Not all ownership transfer clauses are required to be notarized or authenticated. Pursuant to Article 119 of the Civil Code 2015, civil transactions may be established verbally, in writing, or through specific conduct, except where the law requires transactions to be made in writing, notarized, authenticated, or registered.

Accordingly, notarization or authentication is only mandatory for transactions specifically required by specialized laws (for example, transactions relating to real estate or assets subject to ownership registration). In other cases, the parties may freely agree on the form of the contract and the transfer of ownership clause.

3. Can an ownership transfer clause be cancelled if a mistake or fraud is discovered?

Where an ownership transfer clause is established due to mistake or fraud, the affected party has the right to request the Court to declare the civil transaction invalid in accordance with the law. Specifically:

• Pursuant to Article 126 of the Civil Code 2015, if a party enters into a civil transaction due to mistake causing such party not to achieve the intended purpose of the transaction, that party has the right to request the Court to declare the transaction invalid.
• Pursuant to Article 127 of the Civil Code 2015, if a civil transaction is established as a result of deception, threats, or coercion, the deceived party has the right to request the Court to declare the transaction invalid.

Where a transaction is declared invalid, the legal consequences shall be handled in accordance with Article 131 of the Civil Code 2015, under which the parties must restore the original status and return to each other everything received.

4. May the parties agree that ownership transfer will only occur after full payment obligations have been completed?

The law permits the parties to freely agree on the timing of transfer of ownership over assets in a contract.

Pursuant to Article 161 of the Civil Code 2015, the time for establishment of ownership rights shall be determined in accordance with legal provisions or the agreement of the parties; in the absence of such agreement, ownership rights shall be established at the time the assets are delivered.

In practice, the parties may agree that:

• Ownership rights shall only be transferred after the purchaser has made full payment; or
• Ownership rights shall be transferred immediately upon execution of the contract, while payment obligations are fulfilled thereafter.

5. How should enterprises draft ownership transfer clauses in order to minimize dispute risks?

To minimize legal risks and disputes during contract performance, enterprises should draft ownership transfer clauses in a clear and comprehensive manner, including the following essential contents:

• Clearly stipulating the timing of ownership transfer: Specifying whether ownership is transferred upon execution of the contract, upon delivery of the assets, or upon completion of payment obligations.
• Clearly determining the timing of asset delivery: Distinguishing between the timing of delivery and the timing of ownership transfer in order to avoid confusion regarding liability when assets are damaged or lost.
• Stipulating obligations relating to ownership registration (if any): For assets subject to ownership registration, determine which party is responsible for carrying out registration procedures with competent state authorities.
• Defining risk allocation relating to the assets: Clearly determining which party bears risks associated with the assets before and after transfer of ownership.
• Providing remedies for breaches of payment obligations: The parties may agree that ownership transfer shall only occur after full payment is made, thereby minimizing risks where the purchaser fails to fulfill payment obligations.

V. Why should you seek legal advice from NPLaw regarding ownership transfer clauses?

Ownership transfer clauses constitute an important component of civil and commercial contracts. If such clauses are drafted ambiguously or inconsistently with legal regulations, disputes may easily arise regarding the timing of ownership transfer, payment obligations, or liabilities relating to assets. Therefore, seeking legal advice is necessary to ensure that transactions are conducted in compliance with the law.

When using legal advisory services at NPLaw, clients may receive the following support:

• Legal advice on relevant regulations: Lawyers analyze and explain the provisions of the Civil Code 2015 and related legal instruments concerning transfer of ownership of assets.
• Drafting and reviewing contractual clauses: Assistance in preparing or reviewing ownership transfer clauses to ensure clarity, legality, and minimization of dispute risks.
• Assessment of legal risks in transactions: Lawyers analyze potential risks relating to the timing of ownership transfer, payment obligations, and liabilities concerning assets.
• Dispute resolution support: In the event of disputes, lawyers may advise on negotiation and mediation strategies or assist clients during court proceedings.
• Tailored legal solutions for enterprises: Advising on appropriate ownership transfer clauses suitable for the nature of the enterprise’s business operations and the types of assets involved in transactions.

The above information is provided for reference purposes only. Should clients require detailed advice regarding specific cases, please contact NPLaw Firm for immediate consultation.