A signed contract gives rise to the rights and obligations of the parties, so contract drafting needs to be paid attention to ensure rights and limit risks.

This article was consulted by Lawyer Nguyen Quang Trung

Legal grounds:

• Civil Code 2015;
• Commercial Law 2005.

The economy and society are increasingly developing, so trade activities are also becoming more diverse and complex. And normally, when concluding a commercial contract, the parties often try to imagine and predict situations that may arise when implementing the contract, and then include appropriate content in the contract.

However, in addition to cooperation and mutual benefit seeking, there is always an opposition of interests between the parties to the contract. Therefore, the contract content needs to harmonize the interests of the parties, create conditions for the contract to be implemented in reality, as well as limit risks for each party.

Refer to the 10 notes below to draft commercial contracts and design transaction implementation processes:

1. Conditions for validity of the contract

In principle, contracts must be concluded on the basis that each party must have freedom, voluntary commitment and agreement. Also, the purpose of the parties entering into the contract is to carry out legal activities.

Therefore, the signed contract must ensure the following 3 conditions:

• The subject has civil legal capacity and civil act capacity appropriate to the established civil transaction;
• Subjects participating in civil transactions are completely voluntary;
• The purpose and content of civil transactions do not violate legal prohibitions or are not contrary to social ethics.

In addition, for some special transactions and services, contracts must be made in writing and must be notarized/authenticated to have legal effect.

For example:

• Contracts with their object is real estate must be made in writing and must usually be notarized/authenticated;
• Construction contracts, credit contracts, transit service contracts, and goods auction organization service contracts must be made in writing.

2. Reasons and circumstances for entering into the contract

Currently in commercial contracts, at the beginning, the parties often write: “Based on the needs and abilities of the parties.”

It is advisable to write down the needs and capabilities of the parties in the contract. However, it is necessary to clearly state the needs and capacities of the parties. This will show why the parties signed the contract and what circumstances led to the contract being signed.

In case of a dispute, the parties have the right to cite the reason and circumstances of signing the contract to protect their rights, or they can cite the fact that one party made an incorrect commitment about their abilities, then leading to perform unsatisfactory work causing damage.

3. Terms definition

Some commercial contracts have specific subjects or provide special services, so they are often highly specialized and have complex content. These contracts often have definition clauses to explain words and phrases used in the contract.

In fact, whether the contract is simple or complex, the parties should also build a definition clause. A good definition clause will ensure:

• The parties do not have to repeat the interpretation of a phrase, if that phrase is used multiple times in the contract. Helps make contracts more concise and scientific;
• A phrase will be used consistently throughout the contract without being changed due to errors;
• Drafters can easily control contract content and limit conflicts between contract terms;
• Unify the understanding between the parties, as well as the third party can also understand the contract, thereby ensuring that during the implementation process there is no confusion, misunderstandings between the parties, and limit disputes.

4. Object of the contract

Commercial activities are inherently diverse, so for each specific activity, commercial contracts have different objects.

For example:

• The sales contract has the object of a specific product being bought and sold such as computer equipment, cars, rice, real estate, etc.
• Service contracts include tasks such as: translation services, office cleaning services, transportation services, customs declaration services, interior design services, commercial appraisal services, software outsourcing services,…
• Construction contracts include projects such as: residential houses, office buildings, transportation infrastructure such as bridges, roads, etc.

For each type of object mentioned above, the contract content needs to clearly state what the object is, the quality standards to be achieved, the unit of quantity, the method of implementation, the capacity requirements of the person performing the work, Timelines for job completion.

Note: The object of the contract must be capable of being performed in reality. If, at the time of signing the contract, one or both parties knew that the object of the contract was impossible to perform and still entered into the contract, that contract may be declared invalid.

5. Measures to ensure contract performance

The parties can include measures in the contract to ensure contract performance to bind and increase the sense of responsibility of each party. Common measures to ensure contract performance include: deposit, pledge, mortgage, escrow, and guarantee.

In reality, in commercial relations, security measures widely applied by parties are: deposits, mortgages, guarantees.

Once the security measure has been applied, the parties need to further clearly stipulate the rights and obligations of each party in case of breach of the guaranteed obligation.

For example:

• If a deposit is applied: it is necessary to clearly state the rights of the party receiving the deposit to handle the deposit, as well as the rights of the party who made the deposit but violated the contract, etc.
• If mortgage is applied: it is necessary to clearly stipulate the mortgagee’s right to handle the mortgaged property,…
• If a guarantee is applied: it is necessary to clearly stipulate the procedures and conditions under which the guarantee recipient can request the guarantor to perform the guarantee obligation, etc.

6. Price

Parties need to pay attention to recording prices in commercial contracts, especially currency units, as well as cases where foreign exchange is used in Vietnamese territory.

Pursuant to Article 22 of the 2005 Foreign Exchange Ordinance, amended and supplemented in 2013 as follows:

Article 22. Regulations restricting the use of foreign exchange

In the territory of Vietnam, all transactions, payments, listings, advertisements, quotations, valuations, price recording in contracts, agreements and other similar forms of residents and non-residents shall be prohibited made in foreign exchange, except for cases permitted under the regulations of the State Bank of Vietnam.

According to the above regulations, commercial contracts between businesses in the territory of Vietnam cannot be recorded and paid in foreign exchange. Cases where foreign exchange is allowed in the territory of Vietnam are specified in Article 4 of Circular No. 32/2013/TT-NHNN, amended and supplemented by Circular No. 03/2019/TT-NHNN and Circular No. No. 16/2015/TT-NHNN.

If an enterprise violates the above regulations, it may be subject to administrative sanctions according to the provisions of Decree 88/2019/ND-CP.

Regarding price recording, the parties can clearly determine the selling price, service provision price, or can also stipulate that the price changes over time and determine the price calculation method, the price includes fees and charges. In case the price is a service remuneration, it is necessary to clearly state which items are included in the remuneration and which are not included?

In addition, the parties can also add consequent clauses in case the market price fluctuates significantly compared to the time the contract was signed. This is to harmonize the interests of all parties.

7. Payment

Payment terms include 2 basic contents:

Payment method: in commercial contracts within the domestic country, the parties will write down the simple payment method as cash or bank transfer, the parties can also use the payment method through the carrier. For international trade contracts, the parties need to carefully research international payment conditions and methods.

Payment term: for each payment period, clearly state:

• Payment term (how to calculate time and payment date);
• Specific payment amount or formula for determining payment amount;
• Sanctions for breach of payment obligations.

8. Rights and obligations of each party

For each different type of commercial contract, there are currently governing legal regulations in the 2015 Civil Code, the 2005 Commercial Law, and other specialized legal documents.

Therefore, if a commercial contract does not stipulate in detail the rights and obligations of the parties, the contract can still be performed according to the general provisions of law.

However, for complex transactions, just relying on existing provisions in the law is not detailed enough to guide the parties in implementing the contract. If there is a dispute, it will be difficult for the judge to make a fair decision.

Therefore, the parties should design regulations on the rights and obligations of each party, which can repeat the general provisions of the law, and also make adjustments and add new regulations to suit practice.

9. Contract violations

The parties should refer to the sanctions for breach of contract prescribed in the 2015 Civil Code and the 2005 Commercial Law and include them in their contracts.

Note when there are regulations on sanctions:

• Must clearly state the conditions for the violated party to apply sanctions. For example, violations must be quantified by a defined timeline, quantified by measurable quality indicators, etc.;
• Limit in using of the word “serious” which is qualitative in nature instead of requirement a quantification of the violation;
• It is possible to divide the levels of violations to provide each level of sanctions;
• It is necessary to determine what is a fundamental violation;
• It is necessary to clearly state the types of sanctions applied, and reference should be made to the application of sanctions prescribed by law;
• Regarding penalties for breach of contract, it is important to note the maximum penalty prescribed by law and should not be confused with other sanctions.

10. Dispute resolution

For commercial disputes, the parties can choose the dispute resolution method of negotiation, mediation, court settlement or commercial arbitration.

In case the parties want to resolve the dispute in commercial arbitration, the parties must have an agreement to select a commercial arbitrator. This agreement may be stated in the contract or as a separate agreement. The arbitration center will only accept dispute resolution if the parties have previously agreed.

As for the remaining dispute resolution methods, the parties have the full right to apply even if the contract does not agree.