Commercial contract and 4 important keys can not missed

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In commercial relationship, parties normally put more interest on commercial aspect rather than legal aspect. Instead of making significant effort to negotiate and draft a commercial contract with a tight legal framework, the parties entering into a commercial contract by way of drafting as “sketchy”, primarily based on habit and the trust, which hides a lot of potential risks for the parties. In the event of disputes, the terms of such commercial contract is not clear leading to the difficulties in resolving the disputes.

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4 points in relation to disputes in the commercial contract in Vietnam

Phuoc & Associates would like to mention hereinafter 4 important keys in a commercial contract that parties should not ignore when entering into a commercial contract:

To clearly determine and specify the subject of the commercial contracts

The subject of the commercial contracts is considered as the goods which are purchased or sold by the parties or jobs, services in which one party performs or provides to the other party.

In the event the subject of the commercial contract is the goods, whether such goods purchased and sold are distinctive goods (such as the specific asset) or fungible goods (such as goods are in mass production), the relevant information of goods including the kinds, origins, quantities, volumes, qualities, specifications and status of goods (new or used), etc. shall be specified by the parties in the contract.

In the event the subject of the commercial contract is the performance of job or the service provision, the parties are required to specify what the job/service is, what the jobs/services are considered as out of scope of work and shall be charged in an additional fee, which the supplied form is, who the subject is, which time the implementation at, where the location is, how to determine the level of jobs/services completion, etc.

To specify payment term including payments, payment methods and alternative payment methods

In practice, there are many commercial contracts only specified on the amount of payment but not mention payment methods as well as alternative payment methods (if any). Some contracts include these terms but they are vague and unclear. For instance, the parties agree that the payment shall make within ‘x’ days but there is no date on which to calculate the term (e.g. it should be “within ‘x’ days as from the date of delivery or the date of invoice issuance”); the selling prices/service fees is “x” but there is no clue to determine whether such prices/services include the relevant taxes, fees and expenses (such as travel expenses) or not; the payment shall made by the bank transfer but there is lack of the information of bank account as well as which party will be born for bank fees, etc.

To negotiate and agree on the terms of the appropriate dispute settlement

When signing commercial contract, the parties are afraid to discuss and often do not spend a lot of time to draft the appropriate terms in relation to these terms. This practice commences from the basic of a good relationship and neither party anticipates or expects the occurrence of dispute at the time of signing, negotiating the commercial contract.

Therefore, the parties often avoid discussing on how to resolve the disputes at the time of negotiation and drafting of the commercial contract. The terms on dispute settlement in the commercial contract are specified generally by the parties, or re-use the sample of terms of the commercial contracts instead of adjusting to be suitable with the specified case of parties.

Some common mistakes would be noted, such as: the parties agree on the foreign jurisdiction which is inconvenient for the Vietnamese party making a lawsuit, the parties agree to select the commercial arbitration to resolve the disputes but not refer to the name of the Arbitration Center or refer to the wrong name of the Arbitration Center, etc.

To ensure the signatories of parties are legally authorized to sign the contract

Pursuant to Article 142 of Civil Code, a contract signed by unauthorized signatories shall be deemed as invalid. For avoidance of ineffectiveness of a commercial contract, it is required to note and ask the partner to make compliance with such matters.

For more information, in accordance with the law, for the enterprise, the enterprise representative shall be the legal representative or the authorized representative. You could identify the legal representative of the enterprise based on the information recorded in the enterprise registration certificate of the partner or you could easily search such information at the Vietnam National Business Registration Portal: https://dangkykinhdoanh.gov.vn/. In the event the representative of the partner signing the contract is not their legal representative, it is required to ask the partner in order to have a valid authorization document for this person.

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