A commercial contract is transaction that demonstrates mutual agreement to voluntary agreement between subjects in business with each other and with related parties regarding the establishment,.change, termination of rights and.obligations in commercial activities. However, to ensure a transaction does not risk.(invalid, prescribed are not tight, lack of agreement dispute resolution…).during the cause of the contract is considered a difficult problem.for many businesses at the moment. When a dispute arises between the parties,.The signed commercial contract is considered “the key” to solving the related issues. COMMERCIAL CONTRACT MANAGEMENT RICKS
Therefore, with many years of experience in accompanying the enterprises,.Law Plus would like to review the risks that often occur in contracts that Businesses should note below,.we would like this analysis to help your Businesses. Commercial Contract Management Risks
Table of Contents/Mục lục
Types of risks often occur when performing the commercial contract
Risks due to contract invalidation (forms, contents);
Risks due to contract terms are not tight;
Lack of agreement about terms.of dispute resolution contract.
Firstly, Risks due to contract invalidation
1. Invalid about the forms
Each type of contract has its own specific regulations on.form,.first of all, it should be understood that The commercial contract.can be one.of the following types of contract:
– Contracts for the sale of goods: there are types of contracts that have not an international element; the international sale of goods contract (including export, import, temporary import for re-export, temporary export for re-import) and the sale contract through the Commodity Exchange (include options contracts, forward contracts)
– Service contract: there are types of service provision contracts related to the sale of goods.(including the trade promotion contract, commercial intermediaries, other commercial activities) and specialized service provision contracts (such as financial service contracts, insurance, bank, tourism,…).
– Contract in other commercial investment activities: another type of construction contract (such as contract for the transfer of new urban areas, industrial and technical infrastructure projects, housing,…)
A Contract can be established by words,.texts,.electronic.means or specific acts of the contracting parties. However,.because the reason why the commercial contracts.often.represent.important.and large transactions of enterprises,.the agreements between.the parties should be made in writing so that when disputes arise,.the parties have legal bases to negotiate and settles.
Under the current laws,.when having the range form of the contract,.the parties need to sit down to unified agreement.with each other. In case there are no common words,.either party has the right to sue the Court, requesting the competent Court.has to declare the contract void. Therefore, to limit these legal risks,.the parties to the contract should choose a type of contract.in writing and fully comply.with the requirements of the type of contract.that the parties enter. COMMERCIAL CONTRACT MANAGEMENT RICKS
2. Invalid about the contents
b1) Because the subject is signed the contract is not competent
This is a very important requirement.because according to the provision of Article 142 of the Civil Code 2015,.if the commercial contract is signed by a person.who is not authorized to represent to prescribed, this contract will without.giving effect to individuals, organizations represented. COMMERCIAL CONTRACT MANAGEMENT RICKS
In case, the partner’s representative.signing the contract has not have a legal representative, it must be a validly authorized representative.to show that this person is competent to sign this commercial contract. Accordingly, the commercial contract will be invalidated.when the subject signs the contract falls into one of the following cases: COMMERCIAL CONTRACT MANAGEMENT RICKS
– The partner has not civil act capacity to perform the contract;
– The partner has not legal status;
– The partner’s representative has not authorized to sign the contract;
– Contracting person beyond authorized scope
– The subject does not have the status and conditions to perform the object of the contract.
The current Law on Enterprises allows a company.to have more than 01 legal representatives, so the parties need to ensure that the legal representative.registered is the person who has the authority to sign based on provisions.of the Enterprise’s regulations or the Regulated powers in the appointment decision. Can be easily identified.the legal representative of the enterprise based on the information recorded.on the business registration certificate of the partner.or you can also easily search this information on the National business registration portal.of Vietnam at the address: https://dangkykinhdoanh.gov.vn/. Therefore, to avoid the commercial contract.of you with the partner is considered invalid due to the signer’s incompetence,.please regard this issue and ask the partner to strictly comply. COMMERCIAL CONTRACT MANAGEMENT RICKS
b2) Because the subjects in the contract are goods, services that cannot be performed (forbidden by Law)
The subjects of commercial contracts.often are goods or services (works) that the parties agree. So, it needed to prescribe clearly, specifically about characteristics, properties of object so that when a dispute occurs, it can be determined quickly. COMMERCIAL CONTRACT MANAGEMENT RICKS
– The subjects are goods:.It should be noted to avoid the case that these objects are on the list of products prohibited by law.or ineligible for sales as agreed in the contract.
– The subjects are services: types of service supply contracts that must be made in text by current law, complied with those regulations. COMMERCIAL CONTRACT MANAGEMENT RICKS
b3) Because the contents in the contract are contrary to the law, contrary to social ethics.
The contents of the contract must ensure that it is not contrary to law and social ethics,.if violated, the contract will be void. Depending on the type of contract,.the parties can agree on the contents in the commercial contract but.still ensure compliance with the provisions of law. There may be contents according to.the provisions of the Civil Code: Commercial Contract Management Risks
– The subject in the contract;
– The quantity, quality;
– Price, payment;
– Term, place and method of contract performance;
– Rights, obligations of the parties;
– Liability for.breach of contract;
– Dispute.resolution method.
Secondly, risks due to contract terms are not tight
When drafting a contract, one need to ensure that the necessary provisions about the contract otherwise it will cause difficulties in the implementation of the contract by the parties due to the contract terms are lack of strict, such as: COMMERCIAL CONTRACT MANAGEMENT RICKS
– Causing difficulties in delivery because the delivery location not specifically agree in the contract
– The regulations on payment time are not clear, leading to the obligor to prolong the payment time, and affect the lawful rights and interests of the obligee.
– The rights and obligations of the parties are still vague and lack details
– Regulations on product pack, and ship methods are also not clear, or specific
– The payment method, as well as the currency used for payment, are also issues that need to be specific when drafting the contract.
Note about some terms in commercial contracts:
1. The information confidentiality Clause
The information confidentiality clause.in the contract is prescribed on the basis.of clear legal grounds: According to the provisions of Clause 4, Article 289,.Commercial Law 2005: Unless other agreed, the franchisee is obliged to keep the franchised business secret,.even after the contract ends or end. Therefore, the confidentiality of company information should be done.during and after the contract termination.
In addition, Point C, Clause 3, Article 6 of the.Law on Intellectual Property 2005 (amended, supplemented 2009) prescribed as follows:.Industrial property rights to a business secret are established.on the basis of lawfully obtaining a business secret and.performed securing that confidential. In addition, Point b, Clause 1, Article 45.of the 2018 Competition Law.(succeed the 2004 Competition Law).provides for the prohibition of unfair competition acts: Acts of infringing upon confidential information in business in the form of disclosing,.using confidential information in business without the permission of the owner of that information.
A confidentiality clause also known as non-disclosure clause, is a term under which one party, when obtaining certain information of the other party through a contractual relationship,.will have to be responsible for the confidentiality of that information. Typically,.confidentiality clauses in a contract will include:
Objects, confidential information: Include secrets and business results,.contractual agreements, lists and customer information, copyrighted designs of products and.other information in the business process.
Rights and obligations of the parties in the confidential information:.Prescribed clearly, specifically about the scope of access and use of information.that customers know.
Liability of information security.breaching party. Example of compensation for damage.when disclosing information to third parties.
Exclusion of responsibility for information security: In some special cases,.the party receiving the information will be excluded from liability and.not be compensated for any damage if it discloses information.to a third party.
Regulations on information security.are set during the contract performance phase and after the contract termination. Acts of violation in information security.are considered as grounds for claiming damages and.being forced to remedy the consequences cause violations. Depending on the extent and nature of the act,.in some cases civil or criminal proceedings may be instituted to protect.the ownership of this information.
Therefore, in the process of negotiating, drafting a contract, the parties need to clearly stipulate the sanctions.for violating the confidentiality clause in order to deter and prevent the parties.from disclosing each other’s secrets. COMMERCIAL CONTRACT MANAGEMENT RICKS
2. Clauses of force majeure events
The force majeure events prescribed in The Civil Code 2015 to include: “A force majeure event is an event that occurs objectively, unpredictable and cannot be remedied, even though all necessary and permissible measures have been taken.” Commercial Contract Management Risks
Therefore, A force majeure event must satisfy all three of the following criteria:
– The event occurs objectively (does not depend on the will of either party);
– This event was unpredictable (it is difficult for the parties to predict the exact time of the event);
– The event cannot be remedied, even though all necessary and permissible measures have been taken (the parties must prove this)
Also, according to the provisions of the Civil Code 2015, when the obligor fails to properly perform the obligation due to force majeure events, it is not liable to civil liability, unless otherwise agreed or prescribed. Thus, when encountering a force majeure event leading to the inability to perform the obligations committed in the contract, the violating party must prove based on the above 3 factors in order to enjoy the right to be exempt from liability to the other party. Commercial Contract Management Risks
Clause 1 Article 296 Commercial Law 2005, the first priority when there is a force majeure event is “adding an additional time equal to the time of occurrence of the force majeure event plus a reasonable time to remedy the consequences”. Here, the recommended option is to extend the contract performance period, it’s not terminate/cancel the contract.
An enterprise should note that, with force majeure events, one party or parties does not have the right to terminate or cancel the contract, because the termination/cancellation of the contract is a very serious solution, one party cannot arbitrarily apply. Even if there is a force majeure event affecting the performance of the contract, the termination/cancellation is not always accept, but it is necessary to consider this effect to the extent, it makes the purpose when whether the contract is achievable or not. Therefore, when drafting a contract to sign, businesses need to pay attention to:
– Clearly agree on how is a force majeure event; Commercial Contract Management Risks
– There is a provision on the obligation to notify when a force majeure event occurs in the process;
– Pre-agreement on the handling plan with responsibilities of the parties when encountering force majeure events.
Commercial Law 2005 has prescribed:
– Penalty for breach is the fact that the beaching party requests the breaching party to pay a fine for breach of contract if there is an agreement in the contract, the fine level agree upon by the parties but not exceeding 8% of the value of the obligation contract breaching. If the parties do not agree on penalties for breach, the breaching party may not apply sanctions for breach.
– Compensation for damage means that the breaching party compensates for the damage caused by the breach of contract to the breach party. The party claiming damages must prove the loss, the extent of the loss caused by the breach and the direct profit that the breaching party should have received if not have violations.
The parties must understand the two different penalties for violations and compensation for damage, understand the regulations on these two penalties when agreeing, to sign the contract. If this clause ignores, the parties may face to face the risk when disputes arise, damage arising when one party fails to properly perform an obligation. Commercial Contract Management Risks
Conditions for applying fines for violations in commercial contracts must include: The contract must be valid; There is a breach of contract; There is an agreement to apply penalty for breach.
The parties need to anticipate the arising risks and clearly define the liability to compensate for damage in the commercial contract to avoid the case it cannot be applied. Accordingly, the fine level for breach of contractual obligations or the total penalty for many violations agree upon by the parties in a commercial contract but shall not exceed 8% of the value of the breached contractual obligation portion.
4. Clauses dispute resolution
Need to anticipate the risks and prescribed specifically.how to handle when a dispute occurs so as not to waste the party’s time.and money when a dispute occurs,.both performing the contract on the basis of good faith.and can keep the partnership is very necessary. Currently, there are 04 methods of dispute resolution.in commercial contracts:
– Agreement: both parties will agree with each other.on how to resolve when risks arise in the contract.
– Conciliation: when not resolved by agreement,.the parties can choose the method of conciliation. Accordingly, the parties will use an intermediary third party to act as a bridge.to resolve the dispute.
– Arbitration proceedings: the parties agree to bring up the disputes.that have arisen or will arise for settlement at Arbitration. After considering the disputed facts,.the Arbitrator will issue an enforceable award for the parties.
– Court proceedings:.the parties through the proceeding agency to.settle the dispute.
Exclusively for the Arbitration clause,.the Arbitration agreement is used to determine.the method of dispute settlement in legal proceedings. Arbitration agreement independent of the contract,.the extension, cancellation of the contract,.the contract void or unenforceable do not invalidate the Arbitration agreement. Arbitration agreement established in writing.before or after the dispute arises:
– Before the dispute arises: Arbitration agreement.can be expressed in the arbitration agreement clause in the contract,.the contract appendix…; separate document arbitration agreement.
– After the dispute arises: document.the Arbitration agreement. The following types of agreements are also considered.to be in the document:
+ Agreement is established.through exchange between the parties by telegram, fax, telex,.email and other forms as prescribed by law.
+ Agreement made by a lawyer,.notary public or competent organization recorded in a document. Commercial Contract Management Risks
+ In the transaction, the parties refer to a document.that can represent the arbitration agreement such as a contract,.document, charter of the company and other documents.
– Through an exchange of petitions and.defenses in which the existence of an agreement.made by one party.
5. Payment clauses
Payment clauses are indispensable content.in commercial contracts. Prescribed to specify and detail the payment clauses,.places, methods,.consequences of late payment, or sanctions.in case of late payment.are very necessary.
– Payment method: will be selected by the parties.based on the level of trust between the parties, the ability to pay,.or depending on the object of the goods. For domestic businesses,.method usually applied is transfer or cash. These methods can be applied.to small quantity orders and not high contract values. However, in the field of foreign trade,.due to cultural differences, differences in financial capacity,.scale as well as in payment currency, the parties may.apply a more professional method and have supportion from a third party,.usually credit institutions, banks such as
+ Telegraphic Transfer – T/T;
+ Mail Transfer – M/T;
+ Collection of payment;
+ Letter of credit – L/C;
+ Some other methods according to.international payment practices.
– Payment amount: in numbers, or words.
– Payment currency:.The payment currency can be the same or different from the quote currency. When these two currencies are different,.it is necessary to determine the exchange rate for these two currencies,.in which especially to choose the exchange rate.of any payment instrument, the buying or selling rate Buyers must pay 100%.of the goods in payer account.
– Sanctions for late payment: Normally,.the parties often ignore this content when negotiating, and agree – In case the parties do not agree, the provisions of the law will be applied.when a dispute occurs. In case the parties have an agreement,.it can be agreement on interest rate during.late payment period, approved late payment clauses,.other sanctions in case of late payment.
In addition,.it should be noted that the liability.is exempted if payment is delayed,.related to force majeure circumstances or approved by the seller.
6. Clauses on Breach of Contractual Obligations
Breach of contract is a party’s failure to perform,.incomplete performance or improper performance of an obligation as agreed.between the parties or under the provisions of the Commercial Law 2005. Breach of contract is.the legal basis to apply to all forms of sanctions.for breach of contract. And it is also the conduct of the contract subject.that is not consistent with the obligations committed.in the contract. The specific manifestation of a breach of contract.is failure to perform or improperly or inadequately performing obligations.under the contract.
The parties not only perform the obligations agreed in the contract but also have to perform the obligations as prescribed by law (the regular content of the contract). Therefore, when considering whether an act is a breach of contract or not, it must be based on the clauses agreed in the contract and provisions of relevant laws.
The breach contractual obligations party in business, commerce is exempted from liability when: Commercial Contract Management Risks
– Force majeure events.occur;
– The breach of one party is entirely.the fault of the other party;
– The breach of one party due to.the implementation of a decision of a competent state management agency that the parties knew at the time of entering into the contract.
7. Clauses Regulations on the applicable law when performing the contract
The choice of which country’s law is entirely up to the parties of the commercial contract to agree and decide.
For relationships in commercial contracts,.the specialized law governing is the Commercial Law 2005. However, when applying it,.should be based on the provisions of the contract under the Civil Code. If the specialized law.has no provisions or the provisions are not clear,.can be applied to other laws with higher legal validity than.the specialized law.
For relationships in the international commercial contracts, with international treaties, foreign laws and international commercial practices must satisfy the conditions:
– The choice of law is not contrary.to Vietnam’s regulations;
– The selected law is not contrary to Vietnamese law, basic principles of Vietnamese law,.or international treaties to which the parties are parties;
– The application or the consequences of the application must not be contrary to the law of Vietnam,.the basic principles of the law of Vietnam; and
– The choice of law is.not to evade the law.
8. Clauses related to contract appendices
During the process of signing the contract.or after signing the contract, if it is found.that there are unclear issues, that arise that need to be changed.or need to add more terms, the two parties can sign.the contract appendices. The contract appendices.are an integral part of the contract,.if it is separated, the contract appendices have no value.
The contract appendices need to have priority order of application.and businesses need to agree on the concepts,.definitions as well as contents between these appendices and the contract so that.they are not contradictory and not void. COMMERCIAL CONTRACT MANAGEMENT RICKS
Measures to minimize legal risks in contracts
– Check information.to ensure that the contract is not invalidated:.The subject entering into the contract has the transaction status,.and full civil act capacity; the subject of a sale and purchase.is allowed to circulate, and exchange goods normally,.or goods subject to conditional business, need to prepare additional permits;.the content of the clauses is not illegal; statutory contract forms.
– Research the clauses of the contract carefully,.and scrutinize the legality,.and reasonableness of the clauses. Clauses need to be detailed to prevent risks.in the event of a dispute: The price should clearly state.the amount is calculated according to time price or fixed price,.unit of calculation, a form of payment, time payment term; delivery location, delivery costs,.warehousing costs (if any); provisions for fines for violations, compensation for damage;.cases of force majeure; form of settlement when disputes arise; … Commercial Contract Management Risks
As one of the most important activities in a company’s activities,.the signing and performance of commercial contracts always involve legal risks. Therefore,.to ensure smooth transaction, limit the risk of causing unnecessary damage.to each party, and at the same time ensure peace in the transaction,.the enterprises need to protect the interests of each party by carefully considering all issues.when entering into a contract. For specific advice on Risks in commercial contracts as well as dispute.resolution methods, please contact hotline +84 2862 779 399, +84 3939 30 522 or email email@example.com.