A General Introduction of Commercial Contracts in VNM

Nowadays, commercial activities happen so regularly among local and foreign enterprises that it is in the interest of all parties to protect their own rights when concluding commercial contracts. Given the general nature of the contracts, commercial contracts are specifically outlined as the most important point in the commercial activities of the parties involved.

The conclusion of a commercial contract is a legal event that regulates and binds the parties to comply with the agreements they have set and stipulates sanctions for the violating party to ensure the rights for the other side. Therefore, the purpose of a commercial contract is to clarify the rights of the parties. The more detailed the content of the contract is, the easier it will be to avoid loss of time and unclear obligations in cases of dispute.

Even commercial contract negotiations are relevant, as the effects of improper contract negotiation and formation may include contract invalidity, loss of time and costs for dispute resolution, the compromise of business prestige, and even substantial lost compensation. Regarding the formation of a contract, the law provides rules of offer and acceptance. As the civil law rule applies, consideration is not required for the formation of a contract.

The main source of Vietnamese contract law is the Civil Code, which applies to all types of contracts and the Law on Commerce, which is relevant for all commercial and profit-making contracts. The content of a commercial contract requires the following basic terms: object; quantity and quality; price and payment method; term, location method of providing the service; rights and obligation of the parties.

Parties are then free to negotiate the terms of their contracts and reach an agreement on many aspects of the transaction, such as the liability for breach of contract and dispute resolution methods. Foreign businesses often have the necessity of alternative dispute resolution clauses and choose the relevant arbitration court. While they are free to decide, in case of different events, different remedies for the breach of contract: specific performance, penalty, damages, termination or cancellation.

If a contract involves a foreign element, such as in cases where one of the parties is foreign, the parties may agree on a law of jurisdiction as their choice as the governing law. This is different from the mandatory law of the place where the contract is performed, which must be complied with. A choice of foreign governing law will generally not release a foreign investor from any obligation under Vietnamese law. If there is no agreement, the contract will be governed by the law of the country to which it is most closely connected to.

In addition to the main content, if the parties wish to supplement any additional terms, they may sign an addendum to the contract to acknowledge this additional regulation. Subsequent implementation should be included in a dedicated section (the Addendum). Furthermore, the parties may also regulate the language, force majeure cases, and other terms not contrary to the legal provisions, nor violating social ethics.

If any disputes arise, parties will try to interpret the contract in its own favor. The relevant aspects are – in order of relevance – the intention of the parties, customary practices, the nature, purpose and overall content of the contract and the interpretation that benefits the non-drafting party which may be favored.

Commercial contracts are considered as a legal ground for parties to conduct commercial activities such as the sale and purchase of goods and rendering services for one another. We at D’Andrea & Partners Legal Counsel, have a team of experts to help you drafting and reviewing commercial contracts. Do get in touch with us at info@dandreapartners.com for any questions or assistance.