Contract formation is a very important step to allow for law enforcement. This article will look at some elements pertaining to contract formation under Vietnam’s law. It is intended to provide an overview but not a deep analysis of those elements.
Dr. Giang Bui Duc[1] and Thu Hang Le Thi [2]
Definition of contract
As defined in Article 385 of Civil Code 91/2015/QH13 dated November 24, 2015 (the Civil Code), “A contract means an agreement between parties in relation to the creation, modification or termination of civil rights and obligations.”
As such, a contract means an agreement which gives way to the rights and obligations of the parties. This is the law between the parties subject to mandatory rules of the law governing the contract or the law where the contract is performed.
Contract language
There is no general legal requirement that the language of a contract must be Vietnamese language.
Certain specialized laws may however impose the use of Vietnamese language. For instance, Article 138.4 of Law 50/2014/QH13 on Construction dated June 18, 2014, as revised in 2016, 2018, 2019 and 2020, stipulates: “The language used in a construction contract must be Vietnamese. In case such contract involves a foreign party, the language used in the contract must be Vietnamese and other languages as agreed by the parties”. As such, the use of Vietnamese language is mandatory even in case of a construction contract signed between a Vietnamese party and a foreign party.
Law 59/2010/QH12 on Protection of Customer Interests dated November 17, 2010, as revised in 2018, adopts a more flexible approach in providing in its Article 14.2 that “The language used in a contract signed with an individual customer must be Vietnamese, unless otherwise agreed by the parties or otherwise provided by law”.
Privity of contract
Under the general principle of privity of contract, no one may be bound by the terms of a contract to which he is not an original party.
Article 401 of the Civil Code provides: “From the time when a contract takes effect, the parties shall exercise the rights and perform the obligations to each other as undertaken”.
This article recognizes the principle of privity of contract.
As an exception to this principle, Articles 402.5, 415, 416 and 417 of the Civil Code recognize contracts for the benefit of a third person called third party beneficiary. Examples can be insurance contracts or transportation contracts.
Contents of a contract
Article 398 of the Civil Code provides that the parties to a contract have the right to agree on the contents of the contract and that a contract may contain the following contents:
- Subject matter of the contract;
- Quantity and quality;
- Price and method of payment;
- Time limit, place and method of contract performance;
- Rights and obligations of the parties;
- Liability for breach of the contract; and,
- Method of dispute resolution.
- Names and addresses of the parties;
- Information regarding the real estate subject to the contract;
- Price of purchase and sale, lease or lease-purchase;
- Method and period of payment;
- Time limit for handover and receipt of the real estate and the enclosed file;
- Warranty;
- Rights and obligations of the parties;
- Responsibilities for breach of the contract;
- Penalties for breach of the contract;
- Cases of termination or rescission of the contract and measures for dealing with such cases;
- Dispute resolution; and,
- Effective time and validity duration of the contract.
Freedom of contract
Freedom of contract remains a fundamental part of Vietnam’s law. Many commercial parties have their own standard terms of business which they seek to incorporate in contracts they conclude.
Article 3.2 of the Civil Code states: “Individuals and legal entities create, perform and terminate their civil rights and obligations on the basis of free and voluntary commitments and agreement. Any commitment or agreement which does not breach a prohibition by a law or is not contrary to social morals is valid for performance by the parties and must be respected by other subjects”.
Article 11.1 of the Commercial Law provides: “Parties have the right to reach agreements which are not inconsistent with law, fine customs and social ethics in order to create their rights and obligations in commercial activities. The State respects and protects these rights”.
In line with the above articles, the parties may freely agree on contents of their contract provided that such contents do not contradict the rules of Vietnamese law or social morals or fine customs.
For instance, the consumer protection legislation invalidates certain types of provision which are unfavorable to customers[3].
Formal requirements
Article 119 of the Civil Code provides: “Civil transactions may be created verbally, in writing or through specific acts. Civil transactions by way of electronic means in the form of data messages in accordance with the law on e-transactions shall be deemed to be written transactions. Where a law provides that a civil transaction must be in writing, notarized, certified and/or registered, such provisions must be complied with”.
As civil transactions include contracts (Article 116 of the Civil Code), the above provisions apply to the latter.
Where contracts are made by email or by trading on a website, requirement of writing is normally considered satisfied. Provided it satisfies the standard authenticity test, the requirement of a signature can be satisfied by, for example, a digital signature or by typing a name into an electronic document or email.
Contract duration
As provided in Article 401 of the Civil Code: “A contract lawfully entered into comes into effect from the time when it is entered into, unless otherwise agreed or otherwise provided by a law. From the time when a contract comes into effect, the parties shall exercise the rights and perform the obligations to each other as undertaken”.
Article 400.4 of this Code further indicates: “The time when a written contract is entered into is the time when the last party signs the contract or accepts to enter into the contract by another method of acceptance which is expressed in writing”.
As such, the date when an agreement comes into effect, or obligations under the agreement commence, can be different from the date when the agreement is signed. Unless there is wording in the agreement which indicates a contrary intention, or there is a law which provides a commencement date, an agreement takes effect immediately when it is signed by all parties.
The above provision also appears to imply that a contract must be signed to be legally valid.
The contract duration may be extended under the parties’ agreement or as a consequence of an automatic renewal clause contained in the contract.
Application law and jurisdiction
Determining the applicable law
Within certain limits (see below), the parties to an international contract may agree to choose the law applicable to their contract and, in the absence of party choice, the law of the country having the closest connection with such contract prevails (Article 683.1 of the Civil Code).
Pursuant to Article 683.2 of the Civil Code, the laws of the following countries may be deemed to have the closest connection with a contract:
“(a) With respect to a contract for purchase and sale of goods, it is the law of the country in which the seller being an individual resides or in which the seller being a legal entity was established;
(b) With respect to a contract for services, it is the law of the country in which the service provider being an individual resides or in which the service provider being a legal entity was established;
(c) With respect to a contract for transfer of use rights or assignment of intellectual property rights, it is the law of the country in which the transferee of rights being an individual resides or in which the transferee of rights being a legal entity was established;
(d) With respect to a labor contract, it is the law of the country in which the employee regularly performs work. If the employee regularly performs work in different countries or it is impossible to determine the place where the employee regularly performs work, the law of the country having the closest connection with the labor contract is the law of the country in which the employer being an individual resides or in which the employer being a legal entity was established;
(e) With respect to a consumption contract, it is the law of the country in which the consumer resides”.
However, where it is proved that the law of a country other than the laws stated above has a closer connection with the contract, the applicable law must be the law of such country (Article 683.3 of the Civil Code).
The limits include the following:
- Where the subject matter of a contract is immovable property, the law applicable to transfer of ownership rights and other rights with respect to property being immovable property, applicable to lease of immovable property or use of immovable property in order to secure the performance of obligations must be the law of the country in which the immovable property is located (Article 683.4 of the Civil Code).
- Where the law chosen by the parties to a labor contract or a consumption contract adversely affects minimum benefits of the employee or consumer as provided in the law of Vietnam, the law of Vietnam applies (Article 683.5 of the Civil Code).
- The parties may agree to change the law applicable to the contract, but such change must not affect lawful rights and benefits to which a third person was entitled before such change of the applicable law, unless the third person so agrees (Article 683.6 of the Civil Code).
Jurisdiction
Article 472.1.a of Civil Procedure Code 92/2015/QH13 dated November 25, 2015, as revised in 2019 and 2020 (the Civil Procedure Code) implies that the parties to an international contract may by agreement confer jurisdiction on a foreign court or foreign arbitrator over any dispute arising from or in connection with such contract. However, Vietnamese courts will have exclusive jurisdiction in case of proceedings relating to rights over immovable property located in the territory of Vietnam and in case the parties have chosen Vietnamese courts to settle their disputes (Articles 470.1.a and 470.1.c of the Civil Procedure Code).
The above analysis demonstrates that Vietnam’s law addresses various “entry requirements” to the game of contract. We all know that contract law applies to contracts but in order for an arrangement to qualify as a contract, those entry requirements must be observed.-
The author can be contacted at: buiducgiang@hsb.edu.vn.
