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Official Gazette

Saturday, September 19, 2020

Signing contracts by electronic means

Updated: 14:59’ - 13/08/2020
This article provides an overview on the use of electronic signature in Vietnam, including the current practice, regulatory framework and its application in judicial practice of the courts in relation to the validity of electronic signature.  We hope that our readers may find it useful in the practice relating to signing contracts by electronic mean.

Truong Nhat Quang[1] and Huynh Thong[2]

The utilities afforded by modern information and communications technology have helped form new habits in performing transactions.  Parties to transactions tend to exchange information, sign contracts, and store transaction information in electronic form.  As a result, the use of signatures created by electronic means (also known as electronic signature) to sign contracts is also becoming popular.

Given that Vietnam and many other countries are still practicing social distancing and applying various measures to reduce and restrict global travel to prevent the risks of spreading the Covid-19 pandemic, the trend of using electronic signature is expected to continue to grow in the future as this offers alternative methods for the parties to sign contracts without having to meet in person.

Representatives of entities participating in the “One Commune, One Product” program, which aims to link policymakers, scientists and businesses, sign cooperation agreements__Photo: VNA

Current practice of using electronic signature

In current practice, parties may sign contracts by electronic signature in three common ways, namely scanned signature, image signature, and digital signature. The process of signing contracts by each of the three types of electronic signature typically involves the steps below:

- Digital signature: (i) The parties use a specialized platform and device provided by a digital signature authentication service provider to create digital signatures; (ii) then, such digital signature is electronically attached to the contract that needs to be signed.  As a matter of practice, digital signature is rarely used in the signing of major and complex contracts but instead are used mainly when the signing party submits customs forms or social insurance declarations, pays taxes online, or issues electronic invoices, or when organizations and individuals conduct electronic transactions via the online banking system.

- Scanned signature: (i) The contract is printed by the signatory from the data file and the signatory of each party signs a hardcopy of such contract in wet-ink;  (ii) then, the contract with the signatures thereon is converted into an electronic form (for example, by scanning) and a scanned copy of the signed contract (being an electronic data file) is sent to the counterparty by email. Scanned signature is used frequently in contracts having multiple parties and such parties are not present in the same place to sign the same copy of the contract. Scanned signature is especially common in contracts involving cross-border transactions and having one or more contracting parties being foreigners.

- Image signature: (i) A signatory inserts an image of his or her signature into the signature box of an electronic data file of the contract; (ii) then, the electronic data file of the contract (together with the image signature thereon) is sent to the counterparty by email. Image signature is often used in contracts that are not of major value but are signed regularly and when the signatories are not present at a place where the contract can be printed and signed by wet-ink signatures.

The practice of signing complex contracts of great value has shown that scanned signature is the most common form, image signature is less common, and digital signature is the least common.  On the other hand, digital signature is more common than scanned signature and image signature in consumer contracts.

Validity of digital signatures, scanned signatures and image signatures under Vietnam’s law

The regulatory framework of electronic signature is provided in the 2015 Civil Code (CC 2015); the 2005 Law on Electronic Transactions (LET 2005) and its implementing decrees including Government Decree 130/2018/ND-CP dated September 27, 2018  guiding the provisions of the LET 2005 on digital signatures and digital signature authentication service (Decree 130) and Government Decree 52/2013/ND-CP dated May 16, 2013 on e-commerce (Decree 52). The CC 2015 regulates all types of transactions and contracts, including transactions and contracts signed in wet ink and electronically.  The LET 2005, Decree 130, and Decree 52 specifically regulate electronic signature and electronic transactions.

In general, Vietnam’s law only recognize the validity of contracts made in electronic form and signed by digital signature. The validity of contracts signed by scanned signature or image signature has not been mentioned.  That being said, in our view, concluding that these forms of electronic signature are not allowed or have no legal validity merely because they are not specified in the law is subjective and not consistent with market practices. Scanned signature and image signature are lawfully valid if they prove the intention and authority of the signatories.

Definition of electronic signature

The definition of electronic signature under applicable law is relatively broad and abstract.  According to the LET 2005, “electronic signature” has the following characteristics: (i) being created in the form of words, letters, numbers, symbols, sounds or other forms by electronic means; (ii) being logically associated or incorporated with electronic contracts (for example, in PDF or Word format); and (iii) being capable of certifying the person who has signed electronic contract and certifying his or her approval of the content of the signed electronic contract.[3] An electronic signature is legally valid if the identity test and the reliability test are met, specifically: (i) the method of creating the electronic signature may identify the signatory and demonstrate his or her approval of the contents of the contract and (ii) the method of creating the electronic signature is sufficiently reliable and appropriate to the purpose for which the contract was created and sent.[4]

Digital signature

Decree 130 clearly provides that digital signature is a type of electronic signature. Documents signed by digital signature do not require stamps.[5]  Digital signature is recognized in submitting documents to the courts and do not give rise to the validity issue.[6]  To satisfy the identity test and the reliability test, the key requirement for a digital signature is that it must be authenticated by a licensed public digital signature authentication service provider.[7] So far, there are 15 providers which have been granted public digital signature authentication licenses in Vietnam and none of them is a foreign entity.[8] As such, whether digital signature services provided in Vietnam by foreign service providers (such as DocuSign or Adobe Sign, etc.) are recognized in Vietnam cannot be confirmed with certainty for the time being, although there is no policy reason to reject the services of such providers.[9] 

Scanned signature and image signature

Given that the LET 2005, Decree 130 and Decree 52 do not mention scanned signature and image signature, scanned signature and image signature are not certainly recognized as electronic signature and the validity of a contract signed by scanned signature or image signature is not certainly recognized as if it is signed by digital signature.  Although there is no affirmative pronouncement on scanned signature and image signature in Vietnam’s law, there is no policy reason to reject the validity of a contract signed by those types of electronic signature, and there is also no legal basis to conclude that the definition of electronic signature in the LET 2005 excludes scanned signature and image signature.

Regulatory framework for the use of scanned signature and image signature under the CC 2015

The CC 2015 allows a contract to be made in different ways.  Specifically, contracts could be formed verbally, in writing or by conduct.[10] In fact, verbal form and conducts are the most popular forms of contracting in daily life transactions.  For example, people pay for the price of the goods they buy at supermarkets or pay the fares, freight for passengers and cargos for the transportation services (such as taking buses or airplanes).[11] These transactions do not need to be made in writing (and thus not giving rise to signature issue) and invoices, tickets, bills of lading or other transportation documents are evidences for the contract formed between the parties.  It is important that the contract expresses the agreement of the parties, while the form of the agreement is not necessarily in writing.
The contract may only be invalidated due to defects in relation to formality if the law so requires. Under applicable law, only a few types of contracts are required to be formed in writing (e.g., contracts for transfer of immovable assets, construction contracts, loan contracts, security contracts, contracts of mandate, etc.) and in such cases, additional requirements on notarization, certification or registration may also be required (e.g., contracts for transfer of immovable assets must be in writing, signed and notarized).  In the absence of a requirement for written contract, the parties may rely on verbal discussion or conduct resulting in consensus, thereby establishing a legally binding contract. 

When it comes to written form, Article 400.4 of the CC 2015 provides that “the time when a written contract is entered into is 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 CC 2015 does not require wet-ink signatures or prohibit the use of electronic signature.  The CC 2015 also recognizes “other methods of acceptance which is expressed in writing” and transactions made via electronic means.[12]  In reality, we may also encounter multiple cases where written contract is formed without having wet-ink signature from any party.  For example, when an organization or individual registers to use online services (such as e-banking services, e-commerce websites, or media streaming services).  To subscribe for the services, at the first step of the service registration process, service users must accept the terms and conditions provided by the service provider appearing on the screen of the electronic device by checking the “Agree” box at the end of the terms and conditions.  These terms and conditions, when accepted, will become part of the contract between the service user and the service provider which does not contain the signature of any party.  Another typical example is where illiterate individuals use their fingerprints to sign a contract.  When the contract is signed with fingerprints (instead of wet-ink signature), it creates obligations binding upon the parties as if it is signed by wet-ink signature.

Therefore, if an individual is unable to sign in wet-ink, he may use another form of acceptance to demonstrate his will to accept the entire content of the agreement expressed in the written contract, such as checking the “Agree” box on the screen of the electronic device or pressing fingerprints.  Like checking the “Agree” box and pressing fingerprints, scanned signature and image signature can be considered a form of signing or another form of acceptance.  It is important that the form of acceptance which is expressed by a set of distinctive marks on the document may help identify the signatories and demonstrate their consent to the content of the contract.  This is also the spirit of the provisions on the definition and legal validity of electronic signature under the LET 2005.

The form of acceptance of the signatory has raised a derivative question regarding the authority of such signatory. In other words, if a party has evidence proving that the scanned signature and image signature demonstrate the consent of the signatory and the authority of such signatory to give such consent, such scanned signature and image signature may certainly qualify as signatures.  In this regard, the CC 2015 recognizes the establishment of “apparent authority” by the parties.  “Apparent authority” is established when the action taken by one party makes the other party reasonably believe that the representative of the former has the right to act on its behalf (or makes the other party unaware or unable to be aware that the representative of the former is not authorized to represent or is acting beyond his authority).  Accordingly, the CC 2015 accepts “apparent authority” in the following circumstances: (i) a party consents to the execution or implementation of the transactions; (ii) a party acknowledges the execution or implementation of the transactions without any objection within an appropriate time limit; or (iii) it is the fault of a party leading to the fact that the counterparty has been unaware or unable to be aware that the contract has been signed by the unauthorized persons or those acting beyond the scope of representation.[13]

In short, the provisions of the CC 2015 create a legal basis for the use of scanned signature and image signature in written contracts.  The steps taken by the parties in the course of consummating the transaction may help establish the apparent authority when the authority of the signatories is unclear.  What is more important, however, is that recent precedents and judgments of the Supreme People’s Court have shown that the courts have increasingly prioritized considering the nature of consent over the form of consent, which helps mitigate the risk of the contracts of being declared as invalid when there is an issue regarding the form of the contractual agreement (including the signature issue).

The approach of the Supreme People’s Court in relation to the validity of electronic signature

Although there has not been any court precedent specifically addressing the validity of contracts signed by electronic signature, there have been precedents and judgments showing that Vietnamese courts are moving towards to a substance over form approach (i.e., the intent of the parties is more important than the form of contract and signature). There are precedents and judgments whereby the Supreme People’s Court ruled that the conduct by the parties in the execution and performance of transactions is important to determine their intent and even though transactions are not signed by proper parties, such transactions are not invalidated.

Precedent 04/2016/AL dated April 6, 2016 on disputes over a contract on transfer of land use rights (Kieu Thi Ty and Chu Van Tien vs. Le Van Ngu) (Precedent 04)

In Precedent 04, the sellers in a contract on transfer of land use rights were a husband and wife and only the husband signed the contract.  However, the wife was aware of this transaction, did not object to it and used the transfer proceeds for different purposes, including giving them to her children.  The Supreme People’s Court therefore ruled that the contract was not invalidated even if there was a defect in signature requirement (i.e., the wife did not sign the contract) because she did not object to the contract and her use of the transfer proceeds indicated her approval of the contract.

Precedent 07/2016/AL dated October 17, 2016 regarding recognition of the house purchase contract entered into before July 1, 1991 (Nguyen Dinh Song, Nguyen Thi Hong and Nguyen Thi Huong vs. Do Trong Thanh, Do Thi Nguyet, Vuong Chi Tuong, Vuong Chi Thang, Vuong Bich Van and Vuong Bich Hop) (Precedent 07)

In Precedent 07, the house purchase contract was signed by the seller only and the contract clearly stated that the seller had received money in full.  The purchaser had not signed the contract but had been keeping the contract and managed and used the house stably for a long time without having any dispute with the seller in respect of the monies relating to the house purchase.  In this case, the contract was valid in proving that the purchaser had fully paid the purchase price to the seller and the intent of the purchaser to agree to that contract.  The Supreme People’s Court therefore ruled that the house purchase contract was not invalidated and its validity was legally recognized.

Appellate Judgment 47/2016/KDTM-GDT dated August 29, 2016 of the Supreme People’s Court at Ho Chi Minh City (Huada Furniture Vietnam Co., Ltd. vs. PJICO Insurance Joint Stock Company) (Appellate Judgment 47)

In Appellate Judgment 47, the insurance company issued an insurance contract to the policyholder but did not receive the contract signed by the policyholder. The insurance contract allowed the policyholder to pay the premium within 30 days.  Before the policyholder paid the premium, the insured event had taken place.  The policyholder then paid the premium in full within the prescribed time limit and referred to the insurance contract to ask the insurance company to pay the insurance amount.  However, the insurance company refused claiming that the insurance contract did not exist.  In this case, the Supreme People’s Court recognizes that there exists an insurance contract between the policyholder and the insurance company even though the policyholder did not countersign on the insurance contract which the insurance company had delivered to the policyholder earlier but by virtue of the full payment by the policyholder of the insurance premium in accordance with the insurance contract.

According to the precedents and judgments above, the signature is not important to determine the validity of the contract.  This is a noticeable development trend in the courts’ recent practice in applying the law.

In summary, although there is no affirmative pronouncement on scanned signature and image signature in Vietnam’s law, there is no policy reason to not recognize the validity of a contract signed by scanned signature, image signature or other types of electronic signature, especially when the contract may also be concluded verbally and by conduct.  There is also no legal basis to conclude that the definition of electronic signature in the LET 2005 excludes scanned signature and image signature.  We believe that the general provisions of the CC 2015 provide for a legal basis for the use of scanned signature and image signature in written contracts.  Recent precedents and judgments of the Supreme People’s Court have shown that the courts have increasingly prioritized considering the nature of consent over the form of consent and signatures are not important to determine the validity of the contract.  This is an approach that needs to be further confirmed and popularized in the future as it helps mitigate the risk of the contracts of being declared as invalid when there is an issue regarding the form of the contractual agreement and promotes the signing of contracts by electronic signature, especially scanned signature and image signature. This solution will help the society take advantage of the utilities afforded by modern information and communications technology as well as to solve the difficulties in signing contracts due to social distancing and global movement restrictive measures in light of the Covid-19 pandemic.-


[1] Managing Partner, YKVN LLC.
[2] Senior Associate, YKVN LLC.
[3] The LET 2005, Article 21.1.
[4] The LET 2005, Article 24.1.
[5] The LET 2005, Article 24.2 and Decree 130, Article 8.2.
[6] Resolution 04/2016/NQ-HDTP of the Judicial Council of the Supreme People’s Court dated December 30, 2016, guiding the sending and receipt of lawsuit petitions, documents, evidence and issuance, service, notification procedural documents by electronic means, Article 7.1.
[7] Decree 130, Articles 8 and 9.
[8] See https://www.mic.gov.vn/solieubaocao/Pages/TinTuc/116271/Danh-sach-cac-doanh-nghiep-da-duoc-cap-giay-phep-dich-vu-chung-thuc-chu-ky-so-cong-cong.html as of May 15, 2020.
[9] There are legal bases under Articles 8, 9, 11 and 20 of Decree 130 to contend that the services provided by foreign service providers may be accepted if the parties agree to use such services and such providers meet technological standards and requirements announced by the Ministry of Information and Communications.
[10] The CC 2015, Article 119.1.
[11] The 2005 Commercial Law, Articles 24.1 and 74.1 and the CC 2015, Articles 523.1 and 531.1.
[12] The CC 2015, Article 119.1.
[13] The CC 2015, Articles 142.1 and 143.1.

 

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