The contract is the basis for the parties to fully perform their rights and obligations. Therefore, the parties need to drafting a contract with accurate form and complete content. What principles should the parties adhere to when drafting a contract? TNTP will provide legal opinions on these principles in the following article.

1. The first principle: Use the right contract language.

In essence, the contract language is legal but is read, understood, and performed by people who do not normally work in the legal field. Therefore, contract drafters should consider using words that are perspicuous, conspicuous, concise, and precise. Since the contract is a legal document, not a literary work, the parties should not use expressive, metaphorical, multi-meaningful words, phrases, sentences, and spoken language or slang or local languages, or mix foreign languages into Vietnamese. This may cause misunderstanding, incompletely the contents of the contract, and lead to disputes.

2. The second principle: Understand the legal provisions governing the type of contract the parties intend to sign. 

  • In principle, the law respects the agreement of the parties. However, for some types of contracts, the law has regulations and frameworks that the parties must follow. For example, in a commercial contract, the fine level for a breach of a contractual obligation or the aggregate fine level for more than one breach must not exceed 8% of the value of the breached contractual obligation portion, except for fines in case of incorrect assessment results. Therefore, if not in the case of incorrect assessment results, the parties agree on a fine exceeding 8% of the value of the breached contract obligation portion, the excess will not be valid.
  • When a contract is declared invalid in whole or in part, the parties must restore it to its original condition, returning to each other what has been received within the scope of the invalidity. An invalid content will not give rise to, change or terminate the civil rights and obligations of the parties related to such content from the time the contract is established. Therefore, the parties must study in advance the provisions of the law of the type of contract and draw up terms in accordance with the provisions.

3. The third principle: Strictly and fully comply with the regulations on the form of the contract when drafting a contract

The form of the contract must be guaranteed in accordance with the law. Contracts that are legally required to be in writing must be complied with. If there are regulations that must be registered (as for secured transactions) or notarized or authenticated, they must also be complied with. Accidental or intentional failure to register, notarize or authenticate the contract may result in an invalid contract. In case the law does not stipulate the form of the contract that the parties intend to sign, the parties should still choose the written form to have a basis for implementation and evidence in case of a dispute.

4. The fourth principle: Strictly and fully comply with the regulations on the subjects participating in the signing of the contract.

  • Individuals entering into a contract must ensure that they are fully qualified, such as legal age and capacity for acts. For enterprises, the participation in entering into contracts must be through the enterprise’s legal representative. Therefore, the subject entering into a contract of an enterprise must satisfy the conditions for an individual and must be the legal representative of the enterprise (or an authorized representative).
  • In case an enterprise has more than one legal representative, the other party in the contract needs to request the enterprise to provide documents related to the authority to sign the contract. The other party needs to determine which person has the authority to sign the contract and whether the contract must be fully signed by all legal representatives.
  • In addition, according to the law or the company’s charter, when the contract reaches a certain value, the company can only sign the contract when there is a decision of the General Meeting of Shareholders or the Board of Members, or the Board of Directors. Therefore, when entering into contracts of high value, the parties should carefully study the provisions of the law on enterprises and ask the other party to provide the charter of the enterprise to determine the authority to enter into a contract.

5. The fifth principle: Understand the position of the parties when entering into a contract.

  • In the process of negotiating to sign a contract, the parties should study each other’s positions to draft content to ensure the balance of interests between the parties. The contract is signed and performed based on the goodwill of the parties. If one party has drafted most of the terms with one-sided content, detrimental to the other party and beneficial to he/she, the other party cannot have goodwill to cooperate, even if the contract cannot take place. Even if the parties have signed a contract, the performance of the contract is unlikely to be smooth and a dispute will take place.
  • The parties need to agree internally on the terms and contents that can be conceded, the level of concessions, and the mandatory and non-modifiable terms and contents. From there, the parties exchanged and agreed on common content that was relatively consistent with the will of the parties.
  • The signing of a contract is usually the purpose of the parties. However, signing a contract is not always beneficial for both parties. There are many cases where the parties do not read the contract carefully, or read and realize the risks but still agree to sign the contract. Then, one party violates the contract, leading to a dispute and the violating party has to suffer many adverse consequences such as fines for violations, compensation for damages, etc. Therefore, the parties need to carefully read the contract and consider the risks, and the value of the contract from which to give opinions to amend the contract or decide whether to sign a contract.

Above is the article “05 principles when drawing a contract”. We hope the article will be useful to you.

Best regards,