Electronic contracts and traditional contracts are two common methods of concluding written agreements in modern commercial and civil transactions. Each type of contract has distinct characteristics regarding execution methods, scope of application, operational costs, and security levels. Which option best suits your needs – electronic or traditional contracts? In this article, TNTP will provide a detailed analysis of both types of contracts to help readers choose the most appropriate method for their needs.
1. Overview of Electronic contracts and Traditional contracts
1.1. Overview of Traditional Contracts
Traditional contracts are familiar contract forms established on paper with handwritten signatures and seals (when applicable) from the involved parties. These contracts are primarily governed by the Civil Code 2015 and the Commercial Law 2005. They are typically formed between individuals, legal entities, and other subjects defined under civil law, ensuring compliance with the requirements for legal capacity to engage in contractual obligations.
Traditional contracts must include fundamental elements specified by the Civil Code and other specialized regulations depending on the contract’s field, such as the contract’s object, price, payment methods, timeframe, place of performance, rights and obligations of the parties, etc.
1.2. Overview of Electronic Contracts
Electronic contracts are increasingly popular in the digital age, especially since the enactment of the Electronic Transactions Law 2005 and, more recently, the Electronic Transactions Law 2023, which comes into effect from July 1, 2024.
Under Clause 16, Article 3, and Clause 1, Article 24 of the Electronic Transactions Law 2023, an electronic contract is a contract established as a data message, ensuring legal validity whether concluded or performed through an automated information system without human review or intervention.
Similar to traditional contracts, electronic contracts are also governed by the Civil Code 2015 and the Commercial Law 2005. However, electronic contracts are additionally regulated by specialized legal documents such as the Electronic Transactions Law 2023 and Decree 137/2024/ND-CP. This creates a stricter legal framework for electronic contracts, while also limiting their applicability in certain fields.
Electronic contracts involve at least three entities: the buyer, the seller, and the electronic authentication service provider. The authentication provider plays an important role in ensuring the authenticity and security of electronic transactions.
According to Article 36 of the Electronic Transactions Law 2023, electronic contracts may include provisions relating to technical requirements, integrity, and security. In addition to the fundamental contents like traditional contracts, electronic contracts may include information on electronic addresses, online payment methods, access and information modification procedures, etc.
In conclusion, both types of contracts hold legal value if they comply with applicable regulations.
2. Advantages and Disadvantages of Traditional contracts and Electronic contracts
Before deciding whether to choose a traditional contract or an electronic contract for transactions, TNTP will analyze the advantages and disadvantages of both types of contracts:
2.1. Advantages and Disadvantages of Traditional Contracts
• Advantages: Traditional contracts offer several key benefits stemming from their conventional format:
– High authenticity and reliability with direct handwritten signatures and seals of the parties involved.
– Widely accepted across all fields, from civil and commercial transactions to land dealings, inheritance documents, etc.
– The execution process is familiar to most businesses.
– In case of disputes, traditional contracts with signatures, seals, and other physical identification factors can be easily examined and verified by judicial authorities.
– Traditional contracts are independent of technological infrastructure, making them appropriate for individuals or businesses with limited access to technology or in areas with underdeveloped IT infrastructure.
• Disadvantages: Traditional contracts also have some significant drawbacks:
– Higher costs for printing, storage, management, and transportation.
– Lengthy contract execution process due to the need for in-person meetings or contract mailing between parties.
– Physical storage requirements can lead to management challenges and document retrieval difficulties.
– Risk of physical document loss or damage due to unforeseen circumstances.
– In international transactions, traditional contracts may pose disadvantages due to extended delivery times, high costs, and potential loss during international shipping.
2.2. Advantages and Disadvantages of Electronic Contracts
• Advantages: Electronic contracts offer numerous benefits in optimizing the signing process:
– Electronic contracts eliminate printing and transportation costs, reducing unnecessary expenses. The signing process is swift, shortening transaction time.
– Electronic contracts allow remote signing without geographical limitations, enabling businesses to expand their collaboration reach.
– Electronic contracts utilize encryption technology, digital signatures, and electronic authentication solutions to ensure authenticity and prevent forgery or content alteration.
– Digital storage simplifies management, enabling quick searching and reducing the risk of loss.
– Electronic contracts are unaffected by physical factors like fire, moisture, or theft, minimizing loss risks.
– The use of electronic contracts automates the signing process, reducing human errors, saving time, and enhancing operational efficiency.
• Disadvantages: Electronic contracts have several notable limitations:
– Effective use of electronic contracts requires participants to have sufficient IT infrastructure, including devices, software, and stable internet connectivity. This may pose a challenge for some small businesses or individuals in remote areas.
– Security risks due to cyber threats, where electronic contract data may become targets for hackers, causing information loss or data breaches.
– Limited applicability as certain areas like real estate, civil status, marriage and family matters, inheritance, etc., still require notarized and authenticated traditional contracts as mandated by law.
– Some individuals and businesses may feel uncertain or unfamiliar with electronic contract signing. The transition from traditional to electronic contracts may face initial resistance.
3. Choosing Between an Electronic Contract or a Traditional Contract for Transactions
Choosing between an Electronic contract and a Traditional contract depends on various factors, including industry sector, business scale, transaction nature, and specific legal requirements. Accordingly, individuals and businesses may choose electronic contracts or traditional contracts based on their specific circumstances.
• Individuals and businesses may choose to use electronic contracts in the following cases:
– Regular and continuous transactions in business operations such as e-commerce, finance, insurance, service provision, labor contracts, etc., or cross-border and international transactions.
– Transactions that do not require notarization or authentication and need to be conducted quickly.
– Aiming to reduce costs, save time, and improve contract management efficiency.
– When the parties involved have sufficient technical infrastructure (digital signatures, electronic signing software, internet access).
• Individuals and businesses may choose to use traditional contracts in the following cases:
– Transactions in fields where the law requires notarized and authenticated paper contracts (e.g., real estate sales contracts, power of attorney contracts, etc.).
– High-value, high-risk, or complex transactions that require face-to-face negotiation.
– When the counterpart is unfamiliar with technology or lacks electronic signature capabilities.
– When parties prefer to ensure stronger legal security and minimise potential disputes over digital signature validity.
Both electronic contracts and traditional contracts have legal validity and serve different needs. Businesses and individuals may flexibly combine both contract types to optimize operational costs and enhance operational efficiency. In the context of rapid digital transformation, electronic contracts are becoming increasingly popular and preferred. However, traditional contracts will continue to exist, especially in specific sectors where statutory requirements dictate. Most importantly, businesses should thoroughly evaluate the characteristics of each transaction and consider their actual needs to select the most appropriate method, ensuring both legal compliance and operational efficiency.
This article by TNTP aims to provide insights on “Electronic Contract vs Traditional Contract – Which is the appropriate choice?”. We hope the above information proves useful to our valued readers. Should you require further assistance, please feel free to contact us.
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