In Vietnam, goods processing activities are increasingly expanding and developing in many fields, ranging from processing consumer goods such as processing clothes, shoes, etc. to high-tech product processing such as electronic component manufacturing and automotive processing. Typically, processing contracts are signed between enterprises. Therefore, understanding and flexibly applying legal regulations on processing is considered a key factor to ensure the interests of each party when the parties agree, negotiate and sign the processing contract. Therefore, in the following article, TNTP will present the basic contents that the parties can consider and apply it in the process of negotiating and signing processing contracts.
I. The concept of the processing contract
According to the provisions of Article 542 of the Civil Code 2015, a processing contract is an agreement between parties whereby a processor carries out work to create products at the request of a supplier, and the supplier receives the products and pays fees.
In addition, the Commercial Law 2005 also stipulates that a processing contract is an agreement between parties whereby a processor uses part or whole of raw materials and materials supplied by the supplier to perform one or several stages of the production process at the latter’s request in order to receive remuneration.
Thus, a processing contract can be understood as an agreement between the parties, whereby the processor uses its own materials or materials provided by the supplier to perform activities aimed at producing finished or semi-finished products according to the specifications requested by the supplier, with the purpose of receiving remuneration. The supplier receives the products and pays remuneration to the processor.
Regarding the subject matter in a processing contract, the subject matter is an object that does not exist when the parties enter into the contract but this object is only defined based on a specific model or standard, and the processor has an obligation to produce the processed product according to the agreed-upon model or legal requirements. Normally, if the law has regulations on standards, those standards are often related to ensuring the safety of the end-users and environmental protection for the processed products.
Some common types of processing contracts are mechanical processing contracts, goods processing contracts, garment processing contracts, software processing contracts, etc.
II. The form of the processing contract
According to the provisions of the Civil Code 2015, processing contracts can be expressed verbally, in writing or established by actual acts.
For all kinds of processing contracts that must be made in writing by specialized laws, such provisions must be complied with. For example, a commercial processing contract must be made in writing or another form with equivalent legal validity (Article 179 of the Commercial Law 2005). Forms of equivalent legal validity here include telegraph, telex, fax, data messages and other forms as prescribed by law (Clause 15, Article 3 of the Commercial Law 2005), or in other words, the other is a contract signed in the form of an electronic contract (Article 33 of the Law on Electronic Transactions 2005). Although an electronic contract is very convenient, the parties should also note that when entering into an electronic contract, the parties may face many risks, both technical, commercial or legal risks.
III. Basic contents of the processing contract
When drafting and reviewing a processing contract, the parties need to ensure that the contract has the following basic contents:
– Information about the parties to the contract;
– The subject of the contract;
– Product processing fee;
– Method and time limit for payment of processing fee;
– Rights and obligations of the parties;
– Liquidation of raw materials when the contract terminates;
– Responsibilities of the parties in case of delay in delivery or receipt of processed products;
– Liability to bear risks in the contract;
– Unilaterally terminate the contract;
– Penalties for violations and compensation for damage;
– Applicable law and dispute resolution.
Above is the content of the article “Processing Contracts: Basic Content You Need to Know” that TNTP sent to readers. If any issues need clarification, please contact TNTP for the best support.
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