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 END-MODULE DISSERTATION Module: Commercial Law ANALYSIS OF LEGAL RISKS WHEN SIGNING AND IMPLEMENTING THE CONTRACT Ho Chi Minh, May 2020 TABLE OF CONTENT Introduction .1 I Overview of commercial contracts Concept 2 Feature 1.2.2 Form 1.2.3 Subject .3 1.2.4 Purpose 1.2.5 Conditions of the validity of the contract The facility recognizes the commercial contract II Legal risks arising from signing and performing a commercial contract Risk of the subject signing the contract Risk of the formality of the contract Risks of contract object Risk of no provisions on the basic contents of the contract 10 Risk of price, payment methods .10 Risk of guarantee letter 11 Sanction risks apply in case the parties violate the contract 12 Risks related to provisions on force majeure events 12 Risk of dispute resolution 13 III Recommendations for Vietnamese enterprises .14 Risk of the subject signing the contract 14 Risk of the formality of the contract 14 Risk of contract object 14 Risk of no provisions on the basic contents of the contract 14 Risk of price, payment methods .14 Risk of guarantee letter 15 Sanction risks apply in case the parties violate the contract 15 Risks related to provisions on force majeure events 15 Risk of dispute resolution 15 Conclusion 17 Reference INTRODUCTION In commercial business as well as in ordinary civil activities, contracts are an important type of transaction of any entity, whether individual or legal entity Most companies in developed countries always uphold the process of drafting and signing contracts Therefore, their commercial contracts are very detailed, coherent and anticipate even rare situations For example: Bill Gate, in an interview with Microsoft candidates, asked: “What you think is the factor that maintains the stability and success of today's business activities? A typical candidate answered, "That is the contract rigor." Many people at the time doubted the seriousness of this candidate's answer, but Bill Gate didn't think so He gave this candidate maximum points and got him to work Meanwhile, the majority of Vietnamese companies have not paid much attention to this issue yet, still use stereotypical, monotonous, confusing and even backward contract forms compared to the current laws Consequently, the performance of the contract is very difficult, prone to disputes and often lost when litigation Therefore, in order to ensure favorable transactions, minimize risks leading to unfortunate damage for each party and ensure the harmony of the transactions, we need to protect our rights by carefully consider all matters when entering into a contract As a result, there are many legal risks when signing and implementing the contract, which makes the contract performance very difficult, prone to disputes, and often lost when litigation Therefore, in order to ensure favorable transactions, minimize risks leading to unfortunate damage to each party and ensure the harmony of the transactions, we need to protect our rights by carefully consider all matters when entering into a contract For the above reasons, I decided to choose the topic: "Legal risks when signing and implementing the commercial contract" I Overview of commercial contracts Concept The 2005 Commercial Law does not define what a commercial contract means, but under Article and Article of the 2005 Commercial Law (state the scope of regulation and the subject of the 2005 Commercial Law) can define: Trade contract is an agreement to conduct commercial activities on the territory of Vietnam and commercial activities outside the territory of Vietnam if the parties agree to apply this law or foreign law, international treaties to which Vietnam Nam is a member with regulations that apply this law ” Commercial activities are activities for profit-making purposes, including goods sale and purchase, service provision, investment and trade promotion (including promotional activities, commercial advertising, display and introduction of goods) goods, services, and other lucrative activities Goods in commercial activities include all types of movable assets (including also properties formed in the future) and objects attached to land According to Article 174 of the Civil Code, real estate and movable property are distinguished as follows: - Real estate means properties including: + Land + Houses and constructions attached to land, including properties attached to such houses and constructions + Other properties associated with the land + Other properties prescribed by law - Assets are properties that are not real estate Feature 1.2.1 Content The content of a commercial contract in particular and a contract in general is a summary of the terms agreed upon by the parties to the contract, these terms define the specific civil rights and obligations of the contracting parties However, the basic difference of a commercial contract is that the content of a commercial contract is commercial activity Each type of contract has certain provisions on basic terms For example: For a sales contract, the basic terms include the object and the price The law promotes agreement between the contracting parties, but the content of the contract must comply with the general provisions of the contract law, as provided in the Civil Code 2015 Excluding the provisions of the law, Compulsory content, the parties may agree on other terms than those prescribed by law Article 398 of the 2015 Civil Law provides that parties to a contract have the right to agree on the content of a contract: The object of the contract; Quantity Quality; Price and mode of payment; Duration, location, mode of contract performance; Rights and obligations of the parties; Responsibility for breach of contract Argument settlement." Depending on the nature of each type of contract, the parties may agree or not agree on all of the above The parties may also add to the contract terms that not have provisions but the parties feel unnecessary In addition, to clarify the content of the contract, there is an addition by the appendix of the contract The contract annex has the same effect as the contract, but the content of the appendix must not be contrary to the contract If the annex contains terms contrary to the content of the contract, this provision shall not be effective, unless otherwise agreed If the parties accept the contract annexes, the terms are contrary to the terms of the contract, it is considered that the terms of the contract have been amended 1.2.2 Form Under the 2005 Commercial Law, commercial contracts are expressed verbally, in writing or established by specific acts In case the law requires in writing, it must follow this form (for example: International goods sale contract, Sales service contract, Commercial advertising service contract, Display service contract, Business law4 Trade in goods , Sales contract, Sales agent contract, Trade contract, ) 1.2.3 Subject The subjects of business contracts include traders (including lawfully established economic organizations, individuals who conduct commercial activities independently, regularly and with business registration), individuals and other organizations engaged in trade-related activities (Article of the 2005 Commercial Law) 1.2.4 Purpose The purpose of establishing a commercial contract is to make a profit Profits are understood as profit seeking (not necessarily profitable) However, pursuant to Article of the 2005 Commercial Law, the activities of one party are not intended to be profitable for traders in the territory of Vietnam, and also apply the Commercial Law to solve in the case chosen by that party 1.2.5 Conditions of the validity of the contract The signed commercial contract must ensure the principles of the contract as prescribed by law The provision of the principle of entering into a contract to ensure the agreement of the parties is in accordance with their real will, towards the legitimate interests of the parties, and at the same time does not infringe upon the benefits that the law need protection According to the provisions of the Civil Code, the conclusion of a contract must abide by the following principles: freedom of contracting but not contrary to law and social ethics, commercial law is a separate law of civil law, so it is also subject to adjustment of the above principles According to Article 117 of the 2015 Civil Code, a transaction is valid when it meets the following conditions: - Firstly, the participants in the transaction have civil act capacity, because the act of contracting will give rise to legal rights and obligations for the parties Therefore, in order for the contract to be legally effective and enforceable, the signatory must be able to be aware of the act of signing the contract as well as the consequences of the conclusion of the contract For individuals and organizations that enter into contracts, they must be strictly competent If the participants in the transaction not have full civil act capacity, the contract will not be valid and will be declared invalid according to the law - Second, the purpose and content of the transaction does not violate the prohibition of the law, not contrary to social ethics The purpose of the contract is the legal benefits that the parties desire to achieve when entering into the contract The content of the contract includes the terms agreed upon by both parties In order for the contract to be valid and capable of being implemented, the law stipulates the purpose and contents of the contract must not be contrary to law and social ethics - Third, participants in transactions are completely voluntary The provision of the principle of entering into a contract to ensure the agreement of the parties is in accordance with their real will, towards the legitimate interests of the parties, and at the same time does not infringe upon the benefits that the law need protection According to the provisions of the Civil Code, the conclusion of contracts in general and commercial business contracts in particular must follow the principles: freedom of conclusion but not contrary to law and social ethics: Voluntary, equality, goodwill, cooperation, honesty and integrity Acts of coercion, intimidation, and deception to conclude contracts are the reasons leading to the contract being considered invalid - Fourth, if the law provides for the form of a contract, this provision must be followed Usually it is a contract that must be made in writing or a contract document must be notarized or authenticated In this case, the form of the contract is a valid condition, when the parties are signed Follow the form prescribed by law For a commercial contract to be effective, it must be established in legally recognized forms The facility recognizes the commercial contract Criteria Applicable Contract Civil Code 2015 law Commercial contract Commercial Law 2005 and Civil Code 2015 - Prioritize the application of the provisions of the Commercial Law - In cases where the Commercial Law does not contain provisions or unclear regulations, the provisions of Subject Subjects are individuals and the Civil Code will apply Traders engaged in organizations (may or may not have commercial activities or other legal status) organizations and individuals related to trade As such, at least one of the parties must be a trader or Purpose Purpose of consumption, giving, entities with merchant status For profitability purposes giving, charity Form of Speech, behavior, text Most are Speech, behavior, text commitment more verbal through credibility, There are legally binding simple transactions, commonality statutory contracts Forms like and low value fax, telex and email are - Loan agreement considered documents - Contract of goods purchase - Moving contract and sale - Processing contract - Agency contracts - Authorization contract - Representative contract - Deposit contract - Commercial advertising - Contract of renting service contract - Contract of service Content Depending on the type of contract, provision There are some terms that the contract the parties may agree on the contract does not have: following: - Terms of time and place of - The object of the contract is the delivery; property to be delivered, work to be - Terms of carriage of goods; done or not to be done; - Terms of insurance; - Quantity Quality; - Price, mode of payment; - Duration, location, mode of contract performance; - Rights and obligations of the parties; - Responsibility for breach of contract - Contract violations; Dispute - Other contain The court settlement - Court - Arbitration agency Contract violations As agreed by the parties The violating party must only be punished if it is agreed on the contract The 2005 Commercial Law stipulates that the total penalty for a commercial contract must not exceed 8% of the value of the violated contractual obligation, except for the case of a breach of an assessment service contract Some typical types of contracts in commercial activities: - Commodity trading contracts - Service contract  Promotion service contract  Commercial advertising service contract  Service displaying goods and services contract  Representation for trader contract  Trust contract  Agency contracts  Processing contract  Goods auction service contract  Transit service contract  Franchise contract And in fact there are many other types of commercial service contracts in consulting, transportation, finance, post and telecommunications, tourism, education, entertainment II Legal risks arising from signing and performing a commercial contract When drafting a contract, the subjects should pay attention to the risks in entering into a goods sale and purchase contract, including: Risk of the subject signing the contract Risk of the formality of the contract Risk of contract object Risk of no provisions on the basic contents of the contract Risk of price, payment methods Risk of guarantee letter Sanction risks apply in case the parties violate the contract Risks related to provisions on force majeure events Risk of dispute resolution Risk of the subject signing the contract - Partners without civil act capacity to perform the contract; - The partner has no legal status; - The representative of the partner is not authorized to sign the contract; - The contracting party is beyond the scope of authorization; - The subject does not have the qualifications and conditions to perform the object of the contract For example: a company with a large number of contracts with customers, the Director did not have enough time to sign contracts with small customers, so the manager voluntarily signed a number of contracts while the Director of the company has not authorized the head of the department to sign the contracts under his authority When customers have disputes that need to be resolved, the company will not solve them In this case, there is a risk of the representative of the partner who is not authorized to sign the contract Risk of the formality of the contract Some common types of contractual risks are: - The two parties establish a non-written contract with respect to contracts that must be made in writing in accordance with the law - The contract is not notarized or authenticated at a notary office competent to conduct notarization or authentication activities For example: Company A trades with Company B, A assigns a shipment to Company B, the two parties not have a business contract because the two parties long-term business so they trust each other But by the time we provide goods to Party B, Party A will not deliver them In this situation, Party B cannot sue Party A because there is no contract to authenticate Risks of contract object The object of a commercial contract is goods and services Some risks may be encountered during contract performance: - Disputes over goods that are not in the agreed subjects - Disputes over the quality of goods are incorrect, not meet the standards for implementation (restricted) or prohibited by law; - Dispute unit calculation - When drafting a contract, the two parties not specify and detail leading to misunderstanding or due to a party taking advantage of a loophole to not perform its obligations For example: Company A in Vietnam sells to Company B in the US with a value of USD 100,000, but when drafting the contract, the two parties did not notice the use of the separator symbol between numbers In the US, people use commas to separate the numbers from thousands, millions, billions, billions, millions, and zillions, dots for the fate In Vietnam, it is mainly used to separate the numbers from thousands, millions, billions, trillion, million billions and billions billions, commas for decimals Resulting in a dispute payment dispute Risk of no provisions on the basic contents of the contract This is the type of risk that investors may face due to the lack of knowledge in drafting the contract, which leads to the contract not being guaranteed as prescribed by law For example: A purchase and sale contract but no sale price; Contract of carriage but does not specify the place of loading and unloading, shipping time Risk of price, payment methods Some common types of contractual risks are - Price risk when the market is volatile - Currency risk as a payment method - Disputes over the cost of loading, unloading, warehousing and transport - Risk of delivery method - Risks in contract guarantee by guarantee method - No specific provisions on rights and obligations of each party For example: The situation of coffee farmers on the Vietnamese market is often unstable and fluctuates depending on the world price of coffee and the weather Every year when the weather is good and the world market price of coffee drops, the price of coffee in the country decreases, causing coffee farmers' losses On the contrary, when the weather is not good and the world market price of coffee increases, the domestic price of coffee increases accordingly, making coffee exporters locked in buying coffee from farmers For example, at the beginning of the season, company A signs a 6-month contract to buy Mr X 20 tons of coffee at an agreed price of VND 15 million / ton Mr 10 X is called seller and company A is the buyer in the forward contract After months, Mr X must sell the company 20 tons of coffee at the agreed price of VND 15 million / ton and company B must buy 20 tons of Mr X's coffee at that price, even though the coffee price in the market How much after months With a known and fixed price agreement, neither Mr X nor Company A have to worry about coffee price fluctuations in the market Risk of guarantee letter Reality: - Forging guarantee certificates - The risk that the person signing the guarantee certificate is not beyond the authority - Conditions of guarantee: The bank issues a letter of guarantee which requires the beneficiary to prove the breach of the guaranteed, then the bank will pay - The risk of refusing to guarantee is still in the way of writing the guarantee term, for example, the guarantee period is 360 days, leading to different interpretations as normal days or working days - The guarantor may give reasons to refuse payment or late payment to the guarantee accepting party (The reasons for the original contract / PLHĐ are arbitrarily amended) For example: Northern Steel Import and Export Joint Stock Company ("Shaped Steel Company" - Party A) and Van Phu Building Investment Joint Stock Company ("Van Phu Company" - Party B) sign a lease contract To secure the contractual payment obligation, Party A requires a bank's payment guarantee A major commercial joint stock bank in the North has issued a guarantee letter of irrevocable commitment and affirmed its responsibility to pay up to the value of the guarantee letter immediately after receiving the first written request attached to the application Preliminary evidence that Party B has breached or fails to properly and fully perform payment obligations Receiving the guarantee, the Steel Company is assured of performing the contract with Van Phu Company After the time of contract performance, due date of payment, Van Phu Company does not perform payment obligations By the end of the guarantee validity, the Steel Company shall send a written request to the bank to fulfill 11 the guarantee obligation Within months from the date the Steel Shaped Company sends a written request for performance of the guarantee, the bank does not pay nor reply Sanction risks apply in case the parties violate the contract Reality: - According to the Commercial Law (Article 301), the right to agree on the level of violation of the parties is limited, specifically: “The level of penalty for breach of contractual obligations or the total level of fine for many violations due to the parties agree in the contract but not exceeding 8% of the value of the contractual obligations are violated " Therefore, the parties when agreeing on a fine must base themselves on the provisions of the Commercial Law to select a fine within 8% or less, if the parties agree on a higher fine (for example, 12%) the excess (4%) is considered a violation of the law and is invalid - Under the provisions of the Civil Code, if the payment is delayed, the parties may agree on the fine but must not exceed 150% of the basic interest rate (Article 476) - The late payment interest rate based on the average overdue interest rate on the market at the time of payment corresponds to the time of late payment For example: Company A has signed a goods purchase and sale contract with Company B A sells goods to B with a contract value of VND 10 billion, and agrees a fine for violating the contractual obligation of 10% of the value of the obligation Contract is breached In the contract, the payment term is divided into times, corresponding to three deliveries The last delivery time, Company B made the delivery as agreed in the Contract A repeatedly sent request B still does not pay Therefore, A has the right to ask B to punish the contract and compensate for the damage but due to the maximum penalty of 8%, the excess (2%) is considered a violation of the law and is invalid Risks related to provisions on force majeure events Concept: Force majeure event is an event that happens objectively and unpredictably and cannot be overcome despite all necessary measures and allowances (Article 161 of the Civil Code) 12 In addition to risks arising from subjective and controllable reasons of the above parties, there are also unexpected and objective risks when facing a force majeure situation In the course of implementation, one of the parties may fall into a force majeure situation or an objective obstacle leading to the failure to fulfill the obligations specified in the contract, causing unexpected damage According to Clause 1, Article 161 of the 2005 Civil Code: A force majeure event is an event that happens objectively and unforeseen and cannot be overcome despite taking all necessary measures and possibilities for allowed Objective obstacles are obstacles caused by objective circumstances that make it impossible for a person with civil rights and obligations to know that his / her lawful rights and interests have been infringed upon or unable to perform his / her civil rights or obligations Clause 2, Article 302 of the 2005 Civil Code: In cases where the obligor cannot perform civil obligations due to force majeure events, they shall not be liable for civil liability, except for agreed or provided by law Ex: natural disasters, fires, changes in legal policies, etc The risks mentioned above will result in the commercial contract being nullified in whole or in part When a dispute arises, the rights and benefits of business investors are not guaranteed, causing great damage to the property, reputation, operations, etc of the business For example: Mr X signs a contract with company A to supply 20 tons of coffee in an agreed time Mr X is called the seller, company A is the buyer in the forward contract But the covid-19 epidemic happened during the delivery agreement of the two sides, the transporter stopped operating, so Mr X could not supply 20 tons of coffee to Company A as agreed But this is a force majeure event, so Mr X does not have to pay compensation for company A Risk of dispute resolution Regarding the arbitration clause: in the contract, when there is this dispute, if the parties not resolve by way of negotiation, they will invent a lawsuit The parties may sue a court or arbitration, but in those two methods the award arbitration is used more, because it has more advantages than a court measure such as simple procedures, closed voting, saving the time 13 - Because the contract is not required to have an arbitration clause, if there is no clause in the contract, when the dispute does not select a solution - The arbitration clause may be stated in the contract or may be agreed to be added to the contract by the two parties when a dispute arises However, it will be very complicated for both parties if the arbitration agreement is provided when a dispute occurs because then the disagreement about rights will make it difficult for the parties to choose the appropriate arbitration organization - Dispute over the arbitration selection The fact proves that there are many contracts during the signing, forgetting to write the arbitration clause, the result is that when a dispute occurs, the violator of the towel refuses to take the dispute to the arbitration agency, pretending The contract does not provide for that Therefore, a reasonable and strict arbitration clause helps the parties resolve quickly against disputes arising III Recommendations for Vietnamese enterprises Risk of the subject signing the contract - Check the Business Registration Certificate to see who the legal representative is - Requesting a power of attorney for employees when making transactions or signers other than the legal representative - Check in the authorization letter whether the signer is within the scope of authorization (authorization conditions, rights of the authorized person) Risk of the formality of the contract - Request to establish a contract in writing or in another form of equivalent legal validity (telegraph, telex, fax, data message and other forms as prescribed by law) - Find out if the contract to be signed requires notarization or authentication or requires registration for the contract to be valid or not If so, notarization and registration authentication are required Risks of contract object - When drafting, it is required to specify and detail the object of the contract, the quality of goods, the quantity and weight Technical norms, applicable standards, calculation units to avoid disputes Risk of no provisions on the basic contents of the contract 14 - Need detailed, specific, flexible terms to suit each transaction Risk of price ,payment methods - Need detailed, specific, flexible terms to suit each transaction For example, if the payment currency and the currency are different, the two parties need to specify the exchange rate for these two currencies: the buying or selling rate, the time of calculating the price (calculated at the time of contract signing or time of shipment), etc Risk of guarantee letter - Need to apply the same guarantee letter form with instructions It is best not to apply a conditional guarantee - Strictly comply with the terms signed in the contract (Especially the relevant documents must be accurate, correct and in accordance with the time) - Should not amend the contract, supplement PLH between the two sides when the guarantee certificate has been obtained without the guarantor's consent (In case the two parties amend HD, prepare PLHD, must report / request the guarantor to repeat the Guarantee in accordance with the amended content) Sanction risks apply in case the parties violate the contract - This is a regular provision When negotiating a contract with a customer, it may or may not be included in the contract as required by law Sales staff should be flexible when using this clause - According to D 41 ND 48/2010 / ND-CP dated May 7, 2010 particularly for construction contracts, the maximum penalty is 12% of the violated contract value Risks related to provisions on force majeure events - When drafting a contract, there must be a clear agreement on force majeure cases: - Force majeure may be caused by natural phenomena: Floods, floods, fires, earthquakes, tsunamis - Force majeure may be caused by social phenomena: War, riot, coup, strike, embargo, change of government - It is possible to give the event itself: power outages, machine failures, etc supplies suppliers delay delivery is force majeure events to exempt liability Risk of dispute resolution 15 - Put the arbitration clause into a clause in the contract since the contract was signed - If an arbitrator is selected, that is, the arbitrator operates regularly according to a predetermined statute, he or she should always choose the arbitration rules of that arbitration, not the organization of arbitration A and its arbitration rules B, because this will cause a lot of difficulties, even though there are many conflicts leading to no arbitration organization having jurisdiction to hear - When selecting an organization, the referee must also specify the name of the arbitration organization Failure to specify the name of the statutory arbitration organization may result in future disputes and sometimes refusal to accept the complaint From the above analysis, it can be seen that even a small error in drafting a contract can seriously affect the rights and interests of the parties later, including but not limited to the contract being nullified Efficiency, time-consuming dispute resolution, costly expenses on legal proceedings, discredit when the dispute is made public, etc You can draft and review the contract yourself, but don't leave the risks involved in the contract binding you The assistance of a qualified lawyer can help you push back or minimize the risks and ensure legal safety for the contract in particular and for the operation of the business in general 16 CONCLUSION Contracts are one of the most effective tools in carrying out actual business activities In the course of their existence and development, every business entity must enter into many simple contractual relationships existing in the form of verbal agreement to complex contracts with a high level of requirements for formality to ensure legal security such as a written contract Through research and practice of business activities, we can see the incidents and risks in the process of entering into a business contract is inevitable The process of negotiating and signing contracts is a complicated process From the steps of market research, choosing partners, from the step of negotiating, agreeing to signing and implementing contracts, it is always required to consider and consider carefully Therefore, in order to minimize the risks involved in entering into a contract, with the expectation that some businesses will compete against the losses and risks and perform the reversal contract and achieve the profit business purpose , the seminar focused on analyzing and offering limited solutions to help businesses detect, repair and remedy timely the signing and implementation of business contracts 17 18 REFERENCE Commercial Law 2005 Civil Code 2015 http://luattritam.com.vn/tu-van-soan-thao-hop-dong/rui-ro-trong-giao-ket-hop-dongmua-ban-hang-hoa.htm https://luatvietnam.vn/doanh-nghiep/phan-biet-hop-dong-va-hop-dong-thuong-mai561-21492-article.html https://luatduonggia.vn/dac-diem-cua-hop-dong-thuong-mai/ http://giaypheponline.vn/doanh-nghiep/nhung-rui-ro-doanh-nghiep-co-the-gap-phaitrong-qua-trinh-thuc-hien-hop-dong-thuong-mai ... including: Risk of the subject signing the contract Risk of the formality of the contract Risk of contract object Risk of no provisions on the basic contents of the contract Risk of price, payment... .14 Risk of the subject signing the contract 14 Risk of the formality of the contract 14 Risk of contract object 14 Risk of no provisions on the basic contents of the... (Article of the 2005 Commercial Law) 1.2.4 Purpose The purpose of establishing a commercial contract is to make a profit Profits are understood as profit seeking (not necessarily profitable) However,