Entering into sale and purchase contract of goods with local Vietnamese partners (part 1)

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Entering into sale and purchase contract of goods with local Vietnamese partners (part 1)

Currently, thanks to the effort of the Vietnamese government to strengthen its integration into the global economy, many business opportunities and investment cooperation are opened between foreign entities and Vietnamese partners. In particular, among international trade activities, international sale and purchase of goods are regarded as the earliest and most popular activity, and it maintains a core position.  With the purpose of improving the awareness and the skills to conclude and implement the international sale and purchase contract of goods, this article will introduce an overview of issues to be noted for foreign entities when entering into the international sale and purchase contract of goods with the Vietnamese partners.

1| What is a contract for international sale and purchase of goods?

A contract for international sale and purchase of goods is an agreement between the parties in an international sale and purchase of goods’ transaction; the parties directly establish and adjust the legitimate rights and obligations of the seller and the buyer in such specific international sale and purchase of goods. Besides, according to Article 1 of the Vienna Convention 1980 on Contracts for the International Sale of Goods (“CISG”) which Vietnam as CISG member, the element to determine the internationality in a contract for international sale and purchase of goods is based on a criterion of  “places of business of contracting parties are in different States”. In Vietnam, Commercial Law 2005 does not provide a specific definition for the concept of the international sale and purchase contract of goods. Instead, the law only lists out commercial activities that are deemed to international sale and purchase of goods. Accordingly, Article 27 of the Vietnam Commercial Law 2005 stipulates international sale and purchase of goods including forms of export, import, temporary import for re-export, temporary export for re-import, and transfer through border-gates.

2| Issues to be noted when entering into the international sale and purchase contract of goods

2.1 The formality of international sale and purchase contract of goods

The form of international sale and purchase contract of goods is one of the matters that companies should keep in mind. When referring to the international sale and purchase contract’s formality, there are usually two points of views as follows:

  • The 1st viewpoint: International sale and purchase contract of goods may be concluded verbally, by writing, by acts, or by any other means agreed upon by the parties.
  • The 2nd viewpoint: International sale and purchase contract of goods must be concluded by writing.

The Vienna Convention 1980 respects the autonomy principle in contracts of contracting parties. Specifically, under Article 11 of the CISG Convention stipulates that an international sale and purchase contract of goods may be concluded in writing, oral, and is not subject to any other requirement as to form. However, while the CISG recognizes forms of the contract, it allows the country members to avoid if the laws of that country require the contract to be made in writing. When Vietnam joined the Vienna Convention 1980, Article 96 was applied and declared a reservation in Article 11 in this Convention.

So how does Vietnamese law stipulate?

According to Clause 2, Article 27 of the Commercial Law 2005: “International sale and purchase of goods shall be conducted based on written contracts or other forms of equivalent legal validity”. Therefore, the form of international sale and purchase contract of goods must be made in writing or forms of equivalent legal validity, including the telegraph, telex, facsimile, data messages and other forms provided for by law. (Article 3, Clause 15 of Commercial Law 2005).

Therefore, the advice for foreign enterprise is that all sales and purchase contracts signed with local Vietnamese partners must be made in writing. Besides, the signing in writing will help the parties have clear evidence when they have to take legal proceedings in case of dispute arising.

2.2  The contracting subjects

The subject of a contract for international sale and purchase of goods may be an individual or a legal entity. However, the position of these subjects will not comply with the law governing the contract, but the laws of the country where the individual / legal person has a nationality. Therefore, when signing the international sale of goods contracts, foreign enterprises need to clarify the subject position of the parties. If either party does not have this personal status, it is highly likely that the contract will be void.

2.3  Determining competence to sign contracts

For a contract to not be invalid, please note to determine whether the individual/ legal entity is authorized to sign the contract. Accordingly, an individual may personally or legally authorize another individual to enter into an international sale and purchase contract of goods. Also, a legal entity may through a legal representative / legal authorization of such person performing the signing contract.

According to Vietnamese law, the legal representative has legal right to enter into a contract or authorize another person to perform this act through a power of attorney or the company’s Charter (Article 13 of the Law on Enterprises 2014). Therefore, when entering into international sale and purchase contract of goods, foreign enterprises should request Vietnamese partners to provide documents such as enterprise registration certificate or authorization letter to identify person with legal rights to sign the contract, and avoid the case when such contract is void.

2.4  Some basic contents of the international sale of goods contract should be noted

The content of the international sale and purchase contract of goods is an expression of the voluntary will the parties, which stipulates the mutual rights and obligations of the parties and is recognized in the contract. Therefore, foreign enterprises need to pay attention to some typical contents such as payment terms (payment terms, payment method, and documents), delivery terms and some legal terms (fine and to compensate for any damage, dispute resolution, applicable law)… from drafting contracts to signing to minimize risks in business activities. However, for specific analysis and clarification of some basic contents to note in the international purchase and sale of goods contract, Apolat Legal will continue to update in the article of Part 2.

The above are some basic issues that foreign enterprises need to be aware of when entering into sale and purchase contract of goods with local Vietnamese partners, so foreign enterprises should pay attention.