Some Remarks For Enterprises When Using Form-based Contracts

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Some Remarks For Enterprises When Using Form-based Contracts

Creating a form for contracts to execute in business activities has become more and more familiar for enterprises in Vietnam. However, with a developing economy as Vietnam, the number of small and medium-sized enterprises has still made up a large proportion of the business community, in which, small and micro-sized enterprises account for the majority, more than 98% of the total of small and medium-sized enterprises, the majority of enterprises do not care much about the legal nature of form-based contracts that they’re using. A contract is just simply a “piece of paper” for the parties to legalize their transaction, or to facilitate tax declaration… On the contrary, there are also numerous enterprises that have built up a set of form-based contracts or even a common set of rules, which record the main contents of services or products they provide. The use of form-based contracts has helped enterprises to adapt better to the requirement of shortening the preparation time to execute such contracts. However, using form-based contracts without acknowledging their attached conditions could lead enterprises to adverse consequences.

Normally, a simple contract form of an enterprise just briefly records only the main contents related to goods/services or payment, with the thought that both parties agree to enter into the contract, sign the contract then the contract will automatically take effect without regard to the conditions on the subject, content and form of the contract as prescribed in specialized laws. People merely focus on the participants’ capacity and the voluntary will of the parties when entering into a transaction. Such individuals innocently believe that as long as the parties together agree to enter into a contract and sign in it, the contract shall automatically become effective. They, however, forget that the Civil Code is only a common law, enterprises must also check on the provisions prescribed in specialized laws depending on each specific case.

Firstly, enterprises should determine whether the form-based contract used is subject to the Law on the protection of consumers’ rights or not.

There is a variety of forms of contracts, economic contracts, business cooperation contracts, etc. In the relationship of supplying goods and/or services with consumers, a contract composed by organizations or individuals trading goods and/or services to do business with consumers is also considered as a form-based contract (Clause 5 Article 3 Law on the protection of consumers’ rights 2010) in which consumers are people purchasing or using goods and/or services for personal use or using for families or organizations, and organizations, individuals trading goods and/or services are any organization, individuals performing one, several or all of the stages of the investment process, from production to sales of goods or supply of services in the market for profit. Please notice that contracts entered into for business purposes or profit of individuals, organizations are not included in this.

In the relationship with the goods sellers/ services suppliers, consumers are deemed to be the weaker party. Hence, the Law on the protection of consumers’ rights contains a lot of provisions to protect the consumers’ rights that enterprises need to remark, specifically some as follows:

(i) Terms of the contract concluded and general trading conditions with consumers shall have no effect as prescribed in Article 16 Law on protection of consumers’ rights, in which there are some common problems that enterprises often encounter:

  • Excluding liability of organizations or individuals trading goods and/or services to consumers as prescribed by-laws;
  • Restricting or excluding the right to complain and take lawsuits by consumers;
  • Allowing organizations or individuals trading goods and/or services to unilaterally change the conditions of the contract agreed in advance with the consumers or the rules, regulations for good sales or service supply applies to consumers when buying and using goods and/or services do not specifically indicate in the contract;
  • Allowing organizations or individuals trading goods and/or services to unilaterally determine the consumers who fail to perform one or several obligations;
  • Allowing organizations or individuals trading goods and/or services to set forth or change the price at the time of delivery of goods or providing of services.

There have been so many cases that occurred in which enterprises encountered the aforementioned prohibitions of law and had to accept the contract cancellation, returned fees received and compensated consumers for the damage when disputes happened.

(ii) Secondly, regarding the time to review contracts: the Law on consumer protection rights also regulates that when signing the form-based contract, organizations or individuals trading goods and/or services must give reasonable time for consumers to consider the contract. Organizations or individuals trading goods and/or services must keep the concluded form-based contract until the contract expires (Article 17 Law on protection of consumers’ rights). 

(iii) In terms of general trading conditions: Organizations or individuals trading goods and/or services using the general trading conditions is obligated to publicly announce the general trading conditions prior to the transaction with the consumers and such conditions must be listed at a convenient place within the location of the transaction so that consumers can see.

Secondly, regarding the form of a contract.

In accordance with Clause 2 Article 117 of the Civil Code, the formality of a civil transaction is the condition for its effectiveness in cases where it is required by law. Therefore, when using a contract, enterprises should also carefully remark to check on the type of contract being used and collate with the relevant regulations if there is any obligations on the formality that must be complied, for example:

1.  According to the provisions of the law on consumer protection: Organizations and individuals trading in goods and services on the List of essential goods and services such as insurance, credit, internet, purchase and sale of apartments, etc. must register the form of contract, general transaction conditions with the competent state management agency in charge of protecting the interests of consumers.

2.  In accordance with the law on real estate business: Real estate business contracts must be made in writing. The notarization and authentication of contracts shall be agreed upon by the parties, except for cases where organizations, households and individuals sell, transfer, lease, or lease-purchase real estate on a small scale, irregularly; the contract in those cases must be notarized.

The benefits of using form-based contracts in business activities of enterprises are undeniable, but be a savvy trader and carefully ascertain legal issues relating to such contracts before signing to avoid “money to burn.”

If you have any questions or require any additional information, please contact Apolat Legal – An International Law Firm in Viet Nam.

This article is for general information only and is not a substitute for legal advice.