THE INTRODUCTORY PART OF THE CONTRACT

THE INTRODUCTORY PART OF THE CONTRACT

DRAFTING BATTLE-TESTED CONTRACTS

CHAPTER 2

THE INTRODUCTORY PART OF THE CONTRACT

I. DATE, MONTH, YEAR, AND LOCATION

Typically, a contract will begin with the date and location of the contract signing.

Today, on the day … month … year …, at …, we, the undersigned parties:

The date and location are not just introductory phrases to start a contract but also play a role in the contract’s effective date. According to Clause 1, Article 401 of the 2015 Civil Code, a legally concluded contract takes effect from the moment of conclusion unless otherwise agreed upon or stipulated by relevant law. In other words, if the parties do not agree on the condition for the contract’s effectiveness, or if specific laws do not provide otherwise, the date mentioned at the beginning is usually considered the contract’s effective date.

II. INFORMATION OF CONTRACTING PARTIES

The contracting parties section helps identify who is entering into the transaction or agreement. The information of the contracting parties must be complete and accurate, including the following basic details:

– If the party is an individual:

  Nguyễn Văn A

  Citizen ID: … Issued on: … Place of issue: …

  Address: …

  Phone: …

  Account number: …

– If the party is a business:

  Joint Stock Company A

  Tax Code: …

  Address: …

  Phone: …

  Account number: …

  Representative: … Title: …

Name and citizen ID (for individuals) or name and tax code (for businesses) are mandatory information that must be accurate.

While the requirements for individuals are relatively simple, there are certain points to note regarding the contracting parties if they are businesses:

Note 1: A business must always have a representative. If the representative is not the legal representative, an authorization document is required.

Example:

Joint Stock Company A

Tax Code: …

Address: …

Phone: …

Account number: …

Representative: Trần Văn X  Title: Sales Director

Authorization number: …

Note 2: Generally, a representative, whether by law or authorization, can only sign contracts up to a certain level or percentage (calculated based on the charter capital or total asset value of the business). This principle also applies to limited liability companies (point d, clause 2, Article 55 of the 2020 Enterprise Law, as amended in 2022). For example, according to point h, clause 2, Article 153 of the 2020 Enterprise Law, as amended in 2022, the Director or General Director can only sign contracts valued at less than 35% of the company’s total asset value, unless otherwise specified in the company’s charter.

If the signatory’s authority is not adhered to, the contract risks being nullified. Therefore, in this case, the drafter should pay attention to:

– For authorized representatives: Check the authorization document to see if the scope of authorization permits them to sign that type of transaction and the transaction limit.

– For legal representatives: Check the partner company’s charter and, if necessary, require approval documents from the Board of Directors (for joint-stock companies) or the Members’ Council (for limited liability companies) for the transaction the parties intend to sign.

III. CONTEXT OF THE CONTRACT

The context of the contract is a fascinating part, especially crucial for complex contracts. The context of the contract describes the circumstances under which the contract is signed or the intentions the parties wish to achieve upon signing the contract.

Example 1: A is a film production company in Vietnam planning to produce an action movie set to be released this summer. The estimated cost of the film is [*] billion VND, and A only has 40% of this amount. B is an investor interested in investing in the film through a joint venture. Accordingly, B will invest the remaining 60%. Upon the film’s completion, the parties will share the profits according to a certain ratio.

The issue is that under Vietnamese law, film production requires approval from the competent state authority. What happens if the film crew fails to obtain a production license? This unique point causes both parties to have specific concerns. Specifically, A needs B to commit to the investment because if A initiates related activities and B changes their mind, A will suffer losses. Conversely, B worries that if they invest money, but the film crew fails to obtain a license, how will that investment be handled?

A feasible solution for this transaction is to sign two contracts. The first contract is a loan agreement where Party A borrows money from Party B. The second contract is a film production cooperation agreement. At the time Party A obtains the production license, the loan agreement will be terminated. The loan amount in the loan agreement will be converted into Party B’s investment to cooperate with Party A in film production.

Recording the context can be done as follows:

Considering that the borrower is a company legally established under the law, fully licensed and approved by the competent state authority to produce films, currently seeking to raise capital for the film production project as defined in Article [*] of the contract;

Considering that the lender is a company established and operating under the law of [*], with the financial capability to provide a loan for the borrower to produce the film, and the loan will be converted into an equity contribution in the project to share profits from the project; and

Considering that the parties will sign a business cooperation contract to jointly invest in the film production project after the borrower has obtained approval, licenses, investment certificates, and licenses for the borrower to cooperate and venture with the lender in film production as granted by the state authority, and the loan will be converted into the lender’s equity contribution according to the terms and conditions of this contract and the business cooperation contract.

Now, the parties sign this contract with the following terms and conditions: …

The core requirement of the contract’s context section is to outline the circumstances of the parties signing the contract, their intentions in signing the contract, and why the parties are signing the contract. In the above scenario, the parties’ real intention is to collaborate in film production for profit. However, due to the high risks of obtaining state approval, the parties have divided the transaction structure into two stages, where the time of obtaining the license and/or state approval is a transitional milestone between stages (if the license is obtained) or the contract termination point (if the license is not obtained). With the above description, a third party (Court, Arbitration, or Mediator) can easily understand this intention.

Example 2: The parties sign a share purchase agreement. The buyer will buy all the shares of the seller in the target company. The parties agree that the seller will not conduct business in the field in which the target company operates for three years from the transaction completion date.

The context of the non-disclosure and non-compete agreement can be drafted as follows:

Considering that Party A is a shareholder owning [*]% shares in Company [*], a company operating in the field of [*];

Considering that the parties signed a share purchase agreement on [*], whereby Party B will buy all the shares of Party A in Company [*];

Considering that the parties are fully aware that Party A engaging in competitive activities as defined in this Agreement will render Party B’s objective of purchasing shares unattainable;

Therefore, the parties agree to sign this non-disclosure and non-compete agreement with the following terms and conditions: …

The law does not require this agreement to be included in the contract. Hence, including this agreement in the contract depends on the parties’ wishes. However, there are two points to note when drafting the contract’s context section:

– Do not overuse the context section for simple transactions. In other words, standard sales or loan transactions do not need this section. For example:

Considering that the seller agrees to sell and the buyer agrees to purchase the goods (as defined below) under the terms and conditions of this Contract;

Now, therefore, the parties agree to sign the contract with the following terms: …

For this sales transaction, even if its value can reach billions of VND, it is essentially a sales transaction. The parties do not have any special intentions. Reading the contract’s terms is sufficient for the parties or related third parties to understand the parties’ intentions in the contract.

– Only draft the context section if it is a complex transaction structure, which includes multiple smaller transactions or the contract must be performed over a relatively long period. Besides a multi-layered, multi-stage transaction structure, the complexity of the transaction can also be understood as a contract encompassing various purposes (common purpose, individual purpose, etc.).

IV. INTRODUCTORY SENTENCE TO THE CONTENT SECTION

The introductory sentence to the content section (introductory sentence) connects the contract’s introductory part with the following sections. Typically, the introductory sentence will be as follows:

Therefore, the parties agree to enter into this non-disclosure and non-compete agreement with the following terms and conditions: …

Now, therefore, the parties agree to enter into this contract with the following terms: …

V. A FEW NOTES

1. National Emblem and Motto

It is observed that many contracts begin with the national emblem and motto.

SOCIALIST REPUBLIC OF VIETNAM

Independence – Freedom – Happiness

This style is commonly used by state-owned enterprises, enterprises with state capital, or when a party in the contract has a governmental element.

Article 117 of the 2015 Civil Code stipulates the conditions for the validity of civil transactions. Accordingly, a transaction is considered valid if it meets the following conditions:

– The subject has civil legal capacity and civil act capacity appropriate to the civil transaction being established;

– The subject voluntarily participates in the civil transaction;

– The purpose and content of the civil transaction do not violate the prohibitions of the law, do not contravene social morals.

According to Clause 2, Article 8 of Decree No. 30/2020/ND-CP dated March 5, 2020, on clerical work, the format of administrative documents includes the following main components:

a) National emblem and motto.

b) Name of the issuing agency or organization.

c) Document number and symbol.

d) Place and time of document issuance.

e) Document type and brief summary of content.

f) Document content.

g) Position, full name, and signature of the authorized person.

h) Seal, digital signature of the agency or organization.

i) Recipients.

Citing these two regulations helps us see the difference. Accordingly, for administrative documents, the absence of the national emblem and motto does not meet the format requirements under the law. Meanwhile, for contracts, the national emblem and motto are not mandatory requirements. Whether this part is included or not does not affect the validity of the contract or the rights and obligations of the parties.

Practical contract drafting shows that it is not necessary to overly emphasize the presence or absence of the national emblem and motto.

2. Contract Number

Although Article 117 of the 2015 Civil Code does not stipulate it, most contracts are numbered. For example:

SALES CONTRACT

No.: 00726/2023/HDMB-XYZ

Like the national emblem and motto, the contract number is not a mandatory content requirement when drafting a contract. However, from a management perspective, once a contract is signed by the parties, it will be implemented and archived. For businesses with many transactions, numbering contracts helps with convenient searching, retrieval, and classification. The numbering of contracts caters to this need.

There are no rules or requirements for numbering contracts, as long as it is convenient for the parties’ storage and retrieval.

SUMMARY OF CHAPTER 2

The introductory part of a typical commercial contract will include: contract signing date, information of the contracting parties, context, and introductory sentence.

1. Date and location: May play a role in the contract’s effective date.
2. Contracting parties: A crucial content that must be accurately recorded. Whether the subject is an individual or an organization, specificity must be ensured.
3. Context of the contract:Describes the circumstances under which the parties sign the contract or sometimes briefly and concisely outlines the parties’ intentions when entering into the contract.
4. Introductory sentence: Connects the introductory part of the contract with the following sections.
5. A few notes on the national emblem, motto, and contract number.

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