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Risks in entering a contract for the sale of goods

When signing a contract for the sale of goods, both parties want to be the ones to gain the most benefits in the transaction. However, many entrepreneurs fall into the profit trap and forget about the outstanding risks in contracts for the sale of goods. In fact, there are many risks in entering into contracts for the sale of goods. This article below by Apolo Lawyers - Solicitors & Litigators (Hotline: (+84) 903.419.479) will provide our clients with the above information.

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When signing a contract for the sale of goods, there are some common contract risks as follows:

1. The subject of the contract:

In fact, two contract risks about the subject when signing a contract are often mentioned:

  • The signer does not have the authority to sign. That is, that person is not a legal representative or a legal representative but does not have the authority to sign.
  • A person who is not the legal representative of the company, has legal authorization but signs contracts beyond the scope of authorization.

Contracts signed by unauthorized persons in principle will be void. Depending on the specific case, it will be completely or partially disabled. Therefore, in order to avoid unexpected situations that may occur, when signing a contract, it is necessary to check the Business Registration Certificate to see who is the legal representative, whether or not has the authority to sign the contract for the sale of goods; request to provide the Authorization Letter to the employee when transacting or checking the scope of authorization of the person preparing to sign.

2. The object of the contract

The parties to the contract often dispute about the goods are not the right object as agreed, the quality of the goods is not right or the quantity is not enough as in the agreed contract for the sale of goods. There are also many cases where the parties take advantage of loopholes in non-specific and easily misunderstood details in the contract to evade the performance of obligations. Therefore, when signing a contract for the sale of goods, it is necessary to study the terms of the contract carefully, detailing the subject matter of the contract, the quality of the goods, the quantity, and weight; at the same time, agree on how to understand the terms of the contract to avoid talking at cross purposes when concluding the contract.

3. The price and payment method

Although it has been agreed, there are some risks such as price when the market fluctuates, currency as a payment method, disputes over loading and unloading costs, transportation and storage, money delivery and delivery methods, and security methods. Contracts by the method of guarantee still frequently occur when concluding a contract for the sale of goods. Therefore, the parties need to come up with detailed, specific, and flexible terms to suit each transaction.

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4. Risk of remedies for the breach of contract

4.1. Risk of penalties for violation

A penalty for a violation is an agreement of the parties, so one party cannot ask the other party to pay a penalty for a violation if the parties do not agree to the contract. Although it is an agreement between the parties, the Commercial Law 2005 limits the maximum penalty for breach of contractual obligations or the total fine for multiple violations as agreed by the parties in the contract to no more than 8 % value of the breached contractual obligation. Any excess in the penalty agreement will be considered a violation of the law and will be void.

4.2. The compensation in the contract

There is a difference between penalty and compensation, the liability for compensation arises in case there is no agreement about it in the contract. There are three conditions for the arising of compensation:

  • There is a breach of contract
  • Has actual damage occurred
  • There is a cause-and-effect relationship between the breach of contract and the damage caused

5. About the Force Majeure Clause

A force majeure clause is an event that occurs objectively, cannot be foreseen, and cannot be remedied even though all necessary and permissible measures have been applied. In some cases, because of force majeure clauses, if the obligor is unable to perform a civil obligation, he or she is not liable for civil liability, unless otherwise agreed upon or otherwise provided for by law. However, according to the provisions of the Commercial Law 2005, the violating party must prove the force majeure event in order to be exempted.

>>> Read more: Drafting a contract for the sale of goods

>>> Read more: Procedure for signing contracts for the international sale of goods

6. How can Apolo Lawyers help our clients

With a team of experienced lawyers, Apolo Lawyers can help our clients with no limitations but includes these tasks:

  • Consulting the provisions about risks in entering a contract for the sale of goods in detail;
  • Consulting the provision to reduce risks when signing a contract;
  • Drafting and reviewing contract;
  • Participating in the dispute settlement about a contract for the sale of goods (if required).

There is an overview of the risks in entering a contract for the sale of goods. Apolo Lawyers is proud to be a law firm with many years of experience in business consulting that will support clients with commercial contracts in general and contracts for the sale of goods in particular. In case you need advice related to commercial contracts, please contact us via email at contact@apolo.com.vn or Hotline - (+84) 903 419 479 for the best advice and support.

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