What are the principal contracts? When should this contract be applied?

Principal contracts play a fundamental role in establishing the initial business cooperation relationship between the parties. This is an agreement on basic terms of buying and selling goods or providing services before signing an official contract. Please follow the following article immediately, Long Phan will share useful information about principal contracts to help you understand the nature and how to apply.

What is a principle contract? Is it required to be in writing?

1. Concept of Principle Contract

• A principle contract is a type of directional contract that helps parties establish basic principles and conditions when purchasing and selling goods or providing services. This is considered the foundation, acting as an initial framework for the parties to clearly understand their needs and ability to cooperate with each other before signing an official contract.
• Principal contracts can have many different names such as “principle agreement,” “basic principle contract,” or “agency principle contract” and are widely applied in many fields such as civil business, commerce.

2. Form of Principle Contract

Whether or not principal contracts are required to be made in writing will depend on the nature of the contract and the purpose of the agreement. Specifically:

• For civil contracts: According to the Civil Code 2015, there are only regulations on the concept of contract without requiring a specific form for civil contracts. Therefore, civil contracts can be expressed verbally, in writing, or through specific acts.
• For commercial contracts: According to the Law on Commercial 2005, commercial contracts can be made verbally, in writing or established by specific acts. However, for some types of commercial contracts, if the law requires it to be made in writing, the parties must comply with this regulation.

Thus, depending on the nature of a civil or commercial contract, principal contracts will have to comply with the specific form requirements of that type of contract.

When are principal contracts usually applied?

The principle contract is often used as an initial framework contract, laying the foundation before the parties proceed to sign a specific purchase or service contract. Some common use cases of principal contracts include:

1. Transactions for buying and selling goods or providing services are not yet completed

In transactions where the parties have not yet reached agreement on all the detailed terms, the principle contract acts as a general commitment on the basic conditions of the transaction. At this stage, the principle contract mainly describes the main terms in general, creating a premise for continuing to negotiate and sign a detailed contract later.

2. General provisions for single types of contracts

When the parties’ transaction contents involve many different contracts, but have similarities in terms, the principle contract will be used as a common frame of reference. The parties can rely on this principle contract to build corresponding single contracts for each specific type of goods or services, ensuring consistency in the cooperation process.

Latest sample contract for purchase and sale of goods

Pursuant to Article 398 of the Civil Code 2015, the parties to the contract have the right to freely agree on the content of the contract. The content of the contract may include the following provisions:

• Subject of the contract;
• Quantity, quality;
• Price, payment method;
• Term, location, method of contract performance;
• Rights and obligations of the parties;
• Liability due to breach of contract;
• Dispute resolution method.

The Law on Commercial 2005 does not specifically stipulate the mandatory content of commercial contracts. This leaves space for the parties to freely agree and adjust the contract content based on the actual needs of the transaction, in accordance with the principles of commercial law.

Therefore, the content of the Contract of Principles between the parties can include general terms such as cooperation goals, basic rights and obligations, without requiring details on quantity, quality of goods, or price, or payment method. This serves as a common basis to create conditions for the parties to continue to discuss and agree on detailed agreements in the official contract.

And you can refer to the latest sample Contract for Purchase and Sale of Goods here:

>>> Download: Latest sample contract for purchasing and selling goods 2024.doc

Consulting services and guidance on drafting standard contracts

To ensure the principle contract drafting process is convenient and effective, you should use contract drafting and consulting services to maximize the rights of the parties during the signing and implementation process. With an experienced team, Long Phan provides comprehensive consulting services on drafting principal contracts. Specifically, contract drafting services at Long Phan include:

• Consulting on cases where principal contracts need to be applied;
• Provide standard contract templates;
• Consulting on indispensable terms in principal contracts;
• Consulting and guidance on how to draft contracts;
• Review, amend, supplement and draft principal contracts;
• Consulting on contract risks and remedies;
• Consulting, planning negotiations, and signing effective contracts;
• Representatives participating in negotiations;
• Consulting on other issues related to construction contracts.

Principal contracts create a solid foundation for commercial and civil transactions. With professionalism and dedication to customers, Long Phan will accompany you in every business transaction and ensure the process is carried out safely, effectively and achieves the expected success. Please contact Long Phan hotline via the hotline 0906735386 for detailed advice.