Contracts are important instruments in civil and commercial transactions, ensuring the rights and obligations of the participating parties. Among them, bilateral contracts are a common type of contract that impose obligations on both parties.

I. Overview of bilateral contracts

A bilateral contract is a type of contract in which each party owes obligations to the other. The execution of such a contract requires the parties to strictly comply with their commitments; if one party breaches the contract, it may give rise to compensation liability or other sanctions as agreed upon and as prescribed by law.

A clear understanding of the legal regulations governing bilateral contracts helps to minimize legal risks and protect the legitimate rights and interests of the parties during the performance of the contract.

II. Legal regulations on bilateral contracts

1. Definition of a bilateral contract

Clause 1 Article 402 of the Civil Code 2015 provides for the principal types of contracts as follows:

  • A bilateral contract is a contract under which each party has obligations toward the other.

Accordingly, a bilateral contract is a contract in which each party owes obligations to the other.

2. Contents of the bilateral contract

The parties have the right to agree on its contents. Pursuant to Clause 2 Article 398 of the Civil Code 2015, the contract may include the following contents:

  • Subject matter of the contract;
  • Quantity and quality;
  • Price and method of payment;
  • Duration, location, and method of contract execution;
  • Rights and obligations of the parties;
  • Liability for breach of contract;
  • Methods of dispute resolution.

In summary, depending on each specific case, the parties may freely agree on appropriate contents of the bilateral contract in order to execute the contract and protect their legitimate rights and interests.

3. Notes on bilateral contracts

Some practical notes regarding bilateral contracts include:

  • The contract must clearly stipulate the rights and obligations of the parties;
  • Contractual provisions must comply with legal regulations to avoid invalid clauses;
  • Clear agreements should be made regarding conditions for contract execution and termination;
  • Provisions on remedies or sanctions in case of a breach of contractual obligations should be included to protect the interests of the non-breaching party;
  • Provisions on the handling of secured assets under the contract (if any).

The drafting of the bilateral contract must ensure that all essential provisions are included, comply with legal regulations, and anticipate potential situations that may arise in order to limit risks. Where necessary, the parties should seek legal advice from lawyers to best protect their rights and interests.

III. Questions regarding bilateral contracts

1. Conditions for the validity of the bilateral contract

Article 117 of the Civil Code 2015 provides that a civil transaction is valid when it satisfies the following conditions:

  • The parties have civil legal capacity and civil act capacity appropriate to the established civil transaction;
  • The parties participate in the civil transaction voluntarily;
  • The purpose and contents of the civil transaction do not violate prohibitions of the law and are not contrary to social ethics;
  • Compliance with statutory requirements on the form of the civil transaction, where prescribed by law.

The bilateral contract is a form of civil transaction; therefore, it must satisfy the general validity conditions applicable to civil transactions as stipulated above.

2. Cases of termination of the bilateral contract

Pursuant to Article 422 of the Civil Code 2015, the contract shall terminate in the following cases:

  • The contract has been fully executed;
  • Termination by agreement of the parties;
  • An individual entering into the contract dies, or a legal entity entering into the contract ceases to exist, where the contract must be executed by that individual or legal entity itself;
  • The contract is rescinded or unilaterally terminated;
  • The contract cannot be executed due to the non-existence of the subject matter of the contract;
  • The contract terminates due to a fundamental change of circumstances (in accordance with Article 420 of the Civil Code 2015);
  • Other cases as prescribed by law.

Accordingly, the bilateral contract shall terminate if it falls into one of the cases provided above.

3. Is it permissible to agree on a sanction for breach in the bilateral contract?

Clause 1 Article 418 of the Civil Code 2015 on breach sanctions provides:

  • A sanction for breach is an agreement between the parties to a contract whereby the breaching party must pay a sum of money to the injured party.

Accordingly, the parties are entitled to agree on breach sanctions in the bilateral contract. However, they should note that the sanction amount must not exceed the statutory limits applicable to certain types of contracts.

4. Are all contracts with compensation considered bilateral contracts?

Pursuant to Clause 1 Article 402 of the Civil Code 2015: The bilateral contract is a contract under which each party has obligations toward the other.

At present, there is no statutory definition of a compensation contract. In practice, such a contract may be understood as an agreement under which a party receiving benefits must make payment, compensation, or execute a corresponding obligation toward the other party.

Accordingly, most compensation contracts are bilateral contracts. However, certain unilateral contracts may also contain compensatory elements without imposing obligations on both parties (for example, interest-free loan contracts; conditional gift contracts).

In summary, a bilateral contract always involves consideration, but not all contracts involving consideration are bilateral contracts.

5. Is it permissible to defer the execution of obligations under the bilateral contract?

Clause 2 Article 354 of the Civil Code 2015 on deferral of obligation execution provides:

  • A party taking an obligation may defer the execution of such obligation if the entitled party agrees. Execution of an obligation after being deferred shall still be deemed to be executed on time.

Accordingly, a party having an obligation may defer the execution of its obligation if consent is obtained from the entitled party.

6. How are secured assets being retained under the bilateral contract handled to ensure execution of obligations?

To ensure the execution of obligations where secured assets are being retained under the bilateral contract, such secured assets may be handled in accordance with the agreement in the contract or in accordance with the laws on secured transactions.

Pursuant to Clause 1 Article 5 of Joint Circular No. 16/2024/TTLT-BTP-BTNMT-NHNN, where mortgaged assets are being retained in accordance with the law, the mortgagee has the right to request the mortgagor to execute its obligations toward the retaining party or to directly execute such obligations on behalf of the mortgagor in order to recover the mortgaged assets. After the mortgagee or mortgagor has fulfilled the obligations, the retaining party is responsible for returning the assets within the duration and at the location requested by the mortgagee or mortgagor.

IV. Legal consulting services related to bilateral contracts

The above is NPLaw’s article on current regulations regarding bilateral contracts. With a team of experienced lawyers and legal professionals, NPLaw provides reputable and professional legal services, ensuring the best protection of the legitimate rights and interests of clients. Should you require legal assistance, please contact NPLaw for consultation and support.