Important Provisions on Contracts under the 2015 Civil Code

Section 1. Formation of Contracts

Article 385. Definition of a contract
A contract is an agreement between parties for the establishment, modification, or termination of civil rights and obligations.

Article 386. Offer to enter into a contract
An offer to enter into a contract is a clear expression of the intention to enter into a contract and a binding commitment by the offeror to the offeree, either an identified person or the public (hereinafter collectively referred to as the “offeree”).
Where an offer specifies a time limit for reply, if the offeror enters into a contract with a third party during the waiting period for the offeree’s reply, the offeror must compensate for any damage suffered by the offeree, irrespective of whether a contract is ultimately concluded.

Article 387. Information in contract formation
Where one party possesses information that affects the other party’s acceptance of the contract, it must disclose such information to the other party.
Where one party obtains confidential information from the other party during contract formation, it has the duty to keep such information confidential and must not use it for its own purposes or for any unlawful purposes.
A party that breaches Clause 1 or Clause 2 of this Article and causes damage shall be liable for compensation.

Article 388. Time at which an offer to enter into a contract becomes effective

The time at which an offer to enter into a contract becomes effective shall be determined as follows:
a) As stipulated by the offeror;
b) If not stipulated by the offeror, the offer shall become effective from the time the offeree receives the offer, unless otherwise provided by relevant laws.
The following cases shall be deemed receipt of the offer:
a) The offer is delivered to the domicile, if the offeree is a natural person; or to the head office, if the offeree is a juridical person;
b) The offer is transmitted into the official information system of the offeree;
c) The offeree becomes aware of the offer through other means.

Article 389. Modification or withdrawal of an offer to enter into a contract

An offeror may modify or withdraw its offer in the following cases:
a) The offeree receives notice of the modification or withdrawal prior to or simultaneously with receipt of the offer;
b) Conditions for modification or withdrawal arise where the offeror has stipulated such conditions.
Where the offeror modifies the contents of the offer, such modification shall constitute a new offer.

Article 390. Revocation of an offer to enter into a contract
An offeror may revoke its offer if the right to revoke has been specified in the offer and the offeree receives notice of the revocation before it sends notice of acceptance of the offer.

Article 391. Termination of an offer to enter into a contract
An offer to enter into a contract shall terminate in the following cases:

The offeree accepts the offer;
The offeree rejects the offer;
Expiry of the time limit for acceptance;
The notice of modification or withdrawal of the offer takes effect;
The notice of revocation of the offer takes effect;
As agreed by the offeror and the offeree during the waiting period for acceptance.

Article 392. Modification of the offer as proposed by the offeree
Where the offeree accepts the offer but attaches conditions or modifies the offer, such acceptance shall be deemed a new offer.

Article 393. Acceptance of an offer to enter into a contract
Acceptance of an offer to enter into a contract is the reply of the offeree agreeing to the entire contents of the offer.
Silence by the offeree shall not be deemed acceptance of the offer, unless otherwise agreed or established by custom between the parties.

Article 394. Time limit for reply to acceptance of an offer to enter into a contract
Where the offeror stipulates a time limit for reply, acceptance shall only be effective if made within such time limit; if the offeror receives a reply after the expiry of the time limit, such acceptance shall be deemed a new offer by the late respondent.
Where the offeror does not stipulate a time limit for reply, acceptance shall only be effective if made within a reasonable time.

Where the notice of acceptance reaches the offeror late due to objective reasons of which the offeror knew or ought to have known, the notice of acceptance shall remain effective, unless the offeror immediately objects to such acceptance.
Where the parties are in direct communication with each other, including by telephone or other means, the offeree must reply immediately whether it accepts or rejects the offer, unless otherwise agreed by the parties regarding the time limit for reply.

Article 395. Where the offeror dies, loses civil act capacity, or has difficulty in cognition or behavior control

Where the offeror dies, loses civil act capacity, or has difficulty in cognition or behavior control after the offeree has accepted the offer to enter into a contract, the offer shall remain valid, unless the subject matter of the contract is attached to the personal identity of the offeror.

Article 396. Where the offeree dies, loses civil act capacity, or has difficulty in cognition or behavior control

Where the offeree has accepted the offer to enter into a contract but subsequently dies, loses civil act capacity, or has difficulty in cognition or behavior control, the acceptance shall remain valid, unless the subject matter of the contract is attached to the personal identity of the offeree.

Article 397. Withdrawal of notice of acceptance of an offer to enter into a contract

The offeree may withdraw the notice of acceptance of an offer to enter into a contract if the notice of withdrawal reaches the offeror before or at the same time as the acceptance reaches the offeror.

Article 398. Contents of a contract

The parties to a contract are entitled to agree upon its contents.
A contract may contain the following contents:
a) The subject matter of the contract;
b) Quantity and quality;
c) Price and method of payment;
d) Term, place, and method of performance of the contract;
đ) Rights and obligations of the parties;
e) Liability for breach of contract;
g) Method of dispute resolution.

Article 399. Place of contract formation

The place of contract formation shall be as agreed by the parties; if there is no agreement, it shall be the domicile of the natural person or the head office of the juridical person that made the offer.

Article 400. Time of contract formation

A contract shall be formed at the time the offeror receives the acceptance of the offer.
Where the parties agree that silence within a certain period constitutes acceptance of the offer, the time of contract formation shall be the last day of such period.
The time of formation of a contract made orally shall be the time at which the parties have agreed upon the contents of the contract.
The time of formation of a contract made in writing shall be the time at which the last party signs the document or otherwise indicates acceptance on the document.
Where a contract is made orally and subsequently recorded in writing, the time of formation shall be determined in accordance with Clause 3 of this Article.

Article 401. Effect of contracts

A contract that is lawfully formed shall take effect from the time of its formation, unless otherwise agreed by the parties or otherwise provided by relevant laws.
From the time a contract takes effect, the parties must perform their rights and obligations towards each other as agreed. A contract may only be amended or terminated by agreement of the parties or as provided by law.

Article 402. Principal types of contracts

Contracts include the following principal types:

Bilateral contract: a contract under which each party has obligations towards the other;
Unilateral contract: a contract under which only one party has obligations;
Principal contract: a contract whose effectiveness does not depend on that of an ancillary contract;
Ancillary contract: a contract whose effectiveness depends on that of a principal contract;
Contract for the benefit of a third party: a contract under which the parties are obliged to perform, and a third party is entitled to benefits from such performance;
Conditional contract: a contract the performance of which depends on the occurrence, change, or termination of a certain event.

Article 403. Contract appendices

A contract may be accompanied by appendices specifying certain terms of the contract. Contract appendices shall have the same effect as the contract. The contents of a contract appendix must not be contrary to those of the contract.
Where a contract appendix contains provisions contrary to those of the contract, such provisions shall be invalid, unless otherwise agreed. Where the parties accept a contract appendix containing provisions contrary to the contract, such provisions shall be deemed as amendments to the contract.

Article 404. Interpretation of contracts

Where a contract contains an unclear term, the interpretation shall not be limited to the wording of the contract but must also take into account the intention of the parties as expressed throughout the process before, at the time of, and during the performance of the contract.
Where a contract contains a term or wording capable of different interpretations, the interpretation shall be in the sense most consistent with the purpose and nature of the contract.
Where a contract contains an obscure term or wording, it shall be interpreted according to the custom at the place of contract formation.
The terms of a contract must be interpreted in relation to one another so that the meaning of such terms is consistent with the entire contents of the contract.
Where there is a conflict between the common intention of the parties and the wording used in the contract, the common intention of the parties shall prevail for interpretation.
Where the drafting party includes terms disadvantageous to the other party, such terms shall be interpreted in favor of the other party.

Article 405. Standard form contracts

A standard form contract is a contract containing terms prepared by one party according to a pre-established form for the other party to respond within a reasonable period of time; if the offeree accepts, it shall be deemed an acceptance of the entire contents of the standard form contract proposed by the offeror.
A standard form contract must be publicly disclosed so that the offeree knows or must know its contents.

The order and procedures for the disclosure of standard form contracts shall be carried out in accordance with law.

Where a standard form contract contains an unclear provision, the party proposing the standard form contract shall bear the disadvantage in the interpretation of such provision.
Where a standard form contract contains provisions exempting liability of the party proposing the contract, increasing the obligations, or excluding the legitimate rights and interests of the other party, such provisions shall be invalid, unless otherwise agreed.

Article 406. General transaction conditions in contract formation

General transaction conditions are terms consistently established by one party and publicly announced for general application to offerees; if the offeree accepts to enter into the contract, it shall be deemed as acceptance of such terms.

General transaction conditions are only effective against the transacting party where such conditions have been publicly disclosed so that the transacting party knows or must know them.

The order and procedures for the disclosure of general transaction conditions shall be carried out in accordance with law.

General transaction conditions must ensure equality between the parties. Where such conditions contain provisions exempting liability of the party proposing the conditions, increasing the obligations, or excluding the legitimate rights and interests of the other party, such provisions shall be invalid, unless otherwise agreed.

Article 407. Invalid contracts

The provisions on invalid civil transactions from Articles 123 to 133 of this Code shall also apply to invalid contracts.

The invalidity of a principal contract terminates the ancillary contract, unless the parties have agreed that the ancillary contract shall replace the principal contract. This provision does not apply to security measures for the performance of obligations.

The invalidity of an ancillary contract does not terminate the principal contract, unless the parties have agreed that the ancillary contract constitutes an inseparable part of the principal contract.

Article 408. Invalid contracts due to impossibility of performance of subject matter

Where, at the time of formation, a contract has a subject matter which cannot be performed, such contract shall be invalid.

Where, at the time of contract formation, one party knows or must know that the subject matter cannot be performed but fails to notify the other party, thereby causing the other party to enter into the contract, such party must compensate for damage, unless the other party knew or must have known that the subject matter could not be performed.

The provisions of Clauses 1 and 2 of this Article shall also apply to cases where one or more parts of the subject matter cannot be performed, but the remaining parts of the contract remain effective.

Section 2. Performance of contracts

Article 409. Performance of unilateral contracts

In a unilateral contract, the obligor must perform its obligation as agreed and may only perform before or after the due time with the consent of the obligee.

Article 410. Performance of bilateral contracts

In a bilateral contract, where the parties have agreed on the time of performance, each party must perform its obligation when due and may not postpone performance on the grounds that the other party has not yet performed its obligation, except as provided in Articles 411 and 413 of this Code.

Where the parties have not agreed which party shall perform first, both parties must perform their obligations simultaneously; if simultaneous performance is impossible, the obligation requiring a longer time to perform must be performed first.

Article 411. Right to suspend performance in bilateral contracts

A party obliged to perform first may suspend performance if the other party’s capacity to perform has substantially deteriorated to the extent that it cannot fulfill its obligations as committed, until the other party is capable of performance or provides security for performance.

A party obliged to perform later may suspend performance when due if the party obliged to perform first has failed to perform its obligation when due.

Article 412. Right of retention of property in bilateral contracts

Where the obligor fails to properly perform its obligation, the obligee may exercise the right of retention over the obligor’s property in accordance with Articles 346 through 350 of this Code.

Article 413. Non-performance of obligations due to fault of one party

In a bilateral contract, where one party cannot perform its obligation due to the fault of the other party, it has the right to request the other party to still perform its obligation or to terminate the contract and claim damages.

Article 414. Non-performance of obligations not due to fault of the parties

In a bilateral contract, if one party cannot perform its obligation without fault of either party, such party shall not have the right to request the other party to perform its obligation. Where one party has already performed part of its obligation, it shall be entitled to request the other party to perform the corresponding part of its obligation.

Article 415. Performance of contracts for the benefit of a third party

Where a contract is made for the benefit of a third party, the third party has the right to directly request the obligor to perform the obligation for its benefit; if the contracting parties have a dispute concerning the performance of the contract, the third party shall not have the right to demand performance until the dispute is resolved.

The obligee may also request the obligor to perform the contract for the benefit of the third party.

Article 416. Right of refusal of the third party

Where the third party refuses its benefit before the obligor performs the obligation, the obligor shall not be required to perform, but must notify the obligee, and the contract shall be deemed cancelled, with the parties required to return what they have received.

Where the third party refuses its benefit after the obligor has performed the obligation, the obligation shall be deemed fulfilled and the obligee must still perform its commitment to the obligor. In such case, the benefit arising from the contract shall accrue to the person who would have benefited if the contract had not been for the benefit of a third party, unless otherwise agreed.

Article 417. No modification or cancellation of contract for the benefit of a third party

Once the third party has agreed to receive the benefit, the contracting parties may not modify or cancel the contract, even if the contract has not yet been performed, unless with the third party’s consent.

Article 418. Agreement on penalties for breach

A penalty for breach is an agreement between the contracting parties whereby the breaching party must pay a sum of money to the aggrieved party.

The level of penalty shall be as agreed by the parties, unless otherwise provided by relevant laws.

The parties may agree that the breaching party shall only be liable for the penalty without compensation for damage, or shall be liable both for the penalty and compensation for damage.

Where the parties have agreed on a penalty for breach but not on cumulative liability for both penalty and damages, the breaching party shall only be liable for the penalty.

Article 419. Damages for breach of contract

Damages for breach of contractual obligations shall be determined in accordance with Clause 2 of this Article, Article 13, and Article 360 of this Code.

The aggrieved party may claim damages for the benefits it would have enjoyed from the contract. The aggrieved party may also claim reimbursement of expenses incurred due to non-performance of contractual obligations, provided such expenses are not duplicated with damages for lost benefits under the contract.

At the request of the aggrieved party, the Court may order the obligor to compensate for mental suffering. The amount of compensation shall be determined by the Court based on the circumstances of the case.

Article 420. Performance of Contracts upon Fundamental Change of Circumstances

A circumstance is considered to have fundamentally changed when all of the following conditions are met:

a) The change in circumstance results from objective reasons that occur after the conclusion of the contract;
b) At the time of conclusion of the contract, the parties could not have foreseen such change in circumstance;
c) The change in circumstance is so substantial that, had the parties known in advance, the contract would not have been concluded or would have been concluded with entirely different contents;
d) The continued performance of the contract without amendment of its contents would cause serious harm to one party;
đ) The party whose interests are affected has taken all necessary measures within its capacity, consistent with the nature of the contract, but is still unable to prevent or minimize the extent of the effect on its interests.

In case of fundamental change of circumstances, the affected party has the right to request the other party to renegotiate the contract within a reasonable period of time.
If the parties cannot reach agreement on the amendment of the contract within a reasonable period of time, either party may request the Court to:

a) Terminate the contract at a specific point in time; or
b) Amend the contract in order to balance the lawful rights and interests of the parties due to the fundamental change of circumstances.

The Court may only decide to amend the contract if termination of the contract would cause greater damage than the expenses incurred for performance of the amended contract.

During the course of renegotiation, termination, or amendment of the contract, and during the Court’s settlement of the case, the parties shall still continue to perform their obligations under the contract, unless otherwise agreed.

Section 3. AMENDMENT AND TERMINATION OF CONTRACTS

Article 421. Amendment of Contracts
The parties may agree to amend a contract.
A contract may also be amended in accordance with Article 420 of this Code.
The amended contract must comply with the form of the original contract.

Article 422. Termination of Contracts
A contract shall terminate in the following cases:

The contract has been fully performed;
By agreement of the parties;
An individual who is a contracting party dies, or a legal entity which is a contracting party ceases to exist, where the contract must be performed by that individual or legal entity;
The contract is cancelled or unilaterally terminated;
The contract cannot be performed because its subject matter no longer exists;
The contract is terminated in accordance with Article 420 of this Code;
Other cases as prescribed by law.

Article 423. Cancellation of Contracts

A party has the right to cancel the contract without compensation for damage in the following cases:
a) The other party breaches the contract in circumstances where such breach constitutes a condition for cancellation as agreed by the parties;
b) The other party seriously breaches its contractual obligations;
c) Other cases as prescribed by law.
A serious breach is a failure to properly perform an obligation of one party to the extent that the other party cannot achieve the purpose of the contract.
The cancelling party must immediately notify the other party of the cancellation; failure to do so and causing damage shall result in liability for compensation.

Article 424. Cancellation of Contracts Due to Delay in Performance of Obligations
If the obligor fails to properly perform its obligation and the obligee has requested performance within a reasonable time but the obligor still fails to perform, the obligee may cancel the contract.
Where, due to the nature of the contract or the will of the parties, the purpose of the contract cannot be achieved unless performed within a certain period of time, and the obligor fails to properly perform upon expiration of such period, the obligee has the right to cancel the contract without being subject to Clause 1 of this Article.

Article 425. Cancellation of Contracts Due to Impossibility of Performance
If the obligor is unable to perform part or all of its obligations, thereby causing the obligee to be unable to achieve the purpose of the contract, the obligee may cancel the contract and claim damages.

Article 426. Cancellation of Contracts Due to Loss or Damage of Property
Where one party loses or damages the property that is the subject matter of the contract and cannot return, substitute with other property, or repair/replace with similar property, the other party has the right to cancel the contract.
The breaching party must compensate in money equal to the value of the lost or damaged property, unless otherwise agreed or as provided in Clauses 2 and 3 of Article 351 and Article 363 of this Code.

Article 427. Consequences of Cancellation of Contracts
Upon cancellation of a contract, the contract shall be invalid from the time of its conclusion, and the parties are not required to perform their agreed obligations, except for agreements on penalties for breach, compensation for damages, and dispute resolution.
The parties must return to each other what they have received, after deducting reasonable expenses for performance of the contract and for preservation and development of the property.
Restitution shall be made in kind. If restitution in kind is not possible, it shall be made in money equivalent to the value.
Where both parties are obliged to return, restitution shall be made simultaneously, unless otherwise agreed or provided by law.
The party suffering damage due to the other party’s breach of obligations is entitled to compensation.
The settlement of consequences relating to personal rights shall be governed by this Code and other relevant laws.
Where the cancellation of a contract is not based on grounds prescribed in Articles 423, 424, 425, and 426 of this Code, the cancelling party shall be deemed to have breached obligations and shall be subject to civil liability for non-performance in accordance with this Code and other relevant laws.

Article 428. Unilateral Termination of Performance of Contracts
A party has the right to unilaterally terminate performance of a contract without compensation for damages when the other party seriously breaches contractual obligations, or where otherwise agreed by the parties or provided by law.
The terminating party must immediately notify the other party of the termination; failure to do so and causing damage shall result in liability for compensation.
When a contract is unilaterally terminated, it shall terminate from the time the other party receives the notice of termination. The parties shall not be required to continue performance, except for agreements on penalties for breach, compensation for damages, and dispute resolution. A party that has performed obligations may demand payment for the part already performed.
The party suffering damage due to the other party’s failure to properly perform obligations is entitled to compensation.
Where unilateral termination is not based on grounds specified in Clause 1 of this Article, the terminating party shall be deemed to have breached obligations and shall bear civil liability for non-performance under this Code and other relevant laws.

Article 429. Statute of Limitations for Initiating Legal Action Regarding Contracts
The statute of limitations for initiating legal action to request a court to resolve contractual disputes is three (03) years from the date on which the entitled person knew or should have known that his/her lawful rights and interests were infringed.

(Legal basis: Articles 385 to 429 of the Civil Code 2015)