In addition to the conditions for contract validity, the question of when a contract becomes effective is also a matter that requires attention. Particularly for FDI enterprises, understanding the effective date of a contract helps businesses proactively protect their rights, ensure the performance of obligations, and minimize potential disputes that may arise.
In this article, KMC will help clarify the effective time of a contract and the legal framework governing this matter in detail.
How is the time of contract formation determined?
Pursuant to Article 400 of the 2015 Civil Code on the time of contract formation:
Time of contract formation
1. A contract is formed at the time when the offeror receives the acceptance of the offer.
2. Where the parties agree that silence shall constitute acceptance of the offer within a specified time limit, the time of contract formation is the last moment of such time limit.
3 .The time of formation of an oral contract is the time when the parties have agreed on the contents of the contract.
4. The time of formation of a written contract is the time when the last party signs the document or by another form of acceptance expressed in writing.
In case a contract is formed orally and subsequently established in writing, the time of contract formation shall be determined in accordance with Clause 3 of this Article.
Accordingly, a contract is formed at the time when the offeror receives the acceptance of the offer.
When does a contract become effective?
Pursuant to Article 401 of the 2015 Civil Code on the effectiveness of contracts as follows:
Effectiveness of contracts
1. A lawfully formed contract takes effect from the time of its formation, unless otherwise agreed by the parties or otherwise provided by relevant laws.
2. From the time the contract becomes effective, the parties must perform their rights and obligations in accordance with the agreement. A contract may only be amended or terminated by agreement of the parties or in accordance with the law.
Accordingly, a lawfully formed contract takes effect from the time of its formation, unless otherwise agreed or otherwise provided by relevant laws.
The effective time of a contract applies to each specific type of contract separately
The effective time of a contract also depends on the type of contract and the method of contract formation. Below, KMC will provide a detailed analysis of when a contract becomes effective in each case, applied to the most common contracts used by FDI enterprises:
Ordinary civil and commercial contracts
For most transactions involving the sale of goods and provision of services, the general principle under Article 400 of the 2015 Civil Code and the 2005 Commercial Law is that a contract becomes effective from the time of its formation, unless otherwise agreed by the parties or otherwise provided by law.
In modern transactional practice, the time of contract formation may be:
- The time when both parties sign the contract document.
- The time when the offeree sends the Purchase Order Acceptance via email.
- The time when the buyer makes a deposit/advance payment as requested by the seller.
Employment contracts
Pursuant to Article 18 of the 2019 Labor Code, an employment contract becomes effective from the date it is signed by both parties, unless otherwise agreed by the parties or otherwise provided by law.
Note: An employment contract must be concluded in writing, and the employee must be provided with one original copy.
Electronic contracts
With the development of e-commerce, the 2005 Law on Electronic Transactions recognizes the legal validity of electronic contracts. The effective time of an electronic contract is the time when the data message of acceptance of the offer enters the information system designated by the offeror. This is particularly applicable to B2B transactions conducted via online platforms.
Contracts subject to notarization or certification requirements
A signed contract that has not yet been notarized—does it take effect?
The answer lies in mandatory form requirements under applicable law. For certain contracts such as land use right transfer contracts or asset mortgage contracts, notarization or certification is required by law. In such cases, the contract only becomes legally effective from the time of notarization or certification, regardless of whether the parties have already signed it earlier. However, for other ordinary contracts where such formality is not required by law, the contract becomes effective upon signing, provided that all conditions for contract validity are satisfied.
Practical Guidance: Determining the Effective Date from the Contract Itself
Having an understanding of the official legal provisions on when a contract becomes effective is only the first step. In practice, there are still many cases where it is difficult to determine the type of contract, the conditions for validity, and the effective time of the contract when applying the law to real situations.
Therefore, below KMC will provide detailed guidance to help you easily determine the effective date of a contract in practice.
Review and Interpret the “Effective Date” Clause
A professionally drafted contract typically contains a separate clause titled “Effective Date” (Effective Date/Term). You should carefully review this clause to determine when the contract becomes effective.
Commonly, it will stipulate one of the following options:
• “This Contract shall be effective from the date of signing” (Effective upon signing).
• “This Contract shall be effective from [specific date/month/year]” (Effective as of [date]).
• “This Contract shall be effective upon fulfillment of the following conditions precedent: [e.g., investment license approval, bank credit approval, etc.]” (Effective upon fulfillment of the conditions precedent).
Note: If the contract uses the phrase “signed and sealed,” while one party is a foreign company that does not use a seal under international practice, this should be clarified immediately to avoid disputes over whether the contract has actually become effective.
What should be done if the contract does not clearly specify the effective date?
In cases where a contract does not clearly include an “Effective Date” clause, the effective time shall be determined in accordance with general legal provisions. However, this is a high-risk situation. The best solution is for the parties to supplement the contract with an Addendum to clearly agree on this issue before performing any contractual obligations.
Be cautious of conflicting clauses
Sometimes, the “Effective Date” clause may conflict with other provisions, for example, the “Term of the Contract” clause may commence from a date earlier than the effective date. When such inconsistencies are identified, it is necessary to request the counterparty to amend the contract to ensure consistency, prioritize the application of the more specific clause, or include a clear interpretation mechanism within the contract.
“Void contracts” – risks businesses need to be aware of
Understanding contract validity and when a contract becomes effective also means being able to identify the risks of contract invalidity. A contract may be declared void (in whole or in part) when it fails to satisfy the validity conditions set out above.
The consequences of a void contract can be extremely serious, ranging from legal liability to financial and practical losses. The parties must restore the original status, return to each other what has been received; the party at fault causing damage must compensate for such damage. This may result in significant financial losses and reputational damage for the enterprise.
In particular, enterprises should pay attention to the statute of limitations for requesting a court to declare a contract void. Under the Civil Code, this limitation period is generally 02 years from the date the lawful rights and interests are infringed. However, for civil transactions that violate statutory form requirements, legal prohibitions, or social ethics, such limitation period does not apply.
Advice for FDI enterprises when entering into contracts in Vietnam
As an FDI enterprise investing in the Vietnamese market, in order to maintain control in all situations and avoid unnecessary risks during contract formation, corporate managers should note the following:
- Always prioritize written form: Even where other forms are legally permitted, written contracts remain the clearest evidence to determine the parties’ intent and the time of contract formation.
- Clearly draft the “Effective Date” clause: This clause should be specific and unambiguous. If there are conditions precedent (e.g., approval from the Provincial People’s Committee), they should be fully listed, along with clear allocation of responsibilities for fulfilling such conditions.
- Verify signing authority: Before signing, request the counterparty to provide the Enterprise Registration Certificate and a valid Power of Attorney (if the signatory is not the legal representative).
- Prepare for cultural and legal differences: FDI enterprises should note that contract language and structure in Vietnam may differ from those in their home jurisdictions. Using bilingual contracts (Vietnamese–English/Japanese, etc.) with a clear clause specifying which language prevails is essential.
- Engage local legal experts: A law firm or advisor with deep understanding of Vietnamese law and experience working with FDI enterprises can help review risks, ensure the contract is not only valid but also balanced and protective of your rights and interests throughout the performance process.
Above is KMC’s comprehensive explanation of when a contract becomes effective, along with practical analysis and guidance for real-world application. We hope this information helps enterprises and managers maintain a proactive position, optimize rights and benefits when entering into contracts, and effectively manage risks.
If you still have legal questions regarding contracts or contract validity, please contact KMC experts directly. With many years of experience supporting FDI enterprises in Vietnam, especially Japanese FDI companies, we provide guidance, answers, and optimal solutions for your business.
For in-depth consultation and to fully understand and control every contractual clause while ensuring compliance with Vietnamese law, please contact KMC via hotline: 081 489 4789.
