Processing contracts are helpful when suppliers need processor to carryout work to create products as requested. Let’s find out this issue with Lawyer X through the following situation: “Dear Lawyer! I want to ask how are processing contracts regulated by Vietnam Law? What are rights and obligations of parties to processing contracts? Thanks for answering me!”
Legal grounds
- 2015 Vietnam Civil Code
What are processing contracts?
Processing contract means an agreement between parties whereby a processor carries out work to create products at the request of a supplier, and the supplier receives the products and pays fees. The subject matter of a processing contract shall be items which are specified by samples, the standard of which is agreed by the parties or provided by law.
Rights & Obligation of suppliers
Suppliers shall have the following obligations:
– Supply raw materials to the processor strictly in accordance with the agreed quantity, quality, time and place, unless otherwise agreed by the parties; and to provide necessary documents relating to the processing.
– Provide the processor with instructions as to how to perform the contract.
– Pay agreed fees.
Suppliers shall have the following rights:
– Accept the processed products in accordance with the agreed quantity, quality, manner, time and place.
– Terminate unilaterally performance of the contract and demand compensation for damage if the processor commits a serious breach of the contract.
– Where the products are not of the agreed quality and the supplier accepts the products but requests repairs, but the processor is not able to perform the repairs within the agreed time, the supplier has the right to cancel the contract and demand compensation for damage.
Rights & obligations of processors
Processors shall have the following obligations:
– Take care of the raw materials supplied by the supplier.
– Notify the supplier to replace any raw materials supplied which are not of the agreed quality; to refuse to perform the processing if the use of the raw materials may create products which pose a danger to society.
– Deliver the products to the supplier strictly in accordance with the agreed quantity, quality, method, time and place.
– Keep confidential all information relating to the processing and the products.
– Bear liability for the quality of the products, unless the lack of quality is due to the raw materials supplied by the supplier or due to the unreasonable instructions of the supplier.
– Return any leftover raw materials to the supplier after completing performance of the contract.
Processors shall have the following rights:
– Require the supplier to deliver the raw materials strictly in accordance with the agreed quality, quantity, time and place.
– Refuse to comply with unreasonable instructions of the supplier where the processor is of the view that [compliance with] such instructions could decrease the quality of the products provided that the processor immediately informs the supplier.
– Require the supplier to make payment of the fees in full, at the time and by the method as agreed.
Regulations on liability for risk
Unless otherwise agreed, the owner of the raw materials shall bear all risks with respect to such materials and the products processed therefrom until the products are delivered to the supplier.
If the supplier is late in accepting the products, it shall bear all risks during the period of delayed acceptance, including where the products are processed from the raw materials of the processor, unless otherwise agreed.
If the processor delays delivery of the products and the delay damages the processed property, the processor must compensate for damage suffered by the supplier.
Late delivery and acceptance of processed products
– Where the processor is late in delivering processed products, the supplier may extend the time of delivery. If, upon expiry of such extension, the processor still has not delivered the products, the supplier has the right to terminate unilaterally the performance of the contract and demand compensation for damage.
– Where the supplier is late in accepting the products, the processor may deposit the products at a place of bailment and must notify the supplier immediately. The obligation to deliver the products shall be fulfilled when the agreed terms are satisfied and the supplier has been notified. The supplier must bear all costs incurred for bailment.
Unilateral termination of performance of processing contracts
– Unless otherwise agreed or otherwise provided by law, each party has the right to terminate unilaterally the performance of a processing contract if continued performance would not benefit that party but must give reasonable prior notice to the other party.
– If the supplier terminates unilaterally the performance of the contract, the supplier must pay fees for the work already performed, unless otherwise agreed. If the processor terminates unilaterally the performance of the contract, it shall not be paid fees, unless otherwise agreed.
– A party which unilaterally terminates the performance of a contract and thereby causes damage to the other party must compensate.
Regulations on payment of fees
– Unless otherwise agreed, the supplier must pay fees in full at the time of accepting the products.
– If there is no agreement on the rate of fees, the applicable rate shall be the average rate charged for the production of products of the same type at the place of processing at the time of payment.
– If the products fail to meet the agreed quality due to the raw materials supplied or the unreasonable instructions provided by the supplier, the supplier does not have the right to reduce the fees.
Please see more:
- Instructions for exclusive registration of company logos in Vietnam
- Service of changing the legal representative of Vietnamese enterprises
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Frequently asked questions
Yes! Processors shall have the obligation to take care of the raw materials supplied by the supplier.
The subject matter of a processing contract shall be items which are specified by samples, the standard of which is agreed by the parties or provided by law.
Yes! Suppliers shall have the obligation to supply raw materials to the processor strictly in accordance with the agreed quantity, quality, time and place, unless otherwise agreed by the parties; and to provide necessary documents relating to the processing.
Conclusion: So the above is Processing contracts according to Vietnam Civil Code. Hopefully with this article can help you in life, please always follow and read our good articles on the website: lsxlawfirm.com
