In today’s business environment, it has become increasingly common for enterprises and individuals to participate in international or domestic commercial transactions. One of the legal instruments that supports parties in conducting commodity transactions is the commodity purchase and sale entrustment contract. In the article below, NPLaw analyzes several regulations on commodity purchase and sale entrustment contracts in accordance with current law.
In today’s business environment, it has become increasingly common for enterprises and individuals to participate in international or domestic commercial transactions. One of the legal instruments that supports parties in conducting commodity transactions is the commodity purchase and sale entrustment contract. In the article below, NPLaw analyzes several regulations on commodity purchase and sale entrustment contracts in accordance with current law.
I. The role of commodity purchase and sale entrustment contracts
A commodity purchase and sale entrustment contract plays an important role in contemporary commercial activities. Entrustment enables parties to conduct transactions through another entity without having to directly participate in the entire process.
Accordingly, the entrusted party conducts the transaction on behalf of the entrusting party, thereby reducing the burden and costs for the entrusting party while optimizing the purchase and sale process. At the same time, entrustment contracts enhance market access, particularly where the entrusting party lacks experience or capacity to conduct such transactions independently.
II. Legal regulations on commodity purchase and sale entrustment contracts
1. What is a commodity purchase and sale entrustment contract?
Pursuant to Article 155 of the Law on Commerce 2005: Commodity purchase and sale entrustment is a commercial activity whereby the entrusted party conducts the purchase and sale of goods in its own name in accordance with the conditions agreed with the entrusting party and is entitled to receive an entrustment fee.
Accordingly, a commodity purchase and sale entrustment contract may be understood as an agreement between the entrusting party and the entrusted party regarding the performance of a commodity purchase and sale transaction. The entrusted party represents the entrusting party in conducting transactions with a third party and performs such transactions in the name of the entrusted party.
2. What are the rights and obligations of the parties to the commodity purchase and sale entrustment contract?
Unless otherwise agreed by the parties, the rights and obligations of the parties to the entrustment contract are stipulated in Articles 162 to 165 of the Law on Commerce 2005, as follows:
The entrusting party:
Rights:
- To request the entrusted party to fully inform it of the status of performance of the entrustment contract;
- Not to take liability in cases where the entrusted party violates the law, except for cases of joint liability as prescribed in Clause 4 Article 163 of the Law on Commerce 2005.
Obligations:
- To provide information, documents, and necessary means for the performance of the entrustment contract;
- To pay the entrustment fee and other reasonable expenses to the entrusted party;
- To deliver money and goods in accordance with the agreement;
- To take joint liability where the entrusted party violates the law due to causes attributable to the entrusting party or due to intentional violations of the law by both parties.
The entrusted party:
Rights:
- To request the entrusting party to provide necessary information and documents for the performance of the entrustment contract;
- To receive the entrustment fee and other reasonable expenses;
- Not to take liability for goods that have been properly delivered to the entrusting party in accordance with the agreement.
Obligations:
- To perform the purchase and sale of goods in accordance with the agreement;
- To notify the entrusting party of matters related to the execution of the entrustment contract;
- To comply with instructions of the entrusting party that are consistent with the agreement;
- To preserve assets and documents delivered for the execution of the entrustment contract;
- To maintain confidentiality of information related to the execution of the entrustment contract;
- To deliver money and goods in accordance with the agreement;
- To take joint liability for violations of law committed by the entrusting party if such violations are partly attributable to the fault of the entrusted party.
3. Is the commodity purchase and sale entrustment contract required to be made in writing?
Article 159 of the Law on Commerce 2005 provides: The commodity purchase and sale entrustment contract must be made in writing or in another form having equivalent legal validity.
Pursuant to Clause 15 Article 3 of the Law on Commerce 2005, forms having legal validity equivalent to written documents include telegrams, telexes, faxes, data messages, and other forms as prescribed by law.
Accordingly, the commodity purchase and sale entrustment contract is not required to be made strictly in written form; the parties may conclude the contract in other forms having equivalent legal validity, such as telegrams, telexes, faxes, or data messages, in accordance with the above provisions.
III. Certain questions regarding commodity purchase and sale entrustment contracts
1. What contents are typically included in the detailed commodity purchase and sale entrustment contract? Which contents are the most important and why?
Currently, there are no mandatory regulations on the contents of the commodity purchase and sale entrustment contract. In practice, such contracts usually include the following basic contents:
- Information of the parties;
- Description of the goods to be purchased and sold;
- Entrustment fee, incurred expenses, and payment terms;
- Time, place, and method of contract execution;
- Rights and obligations of the parties;
- Liability for damages and sanctions for breach;
- Dispute resolution.
Among these, clauses on the description of goods, entrustment fees, and the time and place of performance are particularly important and are the most common sources of disputes in practice. These clauses enable the parties to clearly identify the subject matter of the contract, the remuneration, and the manner of performance. Nevertheless, other clauses (rights and obligations of the parties, liability for damages, sanctions for breach, etc.) are also essential to ensure optimal protection of the parties’ interests throughout the execution of the contract.
Therefore, when drafting the contract, the parties should pay close attention to clearly and comprehensively stipulating its contents in order to safeguard their rights, minimize disputes, and avoid losses arising from commodity purchase and sale entrustment contracts.
2. Distinguishing between commodity purchase and sale entrustment contracts and representation contracts of traders
Pursuant to Article 141 of the Law on Commerce 2005, representation of traders is an arrangement whereby a trader (the representative) receives authorization from another trader (the principal) to conduct commercial activities in the name of, and in accordance with the instructions of, that trader and is entitled to remuneration for such representation.
Commodity purchase and sale entrustment, as defined in Article 155 of the Law on Commerce 2005, is a commercial activity whereby the entrusted party conducts the purchase and sale of goods in its own name in accordance with conditions agreed with the entrusting party and receives an entrustment fee.
Accordingly, in representation of traders, the representative acts in the name of the principal within the scope of representation, whereas in commodity purchase and sale entrustment, the entrusted party conducts the purchase and sale transaction in its own name.
3. Are entrusted goods the subject matter of the commodity purchase and sale entrustment contract?
Article 514 of the Civil Code 2015 provides:
- The subject matter of a service contract is a work/task that can be executed and does not violate prohibitions of law or social ethics.
Accordingly, entrusted goods are not the subject matter of the commodity purchase and sale entrustment contract. The subject matter of such a contract is the task of purchasing and selling goods that the entrusting party requests the entrusted party to execute.
4. Does an entrusted trader need the consent of the entrusting party when re-entrusting another trader to execute an entrustment contract?
Pursuant to Article 160 of the Law on Commerce 2005 regarding sub-entrustment to a third party:
- The entrusted party may not re-entrust a third party to execute the signed commodity purchase and sale entrustment contract, unless there is written consent from the entrusting party.
Accordingly, when re-entrusting another trader to execute a commodity purchase and sale entrustment contract, the entrusted trader must obtain the written consent of the entrusting party.
IV. Legal consultancy services on commodity purchase and sale entrustment contracts
The above is NPLaw’s article on current regulations governing commodity purchase and sale entrustment contracts. With a team of experienced lawyers and legal professionals, NPLaw provides reputable and professional legal services, ensuring the best possible protection of the legitimate rights and interests of our clients. Should you require legal assistance, please contact NPLaw for consultation and support.
