What contents must a contract include?

This article addresses what a contract is, the essential terms that make up a basic contract, and provides an overview of some common types of contracts for reference purposes.

1. What is a contract?

According to Article 385 of the 2015 Civil Code, a contract is a consensus between parties to establish, modify, or terminate civil rights and obligations.

A contract is a legal agreement between two or more parties, in which each party commits to perform or refrain from performing certain terms as stipulated by law. These terms may include the provision of goods or services, payment conditions, rights and obligations of each party, confidentiality, and other conditions mutually agreed upon by the parties. Contracts may be made in writing or orally, but to ensure legal validity and transparency, written contracts are generally preferred. The primary purpose of a contract is to define the legal relationship and commitments between the parties, facilitating transactions and reducing potential disputes in the future.

2. What contents must a contract include?

According to Article 398 of the 2015 Civil Code, a contract may include the following contents:

Content 1: Subject Matter of the Contract

Each contract has a specific subject matter. For example, in a contract for the sale of goods, the subject matter is the goods. The contract must specify the exact subject matter involved in the transaction; to ensure clarity, parties often include details such as type, quantity, and quality of the subject matter.

Content 2: Quantity and Quality

This is commonly specified in contracts for the sale of goods.

Content 3: Price and Payment Method

The price represents the value of the contract’s subject matter or of the contract itself. In some cases, a framework contract may not set a price but instead reference invoices. In certain cases, the law prescribes a method for determining the price. This clause is often accompanied by a payment method, allowing parties to choose options like cash, bank transfer, or collection services.

Content 4: Contract Duration

This is a critical clause. The parties should agree on the effective date, the execution period (such as delivery or service provision), and the contract’s termination date.

Content 5: Rights and Obligations of the Parties

The rights and obligations of each party are determined based on the terms regarding the contract’s subject matter, value, and the parties’ mutual interests. This clause may reiterate previously stated obligations and add additional requirements if necessary. For each specific type of contract, the law establishes the basic rights and obligations of the contracting parties.

Content 6: Liability for Breach of Contract

To protect rights and ensure compliance, parties should agree on conditions for penalties and compensation for damages. Under the 2005 Commercial Law, the penalty for breach of contract is capped at 8% of the value of the breached obligation. In cases without specific agreement on compensation for damages, the breaching party is liable only for the penalty. This clause may be applied alongside contract continuation if the breach does not justify unilateral termination.

Content 7: Dispute Resolution

The parties may choose the court or commercial arbitration to resolve disputes. For international contracts, it is important to agree on the governing law at the time of signing to avoid complications later regarding applicable law. 

3. Some common types of contracts

Contract for Sale of Assets: An agreement between parties in which the seller transfers ownership of assets to the buyer, and the buyer pays the seller (Clause 1, Article 430, Civil Code 2015).

Asset Exchange Contract: An agreement between parties where each party transfers assets and ownership rights to each other (Clause 1, Article 455, Civil Code 2015).

Asset Gift Contract: An agreement in which the donor transfers their asset ownership to the recipient without requiring compensation, and the recipient accepts the asset (Article 457, Civil Code 2015).

Loan Contract: An agreement in which the lender transfers an asset to the borrower, who must return the asset in the same quantity and quality at the due date. Interest is payable only if agreed upon or legally required (Article 463, Civil Code 2015).

Lease Contract: An agreement in which the lessor grants the lessee the right to use an asset for a specified period, and the lessee must pay rent (Clause 1, Article 472, Civil Code 2015).

Asset Sublease Contract: An agreement where the sublessor provides an asset to the sublessee to exploit its use and receive benefits, with the sublessee paying the rent (Article 483, Civil Code 2015).

Asset Lending Contract: An agreement in which the lender provides an asset for temporary use by the borrower, without requiring payment, and the borrower returns the asset at the end of the term or when the purpose has been fulfilled (Article 494, Civil Code 2015).

Contract Concerning Land Use Rights: An agreement where the land user transfers, leases, subleases, gifts, mortgages, contributes capital with, or exercises other land use rights to the other party, who in turn fulfills the rights and obligations stipulated by the land law (Article 500, Civil Code 2015).

Cooperation Contract: An agreement among individuals or legal entities to jointly contribute assets and effort to accomplish a specific task, sharing both benefits and liabilities (Article 504, Civil Code 2015).

Service Contract: An agreement in which the service provider performs a task for the service user, who in return pays the provider for the service (Article 513, Civil Code 2015).

Transportation Contract/ Passenger Transport Contract: An agreement where the carrier transports passengers and luggage to the agreed destination, and the passenger pays the fare (Article 522, Civil Code 2015).

Asset Transport Contract: An agreement in which the carrier must transport assets to a predetermined location and deliver them to the rightful recipient, while the hiring party pays the fare (Article 530, Civil Code 2015).

Processing Contract: An agreement where the processor performs work to produce goods as requested by the party ordering the processing, who then receives the goods and pays the processing fee (Article 542, Civil Code 2015).

Deposit Contract: An agreement in which the custodian receives an asset from the depositor for safekeeping and returns it at the end of the contract period. The depositor pays a custodial fee unless agreed otherwise (Article 554, Civil Code 2015).

Power of Attorney Contract: An agreement in which the authorized party undertakes work on behalf of the authorizing party, who must adhere to the contract terms (Article 562, Civil Code 2015).

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