Things to Consider Before Signing a Contract for the Sale and Purchase of Goods in Thailand

Things to Consider Before Signing a Contract for the Sale and Purchase of Goods in Thailand

Before signing a contract for the sale and purchase of goods in Thailand there are several key issues which the parties should consider to ensure that their rights are adequately safeguarded. In this article we shall examine a range of important issues and shall provide practical tips to help protect the legal rights of the Buyer and Seller & to minimize their respective liability.

Transfer of Ownership:

Arguably one of the most important issues which a Buyer or a Seller of a product/good should consider is when transfer of legal ownership of the goods/products occurs. According to the Civil & Commercial Code of Thailand (hereinafter referred to as the ‘CCC’ or the ‘Code’) ownership of property sold is transferred to the Buyer from the moment when the contract of sale is entered into, however, the parties can agree otherwise in the contract. To safeguard a Seller, the writer advises that a contract for sale should contain a clause which provides that the transfer of ownership of the goods being sold should only occur when the goods have been paid in full by the Buyer.

Limiting Liability:

The CCC provides that the parties to a contract of sale may agree that the Seller shall not incur any liability for defects or eviction, hence if the parties don’t use such a clause in their contract then the Seller will be fully liable for any defect in the property sold which impairs either its value or its fitness for ordinary purposes or for the purposes of the sale contract.

Default Interest:

Unless the sales contract stipulates otherwise, the CCC provides that the applicable default interest for a money debt is 7.5% p.a. However, the contract could contain provisions to allow for interest of up to 15% p.a. if the parties agreed to use this in the agreement.

Contract Interpretation:

If a contract has very broad terms and conditions which lack specific details or are otherwise unclear, and if a clause is later disputed and requires interpretation in the Thai Courts, then the CCC provides that interpretation of such unclear term(s) shall be in favor of the party who incurs the obligation under the clause.

Language:

The CCC provides that whenever a document (such as a contract) is executed in two language versions, one in the Thai language, the other in another language (such as English), and there are discrepancies between the two versions, and it cannot be determined as to which version was intended to govern, then the document executed in the Thai language shall be presumed to govern (i.e. the Thai version shall apply). Hence, if the parties wish to change this legal presumption, they should include a clause in their contract which provides that if the contract is made in Thai and another language, then the version made in such other language shall govern.

 

Standard or Quality of Delivered Goods:

If the general terms & conditions of a contract for sale only describe the kind of goods being sold and not the quality or standard of such goods then the CCC provides that the Seller must deliver such goods of ‘medium quality’ to the buyer.

Moreover, when the quality of the goods are not described in the contract and the quality of such delivered goods (as provided by the Seller) has later been accepted by the Buyer, such provided quality will become the standard of goods applicable to the transaction.

Demand to Perform the Obligation:

A contract can be made without a fixed time of payment or performance. In such case, both parties are duly eligible to perform their parts of their obligation immediately.

With respect to sales and purchase contracts, if the contract fails to specify a fixed time for making payment or performance, then this means that if the Buyer makes the payment to the Seller, the Buyer is entitled to demand the Seller to deliver at any time thereafter and as such, the Seller must deliver the goods at such time as when the Seller receives the demand from the Buyer.

The above situation differs from the situation when the parties agree to a fixed time of performance by the Seller because in such situation the Buyer cannot demand the Seller to perform its obligation prior to the fixed time for performance as described in the contract.

Persons Authorized to Receive Performance:

The person who receives the delivery or payment has a legal effect in relation to the completion of payment or performance under a contract. For example, when the Seller delivers the sold goods, the CCC requires the Seller to make his performance to the Buyer or a person authorized by the Buyer rather than just any person working for the Buyer. However, the CCC does provide that delivery made to a person who has no authority to receive such delivery can still be legally valid if the Buyer later ratifies it (approves it), such ratification/ approval should be made in writing so there is evidence thereof which the Seller should retain. In the context of payment, the same principle applies in that the Buyer needs to make his payment to the Seller or a person authorized by the Seller. If the Buyer pays someone else it can still be deemed valid if the Seller ratifies/approves it.

Place of Delivery:

If a contract fails to specify the place of delivery, the Code stipulates that the Seller must deliver the sales of goods at the Buyer’s present domicile. Therefore, given this, it will be better to describe the place of delivery in the contract to avoid any inconvenience if the delivery should in fact be made elsewhere.

Expenses Related to Delivery:

If a contract contains no declaration concerning expenses related to delivery of the goods, then the CCC provides that such costs or expenses are to be borne by the seller. However, if there are added expenses caused by the Buyer’s actions such as their relocation then such extra expenses will be the buyer’s responsibility. Please note that the term ‘expenses’ includes many things such as delivery cost, transportation, and package cushioning etc.

Evidence of performance or payment (Receipt):

After making their performance, the performing party (which may be Buyer or Seller as the case may be) has the right to receive a receipt, or any other similar document containing a message which specifies that their obligation is performed. This type of document is of key importance as it is evidence that performance has been completed. Given the above, a party making/delivering performance should be sure to obtain a written confirmation/ receipt from its client when it fully delivers its performance to its clients.

Release from the liability of non-performance: Generally, the obligated party must be liable in any loss or damages regarding his/its non-performance but if the tender of performance (offer or attempt to make performance) has been correctly made to the other party but the other party doesn’t accept it for no legally justifiable reason, then the party who tendered their performance has no responsibilities to the other party arising out of contractual non-performance arising as a result thereof.

Should you require any legal support relating to commercial law or drafting/ reviewing a sale & purchase contract then please contact us at Dharmniti Law Office Co., Ltd. 2/2 Bhakdi Building 2nd Floor, Witthayu Road, Lumphini, Pathumwan, Bangkok 10330 Tel: (66) 2680 9777 Fax: (66) 2680 9711 Email: ryan@dlo.co.th or info@dlo.co.th