Demystifying Contract Laws: A Guide for Businesses

• Understanding the backbone of business transactions, contracts provide a legal framework ensuring all parties fulfil their obligations.
• Thai contract law is governed by the Thailand Civil and Commercial Code and other relevant statutes.
• Key clauses in business contracts such as confidentiality, non-compete, dispute resolution, termination, force majeure, and governing law help protect business interests.

As for all those working in a business will know, contracts are the backbone of business transactions, providing a solid legal framework that ensures that all parties to a contract will fulfil their obligations.

To ensure business interests are protected, it is crucial that businesses operating in Thailand understand contract law to ensure they avoid legal pitfalls and ensure smooth operations.

Experts at WSR International have drafted this guide to ensure that businesses understand the basics of contract law, offering businesses the knowledge they need to create, interpret, and enforce contracts effectively.

Laws governing contracts in Thailand

As Thailand is a civil law country, the vast amount of contract law is governed by statute. For example, contract law in Thailand is primarily governed by the Thailand Civil and Commercial Code (the “CCC”).

The general principles of Thai contract law can be found in Sections 354 to 394, of the CCC, which govern the general principles of contracts, including the notions of offer and acceptance, consideration, and the parties’ intention to create a business relationship.

For specific types of contracts, i.e., leases, sales, and guarantees, the relevant sections can be found in Sections 453 to 1011 of the CCC.

While the CCC is the primary statue governing contract law in Thailand, there are other laws in Thailand that concern contracts, including the Unfair Contracts Term Act, B.E. 2540.

Understanding the basics of contract law

In essence, a valid contract is a legally binding agreement between two or more parties to said agreement.

In most cases for a contract to be valid, it must contain the following legal elements:

• Offer and Acceptance: A party to a contract must make an offer, while another party accepts the offer.
• Consideration: To ensure a contract is valid, there must be something of value exchanged between the parties to the contract.
• Intention to Create Legal Relations: By signing and entering the contract, the parties must intend for the agreement to be legally binding.
• Capacity: Each party to the contract must possess the legal capacity to enter the contract.
• Legality: The purpose of the contract must be legal.

Key Clauses in Business Contracts

For businesses entering a contract, they should be aware of certain requirements that will enable them to protect their commercial interests.

• Confidentiality Clause: Inclusion of a confidentiality clause ensures that parties to a contract do not disclose sensitive information.
• Non-Compete Clause: Prevents one party from competing with the other for a specified period.
• Dispute Resolution Clause: If it is necessary for the parties to a contract to enter into a form of dispute resolution, the dispute resolution clause will outline the method for resolving disputes, such as arbitration or mediation, and where the form of dispute resolution will take place, i.e., Thailand, Hong Kong, Singapore.
• Termination Clause: If the contract needs to be terminated for whatever reason, a termination clause will specify the permissible conditions.
• Force Majeure Clause: A force majeure clause will permit parties to seek redress if they cannot fulfil their obligations due to unforeseen events that are beyond their control.
• Governing law: In most contracts, it will state the governing law of the contract, i.e. Thailand, England and Wales, New York, etc.

Common Pitfalls in Contract Law

To ensure businesses protect their commercial interests, the team at WSR International suggests that parties to a contract consider the following:

• Ambiguity: Avoid entering contracts that contain vague or unclear terms.
• Failure to Read the Contract: Always take the time to read and understand every element of contract. If you are in doubt, seek legal advice.
• Breach of Contract: If you fail to comply with your contractual obligations, this will result in legal action and potential damages. Thus, a business must be sure that they have the necessary capacity to enter a contract.

Concluding remarks

Contracts are essential to business transactions, providing a solid legal framework that ensures all parties fulfil their obligations.

For businesses in Thailand, understanding contract law is vital to avoid legal pitfalls and ensure smooth operations.

Familiarity with the Civil and Commercial Code and other relevant statutes is crucial, as is the importance of clear terms, thorough understanding, and seeking legal advice when necessary.

For any further enquiries on laws concerning contracts in Thailand, please do not hesitate to reach out to the team at WSR International.