CONTRACTS

The effect of an MOU must be assessed clause by clause. Six types of provisions are usually binding when drafted in sufficiently specific terms: confidentiality, exclusive negotiations, cost sharing, contractual penalties, jurisdiction and governing law, and dispute resolution. If either party fails to comply with such a provision, the other party may seek to enforce it. Three other types of provisions are generally non-binding: the purpose of the cooperation, terms of a future transaction, and the proposed timetable. The title of a document does not by itself determine its legal effect. Even if a document is titled a letter of intent, a court may still treat it as a binding contract if its terms are sufficiently specific, definite, and capable of performance. Foreign companies that treat an MOU as a done deal and commit resources too early face two risks: the costs already incurred may not be recoverable, and the early commitment may weaken their position in subsequent negotiations.

Taiwanese courts consider each document on its own terms and in light of its particular circumstances. A court will not treat a document as non-binding simply because it is called an MOU. The key question is whether the parties have set out the most important terms of the contract clearly and completely, whether those terms are sufficiently specific to allow the parties to begin performing their obligations under the document without first entering into a further definitive agreement, and whether the parties intended to be bound by the contract. If the answer is yes, the MOU may already constitute a binding contract. It is therefore important to draw a clear line between binding commitments and statements of general intent. Making extensive commitments before the terms of the cooperation have been settled may lead a company to commit resources prematurely. If the transaction ultimately falls through, the personnel costs, time, and other expenses already incurred are, as a matter of law, almost never recoverable from the other party. The early commitment may also give the other party additional leverage in negotiations over the definitive agreement, allowing it to press for less favorable terms, such as a smaller share of the profits or more onerous provisions governing breach. To avoid losing the resources it has already committed, the company often has little choice but to compromise.

When entering into an MOU, pay particular attention to the following types of provisions. If the MOU has already been signed, use this checklist to assess your exposure. 1. Six types of provisions are usually binding. Check each one: is it there, and if it is, is it specific enough? (1) A confidentiality provision defining the scope of the confidential information, the duration of the obligation, and the consequences of a breach. (2) An exclusivity provision clearly stating that, for a specified period, the seller may not negotiate with any third party. (3) A cost-sharing provision, for example “if the proposed cooperation does not proceed, the two sides share the preparatory costs equally”. (4) A penalty provision specifying a punitive contractual penalty for the breach of a particular obligation, that is, an amount payable in addition to compensation for the loss. (5) A jurisdiction and governing law provision stating which country’s or region’s law applies to a future dispute and which court will have jurisdiction. This provision takes effect on the procedural side of any litigation. (6) A dispute resolution provision setting out how the parties will resolve a dispute through negotiation, mediation, arbitration, or litigation. 2. Three other types of provisions are generally non-binding. Do not treat them as a basis for committing further resources: the purpose and general intent of the cooperation, terms of a future transaction (price, quantity, and delivery dates), and the proposed timetable. 3. If additional resources will be committed before the definitive agreement is signed, check for two further provisions: a mechanism for reimbursing pre-contract costs and termination rights tied to defined stages or milestones. These provisions help allocate the commercial risks arising during the interim period. If the MOU is intended to govern the parties’ current performance obligations, its terms must be specific, definite, and capable of performance. Case: Company A was preparing to bid for a construction project and approached Company B about its products and services. Company B sent Company A a quotation together with an MOU, which was signed by one of Company A’s managers. Company B subsequently argued that a contract had been formed upon execution of the MOU. The Taiwanese court based its decision on the specific wording of the MOU. The document stated that Company A committed to using the products and services provided by Company B, and that Company A must not disclose materials provided by Company B to other suppliers. The court therefore treated the document as a letter of intent setting out the parties’ intention to cooperate and their confidentiality obligations. As for price, the parties had not reached an agreement, and the notes section of the quotation stated that it would become a formal order only after it had been confirmed, countersigned, and returned, which Company A never did. The court therefore concluded that neither party owed the other any enforceable obligation.

It may already have been formed. In Taiwan, a contract may be formed once the parties have agreed on its essential terms. There is no need to wait until the company's official seals, commonly referred to as company chops in Taiwan, have been affixed. A court considers two elements. First, whether one party made a sufficiently specific and definite offer with the intention of being bound, that is, whether the party clearly proposed the terms and intended to be bound by them. Second, whether the other party accepted those terms unconditionally and without reservation. If an email specifies the quantity, price, and delivery date and the other party replies “OK,” a court may well find that a contract has been formed. The assumption that “no company seal means no legal liability” is often mistaken in Taiwan. If there is evidence that the email was sent by an authorized representative and the parties reached agreement on the essential terms, a court will generally find that a contract has been formed.

When deciding whether a contract has been formed, Taiwanese courts focus primarily on whether the parties reached mutual agreement, rather than on whether there is a written document or an official company seal. An official seal is not required for contract formation. Even where the other party never replies but takes delivery and pays the next day, a court treats that conduct as acceptance, and under Article 153 of the Civil Code a contract may nevertheless be formed. The stage reached in the negotiations determines how the document may be characterized. If all essential terms have been agreed, a court may treat the document as the definitive agreement, even if it is labeled a letter of intent or is contained in a single email. If only some terms have been agreed and important matters such as the subject matter and price remain open, the document may be treated only as a preliminary agreement. At that stage, neither party may require the other to perform the obligations contemplated by the definitive agreement. If even the essential terms remain unsettled, the document will generally have no binding effect.

Use the following checklist to review the email exchange. 1. First determine whether a contract has been formed. (1) Did one party make a sufficiently specific and definite offer with the intention of being bound, for example “I will sell 100 units of item A at NT$100 each, delivery on [date]”? (2) Did the other party accept those terms unconditionally and without reservation, for example “Agreed. Please proceed on that basis.”? If the exchange goes no further than asking “would you be willing to sell?” and the reply is “we could consider it”, that is only an invitation to make an offer and no contract has been formed. But where the quantity, price, and delivery date are set out and the other party replies “OK,” a court may well find that a contract has been formed. 2. Next, check whether a contract was formed through the parties’ conduct. One party sends an email stating, “We will deliver 100 units to your company tomorrow at NT$100 per unit.” The other party does not reply but accepts delivery and makes payment the following day. That conduct amounts to acceptance, and under Article 153 of the Civil Code a contract may nevertheless be formed. 3. If you do not want to be bound yet, include one or more of the following four safeguards in the correspondence. In English-language contract practice, wording of this kind is commonly described as “subject to contract,” meaning that no binding agreement is intended until a formal contract has been signed. (1) Set a condition precedent, so that the contract is formed only once that condition is met. State in the email or the preliminary agreement that “no contract is formed until both parties have signed a written contract and affixed their company seals”. (2) Reserve final approval, by stating in the proposal or the reply that head office or a named manager has to approve it. The email is then treated only as an invitation to make an offer rather than as an offer. (3) Add a reservation clause, by stating in the automated acknowledgement or individual response to an order that “receipt of an order merely confirms that it is being processed and does not amount to acceptance of the order”. (4) Expressly state in advance that you do not intend to be bound. Under Article 154 of the Civil Code, an offeror may state when putting forward the terms that they do not intend to be bound, thereby preserving room for further adjustment. Case: The chief executive officer of Company A signed a letter of intent for a sale on behalf of the company. Because he had not brought the company's official seals, he signed only in his own name. After signing, he remained there and waited. The seller signed the letter of intent later that day, agreeing to sell on the stated terms and confirming receipt of the deposit. The parties also agreed to sign a formal contract within five days. Company A later backed out of the transaction, arguing that no contract had been formed because the company seals had not been affixed. The court found that the executive had acted as an undisclosed agent for Company A. Although he did not expressly state that he was signing on behalf of the company, he was in fact acting as its representative, and the other party knew or could reasonably have understood that he was acting on the company’s behalf. The parties had reached agreement on the subject matter and price at the meeting. The court therefore found that a contract of sale had been formed under Article 153 of the Civil Code and that affixing the company seals was not required.

Both methods are valid in Taiwan. The difference lies not in whether a contract is formed, but in which party bears the burden of proof if a dispute arises. In some countries, signing a contract and proving its authenticity are treated as part of the same act: the contract is formed upon signature, and the same signature later serves as evidence. In Taiwan, contract formation and proof are treated as separate matters. A contract is formed once the parties agree on its essential terms, without the need to wait for a signature or seal. Signatures, company seals, and electronic signatures mainly serve an evidentiary function when a dispute arises. The practical question is therefore not simply whether an electronic signature is valid in Taiwan, but how much it helps a party meet its burden of proof. Following the 2024 amendment, two methods allow a court to directly presume that a document is authentic: company seals registered with the Ministry of Economic Affairs, commonly referred to as company chops in Taiwan, and institutionally certified electronic signatures, known as digital signatures. Other forms of electronic signature remain valid, but if one party challenges the document's authenticity, the party relying on it must prove that it is genuine.

Before 2024, this presumption was available only for registered company seals. An electronically signed contract could still be valid, but in the event of a dispute, the party presenting the document had to prove both that the other party had agreed to use electronic signatures and that the signature had in fact been made by the identified signer. The 2024 amendment to the Electronic Signatures Act changed two things. First, digital signatures now carry a certain degree of evidentiary weight. A digital signature is an electronic signature with an additional identity-authentication mechanism: a certification authority verifies the signer's identity and issues a digital certificate, thereby authenticating the signer when the signature is applied. Under Article 6, the certificate must meet two conditions: it must be issued by a certification authority approved by the competent government authority, and it must still be within its validity period and scope of use. A document signed with such a digital signature is presumed by the court to have been signed personally by the signer, and the party denying it bears the burden of proof. Second, prior consent is no longer required before electronic signing is used. Under Article 5, advance notice is now sufficient: the party wishing to use electronic signing must notify the other party and allow a reasonable period for objection. If no objection is made, the parties may proceed electronically. Foreign businesses often have two opposite misconceptions about company seals in Taiwan. One is that no contract can be formed without the company seals. The other is that a contract is necessarily valid once the seals have been affixed. Both assumptions are mistaken. Affixing a seal is simply one means of proving that a document is authentic.

1. For high-value or long-term contracts, take one additional step before signing: ask the other party for a copy of its company registration or amendment registration form and confirm that the seals affixed to the contract match the registered seals. Because those seals may later serve as evidence, verifying them helps protect your position. 2. If you sign online, you must verify the validity and status of the certificate behind the electronic signature. Most cloud signing platforms provide ordinary electronic signatures. These signatures may be valid, but in the event of a dispute the burden of proof rests on you. To obtain the benefit of the presumption, the signature must be backed by a qualified digital certificate, such as a government-issued business certificate or Citizen Digital Certificate, and these methods generally involve more cumbersome procedures. Whether certificates issued through overseas electronic-signature platforms are recognized in Taiwan must be assessed case by case. 3. Most commercial contracts can be signed electronically. Certain documents are expressly excepted by law, including some documents used in judicial proceedings. If the other party insists on a paper contract bearing company seals, first determine whether this is a legal requirement or merely a business custom. If the law requires it, comply; if it is a matter of custom, it may be negotiated. Once agreed, record the arrangement in writing, for example by stating in the contract or quotation that the parties may execute or confirm the contract by electronic signature or email reply. 4. If the returned contract bears only a uniform invoice stamp, treat this as a warning sign. The stamp is generally used for tax purposes, including the issuance of invoices, and is not the company's official seal for executing contracts. The concern is not that the contract is automatically invalid: courts have found contracts bearing only an invoice stamp to have been validly formed (see the case below). The real issue is that the stamp may leave room for disputes over whether the person who used it was duly authorized, whether the company was validly represented, and whether the contract binds the company, questions that may ultimately have to be decided by a court. Accepting a contract stamped only with a uniform invoice stamp is not advisable. A better approach is to affix the company's official seals to the main contract while agreeing that, for convenience, the annexes may bear the uniform invoice stamp. Case: A company and its client negotiated a service engagement through a quotation. The client affixed its uniform invoice stamp to the quotation and returned it, then later argued that the stamp merely acknowledged receipt of the document and that no agreement had been reached, resulting in a dispute and additional costs. The court ultimately found that a contract had been formed. It reasoned that the notes section of the quotation expressly stated that confirmation by handwritten signature, electronic signature, or email reply would constitute valid acceptance. The invoice stamp was also genuine, and the party that had affixed it subsequently asked the other party to perform. The court further noted that, in commercial dealings, a party may not wait until litigation and then rely solely on having used the wrong stamp to argue that no contract was formed.

Not necessarily. For a commercial contract to bind a company in Taiwan, the person signing the contract or affixing the company seals must have authority to act on the company's behalf. Under Taiwan law, the chair of the board represents the company in dealings with third parties. A vice president must be authorized by the company before entering into a contract on its behalf. Taiwan business practice also makes use of a device that is less common in Western countries: company seals registered with the government, commonly referred to as company chops. When the registered seals are affixed to a contract, the document is presumed to have been executed by the company, and the party relying on it has one less evidentiary hurdle. However, a company seal is not itself proof of authority. The central question remains whether the individual who signed the contract or affixed the seals was duly authorized by the company.

Taiwan court practice is relatively protective of foreign counterparties that are unaware of a company's internal irregularities. Because outsiders cannot readily observe internal approval procedures, courts tend to treat transactions entered into by the chair on the company's behalf as effective, provided that the counterparty was unaware of any defect. Internal restrictions that a company places on the authority of its chair or its senior executives, such as a requirement for board approval above a specified amount, generally cannot be asserted against an outside counterparty that had no knowledge of them. However, a company is not always bound. Three situations require particular care. First, the person signing may have had no authority from the outset. If a person without authority uses the company seals without permission, the company may assert that it is not bound. Second, some transactions expressly require a formal internal resolution. If the required resolution has not been obtained, the contract may not take effect against the Taiwan company. The transactions falling within this category are described in point 1 below. Third, although the signer may be the chair, the transaction may fall entirely outside the company's scope of business. Even where the chair personally signs or affixes the seals, the company may still refuse to be bound if a shareholders' resolution required by law is missing, as illustrated by the Supreme Court case below.

If you are unsure whether the person signing the contract has full authority, use the following checklist. 1. If the contract involves an exceptional transaction, first ask whether the other party has obtained the necessary internal approval. Before entering into a major transaction, a Taiwan company must obtain a resolution from its board of directors or its shareholders, and only then does the signer have authority to sign on the company's behalf. A transaction may fall within this category if it involves a large amount, falls outside the company's ordinary course of business, or could even undermine the company's foundations. Examples include guaranteeing another party's debt, transferring the company's principal business or major assets, establishing a joint venture, and assigning core patents or trademarks. Where your contract falls into that category, ask the signing representative to produce the resolution before you sign. 2. Next, confirm that the person signing the contract has authority to represent the other company. If the signer is a senior executive, such as a vice president or a general manager, ask the company to provide documents establishing that authority. These may include the articles of incorporation, a board resolution, or a power of attorney. A business card, a job title, and the individual's own statement that the chair has granted full authority do not count as a basis. In a dispute of this kind, the question a judge asks is what the Taiwan company did to give you a reasonable basis for believing that the individual could sign on its behalf. One example would be the chair attending the signing together with that individual. If the company did nothing of that kind, your reliance has no objective basis, and the court will not hold that company responsible for the signature. 3. If the other party affixes the set of company seals registered with the Ministry of Economic Affairs, you benefit from a presumption that the company executed the contract, which reduces your evidentiary burden if a dispute arises. However, the presumption concerns only whether the seals belong to that company. It does not establish that the individual who signed or affixed them was authorized to do so. For a transaction of significant value, obtain both forms of documentation: a contract bearing the registered seals, and either the resolution described in point 1 or the authorization document referred to in point 2. Case: Acting on behalf of Company A, the chair of the board entered into a contract with Company B for the sale of a factory and its equipment. The transaction involved the sale of the entire factory and all related equipment, and therefore constituted a transfer of major assets for which a prior shareholders' resolution was required. Company A had not obtained one. After the contract was signed, Company A sought to withdraw from the transaction, arguing that the chair lacked authority to represent the company in this particular matter and that the contract was not binding. Company B argued that it had been entirely unaware of the problem, had not been negligent, and should therefore be protected. The Supreme Court ultimately accepted Company A's position. The protection invoked by Company B applies to a different situation: a company allows a person without authority to appear authorized, an outsider relies on that appearance, and the company is then held responsible for that person's actions. The chair did not fall within that category. As chair of the board, the signer already had general authority to represent the company in dealings with third parties. In other words, the chair's authority to represent the company was conferred directly by law rather than separately granted by the company. Accordingly, even if Company B was unaware of the defect, it could not require Company A to bear the responsibility of a principal on that basis.

A: The parties may make that choice, but this combination creates a preliminary dispute over which country's law applies, before they even reach the substance of the contractual dispute. The law governing the interpretation and application of a contract is known as its governing law. In Taiwan, the parties are free to choose it: Taiwan law, the law of the foreign party's home jurisdiction, or the law of a neutral third jurisdiction may all be selected. Even if a foreign company operating in Taiwan selects the law of its home jurisdiction, a dispute may still be heard by a Taiwan court. A Taiwan judge will not research foreign law on the court's own initiative. The party relying on foreign law must establish, at its own expense, the existence and content of that law. If it fails to do so, the court may ultimately decide the case under general principles of law or under Taiwan law. The parties should therefore settle two matters together when entering into the contract: which law will govern the contract, and where disputes will be resolved.

If a contract contains no governing law clause, the applicable law is determined by the court rather than by the parties. A Taiwan court does so by identifying the law most closely connected with the contract. As a general rule, the court identifies the party responsible for the characteristic performance, that is, the performance that principally defines the contract, and presumes that the law of that party's location applies. In a distribution agreement, for example, the distributor's obligations to sell within a specified territory, such as Taiwan, and to pay the purchase price may be treated as the characteristic performance, so the court may apply the law of the distributor's place of business, Taiwan law in this example. Governing law and the forum for dispute resolution may be specified separately, but separating them is costly. Consider a contract governed by U.S. law with disputes litigated before a Taiwan court: the judge must first determine the content of U.S. law from the materials the parties submit, and then apply that law to the dispute. The proceedings take considerably longer, and the outcome becomes much harder to predict. Two matters are not affected by the parties' choice of governing law. First, certain provisions of Taiwan law, including the Labor Standards Act, cannot be contracted around. Second, the authority of the person signing on behalf of the counterparty follows the law of the place where that company is registered. If the counterparty is a Taiwan company, Taiwan law governs that question. An arbitration clause provides an additional safeguard. The contract may state that, instead of litigating in court, the parties will submit future disputes to a mutually selected arbitral institution. The validity of that clause is assessed separately from the other provisions of the contract. Even if the contract as a whole is later held invalid, the arbitration clause remains effective, allowing the parties to submit the dispute to arbitration as agreed.

1. Do not leave out the governing law clause. If the contract is silent, the court determines the applicable law, creating a risk that is difficult to manage. 2. As far as the terms allow, align the forum for dispute resolution with the governing law. If the contract is governed by Taiwan law, provide for the jurisdiction of the Taiwan courts; if it is governed by Singapore law, provide for arbitration in Singapore. 3. Choose between Taiwan law and the law of your home jurisdiction by weighing the advantages against the disadvantages. Advantages of choosing Taiwan law: (1) for contracts performed in Taiwan, the legal environment is stable and legal review costs are relatively low. (2) If a dispute proceeds to litigation, a Taiwan judge can apply Taiwan law directly, without requiring the parties to establish the content of foreign law. One disadvantage is that a foreign party may be unfamiliar with the details of Taiwan law. Rights relating to warranties for defects, that is, the right to hold the other party responsible when the goods purchased turn out to be faulty, are subject to a shorter exercise period in Taiwan, unlike the longer limitation periods available in some jurisdictions. Advantages of choosing the law of your home jurisdiction or of a neutral third jurisdiction: (1) greater predictability. (2) The law of a third place is often perceived as impartial. The disadvantage is that, in proceedings before a Taiwan court, the party relying on foreign law bears the substantial cost of establishing its existence and content. If that party cannot establish them, the court may ultimately decide under Taiwan law. Case: A foreign company entered into a distribution agreement with a distributor in Taiwan. The parties agreed on the terms by email and began performing their respective obligations, but the written agreement omitted a governing law clause. A dispute later arose over payment and alleged defects. The foreign company argued that the law of its home jurisdiction, which provided a longer period for bringing claims, should apply, while the Taiwan distributor argued for Taiwan law. The court found that the principal obligations under the agreement consisted of the distributor's sales activities in Taiwan and its payment of the purchase price. It therefore found Taiwan to be the jurisdiction most closely connected with the agreement and presumed that Taiwan law applied. In the end, the six-month period for bringing warranty claims under Taiwan law had expired, and the foreign company could not claim damages.