General rules for making a contract in Mongolia
1) What mandatory elements must a contract between two residents contain?
A contract between two residents must contain the essential terms agreed upon by both parties. Essential terms are terms required by law or necessary based on the nature of the contract, as well as any conditions proposed by one party and accepted by the other. For example, in a sale and purchase contract, the price is an essential term; therefore, if it is missing or stated inconsistently, there is a risk that the contract may be considered invalid.
2) Is notarization or state registration required for B2B contracts?
Under Mongolian law, notarization or state registration is generally not required for B2B contracts between private entities for commercial purposes. However, certain contracts required by law, such as share sale and purchase agreement, immovable property lease agreement must undergo notarization and state registration to be legally effective.
3) What are the general requirements for the form and language of a contract between residents?
Under Mongolian law, a contract between residents must generally be made in written form if required by law or agreed upon by the parties—including agreements related to immovable property leases—and may be executed electronically using valid electronic signatures. While the parties may agree on the contract language, a certified Mongolian translation is always required for official or legal use.
4) What are the consequences of non-compliance with the written form of a contract?
If a contract that is required by law to be in writing is not concluded in this form, it shall be considered an invalid contract. As a consequence, the parties shall be obliged to return to each other all items transferred under the contract, or, if this is not possible, to pay their value.
5) What specific rules apply when contracting with public authorities or state customers?
When contracting with the state or state customers, the principle of competitive selection generally applies. For example, the procurement of goods, works, or services using state or local government property, the establishment of public-private partnerships, and agreements for the use of state-owned land all follow this principle.
6) What are the requirements for performance and modification of contracts?
The principle of fair performance of obligations applies to contracts. Specifically, the parties must fulfill their contractual duties at the agreed place and time, properly and fairly. For ensuring performance of the agreement, a penalty can be applied as liability to the agreement. As well as bank guarantee or affiliate party’s guarantee can be used as full or proper performance guarantee. If any amendments are to be made to the contract, the procedures specified in the contract and by law must be followed.
7) What are the requirements regarding currency and payments in contracts with non-residents?
The price of goods, work, and services within the territory of Mongolia shall be expressed only in the national currency and payment shall be made in that currency. If a foreign citizen is within the territory of Mongolia, they shall make payment in the national currency. This does not apply to electronic transactions made from abroad.
8) Can foreign law be chosen to govern a contract and what are the restrictions?
Yes, parties to a contract can choose the law of a foreign country to govern their rights, obligations, and the consequences of non-performance. However, if the chosen foreign law contradicts the legal provisions designated for the contract, it will be considered invalid, and in the absence of a choice, the law of the country of the relevant party’s residence or main place of business will apply.
9) What are the requirements for registration and reporting of cross-border contracts?
Engaging in cross-border contracts in Mongolia necessitates adherence to specific registration and reporting requirements, especially when establishing foreign-invested entities or entering into foreign exchange contracts. Compliance with Mongolian laws, including those governing taxation, accounting, and foreign currency operations, is essential to ensure the validity and enforceability of such contracts.
Authors: Bolormaa Volodya, Enkh-Uchral Khurelbaatar
