Remedial consequences when there is a breach of contract

Article overview

Remediate consequences when a breach of contract plays a key role in protecting the interests of all parties. Understanding and properly applying these measures will help customers effectively handle disputes when disputes arise, ensuring legitimate interests in commercial transactions. The following article by Long Phan will analyze in detail the remedies for contract violations according to Vietnamese commercial law.

Instructions on how to overcome contract violations
Instructions on how to overcome contract violations

Understand what a breach of contract is

Pursuant to Clause 12, Article 3 of the Law on Commercial 2005, breach of contract is an act of failure to perform, incomplete or improper performance of obligations as agreed between the parties or according to the provisions of this Law.

In addition, a breach of contract can occur due to a subjective or objective error of one party that affects the rights of the other party in the contract. To determine a breach of contract, it is necessary to compare the actual conduct with the agreed obligations. A violation may be failure to perform, improper or incomplete performance of an obligation.

Regulations on breach of contract
Regulations on breach of contract

Common cases of breach of contract

Violations of contracts often occur by the contracting party or during the contract implementation process. Some common violations include:

  • The subject fails to fulfill the committed obligations and responsibilities without a legitimate reason such as: failure to pay on time, failure to deliver goods on time…
  • The subject received benefits but did not fulfill his obligations such as: receivìng goods but did not pay…
  • Incomplete or incorrect performance of your obligations such as: delivery of goods lacking in quantity, not meeting the committed quality…
  • Violation of form and authority to enter into contract. For example: the signer is not competent and does not follow the prescribed form.
  • The subject of the contract violates the law. For example: buying and selling prohibited goods.

Remedial measures when there is a breach of contract

When a breach of contract arises, the top priority is to maintain a cooperative relationship and find a solution that benefits both parties. The parties should proactively discuss and negotiate to determine the cause of the violation and propose appropriate solutions. In many cases, adjusting some contract terms or extending the implementation period can resolve the problem without the need for sanctions.

However, if an agreement cannot be reached through negotiation, the parties may consider applying remedies according to the provisions of law. And there are 6 main measures to fix it. Specifically, Long Phan will analyze each of the following measures in detail.

Compulsory performance of the contract

Legal basis: Article 297 of the Law on Commercial 2005.

  1. Conditions apply:
  • There is a breach of contract by one party;
  • Violations are not subject to liability exemption under Article 294 of the Law on Commercial 2005.
  1. Content:
  • The violating party must comply with the obligations committed in the contract;
  • Cannot be replaced with other goods or services without the consent of the violating party;
  • Defects in goods, and deficiencies in services must be eliminated, alternative goods must be delivered and services must be provided in accordance with the contract.

Penalties for violations

Legal basis: Article 300 of the Law on Commercial 2005

  1. Conditions apply:

To impose a penalty, the following conditions must be met:

  • There is a breach of contract;
  • There must be an agreement on penalties for violations in the contract;
  • Violations are not subject to liability exemption under Article 294 of the Law on Commercial.
  1. Content:
  • If it is a commercial dispute, the penalty will be agreed upon by the parties but must not exceed 8% of the value of the violated contractual obligation.
  • In addition, the parties can agree that the party violating the obligation must only pay a penalty for the violation without having to pay compensation for damages or must both pay a penalty for the violation and pay compensation for damages (specified in Clause 3 Article 418 of the Civil Code 2015).

Forced to compensate for damages

Legal basis: Article 303 of the Law on Commercial 2005.

  1. Conditions apply:

To apply this form, the following conditions must be fully met:

  • There is a breach of contract;
  • Actual damage occurred;
  • There is a cause and effect relationship between the violation and the damage;
  • Violations are not subject to liability exemption in Article 294 of the Law on Commercial.
  1. Content:
  • Compensation value includes the actual loss value and lost direct profits;
  • The requesting party must prove the damage and the extent of the damage;
  • The aggrieved party must apply reasonable measures to limit the loss.

Temporarily suspend contract performance

Legal basis: Article 308 of the Law on Commercial 2005.

  1. Conditions apply:
  • The occurrence of a violation that the parties have agreed upon is a condition for suspension;
  • One party fundamentally violates its contractual obligations, causing the other party to fail to achieve the purpose of entering into the contract;
  • Violations are not subject to liability exemption in Article 294 of the Law on Commercial 2005.
  1. Content:
  • The contract remains in effect during the suspension period;
  • The suspending party must immediately notify the other party. If failure to notify immediately causes damage to the other party, the party that temporarily suspends the performance of the contract must compensate for the damage (stipulated in Article 315 of the Law on Commercial 2005);
  • The violated party has the right to request compensation for damages at the same time as suspending the performance of the contract.

Suspension of contract performance

Legal basis: Articles 310, 311, 315 Law on Commercial 2005.

  1. Conditions apply:
  • The occurrence of a violation as agreed upon by the parties is a condition for suspending the contract;
  • One party fundamentally violates contractual obligations;
  • Violations are not subject to liability exemption in Article 294 of the Law on Commercial 2005.
  1. Content:
  • The contract terminates from the moment one party receives the notice of suspension. In case failure to notify immediately causes damage to the other party, the party that suspends the performance of the contract must compensate for the damage;
  • The parties do not have to continue to perform their contractual obligations;
  • The party that has performed the obligation has the right to request payment or performance of the reciprocal obligation;
  • The violated party has the right to request compensation for damages at the same time as applying sanctions to suspend the performance of the contract.

Cancel contract

Legal basis: Articles 312, 313, 314 Law on Commercial 2005.

  1. Conditions apply:
  • The occurrence of a violation that the parties have agreed upon is a condition for cancellation;
  • One party fundamentally violates contractual obligations;
  1. Content:
  • The contract is not effective from the time of conclusion;
  • The party canceling the contract must immediately notify the other party of the contract cancellation. In case failure to notify immediately causes damage to the other party, the party canceling the contract must compensate for the damage (specified in Article 315 of the Law on Commercial 2005);
  • The parties do not have to continue performing their obligations as agreed, except for the agreement on rights and obligations after contract cancellation;
  • The parties reimburse each other for what they have received;
  • The violated party has the right to request compensation for damages.

Therefore, each remedy for breach of contract has its own application conditions and legal consequences. Choosing the appropriate measure should be based on the nature and extent of the violation and actual damage. However, the parties should prioritize negotiation and conciliation to reach a solution that benefits both parties before applying coercive measures.

Remedial measures when there is a breach of contract
Remedial measures when there is a breach of contract

Consulting and instructions on how to handle when one party violates the contract

Long Phan’s legal support and consulting services provide comprehensive solutions to issues related to breach of contract. Long Phan’s experienced team will analyze specific situations, propose appropriate solutions and represent and protect customers’ rights.

Consulting and support services at Long Phan include:

  • Consulting on drafting and reviewing contracts.
  • Advise on appropriate contract dispute resolution.
  • Representing customers with the opportunity to participate in dispute resolution negotiations.
  • Consulting on strategies for handling contract violations and minimizing legal risks.

Understanding and properly applying remedial measures when there is a breach of contract will help customers protect their rights and maintain effective business relationships. To effectively handle contract violations, customers should immediately contact Long Phan via the hotline 0906735386 to receive in-depth advice and receive the optimal solution for their problem.