In civil transactions (contracts), there are always provisions on damage compensation in cases that one party breaches its contractual obligations, it is called compensation for damages in civil contracts. In this article, NPLaw will help you better understand this important concept and legal regulations on compensation for damages in civil contracts.

I. What is compensation for damages in civil contracts?

Compensation for damages is a form of civil liability that requires a party causing harm to remedy consequences to the other party by compensation for material and mental losses. Liability for material losses is the responsibility to compensate for actual material damages, calculated in money, including property losses, costs to prevent and limit damage, or actual lost or reduced income. 


For civil contracts, compensation for damages arises when a contractual breach causes harm. The breaching party is legally required to compensate for the financial and emotional damage suffered by the non-breaching party.

II. Difference between civil contract damages and non-contractual damages

Legal basis: Civil Code 2015 of Vietnam

Similarities

  • Both are a form of civil liability to ensure that the breaching party must remedy the consequences for the non-breaching party.
     
  • Both require:
    + Actually damage.
    + A causal relationship between the harmful act and the damage.
    + The parties’ agreement on the method and amount of compensation.

Differences

Criteria

Civil contract damages

Non-contractual damages

Basis 

Based on contractual rules; 

 

Liability only arises when there is a breach of obligations under such a contract.

Liability arises from an unlawful civil act that causes harm to another person intentionally or unintentionally, regardless of any contract between the parties.

Requirements of liability 

Actual damage is not required; 

 

Liability may arise simply from a breach of contractual obligations, regardless of damage.

 

It requires actual damage, an unlawful act, causation, and fault.

Nature of the act

Breach of agreed contractual terms or obligations.

Violation of general legal provisions regulated by the State (e.g., administrative violations, criminal offenses).

 

Method of compensation

Parties can agree on the compensation amount or fines at the time of contract formation.

Compensation must cover all direct and indirect damages; parties may not even know each other prior to the incident, making prior agreement impossible.

Requirements for fault 

It arises from intentional or unintentional fault of the breaching party (unless otherwise agreed).

Fault is not always required if the law stipulates strict liability.

 

Accordingly, a person who commits the violation may be held responsible even if such a person is not at fault in cases where the law provides.

 

Time of arising

From the time the contract becomes effective and a breach occurs.

From the time the harmful act takes place.




 

Compensation level

It can be lower or higher than the actual damage if agreed by the parties.

It must cover all actual damage, with reductions allowed only in exceptional cases.

III. Current situation of compensation for damages in civil contracts

In recent years, contract disputes have accounted for a significant proportion of civil cases. Courts have improved their facilities and expertise, resolving many cases effectively and protecting the rights of the parties involved.


However, several challenges remain:

  • There are the four conditions of liability: breach, fault, actual damage, and causation.
  • The Court's declaration of a contract as invalid or valid is extremely important and requires accuracy to ensure the legitimate rights and interests of the parties.
  • Many individuals and businesses still lack legal awareness, leading to disputes.

IV. How to avoid compensation for damages in civil contracts

To minimize risk:

  • Complying strictly with the terms and guarantees in the contract.
  • Negotiating clear agreements about compensation methods, amounts, and conditions in advance.

If no agreement is made, statutory rules will apply, typically requiring full compensation for actual damage.

V. Cases where civil contract liability is exempted

There are three main cases where civil liability for damages may be excluded:

1. Force majeure (unforeseeable circumstances)

  • The event occurred objectively and could not be foreseen or prevented, even with all necessary measures.
  • There must be a causal connection between the event and the breach.
  • The obligor must have attempted all reasonable measures to mitigate the damage.

2. Fault of the non-breaching party

  • If the breaching party proves that the inability to perform its obligations was entirely due to the fault of the other party, they are exempt from liability.

Example: The seller is not liable for damage if the buyer’s own fault caused the loss.

3. Contractual agreement on exemption

  • The parties can agree in advance to waive liability under certain conditions not contrary to law.
  • It reflects the principle of freedom of contract in civil law.

VI. Questions on compensation for damages in civil contracts

1. How is compensation implemented in civil contract damages?

  • The parties can agree on the compensation amount or fines when signing the contract.
  • Payment of damages does not release the breaching party from performing their original obligations.

2. What role does fault play in determining liability?

  • Liability arises from either intentional or unintentional fault, unless otherwise agreed or provided by law.
  • In cases where damage is caused by property (e.g., an animal or equipment), fault is not required if the other conditions (damage, unlawful act, causation) are met.