THE RESPONSIBILITIES IN UNILATERAL TERMINATION OF A CIVIL CONTRACT ACCORDING TO THE VIETNAM LAW

Civil contract means the agreement between parties in establishments, adjustments (changes), or terminations of civil rights and obligations. Besides the validity of contracts, the ability of contract performance is also an essential problem. Thus, when does the civil contract terminate? Do parties have the right to perform a universal termination of a civil contract? and What is the consequence of the universal termination of a civil contract? Through this essay, NPLaw will handle your questions. 

What is a unilateral termination of a civil contract?

Unilateral termination of a civil contract means the act of terminating unilaterally the performance of contractual obligations by one party without the agreement of both parties to the contract regarding contract termination. 

Pursuant to Clause 1, Article 428 of the Civil Code of 2015, the unilateral termination of a contract can be implemented by either party if the other party seriously breaches contractual obligations, agreements between parties, or the Law.

• An example of unilateral termination of a civil contract:

Unilateral termination of a civil contract due to material hardship:

Pursuant to Article 420 of the Civil Code 2015, a material hardship means a situation where one party performs the contract but has changes initiated for objective reasons that the parties could not know before entering into the contract. Although the affected party performed all of the necessary remedies in their ability to minimize the reduction, it is impossible; and if implemented, it will cause serious damages to the other party. In these cases, the parties can unilaterally terminate the contract according to the Law.

For instance, A Company ordered a X batch of goods from B Company, but B Company could not manufacture and deliver this batch of goods to A Company on time because of the Covid-19 effects. In this case, although Party B performed all of the necessary remedies in their ability to minimize the reduction, it is impossible; thus, both parties have the right to negotiate the terms of the contract to extend the delivery time. If they fail to reach an agreement, Party B has the right to unilaterally terminate the contract and must provide prior notice to Party A.

The characteristics of unilateral termination of a civil contract

Unlike cancellation of a contract, the right to unilateral termination of a contract may be implemented by one of the parties when:

• A party seriously breaches the obligations in the contract;
• The parties agree upon the conditions of unilateral termination of a contract;
• The law stipulates in cases of unilateral termination of a contract.

Unilateral termination of a civil contract can result from breaches of contract by one party or from the subjective will of the party implementing the unilateral right that doesn't want to continue to enter into the contract.

Either party to a unilateral termination of a civil contract must immediately notify the other party of the termination of contract’s performance. If such a party does not notify it, they must implement damage compensation in the case of damages. Like cancellation of contracts, this is a compulsory provision, thus the unilateral party must immediately notify the other party of the contract's termination. According to this regulation, the contract’s termination by the unilateral party remains legally valid, including notice or no notice to the other party. Thus, if the termination without notice causes damages to the other party, the unilateral party is only required to implement compensation for damages without affecting the legal validity of the contract’s termination.

The time that the other party receives the termination notice from the unilateral party has significant meaning in determining the time of contract’s termination. Upon contract’s termination, the parties aren’t responsible for continuously implementing their obligations, except for agreements regarding penalties for breach, damage compensations, and dispute resolution agreements. The obligations that have been implemented still have validity for the parties, and thus the party who has implemented their obligations has the right to demand payment for the implemented obligations from the other party.

The consequences of unilateral termination of a civil contract

Article 428 of the Civil Code 2015 stipulates unilateral termination of a civil contract, as follows:

One party has the right to unilaterally terminate the contract’s performance and is not required to compensate for damages when the other party seriously breaches contractual obligations, agreements between the parties, or the Law. The party unilaterally terminating the contract must promptly notify the other party of the termination. If the unilateral party fails to provide notice and this causes damages, they will implement compensation.

When a contract is unilaterally terminated, such a contract will terminate at the time the other party receives termination notices. The parties aren’t responsible for continuously implementing their obligations, except for agreements regarding penalties for breach, damage compensations, and dispute resolution agreements. The party who has implemented their obligations has the right to demand payment for the implemented obligations from the other party. And the injured party will receive damage compensation for failing to implement contractual obligations by the other party. 

In cases where the unilateral termination of a contract is not based on the aforementioned provisions, the party unilaterally terminating the contract is deemed to be the breaching party and must implement the civil liabilities as prescribed by the Civil Code or other relevant laws.

Therefore, in the case of unilateral termination of a civil contract as defined by Clause 1 of the Civil Code, the party unilaterally terminating the contract is not required to compensate for damages. However, according to Clause 5 of this Law, cases of unilateral contract termination that are different from those in Clause 1 are considered a breach of obligations, and such a unilateral party must implement contractual obligations as prescribed by the Civil Code 2015 or other relevant laws.

How is the unilateral termination of a civil contract in violation of the Law handled?

- Unilateral termination of a contract in violation of the Law will confront the breaching party with many legal risks, because such termination is considered a violation of all obligations to be performed under the contract. In such cases:

Article 351 of the Civil Code 2015 stipulates the Civil Liability for breaching contractual obligations, as follows:

1. If the party (with the obligation) breaches contractual obligations, such a party must implement civil liability to the other party (with the right)

 (A breach of obligation occurs when the party (with the obligation) fails to perform the obligation due, fails to fully perform the obligation, or performs the obligation contrary to its content.)

2. In cases, the party (with the obligation) fails to perform the obligation due to force majeure, such a party is not entitled to implement the civil liability, except otherwise agreed or provided for by law.

3. The party (with the obligation) is not entitled to implement civil liability if such a party can prove that failure to implement contractual obligations is entirely due to the fault of the other party (with the right).

- When breaching contractual obligations, the breaching party must fully compensate for the damages. According to the Commercial Law 2005, the damages also include the loss of profits if the unilateral termination of a contract occurs, as follows:

• Pursuant to Article 300 of the Commercial Law 2005, fine for breach (penalty for violation) is stipulated, as follows:

A penalty for violation means the aggrieved party (non-breaching party) requires the offending party (the breaching party) to pay a fine amount for breaching the contract if there is such an agreement in the contract, except for cases of exemption as defined by Article 294 of this Law.

• According to Article 302 of the Commercial Law 2005, the compensation for damages is as follows:

1. Compensation for damages means the offending party (breaching party) compensates for the losses and damages caused to the aggrieved party (non-breaching party) due to the breach of the contract.
2. The value of compensation for damages includes the actual and direct losses suffered by the aggrieved party (non-breaching party) due to the breach and the direct profits that the aggrieved party would have obtained if there had been no breach.

• Pursuant to Article 303 of the 2005 Commercial Law, the bases for the arising liability for compensation are as follows:

Except for cases of exemption as defined by Article 294 of this Law, liability for compensation will arise when the following elements are fulfilled:

1. There is a breach of the contract;
2. There is actual damage;
3. A breach of the contract is the direct cause of the damage.

Therefore, the unilateral termination of civil contracts results in fines for breaches (penalties for violations) and compensation for actual damages as agreed upon in the contract.

The lawyer’s consultations about the unilateral termination of a civil contract

- Pursuant to Article 294 of the Commercial Law 2005, exemptions for breach of contract are as follows:

• The offending party (breaching party) is exempted from liability in the following cases:

1.  Cases of exemption agreed upon by the parties;
2.  Cases of force majeure;
3.  The breach of one party is entirely due to the fault of the other party;
4.  The breach of one party is a result of implementing decisions of competent state management authorities that the parties could not have known at the time of entering into the contract.

• The offending party (breaching party) has the obligation to prove the cases of exemption.

- Pursuant to Article 295 of the Commercial Law 2005, stipulates the notification and confirmation of cases of exemption, as follows:

• The offending party (breaching party) must immediately notify the other party in writing about the cases of exemption and the possible consequences.
• When the cases of exemption cease to exist, the offending party (breaching party) must promptly notify the other party. If the offending party (breaching party) fails to notify or notify the other party untimely, they must compensate for the damages.
• The breaching party has the obligation to prove to the aggrieved party the cases of exemption.

These are all information relating to the unilateral termination of a civil contract as prescribed by Vietnamese Law. Please don’t hesitate to contact us, if the clients have any further questions.

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