The nature of the contract is the agreement of the parties; established on the basis of primordial unity. Like other contracts, commercial contracts, although made by the will of the parties, cannot avoid disputes during the performance of the contract. Therefore; which sanctions in commercial contracts have been built and developed. Let’s learn about penalties for violations and compensation in commercial contracts through the article below.
Legal grounds
- Commercial Law 2005
- Civil Code 2015
What is a commercial contract?
According to the provisions of Article 385 of the 2015 Civil Code: “A contract is an agreement between the parties on the establishment of changes; or terminate civil rights and obligations”.
So; Commercial contract is a specific form of civil contract and can be understood that: A commercial contract is an agreement between parties (where at least one party is a trader; or the subject has the status of a trader). ) to set; change or terminate the rights and obligations of the parties in the performance of commercial activities for profit.
How are sanctions for breach of commercial contracts understood?
Sanctions are coercive measures that the state is expected to apply to law-breaking subjects to ensure the implementation of the law. Sanctions set by the state; specified in the legal regulations; and enforceable.
Accordingly, commercial sanctions are adverse legal consequences that are applied to the party who has failed to perform; incomplete performance; or improper performance of contractual obligations in commerce; or as required by law. Sanctions for breach of contract are the adverse legal consequences the breaching party must bear.
Purpose of sanctions in trade
When a contract in commercial activities is legally entered into, there will be obligations to bind the contracting parties. The parties must strictly perform their contractual obligations.
Thus, sanctions in trade, first of all, encourage businesses to comply with the legal framework including regulations, procedures and standards; predefined requirements and conduct commercial activity within that framework.
Besides that; Trade sanctions can potentially punish traders for not performing their obligations. Sanctions in trade have the purpose of protecting rights; and legitimate interests of the parties in the commercial contractual relationship.
Besides; Commercial sanctions also aim to prevent and limit breach of contract by traders and those with a contractual relationship with them.
Sanctions for violation of commercial contracts
Basis for application of sanctions for violations
There is a breach of contract:
In order to be able to apply penalties for violations, there must be a breach of contract; and according to Clause 12, Article 3 of the Commercial Law 2005: “Breach of contract is the failure by one party to perform, incomplete performance or improper performance of an obligation as agreed between the parties or as prescribed in this Law. “.
According to the law, the breach of contract must fall into one of the cases of non-performance; incomplete performance; improper performance of obligations as agreed between the parties; or as required by law.
For example, violating the terms that the two parties have committed such as product quality, warranty, delivery time ….
There exists an agreement to penalize violations:
This sanction can only occur in cases where the parties have specifically agreed in the contract. Therefore; One party cannot automatically require the other party to pay a penalty for breach if the parties do not agree in the contract.
However; There are also exceptions where there is confusion between the parties due to lack of understanding of the sanctions; or think that they have the right to be protected by law when their rights and interests are not properly performed according to the contract.
Therefore; requires each person to have a certain understanding of the regulation of commercial contracts in general; and sanctions in commercial contracts in particular to protect their legitimate interests.
Not in the cases of exemption from liability:
When a breach of contract occurs and falls under one of the cases of exemption from liability for breach of a commercial contract; Even though the parties have agreed on penalties for violations, the violating party can still partially or completely waive the liability.
This applies not only to sanctions for violations, but also to all other sanctions prescribed in Article 292 of the 2005 Commercial Law. Cases of exemption from liability for violations are provided for in Article 294 Commercial Law 2005.
Contents of sanctions for violations
According to Article 301 of the 2005 Commercial Law: “The fines for breach of contractual obligations or the total fines for multiple violations shall be agreed upon by the parties in the contract, but not exceeding 8% of the value of the breached contractual obligation portion. violations, except for the case specified in Article 266 of this Law”.
It can be seen that the 2005 Commercial Law does not set a minimum penalty between the parties, but the maximum penalty that the parties can apply is 8% of the breached contractual obligation.
In case the parties do not agree on how much the penalty for breach in the contract is, no matter how great damage occurs; the breaching party will only have to pay a fine of 8% of the contractual obligation.
As for civil contracts; The 2015 Civil Code allows the parties to agree on the level of penalties for violations. The two regulations have in common that they both recognize violations as a result of an agreement between the parties.
Sanctions for compensation for damage caused by breach of commercial contracts
Basis for the arising of the compensation for damage.
Article 303 of the 2005 Commercial Law; there are regulations on the basis of arising sanctions for compensation for damage, including: There is a breach of contract, actual damage; and the breach of contract is the direct cause of the damage.
There is a breach of contract
The act of breach of contract is a necessary legal basis to apply to all forms of sanctions for breach of contract under Clause 12, Article 3 of the 2005 Commercial Law.
So; the determination of violations is necessary because it is an indispensable legal basis for applying sanctions for breach of commercial contracts in general; and compensation for damages in particular. If there is no breach of contract then of course no sanctions can be applied.
Has actual damage occurred
To have a basis for compensation for damage; The aggrieved party must produce documents to prove it. This is important legal evidence for the damage-causing party to consider if the compensation for damage is resolved through negotiation, and negotiate.
By way of the court, the party claiming damages is obliged to provide evidence to the court and prove that its claim is grounded and lawful.
The breach of contract must be the direct cause of the damage
The party who breaches the contract must only compensate for damage when the damage occurs as an inevitable result of the breach of contract. In fact, a breach of contract can cause many damages; and a number of damages can also be incurred as a result of many corrupt acts.
So; determining the exact cause-and-effect relationship between the breach of contract; and actual damage is not always easy.
Therefore; which the offending party must demonstrate that the breach; and the damage has an inevitable relationship with each other; the violation is the direct cause of the violation.
Related articles
- Exemption from liability for breach of commercial contract
- Commercial activities of foreign traders in Vietnam
Contents of the mechanism of compensation for damage
The aggrieved party who wants to receive compensation must prove that the damage actually occurred in reality; the extent of the loss and must be able to demonstrate the application of measures to limit the loss; from there arise the right to apply sanctions to compel compensation. In case the two parties do not reconcile themselves; negotiated by the aggrieved party has the right to request a court or arbitration.
According to Article 305 of the 2005 Commercial Law; then compensation for all material damage is considered important to be able to compensate and compensate the loss for the aggrieved party; in order to help them recover the material benefits as in the performance of the contract.
Article 305 of the 2005 Commercial Law; it is conceivable that the obligation to limit the loss rests with the party in breach of the contract; The aggrieved party must take reasonable and necessary measures to limit the actual damage. However; Currently, the law does not specify what measures to limit loss.
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Frequently asked questions
Penalty for breach is a material agreement by the parties, which is commonly used in all contract violations; the main purpose of this sanction is deterrence and punishment; prevent breach of contract; promote a sense of respect in the law in general and the law of contracts in particular
Types of sanctions in trade are specified in Article 292 of the 2005 Commercial Law, including:
Forcible performance of the contract;
Violations;
Forcible compensation for damage;
Suspension of contract performance;
Suspension of contract performance;
Contract cancellation;
Other measures agreed by the parties.
Conclusion: So the above is Sanctions for violations due to breach of commercial contracts. Hopefully with this article can help you in life, please always follow and read our good articles on the website: lsxlawfirm.com
