The party who violates the contract has the right to apply sanctions to protect its rights as well as limit damage caused by the violation.

This article was consulted by Lawyer Nguyen Quang Trung

Legal grounds:

• Commercial Law 2005.

Once a commercial contract is established, the parties to the contract must respect and comply with the agreements.

In case one party violates the contract, the violated party has the right to apply sanctions to protect its rights. However, the ability to effectively use sanctions depends mainly on contract drafting techniques and actual contract implementation.

Pursuant to Article 292 of the 2005 Commercial Law, there are 6 mainly sanctions in trade, including:

• Compulsory performance of the contract.
• Penalty for violations.
• Forced to compensate for damages.
• Temporarily suspend contract performance.
• Suspension of contract performance.
• Cancel the contract.

In addition, the parties can agree on additional sanctions as needed but must not violate the law.

In fact, among the types of sanctions mentioned above, there are 3 sanctions that are very commonly applied in commercial relations as follows:

1. Compulsory performance of the contract

Sanctions forcing the correct performance of the contract with the goal of protecting the contract will continue to be implemented so that the parties can achieve the purpose of entering into the contract.

This sanction can be applied even if the contract does not contain an agreement on its application.

Pursuant to Article 297 of the 2005 Commercial Law, when there is a breach of contract, the violated party can apply the following sanctions:

• In case the violating party delivers insufficient goods or provides services not in accordance with the contract, it must deliver enough goods or provide services according to the agreement in the contract. If the violating party does not remedy it, the violated party has the right to purchase goods or receive services from others to replace the correct type of goods or services stated in the contract and the violating party must pay the difference and related costs, if any.
• In case the violating party delivers goods or provides poor quality services, it must eliminate defects in the goods or shortcomings in the service or deliver other replacement goods and provide services in accordance with the contract. If the violating party does not remedy it, the violated party has the right to self-correct defects in goods or service deficiencies and the violating party must pay reasonable actual costs.
• The violating party may not use money or goods of a different type or service as a substitute without the consent of the violated party.
• In case the violating party is the buyer, the seller has the right to request the buyer to pay, receive goods or perform other obligations as agreed and prescribed by law.

2. Penalty for contract violations

Sanctions of penalty for contract violations have the goal of deterring, punishing and raising awareness of respect for signed agreements and compliance with contracts.

This sanction is only applicable if the contract has provisions regarding their application. Therefore, the contract content needs to clearly indicate which situations will be the conditions for a party to be fined for breach of contract.

Note that the maximum penalty in commercial contracts is generally 8% of the value of the violated obligation, except for contracts in the following areas:

• Construction field: maximum fine is 12% of the value of the violated obligation;
• Commercial appraisal field: maximum fine does not exceed 10 times the appraisal service fee.

3. Forced to compensate for damages

Forced to compensate for damages is intended to compensate for the damages suffered by the aggrieved party due to the breach of contract. Damages may include:

• Value of actual and direct loss caused by the violating party;
• The direct benefit that the aggrieved party would have enjoyed if there had been no violation.

It should be noted that not all breaches of contract result in damages. Therefore, when wanting to apply compensation sanctions, the violated party needs to clearly indicate 3 issues:

• What is a breach of contract?
• What actual damage has occurred?
• Was the actual damage caused by a breach of contract?

In addition, it is common sense that when realizing that damage is likely to occur or that damage is occurring, the injured party must find every way to prevent the damage. Therefore, the injured party should note that when there is a breach of contract, measures should be taken to prevent and limit losses. If the aggrieved party fails to do action to prevent and limit losses, the violating party may refuse all or part of the compensation for damages.

This sanction can be applied even when the contract does not have an agreement on its application, and can be combined with other sanctions to maximize the protection of infringed rights.