The unilateral termination of a commercial contract ahead of time may be subject to sanctions for damages, fines for violations and other sanctions if agreed upon

Legal grounds:

• Commercial Law 2005;
• Civil Code 2015.

We get the following questions:

My company has a rental car of a unit to operate transport business. The contract is signed for 5 years. The company is trying to buy it back at a reasonable price, but the other party has not yet agreed. If we can’t buy it, we will consider terminating the contract to invest in a new car by ourselves, is it okay?

1. Cases of termination of commercial contracts

Pursuant to Article 422 of the Civil Code 2015, the contract will terminate in the following cases:

1. The contract has been completed;
2. As agreed by the parties;
3. The individual entering into the contract dies, the legal entity entering into the contract ceases to exist, but the contract must be performed by such individual or legal entity;
4. The contract is canceled or unilaterally terminated;
5. The contract cannot be performed because the subject matter of the contract no longer exists;
6. The contract is terminated according to the provisions of Article 420 of this Code;
7. Other cases prescribed by law.

According to the above provisions, one party has the right to cancel the contract or unilaterally terminate the contract. However, in order to do this, one of the following specific conditions must be satisfied:

Pursuant to Clause 1, Article 423, Article 424, Article 426 and Article 426, a party has the right to cancel the contract if:

1. The other party’s breach of the contract is the cancellation condition agreed by the parties;
2. The other party seriously violates the contractual obligations;
3. Where the obligor fails to properly perform an obligation but the obligee requests the performance of the obligation within a reasonable time, but the obligor fails to perform, the obligee may cancel the contract.
4. In case, due to the nature of the contract or the will of the parties, the contract will not achieve its purpose if it is not performed within a certain time limit but after that time limit the obligor fails to properly perform the obligation, The other party has the right to cancel the contract.
5. Where the obligor is unable to perform part or all of his obligation, making the obligee’s purpose unattainable, the obligee may cancel the contract and claim damages.
6. In case one party loses or damages the property that is the subject of the contract but cannot return or compensate for it with another property or cannot repair or replace it with property of the same type, the other party has the right to cancel the contract. contract.
7. Other cases prescribed by law.

Pursuant to Clause 1, Article 428 of the 2015 Civil Code, a party has the right to unilaterally terminate the contract if

• The other party seriously violates the obligations in the contract or agreed by the parties or prescribed by law.

2. Sanctions if unilaterally terminating the contract illegally

In the case of the above specific question, if the lessee terminates the lease contract in contravention of the law, it may be subject to the following sanctions:

• Compensate for damages
• Penalty for breach of contract if the contract has a penalty agreement
• And/or other sanctions if so agreed

Pursuant to Clause 2, Article 302 of the 2005 Commercial Law: The breaching party must compensate for damage with the value including:

• Value of actual, direct loss suffered by the aggrieved party caused by the violating party
• And the direct benefits that the aggrieved party would have been entitled to if there had been no breach

Pursuant to Article 301 of the Commercial Law 2015, the parties can agree on the penalty level for breach of contract. However, the fines for breach of commercial lease contracts must not exceed the following limits:

The fine level for breach of contractual obligations or the total penalty for many violations shall be agreed upon by the parties in the contract, but not exceeding 8% of the value of the breached contractual obligation portion…