A sales contract is a common type of commercial contract, widely used in business transactions. During the execution of the contract, breaches can occur, potentially disrupting the intended benefits for the involved parties. In such cases, specific sanctions are implemented to protect the rights and interests of the aggrieved party and ensure that the breaching party bears the legal consequences commensurate with their actions. This article will analyze some sanctions that can be applied to a party that breaches the obligations in a sales contract.
1. Typical Disputes in Goods Sale Contracts
In the course of executing goods sale contracts, any party may fail to fulfill the stipulated obligations, thereby precipitating disputes among the parties involved.
The predominant disputes arising from the buyer’s failure to meet obligations include i) Disputes related to payment obligations, commonly originating from delayed payments, non-payments, or payments that do not cover the agreed value; ii) Disputes concerning the obligation to receive goods, which typically occur when the buyer fails to accept the delivery within the agreed timelines or according to specified conditions.
Similarly, disputes stemming from the seller’s failure to meet obligations include i) Disputes over timing of delivery, where the seller fails to deliver the goods at the contractually agreed time; ii) Disputes concerning the quality and quantity of goods, involving instances where the delivered goods fail to meet the agreed specifications.
2. Sanctions for Breaches of Contractual Obligations
To ensure their interests are protected, parties may stipulate in the goods sale contract the specific sanctions applicable should there be a failure to meet contractual obligations, as follows:
Specific Performance
This sanction applies when any party fails or inadequately fulfills their commitments under the contract. The aggrieved party is entitled to demand that the breaching party properly execute the contract or utilize other measures to ensure fulfillment, with the breaching party bearing any resultant costs. For instance, if a seller delivers goods as per the contract but the buyer refuses acceptance, the seller can demand payment or fulfillment of other obligations, such as compensating for price differences if the goods are sold to another party.
Before resorting to alternative sanctions, the aggrieved party may enforce this sanction without forfeiting the right to claim damages or penalties for contractual breaches. This sanction may be applied in scenarios where extending the contract duration does not detrimentally affect the economic interests of the aggrieved party.
Penalties for Breach
Penalties for breach constitute a financial sanction broadly applied to all instances of contractual non-compliance, irrespective of whether these actions have caused damage. For the implementation of this sanction, the parties must have an agreement about penalties for breach, specifying the penalty amount, the behaviors constituting a breach that triggers this sanction, and the deadline for paying the penalty. According to Article 301 of the Commercial Law 2005, the penalty for breaching a contractual obligation or the cumulative penalty for multiple breaches should not exceed 8% of the value of the breached contractual segment.
Compensation for Damages
To implement this sanction, the following criteria must be met: there exists a contractual breach; the breaching party is not exempt from liability; there is actual damage; and the breach directly causes the damage. The aggrieved party is entitled to compensation for actual, direct losses incurred and for the direct benefits they would have otherwise gained had the breach not occurred. To apply this sanction, the party seeking compensation must demonstrate the extent of the damage and mitigate losses attributable to the contractual breach.
Suspension of Contract Performance, Termination, or Cancellation
Suspending the performance of a contract involves a temporary cessation of contractual duties by a party. In this context, the contract remains in effect. For example, if the seller delivers less than the agreed quantity, the buyer has the right to suspend payment until the complete delivery is made, or if the buyer delays or fails in payment, the seller may suspend further deliveries until full payment is received.
Terminating the contract involves a party ceasing to fulfill their contractual obligations, effectively ending the contract from the moment a termination notice is received. Parties are then relieved from continuing with their contractual duties, although the party that has performed their obligations may demand that the other party complete payments or corresponding obligations.
Canceling the contract constitutes a legal event that nullifies the contract from the moment of its inception. Contract cancellation can be partial or total. Partial cancellation involves revoking the execution of part of the contractual obligations while keeping the rest of the contract active. Total cancellation involves revoking all contractual obligations, rendering the contract null from the time of agreement. Subsequent to cancellation, parties are not obliged to continue with the agreed obligations, except for provisions regarding rights and obligations post-cancellation and dispute resolution.
For sanctions like suspension, termination, or cancellation of contract performance, unless contractual liability exemption applies, these sanctions are enacted when certain conditions are met, such as the occurrence of a breach agreed upon as a condition for applying the sanction or a fundamental breach of contractual duties by one party.
Other Agreed Measures Consistent with the Fundamental Principles of Vietnamese Law, International Treaties, and International Commercial Practices
Parties may agree on additional sanctions such as asset retention, account freezing, or demanding interest payments for late payments by the breaching party. For instance, the buyer may be required to pay interest on late payments at a rate agreed upon if they fail to meet payment obligations.
This discourse, “Sanctions Applied for Breach of Obligations in Sales Contracts”, is presented to our readers by TNTP. Should there be any issues for discussion, readers are encouraged to contact TNTP for timely assistance.
Sincerely,
