Commercial agency is a commercial activity in which the principal and the agent agree that the agent, in their own name, will purchase or sell goods for the principal or provide the principal's services to customers for remuneration. Typically, the parties will enter into a commercial agency contract when conducting such transactions. However, disputes often arise upon the termination of such a commercial agency contract. To understand how the law regulates this matter, let’s explore the article below with NPLaw!
Commercial agency is a commercial activity in which the principal and the agent agree that the agent, in their own name, will purchase or sell goods for the principal or provide the principal's services to customers for remuneration. Typically, the parties will enter into a commercial agency contract when conducting such transactions. However, disputes often arise upon the termination of such a commercial agency contract. To understand how the law regulates this matter, let’s explore the article below with NPLaw!
I. What are cases for terminating a commercial agency contract?
A commercial agency contract is considered a civil transaction contract. According to Article 422 of the Civil Code 2015, cases for terminating a contract include:
- First, a contract has been fully performed;
- Second, a termination by mutual agreement of the parties;
- Third, an individual entering into contract is dead, or a legal entity ceases its existence, provided that contracts must be performed by such an individual or a legal entity;
- Four, a contract is canceled or unilaterally terminated;
- Five, a contract cannot be performed because a contrract’s subject matter is no longer.
Thus, it can be seen that a commercial agency contract is terminated in the following cases:
- A commercial agency contract has been completed, which may occur when the contract has been fully performed or when the contract term expires.
- One of the contracting parties dies, goes missing, is restricted in civil act capacity, or loses their status as a merchant.
- A commercial agency contract is canceled or unilaterally terminated.
II. Regulations on the termination period for the commercial agency contract
The termination period for a commercial agency contract is regulated under Article 177 of the Commercial Law 2005 regarding the agency term, as follows:
- Unless otherwise agreed, the agency term only terminates after a reasonable period, but not earlier than sixty days from the date one party provides a written notice to the other party of the termination of the agency contract.
- Unless otherwise agreed, if the principal notifies the termination, the agent has the right to request compensation from the principal for a period served as an agent for such principal.
- The compensation amount is equivalent to one month of the agent’s average remuneration for each year the agent served as an agent for the principal. If the agency period is less than one year, the compensation is calculated as one month of the agent’s average remuneration during the agency period.
- If the agency contract is terminated at the agent’s request, the agent has no right to request compensation from the principal for the period served as an agent.
Thus, when intending to terminate the commercial agency contract, a written notice must be provided to the other party, and the agency term only ends after a reasonable period, but not earlier than sixty days. If the principal notifies the termination, the agent is entitled to require the compensation, as outlined above. However, if the termination is based on the agent’s request, they are not entitled to compensation for the period served as an agent for the principal.
III. Unilateral termination of the commercial agency contract
1. When can unilateral termination occur?
A commercial agency contract, like other contracts, can be terminated according to Article 166 of the Commercial Law 2005 and Article 513 of the Civil Code 2015. Accordingly, a commercial agency contract is a type of service contract.
At the same time, Article 520 of the Civil Code 2015 regulates the unilateral termination of a service contract as follows: .
- If continuing work is not beneficial to a service user, such a service user has the right to unilaterally terminate the contract but must notify a service provider in advance within a reasonable period; the service user must pay for a part of the service already provided by the service provider and compensate for any damages.
- If the service user seriously breaches its obligations, the service provider has the right to unilaterally terminate the contract and demand compensation for damages.
Thus, unilateral termination of the commercial agency contract can occur if continuing work is not beneficial to the service user, in which case the service user has the right to unilaterally terminate the contract, but must notify the service provider in advance within a reasonable period. The service user must pay for the services already performed and compensate for any damages. In the case of a serious breach of obligations, the service provider has the right to unilaterally terminate the contract and request compensation for damages.
2. How to unilaterally terminate without facing a fine?
Pursuant to the general provisions in Article 428 of the Civil Code 2015 regarding unilateral termination of a contract:
- A party has the right to unilaterally terminate a contract and is not required to compensate for damages if the other party seriously breaches its obligations under the contract or if the parties have a termination agreement or the Law provides for it.
- The party unilaterally terminating the contract must immediately notify the other party about the termination. If the party fails to notify causing damages, it must perform the compensation.
- When a contract is unilaterally terminated, such a contract terminates as of the time the other party receives a notice of termination. The parties are no longer required to fulfill their obligations, except for agreements related to fines, damages, and dispute resolution. A party that has fulfilled its obligations has the right to request payment for already performed ones.
- The party suffering damage due to the other party’s failure to fulfill its contractual obligations is entitled to compensation.
- If unilateral termination is not based on valid grounds, the terminating party is considered to have breached its obligations and must take civil responsibility as stipulated in the Civil Code or other relevant laws for failing to fulfill its obligations under the contract.
Thus, if one party breaches the contract seriously, the other party has the right to unilaterally terminate the contract. However, they must notify the other party about the termination.
3. What is a fine for the unilateral termination incorrect?
Incorrect termination of a commercial agency contract is considered a breach of such a contract due to failing to meet obligations. According to Article 418 of the Civil Code 2015 on fines for breaches:
- A fine for breaching a contract is an agreement between the parties, where a party breaching its contractual obligations must pay a sum to the injured party.
- The fine amount is determined by the agreement between the parties, unless otherwise stipulated by relevant laws.
- The parties may agree that the breaching party only pays a fine without compensating for damages, or they may agree that the breaching party both pays a fine and compensates for damages.
If the parties only agree on a fine for breach but do not specify whether the breaching party must both pay a fine and compensate for damages, the breaching party only has to pay such a fine.
At the same time, Article 301 of the Commercial Law 2005 regulates a fine level for breaching contract obligations or the total fine for multiple breaches as agreed by the parties in the contract, but the fine level must not exceed 8% of the value of the breached obligations under the contract.
Additionally, compensation for damages can be requested according to Articles 177 and 302 of the Commercial Law 2005, specifically:
- Compensation for damages refers to the process by which the breaching party compensates for the losses caused by its breach of contract to the injured party.
- The compensation value includes actual and direct loss values that the injured party must bear due to the breach, as well as direct benefits that the injured party would have been entitled to if the breach had not occurred.
IV. Procedure for unilateral termination of a commercial agency contract
The law does not have specific provisions regarding procedures for unilateral termination of a commercial agency contract. Based on the general regulations mentioned above, procedures for unilateral termination of a commercial agency contract can be implemented in the following steps:
Step 1: Resolve and provide evidence for any issues arising in the contract that show continuing performance is not beneficial, or prove the breach of obligations in the contract, or demonstrate that the contract falls under conditions permitting unilateral termination.
Step 2: Notify the other party about the unilateral termination of such a commercial agency contract.
Step 3: Complete the termination process, liquidate the contract, and fulfill financial obligations.
V. Consultation on unilateral termination of a commercial contract
Ngoc Phu Law Company Limited (NPLaw) is one of the reputable law firms committed to providing timely and effective consultation services, offering high-quality services at reasonable fees. Our team of professional lawyers works diligently and enthusiastically to help you find the best solutions, ensuring your legal rights and interests. If you have any questions or need assistance regarding the termination of a commercial agency contract
