The termination of contracts with customers may arise from various causes, including breach of contractual obligations, changes in business needs, or force majeure. To ensure legal compliance and minimize potential disputes, enterprises must have a clear understanding of the applicable legal provisions governing contract termination.
The termination of contracts with customers may arise from various causes, including breach of contractual obligations, changes in business needs, or force majeure. To ensure legal compliance and minimize potential disputes, enterprises must have a clear understanding of the applicable legal provisions governing contract termination.
I. Current situation regarding termination of contracts with customers
At present, the termination of contracts with customers in Vietnam has become an issue of growing concern across multiple sectors, particularly in commerce, services, and real estate. Common causes of contract termination often stem from breaches of contractual obligations, changes in business policies, or force majeure such as pandemics and natural disasters.
However, in many instances, enterprises unilaterally terminate contracts without complying with legal requirements, thereby causing damage to customers and leading to legal disputes. Additionally, the lack of transparency in contractual terms, coupled with limited legal awareness among consumers, has made the resolution of post-termination consequences increasingly complex.
Such situations need improvements in contract drafting, management, and enforcement processes to ensure the protection of rights and interests of all parties involved.
II. Legal provisions on termination of contracts with customers
1. What is termination of a contract with a customer?
Termination of a contract with a customer refers to an act whereby one or both parties to a contractual relationship decide to end a contract, either prior to its agreed term or upon the fulfillment of contractual obligations.
2. Cases of contract termination
Pursuant to Article 422 of the Civil Code 2015, a contract shall terminate in the following circumstances:
- The contract has been fully performed;
- By mutual agreement of the parties;
- The individual entering into the contract dies, or the legal entity entering into the contract ceases to exist, where the contract must be performed by such individual or entity;
- The contract is rescinded or unilaterally terminated;
- The contract cannot be performed because its subject matter no longer exists;
- The contract is terminated in accordance with Article 420 of the Civil Code;
- Other cases as prescribed by law.
Accordingly, a contract with a customer shall terminate if it falls within any of the above circumstances.
3. Legal consequences of contract termination
The legal consequences of terminating a contract with a customer depend on: (i) the reasons for termination, and (ii) whether the termination complies with applicable law and the contractual agreement.
In cases of lawful termination:
- The contract ceases to be effective from the time of termination;
- Obligations arising prior to termination must still be performed (e.g., payment of outstanding debts, return of goods, compensation for damages already caused);
- No liability for damages arises solely from the termination, unless resulting from prior breaches;
- The parties may be required to settle or refund amounts corresponding to unperformed portions of work, services, or payments received.
In cases of unlawful termination:
- The terminating party is deemed to be in breach of contract;
- Such party must compensate the other party for damages (including actual losses and direct benefits that would have been obtained);
- Contractual sanctions may be imposed (if agreed in the contract);
- The injured party has the right to request a court or arbitral tribunal to compel compensation or even restore the contract (where feasible).
III. Questions on termination of contracts with customers
1. Should specific grounds for termination be clearly stipulated in the contract?
Clearly defining the grounds for contract termination is essential. It not only protects the interests of both parties but also minimizes legal risks and potential disputes during contract performance. Main benefits include:
- Enhancing transparency and fairness;
- Reducing the likelihood of legal disputes;
- Establishing a solid legal basis for dispute resolution and protection of rights.
2. Can an enterprise terminate a contract due to force majeure?
Pursuant to Article 420 and Clause 6, Article 422 of the Civil Code 2015, in cases of fundamental change of circumstances (including force majeure), where continued performance would cause serious damage to one party, the enterprise may request termination of the contract.
3. Is it necessary to notify relevant third parties upon termination?
Whether notification to third parties is required depends on the nature of the contract and the involvement of such parties:
- Where third parties are directly involved: (e.g., guarantors, secured parties, insurers, payment intermediaries), notification is mandatory;
- Where third parties are indirectly involved: Not legally required, but recommended to prevent unnecessary costs or continued service provision;
- Where no third party is involved: Notification to the customer alone is generally sufficient.
4. How are the rights and obligations of the parties handled upon termination?
Upon termination, the parties’ rights and obligations do not cease immediately but are resolved as follows:
- Pre-termination obligations: It must still be fully performed; failure to do so may result in liability for damages or contractual sanctions;
- Post-termination obligations:
+ The contract ceases from the effective date of termination;
+ Parties are no longer required to perform obligations not yet due;
+ However, continuing obligations (e.g., confidentiality, warranty, non-compete) remain enforceable if stipulated. - Settlement and restitution: Outstanding financial obligations (e.g., payments, refund of deposits) must be fulfilled;
- Additional liabilities: It may arise in cases of unlawful termination.
5. Should a lawyer be consulted before terminating a contract?
It is highly advisable to engage a lawyer to assess the legality of termination, especially in cases involving high-value contracts, multiple stakeholders, or significant legal risks. Main reasons include:
- Verifying the legal grounds for termination;
- Assessing risks of compensation and contractual sanctions;
- Reviewing procedural and formal requirements for termination notices;
- Advising on post-termination obligations (e.g., restitution, confidentiality, third-party liabilities);
- Protecting the enterprise’s reputation and commercial relationships through legally compliant and strategically appropriate termination.
IV. Legal consulting services on contract termination with customers
The above constitutes NPLaw’s guidance on issues relating to the termination of contracts with customers. Should you require further clarification or legal assistance, please do not hesitate to contact NPLaw for comprehensive support.
