In economic and civil transactions, the payment obligation plays a crucial role in ensuring the rights and interests of the parties. However, breaches of payment obligations remain relatively common, causing significant impacts on business operations, production activities, and daily life.

I. Current situation of breaches of payment obligations

At present, delays or failures in fulfilling payment obligations occur across various sectors from contracts for the purchase and sale of goods and the provision of services to lending transactions.

Some parties intentionally fail to make payments, delay payments, or make only partial payments, thereby severely affecting the cash flow, financial plans, and reputation of the other party. In many cases, ambiguous contractual terms further increase the risk of disputes. Therefore, understanding the legal provisions governing breaches of payment obligations is essential to protect the rights and interests of the parties involved.

II. Legal provisions on breach of payment obligations

1. Definition of breach of payment obligation

A breach of payment obligation is understood as a situation in which a party that is obliged to make a payment either fails to perform, performs incorrectly, or fails to fully perform the payment obligation as agreed upon in the contract or as prescribed by law. Common forms of breach include failure to pay on time, partial payment, payment by incorrect methods, or payment to the wrong recipient.

2. Legal consequences for breaches of payment obligation

When a party breaches its payment obligation, the injured party is entitled to take the following measures:

  • Requesting proper execution of the obligation: The breaching party must make full payment of the outstanding amount (Article 352 of the Civil Code 2015).
  • Requesting payment of interest for delayed payment: Under Article 357 of the Civil Code 2015, if the obligated party delays payment, such a party must pay interest on the delayed amount at the agreed interest rate, or at the rate prescribed by law if no agreement exists.
  • Claiming for damages: If the breach of payment obligation causes actual damages, the injured party is entitled to claim compensation (Article 360 of the Civil Code 2015).
  • Applying other sanctions as agreed or provided by law: For instance, contractual sanctions for breach (if stipulated) pursuant to Article 418 of the Civil Code 2015.

Depending on the specific circumstances, the injured party may select one or more of the above remedies to safeguard its lawful rights and interests.

3. Authorities competent to handle breaches of payment obligations

Disputes arising from breach of payment obligations are generally resolved through the following methods:

  • Negotiation and conciliation: The parties may mutually negotiate to reach a settlement.
  • Court proceedings: The injured party has the right to initiate a civil lawsuit or request the court with jurisdiction to protect its legitimate rights and interests (Clause 1, Article 4 and Article 26 of the Civil Procedure Code 2015).
  • Commercial arbitration: In cases involving commercial activities where the parties have agreed to resolve disputes by arbitration, the matter shall be settled under the arbitral procedures provided in Article 5 of the Law on Commercial Arbitration 2010.

III. Questions concerning breaches of payment obligations

1. What amounts must be paid when breaching payment obligations?

Depending on the case, the injured party may demand the breaching party to pay the following amounts:

  • The unpaid principal amount;
  • Unpaid interest (if agreed upon by the parties);
  • Interest on delayed payment;
  • Contractual sanctions;
  • Compensation for damages and expenses arising from dispute resolution (e.g., attorney’s fees, litigation costs, etc.).

Accordingly, the total amount owed by the breaching party may exceed the original principal sum, depending on the contractual terms and applicable legal provisions.

2. Is compensation required if the breach of payment obligation causes damages?

Pursuant to Article 360 of the Civil Code 2015 on liability for damages due to breach of obligation:

  • In case damage is caused by a breach of obligation, the obligor must compensate for the entire damage, except where otherwise agreed or otherwise provided by law.

Thus, a party that breaches its obligation must compensate for all actual damages, unless otherwise agreed upon by the parties or provided by law.

3. Can breaches of payment obligations lead to criminal liability?

In most cases, a breach of payment obligation constitutes a civil matter and is resolved through civil measures.

However, in certain circumstances, if the act of breach demonstrates criminal intent, the violator may face criminal prosecution. Relevant offenses may include fraud to appropriate property (Article 174), or abuse of trust to appropriate property (Article 175) under the Penal Code 2015, as amended and supplemented in 2017.

4. Is it possible to initiate legal action when a partner breaches payment obligations?

According to Article 186 of the Civil Procedure Code 2015 regarding the right to initiate a lawsuit:

  • Agencies, organizations, or individuals may, by themselves or through their lawful representatives (collectively referred to as plaintiffs), file a lawsuit at a competent court to request protection of their lawful rights and interests.

Therefore, a party whose payment obligation has been breached has full rights to file a lawsuit with a competent court to request payment performance and claim damages (if any). It constitutes one of the main legal remedies to protect the aggrieved party’s interests.

5. How to minimize risks related to breach of payment obligations in contracts?

To mitigate risks arising from payment obligation breaches, the parties may take the following preventive measures:

  • Draft detailed contracts specifying payment terms, methods, and liabilities for breach;
  • Agree on payment security measures (e.g., deposit, guarantee);
  • Conduct due diligence on the counterpart’s reputation and financial capacity before entering into contracts;
  • Include specific provisions on sanctions and compensation for breach.

Proactively applying these measures not only minimizes the risk of payment default but also fosters a reliable and sustainable business relationship between the parties.

IV. Legal consultancy services on breach of payment obligations

The above article by NPLaw provides an overview of current issues concerning breaches of payment obligations. With a team of experienced lawyers and legal experts, NPLaw offers reliable and professional legal services to best protect clients’ lawful rights and interests. For legal support or advice, please contact NPLaw.