Contracts are a common and formal method of transaction, yet not all contracts are smoothly executed. Contract termination is a frequent issue; however, in practice, many contracts are terminated unlawfully, leading to compensation for damages. So what constitutes lawful contract termination? Let’s explore the relevant legal regulations with NPLAW.
Contracts are a common and formal method of transaction, yet not all contracts are smoothly executed. Contract termination is a frequent issue; however, in practice, many contracts are terminated unlawfully, leading to compensation for damages. So what constitutes lawful contract termination? Let’s explore the relevant legal regulations with NPLAW.
I. Current situation regarding contract termination
Currently, contracts are an important and common form of transaction through which parties seek specific benefits and purposes. However, signed contracts are not always executed easily or fully. In reality, various problems may arise during contract performance, leading to contract termination. For example, when one party breaches the contract, is unable to perform it, or due to loss or damage of property.
Contract termination must comply with legal regulations. Yet in practice, many cases do not comply, such as failure to properly notify the other party, resulting in damages. In such cases, even if the terminating party has the right to terminate, they may still be liable for compensation if harm is caused. Termination is not considered a punitive measure. Although the Civil Code 2015 does not define contract termination as a sanction, it can be understood that a violation of agreed terms serves as grounds for ending contractual obligations, either through mutual agreement or by law.
To apply contract termination correctly, the contract must be legally valid and in the process of being executed. However, overlapping regulations make practical application difficult and complex to resolve in some situations.
II. Understanding contract termination
1. What is a contract?
According to Article 385 of the Civil Code 2015, a contract is an agreement between parties to establish, change, or terminate civil rights and obligations.
2. Why terminate a signed contract?
Contract termination usually occurs when one party breaches a condition for termination previously agreed upon, or when one party seriously violates the contract. Parties may also wish to terminate to avoid fulfilling their agreed obligations and to return what has been exchanged.
III. Legal provisions on contract termination
1. Cases where contracts can be terminated
According to Article 423 of the Civil Code 2015, a party may terminate a contract without liability for damages in the following cases:
- The other party breaches a condition for termination as agreed upon.
- The other party seriously violates their contractual obligations.
- Other cases as prescribed by law.
Additionally, a contract may be terminated due to delay in performance, inability to perform, or loss/damage to assets as outlined in Articles 424, 425, and 426 of the Civil Code 2015.
2. Legal Consequences of Termination
According to Article 427 of the Civil Code 2015:
- The contract is deemed void from the time of signing, and parties are not obligated to fulfill prior obligations, except those related to penalties, compensation, or dispute resolution.
- Parties must return what they have received, minus reasonable expenses related to contract performance or asset preservation/development.
- Returns must be in-kind. If in-kind return is not possible, a monetary equivalent must be provided.
- Where both parties must return property, this must occur simultaneously unless otherwise agreed or regulated.
- The injured party is entitled to compensation for losses caused by the other party's breach.
- If the termination is not based on lawful grounds (Articles 423–426), the terminating party is deemed to have breached the contract and must bear civil liability accordingly.
IV. Questions about contract termination
1. What is the difference between termination and cancellation of a contract?
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Contract Cancellation |
Contract Termination |
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Contract is void from the beginning. Some obligations (e.g., damages, fines, dispute resolutions) may still apply. |
Contract remains valid until the moment it is terminated. |
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Parties must return what they have received; if not in kind, then monetary compensation is required. The performing party may demand reimbursement for performed obligations. |
Parties are no longer obligated to each other, and no restitution is required. |
2. Is compensation required upon termination?
According to Clause 3, Article 423 of the Civil Code:
- The terminating party must promptly notify the other party. If no notice is given and damage occurs, compensation must be paid.
Thus, if damage results from lack of notice, the terminating party must compensate the other party.
3. Can a notarized contract be terminated?
According to Clause 1, Article 51 of the Law on Notarization 2014:
- Amendments, supplements, or terminations of notarized contracts or transactions may only occur with written agreement from all involved parties.
Therefore, if all parties agree in writing, even notarized contracts may be legally terminated.
4. How are disputes regarding contract termination resolved?
Disputes arising from contract termination can be resolved through one of four methods under Article 317 of the Commercial Law 2005:
- Negotiation between the parties.
- Mediation by a mutually chosen mediator.
- Arbitration.
- Court proceedings.
Dispute resolution procedures via arbitration or court follow specific procedural laws. Under Clause 1, Article 427 of the Civil Code, the parties may also agree on a dispute resolution method in advance.
V. Should you contact a lawyer for contract termination?
Ngoc Phu Law Firm (NPLAW) is a reputable law firm offering consultation and legal services related to contract termination. Contacting a lawyer can help you resolve issues quickly, conveniently, and lawfully. With deep legal knowledge and extensive experience in civil law, NPLAW is committed to providing fast, timely, high-quality services at reasonable rates. Our team of professional, dedicated lawyers will help you find the best solutions and protect your legal rights and interests.
If you need legal consultation or support in contract termination, feel free to contact NPLAW using the information below.
