In commercial relations, contracts are important legal instruments that record the agreement between the parties on rights and obligations. However, in reality, the parties do not always fully and correctly perform the commitments in the contract, leading to violations of obligations. In such cases, commercial law stipulates a system of sanctions to protect the rights of the violated party, while promoting compliance with contractual obligations in commercial activities.

1. Legal basis

Regulations on sanctions in commercial contracts are mainly stipulated in:

Law on Commerce 2005 (amended and supplemented if any);

Civil Code 2015;

Relevant implementing documents.

2. Sanctions in commercial contracts

According to Article 292 of the 2005 Commercial Law, when one party breaches the contract, the other party has the right to apply one or more of the following measures:

Forcing proper performance of the contract;

Penalty for breach;

Compensation for damages;

Temporary suspension of contract performance;

Suspension of contract performance;

Cancellation of contract;

a) Forcing proper performance of the contract

Pursuant to Article 297 of the 2005 Commercial Law, "In case the breaching party fails to perform or improperly performs its obligations, the aggrieved party has the right to request proper performance of the contract". Accordingly, this is a measure to require the breaching party to continue to perform its obligations as committed. For example: Delivering goods of the correct quality, on time...

b) Penalty for breach

According to Article 300 of the Commercial Law 2005, "Penalty for breach shall only be applied if there is an agreement in the contract." Thus, this sanction stipulates that the breaching party must pay a penalty agreed upon by the parties when breaching the contract.

c) Compensation for damages

The breaching party must compensate for actual damages, including direct losses and benefits that the aggrieved party would have enjoyed.

Pursuant to Articles 302 to 308 of the Commercial Law, "The party requesting compensation must prove the damage, the breach and the causal relationship."

d) Suspension of contract performance

This sanction is stipulated in Article 310 of the Commercial Law 2005, applied when one party's breach makes it impossible for the other party to continue performing the contract temporarily. For example: If one party fails to make payment on time, the other party has the right to suspend delivery.

e) Suspension of contract performance

Is a measure to terminate part or all of the obligations in the contract when a serious breach occurs, affecting the purpose of the contract as prescribed in Article 311 of the above Law.

f) Cancellation of contract

The strongest sanction, applied when the fundamental breach makes it impossible to continue to perform the contract as prescribed in Articles 312 - 313 of the 2005 Commercial Law.

3. Principle of selecting sanctions

According to Clause 2, Article 292 of the 2005 Commercial Law, the aggrieved party has the right to choose to apply one or more sanctions unless otherwise provided by law or the parties have another agreement. This allows flexibility in protecting rights.

However, it should be noted that some sanctions such as fines and compensation require proof of damage or specific agreement in the contract to be applied.

4. Relationship between sanctions

Sanctions can be applied in parallel, for example: forcing the performance of the contract, punishing violations and demanding compensation for damages. However, do not confuse suspension and cancellation of the contract because the level of violation and legal consequences are different.

5. Practical application and difficulties

In practice, proving damages and the connection with the violation is often very difficult. Many commercial contracts lack specific agreements on sanctions, which is disadvantageous when disputes arise.

6. Conclusion

The system of sanctions in commercial contracts is an important legal tool to ensure bindingness and fairness in commercial relations. Therefore, when signing a contract, the parties need to:

Clearly agree on sanctions;

Anticipate situations of violations;

Fully archive documents proving damages and violations (if any).

Understanding and correctly applying the provisions on sanctions will help businesses be proactive in managing contractual risks and increase the effectiveness of commercial law enforcement. This article is for informational purposes only and is not intended as advice. For more information, please contact: info@barrso.com.