My company has signed an iron and steel trading contract with company A. According to the contract agreement, my company will pay 70% of the contract value in advance and request company A to deliver the goods before June 30, 2020. However, until July 20, 2020, company A has not yet delivered the goods. In this case, does my company have the right to cancel the contract and ask the company to compensate for the damage in accordance with Vietnam’s regulations?
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LAWNET would like to answer your answer your question as follows:
According to Article 312 of the Law on Commercial 2005 of Vietnam: Cancellation of a contract includes cancellation of part of a contract or cancellation of the entire contract. Cancellation of the entire contract means the complete annulment of the performance of all contractual obligations for the entire contract. Cancellation of part of a contract means the annulment of the performance of some contractual obligations while other parts of the contract are still valid.
Cases of cancellation of contracts
According to Clause 4 Article 312 of the Law on Commercial 2005 of Vietnam, the remedy of cancellation of contracts shall be applied in the following cases:
- Upon commission of a breaching act which serves as a condition for the cancellation of the contract as agreed upon by the parties;
- Upon a substantial breach of contractual obligations by a party.
Legal consequences of cancellation of contracts
According to Article 314 of the Law on Commercial 2005 of Vietnam, legal consequences of cancellation of contracts are as follows:
- Following the cancellation of a contract, such contract shall be invalid from the time it is entered into;
- The parties shall not have to continue performing their contractual obligations, except for their agreements on their post-cancellation rights and obligations and resolution of disputes;
- The parties shall have the right to claim benefits brought about by their performance of their contractual obligations;
- Where both parties have indemnity obligations, their obligations must be performed concurrently;
- Where it is impossible to make the indemnity with benefits which one party has enjoyed, the obliged party must make the indemnity in cash;
- Aggrieved parties are entitled to claim damages according to the provisions of this Law.
Besides, according to Clause 1 Article 294 of the Law on Commercial 2005 of Vietnam, a party that breaches a contract shall be exempted from liability in the following cases:
- A case of liability exemption agreed upon by the parties occurs;
- A force majeure event occurs;
- A breach by one party is entirely attributable to the other party’s fault;
- A breach is committed by one party as a result of the execution of a decision of a competent state management agency which the party cannot know, at the time the contract is entered into.
Thus, according to the above provisions, Company A is in breach of its contractual obligation to fail to deliver the goods on time and has been delayed by 20 days. Therefore, your company has the right to cancel the contract with Company A and demand compensation from company A. However, if Company A is exempt from liability in the contract as mentioned above, Company A will not have to compensate for damage in this case.
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