Any party participating in civil or commercial transactions wants the contract between the parties to be carried out smoothly and reach the end of the agreed term in the contract. However, for many different reasons such as the needs of each party, violations, one of the parties needs to unilaterally terminate the contract ahead of time. In this case, determining the conditions and procedures to unilaterally terminate a contract in accordance with the agreement and the law plays a particularly important role because this affects the responsibilities of a party to the other party related to contractual penalties and compensation for damages.

Our article below will share with you the points to keep in mind when unilaterally terminating a contract.

1. Unilateral termination of contracts – understood according to the law

Unilateral termination of contracts is stipulated in Article 428 of the Civil Code as follows:
“Article 428. Unilateral termination of contracts
1. A party has the right to unilaterally terminate the contract without any compensation for damage when the other party seriously violates its obligations in the contract or as agreed upon by the parties or prescribed by law.
2. The party that unilaterally terminates the contract must immediately notify the other party of the contract termination and must compensate if the failure to notify causes damage.
3. When a contract is unilaterally terminated, it shall terminate from the time when the other party receives notice of termination. The parties do not have to continue performing their obligations, except for agreements on penalties for violations, compensation for damages and agreements on dispute resolution. The party that has performed its obligation has the right to request the other party to pay for the performed obligation.
4. The party that suffers damage due to the other party’s failure to properly perform its contractual obligations is compensated.
5. If a contract is unilaterally terminated without any basis prescribed in Clause 1 of this Article, the party unilaterally terminating the contract shall be determined the violating party and must perform civil liability as prescribed in this Code and relevant laws due to failure to properly perform contractual obligations.”
With the above provisions, unilateral termination of contracts arises when a party commits a serious violation of the obligations in the contract or are agreed upon by the parties or prescribed by law. In case the contract does not stipulate a clause on unilateral termination of the contract, the enterprise has to consider whether the other party of the contract is seriously violating the obligations of the contract.
And in this case, the question is “what kind of violation is considered a serious violation of contractual obligations?”. In this case, some contracts specifically record the determination of violations that are considered “serious violations of contractual obligations”. However, in fact, any contract that stipulates this content will closely record the clause on unilateral termination of the contract regulating cases where parties have the right to unilaterally terminate, the form of sending a unilateral request, advance notice period, etc.
Instead, in some cases the contract will generally record that one of the parties has the right to unilaterally terminate the contract ahead of time, but it does not clearly record the conditions for the unilateral right to arise, how long the advance notice period is, the form of sending unilateral request, and other contents related to the settlement of the obligations that the parties have performed until the time of unilateral termination of the contract. Because there are no specific regulations, in fact there will be cases where one party believes that it has the right to unilaterally terminate the contract, but the other party does not agree, or one party believes that the advance notice period for unilateral termination is not reasonable.

2. The reasonable notice period before unilateral termination

In case the parties do not have an agreement in the contract on the notice period before unilaterally terminating the contract, the reasonable amount of advance notice period will depend on each specific case and according to the opinion of the Court and Arbitration when considering and resolving disputes between the parties. Because there are no legal provisions explaining how long the reasonable advance notice period is, the law only recognizes it in a general way as we mentioned in section 1 above.
So the question is: is it important to determine a reasonable advance notice period?
The answer will be very important. Therefore, enterprises need to pay attention when establishing contracts. When one party unilaterally terminates the contract and notifies in advance for an unreasonable period of time, it will bear the risk of compensation for damages if the other party can prove that damage occurred due to the sudden termination of the contract.
You can refer to the Court’s opinion in Precedent No. 21/2018/AL on faults and damages in the case of unilateral termination of a contract for lease of property, which is approved by the Judge’s Council of the Supreme People’s Court on October 17, 2018 and announced under Decision No. 269/QD-CA dated November 6, 2018 of the Chief Justice of the Supreme People’s Court.
“[1] On April 10, 2006, Company D leased two steel locomotives to Joint Stock Company C and towed ships in and out at 10-10 port and Khe Day port in Quang Ninh, which takes effect from the date of signing to December 31, 2006 according to Economic Contract No. 1141/HD-CNQN. In the contract, there is no agreement on the conditions for contract termination. However, on August 17, 2006, Joint Stock Company C issued Document No. 2349/INDEVCO announcing the termination of the contract from August 20, 2006 with the reason “there is no need to rent 2 locomotives”. The time taken by Joint Stock Company C to issue a written notice to terminate the contract was too short that caused damage to Company D due to not being able to get another contract immediately. It is Joint Stock Company C’s fault, so it must be responsible for the damage caused to Company D. The actual damage that needs to be considered is the vehicle rental fee for the remaining period of the contract.”
In summary, to anticipate situations that may arise during contract implementation, the clause on unilateral contract termination has to be specifically, fully and clearly recorded in the contract, including but not limited to: the event giving rise to the right to unilaterally terminate the contract, how long the advance notice period is, the form of sending unilateral request (in person, email or another form recognized by the parties), to whom the notice of unilateral termination is sent, etc. and other contents depending on each specific case.
Enterprises need to rely on the type of contract: purchase and sale, service provision, processing, etc., domestic or foreign partner, to record provisions related to unilateral termination of the contract, and the way to handle outstanding obligations, etc. and record other contents of the contract such as penalties for violations and compensation for damages.

Time of writing: 30/08/2023

The article contains general information which is of reference value, in case you want to receive legal opinions on issues you need clarification on, please get in touch with our Lawyer at info@cdlaf.vn

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