During the performance of the contract, if one party fails to fully and rightly fulfill his/her obligation as agreed, the aggrieved party can impose remedies to protect his/her legitimate rights. According to the current laws, there are 06 remedies imposed frequently by the parties including: (i) Specific performance of contract, (ii) penalty for breach, (ii) compensation for loss and damage, (iv) temporary cessation of performance of the contract, (v) Termination of performance of the contract, (vi) rescission of the contract. Depending on the type of breach and seriousness of a breach, the aggrieved should consider which is the most suitable remedy for their case. This article will present the characteristics of each aforementioned remedy.
1. Specific performance of the contract
Specific performance of the contract is the remedy imposed when the aggrieved party worries about the quantity and quality of the goods and service in order to keep the manufacturing and business operation rather than receiving the equivalent amount. As for the commercial contract, the specific performance of the contract is a method used to ensure the validity of the contract, and preserve the reputation of business entities during their business activities.
Specific performance of the contract can be imposed on the following situations: the defaulting party fails to deliver all goods or delivery the poor goods or provides services that do not conform to the agreement between the parties. When imposing this remedy, the aggrieved party should extend the time limit by a reasonable period in order for the defaulting party to perform its obligations.
This remedy can be imposed simultaneously with other remedies in accordance with Law on Commercial 2005.
2. Penalty for breach
Penalty for the breach has the main purpose of influencing the consciousness of the contract subjects, preventing any breach of contract and punishing the defaulting party. The prerequisite condition for using this remedy is the advance agreement between the parties in their contract. Moreover, the agreement between the parties must ensure conditions for effectiveness before being applied.
One issue that should take into account when applying this remedy is the determination of what kind of contractual relationship is, the civil relationship, commercial relationship or construction relationship, etc. The determination of the contractual relationship is the basis for the aggrieved party asking for a level of penalty as well as a decision on whether they should impose this remedy with other remedies or not.
3. Compensation for loss and damage
Differing from the penalty for breach, compensation for loss and damage is used to restore and pay compensation for loss and damage caused by the breach of contract to the aggrieved party. The loss and damage include physical losses and mental losses. So, it is unnecessary for the parties to have an agreement on compensation for loss and damage, the aggrieved party still has the basis to claim their lost interests.
The aggrieved party is obliged to prove their loss and is entitled to ask for the direct profits that the aggrieved party would have earned. The grounds to ask for compensation for loss are: (i) there is an act in breach of the contract; there occurs an actual loss; (iii) the act in breach of contract is the direct cause of the loss.
Relative article: The value of liquidated damage clause in construction contracts
4. Temporary cessation of performance of the contract
Temporary cessation of the performance of the contract is the remedy with the purpose of temporarily suspending the obligation performance of the parties when there is an act in breach of contract. When the contract is temporarily suspended, the contract still remains its validity and the aggrieved party can impose other remedies to protect its legitimate interests.
5. Termination of contract and recission of contract
Both forms of remedies are for the purpose of terminating the parties’ performance obligation of the contract. When rescinding the contract, it shall no longer take effect from the time it was entered into. Meanwhile, termination of the contract still recognizes the process of performing the contract until the time of termination. The difference between the two remedies leads to the different legal consequences for the parties to deal with the performed obligations.
When terminating and rescinding the contract, the aggrieved party is entitled to claim compensation for loss and simultaneously impose other remedies to protect its legitimate interests.