Contracts are the backbone of business transactions worldwide, but when one party fails to uphold their end of the bargain, a breach of contract occurs. Understanding what constitutes a breach, its legal consequences, and how to respond is crucial in both domestic and international contexts.
What Constitutes a Breach of Contract
Definition of a Contract
A contract is essentially an agreement creating mutual obligations enforceable by law . In legal terms, a contract requires certain key elements to be binding: there must be a valid offer by one party and an acceptance by another (together forming mutual assent), both sides must provide a lawful object (e.g., goods, services, or payment), the parties need the capacity to contract (e.g. of sound mind and legal age), and the contract’s purpose must be legal and not contrary to social ethics per Vietnam’s Civil Code 2015, Article 407. When these elements are present, the agreement becomes a binding contract that courts or arbitrators will enforce, and, in Vietnam, must comply with form requirements for certain contracts, such as written form for real estate under Article 500.
What Qualifies as a Breach of Contract
Once a contract is in place, each party is expected to fulfill their obligations as promised. A breach of contract occurs when one or more parties fails to live up to their agreed-upon terms without a proper legal justification .
In other words, if a party does not perform on time, does something expressly contrary to the agreement, or fails to do something required by the contract, that party has breached the contract. For example, if a supplier was obligated to deliver goods by a certain date and misses the deadline without excuse, or delivers the wrong goods, that is a breach. Even a late payment can constitute a breach of contract .
Importantly, to have a valid claim for breach, there must be a binding contract and an unexcused failure to perform a duty under that contract, resulting in harm to the other party as per Article 418 of Vietnam’s Civil Code 2015. (Note that breach of contract on its own is a civil matter – it is not a crime or tort, and punitive damages are rarely awarded in contract cases and are generally not recognized under Vietnamese law, which focuses on compensation per Article 419 .)
Types of Contract Breaches
Not all breaches are equal. The law categorizes breaches in several ways, primarily by the seriousness of the breach and the timing of the breach:
Minor (Partial) Breach
A minor breach (also called an immaterial breach) is a slight deviation from the contract requirements – something that doesn’t deprive the non-breaching party of the main benefit of the bargain. In a minor breach, the core of the contract is fulfilled and the contract may continue, but the breaching party failed in some small aspect. In Vietnam, this is not formally termed ‘minor’ but aligns with partial or improper performance under Article 418(1), allowing damages without termination unless it meets Article 428 conditions.
For instance, if a contractor finished a job but one small detail is late or slightly off-specification, that could be a minor breach. The non-breaching party can typically claim damages for the issue but cannot usually terminate the entire contract over it . The contract remains in force.
Material Breach
A material breach is a serious violation that goes to the heart of the contract. It means one party didn’t get the substantial benefit of what was promised, defeating the purpose of the agreement. In a material breach, the non-breaching party is entitled to consider the contract terminated and seek remedies for the breach under Vietnam’s Civil Code 2015, Article 428(1), if the breach is serious enough that the contract’s purpose cannot be achieved.
For example, if you ordered 100 computers and the seller delivered 100 boxes of random parts, that is a material breach – you didn’t receive what you bargained for. In the business world, a notable example of a material breach occurred in 2023 when rapper Flo Rida won an $82.6 million jury award after an energy drink company failed to fulfill an endorsement deal . The jury found the company had breached the contract and deprived him of the compensation and stock shares promised, a breach significant enough to warrant such a large damages award. While this U.S. case illustrates the principle, in Vietnam, damages would be calculated under Article 419 to compensate for actual loss, not punitive amounts. This real-world case illustrates how a material breach – especially in high-value contracts – can lead to significant liability for the breaching party.
Anticipatory Breach (Repudiation)
An anticipatory breach occurs before the performance is due. It’s when one party clearly indicates – through words or actions – an intention not to perform their future obligations . In such cases, the law allows the non-breaching party to treat the contract as breached immediately, rather than waiting until the actual due date per Vietnam’s Civil Code 2015, Article 412(2), which permits refusal of performance if the intent not to perform is clear.
For instance, if a contractor due to start work on May 1 announces on April 15 that they will not be performing the job at all, the hiring party can immediately consider this an anticipatory breach and seek remedies right away. The doctrine of anticipatory breach has long been recognized; Hochster v. De La Tour (1853) is a classic case in English law where a party who was told in advance that the contract would not be honored was allowed to sue before the performance date arrived though this English precedent is not binding in Vietnam, the principle is similar.
In practice, if faced with anticipatory repudiation, the non-breaching party can choose either to accept it and terminate the contract immediately, or to wait and see if the breaching party changes their mind and performs when due (though with the risk that if you wait and they perform, you lose the right to terminate).
Fundamental Breach
Fundamental breach is a concept often discussed in international contract law. It refers to a breach so severe that it undermines the very foundation of the contract. In some legal systems, a fundamental breach is essentially equivalent to a material breach or a repudiatory breach, entitling the innocent party to terminate the contract and sue for damages . In Vietnam, this aligns with a ‘serious breach’ under Civil Code Article 428(1), not a distinct ‘fundamental breach’ category.
In the context of international sales governed by the U.N. Convention on Contracts for the International Sale of Goods (CISG), the term “fundamental breach” has a specific definition: a breach is fundamental if it results in such detriment to the other party as substantially to deprive them of what they were entitled to expect under the contract . In simpler terms, if one party’s failure completely robs the other of the contract’s value, it is a fundamental breach. This concept is important because under the CISG (which many countries have adopted), an aggrieved party can declare the contract avoided (terminated) if the breach is fundamental. Vietnam is a CISG signatory since January 1, 2017, so this applies to international sales contracts unless excluded, though Vietnam’s Article 96 reservation requires written form for such contracts.
Many common law jurisdictions have folded the idea of fundamental breach into the analysis of material/repudiatory breach , but the core idea remains: a very serious breach allows the non-breaching party to walk away from the contract and seek a remedy, consistent with Vietnam’s approach under Article 428.
In summary, a breach of contract can range from a trivial slip-up to a catastrophic failure to perform. The classification matters because it affects the remedies: only a material or fundamental breach (or an anticipatory repudiation of a major obligation) will generally justify canceling the contract and suing for full damages, whereas a minor breach gives rise only to damages while the contract continues.
Legal Consequences of a Breach of Contract
When a contract is breached, the rights of the non-breaching party come to the forefront. The innocent party is legally entitled to some form of relief or remedy to address the breach. The immediate rights include the right to suspend their own performance (especially if it’s a material breach by the other side), the right to terminate the contract (if the breach is sufficiently serious, like a material or fundamental breach), and the right to seek legal remedies such as damages or specific enforcement of the contract.
In any breach situation, the non-breaching party should also take care to mitigate their losses – they are expected to act reasonably to reduce the damage caused by the breach, as most legal systems will not allow recovery for losses that could have been avoided with reasonable efforts per Article 305, requiring damage mitigation.
Most contract laws provide several remedies to an injured party when a breach occurs. The appropriate remedy will depend on the severity of the breach and the terms of the contract. Here are the most common remedies:
Damages (Monetary Compensation)
The most typical remedy for breach of contract is an award of damages, meaning money paid by the breaching party to compensate the non-breaching party. The goal of damages in contract law is usually to put the injured party in the position they would have been in had the contract been fulfilled under Vietnam’s Civil Code 2015, Article 419, covering actual direct losses and lost profits . This often includes compensatory damages, which cover direct losses and expected benefits (e.g. the profit you would have made if the contract was performed), and may also include consequential damages for secondary losses that were foreseeable (for example, lost profits from downstream contracts if those losses were a foreseeable result of the breach) if directly caused and proven per Article 419(2).
Other subtypes of damages include reliance damages (reimbursing expenses incurred in reliance on the contract) and nominal damages (a token sum if a breach occurred without substantial loss). It’s worth noting that punitive damages are rarely awarded in contract cases , since the purpose is compensation, not punishment and are not recognized in Vietnam, where damages are strictly compensatory.
Specific Performance
Specific performance is an equitable remedy where a court orders the breaching party to actually perform their contractual duties, rather than just pay damages. This remedy is typically reserved for situations where monetary damages would be inadequate to make the non-breaching party whole under Vietnam’s Civil Code 2015, Article 417, applicable unless impossible or disproportionately costly.
Common examples include contracts for unique goods or assets – for instance, the sale of a rare piece of art, real estate (every parcel of land is considered unique), or a one-of-a-kind item. If a seller breaches such a contract, the buyer can ask the court to compel specific performance, forcing the seller to deliver the item as promised. Specific performance is less commonly awarded in general commercial contracts, especially where goods or services can be obtained elsewhere and compensated with money, but it remains an important remedy in certain cases and is a standard remedy in Vietnam’s civil law system, not limited to exceptional cases as in some common law jurisdictions.
Many legal systems (particularly civil law countries) allow specific performance more freely, whereas common law systems like England and the U.S. often treat damages as the primary remedy and grant specific performance only in special cases . For example, if a company contracts to sell an antique heirloom or a patent license and then refuses, a court might order them to follow through with the deal because money alone can’t substitute the unique value to the buyer .
Rescission (Contract Cancellation) and Restitution
Rescission is a remedy that undoes the contract – in effect, it releases both parties from their obligations and attempts to restore them to the position they were in before the contract was made. A rescission can be appropriate when a breach is fundamental or when the contract is voidable for some reason (fraud, misrepresentation, etc.) in Vietnam, per Article 424 for voidable contracts or Article 428 for termination due to serious breach.
When a contract is rescinded, any benefits conferred (like goods delivered or payments made) are usually returned through restitution. For instance, if Party A paid Party B for goods, and Party B fundamentally breached by never delivering anything, a court could rescind the contract and order Party B to refund the money (restitution). Rescission is essentially the remedy that wipes the slate clean. In international contracts, rescission might be invoked under the CISG by declaring the contract avoided for fundamental breach, which is akin to cancellation applicable in Vietnam for CISG-governed contracts unless excluded.
Injunctions
In some cases, instead of ordering someone to do something (specific performance), a court might order someone to stop doing something that violates the contract. This is done via an injunction. For example, in a contract with a non-compete or confidentiality clause, if one party threatens to breach it (say, a former business partner trying to disclose trade secrets in breach of a contract), a court can issue an injunction to prevent that action under Vietnam’s Civil Code 2015, Article 417(2), as a coercive measure.
Injunctions are a discretionary remedy and typically used when damages would not be adequate to protect the non-breaching party’s rights though less common in Vietnam than positive enforcement.
Liquidated Damages
Contracts often contain a liquidated damages clause – a predetermined amount of money that must be paid in case of specific breaches. If such a clause is valid (not an illegal “penalty”), it provides a measure of damages agreed upon by the parties. For example, a construction contract might specify that the builder pays $1,000 per day for each day the project is late. In the event of breach, the non-breaching party can claim this amount without needing to prove the actual loss, simplifying enforcement in Vietnam, this aligns with penalty clauses under Article 418(2), capped at 8% of the breached obligation’s value for commercial contracts per Decree No. 37/2015/ND-CP.
In practice, the non-breaching party may be entitled to more than one remedy. For instance, they might terminate the contract and also sue for damages, or get an injunction and monetary damages, depending on what is necessary to fully address the breach. However, double recovery is not allowed – the remedies should collectively compensate for the loss without exceeding it.
What to Do When There is a Breach of Contract
Facing a breach of contract can be stressful, but a clear plan of action will help protect your rights. Whether you’re dealing with a local contract or an international agreement, the steps to take are generally similar.
Here’s a roadmap for what to do when a breach occurs:
1. Review the Contract Thoroughly
The first step is to read the contract again, line by line . Identify exactly what each party’s obligations are and pinpoint where the breaching party fell short. Many contracts include clauses that specify what constitutes a breach, what notice must be given, and what remedies or dispute resolution mechanisms apply. For example, the contract might require that the breaching party be given a certain number of days to “cure” the breach after receiving notice. It might also have an escalation clause (e.g. requiring mediation or arbitration before court).
By reviewing the contract, you clarify your position: which term was breached, how it violates the agreement, and what the contract says about that scenario. In an international contract, also check governing law and jurisdiction clauses – these tell you which country’s law applies and where (or how) disputes are to be resolved in Vietnam, per the Civil Procedure Code 2015, Article 470 for foreign elements; CISG may apply unless excluded.
2. Document the Breach
It’s crucial to gather evidence of the breach. Document everything: emails, messages, invoices, delivery receipts, photographs of non-conforming goods, logs of missed deadlines, etc. If, for instance, a supplier delivered faulty products, keep samples and records of testing. If a partner stopped performing services, keep records of their non-performance.
This evidence will be vital whether you negotiate a solution or end up in court/arbitration. A paper trail often makes the difference in proving that a breach occurred and demonstrating the extent of your losses. Also, note dates – when was performance due, when did you notify them – as timing can affect legal rights (for example, meeting any contractually required notice periods or statutes of limitation under Article 429, typically three years from the breach).
3. Notify the Breaching Party
Communication can sometimes resolve misunderstandings or pave the way for a settlement. Promptly notify the other party in writing that they are in breach. This notice should be polite but clear, detailing what obligation has not been met and referencing the contract clause if applicable.
In some contracts (especially international ones), formal notice of breach is required to preserve certain rights or to start the clock on a cure period. Give the breaching party an opportunity to explain or fix the issue if appropriate. In your notice, you might reserve your rights to remedies, which means you’re not waiving any legal options by reaching out. For example, a simple notice letter or email might state: “According to our contract dated X, you were to deliver 100 units by June 1. As of June 5, we have not received them. This delay constitutes a breach of contract. Please inform us immediately of your plan to remedy this situation. We reserve all our rights under the contract and applicable law.” This puts the breaching party on alert that you are aware of the breach and serious about enforcing the agreement.
4. Explore Negotiation and Alternative Resolution
Not every breach needs to end up in a courtroom. Lawsuits and formal disputes can be costly and time-consuming, so it’s wise to attempt an amicable resolution if possible . After notifying the breaching party, consider discussions to find a solution.
This could involve renegotiating parts of the contract, agreeing on a partial refund or discount for a defective performance, extending deadlines, or any number of creative fixes. If direct negotiation between the parties isn’t fruitful, alternative dispute resolution (ADR) methods are available:
- Mediation: In mediation, a neutral third-party mediator helps the parties communicate and possibly reach a voluntary settlement . The mediator doesn’t impose a decision; the goal is for the parties to find common ground. Mediation is confidential and can preserve business relationships by fostering a collaborative solution. It’s often a first step in international disputes as well, since it’s non-binding and can be faster than arbitration or litigation.
- Arbitration: Arbitration is a private process where a dispute is submitted to one or more arbitrators who render a binding decision. Many international contracts include an arbitration clause, meaning the parties have agreed to arbitrate instead of going to court. Arbitration can be faster and more flexible than court litigation, and its big advantage is international enforceability (thanks to the New York Convention) as discussed above. An arbitrator’s decision (award) is final and can be enforced like a court judgment in most countries . Arbitration can also be tailored – parties can choose arbitrators with specific expertise (for example, someone versed in international finance for a banking contract dispute). Keep in mind arbitration can be expensive (arbitrators’ fees, institutional fees) but it remains a popular choice for cross-border contracts. Some arbitration can be non-binding (advisory), but typically in a contract context it’s binding unless specified otherwise .
- Other ADR Methods: Depending on the jurisdiction, there may be variations like mini-trials, early neutral evaluation, or settlement conferences . For example, a mini-trial involves each side presenting a summarized version of their case to top executives of both companies (and sometimes a neutral advisor) to encourage a business-driven settlement. These methods are less common but can be useful in complex business disputes. The key is that they provide a chance to resolve the breach without the full adversarial process.
Many contracts, especially international ones, require an attempt at mediation or negotiation in good faith before escalating to arbitration or litigation. It’s important to honor those clauses to avoid prejudicing your case. Even if not required, trying to settle can save costs.
However, do not delay too long in pursuing formal remedies if the other side is uncooperative – keep an eye on any contractual or legal deadlines.
5. Consider Legal Action (Litigation or Arbitration)
If informal or mediated resolution fails, or if the breach is significant and irreparable, the next step is to pursue formal legal action . This could mean filing a lawsuit in court or initiating an arbitration proceeding, depending on what the contract stipulates and which forum is appropriate. In deciding to litigate or arbitrate, consider consulting with an attorney, especially for international cases where jurisdiction and choice-of-law issues can be complex.
Legal action is usually the last resort because it can be time-consuming, expensive, and adversarial, but it is sometimes necessary to protect your interests and obtain relief for the breach of contract..
- Litigation: Suing in court involves the public judicial system. You’ll file a complaint alleging the breach and stating the damages or other relief you seek. The case will then go through procedures like discovery, possible trial, and judgment. In domestic contracts, you typically sue in the breaching party’s jurisdiction or where the contract was to be performed. Often, international contracts have a forum selection clause choosing a particular country’s courts. If not, you may have to sue in the defendant’s home country or wherever you can get jurisdiction (like where their assets are or where the breach had an effect). Keep in mind that getting a court judgment is one thing – enforcing it abroad is another, as mentioned earlier. Without a treaty, you might have to relitigate aspects in the foreign court to enforce a judgment though Vietnam has mutual recognition agreements with some countries.
- Arbitration: If the contract has an arbitration clause (or the parties agree to arbitrate after the fact), you’ll begin arbitration according to the specified rules (for example, under ICC, AAA/ICDR, SIAC, or other international arbitration institution rules, or ad hoc under UNCITRAL rules) or under Vietnam’s Commercial Arbitration Law 2010. Arbitration can be more streamlined than court (no broad discovery in many cases, and you can often get a hearing faster than a court trial). The proceedings are private. After the arbitrator(s) issues a decision, it’s binding and can be enforced in court if the losing party doesn’t pay voluntarily. As noted, arbitration awards from one country are generally enforceable in other countries that are New York Convention signatories, which is a powerful advantage in international disputes . For example, if you win an arbitration award against a company based overseas, you can take that award to the courts in the country where that company has assets, and those courts should recognize the award and help you collect, barring very narrow exceptions.
Throughout this process, maintain professionalism and keep records of all communications and steps taken. Also, be mindful of the statute of limitations – the time limit for bringing a legal claim. In some jurisdictions the clock might start at the moment of breach; in others when the breach is discovered. International contracts might involve multiple limitation periods (e.g. under CISG there’s a separate international limitation convention with a four-year period for sales contracts) applicable in Vietnam for CISG contracts unless excluded. If in doubt, consult legal counsel to ensure you don’t miss any critical deadlines .
Final Words
In facing a breach of contract, prevention is better than cure. Good contract management – including clear contract drafting, understanding cultural and legal differences in international deals, and building in robust dispute resolution clauses – can prevent many disputes or make them easier to resolve under Vietnam’s legal framework, including CISG where applicable.
However, when breaches do happen, knowing your rights and remedies, and responding promptly and strategically, will put you in the best position to resolve the issue effectively. Whether through amicable settlement or legal enforcement, the goal is to obtain the benefit of the bargain you made or be compensated for its loss. In an increasingly interconnected world, being prepared for breaches of contract in a general sense as well as an international sense is an essential aspect of doing business safely and successfully.
