A valid commercial contract requires parties to fulfill their commitments. However, unforeseen circumstances may arise, leading to one or both parties being unable to fulfill their obligations and breaching the contract. In specific cases, the breaching party may be exempt from liability, thus not facing legal consequences for the breach of contract.
This article will specifically analyze 4 cases of exemption from liability for breach of commercial contract.
1. Exemption by agreement
In many commercial contracts parties often provide special exemption from liability clauses. This may include clearly defining the cases in which the breaching party will not be held responsible, such as in the event of power outage, natural disasters, or other emergency situations.
Commercial Law respects freedom in contracts, allowing parties to freely agree on exemption from liability in commercial contracts. This agreement must exist before the breach occurs and will be effective for the breaching party from the time the penalty is applied. If the contract is in writing, the exemption agreement is usually recorded in the content of the contract or accompanying documents.
However, even if the contract has been signed, the parties can still agree orally or through specific actions, or modify and supplement the contract with terms regarding exemption from liability. The exemption agreement can also be expressed through specific words or actions. However, proving the existence of an oral agreement is relatively difficult.
2. Exemption due to force majeure
According to Article 156, Clause 1 of the 2015 Civil Code, force majeure is an objectively unforeseeable event that cannot be overcome despite applying all necessary measures and capabilities, such as earthquakes, wars, epidemics, or natural disasters. The party breaching the contract may be exempt from liability for being unable to fulfill the commitments due to this event.
Accordingly, for an event to be considered a force majeure, an event must satisfy the following 3 elements:
First, it is “an objective event”
To be considered an objective event, the event needs to be beyond the control of the contracting parties, and it can originate from a natural source such as a storm, flood, tsunami, or earthquake. land, or from human actions such as strikes, riots, war and many other events.
Second, the event is unforeseeable
This unforeseen time is usually agreed upon during the negotiation phase. This means that at the time of entering a contract, parties do not have the information or opportunities to anticipate this event and make adjustments in the contract to cope with it. The force majeure event must be evaluated from the perspective of an ordinary person and reflect the feasibility of predicting or foreseeing it. This applies to everyone, regardless of their professional level.
Third, is an event that “cannot be overcome despite applying all necessary and feasible measures and capabilities”
A force majeure event is a situation so special and serious that it cannot be corrected or resolved effectively despite the implementation of all measures and capabilities of the parties. These measures may include implementing contingency plans, improving protection systems, or seeking alternative solutions, but there is no way to remedy or completely prevent the event.
“Feasible” refers to the efforts of the parties to implement the remedial and preventive measures that they can take under the conditions and resources available. The parties have put forth their best efforts to resolve this situation, but it is still not enough to remedy it.
To invoke the exemption in the case of a force majeure event, the breaching party must provide evidence that the force majeure event satisfies the three conditions mentioned.
3. A party’s breaching is entirely the fault of the breached party
Fault plays an important role in determining liability in civil contracts. Where a party’s breach of contract is the result of the other party’s actions or lack of action, a waiver of liability may be considered. This requires that the breach of contract must arise directly from the fault or wrongful act of the violated party, without the influence of third parties or other factors.
In some cases, this element may be clearly stipulated in the contract, especially in contracts that are important in nature or require great trust and reliability between the parties, for example: construction project contract or technical service supply contract.
4. Violations by one party due to implementation of decisions of state management agencies
The decision of a state agency may create one or more new non-contractual obligations for the party violating the contract. This means that the party must perform or not perform a specific action, resulting in a breach of contract. Exemption from liability only applies when the violation originates from the implementation of a decision of a competent state management agency, which the parties could not know in advance before signing the contract. If the parties were aware of the possibility of implementing this decision and still agreed to enter into the contract, the exemption will not apply.
For example: Company M specializes in producing and supplying chicken eggs to distributor K. However, company M’s production facility was declared to be in an epidemic area. According to the decision of the Provincial People’s Committee, company M must cancel its entire production facility to avoid spreading the disease. Implementing this decision makes company M unable to supply chicken eggs to distributor K according to the signed contract. In this case, company M is exempted from liability for its breach of contract.
5. Notify and confirm liability exemption cases
To apply exemption from liability for breach of contract, the violating party must have the responsibility to prove and notify the other party in writing of the exemption from liability along with the consequences that may occur within a period of time. reasonable time. When the exemption ends, the party who breached the contract must notify the other party immediately. In case the violating party does not notify the other party promptly, that party will have to compensate for damages.
In the legal field of Vietnam, understanding the cases of exemption from liability in breach of commercial contracts is important for businesses and parties involved in commercial transactions. Commercial contracts are an important basis for determining the rights and obligations of the parties, and breach of contract can cause serious legal consequences. In this article, I have analyzed four cases of exemption from liability in breach of commercial contracts, providing an overview of this regulation.