INTRODUCTION TO LAW

TRAN THANH TAM (LL.M, PhD Candidate)

 BUSINESS CONTRACT
I. FUNDAMENTALS OF A CONTRACT
– Definition
– Essence of a contract
– Classifications of a contract
II. FEATURES OF A BUSINESS/COMMERCIAL
CONTRACT
– Party
– Object
– Purpose
– Form
– Governing law
III. OFFER AND ACCEPTANCE
 I. FUNDAMENTALS OF
A CONTRACT
1. Definition
A contract is “a promise or a set of promises for
the breach of which the law gives a remedy, or the
performance of which the law in some way
recognizes as a duty”
(The US Restatement (Second) of
Contracts, Section 1).
→ a contract is an agreement that can be enforced
in court
 1. DEFINITION
Contract means an agreement between parties in
relation to the establishment, modification or
termination of civil rights and obligations. (Art 385
–Vietnam Civil Code 2015)

Agreement

Parties (individual, organisation) CIVIL CONTRACT

Civil rights and obligations

 2. ESSENCE OF CONTRACT
- Legal validity of a contract : Art 3.2 + Art 401.2
“…Any commitment or agreement which does not
violate a prohibition by law or is not contrary to
social morals is binding for performance by the
parties and must be respected by other parties.”
‘…From the time when a contract takes effect, the
parties must exercise the rights and perform the
obligations to each other as undertaken. The
contract may only be amended or cancelled as
agreed by the parties or as provided by law. .’
→ CONTRACT = LAW
 3. CLASSIFICATION OF CONTRACT
• Bilateral vs Unilateral contract
• A bilateral contract is a contract whereby each
party has an obligation to the other.
• A unilateral contract is a contract whereby
only one party has an obligation.
 3. CLASSIFICATION OF CONTRACT
• Principal vs Ancillary contract
• A principal contract is a contract the
effectiveness of which does not depend on
another contract.
• An ancillary contract is a contract the
effectiveness of which depends on a principal
contract.
 3. CLASSIFICATION OF CONTRACT
• A contract for the benefit of a third person is
a contract whereby contracting parties must
perform obligations for the benefit of a third
person and the third person enjoys benefits
from such performance.
• A conditional contract is a contract the
performance of which depends on the
occurrence, modification or termination of a
specified event.
 II. COMMERCIAL
CONTRACT
• Parties: Art 2 – Law on Commerce
• Object: Art 3.2 – Law on Commerce
• Purpose: Art 3.1 – Law on Commerce
• Form: Art 24 – Law on Commerce
• Governing law: Art 4 – Law on Commerce
 II. COMMERCIAL
CONTRACT
• Parties: Art 2 – Law on Commerce

‘Article 2.- Subjects of application

1. Traders conducting commercial activities as provided for
in Article 1 of this Law.
2. Other organizations and individuals conducting
commerce-related activities.
3. Basing itself on the principles provided for by this Law, the
Government shall specify the application of this Law to
individuals who independently and regularly conduct
commercial activities without having to make business
registration.’
 II. COMMERCIAL
CONTRACT
• Object: Goods, service.
Art 3.2 – Law on Commerce
‘Goods include:
a/ All types of movables, including those to be formed
in the future;
b/ Things attached to land’
 II. COMMERCIAL
CONTRACT
• Form: Art 24 & Art 74 – Law on Commerce

‘1. Contracts for sale and purchase of goods may be

expressed in verbal or written form or established
by specific acts.
2. For types of contracts for purchase and sale of
goods, which, as provided for by law, must be made
in writing, such provisions must be complied with.’
 II. COMMERCIAL
CONTRACT
• Governing law: Art 4 – Law on Commerce

‘1. Commercial activities must comply with the

Commercial Law and relevant laws.
2. Particular commercial activities provided for in other
laws shall comply with the provisions of such laws.
3. Commercial activities which are not provided for in
the Commercial Law and other laws shall comply with
the provisions of the Civil Code.’
 DISCUSSION

Company A (seller) located in Binh Thanh district

entered into a sale of rice contract with company B
(buyer) located in Binh Tan district. The dispute arose as
A failed to deliver non-conforming rice to B as
stipulated in the contract. Which law would be first
applicable to settle the dispute?
1. Law on sale of rice
2. Law on sale of goods
3. Commercial Law
4. Civil Code
5. Law on Enterprises
III. OFFER AND ACCEPTANCE
OFFER AND ACCEPTANCE

OFFER

+ CONTRACT

ACCEPTANCE
Forms:
- Offer + Acceptance = Contract
- Offer signed by both the seller and buyer =
Contract
 1. OFFER

+ Civil Code 2015: Art.386 → Art. 397

+ CISG 1980: Art.14 → Art.24
 Contract formation under the
CISG

OFFER ACCEPTANCE
• Form of acceptance (Art CONTRACT
• Criteria for an offer
18) • The time when the
(Art 14)
• Counter-offer (Art 19) contract is
• Withdrawal (Art 15)
• Time allowed for concluded (Art 23-
• Revocation (Art 16) 24)
acceptance (Art 20-21)
• Termination (Art 17)
• Withdrawal (Art 22)
 1. OFFER

1. Criteria for an offer

2. Withdrawal and revocation of an offer
 Criteria for an offer
1 - Việt Nam: Art 386 Civil Code
- CISG 1980: Art 14
 ART 386.1
Offer to enter into a contract means a
clear expression by the offeror of its
intention to enter into a contract and to
be bound by such offer made to
another determined party or to the
public (hereinafter collectively referred
to as the offeree).
 ART 14 CISG 1980
(1) A proposal for concluding a contract addressed
to one or more specific persons constitutes an
offer if it is sufficiently definite and indicates the
intention of the offeror to be bound in case of
acceptance. A proposal is sufficiently definite if
it indicates the goods and expressly or implicitly
fixes or makes provision for determining the
quantity and the price.
(2) A proposal other than one addressed to one or
more specific persons is to be considered merely
as an invitation to make offers, unless the
contrary is clearly indicated by the person
making the proposal.
 REMARKS
• Inquiries
• Mass distribution of a catalogue of
merchandise
• Brochures
• Advertisement

→DISCLAIMER SHOULD BE PROVIDED SUCH AS:

 ART 14 VS ART 55 – OPEN
PRICE CONTRACT
‘Where a contract has been validly concluded
but does not expressly or implicitly fix or
make provision for determining the price, the
parties are considered, in the absence of any
indication to the contrary, to have impliedly
made reference to the price generally charged at
the time of the conclusion of the contract for
such goods sold under comparable circumstances
in the trade concerned.’
 ART 14 VS ART 55 – OPEN
PRICE CONTRACT
Case law:
In the majority of cases, the courts and arbitral
tribunals came to the conclusion that a contract
had been formed while in rare cases a different
result was reached
 WITHDRAWAL AND
2 REVOCATION
- CISG: Art 15.2, Art 16
- VN: Art 389, Art 390 Civil Code
 WITHDRAW REVOKE

OFFER REACHES DISPATCHES ACCEPTANCE

2 EXCEPTIONS ( Art.16.2)
 ART 389 CIVIL CODE ART 390. CIVIL CODE
An offeror may modify or An offeror may revoke the offer
withdraw an offer to enter into to enter into a contract if such
a contract in the following right was specified in the offer
cases: and the offeree receives the
(a) The offeree receives notice notice of revocation of the
of modification or withdrawal offer prior to the offeree
of the offer prior to or at the providing a notice of
same time as receipt of the acceptance of the offer to
offer; enter into the contract.
(b) The offeror clearly specified
the circumstances in which the
offer could be modified or
withdrawn and such
circumstances have in fact
arisen.
 2. ACCEPTANCE

+ CISG 1980: Art.14 → Art.24

+ Civil Code 2015: Art.386 → Art.397

 2. ACCEPTANCE

1. the offeree shall accept the entire

content of the offer
2. the acceptance must be received
within the time limitation set forth in
the offer
3. the acceptance shall not be withdrawn
 The offeree shall accept the
1 entire content of the offer

- Civil Code 2015: Art 392, 393

- CISG 1980: Art.19.2; Art.19.3
 Art 393 Civil Code Art 19 CISG
(1) A reply to an offer which purports to be an
acceptance but contains additions, limitations or
other modifications is a rejection of the offer and
constitutes a counter-offer.
(2) However, a reply to an offer which purports
to be an acceptance but contains additional or
“Acceptance of an different terms which do not materially alter the
offer to enter into a terms of the offer constitutes an acceptance,
unless the offeror, without undue delay, objects
contract means a orally to the discrepancy or dispatches a notice to
that effect. If he does not so object, the terms of
reply by the offeree the contract are the terms of the offer with the
modifications contained in the acceptance.
accepting the entire (3) Additional or different terms relating, among
other things, to the price, payment, quality and
contents of the quantity of the goods, place and time of
delivery, extent of one party's liability to the
offer” other or the settlement of disputes are
considered to alter the terms of the offer
→ ‘Mirror image’ rule materially.
 THE ACCEPTANCE MUST BE
2 RECEIVED WITHIN THE TIME
LIMITATION SET FORTH IN THE
OFFER

- CISG: ART.18, ART.21

- VN: ART 394
 FORMS OF ACCEPTANCE
- Written forms
- Oral form
- Performing an act
- SILENCE = ACCEPTANCE?
+ CISG (Art 18.1)
+ VN (Art 393 Civil Code)
 DISCUSSION
A requests B to set out the conditions for the renewal of a contract for
the supply of wine, due to expire on 31 December. In its offer B
includes a provision stating that “if we have not heard from you at the
latest by the end of November, we will assume that you have agreed to
renew the contract on the conditions indicated above”. What should A
do if A does not want to renew the contract? The applicable law is the
Vietnam’s law.

A. A need to reply by the end of November to terminate the

offer
B. A do not need to reply the offer if A don’t want to renew
the contract
C. A or B is correct
D. None of them is correct
 DISCUSSION
Under a long-term contract for the supply of
wine, B regularly met A’s orders without
expressly confirming its acceptance. On 15
November A orders a large stock for New Year. B
does not reply, nor does it deliver at the
requested time.
Discuss whether B is in breach.
 The acceptance shall not be
3 withdrawn
- VN: Art 397 Civil Code
- CISG: Art 22

The offeree is not allowed to

withdraw the acceptance if he
already sent the acceptance to
the offeror.
 DISCUSSION
The Polish seller (Y) sent an offer to the
Vietnamese buyer (X). The offer is valid until
30th May.
26/5: X accepted the offer on one condition –
that Y might reduce the price
29/5: X accepted the entire content of the initial
offer
27/5: Y concluded the contract with another
buyer.
X claims for damages. Who wins the case?
 DISCUSSION
Jasmine Ha was offered a position as director of food service for the hotel located in
District 1. She received a written offer of employment on the first of the month, with
a stipulation that the offer would be in effect until the 15th of the month. If Jasmine
were to accept the employment offer, she would have to sign the employment
contract and return it to the hotel before the offer expired on the 15th. Upon reading
the details of the contract, Jasmine felt that the salary identified in the letter was too
low, and thus she adjusted it upward by $5,000, initialling her change on the contract
copy. She then returned the offer letter to the hotel with a cover letter, stating she
was pleased to accept the position as detailed in the contract. The contract arrived by
mail in the hotel office on the 14th of the month, at which time, the hotel called
Jasmine to express his regret that she had rejected the employment offer. During the
telephone call, Jasmine realized that the hotel would not accept her salary revision
proposal, so instead she verbally accepted the position at the original rate of pay. The
hotel, however, declined her acceptance, stating that the original employment offer
no longer existed.
Does the hotel have the legal right to withdraw its offer of employment? Why or why
not?
 BUSINESS CONTRACT
I. VALIDITY OF A CONTRACT
– Definition
– Essence of a contract
– Classifications of a contract
 REQUIREMENTS FOR A
VALID CONTRACT
1. Parties to the contract [Capacity]
2. Voluntary consent of the parties
3. Purpose and Content of the contract
[legality]
4. Forms of the contract
Art 117 – Civil Code
 1. PARTIES TO THE CONTRACT

- The parties have civil legal capacity and

capacity for civil acts appropriate to the
established civil transaction.
 1. PARTIES TO THE CONTRACT
Legal capacity: Individuals (Art 16 -18 Civil Code)
• The civil legal capacity of an individual means the
capability of the individual to have civil rights and civil
obligations.
• All individuals have equal civil legal capacity.
• The commencement and termination of the civil legal
capacity
• The civil legal capacity of an individual may not be
restricted, except where otherwise provided by this
Code or other relevant laws.
 1. PARTIES TO THE CONTRACT
Legal capacity: Legal entities (Art 86 Civil Code)
• The civil legal capacity of a legal entity means the
capability of that entity to have civil rights and
obligations. con người là natural person k phải pháp nhân
• Civil legal capacity of legal entities is unrestricted,
except where otherwise prescribed by this Code or
other relevant laws.
• The commencement and termination of the civil
legal capacity of a legal entity?
 1. PARTIES TO THE CONTRACT

Civil Capacity: Individuals

• The age of majority
• Minors
– Age 15 – Under 18
– Age 6 – Under 15
– Under 6
 2. VOLUNTARY CONSENT

• Absence of free will:

– Deception and Duress (Art 127 Civil Code)
– Mistake (Art 126 Civil Code)
 2. VOLUNTARY CONSENT
The cow was Rose 2d of Aberlone, a gentle animal that lived in
Michigan. Rose’s owner, Hiram Walker & Sons, had bought her
for $850. After a few years, the company concluded that Rose
could have no calves. As a barren cow she was worth much
less, so Walker contracted to sell her to T.C. Sherwood for $80.
But when Sherwood came to collect Rose, the parties realized
she was pregnant.
1. Walker refused to part with the happy mother, and
Sherwood sued. Is the contract voidable?
2. Suppose Walker sold Rose thinking that the price of beef
was going to drop, when in fact the price rose 60 percent in
five months. Is the contract voidable?
 3. PURPOSE AND CONTENT OF
THE CONTRACT
→ Not contrary to the law or social morals.
• Purpose of the contract: Art 118
• Content of the contract: Art 398
• Legal prohibitions or contravention of social
morals: Art 123
 4. FORMS OF THE CONTRACT

Legal basis: Art 119 Civil Code; Art 24 + 74

Commercial law
Verbal
In Writing
Specific acts
In Writing + notarized/certified?
 VOID CONTRACTS
• When? Art 122
• Classification
– Art 130
– Art 129
• Legal consequences
 VOID CONTRACTS
• When? Art 122
1. A civil transaction shall be effective when it satisfies all of the following
conditions:
(a) The subjects have civil legal capacity and capacity for civil acts appropriate
to the established civil transaction;
(b) The subjects participating in the transaction act entirely voluntarily;
(c) The objective and contents of the civil transaction are not contrary to the law
or social morals.
2. The form of a civil transaction is a condition for its effectiveness in cases
where the law so provides.
 VOID CONTRACTS
Classification: Art 129-130
Article 129 Invalidity of civil transactions due to non-compliance with form
A civil transaction in breach of the provision that its form is a condition for its validity
shall be invalid, except for the following cases:
1. Where the civil transaction established was required to be in writing, but the written
document does not conform to the provisions of law, and one or more parties have
performed at least two-thirds of the obligations in the transaction, the court shall, at
the request of one or more parties, issue a decision to recognize the validity of such
transaction.
2. Where the civil transaction established in writing is in breach of compulsory
provisions on notarization or certification, and one or more parties have performed at
least two-thirds of the obligations in the transaction, the court shall, at the request of
one or more parties, issue a decision to recognize the validity of such transaction. In
this case, the parties are not required to carry out notarization or certification.
Article 130 Partially invalid civil transactions
A civil transaction shall be partially invalid when one part of the contents of a
transaction is invalid but such invalidity does not affect the validity of the remaining
parts.
 VOID CONTRACTS
• Legal Consequences:
Article 131 Legal consequences of invalidity of civil transactions
1. An invalid civil transaction shall not give rise to civil rights and obligations with
respect to the parties or to changes and termination of such rights and obligations as
from the time the transaction is entered into.
2. Where a civil transaction is invalid, the parties shall restore [everything] to its
original state and shall return to each other what they have received.
If restitution is not able to be made in kind, it shall be valued in terms of money to
return.
4. The party at fault which caused loss and damage must compensate.
IV. REMEDIES FOR BREACH
OF THE CONTRACT
 IV. REMEDIES FOR BREACH OF THE
CONTRACT

1. Exemptions for non-performance

2. Remedies for breach of the contract

 1. EXEMPTIONS FOR NON-PERFORMANCE

- Vietnam’s law:
+ Law on Commerce: Art 294-295-296
+ Civil Code: Art 156.1; Art 351.2

- CISG: Art 79, Art 80

- PICC 2016: Art 7.1.7

 1. EXEMPTIONS FOR NON-PERFORMANCE

ART 294 – LAW ON COMMERCE

+ A case of liability exemption agreed upon by the

parties
+ Force majeure event (Compared to Art 79.1 CISG)
+ A breach by one party is entirely attributable to the
other party's fault (Compared to Art 79.2)
+ 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.
 FORCE MAJEURE
 Art 156.1 Civil Code 2015: An event of force
majeure is an event which occurs in an objective
manner which is not able to be foreseen and
which is not able to be remedied by all possible
necessary and admissible measures being taken.
 Art 79.1 CISG 1980: A party is not liable for a
failure to perform any of his obligations if he
proves that the failure was due to an impediment
beyond his control and that he could not
reasonably be expected to have taken the
impediment into account at the time of the
conclusion of the contract or to have avoided or
overcome it or its consequences.
 COVID-19 AND FORCE MAJEURE

The Buyer (Neitherlands) and Seller (China) entered into an L-Lysine sales
contract on 20 June 2003.
Quantity: 445 ton
Price: USD 11,750 per ton, FOB Shanghai
Delivery time: July – December 2003
The Seller only delivered 289 ton goods between July and October of 2003, and
did not deliver the rest of the goods, which is 156 ton.
The Buyer informed the Seller to cancel the 156 ton undelivered goods and
request the Seller to take all the responsibilities thereof.
It is noted that SARS happened in China in April and was not under control until
by June 2003.
Seller’s arguments: During the contract, SARS happened in China, which
influenced the production and operation of the Seller, thus the Seller could not
perform the contract and are excused for such non-performance.
Could the seller be exempted due to the Force Majeure caused by SARS?
 1. EXEMPTIONS FOR NON-PERFORMANCE

REMARKS (ART. 295 LAW ON COMMERCE 2005)

• The party must promptly notify in writing the
other party of cases of liability exemption and
possible consequences thereof.
• Provide the evidence from qualified authority

• Comparisons: Art 79(4) CISG

 1. EXEMPTIONS FOR NON-PERFORMANCE

Effects of exemptions on the rights and duties of

the parties
• Not liable for damages resulting from non-
performance
• Comparisons: Art 79(5) CISG
 FORCE MAJEURE vs HARDSHIP

• Hardship: Art 420 – Civil Code

1. The change of circumstances shall be deemed fundamental
when it meets all following conditions:
a) The circumstances change due to objective reasons occurred
after the conclusion of the contract;
b) At the time of concluding the contract, the parties could not
foresee a change in circumstances;
c) The circumstances change such fundamentally that if the parties
know in advance, the contract has not been concluded or are
concluded, but with completely different content;
d) The continuation of the contract without the change in the
contract would cause serious damage to one party;
dd) The advantaged party has adopted all the necessary measures
in its ability, in accordance with the nature of the contract, cannot
prevent or minimize the extent of effect.
 1. EXEMPTIONS FOR NON-PERFORMANCE

Effect of Hardship: Art 420 – Civil Code

2. In the case of basic circumstances change, the advantaged
party may request the other party to the re-negotiate the
contract in a reasonable period of time.
3. If the parties cannot reach an agreement on amending the
contract within a reasonable period of time, any of the parties
may request a court to:
a) Terminate the contract at a specific time;
b) Adapt the contract with a view to restoring its equilibrium
The court may only decide to adapt the contract in the event
that the termination of the contract would cause greater
damage than the cost to perform the contract if it is adapted
 DISCUSSION
A, a manufacturer in country X, sells a nuclear power station
to B, a utility company in country Y. Under the terms of the
contract A undertakes to supply all the power station’s
requirements of uranium for ten years at a price fixed for that
period, expressed in US dollars and payable in New York. The
following separate events occur:
(i) After five years the currency of country Y collapses to 1%
of its value against the dollar at the time of the contract.
(ii) After five years the Government of country Y imposes
foreign exchange controls which prevent B paying in any
currency other than that of country Y.
(iii) After five years the world uranium market is cornered by
a group of speculators. The price of uranium on the world
market rises to ten times the contract figure.
 2. REMEDIES FOR BREACH OF
CONTRACT
• Remedies available to the injured party under the
general contract law
payment
Buyer Seller
goods
• Contractual parties fully perform their obligations and
gain the benefits they bargained for.
• If a party fails to perform part or all of the required
duties under the contract, then breach of contract
occurs. The other party cannot get the benefits it
bargained for.
 2. REMEDIES FOR BREACH OF
CONTRACT
• What types of breach of contract are there?
Non-performance, delayed performance and
defective performance.
• What are the buyer’s remedies for the seller’s
breach?
• What are the seller’s remedies for the buyer’s
breach?
 2.3. COMMON REMEDIES FOR BREACH THE
CONTRACT

- Specific performance (Art 297→299 Law on

Commerce – Art 28; 46→48; 62→63 CISG)
- Penalty (Art 300-301 Law on Commerce)
- Damages (Art 302→306 Law on Commerce;
Art 74 → 77 CISG)
- Avoidance of the contract (Đ312 →315 Law
on Commerce; CISG: [49(1); 51(2); 64(1); 74;
73; 81-84]
 SPECIFIC PERFORMANCE

(1) The seller has made non-delivery/delivered a part of goods

(2) The seller has delivered non-conforming goods
(3) The buyer failed to pay or take delivery

-- A grace period to be given for the buyer/seller to perform their

obligations (Art 298 VN Commercial Law; Art 47 CISG)
-- What happens if they fail to perform within the given grace
period? (Art 299.2 VN Commercial Law; Art 49.1b and Art
64.1.b CISG)
 SPECIFIC PERFORMANCE

• Relationships with other remedies

• ART 299 LAW ON COMMERCE 2005
• ART 48; 63 CISG
 PENALTY
• Penalty means a remedy whereby the aggrieved
party requests the breaching party to pay an
amount of fine for its breach of a contract, if so
agreed in the contract (Art 300 – Law on
commerce 2005)
 DISCUSSION
Should the Sellers fail to make delivery on time as stipulated
in the Contract, with exception of Force Majeure causes
specified in Clause 13 of this Contract, the Buyers have the
right to penalize the Sellers. Only in case the delay shipment
is more than 1 week. The penalty, however, shall not exceed
10% of the goods involved in the late delivery. The rate of
penalty is charged at 0.5% for every seven days starting
counting from 8th day of the delay, odd days less than seven
days should be counted as seven days.
 PENALTY
• “The fine level for a breach of a contractual
obligation or the aggregate fine level for more than
one breach shall be agreed upon in the contract by
the parties but must not exceed 8% of the value of
the breached contractual obligation portion.”
(Art 301 Law on Commerce 2005 )
Exceptions:
+ Art 266 Law on Commerce 2005
+ Art 146.2 Law on Construction 2014
Compare: Art 418 Civil Code 2015
 PENALTY
• Art 146.2 Law on Construction 2014
‘For works using state funds, the fine level must not
exceed 12% of the value of the violated contract’
 ART 418 CIVIL CODE
Article 418. Agreements on fines against violations
1. Agreements on fines for violations are reached by the parties to a contract which requires the
violating party to pay a fine to the aggrieved party.
2. The fine levels shall be agreed among the parties, unless otherwise prescribed by relevant
laws.
3. The parties may reach an agreement that the violating party has to pay only a fine for violations
and is not liable to any compensation for damage, or has to pay both a fine for violations and a
compensation for damage. In case the parties have an agreement on fines against violation which
does not specify that the violating party has to pay both a find for violations and a compensation
for damage, then the violating party has to pay only the fine for violations.
 PENALTY

RELATIONSHIPS WITH OTHER REMEDIES

- Art 307 Law on Commerce 2005
- Art 418 Civil Code 2015
 ART 418 CIVIL CODE
Article 418. Agreements on fines against violations
1. Agreements on fines for violations are reached by the parties to a contract which requires the
violating party to pay a fine to the aggrieved party.
2. The fine levels shall be agreed among the parties, unless otherwise prescribed by relevant
laws.
3. The parties may reach an agreement that the violating party has to pay only a fine for violations
and is not liable to any compensation for damage,or has to pay both a fine for violations and a
compensation for damage. In case the parties have an agreement on fines against violation which
does not specify that the violating party has to pay both a find for violations and a compensation
for damage, then the violating party has to pay only the fine for violations.
 DAMAGES
“ Liability to pay damages shall arise upon existence
of all of the following elements:
1. Breach of the contract;
2. Material loss;
3. Act of breaching the contract is the direct cause
of the loss.”
(Art 303 Law on Commerce 2005)
 DAMAGES
CLASSIFICATION OF DAMAGES

• Loss suffered by the other party as a consequence

of the breach

• Loss of profit
 DAMAGES
Principles of claiming damages

• The party claiming damages must bear the burden of

proof of the loss
• A party claiming damages must take such measures
as are reasonable in the circumstances to mitigate
the loss
 DAMAGES

RELATIONSHIP WITH OTHER REMEDIES

• Art 307 Law on Commerce 2005
• Art 419 Civil Code 2015
• Limitation of damages clause/liquidated
damages clause: Art 419 & 360 Civil Code
 ART 360 – CIVIL CODE 2015

‘Where there is any loss and damage resulting from

a breach of an obligation, the obligor must
compensate for the total loss and damage, unless
otherwise agreed or provided by law.’
 ART 419 – CIVIL CODE 2015
1. The damage to be compensated for breach of contractual obligations is determined in
accordance with Clause 2 of this Article, Article 13 and Article 360 of this Code.
2. The obligee may demand compensation for damage to its supposed benefits that will be
enjoyed by the contract offer. The obligee also may request the obligor to pay the costs
incurred due to its non-fulfillment of contractual obligations which do not overlap with the
compensation for damages for contractual benefits.
3. At the request of the obligee, a court may compel the obligor to pay spiritual damages to
the obligee. The damages shall be decided by the court according to contents of case.
 AVOIDANCE OF THE
CONTRACT
• Law on Commerce 2005: Art 312 → Art 315
• CISG: 49(1); 51(2); 64(1); 74; 73; 81-84
 AVOIDANCE OF THE
CONTRACT
• Fundamental breach:
+ CISG: Art 25
+ Law on commerce: Art 3.13
 ART 3.13 LAW ON COMMERCE
Fundamental breach means a contractual
breach by a party, which causes damage to the
other party to an extent that the other party
cannot achieve the purpose of the entry into the
contract.
 ART 25 CISG
A breach of contract committed by one of the
parties is fundamental if it results in such
detriment to the other party as substantially to
deprive him of what he is entitled to expect
under the contract, unless the party in breach did
not foresee and a reasonable person of the same
kind in the same circumstances would not have
foreseen such a result.
 Foreseeability and/or
knowledge of the detriment
• lack of foreseeability and knowledge pertains to the
detriment caused by the breach of contract, and not the
breach itself or its reasons
• The promisor’s knowledge or foreseeability of the
promisee’s expectations are relevant (only) for
interpreting and assessing the importance of the
obligation that has been breached, and its significance for
the promisee
• A promisee is only entitled to rely on something as a
‘substantial’ expectation ‘under the contract’ (Article 25) if
his contracting partner knew (or a reasonable person of
the same kind in the same circumstances would have
known) that, by entering into the contract, such a
particular expectation would be created.
 Foreseeability and/or
knowledge of the detriment
• Where an obligation’s importance has been clearly defined in the contract (e.g a
fixed date for delivery, making time ‘of the essence): the party in breach cannot
prevent avoidance of the contract by arguing that he did not foresee any detriment
to the promise
• Where an obligation’s importance has been addressed during negotiations
+ If the buyer informs the seller about the obligations he has entered into
towards his own customers, their importance is discernible to both parties and the
consequences of their non-fulfilment foreseeable for the seller.
+ It may also have been made unequivocally clear during negotiations (and
provable) that if a certificate of examination, an export licence, etc were not obtained
by the seller, the buyer would have no interest in the contract, would not conclude a
contract without the inclusion of that obligation, and would therefore wish to avoid
the contract if that obligation were breached.
• In other cases: a question of interpreting the contract in accordance with Article
8(2) and (3) by asking whether a reasonable person of the same kind, e.g one
active in the same branch of the trade or economic sector, would have recognized
its importance.
 Foreseeability and/or
knowledge of the detriment
A reselling buyer who purchases certain ‘wholefood products’,
tomatoes, from a new supplier. The buyer only operates in the
market for organic food products and its customers are
environmentally conscious. At the time of conclusion of the contract,
the buyer did not inform the seller about the importance of this eco-
friendly feature of the goods. Because of the shortage in organic
tomatoes, the supplier delivers tomatoes that were at some point
treated with chemical fertilizer. If the buyer wants to avoid the
contract because of delivery of non-conforming goods, it must show
that it is substantially derived of what it was entitled to expect under
the contract. If it can show that it cannot resell the goods within its
normal course of business, the question of foreseeability of this result
for the supplier becomes decisive.
 AVOIDANCE OF THE
CONTRACT
• Effects of avoidance:
+ CISG: Art 81-84
+ Law on commerce: Art 314