Service on legal consulting about contract penalties and compensation

9:10 am 24/08/2021 179 views

Penalty for breach of contract and compensation for damages are two sanctions that are frequently applied when one of the parties to a contractual relationship breaches its agreed-upon obligations. Basically, these two forms are quite similar, but there are still distinct points, specific to each type. Therefore, when signing a contract, businesses need to pay attention to the difference between these two contents to negotiate the most beneficial terms for themselves. To clarify more about the contract penalty and damage compensation in business, we would like to advise as follow:

Overview

  • Penalty for breach is the fact that the aggrieved party requires the aggrieved party to pay a fine for breach of contract if so agreed in the contract, except for cases where liability is exempted for acts of breach of the sale and purchase contract. chemicals include:
    • There is a case of exemption from liability as agreed by the parties;
    • A force majeure event occurs;
    • The breach of one party is entirely due to the fault of the other party;
    • A breach by one party stems from the implementation of a decision of a competent state management agency that the parties could not know at the time of entering into the contract;
  • Indemnification means the breaching party’s compensation for the loss caused by the breach of contract to the aggrieved party.

What Is Compensation? | Compensation definition and List of Allowances

Distinguish between penalty for breach of contract and compensation for damage

  1. Similarities between penalty for breach of contract and compensation for damage
  • Penalties for breach of contract and compensation for damages both apply to valid contracts.
  • These are all legal liabilities applicable to contract subjects
  • Both protect the rights and interests of the violated party
  • All due to violations of the parties in the contract
  • These are all provisions of the law aimed at influencing the sense of respect for the law.
  1. Difference between penalty for breach of contract and compensation for damages
Criteria Penalties Compensation
Purpose
  • Protecting the rights and interests of the subject parties
  • It is a legal responsibility to raise the awareness of the parties when performing the contract
  • Protect the interests of the violated party
  • To compensate for the loss of material benefits of the infringer
Conditions
  • There is an agreement to apply
  • There is no need for actual damage to occur
  • Only need to prove there is a violation
  • No agreement required
  • There is actual damage occurring
  • Must be able to prove that the actual damage occurred
  • violations are the direct cause
Scope of application
  • The penalty value is agreed upon in the contract and must not exceed 8% of the value of the breached contractual obligation;
  • In case a trader providing assessment services that issue an assessment certificate has incorrect results due to his or her own negligence, he/she must pay a fine to the client at a rate agreed upon by the parties, but not exceeding ten times the fee for assessment services.
  • Compensation value includes the value of the actual, direct loss suffered by the aggrieved party caused by the violating party and the direct profit that the aggrieved party would have been entitled to if there were no acts of violation. offense.
  • If the party claiming damages does not apply measures to limit the loss, the party in breach of the contract has the right to demand that the compensation value be reduced by the amount of the loss that could have been limited.
Popularity
  • Commonly applied to breach of contract
  • Only applicable when there is a possibility of damage
Obligations of the parties
  • As long as the agreement is written in the contract when there is a violation, it can be applied
  • Obligation to prove loss
  • Obligation to limit loss

Above is the difference between the two terms of penalty for breach of contract and compensation for damage. To maximize the interests of businesses when drafting, signing contracts as well as resolving disputes related to contracts, Hong Bang Law with an experienced team is always ready to support and advise.

If you need more detailed advice and answers as well as how to access this service, please contact directly the Deputy Director of Sales: Lawyer Nhat Nam via hotline: 0912.35.65.75, 0912.35.53.53 or call the toll free legal consultation hotline 1900.6575 or send a service request via email: lienheluathongbang@gmail.com

Wishing you and your family good health, peace and success!

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