PRECEDENT 21

Precedent 21/2018/AL provides solutions for the following legal issues:

Is there any fault if a unilaterally terminating party only notice in advance within a short time?

Does the terminating party at fault have to compensate?

1. Regulations related to Precedent 21

Article 426 of Civil Code 2005 (corresponding to Article 428 of Civil Code 2015);

Article 269, Article 302, and Article 303 of Commercial Law 2005.

2. Content of the case

Company D leases Company C with two marine steel engines and towage ships in and out at the port. There is no an agreement on termination conditions in the contract. However, after 4 months of implementing the contract, Company C issued a written notice to terminate the contract (after only 3 days from the date of the notice) for the reason “there is no need to rent such two marine steel engines ”. Therefore, Company D sues and claims the Company C to pay the rental for the remaining period of the contract (namely the actual damage).

3. Legal issues are resolved in Precedent 21

The property leasing contract has a definite term, but no agreement on conditions for the contract termination. The lessee unilaterally terminates the leasing contract without the consent of the lessor.

Article 426 of Civil Code 2005 stipulates that a party has the right to unilaterally terminate the performance of the contract if the parties agree or provided by law. The unilaterally terminating party must immediately notify the opposing party of the termination; if not giving notice causes damages, it must compensate. When the contract is unilaterally terminated, the time of termination is calculated when the opposing party receives the notice. The parties are not required to continue performing the obligations. The party that has performed an obligation has the right to request the opposing party to pay. The party at fault must compensate for the damage.

Pursuant to Article 302 of the Commercial Law 2005, compensation for damage is the breaching party compensating for losses caused by breaching the contract to the aggrieved party. The value of damages includes the value of direct actual loss suffered by the aggrieved party caused by the breaching party and the direct benefit that the aggrieved party would have received if there was no a breaching act.

4. Resolution of Precedent 21

Based on Precedent 21, the Court found that from the issuance of a written notice to date of the contract termination was too short, causing damage to Company D due to the inability to obtain a replacement contract immediately. Company C's fault should be responsible for the damage caused to Company D. The actual damage to be considered is the rental for the remaining period of the contract.

5. The Value of Precedent 21

By taking a reasonable approach, Precedent 21 clearly resolves the case of the termination of the contract without the reasonable notice period. The proposed legal solution is to determine that the terminating party is at fault and must compensate for actual damages to the terminated party.