Question: Dear lawyer, I have a question that I would like you to answer. My company specializes in tax reporting services and we entered into a contract with a client to provide tax declaration services starting on July 18th, 2022. We provided the agreed-upon personnel, but in September 2022, the client notified us of their intent to terminate the contract. At the same time, the client has voluntarily proposed to compensate us with 3,500,000 VND. Meanwhile, our contract is set to run until December 2022, and we believe it’s crucial to fulfill our commitments and protect the rights of the workers we provide. However, since the client had not yet registered their business license at the time, our company’s representative stamped, signed, and initialed the service contract. In light of this, would the initialing signature be considered legally binding if we were to request full payment for the contract from the client? (Reader in Duc Hoa, Long An).
Answer: Thank you for your question to TVVN Press. Based on the content and contract you provided, we have forwarded it to lawyer Phan Thanh Quyen, who is a member of the Ho Chi Minh City Bar Association and has shared the following original quote:
Based on Article 3, Clause 2 of the Civil Code 2015: “Individuals and legal entities establish, exercise, and terminate their civil rights and obligations based on voluntary commitment and agreement. All commitments and agreements that do not violate prohibited provisions of the law and contravene social ethics are valid and must be respected by other parties.” Any commitments and agreements made in the contract between your company and your customer are valid and binding for both parties as long as they do not violate prohibited provisions of the law and contravene social ethics.
Furthermore, Article 401, Clause 1 of the Civil Code 2015 states, “A legally formed contract shall be effective from the time of its formation unless otherwise agreed or prescribed by law.” In addition, Clause 4 of Article 400 of the Civil Code stipulates that a contract made in writing will take effect from the time that the last party signs the document or accepts it by another means of acceptance expressed in writing. If the customer does not sign the contract but shows acceptance by another means (e.g. pointing, or stamping on the contract), that form of acceptance is still valid as a legal signature, and at the time of expressing acceptance in writing, the contract will come into effect.
Based on the information provided by your company, the customer has not signed the contract, nor expressed their agreement through other means such as indicating or stamping the contract. However, your company representative and the customer representative have initialed (in the top right corner of the contract). Additionally, from July 18, 2022, to September 2022, your company sent an employee to support the customer in providing accounting services by contract, and the customer did not raise any objections. This implies that the customer has acknowledged the contract between the parties.”
The illustrative photo shows the customer initialing at the top right corner of the contract.”
From this, it can be inferred that the contract between your company and the customer has become legally binding for both parties and is enforceable. Therefore, based on Article 1 and Article 5 of Section 428 of the Civil Code:
“1. One party has the right to unilaterally terminate the contract and is not liable for damages when the other party seriously breaches its obligations under the contract, or as agreed upon by the parties or provided by law.
5. In case the unilateral termination of the contract has no basis as provided for in Article 1 of this Section, the party unilaterally terminating the contract shall be deemed as the breaching party and shall assume civil liability by the provisions of this Code and other relevant laws for failure to fulfill obligations under the contract.”
Furthermore, according to the Service Contract submitted by your company, the contract for providing accounting services to the customer is set to expire at the end of December 2022. However, in September 2022, the customer wishes to terminate the contract unilaterally. Article 4 of your Service Contract with the customer stipulates that “both parties have the right to terminate the contract when they no longer find it suitable and necessary. Before termination, written notice must be given to the other party at least 30 days in advance.” Therefore, if the customer wishes to terminate the contract before the expiration date, they must demonstrate that the service contract is no longer suitable and necessary for termination, and must provide written notice to your company at least 30 days in advance. Failure to satisfy either of these conditions constitutes a breach of contract, and the customer must assume responsibility for compensating your company for the damage.
However, to request compensation for damages, the following three elements must be met:
– First, there must be a breach of contract. If a customer unilaterally terminates the contract without justification and without prior notice as stipulated in the contract, it is considered a breach of contract.
– Second, there must be actual damages. This means that the customer’s breach of contract causes damage to your company. At the same time, your company must prove that it has suffered actual damages due to the customer’s breach of contract.
– Third, the breach of contract is the direct cause of the damages. This means that the customer’s unilateral termination of the contract is the direct cause of the damages suffered by your company.
The amount of compensation for damages will be agreed upon by the parties. In case of no agreement, it will be determined according to the provisions of the law as follows:
– According to Article 419(2) of the 2015 Civil Code, the entitled person can request compensation for the benefit that they would have received from the contract. The entitled person can also request the obligated person to pay the costs arising from the failure to perform the contract, which does not overlap with the compensation for the benefit that the contract would have brought.
– According to Article 302(2) of the 2005 Commercial Law, the value of compensation for damages includes the actual, direct losses that the breached party has to bear due to the breach and the direct benefits that the breached party would have received if there had been no breach.
Once all three elements have been met, it is possible to request compensation for damages. However, if the amount of compensation cannot be agreed upon, the compensation value will include the actual, direct losses suffered by your company due to the customer’s breach of contract, plus the direct benefits that your company would have received if there had been no breach. In this case, it can be understood that if the customer had not terminated the contract, those benefits would belong to your company.
In summary, your company can request the customer to pay the full cost according to the contract if your company can prove the customer’s breach of contract (including the obligation to give prior notice and failure to justify termination), the actual, direct damages suffered by your company due to the customer’s breach, as well as the direct benefits that your company would have received if there had been no breach, and the causal relationship between the breach of contract and your company’s damages. However, if the customer has justification for termination, or if the parties cannot reach a compensation agreement, legal provisions will apply.
Hopefully, the legal advice provided by Lawyer Phan Thanh Quyen will help you overcome any obstacles. I wish you all the best and success in everything you do.
By TVVN Press
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