[Scenario] Unilateral termination of a contract after your counterparty breaches — termination or cancellation?

A counterparty failing to keep its contractual promises is common, but unilateral contract termination for breach is one of the easiest legal decisions to get wrong. Terminate on the wrong grounds, and you may turn from the victim of breach into the breaching party yourself. This article takes a concrete hypothetical scenario, analyzes each option Vietnamese law allows, and concludes which option fits this scenario — and why.

Table of contents

• 1. The scenario (hypothetical)
• 2. Legal questions
• 3. Analysis
• 3.1 Applicable legal framework
• 3.2 Option A: Unilateral termination of contract performance
• 3.3 Option B: Cancellation of the contract
• 3.4 Option C: Suspension of contract performance
• 3.5 Comparing the options
• 4. Conclusion and recommendations
• 5. Extended questions
• Is your situation different?
• Language versions
• References

1. The scenario (hypothetical)

The scenario below is entirely hypothetical, for illustration of the law.

Binh Minh Company (a Vietnamese enterprise) signed a contract to buy 200 tons of raw materials from Dai Phat Company (the supplier) for processing into finished goods for seasonal export orders. Events unfolded as follows:

• F1. Contract signed April 2026: the seller committed to deliver all 200 tons meeting agreed quality before 15/6/2026; the buyer prepaid 30% of the contract value (VND 900 million).
• F2. The seller delivered 25 days late, with no advance notice of the delay.
• F3. Of the 200 tons delivered, 60 tons failed the quality standards agreed in the contract.
• F4. On 12/7/2026, the buyer sent a written demand that the seller take back the 60 tons of defective goods and remedy within 10 days. The seller stayed silent — no response, no remedy.
• F5. The contract provides a breach penalty of 5% of the value of the breached obligation and agrees on court dispute resolution.
• F6. Because of late delivery and poor quality, the buyer missed its seasonal export order, had the foreign order cancelled, and had to compensate the foreign partner.
• F7. The contract's purpose was seasonal export processing — timeliness was the essence of the deal.

Note: All facts F1–F7 are given in the hypothetical. The analysis below adds no new facts.

2. Legal questions

• Q1. Can Binh Minh unilaterally terminate the contract for Dai Phat's breach, and what conditions must be met?
• Q2. Which to choose — "unilateral termination of contract performance" or "cancellation of the contract" — how do these two institutions differ, and with what consequences?
• Q3. Beyond ending the contract, what can Binh Minh claim: the prepaid amount, the breach penalty, damages (including compensation paid to the foreign partner)?
• Q4. If Dai Phat invokes force majeure to dodge liability, how should Binh Minh respond?

3. Analysis

3.1 Applicable legal framework

Two statutes directly govern this scenario:

The 2015 Civil Code (Law 91/2015/QH13, effective 01/01/2017) — the general framework for all contracts. Two key institutions:

• Article 428 — Unilateral termination of contract performance: A party may unilaterally terminate performance and owes no damages when the other party seriously breaches contractual obligations, or the parties so agreed, or the law so provides. The terminating party must notify immediately; the contract ends when the other party receives the termination notice. Critically: if the unilateral termination lacks grounds under Clause 1, the terminating party is deemed the breaching party and bears civil liability. This is the biggest trap: terminate on wrong grounds, and you turn from victim into violator.
• Article 423 — Cancellation of contract: A party may cancel when (a) the other party's breach is an agreed cancellation condition, (b) the other party seriously breaches contractual obligations, or (c) the law otherwise provides. "Serious breach" is defined in Clause 2: failure to perform properly to the extent the other party cannot achieve the purpose of entering the contract. Article 424 adds cancellation for delayed performance: if the obligor still fails to perform within a reasonable time after demand, the other party may cancel; and where the contract's nature or the parties' intent shows the purpose would fail without timely performance, cancellation is available immediately without a grace period.
• Article 427 governs the legal consequences of cancellation: the contract has no effect from the time of conclusion; the parties need not perform agreed obligations (except penalty, damages, and dispute-resolution agreements); the parties mutually return what they received after deducting reasonable costs; the injured party is compensated.

The 2005 Commercial Law (Law 36/2005/QH11, effective 01/01/2006) — applies because this is a commercial contract (sale of goods between merchants):

• Article 312(4) — Cancellation of contract: cancellation applies when (a) a breach the parties agreed as a cancellation condition occurs, or (b) a party fundamentally breaches contractual obligations.
• Articles 310–311 — Suspension of contract performance: the aggrieved party may suspend performance in similar cases (breach agreed as a suspension condition, or fundamental breach); the contract ends (as to performance) when a party receives the suspension notice.
• Article 314 — Legal consequences of cancellation: after cancellation, the contract has no effect from conclusion; the parties reclaim benefits from their performed portions; the aggrieved party may claim damages.

Mapping F1–F7 onto this framework: 25-day late delivery (F2), 30% non-conforming goods (F3), no remedy after formal demand (F4), against the seasonal-order purpose (F7) — signs of "serious breach" under Article 423(2) of the Civil Code and "fundamental breach" under Article 312(4)(b) of the Commercial Law. This remains, however, the writer's legal inference; determining the breach threshold in practice belongs to courts and arbitrators on each case's evidence.

3.2 Option A: Unilateral termination of contract performance

What it is: Binh Minh sends a unilateral termination notice under Article 428 of the 2015 Civil Code, citing Dai Phat's serious breach (25-day delay, substandard goods, no remedy).

Legal basis: Article 428(1) Civil Code — the right to terminate unilaterally upon the other party's serious breach, party agreement, or legal provision.

Strengths:

• Fast and simple: just send the notice; the contract ends when the other party receives it — no court declaration needed.
• The performed portion is partly "preserved": Binh Minh need not take further goods or pay the balance; the party that performed may demand payment for the performed portion (Article 428(3)).
• Penalty, damages, and dispute-resolution agreements survive — Binh Minh can still claim the 5% penalty (F5) and damages under Article 419 of the Civil Code.

Risks and limits:

• The easiest point to get wrong: the entire decision bets on whether Dai Phat's conduct qualifies as "serious breach". If a court later finds the breach below the serious threshold, Binh Minh becomes the breaching party under Article 428(5) and bears civil liability — including damages back to Dai Phat.
• No "mutual restitution" mechanism as in cancellation: recovering the VND 900 million prepayment must rely on the right to demand payment for the performed portion plus damages — more complex evidentially.

3.3 Option B: Cancellation of the contract

What it is: Binh Minh declares cancellation under Articles 423–424 of the 2015 Civil Code (serious breach; delayed performance unremedied after a reasonable deadline) and Article 312 of the 2005 Commercial Law (fundamental breach).

Legal basis: Article 423(1) and Article 424 Civil Code; Article 312(4) Commercial Law 2005.

Strengths:

• More thorough legal consequences: the contract has no effect from conclusion (Article 427 Civil Code, Article 314 Commercial Law) — the contractual relationship is "erased" in principle, with no obligations left to perform.
• A clear mutual restitution mechanism: the parties return what they received after deducting reasonable performance costs. For Binh Minh, this means the right to reclaim the VND 900 million prepayment — better than Option A for money recovery.
• Penalty and damages clauses survive cancellation: Binh Minh can still claim the 5% penalty (F5) and full actual damages — including compensation Binh Minh paid to the foreign partner (F6), under Article 419 Civil Code on damages for breach.
• For commercial contracts, Article 312 Commercial Law uses the "fundamental breach" test — a more practical standard for goods sales, and this scenario's F2–F4–F7 fit it.

Risks and limits:

• The same bet as Option A on the "serious / fundamental breach" threshold: groundless cancellation also makes Binh Minh the breaching party.
• Mutual restitution requires detailed accounting: reasonable costs incurred in performance, asset preservation costs — valuing the received goods (the 60 tons of defective goods still with Binh Minh) may be disputed.
• In litigation practice, some courts are cautious about accepting full cancellation; proving the "purpose of the contract cannot be achieved" (Article 423(2)) demands solid evidence — here F6 and F7 are the two key pieces.

3.4 Option C: Suspension of contract performance

What it is: Binh Minh suspends its own performance (e.g., stops further payments, stops taking delivery) under Article 310 of the 2005 Commercial Law, sending a suspension notice to Dai Phat.

Legal basis: Articles 310–311 Commercial Law 2005 — suspension upon a breach agreed as a suspension condition or a party's fundamental breach.

Strengths:

• Temporary and less "cutting" than the two options above — preserves negotiating leverage: Dai Phat has an incentive to remedy so the contract can continue.
• Relatively simple consequences: the contract ends (as to performance) when the other party receives the suspension notice; the performing party may demand payment or counter-performance; the aggrieved party may still claim damages.

Risks and limits:

• Not conclusive: if Dai Phat does not remedy, Binh Minh must return to Option A or B.
• Vulnerable to delaying tactics — while F7 shows time is existential for Binh Minh, delay can increase losses.

3.5 Comparing the options

4. Conclusion and recommendations

Conclusion for THIS scenario. On facts F1–F7, Option B — cancellation under Articles 423–424 of the 2015 Civil Code combined with Article 312 of the 2005 Commercial Law fits best, because:

• 25-day delay plus 30% non-conforming goods (F2, F3), plus no remedy after a formal 10-day demand (F4) — together show signs of "serious breach" (Article 423(2)) and "fundamental breach" (Article 312(4)(b)).
• F7 (seasonal purpose) is decisive: it proves the delay defeated Binh Minh's purpose of entering the contract — exactly the Article 423(2) definition of serious breach.
• Binh Minh needs to recover the VND 900 million prepayment and claim extensive consequential losses (F6) — cancellation's mutual restitution mechanism (Article 427 Civil Code, Article 314 Commercial Law) serves this better than Option A's.
• Option C is unsuitable because F7 shows Binh Minh has no time to wait for Dai Phat's remedy — each passing day adds losses.

Option A is a reasonable fallback if Binh Minh wants a quick exit without entering complex mutual-restitution accounting. Whichever of A or B is chosen, Binh Minh must preserve intact the 5% penalty right (F5) and the right to full actual damages under Article 419 Civil Code (including compensation paid to the foreign partner per F6).

Recommended concrete next steps:

1. Re-read the entire contract: check termination, cancellation, penalty, exemption, and governing-law clauses — the ultimate legal basis always starts with the contract text itself.
2. Strengthen evidence before sending notice: keep the full contract, goods handover records, quality inspection results for the 60 defective tons, all remedy demands of 12/7/2026 and proof of Dai Phat's silence, loss documents (cancelled order, compensation receipts to the foreign partner).
3. Draft a written cancellation notice: state the grounds (Articles 423–424 Civil Code, Article 312 Commercial Law), list the specific breaches, demand return of VND 900 million and damages; send in a form proving sending and receipt (registered post, email with confirmed receipt).
4. Calculate damages in detail: itemize all losses per the Article 419 Civil Code structure — benefits that would have accrued plus costs arising from the breach.
5. Prepare a litigation plan: if Dai Phat does not cooperate within a reasonable time, sue in court per the dispute-resolution agreement (F5), seeking a declaration of cancellation, restitution, and damages.

Important note: The conclusion holds only for hypothetical facts F1–F7. Changing any fact — e.g., goods only days late, or a non-seasonal contract — may completely change the fitting option. Real cases need individual assessment by counsel on the full file.

5. Extended questions

• What if Dai Phat were only days late and the goods met quality? The serious/fundamental breach threshold would be hard to reach; Binh Minh would normally only claim penalties and delay damages — not terminate or cancel — to avoid the Article 428(5) trap.
• What if the contract allowed termination for delay beyond 7 days? Binh Minh would gain an independent agreed ground (Article 423(1)(a) Civil Code; Article 312(4)(a) Commercial Law) — a far stronger position than relying on the statute alone. This is why businesses should draft clear termination clauses upfront.
• What if Dai Phat proves force majeure? Article 294 of the 2005 Commercial Law lists exemptions from liability for breach, including force majeure. But the breaching party must notify immediately and prove the causal link between the event and non-performance — the burden of proof lies with Dai Phat, not Binh Minh.
• What if the contract were a long-term service contract (not a goods sale)? The 2005 Commercial Law would not apply; the framework narrows to the 2015 Civil Code with Article 428 (termination) and Articles 423–424 (cancellation). Choosing the right institution then demands even more careful assessment.

Is your situation different from these facts?

Every contract dispute has its own set of facts — and one different fact can lead to a different option. If your business faces a breaching counterparty and needs assessment of whether to terminate, cancel, or suspend, contact FLAT Law Firm at hotline 0988424851 for counsel's individual assessment on your actual file.

Language versions

References

1. 2015 Civil Code (Law 91/2015/QH13), effective 01/01/2017 — Articles 419, 423, 424, 427, 428.
2. 2005 Commercial Law (Law 36/2005/QH11), effective 01/01/2006 — Articles 294, 310, 311, 312, 314.
3. Thu Vien Phap Luat — consolidated texts and article contents cited above, cross-checked at thuvienphapluat.vn.

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