[Scenario] No Penalty Clause in the Contract — Can You Still Claim Damages?

Many businesses discover their contract has no penalty clause only after a dispute has erupted. The immediate question: with no penalty clause, can you still claim damages, or must you simply swallow the loss? This article analyzes a specific hypothetical scenario under the Civil Code 2015 and the Commercial Law 2005 to make one point clear: no penalty clause does not mean no right to damages. In short, a contract without penalty clause claim damages case turns on proving actual loss under Articles 418 and 419 of the Civil Code 2015 — not on whether a penalty term exists.

Table of contents

• 1. The scenario (hypothetical)
• 2. Legal questions
• 3. Analysis
• 4. Conclusion and recommendations
• 5. Extended Q&A

1. The scenario (hypothetical)

Company B (buyer, Vietnam) signed a goods sale contract with Company A (seller, foreign-invested) in March 2026. Company A has now delivered 45 days late against the agreed deadline. Company B wants to claim compensation from Company A but discovers the contract contains no penalty clause. Company B's director wonders: with no penalty, can we recover anything at all? The scenario below is hypothetical and for illustration purposes only.

Given facts (FACTS):

• F1. A goods sale contract was signed in March 2026 between Company A (seller) and Company B (buyer); Company A delivered 45 days late against the agreed deadline.
• F2. The contract has no penalty clause and no clause on damages at all.
• F3. Because of the late delivery, Company B incurred warehousing and extra logistics costs and was penalized by a third-party customer for its own late delivery.
• F4. Company B also lost a side contract with another partner for lack of goods to deliver on time.
• F5. Company B still holds: Company A's email confirming on-time delivery, delivery minutes recording the actual delivery date, warehousing cost invoices, and the third-party customer's penalty notice.
• F6. Company A explains the delay by a shortage of input materials; no force majeure event has been proven.

2. Legal questions

• Q1. With no penalty clause, does Company B have the right to claim damages from Company A? On what legal basis?
• Q2. If so, what must Company B prove and how are damages calculated?
• Q3. Besides claiming damages, what other options does Company B have in this situation?

3. Analysis

3.1 Applicable legal framework

The key distinction to draw at the outset: contractual penalty and damages are two independent remedies with different grounds.

On contractual penalty — Article 418 of the Civil Code 2015:

• A contractual penalty is an agreement between the parties under which the party breaching an obligation pays a sum of money to the aggrieved party (clause 1).
• In other words: to impose a penalty, the contract must contain an agreement on the penalty. Without such an agreement, this remedy cannot apply — which is exactly Company B's situation (F2).
• Note the reverse as well: if the contract only agrees on a penalty without agreeing to bear both the penalty and damages concurrently, the breaching party bears only the penalty (clause 3). This shows the two remedies can apply together, but only with a clear agreement.

On damages — Article 419 of the Civil Code 2015:

• Unlike a penalty, damages do not require any prior agreement in the contract. The grounds are: a breach of obligation (F1), actual loss suffered (F3, F4), and a causal link between the breach and the loss.
• The aggrieved party may claim the benefits it would have enjoyed from the contract, plus costs incurred from non-performance, without double counting the benefits.
• For commercial contracts, Article 302 of the Commercial Law 2005 specifies: the recoverable value comprises the actual, direct losses suffered by the aggrieved party and the direct benefits the aggrieved party would have obtained absent the breach.
• Exemptions from liability are listed in Article 294 of the Commercial Law 2005 (force majeure, breach by the other party…). Here, Company A's "material shortage" reason does not fall within the exemptions (F6).

Framework conclusion: Company B cannot demand a penalty for lack of agreement, but it can fully claim damages by proving three elements: breach — loss — causation.

3.2 Option A: Claim damages under Article 419

What it is: Company B sends a written demand to Company A itemizing each loss: warehousing costs, extra logistics, penalties paid to the third-party customer, and profits lost from the cancelled side contract — attaching all available evidence (F5). If Company A refuses or stays silent, Company B sues in court or arbitration (per the contract's dispute-resolution clause).

Legal basis: Article 419 of the Civil Code 2015; Articles 300–303 of the Commercial Law 2005 for the commercial-goods portion.

Advantages:

• The most direct route to recovering actual loss, independent of whether the contract has a penalty clause.
• Company B enjoys an evidentiary advantage (F5): confirming emails, delivery minutes, invoices, the third-party penalty notice — enough to prove all three elements of breach, loss and causation.
• Damages can cover both costs already spent and profits that would have been earned, so the recoverable value may exceed a fixed penalty.

Risks and limits:

• The burden of proof lies with the claimant. Company B must prove each loss is real and caused by the late delivery. The "lost side contract" (F4) is the hardest to prove: it must show that with on-time goods the side contract would certainly have been performed, and how much profit was lost. With weak evidence, the court may accept only direct costs (warehousing, third-party penalties).
• Time and litigation cost: a commercial contract dispute can take many months, even years if appealed.
• Actual recovery depends on Company A's financial situation — winning a case against a party with no assets left makes enforcement very difficult.

3.3 Option B: Negotiate a supplemental agreement and settle definitively

What it is: Instead of heading straight into dispute, Company B proactively negotiates with Company A: the two sides sign an appendix supplementing liability for breach (a specific compensation amount or handling mechanism), while agreeing on a remedy — e.g., Company A delivers the remaining goods, covers part of the costs, or both sides agree to terminate and liquidate the contract.

Legal basis: the principle of freedom of contract (Articles 3 and 11 of the Civil Code 2015); parties may amend and supplement contracts under Article 421.

Advantages:

• Fast, inexpensive, and preserves the business relationship — especially valuable if the two companies want to keep working together long term.
• Avoids the proof and prolonged-litigation risks of Option A.
• Any agreement reached has contractual value and is enforceable.

Risks and limits:

• Depends entirely on Company A's goodwill. If Company A deliberately stalls, negotiation only wastes time.
• In negotiation, Company B may be pressed to accept less than the actual loss. Set a "floor" in advance based on the Article 419 loss calculation.
• Every commitment in negotiation must be put in writing — oral promises are very hard to prove in a later dispute.

3.4 Option C: Sue for damages, combined with cancellation if the breach is material

What it is: If Company A does not cooperate, Company B sues: claiming damages under Article 419 while seeking contract cancellation if the 45-day delay is assessed as a material breach of contractual obligations (Article 423 of the Civil Code 2015 on cancellation for material breach).

Legal basis: Articles 419 and 423 of the Civil Code 2015; Articles 300–303 of the Commercial Law 2005.

Advantages:

• Creates the strongest legal pressure, forcing Company A to respond.
• If cancellation is granted, Company B is no longer bound to accept late goods and is free to find a substitute supplier.

Risks and limits:

• "Material breach" is a concept the court assesses case by case — whether a 45-day delay counts as material depends on the nature of the goods, the contract's purpose and specific circumstances. There is no certain answer before adjudication.
• This is the most expensive and slowest option; the business relationship between the two sides will almost certainly collapse.

3.5 Comparing the options

4. Conclusion and recommendations

Conclusion for this scenario: Company B has the right to claim damages from Company A even though the contract has no penalty clause. A penalty requires an agreement (Art. 418) so it cannot apply given F2; but damages require only three elements — breach (F1), actual loss (F3, F4), causation — with no prior agreement needed (Art. 419, Art. 302 of the Commercial Law 2005). Company A's "material shortage" reason also does not qualify for exemption (F6).

Recommended next steps:

1. Immediately: review and preserve all evidence (F5) — back up emails, minutes, invoices; prepare a detailed schedule of each loss item with supporting documents.
2. Within 1–2 weeks: send a formal written demand to Company A, citing Article 419 and the loss schedule, with a response deadline (Option A combined with the spirit of Option B).
3. If Company A cooperates: negotiate an appendix on the compensation amount and remedy plan, with everything in writing.
4. If Company A refuses or stays silent past the deadline: prepare the lawsuit file, while assessing Company A's financial capacity to decide whether to pursue litigation (Option C).

Important note: this conclusion holds only for the given assumptions F1–F6. A single changed fact — e.g., a contractual limitation of liability, or late delivery caused by force majeure — could change the analysis. Real cases need counsel's assessment on the specific file.

5. Extended Q&A

• What if the contract has a 5% penalty clause but the actual loss is greater? The aggrieved party may claim both the penalty and damages if the contract agrees to bear both concurrently (Art. 418(3)). If the contract only mentions the penalty and nothing more, the breaching party bears only the penalty.
• For a commercial contract, what is the maximum penalty? Article 301 of the Commercial Law 2005 caps the penalty at 8% of the value of the breached contractual obligation, unless a specialized law provides otherwise. See also our FAQ on the maximum penalty.
• What if the breaching party proves force majeure? It is then exempt from damages under Article 294 of the Commercial Law 2005, provided it proves the force majeure event and notified the other party in time.
• Are moral damages recoverable in contract disputes? Article 419(3) allows the court to award moral damages upon the aggrieved party's request, but in practice this is very rarely applied in commercial contract disputes.
• Can you claim damages while demanding continued performance? Yes. Damages and enforced performance are remedies that can apply concurrently (Arts. 297 and 303 of the Commercial Law 2005) — e.g., demand delivery of the remaining goods and damages for the delay.

Is your situation different?

Every contract dispute has its own facts: contract terms, available evidence, the counterparty's financial capacity. For an assessment tailored to your case, contact FLAT Law Firm via hotline 0988424851 — describe your actual situation and we will analyze the best option for you.

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References

• Civil Code 2015 (No. 91/2015/QH13), Arts. 418, 419 — effective from 01/01/2017, in force.
• Commercial Law 2005 (No. 36/2005/QH11), Arts. 294, 300–303 — effective from 01/01/2006, in force.