#corporateadvisory
What to Do in Breach of a Contract
Khalid Khan
October 10
A contract is basically an agreement enforceable by law. But it is not as basic as it sounds. Day in day out we are all entering into transactions which are nothing but contracts. For example, when we travel by bus, by train or purchase groceries or get our car parked or shoes mended or take admission to a college, we have in each instance entered into a contract.

The essential ingredients that form a contract are proposal, acceptance, promise and consideration. All of this should be undertaken by persons competent to contract in accordance with the laws of their particular country.

Each contract is different. For some the stakes are too high, for some they are not. From an employment agreement to a multinational deal, a contract is the focal point of it all.

When two parties enter into a contract, the law and each of them expect one another to perform their respective obligations and abide by the contract. But that is not always what happens. Many times, due to several reasons, either party is not able to fulfill the conditions mentioned in the contract or go against what is mentioned in the contract thereby causing loss to the other party. When one party fails to perform their obligations under a contract, it is understood as a breach of that contract.

This breach can be a minor or major breach on one hand and anticipatory or actual breach on the other. Anticipatory breach as the name itself suggests is when one of the parties acknowledges in the beginning that they won't be performing their obligations under the contract and is then in the hands of the other party if they want to take action at that point or wait till the set time according to the contract. Actual breach is when the parties have to complete their obligations at a given time and one of them abstains from doing so at the stipulated time of the contract.

When a contract is entered into, the law expects the parties to stand by the contract and not cause loss to the other party. Therefore, when a breach of contract occurs, the other part suffers in some way or the other. And to protect the other party from the loss caused due to inaction of the other, every legal system provides different types of remedies to the suffering party because of the breach of contract.

The literal meaning of remedy is to "make right what is wrong". When there is breach of contract and one party is wronged, the law tries to make it right by providing remedies to the non-breaching party. These remedies are of various types which can vary according to the legal system of different countries but most of these remedies are on similar lines for all laws.

Therefore, in case of a breach of contract, these are the remedies provided to the non-breaching party. Some stem from the contract and some are provided through the court of law.
Damages: Damages are the sum of money which is imposed by the law on the party for violation of a right or a breach of a contract. In the given context, when there is a breach of contract the non-breaching party has the option to obtain damages for the loss sustained. Damages are given by way of compensation and not punishment.

Damages can be of various types, the two major ones being nominal and exemplary damages.
Nominal damages come in the picture when there is a breach of contract but there is no loss as a result of it. The loss is the breach itself and therefore, the non-breaching party claiming compensation is entitled to nominal or trivial damages only as it is proportionate to the result of the breach.

Exemplary damages are those awarded in addition to nominal damages when the loss suffered by the breach of contract is much greater and a result of recklessness by the breaching party.

Liquidated damages
are the ones where the parties agree to a specific amount in the contract as compensation in case of a breach of contract. Liquidated damages are often used in the situations where it can get difficult to actually calculate the correct amount of compensatory damages.

In most cases, the court does apply the liquidated damages but if there is a possibility that the stipulated liquidated damages are not enough for the loss caused, the court may not grant liquidated but exemplary damages.
Specific Performance: There may be situations where the loss caused due to the breach of contract by one party cannot be recovered through damages and the only resort to better the situation for the non-breaching party is to actually perform the original contract. This is understood as specific performance of contracts. For example, when a land, building or goods have specific value for the party and they cannot be replaced or recovered through monetary compensation. Specific Performance can be granted only when the damages are an inadequate remedy, or when the Court can supervise the execution of the contract, or when the contract is certain fair and just. Specific performance therefore, cannot be enforced of contracts of personal service.
Injunction: Injunction just as specific performance does not involve monetary compensation. Injunction is inferred as a means of enforcing a contract or a promise to forbear a party from doing something. While specific performance necessitates the performance of a contract, an injunction is when the court orders a party to not do something.

Injunctions are of two types: Temporary and Permanent. Temporary injunction can be issued at any stage in the proceeding whereas a permanent injunction can take place only when the final decree or order is passed for a proceeding.
Rescission: Rescission is another remedy for a breach of contract, which allows the party that has not breached the contract to cancel or refuse the contract as a remedy for such breach. Recission puts the parties back to a position where they would have been if there was no contract entered into by either of the parties in the first place.

For example, if X enters into a contract with Y to provide event management services to Y for his marriage. The contract required Y to pay half the price of the decided amount, at a particular date before the event. But Y does not pay X. Therefore, X can simply refuse to offer services as he has the right to rightfully rescind a contract in case of breach which in this case is the non-payment of the stipulated amount on the decided date as per the contract.

These are the most important ought to know remedies for breach of contract and are subjective to the laws of different countries.
A contract forms the legal basis of our day-to-day transactions. It is obviously very important to draft a strong contract with all the important clauses. But it is equally important to think of the aftermath. It is always better to be practical when it comes to transactions and businesses. As much as having a contract in place is important, the same goes for the remedies. The importance of contracts in the legal system also makes their breach a big deal and therefore, make sure that during the whole time and process of a contractual relation you are aware of your rights and remedies so that what is wronged can be done right.
Leave your name and mobile or WhatsApp number to be contacted within 24 hours
We don't spam, share or sell your information.