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Remedies for breach of contract PDF Print E-mail

What can you do if your supplier or customer is not sticking to the terms of the contract?  It depends on the type of contract and the type of breach!  Our checklist will help you work out whether you can cancel the contract, claim compensation, or force the other party to do what they promised to do.

Who is a ‘party’ to a contract?

A party is someone who has a legally binding obligation under a contract.  It might be a seller obliged to deliver goods, a customer required to pay for them, a tenant required to pay rent, a landlord with an obligation to allow a business to operate from the landlord’s warehouse, a bank obliged to lend money or an account holder who must pay it back.  There are many different types of party – these are just some examples.

When does a breach of contract occur?

·         A breach of contract occurs when a party to a contract fails to perform some or all of its obligations in the contract. It entitles the other party to claim damages (which some people call compensation) for any loss it suffers.

·         When a breach of contract is sufficiently serious (for example, if a key contractual term has been breached), the other party is entitled to treat itself as being discharged from further obligations under the contract, instead of or as well as, claiming damages.

Damages for breach of contract

·         The main remedy available to your business for breach of contract is an award of damages. In contract claims, damages can be claimed whenever a contract has been breached, even where there is no actual loss, although damages in these types of cases will be small.

·         Damages in contract aim to put the injured party in the position they would have been in if the contract had been satisfactorily performed.

·         Not all losses from a breach of contract will be recoverable (for example, some losses may be regarded as too distant from the breach of contract to be recoverable – think about the taxi driver who was late, so you missed your plane, so you could not bid for a tender.  You might not have won the tender anyway, even if the taxi driver had been on time.  The outcome of the tender is too remote from the breach of contract.).

Liquidated damages clauses

·         A liquidated damages clause pre-sets the damages recoverable for a specified breach of contract.

·         Provisions for liquidated damages frequently appear in all sorts of commercial contracts, both in individually negotiated contracts and in standard terms of business. They are commonly found in contracts for construction, engineering and supply or sale of goods.

·         If a contract contains a liquidated damages clause:

o         your business must merely show that the relevant breach has occurred;

o         your business does not have to prove actual loss;

o         the amount recoverable is not left for the court to decide; and

o         the agreed figure should be a genuine pre-estimate of the loss likely to be caused by the specified breach.

Equitable remedies

Equitable remedies are awarded at the discretion of the court. An equitable remedy will normally only be granted where damages would be an inadequate remedy for your business.  Equitable remedies may not be available if you yourself have been a contributing factor to the problem, or if you have behaved dishonourably.

Rectification

·         Rectification only applies in the case of written contracts. Its main purpose is to correct mistakes made when recording agreements.

·         The courts can rectify a written agreement that does not reflect the true bargain between the parties. There is no limit to the amount of rearrangement or correction that the court may allow.

·         The function of rectification is not to re-write the contract in the form you wish you had negotiated it.  It is only when there is a discrepancy between what the parties agreed and what was written down that rectification is available.  You cannot use rectification to introduce a clause later which you did not even think about when you entered into the agreement.

Rescission

Rescission is the setting aside of a contract. The parties are put back into the position in which they were before the contract was made. It may be available where a contract has been concluded as a result of:

·         Misrepresentation.

·         Mistake.

·         Duress.

·         Undue influence.

Sometimes, if it is not possible to restore the parties to their original positions, as if the contract had never been made, the court will not set the contract aside, but will award damages in the place of rescission. 

Specific performance

Specific performance is a decree by the court to compel a party to perform his contractual obligations. It is ordered in building contracts or other contracts involving land and some other cases where damages would not be an adequate remedy.

 

More information

If you have any questions about the content of this checklist, please contact Hilary Crook ( This e-mail address is being protected from spambots. You need JavaScript enabled to view it ).   Drawing up contracts takes skill, and we don’t recommend that you do it yourself.  We can help with contracts for specific orders, standard terms of trade, contracts for dealing with consumers, contracts for on-line businesses and many others.   If you think your contracts are ready for a spring clean, you can ask us for a free, no-obligation healthcheck.  We will give you our honest opinion of how seriously we think your documents need overhauling, and a quotation for doing the work if we find 5 or more problems.

 

 

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