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29 Jul, 2024
By Online Legal India
Published On 03 Nov 2020
Updated On 02 Jan 2025
Category Legal
A breach of contract occurs when one party fails to fulfill the requirements and obligations mentioned in the legally binding agreement. In the simplest terms, if someone offers a project to someone with a legally binding agreement with some terms and conditions, products or services to be provided, and so on, but the service requirement is not fulfilled according to the agreement, or the service or goods are not supplied in the stipulated time, or failing to meet other terms specified in the contract, the deceived person can file a complaint for the breach of contract.
When a breach of contract occurs, there are a lot of significant implications. The person who has breached the contract can surely be brought under legal consequences. The deceived person can surely seek legal remedies.
Understanding the breach of contract is essential because almost all business relationships run on contracts with another company or service provider. The personal or company-wise agreement is very common to run a business because one company is dependent on the raw or produced products or services of other companies. So, the contract breach may happen not only from the end of the suppliers’ end but also from the receivers’ end. Both parties need to fulfill their obligations as signed in the contract. If any party is involved in the breach of contract, they might be part of legal action. The cheated party can surely be involved in taking legal support and raising a complaint to get a judgment.
This article will describe what the breach of contract is and how you can get remedies if you experience it.
A breach of contract means to fulfill a binding contract signed by both parties receiving or supplying services or goods. As soon as the agreement is signed, it creates a set of legal obligations that the parties are bound to fulfill. Failing to fulfill the terms and conditions by any party is considered a breach of contract, and there are some laws to safeguard the victim.
Breach of contract may vary from different consequences regarding their severity and applicability. There are some types of breaches of contract. Some of them are mentioned below:
A minor breach of contract happens when the overall performance, product supply, or services are not compromised but a part of the contractual obligations has been breached. For example, if a supplier delivers the ordered goods late, but all the goods, quantity, and quality are as per the contract, it is considered a minor breach.
For most minor breaches of contract, the non-breaching party pays demands for demurrage of capital gain, profit loss, and other grounds. The party that has breached will remain liable to face the legal consequences as per the law, but for the delayed supply, the non-breached party cannot cancel the order.
A material breach occurs when the used material for a contractual project is not completed as per the agreement signed. This situation of contract is called the breach of partial contract. For example, if any contractor does not prepare a construction with the agreed material or is prepared with substandard materials, the complaint type goes under material breach.
When such a material breach happens during the construction project or is noticed after the complete construction, the non-breached party has the right to terminate the contract or demand the cost of the entire project built with the wrong material or as per the law.
If any party declares or states that they will not be able to fulfill the requirement as per the contract for any reason or without reason, it is one anticipatory breach. This breach may be through the statement or through the action that makes it clear that the agreement is about to be broken as per the contract.
In such cases, the non-breaching party can take action immediately or wait for the time when the contract is proved to be breached. The breached party will remain responsible for the anticipatory breach and can be sued for the damage caused before the time or the complaint might be raised before the damage when the breach is proved.
The actual breach happens when the service provider or goods supplier cannot meet the demands of the party at all. The entire contract and its demands are not fulfilled at all. This is called an actual breach. For example, if a buyer has contacted a seller to buy some quantity of goods from a seller but the seller has missed the entire supply in the stipulated time or later. This is considered as the actual breach.
On the other hand, if a building developer cannot start the project for a long time or even the due time of finishing, it would be considered a complete or actual breach of contract.
An actual breach of contract is a legal consequence that claims immediate legal support and claims of business damages of the non-breach person.
This is a type of breach where the non-breached party receives what they did not at all order. If you want to learn the example of a fundamental breach, here is an example. If a company desires software from the contracted party, but the party provides the wrong software, it is an example of a fundamental breach. A fundamental breach also happens when a party supplies the wrong fruits and vegetables ordered for a restaurant or hotel. It is also a severe breach of contract.
The non-breached party can immediately cancel the contract and ask for compensation as it hampers business damage. They may also demand the entire money refund as provided.
When a breach of contract occurs, the victim party has a lot of legal remedies to get it solved. These remedies are designed to restore the original property or money invested and the damages caused by the breach of contract. This may be decided by both the both-end mediation and arbitration procedures.
The legal consequence for breach of contract may be quite severe and serious according to the circumstances and importance of the dispute.
Damages:
The most common remedy for a breach of contract is to award compensation equal to a damaging amount, business loss, and loss of time for the wrong product or service provided. The damages must be cured by the law. Various types of damages may occur due to the breach of contract.
There are several types of damage:
Compensatory damages: These are intended to compensate the injured party for the losses for the delayed or non-delivery of the goods or non-completion of the project. Besides, the beached party needs to pay the non-beached party the amount that differed from the contracted amount or as per the law and severity of the damage.
Consequential Damage: These damages provide compensation for the losses that occurred not directly from the breach but as a result of it. For example, if a supplier’s failure to deliver components causes a manufacturing plant to shut down temporarily, the lost profits from this downtime could be considered consequential damages.
Punitive Damage: This damage compensates the defendant found guilty of committing something wrong. These damages may not compensate the damaged party; rather, they punish the party that has breached the contract and thus remove similar consequences in the future.
Nominal damages: the breach of contract happened, but the loss is not yet proven. Hence, the court may award a very small amount of compensation for the nominal damages to acknowledge the breach of contract that has happened. The complainant may not suffer a measurable financial loss.
Specific Performance:
Specific performance is a remedy where the court provides a solution to perform the obligatory part of the service that was breached. This time the monetary award is not provided. This type of remedy is very rare, but it happens sometimes.
For example, if a person is contracted to provide a specific service or artwork while purchasing an apartment from a real estate developer, but he is not capable of doing it. The court may order the completion of the unfinished work to be finished in a stipulated time as promised in the contract.
Rescission:
Rescission for breach of contract is the cancellation of the project or contract or the complete annulment of the contract. This happens when the material breach is perceived, fraudulent activity is noticed, and provided misinterpretation of false activity undermines the validity of contact.
In a recession, both parties are given relief from the obligation of contracts. The money of goods that are exchanged with the contract fulfillment will typically be returned. This solution is brought when the non-breaching party no longer wants to proceed with the contract. There might be compensation as per the monetary loss that happened to the non-breached party for the loss of time.
Reformation:
Reformation is an equitable remedy that has been implemented when the contract or agreement paper does not show the real intention of the project or the demand for service due to the misinterpretation, mistake, or ambiguity of the contract. In such cases, the court may modify the contract, understanding the demands of the party, and the project may be completed accordingly.
For example, if a project agreement is ambiguous or may have a lack of information that may make the project misleading. For this reason, the price may be placed incorrectly. The court may order a reform of the agreement so that the intention of the agreement becomes clear with the correct price from the service provider’s end.
Liquidated Damages:
Liquidated damages are the damages that may cause some predetermined damages. This amount is supposed to be paid by both parties in the contract. These clauses are enforceable when the mentioned amount is reasonable and not subject to punishment. Liquidated damages can be a legal process as both parties agree to the fact in advance to the amount of compensation in case of breach.
Remedies for Breach of Contract:
The non-breached party typically has a lot of solutions empowered by the laws of the Government of India. The appropriate remedy depends on the nature of the breach, the severity of the damage, the terms of the contract, and the goals of the non-breaching party.
Before going to the solution of the court, both parties must go under negotiation of the damage caused to the non-breached party. Then, a settlement arises outside of the court by cash or any other means. This settlement is less costly and less hazardous than time-consuming court cases and litigation. However, any party can hire mediation and arbitration. It is less costly and less time-consuming.
According to the new regulations, ADR, or Alternative Dispute Resolution, is mandatory before appearing in court. So, mediation and arbitration could be the best solution between the two parties. Mediation can perform a professional and well-trained mediator to solve the issue through the active performance of the two. On the other hand, arbitration is the quasi-judicial process where retired judges or similar people can arrange a judgment, and the outcome is binding. In arbitration, an arbitrator makes a binding decision after hearing both sides of the case, and solutions should be signed by both.
ADR is often less formal and quicker than going to court, and it may provide a more efficient means of resolving contractual disputes.
C) Litigation:
If the ADR cannot satisfy both and it fails, the court case becomes mandatory. Then, the court decides by hearing the demands of both as per the severity of the loss or damage to the project/order. It is a bit time-consuming and costly.
Conclusion
A breach of contract is a serious matter with significant legal implications for both parties involved. Whether the breach is minor, material, anticipatory, or actual, the non-breaching party has a range of legal remedies at their disposal. These remedies include damages, specific performance, rescission, reformation, and liquidated damages. In addition to these legal remedies, negotiation, alternative dispute resolution, and litigation offer viable solutions for addressing breaches and resolving them. If you face any such breach of contract, you can contact Online Legal India, the best legal solution-providing company across the nation.
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