Overview: Breach of Contract

Overview: Breach of Contract

Breach of Contract – Meaning

A breach of contract happens when a party, without valid justification, fails to carry out his or her obligation as stated in the contract.

Examples of a breach of contract:

  1. Failure or refusal to perform his or her duty as stated in the contract;
  2. Preventing oneself to perform a duty as stated in the contract.
  3. Late in performing his or her duty as stated in the contract or not performing the contractual obligation within a reasonable time;
  4. Performance which is defective – a party fails to carry out his or her contractual obligation’s objective.
  5. Going against the contract – a party does something that they promised not to do.

It is not necessary to prove a party’s intention for not performing the contract obligations. In addition, it is not necessary to prove that a party did not exercise reasonable precaution in carrying out the contractual obligations unless the contract states otherwise.

It shall be noted that not all failures to fulfil contractual obligations lead to a breach of contract. There are 2 elements to determine whether a breach of contract occurs. These elements are as follows:

a. Party has failed to fulfil a contractual obligation

All contractual obligations as stated in the contract in writing, are known as the express terms. In a court trial for breach of contract, the court will first interpret the meaning of an express term (contractual obligation) and then the court proceeds to decide the issue of whether there is a breach of contract due to non-performing of a contractual obligation.

Besides express terms, there are other sources of contractual obligations. These sources are as follows:

  1. Implied terms;
  2. Legislation (for example, Sale of Goods Act); and
  3. Common trade usage.

When the parties of a contract have missed out an important term and because of that the contract is invalid, the court may decide that an implied term should be included in the contract.

b. Valid Justification is not available

A valid justification can be stipulated in 2 ways i.e. contract or law.

For instance, a supplier of goods is allowed by a price adjustment clause stated in the contract of sale to adjust the price reasonably. This is provided that the supplier has a valid justification to do so, for example, if their own cost of production or material costs has risen. It is considered a breach of contract if the supplier refuses to perform the contract due to another buyer agreeing to pay a higher price.

Remedies for Breach of Contract

There are 4 remedies:

1. Termination of Contract

Parties are discharged from all contractual obligations once the contract is terminated. However, not all contracts can be terminated. It depends on the contractual terms as stated in the contract.

2. Monetary Compensation / Damages:

Although an aggrieved party may sue the defaulting party for breach of contract and claim monetary compensation (also knowns as damages), the aggrieved party must prove to the court that they have taken reasonable steps to mitigate their losses.

 3. Specific Performance:

It is an order granted by the court to instruct or compel the party in default to perform their duty as stated in the contract. The court will not grant this order in every breach of contract suit and such an order is granted only when monetary compensation are not considered as an adequate remedy to the breach of contract. For instance, a contract which involved the sale and purchase of a house, land, limited edition goods, art sculpture or painting at an auction, etc.

 4. Prohibitory Injunction:

This is an order granted by the court to compel a party to fulfil their promise of not doing something. Similar to specific performance, the court will grant this order when monetary compensation is deemed inadequate to remedy the breach of contract.

Settling a Breach of Contract Dispute

There are 4 ways to settle a dispute concerning breach of contract:

1. Court proceedings / arbitration:

Formal and expensive method to resolve a breach of contract dispute.

2. Private Mediation:

Less formal and cheaper. It aims to reach an amicable or win-win settlement for both parties.

3. Small Claim Tribunals:

Less formal, less expensive and faster way of settling a breach of contract dispute. Parties are not required to be represented by lawyers. It handles the claims up to $ 10,000 or if the parties have consented, the claim can be up to $20,000. More information on the small claims tribunal.

4. Employees who are under the governance of the Employment Act:

The Ministry of Manpower can deal with employment contract disputes.

It is advisable to consult a lawyer if you are involved in a dispute concerning breach of contract. You may consult a lawyer regarding the best way to settle a breach of contract dispute and the probability of success in a case regarding breach of contract.

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