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Legal Remedies for Breach of Contract: Exploring the Option of Rescission
Contracts outline the rights and obligations of parties to a transaction. Hopefully, the parties spent appropriate time reviewing and negotiating the terms so everything would go smoothly once the contract was signed. However, this is only sometimes the case, as unforeseen circumstances by one or all parties involved could put the transaction(s) at risk.
These risks could lead to a breach of contract, which in turn could lead to a dispute. Typically, contracts should anticipate breaches of contract. Breach of contract damages and remedies may be stipulated so that some, if not all, of the contract and ensuing business relationship can be salvaged. However, there may be cases when not all eventualities are anticipated, and contracts may be silent on breaches. In these cases, a contract may still be valid and continue to be in force unless a party takes action. One such action, which will be discussed in this article, is recession.
What is a breach of contract?
A breach of contract, as previously described, is when one party claims that another party has failed to meet their obligations or responsibilities as set out in a contract. A breach could be immaterial, where no significant harm is done, and the contract can continue. This could include a minor delay in delivering a product or completing a task that does not affect an overall undertaking. A material breach is more severe, as a party may claim damage has been done to them, jeopardizing the underlying transaction or project.
What happens when a breach becomes actionable?
These material breaches are actionable, as a party can prove or claim that the other party has shirked their responsibilities or obligations. For example, the injured party may claim that by not fulfilling one or more terms of a contract, the other party has put the contract at risk. If this occurs, and the contract does not specify how to remedy such a breach, the party claiming the breach can take one of two actions. They can sue for the other party to perform according to the contract or demand the contract be terminated or rescinded.
What is an example of rescinding after a breach?
For example, a financier invests a significant sum in a restaurant. As part of the terms, the restaurateur agrees to have the business open and operating by 1 February 2020, with a pre-opening marketing plan in place by 1 July 2019. However, the contract did not specifically address any breaches of the contract. On 1 February 2020, the restaurant was nowhere near ready, and the restaurateur should have made more effort to warn the investor or to renegotiate the terms of the agreement. As the deadline has passed, the investor could rescind the contract immediately since there were no contingencies or remedies for such a breach offered in the contract.
Can a right to rescind be jeopardized?
However, continuing with the above example, if the marketing plan was not in place until 1 August 2019, and the investor did not object to this delay, the restaurateur could argue that this leniency means that the contract could not be immediately rescinded. The argument is that since the investor accepted the late performance on the marketing plan, they should be acceptable to a late performance on the opening date. In such a case, the damaged party may have to first demand performance by a specified time before they can rescind the contract.
What happens after a contract is rescinded?
Once a contract is rescinded, the parties must be restored to their previous condition, as they were before they entered into the agreement. Any services provided by either party must be paid for, and interest may need to be paid on top of any debt. This restitution is notably separate from any damages the injured party may claim against the other regarding the breach itself. However, neither party is obliged to fulfill any contract terms, and neither can no longer sue for performance.
Learn more about breaches of contract from THAC.
While, at first glance, rescinding a contract may seem like a simple proposition, as this article illustrates, it is actually no simple matter. Therefore, it is always beneficial to have experts assist in drafting a clear-cut contract that addresses breaches of contract or in determining courses of action in light of a breach of contract. Thailand Arbitration Center (THAC) offers such expertise.
THAC is a world-class dispute resolution center offering state-of-the-art facilities and full administrative support for all forms of alternative dispute resolution (ADR), including online dispute resolution. THAC is centrally located in downtown Bangkok, near public transportation and major roadways, so it is easily reached from major international airports. This convenient location makes it ideal for local and cross-border proceedings. Furthermore, those interested in learning more about ADR or who wish to find an ADR professional for arbitration or mediation can find a suitable expert at THAC.
