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Contracts are an essential element in almost every business transaction. It’s always important to have the terms of any arrangement in writing so that it can be enforced in the case of a dispute or misunderstanding.
But what exactly happens when a contract is breached and needs to be legally enforced? What can the courts do to ensure parties are granted their rights?
One of the remedies that are available for a breach of contract is specific performance. It basically means that a party needs to perform their obligations under that contract, as compelled by the court.
In this article, we’ll go through how specific performance works. But first, let’s go through some background information around contracts generally.
What Are The Elements Of A Contract?
A contract is a written agreement that sets out the terms and details of your promise with another party.
Its main purpose is to ensure that you can take legal action if one of the parties does not uphold their obligations under that arrangement. This makes it a requirement for parties to perform their promise.
However, it can only be enforced if it is legally binding. To do so, it must satisfy the following elements:
- Offer and acceptance
- Intention
- Consideration
- Capacity
Put simply, when a proposal of some sort is made to a party, and there is a clear intention for that promise to be binding, a legally enforceable contract arises provided there is something of value that is exchanged.
Further, the parties need to have a sound understanding of what they are agreeing to. For example, can a minor sign a contract?
Verbal promises can also be legally binding, so it’s crucial that you fully understand the contractual obligations you are agreeing to.
What Is A Breach Of Contract?
When there is a valid contract in place, failure to perform or fulfil the obligations set out in the agreement will constitute a breach of contract.
In this case, the other party (who suffered the breach) can take legal action and bring the case to court.
Luckily, there are many ways businesses can avoid breaching a contract from the outset. In other words, having a good lawyer who drafts strong contracts for your business minimises the risk of things going wrong later – chat to our friendly team of experienced lawyers if your contracts may need some tweaking!
What Are The Remedies For A Breach Of Contract?
Usually, the court will decide what the best remedy is. In other words, it is up to the court to decide what the best solution for the issue is, and how to restore the innocent party’s original position before the breach occurred.
For example, some cases may require damages as an appropriate remedy. This means the party that was in breach would need to pay the other party a sum of money as ‘compensation’ for the loss or damage they caused.
Another remedy is the law of specific performance – let’s look at this below.
What Is The Law Of Specific Performance?
The law of specific performance is a remedy granted where a breach of contract has occurred.
Usually, the court will grant specific performance where it is the best way to place the innocent party in the same position they would have been in if the contract had been executed properly and correctly.
In other words, it seeks to place the innocent party in a position they would have been in if no breach had occurred in the first place.
So, the court compels the party in breach to perform their original promise under the terms of the contract.
Defences To A Breach Of Contract
Where a party has breached a contract, there are a number of defences available to them (please note that we do not handle legal disputes or work in dispute resolution – it’s important that you seek lawyers who specialise in litigation if you are currently going through legal proceedings).
Generally, some of the most common defences would be the following:
- Limitation of liability
- Factors that render the contract invalid
- Force majeure
Limitation of liability clauses may exist in some contracts. These liability clauses aim to limit a business’ liability for certain matters. For example, when drafting a contract, if there is a matter that is likely to be outside of your control, it’s worth getting a good contract lawyer to draft a clause that limits your liability to its maximum extent to protect your business.
You may have also heard of force majeure clauses. This clause is inserted in contracts in case there is an event that renders the performance of a promised task impossible.
For example, during COVID-19, there would have been a number of contractual obligations that were suddenly impossible to perform due to legal changes and restrictions that affected businesses on a global scale.
These are the types of situations that would trigger a force majeure clause, forming a defence to a supposed or alleged breach of a contract.
When Will Specific Performance Not Be Granted?
Like we mentioned before, it is up to the courts to decide whether a remedy of specific performance is appropriate in the circumstances.
Usually, however, specific performance will not be granted where the court needs to supervise the performance of that specific promise.
How Can I Avoid Breaching A Contract?
A breach of contract is taken very seriously, as contracts are legally enforceable. The legal consequences can be a huge headache, so it’s important to know how you can avoid these kinds of situations.
The best way to protect your business from these legal proceedings is to have your contracts drafted by a good lawyer. This way, they can assess your specific situation, your business’ needs and the specific terms that can place your business in the best position in any arrangement.
For example, it’s important to have a lawyer draft good limitation of liability clauses if your business deals with high-risk transactions. This way, you can protect your business while also ensuring your business can successfully and efficiently carry out business activities.
Do I Need A Lawyer To Review My Contracts?
The simple answer here is yes – no matter what kind of contract your business is entering into, it’s always crucial to have a lawyer review the terms of your agreement.
This is because there could be certain clauses or details that could place your business in a bad position, or perhaps there are better protective measures that could be inserted into the contract.
A lawyer is the best person to turn to when it comes to mitigating the inevitable risks that float around your business.
Key Takeaways
If you need a lawyer to review any of your contracts, our team is happy to help. With years of experience and a range of expertise, we can advise you on the legal issues that may arise in your contracts and advise you on your options moving forward.
With strong contracts in place, you ultimately minimise the risk of ending up in court due to a breach of contract.
If you would like a consultation on your options going forward, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
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