Breach of contract and its remedy is an important legal tool for protecting contractual rights. It ensures justice when one party fails to perform contractual obligations.
What is a Breach of Contract?
A breach of contract happens when a party fails to follow agreed terms. In Nepal, breach of contract and remedies are governed under the National Civil Code, 2074. The breach can be total or partial. It may involve delay, failure, or improper performance.
Legal Basis for Remedy of Contract Breach in Nepal
Previously, contract and its breaches were governed by the Contract Act, 2056. The Contract Act, 2056 has now been replaced by the Chapter on Contract in National Civil Code, 2074. It outlines the rights and remedies for contract breach in Nepal. However, any form of contract made pursuant to Contract Act, 2056 will be now be considered as done under National Civil Code, 2074.
Sections 535 to 544 of the National Civil Code, 2074 cover key provisions for compensation, rescission, restitution, and specific performance upon breach of contract.
Types of Remedies Available in Nepal
- 1. Compensation for Loss
Compensation is the most common remedy for breach of contract in Nepal. Section 535 of the National Civil Code, 2074 gives the right to claim damages.
The loss must be direct, real, and foreseeable. Indirect or anticipatory loss is not compensated under Nepalese law.
- 2. Specific Performance
Specific performance forces the breaching party to perform their obligations under the contract. It is applicable in circumstances when monetary compensation is not enough.
Thus, the aggrieved party may claim for the specific performance of the contract instead of compensation.
Under Section 540 of National Civil Code, 2074, courts can order performance in special cases. Real estate or unique goods often qualify.
Conditions where specific performance is not ordered:
- If monetary compensation is an adequate remedy for the breach of contract.
- If the court cannot supervise the performance of the act under the contract.
- If the contract is for providing services of personal ability, skill or knowledge.
- If the contract cannot be performed at the time of such conditions.
- If the party who breached the contract claims for its specific performance.
- 3. Rescission
Rescission usually means removal of a burden responsibility or a duty
It allows the innocent party to revoke the contract.
Section 538 of National Civil Code, 2074 lets parties restore each other to the original position. It helps undo unfair or breached contracts.
When a contract is rescinded, the one who owes must clear all the pending amount or provide services until the date of cancellation.
- 4. Restitution of Benefits
Restitution requires returning what was received under the contract. This is part of rescission or cancellation.
It aims to prevent unjust enrichment from breach of contract in Nepal.
- 5. Enforcement of Remedial Clause
If the contract already includes a clause for compensational remedy upon the breach of contract, it may be enforced. Section 542 of the National Civil Code, 2074 permits it if the amount is fair.
The court may reduce excessive compensation. This ensures fairness in every remedy of breach of contract in Nepal.
- 6. Injunction
An injunction prevents further any further breaches of contract. Though not stated in the Section related to contract, courts can grant an injunction.
It protects the contract’s subject until final judgment. This is a strong preventive remedy of breach of contract in Nepal.
The court can order for stopping that action or breach (to prohibit for any action). Injunction may also be sought when there is anticipatory breach.
Time Limit to Claim Remedy of Contract Breach in Nepal
Section 544 of the National Civil Code, 2074 sets a two-year time limit. The countdown commences from the date of the breach. Delays can lead to rejection of claims by the court. As ignorance of law is no excuse, it is better no to seek legal recourse within the stipulated time frame.