Part 3: How do Contracts Work?

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Table of Contents

• What to do if a Contract Term is Disputed
• Contractual Rights Following a Breach
• Termination
• Damages
• Quantum Meruit
• Specific Performance
• Injunction
• Conclusion

Welcome to part 3 of ‘How do contracts work?’ In this article, we will look closely at unfair contract terms, what do to if a term of the contract is breached, and how to respond if a dispute arises.

What to do if a Contract Term is Disputed

If there is a term in a contract that seems unfinished, vague or unfair, a court can choose not to enforce it. This also applies if the entire contract is incomplete, oppressive, or unclear. If the Courts can sever the uncertain, incomplete, or unfair term without compromising the entire agreement, they will usually do so. This means that the Courts will actually change, omit, or add words to the agreement to rectify it. Following this amendment, a Court may then adjudicate using this new, amended version of the original contract.

If, however, severing the term will substantially change what the parties originally bargained for, then a Court will not sever the term.

Contractual Rights Following a Breach

If a contract is breached, under general contract law there will be a range of different remedies. The most appropriate remedy will depend on the importance of the term in creating the contract. The subject matter of the contract will also play a role in the remedies that will be available to the innocent party. Here are some of the remedies that may be made available:

Termination

One of the remedies that might be available would be terminating the agreement. For example, if you were delivered goods that were not of a merchantable quality, i.e. completely defective, you would probably be entitled to terminate the contract.

Damages

As a form of relief, damages is probably the most common remedy. When an aggrieved party seeks damages from the party in breach of the contract, they are entitled to compensation that would restore them to their situation prior to the breach, i.e. to recover any losses that ensued after the breach. Some of the damages an aggrieved party may seek include: any loss of profits flowing from the breach, and any monies expended in repairing the defective goods.

Quantum Meruit

The term quantum meruit is Latin for ‘so much money as the plaintiff reasonably deserves’. This principle allows a plaintiff to recover money as remuneration for the contracted goods or services. This remedy can be distinguished from damages, as it is more concerned with what gains the breaching party has made than what losses the innocent party suffered.

Specific Performance

Another remedy is known as specific performance, whereby the court orders the party in breach to do the things that they promised they would do under the contract. If damages are adequate, a Court will not usually order specific performance. In addition, specific performance is not usually enforced for contracts for personal services.

Injunction

An injunction is a court order that prevents something from occurring, such as the ongoing breach of a contract. In terms of practicality, an injunction is only enforced for contracts that are significant.

Conclusion

Having issues getting the other party to follow through with their contractual obligations? If you need help enforcing your contract, or simply wish to assess your legal standing by having your contract terms reviewed, contact our Client Care team on 1300 544 755. Our team of contract lawyers will happily assist you in enforcing your contract against the breaching party.