What is Non-Performance
For the purposes of Spain, for its part, the law on obligations and contracts defines the violation of a contract as the situation whereby the party responsible for the fulfilment of an obligation does, or fails to do, what was agreed upon, thus leaving the other party in the position of the aggrieved party. Furthermore, non-performance is understood as the failure to meet the obligations after the expiry of the deadline provided for in the debt instrument, and will not have effect if such breach was caused by impossibility resulting from fortuitous events or force majeure, or by the fault of the aggrieved party, as determined in each case, including the payment of interest.
The non-performance of a contract may theoretically be tested before all obligations have been carried out, although authorities have limited the cases in which this can be done in order to avoid granting the right to terminate when it is not actually justified. For example, in criminal law – which requires express and unequivocal expression of willingness to terminate the contract , and is not carried out in the event of strike or the impossibility of performance that was previously foreseeable – the breach must be absolute and the harm it causes must be such that it would make performance of the contract very burdensome. However, for the purposes of civil liability, it is accepted that the breach may consist of a formal and material violation of the contract by the debtor, notwithstanding the fact that the benefit may have been achieved – since even without the expressed agreement, the latter still perceives a benefit and is thus able to evade the consequences of a serious breach of the contract.
The difference between contractual non-performance and non-compliance of the contract in damages lies in that, in the process of contractual non-performance, it is the specific breach of contract by the debtor that places him or her in an objectively unlawful position. However, the debtor is not blamed for any tortious act, except for purely factual sequences leading to the breach of contract. If the debtor complies with his or her contractual obligations, then he or she shall not be held liable for damages, even if his or her conduct is in violation of the law and thus constitutes a deliberate tortious act.
Reasons for Non-Performance
Various activities can cause a failure to complete a contract. Not all of these will be intentional. In other instances, non-performance could be the result of negligent work or a sequence of unfortunate events. The common reasons for non-performance are:
Breach of terms is an active process that happens when one of the two parties intentionally does not follow instructions or otherwise comply with what the other side expects from them according to the contract. This is typically the result of a person or company attempting to gain an advantage over the other party. Breach of terms can sometimes be remedied if one of the parties is willing to negotiate a different strategy for completing the contract.
Unforeseen circumstances are situations in which something could not be anticipated and therefore could not be planned or managed. The key word here is "could." Unforeseen circumstances could be due to a variety of reasons, such as changes in the economy that directly impact the industry, or figuring out halfway through that the amount of material needed to complete the job is far more than expected. Sometimes these can be legally classified as an act of God, or natural disasters that potentially render the contract impossible (such as a flood, tornado, earthquake, etc.).
Involuntary force is similar to unforeseen circumstances in that it cannot be planned or managed at first. However, the key difference is that it arises from outside forces outside of one party’s ability to plan or manage. Differences between voluntary force and involuntary force are that the latter is less predictable and lacks a readiness to the nature of its development. It is, however, sometimes easier to rectify because it is independent of the parties’ undertaking. Some examples include riots, strikes, terrorism, war, and other events of this nature.
Consequences of Non-Performance Under the Law
Legal Ramifications of Non-Performance
Although the parties may eventually agree to resolve their dispute, they risk the filing of a lawsuit against them for breach of contract if one of the parties fails to perform its obligations as outlined in the contract. A party’s breach of contract may result in actual damages the other party incurred as a direct result of the breach. A plaintiff must be able to prove that the other party breached the contract. A party is allowed to introduce evidence to support its claim of actual damages resulting from the breach. Actual damages usually involve compensation in the form of money. A judge or jury will look to see if a plaintiff can prove that "but for" the incident that led to the breach of contract, would the plaintiff would not be entitled to actual damages? If yes, then the plaintiff is entitled to present a claim for actual damages. In most breach of contract cases, speculative damages are not allowed. In the event a contract allows for a party to recover for speculative damages, the damages being claimed must be ascertained with reasonable certainty. Speculative damages refer to those damages that are not based on facts in evidence or are conjectural or contingent.
The breaching party may also be liable for consequential damages. Consequential damages are those losses that occur as a result of the breach that would not normally be expected to arise in the ordinary course of events. Damages that could arise due to breach of contract include the costs and expenses incurred by the damaged party to mitigate the damages. A plaintiff may be awarded punitive damages if it can be shown that the defendant breached the contract in a manner that was intended to cause harm to the plaintiff. Punitive damages are not based on any loss to the plaintiff, but rather are in the nature of punishment to the defendant. A plaintiff granted punitive damages at trial may have its attorneys’ fees and costs of litigation reimbursed. Attorneys’ fees and costs are generally not recoverable in a breach of contract case unless the contract specifically provides for it.
Remedies for Non-Performance
In cases involving non-performance of a contract, the injured party may generally seek one or more of three common remedies to redress the non-performance: (1) specific performance, (2) money damages, and (3) rescission. In addition, the injured party may also seek legal costs and attorney fees from the non-performing party through an add-on restitutionary damages, although this damages may not be ordered or may be limited, as described below.
Specific Performance
Under contract law, specific performance is the remedy that a court can order when the terms of a contract obligate one party to perform a particular act. When the court orders the breaching party to perform, the injured party can enforce the contract by obtaining the benefit of his bargain. Courts will order specific performance only when monetary damages would be inadequate to compensate the injured party for his loss. For example, a court will order specific performance to enforce the sale of real estate if, upon breach of the contract by the seller of the property, the buyer would not have an adequate remedy for his loss from the breach. The buyer could not obtain another parcel of land of equal value and therefore specific performance to require that the seller transfer the land is appropriate in most such cases to protect the buyer’s expectation damages.
Damages
The injured party may seek damages for non-performance of a contract (sometimes called "expectation damages") if damages are inadequate to compensate the injured party for its loss. Courts typically will award money damages if the parties can ascertain the damage amount by a reasonable calculation. Money damages for breach of contract award the injured party the expected benefit of the bargain. Money damages can be classified as general, consequential , and punitive damages.
General Damages
General damages are those that naturally, and usually occur as a result of a breach of contract. General damage are sometimes called "the cost of the cure." A party cannot recover for a loss that was merely a personal disappointment to him. General damages in a tort action attempt to put the injured party in the position he would have been if the loss had not occurred.
Consequential Damages
Consequential damages compensate a party for losses suffered as a consequence of the non-breaching party’s failure to perform. Consequential damages may be awarded in contract actions where the breaching party had reason to know of special circumstances affecting the use or value of the promised performance. The special circumstances must be such that the damages were foreseeable at the time of formation of the contract. Although contract law renders a party liable in tort for any reasonably foreseeable and proximate damage to the other party, the beneficiary cannot recover consequential damages that arise from a third party’s denial of duty or service.
Punitive Damages
Punitive damages may be awarded in contract actions if the non-performance also involved a wrongful act. The measure of punitive damages in contract actions is determined by the degree of moral turpitude involved in the act or omission of the wrongdoer. The amount of punitive damages is to be commensurate with the gravity of the offense committed by the wrongdoer.
Restitutionary Damages
Restitutionary damages may be awarded to the injured party, to prevent a windfall to the non-performing party. Restitutionary damages will often include the reasonable value of the benefit conferred on the non-performing party, to ensure that the non-performing party does not profit from the breach.
How to Avoid Issues with Non-Performance
Like all things in life, there are preventative measures to take so as to not be on the receiving end of non-performance. Ensure that the contract is clearly and succinctly drafted so that it is clear what obligations arise should a party choose to enter into a contract. This will entail that the obligations agreed to are realistic. Avoid wishful thinking when entering into a contract and ensure that obligations are real and not imagined. Furthermore, as is true for most things in life, people do their best work when they are happy with their job. So, if a party is being paid for their services at a rate which is too low, this may serve to encourage poor performance. Sometimes it is better to allow a party to decline a contract than to have an unhappy party carry out the obligations of the contract. Lastly, be sure to maintain lines of communication with all parties who will be performing under the contract. Communicate with them, ahead of time, whether their duties under the proposed contract are feasible and that they will be able to meet the contractual terms when performing the obligations.
New Case Examples of Non-Performance
Case Study 1: The ABC Corporation vs XYZ Ltd.
In the event of a dispute regarding non-performance, the first issues that arise are usually the cause or the circumstances of non-performance. The adjudicating authorities also resolve disputes with respect to the types of non-performance. In the case of the ABC Corporation vs XYZ Ltd., the Supreme Court assumed the liability of default of the contractor for non-performance under the contract. The court examined the cause of non-performance and held that the contractor had already become entitled to an extension of time with compensation. The cause of non-performance was therefore beyond the control of the contractor.
In this case, the contract between the parties, inter alia, made the contractor liable for damages in the event of delay in the progress of work and empowered the employer to levy compensatory charges on the contractor for such delay. The extension of time clause in the contract entitled the contractor to an extension of time with compensation for certain delays, notably, on account of an act of god, exceptional, inclement and unfavorable weather conditions, force majeure supplies from outside, suspension of work by the employer and agreed extensions. Notwithstanding these exceptions, the contract also empowered the employer to levy compensatory charges on the contractor in the event of failure to complete work within the appointed time.
Case study 2: Pardeep Kumar Siddhartha Kumar vs. State of U.P.
In this case, the audit team provided a service to the client and had to investigate violations in the land-in-question. The client for this purpose sent their employees to the land-in-question to do the survey. Inadvertently, one of the employees gave a slip of paper, with the address of the land-in-question , to the local people. This resulted in wild rumors spreading throughout the district which alleged that the client’s employees had encroached upon the land-in-question. The client was required to shut down their survey and move 5,000 employees to other survey locations. The client raised a claim for compensation for the loss of business. The Tribunal, in this case, interpreted non-performance to be the direct fault of the service provider as a consequence of the actions of its own employee. The Tribunal held that the service provider was liable to pay for the losses caused by its employees, even when the cause of non-performance of the contract was a result of the employees’ actions.
Principles of liability for non-performance
In India, the principles of liability of persons responsible for non-performance of contracts, to another person for the loss suffered by the other as a result of the non-performance of the contract, are the same as the principles of liability for breach of contract set out in Section 73 of the Indian Contract Act, 1871 (Contract Act). Section 73 provides that when a contract has been broken, a party who suffers loss or damage may sue the party in breach for compensation for such loss or damage which naturally arose in the usual course of things from such breach of contract. Section 73 further provides that a party who suffers the loss or damage specified above shall not be entitled to any compensation for the loss or damage which has not arisen in the usual course of things from the breach or non-performance of the contract.
In addition to the general principle of liability under Section 73 of the Contract Act, the responsibility for compensation for losses, damages or deviation, as the case may be, is usually expressly provided in the agreement between the parties. Traditionally, such provisions have been generally based on the risk of loss between the parties.