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Legal Remedies for Breach of Contract in Nepal

Legal Remedies for Breach of Contract in Nepal
Table of Contents

Remedies for breach of contract are legal solutions available when a party fails to fulfill contractual obligations. These remedies, including damages, specific performance, injunctions, and restitution, ensure fairness and uphold contractual commitments. Depending on the agreement, disputes can be resolved through court proceedings or alternative dispute resolution methods like mediation and arbitration.

Remedies for the breach of contract

The following remedies from the court for the breach of contract

A. To refuse further performance of the contract

In case there is a breach of contract by the parties in the following ways,

  • Any party to a contract fails to fulfill the obligation under the contract,
  • Gives notice to the other party that he or she will perform the act to be performed by him or her under the contract,
  • His or her action and conduct demonstrate that he or she is incapable of performing the act under the contract.

The parties can refuse the further performance of the contract. It is also stated in the National Civil Code, 2017 Sec 535(1) that "if one party commits a breach of the contract or the action or conduct of that party demonstrates non-performance of the contract in a material respect of demonstrates a material breach of the contract by the conduct or action of a party, the other party may rescind the contract by giving a notice to such a party. "

In the case of rescission of the contract, the party rescinding the contract is not bound to perform the contract,

Consequences of rescission or voidance of contract: National Civil Code, 2017 Sec 538

  • If, after a party to a contract has already received some cash of kind or any other benefit from the other party or after the fulfillment of the obligations under the contract partially, the contract is rescinded by mutual consent of the parties and the performance of the contract is not required under this part of other law, the contract is voided or declared to be void according to law or the contract becomes invalid or is rescinded under this part, such cash, kind or service so received shall be returned upon having settled the accounts of the cash or kind given until the date of the contract being in force.
  • If any service or advantage other than cash or kind has been given, the party receiving such service or advantage should pay a reasonable amount to the other party in consideration for such service or benefit,
  • If it becomes necessary to institute legal action by the reason of failure to return the cash or kind or to pay the amount, a reasonable expense incurred for that purpose can also be recovered.

Limitation to file the case: National Civil Code, 2017 Sec 544

A person who is aggrieved from an act done or action taken can file a lawsuit within two years after the date of the accrual of the cause of action.

A) To sue on quantum meruit

The Latin Maxim quantum meruit, literally means 'as much as earned or according to the quantity of work done or service rendered. If one person has done work for another person, he/she is entitled to recover from the other a reasonable remuneration for the work actually done, even though no particular remuneration of such work has been fixed by the contract.

The National Civil Code, 2017 Sec 539 states, 'the party can recover the amoure in proportion to the work performed in the contract (quantum meruit, it a contract is rescinded by the reason of its breach by any party or for any other reason, the aggrieved party can claim for the payment by the other party of amount under the contract in proportion to the work done or the performance of contract made by that party'.

B) To bring an action for damages (compensation for breach of contract) National Civil Code, 2017 Sec 537

The action for damages is always available, as of rights, when a contract has been breached. From this point of view, it should be contrasted with claims for specific relief and for the restitution, which are either subject to the discretion of the court or only available if certain conditions are satisfied,

The general principle of the damages is that the object of awarding damages for breach of contract is to put the injured party, so far as money can do it, in the same position as if the contract had been performed,

If there is a breach of contract, the party aggrieved by it is entitled to recover from the party in breach of the contract damages for the actual loss or damage caused by the breach or such loss or damage which the contracting parties knew when they made the contract to be likely to result from the breach.

If the parties to a contract, in anticipation, at the time of its formation specify a sum in the contract, which becomes payable for breach of the contract, the aggrieved party can be entitled to recover a reasonable amount not over that sum from the other party.

If the contract does not provide for compensation, the party claiming such compensation can be entitled to recover a reasonable amount for the direct and actual loss or damage resulted from the breach of contract or for the breach of contract or for compensation, But, no compensation may be recovered for any indirect or remote loss or damage.

If a contract, which is concluded for the completion of any act within a fixed period, contains a provision that compensation is payable if such an act cannot be completed within that period, the party paying such compensation may request for the extension of the period for the completion of the contract in proportion to the amount of compensation paid by him or her,

The right of a party to a contract to seek other legal remedies for the breach of a contract shall not be deemed adversely affected merely by the reason that the amount of compensation has been paid.

The assessment of compensation for any loss or damage should be ascertained in monetary value. (National Civil Code, 2017 Sec 542) But, if the monetary compensation is inadequate for the remedy of the breach, then, the parties can claim for the damages as well.

National Civil Code, 2017 Section 543 states, 'while determining compensation arising from the breach of a contract, the court can consider matters including whether the party has breached the contract intentionally or whether the non-performance has occurred due to recklessness and how much money or benefit might have been received by the innocent party to the contract had the contract not been breached'.

C) To sue for specific performance of a contract( National Civil Code, 2017 Sec 540)

Specific performance is a decree by the court ordering the performance of a promise that he/she has made. In the claim of the plaintiff, the court has the power to award damages either instead of, or as well as, ordering specific performance. There are principles which limit the scope of specific performance. They are as follows:

  • If the court thinks that damages will not adequately compensate the plaintiff.
  • The decision of the specific performance is given by the court. It is a discretionary power of the court, but the court will grant it where to do so would be just and equitable.

However, there are certain specific types of contracts that are not enforceable by the court. In these kinds of contracts, the specific performance is not granted, for example, personal service contracts, or another example can be, the employee cannot be shifted in his/her work.

If monetary compensation is not reasonable and adequate for the actual loss of damage suffered by the aggrieved party because of the breach of contract, the aggrieved party may claim for the specific performance of the contract instead of compensation,

Likewise, specific performance may not be claimed in any of the following circumstances:

  • 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 specifically be performed;
  • If the party in breach of the contract claims for its specific performance.

D) To sue for an injunction( National Civil Code, 2017 Sec 541)

An injunction is a decree by the court ordering a person to do or not to do a certain act. In the law of contract, it can be used to restrain a party from committing a breach of contract,

If the performance of a contract is not possible because any party to the contract is about to perform any act or conduct which is contrary to the nature of the contract, the party aggrieved by such an action or conduct may file a complaint in the court to prevent such an act or conduct.

If a complaint is filed, the court may issue an appropriate order to any party to immediately stop his or her particular action or conduct, subject to the settlement of the dispute arising out of that contract by such a contract or law.

If an order is issued, the aggrieved party is entitled to also recover additional loss or damages caused by the failure of the other party to comply with the order so issued.

E. Restitution

Restitution means returning to the previous state. Sometimes, the party can claim the restitution or to be in the previous state that is the stage before the contract was done. In simple language, the parties can demand the remedies to make the contract void.

F. Doctrine of unjust enrichment:

The Doctrine of unjust enrichment principle was first recognized by the House of Lords in the case of Lipkin Gorman (a firm) v. Karpnale Ltd.

The National Civil Code, 2017 Sec 664 states, if any person gets any benefit or advantage from another person without the reason of doing any lawful act or fulfilling any obligation, the person who so gets the benefit or advantage is said to have got an unjust enrichment. 492 If there is an increment in his or her property or decrease in his or her liability; if he or she receives a service from another or causes another to do a work; if another's property is used for him or her, then it is considered as unjust enrichment.

The doctrine of unjust enrichment is applicable in the following situations:

  • Things taken by mistake to be returned (solutioindebit): If any person takes or receives by mistake any goods, which he or she is not entitled to take or receive, he or she has to return the goods to the person from whom he or she has taken or received them.
  • To pay back debt paid by mistake: If a person pays a debt to another person by mistake because the person thinks that he or she is bound to do so and proves that he or she is not bound to pay such debt, that other person who receives such amount shall return it to him or her.
  • To return goods or amount taken with mala fide intention and benefits accrued therefrom: If a person wrongfully receives money or goods without any rightful claim, they must return them along with any applicable interest or benefits gained. If the goods or money are lost or damaged, they must also compensate for the loss.
  • To pay debt paid by the third person: If a debt payable by a person is paid by a third person without the debtor's knowledge, the debtor should pay the debt to the person who has so paid it.
  • Right to claim reimbursement if the payable tax paid by another person: If a tax payable by a person is paid by another person, that other person who has so paid the tax (any type of government fee, charge, tariff, duty and fine, and also includes a local tax) can claim reimbursement thereof from the person who is obliged to pay it.
  • Goods found may be kept upon giving information to the police: If someone finds goods, they must notify the police and keep them safe until the owner is found. The owner must cover the finder’s expenses. If unclaimed for three years, the goods legally belong to the finder.
  • A person who is aggrieved by any act done or action taken under this unjust enrichment can make a lawsuit within two years after the date of accrual of the cause of action.

Remedies for breach of contract ensure legal protection for aggrieved parties by enforcing contractual obligations and providing compensation for losses. Courts and alternative dispute resolution mechanisms offer solutions like damages, specific performance, injunctions, and restitution. These legal provisions uphold fairness, prevent unjust enrichment, and maintain trust in contractual agreements.