Contracts are legally binding agreements between parties that outline specific obligations and duties to be fulfilled. However, what constitutes a breach of contract in Malaysia? This comprehensive guide provides valuable insights to help you navigate the complex world of contracts.
Before diving into the types of contract breaches, let us explore the definition of a breach of contract.
What is a Breach of Contract?
A contract breach results from a party failing to meet their obligations or fulfil their duties as stated in a legally binding agreement. The other party may take legal action to recover damages or enforce the agreement’s terms.
It is important to note that a breach of contract in Malaysia is not limited to the complete failure of a party to fulfil their responsibilities. It can also occur when their performance falls short of the expected level, such as delivering something late.
Once the obligations of the contract are established, the court can determine if a breach has taken place.
Express and Implied Terms
The phrase ‘express terms’ refers to the contractual obligations explicitly stated and acknowledged by all parties in the contract. Aside from express terms, there can also be a breach of terms that were not explicitly stated or ‘implied terms’. The court reads these terms to ensure that the contract is commercially viable.
For instance, if Party A is contracted to set up a venue for Party B’s product launch, it is implied that the task will be completed on time, even if it is not explicitly stated in the contract. Also, certain implied terms are included in all contracts of a particular type, such as the Sale of Goods Act, which implies that all goods are free of general defect.
Implied terms must not contradict the express terms of the contract, as this would undermine the parties’ ability to contract freely. The more specific the wording of a contract, the less likely it is that a breach of contract will happen.
Types of Contract Breaches
1. Breach of Warranty
A breach of warranty (breach of a less important term) occurs when a party fails to fulfil a particular aspect or minor term of the contract. However, this breach is not to the extent of violating the entire contract.
The unfulfilled aspect must be of such a small nature that it does not hinder the contract’s main objective or prevent the other party from performing their obligations. Here, the other party may claim compensation for any losses incurred.
2. Breach of Condition
Breach of condition (breach of an important term) occurs when a party fails to meet a significant term of the contract, affecting the contract’s overall functionality. The law permits the innocent party to treat himself as discharged from further obligations and claim damages.
3. Anticipatory Breach
An anticipatory breach happens when a party informs the other party that they cannot fulfil their duties or obligations. While the actual breach of contract has yet to occur, the innocent party is still entitled to seek a remedy from the underperforming party.
This type of breach can be established through express or implied communication from the defaulting party. Having said that, it can also be inferred from the actions taken by the defaulting party, which insinuates that it is difficult or impossible for them to fulfil their obligations.
4. Breach of Innominate Terms
Depending on the form and effects of the breach, this kind of breach may function as conditions or warranties. Here, the innocent party’s remedy is repudiation and damages if the breach of a specific term affects the entire contract. However, if the violation has little consequences, their only recourse is to sue for damages.
Remedies for Breach of Contract in Malaysia
Damages refer to monetary compensation granted to the non-breaching party. Below are the two types of damages available in Malaysia:
- Special damages are monetary compensation sought for losses incurred because of a breach or wrongful act by another party, where the amount of the loss can be quantified.
- For example, if someone’s property is damaged due to another party’s wrongful act, the damage’s cost can be calculated and claimed as special damages.
- Meanwhile, general damages are losses that cannot be precisely quantified in monetary terms at the time of a trial.
- These losses are intangible and may include matters such as pain and suffering, loss of reputation in a defamation case, psychological effects of an accident, loss of amenities, and more.
2. Specific Performance
Specific performance is a discretionary remedy issued by the court to order the defaulting party to perform and carry out their obligations as stipulated in the contract.
This remedy is often sought in cases involving unique items or services that cannot be easily compensated with damages. Before granting the remedy, the court will consider numerous factors. The factors include the nature of the contract, the feasibility of enforcing specific performance, and more.
Also known as termination of a contract, rescission in Malaysia is categorised into ‘rescission for breach’ (termination) and ‘rescission ab initio’ (true rescission). In order to rescind, the rescission must be communicated and exercised within a reasonable time.
Competent Contract Lawyer in Malaysia
Breach of contract is a serious offence that can have significant consequences for the parties involved. To minimise the risk of a breach of contract, it is advisable to engage a contract lawyer to streamline, monitor, and improve the contract process.
At Sabrina Hashim & Co, we endeavour to deliver compelling legal services tailored to the specific needs of our clients. Our professional corporate and commercial lawyers provide certainty and safety with reliable commercial contracts that are expertly drafted and evaluated prior to signing.