Breach of Contract: Legal Remedies and Implications

The case presented here falls under the doctrine of Contract Act, 1872 and especially under the provisions regarding breach and remedies for breach of a contract. When the rights and responsibilities arising out of a contract are extinguished, the contract is said to be dissolved or terminated. A contract may be dissolved in any of the following ways: 1. By Agreement: A contract can be terminated by an agreement between the same parties who entered into the contract with mutual agreement. 2.

By Performance: As the parties into the contract complete performance of their shares of promises a contract in terminated.

3. By Frustration: A contract can be terminated by the impossibility in the fulfillment of the purpose of the parties in entering into a contract. 4. By Breach: When a contract is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance. 5. By Operation on Law: Discharge of a contract by operation of law may occur by merger, by insolvency or by alteration of the written document.

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In the case in concern, Nike (BD) Ltd.

enters into a contract with Sunshine Fabrics for supply of 50,000 pcs of T-shirt as per sample and design. One of the provision/ stipulation of the said contract was that-“the Sunshine Fabrics would not sell to his other customers for a period of 2 years any T-shirt of the same design and description”. Eventually the said design T-shirt (of Nike) became very popular in Bangladesh and, many retail shops show keen interest to buy them at higher price and as such, Sunshine Fabrics started selling them to different shops ignoring their contract with Nike (BD) Ltd.

This is a clear case of breach of contract. A breach of contract is failure to perform as stated in the contract. When a contract is broken the party who suffers on account of it has one or other of the following remedies: 1. Damage: Damages are moneytary compensation allowed to the injured party for the loss or injury suffered by him as a result of the brach of contract. 2. Specific Performance: Specific performance means the actual carrying out of the contract as agreed. 3. Injunction : Injunction is an order of a court restraining a person from doing a particular act.

It is a mode of securing the specific performance of the negetive terms of a contrct. 4. Cancellation of the instrument: When there is a breach of contract by one party, the other party may rescind the contract and need not perform his part of obligations under the contract. 5. Rectification of the instrument: When through fraud or mutual mistake of the parties a contract or other instrument in writing does not truly express their intention; either party or his representative in interest may institute a suit to have the instrument rectified. In the case personated Nike (BD) Ltd. s the party who is the sufferer of the breach of contract. Along with damage, Nike (BD) Ltd. can also file a suit for injunction and cancellation of the instrument. The fundamental principle underlying damages is not punishment but compensation.

By awarding damages the court aims to put the injured party into the position in which he would have been, had there been performance and not breach, and not to punish the defaulter party. As a general rule, “compensation must be commensurate with the injury or loss sustained, arising naturally from the breach. Where the party has suffered no damage on account of the breach, the court may still award him nominal damages in recognition of his right. In this case, Nike (BD) Ltd. has suffered an actual loss which arose in the usual course of things from the breach. Thus Nike can claim substantial damage to compensate its suffering. Injunction is a discretionary remedy of the Court. An injunction may be temporary or perpetual. Where a party is in breach of negative term of a contract, the court may, by issuing an injunction, restrain him from doing from what it is promised not to do.

Thus injunction is a preventive relief. Since in this case, Sunshine Fabrics is doing an act (selling T-shirts of the particular design) which it promised not to do Nike (BD) Ltd. can file a suit claiming injunction. Along with claiming damages and injunction Nike (BD) Ltd. can also apply for cancellation of the instrument. If one or more of the major provisions of a contract is broken the party suffering from it can apply for cancellation of the instrument. If one or more of the minor provisions is broken the sufferer party can apply for damages but not cancellation of the instrument.

In this case Sunshine Fabrics has broken a major provision of the contract. So, Nike (BD) Ltd. can apply for cancellation of the instrument. In reply of Nike (BD) Ltd. ’s legal notice Sunshine Fabrics asserts that the contract which they signed with Nike (BD) Ltd. is, in fact, void, in as much as, the same is in restraint of trade. Sunshine Fabric’s assertion is however unjustified. The agreement stating -“the Sunshine Fabrics would not sell to his other customers for a period of 2 years any T-shirt of the same design and description” is not in restraint of trade rather merely “restraining freedom of action”.

Thus we can conclude that, every thing else being equal, the case is in very much favor of Nike (BD) Ltd. Sunshine Fabric’s claim of the contract’s being “void” has no legal grounds. However, if Sunshine Fabrics can anyway prove that its agreement of not selling any T-shirt of the same description to its other customers for a period of 2 years was a minor provision of the contract, Nike (BD) would not be able to cancel the contract but still would be awarded damage and, on the Court’s discretion, injunction.