Breach of Contract: Your Rights and the Remedies You Can Demand
The three remedies for breach of contract, what makes a breach fundamental, why notice of rescission must be timely, and when damages need no proof of loss.
When a party to a contract fails to meet its obligations, the Contracts (Remedies for Breach of Contract) Law, 5731-1970, gives the injured party three main remedies: enforcement, rescission and damages. They do not necessarily conflict with one another, and under certain conditions they can be combined.
Enforcement: Compelling the Other Side to Perform the Contract
Enforcement is the default remedy. The injured party can ask the court to order the party in breach actually to do what it undertook to do. Section 3 of the Law lists four situations in which the court will refuse to order enforcement: where the contract is incapable of performance; where it involves personal work or a personal service; where enforcement would require an unreasonable degree of supervision by the court; and where enforcement would be unjust in the circumstances.
Rescinding the Contract, and the Notice You Must Not Forget
Where the breach is fundamental, the injured party may rescind the contract without granting an extension to cure it. Where the breach is not fundamental, the injured party must first allow a reasonable extension to cure the breach, and may rescind only if it is not cured. But in both cases there is a requirement many people miss: rescission is effected by a written notice of rescission, which must be delivered within a reasonable time from the moment the injured party learned of the breach. Unreasonable delay may extinguish the right of rescission altogether and be read as a waiver of the breach. Put differently, a fundamental breach entitles you to rescind immediately in the sense that no extension is required, but it does not rescind the contract by itself.
What Happens After Rescission
Rescission gives rise to a mutual duty of restitution: each side returns what it received. Where restitution in kind is impossible or unreasonable, the value of what was received is paid instead. It is important to know that rescission does not erase the contract retroactively for all purposes: certain clauses, such as an arbitration clause, an agreed damages clause, confidentiality or choice of law, continue to apply after it.
Damages, and When You Do Not Have to Prove Loss
Damages may be claimed in addition to enforcement or in addition to rescission. As a rule you must prove loss that was foreseeable at the time the contract was made as a probable consequence of the breach. There are several routes that do not require full proof of loss: agreed damages fixed in advance in the contract; compensation in the amount of the difference between the contract price and the value of the asset or service on the date of rescission, where the contract has been rescinded; and compensation for non-pecuniary loss, meaning distress and aggravation, which the court may award in an amount it sees fit in the circumstances.
What to Do in Real Time
As soon as you identify a breach, document it in writing, by email or message, rather than settling for a conversation. It is also worth considering sending a formal warning that gives the other side an opportunity to cure. Even if you ultimately choose rescission or litigation, that documentation is very important for proving the sequence of events, and it is also what shows that you acted within a reasonable time.
FAQ
No. You can claim damages alongside enforcement or alongside rescission. What cannot be combined is enforcement and rescission together, because those remedies are fundamentally inconsistent: you cannot both demand that the contract be performed and cancel it.
There is no closed list. The test is whether a reasonable person would not have entered into the contract had they foreseen the breach and its consequences. The parties can also define certain breaches in advance in the contract as fundamental, but there is an important qualification: a sweeping clause defining a large number of breaches as fundamental will not be recognized as such unless it was reasonable at the time the contract was made. A standard clause providing that any breach shall be deemed fundamental will usually not work.
In certain cases yes, first and foremost agreed damages fixed in advance in the contract. Even then, the court has express statutory power to reduce agreed damages fixed without any reasonable relationship to the loss that could have been foreseen when the contract was made. There is also the route of compensation based on the difference in value where the contract has been rescinded, and compensation for distress and aggravation. Absent grounds of that kind, as a rule you must prove both the loss and its extent.
If you are dealing with a similar situation and would like to review the specifics of your own case, you are welcome to contact me by phone at 054-4417869 or by email at leon@sverdlov.co.il.
The content of this guide is general information only, intended to explain the legal background in accessible language. It does not constitute legal advice and is not a substitute for individual legal advice that takes the circumstances of the particular case into account. Nothing set out here should be relied upon for the purpose of making decisions or taking action. The law, the case law, the amounts and the deadlines may change from time to time, and every case is judged on its own facts. © All rights in the content of this guide, including its wording, its structure and its editing, are reserved to the Law Office of Leon Sverdlov. The content may not be copied, reproduced, distributed, published, translated or used for commercial purposes, in whole or in part, by any means whatsoever, without the prior written permission of the firm.
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