In Thailand, contracts are legally binding agreements that define the rights and duties between parties. When one party fails to perform their contractual obligations, it is considered a breach of contract. Understanding the types of breach of contract under Thai law is crucial for businesses, investors, and individuals, as it allows them to protect their legal rights and seek remedies in case of disputes. Thai contract law, governed primarily by the Civil and Commercial Code (CCC), recognizes several categories of breaches, each with different legal consequences and remedies.
This article explores the main types of breach of contract in Thailand, common examples, and available legal remedies.
1. Material Breach of Contract
A material breach (or fundamental breach) occurs when one party fails to perform a key obligation that is central to the contract, thus depriving the other party of the expected benefits. This is the most serious type of breach, often resulting in the right to terminate the contract and claim damages.
Example:
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A company agrees to deliver 500 units of equipment by a specific date, but fails to deliver anything at all.
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A contractor abandons a construction project halfway, leaving the property owner with incomplete work.
Legal Impact:
The non-breaching party has the right to terminate the contract and sue for damages, including compensation for direct losses and sometimes for loss of profits.
2. Minor Breach of Contract
A minor breach, also known as a partial or non-material breach, involves a failure to perform some part of the contractual obligation, but the breach is not severe enough to undermine the entire contract. The main contract purpose remains intact, but the non-breaching party may still claim compensation for specific losses caused by the breach.
Example:
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A supplier delivers goods with minor defects that do not affect overall functionality but require repairs.
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A service provider completes a project later than scheduled without causing significant harm to the client.
Legal Impact:
The injured party cannot terminate the contract but can sue for damages caused by the breach. Courts in Thailand generally consider the extent of the damage when awarding compensation in minor breaches.
3. Anticipatory Breach of Contract
An anticipatory breach happens when one party clearly shows, before the performance is due, that they will not fulfill their contractual obligations. This can be through direct communication or actions that make performance impossible.
Example:
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A company notifies its client in advance that it will not be able to supply the ordered goods.
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A tenant informs the landlord months before lease expiration that they will not pay future rent.
Legal Impact:
Thai law allows the innocent party to take action immediately after the anticipatory breach occurs. They can terminate the contract before the performance date and sue for damages caused by the early refusal to perform.
4. Actual Breach of Contract
An actual breach refers to a situation where the breach occurs at the time performance is due or after it has become due. This is the most straightforward type of breach under Thai law, as it involves clear failure to fulfill contractual obligations when they are required.
Example:
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A party fails to deliver products on the agreed delivery date.
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A construction company fails to complete a building by the agreed deadline.
Legal Impact:
The non-breaching party may sue for damages and potentially terminate the contract, depending on the severity of the breach.
5. Fundamental Breach under Commercial Contracts
In business or commercial agreements, a fundamental breach may arise from failure to meet critical business expectations, especially in commercial transactions such as sales of goods or franchising agreements. This can include failure to meet product standards, refusal to pay, or violation of exclusivity clauses.
Example:
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A franchisor fails to provide operational support or trademark licenses as promised in a franchise agreement.
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A distributor fails to respect a territorial exclusivity clause by selling outside agreed areas.
Legal Impact:
In commercial contexts, courts in Thailand often allow for contract termination and damages when breaches are considered fundamental to business purposes.
6. Breach of Confidentiality
A breach of confidentiality occurs when one party discloses or misuses confidential information shared during the contractual relationship. This is common in employment contracts, joint ventures, and intellectual property agreements in Thailand.
Example:
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An employee shares company trade secrets with a competitor.
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A business partner leaks confidential financial data to unauthorized parties.
Legal Impact:
Breach of confidentiality can lead to termination of the contract, civil lawsuits for damages, and in some cases, criminal prosecution under Thailand’s Computer Crime Act or Trade Secret Act.
7. Breach of Warranty
In Thailand, warranties are statements or promises included in contracts regarding the quality or condition of goods or services. Breach of warranty occurs when these promises are broken, leading to defective products or substandard services.
Example:
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A car dealership sells a vehicle with a warranty guaranteeing mechanical performance, but the car breaks down due to manufacturing defects.
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A seller guarantees a product is “new” but delivers a refurbished item.
Legal Impact:
Remedies often include the right to demand repair, replacement, or compensation. In certain cases, the buyer may be entitled to cancel the contract under Thai sale of goods law.
Remedies for Breach of Contract in Thailand
Thai law offers several remedies for breach of contract:
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Damages: Compensation for losses caused by the breach, including direct and, in some cases, consequential damages.
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Contract Termination: Right to terminate the contract if the breach is material or fundamental.
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Specific Performance: Courts may order the breaching party to fulfill contractual obligations.
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Penalty Clauses: Many contracts in Thailand include pre-agreed penalty clauses which courts may enforce if reasonable.
Conclusion
Understanding the different types of breach of contract in Thailand is essential for protecting legal and business interests. Whether dealing with minor delays, anticipatory refusals, or serious violations of contractual terms, Thai law provides structured remedies to ensure fairness and accountability. Consulting legal professionals when drafting contracts or managing disputes can help parties mitigate risks, enforce rights, and avoid costly litigation. In Thailand’s evolving business and legal environment, clarity in contracts and awareness of breach types are key to successful dealings.
