Key Takeaways
- Foundational Validity: Contract validity in Thailand hinges on essential elements, including offer and acceptance, mutual consent, a lawful purpose, and legal capacity.
- Types of Breaches: Breaches are categorized into material breaches (non-performance, defective performance, and fundamental breaches), minor breaches (partial or temporary non-performance), actual breaches, and anticipatory breaches (express or implied repudiation).
- Dispute Resolution: Given the complexity and cost of litigation, alternative dispute resolution methods such as negotiation, mediation, and arbitration are increasingly incorporated into contracts to resolve disputes promptly and preserve business relationships.
Contractual Obligations in Thailand
While improvements continue to be made within the legal industry, breaches of contract still remain a critical concern in Thailand’s commercial and industrial sectors. As the backbone of any business transaction worldwide, contracts not only set obligations for the parties but also detail performance standards and provide a framework for enforcing a remedy if a breach occurs.
In this article, WSR Law’s commercial and legal experts examine the validity of contracts, the various types of contractual breaches, and potential remedies.
What Makes a Contract Valid?
Before addressing breaches of contract, it is imperative that we first understand the foundational elements that establish a contract’s validity.
Offer and Acceptance
- To form a legally binding contract, an offer must be made by one party and accepted by the other.
- According to Section 361 of the Thailand Civil and Commercial Code (CCC), a contract between persons at a distance comes into existence at the time when the notice of acceptance reaches the offeror.
Consent
- For a contract to be valid, both parties must have provided consent, either verbally or in writing, to be part of the contract.
Lawful Purpose
- A contract can be declared null and void if its overriding objective is prohibited by law, impossible to carry out, or impacts public order or morals.
Legal Capacity
- Under Section 153 of the CCC, acts that do not meet the statutory requirements regarding a person’s capacity are deemed voidable, meaning they may subsequently be invalidated, resulting in the contract being declared null and void.
What Constitutes a Breach Under Thai Law?
There are various forms of breach of contract under Thai law, but the most common breaches in our experience are as follows:
- Material Breach: A material breach impacts the core of the contract, significantly affecting its validity.
- Non-performance: Failure to complete agreed-upon obligations.
- Defective Performance: Providing an inadequate response or substandard services/goods.
- Fundamental Breach: Undermining the core foundation of the contract, rendering it impossible to complete.
- Minor Breach: A minor breach does not significantly impact the validity of the contract.
- Partial Non-performance: Failure to perform partial elements of the contract.
- Temporary Non-performance: Delayed performance without impacting the overall performance of the contract.
- Actual Breach: An actual breach occurs when a party fails to perform its obligations within the specified timeframe under the contract, thereby triggering immediate legal consequences as outlined in the contract or under Thai law.
- Anticipatory Breach: An anticipatory breach occurs when a party is unwilling or unable to fulfill its contractual obligations.
- Express Repudiation: Expressly stating that they do not intend to complete the contract.
- Implied Repudiation: Actions or circumstances that signal either an inability or unwillingness to perform the contract.
What Can You Do if Your Contract Has Been Breached?
As litigation concerning contractual breaches can be fairly complex and cost-intensive, alternative dispute resolution (ADR) mechanisms, such as negotiation, mediation, and arbitration, are now common forms for resolving contractual disputes in Thailand.
Most contracts now include specific ADR clauses that both facilitate timely resolution and help preserve business partnerships by avoiding damaging adversarial litigation.
How Can WSR Law Help You?
As commercial and legal experts with significant experience in drafting contracts and remedying breaches, the team at WSR Law can assist you with all your contractual needs.
From initial drafting to completion formalities, let the team at WSR Law guide you along the way.
