Dealing with a breach of contract: what you need to know
Contracts are indispensable regardless of the type of business you are running or what goods or services you are supplying. Indeed, it is no exaggeration to say that contracts are the lifeblood of commerce and, without them, commerce becomes all but impossible. Every business relies upon contracts with their own clients or customers but also with their own suppliers.
What is a ‘breach of contract’?
In an ideal world, contracts would always be honoured in full. However, it is not an ideal world and contracts are often “breached”, i.e., broken by means of one party to the contract failing to perform or comply with the obligations that have been agreed to under the terms of the contract. Frequent breaches over the centuries have led to a large body of contract law cases. A breach can occur in a variety of ways, for example:
When either party refuses to perform an obligation set out in the contract, or
If either party has carried out work under a contract which is either left incomplete or is defective, or
a party not paying for a service they have used or goods they have ordered, or
a party failing to deliver the goods or services which they have agreed to deliver.
This is not an exhaustive list, but it does cover the most common causes of breach of contract.
Types of breach of contract
Not all breaches of contract are the same. Some are more serious than others. Sometimes a breach of contract results in a legal claim being made but not always. There are also degrees of breach. These include:
- A minor breach. For example, a web developer building a website for a client cannot supply some component but replaces it with a different component that provides the same form and functionality. Technically, this is a breach, but the client has suffered no loss, and a legal claim is neither feasible nor justified.
- A material breach. This occurs when a breach has a significant impact on the outcome of the project. Taking the web designer example again, this time the designer uses a component which provides a significantly worse form or function. This kind of breach often results in a claim.
- A fundamental breach. This is also known as a “repudiatory breach”. It is a breach which is so serious that it entitled the other party to “repudiate” the contract and seek damages by means of a claim. In this case, say the web designer had simply abandoned the project halfway through, leaving the client without a usable website at all. This certainly gives rise to a claim.
- An anticipatory breach. This occurs when one party communicates to the other party in advance that they will not be able to fulfil their contractual obligations. So, this would be the case where the web designer sent an email to the client advising the client that they would not be able to finish building the site. Again, this is the basis for a legal claim.
What does a claimant have to prove?
For a breach of contract claim to be successful, the claimant will have to prove three things to the satisfaction of the court. They are:
- A valid and legally binding contract existed. It is widely believed that a valid contract must be in writing or that a verbal contract is not enforceable. This is not true. A verbal contract is every bit as enforceable as a written one, albeit that proving the contract existed and the terms agreed to may involve more effort.
- That the other party – the defendant – was in breach of one or more terms of the contract and the specifics of the breach or breaches.
- That the claimant suffered loss or damage as a result of the breach or breaches.
It is also important to always bear in mind that every claimant is under a ‘duty to mitigate’ their losses. That is to say that the claimant must take reasonable steps to minimise or reduce the impact of the breach. Any losses which could have been reasonably avoided will not be recoverable.
Remedies available
Breach of contract law offers a variety of remedies that a court can order in the event that the claimant is successful. The most common remedy is monetary compensation, called “damages”. Simply speaking, the court will order the defendant to pay the claimant a sum of money sufficient to compensate the claimant for the losses they have suffered. It is the most common remedy in breach of contract cases.
In some cases, the court can order “rescission” which means putting the parties back into the position they were in before the contract came into effect. However, rescission is not always possible. For example, if a builder has carried out defective work or left a project unfinished, it is simply not possible to undo that situation. So, damages will then be the appropriate remedy.
Another remedy is an order for “specific performance”. This is when the court orders the party in breach to comply with their obligations under the contract. Related to this is an “injunction” which is a court order requiring a party to do something or refrain from doing something. If a party fails to comply with any court order, then they run the risk of being found to be in contempt of court and that may carry criminal penalties.
Is legal advice required in cases of breach of contract?
In the majority of cases, yes. Contract law is, for the most part, governed by common law, also known as case law. The law of contract almost always involves abstruse and arcane legal arguments that really require experienced professional skill and knowledge not just to prosecute the claim but also to seek the appropriate breach of contract remedies. Anyone who believes that they have a claim for breach of contract really should consult a solicitor as a first step.
For further information and trusted legal advice regarding disputes such as breach of contract, get in touch with us at Carlsons Solicitors.