Contracts play a vital role in the functioning of various industries. They are key in safeguarding the rights of employers, employees, and both corporate and commercial sectors – and this is just the tip of the iceberg.
Contracts outline the terms of an agreement and ensure that all involved parties adhere to them. When contracts are breached, a host of problems can occur. Because breached contracts can throw their terms into question, they must be addressed as soon as possible.
At Brown Turner Ross, we have experience handling breach of contract claims, and reconciliation of contracts. Read on to find out more about the breach of contract.
What is a Breach of Contract?
A breach of contract is the act of breaking the terms outlined in a contract. The breach could be anything from missing a payment date to a more serious violation, such as not delivering promised assets.
Contracts are legally binding agreements that can be enforced in court. If it can be demonstrated that a contract has been breached, there may be consequences.
It is important to note that a breach of contract is not considered a crime, but there may still be legal consequences to breaching a contract, primarily if civil litigation occurs.
Common Examples of Contract Breach
Now that you have a better understanding of what breaching a contract means, it’s essential to understand what it means in real-life situations.
Some common examples of contract breaches include:
- Defective building work.
- Failure to deliver goods or services on time.
- Wrongful termination.
- Breach of employment.
- Not making a payment on time.
These are some of the most common forms of breaches. To avoid breaches, you both must review and clarify the terms of a contract in advance.
The Types of Contract Breaches
As we touched on, not all breaches are the same, and the severity of a breach can have an impact on how it is handled.
The types of contract breaches that you might encounter include:
Partial Breach of Contract (Minor)
A partial breach occurs when the involved party fulfils most of the obligations outlined in the contract but does not fulfil all of their responsibilities as agreed.
For instance, an individual may sign a contract wherein they agree to clean an entire property, yet they may leave the bathroom untouched during the process. Although they have fulfilled most of their obligations, they have not entirely completed what they promised in the contract, which would therefore be regarded as a minor or partial breach.
Material Breach of Contract (Serious)
A material breach of contract happens when one party fails to meet a major contractual obligation, causing a substantial effect on the other party.
A common example of a material or serious breach is the non-payment of a large sum due. Failing to pay a substantial invoice on time, especially if it impacts the contract’s value, is considered a serious breach.
For a breach to be considered serious, it must significantly impact the value of the contract for the non-breaching party, so context is essential.
Anticipatory Breach of Contract
An anticipatory breach occurs when a party indicates that they will be unable to fulfil their obligations before the time outlined in the contract.
For example, if a marketing company signs a contract stating that it will design a full website within a month but then contacts its client to say that it will not have the contract ready in time, this would be considered an anticipatory breach.
To demonstrate an anticipatory breach, there must be convincing evidence that a party cannot fulfill their obligations.
Repudiatory Breach of Contract (Outright)
A repudiatory breach, often referred to as a serious breach, is a type of contract breach considered so severe that it goes to the very core of the contract, providing clear evidence that the breaching party demonstrates an unwillingness or inability to fulfil their key obligations.
For example, if a construction company completes defective work that completely derails and delays a project and has no intention of correcting their mistakes, this would be considered a fundamental breach of contract, entitling the innocent party to terminate the contract immediately.
In order to declare that a breach is a repudiatory breach, you have to demonstrate that there has been a clear intention not to fulfill contractual obligations.
What Happens After a Contract Breach?
If a contract is violated, the party not at fault can generally take legal action against the violator, aiming for compensation for damages incurred due to the breach.
The goal is to put the affected party back in the position they would have been if the contract had been fulfilled as agreed.
Communication and Resolution
Those who do not wish to pursue the breach further may prefer to attempt to resolve it informally. Some parties may opt for alternative dispute resolution to achieve a conclusion that satisfies all involved and, with the assistance of a third-party mediator, work towards resolving the issue.
Legal Remedies For Breach of Contract
If a contract is breached, the party not at fault has various legal remedies to obtain compensation or enforce the agreement’s terms.
These legal remedies may include:
Damages
Damages are typically the primary remedy for a breach of contract. The offending party must compensate the harmed party financially. There are several types of damages, which include;
Compensatory Damages
Compensatory damages aim to cover direct losses and costs caused by the breach. These compensatory damages cover the overall cost of the contract, as well as the cost of finding a replacement service or supplier.
Consequential Damages
Consequential damages cover direct losses resulting from the breach, provided the involved parties could foresee the damages. A good example of when this might occur is when a company fails to deliver goods, causing another business to lose a major client. The profits will be claimed as consequential damages.
Liquidated Damages
The contract outlines predetermined damages to assess possible losses resulting from a breach. These damages are enforceable, provided they are not excessive or unreasonably punitive.
Liquidated damages are a sum, matching the estimated cost of the losses, that are awarded to the victim of the breach.
Nominal Damages
Even if a breach has little to no harm, damages may still be expected to be paid. This money is usually considered symbolic and is a small fee to prevent a further break of contract in line with UK law and serve as a deterrent.
Punitive Damages
This type of damage is quite rare but certainly worth mentioning. If at any point, there is evidence that the breaching party acted maliciously or in bad faith, punitive damages may be applied as a further consequence because of their behaviour.
Specific Performance
In certain situations, financial compensation may fall short, prompting courts to require the breaching party to meet its initial contractual obligations. This legal remedy is particularly prevalent when unique circumstances arise, like in property sales.
The breaching party might be expected to fulfil their earlier obligations in these instances. This type of remedy tends to be used where monetary damages wouldn’t adequately compensate the non-breaching party.
Rescission
Rescission permits the party not at fault to annul the contract entirely, restoring them to their position before the contract. It truly renders the agreement void, freeing both parties from their duties.
Rescission is usually used when the breach is considered so serious that continuing with the contract would be unfair or even impossible.
Restitution
Restitution seeks to prevent the breaching party from gaining unjust enrichment. It mandates that the breaching party return any benefits or funds it obtained from the non-breaching party.
For example, if the non-breaching party paid for services that were never delivered, they would be eligible for a refund.
Injunctions
Injunctions are judicial orders that either stop a party from acting (prohibitory injunction) or compel them to perform a specific action (mandatory injunction). This legal remedy is effective when a contract breach entails ongoing or expected harmful actions.
After reviewing the evidence and determining a fair conclusion, the court will decide on the most appropriate legal remedy.
How Brown Turner Ross Can Help
At Brown Turner Ross, we have decades of experience and expertise in contract law and commercial litigation. If you or someone you know has experienced the impact of a breached contract and is looking for support, we may be able to help.
Our team of expert solicitors always puts the client first, so any advice you seek from us will be delivered in your best interest.
For more information or to talk to a member of our team today, get in touch, and we will advise you on your individual circumstance.