Breach of Contract
Breach of contract is a legal term which relates to a single or multiple terms of an agreement being broken. Any breach of contract may result in the innocent party seeking legal redress and submitting a claim for damages through civil courts.
Contracts are created every day; from the sale of a product or service through to the purchase of land or property. Contracts are essentially an agreement between two or more parties. Once the contract has been signed it is usually legally binding. From this moment if either party fails to uphold the conditions or terms in the contract they can be issued with a claim by the innocent party for breach of contract.
A breach of contract can take many different forms from failure to fulfil the duties outlined in the contract to non-payment or failing to provide the agreed services within a suitable timeframe.
There are many different types of breach in contract law including anticipatory, fundamental, material and minor;
- Anticipatory Breach – This can occur when one of the parties who signed the contract informs the other that they do not intend to meet their obligations outlined in the contract
- Fundamental Breach – A breach so serious that would enable the contract to be rescinded or terminated
- Material Breach – A breach which has serious implications on the outcome of the contract
- Minor Breach – Often very trivial such as a builder substituting items
Every contract is created and based on a set of terms. These terms are conditions of entering into the contract and they can be either express or implied depending on the nature of the contract. Anything which falls short of what has been agreed in the terms will constitute a breach.
The implications of a breach will often be determined by the nature of the term that has been broken and in many contracts there are two types of terms; warranties and conditions.
- Warranties – Obligations which must be carried out. However it does not mean that if a party fails to comply with a warranty there has been a breach
- Conditions – Terms that go to the core of the contract. Non compliance with conditions may be seen as a failure to perform the contract
Warranties are also obligations that must be performed. However, such are not so crucial that a failure to comply with those goes to the substance of the contract.
It must be noted that warranties and conditions are not set in stone. Some contract terms could fit into both categories and it is in this instance that it is open to interpretation.
When evaluating whether there has been a breach, it can prove vital to identify which type of term is being dealt with because this will have a direct impact on the available remedies.
If one of the terms of the contract is broken, the innocent party has the right to rescind the contract. The term Rescission will mean that the innocent party can discharge themselves from the contract and recover damages they may have suffered as a result of the breach.
However, if the term that has been breached falls into a ‘warranty’ they only have one option open to them which is to seek damages as a result of the breach.
The amount of damages that can be claimed by the innocent party is determined on a case by case basis and it will take into consideration other terms of the contract.
As a general rule in common law relating to damages for breach is that damages should be awarded to the innocent party to put them back in the position they were before entering the contract. Claims for nominal damages will always be reviewed in relation to rules of penalties, mitigation and remoteness.
In particular circumstances damages may be insufficient for a breach. In these instances an application may be submitted for an equitable remedy. However, these are very difficult to obtain and are discretionary. In certain contracts special remedies may be permitted such as rights in lieu or resale in sale of goods cases.
Affirming the Contract
If a breach of contract has occurred but the innocent party continues with the contract, this may constitute affirmation of contract. After affirming the contract there is nothing in common law or statute that prohibits the innocent party from claiming damages. However, any damages sought will be nominal. An innocent party cannot claim substantial damages as a result of the breach if they have accepted it.
Damages can be awarded to the innocent party if a court states that the contract has been breached in some way. Damages can be awarded as compensation for loss due to the breach. These damages are usually financial which will reflect the amount of money the innocent party has lost.
Furthermore, any right to claim damages can be granted if an innocent party can provide proof that a breach of contract has occurred. The innocent party must be able to provide sufficient proof that they have suffered a financial loss due to the breach. The courts may also take into consideration any future loss that could occur as a result of the breach of contract.
Loss can be quantified in a number of ways; from loss of earnings through the amount of money spent on remedying the breach. If a dispute did proceed to court then the sum to be awarded will depend on the documented proof that the innocent party has submitted to substantiate their financial loss.
This can include a selection of records and documented proof of financial loss due to a breach. If the claimant can provide little or no documented proof, they can still claim damages but ultimately the decision will rest with the judge who will evaluate all of the evidence and facts rather than relying on any documentation in support of the financial loss.
Contract breaches can be serious and it is one of the main reasons why someone could issue a court claim. It is strongly recommended that you seek legal advice if you are considering a court claim for breach of contract so that legal counsel can determine the merits of any claim that you may have before proceeding to court. If you do decide to pursue a court claim, you should bear in mind that it is a long and costly process.
Breach of Contract – Employment
If an employer fails to comply with a term in a contract they can be issued with a claim from the employee. Before instigating formal legal proceedings you should always speak with your employer first on an informal basis. If this doesn’t work, then the correct grievance procedures should be followed within the specified time limits. Failing this you can make a claim to an employment tribunal. If the employer is found to be in breach of your employment contract your employer may be liable to pay compensation if you have suffered a financial loss.
When you are appointed to any role, you will be issued with a contract of employment. This legally binding document will outline the terms and conditions associated with your appointment at the firm. If your employer does not adhere to the terms of the employment contract or makes changes without consulting the employee, this is a breach of contract. If you can prove that you have lost out financially as a result then you can claim compensation.
There are many instances where a breach of contract can occur, from purchasing land or property through to employment. Before you make a claim for compensation you must make sure that you can prove that the breach took place and document your financial loss.
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