Breach of contract

Breach of contract is a legal cause of action and a type of civil wrong, in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance. Breach occurs when a party to a contract fails to fulfill its obligation(s), whether partially or wholly, as described in the contract, or communicates an intent to fail the obligation or otherwise appears not to be able to perform its obligation under the contract. Where there is breach of contract, the resulting damages have to be paid to the aggrieved party by the party breaching the contract.

If a contract is rescinded, parties are legally allowed to undo the work unless doing so would directly charge the other party at that exact time.

What constitutes a breach of contract[edit]

There exists two elementary forms of breach of contract.

The first is actual failure to perform the contract as and when specified constitutes the first and most obvious type of breach. A contract lays down what must be done, what cannot be done, and when it must be done. If what was prescribed has not been done within the stipulated or reasonable period, there has been a breach of contract.

A further form of breach of contract is conduct indicating an unwillingness or inability to perform an obligation arising from that contract.

As noted by Seddon et al, these forms of breach of contract overlap, and an actual failure to perform may manifest an unwillingness or inability to perform.^[1] This is not always the case: an individual may fail to perform a contractual obligation even when willing or able.

These classifications describe only how a contract can be breached, not how serious the breach is. A judge will make a decision on whether a contract was breached based on the claims of both parties.^[2]

The first type above is an actual breach of contract. The two other types are breaches as to the future performance of the contract and are technically known as renunciatory breaches. The defaulting party renunciates the contract in advance of when it is required to performs its obligations. Renunciatory breach is more commonly known as "anticipatory breach."

breach of warranty;

breach of condition; or

breach of an innominate term, otherwise known as an intermediate term.

The general law has three categories of breaches of contract, which measure of the seriousness of the breach. In the absence of a contractual or statutory provision, any breach of contract is categorized:^[3]

There is no "internal rating system" within each of these categories (such as "a serious breach of warranty"). Any breach of contract is of a breach of warranty, condition or innominate term.

In terms of priority of classification of these terms, a term of a contract is an innominate term unless it is clear that it is intended to be a condition or a warranty.

[1983] EWCA Civ 5

C&P Haulage v Middleton

Rights to damages for breach[edit]

Any breach of contract (warranty, condition or innominate term) gives rise to a right in the hands of the innocent party to recover their damage suffered which caused by the breach of contract by the defaulting party. Damages in the UK are the only^[4] remedy available for breach of a warranty. Those damages can come in different forms such as an award of monetary damages, liquidation damages, specific performances, rescission, and restitution.^[5]

Damages are classified as being compensatory or punitive. Compensatory damages are rewarded in an attempt to make place the innocent party in the position that would have been occupied "but for" the breach.^[6] Those damages are most often awarded as payments. Punitive damages are given to "punish or make an example of a wrongdoer who has acted willfully, maliciously or fraudulently".^[7] Punitive damages are awarded only in extreme cases and usually along with compensatory damages.

Damages for disappointment[edit]

Damages for distress or disappointment are not generally allowed by the courts, but cases where the award of such damages has been considered and agreed include Jarvis v Swans Tours Ltd (1972) and Farley v Skinner (2001).

if the innocent party is irremediably disabled from performance, provided that that inability to perform on the part of the innocent party is not itself attributable to the repudiatory breach;

[10]

if the innocent party has a settled intention not to perform.

[11]

Breach of a condition[edit]

Breach of a condition of a contract is known as a repudiatory breach. Again, a repudiatory breach entitles the innocent party at common law to (1) terminate the contract, and (2) claim damages. No other type of breach except a repudiatory breach is sufficiently serious to permit the innocent party to terminate the contract for breach.

v United Gas Company Ltd. (1998),^[18] where Colman J considered wording relating to "a material breach of any of [the guilty party's] obligations", allowing termination of the contract if remedy of such breach had not been commenced within seven days. The judge ruled that recognition that a material breach might be remedied distinguished the concept from a repudiatory breach, and there was no commercial sense in a clause restricting the common law rights of the innocent party, in relation to a repudiatory breach, and therefore "material breach" must refer to a form of breach which is not repudiatory.^[16]

National Power plc

Glolite Ltd. v Jasper Conran Ltd. (1998), where stated that
Whether a breach of an agreement is "material" must depend upon all the facts of the particular case, including the terms and duration of the agreement in question, the nature of the breach, and the consequences of the breach.^[19]
and that
when judging what the parties meant when they referred to a breach having to be "material" and "remediable" (sic) it seems to me that they must have had in mind, at least to some extent, the commercial consequences of the breach.^[19]

Neuberger J

Phoenix Media Limited v Cobweb Information (2000)

[20]

Utilities Services plc v Celtech International (2006) noted that assessing "materiality" involved looking at the actual breaches, their consequences, [the guilty party's] explanation for the breaches, their context within the agreement, the consequences of holding the agreement determined and the consequences of allowing the agreement to continue.^[21] Financial difficulties experienced by Celtech meant that they missed three payments out of 174 due over the 15 year life of the contract. These represented 8.5% of the total contract sum and were therefore not trivial or minimal, but Celtech were making attempts to pay and therefore not in repudiatory breach. Celtech were, however, in material breach of the contract and the contractual right to terminate could therefore be exercised by Dalkia.^[16]

Dalkia

v Tlias Enterprises (2008) ^[22]

Gallaher International Ltd

Crosstown Music Company v Rive Droite Music Ltd (2009), also making the point that a "material" breach was more significant than a "trivial" breach. Mann J referred to the Dalkia and Gallaher cases in his speech.^[23]^{: para. 98}

[23]

Right to remedy a breach[edit]

A party in breach of contract may have the right to remedy their breach, for example if the breach itself is remediable and a provision for remedy or a time period for exercising such as right is included within the contract. In the case of Vinergy International (PVT) Ltd v Richmond Mercantile Limited FZC (2016), a clause within the contract between the disputing parties stated that "failure ... to observe any of the terms herein and to remedy the same where it is capable of being remedied within the period specified in the notice given by the aggrieved party to the party in default, calling for remedy, being a period not less than twenty (20) days" would constitute grounds for termination of the contract.^[24] The period allowed for such a remedy may be referred to as a "cure period".^[25] A right to make use of a cure period may not be available where the innocent party chooses to accept a repudiatory breach and therefore exercise its common law rather than its contractual rights.^[25]