A contract is a legally binding agreement that requires the parties to perform or uphold certain responsibilities. When someone does not hold up their end of a contract, it is called a “breach of contract.”
There are varying degrees and types of breach and so there are also different solutions that may be available to you. It might be something less serious that can be easily rectified, or much more detrimental and requires you to take the matter to court.
Depending on your situation, you may be wondering:
- Is there anything I can actually do?
- Can I make the other party do what they said they would?
- Do I need a lawyer?
- Can I get compensation?
To answer these questions, you’ll need to find out whether you are party to an enforceable contract, what type of breach may have occurred and the options available to resolve the issue.
Is The Contract Enforceable?
Before establishing whether there is a breach of contract, it is worth verifying whether a proper contract was formed.
A very simple way to show this is through a written contract signed by the parties. However, it is also possible to enforce verbal contracts (minus a few exceptions, e.g. sale/transfer of land) or contracts that are partly verbal and partly in writing.
All contracts have these elements:
1. Offer and Acceptance
One party has made an offer and the other party accepts this offer. A counter-offer, rejection or no response is not acceptance.
For example, a plumber offers to install a pipe for $100 and the client agrees to pay $100 once it is installed.
Consideration is something that has value and it has to be from both sides. Usually, it is money but not always!
The plumber’s consideration is the promise to install the pipe and the client’s consideration is the $100.
3. Intention to be bound
This means that the parties had an intention for the agreement to form legal relations. Generally, the existence of consideration carries the intention to be bound as well.
The plumber will expect to be paid for their work; and the client expects the plumber to do a good job. They both want this to turn out well! That is, they want the contract to be completed.
The Different Types Of Contract Terms
In some situations, it can be unclear whether someone has actually breached a contract. Many ambiguities can be avoided by having a clearly drafted written contract.
A breach can be of an express (written) term, an implied term or a verbal term of a contract.
An express term is an explicit clause in the contract that states failure to perform something amounts to a breach of contract.
For example, a Sales Agreement between a cafe owner and coffee bean supplier may state that all goods delivered by the supplier must be paid for within 14 days by the owner. If the cafe owner does not pay within the stipulated time frame, they are in breach of the contract.
An implied term is one that is not specifically written into the contract but can be implied.
For example, you walk into a restaurant and order some food. Even though it may not be expressly stated anywhere, it is implied that you will pay for the food either before or after you are given the food.
Verbal agreements happen quite frequently in some businesses.
For example, you hire a contractor to do some gardening work. You tell them you want roses in your garden, and they agree to do it for a specified sum. This is a verbal agreement as it was an orally made.
But then say you come back later to find they have planted daffodils instead.
This is a breach of a verbal contract, but it can be hard to prove and often becomes a case of “he said, she said.”
Always make sure to have something in writing, even if it is not a lengthy and detailed contract. There’s always a chance that agreements can go south.
What Are the Different Forms Of Breach?
There are three main ways that breach of contract occurs.
Depending on what your contract says and what kind of breach occurs, you may have different rights under the law.
1. Material Breach
Also known as a fundamental breach, this is a serious breach of the contract which has detrimental consequences. It goes to the core of the contract. What is the contract really about? The non-breaching party is deprived of the major or whole benefit of entering the contract.
For example, you hire a contractor to build a house. However, they never show up to do the job. This would be a material breach.
2. Minor Breach
A term of the contract has been breached but the effect is so insignificant that the remainder of the contract can be carried out entirely. The overall purpose of the contract is unaffected.
For example, in the same scenario as above, the contract required the balcony of the house to be built at 10sqm, but it has turned out to be only 5sqm. The rest of the house has been completed as requested.
3. Anticipatory Breach
This occurs when one party realises that the other party is not going to be able to hold up their end of the agreement.
For example, the house was to be built within 12 months, but it looks like it will now take an additional 1 month.
What Can I Do?
You may be able to:
- Solve the issue between the parties
- Terminate the contract
- Take the matter to court
If your counterparty has breached the contract, there are several possible scenarios. In some instances, you might be able to terminate the contract. In others, you might be able to get damages. Let’s look at these in more detail:
1. Terminate the Contract
Depending on the type of breach, you may be able to terminate the contract. In this case, you would no longer have to hold up your end of the agreement.
In other situations, the breach may not entitle you to terminate the contract or even if you can, you may want a different outcome through the intervention of the court.
This is usually monetary compensation for the loss you incurred because of the breach. The idea is to leave you in a position that you would be in if the contract were properly completed.
Your contract may specify the amount payable in the event of breach. If there is nothing in the contract about it, the court will decide the amount.
An injunction is an order from the court that will stop a person from doing something that would negatively impact you. This can be granted even when court proceedings have not begun, provided there is a real risk of it happening.
For example, you’ve bought a house and completed your side of the contract, but now the vendor seems like they will sell it to someone else. You could apply for an injunction to prevent the vendor from doing this.
4. Specific Performance
Specific performance is an order by the court for the breaching party to complete their obligations under the contract. This is usually only granted in unique matters where receiving damages will not be enough compensation for the breach.
For example, you paid for a rare limited-edition car but the vendor changed their mind and now wants to keep it for themselves. Getting your money back might not be enough and the court may order the vendor to give you the car.
Keep in mind that going to court can often be a long and expensive process. The first step might be to consult a lawyer and receive advice about the options you have.
5. Settle Outside of Court
There may be a less onerous way of resolving the dispute than suing the breaching party. Talk to the other side to see what you can do to resolve the issue before getting anyone else involved.
Alternatively, your lawyer could assist you in resolving the matter via mediation. This involves getting a neutral third party to help you and the other party negotiate an acceptable agreement.
If you end up going down this route, make sure you have the settlement in writing!
Have Questions About Your Contract?
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