A breach of contract occurs when one or more of the obligations under a contract are not performed precisely as described by the party who promised to perform those obligations in accordance with its terms. This can be an actual breach, where the failure to perform occurs at the time performance is due, or an anticipatory breach, where one party declares its intention not to perform its obligations before the performance is due.
Do I have a contract?
A contract is a legally binding promise (written, or oral) by one party to fulfil an obligation to another party in return for consideration. In an ideal world contract should be both Written, and Sufficient (Tweddle v Atkinson), but since forming a comprehensive written contract is often viewed as a trivial task there can be issues in construing the meaning and implications of certain contract clauses, and sometimes whether the parties even intended to incorporate terms and enter a legal relationship.
Contracts consist of many clauses, each with a different level of importance impressed upon them by the parties involved. Conditions are contract terms with the strongest binding legal effect, and a breach of a condition will result in a claim for breach of contract, which may result in compensation or the rescission of a contract. Whereas a breach of a warranty is not to be regarded as serious as the breach of a condition, and the remedy here is often compensation.
Alternatively, Innominate Terms are unnamed by parties and are neither a condition nor a warranty, until it has been agreed as to how important the term was to the fulfilment of the contract (Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha)
Common contractual problems
To incorporate terms and conditions into a contract, it is essential to ensure that these terms are brought to the attention of the other party before the contract is formed. This can be achieved through various methods, such as including the terms on the front page of order forms, attaching them to emails, or making them available on a website with clear references and hyperlinks.
Incorporation requires that the terms and conditions are clearly communicated and that the other party is made aware of their applicability.
It is also important to avoid relying on post-contractual documents, such as invoices, to incorporate terms, as these are generally considered too late to form part of the contract. Instead, terms should be included in pre-contractual documents like quotations, order acknowledgements, and sales forms.
The key steps to incorporate terms and conditions effectively include clear communication, timely presentation before contract formation, and consistent reference throughout the contractual process.
Should a Solicitor always draft a contract?
A contract should ideally be drafted by a solicitor to ensure that it meets all legal requirements and accurately reflects the intentions of the parties involved. This is particularly important in transactions involving significant assets such as large amounts of money or the sale of a property.
Having a solicitor draft the contract provides legal assurance and helps avoid potential pitfalls, making it a prudent choice for any significant transaction, especially those involving property.
What are the consequences of a breach of contract?
The consequences of a breach of contract can vary depending on the nature of the breach and the terms of the contract. Under common law, a breach that goes to the core of the contract and substantially deprives the innocent party of the benefit intended by the contract may be considered repudiatory. In such cases, the innocent party may have the option to accept the repudiatory breach, terminate the agreement, and seek damages. Alternatively, the innocent party may choose to affirm the contract and seek damages while continuing with the contract.
Remedies for breach of contract include damages, termination, and equitable remedies such as specific performance or injunctions. Damages aim to compensate the innocent party for the actual loss suffered due to the breach, putting them in the position they would have been in had the contract been performed as agreed. In some cases, liquidated damages clauses may be included in the contract, specifying the damages payable on the breach, provided they are not deemed penalties.
It is important to note that many contracts include specific provisions limiting or excluding liability for breaches. Such clauses are subject to statutory controls, such as the Unfair Contract Terms Act 1977 for business-to-business contracts and the Consumer Rights Act 2015 for business-to-consumer contracts.
If a breach of contract involves the failure to perform contractual obligations as agreed, and the remedies available depend on the nature of the breach and the terms of the contract. These remedies can include damages, termination, and equitable relief, with specific considerations for limitations and exclusions of liability.
The benefits of seeking legal help earlier.
Seeking legal advice early is crucial to mitigate risks and enhance strategic decision-making. Engaging solicitors at an early stage allows for a comprehensive assessment of the situation, identification of potential issues, and formulation of an effective strategy.
In commercial contracts, it is advisable to involve key stakeholders early to acknowledge problems and establish goals. Engaging dispute resolution experts such as us early can provide strategic input and address critical issues such as the protection of privilege and document retention policies. This proactive approach can help manage disputes effectively and avoid the pressures of looming limitation periods.
For advice on breach of contract and to understand what you can do about it, contact our expert commercial contract team on 0300 303 2071 or email us.
