A business contract creates certain obligations that are to be fulfilled by the parties who entered into the agreement. This is the same for contracts created between individuals. Legally, one party's failure to fulfill any of its contractual obligations is known as a "breach" of the contract. Depending on the specifics, a breach can occur when a party fails to perform on time, does not perform in accordance with the terms of the agreement, or does not perform at all. Accordingly, a breach of contract will usually be categorized as either "material" or "immaterial" for purposes of determining the appropriate legal solution or "remedy" for the breach.
Typical breach of contract issues tend to be:
• Failure to provide services either in full, to agreed standard or on time.
• Defective work or goods.
• Non-payment for goods or services.
• Breach of restrictive covenants (typically in employment contracts) or warranties in business sale transactions.
This list is not exhaustive, and if you feel you may have breached a contract, or a business and/or individual who entered into a contract with you may have breached it, please get in touch.
One of the most common mistakes or misunderstandings following a breach of contract arises in connection with proving loss. In many scenarios, clients believe that as the innocent party, they will have no trouble claiming for all losses they believe they have sustained. However, legally things are not that straightforward.
The loss you are claiming for must be consequential from the breach and you must be able to prove this loss.
When a breach of contract occurs or is alleged, one or both of the parties may wish to have the contract enforced on its terms, or may try to recover for any financial harm caused by the alleged breach. It is a feature of many contract disputes that one or both of the parties will claim that the written contract does not deal with all the agreed terms or that what was agreed in writing was varied thereafter. In this context, it is important to recognise the difference between business to business contracts, business to consumer contracts and contracts between individuals, and to bear in mind that the law does in some circumstances allow terms to be implied into contracts (and especially employment contracts), for a variety of reasons.
When an individual or business breaches a contract, the other party to the agreement is entitled to relief (or a "remedy") under the law. The main remedies for a breach of contract are:
1. Right to terminate the contract – fundamental or repudiatory breach;
2. Damages - under English law is to put the innocent party in the position he/she/they would have been in had the breach not occurred.
3. Specific Performance – this is best described as the breaching party being ordered by the court to perform their duty under the contract, for example an injunction.
In a contractual situation, English law provides that the innocent party does have a duty to take reasonable steps to minimise loss. What is reasonable is generally a question of fact, but it is not safe, legally, to assume that doing nothing will be considered reasonable or to take action to remedy a breach without due regard to all available options, their suitability and cost involved.
It is worth noting that under English law the burden of proof is on the Defendant to prove that the innocent Claimant has failed to mitigate loss.
If you have been named in a breach of contract claim or believe another party has failed to honor its contractual obligations to you or your company, quite a bit may be at stake. Therefore, it is strongly recommended that you take professional advice and assistance before you do anything.
Summerfield Browne Solicitors have offices in London, Birmingham, Oxford, Cambridge and Market Harborough, Leicester.
