What a breach!

Are you aware of what a breach of contract is?

A breach of contract is where one party to a contract fails to fulfil their obligations as required by the contract. It is a violation of the agreed terms and conditions set out in the formation of a contract.

A breach of contract could be anything from a late payment, to not supplying the goods as originally agreed in the contract.

Once a breach is established, there are four classifications that it will fit under:

·         Minor

·         Material

·         Actual

·         Anticipatory

It should be noted that an actual or anticipatory breach can be minor or material however it's useful to understand the terminology. The terms of a contract can be broken down in to conditions and warranties (there are also innominate terms which are neither conditions or warranties). A condition is generally considered to be a fundamental term entitling the innocent party to bring the contract to an end, and sue for breach, whereas a warranty is not so crucial and the innocent party may only seek damages.

A minor breach is where a party has performed their essential obligations under the contract but has failed to perform a small or minor obligation. An example of this could be late delivery that has no consequence to the parties. Of course, there are exceptions to this rule in cases where ‘time is of the essence’ but this should be stated in the contract.

A material breach. Often referred to as a "fundamental breach", it signifies a failure by one party to uphold their obligations as promised in the contract. It is a breach so substantial that it goes to the very core of the agreement, making the contract useless because of the breach. In the case of National Power Plc v United Gas Co Ltd [1998] the court held that a material breach of a contract was a breach that has a serious effect on the benefit that the innocent party would have derived from the contract. An obvious example of a material breach in a contract would be non payment.  

An actual breach is the failure to meet the obligations stated in the contract upon the agreed time for performance.  It occurs when a party fails to perform their contractual duties, leaving the other party with no option but to seek remedies to compensate for the loss they incurred from the actual breach. An example of an actual breach of contract would be if a manufacturer and a distributor agreed in a contract for the delivery of 4000 units of a product to be delivered by a specified date. The deadline arrives and only 2000 units have been delivered. This is an actual beach because the terms of the contract haven’t been fulfilled by the specified date. Whether this amounts to a material or fundamental breach depends on the terms of the contract.

An anticipatory breach of a contract occurs where a party demonstrates an intention to breach the terms of the contract. By the party taking actions to show that they will not be able to meet their contractual obligations, the breaching party effectively triggers an actual breach. It allows the innocent party to take legal action and seek remedies before the contractual deadline has passed.