What are the most common forms of breach of contract?
A breach of contract in Australia occurs where one party fails to fulfil its promises under a contract without a lawful excuse. This article will explore four common ways a contract can be breached. The party alleging breach of contract has the burden of proving the breaching party failed to uphold its side of the bargain.
- Minor Breach
A minor breach, also known as a partial breach, occurs where the terms of the contract have only been partly performed. An example of a minor breach includes where a supplier of goods fails to supply all the goods or a computer company has a few pages missing from its manual for its products. A minor breach would not lead to an immediate cancellation of the contract, but the seller would have to remedy the breach.
- Material Breach
The most serious type of breach is a ‘material’ breach. A material breach of contract involves a key element of the contract not being performed or undertaken as agreed. When it occurs, the non-breaching parties have the right to seek a remedy or the right to be compensated by the breaching parties. For the breach to be material, it must have had a serious or substantial impact on the benefit one party expected to receive.
An example of a material breach is when an office equipment supplier, the client, enters into a contract with James, a graphic designer. The contract involves James designing posters for the client to use in-store to promote an upcoming sale of its office equipment. However, James instead designs posters for computer products which the client does not stock. James has committed a material breach of contract. After a material breach, the contract will usually be deemed to have ended. The party who has suffered from the breach can claim remedies, including damages or a court order for specific performance to enforce the terms of the contract.
- Anticipatory Breach
Anticipatory breaches arise when one party realizes that the other party will not, or does not intend to fulfil the terms of the contract before they are required to do so. The breaching party may notify the non-breaching party in writing or verbally of their intention to not fulfil his/her side of the contract. Also, the breaching party’s conduct may make it clear to the non-breaching party that they will not perform obligations when they are due. However, the expected breach cannot be founded on an assumption that the other party will not meet its obligations and requires an actual refusal to fulfill terms of the contract.
This form of breach entitles the non-breaching party to immediately take legal action instead of waiting until the terms of a contract are broken. The non-breaching party can seek damages for the losses they have incurred and ask the court to terminate the contract. However, if the non-breaching party does not address the anticipatory breach and terminate the contract it will be left in force for the benefit of both parties.
- Actual Breach
Actual breaches occur when parties fail to perform their obligations in the contract. It arises when one party in a contract fails to fulfill his or her duties by the due date. Actual breach also occurs if one party performs his or her obligations but does not comply with the contract’s terms, generally meaning the breaching party’s work was unsatisfactory or done improperly. In both these situations the other party does not need to perform his or her obligations and can hold the breaching party liable for contractual breach.
If your contract with a party has been breached in one of the above four ways, you should work out what remedies you are entitled to. The main types of remedies available for breach of contract are damages and specific performance. When it comes to damages, the court determines the damage caused by the breach of contract and directs the party in breach to make a monetary payment. Meanwhile, the court may order specific performance to enforce the terms of a contract, even after it has been breached.
If you need any assistance with contracts for your business, then get in touch with our business specialist lawyers – use the form on this page, or call us on 1300 337 997.