What is a contract?
A legally binding contract is, put simply, an agreement between two or more parties under which money (or money’s worth) is paid in return for the provision of goods or services. There must be an intention that the terms of the agreement are binding, and performance of the contract must have begun or taken place. A legally binding contract can be verbal and written, though it is easier to prove and rely on if set out in writing.
Contracts form the basis of virtually all business, and business/consumer arrangements, as well as many dealings between individuals. Where one party breaches the terms of the contract, a dispute can arise and the innocent party may be able to claim for damages.
What constitutes a breach?
The terms of the contract dictate how the contract is to be performed by each party. The terms may be express (ie, stated in clear terms in the contract) or implied (whether by conduct or by law). The law may imply a term into the contract if it necessary for the purposes of business efficacy.
Performance of the contract that falls short of what has been agreed in the contract terms will constitute a breach of contract.
What is the nature of a breach of contract?
The nature, and therefore the consequences, of a breach of contract depend upon the term/s that have been breached. If the breach is of a condition going to the very heart of the contract, this will be a ‘repudiatory breach’ and the other party can terminate performance of the contract.
However, if the breach is of a warranty (obligations that are not critical to the performance of the contract), the breach of contract will be treated differently. Whether a term is treated as a condition or a warranty depends on the wording, its context and the intentions of the parties.
What are the consequences of a breach?
Where there is a repudiatory breach of the contract, the innocent party has the right to terminate performance of the contract and claim damages suffered as a result of the breach.
For more information on:
- Are any other remedies available?
- What if the breach is ‘affirmed’?