11 March 2019
When Has A Contract Been ‘Breached’?
A breach of contract occurs when someone fails to do what they have contractually agreed to do. A serious breach is difficult to accept in a business or commercial context. You feel let down and even deceived. You want to receive what you agreed, or even to ‘get your own back’. But before deciding whether to take matters further, there are a few matters to consider.
There are two basic points. First, is it a legally binding contract? There must be an ‘offer’ by one party which is ‘accepted’ by the other. Amazon offers to sell you a product by putting it on their website, and you accept the offer by clicking ‘buy’.
Second, the parties must intend to be legally bound. If a professional kitchen fitter agrees to fit a new kitchen for an agreed price, they clearly intend to form a binding contract. But someone in the pub who drunkenly promises you a million pounds if you score 180 in the darts, does not really mean it.
If you have those two things, then if one party fails to honour an obligation or otherwise breaks the terms of the agreement, then there is a breach of contract. For example, where your customer orders and receives your services but fails to pay for them; or if your supplier’s goods are below an acceptable standard so you cannot sell them to your own customers.
But there are a few more questions to answer.
Can you prove that there was a contract? It does not have to be in writing: a verbal agreement is sufficient. But a written contract makes the job of proving it easier. This is why even in simple agreements it is a good idea to have a written trail of evidence, in letters, texts or emails.
Was the contract actually breached? You must be able to show what the other party’s obligations under the agreement were. (Ideally, there will be written Terms & Conditions.) You have to show that those obligations were not performed or were not performed to a sufficient standard.
Have you suffered a loss as a consequence? Even if there was a breach of contract, it is only worth taking it further if it caused you a loss.
Have you ‘mitigated your loss’? You’ve got an obligation to take reasonable steps to reduce or limit the loss you suffered.
If all the boxes are ticked so far, then may be entitled to compensation, i.e. damages for the breach of contract. The aim of damages is to put you in the position you would have been in if the breach of contract had not occurred.
A final question to ask is whether it is worth bringing a claim or issuing court proceedings. While many claims are settled out of court, litigation can be expensive and time consuming. It might even cost you more than you lost as a result of the breach of contract.
But many businesses and individuals do wish to pursue claims for breaches of contract. It might be to receive compensation, or a point of principle, or to put down a marker that you will not accept such a situation. No-one – especially in business – wants a reputation as a soft touch.
Notes
For more information about pursuing or defending claims for breach of contract, click here.