A contract is an important requirement of any transaction or business relationship. The contract sets out obligations of all parties involved. They would cover mutual rights, responsibilities, and other rules in a set situation. However, there can always be issues that arise in any relationship, and a breach might occur. We cover what a breach of contract is and how it can be resolved, if at all.
Defining what is a breach of contract?
A breach of contract is when a party fails to perform their obligations and/or abide by the rules and responsibilities set out by the contract. A breach of contract can be written, verbal or ‘implied’.
Some examples of a breach of contract are listed as follows.
- If a party refuses to pay for the work carried out by the other party
- If a party fails to pay for the work on time or within defined limits
- If a party’s work is defective, not satisfactory or incorrect
- If a party fails to deliver goods or services as outlined in the contract
- If a party fails to deliver the good or services in the outlined time
An actual example of a breach of contract
Person A, an author by profession, signed a contract with a publishing house to publish their new book. The contract outlined the standard clauses, whereby the publishing house controls title, layout, design, images, publication date and marketing, while the author retains copyright and will get payment for publication and sales of the book.
Once the book was published, Person A received an initial sum as outlined by the contract, but did not receive any further payments. The contract contained the following clauses.
x.1) The sum of £1,000 (one thousand pounds) in advance and on account of any sums which may become due to the Author under this agreement, payable in the following manner:
x.1.1) £1,000 (one thousand pounds) on completion of this agreement.
x.2) except as otherwise provided in this clause 8.1:
x.2.1) on hardback print units 1 to 1,000 (the first unit sold to the one thousandth), 10 per cent of the net amounts received by the Publisher as a result of the exploitation of the Work
Further, the contract stated:
x.1) to supply to the Author statements in respect of the net amounts received by the Publisher, together with payment of any sum due to the Author, within 90 days of the end of each Account Period
Person A received statements after the first account period was over, but did not receive any sum. The reason outlined to Person A was a change in circumstances, which is a reason for a breach of contract.
What are the options available to Person A in this scenario?
When a breach of contract occurs, it has to be assessed and categorised into the four different categories a breach would fall under. This is helpful in understanding the appropriate steps to take and the remedies to pursue.
The four categories a breach of contract fall under
A minor breach occurs when a party fails to perform or abide by a minor part of a contract. This is known as a minor or partial breach because the failure is so small that the parties can still continue to abide by their contract.
A material breach occurs when there is a fundamental breakdown in the agreement. This happens when a party fails to fulfil an important part of the contract or creates a situation which makes it impossible for the matter to carry on as normal. This might occur if the publishing house fails to credit an author as the copyright owner of the published work.
A fundamental breach or repudiatory breach occurs when the breach is so severe that the contract can be terminated as a result of the act. This might occur if an author refuses to give the publisher their book for review and publication.
An anticipatory breach occurs when a party expressly states that they will not be carrying out a term or condition of the contract. Citing the example above, if the publisher states that they will not be publishing and promoting the book, then it would amount to an anticipatory breach.
Going by the summaries above, Person A has grounds to claim a material breach. If a publisher refuses to perform their duties set out in the contract such as non-payment of the work published and/or exploited in any medium. This provides good grounds to terminate the contract.
What are the remedies for breach of contract?
Once a breach of contract is established and the appropriate category has been identified, the next stage is to find a remedy to escalate the matter. This can be done through:
- Repudiation – If a contract is breached, the affected party has the ability to terminate the contract by ‘repudiation’. They can also claim compensation for the loss they have suffered as a result of the breach.
- Damages – There are used to put the affected party back in the position they would have been in if the terms of the contract had been met as outlined. There are two types of damages.
- Special damages, which are awarded for quantifiable losses, such as loss of income or profits;
- General damages, which cover unquantifiable losses such as loss amenity.
A party can also claim for ‘liquidated damages’ which are outlined in the contract and state that an amount should be paid if the other party breaks the contract.
If you have a contractual dispute or would like a review of your contract to identify a breach, please contact us on 0207 790 7311 or email contact@freemanhsrris.co.uk.