The types of breach of contract and how to resolve them

As a business owner, your ongoing business success can be determined by your ability to conclude profitable contracts, handle any contract issues and resolve any disputes arising. As such, a knowledge and understanding of contractual breaches is very important.

The types of breach of contract

In this article, we’ll outline the different types of contract breaches and the appropriate remedies for breach of contract, so that you can navigate your way through difficult contract situations.

What is a breach of contract?

A breach of contract occurs when you have a binding contract in place with another party and one party does something that contravenes the agreed contract terms. This can also occur if the party doesn’t do something they were meant to do. 

Breach of contract claims can have serious consequences, and result in compensatory damages. It’s important to assess the type of breach to understand its impact and whether or not it can be remedied.

What are the different types of contract breach?

There are various types of contract breach, but the following are some of the most common:

Breach of warranty 

A warranty is a contract term by which the principal remedy is damages (monetary compensation). This is because a warranty term is not absolutely fundamental to the operation of the contract – it is not at its heart. For this reason, unlike contract conditions, the available remedy for breach is limited to damages. 

An example of a warranty term would be if you are buying a small fleet of five used vans for your business from a commercial van sales business, and the purchase contract states that the tyres will all have a minimum of 5mm tread. 

On collection, you discover that one of the tyres on one of the vans has 4mm tread. That tyre is not in conformance with the agreed terms, but it would be ridiculous to be able to terminate the entire five-van purchase contract over this one tyre, which could easily be replaced or compensated for.

How to resolve a breach of warranty 

A breach of warranty is best resolved without litigation, with both parties getting together to agree on a sensible course of action. This may involve the payment of money or an agreed action to resolve the breach. 

As with the example above, a sensible resolution, in that case, would be for the seller to either replace that tyre or just deduct an amount of money from the agreed purchase price so that you can get a replacement tyre fitted.

Breach of condition  

Unlike a warranty term, a condition is a critical term at the very heart of the contract – the successful operation of the contract is likely to revolve around it. For this reason, the available remedies for breach of a condition are termination of the contract and damages.  

Please note that just because the term may be described as a condition in the contract, that does not necessarily mean that it is. The courts have to determine its relevance, impact and effect in the circumstances. 

An example of a condition might be (following the same van example above) that the contract states that the five vans are all to be of a particular make and model, age and in a roadworthy condition.  On collection, you discover that the vans are of a different make and model, much older and not at all roadworthy. Clearly, this goes to the very heart of the contract. In their current condition, you could not even drive them, and as such you cannot derive the intended benefit from the contract. 

How to resolve a breach of condition

Since a breach of a condition is more serious than a warranty breach, and more impactful on your business, your approach may need to be more formal, and the need for early legal advice heightens. 

You should discuss your options with your lawyers before approaching the other party, as litigation may ultimately be required, although this should be treated as a last resort. Before that, you should raise the matter with the other party, hear their views, have pragmatic discussions and consider all alternative dispute resolution options available before heading down the litigation route.   

In the van example above, it is likely that the court would agree this is a breach of condition, and allow you to terminate the contract, reject the vans and claim any applicable damages, i.e. if you are left out of pocket as a result of the seller’s breach.

Repudiatory breach 

A repudiatory breach is a breach which entitles the party on the receiving end of the breach to terminate the contract and sue for damages. Therefore, a repudiatory breach is the result of a breach of a condition.

Irremediable breach 

This is a breach for which the party committing the breach cannot remedy the breach by their own action. An example of an irremediable breach is where a tenant assigns a lease to a third party without their landlord’s consent, in contravention of their lease alienation clause. This breach acts to terminate the lease (and leaves the tenant liable for damages). The tenant is not entitled to simply make a retrospective application for consent.

Remediable breach  

This is a breach which is capable of remedy via the party in breach taking a certain action or paying a sum of money.

Wrapping up

If you need advice regarding contract breaches, or with regards to your rights and obligations under a business contract more generally, LawBite are here to help. 

Appointing an expert contract lawyer to assist you, gives you the peace of mind to know that all your commercial law needs will be met, and you and your business will be protected. If the matter is heading for litigation, our expert litigation lawyers are on hand to guide and support you.

LawBite’s experienced, friendly lawyers can help you with all commercial, corporate and employment legal matters. We have successfully handled tens of thousands of enquiries from SMEs and are proud of our 98% positive feedback rating.

ABOUT THE AUTHOR
Clive Rich
Clive Rich
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