A breach of contract can occur when a party to the contract fails to fulfil an obligation under an agreement or breaks the terms of the agreement. There are several legal hurdles to overcome in order to be successful in a breach of contract claim.
WHAT IS A CONTRACT?
A contract is a promise or an agreement between two or more parties that is legally binding.
This promise can either be made expressly in writing or implied, which means it was communicated orally or by conduct.
A contract arises when an offer is made to one party, which is then accepted by another.
There must be a clear intention on both sides to be bound by the terms of the agreement.
A promise does not become a legally binding contract unless the following three elements exist:
- An agreement – which is created by the offer and acceptance of specific terms or obligations;
- An intention to create legal relations and form an agreement which is enforceable by law and;
- Consideration – where one party promises to do something in return for receiving a right, interest or benefit promised by the other party.
The terms of the agreement should be clear to each party.
An everyday example of consideration in action is when money is exchanged for goods between a customer and a retailer. Consideration is what gives value and weight to the contract.
WHAT CONSTITUTES A BREACH OF CONTRACT?
A breach of contract occurs when one party to the agreement fails to fulfil an obligation or breaks the ‘Terms and Conditions’ as set out in that agreement. A breach of contract can occur in various ways, for example, if Party A fails to pay for goods or services provided by Party B, or Party B fails to provide those goods and services to an acceptable standard.
Once you have proved that a legally binding agreement existed, the next hurdle is to demonstrate that a party has acted in breach of its obligations under the agreement. You will need to provide evidence of what these obligations were and how they were not met (or not performed to a reasonable standard).
THE LOSS CAUSED BY THE BREACH OF CONTRACT
The final hurdle to overcome is to show that the innocent party suffered a loss as a direct consequence of the breach of contract and should be compensated in damages for the loss caused. Generally, in assessing the level of damages to be awarded, the court will consider the following factors:
- What position the claimant would be in had there not been a breach of contract.
- Whether the claimant has taken reasonable steps to mitigate their loss.
- Whether the loss caused to the claimant was reasonably foreseeable by both parties at the time the contract was made.
The loss must have been foreseeable and not too remote. i.e., there has to be clear causation between the breach and the loss suffered.
WHAT ARE THE LEGAL REMEDIES FOR BREACH OF CONTRACT?
If you manage to overcome the hurdles as set out above, you may be entitled to receive monetary damages for the breach of contract. The general intention of awarding damages is to place the injured party in the same position they would have been had there not been a breach of contract.
There are also other alternative remedies which the Court may see fit to award following a breach of contract. For example, the Court may make an order for an injunction where the party in breach must either remedy the breach of contract or refrain from causing further damage.
Alternatively, the Court could make an order of specific performance whereby the party in breach must fulfil a particular term of the contract which they previously failed to do.
How Madison Legal Can Assist
Our commercial litigation team has considerable experience conducting your arbitration, litigation, and freezing orders. If you have a potential claim or are facing a potential dispute matter, please do not hesitate to contact us for advice, send us an e-mail. Alternative contact us via LinkedIn.
