In the business world, contracts are the foundation upon which deals are made and obligations are defined. They serve as legally binding agreements that outline the responsibilities of each party involved.
When one party fails to fulfil their obligations as stated in the contract, it results in a breach of contract.
Understanding the basics of breach of contract is essential for clients to protect their rights and seek appropriate remedies when facing such a situation.
What is a Contract?
A contract is a legally enforceable agreement between two or more parties that creates rights and obligations that can be enforced by law.
For a contract to be valid, it must include several key elements:
Offer and Acceptance: There must be a clear offer made by one party and accepted by another party. Both parties must agree to the same terms without any ambiguity.
Consideration: Consideration refers to something of value exchanged between the parties, such as money, goods, services, or promises to do or refrain from doing something.
Intention to Create Legal Relations: The parties must intend for the contract to have legal consequences.
Capacity: Each party entering into the contract must have the legal capacity to do so, meaning they are of sound mind and not under the influence of any incapacitating factors.
Lawful Object: The contract’s purpose and objectives must be legal and not against public policy or morality.
Types of Breach of Contract
When a party fails to fulfil its contractual obligations, a breach of contract occurs.
Breaches can be classified into three main types:
Minor Breach (Partial Breach): In this type of breach, one party fails to perform a minor aspect of the contract, but the overall purpose of the contract can still be achieved. The non-breaching party is entitled to damages resulting from the breach.
Material Breach (Total Breach): A material breach occurs when one party fails to perform a significant or essential part of the contract, preventing the other party from receiving the agreed-upon benefits. In this case, the non-breaching party may have the right to terminate the contract and seek damages.
Fundamental Breach: A fundamental breach is the most severe type of breach, where one party’s failure to perform is so substantial that it defeats the entire purpose of the contract. The non-breaching party can terminate the contract and pursue damages, as well as claim restitution.
Defences Against Breach of Contract Claims
The party accused of breaching the contract may raise certain defences to avoid liability.
Common defences include:
Lack of Capacity: If one party lacked the legal capacity to enter into the contract, it may be considered void or voidable.
Mistake: If both parties made a mutual mistake regarding a material aspect of the contract, it may be invalidated.
Duress or Undue Influence: If one party was forced or unduly influenced into signing the contract, it may be considered void.
Impossibility of Performance: If it is objectively impossible to fulfil the contract due to unforeseen circumstances beyond the party’s control, it may be excused.
Statute of Limitations: Breach of contract claims must be filed within a certain period, known as the statute of limitations. If the time limit has expired, the claim may be barred.
Seeking Legal Advice
Understanding the basics of breach of contract is crucial for clients to protect their interests when dealing with business agreements. If you believe that a breach of contract has occurred or if you are accused of breaching a contract, get in touch with Van Eaton today.
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