Understanding the basics of breach of contract: a quick guide

Express contracts vs. implied contracts 

A contract is a legally binding agreement that can be made expressly or impliedly. 

Express contracts are generally formal documents which carefully set out the obligations of each of the parties and which may set out remedies in case of any breaches to protect the parties to the contract. 

In contrast, an implied contract has less formality but remains binding between the parties. 

Establishing the legally binding contract 

To claim for a breach of contract, you must be able to prove that such a legally binding contract exists. 

For a contract to be legally binding, there must be an offer and acceptance, the intention to create legal relations and consideration. The most common example of consideration in action is exchanging money between a customer and a retailer to purchase goods and services. 

The offer may be made verbally and accepted via text message. Provided that the parties intended to contract with one another and consideration is provided – this will constitute a valid contract. 

What happens when a contract is breached? 

A contract breach occurs when one party fails to fulfil their obligation to the other party, meaning they have not abided by the terms and conditions of the contract. 

There are plenty of examples of breach of contract that people experience every day. This could be an online retailer failing to deliver goods, failure to make a payment within the specified time frame, or having labour work carried out to a sub-par standard. 

Breaches of contract are categorised depending on the severity of the breach and how this would affect the relationship between the parties.

Types of contract breaches 

These categories are minor breach of contract, material breach of contract, and anticipatory breach of contract. 

1. Minor breach of contract: Occurs when a term has been breached, but it is so immaterial that the remainder of the contract can be fulfilled. For example, a service or part is substituted for another, different from the original agreement, but doesn't affect the ability to fulfil the rest of the agreement. 
   
   For example, consider a supplier who delivers raw materials slightly later than the agreed-upon date, causing a minor delay in production. While this doesn't stop production altogether, it briefly disrupts the supply chain. 
    
2. Material breach of contract: Results in a substantially different outcome than the originally agreed upon. This goes to the core of the contract, meaning parties would not have entered the contract if this term had not been included.
   
   For instance, the item substituted is of significantly less value, or an urgent delivery is late, resulting in financial loss. Think about a software development firm contracted to create custom software for a company's operations. However, the software is delivered with severe bugs and functionality issues, rendering it unusable and causing significant losses in productivity. 
    
3. Anticipatory breach of contract: This occurs when the breach is yet to happen, but one party displays an intention not to fulfil their obligations in the future. Once the agreed date has passed, the anticipatory breach can become either minor or material, depending on the consequential impact. Picture a logistics company hired to transport goods for a manufacturer.
   
   Suppose the logistics company notifies the manufacturer well in advance that they won't be able to meet the agreed-upon delivery schedule due to unforeseen circumstances. In that case, this anticipation of failure can disrupt the manufacturer's production plans and potentially lead to a major breach if alternative arrangements aren't made promptly. 

Remedies for breach of contract 

So, what happens when you claim for a breach of contract? 

Once you have been able to prove that a legally binding agreement existed and that the agreement was subsequently breached, the final obstacle is to demonstrate that the injured party suffered a loss. This loss must result directly from the breach of contract, and damages will be awarded accordingly for the loss caused. 

The court will usually consider the following when determining whether damages should be awarded: 

• What position would the claimant be in had the breach not occurred?
• Has the claimant taken reasonable steps to mitigate/reduce the loss?
• Was the loss to the claimant reasonably foreseeable when the contract was made? 

You could be entitled to monetary damages if you satisfy the court's requirements. The usual purpose of damages is to compensate for any financial loss from the breach. This intends to place the claimant back in the same financial position as if the loss never occurred. 

These types of damages are categorised as damages for distress. Depending on the type of contract breached, there are further categories of damages the court may see fit to award. These are for loss of enjoyment, loss of reputation, and restitution. 

To succeed in claiming damages for loss of enjoyment, the claimant must demonstrate that a further monetary award is necessary and what this sum should be. Loss of enjoyment would refer to when a person suffers a physical or mental injury, which affects their ability to perform a given activity. 

To claim damages for loss of reputation, you must also be able to demonstrate that there has been a financial loss suffered. Damages for loss of reputation are due to the feelings of society and your reputation in the eyes of the public. 

These damages are not monetary, so they cannot be claimed on their own. However, when a loss of reputation occurs, this would usually have a monetary impact on the claimant, and this damage to their reputation could incur financial loss. 

Restitution damages occur when the defendant has profited from the breach of contract. The purpose of these damages is so the claimant could obtain the profit made by the defendant, provided they can prove that it resulted directly from the breach of contract. 

Alternative remedies for breach of contract 

There are also several alternative remedies to damages that the court can award for breach of contract. These are specific performance, rescission, and injunctions. 

A specific performance order would require the defendant to complete a specific part of their contract, which they previously failed to do. 

Rescission of a contract would mean that the agreement is set aside, and the parties would be put back into their position before the contract was made. 

Finally, a contract injunction is a court order requiring one party to take a particular action or prohibit them from taking a particular action. 

A claim for breach of contract will only be successful if the claimant can show that the original agreement was legally binding and they can show a loss flowing from the other side's breach of that contract. 

Contact our solicitors 

Becoming involved in a contract dispute can hold up essential projects, affect business relationships, and have a significant financial impact if the right outcome cannot be achieved.

Our litigation and dispute resolution solicitors help individuals and businesses with contractual matters. If you believe you have a breach of contract claim and need specialist advice, please get in touch.

We have solicitors in London, Brighton, East Sussex, and Cumbria, and we work with clients nationwide.