Questionnaire: What To Do When a Contract is Breached?
A breach of contract is defined as a failure by one party to perform its obligations as required under a contract. The requirement to perform may be expressly incorporated into the contract, whether in writing or orally, or may be implied by common law or by statute law. If a breach of contract is suffered by one party, they should be able to claim damages as long as the damages are proven. A breach of contract may be a breach of warranty, an intermediate breach of contract or a breach of condition.
People enter into contractual situations with the best of intentions but for all manner of reasons the terms of the contract can be broken. A breach of contract can be major, minor, intentional, accidental, capable or incapable of remedy. Contract terms can be broken as a result of an event or occurrence that was outside both parties’ control. So what happens when a contract is breached?
Is the Contract Verbal or Written Down?If the contract is verbal, you should write to the breaching party informing them of the fact that they have breached the contract and stating the timescale within which you would like the breach put right.
If the Contract is in Writing, Does it Specify What to do in the Event of a Breach?A lot of contracts will have clauses in them that dictate what the parties should do in the event of a breach of contract. There may also be classifications for what constitutes a ‘major’ or ‘minor’ breach of contract. Therefore the first thing to do if you consider that there has been a breach is check whether there are any such provisions. In most commercial agreements, the applicable section is called ‘breach of this agreement’ or ‘breach and termination’ or ‘procedure in the event of breach of contract.’
Is There a ‘Notices’ Section in the Contract?You should then inform the breaching party that they have breached the contract. The way in which this should be communicated may be contained in the ‘Notices’ section of the contract. In the absence of any such section or specific requirement for a particular method of communication, it is always advisable to communicate the breach to the breaching party in writing.
What is the Nature of the Breach?Depending on the nature of the breach of contract, it may be that the contract will simply be allowed to continue as usual. For example, if you have a contract with a broadband service provider and your service is interrupted for a few days, there is likely already to be a provision in the service agreement that allows for service interruptions which means that this will not make the contract void.
Are You Asking for Damages?In some situations it will merely be a matter of notifying the breaching party who will then either admit or deny the breach. If the breach is admitted, damages may be payable to the aggrieved party. If the breach is denied, it may be appropriate to go to mediation or arbitration, if the issue cannot be settled amicably.
Was it the Other Party’s Fault?Force Majeure is a contract law term that, simply put, provides a ‘get out clause’ for parties to a contract in the event that the contract is breached because of something out of their reasonable control. If this is a specific clause in the contract, then ‘force majeure’ will apply. In its most basic terms, force majeure seeks to exclude acts of terrorism, war, strikes, lockouts, floods, acts of God etc from being seen to be the fault of a party to a contract. Contracts sometimes contain a further clause that stipulates the timeframe within which one party should inform the other of the force majeure event, and the means by which they should do this. In the case of a genuine force majeure event, neither party will be liable for the failure of the other to perform under the contract.
If a contract does not contain a ‘force majeure’ clause, or if the contract is agreed orally, an event that is outside either party’s control may ‘frustrate’ the contract under the legal doctrine of ‘Frustration.’ Again, neither party will be liable for breaches which occur otherwise than within their reasonable control.