Commercial Law

All You Need To Know About Breach Of Commercial Contracts

Breaches of contract. Expensive, time-consuming, and something most businesses can do without. They are one of the most common reasons businesses turn to litigation funding. And because contract law permeates over so much of the day to day workings of a business, breaches are inevitable – what matters is the consequences of the breach to your business reputation and bottom line.

Differences in the way we use and interpret language means there is always a risk of contractual terms being misinterpreted.  Also, parties’ needs and expectations can change over time, resulting in contractual breaches occurring.

This guide is designed to provide you with a basic guide to the legal aspects of breach of contract and the actions you can take if you find one of your commercial contracts has been dishonoured.

How is a contract formed?

For a contract to be effective, four key elements must be present:

  • offer
  • acceptance
  • consideration, and
  • the intention to create legal relations (this is generally assumed in commercial relationships)

Contrary to popular belief, verbal contracts can be legally binding, but the terms are harder to prove.

What is a breach of contract?

A breach of contract is failure by one party to perform any term of a contract, written or oral, without a legitimate legal excuse. 

A breach can include:

  • failure to meet payment terms
  • failure to make payment for services or goods rendered
  • not delivering correct goods or materials
  • delivering inadequate/low quality materials or goods
  • not completing a job on time

What are the remedies available for breach of contract?

The main remedies available for breach of contract are:

  • Damages -damages aim to put the innocent party in the position it would have been had the contract been properly performed. Put another way, damages are designed to compensate for the loss suffered by the innocent party in so far as that loss has been caused by the breach of contract. The level of damages may also be pre-determined by the parties, for example liquidated damages.
  • Specific performance - specific performance compels a party in breach to perform its obligations and may be granted in circumstances where damages or an injunction would be an inadequate remedy.
  • Injunctions -where a party is acting, or about to act, in a way prohibited by the relevant contract (for example through use of confidential information), the court may grant an injunction to prevent the party in breach from that action.

How are breaches of contract are resolved?

Breaches of contract are generally settled outside of court through negotiations or alternative dispute resolution methods such as adjudication (for construction contract disputes), mediation or arbitration.

Litigation is expensive, time-consuming and stressful which is why few parties to a breach of contract allow a dispute to reach this stage unresolved.

To find a solicitor who specialises in commercial contract disputes, search through Solicitors Guru today.

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