Breach of contract
A breach of contract may arise in the following circumstances:
- failure to perform contractual obligations (an actual breach);
- defective performance of contractual obligations (an actual breach); or
- refusal or inability to fulfil contractual obligations due in the future (an anticipatory breach).
Broadly speaking, there are two types of breaches: one that allows a party to sue for damages and another that discharges a party from further performance under the contract (in addition to a claim for damages). The burden of proof of repudiation is on the party who alleges it.i Materiality of breach
The following events allow the innocent party to terminate the contract and treat himself or herself as discharged from further liability under the contract:
- the guilty party has shown a clear unwillingness to satisfy the contract ('renunciation');
- performance has been rendered impossible by the guilty party's breach;
- there has been a breach of an important term of the contract ('condition'); or
- there has been a breach of an intermediate (or innominate) term that '[goes] to the root of the contract'.
A contractual term may be classified as a condition if it has been so categorised by statute or by judicial decision, or if the parties have so agreed in their contract. Where the failure of performance is a breach of a term classified as a warranty (i.e., a non-essential term), it will merely entitle the non-breaching party a right to damages. In contrast, where the failure of performance is a breach of an intermediate term, the non-breaching party will only be entitled to terminate the contract (in addition to claiming damages) if the breach in question deprived him or her of 'substantially the whole benefit' of the contract. Notably, the effect of the breach will only be determined after the breach.ii Right of election
A repudiatory breach normally allows the innocent party the right to claim damages for the breach and the right to elect to:
- bring the contract to an end, in other words, terminate the contract; or
- accept the breach and treat the contract as continuing, in other words, affirm the contract.
If the innocent party elects to terminate the contract and sue for damages, he or she is discharged from further performance. For the defaulting party, his or her primary obligation to perform is replaced by a secondary obligation to pay damages for the loss resulting from failure to perform the primary obligation.
Where a repudiatory breach takes place, in order to terminate the contract, 'the innocent party must clearly and unequivocally accept the repudiation.'