Breach of Contract and How you Should Manage it

Introduction

Breach of contract often occurs and varies in severity, but they don’t need to slow a business down if handled well. What is a breach? It is a failure to meet contractual obligations or a violation of the agreed terms. It could be late payment, failure to deliver goods or not performing the agreed-upon service. How serious this failure is, determines how you should approach the breach

Material Versus Non-Material Breaches

The severity of the breach needs to match the consequences and though there are two main categories, there is range within each category that determines the damages one can request form the courts.

If the basis of the contract depends on the other party meeting a need and they have not, you’re likely dealing with a material breach and we can ask a court to order them to perform as agreed. This is called specific performance and simply means the other party is forced to perform part of the contract. Other options include terminating the contract or requesting contractual damages to restore yourself to your position before the contract.

If the basis of the contract was achieved but not as agreed, such as when services or delivery are delayed, you likely are dealing with a non-material breach of contract, sometimes called a minor breach. Another example would be achieving the goal of the contract but not in the way agreed, such as a contractor using different materials to the ones agreed.

Here we can insist that the other party mitigate any loss caused by requesting damages. It’s important to note that one generally cannot rely on the other party’s non-material breach to withhold their own performance in a contract.

In South Africa, the basic requirements for breach of contract claims are that you prove that there was a contractual agreement, that a party breached the obligations of that contract and that such breach caused loss that can be claimed for.

Remaining Proactive

Those unfortunate possibilities aside, we need to mention that contracts are entered into specifically to avoid future uncertainty. They ought to exist to avoid the possibility of breach. At their core, contracts should manage the relationship of the parties, record their understanding of their obligations and outline what should happen if they fail to meet those obligations.

A good contract will include the possibility of mediation, negotiation and penalties before the options of litigation and termination are explored. There are many other clauses that can be included to ensure the smooth operation of your business, including warranty clauses, penalty clauses and more. The terms you choose in your contracts should meet the unique needs of your business.

Contact an attorney at SchoemanLaw for your commercial and contractual needs by visiting our website at www.schoemanlaw.co.za